UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-07705
--------------------------
Phoenix-Kayne Funds
------------------------------------------------------------
(Exact name of registrant as specified in charter)
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Matthew A. Swendiman, Esq. John R. Flores, Esq.
Counsel & Chief Legal Officer for Vice President, Litigation/Employment Counsel
Litigation/Employment Registrant Phoenix Life Insurance Company
Phoenix Life Insurance Company One American Row
One American Row Hartford, CT 06102
Hartford, CT 06102
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-800-243-4361
---------------
Date of fiscal year end: December 31
------------
Date of reporting period: December 31, 2004
------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Reports to Shareholders are attached herewith.
- --------------------------------------------------------------------------------
Annual Report
- --------------------------------------------------------------------------------
> DECEMBER 31, 2004
KAYNE ANDERSON RUDNICK
Phoenix-Kayne California Intermediate Tax-Free Bond Fund
Phoenix-Kayne Intermediate Total Return Bond Fund
Phoenix-Kayne International Fund
Phoenix-Kayne Rising Dividends Fund
Phoenix-Kayne Small-Mid Cap Fund
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Mutual funds are not insured by the FDIC; are not deposits or
other obligations of a bank and are not guaranteed by a bank; and
are subject to investment risks, including possible loss of the
principal invested.
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This report is not authorized for distribution to prospective investors in
the Phoenix-Kayne Funds unless preceded or accompanied by an effective
prospectus which includes information concerning the sales charge, each Fund's
record and other pertinent information.
MESSAGE FROM THE CHAIRMAN
DEAR SHAREHOLDER:
[PHOTO OMITTED] - Philip R. McLoughlin
I encourage you to review the performance overview and outlook provided in
this annual report for the Phoenix-Kayne mutual funds for the fiscal year ended
December 31, 2004.
As we begin a new year, the U.S. economy appears to be growing at a
healthy pace. The economy grew at a 4% rate in the third quarter, and while
final year-end results aren't available as of this writing, current indicators
suggest that growth was sustained. Adding to the positives, employment growth
also accelerated in the fourth quarter. The markets finished the year strong,
particularly the U.S. equity market which performed well in the fourth quarter
following a strong post-election rally. Looking ahead at 2005, the Federal
Reserve Board's ongoing commitment to raising interest rates, combined with
record oil prices and deficits, are likely to slow the pace of economic growth,
posing both challenges as well as opportunities for investors in both the equity
and bond markets.
No matter what the market brings, short-term performance changes should
not distract you from your long-term financial plan. Now may be an opportune
time for you to review your portfolio with your financial advisor to make sure
that your asset allocation remains on target for you. Keep in mind that finding
the best balance of performance and protection requires discipline and
diversification.1 Your Phoenix-Kayne Fund allocation may help in this effort.
For monthly updates on all Phoenix Funds, including performance and
portfolio holdings, please visit PhoenixInvestments.com.
Sincerely,
/s/Philip R. McLoughlin
Philip R. McLoughlin
Chairman, Phoenix Funds
JANUARY 2005
1 DIVERSIFICATION DOES NOT GUARANTEE AGAINST A LOSS, AND THERE IS NO GUARANTEE
THAT A DIVERSIFIED PORTFOLIO WILL OUTPERFORM A NON-DIVERSIFIED PORTFOLIO.
The preceding information is the opinion of the Chairman of the Phoenix Funds
Board of Trustees. There is no guarantee that market forecasts discussed will be
realized.
1
TABLE OF CONTENTS
Glossary .................................................................... 3
Phoenix-Kayne California Intermediate Tax-Free Bond Fund .................... 5
Phoenix-Kayne Intermediate Total Return Bond Fund ........................... 16
Phoenix-Kayne International Fund ............................................ 24
Phoenix-Kayne Rising Dividends Fund ......................................... 36
Phoenix-Kayne Small-Mid Cap Fund ............................................ 47
Notes to Financial Statements ............................................... 58
2
GLOSSARY
ADR (AMERICAN DEPOSITARY RECEIPT)
Represents shares of foreign companies traded in U.S. dollars on U.S. exchanges
that are held by a bank or a trust. Foreign companies use ADRs in order to make
it easier for Americans to buy their shares.
BASIS POINT (BP)
One-hundredth of a percentage point (0.01%). Basis points are often used to
measure changes in or differences between yields on fixed income securities,
since these often change by very small amounts.
DOW JONES INDUSTRIAL AVERAGE(SM)
A price-weighted average of 30 blue chip stocks. The index is calculated on a
total return basis with dividends reinvested. The index performance does not
reflect sales charges.
DURATION
A measure of volatility of a fixed income security, fixed income portfolio or
fixed income portion of a portfolio. It is the change in the value of the fixed
income security, fixed income portfolio or portion thereof that will result from
a 1% change in interest rates. Duration is stated in years. For example, a
5-year duration means the fixed income security, fixed income portfolio or
portion will decrease in value by 5% if interest rates rise 1%, and increase in
value by 5% if interest rates fall 1%.
FEDERAL FUNDS RATE
The interest rate charged on overnight loans of reserves by one financial
institution to another in the United States. The federal funds rate is the most
sensitive indicator of the direction of interest rates since it is set daily by
the market.
FEDERAL RESERVE (THE "FED")
The central bank of the U.S., responsible for controlling the money supply,
interest rates and credit with the goal of keeping the U.S. economy and currency
stable. Governed by a seven-member board, the system includes 12 regional
Federal Reserve Banks, 25 branches and all national and state banks that are
part of the system.
LEHMAN BROTHERS AGGREGATE BOND INDEX
An index that measures the U.S. investment grade fixed rate bond market. The
index is calculated on a total return basis.
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CREDIT BOND INDEX
Measures U.S. investment grade government and corporate debt securities with an
average maturity of 4 to 5 years. The index is calculated on a total return
basis.
LEHMAN BROTHERS 5-YEAR MUNICIPAL BOND INDEX
A market capitalization-weighted index that measures the long-term tax exempt
bond market, consisting of general obligation bonds, revenue bonds, insured
bonds and pre-refunded bonds, all in the maturity range of 4 to 6 years. The
index is calculated on a total return basis.
3
Glossary (continued)
MSCI EAFE(R) INDEX (NET)
A free float-adjusted market capitalization index that measures developed
foreign market equity performance, excluding the U.S. and Canada. The index is
calculated on a total return basis with net dividends reinvested.
RUSSELL 2500(TM) INDEX
A market capitalization-weighted index of the 2,500 smallest companies in the
Russell Universe, which comprises the 3,000 largest U.S. companies. The index is
calculated on a total return basis with dividends reinvested.
S&P 500(R) INDEX
A market capitalization-weighted index of 500 of the largest U.S. companies. The
index is calculated on a total return basis with dividends reinvested.
S&P CALIFORNIA MUNICIPAL BOND INDEX
A market value-weighted index of California municipal bond issues held by
managed municipal bond fund customers of Standard & Poor's that are priced
daily. The index is calculated on a total return basis.
SECTOR/SUBSECTOR
A particular group of stocks within the market, usually sorted by industry, that
can be further broken down into subsets. For example, the technology sector can
be broken down into various subsectors such as computer hardware and
semiconductors.
SUPRANATIONAL
An entity that is formed by two or more central governments through
international treaties. The purpose for creating a supranational is to promote
economic development for the member countries. Example: The International Bank
for Reconstruction and Development (World Bank).
YIELD CURVE
A line chart that shows interest rates at a specific point in time for
securities of equivalent quality but with different maturities. A "normal or
positive" yield curve indicates that short-term securities have a lower interest
rate than long-term securities; an "inverted or negative" yield curve indicates
short-term rates are exceeding long-term rates; and a "flat yield curve" means
short- and long-term rates are about the same.
INDEXES ARE UNMANAGED AND NOT AVAILABLE FOR DIRECT INVESTMENT; THEREFORE THEIR
PERFORMANCE DOES NOT REFLECT THE EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT
OF AN ACTUAL PORTFOLIO.
4
PHOENIX-KAYNE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
A DISCUSSION WITH THE FUND'S PORTFOLIO MANAGEMENT TEAM
Q: WHAT IS THE PHOENIX-KAYNE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND'S
INVESTMENT OBJECTIVE?
A: The Fund's investment objective is to seek income exempt from federal and
California state personal income taxes. There is no guarantee the Fund will
achieve its objective.
Q: HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED DECEMBER 31, 2004?
A: For the 12-month reporting period, the Fund's Class X shares returned 3.04%.
For the same period, the Lehman Brothers Aggregate Bond Index, a broad-based
fixed income index, returned 4.34%, and the S&P California Municipal Bond Index,
the Fund's style-specific benchmark, returned 5.57%. All performance figures
assume reinvestment of distributions and exclude the effect of sales charges.
Past performance is no guarantee of future results and current performance may
be higher or lower than the performance shown above.
Q: HOW WOULD YOU CHARACTERIZE THE FIXED INCOME MARKETS DURING THE FUND'S FISCAL
YEAR?
A: The year 2004 was volatile in the fixed income markets. The yield on the
10-year U.S. Treasury note began the year at 4.25%, hit a low of 3.68% in March,
followed by a high of 4.87% in June, only to end the year at 4.22%. On the short
end of the yield curve, the Federal Reserve Board moved the federal funds rate
from 1% to 2.25% in 2004. We also saw a slight decrease in 30-year interest
rates as the yield curve flattened. Throughout this period, high yield interest
rates continued to decrease as investors showed a desire for higher yielding
securities regardless of the risk level. The best returns in 2004 were generated
by investors willing to take on increased risk as measured by both duration and
credit quality.
The California municipal market faced many challenges this year, as the
state began with an
election to determine the fate of the California state budget. Once the Economic
Recovery Bonds Act passed, and the state began to move through the budget
process, California municipal bonds began to trade closer to the national yield
levels.
Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THAT TIME?
A: The Fund underperformed its benchmark, the S&P California Municipal Bond
Index, for the year because of the Fund's duration. The Fund has maintained a
duration of approximately five years, while the duration of the index has been
in a nine-year range. Five-year municipals, as measured by the Lehman Brothers
5-Year Municipal Bond Index, returned 2.72%. The Fund's performance reflects the
lower return of the intermediate sector, as well as the strong performance of
the California market throughout 2004.
Q: WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS?
A: We anticipate continued volatility in the fixed income markets and hope to
take advantage of the opportunities that volatility affords. Currently, the
market is moving in a trading range, and we believe that the range will trend
higher through the year.
