<PAGE>
June 30, 1998
PHOENIX
SEMIANNUAL REPORT
PHOENIX DUFF & PHELPS
INSTITUTIONAL MUTUAL
FUNDS
- - CORE EQUITY PORTFOLIO
- - GROWTH STOCK PORTFOLIO
- - REAL ESTATE EQUITY
SECURITIES PORTFOLIO
- - BALANCED PORTFOLIO
- - MANAGED BOND PORTFOLIO
U.S. GOVERNMENT
- - SECURITIES PORTFOLIO
- - ENHANCED RESERVES
PORTFOLIO
- - MONEY MARKET PORTFOLIO
[LOGO] PHOENIX
INVESTMENT PARTNERS
<PAGE>
Mutual Funds are not insured by the FDIC; are
not deposits or other obligations
of a bank and are not guaranteed by a bank; and
are subject to investment
risks, including possible loss of the principal
invested.
<PAGE>
TABLE OF CONTENTS
- ------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Core Equity Portfolio............................ 1
Growth Stock Portfolio........................... 7
Real Estate Equity Securities Portfolio.......... 13
Balanced Portfolio............................... 19
Managed Bond Portfolio........................... 28
U.S. Government Securities Portfolio............. 36
Enhanced Reserves Portfolio...................... 41
Money Market Portfolio........................... 47
Notes to Financial Statements.................... 52
</TABLE>
<PAGE>
CORE EQUITY PORTFOLIO
- ----------------------------------------------------
INVESTMENT OBJECTIVE
Phoenix Institutional Core Equity Portfolio is appropriate for investors
seeking long-term appreciation of capital by investing in a diversified
portfolio of common stocks.
INVESTMENT ADVISER'S REPORT
Since inception on April 14, 1998, the Institutional Core Equity Portfolio
Class X shares had a total return of 1.40% and Class Y shares returned 1.30%
through June 30, 1998. The S&P 500 Index had a total return of 1.62% during this
same time period.* All performance figures assume reinvestment of dividends and
are net of fees.
An overweighting in retail stocks, such as Dayton-Hudson and Home Depot, aided
our performance during the second quarter of 1998 as a strong domestic economy
and a lack of international exposure proved attractive to investors looking for
strong fundamentals and minimal Asian exposure.
Our underweighting in technology hurt performance during the quarter, although
the stocks in this sector which we held--Cisco, Microsoft and Compaq--were
strong performers. The Portfolio's overweighting in oil service negatively
impacted performance during the second quarter as the ongoing decline in oil
prices dragged oil service stocks down as well. We continue to anticipate an
improvement in oil prices in the second half of 1998, which should help
stimulate a recovery in oil service equities. Financial stocks as a whole
underperformed during the second quarter of 1998, but our overweighted position
proved to be a plus as American Express and Chase Manhattan offset weakness in
Washington Mutual.
Lower quality stocks, as measured by Standard & Poor's common stock rankings,
outperformed our high quality style in the first four months of 1998 due to a
strong domestic economy and reduced concerns about the impact of weakness in
Asia. However, signs of slowing domestic growth and renewed concerns about the
lingering impact of weakness in Asia resurfaced during the later part of the
second quarter, causing investors to seek greater consistency of earnings growth
in higher quality companies during May and June. This resulted in a weakening of
cyclical stocks late in the second quarter.
OUTLOOK
We anticipate corporate profit growth will decelerate in the second half of
1998 as a slower U.S. economy and the impact of Asia and possibly, the GM
strike, tempers domestic growth. We believe this will cause investors to
continue to seek large-capitalization, high quality stocks that can demonstrate
consistent earnings growth in a slowing, less certain economic environment.
* The S&P 500 Index is an unmanaged, commonly used measure of stock market
performance. The Index is not available for direct investment.
1
<PAGE>
Core Equity Portfolio
- --------------------------------------------------------------------------------
INVESTMENTS AT JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C>
COMMON STOCKS--98.9%
AEROSPACE/DEFENSE--2.3%
Raytheon Co. Class A...................................... 2,575 $ 148,384
-------------
BANKS (MAJOR REGIONAL)--2.1%
Fleet Financial Group, Inc................................ 1,600 133,600
-------------
BANKS (MONEY CENTER)--7.4%
Chase Manhattan Corp...................................... 2,800 211,400
NationsBank Corp.......................................... 3,500 267,750
-------------
479,150
-------------
BEVERAGES (NON-ALCOHOLIC)--2.9%
PepsiCo, Inc.............................................. 4,475 184,314
-------------
CHEMICALS--2.9%
Du Pont (E.I.) de Nemours & Co............................ 2,550 190,294
-------------
COMPUTERS (HARDWARE)--2.5%
Compaq Computer Corp...................................... 5,775 163,866
-------------
COMPUTERS (NETWORKING)--3.1%
Cisco Systems, Inc. (b)................................... 2,175 200,236
-------------
COMPUTERS (SOFTWARE & SERVICES)--1.1%
Microsoft Corp. (b)....................................... 675 73,153
-------------
CONSUMER FINANCE--3.1%
Beneficial Corp........................................... 1,325 202,973
-------------
ELECTRICAL EQUIPMENT--2.6%
Emerson Electric Co....................................... 2,800 169,050
-------------
ENTERTAINMENT--2.4%
Walt Disney Co. (The)..................................... 1,475 154,967
-------------
FINANCIAL (DIVERSIFIED)--3.1%
American Express Co....................................... 1,090 124,260
Fannie Mae................................................ 1,300 78,975
-------------
203,235
-------------
FUNERAL SERVICES & RELATED--4.7%
Service Corporation International......................... 7,150 306,556
-------------
HEALTH CARE (DIVERSIFIED)--3.4%
American Home Products Corp............................... 4,250 219,938
-------------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--4.3%
Lilly (Eli) & Co.......................................... 1,800 118,913
Schering-Plough Corp...................................... 1,725 158,053
-------------
276,966
-------------
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C>
HEALTH CARE (LONG TERM CARE)--3.7%
HEALTHSOUTH Corp. (b)..................................... 8,850 $ 236,184
-------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--3.6%
Medtronic, Inc............................................ 3,700 235,875
-------------
INSURANCE (MULTI-LINE)--1.9%
Hartford Financial Services Group, Inc.................... 1,100 125,813
-------------
INSURANCE (PROPERTY-CASUALTY)--2.4%
AllState Corp............................................. 1,725 157,945
-------------
LODGING--HOTELS--2.0%
Marriott International, Inc. Class A...................... 3,900 126,263
-------------
MANUFACTURING (DIVERSIFIED)--2.7%
Corning, Inc.............................................. 5,075 176,356
-------------
OFFICE EQUIPMENT & SUPPLIES--2.9%
Pitney Bowes, Inc......................................... 3,875 186,484
-------------
OIL & GAS (DRILLING & EQUIPMENT)--2.6%
Cooper Cameron Corp. (b).................................. 1,150 58,650
Halliburton Co............................................ 2,450 109,178
-------------
167,828
-------------
PERSONAL CARE--3.1%
Avon Products, Inc........................................ 2,550 197,625
-------------
RESTAURANTS--3.0%
McDonald's Corp........................................... 2,825 194,925
-------------
RETAIL (BUILDING SUPPLIES)--4.5%
Home Depot, Inc........................................... 1,450 120,441
Masco Corp................................................ 2,850 172,425
-------------
292,866
-------------
RETAIL (DEPARTMENT STORES)--3.3%
Federated Department Stores, Inc. (b)..................... 4,000 215,250
-------------
RETAIL (FOOD CHAINS)--2.0%
Albertson's, Inc.......................................... 2,550 132,122
-------------
RETAIL (GENERAL MERCHANDISE)--3.2%
Dayton Hudson Corp........................................ 4,250 206,125
-------------
SAVINGS & LOAN COMPANIES--3.9%
Washington Mutual, Inc.................................... 5,850 254,109
-------------
SERVICES (DATA PROCESSING)--3.1%
First Data Corp........................................... 5,950 198,209
-------------
</TABLE>
2 See Notes to Financial Statements
<PAGE>
CORE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE)--3.1%
WorldCom, Inc. (b)........................................ 4,200 $ 203,438
-------------
TOTAL COMMON STOCKS
(Identified cost $6,293,008)..................................................... 6,414,099
-------------
TOTAL LONG-TERM INVESTMENTS--98.9%
(Identified cost $6,293,008)..................................................... 6,414,099
-------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
(000) VALUE
--------- -------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--0.3%
MONEY MARKET MUTUAL FUNDS--0.3%
State Street Global Advisors Seven Seas Money Market Fund
(5.42% seven day effective yield)....................... $16 $ 15,923
-------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $15,923)........................................................ 15,923
-------------
TOTAL INVESTMENTS--99.2%
(Identified cost $6,308,931)..................................................... 6,430,022(a)
Cash and receivables, less liabilities--0.8%..................................... 52,518
-------------
NET ASSETS--100.0%................................................................. $ 6,482,540
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $266,204 and gross
depreciation of $145,113 for federal income tax purposes. At June 30, 1998,
the aggregate cost of securities for federal income tax purposes was
$6,308,931.
(b) Non-income producing.
See Notes to Financial Statements 3
<PAGE>
Core Equity Portfolio
- ------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $6,308,931) $ 6,430,022
Receivables
Investment securities sold 24,027
Dividends and interest 3,681
Receivable from adviser 44,009
Prepaid expenses 47,867
-----------
Total assets 6,549,606
-----------
LIABILITIES
Payables
Investment securities purchased 34,681
Transfer agent fee 6,100
Financial agent fee 2,337
Trustees' fee 824
Distribution fee 21
Accrued expenses 23,103
-----------
Total liabilities 67,066
-----------
NET ASSETS $ 6,482,540
-----------
-----------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 6,350,148
Undistributed net investment income 6,097
Accumulated net realized gain 5,204
Net unrealized appreciation 121,091
-----------
NET ASSETS $ 6,482,540
-----------
-----------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $6,381,128) 629,401
Net asset value and offering price per share $10.14
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $101,412) 10,007
Net asset value and offering price per share $10.13
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION APRIL 14, 1998 TO JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 8,555
Interest 2,863
----------
Total investment income 11,418
----------
EXPENSES
Investment advisory fee 4,053
Distribution fee--Class Y 52
Financial agent fee 10,151
Registration 20,482
Transfer agent 9,100
Printing 7,812
Professional 5,181
Trustees 3,293
Custodian 1,648
Miscellaneous 3,705
----------
Total expenses 65,477
Less expenses borne by investment adviser (60,156)
----------
Net expenses 5,321
----------
NET INVESTMENT INCOME 6,097
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities 5,204
Net change in unrealized appreciation (depreciation) on
investments 121,091
----------
NET GAIN ON INVESTMENTS 126,295
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 132,392
----------
----------
</TABLE>
4 See Notes to Financial Statements
<PAGE>
CORE EQUITY PORTFOLIO
- ------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
APRIL 14, 1998 TO
JUNE 30, 1998
(UNAUDITED)
-----------------
<S> <C>
FROM OPERATIONS
Net investment income $ 6,097
Net realized gain 5,204
Net change in unrealized appreciation (depreciation) 121,091
-----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 132,392
-----------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (629,401 shares) 6,250,074
Net asset value of shares issued from reinvestment of distributions (0 shares) --
Cost of shares repurchased (0 shares) --
-----------------
Total 6,250,074
-----------------
CLASS Y
Proceeds from sales of shares (10,007 shares) 100,074
Net asset value of shares issued from reinvestment of distributions (0 shares) --
Cost of shares repurchased (0 shares) --
-----------------
Total 100,074
-----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS 6,350,148
-----------------
NET INCREASE IN NET ASSETS 6,482,540
NET ASSETS
Beginning of period 0
-----------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $6,097) $ 6,482,540
-----------------
-----------------
</TABLE>
See Notes to Financial Statements 5
<PAGE>
Core Equity Portfolio
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X CLASS Y
------------ ------------
FROM FROM
INCEPTION INCEPTION
4/14/98 TO 4/14/98 TO
6/30/98 6/30/98
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
Net asset value, beginning of period $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01(1)(5) 0.01(2)(5)
Net realized and unrealized gain 0.13 0.12
------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.14 0.13
------ ------
LESS DISTRIBUTIONS
Dividends from net investment income -- --
Dividends from net realized gains -- --
------ ------
TOTAL DISTRIBUTIONS -- --
------ ------
Change in net asset value 0.14 0.13
------ ------
NET ASSET VALUE, END OF PERIOD $10.14 $10.13
------ ------
------ ------
Total return 1.40%(4) 1.30%(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $6,381 $101
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.65%(3) 0.90%(3)
Net investment income 0.76%(3) 0.64%(3)
Portfolio turnover 22%(4) 22%(4)
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.14.
(2) Includes reimbursement of operating expenses by investment adviser of $0.14.
(3) Annualized.
(4) Not annualized.
(5) Computed using average shares outstanding.
6 See Notes to Financial Statements
<PAGE>
GROWTH STOCK PORTFOLIO
- ----------------------------------------------------
INVESTOR PROFILE
The Growth Stock Portfolio is appropriate for investors seeking long-term
appreciation through investments in common stocks.
INVESTMENT ADVISER'S REPORT
For the six-month reporting period that ended June 30, 1998, Class X shares
earned 16.73% and Class Y shares earned 16.57% compared with a return of 17.75%
for the S&P 500 Index.* All performance figures assume reinvestment of dividends
and are net of fees.
After posting impressive double-digit gains in the first quarter, U.S.
equities markets were mixed during the second quarter as investors refocused
their attention on Asia and the prospects for slower corporate profit growth. As
we have stated for some time, investors' preference for liquidity and earnings
stability has led to strong demand and a willingness to pay significant premiums
(higher P/E multiples) for large-cap growth companies, which are noted for these
positive attributes. Although many of these blue-chip stocks look expensive by
most historical valuation measures, we do not foresee any major catalyst that
would sway investor sentiment toward smaller-cap issues over the near term.
Stocks that performed well in the second quarter focused on the
upbeat/confident U.S. consumer. While the news from the Pacific Rim continued to
be gloomy, economic growth in the United States was exceptionally robust. A rosy
employment picture, record home sales, and the "wealth effect" from this long
bull market all contributed to a dramatic increase in consumer spending. Retail,
auto, entertainment and other consumer-oriented stocks led the market. At the
same time, excess capacity and slackened Asian demand led to poor performance
among basic commodity industries, such as oil, steel, precious metals and paper.
Our decision to overweight the Portfolio in health-care and technology stocks
contributed positively to performance. Strong stock selection within the
communication services sector (most notably Airtouch Communications and
Ericsson), the consumer staples group (specifically Liberty Media Group and
Safeway), and the health-care area (Watson Pharmaceutical and Medtronic) also
boosted overall results. A major negative to performance was our exposure to the
poorly performing energy group. While we have modestly reduced our position in
this volatile sector for the near term, longer-term fundamentals for energy
services companies remain positive in our opinion, and we would add to these
stocks if crude oil prices begin to show real signs of stabilization.
OUTLOOK
Moving into the second half of 1998, we have not made any dramatic revisions
to our outlook for the U.S. economy and financial markets. Although recent
economic data has been rather strong, we believe that growth will slow later
this year as the impact of the "Asian flu" begins to take hold in the United
States. In fact, corporate earnings growth has already begun decelerating, and
we expect this trend to continue over the next several quarters. While we are
not forecasting the end to this long bull market or the start of the next
recession, we would not be surprised to see the stock market take a
well-deserved rest over the near term.
With regard to stock selection, we remain strongly biased toward large-cap
growth companies that have limited Asian exposure and whose earnings are less
economically sensitive. The Portfolio is currently overweighted (versus the S&P
500 Index) in such traditional growth sectors as health-care, technology, and to
a lesser degree, communication services. Because of the present speculative
merger and acquisition environment in the financial services arena, we believe
that some stocks in this group have become overbought and have elected to
selectively take profits in this sector. Given their value and cyclical
orientation, the Portfolio also has little or no exposure to basic materials,
transportation, and utilities.
* The S&P 500 Index is an unmanaged, commonly used measure of stock market
performance. The Index is not available for direct investment.
7
<PAGE>
Growth Stock Portfolio
- ------------------------------------------------------
INVESTMENTS AT JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
-------- --------------
<S> <C> <C> <C>
COMMON STOCKS--94.4%
AEROSPACE/DEFENSE--1.0%
Boeing Co........................ 14,200 $ 632,787
--------------
BANKS (MAJOR REGIONAL)--4.2%
Banc One Corp.................... 10,670 595,519
BankBoston Corp.................. 8,700 483,937
Mellon Bank Corp................. 7,300 508,262
U.S. Bancorp..................... 27,200 1,169,600
--------------
2,757,318
--------------
BANKS (MONEY CENTER)--4.0%
BankAmerica Corp................. 9,900 855,731
Citicorp......................... 3,100 462,675
First Chicago NBD Corp........... 7,100 629,237
NationsBank Corp................. 8,700 665,550
--------------
2,613,193
--------------
BROADCASTING (TELEVISION, RADIO & CABLE)--4.1%
CBS Corp......................... 32,100 1,019,175
Capstar Broadcasting Corp. Class
A (b).......................... 5,800 145,725
Chancellor Media Corp. (b)....... 14,500 720,016
Clear Channel Communications,
Inc. (b)....................... 7,300 796,612
--------------
2,681,528
--------------
CHEMICALS (DIVERSIFIED)--1.7%
Monsanto Co...................... 20,000 1,117,500
--------------
COMPUTERS (HARDWARE)--5.8%
Compaq Computer Corp............. 20,500 581,688
International Business Machines
Corp........................... 28,500 3,272,156
--------------
3,853,844
--------------
COMPUTERS (NETWORKING)--1.1%
Cisco Systems, Inc. (b).......... 7,850 722,691
--------------
COMPUTERS (PERIPHERALS)--0.8%
EMC Corp. (b).................... 11,100 497,419
--------------
COMPUTERS (SOFTWARE & SERVICES)--8.0%
America Online, Inc. (b)......... 3,600 381,600
BMC Software, Inc. (b)........... 18,700 971,231
Comdisco, Inc.................... 9,100 172,900
Computer Associates
International, Inc............. 22,400 1,244,600
Compuware Corp. (b).............. 24,700 1,262,788
Edwards (J.D.) & Co. (b)......... 10,900 468,019
Microsoft Corp. (b).............. 4,000 433,500
Sterling Commerce, Inc. (b)...... 7,400 358,900
--------------
5,293,538
--------------
<CAPTION>
SHARES VALUE
-------- --------------
<S> <C> <C> <C>
CONSUMER FINANCE--1.9%
Household International, Inc..... 9,500 $ 472,625
MBNA Corp........................ 24,300 801,900
--------------
1,274,525
--------------
CONTAINERS (METAL & GLASS)--0.5%
Owens-Illinois, Inc. (b)......... 8,100 362,475
--------------
DISTRIBUTORS (FOOD & HEALTH)--1.3%
Cardinal Health, Inc............. 9,200 862,500
--------------
ELECTRICAL EQUIPMENT--1.6%
General Electric Co.............. 11,800 1,073,800
--------------
ELECTRONICS (INSTRUMENTATION)--0.4%
Linear Technology Corp........... 4,500 271,406
--------------
ELECTRONICS (SEMICONDUCTORS)--1.3%
Intel Corp....................... 11,700 867,263
--------------
ENTERTAINMENT--2.6%
Liberty Media Group (b).......... 28,550 1,108,097
Walt Disney Co. (The)............ 5,700 598,856
--------------
1,706,953
--------------
FINANCIAL (DIVERSIFIED)--1.5%
Freddie Mac...................... 21,000 988,313
--------------
HEALTH CARE (DIVERSIFIED)--4.9%
Bristol-Myers Squibb Co.......... 14,700 1,689,581
Warner-Lambert Co................ 22,300 1,547,063
--------------
3,236,644
--------------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--5.5%
Pfizer, Inc...................... 12,800 1,391,200
Schering-Plough Corp............. 15,800 1,447,675
Watson Pharmaceuticals, Inc.
