<PAGE>
December 31, 1998
PHOENIX
FUNDS
ANNUAL REPORT
PHOENIX DUFF & PHELPS
INSTITUTIONAL MUTUAL
FUNDS
- CORE EQUITY PORTFOLIO
- GROWTH STOCK PORTFOLIO
- REAL ESTATE EQUITY
SECURITIES PORTFOLIO
- MANAGED BOND PORTFOLIO
- ENHANCED RESERVES
PORTFOLIO
[LOGO] PHOENIX
INVESTMENT PARTNERS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Core Equity Portfolio..................................................... 2
Growth Stock Portfolio.................................................... 9
Real Estate Equity Securities Portfolio................................... 17
Managed Bond Portfolio.................................................... 25
Enhanced Reserves Portfolio............................................... 37
Notes to Financial Statements............................................. 44
</TABLE>
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>
MESSAGE FROM THE PRESIDENT
DEAR SHAREHOLDER:
[PHOTO]
PHILIP MCLOUGHLIN
We are pleased to provide this report for the Phoenix Duff & Phelps
Institutional Mutual Funds for the 12 months ended December 31, 1998.
After months of unprecedented volatility, the U.S. stock market ended 1998 up
28.8%, as measured by the S&P 500 Index.(1) The "bear market" of 1998 (October's
20% correction) will be remembered as the shortest on record. Fixed-income
markets also experienced some difficult times. Not since 1990 were bond
investors punished so severely for owning anything other than U.S. government
securities.
During such market extremes, it is important to keep a long-term perspective.
We believe that by remaining true to our investment discipline, we will continue
to add value for our shareholders over the long term. Of course, past
performance is not a guarantee of future results.
On the following pages, your Portfolio managers discuss their investment
strategy and provide their outlook for the next six months. We hope you find
their comments informative. If you have any questions, please contact your
financial advisor or call us at 1-800-243-4361.
Sincerely,
/s/ Philip R. McLoughlin
Philip R. McLoughlin
(1) THE S&P 500 INDEX IS AN UNMANAGED, COMMONLY USED MEASURE OF STOCK MARKET
TOTAL RETURN PERFORMANCE. THE INDEX IS NOT AVAILABLE FOR DIRECT INVESTMENT.
1
<PAGE>
CORE EQUITY PORTFOLIO
INVESTOR PROFILE
Phoenix Duff & Phelps Institutional Core Equity Portfolio seeks as its
investment objective long-term appreciation of capital by investing in a
diversified portfolio of common stocks.
INVESTMENT ADVISER'S REPORT
Since the Portfolio's inception on April 14 through December 31, 1998, Class
X shares returned 2.97% and Class Y shares returned 2.71% compared with a return
of 11.46% for the S&P 500 Index.(1) All performance figures assume reinvestment
of distributions and are net of fees.
In the fourth quarter we benefited from our overweighting in retail and
technology stocks as the market focused heavily on those sectors that were
likely to produce strong earnings growth in 1999. Our underweightings in
utilities, cyclicals, and energy stocks also helped us, as those were three
areas that underperformed substantially when the focus turned to growth.
Early in the quarter, we made a number of adjustments to the portfolio. We
wanted to improve the defensive nature of our holdings, while retaining enough
upside potential to outperform in a rising market environment. Additions were
made in the technology sector and in some names that are traditionally defensive
but also have specific attributes, which should provide them with the ability to
perform well in any market environment. Reductions were made in the cyclical and
financial sectors. We kept a modest overweighting in the financials and
increased our underweighting in the cyclicals.
The year 1998 can be characterized as a year in which value stocks were left
behind as investors sought growth and liquidity at any price. This can be most
clearly seen in the returns of the S&P 500 Barra Value Index(2) and the S&P 500
Barra Growth Index.(3) The growth stocks in the S&P produced a total return of
42.1% for the year, while the value stocks lagged substantially, returning only
13.8%. Among each group, large-cap, high quality companies continued to lead the
pack by a wide margin.
In the fourth quarter, we saw a resumption of consumer confidence and
economic growth following the two rate cuts by the Fed. We continue to believe
that in 1999 the U.S. economy will decelerate modestly from 1998's levels but
avoid recession. Historically, periods of decelerating economic growth have
tended to coincide with the outperformance of conservative, high quality stocks
- -- the investment style of Duff & Phelps Investment Management Co. but, of
course, past performance is not a guarantee of future results. We believe your
high quality equity portfolio is positioned to benefit if this slowing of GDP
growth and corporate profits comes to fruition.
(1) THE S&P 500 INDEX IS AN UNMANAGED, COMMONLY USED MEASURE OF STOCK MARKET
TOTAL RETURN PERFORMANCE. THE INDEX IS NOT AVAILABLE FOR DIRECT INVESTMENT.
(2) THE S&P 500 BARRA VALUE INDEX IS AN UNMANAGED, COMMONLY USED MEASURE OF
LARGE-CAP, VALUE-ORIENTED STOCK PERFORMANCE. THE INDEX IS NOT AVAILABLE FOR
DIRECT INVESTMENT.
(3) THE S&P 500 BARRA GROWTH INDEX IS AN UNMANAGED, COMMONLY USED MEASURE OF
LARGE-CAP, GROWTH-ORIENTED STOCK PERFORMANCE. THE INDEX IS NOT AVAILABLE FOR
DIRECT INVESTMENT.
2
<PAGE>
Core Equity Portfolio
AVERAGE ANNUAL TOTAL RETURNS(1) PERIODS ENDING 12/31/98
<TABLE>
<CAPTION>
INCEPTION INCEPTION
TO 12/31/98 DATE
----------- ---------
<S> <C> <C>
Class X Shares 2.97% 4/14/98
Class Y Shares 2.71 4/14/98
S&P 500 Index(3) 11.46 4/14/98
</TABLE>
(1) Total returns are historical and include changes in share price and the
reinvestment of both dividends and capital gains distributions.
(2) This chart illustrates returns on Class X and Class Y Shares. Returns on
Class Y Shares will vary due to differing fees.
(3) The S&P 500 Stock Index is an unmanaged, commonly used measure of stock
market total return performance.
All returns represent past performance which may not be indicative of
future performance. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
GROWTH OF $5,000,000 PERIODS ENDING 12/31
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO CORE EQUITY PORTFOLIO
(IN THOUSANDS) CLASS X(2) CLASS Y(2) S&P 500 INDEX (3)
<S> <C> <C> <C>
4/14/98 $5,000,000.00 $5,000,000.00 $5,000,000.00
12/31/98 $5,148,723.00 $5,135,360.00 $5,572,953.00
</TABLE>
This chart assumes an initial gross investment of $5,000,000 made on 4/14/98 for
Class X and Class Y shares. The total returns assume reinvestment of dividends
and capital gains.
SECTOR WEIGHTINGS 12/31/98
As a percentage of equity holdings
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Technology 18%
Financials 17%
Consumer Staples 15%
Health-Care 15%
Capital Goods 12%
Communication Services 9%
Consumer Cyclicals 8%
Other 6%
</TABLE>
3
<PAGE>
Core Equity Portfolio
TEN LARGEST HOLDINGS AT DECEMBER 31, 1998 (AS A PERCENTAGE OF TOTAL NET ASSETS)
<TABLE>
<C> <S> <C>
1. MCI WorldCom, Inc. 4.6%
COMPREHENSIVE TELECOMMUNICATIONS SERVICE PROVIDER
2. Medtronic, Inc. 4.1%
MAKES VASCULAR, CARDIAC AND NEUROLOGICAL PRODUCTS
3. Lilly (Eli) & Co. 3.9%
PHARMACEUTICAL DRUG COMPANY
4. Compaq Computer Corp. 3.7%
MAKES AND MARKETS DESKTOP PERSONAL COMPUTERS
5. American Home Products Corp. 3.7%
MAKES HEALTH-CARE AND PEST CONTROL PRODUCTS
6. Cisco Systems, Inc. 3.7%
PROVIDES NETWORKING CONNECTION SYSTEMS
7. Dayton Hudson Corp. 3.6%
DEPARTMENT STORE RETAILER
8. Albertson's, Inc. 3.5%
MAJOR RETAIL FOOD AND DRUG CHAIN
9. McDonald's Corp. 3.5%
FAST FOOD RESTAURANT OPERATOR
10. General Electric Co. 3.4%
DIVERSIFIED MANUFACTURING AND FINANCIAL SERVICES
</TABLE>
INVESTMENTS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
COMMON STOCKS--99.4%
BANKS (MAJOR REGIONAL)--2.2%
Fleet Financial Group, Inc.............. 5,350 $ 239,078
BANKS (MONEY CENTER)--1.4%
BankAmerica Corp........................ 2,600 156,325
BEVERAGES (NON-ALCOHOLIC)--1.4%
PepsiCo, Inc............................ 3,775 154,539
BUILDING MATERIALS--3.0%
Masco Corp.............................. 11,250 323,437
COMMUNICATIONS EQUIPMENT--3.2%
Lucent Technologies, Inc................ 3,150 346,500
COMPUTERS (HARDWARE)--9.7%
Compaq Computer Corp.................... 9,700 406,794
International Business Machines Corp.... 1,675 309,456
Sun Microsystems, Inc.(b)............... 4,000 342,500
-------------
1,058,750
-------------
COMPUTERS (NETWORKING)--3.7%
Cisco Systems, Inc.(b).................. 4,337 402,528
ELECTRIC COMPANIES--1.1%
Duke Energy Corp........................ 1,925 123,320
ELECTRICAL EQUIPMENT--6.1%
Emerson Electric Co..................... 4,700 294,044
General Electric Co..................... 3,575 364,873
-------------
658,917
-------------
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
FINANCIAL (DIVERSIFIED)--4.1%
Fannie Mae.............................. 2,200 $ 162,800
MGIC Investment Corp.................... 7,200 286,650
-------------
449,450
-------------
FOODS--1.5%
Sara Lee Corp........................... 5,800 163,487
HEALTH CARE (DIVERSIFIED)--3.7%
American Home Products Corp............. 7,150 402,634
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)--6.9%
Lilly (Eli) & Co........................ 4,775 424,378
Schering-Plough Corp.................... 5,850 323,213
-------------
747,591
-------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--4.1%
Medtronic, Inc.......................... 6,075 451,069
INSURANCE (MULTI-LINE)--1.9%
Hartford Financial Services Group, Inc.
(The)................................... 3,675 201,666
INSURANCE (PROPERTY-CASUALTY)--2.0%
Allstate Corp. (The).................... 5,575 215,334
INSURANCE BROKERS--2.3%
Marsh & McLennan Companies, Inc......... 4,250 248,359
OFFICE EQUIPMENT & SUPPLIES--2.8%
Pitney Bowes, Inc....................... 4,600 303,888
OIL & GAS (DRILLING & EQUIPMENT)--1.1%
Halliburton Co.......................... 3,975 117,759
</TABLE>
4 See Notes to Financial Statements
<PAGE>
Core Equity Portfolio
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
OIL (INTERNATIONAL INTEGRATED)--3.2%
Conoco, Inc. Class A(b)................. 3,600 $ 75,150
Mobil Corp.............................. 3,150 274,444
-------------
349,594
-------------
PERSONAL CARE--2.7%
Avon Products, Inc...................... 4,350 192,488
Gillette Co............................. 2,200 106,288
-------------
298,776
-------------
RESTAURANTS--3.5%
McDonald's Corp......................... 4,925 377,378
RETAIL (BUILDING SUPPLIES)--2.7%
Home Depot, Inc. (The).................. 4,850 296,759
RETAIL (DRUG STORES)--2.5%
CVS Corp................................ 4,850 266,750
RETAIL (FOOD CHAINS)--3.5%
Albertson's, Inc........................ 5,975 380,533
RETAIL (GENERAL MERCHANDISE)--3.6%
Dayton Hudson Corp...................... 7,125 386,531
SAVINGS & LOAN COMPANIES--2.6%
Washington Mutual, Inc.................. 7,325 279,723
SERVICES (COMMERCIAL & CONSUMER)--2.4%
Service Corp. International............. 6,925 263,583
SERVICES (DATA PROCESSING)--1.8%
First Data Corp......................... 6,075 192,502
TELECOMMUNICATIONS (LONG DISTANCE)--4.6%
MCI WorldCom, Inc.(b)................... 6,950 498,663
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
TELEPHONE--4.1%
Ameritech Corp.......................... 2,100 $ 133,088
Bell Atlantic Corp...................... 2,400 136,350
GTE Corp................................ 2,700 182,081
-------------
451,519
-------------
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $9,416,873) 10,806,942
- ------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS--99.4%
(IDENTIFIED COST $9,416,873) 10,806,942
- ------------------------------------------------------------------------------
<CAPTION>
PAR
VALUE
(000)
---------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--0.6%
MONEY MARKET MUTUAL FUNDS--0.6%
State Street Global Advisors Seven Seas
Money Market Fund (6.625% seven day
effective yield)........................ $ 68 68,143
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(IDENTIFIED COST $68,143) 68,143
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.0%
(IDENTIFIED COST $9,485,016) 10,875,085(a)
Cash and receivables, less liabilities--(0.0%) (1,580)
-------------
NET ASSETS--100.0% $ 10,873,505
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $1,673,666 and gross
depreciation of $359,873 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purpose was
$9,561,292.
(b) Non-income producing.
