As filed with the Securities and Exchange Commission on April 30, 1999
Registration No. 811-9140
File No. 33-80057
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
Under the
SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 11 [X]
and/or
REGISTRATION STATEMENT
Under the
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 13 [X]
(Check appropriate box or boxes.)
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Phoenix Duff & Phelps Institutional Mutual Funds
(Exact Name of Registrant as Specified in Charter)
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101 Munson Street, Greenfield, MA 01301
(Address of Principal Executive Offices) (Zip Code)
(800) 814-1897
(Registrant's Telephone Number, including Area Code)
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Pamela S. Sinofsky
Compliance Officer
Phoenix Investment Partners, Ltd.
56 Prospect Street
Hartford, Connecticut 06115
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed effective amendment.
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<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS
Cross Reference Sheet Pursuant to Rule 495(a)
Under the Securities Act of 1933
PART A
Information Required in Prospectus
<TABLE>
<CAPTION>
Item Number Form N-1A, Part A Prospectus Caption
- ----------------------------- ------------------
<S> <C> <C>
1. Front and Back Cover Pages .......................... Cover Page, Back Cover Page
2. Risk/Return Summary; Investments, Risks,
Performance ......................................... Investment Risk and Return Summary
3. Risk/Return Summary; Fee Table ...................... Fund Expenses
4. Investment Objectives, Principal Investment Investment Risk and Return Summary; Investment
Strategies, and Related Risks ....................... Strategies; Risks Related to Investment Strategies
5. Management's Discussion of Fund Performance ......... Performance Tables
6. Management, Organization, and Capital Structure ..... Management of the Portfolio
7. Shareholder Information ............................. Pricing of Portfolio Shares; Purchase Options; Your
Account; How to Buy Shares; How to Sell Shares; Things
to Know When Selling Shares; Account Policies; Tax
Status of Distribution
8. Distribution Arrangements ........................... Purchase Options
9. Financial Highlights Information .................... Financial Highlights
</TABLE>
PART B
Information Required in Statement of Additional Information
<TABLE>
<CAPTION>
Item Number Form N-1A, Part B Statement of Additional Information Caption
- ----------------------------- -------------------------------------------
<S> <C> <C>
10. Cover Page and Table of Contents .................... Cover Page, Table of Contents
11. Fund History ........................................ The Fund
12. Description of the Fund and Its Investment Risks .... Investment Objectives and Policies; Investment
Restrictions
13. Management of the Fund .............................. Management of the Fund
14. Control Persons and Principal Holders of Securities . Management of the Fund
15. Investment Advisory and Other Services .............. The Investment Advisers; The Administrator; The
Distributor; Distribution Plans; Other Information
16. Brokerage Allocation and Other Practices ............ Portfolio Transactions and Brokerage
17. Capital Stock and Other Securities .................. Other Information
18. Purchase, Redemption, and Pricing of Shares ......... Net Asset Value; How to Buy Shares; Redemption of
Shares; Tax Sheltered Retirement Plans; Investor Account
Services
19. Taxation of the Fund ................................ Dividends, Distributions and Taxes
20. Underwriters ........................................ The Distributor
21. Calculations of Performance Data .................... Performance Information
22. Financial Statements ................................ Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of this Registration Statement.
<PAGE>
Phoenix Investment Partners
Prospectus
May 1, 1999
Phoenix
Duff & Phelps
Institutional
Mutual Funds
Core Equity Portfolio
Growth Stock
Real Estate Equity
Securities Portfolio
Managed Bond Portfolio
Enhanced Reserves Portfolio
Neither the Securities and Exchange
Commission nor any state securities
commission has approved or
disapproved of these securities or
determined if this prospectus is
truthful or complete. Any representation
to the contrary is a criminal offense.
This prospectus contains important
information that you should know
before investing in the Core Equity
Portfolio, the Growth Stock Portfolio,
the Real Estate Equity Securities
Portfolio, the Managed Bond Portfolio
and the Enhanced Reserves Portfolio.
[Logo: PHOENIX
INVESTMENT PARTNERS]
<PAGE>
Table of Contents
- ----------------------------------------------------
<TABLE>
<S> <C>
Phoenix Duff & Phelps Institutional
Core Equity Portfolio
Investment Risk and Return Summary .............. 1
Fund Expenses ................................... 2
Investment Strategies ........................... 3
Risks Related to Investment Strategies .......... 3
Management of the Portfolio ..................... 4
Phoenix Duff & Phelps Institutional
Growth Stock Portfolio
Investment Risk and Return Summary .............. 9
Fund Expenses ................................... 11
Investment Strategies ........................... 12
Risks Related to Investment Strategies .......... 14
Management of the Portfolio ..................... 16
Phoenix Real Estate Equity Securities Portfolio
Investment Risk and Return Summary .............. 18
Fund Expenses ................................... 21
Investment Strategies ........................... 22
Risks Related to Investment Strategies .......... 23
Management of the Portfolio ..................... 25
Phoenix Duff & Phelps Institutional
Managed Bond Portfolio
Investment Risk and Return Summary .............. 27
Fund Expenses ................................... 30
Investment Strategies ........................... 31
Risks Related to Investment Strategies .......... 33
Management of the Portfolio ..................... 36
Phoenix Duff & Phelps Institutional
Enhanced Reserves Portfolio
Investment Risk and Return Summary .............. 38
Fund Expenses ................................... 40
Investment Strategies ........................... 41
Risks Related to Investment Strategies .......... 43
Management of the Portfolio ..................... 44
Pricing of Portfolio Shares ...................... 45
Purchase Options ................................. 46
Your Account ..................................... 47
How to Buy Shares ................................ 48
How to Sell Shares ............................... 48
Things You Should Know When Selling
Shares .......................................... 49
Account Policies ................................. 50
Tax Status of Distributions ...................... 50
Financial Highlights ............................. 52
Additional Information ........................... 60
</TABLE>
> Phoenix
Duff & Phelps
Institutional
Mutual
Funds
<PAGE>
Phoenix Duff & Phelps Institutional Core Equity Portfolio
Investment Risk and Return Summary
- ----------------------------------
Investment Objective
Phoenix Duff & Phelps Institutional Core Equity Portfolio has an investment
objective of long-term capital appreciation. There is no guarantee that the
portfolio will achieve its objective.
Principal Investment Strategies
> The portfolio seeks to increase the value of your shares by investing in
securities the adviser expects to increase in value. Most of the
portfolio's investments will be in common stocks. In selecting stocks for
portfolio investment, the portfolio uses a blended approach, investing in
growth stocks, value stocks or stocks that exhibit characteristics of both.
> The adviser selects securities primarily from the 1,000 largest U.S.
companies based on predictability and consistency of future earnings and
dividend growth at a price that the adviser believes is low relative to the
stock's past valuation and its anticipated future growth. Securities may be
sold when the adviser believes that they are overvalued or have experienced
fundamental change.
Principal Risks
If you invest in this portfolio you risk that you may lose your investment.
Conditions affecting the overall economy, specific industries or companies in
which the portfolio invests can be worse than expected. As a result, the value
of your shares may decrease. Share value may also decrease if securities
selected for portfolio investment fail to perform as the adviser expects.
Investments in value stocks are subject to the risk that their intrinsic values
may never be realized by the market.
Growth securities are more dependent on market changes for return and tend to be
more volatile to market changes than non-growth securities.
Performance Tables
Performance tables are not included for the Phoenix Duff & Phelps Institutional
Core Equity Portfolio because the portfolio has not had annual returns for at
least one calendar year.
Phoenix Duff & Phelps Institutional Core Equity Portfolio 1
<PAGE>
Fund Expenses
- -------------
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
<CAPTION>
Class X Class Y
Shares Shares
------ ------
<S> <C> <C>
Shareholder Fees (fees paid directly
from your investment)
Maximum Sales Charge (load) Imposed on
Purchases (as a percentage of offering
price) None None
Maximum Deferred Sales Charge (load) (as None None
a percentage of the lesser of the value
redeemed or the amount invested)
Maximum Sales Charge (load) Imposed on
Reinvested Dividends None None
Redemption Fee None None
Exchange Fee None None
--------------------------
Class X Class Y
Shares Shares
------ ------
Annual Fund Operating Expenses (expenses
that are deducted from fund assets)
Management Fees 0.50% 0.50%
Distribution and Service (12b-1) Fees(b) None 0.25%
Other Expenses 4.01% 4.01%
---- ----
Total Annual Fund Operating Expenses(a) 4.51% 4.76%
==== ====
</TABLE>
- ----------------
(a) The portfolio's investment adviser has agreed to reimburse or waive through
December 31, 1999, other operating expenses, to the extent that such expenses
exceed 0.15% for each class of shares. Actual Total Annual Operating Expenses
for the portfolio, after expense reimbursement are 0.65% for Class X Shares and
0.90% for Class Y Shares.
(b) Distribution and Service Fees represent an asset-based sales charge that,
for a long-term shareholder, may be higher than the maximum front-end sales
charge permitted by the National Association of Securities Dealers, Inc.
("NASD").
Example
This example is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- --------------------------------------------------
Class 1 year 3 years 5 years 10 years
- --------------------------------------------------
<S> <C> <C> <C> <C>
Class X $452 $1,363 $2,283 $4,622
- --------------------------------------------------
Class Y $477 $1,434 $2,395 $4,819
- --------------------------------------------------
</TABLE>
2 Phoenix Duff & Phelps Institutional Core Equity Portfolio
<PAGE>
Note: Your actual expenses may be lower than those shown in the table above
since the expense levels used to calculate the figures shown do not include the
reimbursement of expenses over certain levels by the portfolio's investment
adviser. Refer to the section "Management of the Portfolio" for information
about expense reimbursement.
Investment Strategies
- ---------------------
Investment Objective
The portfolio has an investment objective of long-term capital appreciation.
There is no guarantee that the portfolio will achieve its objective.
Principal Investment Strategies
The portfolio invests primarily in a diversified portfolio of common stocks that
exhibit growth characteristics, value characteristics or both.
The adviser seeks to select securities of the 1,000 companies with the largest
market capitalizations traded in the United States. The companies are selected
based on predictability and consistency of future earnings and dividend growth
at a price that is low relative to the stock's historical valuation and the
company's future growth prospects. The adviser monitors holdings for fundamental
change and overvaluation to make sell decisions.
Temporary Defensive Strategy: In the event of adverse market conditions, the
portfolio may pursue a policy of retaining cash or investing in high-quality
money market instruments with maturities of one year or less, and in repurchase
agreements. When this happens, the portfolio may not achieve its investment
objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques of the portfolio.
Risks Related to Investment Strategies
- --------------------------------------
General
The value of the portfolio's investments that support your share value can
decrease as well as increase. If between the time you purchase shares and the
time you sell shares the value of the portfolio's investments decreases, you
will lose money. The value of the portfolio's investments can decrease for a
number of reasons. For example, changing economic conditions may cause a decline
in value of many or most investments. Particular industries can face poor market
conditions for their products or services so that companies engaged in those
businesses do not
Phoenix Duff & Phelps Institutional Core Equity Portfolio 3
<PAGE>
perform as well as companies in other industries. To the extent that the
portfolio's investments are affected by general economic declines and declines
in industries that negatively affect the companies in which the portfolio
invests, portfolio share values may decline. Share values can also decline if
the specific companies selected for portfolio investment fail to perform as the
adviser expects, regardless of general economic trends, industry trends and
other economic factors. Securities that the adviser believes are undervalued may
not realize their expected value.
In addition to these general risks of investing in the portfolio, there are
several specific risks of investing in the portfolio that you should note.
Value Stocks
Investments in value stocks are subject to the risk that their intrinsic values
may never be realized by the market, causing their prices to remain the same or
even decline.
Growth Stocks
Typically, growth stocks make little or no dividend payments to shareholders.
Investment return is based upon the stocks' capital appreciation making return
more dependent on market increases and decreases as compared to stocks that
provide dividend payments. Growth stocks also tend to rise faster when markets
advance and drop more sharply when markets fall making them more volatile than
non-growth stocks to market changes. Should a market decline occur, the
portfolio's price may fall more than that of a non-growth portfolio.
Impact of the Year 2000 Issue on Portfolio Investments
The Year 2000 issue is the result of computer programs being written using two
rather than four digits to define the applicable year. There is the possibility
that some or all of an entity's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. If an entity whose securities are held by the portfolio does not "fix" its
Year 2000 issue, it is possible that its operations and financial results would
be hurt. Also, the cost of modifying computer programs to become Year 2000
compliant may hurt the financial performance and market price of entities whose
securities are held by the portfolio.
Management of the Portfolio
- ---------------------------
The Adviser
Duff & Phelps Investment Management Co. ("Duff & Phelps") is the investment
adviser to the portfolio and is located at 55 East Monroe Street, Suite 3600,
Chicago, Illinois 60603. Duff & Phelps also acts as investment adviser to eight
other mutual funds and as adviser to institutional clients. As of December 31,
1998, Duff & Phelps had approximately $15.2 billion in assets under management
on a discretionary basis.
4 Phoenix Duff & Phelps Institutional Core Equity Portfolio
<PAGE>
Subject to the direction of the portfolio's Board of Trustees, Duff & Phelps is
responsible for managing the portfolio's investment program and the day-to-day
management of the portfolio's investments. Duff & Phelps manages the portfolio's
assets to conform with the investment policies as described in this prospectus.
The portfolio pays Duff & Phelps a monthly investment management fee that is
accrued daily against the value of the portfolio's net assets at the annual rate
of 0.50%.
The adviser has voluntarily agreed to assume operating expenses of the portfolio
(excluding management fees, distribution and service fees, interest, taxes,
brokerage fees, commissions and extraordinary expenses) until December 31, 1999,
to the extent that such expenses exceed 0.15% of the average annual net asset
values of the portfolio.
During the portfolio's last fiscal year, the portfolio paid total management
fees of $22,841. The ratio of management fees to average net assets for the
fiscal year ended December 31, 1998 was 0.50%.
Portfolio Management
Diane Mustain serves as lead Portfolio Manager and as such is responsible for
the day-to-day operation of the portfolio. As lead Portfolio Manager she manages
the team of investment professionals responsible for the selection of portfolio
securities for the equity portfolio. Ms. Mustain is an Executive Vice President
of Duff & Phelps and serves as Vice Chairman of its Equity Strategy Committee.
In addition, since 1993 Ms. Mustain has been a Sector Manager responsible for
the Defensive Sector of the core equity portfolio. Ms. Mustain was Group Vice
President from 1992 to 1993 where she was responsible for the selection of
consumer stocks for the equity research model portfolio and provided analytical
input to the Investment Management Committee. Ms. Mustain joined Phoenix
Investment Partners, Ltd., then known as Duff & Phelps Corporation, in 1981.
Performance of the Portfolio
The table below sets out the return of each class of the portfolio's shares
since inception of the portfolio through December 31, 1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------
Class of Shares Return (4/14/98 through 12/31/98)
- ---------------------------------------------------
<S> <C>
Class X Shares 2.97%
- ---------------------------------------------------
Class Y Shares 2.71%
- ---------------------------------------------------
</TABLE>
Prior Investment Performance of Duff & Phelps
The following table sets forth composite performance data relating to the
historical performance of substantially all of the institutional separately
managed accounts managed by Duff & Phelps investment professionals that have
substantially the same investment objectives, policies, strategies and risks as
the portfolio. The data is provided to illustrate the past performance of Duff &
Phelps in managing substantially similar accounts as compared to the S&P 500.
Investors should not consider this performance data as an indication of past or
future performance of the portfolio or of Duff & Phelps.
Phoenix Duff & Phelps Institutional Core Equity Portfolio 5
<PAGE>
Duff & Phelps has calculated its composite performance data in compliance with
the Performance Presentation Standards of the Association for Investment
Management and Research ("AIMR-PPS[TM]"). AIMR has not been involved with the
preparation or review of this illustration. AIMR is a non-profit membership and
education organization with more than 60,000 members worldwide that, among other
things, has formulated a set of performance presentation standards for
investment advisers. These AIMR performance presentation standards are intended
to promote full and fair presentations by investment advisers of their
performance results and ensure uniformity in reporting so that performance
results of investment advisers are directly comparable.
AIMR composite performance figures are a quarterly aggregate of monthly returns
of a group of similar accounts which are time weighted and asset weighted.
Quarterly and yearly composite returns are the result of geometrically linking
monthly and quarterly returns, respectively. (Each composite return figure is
compounded by the successive period's composite return.)
All returns presented were calculated on a total return basis and include all
dividends, interest, accrued income and realized and unrealized gains and
losses. All returns reflect the deduction of the maximum advisory fee of 0.75%
of assets under management, brokerage commissions and execution costs paid by
Duff & Phelps's institutional private accounts, without provision for income
taxes. Only those institutional private accounts where Duff & Phelps exercised
full discretionary investment authority have been included in the composite
performance data. The institutional private accounts included in Duff & Phelps's
composite performance data are not subject to the same expenses and specific tax
restrictions applicable to regulated investment companies, such as the
Phoenix-Duff & Phelps Institutional Core Equity Portfolio, under Subchapter M of
the Internal Revenue Code and are not subject to Investment Company Act of 1940
restrictions on investment limitations and diversification. Consequently, Duff &
Phelps's investment results could have been adversely affected had these
regulations applied to the institutional private accounts.
The SEC standardized formula (average annual total return) is calculated net of
portfolio fees and expenses as well as investment commissions while AIMR
composites are net of portfolio expenses (for Duff & Phelps this consists of
brokerage and transaction costs only) but gross of management fees (which are
variable by client). A composite return is the aggregate total return of a group
of similar accounts while the SEC formula is applied to only one account (mutual
fund). The time weighting of the composite differs from the SEC formula in that
the monthly total returns calculated for each account within the composite are
adjusted for cash flows and income accruals by assuming that these flows occur
mid-month. Consequently, composite performance is not overstated as a result of
new investments nor penalized by withdrawals. Mutual funds, in contrast,
calculate their net asset value daily and no adjustments would therefore be
required when calculating total returns. For AIMR composites, accounts are
dollar weighted to reflect the proportionate effect of account size on total
return within the composite.
6 Phoenix Duff & Phelps Institutional Core Equity Portfolio
<PAGE>
The following table illustrates all expenses and fees that an institutional
privately managed account of Duff & Phelps will incur.
<TABLE>
<CAPTION>
Equity
Portfolios
----------
<S> <C> <C>
Account Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of amount invested) None
Maximum Sales Load Imposed
on Reinvested Dividends None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fee None
Exchange Fee None
Annual Fund Operating Expenses
Management Fees
first $10 million 0.75%
next $15 million 0.60%
next $25 million 0.50%
next $50 million 0.40%
12b-1 Fees None
Other Operating Expenses (a) None
----
Total Fund Operating Expenses 0.75%
====
</TABLE>
- ----------------
(a) The adviser's composite performance data reflect commission and transaction
costs. The adviser does not assess custodial fees; however, custodial fees are
customarily directly paid by institutional private clients to third party
custodians.
The composite performance data presented below has been prepared in accordance
with the AIMR Performance Presentation Standards. The investment results
presented below could be calculated using different methods thereby producing
different results. The performance below reflects past performance of Duff &
Phelps for periods ending December 31, 1998 for similarly managed institutional
private accounts and is not indicative of future results for the Phoenix-Duff &
Phelps Institutional Core Equity Portfolio.
<TABLE>
<CAPTION>
- ---------------------------------------------
Period Adviser's Composite S&P 500
- ---------------------------------------------
<S> <C> <C>
One Year 18.89% 28.76%
- ---------------------------------------------
Three Years 27.39% 28.39%
- ---------------------------------------------
Five Years 21.86% 24.15%
- ---------------------------------------------
Ten Years 17.78% 19.22%
- ---------------------------------------------
</TABLE>
The institutional private accounts whose composite returns are shown above were
managed by a team of Duff & Phelps professionals. The portfolio similarly is
managed by a team headed by Diane Mustain.
Phoenix Duff & Phelps Institutional Core Equity Portfolio 7
<PAGE>
Impact of the Year 2000 Issue on Portfolio Operations
The Trustees have directed management to ensure that the systems used by service
providers (Duff & Phelps and its affiliates) in support of the portfolios'
operations be assessed and brought into Year 2000 compliance. Based upon
preliminary assessments, Duff & Phelps has determined that it will be required
to modify or replace portions of its software so that its computer systems will
properly utilize dates beyond December 31, 1999. Duff & Phelps management
believes that the majority of these systems are already Year 2000 compliant.
Duff & Phelps believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will be mitigated. It is
anticipated that such modifications and conversions will be completed on a
timely basis. It is not known at this time if there could be a material impact
on the operations of Duff & Phelps or its affiliates or the portfolio if such
modifications and conversion are not timely completed.
Duff & Phelps will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives; and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the portfolio and
is not expected to have a material impact on the operating results of Duff &
Phelps.
8 Phoenix Duff & Phelps Institutional Core Equity Portfolio
<PAGE>
Phoenix Duff & Phelps Institutional
Growth Stock Portfolio
Investment Risk and Return Summary
- ----------------------------------
Investment Objective
Phoenix Duff & Phelps Institutional Growth Stock Portfolio has an investment
objective of long-term capital appreciation. There is no guarantee that the
portfolio will achieve its objective.
Principal Investment Strategies
> The portfolio will seek to increase the value of your shares by investing
in securities the adviser expects to increase in value. The portfolio
invests in any class or type of stock believed by the adviser to offer the
potential for capital growth over both the intermediate and long term. Most
of the portfolio's investments will be in common stocks.
> The adviser first determines which industries it believes have the greatest
growth potential and then identifies the amount and proportion of assets to
be invested in each. Quantitative and fundamental analysis is then used to
determine which securities to buy and sell. Approximately 950 large cap
stocks go through a quantitative screening process where they are ranked on
a number of factors including earnings acceleration, earning revisions,
relative strength and valuation. From these, the top 10% are analyzed for
potential portfolio investment. Companies that the adviser believes are
capable of producing long-term, sustainable above-average earnings growth
relative to their cost are then selected for portfolio investment.
Securities that have dropped 15% or more in value relative to the S&P 500
Index, that are in the bottom 20% of their quantitative ranking, or that
have reached the adviser's target sell price are analyzed for potential
sale.
> The portfolio may invest in both U.S. and non-U.S. (foreign) companies of
any size, although typically the portfolio invests in large cap stocks.
Principal Risks
If you invest in this portfolio you risk that you may lose your investment.
Conditions affecting the overall economy, specific industries or companies in
which the portfolio invests can be worse than expected. As a result, the value
of your shares may decrease.
Smaller companies may be affected to a greater extent than larger companies by
changes in general economic conditions and conditions in particular industries.
Smaller companies may also be relatively new and not have the same operating
history and "track record" as larger companies. This could make future
performance of smaller companies more difficult to predict.
Phoenix Duff & Phelps Institutional Growth Stock Portfolio 9
<PAGE>
Political and economic uncertainty in foreign countries, as well as less public
information about foreign investments, may negatively impact the portfolio's
investments. Some investments may be made in currencies other than the U.S.
dollar that will fluctuate in value as a result of changes in the currency
exchange rate. Foreign markets may not perform as well as U.S. markets.
The portfolio may be subject to greater risks than a portfolio that does not
invest in securities with growth characteristics.
Performance Tables
The bar chart and table below provide some indication of the risks of investing
in the Phoenix Duff & Phelps Institutional Growth Stock Portfolio. The bar chart
shows changes in the portfolio's Class X Shares performance from year to year
over the past ten years.(1) The table shows how the portfolio's average annual
returns for one, five and ten years, and for the life of the portfolio compare
to those of a broad-based securities market index. 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 portfolio). The objectives, policies, guidelines and restrictions of the
separate account are materially equivalent to those of the portfolio. The
performance of the separate account has been restated to reflect the deduction
of fees and expenses applicable to the portfolio's Class X Shares and Class Y
Shares, respectively. The portfolio's past performance is not necessarily an
indication of how the portfolio will perform in the future.
Growth Stock Portfolio
[Bar chart data]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
35.71% 3.25% 40.58% 2.19% 10.04% -0.90% 34.73% 11.35% 25.76% 31.20%
</TABLE>
(1) During the 10-year period shown in the chart above, the highest return for a
quarter was 8.54% (quarter ending June 30, 1995) and the lowest return for a
quarter was (3.18)% (quarter ending March 31, 1994). Year to date performance
(through March 31, 1999) was 3.46%.
10 Phoenix Duff & Phelps Institutional Growth Stock Portfolio
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Average Annual Total Returns Life of the
(for the periods ending 12/31/98) One Year Five Years Ten Years Portfolio(1)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class X Shares 31.20% 19.65% 18.44% 18.05%
- -------------------------------------------------------------------------------------
Class Y Shares 30.85% 19.35% 18.14% 17.75%
- -------------------------------------------------------------------------------------
S&P 500 Index(2) 28.76% 24.15% 19.22% 18.16%
- -------------------------------------------------------------------------------------
</TABLE>
(1) Since December 2, 1985.
(2) The S&P 500 Stock Index is an unmanaged, commonly used measure of stock
market total return performance.
Fund Expenses
- -------------
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
<CAPTION>
Class X Class Y
Shares Shares
------ ------
<S> <C> C>
Shareholder Fees (fees paid directly from
your investment)
Maximum Sales Charge (load) Imposed on
Purchases (as a percentage of offering price) None None
Maximum Deferred Sales Charge (load) (as a None None
percentage of the lesser of the value redeemed
or the amount invested)
Maximum Sales Charge (load) Imposed on
Reinvested Dividends None None
Redemption Fee None None
Exchange Fee None None
-------------------------
Class X Class Y
Shares Shares
------ ------
Annual Fund Operating Expenses
(expenses that are deducted from
fund assets)
Management Fees 0.60% 0.60%
Distribution and Service (12b-1) Fees(b) None 0.25%
Other Expenses 0.40% 0.40%
---- ----
Total Annual Fund Operating Expenses(a) 1.00% 1.25%
==== ====
</TABLE>
- ----------------
(a) The portfolio's investment adviser has agreed to reimburse or waive through
December 31, 2001, total operating expenses to the extent that such expenses
exceed 0.70% for Class X Shares and 0.95% for Class Y Shares. Actual Total
Annual Operating Expenses for the portfolio, after expense reimbursement, are
0.70% for Class X Shares and 0.95% for Class Y Shares.
(b) Distribution and Service Fees represent an asset based sales charge that,
for a long-term shareholder, may be higher than the maximum front-end sales
charge permitted by the National Association of Securities Dealers, Inc.
("NASD").
Phoenix Duff & Phelps Institutional Growth Stock Portfolio 11
<PAGE>
Example
This example is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- --------------------------------------------------
Class 1 year 3 years 5 years 10 years
- --------------------------------------------------
<S> <C> <C> <C> <C>
Class X $102 $318 $552 $1,225
- --------------------------------------------------
Class Y $127 $397 $686 $1,511
- --------------------------------------------------
</TABLE>
Note: Your actual expenses may be lower than those shown in the table above
since the expense levels used to calculate the figures shown do not include the
reimbursement of expenses over certain levels by the portfolio's investment
adviser. Refer to the section "Management of the Portfolio" for information
about expense reimbursement.
Investment Strategies
- ---------------------
Investment Objective
The portfolio has an investment objective of long-term capital appreciation.
There is no guarantee that the portfolio will meet its objective.
Principal Investment Strategies
Under normal circumstances, the portfolio will invest at least 65% of its total
assets in any class or type of stock believed by the adviser to offer potential
for capital appreciation over both the intermediate and long-term. Most of the
portfolio's investments will be in common stocks.
To select securities for portfolio investment, the adviser first determines
which industries, such as health care, technology, and energy, it believes have
the greatest growth potential given the adviser's future economic outlook. The
adviser will then identify the amount and proportion of assets to be invested in
each such industry. The adviser will then use quantitative and fundamental
analysis to determine which securities to buy and sell within each industry
given its asset allocation. Approximately 950 large cap stocks go through a
quantitative screening process where they are ranked on a number of factors
including earnings acceleration, earning revisions, relative strength and
valuation. From these, the top 10% are analyzed for potential portfolio
investment. The adviser's analysis includes such activities as developing
earnings
12 Phoenix Duff & Phelps Institutional Growth Stock Portfolio
<PAGE>
models, visiting companies, analyzing industry information and seeking
information from other research firms. Companies that the adviser believes are
capable of producing long-term and above-average sustainable earnings growth
relative to their cost are then selected for portfolio investment.
Understanding the importance of a strong sell discipline, the adviser's
investment process also incorporates three separate sell indicators.
Specifically, if any holding:
o drops 15% or more in value relative to the S&P 500 Index;
o falls into the bottom 20% of its quantitative ranking; or
o reaches the adviser's target sell price,
it is reviewed by the adviser for potential sale.
The portfolio may invest up to 15% of its net assets in foreign securities.
The portfolio may invest in companies with small as well as large
capitalizations.
Distribution of investment income, such as dividends and interest, is incidental
in the selection of investments.
Temporary Defensive Strategy: If the adviser believes that market conditions are
not favorable to the portfolio's principal strategies, the portfolio may invest
in fixed income securities with or without warrants or conversion features, and
it may hold on to its cash or invest without limit in cash equivalents. When
this happens, the portfolio may not achieve its investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques of the portfolio.
Phoenix Duff & Phelps Institutional Growth Stock Portfolio 13
<PAGE>
Risks Related to Investment Strategies
- --------------------------------------
General
The value of the portfolio's investments that support your share value can
decrease as well as increase. If between the time you purchase shares and the
time you sell shares the value of the portfolio's investments decreases, you
will lose money. The value of the portfolio's investments can decrease for a
number of reasons. For example, changing economic conditions may cause a decline
in value of many or most investments. Particular industries can face poor market
conditions for their products or services so that companies engaged in those
businesses do not perform as well as companies in other industries. To the
extent that the portfolio's investments are affected by general economic
declines and declines in industries that negatively affect the companies in
which the portfolio invests, portfolio share values may decline. Share values
can also decline if the specific companies selected for portfolio investment
fail to perform as the adviser expects, regardless of general economic trends,
industry trends, and other economic factors.
In addition to these general risks of investing in the portfolio, there are
several specific risks of investing in the portfolio that you should note.
Growth Stocks
Typically, growth stocks make little or no dividend payments to shareholders.
Investment return is based upon the stocks' capital appreciation making return
more dependent on market increases and decreases as compared to stocks that
provide dividend payments. Growth stocks also tend to rise faster when markets
advance and drop more sharply when markets fall making them more volatile than
non-growth stocks to market changes. Should a market decline occur, the
portfolio's price may fall more than that of a non-growth portfolio.
Small Market Capitalization Investing
Companies with small capitalization are often companies in industries that have
recently emerged due to cultural, economic, regulatory or technological
developments. Such developments can have a significant positive or negative
effect on small capitalization companies and their stock performance. Given the
limited operating history and rapidly changing fundamental prospects, investment
returns from smaller capitalization companies can be highly volatile. Smaller
companies may find their ability to raise capital impaired by their size or lack
of operating history. Product lines are often less diversified and subject to
competitive threats. Smaller capitalization stocks are subject to varying
patterns of trading volume and may, at times, be difficult to sell.
14 Phoenix Duff & Phelps Institutional Growth Stock Portfolio
<PAGE>
Foreign Investing
Investing in the securities of non-U.S. companies involves special risks and
considerations not typically associated with investing in U.S. companies. These
include:
o differences in accounting, auditing and financial reporting standards;
o generally higher commission rates on foreign portfolio transactions;
o differences and inefficiencies in transaction settlement systems;
o the possibility of expropriation or confiscatory taxation;
o adverse changes in investment or exchange control regulations;
o political instability; and
o potential restrictions on the flow of international capital.
Political and economic uncertainty, as well as less public information about
investments, may negatively impact the portfolio's investments.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes withheld prior to receipt by the portfolio.
Many of the foreign securities held by the portfolio will not be registered
with, nor will the issuers of those securities be subject to the reporting
requirements of, the U.S. Securities and Exchange Commission. Accordingly, there
may be less publicly available information about the securities and about the
foreign company or government issuing them than is available about a domestic
company or government entity. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
Foreign Currency
Changes in foreign exchange rates will affect the value of those securities
denominated or quoted in currencies other than the U.S. dollar. The forces of
supply and demand in the foreign exchange markets determine exchange rates and
these forces are in turn affected by a range of economic, political, financial,
governmental and other factors. Exchange rate fluctuations can affect the
portfolio's net asset value (share price) and dividends either positively or
negatively depending upon whether foreign currencies are appreciating or
depreciating in value relative to the U.S. dollar. Exchange rates fluctuate over
both the long and short terms.
Phoenix Duff & Phelps Institutional Growth Stock Portfolio 15
<PAGE>
On January 1, 1999, eleven European countries began converting from their
sovereign currency to the European Union common currency called the "Euro". This
conversion may expose the portfolio to certain risks including the reliability
and timely reporting of pricing information of the portfolio's holdings. In
addition, one or more of the following may adversely affect specific securities
in the portfolio:
o known trends or uncertainties related to the Euro conversion that an
issuer reasonably expects will have a material impact on revenues,
expenses or income from its operations;
o competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a
common currency and issuers' plans for pricing their own products and
services in the Euro;
o issuers' ability to make required information technology updates on a
timely basis, and costs associated with the conversion (including
costs of dual currency operations through January 1, 2002);
o currency exchange rate risk and derivatives exposure (including the
disappearance of price sources, such as certain interest rate
indices); and
o potential tax consequences.