(b)............................ 17,300 807,694
--------------
3,646,569
--------------
HEALTH CARE (HOSPITAL MANAGEMENT)--2.3%
HBO & Co......................... 42,400 1,494,600
--------------
HEALTH CARE (LONG TERM CARE)--1.3%
HEALTHSOUTH Corp. (b)............ 32,100 856,669
--------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--1.5%
Medtronic, Inc................... 15,600 994,500
--------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--2.2%
Colgate-Palmolive Co............. 9,300 818,400
Procter & Gamble Co.............. 7,300 664,756
--------------
1,483,156
--------------
</TABLE>
8 See Notes to Financial Statements
<PAGE>
GROWTH STOCK PORTFOLIO
- ------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-------- --------------
<S> <C> <C> <C>
INSURANCE (LIFE/HEALTH)--0.5%
UNUM Corp........................ 5,600 $ 310,800
--------------
INSURANCE (MULTI-LINE)--2.4%
American International Group,
Inc............................ 6,400 934,400
ReliaStar Financial Corp......... 6,800 326,400
Travelers Group, Inc............. 5,299 321,252
--------------
1,582,052
--------------
INSURANCE (PROPERTY-CASUALTY)--0.9%
AllState Corp.................... 6,500 595,156
--------------
MANUFACTURING (DIVERSIFIED)--2.5%
Thermo Electron Corp. (b)........ 8,700 297,431
Tyco International Ltd........... 21,100 1,329,300
--------------
1,626,731
--------------
OIL & GAS (DRILLING & EQUIPMENT)--4.0%
Cooper Cameron Corp. (b)......... 5,200 265,200
Diamond Offshore Drilling,
Inc............................ 4,900 196,000
Global Industries Ltd. (b)....... 8,000 135,000
Halliburton Co................... 13,300 592,681
Schlumberger Ltd................. 14,900 1,017,856
Transocean Offshore, Inc......... 9,900 440,550
--------------
2,647,287
--------------
OIL & GAS (REFINING & MARKETING)--1.3%
Tosco Corp....................... 28,600 840,125
--------------
RETAIL (BUILDING SUPPLIES)--1.6%
Home Depot, Inc.................. 13,100 1,088,119
--------------
RETAIL (COMPUTERS & ELECTRONICS)--0.4%
Tandy Corp....................... 4,900 260,006
--------------
RETAIL (DISCOUNTERS)--1.0%
Consolidated Stores Corp. (b).... 17,400 630,750
--------------
RETAIL (DRUG STORES)--3.9%
CVS Corp......................... 32,600 1,269,363
Rite Aid Corp.................... 35,600 1,337,225
--------------
2,606,588
--------------
RETAIL (FOOD CHAINS)--3.3%
Meyer (Fred), Inc. (b)........... 11,490 488,325
Safeway, Inc. (b)................ 41,500 1,688,531
--------------
2,176,856
--------------
<CAPTION>
SHARES VALUE
-------- --------------
<S> <C> <C> <C>
RETAIL (GENERAL MERCHANDISE)--3.0%
Borders Group, Inc. (b).......... 14,000 $ 518,000
Sears, Roebuck & Co.............. 10,100 616,731
Staples, Inc. (b)................ 28,900 836,294
--------------
1,971,025
--------------
RETAIL (SPECIALTY-APPAREL)--0.7%
TJX Companies, Inc............... 19,000 458,375
--------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--3.0%
AirTouch Communications, Inc.
(b)............................ 33,500 1,957,656
--------------
TELECOMMUNICATIONS (LONG DISTANCE)--4.5%
AT&T Corp........................ 32,900 1,879,413
MCI Communications Corp.......... 18,200 1,057,875
--------------
2,937,288
--------------
WASTE MANAGEMENT--1.9%
USA Waste Services, Inc. (b)..... 25,100 1,239,313
--------------
TOTAL COMMON STOCKS
(Identified cost $50,994,921)......................... 62,217,318
--------------
FOREIGN COMMON STOCKS--4.6%
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.6%
Elan Corp. PLC Sponsored ADR
(Ireland) (b).................. 6,100 392,306
--------------
HOUSEHOLD FURN. & APPLIANCES--2.5%
Royal Philips Electronics NV NY
Registered Shares
(Netherlands).................. 19,300 1,640,500
--------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--0.5%
Telefonaktiebolaget LM Ericsson
Sponsored ADR (Sweden)......... 11,900 340,637
--------------
TELEPHONE--1.0%
Telecomunicacoes Brasileiras SA
Sponsored ADR (Brazil)......... 6,200 676,963
--------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $2,829,937).......................... 3,050,406
--------------
TOTAL INVESTMENTS--99.0%
(Identified cost $53,824,858)......................... 65,267,724(a)
Cash and receivables, less liabilities--1.0%.......... 683,565
--------------
NET ASSETS--100.0%...................................... $ 65,951,289
--------------
--------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $12,814,711 and gross
depreciation of $1,403,040 for federal income tax purposes. At June 30,
1998, the aggregate cost of securities for federal income tax purposes was
$53,856,053.
(b) Non-income producing.
See Notes to Financial Statements 9
<PAGE>
Growth Stock Portfolio
- ------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $53,824,858) $ 65,267,724
Receivables
Investment securities sold 5,599,097
Dividends and interest 44,456
Fund shares sold 12,197
-------------
Total assets 70,923,474
-------------
LIABILITIES
Payables
Custodian 4,390,654
Investment securities purchased 455,785
Fund shares repurchased 37,711
Investment advisory fee 19,299
Transfer agent fee 7,847
Financial agent fee 5,096
Distribution fee 4,056
Trustees' fee 888
Accrued expenses 50,849
-------------
Total liabilities 4,972,185
-------------
NET ASSETS $ 65,951,289
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 48,428,395
Undistributed net investment loss (197,179)
Accumulated net realized gain 6,277,207
Net unrealized appreciation 11,442,866
-------------
NET ASSETS $ 65,951,289
-------------
-------------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $45,675,534) 1,259,517
Net asset value and offering price per share $36.26
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $20,275,755) 558,795
Net asset value and offering price per share $36.28
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 258,420
Interest 46,922
-------------
Total investment income 305,342
-------------
EXPENSES
Investment advisory fee 198,402
Distribution fee--Class Y 23,716
Financial agent fee 30,746
Transfer agent 22,059
Registration 21,277
Professional 13,003
Custodian 12,965
Trustees 6,550
Printing 3,480
Miscellaneous 9,876
-------------
Total expenses 342,074
Less expenses borne by investment adviser (86,151)
-------------
Net expenses 255,923
-------------
NET INVESTMENT INCOME 49,419
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities 6,404,584
Net change in unrealized appreciation (depreciation) on
investments 3,819,380
-------------
NET GAIN ON INVESTMENTS 10,223,964
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 10,273,383
-------------
-------------
</TABLE>
10 See Notes to Financial Statements
<PAGE>
GROWTH STOCK PORTFOLIO
- ------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------- -------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income $ 49,419 $ 497,966
Net realized gain 6,404,584 27,922,676
Net change in unrealized appreciation (depreciation) 3,819,380 (8,683,661)
-------------- -------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 10,273,383 19,736,981
-------------- -------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income--Class X (195,161) (454,672)
Net investment income--Class Y (51,437) (109,947)
Net realized gains--Class X (3,934,452) (27,451,354)
Net realized gains--Class Y (1,555,461) (8,523,137)
In excess of net investment income--Class X -- (20,589)
In excess of net investment income--Class Y -- (4,979)
-------------- -------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (5,736,511) (36,564,678)
-------------- -------------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (57,693 and 186,821 shares, respectively) 2,122,113 8,631,368
Net asset value of shares issued from reinvestment of distributions (116,360 and
760,770 shares, respectively) 4,129,610 27,925,887
Cost of shares repurchased (224,898 and 1,381,997 shares, respectively) (8,144,392) (61,947,854)
-------------- -------------------
Total (1,892,669) (25,390,599)
-------------- -------------------
CLASS Y
Proceeds from sales of shares (7,169 and 34,497 shares, respectively) 254,569 1,706,016
Net asset value of shares issued from reinvestment of distributions (45,252 and
235,940 shares, respectively) 1,606,895 8,638,038
Cost of shares repurchased (14,320 and 234,220 shares, respectively) (535,850) (11,860,743)
-------------- -------------------
Total 1,325,614 (1,516,689)
-------------- -------------------
DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS (567,055) (26,907,288)
-------------- -------------------
NET INCREASE (DECREASE) IN NET ASSETS 3,969,817 (43,734,985)
NET ASSETS
Beginning of period 61,981,472 105,716,457
-------------- -------------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) OF ($197,179)
AND $0, RESPECTIVELY) $ 65,951,289 $ 61,981,472
-------------- -------------------
-------------- -------------------
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Growth Stock Portfolio
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X
-------------------------------------------------
SIX MONTHS FROM
ENDED INCEPTION
6/30/98 YEAR ENDED 3/1/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $33.85 $47.42 $48.01
INCOME FROM INVESTMENT OPERATIONS(6)
Net investment income 0.04(4) 0.31(4)(7) 0.34(4)
Net realized and unrealized gain 5.54 10.60 4.89
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 5.58 10.91 5.23
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.15) (0.39) (0.30)
Dividends from net realized gains (3.02) (24.07)(3) (5.52)
In excess of net investment income -- (0.02) --
------ ------ ------
TOTAL DISTRIBUTIONS (3.17) (24.48) (5.82)
------ ------ ------
Change in net asset value 2.41 (13.57) (0.59)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $36.26 $33.85 $47.42
------ ------ ------
------ ------ ------
Total return 16.73%(2) 25.76% 10.71%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $45,676 $44,350 $82,739
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.70%(1) 0.70% 0.70%(1)
Net investment income 0.22%(1) 0.64% 0.65%(1)
Portfolio turnover 55%(2) 148% 99%(2)
<CAPTION>
CLASS Y
-------------------------------------------------
FROM
SIX MONTHS INCEPTION
ENDED 6/30/98 YEAR ENDED 3/1/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $33.86 $47.43 $48.01
INCOME FROM INVESTMENT OPERATIONS(6)
Net investment income (0.01)(5) 0.18(5)(7) 0.18(5)
Net realized and unrealized gain 5.55 10.59 4.95
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 5.54 10.77 5.13
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.10) (0.31) (0.19)
Dividends from net realized gains (3.02) (24.02)(3) (5.52)
In excess of net investment income -- (0.01) --
------ ------ ------
TOTAL DISTRIBUTIONS (3.12) (24.34) (5.71)
------ ------ ------
Change in net asset value 2.42 (13.57) (0.58)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $36.28 $33.86 $47.43
------ ------ ------
------ ------ ------
Total return 16.57%(2) 25.46% 10.48%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $20,276 $17,631 $22,978
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.95% (1) 0.95% 0.95%(1)
Net investment income (loss) (0.03%)(1) 0.39% 0.39%(1)
Portfolio turnover 55% (2) 148% 99%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes amounts distributed as income and redesignated for tax purposes.
(4) Includes reimbursement of operating expenses by investment adviser of $0.05,
$0.08 and $0.04, respectively.
(5) Includes reimbursement of operating expenses by investment adviser of $0.05,
$0.08 and $0.04, respectively.
(6) Distributions are made in accordance with the prospectus; however, class
level per share income from investment operations may vary from anticipated
results depending on the timing of share purchases and redemptions.
(7) Computed using average shares outstanding.
12 See Notes to Financial Statements
<PAGE>
REAL ESTATE EQUITY SECURITIES PORTFOLIO
- ------------------------------------------------------------
INVESTOR PROFILE
The Real Estate Equity Securities Portfolio is appropriate for investors
seeking portfolio diversification and investment in real assets. The Portfolio's
objective is to emphasize appreciation and current yield equally. Real estate
investing involves certain risks, including refinancing, economic impact on the
industry, changes in the value of properties owned, dependency on management
skills and liquidity risks similar to those linked with small company investing.
INVESTMENT ADVISER'S REPORT
For the six months ended June 30, 1998, Class X shares returned -6.68% and
Class Y shares provided a return of -6.79% compared with a return of -5.04% for
the NAREIT Equity Total Return Index.* All performance figures assume
reinvestment of dividends and are net of fees.
At the end of the first six months of 1998 the REIT (real estate investment
trusts) sector, while exhibiting strong earnings growth and good fundamentals,
continued to lag the price strength seen in the broader equity market. The S&P
500 Index** was up 17.75% and the Russell 2000 Index gained 4.93%.*** In
comparison, REITs at the end of the first six months, according to the NAREIT
Equity Total Return Index, had a loss of -5.04%. In June the NAREIT Equity Total
Return Index fell -0.68%, while the S&P 500 rose 4.07%.
First-quarter numbers indicated average growth in Funds From Operations
(similar to a price-to-earnings ratio) above 13%, meeting and exceeding
expectations. However, investors have been focused on the following factors: (1)
continued high volume of equity and debt offerings that are running ahead of
demand; (2) new record highs in the broader equity market, which has attracted
capital away from the REIT sector to highly valued "growth" companies; (3) lower
expected growth earnings rates; (4) the uncertainty about modifications to the
REIT structure proposed by the Administration and being worked through Congress;
(5) higher prices paid for acquisitions and overbuilding concerns in the hotel,
office, and industrial sectors; and (6) defensive investors' preference for
utilities.
As REITs experience price weakness, the number of equity offerings should
decline. In addition, the number of management teams that implement equity
repurchase programs is likely to increase. We also expect to see an increase in
the recycling of capital as management teams sell "fully valued" real estate
holdings to reinvest the capital in those that offer greater upside.
OUTLOOK
We continue to believe the broader market will moderate this year, leaving
investors looking for diversification and defensive investments supported by
dividend yield. Historically, REITs have demonstrated a low and declining
correlation with the broader equity market, which ultimately provides a
diversification benefit. Secondly, the dividend yield of the NAREIT Equity Total
Return Index was 6.13% at the end of June. This compares favorably to a yield of
4.3% for the S&P Utilities Index**** and a yield of 5.45% on a 10-year Treasury
bond at month end. We believe REITs offer excellent dividend protection and
believe a large number of REITs will increase their dividends this year at the
rate of their earnings growth. Many REITs are paying out only 60-65% of their
cash flow in dividends right now and approaching minimum payout levels. Should
Funds From Operations growth slow to 8-9% from current levels, we would still
find that an attractive rate, given the consensus 1998 earnings growth estimate
for the S&P 500 is less than 7%.
Concerns regarding modifications to the REIT tax structure by Congress are
overblown, in our opinion. Only four equity REITs will have to
13
<PAGE>
REAL ESTATE EQUITY SECURITIES PORTFOLIO
- ------------------------------------------------------------
adjust their future real estate acquisition structure to match that of the 179
other equity REITs if required to de-link real estate operations from ownership.
Cap rates on acquisitions have come down as the real estate cycle across most
sectors has moved closer to equilibrium. In certain sub-
markets (the Southeast, for example) and certain sectors (rural, extended stay,
or mid- to low-priced hotels, for example), we have seen overbuilding and have
avoided these areas in the portfolio. However, as a percentage of existing real
estate, we are not concerned about development and believe that overall, it is
warranted.
* The NAREIT (National Association of Real Estate Investment Trusts) Equity
Total Return Index is an unmanaged, commonly used measure of the real
estate equity market. The Index is not available for direct investment.
** The S&P 500 Index is an unmanaged, commonly used measure of common stock
total return performance. The Index is not available for direct
investment.
*** The Russell 2000 Index is an unmanaged, commonly used measure of small
company total return performance. The Index is not available for direct
investment.
**** The S&P Utilities Index is a capitalization-weighted index of all stocks
designed to measure the performance of the utility sector of the S&P 500
Index. The Index is not available for direct investment.
14
<PAGE>
Real Estate Equity Securities Portfolio
- ------------------------------------------------------
INVESTMENTS AT JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
COMMON STOCKS--97.1%
REAL ESTATE INVESTMENT TRUSTS--96.6%
COMMERCIAL--25.0%
OFFICE/INDUSTRIAL--25.0%
Boston Properties, Inc.................................... 28,300 $ 976,350
First Industrial Realty Trust, Inc........................ 18,500 588,531
Highwoods Properties, Inc................................. 18,900 610,706
Mack-Cali Realty Corp..................................... 20,000 687,500
Reckson Associates Realty Corp............................ 21,000 496,125
Weeks Corp................................................ 16,300 515,487
--------------
3,874,699
--------------
DIVERSIFIED--19.2%
Colonial Properties Trust................................. 6,300 195,300
Cresent Real Estate....................................... 32,900 1,106,263
Spieker Properties, Inc................................... 26,000 1,007,500
Vornado Realty Trust...................................... 17,000 674,687
--------------
2,983,750
--------------
HEALTH CARE--3.4%
Nationwide Health Properties, Inc......................... 22,200 530,025
--------------
HOTELS--14.4%
Patriot American Hospitality, Inc......................... 29,300 701,369
Starwood Lodging Trust combined certificate............... 18,500 893,781
Sunstone Hotel Investors, Inc............................. 48,600 646,987
--------------
2,242,137
--------------
NET LEASE--4.4%
TriNet Corporate Realty Trust, Inc........................ 20,100 683,400
--------------
RESIDENTIAL--16.2%
APARTMENTS--16.2%
Avalon Bay Communities, Inc............................... 13,700 520,600
Centerpoint Properties Corp............................... 13,400 443,038
Equity Residential Properties Trust....................... 13,700 649,894
Essex Property Trust, Inc................................. 17,700 548,700
Great Lakes REIT, Inc..................................... 20,000 348,750
--------------
2,510,982
--------------
RETAIL--14.0%
COMMUNITY/NEIGHBORHOOD--3.0%
Developers Diversified Realty Corp........................ 12,000 470,250
--------------
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
FACTORY OUTLET--4.2%
Chelsea GCA Realty, Inc................................... 16,200 $ 648,000
--------------
REGIONAL MALLS--6.8%
Macerich Co. (The)........................................ 21,800 639,013
Urban Shopping Centers, Inc............................... 13,300 418,950
--------------
1,057,963
--------------
TOTAL RETAIL............................................................ 2,176,213
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Identified cost $14,413,941)......................................... 15,001,206
--------------
REAL ESTATE OPERATING COMPANIES--0.5%
COMMERCIAL--0.2%
OFFICE/INDUSTRIAL--0.2%
Reckson Services Industries, Inc. (b)..................... 10,080 33,390
--------------
DIVERSIFIED--0.3%
Cresent Operating, Inc. (b)............................... 2,500 42,266
--------------
TOTAL REAL ESTATE OPERATING COMPANIES
(Identified cost $62,277)............................................. 75,656
--------------
TOTAL COMMON STOCKS
(Identified cost $14,476,218)......................................... 15,076,862
--------------
<CAPTION>
PAR
VALUE
(000)
----------
<S> <C> <C>
SHORT-TERM OBLIGATIONS--2.4%
REPURCHASE AGREEMENT--2.4%
State Street Bank & Trust Co. repurchase agreement, 4%,
dated 6/30/98 due 7/1/98, repurchase price $375,042
collateralized by U.S. Treasury Note 6.25%, 6/30/02,
market value $383,555................................... $375 375,000
--------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $375,000)............................................ 375,000
--------------
TOTAL INVESTMENTS--99.5%
(Identified cost $14,851,218)......................................... 15,451,862(a)
Cash and receivables, less liabilities--0.5%.......................... 77,602
--------------
NET ASSETS--100.0%...................................................... $ 15,529,464
--------------
--------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $927,369 and gross
depreciation of $326,725 for federal income tax purposes. At June 30, 1998,
the aggregate cost of securities for federal income tax purposes was
$14,851,218.