5
Phoenix-Kayne California Intermediate Tax-Free Bond Fund (continued)
For the California municipal market, we continue to anticipate headline
risk as we move through the budget process and a possible special election.
However, the economy in California continues to grow, and is a well-diversified
large economy that provides investors with many opportunities. We will continue
to focus on high quality issues with a focus on essential services and critical
infrastructure, as well as a high level of cash flow.
JANUARY 2005
THE PRECEDING INFORMATION IS THE OPINION OF PORTFOLIO MANAGEMENT. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT
MARKET FORECASTS DISCUSSED WILL BE REALIZED.
For definitions of indexes cited and certain investment terms used in this
report, see the glossary on page 3.
6
Phoenix-Kayne California Intermediate Tax-Free Bond Fund
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ANNUAL TOTAL RETURNS 1 PERIODS ENDING 12/31/04
- --------------------------------------------------------------------------------
INCEPTION INCEPTION
1 YEAR 5 YEAR TO 12/31/04 DATE
------ ------ ----------- ---------
Class X Shares 3.04% 5.64% 4.42% 10/28/96
Lehman Brothers Aggregate Bond Index 4.34 7.71 7.02 10/28/96
S&P California Municipal Bond Index 5.57 7.32 5.70 10/31/96
- --------------------------------------------------------------------------------
GROWTH OF $10,000 PERIODS ENDING 12/31
- --------------------------------------------------------------------------------
This Growth of $10,000 chart assumes an initial investment of $10,000 made on
10/28/96 (inception of the Fund) in Class X shares. The total return for Class X
shares reflects no sales charge. Performance assumes dividends and capital gains
are reinvested.
[CHART OMITTED - GRAPHIC INTERPRETATION OF DATA IS AS FOLLOWS]
Phoenix-Kayne
California
Intermediate
Tax-Free Lehman Brothers S&P California
Bond Fund Aggregate Bond Municipal Bond
Class X 2 Index Index
------------- --------------- --------------
10/28/96 $10,000 $10,000 $10,000
12/31/96 10,002 10,162 10,111
12/31/97 10,428 11,143 10,756
12/31/98 10,883 12,111 11,384
12/31/99 10,833 12,011 11,049
12/29/00 11,936 13,408 12,476
12/31/01 12,445 14,540 13,062
12/31/02 13,266 16,032 14,170
12/31/03 13,830 16,690 14,897
12/31/04 14,250 17,414 15,728
- --------------------------------------------------------------------------------
SECTOR WEIGHTINGS 12/31/04
- --------------------------------------------------------------------------------
As a percentage of total investments
[CHART OMITTED - GRAPHIC INTERPRETATION OF DATA IS AS FOLLOWS]
General Revenue 15%
General Obligation 15
Water & Sewer Revenue 14
Transportation Revenue 11
Power Revenue 8
Municipal Utility District
Revenue 6
Pre-Refunded 6
Other 25
1 Total returns are historical and include changes in share price and the
reinvestment of both dividends and capital gain distributions.
2 This chart illustrates NAV returns on Class X shares since inception.
For information regarding the indexes, see the glossary on page 3.
ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS.
CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE SHOWN. THE
INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE VISIT PHOENIXINVESTMENTS.COM FOR PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH-END.
7
Phoenix-Kayne California Intermediate Tax-Free Bond Fund
ABOUT YOUR FUND'S EXPENSES
We believe it is important for you to understand the impact of costs on your
investment. All mutual funds have operating expenses. As a shareholder of the
Kayne California Intermediate Tax-Free Bond Fund, you incur ongoing costs,
including investment advisory fees and other expenses. Class X shares are sold
without a sales charge and do not incur distribution and service fees. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other mutual funds. This example is based on an investment of
$1,000 invested at the beginning of the period and held for the entire six month
period.
ACTUAL EXPENSES
The first line of the accompanying table provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the accompanying table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not your Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your Fund and other funds. To do so, compare these
5% hypothetical examples with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the accompanying table is meant to
highlight your ongoing costs only and do not reflect any transactional costs.
Therefore, the second line of the accompanying table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. If you have incurred transactional costs, your costs
could have been higher. The calculations assume no shares were bought or sold
during the period. Your actual costs may have been higher or lower, depending on
the amount of your investment and the timing of any purchases or redemptions.
California Intermediate Beginning Ending Expenses Paid
Tax-Free Bond Fund Account Value Account Value During
Class X June 30, 2004 December 31, 2004 Period*
- ----------------------- ------------- ----------------- -------------
Actual $1,000.00 $1,037.20 $3.84
Hypothetical (5% return
before expenses) 1,000.00 1,021.32 3.82
*EXPENSES ARE EQUAL TO THE FUND'S CLASS X ANNUALIZED EXPENSE RATIO OF 0.75%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS X
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 3.04%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,030.40.
YOU CAN FIND MORE INFORMATION ABOUT THE FUND'S EXPENSES IN THE FINANCIAL
STATEMENTS SECTION THAT FOLLOWS. FOR ADDITIONAL INFORMATION ON OPERATING
EXPENSES AND OTHER SHAREHOLDER COSTS, PLEASE REFER TO THE PROSPECTUS.
8
Phoenix-Kayne California Intermediate Tax-Free Bond Fund
- -------------------------------------------------------------------------------------------------------------------------------
TEN LARGEST HOLDINGS AT DECEMBER 31, 2004 (AS A PERCENTAGE OF TOTAL NET ASSETS)(d)
- -------------------------------------------------------------------------------------------------------------------------------
1. San Jose Financing Authority Convention 6. Redlands Financing Authority Series A
Center Project Series F 5%, 9/1/15 3.3% 5%, 9/1/17 2.8%
2. South Coast Air Quality Management District 7. Northern California Power Agency Public
6%, 8/1/11 3.0% Power Revenue Hydroelectric Project No. 1
3. California State Department of Water Series A 5%, 7/1/15 2.8%
Resource Power Supply Revenue Series A 8. Mountain View Shoreline Regional Park
5.25%, 5/1/09 2.9% Community Series A 5.50%, 8/1/21 2.8%
4. Port of Oakland California Series I 9. San Diego County Certificates of Participation
5.60%, 11/1/19 2.9% 5.25%, 11/1/15 2.8%
5. Irvine Unified School District Community 10. San Francisco City & County Airports
Facilities District No. 86-1 5.50%, 11/1/13 2.9% Commission Second Series - Issue 10B
5.375%, 5/1/17 2.8%
- -------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2004
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ -----------
MUNICIPAL TAX-EXEMPT BONDS(f)--98.7%
DEVELOPMENT REVENUE--4.2%
Los Angeles Community Redevelopment
Agency Hollywood Redevelopment Project
Series C 5%, 7/1/14 (MBIA Insured) ......... AAA $ 500 $ 543,274
Los Angeles County Public Works Financing
Authority Series A 5.50%, 10/1/18
(FSA Insured) .............................. AAA 450 525,469
Menlo Park Community Development
Agency Las Pulgas Community Development
Project 5.375%, 6/1/16 (AMBAC Insured) ..... AAA 250 265,372
Riverside County Redevelopment Agency
Jurupa Valley Project Area 5.25%, 10/1/17
(AMBAC Insured) ............................ AAA 250 277,293
-----------
1,611,408
-----------
EDUCATION REVENUE--0.7%
California Educational Facilities Authority
Chapman University 5.375%, 10/1/16
(CONNIE LEE Insured) ....................... AAA 250 267,558
FACILITIES REVENUE--2.4%
California State Public Works Board
Series C 5.25%, 11/1/20 .................... A- 500 539,635
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ -----------
FACILITIES REVENUE--CONTINUED
Los Angeles State Building Authority
Department of General Services Series A
5.375%, 5/1/06 ............................. A- $ 200 $ 207,346
Oakland State Building Authority
Series A 5%, 4/1/17 ........................ AAA 150 159,020
-----------
906,001
-----------
GENERAL OBLIGATION--15.9%
California State Public Works Board
Series A 5.25%, 12/1/13 .................... A- 290 314,661
City of San Diego Public Safety
Communication Project 6.50%, 7/15/07 ....... A(c) 800 875,848
Fremont Union High School District/Santa
Clara County Series B 5.25%, 9/1/15 ........ AA 200 219,206
Long Beach Unified School District Series C
5.375%, 8/1/16 (MBIA Insured) .............. Aaa(c) 300 333,114
Los Angeles Unified School District Series F
5%, 7/1/14 (FSA Insured) ................... AAA 500 552,736
Metropolitan Water District of Southern
California Series A 5.25%, 3/1/11 .......... AAA 180 198,207
See Notes to Financial Statements 9
Phoenix-Kayne California Intermediate Tax-Free Bond Fund
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ -----------
GENERAL OBLIGATION--CONTINUED
Oakland Unified School District Alameda
County School Improvements 5%, 8/1/16
(FSA Insured) .............................. AAA $ 400 $ 425,452
Puerto Rico Public Finance Corp. Series A