See Notes to Financial Statements 5
<PAGE>
Core Equity Portfolio
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $9,485,016) $ 10,875,085
Receivables
Dividends and interest 7,658
Receivable from adviser 52,220
Prepaid expenses 15,970
------------
Total assets 10,950,933
------------
LIABILITIES
Payables
Transfer agent fee 6,135
Financial agent fee 2,315
Trustees' fee 1,500
Accrued expenses 67,478
------------
Total liabilities 77,428
------------
NET ASSETS $ 10,873,505
------------
------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 10,207,366
Undistributed net investment income 40
Accumulated net realized loss (723,970)
Net unrealized appreciation 1,390,069
------------
NET ASSETS $ 10,873,505
------------
------------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $10,770,692) 1,053,242
Net asset value and offering price per share $10.23
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $102,813) 10,067
Net asset value and offering price per share $10.21
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION APRIL 14, 1998 TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 49,684
Interest 6,156
---------
Total investment income 55,840
---------
EXPENSES
Investment advisory fee 22,841
Distribution fee, Class Y 170
Financial agent fee 25,911
Registration 72,814
Transfer agent 27,426
Professional 20,645
Printing 16,315
Trustees 10,044
Custodian 7,308
Miscellaneous 4,368
---------
Total expenses 207,842
Less expenses borne by investment adviser (177,755)
---------
Net expenses 30,087
---------
NET INVESTMENT INCOME 25,753
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities (723,970)
Net change in unrealized appreciation (depreciation) on
investments 1,390,069
---------
NET GAIN ON INVESTMENTS 666,099
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 691,852
---------
---------
</TABLE>
6 See Notes to Financial Statements
<PAGE>
Core Equity Portfolio
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
From Inception
4/14/98 to
12/31/98
---------------
<S> <C>
FROM OPERATIONS
Net investment income (loss) $ 25,753
Net realized gain (loss) (723,970)
Net change in unrealized appreciation
(depreciation) 1,390,069
---------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 691,852
---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income, Class X (25,531)
Net investment income, Class Y (222)
In excess of net investment income,
Class X (43,528)
In excess of net investment income,
Class Y (378)
---------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (69,659)
---------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares
(1,046,343 shares) 10,081,583
Net asset value of shares issued from
reinvestment of distributions (6,899
shares) 69,058
---------------
Total 10,150,641
---------------
CLASS Y
Proceeds from sales of shares (10,007
shares) 100,071
Net asset value of shares issued from
reinvestment of distributions (60
shares) 600
---------------
Total 100,671
---------------
INCREASE IN NET ASSETS FROM SHARE
TRANSACTIONS 10,251,312
---------------
NET INCREASE IN NET ASSETS 10,873,505
NET ASSETS
Beginning of period 0
---------------
END OF PERIOD (INCLUDING UNDISTRIBUTED
NET INVESTMENT INCOME OF $40) $ 10,873,505
---------------
---------------
</TABLE>
See Notes to Financial Statements 7
<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
12/31/98 12/31/98
<S> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.04(1)(5) 0.02(2)(5)
Net realized and unrealized gain
(loss) 0.26 0.25
----- -----
TOTAL FROM INVESTMENT OPERATIONS 0.30 0.27
----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (0.03) (0.02)
Dividends from net realized gains -- --
In excess of net investment income (0.04) (0.04)
----- -----
TOTAL DISTRIBUTIONS (0.07) (0.06)
----- -----
Change in net asset value 0.23 0.21
----- -----
NET ASSET VALUE, END OF PERIOD $ 10.23 $ 10.21
----- -----
----- -----
Total return 2.97%(4) 2.71%(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $10,771 $103
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.65%(3) 0.90%(3)
Net investment income 0.56%(3) 0.37%(3)
Portfolio turnover 52%(4) 52%(4)
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.26.
(2) Includes reimbursement of operating expenses by investment adviser of
$0.26.
(3) Annualized.
(4) Not annualized.
(5) Computed using average shares outstanding.
8 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 12 months ended December 31, 1998, Class X shares returned 31.20%
and Class Y shares returned 30.85%. These 12-month results outdistanced the
28.76% return of the S&P 500 Index(1) and significantly outperformed the Lipper
Growth Fund average of 22.86% for a universe of 980 funds, according to Lipper
Inc. All performance figures assume reinvestment of distributions and are net of
fees.
While 1998 turned out to be an excellent year for the U.S. stock market, it
was marked with exceptional volatility. Last year was also marked by a large
disparity in returns between asset classes. Small-capitalization stocks
continued to underperform and profitability at many cyclical companies came
under pressure due to weakness in the international markets and falling
commodity prices. Recognizing these trends, we focused our stock selection on
large-capitalization companies with predictable revenue streams and a domestic
focus. The Portfolio's heavy bias towards large-cap names and its overweighting
in the health-care, consumer staples and technology sectors were the primary
drivers for our strong performance last year.
Specific to the fourth quarter, positive contributors to the Portfolio's
above-average results included our top-down strategy of overweighting
technology, communication services and consumer staples as well as strong stock
selection in each of these sectors. Despite the obvious temptation to raise cash
during this summer's sell-off, our decision to remain fully invested in stocks
also paid off handsomely as the market has rebounded dramatically from its early
October lows. On the other side of the equation, the most notable factor that
held back performance over this latest reporting period was the Portfolio's
underweighted position in the strongly performing consumer cyclical group during
the final quarter. While we were not expecting a recession anytime soon, we were
somewhat surprised by the strength of the U.S consumer over this latest quarter.
OUTLOOK
As we enter 1999, the stock market and U.S. economy continue to be strong.
Despite some weakness in exports and the manufacturing sector, robust consumer
spending has made the U.S. economy the strongest in the industrialized world.
Recent data on employment, personal income, consumer spending, and consumer
confidence are all encouraging. Yet, there is a fundamental disconnect between
the economy and corporate profits. Profits for 1998 were about flat with 1997,
and we expect only slight improvement this year. This tough earnings environment
over the past year benefited steady growth groups, such as health-care and
communication services. We don't see this changing for the foreseeable future.
Actually, we see the torrid pace of economic growth slowing somewhat in 1999.
Overall, we remain cautiously optimistic on the market. While we expect
corporate profits to remain under pressure, this current environment of benign
inflation and historically low interest rates should continue to be a positive
catalyst for financial assets. After four straight years of double-digit gains,
it is also likely that we will see more normalized (single-digit) returns for
U.S. equities in 1999. Lastly, we believe that the financial markets will remain
volatile over the near term, as there are still many crosscurrents at work in
the global financial systems.
(1) THE S&P 500 INDEX IS AN UNMANAGED, COMMONLY USED MEASURE OF STOCK MARKET
TOTAL RETURN PERFORMANCE. THE INDEX IS NOT AVAILABLE FOR DIRECT INVESTMENT.
9
<PAGE>
Growth Stock Portfolio
AVERAGE ANNUAL TOTAL RETURNS(1) PERIODS ENDING 12/31/98
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Class X Shares 31.20% 19.65% 18.44%
Class Y Shares 30.85 19.35 18.14
S&P 500 Index(3) 28.76 24.15 19.22
</TABLE>
(1) Total returns are historical and include changes in share price and the
reinvestment of both dividends and capital gains distributions.
(2) This chart illustrates returns on Class X shares for ten years. Returns on
Class Y Shares will vary due to differing inception dates and fees.
(3) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance.
Performance data is based on the Portfolio's past performance as a pooled
separate investment account of Phoenix Home Life Mutual Insurance Company
prior to March 1, 1996 (inception of the Fund). Returns indicate past
performance, which is not indicative of future performance. Investment
return and net asset value will fluctuate, so that your shares, when
redeemed may be worth more or less than the original cost.
GROWTH OF $5,000,000 PERIODS ENDING 12/31
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH STOCK PORTFOLIO
(IN THOUSANDS) CLASS X(2) S&P 500 INDEX(3)
<S> <C> <C>
12/30/1988 $5,000,000.00 $5,000,000.00
12/29/1989 $6,785,355.45 $6,571,746.62
12/31/1990 $7,005,596.69 $6,361,813.50
12/31/1991 $9,848,478.77 $8,304,942.86
12/31/1992 $10,064,448.31 $8,943,652.12
12/31/1993 $11,074,971.75 $9,838,026.31
12/30/1994 $10,975,254.41 $9,968,185.52
12/29/1995 $14,786,412.53 $13,706,981.34
12/31/1996 $16,462,647.16 $16,893,536.06
12/31/1997 $20,702,802.41 $22,531,853.96
12/31/1998 $27,162,714.74 $29,011,222.88
</TABLE>
This chart assumes an initial gross investment of $5,000,000 made on 12/31/88
for Class X shares. The total return for Class X shares assumes reinvestment of
dividends and capital gains. Class Y share performance will be greater or less
than that shown based on differences in inception dates and fees.
SECTOR WEIGHTINGS 12/31/98
As a percentage of equity holdings
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Technology 24%
Consumer Staples 18%
Health-Care 18%
Financials 14%
Communication Services 9%
Capital Goods 7%
Consumer Cyclicals 6%
Other 4%
</TABLE>
10
<PAGE>
Growth Stock Portfolio
TEN LARGEST HOLDINGS AT DECEMBER 31, 1998 (AS A PERCENTAGE OF TOTAL NET ASSETS)
<TABLE>
<C> <S> <C>
1. Intel Corp. 4.0%
DESIGNS, DEVELOPS AND MARKETS ADVANCED MICROCOMPUTER COMPONENTS
2. International Business Machines Corp. 3.5%
PROVIDES ADVANCED INFORMATION TECHNOLOGIES
3. Microsoft Corp. 3.2%
WORLD'S LEADING COMPUTER SOFTWARE COMPANY
4. AirTouch Communications, Inc. 3.2%
PROVIDES WIRELESS TELECOMMUNICATIONS AND PAGING SERVICES
5. Pfizer, Inc. 3.2%
PRODUCES AND DISTRIBUTES PROPRIETARY HEALTH-RELATED ITEMS
6. Bristol-Myers Squibb Co. 2.8%
COMPREHENSIVE HEALTH-CARE COMPANY
7. General Electric Co. 2.7%
DIVERSIFIED MANUFACTURING AND FINANCIAL SERVICES PROVIDER
8. Safeway, Inc. 2.5%
OPERATES A CHAIN OF FOOD AND DRUG STORES
9. Compuware Corp. 2.4%
DEVELOPS AND MARKETS PROGRAMMING AND APPLICATION PRODUCTIVITY
SOFTWARE
10. Warner-Lambert Co. 2.4%
MAKES CONSUMER HEALTH-CARE PRODUCTS
</TABLE>
INVESTMENTS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C> <C>
COMMON STOCKS--98.0%
BANKS (MAJOR REGIONAL)--3.4%
Bank One Corp........................... 11,672 $ 596,001
Mellon Bank Corp........................ 4,900 336,875
U.S. Bancorp............................ 9,400 333,700
Wells Fargo & Co........................ 25,600 1,022,400
------------
2,288,976
------------
BANKS (MONEY CENTER)--1.3%
BankAmerica Corp........................ 14,402 865,920
BEVERAGES (ALCOHOLIC)--1.0%
Anheuser-Busch Companies, Inc........... 10,400 682,500
BEVERAGES (NON-ALCOHOLIC)--1.5%
PepsiCo, Inc............................ 25,100 1,027,531
BROADCASTING (TELEVISION, RADIO & CABLE)--5.0%
CBS Corp................................ 10,500 343,875
Chancellor Media Corp.(b)............... 8,600 411,725
Clear Channel Communications, Inc.(b)... 6,700 365,150
Fox Entertainment Group, Inc. Class
A(b).................................... 8,400 211,575
Liberty Media Group Class A(b).......... 18,150 836,034
Tele-Communications, Inc. Class A(b).... 21,500 1,189,219
------------
3,357,578
------------
COMMUNICATIONS EQUIPMENT--0.8%
Tellabs, Inc.(b)........................ 7,800 534,787
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C> <C>
COMPUTERS (HARDWARE)--3.6%
International Business Machines Corp.... 13,000 $ 2,401,750
COMPUTERS (NETWORKING)--1.6%
Cisco Systems, Inc.(b).................. 11,475 1,065,023
COMPUTERS (PERIPHERALS)--1.6%
EMC Corp.(b)............................ 12,800 1,088,000
COMPUTERS (SOFTWARE & SERVICES)--11.5%
America Online, Inc.(b)................. 4,300 688,000
BMC Software, Inc.(b)................... 22,900 1,020,481
Compuware Corp.(b)...................... 21,200 1,656,250
Edwards (J.D.) & Co.(b)................. 6,500 184,437
HBO & Co................................ 38,700 1,110,206
Microsoft Corp.(b)...................... 15,800 2,191,262
Oracle Corp.(b)......................... 14,400 621,000
Sterling Commerce, Inc.(b).............. 7,100 319,500
------------
7,791,136
------------
CONSUMER FINANCE--1.3%
Capital One Financial Corp.............. 7,500 862,500
DISTRIBUTORS (FOOD & HEALTH)--1.4%
Cardinal Health, Inc.................... 12,800 971,200
ELECTRICAL EQUIPMENT--2.7%
General Electric Co..................... 17,700 1,806,506
ELECTRONICS (SEMICONDUCTORS)--4.7%
Intel Corp.............................. 23,000 2,726,937
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Growth Stock Portfolio
<TABLE>
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C> <C>
ELECTRONICS (SEMICONDUCTORS)--CONTINUED
Micron Technology, Inc.................. 9,200 $ 465,175
------------
3,192,112
------------
FINANCIAL (DIVERSIFIED)--4.8%
Citigroup, Inc.......................... 19,050 942,975
Freddie Mac............................. 23,000 1,482,062
Morgan Stanley Dean Witter & Co......... 11,200 795,200
------------
3,220,237
------------
HEALTH CARE (DIVERSIFIED)--5.8%
Bristol-Myers Squibb Co................. 14,000 1,873,375
Mylan Laboratories, Inc................. 13,000 409,500
Warner-Lambert Co....................... 21,500 1,616,531
------------
3,899,406
------------
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS)--6.6%
Pfizer, Inc............................. 17,200 2,157,525
Schering-Plough Corp.................... 27,000 1,491,750
Watson Pharmaceuticals, Inc.(b)......... 12,900 811,087
------------
4,460,362
------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--3.8%
Baxter International, Inc............... 12,900 829,631
Becton, Dickinson and Co................ 6,900 294,544
Genzyme Corp.(b)........................ 6,900 343,275
Medtronic, Inc.......................... 15,000 1,113,750
------------
2,581,200
------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--2.2%
Clorox Co. (The)........................ 2,300 268,669
Colgate-Palmolive Co.................... 3,600 334,350
Procter & Gamble Co. (The).............. 10,000 913,125
------------
1,516,144
------------
INSURANCE (LIFE/HEALTH)--0.5%
UNUM Corp............................... 6,100 356,087
INSURANCE (MULTI-LINE)--1.8%
American International Group, Inc....... 8,700 840,638
ReliaStar Financial Corp................ 8,800 405,900
------------
1,246,538
------------
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C> <C>
LODGING-HOTELS--0.5%
Carnival Corp........................... 7,400 $ 355,200
MANUFACTURING (DIVERSIFIED)--2.0%
Tyco International Ltd.................. 17,600 1,327,700
OIL & GAS (DRILLING & EQUIPMENT)--1.0%
Halliburton Co.......................... 9,000 266,625
Schlumberger Ltd........................ 5,600 258,300
Transocean Offshore, Inc................ 4,600 123,338
------------
648,263
------------
OIL (DOMESTIC INTEGRATED)--1.8%
USX-Marathon Group...................... 40,800 1,229,100
OIL (INTERNATIONAL INTEGRATED)--2.6%
Amoco Corp.............................. 25,500 1,539,563
Conoco, Inc. Class A(b)................. 12,100 252,588
------------
1,792,151
------------
RETAIL (BUILDING SUPPLIES)--1.8%
Home Depot, Inc. (The).................. 19,800 1,211,513
RETAIL (COMPUTERS & ELECTRONICS)--0.4%
Tandy Corp.............................. 6,100 251,244
RETAIL (DRUG STORES)--3.9%
CVS Corp................................ 24,100 1,325,500
Rite Aid Corp........................... 26,200 1,298,538
------------
2,624,038
------------
RETAIL (FOOD CHAINS)--4.3%
Meyer (Fred), Inc.(b)................... 19,790 1,192,348
Safeway, Inc.(b)........................ 27,900 1,700,156
------------
2,892,504
------------
RETAIL (GENERAL MERCHANDISE)--0.8%
Wal-Mart Stores, Inc.................... 6,500 529,344
RETAIL (SPECIALTY)--1.7%
Borders Group, Inc.(b).................. 13,800 344,138
Staples, Inc.(b)........................ 18,900 825,694
------------
1,169,832
------------
SERVICES (COMMERCIAL & CONSUMER)--0.5%
ServiceMaster Co. (The)................. 16,300 359,619
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Growth Stock Portfolio
<TABLE>
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--3.2%
AirTouch Communications, Inc.(b)........ 30,200 $ 2,178,175
TELECOMMUNICATIONS (LONG DISTANCE)--3.2%
AT&T Corp............................... 13,200 993,300
MCI WorldCom, Inc.(b)................... 16,158 1,159,337
------------
2,152,637
------------
TELEPHONE--1.8%
BellSouth Corp.......................... 15,600 778,050
SBC Communications, Inc................. 8,600 461,175
------------
1,239,225
------------
WASTE MANAGEMENT--1.6%
Waste Management, Inc................... 23,900 1,114,338
- ----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $50,075,595) 66,290,376
- ----------------------------------------------------------------------------
FOREIGN COMMON STOCKS--0.8%
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS)--0.8%
Elan Corp. PLC Sponsored ADR
(Ireland)(b)............................ 7,500 521,719
- ----------------------------------------------------------------------------
TOTAL FOREIGN COMMON STOCKS
(IDENTIFIED COST $380,350) 521,719
- ----------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS--98.8%
(IDENTIFIED COST $50,455,945) 66,812,095
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ -------- -------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--1.6%
COMMERCIAL PAPER--1.6%
Vermont American Corp. 4.95%, 1/4/99.... A-1+ $ 1,110 $ 1,109,542
- ---------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(IDENTIFIED COST $1,109,542) 1,109,542
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS--100.4%
(IDENTIFIED COST $51,565,487) 67,921,637(a)
Cash and receivables, less liabilities--(0.4%) (245,199)
-------------
NET ASSETS--100.0% $ 67,676,438
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $16,790,990 and gross
depreciation of $709,376 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$51,840,023.