(b) Non-income producing.
See Notes to Financial Statements 15
<PAGE>
Real Estate Equity Securities Portfolio
- ------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $14,851,218) $ 15,451,862
Cash 419
Receivables
Dividends and interest 79,725
Receivable from adviser 54,546
-------------
Total assets 15,586,552
-------------
LIABILITIES
Payables
Transfer agent fee 6,934
Financial agent fee 3,247
Administration fee 1,865
Trustees' fee 888
Distribution fee 160
Accrued expenses 43,994
-------------
Total liabilities 57,088
-------------
NET ASSETS $ 15,529,464
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 14,746,111
Undistributed net investment income 139,848
Accumulated net realized gain 42,861
Net unrealized appreciation 600,644
-------------
NET ASSETS $ 15,529,464
-------------
-------------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $14,732,691) 1,341,736
Net asset value and offering price per share $10.98
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $796,773) 72,514
Net asset value and offering price per share $10.99
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 395,067
Interest 21,569
------------
Total investment income 416,636
------------
EXPENSES
Investment advisory fee 39,135
Distribution fee--Class Y 1,006
Financial agent fee 37,170
Administration fee 11,871
Registration 18,954
Transfer agent 18,885
Printing 15,076
Professional 12,380
Trustees 6,342
Custodian 3,595
Miscellaneous 24,436
------------
Total expenses 188,850
Less expenses borne by investment adviser (117,179)
------------
Net expenses 71,671
------------
NET INVESTMENT INCOME 344,965
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities 38,154
Net change in unrealized appreciation (depreciation) on
investments (1,499,442)
------------
NET LOSS ON INVESTMENTS (1,461,288)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($ 1,116,323)
------------
------------
</TABLE>
16 See Notes to Financial Statements
<PAGE>
REAL ESTATE EQUITY SECURITIES PORTFOLIO
- ------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FROM INCEPTION
JUNE 30, 1998 MAY 1, 1997 TO
(UNAUDITED) DECEMBER 31, 1997
-------------- -------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income $ 344,965 $ 362,738
Net realized gain 38,154 46,037
Net change in unrealized appreciation (depreciation) (1,499,442) 2,100,086
-------------- -------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (1,116,323) 2,508,861
-------------- -------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income--Class X (238,536) (356,617)
Net investment income--Class Y (11,333) (3,409)
In excess of net investment income--Class X -- (40,923)
In excess of net investment income--Class Y -- (407)
-------------- -------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (249,869) (401,356)
-------------- -------------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (0 and 1,285,529 shares, respectively) -- 13,305,591
Net asset value of shares issued from reinvestment of distributions (21,741 and
34,466 shares, respectively) 238,531 397,538
Cost of shares repurchased (0 and 0 shares, respectively) -- --
-------------- -------------------
Total 238,531 13,703,129
-------------- -------------------
CLASS Y
Proceeds from sales of shares (0 and 71,152 shares, respectively) -- 831,346
Net asset value of shares issued from reinvestment of distributions (1,031 and
331 shares, respectively) 11,330 3,815
Cost of shares repurchased (0 and 0 shares, respectively) -- --
-------------- -------------------
Total 11,330 835,161
-------------- -------------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS 249,861 14,538,290
-------------- -------------------
NET INCREASE (DECREASE) IN NET ASSETS (1,116,331) 16,645,795
NET ASSETS
Beginning of period 16,645,795 0
-------------- -------------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $139,848 AND $44,752,
RESPECTIVELY) $ 15,529,464 $ 16,645,795
-------------- -------------------
-------------- -------------------
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Real Estate Equity Securities Portfolio
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X
--------------------------------
SIX MONTHS
ENDED FROM INCEPTION
6/30/98 5/1/97 TO
(UNAUDITED) 12/31/97
------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 11.96 $ 10.00
INCOME FROM INVESTMENT OPERATIONS(5)
Net investment income 0.19(3) 0.39(3)
Net realized and unrealized gain (0.99) 1.96
------ ------
TOTAL FROM INVESTMENT OPERATIONS (0.80) 2.35
------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.18) (0.35)
Dividends from net realized gains -- (0.04)
------ ------
TOTAL DISTRIBUTIONS (0.18) (0.39)
------ ------
Change in net asset value (0.98) 1.96
------ ------
NET ASSET VALUE, END OF PERIOD $ 10.98 $ 11.96
------ ------
------ ------
Total return (6.68%)(2) 23.70%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $14,733 $15,791
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.90%(1) 0.90%(1)
Net investment income(5) 4.37%(1) 4.75%(1)
Portfolio turnover 3%(2) 4%(2)
<CAPTION>
CLASS Y
--------------------------------
SIX MONTHS
ENDED FROM INCEPTION
6/30/98 5/1/97 TO
(UNAUDITED) 12/31/97
------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 11.96 $ 10.00
INCOME FROM INVESTMENT OPERATIONS(5)
Net investment income 0.18(4) 0.34(4)
Net realized and unrealized gain (0.99) 2.00
------ ------
TOTAL FROM INVESTMENT OPERATIONS (0.81) 2.34
------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.16) (0.34)
Dividends from net realized gains -- (0.04)
------ ------
TOTAL DISTRIBUTIONS (0.16) (0.38)
------ ------
Change in net asset value (0.97) 1.96
------ ------
NET ASSET VALUE, END OF PERIOD $ 10.99 $ 11.96
------ ------
------ ------
Total return (6.79%)(2) 23.55%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $797 $855
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 1.15%(1) 1.15%(1)
Net investment income(5) 4.17%(1) 4.51%(1)
Portfolio turnover 3%(2) 4%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.08
and $0.16, respectively.
(4) Includes reimbursement of operating expenses by investment adviser of $0.08
and $0.16, respectively.
(5) Distributions are made in accordance with the prospectus; however, class
level per share income from investment operations may vary from anticipated
results depending on the timing of share purchases and redemptions.
18 See Notes to Financial Statements
<PAGE>
BALANCED PORTFOLIO
- ----------------------------------------------------
INVESTOR PROFILE
The Balanced Portfolio is appropriate for investors seeking long-term
appreciation through investments in a combination of stocks and bonds, including
foreign debt and high-yield securities. Investors should note that foreign
investing involves special risks, such as currency fluctuations, less public
disclosure, and economic and political risks, and high-yield securities have
more risk than higher quality, lower yielding issues.
INVESTMENT ADVISER'S REPORT
For the six-month reporting period that ended June 30, 1998, Class X shares
earned 10.64% and Class Y shares earned 10.50% compared with a return of 11.29%
for a composite Balanced Index.* All performance figures assume reinvestment of
dividends and are net of fees.
Although the "Asian crisis" continued, the domestic picture was quite
positive. Employment numbers remained robust, home sales were strong, and the
"wealth effect" from this long bull market all contributed to a dramatic
increase in consumer spending. Retail, auto, entertainment and other
consumer-oriented stocks led the market. At the same time, excess capacity and
slackened Asian demand led to poor performance among basic commodity industries,
such as oil, steel, precious metals and paper.
An overweighted position in health-care and technology stocks contributed
positively to performance as did strong stock selection within the communication
services group, the consumer staples, and the health-care area. Our exposure to
the energy group detracted from performance. We have reduced our position in
this sector, but consider the longer-term fundamentals very positive.
The bond portion of the portfolio was negatively affected by our overweighting
in the credit-sensitive sectors of the market, such as our exposure to
emerging-market debt and high-yield issues. Non-agency mortgage-backed
securities were also poor performers as prepayments continued to accelerate. Our
commercial mortgage-backed holdings and taxable municipals were positive
contributors to performance.
We continued to reduce our position in U.S. Treasuries, reallocating funds to
more attractively valued sectors of the market. We have maintained a
well-diversified and relatively conservative position in emerging-market debt.
We are currently underweighted in Asia and overweighted in Latin America,
primarily in Brazil, Venezuela, and Panama.
OUTLOOK
We believe that growth will slow later this year as the impact of the "Asian
flu" begins to take hold in the United States. While we are not forecasting the
end to this long bull market or the start of the next recession, we would not be
surprised to see the stock market take a well-deserved rest over the near term.
With regard to stock selection, we remain strongly biased toward large-cap
growth companies that have limited Asian exposure and whose earnings are less
economically sensitive, such as health-care, technology, and to a lesser degree,
communication services. Because of the present speculative merger and
acquisition environment in the financial services arena, we believe that some
stocks in this group have become overbought and have elected to selectively take
profits in this sector. Given their value and cyclical orientation, the
Portfolio also has little or no exposure to basic materials, transportation, and
utilities.
We believe the bond portion of the Portfolio is well-structured to take
advantage of current market conditions. Although yields remain at historically
low levels, we believe the non-traditional sectors represent excellent value. We
will continue to emphasize credit-sensitive sectors, given continued low
inflation and strong demand for dollar-denominated securities from global
investors.
* The composite Balanced Index is comprised of 55% S&P 500 Index, 35% Lehman
Brothers Aggregate Index, and 10% Treasury bills. The Index is not available
for direct investment.
19
<PAGE>
Balanced Portfolio
- ------------------------------------------------------
INVESTMENTS AT JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--0.6%
U.S. TREASURY NOTES--0.6%
U.S. Treasury Notes 5.50%, 05/31/03....................... Aaa $ 150 $ 149,896
-------------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $149,563)....................................................... 149,896
-------------
AGENCY MORTGAGE-BACKED SECURITIES--1.1%
GNMA 6.50%, 6/15/28....................................... Aaa 272 271,156
-------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $269,627)....................................................... 271,156
-------------
MUNICIPAL BONDS--9.3%
CALIFORNIA--2.6%
California State Department Water Resources Series S
Revenue 5%, 12/1/29..................................... Aa 60 58,350
Los Angeles County Public Works Lease Revenue PJ V-B
5.125%, 12/1/29......................................... Aaa 90 88,706
Long Beach Pension Obligation Revenue Taxable 6.87%,
9/1/06.................................................. Aaa 100 104,500
San Bernardino County Pension Obligation Revenue Taxable
6.87%, 8/1/08........................................... Aaa 50 52,437
San Bernardino County Pension Obligation Revenue Taxable
6.94%, 8/1/09........................................... Aaa 135 142,594
Sonoma County Pension Obligation Taxable 6.625%, 6/1/13... Aaa 65 66,950
Ventura County Pension Obligation Taxable 6.54%,
11/1/05................................................. Aaa 125 128,125
-------------
641,662
-------------
FLORIDA--1.1%
Florida State Department of Transportation Series A 5%,
7/1/27.................................................. Aa 75 73,219
University of Miami Exchangeable Series A Revenue Taxable
7.65%, 4/1/20........................................... Aaa 180 192,150
-------------
265,369
-------------
MASSACHUSETTS--0.5%
Massachusetts State Port Authority Revenue Taxable 6.05%,
7/1/02.................................................. Aa 60 60,000
Massachusetts State Water Authority Series D 5%, 8/1/24... Aaa 75 72,937
-------------
132,937
-------------
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
NEW YORK--0.8%
Metropolitan Transportation Authority 5%, 4/1/23.......... Aaa $ 75 $ 72,937
New York State Taxable Series C 6.35%, 3/1/07............. Aaa 120 121,650
-------------
194,587
-------------
PENNSYLVANIA--0.3%
Pittsburgh Water & Sewer Authority 5.05%, 9/1/25.......... Aaa 75 73,688
-------------
TEXAS--0.4%
Houston Water & Sewer System Revenue Refunding, Jr. Lien,
Series D 5%, 12/1/25.................................... Aaa 90 87,863
-------------
VIRGINIA--3.2%
Newport News Series B Taxable 7.05%, 1/15/25.............. Aa 750 768,750
-------------
WASHINGTON--0.4%
Washington State Series E 5%, 7/1/22...................... Aa 90 88,200
-------------
TOTAL MUNICIPAL BONDS
(Identified cost $2,192,312)..................................................... 2,253,056
-------------
ASSET-BACKED SECURITIES--3.7%
AESOP Funding II LLC 97-1, A2 144A 6.40%, 10/20/03 (c).... Aaa 250 254,219
Capita Equipment Receivables Trust 97-1, B 6.45%,
8/15/02................................................. Aa 120 121,537
Chase Credit Card Master Trust 97-2, A 6.30%, 4/15/03..... Aaa 150 151,695
Fleetwood Credit Corp. Grantor Trust 96-B, A 6.90%,
3/15/12................................................. Aaa 124 125,375
Green Tree Financial Corp. 96-2, M1 7.60%, 4/15/27........ Aa 100 105,094
Wings Commercial Loan Master Trust I 98-AA, A2X 144A
5.918%, 3/20/98 (c)..................................... Aaa 150 150,000
-------------
TOTAL ASSET-BACKED SECURITIES
(Identified cost $894,554)....................................................... 907,920
-------------
CORPORATE BONDS--6.0%
BANKS (MAJOR REGIONAL)--0.5%
First Union Corp. 6.40%, 4/1/08........................... A 130 130,487
-------------
COMPUTERS (SOFTWARE & SERVICES)--0.8%
Computer Associates International 144A 6.375%, 4/15/05
(c)..................................................... Baa 130 130,812
Equifax, Inc. 6.30%, 7/1/05............................... A 55 54,588
-------------
185,400
-------------
CONSUMER FINANCE--0.5%
Ford Motor Credit Co. 6%, 1/14/03......................... A 120 119,250
-------------
</TABLE>
20 See Notes to Financial Statements
<PAGE>
BALANCED PORTFOLIO
- ------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
HEALTH CARE (DIVERSIFIED)--1.3%
McKesson Corp. 6.40%, 3/1/08.............................. A $ 125 $ 124,531
Tenet Healthcare Corp. 144A 8.125%, 12/1/08 (c)........... Ba 190 191,425
-------------
315,956
-------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.5%
Boston Scientific Corp. 6.625%, 3/15/05................... Baa 125 124,219
-------------
INVESTMENT BANKING/BROKERAGE--0.5%
Merrill Lynch & Co., Inc. 6%, 2/12/03..................... Aa 125 124,531
-------------
MANUFACTURING (DIVERSIFIED)--0.3%
Tyco International Group
6.375%, 6/15/05......................................... Baa 75 75,094
-------------
RETAIL (FOOD CHAINS)--0.5%
Meyer (Fred), Inc. 7.45%, 3/1/08.......................... Ba 125 125,781
-------------
TELEPHONE--0.5%
Century Telephone Enterprises Series F 6.30%, 1/15/08..... Baa 125 123,750
-------------
TRUCKERS & MARINE--0.4%
Teekay Shipping Corp. 8.32%, 2/1/08....................... Ba 100 103,250
-------------
TRUCKS & PARTS--0.2%
Cummins Engine, Inc. 6.45%, 3/1/05........................ Baa 45 45,394
-------------
TOTAL CORPORATE BONDS
(Identified cost $1,466,694)..................................................... 1,473,112
-------------
NON-AGENCY MORTGAGE BACKED SECURITIES--7.8%
CS First Boston Mortgage Securities Corp. 95-AE, W1 B
7.182%, 11/25/27........................................ AA-(d) 190 191,603
DLJ Mortgage Acceptance Corp. 96-CF1, A1B 144A 7.58%,
2/12/06 (c)............................................. Aaa 75 80,414
First Union Lehman Bros. 97-C1, B 7.43%, 4/18/07.......... Aa 275 292,875
G.E. Capital Mortgage Services, Inc. 98-8, 1M 7.25%,
5/25/26................................................. AA(d) 244 251,490
Nationslink Funding Corp. 96-1, B 7.69%, 12/20/05......... AA(d) 250 266,328
Navistar Financial Corp. Owner Trust 1998-A 5.94%,
11/15/98................................................ Aaa 146 146,165
Residential Asset Securitization Trust 96-A8, A1 8%,
12/25/26................................................ AAA(d) 117 117,773
Residential Funding Mortgage Securities I 96-S8, A4 6.75%,
3/25/11................................................. AAA(d) 272 274,954
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
NON-AGENCY MORTGAGE BACKED SECURITIES--CONTINUED
Structured Asset Securities Corp. 93-C1, B 6.60%,
10/25/24................................................ A+(d) $ 135 $ 134,125
Triangle Funding Ltd. 97-3A, 1B 144A 5.918%, 10/15/05
(c)(e).................................................. Aa 150 149,766
-------------
TOTAL NON-AGENCY MORTGAGE BACKED SECURITIES
(Identified cost $1,849,224)..................................................... 1,905,493
-------------
FOREIGN GOVERNMENT SECURITIES--8.7%
ARGENTINA--1.1%
Republic of Argentina Bearer FRB 6.625%, 3/31/05 (e)...... Ba 200 176,433
Republic of Argentina 9.75%, 9/19/27...................... Ba 90 83,362
-------------
259,795
-------------
BRAZIL--0.7%
Republic of Brazil NMB-L Bearer 6.688%, 4/15/09 (e)....... B 220 168,025
-------------
BULGARIA--0.4%
Republic of Bulgaria FLIRB Series A 2.25%, 7/28/12 (e).... B 155 95,712
-------------
COLOMBIA--0.7%
Republic of Colombia 7.25%, 2/15/03....................... Baa 190 179,194
-------------
CROATIA--0.7%
Croatia Series B 6.50%, 7/31/06 (e)....................... Baa 92 83,662
Croatia Series A 6.50%,
7/31/10 (e)............................................. Baa 105 91,350
-------------
175,012
-------------
ECUADOR--0.4%
Ecuador Bearer PDI Euro, PIK interest capitalization
6.625%, 2/27/15 (e)..................................... B 145 83,353
-------------
KOREA--0.7%
Republic of Korea 8.875%, 4/15/08......................... Ba 185 169,275
-------------
MEXICO--1.0%
United Mexican States Global Bond 11.50%, 5/15/26......... Ba 220 250,470
-------------
PANAMA--0.7%
Republic of Panama 8.875%, 9/30/27........................ Ba 185 174,871
-------------
</TABLE>
See Notes to Financial Statements 21
<PAGE>
BALANCED PORTFOLIO
- ------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
PERU--0.4%
Peru PDI 4%, 3/7/17 (e)................................... BB(d) $ 135 $ 83,531
-------------
POLAND--1.0%
Poland Bearer PDI 4%, 10/27/14 (e)........................ Baa 280 252,613
-------------
RUSSIA--0.6%
Russia IAN Series U.S. 144A 6.625%, 12/15/15 (c)(e)....... NR 135 75,094
Russia Principal Loan 6.625%, 12/15/20 (e)................ NR 140 66,500
-------------
141,594
-------------
VENEZUELA--0.3%
Republic of Venezuela 9.25%, 9/15/27...................... Ba 105 81,559
-------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $2,187,803)..................................................... 2,115,004
-------------
FOREIGN CORPORATE BONDS--1.9%
ARGENTINA--0.2%
Telefonica de Argentina 144A 9.125%, 5/7/08 (c)........... Ba 50 48,000
-------------
CHILE--0.7%
Compania Sud Americana de Vapores SA 7.375%, 12/08/03..... BBB(d) 30 29,100