5.25%, 8/1/30 (AMBAC Insured)(e) ........... AAA 500 554,055
San Diego County Certificates of
Participation 5.25%, 11/1/15 (AMBAC
Insured) ................................... AAA 960 1,059,898
State of California 6.25%, 4/1/08 .......... A 825 919,281
State of California Public Improvements
5.25%, 6/1/16 .............................. A 250 262,095
State of California School Improvements
5.50%, 4/1/10 .............................. AAA 200 226,342
State of California Unrefunded Balance-2001
5.375%, 3/1/06 ............................. A 45 45,641
Torrance California Unrefunded 5.50%,
4/1/12 ..................................... AAA 105 108,038
-----------
6,094,574
-----------
GENERAL REVENUE--14.6%
Brea & Olinda Unified School District
Series A 6%, 8/1/15 (FGIC Insured) ......... AAA 150 180,393
Modesto Wastewater Treatment Facilities
Revenue 6%, 11/1/12 (MBIA Insured) ......... AAA 735 870,791
Ontario Redevelopment Financing Authority
Ontario Redevelopment Project No. 1
6.90%, 8/1/10 (MBIA Insured) ............... AAA 70 84,190
Ontario Redevelopment Financing Authority
Project No. 1 Center City & Cimarron
5.25%, 8/1/13 (MBIA Insured) ............... AAA 500 559,945
San Francisco City & County Educational
Facilities Unified School District Series B
5.50%, 6/15/12 ............................. AA 500 547,900
San Jose Financing Authority Convention
Center Project Series F 5%, 9/1/15
(MBIA Insured) ............................. AA 1,185 1,280,902
San Jose Financing Authority Convention
Center Project Series F 5%, 9/1/16
(MBIA Insured) ............................. AA 350 376,607
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ -----------
GENERAL REVENUE--CONTINUED
Santa Clara County Finance Authority
Leasing Revenue 7.75%, 11/15/11 ............ AAA $ 400 $ 509,880
South Coast Air Quality Management
District 6%, 8/1/11 (AMBAC Insured) ........ AAA 1,000 1,164,750
-----------
5,575,358
-----------
HIGHER EDUCATION REVENUE--1.4%
University of California Series A 5%,
5/15/10 (AMBAC Insured) .................... AAA 500 556,235
MEDICAL REVENUE--5.0%
California Health Facilities Financing
Authority Series A 6.25%, 10/1/13
(MBIA Insured) ............................. AAA 1,000 1,004,080
California Health Facilities Financing
Authority Series A 5%, 11/15/14 ............ A- 250 270,815
California Statewide Communities
Development Authority Los Angeles Jewish
Home 4.75%, 11/15/10 (CA ST MTG
Insured) ................................... A 500 538,885
San Joaquin County General Hospital
Project Certificates of Participation 5.25%,
9/1/12 ..................................... AAA 100 109,888
-----------
1,923,668
-----------
MUNICIPAL UTILITY DISTRICT REVENUE--6.2%
City of San Diego Public Facilities Financial
Authority Series A 5%, 5/15/13 (AMBAC
Insured) ................................... AAA 300 303,816
Los Angeles Wastewater System Revenue
5%, 6/1/08 (FSA Insured) ................... AAA 375 408,619
Sacramento Municipal Utility District
Series L 5.10%, 7/1/13 (AMBAC Insured) ..... AAA 500 539,945
Sacramento Municipal Utility District
Series O 5.25%, 8/15/10 (MBIA Insured) ..... AAA 500 562,355
Sacramento Municipal Utility District
Series O 5.25%, 8/15/15 (MBIA Insured) ..... AAA 310 344,270
Sacramento Municipal Utility District
Series O 5.25%, 8/15/17 (MBIA Insured) ..... AAA 200 221,486
-----------
2,380,491
-----------
POWER REVENUE--8.4%
California State Department of Water
Resource Power Supply Revenue Series A
5.25%, 5/1/09 (MBIA Insured) ............... AAA 1,000 1,108,500
10 See Notes to Financial Statements
Phoenix-Kayne California Intermediate Tax-Free Bond Fund
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ -----------
POWER REVENUE--CONTINUED
City of Pasadena 5%, 6/1/17 (MBIA
Insured) ................................... AAA $ 300 $ 322,635
Northern California Power Agency Public
Power Revenue Hydroelectric Project No. 1
Series A 5%, 7/1/15 (MBIA Insured) ......... AAA 1,000 1,067,240
Southern California Public Power Authority
Series B 5%, 7/1/12 (FSA Insured) .......... AAA 635 708,336
-----------
3,206,711
-----------
PRE-REFUNDED--6.5%
Contra Costa County Home Mortgage
Revenue 7.50%, 5/1/14 (GNMA COLL
Insured)(b) ................................ AAA 500 662,100
Foothill Eastern Transportation Corridor
Agency Series A 6.95%, 1/1/07(b) ........... AAA 200 216,838
Foothill Eastern Transportation Corridor
Agency Series A 7%, 1/1/08(b) .............. AAA 500 561,795
Foothill Eastern Transportation Corridor
Agency Series A 7.10%, 1/1/11 .............. AAA 550 672,446
Los Angeles Convention & Exhibit Center
Authority Certificates of Participation
9%, 12/1/20 ................................ AAA 150 159,357
Stockton Housing Facilities Revenue
O'Connor Woods Project A 5.60%, 3/20/28
(GNMA COLL Insured) ........................ NR 200 201,286
Torrance California Certificates of
Participation 5.50%, 4/1/12 ................ AAA 20 20,579
-----------
2,494,401
-----------
SCHOOL DISTRICT REVENUE--2.9%
Irvine Unified School District Community
Facilities District No. 86-1 5.50%, 11/1/13
(AMBAC Insured) ............................ AAA 1,000 1,096,980
SINGLE FAMILY HOUSING REVENUE--2.9%
California Housing Finance Agency Series A
5.85%, 8/1/16 (MBIA/FHA/VA/CAHLIF
MTGS Insured) .............................. AAA 210 220,572
California Housing Finance Agency Series F
5.95%, 8/1/14 (MBIA/FHA/VA/CAHLIF
MTGS Insured) .............................. AAA 405 416,255
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ -----------
SINGLE FAMILY HOUSING REVENUE--CONTINUED
California Housing Finance Agency Series L
5.90%, 8/1/17 (MBIA/FHA/VA/GTD MTGS
Insured) ................................... AAA $ 215 $ 221,239
Cypress Residential Mortgage Revenue
Series B 7.25%, 1/1/12 (PRIV MTGS
Insured)(b) ................................ NR 200 251,222
-----------
1,109,288
-----------
TRANSPORTATION REVENUE--10.9%
Alameda Corridor Transportation Authority
Series A 5.125%, 10/1/16 (MBIA Insured) .... AAA 150 164,025
Alameda Corridor Transportation Authority
Series A 5.125%, 10/1/17 (MBIA Insured) .... AAA 125 136,341
Port of Oakland Series I 5.60%, 11/1/19
(MBIA Insured) ............................. AAA 1,000 1,108,100
San Francisco Bay Area Rapid Transit
District Sales Tax Revenue 5.50%, 7/1/15 ... AAA 190 194,997
San Francisco Bay Area Rapid Transit
District Sales Tax Revenue 5.25%, 7/1/17 ... AA- 500 541,160
San Francisco City and County Airports
Commission 5.375%, 5/1/17
(MBIA Insured) ............................. AAA 1,000 1,058,380
San Mateo County Transit District Series A
5%, 6/1/14 (MBIA Insured) .................. AAA 400 428,648
Santa Clara Valley Transportation Authority
Series A 5%, 6/1/17 (MBIA Insured) ......... AAA 500 534,690
-----------
4,166,341
-----------
VETERAN REVENUE--2.4%
State of California Veterans Bonds Series BG
5.15%, 12/1/14 ............................. A 895 917,545
WATER & SEWER REVENUE--14.3%
California State Department of Water
Resources 5.125%, 12/1/15 .................. AA 200 217,174
California State Department of Water
Resources Series T 5.125%, 12/1/12 ......... AA 250 274,085
California State Department of Water
Resources Series W 5.50%, 12/1/13
(FSA-CR Insured) ........................... AAA 400 463,064
See Notes to Financial Statements 11
Phoenix-Kayne California Intermediate Tax-Free Bond Fund
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ -----------
WATER & SEWER REVENUE--CONTINUED
Los Angeles Department of Water & Power
Series A-A-3 5.25%, 7/1/18 ................. AA- $ 300 $ 312,924
Los Angeles Waste Water System Revenue
Series B 5%, 6/1/14 (FGIC Insured) ......... AAA 700 750,134
Metropolitan Water District of Southern
California Series A 5%, 7/1/13 ............. AA+ 200 217,804
Metropolitan Water District of Southern
California Series B 5%, 7/1/13 ............. AA+ 500 557,390
Mountain View Shoreline Regional Park
Community Series A 5.50%, 8/1/21
(MBIA Insured) ............................. AAA 1,000 1,066,630
Redlands Financing Authority Series A
5%, 9/1/17 (FSA Insured) ................... AAA 1,000 1,077,750
Westlands Water District Revenue
Certificates of Participation 5.25%, 9/1/14
(MBIA Insured) ............................. AAA 500 562,130
-----------
5,499,085
-----------
- ----------------------------------------------------------------------------
TOTAL MUNICIPAL TAX-EXEMPT BONDS
(IDENTIFIED COST $36,601,295) 37,805,644
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS--98.7%
(IDENTIFIED COST $36,601,295) 37,805,644(a)
Other assets and liabilities, net--1.3% 479,369
-----------
NET ASSETS--100.0% $38,285,013
===========
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $1,246,762 and gross
depreciation of $42,413 for federal income tax purposes. At December 31,
2004, the aggregate cost of securities for federal income tax purposes was
$36,601,295.
(b) Escrowed to maturity.
(c) As rated by Moody's or Fitch.
(d) Table excludes short-term investments.
(e) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
(f) At December 31, 2004, 71.8% of the securities in the portfolio are backed by
insurance of financial institutions and financial guaranty assurance
agencies. Insurers with a concentration greater than 10% of net assets are
as follows: MBIA 38.1%, AMBAC 15.2%, and FSA 10.9%.