(b) Non-income producing.
See Notes to Financial Statements 13
<PAGE>
Growth Stock Portfolio
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $51,565,487) $ 67,921,637
Cash 2,510
Receivables
Fund shares sold 19,735
Investment securities sold 798,852
Dividends and interest 36,384
Receivable from advisor 1,570
Prepaid expenses 1,186
--------------
Total assets 68,781,874
--------------
LIABILITIES
Payables
Investment securities purchased 1,008,534
Transfer agent fee 7,176
Financial agent fee 4,942
Distribution fee 4,352
Trustees' fee 1,472
Accrued expenses 78,960
--------------
Total liabilities 1,105,436
--------------
NET ASSETS $ 67,676,438
--------------
--------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 47,486,601
Accumulated net realized gain 3,833,687
Net unrealized appreciation 16,356,150
--------------
NET ASSETS $ 67,676,438
--------------
--------------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $46,329,706) 1,224,946
Net asset value and offering price per share $37.82
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $21,346,732) 564,831
Net asset value and offering price per share $37.79
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 459,315
Interest 74,670
-----------
Total investment income 533,985
-----------
EXPENSES
Investment advisory fee 383,128
Distribution fee, Class Y 48,137
Financial agent fee 68,404
Registration 46,845
Transfer agent 44,338
Professional 32,532
Custodian 20,892
Trustees 13,209
Printing 8,787
Miscellaneous 18,319
-----------
Total expenses 684,591
Less expenses borne by investment adviser (188,736)
-----------
Net expenses 495,855
-----------
NET INVESTMENT INCOME 38,130
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities 8,875,871
Net change in unrealized appreciation (depreciation) on
investments 8,732,664
-----------
NET GAIN ON INVESTMENTS 17,608,535
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,646,665
-----------
-----------
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Growth Stock Portfolio
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/98 12/31/97
------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 38,130 $ 497,966
Net realized gain (loss) 8,875,871 27,922,676
Net change in unrealized appreciation
(depreciation) 8,732,664 (8,683,661)
------------- ------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS 17,646,665 19,736,981
------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income, Class X (30,177) (454,672)
Net investment income, Class Y (7,953) (109,947)
Net realized gains, Class X (7,279,351) (27,451,354)
Net realized gains, Class Y (3,125,369) (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 (10,442,850) (36,564,678)
------------- ------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (447,453
and 186,821 shares, respectively) 15,187,022 8,631,368
Net asset value of shares issued from
reinvestment of distributions
(204,764 and 760,770 shares,
respectively) 7,309,523 27,925,887
Cost of shares redeemed (737,633 and
1,381,997 shares, respectively) (25,502,110) (61,947,854)
------------- ------------
Total (3,005,565) (25,390,599)
------------- ------------
CLASS Y
Proceeds from sales of shares (42,715
and 34,497 shares, respectively) 1,441,580 1,706,016
Net asset value of shares issued from
reinvestment of distributions
(85,930 and 235,940 shares,
respectively) 3,069,279 8,638,038
Cost of shares redeemed (84,508 and
234,220 shares, respectively) (3,014,143) (11,860,743)
------------- ------------
Total 1,496,716 (1,516,689)
------------- ------------
DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS (1,508,849) (26,907,288)
------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS 5,694,966 (43,734,985)
NET ASSETS
Beginning of period 61,981,472 105,716,457
------------- ------------
END OF PERIOD (INCLUDING UNDISTRIBUTED
NET INVESTMENT INCOME OF
$0 AND $0, RESPECTIVELY) $ 67,676,438 $ 61,981,472
------------- ------------
------------- ------------
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Growth Stock Portfolio
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X
---------------------------------------------------
YEAR ENDED DECEMBER 31, FROM INCEPTION
---------------------------- 3/1/96 TO
1998 1997 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 (loss) 0.05(4)(7) 0.31(4)(7) 0.34(4)
Net realized and unrealized gain
(loss) 9.88 10.60 4.89
----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS 9.93 10.91 5.23
----- ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (0.15) (0.39) (0.30)
Dividends from net realized gains (5.81) (24.07)(3) (5.52)
In excess of net investment income -- (0.02) --
----- ----- -----
TOTAL DISTRIBUTIONS (5.96) (24.48) (5.82)
----- ----- -----
Change in net asset value 3.97 (13.57) (0.59)
----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 37.82 $ 33.85 $ 47.42
----- ----- -----
----- ----- -----
Total return 31.20% 25.76% 10.71%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $46,330 $44,350 $82,739
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.70% 0.70% 0.70%(1)
Net investment income 0.13% 0.64% 0.65%(1)
Portfolio turnover 115% 148% 99%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
---------------------------------------------------
YEAR ENDED DECEMBER 31, FROM INCEPTION
---------------------------- 3/1/96 TO
1998 1997 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 (loss) (0.04)(5)(7) 0.18(5)(7) 0.18(5)
Net realized and unrealized gain
(loss) 9.88 10.59 4.95
----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS 9.84 10.77 5.13
----- ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (0.10) (0.31) (0.19)
Dividends from net realized gains (5.81) (24.02)(3) (5.52)
In excess of net investment income -- (0.01) --
----- ----- -----
TOTAL DISTRIBUTIONS (5.91) (24.34) (5.71)
----- ----- -----
Change in net asset value 3.93 (13.57) (0.58)
----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 37.79 $ 33.86 $ 47.43
----- ----- -----
----- ----- -----
Total return 30.85% 25.46% 10.48%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $21,347 $17,631 $22,978
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.95% 0.95% 0.95%(1)
Net investment income (loss) (0.11)% 0.39% 0.39%(1)
Portfolio turnover 115% 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
$0.11, $0.08 and $0.04, respectively.
(5) Includes reimbursement of operating expenses by investment adviser of
$0.11, $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.
16
See Notes to Financial Statements
<PAGE>
REAL ESTATE EQUITY SECURITIES PORTFOLIO
INVESTOR PROFILE
The Portfolio emphasizes capital appreciation and current yield equally. It
is appropriate for investors seeking investment in a diversified portfolio of
real estate investment trusts and real estate operating companies. Investors
should note that real estate investing involves certain risks, including
refinancing, economic impact on the industry, changes in the value of owned
properties, dependency on management skills and risks similar to those linked to
small company investing.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Real Estate Equity Securities
Portfolio provided a return (20.53)% and (20.69)% for Class X and Y shares,
respectively, compared with a return of (17.50)% for the NAREIT Equity Total
Return Index.(1)
The year has clearly been disappointing from a stock price performance
perspective. However, growth expectations in funds from operations (FFO) -- the
proxy for earnings -- that a year ago we indicated should be 9% to 12% per
share, have been met to date. Despite the negative press and broad-brush strokes
of criticism, the bottom-line earnings were delivered overall. In fact, FFO per
share grew by over 12% in the second and third quarters. This compares to flat
to negative earnings growth for the broader market for the same two quarters.
Earnings growth for equity REITs peaked this year as we have moved closer to
equilibrium in the real estate cycle. This was not a surprise, but the level of
erosion of investor confidence in the sector was. Some of the concerns that
surfaced in 1998 were valid, while others were exaggerated and were frequently
used to critique all equity REITs (over 170 companies in 14 sectors). The
concerns included the threats of overbuilding, legislative action, and a
softening economy. They also included legitimate questions about a lack of
demonstrated discipline by some equity REITs in issuing additional common shares
and debt.
More than a few management teams did not recognize when their cost of
capital was greater than the return available in the market for acquisitions,
development or redevelopment. The capital markets ultimately disciplined them
and private developers appropriately. However, discipline was meted out
throughout the sector with very little distinction between offending REITs and
REITs with demonstrated fiscal responsibility.
Larger, more liquid equity REITs underperformed their peers overall this
past year as investors were net sellers. Last years "growth" REITs, with
significant imbedded internal growth, were nevertheless abandoned by investors
who no longer saw growth and momentum in those names. As we favor visible
earnings, particularly from internal growth, we were overweight in those
companies. We were also overweight in the two sectors that experienced the most
multiple contraction, office and hotels. The office and hotel sectors had the
highest earnings growth per share this year and traded at the deepest discount
to net asset value, but they were also subject to the largest
(1) THE NAREIT (NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS) EQUITY
TOTAL RETURN INDEX IS AN UNMANAGED, COMMONLY USED MEASURE OF REAL ESTATE
EQUITY MARKET TOTAL RETURN PERFORMANCE. THE INDEX IS NOT AVAILABLE FOR
DIRECT INVESTMENT.
17
<PAGE>
REAL ESTATE EQUITY SECURITIES PORTFOLIO (CONTINUED)
swings on changes of sentiment or fundamentals. These reasons caused us to
underperform our benchmark for the year.
OUTLOOK
Conservative growth estimates of funds from operations per share range from
5% to 7% in 1999, assuming no external growth, and 7% to 9%, assuming modest
external growth. Equity REIT earnings fundamentals will continue to beat the
broader market, in our opinion. In addition, the dividend payout ratio as a
percentage of cash flow is at its lowest in the history of equity REITs, thus
allowing companies to retain cash flow in capital-constrained times.
Based on this information, we believe the broader market is expensive
relative to REITs. Last year we could not make the claim that real estate was
cheaper on Wall Street than Main Street. This year we can. Whether one is
looking at office or industrial property values per square foot, apartment
values per unit, hotel values per key, health-care property values per bed,
discounts to net asset value, or FFO yield versus cap rates, equity REITs are
cheaper today than private market real estate. Given the earnings expectation
for the broader market, combined with its record high multiple and a return to a
rational level of investor sentiment, we believe equity REITs should offer an
attractive alternative to the broader market with continued attractive yields.
18
<PAGE>
Real Estate Equity Securities Portfolio
AVERAGE ANNUAL TOTAL RETURNS(1) PERIODS ENDING 12/31/98
<TABLE>
<CAPTION>
INCEPTION INCEPTION
1 YEAR TO 12/31/98 DATE
------- ----------- ---------
<S> <C> <C> <C>
Class X Shares (20.53)% (1.02)% 5/1/97
Class Y Shares (20.69) (1.21) 5/1/97
NAREIT Equity Total Return Index(3) (17.50) 0.79 5/1/97
</TABLE>
(1) Total returns are historical and include changes in share price and the
reinvestment of both dividends and capital gains distributions.