Petropower I Funding Trust LLC 144A 7.36%, 2/15/14 (c).... BBB(d) 150 135,948
-------------
165,048
-------------
JAPAN--1.0%
IBJ Preferred Capital Co. LLC 144A 8.79%, 12/29/49
(c)(e).................................................. Baa 120 109,860
SB Treasury Co. LLC 144A 9.40%, 12/29/49 (c)(e)........... Baa 120 118,275
-------------
228,135
-------------
TOTAL FOREIGN CORPORATE BONDS
(Identified cost $467,975)....................................................... 441,183
-------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C> <C>
COMMON STOCKS--55.6%
AEROSPACE/DEFENSE--0.6%
Boeing Co................................................. 3,200 142,600
-------------
BANKS (MAJOR REGIONAL)--3.1%
Banc One Corp............................................. 2,390 133,392
BankBoston Corp........................................... 2,000 111,250
Mellon Bank Corp.......................................... 1,550 107,919
NationsBank Corp.......................................... 1,900 145,350
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
BANKS (MAJOR REGIONAL)--CONTINUED
U.S. Bancorp.............................................. 5,900 $ 253,700
-------------
751,611
-------------
BANKS (MONEY CENTER)--1.9%
BankAmerica Corp.......................................... 2,300 198,806
Citicorp.................................................. 800 119,400
NDB Bancorp, Inc.......................................... 1,600 141,800
-------------
460,006
-------------
BROADCASTING (TELEVISION, RADIO & CABLE)--2.4%
CBS Corp.................................................. 7,300 231,775
Capstar Broadcasting Corp. (b)............................ 1,200 30,150
Chancellor Media Corp. (b)................................ 3,200 158,900
Clear Channel Communications, Inc. (b).................... 1,600 174,600
-------------
595,425
-------------
CHEMICALS (DIVERSIFIED)--1.0%
Monsanto Co............................................... 4,400 245,850
-------------
COMPUTERS (HARDWARE)--3.4%
Compaq Computer Corp...................................... 5,000 141,875
International Business Machines Corp...................... 6,000 688,875
-------------
830,750
-------------
COMPUTERS (NETWORKING)--0.6%
Cisco Systems, Inc. (b)................................... 1,700 156,506
-------------
COMPUTERS (PERIPHERALS)--0.5%
EMC Corp. (b)............................................. 2,600 116,512
-------------
COMPUTERS (SOFTWARE & SERVICES)--4.7%
America Online, Inc. (b).................................. 700 74,200
BMC Software, Inc. (b).................................... 4,000 207,750
Comdisco, Inc............................................. 1,800 34,200
Computer Associates International, Inc.................... 4,800 266,700
Compuware Corp. (b)....................................... 5,300 270,962
Edwards (J.D.) & Co. (b).................................. 2,400 103,050
Microsoft Corp. (b)....................................... 900 97,537
Sterling Commerce, Inc. (b)............................... 1,600 77,600
-------------
1,131,999
-------------
CONSUMER FINANCE--1.1%
Household International, Inc.............................. 2,000 99,500
MBNA Corp................................................. 5,400 178,200
-------------
277,700
-------------
CONTAINERS (METAL & GLASS)--0.3%
Owens-Illinois, Inc. (b).................................. 1,800 80,550
-------------
DISTRIBUTORS (FOOD & HEALTH)--0.8%
Cardinal Health, Inc...................................... 2,050 192,187
-------------
ELECTRICAL EQUIPMENT--1.1%
General Electric Co....................................... 2,900 263,900
-------------
</TABLE>
22 See Notes to Financial Statements
<PAGE>
BALANCED PORTFOLIO
- ------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
ELECTRONICS (INSTRUMENTATION)--0.2%
Linear Technology Corp.................................... 1,000 $ 60,312
-------------
ELECTRONICS (SEMICONDUCTORS)--0.8%
Intel Corp................................................ 2,600 192,725
-------------
ENTERTAINMENT--0.5%
Walt Disney Co. (The)..................................... 1,200 126,075
-------------
FINANCIAL (DIVERSIFIED)--0.9%
Freddie Mac............................................... 4,600 216,487
-------------
HEALTH CARE (DIVERSIFIED)--6.1%
Bristol-Myers Squibb Co................................... 3,050 350,559
Pfizer, Inc............................................... 2,600 282,588
Schering-Plough Corp...................................... 3,500 320,687
Warner-Lambert Co......................................... 4,900 339,938
Watson Pharmaceuticals, Inc. (b).......................... 4,000 186,750
-------------
1,480,522
-------------
HEALTH CARE (HOSPITAL MANAGEMENT)--1.3%
HBO & Co.................................................. 9,000 317,250
-------------
HEALTH CARE (LONG TERM CARE)--0.8%
HEALTHSOUTH Corp.......................................... 7,000 186,813
-------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--1.0%
Medtronic, Inc............................................ 3,700 235,875
-------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--1.3%
Colgate-Palmolive Co...................................... 2,000 176,000
Procter & Gamble Co....................................... 1,600 145,700
-------------
321,700
-------------
INSURANCE (LIFE/HEALTH)--0.3%
UNUM Corp................................................. 1,200 66,600
-------------
INSURANCE (MULTI-LINE)--1.4%
American International Group, Inc......................... 1,400 204,400
ReliaStar Financial Corp.................................. 1,500 72,000
Travelers Group, Inc...................................... 1,100 66,688
-------------
343,088
-------------
INSURANCE--(PROPERTY-CASULTY)--0.5%
AllState Corp............................................. 1,450 132,766
-------------
MANUFACTURING (DIVERSIFIED)--1.4%
Thermo Electron Corp. (b)................................. 2,000 68,375
Tyco International Ltd.................................... 4,400 277,200
-------------
345,575
-------------
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
OIL & GAS (DRILLING & EQUIPMENT)--2.3%
Cooper Cameron Corp. (b).................................. 1,100 $ 56,100
Diamond Offshore Drilling, Inc............................ 1,100 44,000
Global Industry, Ltd (b).................................. 1,800 30,375
Halliburton Co............................................ 2,700 120,319
Schlumberger Ltd.......................................... 3,200 218,600
Transocean Offshore, Inc.................................. 2,100 93,450
-------------
562,844
-------------
OIL & GAS (REFINING & MARKETING)--0.8%
Tosco Corp................................................ 6,200 182,125
-------------
RETAIL (BUILDING SUPPLIES)--0.9%
Home Depot, Inc........................................... 2,700 224,269
-------------
RETAIL (COMPUTERS & ELECTRONICS)--0.2%
Tandy Corp................................................ 1,000 53,063
-------------
RETAIL (DISCOUNTERS)--0.6%
Consolidated Stores Corp. (b)............................. 3,800 137,750
-------------
RETAIL (DRUG STORES)--2.3%
CVS Corp.................................................. 7,000 272,563
Rite Aid Corp............................................. 7,700 289,231
-------------
561,794
-------------
RETAIL (FOOD CHAINS)--1.9%
Meyer (Fred), Inc. (b).................................... 2,490 105,825
Safeway, Inc. (b)......................................... 8,800 358,050
-------------
463,875
-------------
RETAIL (GENERAL MERCHANDISE)--1.7%
Borders Group, Inc. (b)................................... 2,900 107,300
Sears, Roebuck & Co....................................... 2,200 134,338
Staples, Inc. (b)......................................... 5,600 162,050
-------------
403,688
-------------
RETAIL (SPECIALTY--APPAREL)--0.4%
TJX Companies, Inc........................................ 3,900 94,088
-------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--2.7%
AirTouch Communications, Inc. (b)......................... 7,200 420,750
Tele-Comm Liberty Media Group............................. 6,250 242,578
-------------
663,328
-------------
TELECOMMUNICATIONS (LONG DISTANCE)--2.7%
AT&T Corp................................................. 7,400 422,725
MCI Communications Corp................................... 4,000 232,500
-------------
655,225
-------------
WASTE MANAGEMENT--1.1%
USA Waste Services, Inc. (b).............................. 5,400 266,625
-------------
TOTAL COMMON STOCKS
(Identified cost $11,407,592)................................................... 13,540,058
-------------
</TABLE>
See Notes to Financial Statements 23
<PAGE>
BALANCED PORTFOLIO
- ------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
FOREIGN COMMON STOCKS--2.9%
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.4%
Elan Corp. PLC Sponsored ADR (Ireland) (b)................ 1,400 $ 90,038
-------------
HOUSEHOLD FURN. & APPLIANCES--1.5%
Royal Philips Electonics NV NY Registered Shares
(Netherlands)........................................... 4,300 365,500
-------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--0.3%
Telefonaktiebolaget LM Ericsson Sponsored ADR (Sweden).... 2,600 74,425
-------------
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
TELEPHONE--0.7%
Telecomunicacoes Brasileiras SA Sponsored ADR (Brazil).... 1,600 $ 174,700
-------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $664,558)...................................................... 704,663
-------------
TOTAL INVESTMENTS--97.6%
(Identified cost $21,549,902)................................................... 23,761,541(a)
Cash and receivables, less liabilities--2.4%.................................... 593,021
-------------
NET ASSETS--100.0%................................................................ $ 24,354,562
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $2,637,095 and gross
depreciation of $425,456 for federal income tax purposes. At June 30, 1998,
the aggregate cost of securities for federal income tax purposes was
$21,549,902.
(b) Non-income producing.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 1998,
these securities amounted to a value of $1,443,813 or 5.9% of net assets.
(d) As rated by Standard & Poor's, Fitch or Duff & Phelps.
(e) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
24 See Notes to Financial Statements
<PAGE>
Balanced Portfolio
- ------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $21,549,902) $ 23,761,541
Receivables
Investment securities sold 4,174,635
Dividends and interest 166,823
Fund shares sold 9,689
Receivable from adviser 4,943
-------------
Total assets 28,117,631
-------------
LIABILITIES
Payables
Custodian 3,575,286
Investment securities purchased 105,836
Fund shares repurchased 23,670
Transfer agent fee 7,517
Financial agent fee 4,097
Distribution fee 1,391
Trustees' fee 888
Accrued expenses 44,384
-------------
Total liabilities 3,763,069
-------------
NET ASSETS $ 24,354,562
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 20,137,818
Undistributed net investment loss (5,119)
Accumulated net realized gain 2,010,224
Net unrealized appreciation 2,211,639
-------------
NET ASSETS $ 24,354,562
-------------
-------------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $17,475,765) 1,030,564
Net asset value and offering price per share $16.96
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $6,878,797) 405,265
Net asset value and offering price per share $16.97
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 427,737
Dividends 68,235
-----------
Total investment income 495,972
-----------
EXPENSES
Investment advisory fee 80,091
Distribution fee--Class Y 8,231
Financial agent fee 33,883
Transfer agent 20,726
Registration 21,410
Custodian 12,518
Professional 11,093
Trustees 6,550
Printing 3,463
Miscellaneous 8,836
-----------
Total expenses 206,801
Less expenses borne by investment adviser (103,779)
-----------
Net expenses 103,022
-----------
NET INVESTMENT INCOME 392,950
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities 2,010,859
Net change in unrealized appreciation (depreciation) on
investments 610,218
-----------
NET GAIN ON INVESTMENTS 2,621,077
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 3,014,027
-----------
-----------
</TABLE>
See Notes to Financial Statements 25
<PAGE>
BALANCED PORTFOLIO
- ------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
-------------- ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income $ 392,950 $ 1,026,700
Net realized gain 2,010,859 6,826,961
Net change in unrealized appreciation (depreciation) 610,218 (1,339,424)
-------------- ---------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 3,014,027 6,514,237
-------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income--Class X (309,829) (856,383)
Net investment income--Class Y (88,240) (212,027)
Net realized gains--Class X (829,098) (5,505,499)
Net realized gains--Class Y (257,784) (1,467,013)
In excess of net investment income--Class X -- (8,380)
In excess of net investment income--Class Y -- (2,075)
-------------- ---------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (1,484,951) (8,051,377)
-------------- ---------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (53,726 and 173,733 shares, respectively) 904,372 3,331,056
Net asset value of shares issued from reinvestment of distributions (67,955 and
386,169 shares, respectively) 1,138,928 6,370,247
Cost of shares repurchased (546,516 and 1,151,407 shares, respectively) (9,305,960) (21,859,715)
-------------- ---------------
Total (7,262,660) (12,158,412)
-------------- ---------------
CLASS Y
Proceeds from sales of shares (14,829 and 66,028 shares, respectively) 245,408 1,272,503
Net asset value of shares issued from reinvestment of distributions (20,633 and
101,742 shares, respectively) 346,023 1,681,177
Cost of shares repurchased (16,998 and 442,749 shares, respectively) (290,067) (8,628,236)
-------------- ---------------
Total 301,364 (5,674,556)
-------------- ---------------
DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS (6,961,296) (17,832,968)
-------------- ---------------
NET DECREASE IN NET ASSETS (5,432,220) (19,370,108)
NET ASSETS
Beginning of period 29,786,782 49,156,890
-------------- ---------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) OF ($5,119) AND $0,
RESPECTIVELY) $ 24,354,562 $29,786,782
-------------- ---------------
-------------- ---------------
</TABLE>
26 See Notes to Financial Statements
<PAGE>
Balanced Portfolio
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X
-------------------------------------------------
SIX MONTHS FROM
ENDED INCEPTION
6/30/98 YEAR ENDED 3/1/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $16.17 $18.15 $17.90
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.25(4) 0.54(3)(4) 0.51(4)
Net realized and unrealized gain 1.46 2.70 1.17
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 1.71 3.24 1.68
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.25) (0.65) (0.49)
Dividends from net realized gains (0.67) (4.56) (0.94)
In excess of net investment income -- (0.01) --
------ ------ ------
TOTAL DISTRIBUTIONS (0.92) (5.22) (1.43)
------ ------ ------
Change in net asset value 0.79 (1.98) 0.25
------ ------ ------
NET ASSET VALUE, END OF PERIOD $16.96 $16.17 $18.15
------ ------ ------
------ ------ ------
Total return 10.64%(2) 18.80% 9.43%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $17,476 $23,528 $37,147
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.65%(1) 0.65% 0.65%(1)
Net investment income 2.75%(1) 2.87% 3.02%(1)
Portfolio turnover 77%(2) 214% 209%(2)
<CAPTION>
CLASS Y
-------------------------------------------------
SIX MONTHS FROM
ENDED INCEPTION
6/30/98 YEAR ENDED 3/1/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $16.18 $18.15 $17.90
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.22(5) 0.49(3)(5) 0.46(5)
Net realized and unrealized gain 1.47 2.70 1.18
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 1.69 3.19 1.64
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.23) (0.59) (0.45)
Dividends from net realized gains (0.67) (4.56) (0.94)
In excess of net investment income -- (0.01) --
------ ------ ------
TOTAL DISTRIBUTIONS (0.90) (5.16) (1.39)
------ ------ ------
Change in net asset value 0.79 (1.97) 0.25
------ ------ ------
NET ASSET VALUE, END OF PERIOD $16.97 $16.18 $18.15
------ ------ ------
------ ------ ------
Total return 10.50%(2) 18.50% 9.20%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $6,879 $6,258 $12,010
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.90%(1) 0.90% 0.90%(1)
Net investment income 2.52%(1) 2.62% 2.78%(1)
Portfolio turnover 77%(2) 214% 209%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Computed using average shares outstanding.
(4) Includes reimbursement of operating expenses by investment adviser of $0.06,
$0.10 and $0.06, respectively.
(5) Includes reimbursement of operating expenses by investment adviser of $0.06,
$0.10 and $0.06, respectively.
See Notes to Financial Statements 27
<PAGE>
MANAGED BOND PORTFOLIO
- ----------------------------------------------------
INVESTOR PROFILE
The Managed Bond Portfolio is appropriate for investors seeking long-term
capital appreciation through investments in fixed-income securities, including
foreign and high-yield debt issues. Investors should note that foreign investing
involves special risks, such as currency fluctuations, less public disclosure,
and economic and political risks, and high-yield securities have more risk than
higher quality, lower yielding issues.
INVESTMENT ADVISER'S REPORT
For the six months ended June 30, 1998, Class X shares returned 2.70% and
Class Y shares returned 2.58% compared with a return of 3.93% for the Lehman
Brothers Aggregate Bond Index for the same period.* All performance figures
assume reinvestment of dividends and are net of fees.
Interest rates fell all along the yield curve during the second quarter as
concerns over events in Asia increased, driving yields from three-month Treasury
bills to 10-year notes below the Fed funds rate. Japan was the particular focus
of market skepticism as GDP continued to shrink and the yen came under pressure.
In mid-June the Fed intervened in the currency markets to purchase yen in an
attempt to halt appreciation of the dollar. This sent a strong signal to the
marketplace that the Fed was unlikely to raise rates, since that would increase
the value of the dollar relative to the yen and other Asian currencies.
For the third consecutive quarter, high quality issues outperformed low
quality bonds as the "flight to quality" continued. Government securities
outperformed corporate bonds as a whole, returning 2.63% versus 2.58%. Because
of their longer durations, industrial and Yankee issues produced better nominal
returns, 2.71% and 2.66%, respectively. Asset-backed and mortgage-backed
securities were the worst performing sectors, returning 1.85% and 1.72%,
respectively.
The primary factor contributing to the Portfolio's disappointing relative
performance was an overweighted position in the more credit-sensitive sectors of
the market, which continued to feel the repercussions of the Asian crisis. Our
allocation to emerging-market debt and corporate high-yield issues held back
performance during the quarter. Additionally, our holdings of non-agency
residential mortgage-backed issues proved to be a negative as prepayments
continued to accelerate and interest rates remained at historically low levels.
On the positive side, our position in commercial mortgage-backed securities and
taxable municipals again added to performance.