Impact of the Year 2000 Issue on Portfolio Investments
The Year 2000 issue is the result of computer programs being written using two
rather than four digits to define the applicable year. There is the possibility
that some or all of an entity's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. If an entity company whose securities are held by the portfolio does not
"fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
entities whose securities are held by the portfolio.
Management of the Portfolio
- ---------------------------
The Adviser
Phoenix Investment Counsel, Inc. ("Phoenix") is the investment adviser to the
portfolio and is located at 56 Prospect Street, Hartford, CT 06115. Phoenix also
acts as the investment adviser for 14 other mutual funds, as subadviser to three
mutual funds and as adviser to institutional clients. As of December 31, 1998,
Phoenix had $23.9 billion in assets under management. Phoenix has acted as an
investment adviser for over sixty years.
16 Phoenix Duff & Phelps Institutional Growth Stock Portfolio
<PAGE>
Subject to the direction of the portfolio's Board of Trustees, Phoenix is
responsible for managing the portfolio's investment program and the day-to-day
management of the portfolio's investments. Phoenix manages the portfolio's
assets to conform with the investment policies as described in this prospectus.
The portfolio pays Phoenix a monthly investment management fee that is accrued
daily against the value of that portfolio's net assets at the following annual
rates.
<TABLE>
<CAPTION>
- ----------------------------------------------
$1st billion $1+ billion
- ----------------------------------------------
<S> <C> <C>
Management Fee 0.60% 0.55%
- ----------------------------------------------
</TABLE>
The adviser has voluntarily agreed to assume total operating expenses of the
portfolio (excluding interest, taxes, brokerage fees, commissions and
extraordinary expenses) until December 31, 2001, to the extent that such
expenses exceed the following percentages of the average annual net asset values
of the portfolio:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Class X Shares Class Y Shares
- -----------------------------------------------------------
<S> <C> <C>
Growth Stock Portfolio 0.70% 0.95%
- -----------------------------------------------------------
</TABLE>
During the portfolio's last fiscal year, the portfolio paid total management
fees of $383,128. The ratio of management fees to average net assets for the
fiscal year ended December 31, 1998 was 0.60%.
Portfolio Management
The investment and trading decisions for the portfolio are made by a team of
equity investment professionals.
Impact of the Year 2000 Issue on Portfolio Operations
The Trustees have directed management to ensure that the systems used by service
providers (Phoenix and its affiliates) in support of the portfolios' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, Phoenix has determined that it will be required to modify or
replace portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. Phoenix management believes that the
majority of these systems are already Year 2000 compliant. Phoenix believes that
with modifications to existing software and conversions to new software, the
Year 2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of Phoenix or its affiliates
or the portfolio if such modifications and conversions are not timely completed.
Phoenix will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives; and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the portfolio and
is not expected to have a material impact on the operating results of Phoenix.
Phoenix Duff & Phelps Institutional Growth Stock Portfolio 17
<PAGE>
Phoenix Real Estate Equity
Securities Portfolio
Investment Risk and Return Summary
- ----------------------------------
Investment Objectives
Phoenix Real Estate Equity Securities Portfolio has investment objectives of
capital appreciation and income with approximately equal emphasis. There is no
guarantee that the portfolio will achieve its objective.
Principal Investment Strategies
> The portfolio's focus is capital appreciation and income. The portfolio
seeks to increase the value of your shares by investing in securities the
adviser believes have the potential for initial appreciation and continued
income growth. The portfolio is a non-diversified investment company.
> The portfolio intends to invest primarily in publicly-traded real estate
investment trusts (REITs), with emphasis on investment in equity REITs, and
companies that are principally engaged in the real estate industry.
> Equity securities are selected using a two-tiered screening process. First
the adviser screens the universe of eligible securities for securities it
believes have the potential for initial appreciation, continued dividend
growth and that show signs the issuer is an efficient user of capital.
Securities that survive this screening are further evaluated based on
interviews and fundamental research that focus on the issuer's strength of
management and property, financial and performance reviews.
> An equity security may be evaluated for sale if its market value exceeds
the adviser's estimated value, its financial performance is expected to
decline or if the adviser believes the security's issuer fails to adjust
its strategy to the real estate market cycle.
> To achieve its objective, the portfolio may invest up to 25% of its total
assets in investment grade debt obligations of companies principally
engaged in the real estate industry, mortgage-backed securities or
short-term investments. Debt obligations and mortgage-backed securities may
be of any maturity or duration (the length of a debt security on a present
value basis). Debt securities are selected using a sector rotation
approach. The adviser will seek to adjust the proportion of assets in
categories of debt obligations or "sectors" and the selection within
sectors to obtain higher returns on a relative basis.
18 Phoenix Real Estate Equity Securities Portfolio
<PAGE>
Principal Risks
If you invest in this portfolio, you risk that you may lose your investment.
As a non-diversified investment company, the portfolio may invest a larger
proportion of its assets in the securities of a smaller number of issuers, and
as a result, price fluctuations in these securities have a greater impact on the
portfolio's share price.
Conditions affecting the overall economy, the real estate industry and specific
companies in which the portfolio invests can be worse than expected. As a
result, the value of your shares may decrease.
REITs are subject to mortgage prepayment and refinancing risks, changes in the
value of REIT-owned properties, and changing economic conditions, especially
those that impact the real estate industry, including changes in interest rates.
Additionally, REITs depend more on management skills than other types of
securities.
REIT securities may trade less frequently and in lower volume than securities in
other larger companies and they may be subject to abrupt and large price
movements. Additionally, REIT securities may trade at prices less than the value
of the underlying real estate and they are often not diversified. These factors
may decrease the overall marketability of the securities.
Debt issues are subject to credit, interest rate and maturity risks. If the
adviser misjudges the debt security issuer's ability to make principal and
interest payments, income available for distribution may be less than that of
other portfolios. Typically, debt obligations will increase in value when
interest rates decline and decrease in value when interest rates rise. If
interest rates do not move in the direction that the adviser expects, then the
value of your shares may decrease. Debt obligations with longer maturities may
be subject to greater price fluctuation.
Declining real estate values and rising interest rates may both negatively
affect the value of investments in issues that hold real estate and investments
in businesses related to the real estate industry.
Phoenix Real Estate Equity Securities Portfolio 19
<PAGE>
Performance Tables
The bar chart and table below provide some indication of the risks of investing
in the Phoenix Real Estate Equity Securities Portfolio. The bar chart shows the
portfolio's Class X Shares performance last year.(1) The table shows how the
portfolio's average annual returns for one year and for the life of the
portfolio compare to those of a broad-based securities market index. The
portfolio's past performance is not necessarily an indication of how the
portfolio will perform in the future.
Real Estate Equity Securities Portfolio
[Bar chart data]
<TABLE>
<S> <C>
Calendar Year 1998 -20.53
</TABLE>
(1) During the period shown in the chart above, the highest return for a quarter
was (1.23)% (quarter ending March 31, 1998) and the lowest return for a quarter
was (12.32)% (quarter ending September 30, 1998). Year to date performance
(through March 31, 1999) was (4.71)%.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending 12/31/98) One Year Life of the Portfolio(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class X Shares (20.53)% (1.02)%
- --------------------------------------------------------------------------------
Class Y Shares (20.69)% (1.21)%
- --------------------------------------------------------------------------------
NAREIT Equity Total Return Index(2) (17.50)% 0.79%
- --------------------------------------------------------------------------------
</TABLE>
(1) Since May 1, 1997.
(2) The National Association of Real Estate Investment Trusts (NAREIT) Equity
Total Return Index is an unmanaged, commonly used measure of real estate equity
market total return performance.
20 Phoenix Real Estate Equity Securities Portfolio
<PAGE>
Fund Expenses
- -------------
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
<CAPTION>
Class X Class Y
Shares Shares
------ ------
<S> <C> <C>
Shareholder Fees (fees paid directly from
your investment)
Maximum Sales Charge (load) Imposed on
Purchases (as a percentage of offering price) None None
Maximum Deferred Sales Charge (load) (as a None None
percentage of the lesser of the value redeemed
or the amount invested)
Maximum Sales Charge (load) Imposed on
Reinvested Dividends None None
Redemption Fee None None
Exchange Fee None None
-------------------------
Class X Class Y
Shares Shares
------ ------
Annual Fund Operating Expenses
(expenses that are deducted from
fund assets)
Management Fees 0.48% 0.48%
Distribution and Service (12b-1) Fees(b) None 0.25%
Other Expenses 1.41% 1.41%
---- ----
Total Annual Fund Operating Expenses(a) 1.89% 2.14%
==== ====
</TABLE>
- ----------------
(a) The portfolio's investment adviser has agreed to reimburse through December
31, 1999, other operating expenses to the extent that such expenses exceed 0.40%
for each class of shares. Actual Total Annual Operating Expenses for the
portfolio, after expense reimbursement are 0.88% for Class X Shares and 1.13%
for Class Y Shares.
(b) Distribution and Service Fees represent an asset based sales charge that,
for a long-term shareholder, may be higher than the maximum front-end sales
charge permitted by the National Association of Securities Dealers, Inc.
("NASD").
Example
This example is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- --------------------------------------------------
Class 1 year 3 years 5 years 10 years
- --------------------------------------------------
<S> <C> <C> <C> <C>
Class X $192 $594 $1,021 $2,212
- --------------------------------------------------
Class Y $217 $670 $1,149 $2,472
- --------------------------------------------------
</TABLE>
Phoenix Real Estate Equity Securities Portfolio 21
<PAGE>
Note: Your actual expenses may be lower than those shown in the table above
since the expense levels used to calculate the figures shown do not include the
reimbursement of expenses over certain levels by the portfolio's investment
adviser. Refer to the section "Management of the Portfolio" for information
about expense reimbursement.
Investment Strategies
- ---------------------
Investment Objectives
The portfolio has investment objectives of capital appreciation and income with
approximately equal emphasis. There is no guarantee that the portfolio will
achieve its objective.
Principal Investment Strategies
The portfolio's focus is capital appreciation and income. The portfolio seeks to
increase the value of your shares by investing in securities the adviser
believes have the potential for initial appreciation and continued income
growth.
Under normal circumstances, the portfolio intends to invest at least 75% of its
assets in marketable securities of publicly-traded real estate investment trusts
(REITs) and companies that are principally engaged in the real estate industry.
A company is considered "principally engaged" in the real estate industry if at
least 50% of the company's gross revenues or net profits come from the
ownership, development, construction, financing, management or sale of
commercial, industrial or residential real estate. The portfolio does not invest
directly in real estate.
The portfolio will primarily focus its investments in equity REITs. Generally,
REITs are publicly-traded companies that invest primarily in income-producing
real estate or real estate- related loans or interests. Equity REITs own real
estate directly. Mortgage REITs invest the majority of their assets in real
estate mortgages and earn income from the collection of interest payments.
Hybrid REITs combine the characteristics of both equity and mortgage REITs.
Equity securities are selected using a two-tiered screening process. First the
adviser screens the universe of eligible securities for securities it believes
have:
o the potential for initial appreciation based on comparing the price of
a security to its projected portfolios from operations growth rate;
o the potential for continued dividend growth based on historical
patterns of dividend growth; and
o signs the issuer is an efficient user of capital based on cost of
capital and return on investment comparisons.
22 Phoenix Real Estate Equity Securities Portfolio
<PAGE>
Equity securities that survive this screening are further evaluated based on
interviews and fundamental research that focuses on the issuer's strength of
management and property, financial and performance reviews.
Portfolio holdings are continually compared to those in their peer group and
reevaluated for potential sale. A security that:
o exceeds the adviser's estimated value;
o the adviser expects to decline in financial performance; or
o the adviser believes has an issuer that fails to adjust its strategy
to the real estate market cycle may be evaluated for sale.
The portfolio may invest up to 25% of its total assets on marketable debt
obligations of companies principally engaged in the real estate industry,
mortgage-backed securities, such as pass-through certificates, real estate
mortgage investment conduits (REMICS), and collateralized mortgage obligations
(CMOs), or short-term investments. These investments will have credit ratings
within the four highest rating categories, and, may be of any maturity or
duration.
Debt obligations are selected using a sector rotation approach. The adviser will
seek to adjust the proportion of assets in the various sectors and the selection
of investments within sectors to obtain higher returns on a relative basis. The
adviser selects sectors based on value as compared to risk. The adviser seeks
investments within sectors that are undervalued based on fundamentals such as
earnings coverage of interest, cash flow and liquidity.
Temporary Defensive Strategy: When the adviser believes there are extraordinary
risks associated with investment in real estate market securities, the portfolio
may invest up to 100% of its assets in short-term investments such as
money-market instruments, repurchase agreements, certificates of deposit and
bankers' acceptances. When this happens, the portfolio may not achieve its
investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques of the portfolio.
Risks Related to Investment Strategies
- --------------------------------------
General
The value of the portfolio's investments that supports your share value can
decrease as well as increase. If, between the time you purchase shares and the
time you sell shares, the value of the portfolio's investments decreases, you
will lose money. The value of the portfolio's investments can decrease for a
number of reasons. For example, changing economic conditions that affect the
real estate industry may cause a decline in a value of many portfolio
investments. The real estate industry could experience a decrease in sales and
sale prices so that companies engaged in these businesses do not perform as well
as expected. To the extent that the portfolio's investments are affected by
general economic declines and declines in the real estate industry,
Phoenix Real Estate Equity Securities Portfolio 23
<PAGE>
that negatively affect the companies in which the portfolio invests, portfolio
shares values may decline. Share values can also decline if the specific issuers
selected for portfolio investment fail to perform as the adviser expects,
regardless of general economic trends, industry trends, and other economic
factors.
In addition to these general risks of investing in the portfolio, there are
several specific risks of investing in the portfolio that you should note.
Non-Diversification
Diversifying a portfolio's holdings can reduce the risks of investing. As a
non-diversified investment company, the portfolio may be subject to greater risk
since it can invest a greater proportion of its assets in the securities of a
small number of issuers. If the portfolio takes concentrated positions in a
small number of issuers, changes in the price of those securities may cause the
portfolio's return to fluctuate more than that of a diversified investment
company.
Real Estate-Related Investments
The value of investments in issuers that hold real estate may be affected by
changes in the values of real properties owned by the issuers. Likewise,
investments in business related to the real estate industry may also be affected
by the value of real estate generally or in particular geographical areas in
which the businesses operate. A decline in real estate value may have a negative
impact on the value of your shares.
Interest rates also can be a significant factor for issuers that hold real
estate and those in related businesses. Increases in interest rates can cause or
contribute to declines in real estate prices and can cause "slowdowns" in such
related businesses as real estate sales and constructions.
REIT Securities
REIT securities are subject to mortgage prepayment and refinancing risks that
make it difficult to accurately predict cash flows. Additionally, changes in the
value of REIT-owned properties, economic conditions that impact the real estate
industry and interest rate changes may decrease the value of your shares. REIT
investments also depend more on management skills than other types of
investments.
REIT securities often are not diversified and may only finance a limited number
of projects or properties, which may subject REITs to abrupt and large price
movements. REITs are heavily dependent on cash flow from properties and, at
times, the market price of a REIT's securities may be less than the value of
investments in real estate which may result in a lower price when the portfolio
sells its shares in the REIT. REITs also may trade less frequently and in lower
volume than securities of other larger companies which may also contribute to
REIT securities losing value.
24 Phoenix Real Estate Equity Securities Portfolio
<PAGE>
Debt Securities
Typically, debt obligations will increase in value when interest rates decline
and decrease in value when interest rates rise. If interest rates do not move in
the direction that the adviser expects, then the value of your shares may
decrease. Credit risk for debt obligations typically increases as the rating
declines. Securities with lower credit ratings have a greater chance of
principal and interest payment default. Defaults and missed payments may cause
the value of your shares to decrease and decrease the level of expected income
payments. Longer maturities may be subject to price fluctuations due to interest
rates, tax laws and other general market factors.
Impact of the Year 2000 Issue on Portfolio Investments
The Year 2000 issue is the result of computer programs being written using two
rather than four digits to define the applicable year. There is the possibility
that some or all of an entity's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. If an entity whose securities are held by the portfolio does not "fix" its
Year 2000 issue, it is possible that its operations and financial results would
be hurt. Also, the cost of modifying computer programs to become Year 2000
compliant may hurt the financial performance and market price of entities whose
securities are held by the portfolio.
Management of the Portfolio
- ---------------------------
The Adviser
Duff & Phelps Investment Management Co. ("Duff & Phelps") is the investment
adviser to the portfolio and is located at 55 East Monroe Street, Suite 3600,
Chicago, Illinois 60603. Duff & Phelps also acts as investment adviser to eight
other mutual funds and as adviser to institutional clients. As of December 31,
1998, Duff & Phelps had approximately $15.2 billion in assets under management
on a discretionary basis.
Subject to the direction of the portfolio's Board of Trustees, Duff & Phelps is
responsible for managing the portfolio's investment program and the day-to-day
management of the portfolio's investments. Duff & Phelps manages the portfolio's
assets to conform with the investment policies as described in this prospectus.
The portfolio pays Duff & Phelps a basic monthly investment management fee that
is accrued daily at the annual rate of 0.50% of the value of the portfolio's net
assets.
The basic monthly fee is subject to a performance adjustment based on the
portfolio's performance as compared to certain prescribed benchmarks. For every
0.10% after the first 0.50% in which the portfolio's performance is higher or
lower than the NAREIT Equity Total Return Index, the basic monthly fee will
increase or decrease by 0.005%. This comparison is made on a rolling 12-month
basis. The increase or decrease will not exceed 0.10% in any one 12-month
period. The adjustment is computed and paid on a monthly basis.
Phoenix Real Estate Equity Securities Portfolio 25
<PAGE>
The adviser has voluntarily agreed to assume operating expenses of the portfolio
(excluding management fees, distribution and service fees, interest, taxes,
brokerage fees, commissions and extraordinary expenses) until December 31, 1999,
to the extent that such expenses exceed 0.40% of the average annual net asset
values of the portfolio.
During the portfolio's last fiscal year, the portfolio paid total management
fees of $79,971. The ratio of management fees to average net assets for the
fiscal year ended December 31, 1998 was 0.48%.
Portfolio Management
Michael Schatt is responsible for managing the assets of the portfolio. Mr.
Schatt is employed as Managing Director of Phoenix Investment Partners, Ltd. and
is a Senior Vice President of Phoenix, as well as Vice President, Phoenix Duff &
Phelps Institutional Mutual Funds, The Phoenix Edge Series Fund, Phoenix
Multi-Portfolio Fund, Duff & Phelps Utilities Income Inc. and Duff & Phelps. His
current responsibilities include serving as Portfolio Manager of the portfolio,
the Real Estate Securities Portfolio of Phoenix Multi-Portfolio Fund, the Real
Estate Securities Series of The Phoenix Edge Series Fund, and managing the real
estate investment securities of Duff & Phelps Utilities Income Inc. Previously,
he served as Director of the Real Estate Advisory Practice for Coopers &
Lybrand, LLP and has over 16 years experience in the real estate industry.
Impact of the Year 2000 Issue on Portfolio Operations
The Trustees have directed management to ensure that the systems used by service
providers (Duff & Phelps and its affiliates) in support of the portfolios'
operations be assessed and brought into Year 2000 compliance. Based upon
preliminary assessments, Duff & Phelps has determined that it will be required
to modify or replace portions of its software so that its computer systems will
properly utilize dates beyond December 31, 1999. Duff & Phelps management
believes that the majority of these systems are already Year 2000 compliant.
Duff & Phelps believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will be mitigated. It is
anticipated that such modifications and conversions will be completed on a
timely basis. It is not known at this time if there could be a material impact
on the operations of Duff & Phelps or its affiliates or the portfolio if such
modifications and conversions are not timely completed.
Duff & Phelps will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives; and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the portfolio and
is not expected to have a material impact on the operating results of Duff &
Phelps.
26 Phoenix Real Estate Equity Securities Portfolio
<PAGE>
Phoenix Duff & Phelps Institutional
Managed Bond Portfolio
Investment Risk and Return Summary
- ----------------------------------
Investment Objective
Phoenix Duff & Phelps Institutional Managed Bond Portfolio has an investment
objective to generate a high level of current income and appreciation of capital
consistent with prudent investment risk. There is no guarantee that the
portfolio will achieve its objective.
Principal Investment Strategies
> The portfolio expects to invest principally in corporate debt securities
issued by U.S. or foreign corporations and in U.S. and foreign government
securities that are denominated, and pay interest and principal in, U.S.
dollars. Foreign securities may be in developed or emerging market
countries.
> Under normal circumstances, at least 80% of the value of the portfolio's
total assets in bonds will be in the four highest rating categories
(so-called "investment grade"), or if unrated, are of comparable quality in
the adviser's opinion. The remaining 20% may be invested in below
investment grade bonds (so-called "junk bonds").
> To select securities for portfolio investment, the adviser first determines
the "sectors" or types of debt securities that have attractive values. The
adviser then seeks to select issues within these sectors that it believes
offer the best potential for total return based on risk-to-reward tradeoff.
The adviser monitors the portfolio in order to increase asset allocations
in sectors that it believes are performing well and out of sectors that it
believes are not performing well. Securities may also be analyzed for sale
when the adviser believes they have realized their value.
> The adviser attempts to manage interest rate risk by using a duration
neutral strategy. Duration measures the expected life of a security by
assessing and weighting the present value of the security's payment
pattern. By maintaining the duration of the portfolio at a level similar to
that of the Lehman Brothers Aggregate Bond Index, its benchmark, the
adviser believes that the portfolio's exposure to interest rate risk is
reduced as compared to a portfolio that actively pursues a strategy to
invest based on its prediction of future interest rate changes.
> Securities considered for portfolio investment may be of any maturity,
however the adviser attempts to maintain a maturity composition similar to
that of the Lehman Brothers Aggregate Bond Index in an effort to reduce the
portfolio's exposure to interest rate risk. Maturity composition refers to
the percentage of securities with a certain maturity as compared to the
total number of securities in the portfolio.
Phoenix Duff & Phelps Institutional Managed Bond Portfolio 27
<PAGE>
> The portfolio intends to invest in short-term investments such as U.S.
Government securities, obligations of U.S. banks and savings and loans
associations such as certificates of deposit, time deposits and bankers'
acceptances, commercial paper, and repurchase agreements.
> Other debt securities in which the portfolio may invest include mortgage-
and asset- backed securities and municipal bonds.
Principal Risks
If you invest in this portfolio, you risk that you may lose your investment.
If the adviser misjudges the return potential, or the ability of issuers to make
scheduled principal and interest payments, the portfolio's returns may be lower
than prevailing returns and the portfolio's income available for distribution
may be less than other portfolios. In addition, the value of portfolio shares is
based on the market value of portfolio investments. Generally, when interest
rates rise the value of debt securities falls.
Securities with longer maturites may be subject to greater price fluctuations
due to interest rates, tax laws and other general market factors than securities
with shorter maturities.
Political and economic uncertainty in foreign countries, as well as less public
information about foreign investments, may negatively impact the portfolio's
holdings. Some investments may be made in currencies other than U.S. dollars
that will fluctuate in value as a result of changes in the currency exchange
rate. Foreign markets and currencies may not perform as well as U.S. markets.
Emerging market countries, countries with markets that are not fully developed,
and companies doing business in emerging markets may not have the same range of
opportunities as more developed countries and their companies. They may also
have more obstacles to financial success.
Below investment grade securities (so-called "junk bonds") present a greater
risk that the issuer will not be able to make interest and principal payments on
time. If this happens, the portfolio would lose income and could expect a
decline in the market value of the security.
A portion of the cash flow from mortgage-backed and other asset-backed
securities may be from early payoff of some of the underlying loans. In the
event of very high prepayments, the portfolio may be required to invest the
proceeds at a lower interest rate, causing the portfolio to earn less than if
the prepayments had not occurred. In addition, decreasing interest rates may
negatively affect the value of these securities.
Principal and interest payments may not be guaranteed by the issuing body and
may be payable only from monies derived from a particular source (so-called
"revenue bonds"). In addition, the market for municipal securities is often thin
and can be temporarily affected by large purchases and sales.
28 Phoenix Duff & Phelps Institutional Managed Bond Portfolio
<PAGE>
Performance Tables
The bar chart and table below provide some indication of the risks of investing
in the Phoenix Duff & Phelps Institutional Managed Bond Portfolio. The bar chart
shows changes in the portfolio's Class X Shares performance from year to year
over the past ten years.(1) The table shows how the portfolio's average annual
returns for one, five and ten years, and for the life of the portfolio compare
to those of a broad-based securities market index. 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 portfolio). The objectives, policies, guidelines and restrictions of the
separate account are materially equivalent to those of the portfolio. The
performance of the separate account has been restated to reflect the deduction
of fees and expenses applicable to the portfolio's Class X Shares and Class Y
Shares, respectively. The portfolio's past performance is not necessarily an
indication of how the portfolio will perform in the future.
Managed Bond Portfolio
[Bar chart data]
<TABLE>
<CAPTION>
Calendar Year
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.17% 3.71% 18.72% 8.90% 12.14% -4.87% 19.97% 8.70% 9.75% 1.99%
</TABLE>
(1) During the 10-year period shown in the chart above, the highest return for a
quarter was 8.54% (quarter ending June 30, 1995) and the lowest return for a
quarter was (3.18)% (quarter ending March 31, 1994). Year to date performance
(through March 31, 1999) was 0.70%.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Average Annual Total Returns Life of the
(for the periods ending 12/31/98) One Year Five Years Ten Years Portfolio(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class X Shares 1.99% 6.79% 8.88% 9.47%
- ---------------------------------------------------------------------------------------------
Class Y Shares 1.72% 6.52% 8.61% 9.20%
- ---------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index(2) 8.69% 7.27% 9.26% 10.13%
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Since June 1, 1983.
(2) The Lehman Brothers Aggregate Bond Index is an unmanaged, commonly used
measure of bond market total return performance.
Phoenix Duff & Phelps Institutional Managed Bond Portfolio 29
<PAGE>
Fund Expenses
- -------------
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
<CAPTION>
Class X Class Y
Shares Shares
------ ------
<S> <C> <C>
Shareholder Fees (fees paid directly
from your investment)
Maximum Sales Charge (load) Imposed on
Purchases (as a percentage of offering
price) None None
Maximum Deferred Sales Charge (load) (as None None
a percentage of the lesser of the value
redeemed or the amount invested)
Maximum Sales Charge (load) Imposed on
Reinvested Dividends None None
Redemption Fee None None
Exchange Fee None None
--------------------------
Class X Class Y
Shares Shares
------ ------
Annual Fund Operating Expenses
(expenses that are deducted from
fund assets)
Management Fees 0.45% 0.45%
Distribution and Service (12b-1) Fees(b) None 0.25%
Other Expenses 0.32% 0.32%
---- ----
Total Annual Fund Operating Expenses(a) 0.77% 1.02%
==== ====
</TABLE>
- ----------------
(a) The portfolio's investment adviser has agreed to reimburse or waive through
December 31, 2001, total operating expenses to the extent that such expenses
exceed 0.55% for Class X Shares and 0.80% for Class Y Shares. Actual Total
Annual Operating Expenses for the portfolio, after expense reimbursement, are
0.55% for Class X Shares and 0.80% for Class Y Shares.
(b) Distribution and Service Fees represent an asset-based sales charge that,
for a long-term shareholder, may be higher than the maximum front-end sales
charge permitted by the National Association of Securities Dealers, Inc.
("NASD").
Example
This example is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the portfolio operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
30 Phoenix Duff & Phelps Institutional Managed Bond Portfolio
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------
Class 1 year 3 years 5 years 10 years
- --------------------------------------------------
<S> <C> <C> <C> <C>
Class X $ 79 $246 $428 $ 954
- --------------------------------------------------
Class Y $104 $325 $563 $1,248
- --------------------------------------------------
</TABLE>
Note: Your actual expenses may be lower than those shown in the table above
since the expense levels used to calculate the figures shown do not include the
reimbursement of expenses over certain levels by the portfolios investment
adviser. Refer to the section "Management of the Portfolio" for information
about expense reimbursement.
Investment Strategies
- ---------------------
Investment Objective
The portfolio has an investment objective to generate a high level of current
income and appreciation of capital consistent with prudent investment risk.
There is no guarantee that the portfolio will achieve its objective.
Principal Investment Strategies
Under normal circumstances, at least 80% of the value of the portfolio's total
assets in bonds will be in the four highest rating categories (so-called
"investment grade"), or if unrated, are of comparable quality in the adviser's
opinion. The portfolio may invest up to 20% of the portfolio's net assets in
below investment grade securities (so-called "junk bonds"). If the portfolio
purchases an investment grade security that loses its investment grade rating,
the portfolio is not required to sell the security. Ratings are established by
nationally recognized statistical rating agencies. Please see the Statement of
Additional Information for a detailed list of rating categories.
To select securities for portfolio investment, the adviser first determines the
sectors or types of debt securities, such as Treasuries, municipal bonds,
mortgage-backeds and foreign government securities, that have attractive values.
The adviser then seeks to select issues within these sectors that offer the best
potential for total return based on certain fundamentals, such as the value of
the security as compared to the credit risk, liquidity and maturity. The adviser
seeks those securities that it believes offer the best risk-to-reward tradeoff.
Sectors are continually monitored for performance. The adviser will increase
asset allocations in sectors that it believes have attractive values and are
performing well and out of sectors that it believes are not attractive or
performing well. The portfolio may have a higher portfolio turnover rate using
this allocation-shifting strategy. Higher portfolio turnover rates may increase
transaction costs, negatively affect portfolio performance and increase capital
gain distributions, which may result in greater tax liability to you. Securities
are also analyzed for sale when the adviser believes they have realized their
value.
Phoenix Duff & Phelps Institutional Managed Bond Portfolio 31
<PAGE>
The adviser attempts to manage interest rate risk by using a duration neutral
strategy. Duration measures the expected life of a security by assessing and
weighting the present value of a security's payment pattern. Generally, the
greater the duration, the greater the effect of interest changes on the price of
a security. By maintaining the duration of the portfolio at a level similar to
that of the Lehman Brothers Aggregate Bond Index, its benchmark, the adviser
believes that the portfolio's exposure to interest rate risk is reduced as
compared to a portfolio that actively pursues a strategy to invest based on its
prediction of future interest rate changes. On March 31, 1999, the modified
average duration of the Lehman Brothers Aggregate Bond Index was 4.68.
Securities considered for portfolio investment may be of any maturity, however
the adviser attempts to maintain a maturity composition similar to that of the
Lehman Brothers Aggregate Bond Index in an effort to reduce the portfolio's
exposure to interest rate risk. Maturity composition refers to the percentage of
securities with a certain maturity as compared to the total number of securities
in the portfolio. On March 31, 1999, the maturity of the Lehman Brothers
Aggregate Bond Index was 8.86.
The portfolio expects to invest principally in corporate debt securities issued
by U.S. or foreign corporations and in U.S. and foreign government securities.
Foreign companies and governments in which the portfolio may invest may be in
developed countries or emerging market countries. Foreign government securities
may be issued by the government or a political subdivision and will be
denominated, and pay principal and interest, in U.S. dollars.
U.S. Government securities are issued or guaranteed as to principal and income
by the United States government, its agencies and instrumentalities. Securities
in which the portfolio may invest include U.S. Treasury Obligations and, among
others, securities issued by the Federal Housing Administration, Department of
Housing and Urban Development, the Export-Import Bank, the General Services
Administration and the Maritime Administration, Farmers Home Administration and
the Small Business Administration.
Securities selected for investment may have fixed or variable rates and may be
purchased on a when-issued or delayed-delivery basis.
The portfolio intends to invest in short-term investments such as U.S.
Government securities, obligations of U.S. banks and savings and loan
associations such as certificates of deposit, time deposits and bankers'
acceptances, commercial paper, and repurchase agreements.
The portfolio may invest in mortgage-backed and other asset-backed securities.
Mortgage pass-through securities are interests in pools of mortgage loans,
assembled and issued by various governmental, government-related, and private
organizations. These securities provide a monthly payment consisting of both
principal and interest payments. In effect, these payments are a "pass through"
of the monthly payments made by individual borrowers on their residential or
commercial mortgage loans. Mortgage-backed securities also includes
collateralized mortgage obligations (CMOs) which generally includes debt
instruments collateralized by mortgage loans or mortgage pass-throughs.
Asset-backed securities are based on financial assets other than mortgages, such
as automobile and credit card loan receivables. Additional payments on mortgage-
and asset-backed securities are caused by repayment of principal
32 Phoenix Duff & Phelps Institutional Managed Bond Portfolio
<PAGE>
resulting from the sale of the underlying property, refinancing or foreclosure.
These prepayments are difficult to predict. This variability of prepayments will
tend to limit price gains when interest rates drop and exaggerate price declines
when interest rates rise.