(2) This chart illustrates returns on Class X and Class Y Shares. Returns on
Class Y Shares will vary due to differing fees.
(3) The NAREIT Equity Total Return Index is an unmanaged, commonly used measure
of real estate equity market total return performance.
All returns represent past performance which may not be indicative of
future performance. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
GROWTH OF $250,000 PERIODS ENDING 12/31
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REAL ESTATE REAL ESTATE NAREIT EQUITY
EQUITY SECURITIES EQUITY SECURITIES TOTAL RETURN
(IN THOUSANDS) PORTFOLIO CLASS X(2) PORTFOLIO CLASS Y(2) INDEX(3)
<S> <C> <C> <C>
5/1/1997 $250,000.00 $250,000.00 $250,000.00
12/31/1997 $309,248.10 $308,883.90 $307,029.71
12/31/1998 $245,763.32 $244,990.79 $253,291.80
</TABLE>
This chart assumes an initial gross investment of $250,000 made on 5/1/97
(inception of the Fund) for Class X and Class Y shares. The total returns for
Class X and Class Y shares assume reinvestment of dividends and capital gains.
Class Y share performance will be greater or less than that shown based on
differences in fees.
SECTOR WEIGHTINGS 12/31/98
As a percentage of equity holdings
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Commercial 40%
Residential 22%
Retail 20%
Diversified 11%
Health-Care 6%
Hotels 1%
</TABLE>
19
<PAGE>
Real Estate Equity Securities Portfolio
TEN LARGEST HOLDINGS AT DECEMBER 31, 1998 (AS A PERCENTAGE OF TOTAL NET ASSETS)
<TABLE>
<C> <S> <C>
1. Mack-Cali Realty Corp. 5.8%
OFFICE/INDUSTRIAL REIT
2. Reckson Associates Realty Corp. 5.6%
OFFICE/INDUSTRIAL REIT
3. Spieker Properties, Inc. 5.4%
OFFICE/INDUSTRIAL REIT
4. Boston Properties, Inc. 5.2%
OFFICE/INDUSTRIAL REIT
5. Apartment Investment & Management Co. 5.0%
APARTMENT REIT
6. Vornado Realty Trust 4.6%
DIVERSIFIED REIT
7. CenterPoint Properties Corp. 4.2%
OFFICE/INDUSTRIAL REIT
8. Essex Property Trust, Inc. 4.0%
APARTMENT REIT
9. Equity Residential Properties Trust 3.7%
APARTMENT REIT
10. Alexandria Real Estate Equities, Inc. 3.4%
OFFICE/INDUSTRIAL REIT
</TABLE>
INVESTMENTS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
COMMON STOCKS--92.8%
REAL ESTATE INVESTMENT TRUSTS--92.5%
COMMERCIAL--37.5%
OFFICE/INDUSTRIAL--37.5%
Alexandria Real Estate Equities, Inc.... 22,500 $ 696,094
Boston Properties, Inc.................. 34,600 1,055,300
CenterPoint Properties Corp............. 25,200 852,075
First Industrial Realty Trust, Inc...... 18,500 496,031
Great Lakes REIT, Inc................... 12,000 188,250
Highwoods Properties, Inc............... 18,900 486,675
Mack-Cali Realty Corp................... 38,000 1,173,250
Reckson Associates Realty Corp.......... 51,100 1,133,781
Spieker Properties, Inc................. 31,500 1,090,687
Weeks Corp.............................. 16,300 459,456
-------------
7,631,599
-------------
DIVERSIFIED--9.7%
Colonial Properties Trust............... 6,300 167,737
Crescent Real Estate Equities Co........ 22,900 526,700
Golf Trust of America, Inc.............. 13,000 360,750
Vornado Realty Trust.................... 27,600 931,500
-------------
1,986,687
-------------
HEALTH CARE--5.5%
HRPT Properties Trust................... 36,500 513,281
Nationwide Health Properties, Inc....... 22,200 478,688
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
HEALTH CARE--CONTINUED
OMEGA Healthcare Investors, Inc......... 4,200 $ 126,788
-------------
1,118,757
-------------
HOTELS--1.3%
Patriot American Hospitality, Inc....... 12,300 73,800
Starwood Hotels & Resorts combined
certificate............................. 8,500 192,844
-------------
266,644
-------------
RESIDENTIAL--19.6%
APARTMENTS--17.5%
Apartment Investment & Management Co.... 27,200 1,011,500
Avalonbay Communities, Inc.............. 13,700 469,225
Equity Residential Properties Trust..... 18,700 756,181
Essex Property Trust, Inc............... 27,200 809,200
Gables Residential Trust................ 22,000 510,125
-------------
3,556,231
-------------
MANUFACTURED HOMES--2.1%
Manufactured Home Communities, Inc...... 8,600 215,538
Sun Communities, Inc.................... 6,400 222,800
-------------
438,338
-------------
- ------------------------------------------------------------------------------
TOTAL RESIDENTIAL 3,994,569
- ------------------------------------------------------------------------------
RETAIL--18.9%
FACTORY OUTLET--2.8%
Chelsea GCA Realty, Inc................. 16,200 577,125
</TABLE>
20 See Notes to Financial Statements
<PAGE>
Real Estate Equity Securities Portfolio
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
REGIONAL MALLS--8.6%
CBL & Associates Properties, Inc........ 25,500 $ 658,219
Macerich Co. (The)...................... 25,700 658,563
Urban Shopping Centers, Inc............. 13,300 435,575
-------------
1,752,357
-------------
STRIP CENTERS--7.5%
Bradley Real Estate Trust, Inc.......... 14,800 303,400
Developers Diversified Realty Corp...... 35,600 631,900
JDN Realty Corp......................... 4,800 103,500
Kimco Realty Corp....................... 12,400 492,125
-------------
1,530,925
-------------
- ------------------------------------------------------------------------------
TOTAL RETAIL 3,860,407
- ------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(IDENTIFIED COST $20,230,343) 18,858,663
- ------------------------------------------------------------------------------
REAL ESTATE OPERATING COMPANIES--0.3%
COMMERCIAL--0.2%
OFFICE/INDUSTRIAL--0.2%
Reckson Services Industries, Inc.(b).... 10,080 41,580
DIVERSIFIED--0.1%
Cresent Operating, Inc.(b).............. 2,500 11,797
Vornado Operating, Inc.(b).............. 850 6,853
-------------
18,650
-------------
- ------------------------------------------------------------------------------
TOTAL REAL ESTATE OPERATING COMPANIES
(IDENTIFIED COST $69,077) 60,230
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $20,385,050) 18,918,893
- ------------------------------------------------------------------------------
<CAPTION>
PAR
VALUE
(000) VALUE
--------- -------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--7.0%
REPURCHASE AGREEMENT--7.0%
State Street Bank & Trust Co. repurchase
agreement, 4.25% dated 12/31/98 due
1/4/99, repurchase price $1,424,672
collateralized by U.S. Treasury bill
10.625%, 8/15/15, market value
$1,459,270.............................. $ 1,424 $ 1,424,000
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(IDENTIFIED COST $1,424,000) 1,424,000
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.8%
(IDENTIFIED COST $21,723,420) 20,342,893(a)
Cash and receivables, less liabilities--0.2% 31,558
-------------
NET ASSETS--100.0% $ 20,374,451
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $373,884 and gross
depreciation of $1,754,411 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purpose was
$21,723,420.
(b) Non-income producing.
See Notes to Financial Statements 21
<PAGE>
Real Estate Equity Securities Portfolio
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $21,723,420) $ 20,342,893
Cash 477
Receivables
Dividends and interest 136,889
Prepaid expenses 395
--------------
Total assets 20,480,654
--------------
LIABILITIES
Payables
Investment advisory fee 5,713
Transfer agent fee 7,176
Trustees' fee 1,500
Financial agent fee 1,204
Distribution fee 139
Accrued expenses 90,471
--------------
Total liabilities 106,203
--------------
NET ASSETS $ 20,374,451
--------------
--------------
NET ASSETS CONSIST OF:
Capital paid on shares of beneficial interest $ 22,473,552
Undistributed net investment income 39,265
Accumulated net realized loss (757,839)
Net unrealized depreciation (1,380,527)
--------------
NET ASSETS $ 20,374,451
--------------
--------------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Asset $19,696,630) 2,168,246
Net asset value and offering price per share $9.08
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Asset $677,821) 74,596
Net asset value and offering price per share $9.09
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 830,023
Interest 70,707
--------------
Total investment income 900,730
--------------
EXPENSES
Investment advisory fee 79,971
Distribution fee, Class Y 1,851
Financial agent fee 56,515
Registration 41,315
Transfer agent 32,879
Printing 31,329
Administration fee 24,787
Professional 23,728
Trustees 13,001
Custodian 4,648
Miscellaneous 6,682
--------------
Total expenses 316,706
Less expenses borne by investment adviser (168,100)
--------------
Net expenses 148,606
--------------
NET INVESTMENT INCOME 752,124
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities (757,839)
Net change in unrealized appreciation (depreciation) on
investments (3,480,613)
--------------
NET LOSS ON INVESTMENTS (4,238,452)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (3,486,328)
--------------
--------------
</TABLE>
22 See Notes to Financial Statements
<PAGE>
Real Estate Equity Securities Portfolio
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
From Inception
Year Ended 5/1/97 to
12/31/98 12/31/97
------------ ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 752,124 $ 362,738
Net realized gain (loss) (757,839) 46,037
Net change in unrealized
appreciation/(depreciation) (3,480,613) 2,100,086
------------ ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (3,486,328) 2,508,861
------------ ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income, Class X (752,862) (356,617)
Net investment income, Class Y (30,663) (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 (783,525) (401,356)
------------ ---------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (770,681
and 1,285,529 shares, respectively) 7,215,000 13,305,591
Net asset value of shares issued from
reinvestment of distributions
(77,570 and 34,466 shares,
respectively) 752,854 397,538
------------ ---------------
Total 7,967,854 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
(3,113 and 331 shares, respectively) 30,655 3,815
------------ ---------------
Total 30,655 835,161
------------ ---------------
INCREASE IN NET ASSETS FROM SHARE
TRANSACTIONS 7,998,509 14,538,290
------------ ---------------
NET INCREASE IN NET ASSETS 3,728,656 16,645,795
NET ASSETS
Beginning of period 16,645,795 0
------------ ---------------
END OF PERIOD (INCLUDING
UNDISTRIBUTED NET INVESTMENT INCOME
OF
$34,558 AND $44,752, RESPECTIVELY) $ 20,374,451 $ 16,645,795
------------ ---------------
------------ ---------------
</TABLE>
See Notes to Financial Statements 23
<PAGE>
Real Estate Equity Securities Portfolio
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X
--------------------------------
FROM
INCEPTION
YEAR ENDED 5/1/97 TO
12/31/98 12/31/97
<S> <C> <C>
Net asset value, beginning of period $ 11.96 $ 10.00
INCOME FROM INVESTMENT OPERATIONS(5)
Net investment income (loss) 0.47(3)(6) 0.39(3)
Net realized and unrealized gain
(loss) (2.89) 1.96
----- -----
TOTAL FROM INVESTMENT OPERATIONS (2.42) 2.35
----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (0.46) (0.35)
Dividends from net realized gains -- (0.04)
----- -----
TOTAL DISTRIBUTIONS (0.46) (0.39)
----- -----
Change in net asset value (2.88) 1.96
----- -----
NET ASSET VALUE, END OF PERIOD $ 9.08 $ 11.96
----- -----
----- -----
Total return (20.53)% 23.70%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $19,697 $15,791
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.88% 0.90%(1)
Net investment income 4.54% 4.75%(1)
Portfolio turnover 15% 4%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
--------------------------------
FROM
INCEPTION
YEAR ENDED 5/1/97 TO
12/31/98 12/31/97
<S> <C> <C>
Net asset value, beginning of period $ 11.96 $ 10.00
INCOME FROM INVESTMENT OPERATIONS(5)
Net investment income (loss) 0.46(4)(6) 0.34(4)
Net realized and unrealized gain
(loss) (2.91) 2.00
----- -----
TOTAL FROM INVESTMENT OPERATIONS (2.45) 2.34
----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (0.42) (0.34)
Dividends from net realized gains -- (0.04)
----- -----
TOTAL DISTRIBUTIONS (0.42) (0.38)
----- -----
Change in net asset value (2.87) 1.96
----- -----
NET ASSET VALUE, END OF PERIOD $ 9.09 $ 11.96
----- -----
----- -----
Total return (20.69)% 23.55%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $678 $855
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 1.13% 1.15%(1)
Net investment income 4.39% 4.51%(1)
Portfolio turnover 15% 4%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.11
and $0.16, respectively.
(4) Includes reimbursement of operating expenses by investment adviser of $0.11
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.
(6) Computed using average shares outstanding.
24
See Notes to Financial Statements
<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 fixed-income securities
generally are subject to greater market fluctuations and risk of loss of income
and principal than are investments in lower yielding fixed-income securities.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, Class X shares returned 1.99% and
Class Y shares returned 1.72% compared with the Lehman Brothers Aggregate Bond
Index(1), which returned 8.69% for the same period. All performance figures
assume reinvestment of distributions and are net of fees.
The 1997 U.S. interest rate roller coaster ride (starting out at 6.64%,
peaking at 7.15%, and ending at 5.92%) turned into a "yield ride" in 1998, as
many fixed-income investors began the year reaching for yield in both domestic
high-yield securities and lower quality foreign bonds. Despite the favorable
backdrop of a moderate, stable U.S. economy and historically low rates, this
strategy began to lose favor as global uncertainty caused investor sentiment to
shift in the second quarter toward a preference for the perceived safety and
liquidity of U.S. Treasuries. Not since 1990 were bond investors punished so
severely for owning anything other than U.S. government securities.