12 See Notes to Financial Statements
Phoenix-Kayne California Intermediate Tax-Free Bond Fund
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
ASSETS
Investment securities at value
(identified cost $36,601,295) $37,805,644
Receivables
Interest 503,042
Investment securities sold 484,825
Receivable from adviser 7,933
Prepaid expenses 10,203
-----------
Total assets 38,811,647
-----------
LIABILITIES
Cash overdraft 427,647
Payables
Fund shares repurchased 719
Dividend distributions 58,916
Professional fee 24,623
Financial agent fee 4,549
Trustees' fee 2,882
Accrued expenses 7,298
-----------
Total liabilities 526,634
-----------
NET ASSETS $38,285,013
===========
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $37,076,148
Undistributed net investment income 4,516
Net unrealized appreciation 1,204,349
-----------
NET ASSETS $38,285,013
===========
Shares of beneficial interest outstanding,
no par value, unlimited authorization
(Net Assets $38,285,013) 3,553,833
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE $10.77
======
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
INVESTMENT INCOME
Interest $1,558,551
----------
Total investment income 1,558,551
----------
EXPENSES
Investment advisory fee 188,263
Financial agent fee 38,418
Administration fee 25,070
Professional 30,090
Trustees 24,236
Custodian 17,955
Transfer agent 14,858
Registration 12,071
Printing 8,508
Miscellaneous 10,609
----------
Total expenses 370,078
Less expenses reimbursed by investment adviser (87,348)
Custodian fees paid indirectly (326)
----------
Net expenses 282,404
----------
NET INVESTMENT INCOME 1,276,147
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 387,638
Net change in unrealized appreciation (depreciation) on
investments (463,295)
----------
NET LOSS ON INVESTMENTS (75,657)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,200,490
==========
See Notes to Financial Statements 13
Phoenix-Kayne California Intermediate Tax-Free Bond Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
12/31/04 12/31/03
-------------- --------------
FROM OPERATIONS
Net investment income (loss) $ 1,276,147 $ 1,352,020
Net realized gain (loss) 387,638 179,694
Net change in unrealized appreciation (depreciation) (463,295) (17,141)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,200,490 1,514,573
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (1,276,807) (1,360,391)
Net realized short-term gains (31,815) --
Net realized long-term gains (482,971) (52,546)
----------- -----------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (1,791,593) (1,412,937)
----------- -----------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (500,653 and 864,287 shares, respectively) 5,418,380 9,441,863
Net asset value of shares issued from reinvestment of distributions
(72,718 and 67,285 shares, respectively) 786,372 737,267
Cost of shares repurchased (612,472 and 384,895 shares, respectively) (6,696,885) (4,219,993)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS (492,133) 5,959,137
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS (1,083,236) 6,060,773
NET ASSETS
Beginning of period 39,368,249 33,307,476
----------- -----------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $4,516 AND $5,176, RESPECTIVELY) $38,285,013 $39,368,249
=========== ===========
14 See Notes to Financial Statements
Phoenix-Kayne California Intermediate Tax-Free Bond Fund
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
CLASS X
--------------------------------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------------------------
2004 2003 2002 2001 2000
Net asset value, beginning of period $10.96 $10.93 $10.74 $10.83 $10.29
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.37 0.41 0.46 0.47 0.49
Net realized and unrealized gain (loss) (0.04) 0.04 0.24 (0.02) 0.54
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.33 0.45 0.70 0.45 1.03
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.37) (0.41) (0.46) (0.47) (0.49)
Distributions from net realized gains (0.15) (0.01) (0.05) (0.07) --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.52) (0.42) (0.51) (0.54) (0.49)
------ ------ ------ ------ ------
Change in net asset value (0.19) 0.03 0.19 (0.09) 0.54
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.77 $10.96 $10.93 $10.74 $10.83
====== ====== ====== ====== ======
Total return 3.04% 4.25% 6.60% 4.26% 10.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $38,285 $39,368 $33,307 $34,422 $31,353
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Net operating expenses 0.75% 0.75% 0.75% 0.75% 0.75% (1)
Gross operating expenses 0.98% 1.03% 0.98% 0.85% 0.96%
Net investment income 3.39% 3.72% 4.18% 4.38% 4.63%
Portfolio turnover 62% 33% 21% 61% 33%
<FN>
(1) For the period ended December 31, 2000, the ratio of net operating expenses
excludes the effect of expense offsets for custodian fees; if expense
offsets were included, the ratio would have been 0.01% lower than ratio
shown in the table.
</FN>
See Notes to Financial Statements 15
PHOENIX-KAYNE INTERMEDIATE TOTAL RETURN BOND FUND
A DISCUSSION WITH THE FUND'S PORTFOLIO MANAGEMENT TEAM
Q: WHAT IS THE PHOENIX-KAYNE INTERMEDIATE TOTAL RETURN BOND FUND'S INVESTMENT
OBJECTIVE?
A: The Fund has an investment objective of maximizing total return, mainly
through current income, with capital appreciation as a secondary factor. There
is no guarantee the Fund will achieve its objective.
Q: HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED DECEMBER 31, 2004?
A: For the 12-month reporting period, the Fund's Class X shares returned 2.13%.
For the same period, the Lehman Brothers Aggregate Bond Index, a broad-based
fixed income index, returned 4.34%, and the Lehman Brothers Intermediate
Government/Credit Bond Index, the Fund's style-specific benchmark, returned
3.04%. All performance figures assume reinvestment of distributions and exclude
the effect of sales charges. Past performance is no guarantee of future results
and current performance may be higher or lower than the performance shown above.
Q: HOW WOULD YOU CHARACTERIZE THE FIXED INCOME MARKET ENVIRONMENT DURING THE
FUND'S FISCAL YEAR?
A: The year 2004 was volatile in the fixed income markets. The yield on the
10-year U.S. Treasury note began the year at 4.25%, hit a low of 3.68% in March,
followed by a high of 4.87% in June, only to end the year at 4.22%. On the short
end of the yield curve, the Federal Reserve Board moved the federal funds rate
from 1% to 2.25% in 2004. We also saw a slight decrease in 30-year interest
rates as the yield curve flattened. Throughout this period, high yield interest
rates continued to decrease as investors showed a desire for higher yielding
securities regardless of the risk level. The best returns in 2004 were generated
by investors willing to take on increased risk as measured by both duration and
credit quality.
Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THAT TIME?
A: The Fund underperformed the Lehman Brothers Intermediate Government/Credit
Bond Index this year because of the allocation to supranational securities and
the Fund's high credit quality. In the index, Aaa-rated intermediate-duration
securities returned 2.57%, while Baa intermediate securities returned 4.97%. The
Fund's average credit rating in 2004 was AA+. Supranational securities provide a
high level of quality and diversification; however, this sector in the
intermediate-duration range provided a return of 2.19% that, when compared with
the 4.29% return for intermediate corporate bonds, detracted from the Fund's
overall performance.
Q: WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS?
A: We anticipate continued volatility in the fixed income markets and hope to
take advantage of the opportunities that volatility affords. Currently, the
market is moving in a trading range, and we believe that the range will trend
higher through the year. We will continue to invest in high quality
intermediate-duration securities while looking for additional yield
opportunities.
JANUARY 2005
THE PRECEDING INFORMATION IS THE OPINION OF PORTFOLIO MANAGEMENT. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT
MARKET FORECASTS DISCUSSED WILL BE REALIZED.
For definitions of indexes cited and certain investment terms used in this
report, see the glossary on page 3.
16
Phoenix-Kayne Intermediate Total Return Bond Fund
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS 1 PERIODS ENDING 12/31/04
- --------------------------------------------------------------------------------
INCEPTION INCEPTION
1 YEAR 5 YEAR TO 12/31/04 DATE
------ ------ ----------- ---------
Class X Shares 2.13% 6.29% 5.57% 10/28/96
Lehman Brothers Aggregate
Bond Index 4.34 7.71 7.02 10/28/96
Lehman Brothers Intermediate
Government/Credit Bond Index 3.04 7.21 6.88 10/28/96
- --------------------------------------------------------------------------------
GROWTH OF $10,000 PERIODS ENDING 12/31
- --------------------------------------------------------------------------------
This Growth of $10,000 chart assumes an initial investment of $10,000 made on
10/28/96 (inception of the Fund) in Class X shares. The total return for Class X
shares reflects no sales charge. Performance assumes dividends and capital gains
are reinvested.
[CHART OMITTED - GRAPHIC INTERPRETATION OF DATA IS AS FOLLOWS]
Lehman
Phoenix-Kayne Lehman Brothers
Intermediate Brothers Intermediate
Total Bond Fund Aggregate Bond Government/Credit
Class X 2 Index Bond Index
--------------- -------------- -----------------
10/28/96 $10,000 $10,000 $10,000
12/31/96 10,020 10,162 10,364
12/31/97 10,741 11,143 11,180
12/31/98 11,558 12,111 12,123
12/31/99 11,484 12,011 12,169
12/29/00 12,563 13,408 13,400
12/31/01 13,565 14,540 14,601
12/31/02 14,846 16,032 16,037
12/31/03 15,253 16,690 16,728
12/31/04 15,579 17,414 17,237
- --------------------------------------------------------------------------------
SECTOR WEIGHTINGS 12/31/04
- --------------------------------------------------------------------------------
As a percentage of total investments
[CHART OMITTED - GRAPHIC INTERPRETATION OF DATA IS AS FOLLOWS]
Domestic Corporate Bonds 48%
U.S. Treasury Notes 26
Agency Non Mortgage-
Backed Securities 14
Agency Mortgage-Backed
Securities 7
Other 5
1 Total returns are historical and include changes in share price and the
reinvestment of both dividends and capital gain distributions.
2 This chart illustrates NAV returns on Class X shares since inception.
For information regarding the indexes, see the glossary on page 3.
ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS.
CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE SHOWN. THE
INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE VISIT PHOENIXINVESTMENTS.COM FOR PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH-END.
17
Phoenix-Kayne Intermediate Total Return Bond Fund
ABOUT YOUR FUND'S EXPENSES
We believe it is important for you to understand the impact of costs on your
investment. All mutual funds have operating expenses. As a shareholder of the
Kayne Intermediate Total Return Bond Fund, you incur ongoing costs, including
investment advisory fees and other expenses. Class X share are sold without a
sales charge and do not incur distribution and service fees. This example is
intended to help you understand your ongoing costs (in dollars) of investing in
the Fund and to compare these costs with the ongoing costs of investing in other
mutual funds. This example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire six-month period.
ACTUAL EXPENSES
The first line of the accompanying table provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the accompanying table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not your Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your Fund and other funds. To do so, compare these
5% hypothetical examples with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the accompanying tables
are meant to highlight your ongoing costs only and do not reflect any
transactional costs. Therefore, the second line of the accompanying tables is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. If you have incurred
transactional costs, your costs could have been higher. The calculations assume
no shares were bought or sold during the period. Your actual costs may have been
higher or lower, depending on the amount of your investment and the timing of
any purchases or redemptions.
Intermediate Total Return Beginning Ending Expenses Paid
Bond Fund Account Value Account Value During
Class X June 30, 2004 December 31, 2004 Period*
- ------------------------- ------------- ----------------- -------------
Actual $1,000.00 $1,026.20 $4.30
Hypothetical (5% return
before expenses) 1,000.00 1,020.84 4.30
*EXPENSES ARE EQUAL TO THE FUND'S CLASS X ANNUALIZED EXPENSE RATIO OF 0.84%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS X
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 2.13%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,021.30.
YOU CAN FIND MORE INFORMATION ABOUT THE FUND'S EXPENSES IN THE FINANCIAL
STATEMENTS SECTION THAT FOLLOWS. FOR ADDITIONAL INFORMATION ON OPERATING
EXPENSES AND OTHER SHAREHOLDER COSTS, PLEASE REFER TO THE PROSPECTUS.