We continued to reduce our allocation to government obligations, from a high
of 34% during the fourth quarter of 1997 to approximately 13% currently. Our
decision was driven by the increasingly attractive valuations we found in almost
all of the non-Treasury sectors of the market. We have maintained a
well-diversified, relatively conservative stance within our foreign holdings.
The Portfolio is underweighted in Asia and overweighted in large Latin American
countries, such as Brazil, Venezuela and Panama, based on their improving
economic fundamentals and ongoing commitment to financial reform.
OUTLOOK
As we move into the second half of the year, we believe the Portfolio is
well-structured to take advantage of current market conditions. We will continue
to emphasize credit-sensitive sectors given their very favorable valuations.
This current volatility is an attribute of our opportunistic investment
approach, which focuses on identifying undervalued sectors with strong
fundamentals. Although yields remain at historically low levels, we believe the
non-traditional sectors represent excellent value against a background of low
inflation and continued strong demand for dollar-denominated securities from
global investors.
* The Lehman Brothers Aggregate Bond Index is an unmanaged, commonly used
measure of bond market performance. The Index is not available for direct
investment.
28
<PAGE>
Managed Bond Portfolio
- ------------------------------------------------------
INVESTMENTS AT JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
AGENCY MORTGAGE-BACKED SECURITIES--8.6%
FHLMC 8.50%, 8/15/20...................................... Aaa $ 132 $ 131,730
FHLMC 6.65%, 6/15/23...................................... Aaa 1,890 1,949,510
FNMA 6.75%, 6/25/20....................................... Aaa 1,920 1,925,916
GNMA 6.50%, 2/15/27 (f)................................... Aaa 2,247 2,245,120
GNMA 6.50%, 7/15/28 (g)................................... Aaa 1,900 1,892,875
-------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $7,898,659)..................................................... 8,145,151
-------------
MUNICIPAL BONDS--16.3%
CALIFORNIA--2.7%
California State Department Water Resources Series S
Revenue 5%, 12/1/29..................................... Aa 795 773,137
Oakland Series A Revenue Taxable 6.98%, 12/15/09 (f)...... Aaa 400 425,500
Orange County Pension Obligation Series A Taxable 7.67%,
9/1/09.................................................. Aaa 1,200 1,341,000
-------------
2,539,637
-------------
COLORADO--1.9%
Denver City and County School District 01 Pension Taxable
6.76%, 12/15/07......................................... Aaa 1,700 1,774,375
-------------
CONNECTICUT--1.2%
Mashantucket Pequot Series A Revenue Taxable 144A 6.91%,
9/1/12 (b).............................................. Aaa 1,100 1,149,500
-------------
FLORIDA--1.8%
Palm Beach County Solid Waste Industrial Development
Project B Revenue Taxable 10.50%, 1/1/11 (i)............ NR 920 717,600
University of Miami Exchangeable Series A Revenue Taxable
7.40%, 4/1/11........................................... Aaa 170 182,113
University of Miami Exchangeable Series A Revenue Taxable
7.65%, 4/1/20........................................... Aaa 725 773,938
-------------
1,673,651
-------------
ILLINOIS--2.8%
Illinois Educational Facilities Authority-Loyola
University Series A Revenue 5.70%, 7/1/24............... Aaa 1,000 1,043,750
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
ILLINOIS--CONTINUED
Illinois Educational Facilities Authority-Loyola
University Series A Revenue Taxable 7.84%, 7/1/24....... Aaa $ 1,425 $ 1,576,406
-------------
2,620,156
-------------
MASSACHUSETTS--1.8%
Massachusetts State Port Authority Series C Revenue
Taxable 6%, 7/1/01...................................... Aa 800 800,000
Massachusetts State Water Authority Series D Revenue 5%,
8/1/24.................................................. Aaa 900 875,250
-------------
1,675,250
-------------
NEVADA--0.9%
Nevada State Projects 66 & 67 Series A 5%, 5/15/28 (g).... Aaa 900 867,375
-------------
NEW YORK--0.9%
Long Island Power Authority New York Electrical Systems
Series A 5.125%, 12/1/22................................ Aaa 900 887,094
-------------
PENNSYLVANIA--1.3%
Pennsylvania Economic Development Financing Authority
Ponderosa Fibres Project Series B Revenue 9.50%, 1/1/12
(i)..................................................... NR 1,750 1,190,000
-------------
VIRGINIA--1.0%
Newport News Series B Taxable 7.05%, 1/15/25 (f).......... Aa 970 994,250
-------------
TOTAL MUNICIPAL BONDS
(Identified cost $15,393,812).................................................... 15,371,288
-------------
ASSET-BACKED SECURITIES--7.6%
Capita Equipment Receivables Trust 97-1B, 6.45%,
8/15/02................................................. Aa 600 607,687
Discover Card Master Trust I 98-4, A 5.75%, 10/16/03...... Aaa 1,000 995,313
First U.S.A. 98-1, C 6.50%, 1/18/06....................... NR 925 932,371
Navistar Financial Corp. Owner Trust 98-A, A 5.94%,
11/15/04................................................ Aaa 877 876,991
Premier Auto Trust 98-1, A4 5.70%, 10/6/02................ Aaa 800 797,625
Team Fleet Financing Corp. 98-2A, C 144A 6.53%, 7/25/02
(b)..................................................... BBB(c) 770 771,203
</TABLE>
See Notes to Financial Statements 29
<PAGE>
MANAGED BOND PORTFOLIO
- ------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES--CONTINUED
Wings Commercial Loan Master Trust I 98-AA, A2X 144A
5.918%, 3/20/08 (b)..................................... AAA(c) $ 2,200 $ 2,200,000
-------------
TOTAL ASSET-BACKED SECURITIES
(Identified cost $7,171,256)..................................................... 7,181,190
-------------
CORPORATE BONDS--9.5%
BANKS (MONEY CENTER)--1.5%
NationsBank Capital Trust III 6.206%, 1/15/27 (d)......... Aa 1,450 1,429,239
-------------
COMPUTERS (SOFTWARE & SERVICES)--1.5%
Computer Associates International 144A 6.375%, 4/15/05
(b)..................................................... Baa 1,000 1,006,250
Equifax, Inc. 6.30%, 7/1/05............................... A 400 397,000
-------------
1,403,250
-------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--1.1%
Boston Scientific Corp. 6.625%, 3/15/05................... Baa 1,000 993,750
-------------
INSURANCE (PROPERTY-CASUALTY)--0.6%
HSB Capital I B 6.566%, 7/15/27 (d)....................... BBB(c) 550 554,328
-------------
INVESTMENT BANKING/BROKERAGE--0.8%
Merrill Lynch & Co., Inc. 6%, 2/12/03..................... Aa 800 797,000
-------------
MANUFACTURING (DIVERSIFIED)--0.6%
Tyco International Group 6.375%, 6/15/05.................. Baa 600 600,750
-------------
RETAIL (FOOD CHAINS)--1.3%
Meyer (Fred), Inc. 7.45%, 3/1/08.......................... Ba 1,250 1,257,813
-------------
SERVICES (COMMERCIAL & CONSUMER)--0.1%
ARA Services, Inc. 10.625%, 8/1/00........................ Baa 107 114,891
-------------
TELEPHONE--2.0%
Global Crossing Holding Ltd. 144A 9.625%, 5/15/08 (b)..... NR 900 939,375
InterAmericas Communication Corp. 144A 14%, 10/27/07
(b)(h).................................................. NR 915 905,850
-------------
1,845,225
-------------
TOTAL CORPORATE BONDS
(Identified cost $8,926,246)..................................................... 8,996,246
-------------
NON-AGENCY MORTGAGE-BACKED SECURITIES--22.7%
American Business Financial Services 98-1, A4 6.695%,
9/25/20................................................. Aaa 1,700 1,711,687
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
NON-AGENCY MORTGAGE-BACKED SECURITIES--CONTINUED
CS First Boston Mortgage Securities Corp. 97-SPCE, D 144A
7.332%, 4/20/08 (b)..................................... BBB(c) $ 986 $ 997,401
ContiMortgage Home Equity Loan Trust 98-1B, 7.86%,
4/15/29................................................. Baa 1,576 1,600,625
Criimi Mae Trust I 96-C1, A2 144A 7.56%, 6/30/33 (b)...... BBB(c) 1,475 1,509,109
First Union-Lehman Brothers-Bank of America 98-C2, A2
6.56%, 11/18/08......................................... Aaa 1,200 1,228,500
G.E. Capital Mortgage Services, Inc. 96-8, 2A5 7.50%,
5/25/26................................................. AAA(c) 172 176,396
G.E. Capital Mortgage Services, Inc. 97-1, A14 7.50%,
3/25/27................................................. AAA(c) 1,720 1,744,725
GMAC Commercial Mortgage Securities, Inc. 97-C2, A3
6.566%, 11/15/07........................................ Aaa 900 918,563
General Growth Properties 97-1, C2 144A 6.806%, 11/15/07
(b)..................................................... A 1,700 1,735,594
Green Tree Financial Corp. 95-8, A2 6.15%, 12/15/26....... Aaa 37 37,051
Green Tree Financial Corp. 96-10, A3 6.16%, 11/15/28...... AAA(c) 680 681,275
Green Tree Financial Corp. 97-4, M1 7.22%, 2/15/29........ Aa 1,500 1,540,078
Residential Accredit Loans, Inc. 96-QS4, AI10 7.90%,
8/25/26................................................. AAA(c) 900 942,750
Residential Asset Securitization Trust 96-A8, A1 8%,
12/25/26................................................ AAA(c) 469 471,092
Residential Funding Mortgage 93-S25, M3 6.50%, 7/25/08.... BBB(c) 600 595,685
Resolution Trust Corp. 92-C3, B 9.05%, 8/25/23............ AA(c) 118 118,443
Ryland Mortgage Securities Corp. III 92-A, 1A 8.296%,
3/29/30................................................. A-(c) 571 579,610
Securitized Asset Sales 95-A, M 7.53%, 3/25/24............ Aa 1,930 1,996,141
Structured Asset Securities Corp. 95-C1, D 7.375%,
9/25/24................................................. BBB(c) 1,865 1,880,153
Structured Asset Securities Corp. 95-C4, D 7%, 6/25/26.... BBB(c) 1,000 1,001,875
-------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $21,023,477).................................................... 21,466,753
-------------
FOREIGN GOVERNMENT SECURITIES--15.8%
ARGENTINA--1.0%
Republic of Argentina 9.75%, 9/19/27...................... Ba 975 903,094
-------------
BRAZIL--2.9%
Republic of Brazil NMB-L RG 6.688%, 4/15/09 (d)........... B 1,530 1,168,537
</TABLE>
30 See Notes to Financial Statements
<PAGE>
MANAGED BOND PORTFOLIO
- ------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
BRAZIL--CONTINUED
Republic of Brazil C Bond, PIK interest capitalization 8%,
4/15/14 (d)............................................. B $ 2,100 $ 1,546,110
-------------
2,714,647
-------------
BULGARIA--0.7%
Bulgaria FLIRB Series A Bearer 2.25%, 7/28/12 (d)......... B 1,020 629,850
-------------
COLOMBIA--1.1%
Republic of Colombia 7.625%, 2/15/07...................... Baa 1,200 1,083,000
-------------
CROATIA--1.2%
Croatia Series B 6.50%, 7/31/06 (d)....................... Baa 619 560,539
Croatia Series A 6.50%, 7/31/10 (d)....................... Baa 665 578,550
-------------
1,139,089
-------------
ECUADOR--0.6%
Ecuador Bearer PDI Euro, PIK interest capitalization
6.625%, 2/27/15 (d)..................................... B 985 567,441
-------------
KOREA--1.3%
Republic of Korea 8.875%, 4/15/08......................... Ba 1,295 1,184,925
-------------
MEXICO--1.8%
United Mexican States Series W-B 6.25%, 12/31/19 (e)...... Ba 860 711,650
United Mexican States Global Bond 11.50%, 5/15/26......... Ba 905 1,030,342
-------------
1,741,992
-------------
PANAMA--1.2%
Republic of Panama 8.875%, 9/30/27........................ Ba 1,245 1,176,836
-------------
PERU--0.6%
Peru PDI 4%, 3/7/17 (d)................................... BB(c) 950 587,813
-------------
POLAND--1.1%
Poland Bearer PDI 4%, 10/27/14 (d)........................ Baa 1,170 1,055,559
-------------
RUSSIA--1.0%
Russia IAN Series U.S. 144A 6.625%, 12/15/15 (b)(d)....... NR 1,753 975,028
-------------
SOUTH AFRICA--0.7%
Republic of South Africa 8.50%, 6/23/17................... Baa 710 678,938
-------------
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
VENEZUELA--0.6%
Republic of Venezuela 9.25%, 9/15/27...................... Ba $ 690 $ 535,958
-------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $15,634,223).................................................... 14,974,170
-------------
FOREIGN CORPORATE BONDS--9.2%
ARGENTINA--0.9%
Telefonica de Argentina 144A 9.125%, 5/7/08 (b)........... Ba 885 849,600
-------------
CHILE--2.6%
Compania Sud Americana de Vapores SA 144A 7.375%, 12/8/03
(b)..................................................... BBB(c) 1,240 1,202,800
Petropower I Funding Trust 144A, 7.36%, 2/15/14 (b)....... BBB(c) 1,400 1,268,848
-------------
2,471,648
-------------
JAPAN--1.7%
IBJ Preferred Capital Co. LLC 144A 8.79%, 12/29/49
(b)(d).................................................. Baa 850 778,172
SB Treasury Co. LLC 144A 9.40%, 12/29/49 (b)(d)........... Baa 850 837,783
-------------
1,615,955
-------------
MEXICO--1.6%
Banco Nacional de Mexico 144A 7.57%, 12/31/00 (b)......... NR 1,500 1,510,312
-------------
VENEZUELA--2.4%
PDVSA Finance Ltd. 98-1C 144A 6.80%, 11/15/08 (b)......... A 2,000 1,950,160
Petrozuata Finance, Inc. 144A 8.22%, 4/1/17 (b)........... Baa 325 339,625
-------------
2,289,785
-------------
TOTAL FOREIGN CORPORATE BONDS
(Identified cost $8,920,867)..................................................... 8,737,300
-------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
PREFERRED STOCKS--3.9%
REITS--3.9%
Home Ownership Funding 2, Step-down Pfd. 144A 13.338%
(b)(j).................................................. 3,900 3,728,053
-------------
TOTAL PREFERRED STOCKS
(Identified cost $3,583,837)..................................................... 3,728,053
-------------
TOTAL LONG-TERM INVESTMENTS--93.6%
(Identified cost $88,552,377).................................................... 88,600,151
-------------
</TABLE>
See Notes to Financial Statements 31
<PAGE>
MANAGED BOND PORTFOLIO
- ------------------------------------------------------
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--8.1%
COMMERCIAL PAPER--8.1%
Albertson's, Inc. 5.55%, 7/1/98........................... A-1 $ 1,105 $ 1,105,000
Enterprise Funding Corp. 5.56%, 7/2/98.................... A-1+ 1,330 1,329,794
Cargill, Inc. 5.65%, 7/8/98............................... A-1+ 2,600 2,597,144
Corporate Asset Funding Co., Inc. 5.60%, 7/9/98........... A-1+ 2,595 2,591,771
-------------
7,623,709
-------------
<CAPTION>
VALUE
-------------
<S> <C> <C> <C>
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $7,623,709)..................................................... $ 7,623,709
-------------
TOTAL INVESTMENTS--101.7%
(Identified cost $96,176,086).................................................... 96,223,860(a)
Cash and receivables, less liabilities--(1.7%)................................... (1,642,048)
-------------
NET ASSETS--100.0%................................................................. $ 94,581,812
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $1,797,252 and gross
depreciation of $2,121,386 for federal income tax purposes. At June 30,
1998, the aggregate cost of securities for federal income tax purposes was
$96,547,994.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 1998,
these securities amounted to a value of $24,654,663 or 26.1% of net assets.
(c) As rated by Standard & Poor's, Fitch or Duff & Phelps.
(d) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
(e) Rights incorporated as a unit.
(f) All or a portion segregated as collateral.
(g) When issued.
(h) Warrants incorporated as a unit.
(i) Non-income producing.
(j) Dividend payments backed by FHLMC ("Freddie Mac") Participation
Certificates.