For the year, according to Lehman, Treasury securities returned 10.03%,
while returns from the non-Treasury sectors were much lower and directly related
to their level of risk. During 1998, investment-grade corporate bonds returned
8.57%, asset-backed securities, 7.76%, and agency mortgage-backed securities,
6.96%. Within the corporate bond arena, high quality issues outperformed lower
quality issues for the year, with triple A-rated corporate bonds returning
10.22% versus 6.85% for triple B-rated bonds. Within the below investment-grade
arena, results were considerably weaker. The CS First Boston High Yield Index(2)
was essentially flat at 0.58%, while the J.P. Morgan Emerging Markets Bond Index
Plus(3) dropped 14.35%. While it is somewhat misleading given the mixed results
for the various sectors of the market, the most widely accepted broad market
benchmark, the Lehman Aggregate Bond Index, delivered another solid year
returning close to 9%.
While we are not pleased with our calendar-year results, they can be
explained by a "flight to quality" of unprecedented magnitude. As stated
earlier, the U.S. Treasury sector was the best performing sector in 1998. While
market environments such as this happen relatively infrequently,
(1) THE LEHMAN BROTHERS AGGREGATE BOND INDEX IS AN UNMANAGED, COMMONLY USED
MEASURE OF BOND MARKET TOTAL RETURN PERFORMANCE. THE INDEX IS NOT AVAILABLE
FOR DIRECT INVESTMENT.
(2) THE CS FIRST BOSTON HIGH YIELD INDEX IS AN UNMANAGED, COMMONLY USED MEASURE
OF TOTAL RETURN PERFORMANCE OF HIGH-YIELD BONDS. THE INDEX IS NOT AVAILABLE
FOR DIRECT INVESTMENT.
(3) THE J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS IS AN UNMANAGED, COMMONLY
USED MEASURE OF EMERGING-MARKETS DEBT TOTAL RETURN PERFORMANCE. THE INDEX IS
NOT AVAILABLE FOR DIRECT INVESTMENT.
25
<PAGE>
MANAGED BOND PORTFOLIO (CONTINUED)
they penalize managers such as ourselves that have a significant underweighting
to U.S. Treasuries. It is noteworthy that since 1980, there was only one
occurrence when U.S. Treasuries were the best performing bond market sector two
years in a row. During this difficult time, we remained true to our discipline
and remained fully allocated to those non-core sectors we believed were the most
attractive from a risk-reward perspective. We believe that this is the most
prudent manner in which to manage assets, particularly during extreme market
moves.
OUTLOOK
We enter the new year optimistic that the worst of the spread widening is
behind us as we continue to focus on finding the most attractive opportunities.
We expect market volatility to continue in 1999, although not to the extent we
saw in 1998. Uncertainties such as the implication of the euro (Europe's new
unified currency), Y2K, and Japan's economy continue to fuel global volatility.
Historically, we have found that volatile markets create opportunities for those
who are patient and discerning. Of course, past performance is not a guarantee
of future results.
We believe the portfolio is well structured to take advantage of current
market conditions, and we will continue to emphasize the credit-sensitive
sectors given their very favorable valuations. Specifically, we see significant
value in the commercial mortgage-backed security sector where we have an
overweighting versus the Lehman Brothers Aggregate Bond Index. We own triple
A-rated bonds, which currently yield 135 basis points more than U.S. Treasuries
with similar durations. Furthermore, these bonds yield more than triple A-rated
corporate bonds, which currently yield 77 basis points more than U.S.
Treasuries. Our commercial mortgage-backed bonds have high credit ratings, and
provide an excellent yield advantage whether compared to U.S. Treasuries or to
similarly rated corporate bonds.
26
<PAGE>
Managed Bond Portfolio
AVERAGE ANNUAL TOTAL RETURNS(1) PERIODS ENDING 12/31/98
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Class X Shares 1.99% 6.79% 8.88%
Class Y Shares 1.72 6.52 8.61
Lehman Brothers Aggregate Bond Index(3) 8.69 7.27 9.26
</TABLE>
(1) Total returns are historical and include changes in share price and the
reinvestment of both dividends and capital gains distributions.
(2) This chart illustrates returns on Class X shares for ten years. Returns on
Class Y Shares will vary due to differing inception dates and fees.
(3) The Lehman Brothers Aggregate Bond Index is an unmanaged, commonly used
measure of bond market total return performance.
Performance data is based on the Portfolio's past performance as a pooled
separate investment account of Phoenix Home Life Mutual Insurance Company
prior to March 1, 1996 (inception of the Fund). Returns indicate past
performance, which is not indicative of future performance. Investment
return and net asset value will fluctuate, so that your shares, when
redeemed, may be worth more or less than the original cost.
GROWTH OF $5,000,000 PERIODS ENDING 12/31
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
(IN THOUSANDS) MANAGED BOND PORTFOLIO CLASS X(2) LEHMAN BROTHERS AGGREGATE BOND INDEX(3)
<S> <C> <C>
12/30/88 $5,000,000.00 $5,000,000.00
12/29/89 $5,608,585.50 $5,726,725.71
12/31/90 $5,816,752.96 $6,239,815.17
12/31/91 $6,905,460.35 $7,238,363.73
12/31/92 $7,519,874.34 $7,774,036.65
12/31/93 $8,432,627.06 $8,532,061.09
12/30/94 $8,022,073.50 $8,283,231.03
12/29/95 $9,623,957.56 $9,813,875.07
12/31/96 $10,460,815.65 $10,170,151.60
12/31/97 $11,480,340.86 $11,151,848.90
12/31/98 $11,709,264.40 $12,120,590.05
</TABLE>
This chart assumes an initial gross investment of $5,000,000 made on 12/31/88
for Class X shares. The total return for Class X shares assumes reinvestment of
dividends and capital gains. Class Y share performance will be greater or less
than that shown based on differences in inception dates and fees.
SECTOR WEIGHTINGS 12/31/98
As a percentage of bond holdings
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Non-Agency Mortgage-Backed 24%
Municipal 17%
Foreign Government 15%
U.S. Government 14%
Corporate 10%
Foreign Corporate 8%
Agency Mortgage-Backed 6%
Other 6%
</TABLE>
27
<PAGE>
Managed Bond Portfolio
TEN LARGEST HOLDINGS AT DECEMBER 31, 1998 (AS A PERCENTAGE OF TOTAL NET ASSETS)
<TABLE>
<C> <S> <C>
1. U.S. Treasury Notes 4.75%, 11/15/08 9.3%
U.S. GOVERNMENT SECURITIES
2. U.S. Treasury Notes 4.25%, 11/15/03 4.1%
U.S. GOVERNMENT SECURITIES
3. GNMA 2.9%
GOVERNMENT AGENCY MORTGAGE ISSUER
4. Republic of Panama 1.8%
FOREIGN GOVERNMENT SECURITY
5. Freddie Mac 1.8%
GOVERNMENT AGENCY MORTGAGE ISSUER
6. Denver City County School District 01 Pension Taxable 1.7%
MUNICIPAL BOND
7. Poland Bearer PDI 1.7%
FOREIGN GOVERNMENT SECURITY
8. Republic of Argentina 9/19/27 1.6%
FOREIGN GOVERNMENT SECURITY
9. United Mexican States Global Bond 5/15/26 1.6%
FOREIGN GOVERNMENT SECURITY
10. Securitized Asset Sales, Inc. 95-A, M 1.6%
NON-AGENCY MORTGAGE-BACKED SECURITY
</TABLE>
INVESTMENTS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--13.4%
U.S. TREASURY NOTES--13.4%
U.S. Treasury Notes 4.25%, 11/15/03..... Aaa $ 5,000 $ 4,933,985
U.S. Treasury Notes 4.75%, 11/15/08..... Aaa 11,180 11,259,982
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(IDENTIFIED COST $16,163,541) 16,193,967
- --------------------------------------------------------------------------------
AGENCY MORTGAGE-BACKED SECURITIES--6.0%
Fannie Mae 6.75%, 6/25/20............... Aaa 1,378 1,381,613
Fannie Mae 6.527%, 5/25/30.............. Aaa 130 132,194
Freddie Mac 6.65%, 6/15/23.............. Aaa 2,050 2,169,870
GNMA 6%, 12/15/28....................... Aaa 3,518 3,487,821
- --------------------------------------------------------------------------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $6,921,774) 7,171,498
- --------------------------------------------------------------------------------
AGENCY NON MORTGAGE-BACKED
SECURITIES--2.6%
Fannie Mae 6%, 5/15/08.................. Aaa 1,470 1,555,083
FHLB 5.315%, 12/23/08................... Aaa 1,550 1,545,819
- --------------------------------------------------------------------------------
TOTAL AGENCY NON MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $3,104,146) 3,100,902
- --------------------------------------------------------------------------------
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
MUNICIPAL BONDS--15.7%
CALIFORNIA--4.0%
California State Department Water
Resources Revenue Series S 5%, 12/1/29.. Aa $ 865 $ 855,269
Fresno County Pension Obligation Taxable
6.21%, 8/15/06.......................... Aaa 1,000 1,033,750
Oakland Pension Obligation Revenue
Taxable Series A 6.98%, 12/15/09........ Aaa 400 437,500
Orange County Pension Obligation Revenue
Taxable Series A 7.62%, 9/1/08.......... Aaa 50 56,562
Orange County Pension Obligation Revenue
Taxable Series A 7.67%, 9/1/09.......... Aaa 1,200 1,369,500
Ventura County Pension Obligation
Taxable 6.54%, 11/1/05.................. Aaa 1,000 1,051,250
-------------
4,803,831
-------------
COLORADO--1.7%
Denver City and County School District
01 Pension Taxable 6.76%, 12/15/07...... Aaa 1,900 2,033,000
FLORIDA--1.3%
Palm Beach County Solid Waste Industrial
Development Project B Revenue Taxable
10.50%, 1/1/11(g)(h).................... NR 1,000 500,000
</TABLE>
28 See Notes to Financial Statements
<PAGE>
Managed Bond Portfolio
<TABLE>
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
FLORIDA--CONTINUED
University of Miami Exchangeable Revenue
Taxable Series A 7.40%, 4/1/11(d)....... Aaa $ 210 $ 230,737
University of Miami Exchangeable Revenue
Taxable Series A 7.65%, 4/1/20(d)....... Aaa 810 867,712
-------------
1,598,449
-------------
ILLINOIS--2.3
Illinois Educational Facilities
Authority-Loyola University Revenue
Series A 5.70%, 7/1/24.................. Aaa 1,075 1,158,312
Illinois Educational Facilities
Authority-Loyola University Revenue
Taxable Series A 7.84%, 7/1/24.......... Aaa 1,525 1,652,719
-------------
2,811,031
-------------
MASSACHUSETTS--1.6%
Massachusetts State Port Authority
Revenue Taxable Series C 6%, 7/1/01..... Aa 870 884,138
Massachusetts State Turnpike Authority
Revenue Series A 5%, 1/1/27............. Aaa 85 83,831
Massachusetts State Water Resources
Authority Revenue Series D 5%, 8/1/24... Aaa 985 972,688
-------------
1,940,657
-------------
NEVADA--0.7%
Nevada State Projects 66 & 67 Series A
5%, 5/15/28............................. Aaa 900 885,375
NEW YORK--1.6%
Long Island Power Authority New York
Electrical Systems Revenue Series A
5.125%, 12/1/22......................... Aaa 900 906,750
New York State Local Government
Assistance Revenue Series B 5.50%,
4/1/07.................................. Aaa 900 984,375
-------------
1,891,125
-------------
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
PENNSYLVANIA--0.4%
Pennsylvania Economic Development
Financing Authority Revenue Series B
9.50%, 1/1/12(g)(h)..................... NR $ 1,905 $ 533,400
TEXAS--0.1%
Dallas-Fort Worth International Airport
Facilities Improvement Revenue Taxable
6.45%, 11/1/08.......................... Aaa 70 73,238
VIRGINIA--0.9%
Newport News Taxable Series B 7.05%,
1/15/25................................. Aa 1,025 1,058,313
WASHINGTON--0.4%
Snohomish County Washington School
District 5.65%, 12/1/09................. Aaa 475 524,875
WISCONSIN--0.7%
Wisconsin State Series 2 5%, 5/1/08..... Aa 795 845,681
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $19,942,729) 18,998,975
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--3.7%
Capita Equipment Receivables Trust 97-1
B 6.45%, 8/15/02........................ Aa 600 606,000
First U.S.A. 98-1, C 144A 6.50%,
1/18/06(b).............................. NR 925 933,672
Green Tree Financial Corp. 97-3, A6
7.32%, 7/15/28.......................... Aaa 100 103,625
Green Tree Financial Corp. 96-10, A3
6.16%, 11/15/28......................... AAA(c) 514 515,089
Green Tree Financial Corp. 97-4, M1
7.22%, 2/15/29.......................... Aa 1,500 1,508,437
Premier Auto Trust 97-3, B 6.52%,
1/6/03.................................. A 100 101,438
Team Fleet Financing Corp. 98-2A, C 144A
6.53%, 7/25/02(b)....................... BBB(c) 770 754,119
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST $4,512,128) 4,522,380
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements 29
<PAGE>
Managed Bond Portfolio
<TABLE>
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
CORPORATE BONDS--9.3%
AEROSPACE/DEFENSE--0.7%
BE Aerospace 144A 9.50%, 11/1/08(b)..... B $ 740 $ 784,400
AIRLINES--0.8%
U.S. Airways 6.85%, 1/30/18............. A 930 930,790
COMMUNICATIONS EQUIPMENT--0.4%
Metromedia Fiber Network, Inc. 144A 10%,
11/15/08(b)............................. B 500 516,875
COMPUTERS (SOFTWARE & SERVICES)--0.4%
PSINet, Inc. 144A 11.50%, 11/1/08(b).... B 460 478,400
ENTERTAINMENT--0.4%
SFX Entertainment, Inc. 144A 9.125%,
12/1/08(b).............................. B 500 498,750
GAMING, LOTTERY & PARIMUTUEL COMPANIES--1.5%
Mashantucket Pequot 144A 6.91%,
9/1/12(b)............................... Aaa 1,100 1,138,500
Mashantucket Pequot 144A 6.57%,
9/1/13(b)............................... Aaa 715 718,575
-------------
1,857,075
-------------
HEALTH CARE (DIVERSIFIED)--0.4%
Tenet Healthcare Corp. 7.875%, 1/15/03.. Ba 450 462,375
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.9%
Boston Scientific Corp. 6.625%,
3/15/05................................. Baa 1,075 1,014,531
INSURANCE (PROPERTY-CASUALTY)--0.4%
HSB Capital I Series B 6.258%,
7/15/27(d).............................. BBB(c) 550 515,128
MANUFACTURING (SPECIALIZED)--0.8%
Collins & Aikman Products 11.50%,
4/15/06................................. B 460 479,550
Imax Corp. 7.875%, 12/1/05.............. Ba 500 505,000
-------------
984,550
-------------
RETAIL (FOOD CHAINS)--0.7%
Meyer (Fred), Inc. 7.45%, 3/1/08........ Ba 750 811,875
SERVICES (COMMERCIAL & CONSUMER)--0.4%
ARA Services, Inc. 10.625%, 8/1/00...... Baa 107 112,885
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
SERVICES (COMMERCIAL & CONSUMER)--CONTINUED
Fisher Scientific International, Inc.