18
Phoenix-Kayne Intermediate Total Return Bond Fund
- --------------------------------------------------------------------------------------------------------------
TEN LARGEST HOLDINGS AT DECEMBER 31, 2004 (AS A PERCENTAGE OF TOTAL NET ASSETS)(b)
- --------------------------------------------------------------------------------------------------------------
1. U.S. Treasury Note 6.50%, 2/15/10 15.6% 7. KFW International Finance, Inc.
2. U.S. Treasury Note 6%, 8/15/09 3.7% 4.75%, 1/24/07 3.1%
3. Wal-Mart Stores, Inc. 4.55%, 5/1/13 3.4% 8. International Bank for Reconstruction and
4. Fannie Mae 6.625%, 10/15/07 3.2% Development 4.125%, 8/12/09 3.0%
5. Honeywell, Inc. 7%, 3/15/07 3.2% 9. Pfizer, Inc. 4.50%, 2/15/14 2.9%
6. Kimberly-Clark Corp. 5%, 8/15/13 3.1% 10. Johnson & Johnson 6.625%, 9/1/09 2.9%
- --------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2004
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ -----------
U.S. GOVERNMENT SECURITIES--26.0%
U.S. TREASURY NOTES--26.0%
U.S. Treasury Note 5.625%, 5/15/08 ......... AAA $ 752 $ 806,814
U.S. Treasury Note 3.25%, 1/15/09 .......... AAA 1,460 1,447,796
U.S. Treasury Note 6%, 8/15/09 ............. AAA 1,700 1,875,447
U.S. Treasury Note 6.50%, 2/15/10 .......... AAA 7,000 7,927,227
U.S. Treasury Note 4.75%, 5/15/14 .......... AAA 1,100 1,146,664
- ----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(IDENTIFIED COST $13,233,540) 13,203,948
- ----------------------------------------------------------------------------
AGENCY MORTGAGE-BACKED SECURITIES--7.3%
Fannie Mae 6.375%, 6/15/09 ................. AAA 1,000 1,104,368
Fannie Mae 6.625%, 11/15/10 ................ AAA 1,000 1,131,502
Fannie Mae 7%, 5/1/14 ...................... AAA 71 75,641
Fannie Mae 8%, 1/1/15 ...................... AAA 18 19,287
Freddie Mac 7.50%, 7/1/09 .................. AAA 41 43,272
Freddie Mac 7.50%, 4/1/14 .................. AAA 90 96,839
Freddie Mac 7%, 4/1/16 ..................... AAA 76 81,295
GNMA 7%, 7/20/13 ........................... AAA 110 116,780
GNMA 8%, '21-'27 ........................... AAA 296 322,169
GNMA 8.50%, 12/15/22 ....................... AAA 2 2,322
GNMA 8.50%, 8/15/24 ........................ AAA 73 79,778
GNMA 8.50%, 8/15/25 ........................ AAA 16 17,725
GNMA 8.50%, 6/15/26 ........................ AAA 3 3,321
GNMA 6%, 8/15/31 ........................... AAA 566 588,096
- ----------------------------------------------------------------------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $3,533,705) 3,682,395
- ----------------------------------------------------------------------------
AGENCY NON MORTGAGE-BACKED
SECURITIES--13.9%
Fannie Mae 6.625%, 10/15/07 ................ AAA 1,500 1,626,637
Fannie Mae 6%, 5/16/11 ..................... AAA 875 908,459
Fannie Mae 6.20%, 5/3/12 ................... AAA 500 505,102
FFCB 6.48%, 4/4/12 ......................... AAA 1,000 1,008,477
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ -----------
FHLB 5.925%, 4/9/08 ........................ AAA $1,000 $ 1,074,753
FHLB 7.80%, 2/11/10 ........................ AAA 350 351,873
FHLB 8.10%, 5/25/10 ........................ AAA 500 510,423
FHLB 5.15%, 1/28/13 ........................ AAA 345 345,484
FHLB 6.30%, 5/13/13 ........................ AAA 220 235,423
Freddie Mac 5.125%, 2/20/13 ................ AAA 500 501,353
- ----------------------------------------------------------------------------
TOTAL AGENCY NON MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $7,107,445) 7,067,984
- ----------------------------------------------------------------------------
DOMESTIC CORPORATE BONDS--47.7%
AEROSPACE & DEFENSE--5.7%
Boeing Capital Corp. 5.65%, 5/15/06 ........ A 425 438,387
Boeing Capital Corp. 5.75%, 2/15/07 ........ A 815 851,585
Honeywell, Inc. 7%, 3/15/07 ................ A 1,500 1,609,033
-----------
2,899,005
-----------
COMPUTER HARDWARE--1.5%
Hewlett Packard Co. 7.15%, 6/15/05 ......... A- 750 764,358
CONSUMER FINANCE--1.6%
General Electric Capital Corp. Series A
4.625%, 9/15/09 ............................ AAA 800 821,563
DIVERSIFIED BANKS--4.1%
Bank of America Corp. 7.125%, 5/1/06 ....... A 540 566,591
International Bank for Reconstruction and
Development 4.125%, 8/12/09 ................ AAA 1,500 1,527,015
-----------
2,093,606
-----------
DIVERSIFIED COMMERCIAL SERVICES--1.2%
International Lease Finance Corp. 5.75%,
10/15/06 ................................... AA- 600 624,885
See Notes to Financial Statements 19
Phoenix-Kayne Intermediate Total Return Bond Fund
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ -----------
HOUSEHOLD PRODUCTS--4.4%
Colgate Palmolive Co. 5.98%, 4/25/12 ....... AA- $ 620 $ 682,104
Kimberly-Clark Corp. 5%, 8/15/13 ........... AA- 1,500 1,548,105
-----------
2,230,209
-----------
HYPERMARKETS & SUPER CENTERS--3.4%
Wal-Mart Stores, Inc. 4.55%, 5/1/13 ........ AA 1,700 1,718,904
INTEGRATED OIL & GAS--2.2%
Conoco Funding Co. 6.35%, 10/15/11 ......... A- 1,000 1,117,731
INTEGRATED TELECOMMUNICATION SERVICES--2.6%
SBC Communications, Inc. 5.875%, 2/1/12 .... A 1,200 1,294,284
INVESTMENT BANKING & BROKERAGE--2.7%
Bear Stearns Co., Inc. 7.80%, 8/15/07 ...... A 825 911,468
Goldman Sachs Group, Inc. 5.25%, 4/1/13 .... A+ 425 436,543
-----------
1,348,011
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES--2.2%
Heller Financial, Inc. 7.375%, 11/1/09 ..... AAA 1,000 1,139,709
PERSONAL PRODUCTS--2.5%
Gillette Co. 4%, 6/30/05 ................... AA- 1,260 1,266,832
PHARMACEUTICALS--10.6%
Abbott Laboratories 5.625%, 7/1/06 ......... AA 1,400 1,447,938
Johnson & Johnson 6.625%, 9/1/09 ........... AAA 1,300 1,448,444
Merck & Co., Inc. 4.375%, 2/15/13 .......... AA- 1,000 977,509
Pfizer, Inc. 4.50%, 2/15/14 ................ AAA 1,500 1,486,125
-----------
5,360,016
-----------
SPECIALIZED FINANCE--3.0%
KFW International Finance, Inc. 4.75%,
1/24/07 .................................... AAA 1,500 1,547,479
- ----------------------------------------------------------------------------
TOTAL DOMESTIC CORPORATE BONDS
(IDENTIFIED COST $23,788,749) 24,226,592
- ----------------------------------------------------------------------------
TOTAL LONG TERM INVESTMENTS--94.9%
(IDENTIFIED COST $47,663,439) 48,180,919
- ----------------------------------------------------------------------------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ -----------
SHORT-TERM INVESTMENTS--3.5%
FEDERAL AGENCY SECURITIES--3.5%
FHLB 1%, 1/3/05 ............................ A-1+ $1,778 $ 1,777,901
- ----------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $1,777,901) 1,777,901
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS--98.4%
(IDENTIFIED COST $49,441,340) 49,958,820(a)
Other assets and liabilities, net--1.6% 778,023
-----------
NET ASSETS--100.0% $50,736,843
===========
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $896,163 and gross
depreciation of $383,616 for federal income tax purposes. At December 31,
2004, the aggregate cost of securities for federal income tax purposes was
$49,446,273.
(b) Table excludes short-term investments.
20 See Notes to Financial Statements
Phoenix-Kayne Intermediate Total Return Bond Fund
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
ASSETS
Investment securities at value
(identified cost $49,441,340) $49,958,820
Cash 23,367
Receivables
Interest 739,332
Fund shares sold 72,102
Prepaid expenses 10,562
-----------
Total assets 50,804,183
-----------
LIABILITIES
Payables
Fund shares repurchased 3,001
Professional fee 25,090
Investment advisory fee 21,598
Financial agent fee 5,287
Trustee fee 2,882
Accrued expenses 9,482
-----------
Total liabilities 67,340
-----------
NET ASSETS $50,736,843
===========
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest$ 50,259,100
Accumulated net realized loss (39,737)
Net unrealized appreciation 517,480
-----------
NET ASSETS $50,736,843
===========
Shares of beneficial interest outstanding,
no par value, unlimited authorization
(Net Assets $50,736,843) 4,699,209
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE $10.80
======
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
INVESTMENT INCOME
Interest $2,313,362
----------
Total investment income 2,313,362
----------
EXPENSES
Investment advisory fee 250,666
Financial agent fee 47,688
Administration 29,165
Professional 29,935
Trustees 24,238
Custodian 17,037
Transfer agent 15,302
Registration 13,852
Printing 9,476
Miscellaneous 13,675
----------
Total expenses 451,034
----------
NET INVESTMENT INCOME 1,862,328
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 372,116
Net change in unrealized appreciation (depreciation) on
investments (1,179,904)
----------
NET LOSS ON INVESTMENTS (807,788)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,054,540
==========
See Notes to Financial Statements 21
Phoenix-Kayne Intermediate Total Return Bond Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
12/31/04 12/31/03
-------------- --------------
FROM OPERATIONS
Net investment income (loss) $ 1,862,328 $ 1,863,002
Net realized gain (loss) 372,116 267,833
Net change in unrealized appreciation (depreciation) (1,179,904) (960,845)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,054,540 1,169,990
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (1,895,342) (1,851,334)
Net realized long-term gains (495,005) (184,764)
----------- -----------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (2,390,347) (2,036,098)
----------- -----------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (1,399,246 and 1,005,966 shares, respectively) 15,381,326 11,288,844
Net asset value of shares issued from reinvestment of distributions
(159,446 and 130,383 shares, respectively) 1,741,504 1,459,376
Cost of shares repurchased (899,478 and 888,284 shares, respectively) (9,847,416) (9,986,834)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS 7,275,414 2,761,386
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS 5,939,607 1,895,278
NET ASSETS
Beginning of period 44,797,236 42,901,958
----------- -----------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME
OF $0 AND $11,668, RESPECTIVELY) $50,736,843 $44,797,236
=========== ===========
22 See Notes to Financial Statements
Phoenix-Kayne Intermediate Total Return Bond Fund
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
CLASS X
--------------------------------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------------------------
2004 2003 2002 2001 2000
Net asset value, beginning of period $11.09 $11.31 $10.91 $10.82 $10.44
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.41 0.48 0.55 0.57 0.56
Net realized and unrealized gain (loss) (0.17) (0.17) 0.45 0.28 0.39
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.24 0.31 1.00 0.85 0.95
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income (0.42) (0.48) (0.55) (0.57) (0.57)
From net realized gain (0.11) (0.05) (0.05) (0.19) --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.53) (0.53) (0.60) (0.76) (0.57)
------ ------ ------ ------ ------
Change in net asset value (0.29) (0.22) 0.40 0.09 0.38
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.80 $11.09 $11.31 $10.91 $10.82
====== ====== ====== ====== ======
Total return 2.13% 2.74% 9.45% 7.98% 9.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $50,737 $44,797 $42,902 $40,375 $47,097
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Operating expenses 0.90% 0.94% 0.88% 0.96% 0.94%
Net investment income 3.71% 4.28% 4.96% 5.13% 5.34%
Portfolio turnover 54% 35% 27% 50% 10%
See Notes to Financial Statements 23
PHOENIX-KAYNE INTERNATIONAL FUND
A DISCUSSION WITH THE FUND'S PORTFOLIO MANAGEMENT TEAM
Q: WHAT IS THE PHOENIX-KAYNE INTERNATIONAL FUND'S INVESTMENT OBJECTIVE?