32 See Notes to Financial Statements
<PAGE>
Managed Bond Portfolio
- ------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $96,176,086) $ 96,223,860
Cash 49,142
Receivables
Interest 1,072,387
Fund shares sold 110,197
Investment securities sold 4,509
-------------
Total assets 97,460,095
-------------
LIABILITIES
Payables
Investment securities purchased 2,796,717
Investment advisory fee 10,465
Financial agent fee 8,137
Transfer agent fee 7,218
Distribution fee 1,466
Trustees' fee 888
Accrued expenses 53,392
-------------
Total liabilities 2,878,283
-------------
NET ASSETS $ 94,581,812
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 93,811,447
Undistributed net investment income 196,190
Accumulated net realized gain 526,401
Net unrealized appreciation 47,774
-------------
NET ASSETS $ 94,581,812
-------------
-------------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $87,435,032) 2,645,249
Net asset value and offering price per share $33.05
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $7,146,780) 216,205
Net asset value and offering price per share $33.06
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 3,062,071
Dividends 143,247
-----------
Total investment income 3,205,318
-----------
EXPENSES
Investment advisory fee 196,446
Distribution fee--Class Y 8,590
Financial agent fee 42,060
Registration 26,396
Transfer agent 21,715
Professional 14,673
Custodian 13,499
Trustees 6,550
Printing 3,474
Miscellaneous 5,255
-----------
Total expenses 338,658
Less expenses borne by investment adviser (91,371)
-----------
Net expenses 247,287
-----------
NET INVESTMENT INCOME 2,958,031
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities 574,862
Net change in unrealized appreciation (depreciation) on
investments (1,249,863)
-----------
NET LOSS ON INVESTMENTS (675,001)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 2,283,030
-----------
-----------
</TABLE>
See Notes to Financial Statements 33
<PAGE>
MANAGED BOND PORTFOLIO
- ------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------- -------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income $ 2,958,031 $ 5,402,757
Net realized gain 574,862 3,000,960
Net change in unrealized appreciation (depreciation) (1,249,863) (942,641)
-------------- -------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 2,283,030 7,461,076
-------------- -------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income--Class X (2,559,908) (5,037,525)
Net investment income--Class Y (201,933) (398,984)
Net realized gains--Class X (43,519) (2,936,548)
Net realized gains--Class Y (3,572) (262,528)
In excess of net investment income--Class X -- (382,909)
In excess of net investment income--Class Y -- (30,327)
-------------- -------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (2,808,932) (9,048,821)
-------------- -------------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (790,763 and 482,929 shares, respectively) 26,685,346 16,708,642
Net asset value of shares issued from reinvestment of distributions (76,277 and 245,591
shares, respectively) 2,528,579 8,172,835
Cost of shares repurchased (414,863 and 639,417 shares, respectively) (14,031,383) (22,159,462)
-------------- -------------------
Total 15,182,542 2,722,015
-------------- -------------------
CLASS Y
Proceeds from sales of shares (9,681 and 69,564 shares, respectively) 327,555 2,431,562
Net asset value of shares issued from reinvestment of distributions (6,199 and
20,824 shares, respectively) 205,504 691,833
Cost of shares repurchased (2,361 and 94,022 shares, respectively) (79,915) (3,277,501)
-------------- -------------------
Total 453,144 (154,106)
-------------- -------------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS 15,635,686 2,567,909
-------------- -------------------
NET INCREASE IN NET ASSETS 15,109,784 980,164
NET ASSETS
Beginning of period 79,472,028 78,491,864
-------------- -------------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $196,190 AND $0,
RESPECTIVELY) $ 94,581,812 $ 79,472,028
-------------- -------------------
-------------- -------------------
</TABLE>
34 See Notes to Financial Statements
<PAGE>
Managed Bond Portfolio
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X
-------------------------------------------------
SIX MONTHS FROM
ENDED INCEPTION
6/30/98 YEAR ENDED 3/1/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $33.17 $33.98 $33.84
INCOME FROM INVESTMENT OPERATIONS
Net investment income 1.07(3) 2.37(3)(5) 2.03(3)(5)
Net realized and unrealized gain (loss) (0.17) 0.85 0.69
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.90 3.22 2.72
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (1.00) (2.42) (1.96)
Dividends from net realized gains (0.02) (1.43) (0.61)
In excess of net investment income -- (0.18) (0.01)
------ ------ ------
TOTAL DISTRIBUTIONS (1.02) (4.03) (2.58)
------ ------ ------
Change in net asset value (0.12) (0.81) 0.14
------ ------ ------
NET ASSET VALUE, END OF PERIOD $33.05 $33.17 $33.98
------ ------ ------
------ ------ ------
Total return 2.70%(2) 9.75% 8.24%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $87,435 $72,747 $71,482
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.55%(1) 0.55% 0.55%(1)
Net investment income 6.80%(1) 6.92% 7.15%(1)
Portfolio turnover 56%(2) 176% 199%(2)
<CAPTION>
CLASS Y
-------------------------------------------------
SIX MONTHS FROM
ENDED INCEPTION
6/30/98 YEAR ENDED 3/1/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $33.18 $33.97 $33.84
INCOME FROM INVESTMENT OPERATIONS
Net investment income 1.05(4) 2.27(4)(5) 1.98(4)(5)
Net realized and unrealized gain (loss) (0.19) 0.88 0.66
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.86 3.15 2.64
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.96) (2.33) (1.89)
Dividends from net realized gains (0.02) (1.43) (0.61)
In excess of net investment income -- (0.18) (0.01)
------ ------ ------
TOTAL DISTRIBUTIONS (0.98) (3.94) (2.51)
------ ------ ------
Change in net asset value (0.12) (0.79) 0.13
------ ------ ------
NET ASSET VALUE, END OF PERIOD $33.06 $33.18 $33.97
------ ------ ------
------ ------ ------
Total return 2.58%(2) 9.52% 7.98%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $7,147 $6,725 $7,010
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.80%(1) 0.80% 0.80%(1)
Net investment income 6.55%(1) 6.65% 6.91%(1)
Portfolio turnover 56%(2) 176% 199%(2)
</TABLE>
(1) Annualized
(2) Not annualized
(3) Includes reimbursement of operating expenses by investment adviser of $0.04,
$0.08 and $0.09 per share, respectively.
(4) Includes reimbursement of operating expenses by investment adviser of $0.04,
$0.08 and $0.09 per share, respectively.
(5) Computed using average shares outstanding.
See Notes to Financial Statements 35
<PAGE>
U.S. GOVERNMENT SECURITIES PORTFOLIO
- ------------------------------------------------------------
INVESTOR PROFILE
Phoenix Institutional U.S. Government Securities Portfolio is designed for
conservative investors seeking current income and conservation of capital.
INVESTMENT ADVISER'S REPORT
For the six months ended June 30, 1998, Phoenix Institutional U.S. Government
Securities Portfolio Class X shares returned 2.95% and Class Y shares returned
2.76% compared with 3.00% for the Lehman Brothers 1-3 Year Government Bond
Index.* All performance figures assume reinvestment of dividends and are net of
fees. The Portfolio invests in securities guaranteed by the U.S. government as
to the timely payment of interest and principal; however, shares in the
Portfolio are not insured or guaranteed. The credit quality assigned to the
Portfolio is based solely on the creditworthiness of the investments in the
portfolio and do not apply to the stability or safety of the Portfolio itself.
For the third consecutive quarter, high-quality issues outperformed low
quality as the "flight to quality" continued. The bond market remained quite
volatile as the market continued to question whether the strong economy and low
unemployment will ultimately lead to higher inflation. In addition, there are
mixed views on whether the effects of the Asian turmoil will result in slower
domestic growth, which could help keep inflation in check.
OUTLOOK
The Portfolio's duration will be maintained in line with its benchmark index
to minimize interest rate surprises. We will continue to conservatively manage
the Portfolio, emphasizing those sectors that we believe offer the best risk/
reward tradeoff.
* The Lehman Brothers 1-3 Year Government Bond Index is an unmanaged, commonly
used measure of total return performance of short maturity government
securities. The Index is not available for direct investment.
36
<PAGE>
U.S. Government Securities Portfolio
- ------------------------------------------------------
INVESTMENTS AT JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--48.1%
U.S. TREASURY NOTES--48.1%
U.S. Treasury Notes 5.875%,
10/31/98....................... AAA $ 250 $ 250,378
U.S. Treasury Notes 5.875%,
2/28/99........................ AAA 500 501,245
U.S. Treasury Notes 5.625%,
10/31/99....................... AAA 1,500 1,501,680
U.S. Treasury Notes 5.75%,
11/30/02....................... AAA 750 755,865
U.S. Treasury Notes 6.50%,
10/15/06....................... AAA 500 530,505
-------------
3,539,673
-------------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $3,493,648)............................ 3,539,673
-------------
AGENCY MORTGAGE-BACKED SECURITIES--26.2%
FNMA 5.25%, 8/25/13.............. AAA 128 127,643
FNMA 5.50%, 2/25/14.............. AAA 295 293,413
FNMA 6.50%, 5/25/18.............. AAA 1,500 1,505,535
-------------
1,926,591
-------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $1,928,039)............................ 1,926,591
-------------
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
--------- --------- -------------
<S> <C> <C> <C>
MUNICIPAL BONDS--6.5%
Chicago Public Building Taxable
7%, 1/1/07 (b)................. AAA $ 450 $ 479,812
-------------
TOTAL MUNICIPAL BONDS
(Identified cost $447,937).............................. 479,812
-------------
TOTAL LONG-TERM INVESTMENTS--80.8%
(Identified cost $5,869,624)............................ 5,946,076
-------------
SHORT-TERM OBLIGATIONS--20.4%
FEDERAL AGENCY SECURITIES--20.4%
FHLMC 5.60%, 7/1/98.............. 1,500 1,500,000
-------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $1,500,000)............................ 1,500,000
-------------
TOTAL INVESTMENTS--101.2%
(Identified cost $7,369,624)............................ 7,446,076(a)
Cash and receivables, less liabilities--(1.2%).......... (90,272)
-------------
NET ASSETS--100.0%........................................ $ 7,355,804
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $80,058 and gross
depreciation of $3,606 for federal income tax purposes. At June 30, 1998,
the aggregate cost of securities for federal income tax purposes was
$7,369,624.
(b) These municipal bonds are fully defeased by U.S. Government Treasury
Obligations.
See Notes to Financial Statements 37
<PAGE>
U.S. Government Securities Portfolio
- ------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $7,369,624) $ 7,446,076
Receivables
Interest 62,736
Receivable from adviser 12,323
-----------
Total assets 7,521,135
-----------
LIABILITIES
Payables
Custodian 1,111
Fund shares repurchased 116,692
Transfer agent fee 6,956
Financial agent fee 3,370
Trustees' fee 888
Distribution fee 859
Accrued expenses 35,455
-----------
Total liabilities 165,331
-----------
NET ASSETS $ 7,355,804
-----------
-----------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 7,453,061
Undistributed net investment income 2,976
Accumulated net realized loss (176,685)
Net unrealized appreciation 76,452
-----------
NET ASSETS $ 7,355,804
-----------
-----------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $3,162,291) 237,828
Net asset value and offering price per share $13.30
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $4,193,513) 315,896
Net asset value and offering price per share $13.27
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 245,451
----------
Total investment income 245,451
----------
EXPENSES
Investment advisory fee 13,194
Distribution fee--Class Y 5,099
Financial agent fee 36,660
Transfer agent 19,612
Registration 20,460
Professional 10,223
Trustees 6,550
Printing 3,502
Custodian 1,518
Miscellaneous 2,642
----------
Total expenses 119,460
Less expenses borne by investment adviser (96,780)
----------
Net expenses 22,680
----------
NET INVESTMENT INCOME 222,771
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities 24,844
Net change in unrealized appreciation (depreciation) on
investments (3,860)
----------
NET GAIN ON INVESTMENTS 20,984
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 243,755
----------
----------
</TABLE>
38 See Notes to Financial Statements
<PAGE>
U.S. GOVERNMENT SECURITIES PORTFOLIO
- ------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------- -------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income $ 222,771 $ 426,579
Net realized gain 24,844 75,919
Net change in unrealized appreciation (depreciation) (3,860) 49,718
-------------- -------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 243,755 552,216
-------------- -------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income--Class X (117,149) (215,503)
Net investment income--Class Y (106,218) (211,076)
In excess of net investment income--Class X -- (21,208)
In excess of net investment income--Class Y -- (20,773)
-------------- -------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (223,367) (468,560)
-------------- -------------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (46,076 and 112,978 shares, respectively) 616,718 1,507,428
Net asset value of shares issued from reinvestment of distributions (8,828 and
17,887 shares, respectively) 117,147 236,709
Cost of shares repurchased (151,274 and 156,630 shares, respectively) (2,018,735) (2,080,993)
-------------- -------------------
Total (1,284,870) (336,856)
-------------- -------------------
CLASS Y
Proceeds from sales of shares (4,668 and 146,257 shares, respectively) 62,636 1,941,555
Net asset value of shares issued from reinvestment of distributions (8,016 and
17,536 shares, respectively) 106,211 231,847
Cost of shares repurchased (0 and 132,875 shares, respectively) -- (1,781,224)
-------------- -------------------
Total 168,847 392,178
-------------- -------------------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS (1,116,023) 55,322
-------------- -------------------
NET INCREASE (DECREASE) IN NET ASSETS (1,095,635) 138,978
NET ASSETS
Beginning of period 8,451,439 8,312,461
-------------- -------------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $2,976 AND $3,572,
RESPECTIVELY) $ 7,355,804 $ 8,451,439
-------------- -------------------
-------------- -------------------
</TABLE>
See Notes to Financial Statements 39
<PAGE>
U.S. Government Securities Portfolio
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X
---------------------------------------------
SIX MONTHS FROM
ENDED INCEPTION
6/30/98 YEAR ENDED 3/1/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $13.26 $13.15 $13.35
INCOME FROM INVESTMENT OPERATIONS(6)
Net investment income 0.36(3)(5) 0.69(3)(5) 0.62(3)(5)
Net realized and unrealized gain 0.03 0.18 0.02
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.39 0.87 0.64
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.35) (0.69) (0.75)
In excess of net investment income -- (0.07) (0.09)
------ ------ ------
TOTAL DISTRIBUTIONS (0.35) (0.76) (0.84)
------ ------ ------
Change in net asset value 0.04 0.11 (0.20)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $13.30 $13.26 $13.15
------ ------ ------
------ ------ ------
Total return 2.95%(2) 6.69% 4.86%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $3,162 $4,432 $4,734
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.40%(1) 0.40% 0.40%(1)
Net investment income 5.16%(1) 5.18% 5.58%(1)
Portfolio turnover 24%(2) 232% 175%(2)
<CAPTION>
CLASS Y
---------------------------------------------
SIX MONTHS FROM
ENDED INCEPTION
6/30/98 YEAR ENDED 3/1/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $13.25 $13.14 $13.35
INCOME FROM INVESTMENT OPERATIONS(6)
Net investment income 0.33(4)(5) 0.65(4)(5) 0.59(4)(5)
Net realized and unrealized gain 0.04 0.19 0.01
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.37 0.84 0.60
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.35) (0.66) (0.73)
In excess of net investment income -- (0.07) (0.08)
------ ------ ------
TOTAL DISTRIBUTIONS (0.35) (0.73) (0.81)
------ ------ ------
Change in net asset value 0.02 0.11 (0.21)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $13.27 $13.25 $13.14
------ ------ ------
------ ------ ------
Total return 2.76%(2) 6.44% 4.56%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $4,194 $4,019 $3,578
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.65%(1) 0.65% 0.65%(1)
Net investment income 4.95%(1) 4.92% 5.32%(1)
Portfolio turnover 24%(2) 232% 175%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.15,
$0.30 and $0.19, respectively.
(4) Includes reimbursement of operating expenses by investment adviser of $0.15,
$0.30 and $0.19, respectively.
(5) Computed using average shares outstanding.
(6) Distributions are made in accordance with the prospectus; however, class
level per share income from investment operations may vary from anticipated
results depending on the timing of share purchases and redemptions.
40 See Notes to Financial Statements
<PAGE>
ENHANCED RESERVES PORTFOLIO
- ----------------------------------------------------
INVESTOR PROFILE
The Institutional Enhanced Reserves Portfolio is appropriate for investors
seeking high current income consistent with preservation of capital. It is
intended that the Portfolio will invest primarily in high-grade corporate debt
obligations and U.S. government securities, but while the Portfolio invests in
securities guaranteed by the U.S. Government to provide timely payment of
interest and principal, shares of the Portfolio are not insured or guaranteed.
The Portfolio's short-term investment approach is enhanced by incorporating
non-traditional money market securities that provide a conservative and liquid
alternative to cash equivalents. The Enhanced Cash strategy does present minimal
market risk because the target duration is the one-year Treasury bill.
INVESTMENT ADVISER'S REPORT
Given the market's uncertainty with regard to the direction of interest rates
at the beginning of the year, the Portfolio's active duration strategy for cash
management has been once again rewarding. For the six-month reporting period
that ended June 30, 1998, Class X shares returned 2.88% and Class Y shares
returned 2.86%, outperforming the Merrill Lynch 1-Year Treasury Bill Index,
which returned 2.80%.* All performance figures assume the reinvestment of
dividends and are net of fees.
The negative influences to our domestic economy due to the financial
deterioration of Southeast Asia manifested itself during the second quarter
causing long-term interest rates to precipitously fall to levels not seen since
late 1993. The euphoric bond market was tempered somewhat by the strength of
several domestic economic indicators, such as housing, employment, and consumer
confidence. These economic offsets kept monetary policy on hold at 5.50% with a
bias to tighten. Given this uncertainty, shorter-term securities were relatively
unchanged for the quarter. Treasury yields, measured by the one-year bill fell
by only one basis point from 5.38% to 5.37%. In contrast, the long bond fell by
30 basis points from 5.93% to 5.63%. The flattening of the yield curve proved
beneficial for the Portfolio, given our flexibility to actively manage
securities along the maturity spectrum.
The Portfolio also benefited from increased demand for short-term fixed-rate
commercial paper and floating-rate paper. In general, the low nominal yields
made spread product more compelling despite concerns of increased issuance.
Mortgage-related securities that experienced modest widening in the first
quarter performed better in the second quarter as prepayment concerns due to
lower interest rates were already factored into pricing. The asset-backed and
short-term corporate markets also performed better than comparable Treasuries
despite end of quarter supply and international uncertainty affecting credit
spreads. Floating-rate notes, especially those that reset off London Interbank
Offered Rates (LIBOR), captured an enhanced yield advantage compared with other
shorter-term alternatives and with the increased demand experienced modest price
appreciation. Spreads on shorter-term securities still appear attractive,
especially given a strong economy and a confident consumer.
OUTLOOK
As we look to the third quarter, the fixed-income market appears to be
overbought unless further weakness occurs in our domestic economy. The only
Treasury that has a yield above the present Fed funds target of 5.50% is the
long bond at 5.63%. The inversion of the curve portends an easing of monetary
policy in the near future, but the Fed appears content to remain in a holding
state with a slight tightening bias. Therefore, the likelihood for significant
decreases in interest rates from these levels remains remote, as short-term
rates are somewhat hostage to the level of the Fed funds rate.
We look to add value over the near term by remaining duration neutral and
continuing to enhance portfolio yield in an environment of low interest rates.
* The Merrill Lynch 1-Year Treasury Bill Index is an unmanaged, commonly used
measure of short-term government bond total return performance. The Index is
not available for direct investment.