144A 9%, 2/1/08(b)...................... B $ 325 $ 325,000
-------------
437,885
-------------
TELECOMMUNICATIONS (LONG DISTANCE)--0.4%
Qwest Communications International, Inc.
144A 7.50%, 11/1/08(b).................. Ba 500 521,875
TELEPHONE--0.8%
Interamericas Co. 14%, 10/27/07......... NR 915 480,375
Nextlink Communications, Inc. 144A
10.75%, 11/15/08(b)..................... B 500 512,500
-------------
992,875
-------------
TEXTILES (HOME FURNISHINGS)--0.3%
Westpoint Stevens, Inc. 7.875%,
6/15/05................................. Ba 400 410,000
TRUCKS & PARTS--0.0%
Cummins Engine, Inc. 6.45%, 3/1/05...... Baa 35 34,169
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $11,547,782) 11,251,553
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED
SECURITIES--22.5%
American Business Financial Services
98-1, A4 6.695%, 9/25/20................ Aaa 1,830 1,832,859
CS First Boston Mortgage Securities
Corp. 97-SPCE, D 144A 7.332%,
4/20/08(b).............................. BBB(c) 986 965,972
CS First Boston Mortgage Securities
Corp. 98-C1, A1B 6.48%, 5/17/08......... Aaa 1,400 1,443,531
Chase Commerical Mortgage Securities
Corp. 97-2, A1 6.45%, 12/19/04.......... AAA(c) 113 115,058
ContiMortgage Home Equity Loan Trust
98-1, B 7.86%, 4/15/29.................. Baa 1,576 1,551,375
Criimi Mae Trust I 96-C1, A2 144A 7.56%,
6/30/33(b).............................. BBB(c) 1,475 1,410,469
Delta Funding Home Equity Loan Trust
98-3, A3F 5.96%, 1/15/25................ Aaa 645 636,232
</TABLE>
30 See Notes to Financial Statements
<PAGE>
Managed Bond Portfolio
<TABLE>
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
Deutsche Mortgage and Asset Receiving
Corp. 98-C1, A1 6.22%, 9/15/07.......... Aaa $ 1,824 $ 1,845,981
First Union-Lehman Brothers-Bank of
America 98-C2, A2 6.56%, 11/18/08....... Aaa 1,330 1,385,278
G.E. Capital Mortgage Services, Inc.
96-8, 2A5 7.50%, 5/25/26................ AAA(c) 267 269,909
GMAC Commercial Mortgage Securities,
Inc. 97-C2, A3 6.566%, 11/15/07......... Aaa 1,050 1,088,391
General Growth Properties 97-1, C2 144A
6.806%, 11/15/07(b)..................... Baa 1,700 1,734,000
LB Commercial Conduit Mortgage Trust
98-C4, A1B 6.21%, 10/15/08.............. Aaa 850 866,734
Merrill Lynch Mortgage Investors, Inc.
96-C2, A3 6.96% 11/21/28................ AAA(c) 100 105,984
Mortgage Capital Funding, Inc. 96-MC2,
A3, 7.008%, 9/20/06(f).................. Aaa 1,140 1,198,781
Morgan Stanley Capital I 96-C1, A 144A
7.436%, 11/15/05(b)(d).................. AAA(c) 1,093 1,146,250
Norwest Asset Securities Corp. 96-9, A15
7.75%, 1/25/27.......................... Aaa 130 131,950
PNC Mortgage Securities Corp. 96-3, A5
8%, 12/25/26............................ Aaa 1,790 1,801,788
PNC Mortgage Securities Corp. 97-1, A4
7.95% 2/25/27........................... AAA(c) 105 106,673
Residential Accredit Loans, Inc. 96-QS4,
AI10 7.90%, 8/25/26..................... AAA(c) 900 925,875
Residential Asset Securitization Trust
96-A8, A1 8%, 12/25/26.................. AAA(c) 177 177,484
Residential Funding Mortgage Securities
I 93-S25, M3 6.50%, 7/25/08............. BBB(c) 578 567,482
Residential Funding Mortgage Securities
I 96-S20, A7 7.75%, 9/25/26............. AAA(c) 70 70,700
Residential Funding Mortgage Securities
I 97-S8, A9 7.50%, 6/25/27.............. AAA(c) 100 101,000
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
Residential Funding Mortgage Securities
I 98-S2, A4 7%, 1/25/28................. AAA(c) $ 139 $ 140,064
Resolution Trust Corp. 92-C3, B 9.05%,
8/25/23................................. AA(c) 103 102,765
Ryland Mortgage Securities Corp. III
92-A, 1A 8.256%, 3/29/30(d)............. A-(c) 614 613,338
Securitized Asset Sales, Inc. 95-A, M
7.53%, 3/25/24.......................... Aa 1,916 1,928,987
Structured Asset Securities Corp. 95-C1,
D 7.375%, 9/25/24....................... BBB(c) 1,865 1,873,159
Structured Asset Securities Corp. 95-C4,
D 7%, 6/25/26........................... BBB(c) 1,000 995,938
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $27,008,872) 27,134,007
- --------------------------------------------------------------------------------
FOREIGN GOVERNMENT SECURITIES--14.3%
ARGENTINA--1.9%
Republic of Argentina 9.75%, 9/19/27.... Ba 2,175 1,947,712
Republic of Argentina Series BGL4 11%,
10/9/06................................. Ba 375 369,375
-------------
2,317,087
-------------
BRAZIL--1.3%
Republic of Brazil C Bond, PIK interest
capitalization, 8%, 4/15/14(d).......... B 1,042 627,918
Republic of Brazil NMB-L Bearer 6.188%,
4/15/09(d).............................. B 1,665 920,953
-------------
1,548,871
-------------
BULGARIA--1.5%
Republic of Bulgaria FLIRB Series A
Bearer Euro 2.50%, 7/28/12(d)........... B 3,075 1,768,125
COLOMBIA--0.9%
Republic of Colombia 7.625%, 2/15/07.... Baa 1,335 1,111,387
CROATIA--0.9%
Croatia Series B 6.563%, 7/31/06(d)..... Baa 651 527,667
Croatia Series A 6.563%, 7/31/10(d)..... Baa 725 580,000
-------------
1,107,667
-------------
</TABLE>
See Notes to Financial Statements 31
<PAGE>
Managed Bond Portfolio
<TABLE>
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
MEXICO--2.5%
United Mexican States Global Bond
11.375%, 9/15/16........................ Ba $ 360 $ 374,287
United Mexican States Global Bond
11.50%, 5/15/26......................... Ba 1,825 1,944,538
United Mexican States Series A 6.25%,
12/31/19................................ Ba 860 672,950
United Mexican States Series W-B 6.25%,
12/31/19(e)............................. Ba 70 54,775
-------------
3,046,550
-------------
PANAMA--1.8%
Republic of Panama 8.875%, 9/30/27...... Ba 2,355 2,225,475
PERU--1.5%
Peru PDI 4%, 3/7/17(d).................. BB(c) 2,785 1,761,513
POLAND--1.7%
Poland Bearer PDI 5%, 10/27/14(d)....... Baa 2,155 2,018,966
SOUTH AFRICA--0.3%
Republic of South Africa 8.50%,
6/23/17................................. Baa 530 407,888
- --------------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(IDENTIFIED COST $17,863,958) 17,313,529
- --------------------------------------------------------------------------------
FOREIGN CORPORATE BONDS--7.2%
ARGENTINA--0.7%
Telefonica de Argentina 144A 9.125%,
5/7/08(b)............................... Ba 885 818,625
CHILE--2.0%
Compania Sud Americana de Vapores 144A
7.375%, 12/8/03(b)...................... BBB(c) 1,240 1,122,200
Empresa Nacional de Electricidad SA
7.75%, 7/15/08.......................... Baa 75 70,815
Petropower I Funding Trust 144A 7.36%,
2/15/14(b).............................. BBB(c) 1,400 1,181,250
-------------
2,374,265
-------------
CHINA--0.0%
AES China Generating Co. Yankee 10.125%,
12/15/06................................ Ba 15 10,350
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
JAPAN--1.3%
IBJ Preferred Capital Co. LLC 144A
8.79%, 12/29/49(b)(d)................... Baa $ 850 $ 732,325
SB Treasury Co. LLC 144A 9.40%,
12/29/49(b)(d).......................... Baa 850 808,975
-------------
1,541,300
-------------
MEXICO--1.2%
Banco Nacional de Mexico 144A 7.57%,
12/31/00(b)............................. Ba 1,500 1,478,906
POLAND--0.4%
TPSA Finance 144A 7.75%, 12/10/08(b).... Baa 455 448,744
VENEZUELA--1.6%
PDVSA Finance Ltd. 98-1C 144A 6.80%
11/15/08(b)............................. A 2,000 1,778,140
Petrozuata Finance, Inc. 144A 8.22%,
4/1/17(b)............................... Baa 325 230,750
-------------
2,008,890
-------------
- --------------------------------------------------------------------------------
TOTAL FOREIGN CORPORATE BONDS
(IDENTIFIED COST $9,467,839) 8,681,080
- --------------------------------------------------------------------------------
<CAPTION>
SHARES
--------
<S> <C> <C> <C>
PREFERRED STOCKS--0.7%
REITS--0.7%
Home Ownership Funding 2, Step-down Pfd.
144A 13.338(b)(i)....................... 900 860,706
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $801,056) 860,706
- --------------------------------------------------------------------------------
WARRANTS--0.0%
TELEPHONE--0.0%
FirstCom, Corp. 144A Warrants(b)(g)..... 32,025 40,031
- --------------------------------------------------------------------------------
TOTAL WARRANTS
(IDENTIFIED COST $0) 40,031
- --------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS--95.4%
(IDENTIFIED COST $117,333,825) 115,268,628
- --------------------------------------------------------------------------------
</TABLE>
32 See Notes to Financial Statements
<PAGE>
Managed Bond Portfolio
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ -------- -------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--12.3%
COMMERCIAL PAPER--7.5%
Ciesco L.P. 5.75%, 1/4/99............... A-1 $ 2,500 $ 2,498,802
Merrill Lynch & Co., Inc. 5.05%,
1/4/99.................................. A-1 3,000 2,998,737
Vermont American Corp. 4.95%, 1/4/99.... A-1+ 475 474,804
Abbott Laboratories 5.55%, 1/5/99....... A-1 3,145 3,143,061
-------------
9,115,404
-------------
FEDERAL AGENCY SECURITIES--4.8%
FMC 4.50%, 1/4/99....................... 5,740 5,737,848
- ---------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(IDENTIFIED COST $14,853,252) 14,853,252
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS--107.7%
(IDENTIFIED COST $132,187,077) 130,121,880(a)
Cash and receivables, less liabilities--(7.7%) (9,357,549)
--------------
NET ASSETS--100.0% $ 120,764,331
--------------
--------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $2,383,583 and gross
depreciation of $4,624,406 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$132,362,703.
(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 December 31,
1998, these securities amounted to a value of $21,940,009 or 18.2% 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) Non-income producing.
(h) Security in default.
(i) Dividend payments backed by FHLMC ("Freddie Mac") participation
certificates.