A: The Fund has an investment objective of long-term capital appreciation, with
dividend income a secondary consideration. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks. There is no guarantee the Fund will achieve its
objective.
Q: HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED DECEMBER 31, 2004?
A: For the 12-month reporting period, the Fund's Class A shares returned 13.24%,
Class B shares returned 12.43%, Class C shares returned 12.43%, and Class X
shares returned 13.56%. For the same period, the S&P 500(R) Index, a broad-based
equity index, returned 10.86%, and the MSCI EAFE(R) Index (Net), the Fund's
style-specific benchmark, returned 20.25%. All performance figures assume
reinvestment of distributions and exclude the effect of sales charges. Past
performance is no guarantee of future results and current performance may be
higher or lower than the performance shown above.
Q: HOW WOULD YOU CHARACTERIZE THE INTERNATIONAL MARKET ENVIRONMENT DURING THE
FUND'S FISCAL YEAR?
A: For 2004, the MSCI EAFE Index outperformed the S&P 500 Index, marking three
consecutive years that the MSCI EAFE Index has outperformed the S&P 500 Index.
Emerging markets posted another strong year, outperforming both the MSCI EAFE
Index and the S&P 500 Index for four consecutive years, a reflection of the high
appetite for risk among market participants lured by historically low interest
rates.
During the year 2004, the international equity market continued to favor
smaller capitalization stocks over mega-capitalization stocks, lower quality
stocks over higher quality stocks, and value-oriented stocks over
growth-oriented stocks. Moreover, the U.S. dollar showed renewed weakness during
the quarter and emerging markets continued to outperform developed markets.
Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THAT TIME?
A: The combination of a negative market-cap effect, negative credit-quality
effect, weaker U.S. dollar, and strong emerging markets weighed heavily on the
Fund's relative performance in 2004. These conditions help explain the
underperformance of the Fund versus the MSCI EAFE Index, a benchmark with a much
larger scope than the Fund's international universe of high quality
large-capitalization stocks.
For the full year, the below-investment-grade companies were the best
performing group, while the triple-A-rated and double-A-rated companies
noticeably underperformed the market. Thus, 2004 like 2003 was not a good year
for quality stocks, a phenomenon confirmed by the strong performance of emerging
market stocks during the year. This result affected the Fund, which invests
exclusively in companies rated triple-B-plus or above.
24
Phoenix-Kayne International Fund (continued)
During the year, mega-capitalization stocks--those with a market
capitalization above $40 billion--underperformed the market, while smaller
capitalization stocks outperformed. Thus, 2004 was another year of negative
market-capitalization effect. This factor affected the Fund, which has nearly
50% of its holdings in mega-cap companies.
Q: WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS?
A: The Fund focuses on the highest quality companies available outside the U.S.,
which are more readily available in the developed world. Traditionally, the Fund
benefits from a clear flight to quality, from a strengthening U.S. dollar, and
from weakness in emerging markets. We continue to believe that the emerging
stance toward higher interest rates in the U.S. will progressively benefit the
stocks of the financially strongest companies, help to support the U.S. dollar,
and re-channel the global flows of capital away from the risky emerging markets
toward the safer developed markets. Therefore, we are confident that patience
will reward our international equity strategy in the long term.
JANUARY 2005
THE PRECEDING INFORMATION IS THE OPINION OF PORTFOLIO MANAGEMENT. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT
MARKET FORECASTS DISCUSSED WILL BE REALIZED.
For definitions of indexes cited and certain investment terms used in this
report, see the glossary on page 3.
25
Phoenix-Kayne International Fund
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS 1 PERIODS ENDING 12/31/04
- --------------------------------------------------------------------------------
INCEPTION INCEPTION
1 YEAR 5 YEAR TO 12/31/04 DATE
------ ------ ----------- ---------
Class X Shares at NAV 2 13.56% (6.16)% 4.54% 10/18/96
Class A Shares at NAV 2 13.24 -- 13.83 8/30/02
Class A Shares at POP 3 6.73 -- 10.99 8/30/02
Class B Shares at NAV 2 12.43 -- 13.10 8/30/02
Class B Shares with CDSC 4 8.43 -- 12.00 8/30/02
Class C Shares at NAV 2 12.43 -- 13.10 8/30/02
Class C Shares with CDSC 4 12.43 -- 13.10 8/30/02
S&P 500(R) Index 10.86 (2.31) Note 5 Note 5
MSCI EAFE(R) Index (Net) 20.25 (1.13) Note 6 Note 6
- --------------------------------------------------------------------------------
GROWTH OF $10,000 PERIODS ENDING 12/31
- --------------------------------------------------------------------------------
This Growth of $10,000 chart assumes an initial investment of $10,000 made on
10/18/96 (inception of the Fund) in Class X shares. The total return for Class X
shares reflects no sales charge. Performance assumes dividends and capital gains
are reinvested. The performance of the share classes will be greater or less
than that shown based on differences in inception dates, fees and sales charges.
[CHART OMITTED - GRAPHIC INTERPRETATION OF DATA IS AS FOLLOWS]
Phoenix-Kayne
International S&P 500(R) MSCI EAFE(R)
Fund Class X 7 Index Index (Net)
-------------- ---------- ------------
10/18/96 $10,000 $10,000 $10,000
12/31/96 10,256 10,474 10,264
12/31/97 11,940 13,970 10,447
12/31/98 15,101 17,988 12,536
12/31/99 19,792 21,789 15,916
12/29/00 17,882 19,788 13,661
12/31/01 12,571 17,438 10,732
12/31/02 10,052 13,584 9,021
12/31/03 12,680 17,484 12,502
12/31/04 14,399 19,383 15,033
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS 12/31/04
- --------------------------------------------------------------------------------
As a percentage of total investments
[CHART OMITTED - GRAPHIC INTERPRETATION OF DATA IS AS FOLLOWS]
United Kingdom 21%
Japan 18
France 17
Switzerland 11
Italy 5
Germany 5
Netherlands 5
Other 18
1 Total returns are historical and include changes in share price and the
reinvestment of both dividends and capital gain distributions.
2 "NAV" (Net Asset Value) total returns do not include the effect of any sales
charge.
3 "POP" (Public Offering Price) total returns include the effect of the maximum
front-end 5.75% sales charge.
4 CDSC (contingent deferred sales charge) is applied to redemptions of certain
classes of shares that do not have a sales charge applied at the time of
purchase. CDSC charges for B shares decline from 5% to 0% over a five year
period. CDSC charges for C shares are 1% in the first year and 0% thereafter.
5 Index performance is 8.40% for Class X (since 10/31/96) and 14.73% for Class
A, Class B, Class C (since 8/30/02).
6 Index performance is 5.11% for Class X (since 10/18/96) and 21.71% for Class
A, Class B, Class C (since 8/30/02).
7 This chart illustrates NAV returns on Class X shares since inception. Returns
on Class A, Class B and Class C shares will vary due to differing sales
charges.
For information regarding the indexes, see the glossary on page 3.
ALL RETURNS REPRESENT PAST PERFORMANCE WHICH, IS NO GUARANTEE OF FUTURE RESULTS.
CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE SHOWN. THE
INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE VISIT PHOENIXINVESTMENTS.COM FOR PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH-END.
26
Phoenix-Kayne International Fund
ABOUT YOUR FUND'S EXPENSES
We believe it is important for you to understand the impact of costs on your
investment. All mutual funds have operating expenses. As a shareholder of the
Kayne International Fund, you incur two types of costs: (1) transaction costs,
including sales charges on purchases of Class A shares and contingent deferred
sales charges on Class B and Class C shares; and (2) ongoing costs, including
investment advisory fees; distribution and service fees and other expenses.
Class X shares are sold without a sales charge and do not incur distribution and
service fees. These examples are intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds. These examples are based on an
investment of $1,000 invested at the beginning of the period and held for the
entire six-month period.
ACTUAL EXPENSES
The first line of the accompanying tables provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the accompanying tables provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not your Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your Fund and other funds. To do so, compare these
5% hypothetical examples with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the accompanying tables are meant to
highlight your ongoing costs only and do not reflect any transactional costs,
such as sales charges or contingent deferred sales charges. Therefore, the
second line of the accompanying tables is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher. The calculations assume no shares were bought or
sold during the period. Your actual costs may have been higher or lower,
depending on the amount of your investment and the timing of any purchases or
redemptions.
Beginning Ending Expenses Paid
International Fund Account Value Account Value During
Class X June 30, 2004 December 31, 2004 Period*
- ----------------------- ------------- ----------------- -------------
Actual $1,000.00 $1,120.00 $7.46
Hypothetical (5% return
before expenses) 1,000.00 1,018.01 7.12
*EXPENSES ARE EQUAL TO THE FUND'S CLASS X ANNUALIZED EXPENSE RATIO OF 1.40%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS X
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 13.56%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,135.60.