The portfolio may invest in municipal bonds. Generally, municipal bonds may be
general obligations secured by the issuers faith, credit and taxing power to pay
principal and interest or revenue bonds, that pay principal and interest from
monies derived from a specific source.
Temporary Defensive Strategy: When in the opinion of the adviser, current cash
needs or market or economic conditions warrant, the portfolio may temporarily
retain cash or invest part or all of its assets in cash equivalents. When this
happens, the portfolio may not achieve its investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques of the portfolio.
Risks Related to Investment Strategies
- --------------------------------------
General
If the adviser misjudges a sector or security's return potential relative to
another the portfolio's returns may be lower than prevailing returns, and the
portfolio's income available for distribution to shareholders may be less, on a
relative basis, than other fixed income opportunities. Similarly, if the adviser
misjudges the ability of the issuer of a portfolio security to make scheduled
interest and other income payments to the portfolio, the portfolio's income
available for distribution to shareholders may decrease. Neither the portfolio
nor the adviser can assure you that a particular level of income will
consistently be achieved.
The value of your shares is based on the market value of the portfolio's
investments. In the case of fixed income securities and other securities that
have relatively fixed levels of return, the value of the security will be
directly affected by trends in interest rates and the overall condition of
credit markets. The price of fixed income securities will generally move in
inverse proportion to interest rates. For example, in times of rising interest
rates, the value of these types of securities tends to decrease. When interest
rates fall, the value of these securities tends to rise.
In addition to these general risks of investing in the portfolio, there are
several specific risks of investing in the portfolio that you should note.
Long-Term Maturities
Securities with longer maturities may be subject to greater price fluctuations
due to interest rates, tax laws and other general market factors than securities
with shorter maturities.
Phoenix Duff & Phelps Institutional Managed Bond Portfolio 33
<PAGE>
Below Investment Grade Securities
Although below investment grade securities provide greater income and
opportunity for capital appreciation than investments in higher grade
securities, they also typically entail greater price volatility and principal
and interest risk. There is a greater risk that an issuer will not be able to
make principal and interest payments on time. Analysis of the creditworthiness
of issuers of below investment grade securities may be more complex than for
higher grade securities, making it more difficult for the adviser to accurately
predict risk.
U.S. Government Securities
Obligations issued or guaranteed by the U.S. government, agencies, authorities
and instrumentalities only guarantee principal and interest will be timely paid
to holders of the securities. The entities do not guarantee that the value of
portfolio shares will increase.
Mortgage-Backed and Asset-Backed Backed Securities
It is difficult to predict cash flows from asset- and mortgage-backed
securities. It is difficult to determine specific amounts and timing of
prepayments on the underlying loans which makes it difficult to accurately
predict cash flow. The variability of prepayments will tend to limit price gains
when interest rates drop and exaggerate price declines when interest rates rise.
In the event of high prepayments, the portfolio may be required to invest these
proceeds at a lower interest rate, causing the portfolio to earn less than if
the prepayments had not occurred. Generally, prepayments will increase during a
period of falling interest rates.
Foreign Investing
Investing in the securities of non-U.S. issuers involves special risks and
considerations not typically associated with investing in U.S. issuers. These
include:
o differences in accounting, auditing and financial reporting standards;
o generally higher commission rates on foreign portfolio transactions;
o differences and inefficiencies in transaction settlement systems;
o the possibility of expropriation or confiscatory taxation;
o adverse changes in investment or exchange control regulations;
o political instability; and
o potential restrictions on the flow of international capital.
Political and economic uncertainty, as well as less public information about
investments, may negatively impact the portfolio's investments.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes withheld prior to receipt by the portfolio.
34 Phoenix Duff & Phelps Institutional Managed Bond Portfolio
<PAGE>
Many of the foreign securities held by the portfolio will not be registered
with, nor will the issuers of those securities be subject to the reporting
requirements of, the U.S. Securities and Exchange Commission. Accordingly, there
may be less publicly available information about the securities and about the
foreign company or government issuing them than is available about a domestic
company or government entity. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
Foreign Currency
Changes in foreign exchange rates will affect the value of those securities
denominated or quoted in currencies other than the U.S. dollar. The forces of
supply and demand in the foreign exchange markets determine exchange rates and
these forces are in turn affected by a range of economic, political, financial,
governmental and other factors. Exchange rate fluctuations can affect the
portfolio's net asset value (share price) and income either positively or
negatively depending upon whether foreign currencies are appreciating or
depreciating in value relative to the U.S. dollar. Exchange rates fluctuate over
both the long and short terms.
On January 1, 1999, eleven European countries began converting from their
sovereign currency to the European Union common currency called the "Euro." This
conversion may expose the portfolio to certain risks including the reliability
and timely reporting of pricing information of the portfolio's holdings. In
addition, one or more of the following may adversely affect specific securities
in the portfolio:
o known trends or uncertainties related to the Euro conversion that an
issuer reasonably expects will have a material impact on revenues,
expenses or income from its operations;
o competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a
common currency and issuers' plans for pricing their own products and
services in the Euro;
o issuers' ability to make required information technology updates on a
timely basis, and costs associated with the conversion (including
costs of dual currency operations through January 1, 2002);
o currency exchange rate risk and derivatives exposure (including the
disappearance of price sources, such as certain interest rate
indices); and
o potential tax consequences.
Municipal Bonds
Principal and interest payments on municipal securities may not be guaranteed by
the issuing body and may be payable only from monies derived from a particular
source (so-called "revenue bonds"). If the source does not perform as expected,
principal and income payments may not be made on time or at all. In addition,
the market for municipal securities is often thin and can be temporarily
affected by large purchases and sales, including those by the portfolio.
Phoenix Duff & Phelps Institutional Managed Bond Portfolio 35
<PAGE>
Emerging Market Investing
Investment in less-developed countries whose markets are still emerging
generally presents risks in greater degree than those presented by investment in
foreign issuers based in countries with developed securities markets and more
advanced regulatory systems. Prior governmental approval of foreign investments
may be required under certain circumstances in some developing countries, and
the extent of foreign investment in domestic companies may be subject to
limitation in other developing countries. The charters of individual companies
in developing countries may impose limitations on foreign ownership to prevent,
among other concerns, violation of foreign investment limitations.
The economies of developing countries generally are heavily dependent upon
international trade; and accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been (and may
continue to be) adversely affected by economic conditions in the countries with
which they trade.
Impact of the Year 2000 Issue on Portfolio Investments
The Year 2000 issue is the result of computer programs being written using two
rather than four digits to define the applicable year. There is the possibility
that some or all of an entity's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. If an entity whose securities are held by the portfolio does not "fix" its
Year 2000 issue, it is possible that its operations and financial results would
be hurt. Also, the cost of modifying computer programs to become Year 2000
compliant may hurt the financial performance and market price of entities whose
securities are held by the portfolio.
Management of the Portfolio
- ---------------------------
The Adviser
Phoenix Investment Counsel, Inc. ("Phoenix") is the investment adviser to the
portfolio and is located at 56 Prospect Street, Hartford, CT 06115. Phoenix also
acts as the investment adviser for 14 other mutual funds, as subadviser to three
mutual funds and as adviser to institutional clients. As of December 31, 1998,
Phoenix had $23.9 billion in assets under management. Phoenix has acted as an
investment adviser for over sixty years.
Subject to the direction of the portfolio's Board of Trustees, Phoenix is
responsible for managing the portfolio's investment program and the day-to-day
management of the portfolio's investments. Phoenix manages the portfolio's
assets to conform with the investment policies as described in this prospectus.
The portfolio pays Phoenix a monthly investment management fee that is accrued
daily against the value of that portfolio's net assets at the following annual
rates.
36 Phoenix Duff & Phelps Institutional Managed Bond Portfolio
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------
$1st billion $1+ billion
- ----------------------------------------------
<S> <C> <C>
Management Fee 0.45% 0.40%
- ----------------------------------------------
</TABLE>
The adviser has voluntarily agreed to assume total operating expenses of the
portfolio (excluding interest, taxes, brokerage fees, commissions and
extraordinary expenses) until December 31, 2001, to the extent that such
expenses exceed the following percentages of the average annual net asset values
of the portfolio:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Class X Shares Class Y Shares
- -----------------------------------------------------------
<S> <C> <C>
Managed Bond Portfolio 0.55% 0.80%
- -----------------------------------------------------------
</TABLE>
During the portfolio's last fiscal year, the portfolio paid total management
fees of $421,814. The ratio of management fees to average net assets for the
fiscal year ended December 31, 1998 was 0.45%.
Portfolio Management
James D. Wehr serves as portfolio manager of the portfolio and as such is
responsible for the day-to-day management of the portfolio's holdings. Mr. Wehr
served as portfolio manager of the Phoenix Home Life Separate Account P
(predecessor to the Managed Bond Portfolio) (1990-1996) and has served as
portfolio manager of Phoenix Tax-Exempt Bond Portfolio of the Phoenix
Multi-Portfolio Fund since 1988; Phoenix California Tax Exempt Bond Fund, Inc.
since 1993, and has been a Managing Director of Phoenix since 1991.
Impact of the Year 2000 Issue on Portfolio Operations
The Trustees have directed management to ensure that the systems used by service
providers (Phoenix and its affiliates) in support of the portfolios' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, Phoenix has determined that it will be required to modify or
replace portions of its software so that is computer systems will properly
utilize dates beyond December 31, 1999. Phoenix management believes that the
majority of these systems are already Year 2000 compliant. Phoenix believes that
with modifications to existing software and conversions to new software, the
Year 2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of Phoenix or its affiliates
or the portfolio if such modifications and conversions are not timely completed.
Phoenix will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives; and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the portfolio and
is not expected to have a material impact on the operating results of Phoenix.
Phoenix Duff & Phelps Institutional Managed Bond Portfolio 37
<PAGE>
Phoenix Duff & Phelps Institutional
Enhanced Reserves Portfolio
Investment Risk and Return Summary
- ----------------------------------
Investment Objective
The Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio has an
investment objective to seek a high level of current income consistent with
preservation of capital. There is no guarantee that the portfolio will achieve
its objective.
Principal Investment Strategies
> The portfolio intends to invest primarily in a diversified portfolio of
U.S. Government securities and high quality corporate debt obligations.
> The adviser focuses on allocating assets to undervalued "sectors" or types
of securities. Securities selected for portfolio investment offer high
credit ratings and greater interest rates than other securities available
in the marketplace and offer relative value based on liquidity and
marketability as compared to creditworthiness. Securities that no longer
offer these characteristics are evaluated for sale.
> The portfolio may invest in mortgage- and asset-backed securities,
municipal securities, bank obligations, certain money market instruments
and repurchase agreements.
> The portfolio may invest in securities of any maturity; however, the
portfolio seeks to maintain a duration (measurement of payments received
from a debt security on a present value basis) of approximately one year.
> The portfolio invests in securities rated within the three highest credit
rating categories and seeks to maintain an average portfolio credit quality
of the second highest rating category or better.
Principal Risks
If you invest in this portfolio, you risk that you may lose your investment.
If the adviser misjudges the return potential, or the ability of issuers to make
scheduled principal and interest payments, the portfolio's returns may be lower
than prevailing returns and the portfolio's income available for distribution
may be less than other portfolios. Neither the portfolio nor the adviser can
assure you that a particular level of income will consistently be achieved.
Generally, the value of debt securities is inversely related to changes in
interest rates. If interest rates rise, the value of debt securities will fall.
This may cause the value of your shares to decrease.
38 Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio
<PAGE>
Securities with longer maturities may be subject to greater price fluctuations
due to interest rates, tax laws and other general market factors than securities
with shorter maturities.
Obligations issued or guaranteed by the U.S. government, agencies, authorities
and instrumentalities only guarantee principal and interest will be timely paid
to holders of the securities. The entities do not guarantee that the value of
portfolio shares will increase.
A portion of the cash flow from asset-backed and mortgage-backed securities may
be from early payoff of some of the underlying loans. Early payoffs may result
in the portfolio receiving less income than originally anticipated. In the event
of very high prepayments, the portfolio may be required to invest the proceeds
at a lower interest rate, causing the portfolio to earn less than if the
prepayments had not occurred. In addition, decreasing interest rates may
negatively affect the value of these securities.
Principal and interest payments on municipal bonds may not be guaranteed by the
issuer and may be payable only from monies derived from a particular source
(so-called "revenue bonds"). If the source does not perform as expected,
principal and income payments may not be made on time or at all.
Performance Tables
The bar chart and table below provide some indication of the risks of investing
in the Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio. The bar
chart shows changes in the portfolio's Class X Shares performance from year to
year over the life of the portfolio.(1) The table shows how the portfolio's
average annual returns for one year and for the life of the portfolio compare to
those of a broad-based securities market index. Performance data is based on the
portfolio's past performance as Duff & Phelps Enhanced Reserves Fund prior to
July 19, 1996 (inception of the portfolio). The portfolio's past performance is
not necessarily an indication of how the portfolio will perform in the future.
Enhanced Reserves Portfolio
[Bar chart data]
<TABLE>
<CAPTION>
Calendar Year
1995 1996 1997 1998
<S> <C> <C> <C>
7.80% 4.72% 6.03% 5.34%
</TABLE>
(1) During the period shown in the chart above, the highest return for a quarter
was 2.13% (quarter ending December 31, 1995) and the lowest return for a quarter
was 0.35% (quarter ending December 31, 1998). Year to date performance (through
March 31, 1999) was 0.78%.
Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio 39
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------
Average Annual Total Returns Life of the Portfolio(1)
(for the periods ending 12/31/98) One Year ----------------------------
Class X Class Y
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class X Shares 5.34% 5.73% --
- ---------------------------------------------------------------------------------------
Class Y Shares 5.08% -- 5.28%
- ---------------------------------------------------------------------------------------
Merrill Lynch 1-Year Treasury Bill Index(2) 5.89% 6.00%(3) 5.86%
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Class X Shares since June 26, 1994 and Class Y Shares since November 1,
1996.
(2) The Merrill Lynch 1-Year Treasury Bill Index is an unmanaged, commonly used
measure of short-term government bond total return performance.
(3) Index performance since June 30, 1994.
Fund Expenses
- -------------
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
<CAPTION>
Class X Class Y
Shares Shares
------ ------
<S> <C> <C>
Shareholder Fees (fees paid
directly from your investment)
Maximum Sales Charge (load) Imposed
on Purchases (as a percentage of
offering price) None None
Maximum Deferred Sales Charge (load) None None
(as a percentage of the lesser of the
value redeemed or the amount
invested)
Maximum Sales Charge (load) Imposed
on Reinvested Dividends None None
Redemption Fee None None
Exchange Fee None None
--------------------------
Class X Class Y
Shares Shares
------ ------
Annual Fund Operating Expenses
(expenses that are deducted from
fund assets)
Management Fees 0.24% 0.24%
Distribution and Service (12b-1) Fees(b) None 0.25%
Other Expenses 0.45% 0.45%
---- ----
Total Annual Fund Operating Expenses(a) 0.69% 0.94%
==== ====
</TABLE>
- ----------------
(a) The portfolio's investment adviser has agreed to reimburse or waive through
December 31, 1999, total operating expenses to the extent that such expenses
exceed 0.40% for Class X Shares and 0.65% for Class Y Shares. Prior to May 1,
1998, the investment adviser had agreed to reimburse or waive total operating
expenses to the extent that such expenses exceeded 0.34% for Class X Shares and
0.59% for Class Y Shares. Actual Total Operating Expenses for the portfolio,
after expense reimbursement, are 0.37% for Class X Shares and 0.63% for Class Y
Shares.
(b) Distribution and Service Fees represent an asset based sales charge that,
for a long-term shareholder, may be higher than the maximum front-end sales
charge permitted by the National Association of Securities Dealers, Inc.
("NASD").
40 Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio
<PAGE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- --------------------------------------------------
Class 1 year 3 years 5 years 10 years
- --------------------------------------------------
<S> <C> <C> <C> <C>
Class X $70 $221 $384 $ 859
- --------------------------------------------------
Class Y $96 $300 $520 $1,155
- --------------------------------------------------
</TABLE>
Note: Your actual expenses may be lower than those shown in the table above
since the expense levels used to calculate the figures shown do not include the
reimbursement of expenses over certain levels by the portfolio's investment
adviser. Refer to the section "Management of the Portfolio" for information
about expense reimbursement.
Investment Strategies
- ---------------------
Investment Objective
The portfolio has an investment objective to seek a high level of current income
consistent with the preservation of capital. There is no guarantee that the
portfolio will achieve its objective.
Principal Investment Strategies
Under normal market conditions, the portfolio intends to invest 65% of its total
assets in:
o U.S. Government obligations including mortgage-related securities
issued by the U.S. government or its agencies or instrumentalities,
o high grade corporate debt obligations, and
o asset-backed securities.
U.S. Government securities are issued or guaranteed as to principal and income
by the United States government, its agencies and instrumentalities. Securities
in which the portfolio may invest include U.S. Treasury Obligations and, among
others, securities issued by the Federal Housing Administration, Department of
Housing and Urban Development, the Export-Import Bank, the General Services
Administration and the Maritime Administration, Farmers Home Administration and
the Small Business Administration.
Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio 41
<PAGE>
The portfolio will also invest in asset-backed securities and mortgage-backed
securities. Asset-backed securities are based on financial assets other than
mortgages such as automobile and credit card loan receivables, and other
receivables. Mortgage pass-through securities are interests in pools of mortgage
loans, assembled and issued by various governmental, government related, and
private organizations. These securities provide a monthly payment consisting of
both principal and interest payments. In effect, these payments are a "pass
through" of the monthly payments made by individual borrowers on their
residential or commercial mortgage loans. Additional payments on mortgage- and
asset-backed securities are caused by repayment of principal resulting from the
sale of the underlying property, refinancing or foreclosure. These prepayments
are difficult to predict. This variability of prepayments will tend to limit
price gains when interest rates drop and exaggerate price declines when interest
rates rise.
The adviser focuses on allocating assets to undervalued "sectors" or security
types. The portfolio attempts to allocate a greater portion of assets to sectors
offering higher yields and high quality securities. For liquidity purposes,
typically 10% to 20% will be Treasury securities.
Issue selection is a key component of portfolio performance. Strong emphasis is
placed on internal research to determine the value added of buying or selling a
security for the portfolio. Securities that offer high credit ratings and high
interest rates and offer value based on liquidity and marketability as compared
to creditworthiness are selected for portfolio investment. Securities that no
longer offer these characteristics when compared to securities available for
purchase in the marketplace are evaluated for sale.
The portfolio invests in securities of any maturity and under normal
circumstances the portfolio expects to maintain a portfolio duration of
approximately one year. Duration measures the expected life of a security by
assessing and weighting the present value of the security's payment pattern.
Under normal circumstances, the portfolio expects to maintain a dollar weighted
average portfolio quality of the second highest rating category or better.
Ratings are established by nationally recognized statistical rating agencies.
Please see the Statement of Additional Information for a detailed list of rating
categories.
The portfolio may invest in municipal bonds. Generally, municipal bonds may be
general obligations secured by the issuers faith, credit and taxing power to pay
principal and interest or revenue bonds, that pay principal and interest from
monies derived from a specific source.
The portfolio also may invest in bank obligations, certain money market
instruments, repurchase agreements, and foreign securities.
Temporary Defensive Strategy: If the adviser believes that the portfolio's basic
investment strategy is not in the best interests of shareholders due to changes
in market conditions, the portfolio may, without limitation, invest in
high-grade, short-term securities. When this happens, the portfolio may not
achieve its investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques of the portfolio.
42 Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio
<PAGE>
Risks Related to Investment Strategies
- --------------------------------------
General
If the adviser misjudges the return potential of any of the portfolio's
portfolio securities, the portfolio's returns may be lower than prevailing
returns, and the portfolio's income available for distribution to shareholders
may be less, on a relative basis, than other portfolios. Similarly, if the
adviser misjudges the ability of the issuer of a portfolio security to make
scheduled interest or other income payments to the portfolio, the portfolio's
income available for distribution to shareholders may decrease. Neither the
portfolio nor the adviser can assure you that a particular level of income will
consistently be achieved.
The value of your shares is based on the market value of the portfolio's
investments. In the case of fixed income securities and other securities that
have relatively fixed levels of return, the value of the security will be
directly affected by trends in interest rates and the overall condition of
credit markets. The price of fixed income securities will generally move in
inverse proportion to interest rates. For example, in times of rising interest
rates, the value of these types of securities tends to decrease. When interest
rates fall, the value of these securities tends to rise. To the extent that the
portfolio's investments are negatively affected by changes in economic
conditions, portfolio share values may decline.
In addition to these general risks of investing in the portfolio, there are
several specific risks of investing in the portfolio that you should note.
Long-Term Maturities
Securities with longer maturities may be subject to greater price fluctuations
due to interest rates, tax laws and other general market factors than securities
with shorter maturities.
U.S. Government Securities
Obligations issued or guaranteed by the U.S. government, agencies, authorities
and instrumentalities only guarantee principal and interest will be timely paid
to holders of the securities. The entities do not guarantee that the value of
portfolio shares will increase.
Mortgage-Backed and Asset-Backed Securities
It is difficult to predict cash flows from asset- and mortgage-backed
securities. It is difficult to determine specific amounts and timing of
prepayments on the underlying loans which makes it difficult to accurately
predict cash flow. The variability of prepayments will tend to limit price gains
when interest rates drop and exaggerate price declines when interest rates rise.
In the event of high prepayments, the portfolio may be required to invest these
proceeds at a lower interest rate, causing the portfolio to earn less than if
the prepayments had not occurred. Generally, prepayments will increase during a
period of falling interest rates.
Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio 43
<PAGE>
Municipal Bonds
Principal and interest payments may not be guaranteed by the issuing body and
may be payable only from monies derived from a particular source (so-called
"revenue bonds"). If the source does not perform as expected, principal and
income payments may not be made on time or at all. In addition, the market for
municipal securities is often thin and can be temporarily affected by large
purchases and sales, including those by the portfolio.
Impact of the Year 2000 Issue on Portfolio Investments
The Year 2000 issue is the result of computer programs being written using two
rather than four digits to define the applicable year. There is the possibility
that some or all of an entity's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. If an entity whose securities are held by the portfolio does not "fix" its
Year 2000 issue, it is possible that its operations and financial results would
be hurt. Also, the cost of modifying computer programs to become Year 2000
compliant may hurt the financial performance and market price of entities whose
securities are held by the portfolio.
Management of the Portfolio
The Adviser
Duff & Phelps Investment Management Co. ("Duff & Phelps") is the investment
adviser to the portfolio and is located at 55 East Monroe Street, Suite 3600,
Chicago, Illinois 60603. Duff & Phelps also acts as investment adviser to eight
other mutual funds and as adviser to institutional clients. As of December 31,
1998, Duff & Phelps had approximately $15.2 billion in assets under management
on a discretionary basis.
Subject to the direction of the portfolio's Board of Trustees, Duff & Phelps is
responsible for managing the portfolio's investment program and the day-to-day
management of the portfolio's investments. Duff & Phelps manages the portfolio's
assets to conform with the investment policies as described in this prospectus.
The portfolio pays Duff & Phelps a monthly investment management fee that is
accrued daily against the value of the portfolio's net assets at the following
annual rates.
<TABLE>
<CAPTION>
- ----------------------------------------------
$1st billion $1+ billion
- ----------------------------------------------
<S> <C> <C>
Management Fee 0.24% 0.19%
- ----------------------------------------------
</TABLE>
The adviser has voluntarily agreed to assume total operating expenses of the
portfolio (excluding interest, taxes, brokerage fees, commissions and
extraordinary expenses) until December 31, 1999, to the extent that such
expenses exceed the following percentages of the average annual net asset values
of the portfolio:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Class X Shares Class Y Shares
- ----------------------------------------------------------------
<S> <C> <C>
Enhanced Reserves Portfolio 0.40% 0.65%
- ----------------------------------------------------------------
</TABLE>
44 Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio
<PAGE>
During the portfolio's last fiscal year, the portfolio paid total management
fees of $142,030. The ratio of management fees to average net assets for the
fiscal year ended December 31, 1998 was 0.24%.
Portfolio Management
Marvin E. Flewellen serves as portfolio manager of the portfolio and as such is
responsible for the day-to-day management of the portfolio's holdings. Mr.
Flewellen has served as a Senior Vice President and a fixed income portfolio
manager with Duff & Phelps since 1994. Mr. Flewellen was a Second Vice President
and portfolio manager with Northern Trust Bank from 1985 until 1994.
Impact of the Year 2000 Issue on Portfolio Operations
The Trustees have directed management to ensure that the systems used by service
providers (Duff & Phelps and its affiliates) in support of the portfolios'
operations be assessed and brought into Year 2000 compliance. Based upon
preliminary assessments, Duff & Phelps has determined that it will be required
to modify or replace portions of its software so that its computer systems will
properly utilize dates beyond December 31, 1999. Duff & Phelps management
believes that the majority of these systems are already Year 2000 compliant.
Duff & Phelps believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will be mitigated. It is
anticipated that such modifications and conversions will be completed on a
timely basis. It is not known at this time if there could be a material impact
on the operations of Duff & Phelps or its affiliates or the portfolio if such
modifications and conversions are not completed timely.
Duff & Phelps will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives; and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the portfolio and
is not expected to have a material impact on the operating results of Duff &
Phelps.
Pricing of Portfolio Shares
- ---------------------------
How is the Share Price determined?
Each portfolio calculates a share price for each class of its shares. The share
price is based on the net assets of the portfolio and the number of outstanding
shares. In general, the portfolio calculates net asset value by:
o adding the values of all securities and other assets of the portfolio,
o subtracting liabilities, and
o dividing by the total number of outstanding shares of the portfolio.
Phoenix Duff & Phelps Institutional Mutual Funds 45
<PAGE>
Asset Value: The portfolio's investments are valued at market value. If market
quotations are not available, the portfolio determines a "fair value" for an
investment according to rules and procedures approved by the Trustees. Foreign
and domestic debt securities (other than short-term investments) are valued on
the basis of broker quotations or valuations provided by a pricing service
approved by the Trustees when such prices are believed to reflect the fair value
of such securities. Foreign and domestic equity securities are valued at the
last sale price or, if there has been no sale that day, at the last bid price,
generally. Short-term investments having a remaining maturity of sixty days or
less are valued at amortized cost, which the Trustees have determined
approximates market value.
Liabilities: Class specific expenses, distribution fees, service fees and other
liabilities are deducted from the assets of each class. Expenses and liabilities
that are not class specific (such as management fees) are allocated to each
class in proportion to each class's net assets, except where an alternative
allocation can be more fairly made.
Net Asset Value: The liability allocated to a class plus any other expenses are
deducted from the proportionate interest of such class in the assets of the
portfolio. The resulting amount for each class is then divided by the number of
shares outstanding of that class to produce each class's net asset value per
share.
The net asset value per share of each class of the portfolio is determined on
days when the New York Stock Exchange (the "NYSE") is open for trading as of the
close of trading (normally 4:00 PM eastern time). The portfolio will not
calculate its net asset values per share on days when the NYSE is closed for
trading. Trading of securities held by the portfolio in foreign markets may
negatively or positively impact the value of such securities on days when the
portfolio neither trades securities nor calculates its net asset values (i.e.,
weekends and certain holidays).
At what price are shares purchased?
All investments received by the portfolio's authorized agents prior to the close
of regular trading on the NYSE (normally 4:00 PM eastern time) will be executed
based on that day's net asset value. Shares credited to your account from the
reinvestment of portfolio distributions will be in full and fractional shares
that are purchased at the closing net asset value on the next business day on
which the portfolio's net asset value is calculated following the dividend
record date.
Purchase Options
- ----------------
The portfolio presently offers two classes of shares that have different minimum
investment requirements and distribution charges (see "Fund Expenses" previously
in this prospectus). For Class Y Shares, the portfolios have adopted a
distribution and service plan allowed under Rule 12b-1 of the Investment Company
Act of 1940 that authorizes the portfolios to pay distribution and service fees
for the sale of shares and for services provided to shareholders.
46 Phoenix Duff & Phelps Institutional Mutual Funds
<PAGE>
Because these fees are paid out of the portfolios' assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
Shares of the portfolios are offered primarily to institutional investors and
corporate, public, union and governmental pension plans.
To purchase Class X Shares (except Real Estate Equity Securities Portfolio), you
must initially purchase shares whose net asset value exceeds $5 million. To
purchase Class Y Shares (except Real Estate Equity Securities Portfolio), you
must initially purchase shares whose net asset value exceeds $1 million. To
purchase Class X Shares and Class Y Shares of the Real Estate Equity Securities
Portfolio, you must initially purchase shares whose net asset value exceeds
$250,000.
The minimum initial investment requirements are waived for purchases by:
o institutional investors and corporate, public, union and governmental
pension plans which have been invested in certain separate accounts of
Phoenix Home Life Mutual Insurance Company as of March 1, 1996;
o trust Companies, bank trust departments, broker-dealers, financial
planners and investment advisers for portfolios over which such entity
charges an account management fee and which are held in a fiduciary,
agency, advisory, custodial or similar capacity; and
o institutional investors and corporate, public, union and governmental
pension plans which are investing redemption proceeds from the
reorganization or merger of other investment companies.
The minimum subsequent investment for Class X and Class Y Shares is $100.
You will pay no sales charges at any time on Class X or Class Y Shares. There
are no distribution and service fees applicable to Class X Shares. Class Y
Shares are subject to a distribution and service fee of 0.25% annually.
Your Account
- ------------
Opening an Account
Your financial advisor can assist you with your initial purchase, as well as all
phases of your investment program.
Phoenix Duff & Phelps Institutional Mutual Funds 47
<PAGE>
How To Buy Shares
- -----------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
To Open An Account
- ---------------------------------------------------------------------------------------------------
<S> <C>
Through a financial advisor Contact your advisor. Some advisors may charge a fee.
- ---------------------------------------------------------------------------------------------------
Complete a New Account Application and send it with a check payable
Through the mail to the portfolio. Mail them to: State Street Bank, P.O. Box 8301,
Boston, MA 02266-8301.
- ---------------------------------------------------------------------------------------------------
By Federal Funds wire Call us at (800) 814-1897 for instructions.
- ---------------------------------------------------------------------------------------------------
By telephone exchange Call us at (800) 814-1897.
- ---------------------------------------------------------------------------------------------------
</TABLE>
How to Sell Shares
- ------------------
You have the right to have the portfolio buy back shares at the net asset value
next determined after receipt of a redemption order by the portfolio's Transfer
Agent or an authorized agent. Subject to certain restrictions, shares may be
redeemed by telephone or in writing. In addition, shares may be sold through
securities dealers, brokers or agents who may charge customary commissions or
fees for their services. The portfolio does not charge any redemption fees.
Payment for shares redeemed is made within seven days; however, redemption
proceeds will not be disbursed until each check used for purchases of shares has
been cleared for payment by your bank, which may take up to 15 days after
receipt of the check.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
To Sell Shares
- ------------------------------------------------------------------------------------------------------
<S> <C>
Through a financial advisor Contact your advisor. Some advisors may charge a fee.
- ------------------------------------------------------------------------------------------------------
Send a letter of instruction and any share certificates (if you hold
certificate shares) to: State Street Bank, P.O. Box 8301, Boston, MA
Through the mail 02266-8301. Be sure to include the registered owner's name, portfolio
and account number, number of shares or dollar value you wish to sell.
- ------------------------------------------------------------------------------------------------------
For sales up to $100,000, requests can be made by calling
By telephone (800) 814-1897.
- ------------------------------------------------------------------------------------------------------
By telephone exchange Call us at (800) 814-1897.
- ------------------------------------------------------------------------------------------------------
By check If you selected the checkwriting feature, you may write checks for
(Enhanced Reserves amounts of $500 or more. Checks may not be used to close an account.
Portfolio only.)
- ------------------------------------------------------------------------------------------------------
</TABLE>
48 Phoenix Duff & Phelps Institutional Mutual Funds
<PAGE>
Things You Should Know When Selling Shares
- ------------------------------------------
You may realize a taxable gain or loss (for federal income tax purposes) if you
redeem shares of the portfolio. The portfolio reserves the right to pay large
redemptions "in-kind" (in securities owned by the portfolio rather than in
cash). Large redemptions are those over $250,000 or 1% of the portfolio's net
assets. Additional documentation will be required for redemptions by
organizations, fiduciaries, or retirement plans, or if redemption is requested
by anyone but the shareholder(s) of record. Transfers between broker-dealer
"street" accounts are governed by the accepting broker-dealer. Questions
regarding this type of transfer should be directed to your financial advisor.
Redemption requests will not be honored until all required documents in proper
form have been received. To avoid delay in redemption or transfer, shareholders
having questions about specific requirements should contact the portfolio's
Transfer Agent at (800) 814-1897.
Redemptions by Mail
Send a clear letter of instructions including the name of the portfolio shares
to be sold and a properly executed stock power or any related instruction
transmittal specifying account number and the name of the shareholder exactly as
registered.
The signature on your request must be guaranteed by an eligible guarantor
institution as defined by the portfolio's Transfer Agent in accordance with its
signature guarantee procedures. Currently, such procedures generally permit
guarantees by banks, broker dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations.