41
<PAGE>
Enhanced Reserves Portfolio
- ------------------------------------------------------
INVESTMENTS AT JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
-------- -------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--10.9%
U.S. TREASURY NOTES--10.9%
U.S. Treasury Notes 7.75%, 1/31/00.............. Aaa $2,500 $ 2,583,600
U.S. Treasury Notes 6.25%, 10/31/01............. Aaa 3,000 3,062,819
------------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $5,645,578)........................................ 5,646,419
------------
AGENCY ASSET-BACKED SECURITIES--2.3%
SLMA 97-2, A1 5.662%, 10/25/05 (b).............. Aaa 1,184 1,180,608
------------
TOTAL AGENCY ASSET-BACKED SECURITIES
(Identified cost $1,271,515)........................................ 1,180,608
------------
AGENCY MORTGAGE-BACKED SECURITIES--5.3%
FNMA 5.85%, 2/25/06............................. Aaa 1,585 1,582,388
FNMA 7.665%, 3/1/20 (b)......................... Aaa 1,102 1,152,114
------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $2,712,262)........................................ 2,734,502
------------
ASSET-BACKED SECURITIES--44.3%
Amresco 97-2, A9 5.866%, 6/25/27 (b)............ Aaa 1,324 1,325,009
CIT RV Trust 96-A, A 5.40%, 12/15/11............ Aaa 1,316 1,309,337
Case Equipment Loan Trust 94-C, A2 8.10%,
6/15/01....................................... Aaa 761 764,281
ContiMortgage Home Equity Loan Trust 97-3, A10
5.866%, 8/15/28 (b)........................... Aaa 1,248 1,249,515
Discover Card Master Trust I 96-4, A 6.031%,
10/16/13 (b).................................. Aaa 2,500 2,549,937
EQCC Home Equity Loan Trust 96-3, A4 6.70%,
6/15/08....................................... Aaa 1,008 1,019,116
First Plus Home Loan Trust 97-3, A1 5.756%,
4/10/06 (b)................................... AAA(c) 1,062 1,062,557
Fleetwood Credit Corp. Grantor Trust 93-A, A 6%,
1/15/08....................................... Aaa 1,535 1,533,412
Ford Credit Grantor Trust 95-A, A 5.90%,
5/15/00....................................... Aaa 377 377,267
Green Tree Financial Corp. 96-8, A2 6.55%,
10/15/27...................................... Aaa 611 611,586
Green Tree Home Improvement Loan Trust 97-A,
HEAR 5.846%, 3/15/27 (b)...................... AAA(c) 1,459 1,461,039
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
-------- -------- ------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES--CONTINUED
Household Consumer Loan Trust 96-2 A2, 5.976%,
8/15/06 (b)................................... Aa $2,000 $ 2,005,000
IMC Home Equity Loan Trust 98-1, A2 6.31%,
12/20/12...................................... Aaa 2,000 2,007,800
Money Store (The) Home Equity Trust 95-A, A7
6.208%, 6/15/25 (b)........................... Aaa 1,450 1,464,039
UCFC Home Equity Loan 96-B1, A3 7.30%, 4/15/14.. Aaa 1,000 1,006,000
UCFC Home Equity Loan 97-D, A3 6.51%, 1/15/16... Aaa 2,500 2,525,037
Western Financial Grantor Trust 95-2, A1 7.10%,
7/1/00........................................ Aaa 717 721,625
------------
TOTAL ASSET-BACKED SECURITIES
(Identified cost $22,811,789)....................................... 22,992,557
------------
CORPORATE BONDS--12.5%
BANKS (MAJOR REGIONAL)--4.8%
Northern Trust Corp. Capital I 6.208%, 1/15/27
(b)........................................... A 2,500 2,466,525
------------
RETAIL (GENERAL MERCHANDISE)--7.7%
Sears, Roebuck & Co. 8.45%, 11/1/98............. A 2,000 2,014,926
Wal-Mart Stores, Inc. 5.65%, 2/1/10............. Aa 2,000 1,992,500
------------
4,007,426
------------
TOTAL CORPORATE BONDS
(Identified cost $6,476,766)........................................ 6,473,951
------------
NON-AGENCY MORTGAGE-BACKED SECURITIES--17.5%
Independent National Mortgage Corp. 96-E, A2
6.93%, 5/25/26................................ Aaa 1,830 1,834,431
Residential Accredit Loans, Inc. 97-QS6, A1
7.50%, 6/25/12................................ Aaa 1,616 1,626,626
Residential Accredit Loans, Inc. 97-QS9, A1
6.75%, 9/25/27................................ AAA(c) 1,729 1,724,042
Residential Accredit Loans, Inc. 98-QS1, A2 7%,
1/25/28....................................... AAA(c) 1,837 1,852,448
</TABLE>
42 See Notes to Financial Statements
<PAGE>
ENHANCED RESERVES PORTFOLIO
- ------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
-------- -------- ------------
<S> <C> <C> <C>
NON-AGENCY MORTGAGE-BACKED SECURITIES--CONTINUED
Residential Funding Mortgage Securities I 97-S9,
A20 7.50%, 7/25/27............................ AAA(c) $2,000 $ 2,063,680
------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $9,023,090)........................................ 9,101,227
------------
TOTAL LONG-TERM INVESTMENTS--92.8%
(Identified cost $47,941,000)....................................... 48,129,264
------------
<CAPTION>
STANDARD
& POOR'S
RATING
--------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--6.6%
COMMERCIAL PAPER--4.8%
Beneficial Corp. 5.535%, 7/9/98................. A-1 2,500 2,500,000
------------
<CAPTION>
PAR
VALUE
(000) VALUE
-------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--1.8%
State Street Bank & Trust Co. Repurchase Agreement, 5.15%,
dated 6/30/98 due 7/1/98, repurchase price $924,000,
collateralized by U.S. Treasury Note 6.125%, 12/31/01,
market value
$945,113................................................ $924 $ 924,000
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $3,424,000)........................................ 3,424,000
------------
TOTAL INVESTMENTS--99.4%
(Identified cost $51,365,000)....................................... 51,553,264(a)
Cash and receivables, less liabilities--0.6%........................ 295,415
------------
NET ASSETS--100.0%.................................................... $ 51,848,679
------------
------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $233,706 and gross
depreciation of $45,442 for federal income tax purposes. At June 30, 1998,
the aggregate cost of securities for federal income tax purposes was
$51,365,000.
(b) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
(c) As rated by Standard and Poor's.
See Notes to Financial Statements 43
<PAGE>
Enhanced Reserves Portfolio
- ------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $51,365,000) $ 51,553,264
Cash 534
Receivables
Interest 405,983
Fund shares sold 242
Receivable from adviser 928
-------------
Total assets 51,960,951
-------------
LIABILITIES
Payables
Dividend distributions 56,673
Transfer agent fee 6,795
Financial agent fee 6,782
Trustees' fee 888
Distribution fee 71
Accrued Expenses 41,063
-------------
Total liabilities 112,272
-------------
NET ASSETS $ 51,848,679
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 52,239,576
Undistributed net investment loss (54,992)
Accumulated net realized loss (524,169)
Net unrealized appreciation 188,264
-------------
NET ASSETS $ 51,848,679
-------------
-------------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $51,530,808) 5,178,772
Net asset value and offering price per share $9.95
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $317,871) 31,934
Net asset value and offering price per share $9.95
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 2,279,060
-----------
Total investment income 2,279,060
-----------
EXPENSES
Investment advisory fee 89,142
Distribution fee--Class Y 922
Financial agent fee 40,705
Registration 27,163
Transfer agent 19,438
Professional 12,004
Trustees 6,552
Custodian 5,880
Printing 3,405
Miscellaneous 5,379
-----------
Total expenses 210,590
Less: expenses borne by investment adviser (76,749)
-----------
Net expenses 133,841
-----------
NET INVESTMENT INCOME 2,145,219
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities (160,370)
Net change in unrealized appreciation (depreciation) on
investments 77,020
-----------
NET LOSS ON INVESTMENTS (83,350)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 2,061,869
-----------
-----------
</TABLE>
44 See Notes to Financial Statements
<PAGE>
ENHANCED RESERVES PORTFOLIO
- ------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------- -------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income $ 2,145,219 $ 5,142,453
Net realized loss (160,370) (15,822)
Net change in unrealized appreciation (depreciation) 77,020 (108,788)
-------------- -------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 2,061,869 5,017,843
-------------- -------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income--Class X (2,136,658) (5,018,041)
Net investment income--Class Y (20,494) (113,618)
-------------- -------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (2,157,152) (5,131,659)
-------------- -------------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (10,617,712 and 21,169,694 shares, respectively) 105,526,262 210,525,776
Net asset value of shares issued from reinvestment of distributions (214,950 and
495,501 shares, respectively) 2,137,280 4,927,719
Cost of shares repurchased (13,218,750 and 26,359,297 shares, respectively) (131,307,541) (262,080,920)
-------------- -------------------
Total (23,643,999) (46,627,425)
-------------- -------------------
CLASS Y
Proceeds from sales of shares (0 and 70,612 shares, respectively) -- 702,004
Net asset value of shares issued from reinvestment of distributions (798 and
8,690 shares, respectively) 7,944 86,399
Cost of shares repurchased (171,366 and 27,952 shares, respectively) (1,703,440) (277,921)
-------------- -------------------
Total (1,695,496) 510,482
-------------- -------------------
DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS (25,339,495) (46,116,943)
-------------- -------------------
NET DECREASE IN NET ASSETS (25,434,778) (46,230,759)
NET ASSETS
Beginning of period 77,283,457 123,514,216
-------------- -------------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT LOSS AND DISTRIBUTIONS IN EXCESS
OF NET INVESTMENT INCOME OF ($54,992) AND ($43,059), RESPECTIVELY) $ 51,848,679 $ 77,283,457
-------------- -------------------
-------------- -------------------
</TABLE>
See Notes to Financial Statements 45
<PAGE>
Enhanced Reserves Portfolio
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X
-------------------------------------------------
SIX MONTHS FROM
ENDED INCEPTION
6/30/98 YEAR ENDED 7/19/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.95 $ 9.95 $ 9.95
INCOME FROM INVESTMENT OPERATIONS(5)
Net investment income 0.27(3)(6) 0.58(3)(6) 0.26(3)
Net realized and unrealized gain 0.01 -- --
----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS 0.28 0.58 0.26
----- ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (0.28) (0.58) (0.26)
----- ----- -----
TOTAL DISTRIBUTIONS (0.28) (0.58) (0.26)
----- ----- -----
Change in net asset value -- -- --
----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 9.95 $ 9.95 $ 9.95
----- ----- -----
----- ----- -----
Total return 2.88%(2) 6.03% 2.57%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $51,531 $75,269 $122,010
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.36%(1) 0.34% 0.34%(1)
Net investment income 5.78%(1) 5.84% 5.68%(1)
Portfolio turnover 162%(2) 177% 122%(2)
<CAPTION>
CLASS Y
-------------------------------------------------
SIX MONTHS FROM
ENDED INCEPTION
6/30/98 YEAR ENDED 11/1/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.95 $ 9.95 $ 9.97
INCOME FROM INVESTMENT OPERATIONS(5)
Net investment income 0.24(4)(6) 0.56(4)(6) 0.09(4)
Net realized and unrealized gain (loss) 0.03 -- (0.02)
----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS 0.27 0.56 0.07
----- ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (0.27) (0.56) (0.09)
----- ----- -----
TOTAL DISTRIBUTIONS (0.27) (0.56) (0.09)
----- ----- -----
Change in net asset value -- -- (0.02)
----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 9.95 $ 9.95 $ 9.95
----- ----- -----
----- ----- -----
Total return 2.86%(2) 5.75% 0.71%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $318 $2,014 $1,504
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.61%(1) 0.59% 0.59%(1)
Net investment income 5.53%(1) 5.59% 5.58%(1)
Portfolio turnover 162%(2) 177% 122%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.01,
$0.02 and less than $0.01, respectively.
(4) Includes reimbursement of operating expenses by investment adviser of $0.01,
$0.02 and less than $0.01, respectively.
(5) Distributions are made in accordance with the prospectus; however, class
level per share income from investment operations may vary from anticipated
results depending on the timing of share purchases and redemptions.
(6) Computed using average shares outstanding.
46 See Notes to Financial Statements
<PAGE>
MONEY MARKET PORTFOLIO
- ----------------------------------------------------
INVESTOR PROFILE
The Institutional Money Market Portfolio is appropriate for investors seeking
high current income with minimal risk of capital. The Portfolio is neither
insured nor guaranteed by the U.S. Government and there can be no assurance that
the Portfolio will be able to maintain a stable net asset value of $1.00 per
share.
INVESTMENT ADVISER'S REPORT
The Institutional Money Market Portfolio's seven-day current yield was 5.45%
for Class X shares and 5.20% for Class Y shares compared with an average yield
of 4.92% as reported in IBC's Money Market Insight for first-tier money market
funds.* Current yield is a seven-day annualized yield computed by dividing the
average net income earned per share during the seven days preceding the date of
calculation by the average daily net asset value per share for the same period,
multiplied by 365.
Ongoing concerns about the turmoil in Southeast Asia and unstable markets
globally persisted throughout the six-month reporting period. As a result,
short-term money markets continued to experience high volatility. Moderate to
strong domestic growth in the first and second quarters of 1998 prompted the
Federal Reserve to move from a neutral policy position to a bias toward
tightening.
As market volatility continued during this time, we maintained a market
neutral strategy, looking for trading opportunities in variable-rate and
corporate securities. We continue to emphasize high-quality commercial paper and
variable-rate securities to enhance yield. The Portfolio's average credit
quality remains A1/P1. This rating is based solely on the creditworthiness of
the investments held and does not apply to the stability or safety of the
Portfolio.
OUTLOOK
Volatility in the short-term money market sector will likely continue as
investors question whether the strong economy and low unemployment figures will
ultimately lead to higher inflation. Furthermore, the market seems to have mixed
views on whether the effects of the Asian turmoil will result in slower domestic
growth.
* The average yield is for 286 first-tier money market funds as reported in
IBC's Money Market Insight.
47
<PAGE>
Money Market Portfolio
- ------------------------------------------------------
INVESTMENTS AT JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT INTEREST RESET
(000) DESCRIPTION RATE DATE VALUE
- -------- ------------------------- -------- -------- ------------
<C> <S> <C> <C> <C> <C>
FEDERAL AGENCY SECURITIES--VARIABLE--18.3%
SLMA (final maturity 2/22/99) (b)...
$ 1,000 5.33% 7/7/98 $ 1,000,000
------------
1,000,000
TOTAL FEDERAL AGENCY SECURITIES-- VARIABLE..........................
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
&
POOR'S MATURITY
RATING DATE
------ --------
<C> <S> <C> <C> <C> <C>
COMMERCIAL PAPER--69.0%
250 Warner-Lambert Co........ A-1+ 6.25 7/1/98 250,000
225 Potomac Electric Power
Co....................... A-1 5.65 7/6/98 224,823
100 Schering Corp............ A-1+ 5.80 7/7/98 99,903
270 Deutsche Bank Financial,
Inc...................... A-1+ 5.63 7/8/98 269,704
100 Albertson's, Inc......... A-1 5.75 7/9/98 99,872
290 Corporate Receivables
Corp..................... A-1+ 5.53 7/9/98 289,644
250 Enterprise Funding
Corp..................... A-1+ 5.57 7/10/98 249,652
260 Du Pont (E.I.) de Nemours
& Co..................... A-1+ 5.55 7/14/98 259,479
250 CXC, Inc................. A-1+ 5.55 7/22/98 249,191
200 Procter & Gamble Co...... A-1+ 5.60 7/23/98 199,316
200 Private Export Funding
Corp..................... A-1+ 5.60 7/27/98 199,191
</TABLE>
<TABLE>
<CAPTION>
STANDARD
FACE &
AMOUNT POOR'S INTEREST MATURITY
(000) DESCRIPTION RATING RATE DATE VALUE
- -------- ------------------------- ------ -------- -------- ------------
<C> <S> <C> <C> <C> <C>
COMMERCIAL PAPER--CONTINUED
$ 280 Preferred Receivables
Funding Corp............. A-1 5.62% 7/30/98 $ 278,732
244 Merrill Lynch & Co.,
Inc...................... A-1+ 5.53 7/31/98 242,876
200 McDonald's Corp.......... A-1+ 5.54 8/12/98 198,707
277 Receivables Capital
Corp..................... A-1+ 5.56 8/26/98 274,604
285 Corporate Receivables
Corp..................... A-1+ 5.53 10/16/98 280,316
100 General Electric Capital
Corp..................... A-1+ 5.54 11/23/98 97,769
------------
3,763,779
TOTAL COMMERCIAL PAPER...........................................
------------
MEDIUM-TERM NOTES--7.3%
400 Associates Corporation of
North America............ AA- 6.38 8/15/98 400,215
------------
400,215
TOTAL MEDIUM-TERM NOTES..........................................
------------
5,163,994(a)
TOTAL INVESTMENTS--94.6%
(Identified cost $5,163,994)...................................
294,169
Cash and receivables, less liabilities--5.4%...................
------------
$ 5,458,163
NET ASSETS--100.0%...............................................
------------
------------
</TABLE>
(a) Federal Income Tax Information: June 30, 1998, the aggregate cost of
securities was the same for book and tax purposes.
(b) Variable rate demand notes. The interest rates shown reflect the rates
currently in effect.
48 See Notes to Financial Statements
<PAGE>
Money Market Portfolio
- ------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $5,163,994) $ 5,163,994
Cash 9,288
Receivables
Fund shares sold 329,737
Interest 15,426
Receivable from adviser 11,896
-----------
Total Assets 5,530,341
-----------
LIABILITIES
Payables
Fund shares repurchased 6,142
Dividend distributions 4,566
Transfer agent fee 7,565
Financial agent fee 2,567
Trustees' fee 888
Distribution fee 269
Accrued expenses 50,181
-----------
Total liabilities 72,178
-----------
NET ASSETS $ 5,458,163
-----------
-----------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 5,458,163
-----------
NET ASSETS $ 5,458,163
-----------
-----------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $4,101,237) 4,101,237
Net asset value and offering price per share $1.00
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $1,356,926) 1,356,926
Net asset value and offering price per share $1.00
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 217,177
----------
Total investment income 217,177
----------
EXPENSES
Investment advisory fee 9,773
Distribution fee--Class Y 2,023
Financial agent fee 22,011
Transfer agent 20,920
Registration 13,792
Professional 9,698
Trustees 6,550
Custodian 4,829
Miscellaneous 1,206
----------
Total expenses 90,802
Less expenses borne by investment adviser (77,120)
----------
Net expenses 13,682
----------
NET INVESTMENT INCOME 203,495
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 203,495
----------
----------
</TABLE>
See Notes to Financial Statements 49
<PAGE>
MONEY MARKET PORTFOLIO
- ------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------- -------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income $ 203,495 $ 602,346
-------------- -------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 203,495 602,346
-------------- -------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income--Class X (128,792) (517,729)
Net investment income--Class Y (74,703) (84,617)
-------------- -------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (203,495) (602,346)
-------------- -------------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sale of shares (5,353,284 and 13,237,363 shares, respectively) 5,353,284 13,237,363
Net asset value of shares issued from reinvestment of distributions (165,795 and
504,476 shares, respectively) 165,795 504,476
Cost of shares repurchased (9,546,691 and 20,794,521 shares, respectively) (9,546,691) (20,794,521)
-------------- -------------------
Total (4,027,612) (7,052,682)
-------------- -------------------
CLASS Y
Proceeds from sale of shares (283,006 and 1,448,463 shares, respectively) 283,006 1,448,463
Net asset value of shares issued from reinvestment of distributions (40,186 and
83,278 shares, respectively) 40,186 83,278
Cost of shares repurchased (687,791 and 1,939,870 shares, respectively) (687,791) (1,939,870)
-------------- -------------------
Total (364,599) (408,129)
-------------- -------------------
DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS (4,392,211) (7,460,811)
-------------- -------------------
NET DECREASE IN NET ASSETS (4,392,211) (7,460,811)
NET ASSETS
Beginning of period 9,850,374 17,311,185
-------------- -------------------
END OF PERIOD $ 5,458,163 $ 9,850,374
-------------- -------------------
-------------- -------------------
</TABLE>
50 See Notes to Financial Statements
<PAGE>
Money Market Portfolio
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X
-----------------------------------------------
SIX MONTHS
ENDED FROM INCEPTION
6/30/98 YEAR ENDED 3/1/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.026(3) 0.052(3) 0.043(3)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.026 0.052 0.043
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.026) (0.052) (0.043)
------ ------ ------
Change in net asset value -- -- --
------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
------ ------ ------
------ ------ ------
Total return 2.63%(2) 5.34% 4.34%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $4,101 $8,129 $15,182
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.35%(1) 0.35% 0.35%(1)
Net investment income 5.26%(1) 5.20% 5.08%(1)
<CAPTION>
CLASS Y
-----------------------------------------------
SIX MONTHS FROM INCEPTION
ENDED 6/30/98 YEAR ENDED 3/1/96 TO
(UNAUDITED) 12/31/97 12/31/96
------------- ------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.025(4) 0.050(4) 0.040(4)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.025 0.050 0.040
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.025) (0.050) (0.040)
------ ------ ------
Change in net asset value -- -- --
------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
------ ------ ------
------ ------ ------
Total return 2.51%(2) 5.08% 4.11%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $1,357 $1,722 $2,130
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.60%(1) 0.60% 0.60%(1)
Net investment income 5.01%(1) 4.96% 4.84%(1)
</TABLE>
(1) Annualized
(2) Not annualized
(3) Includes reimbursement of operating expenses by investment adviser of $0.01,
$0.01 and less than $0.01, respectively.