Beginning Ending Expenses Paid
International Fund Account Value Account Value During
Class A June 30, 2004 December 31, 2004 Period*
- ----------------------- ------------- ----------------- -------------
Actual $1,000.00 $1,119.20 $8.79
Hypothetical (5% return
before expenses) 1,000.00 1,016.73 8.40
*EXPENSES ARE EQUAL TO THE FUND'S CLASS A ANNUALIZED EXPENSE RATIO OF 1.65%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS A
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 13.24%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,132.40.
Beginning Ending Expenses Paid
International Fund Account Value Account Value During
Class B June 30, 2004 December 31, 2004 Period*
- ----------------------- ------------- ----------------- -------------
Actual $1,000.00 $1,114.10 $12.77
Hypothetical (5% return
before expenses) 1,000.00 1,012.91 12.23
*EXPENSES ARE EQUAL TO THE FUND'S CLASS B ANNUALIZED EXPENSE RATIO OF 2.40%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS B
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 12.43%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,124.30.
27
Phoenix-Kayne International Fund
Beginning Ending Expenses Paid
International Fund Account Value Account Value During
Class C June 30, 2004 December 31, 2004 Period*
- ----------------------- ------------- ----------------- -------------
Actual $1,000.00 $1,115.00 $12.77
Hypothetical (5% return
before expenses) 1,000.00 1,012.91 12.23
*EXPENSES ARE EQUAL TO THE FUND'S CLASS C ANNUALIZED EXPENSE RATIO OF 2.40%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS C
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 12.43%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,124.30.
YOU CAN FIND MORE INFORMATION ABOUT THE FUND'S EXPENSES IN THE FINANCIAL
STATEMENTS SECTION THAT FOLLOWS. FOR ADDITIONAL INFORMATION ON OPERATING
EXPENSES AND OTHER SHAREHOLDER COSTS, PLEASE REFER TO THE PROSPECTUS.
28
Phoenix-Kayne International Fund
- --------------------------------------------------------------------------------------
TEN LARGEST HOLDINGS AT DECEMBER 31, 2004 (AS A PERCENTAGE OF TOTAL NET ASSETS)(d)
- --------------------------------------------------------------------------------------
1. BP plc 3.8% 6. UniCredito Italiano S.p.A. 2.3%
2. Total SA 3.2% 7. Air Liquide 2.3%
3. GlaxoSmithKline plc 2.8% 8. UBS AG 2.3%
4. Canon, Inc. 2.8% 9. iShares MSCI Japan Index Fund 2.2%
5. TIM S.p.A. 2.8% 10. Vodafone Group plc 2.2%
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2004
SHARES VALUE
------ -----------
FOREIGN COMMON STOCKS(c)--96.8%
AUSTRALIA--2.2%
Rio Tinto Ltd. (Diversified Metals & Mining) .......... 23,000 $ 705,324
Telstra Corp. Ltd. (Integrated Telecommunication
Services) ............................................. 159,000 611,984
-----------
1,317,308
-----------
BELGIUM--2.1%
Dexia (Diversified Banks) ............................. 26,600 611,760
Fortis (Multi-Sector Holdings) ........................ 22,700 627,899
-----------
1,239,659
-----------
FRANCE--16.7%
Air Liquide (Industrial Gases) ........................ 7,285 1,346,690
AXA (Multi-line Insurance) ............................ 44,984 1,113,354
BNP Paribas (Diversified Banks) ....................... 17,000 1,231,616
Carrefour SA (Food Retail) ............................ 10,800 514,384
Groupe Danone (Packaged Foods & Meats) ................ 32,380 597,087
L'Oreal SA (Household Products) ....................... 11,100 842,646
Peugeot SA (Automobile Manufacturers) ................. 8,680 550,980
Sanofi-Aventia (Pharmaceuticals) ...................... 15,000 1,198,858
Societe Generale (Diversified Banks) .................. 6,600 667,895
Total SA (Integrated Oil & Gas) ....................... 17,496 1,921,761
-----------
9,985,271
-----------
GERMANY--4.6%
Altana AG (Health Care Supplies) ...................... 10,500 663,796
BASF AG (Diversified Chemicals) ....................... 10,800 778,035
Henkel KGaA (Household Products) ...................... 7,500 620,735
Siemens AG (Industrial Conglomerates) ................. 8,100 686,799
-----------
2,749,365
-----------
IRELAND--3.2%
Allied Irish Banks plc (Diversified Banks) ............ 48,875 1,014,437
Bank of Ireland (Diversified Banks) ................... 54,000 899,143
-----------
1,913,580
-----------
SHARES VALUE
------ -----------
ITALY--5.1%
TIM S.p.A. (Wireless Telecommunication Services) ...... 220,000 $ 1,644,692
UniCredito Italiano S.p.A. (Diversified Banks) ........ 240,600 1,383,360
-----------
3,028,052
-----------
JAPAN--17.6%
Canon, Inc. (Office Electronics) ...................... 31,000 1,672,978
Denso Corp. (Auto Parts & Equipment) .................. 22,600 605,416
Fanuc Ltd. (Industrial Machinery) ..................... 14,700 961,159
Kao Corp. (Household Products) ........................ 22,000 562,506
Kddi Corp. (Wireless Telecommunication Services) ...... 100 538,694
Millea Holdings, Inc. (Property & Casualty Insurance) . 64 949,351
Mitsubishi Tokyo Financial Group, Inc. (Diversified
Banks) ................................................ 125 1,268,664
Nippon Telegraph & Telephone Corp. (Integrated
Telecommunication Services) ........................... 125 561,140
Secom Co. Ltd. (Diversified Commercial Services) ...... 15,000 600,176
Shin-Etsu Chemical Co. Ltd. (Diversified Chemicals) ... 21,800 893,530
SMC Corp. (Electrical Components & Equipment) ......... 9,100 1,041,700
Toyota Motor Corp. (Automobile Manufacturers) ......... 20,100 817,966
-----------
10,473,280
-----------
NETHERLANDS--4.6%
Koninklijke Philips Electronics NV (Aerospace &
Defense) .............................................. 44,500 1,180,094
STMicroelectronics NV (Semiconductors) ................ 45,300 883,587
Wolters Kluwer NV (Publishing & Printing) ............. 33,000 662,512
-----------
2,726,193
-----------
NORWAY--1.0%
Statoil ASA (Integrated Oil & Gas) .................... 37,800 592,902
SINGAPORE--1.1%
Singapore Technologies Engineering Ltd. (Aerospace &
Defense) .............................................. 444,000 633,742
See Notes to Financial Statements 29
Phoenix-Kayne International Fund
SHARES VALUE
------ -----------
SPAIN--4.7%
Banco Bilbao Vizcaya Argentaria SA (Diversified
Banks) ................................................ 55,000 $ 975,602
Banco Popular Espanol SA (Diversified Banks) .......... 10,000 659,236
Telefonica SA (Integrated Telecommunication
Services) ............................................. 62,050 1,168,972
-----------
2,803,810
-----------
SWEDEN--1.5%
Hennes & Mauritz AB Class B (Apparel Retail) .......... 25,600 891,805
SWITZERLAND--11.1%
Credit Suisse Group (Diversified Banks)(b) ............ 27,800 1,168,622
Nestle SA ADR (Packaged Foods & Meats) ................ 13,243 866,193
Nestle SA Registered Shares (Packaged Foods &
Meats) ................................................ 2,800 732,565
Novartis AG ADR (Pharmaceuticals) ..................... 22,976 1,161,207
Swiss Reinsurance (Property & Casualty Insurance) ..... 11,400 813,069
Swisscom AG (Integrated Telecommunication Services) ... 1,430 563,398
UBS AG (Diversified Capital Markets) .................. 15,990 1,340,820
-----------
6,645,874
-----------
UNITED KINGDOM--21.3%
AstraZeneca plc (Pharmaceuticals) ..................... 14,155 513,359
BP plc (Integrated Oil & Gas) ......................... 233,950 2,281,738
Compass Group plc (Restaurants) ....................... 251,835 1,190,615
Diageo plc (Distillers & Vintners) .................... 46,800 667,596
GlaxoSmithKline plc (Pharmaceuticals) ................. 72,073 1,690,919
HBOS plc (Diversified Banks) .......................... 43,000 700,073
Pearson plc (Publishing & Printing) ................... 47,924 578,279
Prudential plc (Life & Health Insurance) .............. 102,000 887,110
Reed Elsevier plc (Publishing & Printing) ............. 99,100 914,210
Royal Bank of Scotland Group plc (Diversified Banks) .. 37,200 1,251,284
Tesco plc (Food Retail) ............................... 118,000 728,919
Vodafone Group plc (Wireless Telecommunication
Services) ............................................. 46,980 1,286,312
-----------
12,690,414
-----------
- -----------------------------------------------------------------------------
TOTAL FOREIGN COMMON STOCKS
(IDENTIFIED COST $44,913,993) 57,691,255
- -----------------------------------------------------------------------------
SHARES VALUE
------ -----------
EXCHANGE TRADED FUNDS--2.9%
iShares MSCI EAFE Index Fund (Exchange Traded
Funds) ................................................ 2,450 $ 392,612
iShares MSCI Japan Index Fund (Exchange Traded
Funds) ................................................ 122,000 1,332,240
- -----------------------------------------------------------------------------
TOTAL EXCHANGE TRADED FUNDS
(IDENTIFIED COST $1,602,377) 1,724,852
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS--99.7%
(IDENTIFIED COST $46,516,370) 59,416,107(a)
Other assets and liabilities, net--0.3% 160,735
-----------
NET ASSETS--100.0% $59,576,842
===========
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $12,929,315 and gross
depreciation of $652,578 for federal income tax purposes. At December 31,
2004, the aggregate cost of securities for federal income tax purposes was
$47,139,370.
(b) Non-income producing.
(c) Foreign Common Stocks are determined based on the country in which the
security or underlying security is issued. The country of risk, noted in the
header, is determined based on criteria described in Note 2J "Foreign
security country determination" in the Notes to Financial Statements.
(d) Table excludes short-term investments.