If you are selling shares held in a corporate or fiduciary account, please
contact the portfolio's Transfer Agent at (800) 814-1897.
Selling Shares by Telephone
The Transfer Agent will use reasonable procedures to confirm that telephone
instructions are genuine. Address and bank account information are verified,
redemption instructions are taped, and all redemptions are confirmed in writing.
The individual investor bears the risk from instructions given by an
unauthorized third party that the Transfer Agent reasonably believed to be
genuine.
The Transfer Agent may modify or terminate the telephone redemption privilege at
any time with 60 days notice to shareholders.
During times of drastic economic or market changes, telephone redemptions may be
difficult to make or temporarily suspended.
Phoenix Duff & Phelps Institutional Mutual Funds 49
<PAGE>
Account Policies
- ----------------
Exchange Privileges
You should read the prospectus carefully before deciding to make an exchange.
You can obtain a prospectus from your financial advisor or by calling us at
(800) 814-1897.
o You may exchange shares for another portfolio in the same class of shares;
e.g., Class X for Class X.
o Exchanges may be made by phone (800) 814-1897 or by mail (State Street
Bank, P.O. Box 8301, Boston, MA 02266-8301).
o The amount of the exchange must be equal to or greater than the minimum
initial investment required.
o The exchange of shares is treated as a sale and purchase for federal income
tax purposes.
o The portfolio reserves the right to refuse an exchange request if in the
portfolio's or adviser's opinion the exchange would adversely affect the
portfolio's ability to invest according to its investment objectives and
policies; the portfolio believes that a pattern of exchanges coincides with
a "market timing" strategy; or the exchange would otherwise adversely
affect the portfolio and its shareholders.
o Because excessive trading can hurt portfolio performance and harm other
shareholders, the portfolio reserves the right to temporarily or
permanently end exchange privileges or reject an order from anyone who
appears to be attempting to time the market, including investors who
request more than one exchange in any 30-day period. The portfolio's
underwriter has entered into agreements with certain market timing firms
permitting them to exchange by telephone. These privileges are limited, and
the portfolio distributor has the right to reject or suspend them.
Tax Status of Distributions
- ---------------------------
Each portfolio plans to make distributions from net investment income at
intervals stated on the table below, and to distribute net realized capital
gains, if any, at least annually.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Portfolio Dividend Paid
- ----------------------------------------------------------
<S> <C>
Core Equity Portfolio Quarterly
- ----------------------------------------------------------
Growth Stock Portfolio Semiannually
- ----------------------------------------------------------
Real Estate Equity Securities Portfolio Quarterly
- ----------------------------------------------------------
Managed Bond Portfolio Semiannually
- ----------------------------------------------------------
Enhanced Reserves Portfolio Monthly
- ----------------------------------------------------------
</TABLE>
50 Phoenix Duff & Phelps Institutional Mutual Funds
<PAGE>
Distributions of short-term capital gains and net investment income are taxable
to shareholders as ordinary income. Long-term capital gains, if any, distributed
to shareholders and which are designated by the portfolio as capital gains
distributions, are taxable to shareholders as long-term capital gain
distributions regardless of the length of time you have owned your shares.
Unless you elect to receive distributions in cash, dividends and capital gain
distributions are paid in additional shares. All distributions, cash or
additional shares, are subject to federal income tax and may be subject to
state, local and other taxes.
Many investors, including most tax-qualified plan investors, may be eligible for
preferential federal income tax treatment on distributions received from the
portfolio and disposition of shares of the portfolio.
Phoenix Duff & Phelps Institutional Mutual Funds 51
<PAGE>
Financial Highlights
- --------------------
These tables are intended to help you understand the portfolios' financial
performance for the past five years or since inception. Certain information
reflects financial results for a single portfolio share. The total returns in
the tables represent the rates that an investor would have earned or lost on an
investment in the portfolios (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants. Their report, together with the portfolios' financial
statements, are included in the portfolios' most recent Annual Report, which is
available upon request.
Phoenix Duff & Phelps Institutional Core Equity Portfolio
<TABLE>
<CAPTION>
Class X Class Y
-------------- --------------
From Inception From 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 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.
52 Phoenix Duff & Phelps Institutional Mutual Funds
<PAGE>
Financial Highlights (continued)
- --------------------------------
Phoenix Duff & Phelps Institutional Growth Stock Portfolio
<TABLE>
<CAPTION>
Class X
----------------------------------------------------------
From Inception
Years Ended 3/1/96 to
12/31/98 12/31/97 12/31/96
-------- -------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period $33.85 $47.42 $48.01
Income from investment operations:(5)
Net investment income 0.05(4)(6) 0.31(4)(6) 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>
- ----------------
(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) 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.
Phoenix Duff & Phelps Institutional Mutual Funds 53
<PAGE>
Financial Highlights (continued)
- --------------------------------
Phoenix Duff & Phelps Institutional Growth Stock Portfolio
<TABLE>
<CAPTION>
Class Y
-----------------------------------------------------------
From Inception
Years Ended 3/1/96 to
12/31/98 12/31/97 12/31/96
-------- -------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period $33.86 $47.43 $48.01
Income from investment operations:(5)
Net investment income (0.04)(4)(6) 0.18(4)(6) 0.18(4)
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 (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) 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.
Phoenix Duff & Phelps Institutional Mutual Funds 54
<PAGE>
Financial Highlights (continued)
- --------------------------------
Phoenix Duff & Phelps Institutional Real Estate Equity Securities Portfolio
<TABLE>
<CAPTION>
Class X Class Y
------------------------------------- -----------------------------------------
From Inception From Inception
Year Ended 5/1/97 to Year Ended 5/1/97 to
12/31/98 12/31/97 12/31/98 12/31/97
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.96 $10.00 $11.96 $10.00
Income from investment operations:(5)
Net investment income 0.47(3)(6) 0.39(3) 0.46(4)(6) 0.34(4)
Net realized and unrealized gain (2.89) 1.96 (2.91) 2.00
------- ------- ------ ------
Total from investment operations (2.42) 2.35 (2.45) 2.34
------- ------- ------ ------
Less Distributions
Dividends from net investment income (0.46) (0.35) (0.42) (0.34)
Dividends from net realized gains -- (0.04) -- (0.04)
------- ------- ------ ------
Total distributions (0.46) (0.39) (0.42) (0.38)
------- ------- ------ ------
Change in net asset value (2.88) 1.96 (2.87) 1.96
------- ------- ------ ------
Net asset value, end of period $9.08 $ 11.96 $9.09 $11.96
======= ======= ====== ======
Total return (20.53)% 23.70%(2) (20.69)% 23.55%(2)
Ratios/supplemental data:
Net assets, end of period (thousands) $19,697 $15,791 $678 $855
Ratio to average net assets of:
Operating expenses 0.88% 0.90%(1) 1.13% 1.15%(1)
Net investment income 4.54% 4.75%(1) 4.39% 4.51%
Portfolio turnover 15% 4%(2) 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.
Phoenix Duff & Phelps Institutional Mutual Funds 55
<PAGE>
Financial Highlights (continued)
- --------------------------------
Phoenix Duff & Phelps Institutional Managed Bond Portfolio
<TABLE>
<CAPTION>
Class X
------------------------------------------------------------
From Inception
Years Ended 3/1/96 to
12/31/98 12/31/97 12/31/96
-------- -------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period $33.17 $33.98 $33.84
Income from investment operations:
Net investment income 2.26(3)(4) 2.37(3)(4) 2.03(3)(4)
Net realized and unrealized gain (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>
- ----------------
(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) Computed using average shares outstanding.
56 Phoenix Duff & Phelps Institutional Mutual Funds
<PAGE>
Financial Highlights (continued)
- --------------------------------
Phoenix Duff & Phelps Institutional Managed Bond Portfolio
<TABLE>
<CAPTION>
Class Y
----------------------------------------------------------
From Inception
Years Ended 3/1/96 to
12/31/98 12/31/97 12/31/96
-------- -------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period $33.18 $33.97 $33.84
Income from investment operations:
Net investment income 2.18(3)(4) 2.27(3)(4) 1.98(3)(4)
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) Computed using average shares outstanding.
Phoenix Duff & Phelps Institutional Mutual Funds 57
<PAGE>
Financial Highlights (continued)
- --------------------------------
Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio
<TABLE>
<CAPTION>
Class X
-----------------------------------------------------
From Inception
Years Ended 7/19/96 to
12/31/98 12/31/97 12/31/96
-------- -------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.95 $9.95 $9.95
Income from investment operations:(4)
Net investment income 0.55(3) 0.58(3)(5) 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>
- ----------------
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.02
and less than $0.01, respectively.
(4) 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.
(5) Computed using average shares outstanding.
58 Phoenix Duff & Phelps Institutional Mutual Funds
<PAGE>
Financial Highlights (continued)
- --------------------------------
Phoenix Duff & Phelps Institutional Enhanced Reserves Portfolio
<TABLE>
<CAPTION>
Class Y
-----------------------------------------------------
From Inception
Years Ended 11/1/96 to
12/31/98 12/31/97 12/31/96
-------- -------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.95 $9.95 $9.97
Income from investment operations:(4)
Net investment income 0.51(3) 0.56(3)(5) 0.09(3)
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) (0.58) (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 $0.02
and less than $0.01, respectively.
(4) 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.
(5) Computed using average shares outstanding.
Phoenix Duff & Phelps Institutional Mutual Funds 59
<PAGE>
Additional Information
- ----------------------
Statement of Additional Information
The fund has filed a Statement of Additional Information about the fund, dated
May 1, 1999, with the Securities and Exchange Commission. The Statement contains
more detailed information about the fund. It is incorporated into this
prospectus by reference and is legally part of the prospectus. You may obtain a
free copy of the Statement:
o by writing to Phoenix Equity Planning Corporation, 100 Bright Meadow
Blvd., P.O. Box 2200, Enfield, Connecticut 06083-2200 or
o by calling (800) 814-1897.
You may also obtain information about the fund from the Securities and Exchange
Commission:
o through its internet site (http://www.sec.gov),
o by visiting its Public Reference Room in Washington, DC or
o by writing to its Public Reference Section, Washington, DC 20549-6009
(a fee may be charged).
Information about the operation of the Public Reference Room may be
obtained by calling (800) SEC-0330.
Shareholder Reports
The fund semiannually mails to its shareholders detailed reports containing
information about the fund's investments. The fund's Annual Report contains a
detailed discussion of the market conditions and investment strategies that
significantly affected the fund's performance from January 1 through December
31. You may request a free copy of the fund's Annual and Semiannual Reports:
o by writing to Phoenix Equity Planning Corporation, 100 Bright Meadow
Blvd., P.O. Box 2200, Enfield, Connecticut 06083-2200 or
o by calling (800) 814-1897.
Customer Service: (800) 814-1897
Marketing: (800) 814-1897
Telephone Orders: (800) 814-1897
Telecommunication Device (TTY): (800) 243-1926
SEC File Nos. 33-80057 and 811-9140
[Recycle Bug] Printed on recycled paper using soybean ink
60 Phoenix Duff & Phelps Institutional Mutual Funds
<PAGE>
PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS PHOENIX DUFF & PHELPS
INSTITUTIONAL CORE EQUITY PORTFOLIO
PHOENIX DUFF & PHELPS INSTITUTIONAL GROWTH STOCK PORTFOLIO
PHOENIX REAL ESTATE EQUITY SECURITIES PORTFOLIO
PHOENIX DUFF & PHELPS INSTITUTIONAL MANAGED BOND PORTFOLIO
PHOENIX DUFF & PHELPS INSTITUTIONAL ENHANCED RESERVES PORTFOLIO
101 Munson Street
Greenfield, Massachusetts 01301
(800) 814-1897
Statement of Additional Information
May 1, 1999
This Statement of Additional Information is not a prospectus but expands
upon and supplements the information contained in the current Prospectus of the
Phoenix Duff & Phelps Institutional Mutual Funds (the "Fund"), dated May 1, 1999
and should be read in conjunction with it. A copy may be obtained by calling
Phoenix Equity Planning Corporation ("Equity Planning") at (800) 814-1897, or by
writing to Equity Planning at 100 Bright Meadow Boulevard, P.O. Box 2200,
Enfield, Connecticut 06083-2200.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND ................................... 2
INVESTMENT OBJECTIVES AND POLICIES ......... 2
INVESTMENT RESTRICTIONS .................... 11
PERFORMANCE INFORMATION .................... 14
PERFORMANCE COMPARISONS .................... 15
PORTFOLIO TURNOVER ......................... 16
THE INVESTMENT ADVISERS .................... 16
SERVICES OF THE ADMINISTRATOR .............. 17
BROKERAGE ALLOCATION ....................... 17
DETERMINATION OF NET ASSET VALUE ........... 18
HOW TO BUY SHARES .......................... 19
HOW TO REDEEM SHARES ....................... 20
DIVIDENDS, DISTRIBUTIONS AND TAXES ......... 22
THE DISTRIBUTOR ............................ 23
DISTRIBUTION PLAN .......................... 24
MANAGEMENT OF THE FUND ..................... 24
ADDITIONAL INFORMATION ..................... 35
APPENDIX ................................... 37
</TABLE>
PXP 3090B (5/99)
1
<PAGE>
THE FUND
Phoenix Duff & Phelps Institutional Mutual Funds (the "Fund") is an
open-end management investment company which was organized under Massachusetts
law on December 4, 1995 as a business trust. Prior to March 1, 1996, the Managed
Bond and Growth Stock Portfolios existed as the Managed Bond Account ("Separate
Account P") and Growth Stock Account ("Separate Account S"), respectively,
separate investment accounts of Phoenix Home Life Mutual Insurance Company
pursuant to the insurance laws of the State of New York and the laws of other
states. Prior to July 19, 1996, the Enhanced Reserves Portfolio existed as Duff
& Phelps Enhanced Reserves Fund, a series of Duff & Phelps Mutual Funds. The
Fund's shares are presently offered in five separate portfolios, all of which
are described here. Each portfolio generally operates as a separate fund with
its own investment objectives and policies designed to meet its specific
investment goals.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Portfolio are described in
the prospectus. The following discussion supplements the description of the
Portfolio's investment policies and investment techniques information contained
in the prospectus.
The investment objective of each Portfolio is deemed to be a fundamental
policy and may not be changed without the approval of the shareholders of that
Portfolio. Investment restrictions described in this Statement of Additional
Information are fundamental policies of the Fund and may not be changed as to
any Portfolio without the approval of the Portfolio's shareholders.
Money Market Instruments.
Certificates of Deposit. Certificates of deposit are generally short-term,
interest-bearing negotiable certificates issued by banks or savings and loan
associations against funds deposited in the issuing institution.
Time Deposits. Time deposits are deposits in a bank or other financial
institution for a specified period of time at a fixed interest rate for which a
negotiable certificate is not received.
Banker's Acceptances. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage of
goods). The borrower, as well as the bank, is liable for payment, and the bank
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity.
Commercial Paper. Commercial paper refers to short-term, unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at the
time of issuance not exceeding nine months.
Corporate Debt Securities. Corporate debt securities with a remaining
maturity of less than one year tend to become extremely liquid and are traded as
money market securities.
U.S. Government Obligations. Securities issued or guaranteed as to
principal and interest by the United States Government include a variety of
Treasury securities, which differ only in their interest rates, maturities, and
times of issuance. Treasury bills have maturities of one year or less. Treasury
notes have maturities of one to ten years, and Treasury bonds generally have
maturities of greater than ten years. Agencies of the United States Government
which issue or guarantee obligations include, among others, Export-Import Banks
of the United States, Farmers Home Administration, Federal Housing
Administration, Government National Mortgage Association, Maritime
Administration, Small Business Administration and The Tennessee Valley
Authority. Obligations of instrumentalities of the United States Government
include securities issued or guaranteed by, among others, the Federal National
Mortgage Association, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Banks for Cooperatives, and the
U.S. Postal Service. Some of these securities are supported by the full faith
and credit of the U.S. Government; others are supported by the right of the
issuer to borrow from the Treasury, while still others are supported only by the
credit of the instrumentality.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by the Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements are held by the Fund's custodian (or
sub-custodian) or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans under the Investment Company Act of 1940
as amended (the "1940 Act").
Reverse Repurchase Agreements. At the time the Fund enters into a reverse
repurchase agreement (an agreement under which the Fund sells portfolio
securities and agrees to repurchase them at an agreed-upon date and price), it
will place in a segregated custodial account liquid assets such as U.S.
Government securities or other liquid high grade debt securities having a value
equal to or greater than the repurchase price (including accrued interest) and
will subsequently monitor the account to ensure that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Fund may decline below the price of the securities it is
obligated to repurchase. Reverse repurchase agreements are considered to be
borrowings under the 1940 Act.
2
<PAGE>
Bank Obligations. For purposes of a Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches.
Municipal Obligations. Municipal Obligations include debt obligations
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses and the extension of
loans to public institutions and facilities.
The two principal classifications of Municipal Obligations consist of
"general obligation" and "revenue" issues. General obligation bonds are secured
by the issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest, and, accordingly, the capacity of the issuer of a
general obligation bond as to the timely payment of interest and the repayment
of principal when due is affected by the issuer's maintenance of its tax base.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special tax or other specific revenue source; accordingly, the timely payment of
interest and the repayment of principal in accordance with the terms of such
bonds is a function of the economic viability of such facility or revenue
source. The Managed Bond and Enhanced Reserves Portfolios may include "moral
obligation" issues, which are normally issued by special purpose authorities.
There are, of course, variations in the quality of Municipal Obligations both
within a particular classification and between classifications, and the yields
on Municipal Obligations depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue.
Certain types of Municipal Obligations (private activity bonds) are or have
been issued to obtain funds to provide privately operated housing facilities,
pollution control facilities, convention or trade show facilities, mass transit,
airport, port or parking facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. Private activity
bonds are also issued by privately held or publicly owned corporations in the
financing of commercial or industrial facilities. State and local governments
are authorized in most states to issue private activity bonds for such purposes
in order to encourage corporations to locate within their communities. The
principal and interest on these obligations may be payable from the general
revenues of the users of such facilities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Obligations. For example, under the Federal tax
legislation enacted in 1986, interest on certain private activity bonds must be
included in an investor's alternative minimum taxable income, and corporate
investors must treat all tax-exempt interest as an item of tax preference.
Dividends paid by the Portfolio that are derived from interest of Municipal
Obligations would be taxable to the Portfolio shareholders for Federal income
tax purposes.
Insured Municipal Obligations. Certain of the Municipal Obligations held by
a Portfolio may be insured as to the timely payment of principal and interest.
The insurance policies will usually be obtained by the issuer of the Municipal
Obligation at the time of its original issuance. In the event that the issuer
defaults on interest or principal payment, the insurer will be notified and will
be required to make payment to the bondholders. There is, however, no guarantee
that the insurer will meet its obligations. In addition, such insurance will not
protect against market fluctuations caused by changes in interest rates and
other factors.
Stand-By Commitments. Under a stand-by commitment, a dealer or bank agrees
to purchase from the Fund, at the Fund's option, specified Municipal Obligations
at their amortized cost value to the Fund plus accrued interest, if any.
Stand-by commitments may be sold, transferred or assigned by the Fund only with
the underlying Municipal Obligation. The Fund expects that stand-by commitments
will generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Fund may pay for a
stand-by commitment either separately in cash or by paying a higher price for
fund securities which are acquired subject to the commitment (thus reducing the
yield to maturity otherwise available for the same securities). Where the Fund
paid any consideration directly or indirectly for a stand-by commitment, its
cost would be reflected as unrealized depreciation for the period during which
the commitment was held by the Fund.
The Fund intends to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the Adviser's opinion, present minimal credit
risks. The Fund's reliance upon the credit of these dealers, banks and
broker-dealers will be secured by the value of the underlying Municipal
Obligations that are subject to the commitment. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the Adviser will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information. The Fund would acquire stand-by commitments
solely to facilitate fund liquidity and does not intend to exercise its rights
thereunder for trading purposes. Stand-by commitments acquired by the Fund would
be valued at zero in determining net asset value.
When-Issued and Delayed Delivery Transactions. When a Portfolio agrees to
purchase securities on a when-issued or delayed delivery basis, its custodian
will set aside cash, U.S. Government securities or other liquid high-grade debt
obligations equal to the amount of the purchase or the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to meet
this requirement. The market value of the separate account will be monitored and
if such market value declines, the Portfolio
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will be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
the Portfolio's commitments. Because a Portfolio will set aside cash or liquid
high-grade debt securities in the manner described, the Portfolio's liquidity
and ability to manage its fund might be affected in the event its when-issued
purchases or delayed delivery commitments ever exceeded 25% of the value of its
assets. In the case of a delayed delivery of the sale of fund securities, the
Fund's custodian will hold the portfolio securities themselves in a segregated
account while the commitment is outstanding.
A Portfolio will make commitments to purchase securities on a when-issued
basis or delayed delivery basis only with the intention of completing the
transaction and actually purchasing or selling the securities. If deemed
advisable as a matter of investment strategy, however, the Portfolio may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the
Portfolio on the settlement date. In these cases the Portfolio may realize a
capital gain or loss. When a Portfolio engages in when-issued and delayed
delivery transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Portfolio's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
The value of the securities underlying a when-issued purchase or a delayed
delivery to purchase securities, and any subsequent fluctuations in their value,
is taken into account when determining a Portfolio's net asset value starting on
the day a Fund agrees to purchase the securities. The Portfolio does not earn
interest on the securities it has committed to purchase until they are paid for
and delivered on the settlement date. When a Portfolio makes a delayed delivery
of the sale of securities it owns, the proceeds to be received upon settlement
are included in the Portfolio's assets, and fluctuations in the value of the
underlying securities are not reflected in the Portfolio's net asset value as
long as the commitment remains in effect.
Securities and Index Options. The Enhanced Reserves Portfolio may write
covered call options and purchase call and put options. Options and the related
risks are summarized below.
Writing and Purchasing Options. Call options written by a Portfolio
normally will have expiration dates between three and nine months from the date
written. During the option period a Portfolio may be assigned an exercise notice
by the broker-dealer through which the call option was sold, requiring the
Portfolio to deliver the underlying security (or cash in the case of securities
index calls) against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time as
the Portfolio effects a closing purchase transaction. A closing purchase
transaction cannot be effected with respect to an option once the Portfolio has
received an exercise notice.
The exercise price of a call option written by a Portfolio may be below,
equal to or above the current market value of the underlying security or
securities index at the time the option is written.
A multiplier for an index option performs a function similar to the unit of
trading for an option on an individual security. It determines the total dollar
value per contract of each point between the exercise price of the option and
the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
Securities indices for which options are currently traded include the
Standard & Poor's 100 and 500 Composite Stock Price Indices, Computer/Business
Equipment Index, Major Market Index, Amex Market Value Index, Computer
Technology Index, Oil and Gas Index, NYSE Options Index, Gaming/Hotel Index,
Telephone Index, Transportation Index, Technology Index, and Gold/ Silver Index.
A Portfolio may write call options and purchase call and put options on any
other indices traded on a recognized exchange.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option written by a Fund, to prevent an underlying
security from being called, or to enable a Portfolio to write another call
option with either a different exercise price or expiration date or both. A
Portfolio may realize a net gain or loss from a closing purchase transaction,
depending upon whether the amount of the premium received on the call option is
more or less than the cost of effecting the closing purchase transaction. If a
call option written by a Portfolio expires unexercised, a Portfolio will realize
a gain in the amount of the premium on the option less the commission paid.
The option activities of a Portfolio may increase its Portfolio turnover
rate and the amount of brokerage commissions paid. A Fund will pay a commission
each time it purchases or sells a security in connection with the exercise of an
option. These commissions may be higher than those which would apply to
purchases and sales of securities directly.
Limitations on Options. A Portfolio may write call options only if they are
covered and if they remain covered so long as a Portfolio is obligated as a
writer. If a Portfolio writes a call option on an individual security, a
Portfolio will own the underlying security at all times during the option
period. A Portfolio will write call options on indices only to hedge in an
economically appropriate way portfolio securities which are not otherwise hedged
with options or financial futures contracts. Call options on securities indices
written by a Portfolio will be "covered" by identifying the specific portfolio
securities being hedged.
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To secure the obligation to deliver the underlying security, the writer of
a covered call option on an individual security is required to deposit the
underlying security or other assets in escrow with the broker in accordance with
clearing corporation and exchange rules. In the case of an index call option
written by a Portfolio, a Portfolio will be required to deposit qualified
securities. A "qualified security" is a security against which a Portfolio has
not written a call option and which has not been hedged by a Portfolio by the
sale of a financial futures contract. If at the close of business on any day the
market value of the qualified securities falls below 100% of the current index
value times the multiplier times the number of contracts, a Portfolio will
deposit an amount of cash or liquid assets equal in value to the difference. In
addition, when a Portfolio writes a call on an index which is "in-the-money" at
the time the call is written, a Portfolio will pledge with its custodian bank
any asset, including equity securities and non- investment grade debt so long as
the asset is liquid, unencumbered and marked to market daily equal in value to
the amount by which the call is "in-the-money" times the multiplier times the
number of contracts. Any amount pledged may be applied to a Portfolio's
obligation to segregate additional amounts in the event that the market value of
the qualified securities falls below 100% of the current index value times the
multiplier times the number of contracts.
The Enhanced Reserves Portfolio may invest up to 2% of its total assets in
exchange-traded call and put options. The Portfolio may sell a call option or a
put option which it has previously purchased prior to the purchase (in the case
of a call) or the sale (in the case of a put) of the underlying security. Any
such sale of a call option or a put option would result in a net gain or loss,
depending on whether the amount received on the sale is more or less than the
premium and other transaction costs paid. In connection with a Portfolio
qualifying as a regulated investment company under the Internal Revenue Code,
other restrictions on a Portfolio's ability to enter into option transactions
may apply from time to time.
Risks Relating to Options. During the option period, the writer of a call
option has, in return for the premium received on the option, given up the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security increase, but has retained the risk of loss
should the price of the underlying security decline. The writer has no control
over the time when it may be required to fulfill its obligation as a writer of
the option.
The risk of purchasing a call option or a put option is that a Portfolio
may lose the premium it paid plus transaction costs. If a Portfolio does not
exercise the option and is unable to close out the position prior to expiration
of the option, it will lose its entire investment.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although a Portfolio will
write and purchase options only when the Adviser believes that a liquid
secondary market will exist for options of the same series, there can be no
assurance that a liquid secondary market will exist for a particular option at a
particular time and that a Portfolio, if it so desires, can close out its
position by effecting a closing transaction. If the writer of a covered call
option is unable to effect a closing purchase transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Accordingly, a covered call writer may not be able to sell the underlying
security at a time when it might otherwise be advantageous to do so.
Possible reasons for the absence of a liquid secondary market on an
exchange include the following: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities; (iv) inadequacy of the
facilities of an exchange or the clearing corporation to handle trading volume;
and (v) a decision by one or more exchanges to discontinue the trading of
options or impose restrictions on orders.
Each exchange has established limitations governing the maximum number of
call options, whether or not covered, which may be written by a single investor
acting alone or in concert with others (regardless of whether such options are
written on the same or different exchanges or are held or written on one or more
accounts or through one or more brokers). An exchange may order the liquidation
of positions found to be in violation of these limits and it may impose other
sanctions or restrictions. The Adviser believes that the position limits
established by the exchanges will not have any adverse impact upon a Portfolio
or all of the Portfolios, in the aggregate.
Risks of Options on Indices. Because the value of an index option depends
upon movements in the level of the index rather than movements in the price of a
particular security, whether a Portfolio will realize a gain or loss on the
purchase or sale of an option on an index depends upon movements in the level of
prices in the market generally or in an industry or market segment rather than
upon movements in the price of an individual security. Accordingly, successful
use by a Portfolio of options on indices will be subject to the Adviser's
ability to predict correctly movements in the direction of the market generally
or in the direction of a particular industry. This requires different skills and
techniques than predicting changes in the prices of individual securities.
Index prices may be distorted if trading of certain securities included in
the index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
securities included in the index. If this occurred, a Portfolio would not be
able to close out options which it had written or purchased and, if restrictions
on exercise were imposed, might be unable to exercise an option it purchased,
which would result in substantial losses to a Portfolio. However, it is the
Fund's policy to write or purchase options only on indices which include a
sufficient number of securities so that the likelihood of a trading halt in the
index is minimized.
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Because the exercise of an index option is settled in cash, an index call
writer cannot determine the amount of its settlement obligation in advance and,
unlike call writing on portfolio securities, cannot provide in advance for its
potential settlement obligation by holding the underlying securities.
Consequently, a Portfolio will write call options on indices only subject to the
limitations described above.
Price movements in securities in a Portfolio holdings will not correlate
perfectly with movements in the level of the index and, therefore, a Portfolio
bears the risk that the price of the securities held by the Portfolio may not
increase as much as the level of the index. In this event, the Portfolio would
bear a loss on the call which would not be completely offset by movements in the
prices of a Portfolio's portfolio securities. It is also possible that the index
may rise when the value of a Portfolio holdings securities does not. If this
occurred, the Portfolio would experience a loss on the call which would not be
offset by an increase in the value of its portfolio and might also experience a
loss in the market value of portfolio securities.
Unless a Portfolio has other liquid assets which are sufficient to satisfy
the exercise of a call on an index, a Portfolio will be required to liquidate
portfolio securities in order to satisfy the exercise. Because an exercise must
be settled within hours after receiving the notice of exercise, if a Portfolio
fails to anticipate an exercise, it may have to borrow from a bank (in an amount
not exceeding 10% of a Portfolio's total assets) pending settlement of the sale
of securities in its portfolio and pay interest on such borrowing.
When a Portfolio has written a call on an index, there is also a risk that
the market may decline between the time a Portfolio has the call exercised
against it, at a price which is fixed as of the closing level of the index on
the date of exercise, and the time a Portfolio is able to sell securities in its
portfolio. As with options on portfolio securities, a Portfolio will not learn
that a call has been exercised until the day following the exercise date but,
unlike a call on a portfolio security where a Portfolio would be able to deliver
the underlying security in settlement, a Portfolio may have to sell part of its
portfolio securities in order to make settlement in cash, and the price of such
securities might decline before they could be sold.
If a Portfolio exercises a put option on an index which it has purchased
before final determination of the closing index value for that day, it runs the
risk that the level of the underlying index may change before closing. If this
change causes the exercised option to fall "out-of-the-money" a Portfolio will
be required to pay the difference between the closing index value and the
exercise price of the option (multiplied by the applicable multiplier) to the
assigned writer. Although a Portfolio may be able to minimize this risk by
withholding exercise instructions until just before the daily cutoff time or by
selling rather than exercising an option when the index level is close to the
exercise price, it may not be possible to eliminate this risk entirely because
the cutoff times for index options may be earlier than those fixed for other
types of options and may occur before definitive closing index values are
announced.
Financial Futures and Related Options. Each Portfolio may use financial
futures contracts and related options to hedge against changes in the market
value of its portfolio securities or securities which it intends to purchase.
Hedging is accomplished when an investor takes a position in the futures market
opposite to his cash market position. There are two types of hedges--long (or
buying) and short (or selling) hedges. Historically, prices in the futures
market have tended to move in concert with cash market prices, and prices in the
futures market have maintained a fairly predictable relationship to prices in
the cash market. Thus, a decline in the market value of securities in a
Portfolio's holdings may be protected against to a considerable extent by gains
realized on futures contracts sales. Similarly, it is possible to protect
against an increase in the market price of securities which a Portfolio may wish
to purchase in the future by purchasing futures contracts.
A Portfolio may purchase or sell any financial futures contracts which are
traded on a recognized exchange or board of trade. Financial futures contracts
consist of interest rate futures contracts and securities index futures
contracts. A public market presently exists in interest rate futures contracts
covering long-term U.S. Treasury bonds, U.S. Treasury notes, three-month U.S.
Treasury bills and GNMA certificates. Securities index futures contracts are
currently traded with respect to the Standard & Poor's 500 Composite Stock Price
Index and such other broad-based stock market indices as the New York Stock
Exchange Composite Stock Index and the Value Line Composite Stock Price Index. A
clearing corporation associated with the exchange or board of trade on which a
financial futures contract trades assumes responsibility for the completion of
transactions and also guarantees that open futures contracts will be performed.
In contrast to the situation when a Portfolio purchases or sells a
security, no security is delivered or received by a Portfolio upon the purchase
or sale of a financial futures contract. Initially, a Portfolio will be required
to deposit in a segregated account with its custodian bank an amount of cash,
U.S. Treasury bills or liquid high grade debt obligations. This amount is known
as initial margin and is in the nature of a performance bond or good faith
deposit on the contract. The current initial margin deposit required per
contract is approximately 5% of the contract amount. Brokers may establish
deposit requirements higher than this minimum. Subsequent payments, called
variation margin, will be made to and from the account on a daily basis as the
price of the futures contract fluctuates. This process is known as marking to
market.