See Notes to Financial Statements 33
<PAGE>
Managed Bond Portfolio
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $132,187,077) $ 130,121,880
Cash 51,305
Receivables
Interest 1,428,284
Fund shares sold 1,122,806
Prepaid expenses 2,098
--------------
Total assets 132,726,373
--------------
LIABILITIES
Payables
Investment securities purchased 11,782,507
Fund shares purchased 50,475
Investment advisory fee 36,405
Financial agent fee 10,276
Transfer agent fee 7,236
Distribution fee 1,616
Trustees' fee 1,472
Accrued expenses 72,055
--------------
Total liabilities 11,962,042
--------------
NET ASSETS $ 120,764,331
--------------
--------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 125,063,958
Accumulated net realized loss (2,234,430)
Net unrealized depreciation (2,065,197)
--------------
NET ASSETS $ 120,764,331
--------------
--------------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $113,273,241) 3,599,792
Net asset value and offering price per share $31.47
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $7,491,090) 238,042
Net asset value and offering price per share $31.47
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 6,744,140
Dividends 231,399
--------------
Total investment income 6,975,539
--------------
EXPENSES
Investment advisory fee 421,814
Distribution fee, Class Y 17,754
Financial agent fee 96,091
Transfer agent 45,443
Registration 43,933
Professional 41,895
Custodian 21,222
Trustees 13,209
Printing 11,450
Miscellaneous 25,352
--------------
Total expenses 738,163
Less expenses borne by investment adviser (204,858)
--------------
Net expenses 533,305
--------------
NET INVESTMENT INCOME 6,442,234
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities (1,443,742)
Net change in unrealized appreciation (depreciation) on
investments (3,362,834)
--------------
NET LOSS ON INVESTMENTS (4,806,576)
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,635,658
--------------
--------------
</TABLE>
34 See Notes to Financial Statements
<PAGE>
Managed Bond Portfolio
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/98 12/31/97
------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 6,442,234 $ 5,402,757
Net realized gain (loss) (1,443,742) 3,000,960
Net change in unrealized appreciation
(depreciation) (3,362,834) (942,641)
------------- ------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS 1,635,658 7,461,076
------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income, Class X (5,993,836) (5,037,525)
Net investment income, Class Y (448,398) (398,984)
Net realized gains, Class X -- (2,936,548)
Net realized gains, Class Y -- (262,528)
In excess of net investment income,
Class X (454,210) (382,909)
In excess of net investment income,
Class Y (33,979) (30,327)
In excess of net realized gains, Class
X (405,385) --
In excess of net realized gains, Class
Y (30,538) --
------------- ------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (7,366,346) (9,048,821)
------------- ------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares
(2,186,315 and 482,929 shares,
respectively) 72,030,204 16,708,642
Net asset value of shares issued from
reinvestment of distributions
(205,651 and 245,591 shares,
respectively) 6,625,855 8,172,835
Cost of shares repurchased (985,246
and 639,417 shares, respectively) (32,787,919) (22,159,462)
------------- ------------
Total 45,868,140 2,722,015
------------- ------------
CLASS Y
Proceeds from sales of shares (38,785
and 69,564 shares, respectively) 1,270,163 2,431,562
Net asset value of shares issued from
reinvestment of distributions
(15,744 and 20,824 shares,
respectively) 507,803 691,833
Cost of shares repurchased (19,173 and
94,022 shares, respectively) (623,115) (3,277,501)
------------- ------------
Total 1,154,851 (154,106)
------------- ------------
INCREASE IN NET ASSETS FROM SHARE
TRANSACTIONS 47,022,991 2,567,909
------------- ------------
NET INCREASE IN NET ASSETS 41,292,303 980,164
NET ASSETS
Beginning of period 79,472,028 78,491,864
------------- ------------
END OF PERIOD (INCLUDING UNDISTRIBUTED
NET INVESTMENT INCOME OF $0
AND $0, RESPECTIVELY) $ 120,764,331 $ 79,472,028
------------- ------------
------------- ------------
</TABLE>
See Notes to Financial Statements 35
<PAGE>
Managed Bond Portfolio
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X
----------------------------------------------
FROM
YEAR ENDED DECEMBER 31 INCEPTION
---------------------------- 3/1/96 TO
1998 1997 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 (loss) 2.26(3)(5) 2.37(3)(5) 2.03(3)(5)
Net realized and unrealized gain
(loss) (1.58) 0.85 0.69
----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS 0.68 3.22 2.72
----- ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (2.09) (2.42) (1.96)
Dividends from net realized gains -- (1.43) (0.61)
In excess of net investment income (0.16) (0.18) (0.01)
In excess of accumulated net realized
gains (0.13) -- --
----- ----- -----
TOTAL DISTRIBUTIONS (2.38) (4.03) (2.58)
----- ----- -----
Change in net asset value (1.70) (0.81) 0.14
----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 31.47 $ 33.17 $ 33.98
----- ----- -----
----- ----- -----
Total return 1.99% 9.75% 8.24%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $113,273 $72,747 $71,482
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.55% 0.55% 0.55%(1)
Net investment income 6.89% 6.92% 7.15%(1)
Portfolio turnover 105% 176% 199%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
----------------------------------------------
FROM
YEAR ENDED DECEMBER 31 INCEPTION
---------------------------- 3/1/96 TO
1998 1997 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 (loss) 2.18(4)(5) 2.27(4)(5) 1.98(4)(5)
Net realized and unrealized gain
(loss) (1.59) 0.88 0.66
----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS 0.59 3.15 2.64
----- ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (2.02) (2.33) (1.89)
Dividends from net realized gains -- (1.43) (0.61)
In excess of net investment income (0.15) (0.18) (0.01)
In excess of accumulated net realized
gains (0.13) -- --
----- ----- -----
TOTAL DISTRIBUTIONS (2.30) (3.94) (2.51)
----- ----- -----
Change in net asset value (1.71) (0.79) 0.13
----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 31.47 $ 33.18 $ 33.97
----- ----- -----
----- ----- -----
Total return 1.72% 9.52% 7.98%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $7,491 $6,725 $7,010
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.80% 0.80% 0.80%(1)
Net investment income 6.63% 6.65% 6.91%(1)
Portfolio turnover 105% 176% 199%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of
$0.07, $0.08 and $0.09 per share, respectively.
(4) Includes reimbursement of operating expenses by investment adviser of
$0.07, $0.08 and $0.09 per share, respectively.
(5) Computed using average shares outstanding.
36
See Notes to Financial Statements
<PAGE>
ENHANCED RESERVES PORTFOLIO
INVESTOR PROFILE
Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio seeks as its
investment objective high current income consistent with preservation of
capital. It is intended that the portfolio will invest primarily in U.S.
government securities and high-grade corporate debt obligations. The Portfolio
invests in securities guaranteed by the U.S. government as to the timely payment
of interest and principal; however, shares of the Portfolio are not insured nor
guaranteed.
INVESTMENT ADVISER'S REPORT
For the 12-month period ending December 31, 1998, Class X shares and Class Y
shares posted returns of 5.34% and 5.08%, respectively. The Merrill Lynch 1-Year
Treasury Bill Index(1) returned 5.89% over the same time period. All performance
figures assume reinvestment of distributions and are net of fees.
During the final quarter of an already volatile year, investors appetite for
risk took a turn for the worst. Spreads, across the maturity spectrum, reached
levels not seen since the massive credit problems and recession periods of the
late 1980s and early 1990s. The initial Fed easing of monetary policy in late
September was viewed as an insufficient response to this severe international
crisis and potential liquidity crunch. Treasuries were the sector of choice, as
the market literally penalized all spread-related securities, even government
issues, such as FNMA and FHLMC.
The Fed's surprise 25 basis point ease in mid-October started to shift
sentiment back to spread-related assets. Market participants perceived the Fed
was "on board" to resolve liquidity concerns despite a current domestic economy
that remained robust and had the potential to overheat. The first inter-meeting
policy change since 1994 set a positive tone for the remainder of the quarter
and year as spreads narrowed across most sectors. Investors embraced the new
valuations as opportunities, especially given a lack of quantifiable fundamental
weakness and a friendly Fed. The Fed followed in November with another ease of
25 basis points that cemented their commitment to provide liquidity. For the
fourth quarter, spreads were clearly wider, with short valuations suffering the
most versus Treasuries. Additionally, the Portfolio was impacted negatively by
the steeper yield curve. The "flight to quality" trade caused the yield
relationship between the one- and two-year Treasury to widen by 14 basis points.
Therefore, the longer securities within the portfolio were unable to provide
value versus the one-year benchmark.
OUTLOOK
As we enter 1999, the Portfolio is positioned to accumulate spread product.
The domestic economy still remains the bright spot worldwide with uncertainties
still looming internationally. Present valuations offer an opportunity to
enhance the Portfolio's performance advantage to short-term alternatives, while
possibly deflecting modest volatility. Based on the strength of the domestic
economy, the Portfolio would typically maintain a neutral to slightly short
duration posture. However, the fragile nature of the world's economy places
current strategy at neutral.
(1) 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.
37
<PAGE>
Enhanced Reserves Portfolio
AVERAGE ANNUAL TOTAL RETURNS(1) PERIODS ENDING 12/31/98
<TABLE>
<CAPTION>
INCEPTION INCEPTION
1 YEAR TO 12/31/98 DATE
------ ----------- -----------
<S> <C> <C> <C>
Class X Shares 5.34% 5.73% 6/24/94
Class Y Shares 5.08 5.28 11/1/96
Merrill Lynch 1-Year Treasury Bill
Index(4) 5.89 Note 2 Note 2
</TABLE>
(1) Total returns are historical and include changes in share price and the
reinvestment of both dividends and capital gains distributions.
(2) Index performance is 6% for Class X (since 6/30/94) and 5.86% for Class Y
(since 10/31/96).
(3) This chart illustrates returns on Class X Shares only. Returns on Class Y
shares will vary due to differing inception dates and fees.
(4) The Merrill Lynch 1-year Treasury Bill Index is an unmanaged, commonly used
measure of short-term government bond total return performance.
Performance data is based on the Portfolio's past performance as Duff &
Phelps Enhanced Reserves Fund prior to July 19, 1996 (inception of the
Fund). Returns indicate past performance, which is not indicative of future
performance. Investment return and net asset value will fluctuate, so that
your shares, when redeemed, may be worth more or less than the original
cost.
GROWTH OF $5,000,000 PERIODS ENDING 12/31
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
(IN THOUSANDS) ENHANCED RESERVES PORTFOLIO CLASS X(3) MERRILL LYNCH 1-YEAR TREASURY BILL INDEX(4)
<S> <C> <C>
6/26/1994 $5,000,000.00 $5,000,000.00
12/30/1994 $5,102,597.89 $5,089,751.86
12/29/1995 $5,500,529.52 $5,492,364.75
12/31/1996 $5,760,173.15 $5,794,398.80
12/31/1997 $6,107,596.97 $6,139,052.82
12/31/1998 $6,434,033.96 $6,500,504.08
</TABLE>
This chart assumes an initial gross investment of $5,000,000 made on 6/24/94
(inception of the Fund) for Class X shares. The total return for Class X shares
assumes reinvestment of dividends and capital gains. Class Y share performance
will be greater or less than that shown based on differences in inception dates
and fees.
SECTOR WEIGHTINGS 12/31/98
As a percentage of bond holdings
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Asset-Backed 40%
U.S. Government 31%
Agency Mortgage-Backed 23%
Non-Agency Mortgage-Backed 3%
Corporate 3%
</TABLE>
38
<PAGE>
Enhanced Reserves Portfolio
TEN LARGEST HOLDINGS AT DECEMBER 31, 1998 (AS A PERCENTAGE OF TOTAL NET ASSETS)
<TABLE>
<C> <S> <C>
1. Household Consumer Loan Trust 96-2, A2 10.2%
ASSET-BACKED SECURITY
2. U.S. Treasury Notes 6.25%, 10/31/01 8.0%
U.S. GOVERNMENT SECURITIES
3. U.S. Treasury Notes 5.75%, 10/31/00 7.8%
U.S. GOVERNMENT SECURITIES
4. U.S. Treasury Notes 4.25%, 11/15/03 7.5%
U.S. GOVERNMENT SECURITIES
5. Fleetwood Credit Corp. Grantor Trust 93-A, A 6.5%
ASSET-BACKED SECURITY
6. Fannie Mae 5.85%, 2/25/06 6.0%
GOVERNMENT AGENCY MORTGAGE ISSUER
7. Fannie Mae 5.75%, 11/25/16 6.0%
GOVERNMENT AGENCY MORTGAGE ISSUER
8. Fannie Mae 7.298%, 3/1/20 4.9%
GOVERNMENT AGENCY MORTGAGE ISSUER
9. EQCC Home Equity Loan Trust 96-3, A4 3.3%
ASSET-BACKED SECURITY
10. Premier Auto Trust 98-4, A3 2.7%
ASSET-BACKED SECURITY
</TABLE>
INVESTMENTS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ ------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--23.3%
U.S. TREASURY NOTES--23.3%
U.S. Treasury Notes 5.75%, 10/31/00..... Aaa $ 1,500 $ 1,529,686
U.S. Treasury Notes 6.25%, 10/31/01..... Aaa 1,500 1,564,654
U.S. Treasury Notes 4.25%, 11/15/03..... Aaa 1,475 1,456,455
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(IDENTIFIED COST $4,559,537) 4,550,795
- --------------------------------------------------------------------------------
AGENCY MORTGAGE-BACKED
SECURITIES--16.9%
Fannie Mae 5.85%, 2/25/06............... Aaa 1,179 1,180,189
Fannie Mae 5.75%, 11/25/16.............. Aaa 1,164 1,163,424
Fannie Mae 7.298%, 3/1/20............... Aaa 930 960,468
- --------------------------------------------------------------------------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $3,289,851) 3,304,081
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--29.7%
EQCC Home Equity Loan Trust Series 96-3,
A4 6.70%, 6/15/08....................... Aaa 623 634,893
Fleetwood Credit Corp. Grantor Trust
93-A, A 6% 1/15/08...................... Aaa 1,273 1,275,692
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ ------- -------------
<S> <C> <C> <C>
Green Tree Home Improvement Loan Trust
98-D, HEA2 5.96%, 8/15/29............... AAA(b) $ 500 $ 501,347
Household Consumer Loan Trust 96-2, A2
5.855%, 8/15/06(c)...................... Aa 2,000 2,000,000
Premier Auto Trust 98-4, A3 5.69%,
6/8/02.................................. Aaa 530 534,264
UCFC Home Equity Loan 96-B1, A3 7.30%,
4/15/14................................. Aaa 417 417,846
Western Financial Grantor Trust 95-2, A1
7.10%, 7/1/00........................... Aaa 438 440,594
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST $5,797,560) 5,804,636
- --------------------------------------------------------------------------------
CORPORATE BONDS--2.6%
RETAIL (GENERAL MERCHANDISE)--2.6%
Wal-Mart Stores, Inc. 5.65%, 2/1/10..... Aa 500 503,125
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $499,945) 503,125
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements 39
<PAGE>
Enhanced Reserves Portfolio
<TABLE>
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ ------- -------------
<S> <C> <C> <C>
NON-AGENCY MORTGAGE-BACKED
SECURITIES--2.6%
Residential Funding Mortgage Securities
I 97-S9, A20 7.50%, 7/25/27............. AAA(b) $ 500 $ 511,653
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $500,982) 511,653
- --------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS--75.1%
(IDENTIFIED COST $14,647,875) 14,674,290
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS--25.1%
COMMERCIAL PAPER--21.3%
American Express Credit Co. 5.857%,
1/6/99.................................. P1 850 850,000
Ford Motor Credit Co. 5.807%, 1/6/99.... P1 850 850,000
General Electric Capital Corp. 5.756%,
1/6/99.................................. P1 850 850,000
Prudential Funding Corp. 4.804%,
1/6/99.................................. P1 750 750,000
<CAPTION>
MOODY'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ ------- -------------
<S> <C> <C> <C>
COMMERCIAL PAPER--CONTINUED
General Motors Acceptance Corp. 5.302%,
1/21/99................................. P1 $ 850 $ 850,000
-------------
4,150,000
-------------
REPURCHASE AGREEMENT--3.8%
State Street Bank & Trust Co. Repurchase
Agreement, 4.25%, dated 12/31/98 due
1/4/99, repurchase price $744,351,
collateralized by U.S. Treasury Note
11.625%, 11/15/04, market value
$762,300................................ 744 744,000
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(IDENTIFIED COST $4,894,000) 4,894,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.2%
(IDENTIFIED COST $19,541,875) 19,568,290(a)
Cash and receivables, less liabilities--(0.2%) (33,191)
-------------
NET ASSETS--100.0% $ 19,535,099
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $47,356 and gross
depreciation of $22,052 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$19,542,986.