(4) Includes reimbursement of operating expenses by investment adviser of $0.01,
$0.01 and less than $0.01, respectively.
See Notes to Financial Statements 51
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Phoenix Duff & Phelps Institutional Mutual Funds (the "Fund") is organized as
a Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. To date, eight Portfolios are offered for sale: Core Equity Portfolio,
Growth Stock Portfolio, Real Estate Equity Securities Portfolio, Balanced
Portfolio, Managed Bond Portfolio, U.S. Government Securities Portfolio,
Enhanced Reserves Portfolio and Money Market Portfolio.
Each Portfolio has distinct investment objectives. The Core Equity Portfolio
seeks long-term appreciation of capital. The Growth Stock Portfolio seeks
long-term appreciation of capital. The Real Estate Equity Securities Portfolio
seeks to emphasize capital appreciation and income equally by investing
primarily in marketable securities of publicly-traded real estate investment
trusts (REITS) and companies that invest in, operate, develop and/or manage real
estate located in the United States. The Balanced Portfolio seeks to provide
reasonable income, long-term capital growth and conservation of capital. The
Managed Bond Portfolio seeks to generate a high level of current income and
capital appreciation. The U.S. Government Securities Portfolio seeks a high
level of current income by investing in U.S. Government guaranteed or backed
securities. The Enhanced Reserves Portfolio seeks to provide high current income
consistent with preservation of capital. The Money Market Portfolio seeks to
provide a high level of current income consistent with capital preservation and
liquidity.
Each Portfolio offers both Class X and Class Y shares. Both classes of shares
have identical voting, dividend, liquidation and other rights and the same terms
and conditions, except that Class Y bears distribution expenses and has
exclusive voting rights with respect to its distribution plan. Income and
expenses of each Portfolio are borne pro rata by the holders of both classes of
shares, except that Class X bears no distribution expenses.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates.
A. SECURITY VALUATION:
Equity securities are valued at the last sale price, or if there had been no
sale that day, at the last bid price. Debt securities are valued on the basis of
broker quotations or valuations provided by a pricing service which utilizes
information with respect to recent sales, market transactions in comparable
securities, quotations from dealers, and various relationships between
securities in determining value. Short-term investments having a remaining
maturity of 60 days or less are valued at amortized cost which approximates
market. All other securities and assets are valued at their fair value as
determined in good faith by or under the direction of the Trustees.
The Money Market Portfolio uses the amortized cost method of security
valuation which, in the opinion of the Trustees, represents the fair value of
the particular security. The Trustees monitor the deviations between the
classes' net asset value per share as determined by using available market
quotations and its amortized cost per share. If the deviation exceeds 1/2 of 1%,
the Board of Trustees will consider what action, if any, should be initiated to
provide a fair valuation. This valuation procedure allows each class of the
Portfolio to maintain a constant net asset value of $1 per share.
B. SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date or, in the case of certain foreign securities,
as soon as the Portfolio is notified. Interest income is recorded on the accrual
basis. The Fund does not amortize premiums except for the Enhanced Reserves
Portfolio and Money Market Portfolio, but does accrete discounts using the
effective interest method. Realized gains and losses are determined on the
identified cost basis.
C. INCOME TAXES:
Each of the Portfolios is treated as a separate taxable entity. It is the
policy of each Portfolio in the Fund to comply with the requirements of the
Internal Revenue Code (the "Code"), applicable to regulated investment
companies, and to distribute all of its taxable income to its shareholders. In
addition, each Portfolio intends to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Code. Therefore, no
provision for federal income taxes or excise taxes has been made.
D. DISTRIBUTIONS TO SHAREHOLDERS:
Distributions are recorded by each Portfolio on the ex-dividend date. Income
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences include the treatment of non-taxable dividends, non-deductible
expenses, foreign currency gain/loss, partnerships, and losses deferred due to
wash sales and excise tax regulations. Permanent book and tax basis differences
relating to shareholder distributions will result in reclassifications to paid
in capital.
E. FOREIGN CURRENCY TRANSLATION:
Foreign securities, other assets and liabilities are valued using the foreign
currency exchange rate effective at the end of the reporting period. Cost of
investments is translated at the currency exchange rate effective at the trade
date. The gain or loss resulting from a change in currency exchange rates
between the trade and settlement dates of a portfolio transaction is treated as
a
52
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED) (CONTINUED)
gain or loss on foreign currency. Likewise, the gain or loss resulting from a
change in currency exchange rates between the date income is accrued and paid is
treated as a gain or loss on foreign currency. The Fund does not separate that
portion of the results of operations arising from changes in exchange rates and
that portion arising from changes in the market prices of securities.
F. FORWARD CURRENCY CONTRACTS:
Each of the Portfolios, except U.S. Government Securities Portfolio and Money
Market Portfolio, may enter into forward currency contracts in conjunction with
the planned purchase or sale of foreign denominated securities in order to hedge
the U.S. dollar cost or proceeds. Forward currency contracts involve, to varying
degrees, elements of market risk in excess of the amount recognized in the
statement of assets and liabilities. Risks arise from the possible movements in
foreign exchange rates or if the counterparty does not perform under the
contract.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. These contracts are traded directly between currency traders and
their customers. The contract is marked-to-market daily and the change in market
value is recorded by each Portfolio as an unrealized gain (or loss). When the
contract is closed or offset, the Portfolio records a realized gain (or loss)
equal to the change in the value of the contract when it was opened and the
value at the time it was closed or offset.
G. FUTURES CONTRACTS:
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. A Portfolio may enter into financial
futures contracts as a hedge against anticipated changes in the market value of
their portfolio securities. Upon entering into a futures contract the Portfolio
is required to pledge to the broker an amount of cash and/or securities equal to
the "initial margin" requirements of the futures exchange on which the contract
is traded. Pursuant to the contract, the Portfolio agrees to receive from or pay
to the broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and are
recorded by the Portfolio as unrealized gains or losses. When the contract is
closed, the Portfolio records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. The potential risk to a Portfolio is that the change in
value of the futures contract may not correspond to the change in value of the
hedged instruments.
H. OPTIONS:
Each Portfolio may write covered options or purchase options contracts for the
purpose of hedging against changes in the market value of the underlying
securities or foreign currencies.
Each Portfolio will realize a gain or loss upon the expiration or closing of
the option transaction. Gains and losses on written options are reported
separately in the Statement of Operations. When a written option is exercised,
the proceeds on sales or amounts paid are adjusted by the amount of premium
received. Options written are reported as a liability in the Statement of Assets
and Liabilities and subsequently marked-to-market to reflect the current value
of the option. The risk associated with written options is that the change in
value of options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the value of
the underlying instruments, or if a liquid secondary market does not exist for
the contracts.
Each Portfolio may purchase options which are included in the Portfolio's
Schedule of Investments and subsequently marked-to-market to reflect the current
value of the option. When a purchased option is exercised, the cost of the
security is adjusted by the amount of premium paid. The risk associated with
purchased options is limited to the premium paid.
I. EXPENSES:
Expenses incurred by the Fund with respect to any two or more Portfolios are
allocated in proportion to the net assets of each Portfolio, except where
allocation of direct expense to each Portfolio or an alternative allocation
method can be more fairly made.
J. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS:
Each Portfolio may engage in when-issued or delayed delivery transactions. The
Portfolios record when-issued securities on the trade date and maintain
collateral for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis begin earning interest on the settlement date.
NOTE 2. INVESTMENT ADVISORY FEE AND
RELATED PARTY TRANSACTIONS
The Advisers to the Fund are Phoenix Investment Counsel, Inc. ("PIC") and Duff
& Phelps Investment Management Co. ("DPIM"). PIC is an indirect, majority-owned
subsidiary of Phoenix Home Life Mutual Insurance Company ("PHL"). DPIM is a
subsidiary of Phoenix Investment Partners, Ltd., formerly, Phoenix Duff & Phelps
Corporation, which is an indirect, majority-owned subsidiary of PHL. Formerly,
Phoenix Realty Securities, Inc. ("PRS"), an indirect, wholly-owned subsidiary of
PHL, was the investment Adviser for Real Estate Equity Securities Portfolio
through December 31, 1997. As compensation for their services to the Fund, the
Advisers are entitled to a fee based upon the following
53
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED) (CONTINUED)
annual rates as a percentage of the average daily net assets of each separate
Portfolio:
<TABLE>
<CAPTION>
1ST
PORTFOLIO ADVISER $1 BILLION $1+ BILLION
- ------------------------------ --------- ------------- -----------
<S> <C> <C> <C>
Core Equity Portfolio......... DPIM 0.50% 0.50%
Growth Stock Portfolio........ PIC 0.60% 0.55%
Real Estate Equity Securities
Portfolio................... DPIM 0.50% 0.50%
Balanced Portfolio............ PIC 0.55% 0.50%
Managed Bond Portfolio........ PIC 0.45% 0.40%
U.S. Government Securities
Portfolio................... PIC 0.30% 0.25%
Enhanced Reserves Portfolio... DPIM 0.24% 0.19%
Money Market Portfolio........ PIC 0.25% 0.20%
</TABLE>
In addition to this base adviser fee, Real Estate Equity Securities Portfolio
is subject to a performance adjustment based on the Portfolio's annual
performance as compared to certain prescribed benchmarks. For the six months
ended June 30, 1998, the performance adjustment was ($435).
PIC has voluntarily agreed to assume total fund operating expenses of each
Portfolio it advises, excluding interest, taxes, brokerage fees, commissions and
extraordinary expenses until December 31, 2001, to the extent that such expenses
exceed the following percentages of average annual net assets:
<TABLE>
<CAPTION>
CLASS X CLASS Y
------------ ------------
<S> <C> <C>
Core Equity Portfolio.................. 0.65% 0.90%
Growth Stock Portfolio................. 0.70% 0.95%
Real Estate Equity Securities
Portfolio............................ 0.90% 1.15%
Balanced Portfolio..................... 0.65% 0.90%
Managed Bond Portfolio................. 0.55% 0.80%
U.S. Government Securities Portfolio... 0.40% 0.65%
Money Market Portfolio................. 0.35% 0.60%
</TABLE>
Effective May 1, 1998, DPIM has voluntarily agreed to reimburse or waive total
fund operating expenses of the Enhanced Reserves Portfolio, excluding interest,
taxes, brokerage fees, commissions and extraordinary expenses until December 31,
1998, to the extent that such expenses exceed 0.40% and 0.65%, respectively, of
the average annual net assets of Class X and Y, respectively. Prior to that
date, the expense limits were 0.34% and 0.59% for Class X and Y, respectively.
Phoenix Equity Planning Corporation ("PEPCO"), an indirect, majority-owned
subsidiary of PHL, serves as the national distributor of the Fund's shares. Each
Portfolio pays PEPCO a distribution fee of an annual rate of 0.25% for Class Y
shares applied to the average daily net assets of that class. The distributor
has advised the Portfolio that of the total amount expensed for the six months
ended June 30, 1998, $2,896 was earned by the Distributor, $10,858 was earned by
unaffiliated participants, and $35,889 was paid to W.S. Griffith, an indirect
subsidiary of PHL.
As Financial Agent of the Fund, PEPCO received through May 31, 1998, a fee for
bookkeeping, administration and pricing services at an annual rate of 0.05% of
average daily net assets up to $100 million, 0.04% of average daily net assets
of $100 million to $300 million, 0.03% of average daily net assets of $300
million through $500 million, and 0.015% of average daily net assets greater
than $500 million; a minimum fee applied. Effective June 1, 1998, PEPCO receives
a financial agent fee equal to the sum of (1) the documented cost of fund
accounting and related services provided by PFPC, Inc. (subagent to PEPCO), plus
(2) the documented cost to PEPCO to provide financial reporting, tax services
and oversight of the subagent's performance. The current fee schedule of PFPC,
Inc. ranges from 0.085% to 0.0125% of the average daily net asset values of the
Fund. Certain minimum fees and fee waivers may apply.
PEPCO serves as the Fund's Transfer Agent with State Street Bank and Trust
Company as sub-transfer agent. For the six months ended June 30, 1998, transfer
agent fees were $152,455 of which PEPCO retained $155 which is net of fees paid
to State Street.
At June 30, 1998, PHL and affiliates held Portfolio shares which aggregated
the following:
<TABLE>
<CAPTION>
AGGREGATE
NET ASSET
SHARES VALUE
------------ ------------
<S> <C> <C>
Core Equity Portfolio-Class X........ 190,000 $ 1,926,600
Core Equity Portfolio-Class Y........ 10,000 101,300
Growth Stock Portfolio-Class X....... 4 163
Growth Stock Portfolio-Class Y....... 4,454 161,584
Real Estate Equity Securities
Portfolio-Class X.................. 1,052,786 11,559,595
Real Estate Equity Securities
Portfolio-Class Y.................. 10,404 114,338
Balanced Portfolio-Class X........... 8 144
Balanced Portfolio-Class Y........... 8,426 142,987
Managed Bond Portfolio-Class X....... 655,368 21,659,923
Managed Bond Portfolio-Class Y....... 3,669 121,311
U.S. Government Securities
Portfolio-Class X.................. 122,650 1,631,243
U.S. Government Securities
Portfolio-Class Y.................. 8,618 114,363
Money Market Portfolio-Class X....... 113 113
Money Market Portfolio-Class Y....... 112,046 112,046
</TABLE>
54
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED) (CONTINUED)
NOTE 3. PURCHASE AND SALE OF SECURITIES
Purchases and sales of securities during the six months ended June 30, 1998
(excluding U.S. Government and agency securities and short-term securities)
aggregated the following:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Core Equity Portfolio................ $ 7,025,223 $ 737,419
Growth Stock Portfolio............... 35,279,017 41,927,022
Real Estate Equity Securities
Portfolio.......................... 4,442,421 438,054
Balanced Portfolio................... 17,061,386 21,388,829
Managed Bond Portfolio............... 51,080,408 32,870,933
Enhanced Reserves Portfolio.......... 26,463,998 42,912,659
</TABLE>
Purchases and sales of U.S. Government and agency securities during the six
months ended June 30, 1998, aggregated the following:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Balanced Portfolio................... $ 9,072,734 $ 8,889,043
Managed Bond Portfolio............... 13,211,715 11,982,249
U.S. Government Securities
Portfolio.......................... 1,509,141 2,337,506
Enhanced Reserves Portfolio.......... 84,898,875 88,031,801
</TABLE>
NOTE 4. CREDIT RISK
In countries with limited or developing markets, investments may present
greater risks than in more developed markets and the prices of such investments
may be volatile. The consequences of political, social or economic changes in
these markets may have disruptive effects on the market price of these
investments and the income they generate, as well as a Portfolio's ability to
repatriate such amounts.
NOTE 5. CAPITAL LOSS CARRYOVERS
At December 31, 1997 the Portfolios had available for federal income tax
purposes unused capital losses as follows:
<TABLE>
<CAPTION>
EXPIRING IN
2003 2004 2005
--------- --------- ---------
<S> <C> <C> <C>
U.S. Government Securities
Portfolio.................. -- $ 201,529 --
Enhanced Reserves
Portfolio.................. $ 189,419 128,718 $ 36,912
</TABLE>
For the Enhanced Reserves Portfolio, capital loss carryovers include $189,419
acquired in connection with the merger of the Duff & Phelps Enhanced Reserves
Fund.
NOTE 6. OTHER
As of June 30, 1998, the Portfolios had shareholders who each individually
owned more than 10% of shares outstanding, none of whom are affiliated with PHL
or PXP as follows. In addition, affiliate holdings are presented in the table
located within Note 2.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SHAREHOLDERS SHARES OUTSTANDING
------------------- ---------------------
<S> <C> <C>
Core Equity Portfolio...... 1 68.7%
Growth Stock Portfolio..... 2 24.7%
Managed Bond Portfolio..... 2 22.0%
U.S. Government Securities
Portfolio................ 2 47.6%
Enhanced Reserves
Portfolio................ 3 85.4%
Money Market Portfolio..... 2 51.3%
</TABLE>
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by an effective Prospectus which includes information
concerning the Fund's record and other pertinent information.
55
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS
101 Munson Street
Greenfield, Massachusetts 01301
TRUSTEES
Robert Chesek
E. Virgil Conway
William W. Crawford
Harry Dalzell-Payne
William N. Georgeson
Francis E. Jeffries
Leroy Keith, Jr.
Philip R. McLoughlin
Eileen A. Moran
Everett L. Morris
James M. Oates
Richard A. Pavia
Calvin J. Pedersen
Herbert Roth, Jr.
Richard E. Segerson
Lowell P. Weicker, Jr.
OFFICERS
Philip R. McLoughlin, President
Michael E. Haylon, Executive Vice President
James D. Wehr, Senior Vice President
Marvin E. Flewellen, Vice President
John D. Kattar, Vice President
William E. Keen, III, Vice President/Assistant Secretary
Christopher J. Kelleher, Vice President
William R. Moyer, Vice President
Diane L. Mustain, Vice President
Leonard J. Saltiel, Vice President
Christopher Saner, Vice President
Julie L. Sapia, Vice President
Michael Schatt, Vice President
Andrew Szabo, Vice President
Pierre G. Trinque, Vice President
Nancy G. Curtiss, Treasurer
G. Jeffrey Bohne, Secretary
INVESTMENT ADVISERS
Phoenix Investment Counsel, Inc.
56 Prospect Street
Hartford, Connecticut 06115-0480
Duff & Phelps Investment Management Co.
(Core Equity Portfolio, Real Estate Equity Securities Portfolio and Enhanced
Reserves Portfolio)
55 East Monroe Street
Suite 3800
Chicago, Illinois 60603
PRINCIPAL UNDERWRITER
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200
CUSTODIANS
The Chase Manhattan Bank
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
State Street Bank and Trust Company
(Core Equity Portfolio, Real Estate Equity Securities Portfolio and Enhanced
Reserves Portfolio)
P.O. Box 351
Boston, Massachusetts 02101
TRANSFER AGENT
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200
HOW TO CONTACT US
Toll-Free Numbers
The Fund Connection 1-800-243-1574
Customer Service 1-800-243-1574 (option 0)
Investment Strategy Hotline 1-800-243-4361 (option 2)
Marketing Department 1-800-243-4361 (option 3)
Text Telephone 1-800-243-1926
World Wide Web address:
www.phoenixinvestments.com
56
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS BULK RATE MAIL
PO Box 2200 U.S. POSTAGE
Enfield CT 06083-2200 PAID
SPRINGFIELD, MA
PERMIT NO. 444
[LOGO] PHOENIX
INVESTMENT PARTNERS
PXP 091 (8/98)
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<GROSS-EXPENSE> 207
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<PER-SHARE-NAV-BEGIN> 16.17
<PER-SHARE-NII> .25
<PER-SHARE-GAIN-APPREC> 1.46
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<GROSS-EXPENSE> 207
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<PER-SHARE-NAV-BEGIN> 16.18
<PER-SHARE-NII> .22
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<RETURNS-OF-CAPITAL> 0
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