The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option
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to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's margin account. This amount will be equal to the amount
by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
Although financial futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery. Closing out
is accomplished by effecting an offsetting transaction. A futures contract sale
is closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller immediately would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss. A Portfolio will pay commissions on financial
futures contracts and related options transactions. These commissions may be
higher than those which would apply to purchases and sales of securities
directly.
Limitations on Futures Contracts and Related Options. A Portfolio may not
engage in transactions in financial futures contracts or related options for
speculative purposes but only as a hedge against anticipated changes in the
market value of its portfolio securities or securities which it intends to
purchase. A Portfolio may not purchase or sell financial futures contracts or
related options if, immediately thereafter, the sum of the amount of initial
margin deposits on a Portfolio's existing futures and related options positions
and the premiums paid for related options would exceed 2% (5% for the Real
Estate Equity Securities Portfolio) of the market value of a Portfolio's total
assets after taking into account unrealized profits and losses on any such
contracts. At the time of purchase of a futures contract or a call option on a
futures contract, any asset, including equity securities and non-investment
grade debt so long as the asset is liquid, unencumbered and marked to market
daily equal to the market value of the futures contract minus a Portfolio's
initial margin deposit with respect thereto will be deposited in a pledged
account with a Portfolio's custodian bank to collateralize fully the position
and thereby ensure that it is not leveraged. The extent to which a Portfolio may
enter into financial futures contracts and related options also may be limited
by the requirements of the Internal Revenue Code for qualification as a
regulated investment company.
Risks Relating to Futures Contracts and Related Options. Positions in
futures contracts and related options may be closed out only on an exchange
which provides a secondary market for such contracts or options. A Portfolio
will enter into an option or futures position only if there appears to be a
liquid secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular option or futures contract at any
specific time. Thus, it may not be possible to close out a futures or related
option position. In the case of a futures position, in the event of adverse
price movements a Portfolio would continue to be required to make daily margin
payments. In this situation, if a Portfolio has insufficient cash to meet daily
margin requirements it may have to sell portfolio securities at a time when it
may be disadvantageous to do so. In addition, a Portfolio may be required to
take or make delivery of the securities underlying the futures contracts it
holds. The inability to close out futures positions also could have an adverse
impact on a Portfolio's ability to hedge its portfolio effectively.
There are several risks in connection with the use of futures contracts as
a hedging device. While hedging can provide protection against an adverse
movement in market prices, it can also preclude a hedger's opportunity to
benefit from a favorable market movement. In addition, investing in futures
contracts and options on futures contracts will cause a Portfolio to incur
additional brokerage commissions and may cause an increase in a Portfolio's
portfolio turnover rate.
The successful use of futures contracts and related options also depends on
the ability of the Adviser to forecast correctly the direction and extent of
market movements within a given time frame. To the extent market prices remain
stable during the period a futures contract or option is held by a Portfolio or
such prices move in a direction opposite to that anticipated, a Portfolio may
realize a loss on the hedging transaction which is not offset by an increase in
the value of its portfolio securities. As a result, a Portfolio's return for the
period may be less than if it had not engaged in the hedging transaction.
Utilization of futures contracts by a Portfolio involves the risk of
imperfect correlation in movements in the price of futures contracts and
movements in the price of the securities which are being hedged. If the price of
the futures contract moves more or less than the price of the securities being
hedged, a Portfolio will experience a gain or loss which will not be completely
offset by movements in the price of the securities. It is possible that, where a
Portfolio has sold futures contracts to hedge its portfolio against decline in
the market, the market may advance and the value of securities held in a
Portfolio's holdings may decline. If this occurred, a Portfolio would lose money
on the futures contract and would also experience a decline in value in its fund
securities. Where futures are purchased to hedge against a possible increase in
the prices of securities before a Portfolio is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline; if a Portfolio then determines not to invest in
securities (or options) at that time because of concern as to possible further
market decline or for other reasons, a Portfolio will realize a loss on the
futures that would not be offset by a reduction in the price of the securities
purchased.
The market prices of futures contracts may be affected if participants in
the futures market elect to close out their contracts through off-setting
transactions rather than to meet margin deposit requirements. In such case,
distortions in the normal relationship between the cash and futures markets
could result. Price distortions could also result if investors in futures
contracts opt to make
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or take delivery of the underlying securities rather than to engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of market
trends may still not result in a successful hedging transaction.
Compared to the purchase or sale of futures contracts, the purchase of put
or call options on futures contracts involves less potential risk for a
Portfolio because the maximum amount at risk is the premium paid for the options
plus transaction costs. However, there may be circumstances when the purchase of
an option on a futures contract would result in a loss to a Portfolio while the
purchase or sale of the futures contract would not have resulted in a loss, such
as when there is no movement in the price of the underlying securities. The loss
from investing in futures transactions is potentially unlimited.
Foreign Securities. Each Portfolio may purchase foreign securities,
including those issued by foreign branches of U.S. banks. In any event, such
investments in foreign securities will be limited to 15% of the total net asset
value of the Growth Stock Portfolio and 10% of the total assets of the Core
Equity Portfolio, will not exceed 20% of the total net asset value of the
Enhanced Reserves Portfolio or 35% of the total net asset value of the Managed
Bond Portfolio. Investments in foreign securities, particularly those of
non-governmental issuers, involve considerations which are not ordinarily
associated with investing in domestic issues. These considerations include
changes in currency rates, currency exchange control regulations, the
possibility of expropriation, the unavailability of financial information, the
difficulty of interpreting financial information prepared under foreign
securities markets, the impact of political, social or diplomatic developments,
difficulties in invoking legal process abroad and the difficulty of assessing
economic trends in foreign countries.
The Portfolio may use a foreign custodian or sub-custodian in connection
with its purchases of foreign securities and may maintain cash and cash
equivalents in the care of a foreign custodian. The amount of cash or cash
equivalents maintained in the care of eligible foreign custodians will be
limited to an amount reasonably necessary to effect the Portfolio's foreign
securities transactions. The use of a foreign custodian invokes considerations
which are not ordinarily associated with domestic custodians. These
considerations include the possibility of expropriations, restricted access to
books and records of the foreign custodian, inability to recover assets that are
lost while under the control of the foreign custodian, and the impact of
political, social or diplomatic developments.
Mortgage-Related Securities. Each Portfolio (other than the Growth Stock
Portfolio) may invest in Mortgage-Related Securities (as defined in the
Prospectus), including those representing an undivided ownership interest in a
pool of mortgages, such as certificates of the Government National Mortgage
Association ("GNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
These certificates are in most cases pass-through instruments, through which the
holder receives a share of all interest and principal payments from the
mortgages underlying the certificate, net of certain fees. The average life of a
Mortgage-Related Security varies with the underlying mortgage instruments, which
have maximum maturities of 40 years. The average life is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities as the result of prepayments, mortgage refinancings or
foreclosure. Mortgage prepayment rates are affected by various factors including
the level of interest rates, general economic conditions, the location and age
of the mortgage and other social and demographic conditions. Such prepayments
are passed through to the registered holder with the regular monthly payments of
principal and interest and have the effect of reducing future payments.
Government securities with nominal remaining maturities in excess of 31/2
years that have variable or floating interest rates or demand or put features
may nonetheless be deemed to have remaining maturities of 31/2 years or less so
as to be permissible investments for the Fund as follows: (a) a government
security with a variable or floating rate of interest will be deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate; (b) a government security with a demand or put feature that
entitles the holder to receive the principal amount of the underlying security
at the time of or sometime after the holder gives notice of demand or exercise
of the put will be deemed to have a maturity equal to the period remaining until
the principal amount can be recovered through demand or exercise of the put; and
(c) a government security with both a variable or floating rate of interest as
described in clause (a) and a demand or put feature as described in clause (b)
will be deemed to have a maturity equal to the shorter of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand or exercise of the put.
Securities issued by Government National Mortgage Association ("GNMA") are,
and securities issued by Federal National Mortgage Association ("FNMA") include,
mortgage-backed securities representing part ownership of a pool of mortgage
loans. In the case of GNMA, the mortgages are insured by the Federal Housing
Administration or Farmers' Home Administration or guaranteed by the Veteran's
Administration. In the case of FNMA, the mortgages are not insured by an agency
of the U.S. Government.
The prices of mortgage-backed securities are inversely affected by changes
in interest rates and, therefore, are subject to the risk of market price
fluctuations. Mortgage-backed securities issued by GNMA and FNMA currently offer
yields which are higher than those available on other securities of the U.S.
Government and its agencies and instrumentalities, but may be less effective
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than these other securities as a means of "locking in" attractive long-term
interest rates. This is a result of the need to reinvest prepayment of principal
and the possibility of significant unscheduled prepayments resulting from
declines in mortgage interest rates. As a result, these securities have less
potential for capital appreciation during periods of declining interest rates
than other investments of comparable risk of decline in value during periods of
rising rates.
Lending Portfolio Securities. In order to increase its return on
investments, each Fund may make loans of the portfolio securities as long as the
market value of the loaned securities does not exceed 25% (33.3% for Core Equity
Portfolio) of the value of that Portfolio's total assets. Loans of portfolio
securities will always be fully collateralized at no less than 102% (100% for
Core Equity Portfolio) of the market value of the loaned securities (as marked
to market daily) and made only to borrowers considered to be creditworthy.
Lending portfolio securities involves a risk of delay in the recovery of the
loaned securities and possibly the loss of the collateral if the borrower fails
financially.
Lower Rated Fixed Income Securities. In the event that an issuer of
securities held by a Portfolio experiences difficulties in the timely payment of
principal or interest and such issuer seeks to restructure the terms of its
borrowings, the Portfolio may incur additional expenses and may determine to
invest additional assets with respect to such issuer or the project or projects
to which the Portfolio's portfolio securities relate. Further, the Portfolio may
incur additional expenses to the extent that it is required to seek recovery
upon a default in the payment of interest or the repayment of principal on its
portfolio holdings, and the Portfolio may be unable to obtain full recovery
thereof.
To the extent there is no established secondary market for some of the
medium and lower grade income securities in which the Portfolio may invest,
trading in such securities may be relatively inactive. During periods of reduced
market liquidity or in the absence of readily available market quotations for
medium and lower grade income securities held in the Portfolio's holdings, the
ability of the Investment Adviser to value the Portfolio's securities becomes
more difficult and the Investment Adviser's use of judgment may play a greater
role in the valuation of the Portfolio's securities due to the reduced
availability of reliable objective data. Further, the Portfolio may have more
difficulty selling such securities in a timely manner and at their stated value
than would be the case for securities for which an established secondary market
does exist.
Many medium and lower grade income securities are not listed for trading on
any national securities exchange, and many issuers of medium and lower grade
income securities choose not to have a rating assigned to their obligations by
any nationally recognized statistical rating organization. The amount of
information available about the financial condition of an issuer of unrated or
unlisted securities generally is not as extensive as that which is available
with respect to issuers of listed or rated securities. To the extent that the
Portfolio invests in unrated or unlisted medium and lower grade income
securities, the ability of the Adviser to evaluate the credit risk of such
securities may play a greater role in the ability of the Portfolio to achieve
its investment objective.
The Adviser seeks to minimize the risks involved in investing in medium and
lower grade income securities through portfolio diversification, careful
investment analysis, and attention to current developments and trends in the
economy and financial and credit markets. The Portfolio will rely on the
Adviser's judgment, analysis and experience in evaluating the creditworthiness
of an issue. In its analysis, the Adviser will take into consideration, among
other things, the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the issuer's
management and regulatory matters. Although the Adviser's internal business and
default risk analysis is independent of the credit ratings of S&P, Moody's or
D&P (or other nationally recognized statistical rating organization), the
Adviser may consider such ratings in evaluating income securities. Achievement
by the Portfolio of its investment objective will be more dependent on the
credit analysis of the Adviser than is the case for investment companies with
investment objectives similar to the Portfolio's that are more reliant on such
rating organizations in selecting portfolio securities.
Investment in Other Investment Companies. The Portfolio is authorized to
invest in the securities of other investment companies subject to the
limitations contained in the 1940 Act. In certain countries, investments by the
Portfolio may only be made through investments in other investment companies
that, in turn, are authorized to invest in the securities that are issued in
such countries. Investors should recognize that the Portfolio's purchase of the
securities of such other investment companies results in the layering of
expenses such that investors indirectly bear a proportionate part of the
expenses for such investment companies including operating costs, and investment
advisory and administrative fees.
Leverage. The Core Equity Portfolio may borrow for temporary, extraordinary
or emergency purposes. The Portfolio will borrow only from banks, and only if
immediately after such borrowing the value of the assets of the Fund (including
the amount borrowed) less its liabilities (not including any borrowings) is at
least three times the amount of funds borrowed. The effect of this provision is
to permit the Portfolio to borrow up to 331/3% of the total assets (not
including any borrowings) of the Portfolio. If, due to market fluctuations or
other reasons, the value of the Portfolio's assets computed as provided above
becomes at any time less than three times the amount of the borrowings, the
Portfolio, within three business days, is required to reduce bank debt to the
extent necessary to meet the required 300% asset coverage.
Interest on money borrowed will be an expense of the Portfolio with respect
to which the borrowing has been made. Because such expense would not otherwise
be incurred, the net investment income of the Portfolio is not expected to be as
high as it otherwise
9
<PAGE>
would be during periods when borrowings for investment purposes are substantial.
Bank borrowings must be obtained on an unsecured basis. Any such borrowing must
also be made subject to an agreement by the lender that any recourse is limited
to the assets of the Portfolio with respect to which the borrowing has been
made.
Forward Foreign Currency Exchange Contracts. (Core Equity Portfolio) A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
("Term") 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 (usually large commercial banks) and their customers.
The Core Equity Portfolio does not intend to enter into such forward
contracts if it would have more than 5% of the value of its net assets committed
to the initial margin and option premiums on such contracts on a regular or
continuous basis. The Portfolio will not enter into such forward contracts or
maintain a net exposure in such contracts where it would be obligated to deliver
an amount of foreign currency in excess of the value of its portfolio securities
and other assets denominated in that currency. The Adviser believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that to do so is in the best interests of the Portfolio. The
Portfolio's custodian bank will pledge any asset, including equity securities
and non-investment grade debt so long as the asset is liquid, unencumbered and
marked to market daily, in an amount not less than the value of the Portfolio's
total assets committed to forward foreign currency exchange contracts entered
into for the purchase of a foreign currency. If the value of the securities
pledged declines, additional cash or securities will be added so that the
pledged amount is not less than the amount of the Portfolio's commitments with
respect to such contracts. Generally, the Portfolio does not enter into forward
contracts with a term longer than one year.
Foreign Currency Options. (Core Equity Portfolio) A foreign currency option
provides the option buyer with the right to buy or sell a stated amount of
foreign currency at the exercise price at a specified date or during the option
period. A call option gives its owner the right, but not the obligation, to buy
the currency, while a put option gives its owner the right, but not the
obligation, to sell the currency. The option seller (writer) is obligated to
fulfill the terms of the option sold if it is exercised. However, either seller
or buyer may close its position during the option period for such options any
time prior to expiration.
A call rises in value if the underlying currency appreciates. Conversely, a
put rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Portfolio against an adverse movement in
the value of a foreign currency, it does not limit the gain which might result
from a favorable movement in the value of such currency. For example, if the
Portfolio were holding securities denominated in an appreciating foreign
currency and had purchased a foreign currency put to hedge against a decline in
the value of the currency, it would not have to exercise its put. Similarly, if
the Portfolio had entered into a contract to purchase a security denominated in
a foreign currency and had purchased a foreign currency call to hedge against a
rise in the value of the currency but instead the currency had depreciated in
value between the date of purchase and the settlement date, the Portfolio would
not have to exercise its call but could acquire in the spot market the amount of
foreign currency needed for settlement.
Foreign Currency Futures Transactions. (Core Equity Portfolio) The
Portfolio may use foreign currency futures contracts and options on such futures
contracts. Through the purchase or sale of such contracts, the Portfolio may be
able to achieve many of the same objectives attainable through the use of
foreign currency forward contracts, but more effectively and possibly at a lower
cost.
Unlike forward foreign currency exchange contracts, foreign currency
futures contracts and options on foreign currency futures contracts are
standardized as to amount and delivery period and are traded on boards of trade
and commodities exchanges. It is anticipated that such contracts may provide
greater liquidity and lower cost than forward foreign currency exchange
contracts.
Regulatory Restrictions. (Core Equity Portfolio) To the extent required to
comply with Securities and Exchange Commission Release No. IC-10666, when
purchasing a futures contract or writing a put option, the Portfolio will
maintain in a pledged account any asset, including equity securities and
non-investment grade debt so long as the asset is liquid, unencumbered and
marked to market daily, equal to the value of such contracts.
The Portfolio may enter into futures contracts, provided that such
obligations represent no more than 20% of the Portfolio's net assets. Under the
Commodity Exchange Act, a portfolio may enter into futures and options
transactions for hedging purposes with regard to the percentage of assets
committed to initial margin and option premiums and for other than hedging
purposes provided that assets committed to initial margin and option premiums do
not exceed 5% of a portfolio's net assets. To the extent required by law, the
Portfolio will set aside cash and appropriate liquid assets in a pledged account
to cover its obligations related to futures contracts and options.
Derivative Investments. (Core Equity Portfolio) In order to hedge various
portfolio positions, including to hedge against price movements in markets in
which the Portfolio anticipates increasing its exposure, the Portfolio may
invest in certain instruments which may be characterized as derivative
investments. These investments include various types of interest rate
transactions, options and futures. Such investments also may consist of indexed
securities. Other of such investments have no express quantitative limitations,
although they may be made solely for hedging purposes, not for speculation, and
may in some cases be limited as
10
<PAGE>
to the type of counter-party permitted. Interest rate transactions involve the
risk of an imperfect correlation between the index used in the hedging
transactions and that pertaining to the securities which are the subject of such
transactions. Similarly, utilization of options and futures transactions
involves the risk of imperfect correlation in movements in the price of options
and futures and movements in the price of the securities or interest rates which
are the subject of the hedge. Investments in indexed securities, including
inverse securities, subject the Portfolio to the risks associated with changes
in the particular indices, which may include reduced or eliminated interest
payments and losses of invested principal.
INVESTMENT RESTRICTIONS
Fundamental policies as they affect any Portfolio cannot be changed without
the approval vote of a majority of the outstanding shares of such Portfolio,
which is the lesser of (i) 67% or more of the voting securities of such
Portfolio present at a meeting if the holders of more than 50% of the
outstanding voting securities of such Portfolio are present or represented by
proxy or (ii) more than 50% of the outstanding voting securities of such
Portfolio. A proposed change in fundamental policy or investment objective will
be deemed to have been effectively acted upon with respect to any Portfolio if a
majority of the outstanding voting securities of that Portfolio votes for the
approval of the proposal as provided above, notwithstanding (1) that such matter
has not been approved by a majority of the outstanding securities of any other
Portfolio affected by such matter and (2) that such matter has not been approved
by a majority of the outstanding voting securities of the Portfolio.
Managed Bond, Enhanced Reserves and Growth Stock Portfolios Only
The following investment restrictions are fundamental policies of the Fund
with respect to all the above-named Portfolios and may not be changed except as
described above. Each Portfolio may not:
1. Purchase for such Portfolio securities of any issuer, other than
obligations issued or guaranteed as to principal and interest by the United
States Government or its agencies or instrumentalities, if immediately
thereafter (i) more than 5% of such Portfolio's total assets (taken at market
value) would be invested in the securities of such issuer or (ii) more than 10%
of the outstanding securities of any class of such issuer would be held by such
Portfolio or by all Portfolios of the Fund in the aggregate.
2. Concentrate the portfolio investments of any Portfolio in any one
industry. To comply with this restriction, no security may be purchased for a
Fund if such purchase would cause the value of the aggregate investment of such
Portfolio in any one industry to exceed 25% of that Portfolio's total assets
(taken at market value). However, the Managed Bond Portfolio may invest up to
80% of that Portfolio's total assets in corporate debt securities. Provided
further, the foregoing restrictions shall be inapplicable to investments in
tax-exempt securities issued by government or political subdivisions of
governments.
3. Act as securities underwriter except as it technically may be deemed to
be an underwriter under the Securities Act of 1933, as amended, in selling a
portfolio security.
4. Purchase securities on margin, but it may obtain short-term credit as
may be necessary for the clearance of purchases and sales of securities.
5. Make short sales of securities or maintain a short position.
6. Make cash loans, except that the Fund may (i) purchase bonds, notes,
debentures or similar obligations which are customarily purchased by
institutional investors whether publicly distributed or not, and (ii) enter into
repurchase agreements, provided that no more than 15% of any Portfolio's net
assets (taken at market value) may be subject to repurchase agreements maturing
in more than seven days.
7. Make securities loans, except that the Portfolios may make loans of the
portfolio securities of any such Portfolio, provided that the market value of
the securities subject to any such loans does not exceed 25% of the value of the
total assets (taken at market value) of such Portfolio.
8. Make investments in real estate, real estate limited partnerships or
commodities or commodity contracts, although (i) the Fund may purchase
securities of issuers which deal in real estate or commodities and may purchase
securities which are secured by interests in real estate, specifically,
securities issued by real estate investment trusts and (ii) any Portfolio may
engage in transactions in financial futures contracts and related options,
provided that the sum of the initial margin deposits on such Portfolio's
existing futures positions and the premiums paid for related options would not
exceed in the aggregate 2% of such Portfolio's total assets.
9. Invest in oil, gas or other mineral leases, although the Fund may
purchase securities of issuers which engage in whole or in part in such
activities.
10. Invest in puts, calls, straddles and any combination thereof, except
that the Enhanced Reserves Portfolio may (i) write (sell) exchange-traded
covered call options on portfolio securities and on securities indices and
engage in related closing purchase transactions and (ii) invest up to 2% of its
total assets in exchange-traded call and put options on securities and
securities indices.
11. Purchase securities of companies for the purpose of exercising
management or control.
11
<PAGE>
12. Participate in a joint or joint and several trading account in
securities.
13. Purchase or retain securities of any issuer if any officer or Trustee
of the Fund, or officer or director of its investment adviser, owns beneficially
more than 1/2 of 1% of the outstanding securities or shares, or both, of such
issuer and all such persons owning more than 1/2 of 1% of such securities or
shares together own beneficially more than 5% of such securities or shares.
14. Borrow money, except that the Fund may (i) borrow money for any
Portfolio for temporary administrative purposes provided that any such borrowing
does not exceed 10% of the value of the total assets (taken at market value) of
such Portfolio and (ii) borrow money for any Portfolio for investment purposes,
provided that any such borrowing for investment purposes with respect to any
such Portfolio is (a) authorized by the Trustees prior to any public
distribution of the shares of such Portfolio or is authorized by the
shareholders of such Portfolio thereafter, (b) is limited to 331/3% of the value
of the total assets (taken at market value) of such Portfolio, and (c) is
subject to an agreement by the lender that any recourse is limited to the assets
of that Portfolio with respect to which the borrowing has been made.
15. Pledge, mortgage or hypothecate the assets of any Portfolio to an
extent greater than 10% of the total assets (taken at market value) of such
Portfolio to secure borrowing made pursuant to the provisions of item 15 above.
16. Issue senior securities except to the extent that it is permitted to
(a) borrow money from banks pursuant to the Fund's investment restrictions
regarding the borrowing of money, and (b) enter into transactions involving
forward foreign currency contracts, foreign currency futures contracts and
options thereon as described in the Fund's Prospectus and this Statement of
Additional Information.
17. Invest more than 5% of a Portfolio's net assets, valued at the lower of
cost or market, in warrants or rights. Included within that amount, but not to
exceed 2% of the value of a Portfolio's net assets, may be warrants not listed
on the New York or American Stock Exchange.
The Fund may purchase illiquid securities, including repurchase agreements
providing for settlement more than seven days after notice and restricted
securities (securities that must be registered with the Securities and Exchange
Commission before they can be sold to the public) deemed to be illiquid, but
such securities will not constitute more than 15% of each Portfolio's net
assets. The Board of Trustees, or the Adviser acting at its direction, values
these securities, taking into consideration quotations available from
broker-dealers and pricing services and other information deemed relevant.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage beyond the specified limit resulting
from a change in values of portfolio securities or amount of net assets shall
not be considered a violation of the restrictions.
Real Estate Equity Securities Portfolio Only
The following investment restrictions are fundamental policies of the Real
Estate Equity Securities Portfolio and may not be changed except as described
above. The Portfolio may not:
(1) issue senior securities, as such term is defined in the Investment
Company Act of 1940, as amended, except as otherwise provided herein;
(2) make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions; provided, however, the deposit or payment of an initial or
maintenance margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a security
on margin;
(3) borrow money in excess of 25% of the value of its total assets, or
pledge its assets to an extent greater than 3% of the market or other fair
value of its total assets. Any such borrowings shall be from banks and
shall be undertaken only as a temporary measure or for extraordinary or
emergency purposes. Deposits in escrow in connection with the writing of
covered call options or in connection with the purchase or sale of
financial futures contracts and related options shall not be deemed to be a
pledge or other encumbrance;
(4) engage in the business of underwriting the securities of others;
(5) concentrate its investments in the securities of issuers all of which
conduct their principal business activities in the same industry provided
that this restriction shall not apply to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities or issuers
principally engaged in the real estate industry as defined by the Adviser
from time to time;
(6) make any direct investment in real estate, real estate mortgage loans
and/or commodities, except that the Portfolio may (a) purchase or sell
readily marketable securities which are secured by interests in real
estate, or issued by companies which deal in real estate including real
estate investment and mortgage investment trusts, and (b) engage in
financial futures contracts and related options transactions, provided that
the sum of the initial margin deposits on the Portfolio's futures and
related options positions and the premiums paid for related options do not
exceed 5% of the Portfolio's total assets; and
12
<PAGE>
(7) make loans, except that the Portfolio may (a) invest up to 15% of its
total assets in repurchase agreements of a type regarded as "liquid" which
are fully collateralized as to principal and interest and which are entered
into only with commercial banks, brokers and dealers considered by the
Portfolio to be creditworthy and (b) loan its portfolio securities in
amounts up to one-third of the market or other fair value of its total
assets.
If a percentage restriction on investment or utilization of assets as set
forth is adhered to at the time an investment is made, a later change in the
percentage resulting from a change in the values or costs of the Portfolio's
assets will not be considered violate of the restriction.
Core Equity Portfolio Only
The following investment restrictions constitute fundamental policies of
the Core Equity Portfolio which may be changed only upon approval by the holders
of a majority of the outstanding shares of the Portfolio. The Portfolio may not:
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities) if, as a result, more than 5% of its
total assets would be invested in securities of that issuer.
(2) Purchase the securities of any one issuer if immediately after such
purchase the Portfolio would hold more than 10% of the outstanding voting
securities of that issuer.
(3) Borrow money except from a bank as a temporary measure to satisfy
redemption requests or for extraordinary or emergency purposes and then
only in an amount not exceeding 331/3% of the market value of the
Portfolio's total assets, so that immediately after any such borrowing
asset coverage of at least 300% for all such borrowings exists. To secure
any such borrowing, the Portfolio may not mortgage, pledge, or hypothecate
in excess of 331/3% of the value of its total assets. The Portfolio will
not purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
(4) Act as an underwriter of securities issued by others.
(5) Purchase real estate, real estate mortgage loans, interests in real
estate limited partnerships, or interests in oil, gas or mineral exporation
or development programs or leases, provided that this limitation shall not
prohibit (i) the purchase of U.S. Government securities and other debt
securities secured by real estate or interests therein; (ii) the purchase
of marketable securities issued by companies or investment trusts that deal
in real estate or interests therein; or (iii) purchase of marketable
securities issued by companies or other entities or investment vehicles
that engage in businesses relating to the development, exploration, mining,
processing or distributing of oil, gas, or minerals.
(6) Engage in any short-selling operations (except by selling futures
contracts).
(7) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the Board of Trustees or in
connection with purchase of debt securities in accordance with the
Portfolio's investment objective and policies.
(8) Purchase warrants, valued at the lower of cost or market, in excess of
5% of the value of the Portfolio's net assets. Included within that amount,
but not to exceed 2% of the value of the Portfolio's net assets, may be
warrants which are not listed on the New York or American Stock Exchanges.
Warrants acquired by the Portfolio at any time in units or attached to
securities are not subject to this restriction.
(9) Purchase securities on margin, except for such short-term credits as
may be necessary for the clearance of transactions, provided that the
Portfolio may make initial and variation margin payments in connection with
purchases or sales of futures contracts.
(10) Issue or sell any class of senior security as defined in the
Investment Company Act of 1940 except for notes or other evidences of
indebtedness permitted under investment restriction (3) and except to the
extent that notes evidencing temporary borrowings or the purchase of
securities on a when-issued or delayed delivery basis might be deemed such.
(11) Except in connection with a merger, consolidation, acquisition, or
reorganization, invest in the securities of other investment companies,
including investment companies advised by the Adviser, or any affiliates,
if, immediately after such purchase or acquisition, more than 10% of the
value of the Portfolio's total assets would be invested in such securities
in the aggregate, or more than 5% in any one such security.
(12) Purchase or retain securities of any issuer if, to the knowledge of
the Trust's management, those officers and Trustees of the Trust and of its
adviser, who each own beneficially more than 0.50% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
securities.
(13) Invest in securities of an issuer which, together with any
predecessor, has been in operation for less than three years if, as a
result, more than 5% of the total assets of the Portfolio would then be
invested in such securities.
13
<PAGE>
(14) Invest in the securities of any one issuer if, immediately after such
purchase, 25% or more of the Portfolio's total assets would be invested in
the securities of issuers having their principal business activities in the
same industry.
(15) Invest in securities which are not readily marketable or the
disposition of which is restricted under federal securities laws
(collectively "illiquid securities") if, as a result, more than 5% of the
Portfolio's net assets would be invested in illiquid securities.
If a percentage restriction on investment or utilization of assets as set
forth is adhered to at the time an investment is made, a later change in the
percentage resulting from a change in the values or costs of the Portfolio's
assets will not be considered a violation of the restriction with the exception
of the Portfolio's borrowing policy as described in restriction (3), above.
PERFORMANCE INFORMATION
Performance information for each Portfolio may appear in advertisements,
sales literature, or reports to shareholders or prospective shareholders.
Performance information in advertisements and sales literature may be expressed
as yield and/or as total return of any Portfolio.
Quotations of yield for the Managed Bond, Enhanced Reserves, and Real
Estate Equity Securities Portfolios will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses (including pro rata Portfolio expenses and expenses
applicable to each particular Portfolio) accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
value of a share of the Portfolio on the last day of the period, according to
the following formula:
YIELD = 2[((a-b)) + 1)6 - 1]
---
cd
where,
a = dividends and interest earned during the period by the Portfolio,
b = expenses accrued for the period (net of any reimbursements),
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period.
30-Day Yield as of December 31, 1998
<TABLE>
<CAPTION>
Fund Class X Class Y
- ---- ------- -------
<S> <C> <C>
Managed Bond 7.03% 6.79%
Enhanced Reserves 5.10% 4.72%
Real Estate Equity Securities 5.93% 5.74%
</TABLE>
Total return is a measure of the change in value of an investment in a
Portfolio over the period covered. The formula for total return used herein
includes four steps: (1) adding to the total number of shares purchased by a
hypothetical $1,000 investment in the Portfolio; (2) calculating the value of
the hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares of a Portfolio owned at the end of the
period by the net asset value on the last trading day of the period; (3)
assuming maximum sales charge deducted and reinvestment of all dividends at net
asset value and (4) dividing this account value for the hypothetical investor by
the initial $1,000 investment. Total return will be calculated for one year,
five years and ten years or the time period during which the registration
statement including the Portfolio was in effect if a Portfolio has not been in
existence for at least ten years.
Except as above stated, standardized quotations of average annual total
return for each class of shares of each Portfolio will be expressed in terms of
the average annual compounded rate of return of a hypothetical investment in
either Class X or Class Y Shares of each Portfolio over a period of 1, 5, and 10
years (or up to the life of the class of shares). Standardized total return
quotations reflect the deduction of a proportional share of each Class's
expenses of such Portfolio (on an annual basis), and assume that all dividends
and distributions are reinvested when paid. It is expected that the performance
of Class X Shares shall be better than that of Class Y Shares as a result of
lower distribution fees and certain incrementally lower expenses paid by Class X
Shares. Each Portfolio may also quote supplementally a rate of total return over
different periods of time by means of aggregate, average, and year-by-year or
other types of total return figures.
Performance information for the Portfolio (and each Class thereof) reflects
only the performance of a hypothetical investment in a Class X or Class Y of a
Portfolio during the particular time period in which the calculations are based.
Performance information is not an indication of future performance. Performance
information should be considered in light of a particular Portfolio's investment
objectives and policies, characteristics and qualities of the Portfolio, and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future. Investment results will
vary from time to time and are not identical to the past portfolio investments
of those Portfolio which previously existed as separate accounts.