(b) As rated by Standard & Poor's.
(c) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
40 See Notes to Financial Statements
<PAGE>
Enhanced Reserves Portfolio
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $19,541,875) $ 19,568,290
Cash 133
Receivables
Interest 101,283
Fund shares sold 2,000
Receivable from adviser 16,782
Prepaid expenses 512
-------------
Total assets 19,689,000
-------------
LIABILITIES
Payables
Dividend distributions 25,698
Fund shares repurchased 26,411
Financial agent fee 13,675
Transfer agent fee 7,176
Trustees' fee 1,464
Distribution fee 626
Accrued expenses 78,851
-------------
Total liabilities 153,901
-------------
NET ASSETS $ 19,535,099
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $ 19,890,541
Distribution in excess of net investment income (25,697)
Accumulated net realized loss (356,160)
Net unrealized appreciation 26,415
-------------
NET ASSETS $ 19,535,099
-------------
-------------
CLASS X
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $19,075,695) 1,924,967
Net asset value per share and offering price per share $9.91
CLASS Y
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization (Net Assets $459,404) 46,419
Net asset value and offering price per share $9.90
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 3,558,498
-------------
Total investment income 3,558,498
-------------
EXPENSES
Investment advisory fee 142,030
Distribution fee, Class Y 1,615
Financial agent fee 80,491
Registration 45,759
Transfer agent fee 42,140
Professional 39,883
Printing 14,237
Trustees' fees 13,210
Custodian 12,739
Miscellaneous 17,108
-------------
Total expenses 409,212
Less: expenses borne by investment adviser (188,056)
-------------
Net expenses 221,156
-------------
NET INVESTMENT INCOME 3,337,342
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities 5,821
Net change in unrealized appreciation (depreciation) on
investments (84,829)
-------------
NET LOSS ON INVESTMENTS (79,008)
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,258,334
-------------
-------------
</TABLE>
See Notes to Financial Statements 41
<PAGE>
Enhanced Reserves Portfolio
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/98 12/31/97
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 3,337,342 $ 5,142,453
Net realized gain (loss) 5,821 (15,822)
Net change in unrealized appreciation
(depreciation) (84,829) (108,788)
------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 3,258,334 5,017,843
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income, Class X (3,252,508) (5,018,041)
Net investment income, Class Y (34,351) (113,618)
In excess of net realized gains, Class
X (30,976) --
In excess of net realized gains, Class
Y (327) --
Tax return of capital, Class X (30,992) --
Tax return of capital, Class Y (327) --
------------- -------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (3,349,481) (5,131,659)
------------- -------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares
(11,388,876 and 21,169,694 shares,
respectively) 113,196,272 210,525,776
Net asset value of shares issued from
reinvestment of distributions
(336,133 and 495,501 shares,
respectively) 3,344,672 4,927,719
Cost of shares repurchased (17,364,902
and 26,359,297 shares, respectively) (172,655,453) (262,080,920)
------------- -------------
Total (56,114,509) (46,627,425)
------------- -------------
CLASS Y
Proceeds from sales of shares (287,414
and 70,612 shares, respectively) 2,861,166 702,004
Net asset value of shares issued from
reinvestment of distributions
(1,114 and 8,690 shares,
respectively) 11,076 86,399
Cost of shares repurchased (444,611
and 27,952 shares, respectively) (4,414,944) (277,921)
------------- -------------
Total (1,542,702) 510,482
------------- -------------
DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS (57,657,211) (46,116,943)
------------- -------------
NET DECREASE IN NET ASSETS (57,748,358) (46,230,759)
NET ASSETS
Beginning of period 77,283,457 123,514,216
------------- -------------
END OF PERIOD (INCLUDING DISTRIBUTIONS
IN EXCESS OF
NET INVESTMENT INCOME OF ($25,697)
AND ($43,059), RESPECTIVELY) $ 19,535,099 $ 77,283,457
------------- -------------
------------- -------------
</TABLE>
42 See Notes to Financial Statements
<PAGE>
Enhanced Reserves Portfolio
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS X
-------------------------------------------
FROM
YEAR ENDED DECEMBER 31 INCEPTION
------------------------- 7/19/96 TO
1998 1997 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 (loss) 0.55(3) 0.58(3)(6) 0.26(3)
Net realized and unrealized gain
(loss) (0.03) -- --
----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS 0.52 0.58 0.26
----- ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (0.54) (0.58) (0.26)
In excess of accumulated net realized
gains (0.01) -- --
Tax return of capital (0.01) -- --
----- ----- -----
TOTAL DISTRIBUTIONS (0.56) (0.58) (0.26)
----- ----- -----
Change in net asset value (0.04) -- --
----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 9.91 $ 9.95 $ 9.95
----- ----- -----
----- ----- -----
Total return 5.34% 6.03% 2.57%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $19,076 $75,269 $122,010
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.37% 0.34% 0.34%(1)
Net investment income 5.64% 5.84% 5.68%(1)
Portfolio turnover 264% 177% 122%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
-------------------------------------------
FROM
YEAR ENDED DECEMBER 31 INCEPTION
------------------------- 11/1/96 TO
1998 1997 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 (loss) 0.51(4) 0.56(4)(6) 0.09(4)
Net realized and unrealized gain
(loss) (0.03) -- (0.02)
----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS 0.48 0.56 0.07
----- ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (0.51) (0.56) (0.09)
In excess of accumulated net realized
gains (0.01) -- --
Tax return of capital (0.01) -- --
----- ----- -----
TOTAL DISTRIBUTIONS (0.53) (0.56) (0.09)
----- ----- -----
Change in net asset value (0.05) -- (0.02)
----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 9.90 $ 9.95 $ 9.95
----- ----- -----
----- ----- -----
Total return 5.08% 5.75% 0.71%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $459 $2,014 $1,504
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 0.63% 0.59% 0.59%(1)
Net investment income 5.35% 5.59% 5.58%(1)
Portfolio turnover 264% 177% 122%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of
$0.03, $0.02 and less than $0.01, respectively.
(4) Includes reimbursement of operating expenses by investment adviser of
$0.03, $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.
See Notes to Financial Statements
43
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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, five Portfolios are offered for sale: Core Equity Portfolio,
Growth Stock Portfolio, Real Estate Equity Securities Portfolio, Managed Bond
Portfolio and Enhanced Reserves 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 Managed Bond Portfolio seeks to
generate a high level of current income and capital appreciation. The Enhanced
Reserves Portfolio seeks to provide high current income consistent with
preservation of capital.
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.
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, 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 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 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
44
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (CONTINUED)
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.
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 annual rates as a
percentage of the average daily net assets of each separate Portfolio:
<TABLE>
<CAPTION>
1st $1 $1+
Portfolio Adviser Billion 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%
Managed Bond Portfolio................. PIC 0.45% 0.40%
Enhanced Reserves Portfolio............ DPIM 0.24% 0.19%
</TABLE>
In addition to this base adviser fee, Real Estate Equity Securities Portfolio
is subject to a performance adjustment based on the
45
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (CONTINUED)
Portfolio's annual performance as compared to certain prescribed benchmarks. For
the year ended December 31, 1998, the performance adjustment was $2,653.
Each Fund's Adviser 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%
Managed Bond Portfolio....................... 0.55% 0.80%
</TABLE>
DPIM has voluntarily agreed to assume other operating expenses of Real Estate
Equity Securities Portfolio, excluding interest, taxes, brokerage fees,
commissions and extraordinary expenses to the extent that such expenses exceed
0.40% of average annual net asset values of Class X and Class Y.
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 year ended
December 31, 1998, $1,257 was earned by the Distributor, $7,586 was earned by
unaffiliated participants, and $60,684 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 year ended December 31, 1998, transfer
agent fees were $192,226 of which PEPCO retained $103 which is net of fees paid
to State Street.
At December 31, 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 $ 1,943,700
Core Equity Portfolio-Class Y............ 10,000 102,100
Growth Stock Portfolio-Class X........... 5 183
Growth Stock Portfolio-Class Y........... 4,799 181,227
Real Estate Equity Securities
Portfolio-Class X...................... 1,078,022 9,788,438
Real Estate Equity Securities
Portfolio-Class Y...................... 10,571 96,094
Managed Bond Portfolio-Class X........... 393,630 12,387,521
Managed Bond Portfolio-Class Y........... 3,823 120,301
</TABLE>
3. PURCHASE AND SALE OF SECURITIES
Purchases and sales of securities during the year ended December 31, 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..................... $ 13,419,059 $ 3,278,216
Growth Stock Portfolio.................... 70,683,054 83,173,491
Real Estate Equity Securities Portfolio... 12,954,426 2,206,859
Managed Bond Portfolio.................... 95,200,300 64,810,789
Enhanced Reserves Portfolio............... 29,697,953 78,202,190
</TABLE>
Purchases and sales of U.S. Government and agency securities during the year
ended December 31, 1998, aggregated the following:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Managed Bond Portfolio................... $ 46,932,764 $ 27,170,256
Enhanced Reserves Portfolio.............. 113,296,399 117,758,510
</TABLE>
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.
46
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (CONTINUED)
5. OTHER
As of December 31, 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 net assets
--------------- ------------------
<S> <C> <C>
Core Equity Portfolio................ 3 62.8%
Growth Stock Portfolio............... 3 36.0%
Real Estate Equity Securities
Portfolio.......................... 1 34.8%
Enhanced Reserves Portfolio.......... 4 73.6%
</TABLE>
6. CAPITAL LOSS CARRYOVERS
At December 31, 1998, the following Portfolios had available for federal
income tax purposes unused capital losses as follows:
<TABLE>
<S> <C>
Core Equity Portfolio............................ $ 538,960
Real Estate Portfolio............................ 627,317
Enhanced Reserves Portfolio...................... 355,049
</TABLE>
Capital loss carryovers expire in 2006 for all Portfolios except for Enhanced
Reserves Portfolio which expires as follows: $189,419 in 2003, $128,718 in 2004,
and $36,912 in 2005.
For the Enhanced Reserves Portfolio, capital loss carryovers include $189,419
acquired in connection with the merger of the Duff & Phelps Enhanced Reserves
Fund.
Under current tax law, capital losses realized after October 31, 1998 may be
deferred and treated as occurring on the first day of the following tax year.
For the calendar year ended December 31, 1998, the Managed Bond Portfolio, Real
Estate Portfolio, and Core Equity Portfolio elected to defer losses occurring
between November 1, 1998 and December 31, 1998 in the amount of $2,171,999,
$130,522, and $108,734, respectively.
7. RECLASS OF CAPITAL ACCOUNTS
In accordance with accounting pronouncements, the Portfolios have recorded
several reclassifications in the capital accounts. These reclassifications have
no impact on the net asset value of the Portfolios and are designed generally to
present undistributed net investment income and realized gains on a tax basis
which is considered to be more informative to the shareholder. As of December
31, 1998, the Portfolios recorded the following reclassifications to increase
(decrease) the accounts listed below:
<TABLE>
<CAPTION>
Undistributed
net Accumulated Capital paid
investment net in on share of
income realized beneficial
(loss) gain (loss) interest
----------- ----------- --------------
<S> <C> <C> <C>
Core Equity Portfolio... $ 43,946 $ -- $ (43,946)
Growth Stock
Portfolio............. -- -- --
Real Estate Equity
Securities
Portfolio............. 25,914 (4,707) (21,207)
Managed Bond
Portfolio............. 488,189 (353,395) (134,794)
Enhanced Reserves
Portfolio............. (33,121) 33,121 --
</TABLE>
TAX INFORMATION NOTICE (UNAUDITED)
For the fiscal year ended December 31, 1998, the following Funds distributed
long-term capital gain dividends as follows:
<TABLE>
<CAPTION>
Total
Long-Term
Distributions
------------
<S> <C>
Core Equity Portfolio.............................. $ --
Growth Stock Portfolio............................. 7,736,320
Real Estate Equity Securities Portfolio............ 4,483
Managed Bond Portfolio............................. 304,353
Enhanced Reserves Portfolio........................ --
</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.
47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[LOGO]
To the Shareholders and Trustees of
Phoenix Duff & Phelps Institutional Mutual Funds
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments (except for bond ratings), and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Core Equity Portfolio, the Growth Stock Portfolio, the Real Estate Equity
Securities Portfolio, the Managed Bond Portfolio, and the Enhanced Reserves
Portfolio (constituting the Phoenix Duff & Phelps Institutional Mutual Funds,
hereafter referred to as the "Fund") at December 31, 1998, and the results of
each of their operations, the changes in each of their net assets and the
financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodians and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 22, 1999
48
<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 R. Moyer, Vice President
Diane L. Mustain, Vice President
Leonard J. Saltiel, Vice President
Christopher Saner, 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
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO CONTACT US
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
Internet access:
WWW.PHOENIXINVESTMENTS.COM
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS
PO Box 2200
Enfield, CT 06083-2200
[LOGO] PHOENIX
INVESTMENT PARTNERS
PXP 092 (2/99)
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<PER-SHARE-NII> .02
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