14
<PAGE>
The manner in which total return will be calculated for public use is
described above. The following table contains total return figures involving the
Managed Bond and Growth Stock Portfolio based on each such Portfolio's past
performance as a separate investment account of Phoenix Home Life Mutual
Insurance Company, for periods before the Fund's registration statement became
effective (March 1, 1996). This performance data may be relevant as each such
separate account was managed, in all material respects, using substantially the
same investment objectives, policies and restrictions as those used by such
Portfolio. These separate investment accounts were not registered under the 1940
Act and therefore were not subject to certain investment restrictions that are
imposed by the 1940 Act. If these separate investment accounts had been
registered under the 1940 Act, the separate investment accounts' performance may
have been adversely affected. Standardized average annual total return of each
Class shall be calculated for the preceding one, five and ten year periods (or
since inception of the applicable separate account if it has been in existence
less than five or ten years) by including the corresponding separate account's
total return calculated in accordance with formulas specified by the Securities
and Exchange Commission. The performance of the separate accounts has been
restated to reflect the deduction of the fees and expenses of the classes of the
corresponding Portfolio described in the Prospectus. Performance data for the
Enhanced Reserves Portfolio is based on the Portfolio's past performance as the
Enhanced Reserves Fund (a series of Duff & Phelps Mutual Funds) prior to July
19, 1996.
Average Annual Total Return as of December 31, 1998
<TABLE>
<CAPTION>
Periods Ended
--------------------------------------------------
10 Years or
1 Year 5 Years Since Inception
------ ------- ---------------
<S> <C> <C> <C>
Core Equity
Class X N/A N/A 2.97%(1)
Class Y N/A N/A 2.71%(1)
Growth Stock
Class X 31.20% 19.65% 18.44%
Class Y 30.85% 19.35% 18.14%
Real Estate Equity Securities
Class X (20.53)% N/A (1.02)%(2)
Class Y (20.69)% N/A (1.21)%(2)
Managed Bond
Class X 1.99% 6.79% 8.88%
Class Y 1.72% 6.52% 8.61%
Enhanced Reserves
Class X 5.34% N/A 5.73%(3)
Class Y 5.08% N/A 5.28%(4)
</TABLE>
- -----------
(1) Inception date 4/14/98
(2) Inception date 5/1/97
(3) Inception date 6/24/94
(4) Inception date 11/1/96
NOTE: Average annual total return assumes a hypothetical initial payment of
$1,000. At the end of each period, a total redemption is assumed. The ending
redeemable value is divided by the original investment to calculate total
return. Performance information for any Portfolio reflects only the performance
of a hypothetical investment in the Portfolio during the particular time period
on which the calculations are based. Performance information should be
considered in light of the investment objectives and policies, characteristics
and quality of the particular Portfolio, and the market conditions during the
given time period, and should not be considered as a representation of what may
be achieved in the future.
PERFORMANCE COMPARISONS
Each Portfolio may from time to time include in advertisements containing
total return the ranking of those performance figures relative to such figures
for groups of mutual funds having similar investment objectives as categorized
by ranking services such as Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Weisenberger Financial Services, Inc. and rating services
such as Morningstar, Inc. Additionally, a Portfolio or Class of Portfolio may
compare its performance results to other investment or savings vehicles (such as
certificates of deposit) and may refer to results published in various
publications such as Changing Times, Forbes, Fortune, Money, Barrons, Business
Week and Investor's Daily, Stanger's Mutual Fund Monitor, The Stanger Register,
Stanger's Investment Adviser, The Wall Street Journal, Pensions & Investments,
Institutional Investor, The New York Times, Consumer Reports, Registered
Representative, Financial Planning, Financial Services Weekly, Financial World,
U.S. News and World Report, Standard and Poor's The Outlook, and Personal
Investor. A Portfolio may, from time to time, illustrate the benefits of tax
deferral by comparing taxable investments to investments made through
tax-deferred retirement plans. The total return may also be used
15
<PAGE>
to compare the performance of the Portfolio against certain widely acknowledged
outside standards or indices for stock and bond market performance, such as the
Standard & Poor's 500 Stock Index (the "S&P 500"), Dow Jones Industrial Average,
Europe Australia Far East Index (EAFE), Consumer Price Index, Lehman Brothers
Aggregate Bond Index, Lehman Brothers 1-3 year Government Bond Index, IBC
Donoghue Money Fund Report, Merrill Lynch 1 year Treasury Bill, Lehman Brothers
Corporate Index and T-Bond Index.
Advertisements, sales literature, and other communications may contain
information about the Adviser's current investment strategies and management
style. Current strategies and style may change to allow the Fund to respond
quickly to changing market and economic conditions. From time to time the Fund
may include specific portfolio holdings or industries. To illustrate components
of overall performance, the Fund may separate its cumulative and average annual
returns into income and capital gains components; or cite separately as a return
figure the equity or bond portion of the Fund's fund; or compare the Fund's
equity or bond return figure to well-known indices of market performance,
including but not limited to: the S&P 500 Index, Dow Jones Industrial Average,
Lehman Brothers Aggregate Bond Index, Lehman Brothers 1-3 year Government Bond
Index, IBC Donoghue Money Fund Report, Merrill Lynch 1 year Treasury Bill, CS
First Boston High Yield Index and Salomon Brothers Corporate Bond and Government
Bond Indices.
PORTFOLIO TURNOVER
Each Portfolio has a different expected annual rate of fund turnover, which
is calculated by dividing the lesser of purchases or sales of portfolio
securities during the fiscal year by the monthly average of the value of the
Portfolio's securities (excluding from the computation all securities, including
options, with maturities at the time of acquisition of one year or less). A high
rate of portfolio turnover generally involves correspondingly greater brokerage
commission expenses, which must be borne directly by the Portfolio. Turnover
rates may vary greatly from year to year as well as within a particular year and
may also be affected by cash requirements for redemptions of each Portfolio's
shares and by requirements which enable the Fund to receive certain favorable
tax treatment. The turnover rates for the Enhanced Reserves and Managed Bond
Portfolios were affected in 1998 by increased volatility in the fixed income
markets. Historical turnover rates can be found under the heading "Financial
Highlights" in the Fund's prospectus.
THE INVESTMENT ADVISERS
The offices of Phoenix Investment Counsel, Inc. ("PIC") are located at 56
Prospect Street, Hartford, Connecticut 06115. The offices of Duff & Phelps
Investment Management Co, Inc. ("DPIM") are located at 55 East Monroe Street,
Suite 3600, Chicago, Illinois 60603. PIC and DPIM are each sometimes referred to
as the "Adviser," collectively referred to as the "Advisers."
All of the outstanding stock of PIC is owned by Phoenix Equity Planning
Corporation ("Equity Planning"), a subsidiary of Phoenix Investment Partners,
Ltd. ("PXP"). DPIM is also a subsidiary of PXP. PXP is an indirect, less than
wholly-owned subsidiary of Phoenix Home Life Mutual Insurance Company ("Phoenix
Home Life") of Hartford, Connecticut. Phoenix Home Life is a mutual insurance
company engaged in the insurance and investment businesses. Phoenix Home Life's
principal place of business is located at One American Row, Hartford,
Connecticut.
The Advisers provide certain services and facilities required to carry on
the day-to-day operations of the Fund (for which they receive a management fee)
other than the costs of printing and mailing proxy materials, reports and
notices to shareholders; legal, auditing and accounting services; regulatory
filing fees and expenses of printing the Fund's registration statements (but the
Underwriter purchases such copies of the Fund's prospectuses and reports and
communications to shareholders as it may require for sales purposes at printer's
over-run cost); insurance expense; association membership dues; brokerage fees;
and taxes.
All costs and expenses (other than those specifically referred to as being
borne by the Advisers) incurred in the operation of the Fund are borne by the
Fund. Each Portfolio pays expenses incurred in its own operation and also pays a
portion of the Fund's general administration expenses allocated on the basis of
the asset size of the respective Portfolio, except where an allocation using an
alternative method can be more fairly made. Such expenses include, but shall not
be limited to, all expenses incurred in the operation of the Fund and any public
offering of its shares, including, among others, interest, taxes, brokerage fees
and commissions, fees of Trustees who are not employees of the Adviser or any of
its affiliates, expenses of Trustees' and shareholders' meetings, including the
cost of printing and mailing proxies, expenses of insurance premiums for
fidelity and other coverage, expenses of repurchase and redemption of shares,
expenses of issue and sale of shares (to the extent not borne by Equity Planning
under its agreement with the Fund), expenses of printing and mailing stock
certificates representing shares of the Fund, association membership dues,
charges of custodians, transfer agents, dividend disbursing agents and financial
agents, bookkeeping, auditing, and legal expenses. The Fund will also pay the
fees and bear the expense of registering and maintaining the registration of the
Fund and its shares with the Securities and Exchange Commission and registering
or qualifying its shares under state or other securities laws and the expense of
preparing and mailing prospectuses and reports to shareholders.
The investment advisory agreements provide that the Advisers shall not be
liable to the Fund or to any shareholder of the Fund for any error of judgment
or mistake of law or for any loss suffered by the Fund or by any shareholder of
the Fund in connection with the matters to which the investment advisory
agreement relates, except a loss resulting from willful misfeasance, bad faith,
gross negligence or reckless disregard on the part of the Advisers in the
performance of its duties thereunder.
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<PAGE>
As full compensation for the services and facilities furnished to the Fund,
the Advisers are entitled to a fee, payable monthly, as described in the
Prospectus. There is no assurance that the Fund will reach net asset levels high
enough to realize reductions in the rates of the advisory fees. Any reduction in
the rate of the advisory fee on all Portfolios will be prorated among the
Portfolios in proportion to their respective averages of the aggregate daily net
asset values for the period for which the fee had been paid.
As full compensation for the services and facilities furnished to the Real
Estate Equity Securities Portfolio, the Adviser is entitled to a fee. The basic
monthly advisory fee payable to the Adviser is subject to a performance
adjustment based upon the Portfolio's annual performance as compared to certain
prescribed benchmarks. The basic monthly fee will therefore increase or decrease
by .005% for every .10% after the first .50% in which Portfolio performance
(calculated at the highest total return of the Portfolio based on the methods
described in the Prospectus and in this Statement of Additional Information) on
a rolling twelve month basis is higher or lower than that of the NAREIT Equity
Total Return Index. In no event will the increase or decrease in any one twelve
month period exceed .10%. There will be no performance adjustment in the first
twelve months following inception of the Fund.
The advisory agreements continue in force from year to year for all
Portfolios, provided that, with respect to each Portfolio, the agreement must be
approved at least annually by the Trustees or by vote of a majority of the
outstanding voting securities of the Portfolio. In addition, and in either
event, the terms of the agreement and any renewal thereof must be approved by
the vote of a majority of the Trustees who are not parties to the agreement or
interested persons (as that term is defined in the Investment Company Act of
1940) of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The agreements will terminate automatically if assigned
and may be terminated at any time, without payment of any penalty, either by the
Fund or by the Adviser, on sixty (60) days written notice.
For the years ended December 31, 1996, 1997 and 1998, the Growth Stock
Portfolio paid management fees to PIC in the amounts of $906,089, $515,459 and
$383,128, respectively. For the years ended December 31, 1996, 1997 and 1998,
the Managed Bond Portfolio paid management fees to PIC in the amounts of
$258,587, $352,253 and $421,814, respectively. For the years ended December 31,
1996, 1997 and 1998, the Enhanced Reserves Portfolio paid management fees to
DPIM in the amounts of $132,640, $211,566 and $142,030, respectively. For the
years ended December 31, 1997 and 1998, the Real Estate Equity Securities
Portfolio paid management fees to the Adviser in the amounts of $38,173 and
$79,971, respectively. For the year ended December 31, 1998, the Core Equity
Portfolio paid management fees to DPIM in the amount of $22,841.
SERVICES OF THE ADMINISTRATOR
Duff & Phelp Investment Management Co. (the "Administrator" or "Duff &
Phelps") serves as administrator for the Real Estate Equity Securities
Portfolio. Under the terms of the Administration Agreement, the Administrator
will assist in maintaining office facilities, furnish clerical services, office
supplies and stationery, provide advice and assistance on the general operations
of the Portfolio, monitor and make recommendations concerning fidelity bond
coverage, monitor compliance with the policies and limitations of the Portfolio
as set forth in the Fund's governing documents, and prepare and/or coordinate
all materials for the Board of Trustees' meetings. As compensation, the
Administrator receives a fee, computed daily and payable monthly, at the annual
rate of 0.15% of the average daily net assets of the Portfolio.
The Agreement continues in effect from year to year provided such
continuance is specifically approved at least annually by the Fund's Board of
Trustees including a majority of the trustees who are not interested persons or
by a vote of a majority of the outstanding voting securities of the Portfolio.
The Agreement automatically terminates upon its assignment and may be terminated
by either party at any time upon not less than 60 days written notice.
For its services to the Portfolio as Administrator, Duff & Phelps received
fees of $24,787 during the fiscal year ended December 31, 1998.
BROKERAGE ALLOCATION
In effecting portfolio transactions for the Fund, the Advisers adhere to
the Fund's policy of seeking best execution and price, determined as described
below, except to the extent it is permitted to pay higher brokerage commissions
for "brokerage and research services" as defined herein. The Advisers may cause
the Fund to pay a broker an amount of commission for effecting a securities
transaction in excess of the amount of commission which another broker or dealer
would have charged for effecting the transaction if the Advisers determine in
good faith that such amount of commission is reasonable in relation to the value
of the brokerage and research services provided by such broker or that any
offset of direct expenses of a Portfolio yields the best net price. As provided
in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research
services" include giving advice as to the value of securities, the advisability
of investing in, purchasing or selling securities, and the availability of
securities; furnishing analyses and reports concerning issuers, industries,
economic factors and trends, portfolio strategy and the performance of accounts;
and effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). Brokerage and research services
provided by brokers to the Fund or to the Adviser are considered to be in
addition to and not in lieu of services required to be performed by the Advisers
under their contracts with the Fund and may benefit both the Fund and other
clients of the Advisers. Conversely, brokerage and research services provided by
brokers to other clients of the Advisers may benefit the Fund.
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<PAGE>
If the securities in which a particular Portfolio of the Fund invests are
traded primarily in the over-the-counter market, where possible the Portfolio
will deal directly with the dealers who make a market in the securities involved
unless better prices and execution are available elsewhere. Such dealers usually
act as principals for their own account. On occasion, securities may be
purchased directly from the issuer. Bonds and money market instruments are
generally traded on a net basis and do not normally involve either brokerage
commission or transfer taxes.
The determination of what may constitute best execution and price in the
execution of a securities transaction by a broker involves a number of
considerations including, without limitation, the overall direct net economic
result to the Fund (involving both price paid or received and any net
commissions and other costs paid), the efficiency with which the transaction is
effected, the ability to effect the transaction at all where a large block is
involved, the availability of the broker to stand ready to execute possibly
difficult transactions in the future and the financial strength and stability of
the broker. Such considerations are judgmental and are weighed by the Adviser in
determining the overall reasonableness of brokerage commissions paid by the
Fund. Some portfolio transactions are, subject to the Conduct Rules of the
National Association of Securities Dealers, Inc. and subject to obtaining best
prices and executions, effected through dealers (excluding Equity Planning) who
sell shares of the Fund.
The Fund has adopted a policy and procedures governing the execution of
aggregated advisory client orders ("bunching procedures") in an attempt to lower
commission costs on a per-share and per-dollar basis. According to the bunching
procedures, the Adviser shall aggregate transactions unless it believes in its
sole discretion that such aggregation is inconsistent with its duty to seek best
execution (which shall include the duty to seek best price) for the Fund. No
advisory account of the Adviser is to be favored over any other account and each
account that participates in an aggregated order is expected to participate at
the average share price for all transactions of the Adviser in that security on
a given business day, with all transaction costs share pro rata based on the
Fund's participation in the transaction. If the aggregated order is filled in
its entirety, it shall be allocated among the Adviser's accounts in accordance
with the allocation order, and if the order is partially filled, it shall be
allocated pro rata based on the allocation order. Notwithstanding the foregoing,
the order may be allocated on a basis different form that specified in the
allocation order if all accounts of the Adviser whose orders are allocated
receive fair and equitable treatment and the reason for such different
allocation is explained in writing and is approved in writing by the Adviser's
compliance officer as soon as practicable after the opening of the markets on
the trading day following the day on which the order is executed. If an
aggregated order is partially filled and allocated on a basis different from
that specified in the allocation order, no account that is benefited by such
different allocation may intentionally and knowingly effect any purchase or sale
for a reasonable period following the execution of the aggregated order that
would result in it receiving or selling more shares than the amount of shares it
would have received or sold had the aggregated order been completely filled. The
Trustees will annually review these procedures or as frequently as shall appear
appropriate.
For the fiscal years ended December 31, 1996, 1997 and 1998, brokerage
commissions paid by the Fund on portfolio transactions totaled $515,900,
$425,169 and $193,136, respectively. Brokerage commission of $118,627 paid
during the fiscal year ended December 31, 1998, were paid on portfolio
transactions aggregating $113,633,970 executed by brokers who provided research
and other statistical and factual information. None of such commissions was paid
to a broker who was an affiliated person of the Fund or and affiliated person of
such a person, or to the knowledge of the Fund, to a broker an affiliated person
of which was an affiliated person of the Fund, its advisers or its national
distributor.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund is determined as of the close of
trading of the New York Stock Exchange (the "Exchange") on days when the
Exchange is open for trading. The Exchange will be closed on the following
observed national holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Since the Fund does not price securities on
weekends or United States national holidays, the net asset value of a
Portfolio's foreign assets may be significantly affected on days when the
investor has no access to the Portfolio. The net asset value per share of a
Portfolio is determined by adding the values of all securities and other assets
of the Portfolio, subtracting liabilities, and dividing by the total number of
outstanding shares of the Portfolio. Assets and liabilities are determined in
accordance with generally accepted accounting principles and applicable rules
and regulations of the Securities and Exchange Commission. The total liability
allocated to a class, plus that class's distribution fee and any other expenses
allocated solely to that class, are deducted from the proportionate interest of
such class in the assets of the Portfolio, and the resulting amount of each is
divided by the number of shares of that class outstanding to produce the net
asset value per share.
A security that is listed or traded on more than one exchange is valued at
the quotation on the exchange determined to be the primary exchange for such
security by the Trustees or their delegates. Because of the need to obtain
prices as of the close of trading on various exchanges throughout the world, the
calculation of net asset value may not take place for any Portfolio which
invests in foreign securities contemporaneously with the determination of the
prices of the majority of the portfolio securities of such Portfolio. All assets
and liabilities initially expressed in foreign currency values will be converted
into United States dollar values at the mean between the bid and ask quotations
of such currencies against United States dollars as last quoted by any
recognized
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<PAGE>
dealer. If an event were to occur after the value of an investment was so
established but before the net asset value per share was determined, which was
likely to materially change the net asset value, then the instrument would be
valued using fair value considerations by the Trustees or their delegates. If at
any time a Portfolio has investments where market quotations are not readily
available, such investments are valued at the fair value thereof as determined
in good faith by the Trustees although the actual calculations may be made by
persons acting pursuant to the direction of the Trustees.
HOW TO BUY SHARES
The Fund currently issues two classes of shares for each Portfolio. Class X
Shares are available to Plans (as hereafter defined) and institutional investors
which initially purchase Class X Shares of the Fund whose net asset value
exceeds $5 million ($250,000 for the Real Estate Equity Securities Portfolio).
Class Y Shares are offered to Plans and institutional investors which initially
purchase Class Y Shares of the Fund whose net asset value exceeds $1 million
($250,000 for the Real Estate Equity Securities Portfolio). "Plans" are defined
as corporate, public, union and governmental pension plans. Completed
applications for the purchase of shares should be mailed to Phoenix Duff &
Phelps Institutional Mutual Funds, c/o State Street Bank and Trust Company, P.O.
Box 8301, Boston, MA 02266-8301.
The minimum subsequent investment for each class is $100. Shares are sold
at the net asset value per share (as described below) next computed after a
completed application or purchase order is received by State Street Bank and
Trust Company together with good and sufficient funds therefor (certified
checks, federal funds wires, and automated clearing house transactions ("ACH")).
Completed orders received by State Street Bank and Trust Company or an
authorized agent on a business day prior to the close of trading of the New York
Stock Exchange (normally 4:00 PM eastern time) will be processed based on that
day's closing net asset value. Shares purchased will be recorded electronically
in book-entry form by the Transfer Agent. No share certificates are available.
Sales of shares may be made through broker-dealers, pension consultants or other
qualified financial agents/institutions.
The minimum initial investment amounts for the purchase of either class of
Fund shares shall be waived with respect to purchases by: (i) Plans and
institutional investors who have been invested in certain separate investment
accounts of Phoenix Home Life Mutual Insurance Company as of March 1, 1996; (ii)
trust companies, bank trust departments, broker-dealers financial planners and
investment advisers for funds over which such entity charges an account
management fee and which are held in a fiduciary, agency, advisory, custodial or
similar capacity; or (iii) Plans and institutional investors where the amounts
invested represent the redemption proceeds from the reorganization or merger of
other investment companies.
Equity Planning will retain all or a portion of the continuing distribution
fee assessed to Class Y shareholders to finance commissions and related
marketing expenses. Equity Planning intends to pay broker-dealers and exempt
financial institutions with whom it has a sales agreement a service fee of 0.25%
of the average daily net asset value of Class Y Shares sold by such
broker-dealers and exempt financial institutions, subject to future amendment or
termination. No trail fees are payable to broker-dealers or others in connection
with the purchase, sale or retention of Class X Shares.
Equity Planning may pay broker-dealers and financial institutions exempt
from registration pursuant to the Securities Exchange Act of 1934, as amended,
and related regulations ("exempt financial institutions"), from its own profits
and resources, a percentage of the net asset value of any shares sold as set
forth below:
<TABLE>
<CAPTION>
Payment to
Purchase Amount Broker-Dealer
--------------- -------------
<S> <C>
$0 to $5,000,000 0.50%
$5,000,001 to $10,000,000 0.25%
$10,000,001 or more 0.10%
</TABLE>
If part of any investment is subsequently redeemed within one year of the
investment date, the broker/dealer or exempt financial institution will refund
to Equity Planning any such amounts paid with respect to the investment. Equity
Planning will sponsor training and educational meetings and provide to all
qualifying agents, from its own profits and resources, additional compensation
in the form of trips, merchandise or expense reimbursement. Broker-dealers or
exempt financial institutions other than Equity Planning may also levy customary
additional charges to shareholders for their services in effecting transactions,
if they notify the Fund of their intention to do so.
Exchange Privileges
Shareholders may exchange Class X or Class Y Shares held in book-entry form
for shares of the same class of other Portfolios of the Fund or any other
"Affiliated Phoenix Fund" provided the following conditions are met: (1) the
shares that will be acquired in the exchange (the "Acquired Shares") are
available for sale in the shareholder's principal place of business; (2) the
Acquired Shares are the same class as the shares to be surrendered (the
"Exchanged Shares"); (3) the Acquired Shares will be registered to the same
shareholder account as the Exchanged Shares; (4) the account value of the shares
to be acquired must equal or exceed the minimum initial or subsequent investment
amount, as applicable, after the exchange is implemented; and (5) the
shareholder is qualified to acquire Fund shares in accordance with the
limitations described in this Prospectus. An "Affiliated Phoenix Fund" refers to
the Phoenix-Engemann Funds Phoenix-Seneca Funds or any other mutual fund
advised, subadvised or distributed by the Advisers, Distributor or any of their
corporate affiliates.
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<PAGE>
The Fund reserves the right to refuse exchange purchases by any person or
broker/dealer if, in the Fund's or Adviser's opinion, (a) the exchange would
adversely affect the Fund's ability to invest according to its investment
objectives and policies; (b) the Fund believes that a pattern of exchanges
coincides with a "market timing" strategy; or (c) otherwise adversely affect the
Fund and its shareholders. The Fund reserves the right to terminate or modify
its exchange privileges at any time upon giving written notice to shareholders
at least 60 days in advance. Shareholders are urged to review their constituent
documents and relevant requirements in order to verify pertinent limitations
imposed by retirement plan or group annuity contract exchange limits as well as
restrictions imposed by governing law.
Market Timer Restrictions
Because excessive trading can hurt Fund performance and harm shareholders,
the Fund reserves the right to temporarily or permanently terminate exchange
privileges or reject any specific order from anyone whose transactions seem to
follow a timing pattern, including those who request more than one exchange out
of a fund within any 30 day period. The Distributor has entered into agreements
with certain market timer entities permitting them to exchange their clients'
shares by telephone. These privileges are limited under those agreements. The
Distributor has the right to reject or suspend these privileges upon reasonable
notice.
Telephone Exchange Privileges
Unless a shareholder elects in writing not to participate in the Telephone
Exchange Privilege, shares for which certificates have not been issued may be
exchanged by calling 800-814-1897 provided that the exchange is made between
accounts with identical registrations. Under the Telephone Exchange Privilege,
telephone exchange orders may also be entered on behalf of the shareholder by
his or her registered representative.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephone instructions are genuine. In addition to requiring
identical registrations on both accounts, the Transfer Agent will require
address verification and will record telephone instructions on tape. All
exchanges will be confirmed in writing to the shareholder. To the extent that
procedures reasonably designed to prevent unauthorized telephone exchanges are
not followed, the Fund and/or the Transfer Agent may be liable for following
telephone instructions for exchange transactions that prove to be fraudulent.
Broker/dealers other than Equity Planning have agreed to bear the risk of any
loss resulting from any unauthorized telephone exchange instruction from the
firm or its registered representatives. However, the shareholder would bear the
risk of loss resulting from instructions entered by an unauthorized third party
that the Fund and/or the Transfer Agent reasonably believe to be genuine. The
Telephone Exchange Privilege may be modified or terminated at any time on 60
days' notice to shareholders. In addition, during times of drastic economic or
market changes, the Telephone Exchange Privilege may be difficult to exercise or
may be suspended temporarily. The Telephone Exchange Privilege is available only
in States where shares being acquired may be legally sold.
If a shareholder elects not to use the Telephone Exchange Privilege or if
the shares being exchanged are represented by a certificate or certificates, in
order to exchange shares the shareholder must submit a written request to
Phoenix Duff & Phelps Institutional Mutual Funds, c/o State Street Bank and
Trust Company, P.O. Box 8301, Boston, MA 02266-8301. If the shares are being
exchanged between accounts that are not registered identically, the signature on
such request must be guaranteed by an eligible guarantor institution as defined
by the Transfer Agent in accordance with its signature guarantee procedures.
Currently, such procedures generally permit guarantees by banks, broker dealers,
credit union, national securities exchanges, registered securities associations,
clearing agencies and savings associations. Any outstanding certificate or
certificates for the tendered shares must be duly endorsed and submitted.
HOW TO REDEEM SHARES
Any holder of shares of any Portfolio may require the Fund to redeem its
shares at any time at the net asset value per share next computed after receipt
of a redemption request in proper written form by State Street Bank and Trust
Company, P.O. Box 8301, Boston, MA 02266-8301, ATTN: Phoenix Duff & Phelps
Institutional Mutual Funds, or by an authorized agent. To be in proper form to
redeem shares, (1) the signature(s) of duly authorized representative(s) of the
shareholder must appear in the appropriate place upon the stock power; (2) the
stock power or any related instruction transmittal must specify the name and
account number of the shareholder exactly as registered; (3) the name of the
Portfolio; and (4) and all such signatures must be guaranteed by an eligible
guarantor institution as determined in accordance with the standards and
procedures established by the Transfer Agent. Currently, such procedures
generally permit guarantees by banks, broker-dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. Signature(s) must also be guaranteed on any change of
address request submitted in conjunction with any redemption request. Additional
documentation may be required for redemptions by corporations, partnerships or
other organizations, or if redemption is requested by anyone other than the
shareholder(s) of record. Redemption requests will not be honored until all
required documents in proper form have been received.
In addition, each Portfolio maintains a continuous offer to repurchase its
shares, and shareholders may normally sell their shares through securities
dealers, brokers or agents who may charge customary commissions or fees for
their services. The redemption price in such case will be the price as of the
close of trading of the Exchange on that day, provided the order is received by
the
20
<PAGE>
dealer prior thereto, and is transmitted to the Distributor prior to the close
of its business. No charge is made by the Fund on redemptions, but shares
tendered through investment dealers may be subject to service charge by such
dealers. Payment for shares redeemed will be made within three days after
receipt of the duly endorsed share certificates (if issued) or written request;
provided, however, that redemption proceeds will not be disbursed until each
check used for purchase of shares has been cleared for payment by the investor's
bank which may take up to 15 days after receipt of the check.
Telephone Redemption Privileges
Unless a shareholder elects in writing not to participate in the Telephone
Redemption Privilege, shareholders may redeem shares valued at up to $100,000 by
calling (800) 814-1897. The Fund and the Transfer Agent will employ reasonable
procedures to confirm that telephone instructions are genuine. Address and bank
account information will be verified, telephone redemption instructions will be
recorded on tape, and all redemptions will be confirmed in writing to the
shareholder. If there has been an address change within the past 60 days, a
telephone redemption will not be authorized. To the extent that procedures
reasonably designed to prevent unauthorized telephone redemptions are not
followed, the Fund and/or the Transfer Agent may be liable for following
telephone instructions for redemption transactions that prove to be fraudulent.
Broker/dealers other than Equity Planning have agreed to bear the risk of any
loss resulting from any unauthorized telephone redemption instruction from the
firm or its registered representatives. However, the shareholder would bear the
risk of loss resulting from instructions entered by an unauthorized person or
third party that the Fund and/or the Transfer Agent reasonably believe to be
genuine. The Telephone Redemption Privilege may be modified or terminated at any
time without prior notice to shareholders. In addition, during times of drastic
economic or market changes, the Telephone Redemption Privilege may be difficult
to exercise or may be suspended temporarily and a shareholder should submit a
written redemption request, as described above.
If the amount of the redemption is $500 or more, the proceeds may be wired
to the shareholder's designated U.S. commercial bank account. If the amount of
the redemption is less than $500, the proceeds will be sent by check to the
address of record on the shareholder's account.
Telephone redemption orders received and accepted by Transfer Agent on any
day when Transfer Agent is open for business will be entered at the next
determined net asset value. However, telephone redemption orders received and
accepted by Transfer Agent after the close of trading hours on the Exchange will
be executed on the following business day. The proceeds of a telephone
redemption will normally be sent on the first business day following receipt of
the redemption request. However, with respect to the telephone redemption of
shares purchased by check, such requests will only be effected after the Fund
has assured itself that good payment has been collected for the purchase of
shares, which may take up to 15 days.
Systematic Withdrawal Program
The Systematic Withdrawal Program (the "Program") allows shareholders to
periodically redeem a portion of their shares on predetermined monthly,
quarterly, semiannual or annual dates. In order to participate in the Program,
shareholders must provide written notice to the Transfer Agent specifying (a)
the frequency in which Program redemptions are to occur, (b) the routing in
which proceeds are to be directed into the shareholder's account, and (c) the
priority among Portfolios and classes of shares in which redemptions are to
occur.
Except as provided below, Program payments will be made on or about the
20th day of the month during the frequency period selected by the shareholder.
Program payments may also be processed through Automated Clearing House (ACH) to
the shareholder's account on or about the 10th, 15th or 25th day of each month.
Participants may not redeem sums in any period in excess of the equivalent of 1%
of aggregate Portfolio holdings (at the net asset value on the date of
redemption) during each month. Program redemptions will only be effected after
the Fund has assured itself that good payment has been received for the purchase
of shares which are to be redeemed.
Class X shareholders participating in the Program must at all times own
shares of the Fund worth $100,000 or more in the aggregate as determined by the
then current net asset value per share. Class Y shareholders participating in
the Program must at all times own shares of the Fund worth $50,000 or more in
the aggregate as determined by the then current net asset value per share. A
shareholder's participation in the Program will also automatically terminate if
redemptions are made outside the Program.
Checkwriting Privileges (Enhanced Reserves Portfolio only)
Shareholders owning shares of the Enhanced Reserves Portfolio may elect to
redeem shares through checkwriting privileges offered by Equity Planning. In
order to exercise this privilege, qualified shareholders must (a) complete the
appropriate application, (b) submit the required signature card/ incumbency
certificate containing guaranteed signatures of all authorized check
signatories, and (c) designate the priority among classes of shares in which
redemptions are to occur in order to cover the amount of each check.
Applications are available by contacting Equity Planning at 100 Bright Meadow
Boulevard, P.O. Box 2200, Enfield, Connecticut 06083-2200 or by calling (800)
814-1897.
Checkwriting privileges are subject to rules and procedures adopted from
time to time by Equity Planning. Checkwriting privileges may be amended or
withdrawn upon ten days prior notice. Equity Planning reserves the right, in its
sole and absolute discretion, to refuse to honor checks and/or terminate
checkwriting privileges with respect to a shareholder in the event that (a)
21
<PAGE>
amounts drawn in any check are less than $500; (b) the shareholder at any time
owns shares of the Fund worth $50,000 or less, as determined by the then current
net asset value(s) per share; (c) the shareholder owns shares of the Fund worth
less than the amount of any check, as determined on the date of presentment of
such check to the Transfer Agent; or (d) honoring a check requires redemption of
shares purchased with sums from the shareholder which have not been actually and
properly received by the Fund (which may take at least fifteen days after
receipt of the check). Presently, there is no charge to the shareholder for this
privilege. Equity Planning reserves the right, however, to assess charges in
connection with checks drawn against non-sufficient funds or for research
expenses.
When a check is presented to Equity Planning for payment, a sufficient
number of full and fractional shares owned by the shareholder and identified as
being available for such purposes will be redeemed to cover the amount of the
check. The number of shares to be redeemed will be determined on the date the
check is received by the Transfer Agent. Checks will be processed on days the
Exchange is open. If the net asset value(s) of the shares owned by the
shareholder are insufficient to cover the amount of a check presented, or if
good and sufficient funds required to purchase such shares have not been
actually received by the Fund, Equity Planning shall return such check marked
"Non-sufficient Funds" and no shares shall be redeemed. Canceled checks returned
to shareholders shall be deemed to constitute confirmation of redemptions.
Shareholders may not close an account by a withdrawal check.
Redemption-in-Kind
To the extent consistent with state and federal law, the Fund may make
payment of the redemption price either in cash or in kind. The Fund has elected
to pay in cash all requests for redemption by any shareholder of record, but may
limit such cash in respect to each shareholder during any 90 day period to the
lesser of $250,000 or 1% of the net asset value of the Fund at the beginning of
such period. This election has been made pursuant to Rule 18f-1 under the 1940
Act and is irrevocable while the Rule is in effect unless the Securities and
Exchange Commission, by order, permits its withdrawal. In case of a redemption
in kind, securities delivered in payment for shares would be valued at the same
value assigned to them in computing the net asset value per share of the Fund. A
shareholder receiving such securities would incur brokerage costs when it sold
the securities.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio is treated as a separate entity for federal income tax
purposes. Each Portfolio intends to elect to be treated as a regulated
investment company ("RIC") and qualify as such under Subchapter M of the
Internal Revenue Code (the "Code").
The Code sets forth numerous criteria which must be satisfied in order for
each Portfolio to qualify as a RIC. Each Portfolio must, among other things,
meet the following tests for each taxable year: (1) at least 90% of the
Portfolio's gross income must be derived from a) dividends, b) interest, c)
payments with respect to securities loans, d) gains from the sale or other
disposition of stocks or securities or foreign currencies, or e) other income
(including but not limited to gains from options, futures, or forward contracts)
derived by the Portfolio with respect to its business of investing in stocks,
securities or currencies; and (2) distribute annually at least 90% of its
investment company taxable income and net exempt-interest income.
In addition to the gross income tests, to qualify as a RIC, each Portfolio
must also diversify its holdings so that, at the close of each quarter of its
taxable year, (1) at least 50% of the value of its total assets consists of
cash, cash items, U.S. Government securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the Portfolio and not more than 10% of the outstanding voting securities of
such issuer, and (2) not more than 25% of the value of its total assets is
invested in the assets of any one issuer (other than U.S. Government
securities). If in any taxable year a Portfolio does not qualify as a RIC, all
of its net investment income and realized capital gains will be taxed at
corporate rates.
In each taxable year that a Portfolio qualifies as a RIC, it (but not its
shareholders) will be relieved of federal income tax on that portion of its net
investment income and net capital gains that are currently distributed (or
deemed distributed) to its shareholders. It is the policy of each Portfolio to
distribute all of its net investment income and net capital gains to its
shareholders in order to avoid any federal income tax liability. In addition,
each Portfolio intends to make timely distribution sufficient in amount to avoid
a non-deductible 4% excise tax. An excise tax will be imposed on each Portfolio
to the extent that it fails to distribute, with respect to each calendar year,
at least 98% of its net ordinary income for such calendar year and 98% of its
net capital gains as determined for the one year period ending December 31 of
such calendar year. In addition, an amount equal to the undistributed net
ordinary income and net capital gains from the previous calendar year must also
be distributed to avoid the excise tax.
The Fund is required to withhold for income taxes 31% of dividends,
distributions and redemption payments, if any of the following circumstances
exist: i) a shareholder fails to provide the Fund with a correct taxpayer
identification number (TIN); ii) the Fund is notified by the Internal Revenue
Service that the shareholder furnished an incorrect TIN; or iii) the Fund is
notified by the Internal Revenue Service that withholding is required because
the shareholder failed to report the receipt of dividends or interest from other
sources. Withholding may also be required for accounts with respect to which a
shareholder fails to certify that i) the TIN provided is correct and ii) the
shareholder is not subject to such withholding. However, withholding will not be
required from certain exempt entities nor those shareholders complying with the
procedures as set forth by the Internal Revenue
22
<PAGE>
Service. A shareholder is required to provide the Fund with a correct TIN. The
Fund in turn is required to report correct taxpayer identification numbers when
filing all tax forms with the Internal Revenue Service. Should the IRS levy a
penalty on a Fund for reporting an incorrect TIN and that TIN was provided by
the shareholder, the Fund will pass the penalty onto the shareholder.
Dividends paid by a Portfolio from net investment income and net realized
short-term capital gains to a shareholder who is a nonresident alien individual,
a foreign fund or estate, a foreign corporation or a foreign partnership (a
foreign shareholder) will be subject to United States withholding tax at a rate
of 30% unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Foreign shareholders are urged to consult
their own tax advisors concerning the applicability of the United States
withholding tax and any foreign taxes.
The discussion of "Tax Status of Distributions" in the Prospectus, in
conjunction with the foregoing, is a general and abbreviated summary of
applicable provisions of the Code and Treasury regulations now in effect as
currently interpreted by the courts and the Internal Revenue Service. The Code
and regulations, as well as the current interpretations thereof, may be changed
at any time by legislative, judicial, or administrative action. Shareholders are
urged to consult with their tax advisor regarding specific questions as to
federal, state, local or foreign taxes.
THE DISTRIBUTOR
Phoenix Equity Planning Corporation ("Equity Planning"), which has
undertaken to use its best efforts to find purchasers for shares of the Fund,
serves as the national distributor of the Fund's shares. Equity Planning is
located at 100 Bright Meadow Boulevard, Enfield, Connecticut 06083-2200. Shares
of each Portfolio are offered on a continuous basis. Pursuant to an Underwriting
Agreement covering all classes of shares and distribution methods, the
Distributor will purchase shares of the Fund for resale to the public, either
directly or through securities dealers or agents, and is obligated to purchase
only those shares for which it has received purchase orders. Equity Planning may
also sell Fund shares pursuant to sales agreements entered into with
bank-affiliated securities brokers who, acting as agent for their customers,
place orders for Fund shares with Equity Planning. Although the Glass-Steagall
Act prohibits banks and bank affiliates from engaging in the business of
underwriting, distributing or selling securities (including mutual fund shares),
banking regulators have not indicated that such institutions are prohibited from
purchasing mutual fund shares upon the order and for the account of their
customers. In addition, state securities laws on this issue may differ from the
interpretations of federal law and banks and financial institutions may be
required to register as dealers pursuant to state law. If, because of changes in
law or regulations, or because of new interpretations of existing law, it is
determined that agency transactions of bank-affiliated securities brokers are
not permitted, the Trustees will consider what action, if any, is appropriate.
It is not anticipated that termination of sales agreements with bank-affiliated
securities brokers would result in a loss to their customers or a change in the
net asset value per share of a Portfolio.
From its own resources or pursuant to the Plan, and subject to the dealers'
prior approval, the Distributor may provide additional compensation to
registered representatives of dealers in the form of travel expenses, meals, and
lodging associated with training and educational meetings sponsored by the
Distributor. The Distributor may also provide gifts amounting in value to less
than $100, and occasional meals or entertainment, to registered representatives
of dealers. Any such travel expenses, meals, lodging, gifts or entertainment
paid will not be preconditioned upon the registered representatives' or dealers'
achievement of a sales target. The Distributor may, from time to time, reallow
the entire portion of the sales charge on Class A shares which it normally
retains to individual selling dealers. However, such additional reallowance
generally will be made only when the selling daler commits to substantial
marketing support such as internal wholesaling through dedicated personnel,
internal communications and mass mailings.
Philip R. McLoughlin, a Trustee and President of the Fund, is a director
and officer of Equity Planning. Michael E. Haylon, an officer of the Fund, is a
director of Equity Planning. William R. Moyer, a director and officer of Equity
Planning, is an officer of the Fund. G. Jeffrey Bohne, Nancy G. Curtiss, Leonard
J. Saltiel and Thomas N. Steenburg, officers of the Fund, are officers of Equity
Planning.
Administrative Services
Equity Planning also acts as administrative agent of the Portfolios and as
such performs administrative, bookkeeping and pricing functions for the
Portfolios. For its services, Equity Planning will be paid a fee equal to the
sum of (1) the documented cost of fund accounting and related services provided
by PFPC, Inc., as subagent, plus (2) the documented cost to Equity Planning to
provide financial reporting and tax services and to oversee the subagent's
performance. The current fee schedule of PFPC, Inc. is based upon the average of
the aggregate daily net asset values of the Portfolios, at the following
incremental annual rates.
23
<PAGE>
<TABLE>
<S> <C>
First $200 million .085%
$200 million to $400 million .05%
$400 million to $600 million .03%
$600 million to $800 million .02%
$800 million to $1 billion .015%
Greater than $1 billion .0125%
</TABLE>
Percentage rates are applied to the aggregate daily net asset values of the
Portfolios. PFPC, Inc. also charges minimum fees and additional fees for each
additional class of Fund shares. Equity Planning retains PFPC, Inc. as subagent
for each of the funds for which Equity Planning serves as administrative agent.
PFPC, Inc. agreed to a modified fee structure and waived certain charges.
Because PFPC, Inc.'s arrangement would have favored smaller funds over larger
funds, Equity Planning reallocates PFPC, Inc.'s overall asset-based charges
among all funds for which it serves as administrative agent on the basis of the
relative net assets of each fund. As a result, the PFPC, Inc. charges to the
Fund are expected to be slightly less than the amount that would be found
through direct application of the table illustrated above. For its services
during the Fund's fiscal year ended December 31, 1998, Equity Planning received
$327,412.
In addition, pursuant to an agreement between Equity Planning, the Fund's
Transfer Agent, and State Street Bank and Trust Company, ("State Street") has
been appointed subagent to perform certain shareholder servicing functions for
the Fund. For performing such services State Street receives a monthly fee from
Equity Planning.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan on behalf of its Class Y Shares
pursuant to Rule 12b-1 of the 1940 Act (the "Plan"). The Plan permits the Fund
to reimburse the Distributor for expenses incurred in connection with activities
intended to promote the sale of shares of Class Y Shares of the Fund. Pursuant
to the Plan, the Fund shall pay the Distributor an amount equal to 25% of the
average daily net assets of the Class Y Shares for providing services to Class Y
shareholders, including assistance in connection with inquiries related to
shareholder accounts.
Equity Planning will retain all or a portion of the continuing distribution
fee assessed to Class Y shareholders to finance commissions and related
marketing expenses. Equity Planning intends to pay broker-dealers and exempt
financial institutions with whom it has a sales agreement a service fee of 0.25%
of the average daily net asset value of Class Y Shares sold by such
broker-dealers and exempt financial institutions, subject to future amendment or
termination.
In order to receive payments under the Plan, participants must meet such
qualifications to be established in the sole discretion of the Distributor, such
as services to the Fund's Class Y shareholders, or services providing the Fund
with more efficient methods of offering shares to coherent groups of clients,
members or prospects of a participant, or services permitting bulking of
purchases or sales, or transmission of such purchases or sales by computerized
tape or other electronic equipment, or other processing.
On a quarterly basis, the Trustees of the Fund review a report on
expenditures under the Plan and the purposes for which expenditures were made.
The Trustees conduct an additional, more extensive review annually in
determining whether the Plan will be continued. By its terms, continuation of
the Plan from year to year is contingent on annual approval by a majority of the
Trustees of the Fund and by a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plans or any related agreements (the
"Plan Trustees"). The Plan provides that it may not be amended to increase
materially the costs which the Fund may bear pursuant to the Plan without
approval of the Class Y shareholders of the Fund and that other material
amendments to the Plan must be approved by a majority of the Plan Trustees by
vote cast in person at a meeting called for the purpose of considering such
amendments. The Plan further provides that while it is in effect, the selection
and nomination of Trustees who are not "interested persons" shall be committed
to the discretion of the Trustees who are not "interested persons." The Plan may
be terminated at any time by vote of a majority of the Plan Trustees or a
majority of the outstanding Class Y Shares of the Fund.
For the fiscal year ended December 31, 1998, the Fund paid Rule 12b-1 Fees
in the amount of $69,527, of which Equity Planning received $1,257, W.S.
Griffith & Co., Inc., an affiliate, received $60,684 and unaffiliated
broker-dealers received $7,586. Distributor expenses under the Plans consisted
of: (1) compensation to dealers, $89,172; (2) compensation to sales and
shareholder services personnel, $457,138; (3) advertising costs, $199,100; (4)
printing and mailing prospectuses to other than current shareholders, $15,598;
(5) service costs, $82,131 and (6) other expenses, $80,560. No interested
persons of the Fund and no Trustee who is not an interested person of the Fund,
as that term is defined in the Investment Company Act of 1940, had any direct or
indirect financial interest in the operation of the Plan.
MANAGEMENT OF THE FUND
The Fund is an open-end, diversified investment company known as a mutual
fund. The Board of Trustees supervises the business affairs and investments of
the Fund, which is managed on a daily basis by each Portfolio's investment
adviser.
24
<PAGE>
Trustees and Officers
The Trustees and executive officers of the Fund and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Trustee is 56
Prospect Street, Hartford, Connecticut 06115-0480.
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- --------------------- ------------- -----------------------
<S> <C> <C>
Robert Chesek (64) Trustee Trustee/Director (1981-present) and Chairman (1989-1994), Phoenix
49 Old Post Road Funds. Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff &
Wethersfield, CT 06109 Phelps Institutional Mutual Funds (1996-present). Vice President,
Common Stock, Phoenix Home Life Mutual Insurance Company
(1980-1994).
E. Virgil Conway (69) Trustee Chairman, Metropolitan Transportation Authority (1992-present).
9 Rittenhouse Road Trustee/Director, Consolidated Edison Company of New York, Inc.
Bronxville, NY 10708 (1970-present), Pace University (1978-present), Atlantic Mutual
Insurance Company (1974-present), HRE Properties (1989-present),
Greater New York Councils, Boy Scouts of America (1985-present),
Union Pacific Corp. (1978-present), Blackrock Freddie Mac Mortgage
Securities Fund (Advisory Director) (1990-present), Centennial
Insurance Company (1974-present), Josiah Macy, Jr., Foundation
(1975-present) ,The Harlem Youth Development Foundation
(1987-present) (Chairman, 1998-present), Accuhealth
(1994-present), Trism, Inc. (1994-present), Realty Foundation of
New York (1972-present), New York Housing Partnership
Development Corp. (Chairman) (1981-present) and Academy of
Political Science (Vice Chairman) (1985-present). Director/Trustee,
Phoenix Funds (1993-present). Trustee, Phoenix-Aberdeen Series
Fund and Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present). Director, Duff & Phelps Utilities Tax-Free Income
Inc. and Duff & Phelps Utility and Corporate Bond Trust Inc.
(1995-present). Member, Audit Committee of the City of New York
(1981-1996). Advisory Director, Blackrock Fannie Mae Mortgage
Securities Fund (1989-1996) and Fund Directions (1993-1998).
Chairman, Financial Accounting Standards Advisory Council
(1992-1995).
William W. Crawford (70) Trustee Representative (1994-1995), Senior Executive (1994-1995),
3029 Wynfield Mews Lane President and Chief Operating Officer (1988-1993), Hilliard, Lyons,
Louisville, KY 40206 Inc. (broker/dealer). Trustee, Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present). Director, Duff & Phelps Utilities
Tax-Free Income Inc. (1995-present), Duff & Phelps Utility and
Corporate Bond Trust Inc. (1995-present).
Harry Dalzell-Payne (69) Trustee Director/Trustee, Phoenix Funds (1983-present). Trustee, Phoenix-
330 East 39th Street Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Apartment 29G Mutual Funds (1996-present). Director, Duff & Phelps Utilities
New York, NY 10016 Tax-Free Income Inc. and Duff & Phelps Utility and Corporate Bond
Trust Inc. (1995-present). Director, Farragut Mortgage Co., Inc.
(1991-1994). Formerly a Major General of the British Army.
William N. Georgeson (71) Trustee Trustee, Phoenix Duff & Phelps Institutional Mutual Funds
575 Glenwood Road (1996-present). Director, Duff & Phelps Utility and Corporate Bond
Lake Forest, IL 60045 Trust Inc. (1994-present) and Duff & Phelps Utilities Tax-Free
Income Inc. (1993-present).
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- --------------------- ------------- -----------------------
<S> <C> <C>
*Francis E. Jeffries (68) Trustee Director/Trustee, Phoenix Funds (1995-present). Trustee, Phoenix-
6585 Nicholas Blvd. Aberdeen Series Inc. and Phoenix Duff & Phelps Institutional Mutual
Apt. 1601 Funds (1996-present). Director, Duff & Phelps Utilities Income Inc.
Naples, FL 33963 (1987-present), Duff & Phelps Utilities Tax-Free Income Inc. (1991-
present) and Duff & Phelps Utility and Corporate Bond Trust Inc.
(1993-present). Director, The Empire District Electric Company
(1984-present). Director (1989-1997), Chairman of the Board
(1993-1997), President (1989-1993), and Chief Executive Officer
(1989-1995), Phoenix Investment Partners, Ltd.
Leroy Keith, Jr. (60) Trustee Chairman and Chief Executive Officer, Carson Products Company
Chairman and Chief (1995-present). Director/Trustee, Phoenix Funds (1980-present).
Executive Officer Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Carson Products Company Institutional Mutual Funds (1996-present). Director, Equifax Corp.
64 Ross Road (1991-present) and Evergreen International Fund, Inc.
Savannah, GA 30750 (1989-present). Trustee, Evergreen Liquid Trust, Evergreen Tax
Exempt Trust, Evergreen Tax Free Fund, Master Reserves Tax Free
Trust, and Master Reserves Trust. President, Morehouse College
(1987-1994). Chairman and Chief Executive Officer, Keith Ventures
(1992-1994).
*Philip R. McLoughlin (52) Trustee and Chairman (1997-present), Director (1995-present), Vice Chairman
56 Prospect Street President (1995-1997) and Chief Executive Officer (1995-1997), Phoenix
Hartford, CT 06115 Investment Partners, Ltd. Director (1994-present) and Executive Vice
President, Investments (1988-present), Phoenix Home Life Mutual
Insurance Company. Director/Trustee and President, Phoenix Funds
(1989-present). Trustee and President, Phoenix-Aberdeen Series
Fund and Phoenix Duff & Phelps Institutional Mutual Funds (1996-
present). Director, Duff & Phelps Utilities Tax-Free Income Inc.
(1995-present) and Duff & Phelps Utility and Corporate Bond Trust
Inc. (1995-present). Director (1983-present) and Chairman
(1995-present), Phoenix Investment Counsel, Inc. Director
(1984-present) and President (1990-present), Phoenix Equity
Planning Corporation. Director (1993-present), Chairman (1993-
present) and Chief Executive Officer (1993-1995), National Securities
& Research Corporation. Director, Phoenix Realty Group, Inc.
(1994-present), Phoenix Realty Advisors, Inc. (1987-present),
Phoenix Realty Investors, Inc. (1994-present), Phoenix Realty
Securities, Inc. (1994-present), PXRE Corporation (Delaware) (1985-
present), and World Trust Fund (1991-present). Director and
Executive Vice President, Phoenix Life and Annuity Company
(1996-present). Director and Executive Vice President, PHL Variable
Insurance Company (1995-present). Director, Phoenix Charter Oak
Trust Company (1996-present). Director and Vice President, PM
Holdings, Inc. (1985-present). Director and President, Phoenix
Securities Group, Inc. (1993-1995). Director, PHL Associates, Inc.
(1995-present). Director (1992-present) and President (1992-1994),
W.S. Griffith & Co., Inc. Director, Townsend Financial Advisers, Inc.
(1992-present)
Eileen A. Moran (44) Trustee President and Chief Executive Officer, PSEG Resources, Inc.
(1990-present). Trustee, Phoenix Duff & Phelps Institutional Mutual
Funds (1996-present).
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- --------------------- ------------- -----------------------
<S> <C> <C>
Everett L. Morris (70) Trustee Vice President, W.H. Reaves and Company (1993-present). Director/
164 Laird Road Trustee, Phoenix Funds (1995-present). Trustee, Duff & Phelps
Colts Neck, NJ 07722 Mutual Funds (1994-present). Trustee, Phoenix-Aberdeen Series
Fund and Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present). Director, Duff & Phelps Utilities Tax-Free Income
Inc. (1991-present) and Duff & Phelps Utility and Corporate Bond
Trust Inc. (1993-present).
*James M. Oates (52) Trustee Chairman, IBEX Capital Markets, Inc. (formerly IBEX Capital
Managing Director Markets LLC) (1997-present). Managing Director, Wydown Group
The Wydown Group (1994-present). Director, Phoenix Investment Partners, Ltd.
IBEX Capital Markets LLC (1995-present). Director/Trustee, Phoenix Funds (1987-present).
60 State Street Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Suite 950 Institutional Mutual Funds (1996-present). Director, AIB Govett
Boston, MA 02109 Funds (1991-present), Blue Cross and Blue Shield of New
Hampshire (1994-present), Investors Financial Service Corporation
(1995-present), Investors Bank & Trust Corporation (1995-present),
Plymouth Rubber Co. (1995-present), Stifel Financial (1996-present),
Command Systems, Inc. (1998-present) and Connecticut River
Bancorp (1998-present). Vice Chairman, Massachusetts Housing-
Partnership (1998-present). Member, Chief Executives Organization
(1996-present). Director (1984-1994), President (1984-1994) and
Chief Executive Officer (1986-1994), Neworld Bank.
Richard A. Pavia (68) Trustee Director (1981-1997), Chairman and Chief Executive Officer
7145 North Ionia (1989-1994), Speer Financial, Inc. Vice Chairman, Forest Preserve
Chicago, IL 60646 District, Cook County President Advisory Council (1997-present).
Special Consultant, K&D Facilities Resource Corp. (1995-present).
Trustee, Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present). Director, Duff & Phelps Utilities Tax-Free Income
Inc. (1991-present), Duff & Phelps Utility and Corporate Bond Trust
Inc. (1992-present).
*Calvin J. Pedersen (57) Trustee Director (1986-present), President (1993-present) and Executive
Phoenix Duff & Phelps Corporation Vice President (1992-1993), Phoenix Investment Partners, Ltd.
55 East Monroe Street Director/Trustee, Phoenix Funds (1995-present). Trustee, Phoenix-
Suite 3600 Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Chicago, IL 60603 Mutual Funds (1996-present). President and Chief Executive Officer,
Duff & Phelps Utilities Tax-Free Income Inc. (1995-present), Duff &
Phelps Utilities Income Inc. (1994-present) and Duff & Phelps
Utility and Corporate Bond Trust Inc. (1995 present).
*Herbert Roth, Jr. (70) Trustee Director/Trustee, Phoenix Funds (1980-present). Trustee, Phoenix-
134 Lake Street Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
P.O. Box 909 Mutual Funds (1996-present). Director, Boston Edison Company
Sherborn, MA 01770 (1978-present). Landauer, Inc. (medical services) (1970-present),
Tech Ops./Sevcon, Inc. (electronic controllers) (1987-present), and
Mark IV Industries (diversified manufacturer) (1985-present),
Phoenix Home Life Mutual Insurance Company (1972-1998).
Member, Directors Advisory Council, Phoenix Home Life Mutual
Insurance Company (1998-present). Director, Key Energy Group (oil
rig service) (1988-1994).
Richard E. Segerson (53) Trustee Managing Director, Northway Management Company (1998-present).
102 Valley Road Director/Trustee, Phoenix Funds, (1993-present). Trustee, Phoenix-
New Canaan, CT 06840 Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present). Managing Director, Mullin Associates
(1993-1998).
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- --------------------- ------------- -----------------------
<S> <C> <C>
Lowell P. Weicker, Jr. (67) Trustee Trustee/Director, Phoenix Funds (1995-present). Trustee, Phoenix-
731 Lake Avenue Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Greenwich, CT 06830 Mutual Funds (1996-present). Director, UST Inc. (1995-present),
HPSC Inc. (1995-present), Compuware (1996-present) and
Burroughs Wellcome Fund (1996-present). Visiting Professor,
University of Virginia (1997-present). Director, Duty Free
International (1997). Chairman, Dresing, Lierman, Weicker
(1995-1996). Governor of the State of Connecticut (1991-1995).
Michael E. Haylon (41) Executive Director and Executive Vice President--Investments. Phoenix
Vice Investment Partners, Ltd. (1995-present). Executive Vice President,
President Phoenix Funds (1993-present) and Phoenix-Aberdeen Series Fund
(1976-present). Director (1994-present), President (1995-present),
Executive Vice President (1994-1995), Vice President (1991-1994),
Phoenix Investment Counsel, Inc. Director (1994-present), President
(1996-present), Executive Vice President (1994-1996), Vice
President (1993-1994). National Securities & Research Corporation.
Director, Phoenix Equity Planning Corporation (1995-present). Senior
Vice President, Securities Investments, Phoenix Home Life Mutual
Insurance Company (1993-1995).
James D. Wehr (41) Senior Vice Senior Vice President (1998-present), Managing Director, Fixed
President Income, (1996-present), Vice President (1991-1996), Phoenix
Investment Counsel, Inc. Senior Vice President (1998-present),
Managing Director, Fixed Income, (1996-1998), Vice President
(1993-1996), National Securities & Research Corporation. Senior
Vice President (1997-present), Vice President (1988-1997), Phoenix
Multi-Portfolio Fund; Senior Vice President (1997-present), Vice
President (1990-1997), Phoenix Series Fund; Senior Vice President
(1997-present), Vice President (1991-1997), The Phoenix Edge
Series Fund; Senior Vice President (1997-present), Vice President
(1993-1997), Phoenix California Tax Exempt Bonds, Inc.; Senior Vice
President (1997-present), Vice President (1996-1997), Phoenix Duff
& Phelps Institutional Mutual Funds; and Senior Vice President,
Phoenix Multi-Sector Short Term Bond Fund, Phoenix Multi-Sector
Fixed Income Fund, Phoenix Income and Growth Fund and Phoenix
Strategic Allocation Fund, Inc. (1997-present). Senior Vice President
and Chief Investment Officer, Duff & Phelps Utilities Tax Free
Income Inc. (1997-present). Managing Director, Public Fixed Income,
Phoenix Home Life Insurance Company (1991-1995).
Marvin E. Flewellen (35) Vice Senior Vice President and Fixed Income Fund Manager, Duff &
55 East Monroe Street President Phelps Investment Management Co. (1994-present). Vice President,
Suite 3800 Phoenix Duff & Phelps Institutional Mutual Funds (1996-present).
Chicago, IL 60603
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- --------------------- ------------- -----------------------
<S> <C> <C>
William R. Moyer (54) Vice Senior Vice President and Chief Financial Officer, Phoenix
100 Bright Meadow Blvd. President Investment Partners, Ltd. (1995-present). Director (1998-present),
P.O. Box 2200 Senior Vice President (1990-present), Chief Financial Officer
Enfield, CT 06083-2200 (1996-present), Finance (until 1996) and Treasurer (1994-1996
and 1998-present), Phoenix Equity Planning Corporation. Director
(1998-present), Senior Vice President (1990-present), Chief
Financial Officer (1996-present), Finance (until 1996) and Treasurer
(1994-present), Phoenix Investment Counsel, Inc. Director
(1998-present), Senior Vice President (1994-present), Chief
Financial Officer (1996-present), Finance (until 1996) and Treasurer
(1994-present), National Securities & Research Corporation. Vice
President, Phoenix Funds (1990-present), Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present) and Phoenix-Aberdeen
Series Fund (1996-present). Senior Vice President and Chief
Financial Officer, Phoenix Duff & Phelps Investment Management Co.
(1996-present). Senior Vice President and Chief Financial Officer
(1993-1995) and Treasurer (1994-1995), W.S. Griffith & Co., Inc.
and Townsend Financial Advisors, Inc. Senior Vice President,
Finance, Phoenix Securities Group, Inc. (1993-1995). Vice President,
Investment Products Finance, Phoenix Home Life Mutual Insurance
Company (1990-1995).
Diane L. Mustain (39) Vice Executive Vice President (1996-present), Senior Vice President
President (1995-1996), Duff & Phelps Investment Management Co. Vice
President, Phoenix Duff & Phelps Institutional Mutual Funds
(1998-present), Phoenix Equity Series Funds (1997-present), and
Duff & Phelps Investment Management Company (1993-1995).
Leonard J. Saltiel (45) Vice Managing Director, Operations and Service (1996-present), Senior
President Vice President (1994-1996), Phoenix Equity Planning Corporation.
Vice President, Phoenix Funds (1994-present), Phoenix-Aberdeen
Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present). Vice President, National Securities & Research
Corporation (1994-1996). Vice President, Investment Operations,
Phoenix Home Life Mutual Insurance Company (1994-1995). Various
positions with Home Life Insurance Company and Phoenix Home Life
Mutual Insurance Company (1987-1994).
Christopher J. Saner (38) Vice Managing Director, Fixed Income, Phoenix Investment Counsel, Inc.
President (1997-present). Vice President, Phoenix Duff & Phelps Institutional
Mutual Funds (1998-present) and Phoenix Series Fund
(1998-present). Director, Corporate Portfolio Management, Phoenix
Home Life Mutual Insurance Company (1992-1997).
Michael Schatt (51) Vice Senior Vice President, Duff & Phelps Investment Management Co.
President (1997-present). Vice President, Phoenix Duff & Phelps Institutional
Mutual Funds, Phoenix Multi-Portfolio Fund, The Phoenix Edge
Series Fund and Duff & Phelps Utilities Income Inc. (1997-present).
Managing Director, Phoenix Investment Partners, Ltd. (1994-present).
Senior Vice President, Phoenix Realty Securities, Inc. (1997-present).
Andrew Szabo (34) Vice Managing Director, Fixed Income, Phoenix Investment Counsel, Inc.
President (1997-present). Vice President, Phoenix Series Fund (1998-present)
and Phoenix Duff & Phelps Institutional Mutual Funds (1998-present).
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- --------------------- ------------- -----------------------
<S> <C> <C>
Pierre G. Trinque (43) Vice Vice President, Phoenix Strategic Allocation Fund, Inc.
President (1998-present), The Phoenix Edge Series Fund (1997-present),
Phoenix Multi-Portfolio Fund (1998-present), Phoenix Series Fund
(1997-present), Phoenix Duff & Phelps Institutional Mutual Funds
(1997-present), Phoenix Worldwide Opportunities Fund
(1998-present), and Phoenix Strategic Equity Series Fund
(1998-present), Managing Director, Large Cap Growth Team
(1998-present), Managing Director, Equities (1997-1998), Sr.
Research Analyst, Equities (1996), and Managing Director, Equity
Research (1996-1997), Phoenix Investment Counsel, Inc.
Nancy G. Curtiss (46) Treasurer Vice President, Fund Accounting (1994-present) and Treasurer
(1996-present), Phoenix Equity Planning Corporation. Treasurer,
Phoenix Funds (1994-present), Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present) and Phoenix-Aberdeen Series Fund
(1996-present), Second Vice President and Treasurer, Fund
Accounting, Phoenix Home Life Mutual Insurance Company
(1994-1995), Various positions with Phoenix Home Life Insurance
Company (1987-1994).
G. Jeffrey Bohne (51) Secretary Vice President, Mutual Fund Customer Service (1996-present), Vice
101 Munson Street President, Transfer Agent Operations (1993-1996), Phoenix Equity
Greenfield, MA 01301 Planning Corporation. Secretary/Clerk, Phoenix Funds (1993-present),
Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present). Vice President and General Manager,
Phoenix Home Life Mutual Insurance Co. (1993-present). Clerk, Phoenix
Investment Counsel, (1995-present).
</TABLE>
- -----------
*Trustees identified with an asterisk are considered to be interested
persons of the Fund (within the meaning of the Investment Company Act of
1940, as amended) because of their affiliation with Phoenix Investment
Counsel, Inc., Duff & Phelps Investment Management Co., Inc. or Phoenix
Equity Planning Corporation.
For services rendered to the Fund during the period ended December 31,
1998, the Trustees received an aggregate of $76,750 from the Fund as Trustees'
fees. Each Trustee who is not a full-time employee of the Adviser or any of its
affiliates currently receives a retainer at the annual rate of $3,000 and $500
per meeting. Each Trustee who serves on a Committee receives a fee of $250 for
each meeting attended. The function of the Executive Committee is to serve as a
contract review, compliance review and performance review delegate of the full
Board of Trustees. Officers and employees of the Adviser who are interested
persons are compensated for their services by the Adviser and receive no
compensation from the Fund.
For the Fund's last fiscal year, the Trustees received the following
compensation:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Compensation
Pension or From Fund and
Aggregate Retirement Benefits Estimated Fund Complex
Compensation Accrued as Part Annual Benefits (16 Funds)
Name From Fund of Fund Expenses Upon Retirement Paid to Trustees
- ----------------------- -------------- --------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Robert Chesek $5,000* None None $ 60,000
E. Virgil Conway+ $6,500 None None $115,500
William W. Crawford $5,000* None None $ 5,000
Harry Dalzell-Payne+ $5,750 None None $107,250
William N. Georgeson $5,000 None None $ 5,000
Francis E. Jeffries $5,000* None None $106,500
Leroy Keith, Jr $5,000 None None $ 62,500
Philip R. McLoughlin+ $ 0 None None $ 0
Eileen A. Moran $5,000 None None $ 5,000
Everett L. Morris+ $6,500 None None $113,000
James M. Oates+ $5,750 None None $ 68,750
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Total
Compensation
Pension or From Fund and
Aggregate Retirement Benefits Estimated Fund Complex
Compensation Accrued as Part Annual Benefits (16 Funds)
Name From Fund of Fund Expenses Upon Retirement Paid to Trustees
- ----------------------- -------------- --------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Richard A. Pavia $5,750* None None $ 5,750
Calvin J. Pedersen $ 0 None None $ 0
Herbert Roth, Jr+ $5,750 None None $81,250
Richard E. Segerson $5,750 None None $70,750
Lowell P. Weicker, Jr $5,000 None None $70,000
</TABLE>
- -----------
*This compensation (and the earnings thereon) was deferred pursuant to the
Directors' Deferred Compensation Plan. At December 31, 1998, the total
amount of deferred compensation (including interest and other accumulation
earned on the original amounts deferred) accrued for Messrs. Chesek,
Crawford, Jeffries, Morris, Pavia and Roth was $29,279, $11,264, $175,029,
$151,807, $11,650, and $147,653, respectively. At present, by agreement
among the Fund, the Distributor and the electing director, director fees
that are deferred are paid by the Fund to the Distributor. The liability
for the deferred compensation obligation appears only as a liability of
the Distributor.
+Messrs. Conway, Dalzell-Payne, McLoughlin, Morris, Oates and Roth are
members of the Executive Committee.
On April 6, 1999, the trustees and officers as a group owned less than 1% of the
then outstanding shares of the Fund.
Principal Shareholders
The following table sets forth information as of April 6, 1999 with respect
to each person who owns of record or is known by the Fund to own of record or
beneficially own 5% or more of any class of the Fund's equity securities.
<TABLE>
<CAPTION>
Name of Shareholder Class Number of Shares Percent of Class
- ----------------------------------------------- --------- ------------------ -----------------
<S> <C> <C> <C>
Institutional Managed Bond
Charles Quimby Class X 340,137.6430 10.78%
Eric K. Whinston TTEEs
Re-Solve Site Tr. Fund
c/o Mintz Levin Cohn Ferris Glovsky & Popeo PC
ATTN: Michael P. Last
One Financial Ctr.
Boston, MA 02111-2621
John F. McLellan TTEE Class X 317,258.8830 10.05%
Plymouth County Contributory
Retirement System
11 S. Russell St.
Plymouth, MA 02360-3909
Henry Katz Class X 270,571.8760 8.57%
Chairman Investment Committee
Childrens Fund of Connecticut Inc.
20 Meadow Crossing
Simsbury, CT 06070-1007
Sharon P. Saganey TTEE Class X 244,161.7790 7.74%
Painters & Allied Trades District
Council No. 35 Health Fund
Defined Benefit Plan
25 Colgate Rd. Ste. 204
Roslindale, MA 02131-1123
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Name of Shareholder Class Number of Shares Percent of Class
- ------------------------------------ --------- ------------------ -----------------
<S> <C> <C> <C>
Glenn D. Shaffer TTEE Class X 235,711.7280 7.74%
Plumbers Local No. 24 Pension Plan
c/o IE Shaffer & Co.
830 Bear Tavern Rd.
West Trenton, NJ 08628-1020
Phoenix Charter Oak Trust Co. Class X 196,855.1010 6.24%
One American Row
Hartford, CT 06103-2833
First Union National Bank TTEE Class X 169,659,1760 5.37%
FBO Plumbers Local 690
ATTN: Mutual Funds
1525 West Wt. Harris Blvd.
Charlotte, NC 28262-8522
Plumbers Local No. 24 Class X 165,443.0930 5.24%
Surety Fund
ATTN: Glen D. Schaffer (Admin.)
830 Bear Tavern Rd., CNO1028
West Trenton, NJ 08628-1020
N. Charles Thomas TTEE Class Y 106,222.5890 48.35%
Christian Methodist Episcopal
Church Ret. Plan & Trust DTD 1/1/70
P.O. Box 74
Memphis, TN 38101-0074
KCB Services & Company Class Y 67,452.3150 30.70%
FBO St. Joseph Hospital
Employees Pension Plan
c/o Quads Trust Company
P.O. Box 4310
Frederick, MD 21705-4310
L. Thomas Scranton TTEE Class Y 13,995.8860 6.37%
Scranton Motors Inc. PSP
Talcottville Rd., Rt. 83
P.O. Box 777
Vernon, CT 06066-0777
Lorena Greenwood TTEE Class Y 12,488.3150 5.68%
Bonner County Defined
Benefit Pension Plan
215 S. First Ave.
Bonner County Courthouse
Sandpoint, ID 83864-1305
Russell Reed Class X 230,672.2940 20.07%
Anthony Cardillo
Joseph Biggs TTEFS
Local 363 Pension Fund
811 W. Merrick Rd.
Valley Stream, NY 11580-4842
Howard Miller Clock Co. TTEE Class X 223,016.7240 19.40%
Howard Miller/Herman
Defined Benefit Pension Plan
860 E. Main Ave.
Zeeland, MI 49464-1300
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Name of Shareholder Class Number of Shares Percent of Class
- ------------------------------------------------- --------- ------------------ -----------------
<S> <C> <C> <C>
KCB Services & Company Class X 108,574.3860 9.44%
FBO Elizabeth Carbide Die Co. Inc.
c/o Quads Trust Company
P.O. Box 4310
Frederick, MD 21705-4310
Joseph L. Romain Class X 65,935.8680 5.74%
Nancy G. Atkinson TTEE
Romain Management Investment &
Insurance Inc. Target Ben. Pen. Plan
18161 West 13 Mile Rd., Ste. A-2
Southfield, MI 48076-1113
Institutional Growth Stock
Carpenters Local #323 Pen. Fund
ATTN: Fringe Benefit Funds
c/o Sedore O'Sullivan Letterio & Barschi CPAs PC
62 E. Main St.
Wappingers Falls, NY 12590-2405
N. Charles Thomas TTEE Class Y 190,760.1610 36.36%
Christian Methodist Episcopal
Church Ret. Plan & Trust
P.O. Box 74
Memphis, TN 38101-0074
KCB Services & Company Class Y 139,655.6280 26.62%
FBO St. Joseph Hospital
Employees Pension Plan
c/o Quads Trust Company
P.O. Box 4310
Frederick, MD 21705-4310
Ralph A. Toran Class Y 42,198.8280 8.04%
Bryan E. Carlson TTEE
Mount Ida College Retirement Plan
777 Dedham St.
Newton Centre, MA 02159-3323
David Yoder Class Y 36,528.6560 6.96%
William O. Clarkin TTEEs
Apco Industries Inc. PSP
777 Michigan Ave.
Columbus, OH 43215-1177
L. Thomas Scranton TTEE Class Y 28,402.7620 5.41%
Scranton Motors Inc. PSP
Talcottville Rd., Rt. 83
P.O. Box 777
Vernon, CT 06066-0777
Institutional Enhanced Reserves Fund
Massachusetts Bay Transportation Authority Class X 647,198.8650 39.67%
Authority Retirement Fund
99 Summer St., Ste. 1700
Boston, MA 02110-1200
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Name of Shareholder Class Number of Shares Percent of Class
- -------------------------------------------- --------- ------------------ -----------------
<S> <C> <C> <C>
Northeast Ohio District Class X 369,587.4100 22.65%
Council of Carpenters
General Fund DTD 8/18/98
3615 Chester Ave.
Cleveland, OH 44114-4622
First Colonial Insurance Co. Class X 168,356.5120 10.32%
c/o Duff & Phelps Investment Mgm.
Marvin Flewellen
600 Ohio Savings Plz.
Cleveland, OH 44114
Jetty & Co. Class Y 9,236.7240 51.48%
State Street Bank & Trust
1 Heritage Drive JPB2N
North Quincy, MA 02171-2105
Howard Schacter TTEE Class Y 5,628.2650 31.37%
Howard Schacter MD SC Pension
Plan & Trust
676 N. St. Clair., Ste. 1525
Chicago, IL 60611-2995
International Union of Operating Engineers Class X 89,374.2510 5.48%
Welfare Fund of Eastern PA & Delaware
c/o Duff & Phelps Investment Mgmt.
55 E. Monroe St., #3600
Chicago, IL 60603-5802
PaineWebber for the Benefit of Class Y 3,007.985 16.77%
Christian Homes for Children
c/o Edward Dominguez
275 State St.
Hackensack, NJ 07601-5512
Sharon P. Saganey TTEE Class X 790,208.5080 35.77%
Painters & Allied Trades District
Council No. 35 Pension Fund
Defined Benefit Plan
25 Colgate Rd., Ste. 204
Roslindale, MA 02131-1123
Phoenix Real Estate Equity Securities Fund
Phoenix Charter Oak Tr. Co. TTEE Class X 564,810.9640 25.57%
Phoenix Home Life Empl Pen Plan
One American Row
Hartford, CT 06103-2833
Phoenix Home Life Class X 536,825.3370 24.30%
56 Prospect St.
Hartford, CT 06103-2818
KCB Services & Company Class Y 64,530.8940 85.53%
FBO St. Joseph Hospital
Employees Pension Plan
c/o Quads Trust Company
P.O. Box 4310
Frederick, MD 21705-4310
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Name of Shareholder Class Number of Shares Percent of Class
- ----------------------------------- --------- ------------------ -----------------
<S> <C> <C> <C>
Phoenix Home Life Class Y 10,904.0190 14.45%
56 Prospect St.
Hartford, CT 06103-2818
Core Equity Fund
General Board Church Class X 346,484.6990 32.88%
of the Nazarene
c/o The Treasurers Office
Gift Annuity
6401 The Paseo
Kansas City, MO 64131-1213
Plumbers & Pipefitters UA Class X 209,524.6060 19.88%
Local Union 152
Annuity Fund
Attn Virgil Boone
100 Richard St.
Morgantown, WV 26501-7120
Phoenix Home Life Class X 191,252.7470 18.15%
Attn Pam Levesque
56 Prospect St.
Hartford, CT 06103-2818
IBEW Local 654 Health & Welfare F Class X 111,546.2810 10.58%
c/o Frank M. Vaccaro Assoc.
Attn Ronald A. Vaccaro Adm.
One Neshaminy Interplex, Ste. 303
Trevose, PA 19053
General Board Church Class X 98,485.3440 9.35%
of the Nazarene
c/o The Treasurers Office
Gift Annuity California
6401 The Paseo
Kansas City, MO 64131-1213
Phoenix Home Life Class Y 10,060.0000 99.93%
Attn Pam Levesque
56 Prospect St.
Hartford, CT 06103-2818
</TABLE>
ADDITIONAL INFORMATION
Capital Stock
The capitalization of the Fund consists solely of an unlimited number of
shares of beneficial interest. The Fund currently offers shares in five
different portfolios, each offering two classes. Holders of shares of each
Portfolio have equal rights with regard to voting, redemptions, dividends,
distributions, and liquidations with respect to such Portfolio (provided that
Class Y Shares of a Portfolio bear higher distribution fees and pay
correspondingly lower dividends per share than Class X Shares of the same
Portfolios). Shareholders of all funds vote on the election of Trustees. On
matters affecting an individual Portfolio (such as approval of an investment
advisory agreement or a change in fundamental investment policies), a separate
vote of that Portfolio is required. On matters affecting an individual class
(such as approval of matters relating to the Class Y distribution plan), a
separate vote of that class is required. Shares of each Portfolio are fully
paid, nonassessable, redeemable and fully transferable when they are issued.
Shares do not have cumulative voting rights conversion, preemptive rights or
subscription rights.
The assets received by the Fund for the issue or sale of shares of each
Portfolio and all income, earnings, profits and proceeds thereof, are allocated
to such Portfolio (and class if applicable) subject only to the rights of
creditors, and constitute the underlying assets of such Portfolio (and class if
applicable). The underlying assets of each Portfolio are required to be
segregated on the books of account, and are to be charged with the expenses in
respect to such Portfolio and with a share of the general expenses of the
35
<PAGE>
Fund. Any general expenses of the Fund not readily identifiable as belonging to
a particular Portfolio or class will be allocated by or under the direction of
the Trustees as they determine fair and equitable.
Unlike the stockholders of a corporation, there is a possibility that the
shareholders of a Massachusetts business trust such as the Fund may be
personally liable for debts or claims against the Fund. The Declaration of Trust
provides that shareholders shall not be subject to any personal liability for
the acts or obligations of the Fund and that every written agreement,
undertaking or obligation made or issued by the Fund shall contain a provision
to that effect. The Declaration of Trust provides for indemnification out of the
trust property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability, which is
considered remote, is limited to circumstances in which the Fund itself would be
unable to meet its obligations.
Prior to March 1, 1996, the Managed Bond and Growth Stock Portfolios
existed as the Managed Bond Account (Separate Account P) and Growth Stock
Account (Separate Account S), respectively, separate investment accounts of
Phoenix Home Life, pursuant to the insurance laws of the State of New York and
the laws of other states. Each separate account was maintained for the purpose
of investing amounts allocated thereto by Phoenix Home Life under certain group
annuity contracts issued by Phoenix Home Life in connection with pension or
profit-sharing plans which meet the requirements of Section 401(a) of the
Internal Revenue Code of 1986, as amended. The separate accounts were not
investment companies pursuant to the 1940 Act.
On October 16, 1995, the Board of Directors of Phoenix Home Life approved
the conversion of each such separate account into a corresponding of the
Portfolio. As of March 1, 1996, the net assets of each separate account were
transferred into the corresponding Portfolio of the Fund in exchange for shares
of that Portfolio which were credited to each contractholder in accordance with
the value of that contractholder's separate account units as of the close of
business on such date. Each separate account was then terminated.
On June 3, 1996 Phoenix Duff & Phelps Institutional Enhanced Reserves
Portfolio, a portfolio of Phoenix Duff & Phelps Institutional Mutual Funds
entered into an Agreement and Plan of Reorganization with Duff & Phelps Enhanced
Reserves Fund, a series of Duff & Phelps Mutual Funds. The Board of Trustees of
the Phoenix Duff & Phelps Institutional Mutual Funds determined that the
Reorganization to combine the assets of the Enhanced Reserves Portfolio with
those of the Enhanced Reserves Fund would achieve greater operating economies
and increased portfolio diversification. At a Special Meeting of Shareholders of
Duff & Phelps Enhanced Reserves Fund held July 19, 1996, the holders of shares
of beneficial interest approved the Agreement and Plan of Reorganization
pursuant to which the Duff & Phelps Enhanced Reserves Fund transferred all of
its net assets to the Phoenix Duff & Phelps Institutional Enhanced Reserves
Portfolio in exchange for corresponding shares of beneficial interest of the
Phoenix Duff & Phelps International Enhanced Reserves Portfolio, which shares
were then distributed to shareholders of the Duff & Phelps Enhanced Reserves
Fund.
Financial Statements
The Financial Statements for the period ended December 31, 1998 appearing
in the Fund's 1998 Annual Report to Shareholders, are incorporated herein by
reference.
Independent Accountants
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, has been selected as the independent accountants for the Fund.
PricewaterhouseCoopers LLP audits the Fund's annual financial statements and
expresses an opinion thereon.
Report to Shareholders
The fiscal year of the Fund ends on December 31. The Fund will send to its
shareholders at least semiannually reports showing the securities of the Fund's
funds and other information.
Custodians and Transfer Agent
State Street Bank and Trust Company ("State Street"), serves as custodian
of the Core Equity, Enhanced Reserves and Real Estate Equity Securities
Portfolios' assets and is located at 1 Heritage Drive, P2N, North Quincy, MA
02171. Chase Manhattan Bank, N.A., 1 Chase Manhattan Plaza, Floor 3B, New York,
NY 10081, serves as custodian for the assets of the Managed Bond and Growth
Stock Portfolios. Equity Planning acts as Transfer Agent for the Fund (the
"Transfer Agent").
36
<PAGE>
APPENDIX
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they Comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Standard and Poor's Corporation's Corporate
Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB-B-CCC-CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Fitch Investor Services, Inc.
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
37
<PAGE>
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D--Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs however, are not used in the "DDD", "DD", or "D" categories.
Duff & Phelps Credit Rating Co. Rating Scale--Duff & Phelps (not affiliated
with the Fund or DPIM) offers ratings for short-term and long-term debt,
preferred stock, structured financings, and insurer's claims paying ability. D&P
ratings are specific to credit quality, i.e., the likelihood of timely payment
for principal, interest, and in the case of a preferred stock rating, preferred
stock dividends. The insurance company claims paying ability ratings reflect an
insurer's ability to meet its claims obligations.
Long-Term Ratings
<TABLE>
<S> <C>
AAA Highest Quality
AA+, AA, AA- High Quality
A+, A, A- Good Quality
BBB+, BBB, BBB- Satisfactory Quality
(investment grade)
BB+, B, B- Non-Investment Grade
B+, B, B- Non-Investment Grade
CCC Speculative
</TABLE>
38
<PAGE>
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>
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>
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>
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>
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
PART C--OTHER INFORMATION
Item 23. Exhibits
<TABLE>
<S> <C>
a.1. Declaration of Trust of the Registrant, filed via Edgar as Exhibit (1)(a) with Pre-Effective Amendment No. 1
on February 2, 1996 and incorporated herein by reference.
a.2. Amendment to Declaration of Trust changing names of Portfolios, filed via Edgar as Exhibit (1)(b) with
Pre-Effective Amendment No. 2 on February 28, 1996 and incorporated herein by reference.
a.3. Amendment to Declaration of Trust adding Real Estate Equity Securities Portfolio filed via Edgar as Exhibit
(1)(c) with Post-Effective Amendment No. 4 on February 11, 1997 and incorporated herein by reference.
a.4. Amendment to Declaration of Trust adding Core Equity Portfolio filed via Edgar as Exhibit (1)(d) with
Post-Effective Amendment No. 9 on April 28, 1998 and incorporated herein by reference.
a.5 Fourth Amendment to Declaration of Trust eliminating certain Portfolio and amending certain other
provisions filed via Edgar with Post-Effective Amendment No. 10 on February 26, 1999 and
incorporated herein by reference.
b. None
c. Reference is made to Article III, Section 3.4 of Registrant's Declaration of Trust.
d.1. Investment Advisory Agreement between Registrant and Duff & Phelps Investment Management Co.
("DPIM") adding Enhanced Reserves Portfolio, filed via Edgar as Exhibit (5)(a) with Pre-Effective
Amendment No. 1 on February 2, 1996 and incorporated herein by reference.
d.2. Investment Advisory Agreement between Registrant and Phoenix Investment Counsel, Inc. ("PIC"), filed
via Edgar as Exhibit (5)(b) with Pre-Effective Amendment No. 1 on February 2, 1996 and incorporated
herein by reference.
d.3. Investment Advisory Agreement between Registrant and Phoenix Realty Securities, Inc. ("PRS"),
assigned to Duff & Phelps Investment Management Co. on March 2, 1998, filed via Edgar as Exhibit
(5)(c) with Post-Effective Amendment No. 9 on April 28, 1998 and incorporated herein by reference.
d.4. Amendment to the Investment Advisory Agreement between Registrant and Duff & Phelps Investment
Management Co. relating to the Core Equity Portfolio filed via Edgar as Exhibit (5)(d) with Post-
Effective Amendment No. 7 on January 14, 1998 and incorporated herein by reference.
e.1. Underwriting Agreement between Registrant and Phoenix Equity Planning Corporation, filed via Edgar as
Exhibit (6)(a) with Post-Effective Amendment No. 9 on April 28, 1998 and incorporated herein by reference.
e.2. Form of Sales Agreement between Phoenix Equity Planning Corporation and dealers, filed via Edgar as
Exhibit (6)(b) with Post-Effective Amendment No. 1 on March 1, 1996 and incorporated herein by reference.
f. None
g.1. Custodian Agreement between Registrant and State Street Bank and Trust Company, filed via Edgar as
Exhibit (8)(a) with Post-Effective Amendment No. 6 on September 30, 1997 and incorporated herein by
reference.
g.2. Custodian Agreement between Registrant and The Chase Manhattan Bank, N.A., filed via Edgar as Exhibit
(8)(b) with Pre-Effective Amendment No. 2 on February 28, 1996 and incorporated herein by reference.
h.1. Financial Agent Agreement between Registrant and Phoenix Equity Planning Corporation dated
December 11, 1996, filed via Edgar as Exhibit (9)(a) with Post-Effective Amendment No. 5 on April 28,
1997 and incorporated herein by reference.
h.2. Transfer Agent Agreement between Registrant and Phoenix Equity Planning Corporation, filed via Edgar as
Exhibit (9)(b) with Pre-Effective Amendment No. 2 on February 28, 1996 and incorporated herein by
reference.
h.3. Form of Administration Agreement between Registrant (on behalf of Real Estate Equity Securities
Portfolio) and Phoenix Duff & Phelps Corporation, filed via Edgar as Exhibit (9)(c) with Post-Effective
Amendment No. 4 on February 11, 1997 and incorporated herein by reference.
h.4. First Amendment to Financial Agent Agreement between Registrant and Phoenix Equity Planning
Corporation effective February 27, 1998, filed via Edgar as Exhibit (9)(d) with Post-Effective
Amendment No. 9 on April 28, 1998.
i.1. Opinion of Counsel, filed via Edgar as Exhibit (10)(a) with Pre-Effective Amendment No. 2 on February
28, 1996 and incorporated herein by reference. [Consent or new opinion of counsel to be filed by amendment.]
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
i.2. Opinion of Counsel (as to the Real Estate Equity Securities Portfolio) filed via Edgar as Exhibit (10)(b)
with Post-Effective Amendment No. 5 on April 28, 1997 and incorporated herein by reference.
[Consent or new opinion of counsel to be filed by amendment.]
i.3. Opinion of Counsel (covering the Core Equity Portfolio) filed via Edgar as Exhibit (10)(c) with Post-
Effective Amendment No. 8 on March 30, 1998 and incorporated herein by reference. [Consent or new opinion of
counsel to be filed by amendment.]
j.* Consent of Independent Accountants.
k. None
l. Initial Capitalization Agreement, filed via Edgar as Exhibit (13) with Pre-Effective Amendment No. 1 on
February 2, 1996 and incorporated herein by reference.
m.1. Amended and Restated Rule 12b-1 Distribution Plan for Class Y Shares, filed via Edgar as Exhibit (15)
with Post-Effective Amendment No. 6 on September 30, 1997 and incorporated herein by reference.
n.* Financial Data Schedules reflected on Edgar as Exhibit 27.
o. Amended and Restated Rule 18f-3 Dual Distribution Plan filed via Edgar as Exhibit (18) with Post-
Effective Amendment No. 5 on April 28, 1997 and incorporated herein by reference.
p. Powers of Attorney filed via Edgar with Post-Effective Amendment No. 10 on February 26, 1999 and
incorporated herein by reference.
</TABLE>
- -----------
*Filed herewith.
Item 24. Persons Controlled by or Under Common Control with the Fund.
As of the date hereof, to the best knowledge of the Registrant, no person
is directly or indirectly controlled by or under common control with the Fund.
Item 25. Indemnification.
Please see Article V of the Registrant's Declaration of Trust (incorporated
herein by reference). Registrant's trustees and officers are covered by an
Errors and Omissions Policy. Paragraph 10 of the Investment Advisory Agreements
between the Registrant and its Advisers provide in relevant part that, in the
absence of willful malfeasance, bad faith, gross negligence or reckless
disregard of the obligations or duties under the Investment Advisory Agreements
on the part of each the Adviser, the Advisers shall not be liable to the
Registrant or to any shareholder for any act or omission in the course of or
connected in any way with rendering services or for any losses that may be
sustained in the purchase, holding or sale of any security.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, directors, officers and controlling
persons of the Registrant and the investment advisers and distributor pursuant
to the foregoing provisions or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
director, officer, or controlling person of the Registrant and the principal
underwriter in connection with the successful defense or any action, suit or
proceeding) is asserted against the Registrant by such trustee, director,
officer or controlling person or the Distributor in connection with the shares
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser.
See "Management of the Portfolio" in the Prospectus and "Services of the
Adviser" in the Statement of Additional Information for information regarding
the business of the Advisers. For information as to the business, profession,
vocation or employment of a substantial nature of directors and officers of the
Advisers, reference is made to the Advisers' current Form ADV (SEC File Nos.
801-5995 (PIC) and 801-14813 (DPIM)) filed under the Investment Advisers Act of
1940, incorporated herein by reference.
Item 27. Principal Underwriter.
(a) Equity Planning also serves as the principal underwriter for the following
other registrants: Phoenix-Aberdeen Series Fund, Phoenix-Aberdeen Worldwide
Opportunities Fund, Phoenix California Tax Exempt Bonds, Inc.,
Phoenix-Engemann Funds, Phoenix Equity Series Fund, Phoenix-Euclid Funds,
Phoenix Income and Growth Fund, Phoenix Investment Trust 97, Phoenix
Multi-Portfolio Fund, Phoenix Multi-Sector Fixed Income Fund, Inc., Phoenix
Multi-Sector Short Term Bond Fund, Phoenix-Seneca Funds, Phoenix Series
Fund, Phoenix Strategic Allocation Fund, Inc., Phoenix Strategic Equity
Series Fund, Phoenix-Zwieg Funds, Phoenix Home Life Variable Universal Life
Account, Phoenix Home Life Variable Accumulation Account, PHL Variable
Accumulation Account, Phoenix Life and Annuity Variable Universal Life
Account and PHL Variable Separate Account MVAI.
C-2
<PAGE>
(b) The directors and executive officers of Phoenix Equity Planning
Corporation, the distributor for Registrant, are as follows:
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address with Distributor with Registrant
- ---------------- ---------------- ---------------
<S> <C> <C>
Michael E. Haylon Director Executive Vice President
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
Philip R. McLoughlin Director and President Trustee and President
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
William R. Moyer Director, Senior Vice Vice President
100 Bright Meadow Blvd. President, Chief Financial
P.O. Box 2200 Officer and Treasurer
Enfield, CT 06083-2200
John F. Sharry Executive Vice President, None
56 Prospect Street Retail Distribution
P.O. Box 150480
Hartford, CT 06115-0480
Leonard J. Saltiel Managing Director, Vice President
56 Prospect Street Operations and Service
P.O. Box 150480
Hartford, CT 06115-0480
G. Jeffrey Bohne Vice President, Mutual Fund Secretary
101 Munson Street Customer Service
P.O. Box 810
Greenfield, MA 01302-0810
Nancy G. Curtiss Vice President and Treasurer, Treasurer
56 Prospect Street Fund Accounting
P.O. Box 150480
Hartford, CT 06115-0480
Thomas N. Steenburg Vice President, Counsel Assistant Secretary
56 Prospect Street and Secretary
P.O. Box 150480
Hartford, CT 06115
Jacqueline M. Porter Assistant Vice President, Assistant Treasurer
56 Prospect Street Financial Reporting
P.O. Box 150480
Hartford, CT 06115-0480
</TABLE>
(c) To the best of the Registrant's knowledge, no commissions or other
compensation were received by any principal underwriter who is not an
affiliated person of the Registrant or an affiliated person of such
affiliated person, directly or indirectly, from the Registrant during the
Registrant's last fiscal year.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by the
Registrant by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder will be maintained at the offices of the Registrant located at 101
Munson Street, P.O. Box 810, Greenfield, MA 01302-0810, or its investment
advisers, Duff & Phelps Investment Management Co., 55 East Monroe Street, Suite
3600, Chicago, Illinois 60610, Phoenix Investment Counsel, Inc., 56 Prospect
Street, Hartford, CT 06115, or the custodians, State Street Bank and Trust
Company, 1 Heritage Drive, P2N, North Quincy, MA 02171 or The Chase Manhattan
Bank, N.A., 1 Chase Manhattan Plaza, Floor 3B, New York, NY 10081. All such
accounts, books and other documents required to be maintained by the principal
underwriter will be maintained at Phoenix Equity Planning Corporation, 100
Bright Meadow Boulevard, Enfield, Connecticut 06083.
C-3
<PAGE>
Item 29. Management Services.
None.
Item 30. Undertakings.
Not applicable.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund certifies it meets all of the requirements for
effectiveness of this registration statement under rule 485(b) under the
Securities Act and has duly caused this amendment to its registration statement
to be signed on its behalf by the undersigned, duly authorized, in the City of
Hartford, and State of Connecticut on the 30th day of April, 1999.
PHOENIX DUFF & PHELPS
INSTITUTIONAL MUTUAL FUNDS
ATTEST: /s/ Thomas N. Steenburg By: /s/ Philip R. McLoughlin
----------------------- -----------------------------------
Thomas N. Steenburg Philip R. McLoughlin
Assistant Secretary President
Pursuant to the requirements of the Securities Act, this amendment to the
registration statement has been signed below by the following persons in the
capacities indicated, on this 30th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Trustee
- ----------------------------
Robert Chesek*
Trustee
- ----------------------------
E. Virgil Conway*
Trustee
- ----------------------------
William W. Crawford*
/s/ Nancy G. Curtiss Treasurer (principal financial
- ---------------------------- and accounting officer)
Nancy G. Curtiss
Trustee
- ----------------------------
Harry Dalzell-Payne*
Trustee
- ----------------------------
William N. Georgeson*
Trustee
- ----------------------------
Francis E. Jeffries*
Trustee
- ----------------------------
Leroy Keith, Jr.*
/s/ Philip R. McLoughlin Trustee and President
- ----------------------------
Philip R. McLoughlin
Trustee
- ----------------------------
Eileen A. Moran*
Trustee
- ----------------------------
Everett L. Morris*
Trustee
- ----------------------------
James M. Oates*
Trustee
- ----------------------------
Richard A. Pavia*
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Trustee
- ----------------------------
Calvin J. Pedersen*
Trustee
- ----------------------------
Herbert Roth, Jr.*
Trustee
- ----------------------------
Richard E. Segerson*
Trustee
- ----------------------------
Lowell P. Weicker, Jr.*
</TABLE>
*By: /s/ Philip R. McLoughlin
-------------------------
* Philip R. McLoughlin pursuant to powers of attorney.
S-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 11 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 22, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Report to Shareholders of the Phoenix Duff & Phelps Institutional Mutual Funds,
which are also incorporated by reference into the Registration Statement. We
also consent to the reference to us under the heading "Financial Highlights" in
the Prospectus and under the heading "Additional Information--Independent
Accountants" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 29, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001004658
<NAME> PHOENIX DUFF & PHELPS INSTITUTUIONAL MUTUAL FUNDS
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<PER-SHARE-NII> .04
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<TOTAL-LIABILITIES> 77
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<PAID-IN-CAPITAL-COMMON> 10207
<SHARES-COMMON-STOCK> 10
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<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (724)
<ACCUM-APPREC-OR-DEPREC> 1390
<NET-ASSETS> 10874
<DIVIDEND-INCOME> 50
<INTEREST-INCOME> 6
<OTHER-INCOME> 0
<EXPENSES-NET> (30)
<NET-INVESTMENT-INCOME> 26
<REALIZED-GAINS-CURRENT> (724)
<APPREC-INCREASE-CURRENT> 1390
<NET-CHANGE-FROM-OPS> 692
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 10
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 103
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (208)
<AVERAGE-NET-ASSETS> 6436
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> (.06)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.21
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
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<MULTIPLIER> 1000
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 51565
<INVESTMENTS-AT-VALUE> 67921
<RECEIVABLES> 857
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68782
<PAYABLE-FOR-SECURITIES> 1009
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 97
<TOTAL-LIABILITIES> 1106
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47487
<SHARES-COMMON-STOCK> 1225
<SHARES-COMMON-PRIOR> 1310
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3834
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16356
<NET-ASSETS> 67676
<DIVIDEND-INCOME> 459
<INTEREST-INCOME> 75
<OTHER-INCOME> 0
<EXPENSES-NET> (496)
<NET-INVESTMENT-INCOME> 38
<REALIZED-GAINS-CURRENT> 8876
<APPREC-INCREASE-CURRENT> 8733
<NET-CHANGE-FROM-OPS> 17647
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (30)
<DISTRIBUTIONS-OF-GAINS> (7279)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 447
<NUMBER-OF-SHARES-REDEEMED> (738)
<SHARES-REINVESTED> 205
<NET-CHANGE-IN-ASSETS> 1980
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5363
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 383
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 685
<AVERAGE-NET-ASSETS> 63855
<PER-SHARE-NAV-BEGIN> 33.85
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 9.88
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