30 See Notes to Financial Statements
Phoenix-Kayne International Fund
INDUSTRY DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF
TOTAL LONG-TERM INVESTMENTS
(UNAUDITED)
Aerospace & Defense .......................... 3.0%
Apparel Retail ............................... 1.5
Auto Parts & Equipment ....................... 1.0
Automobile Manufacturers ..................... 2.3
Distillers & Vintners ........................ 1.1
Diversified Banks ............................ 19.9
Diversified Capital Markets .................. 2.3
Diversified Chemicals ........................ 2.8
Diversified Commercial Services .............. 1.0
Diversified Metals & Mining .................. 1.2
Electrical Components & Equipment ............ 1.7
Exchange Traded Funds ........................ 2.9
Food Retail .................................. 2.1
Health Care Supplies ......................... 1.1
Household Products ........................... 3.4
Industrial Conglomerates ..................... 1.2
Industrial Gases ............................. 2.3
Industrial Machinery ......................... 1.6
Integrated Oil & Gas ......................... 8.1
Integrated Telecommunication Services ........ 4.9
Life & Health Insurance ...................... 1.5
Multi-Sector Holdings ........................ 1.1
Multi-line Insurance ......................... 1.9
Office Electronics ........................... 2.8
Packaged Foods & Meats ....................... 3.7
Pharmaceuticals .............................. 7.7
Property & Casualty Insurance ................ 3.0
Publishing & Printing ........................ 3.6
Restaurants .................................. 2.0
Semiconductors ............................... 1.5
Wireless Telecommunication Services .......... 5.8
-----
100.0%
=====
See Notes to Financial Statements 31
Phoenix-Kayne International Fund
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
ASSETS
Investment securities at value
(Identified cost $46,516,370) $59,416,107
Cash 111,960
Foreign currency at value
(Identified cost $461,419) 470,509
Receivables
Fund shares sold 59,690
Dividends 50,638
Tax reclaims 27,348
Prepaid expenses 22,241
-----------
Total assets 60,158,493
-----------
LIABILITIES
Payables
Investment securities purchased 470,509
Fund shares repurchased 32,340
Professional fee 24,879
Investment advisory fee 16,333
Transfer agent fee 10,857
Financial agent fee 5,215
Distribution and service fees 3,460
Trustees' fees 2,882
Accrued expenses 15,176
-----------
Total liabilities 581,651
-----------
NET ASSETS $59,576,842
===========
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $70,839,142
Undistributed net investment income 42,944
Accumulated net realized loss (24,209,674)
Net unrealized appreciation 12,904,430
-----------
NET ASSETS $59,576,842
===========
CLASS X
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $46,748,246) 3,671,695
Net asset value and offering price per share $12.73
CLASS A
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $11,377,013) 897,461
Net asset value per share $12.68
Offering price per share $12.68/(1-5.75%) $13.45
CLASS B
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $389,387) 30,900
Net asset value and offering price per share $12.60
CLASS C
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $1,062,196) 84,305
Net asset value and offering price per share $12.60
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
INVESTMENT INCOME
Dividends $1,532,013
Interest 4,238
Security lending 4,110
Foreign taxes withheld (160,319)
----------
Total investment income 1,380,042
----------
EXPENSES
Investment advisory fee 530,258
Service fees, Class A 25,351
Distribution and service fees, Class B 2,712
Distribution and service fees, Class C 7,763
Financial agent fee 71,304
Administration fee 56,475
Transfer agent 65,565
Custodian 45,719
Professional 36,732
Registration 36,199
Trustees 24,238
Printing 10,664
Miscellaneous 13,210
----------
Total expenses 926,190
Less expenses reimbursed by investment adviser (108,890)
Custodian fees paid indirectly (44)
----------
Net expenses 817,256
----------
NET INVESTMENT INCOME 562,786
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 838,210
Net realized loss on foreign currency transactions (58,218)
Net change in unrealized appreciation (depreciation) on
investments 5,804,034
Net change in unrealized appreciation (depreciation) on
foreign currency and foreign currency translations (1,039)
----------
NET GAIN ON INVESTMENTS 6,582,987
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,145,773
==========
32 See Notes to Financial Statements
Phoenix-Kayne International Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
12/31/04 12/31/03
-------------- --------------
FROM OPERATIONS
Net investment income (loss) $ 562,786 $ 397,955
Net realized gain (loss) 779,992 (6,440,756)
Net change in unrealized appreciation (depreciation) 5,802,995 17,342,192
----------- ------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 7,145,773 11,299,391
----------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income, Class X (408,160) (204,039)
Net investment income, Class A (69,738) (25,007)
Net investment income, Class B (74) --
Net investment income, Class C (209) --
----------- ------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (478,181) (229,046)
----------- ------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (838,947 and 1,366,544 shares, respectively) 9,607,428 12,834,307
Net asset value of shares issued from reinvestment of
distributions (20,594 and 13,861 shares, respectively) 247,250 153,020
Cost of shares repurchased (814,640 and 3,375,056 shares, respectively) (9,405,866) (32,146,995)
----------- ------------
Total 448,812 (19,159,668)
----------- ------------
CLASS A
Proceeds from sales of shares (215,708 and 1,170,998 shares, respectively) 2,477,322 11,154,384
Net asset value of shares issued from reinvestment of
distributions (5,756 and 2,263 shares, respectively) 69,334 24,891
Cost of shares repurchased (174,457 and 339,778 shares, respectively) (1,989,541) (3,169,700)
----------- ------------
Total 557,115 8,009,575
----------- ------------
CLASS B
Proceeds from sales of shares (20,499 and 14,162 shares, respectively) 234,135 133,689
Net asset value of shares issued from reinvestment of
distributions (7 and 0 shares, respectively) 74 --
Cost of shares repurchased (3,352 and 11,367 shares, respectively) (37,604) (105,759)
----------- ------------
Total 196,605 27,930
----------- ------------
CLASS C
Proceeds from sales of shares (47,786 and 65,781 shares, respectively) 549,915 617,964
Net asset value of shares issued from reinvestment of
distributions (17 and 0 shares, respectively) 198 --
Cost of shares repurchased (20,048 and 20,284 shares, respectively) (226,867) (188,779)
----------- ------------
Total 323,246 429,185
----------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS 1,525,778 (10,692,978)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS 8,193,370 377,367
NET ASSETS
Beginning of period 51,383,472 51,006,105
----------- ------------
END OF PERIOD [INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME
OF $42,944 AND $16,556, RESPECTIVELY] $59,576,842 $ 51,383,472
=========== ============
See Notes to Financial Statements 33
Phoenix-Kayne International Fund
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
CLASS X
--------------------------------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------------------------
2004 2003 2002 2001 2000
Net asset value, beginning of period $11.31 $ 9.01 $11.32 $16.15 $18.47
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.13 (2) 0.09 (2) 0.03 0.04 0.03
Net realized and unrealized gain (loss) 1.40 2.26 (2.29) (4.83) (1.82)
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 1.53 2.35 (2.26) (4.79) (1.79)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.11) (0.05) (0.03) (0.04) (0.03)
Distributions from net realized gain -- -- -- -- (0.50)
Return of capital -- -- (0.02) -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.11) (0.05) (0.05) (0.04) (0.53)
------ ------ ------ ------ ------
Change in net asset value 1.42 2.30 (2.31) (4.83) (2.32)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.73 $11.31 $ 9.01 $11.32 $16.15
====== ====== ====== ====== ======
Total return 13.56% 26.15% (20.04)% (29.72)% (9.65)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $46,748 $41,013 $50,656 $56,513 $51,828
RATIO TO AVERAGE NET ASSETS OF:
Net operating expenses 1.40% 1.40% 1.41 % 1.38 % 1.38 %
Gross operating expenses 1.60% 1.77% 1.41 % 1.38 % 1.38 %
Net investment income (loss) 1.08% 0.93% 0.49 % 0.09 % 0.24 %
Portfolio turnover 33% 49% 65 % 88 % 35 %
CLASS A
-----------------------------------
YEAR ENDED FROM INCEPTION
------------------ 8/30/02 TO
2004 2003 12/31/02
Net asset value, beginning of period $11.27 $ 9.01 $ 9.45
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.10 (2) (0.03) (2) (0.03)
Net realized and unrealized gain (loss) 1.39 2.32 (0.41)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 1.49 2.29 (0.44)
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.08) (0.03) --
------ ------ ------
TOTAL DISTRIBUTIONS (0.08) (0.03) --
------ ------ ------
Change in net asset value 1.41 2.26 (0.44)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.68 $11.27 $ 9.01
====== ====== ======
Total return (1) 13.24% 25.56 % (4.76)% (3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $11,377 $9,582 $153
RATIO TO AVERAGE NET ASSETS OF:
Net operating expenses 1.65% 1.65 % 1.66 % (4)
Gross operating expenses 1.85% 1.98 % 1.66 % (4)
Net investment income (loss) 0.81% (0.31)% 0.24 % (4)
Portfolio turnover 33% 49 % 65 % (3)
<FN>
(1) Sales charges are not reflected in the total return calculation.
(2) Computed using average shares outstanding.
(3) Not annualized.
(4) Annualized.
</FN>
See Notes to Financial Statements
34
Phoenix-Kayne International Fund
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
CLASS B
--------------------------------------
YEAR ENDED FROM INCEPTION
------------------ 8/30/02 TO
2004 2003 12/31/02
Net asset value, beginning of period $11.21 $ 8.98 $ 9.45
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) --(4)(5) (0.03)(4) (0.06)
Net realized and unrealized gain (loss) 1.39 2.26 (0.41)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 1.39 2.23 (0.47)
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income --(5) -- --
------ ------ ------
TOTAL DISTRIBUTIONS -- -- --
------ ------ -------
Change in net asset value 1.39 2.23 (0.47)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.60 $11.21 $ 8.98
====== ====== ======
Total return (1) 12.43 % 24.83 % (4.97)% (2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $389 $154 $98
RATIO TO AVERAGE NET ASSETS OF:
Net operating expenses 2.40 % 2.40 % 2.41 % (3)
Gross operating expenses 2.60 % 2.73 % 2.41 % (3)
Net investment income (loss) (0.01)% (0.27)% (0.51)% (3)
Portfolio turnover 33 % 49 % 65 % (2)
CLASS C
--------------------------------------
YEAR ENDED FROM INCEPTION
------------------ 8/30/02 TO
2004 2003 12/31/02
Net asset value, beginning of period $11.21 $ 8.98 $ 9.45
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) -- (4)(5) (0.06)(4) (0.06)
Net realized and unrealized gain (loss) 1.39 2.29 (0.41)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 1.39 2.23 (0.47)
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income -- (5) -- --
------ ------ ------
TOTAL DISTRIBUTIONS -- -- --
------ ------ ------
Change in net asset value 1.39 2.23 (0.47)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.60 $11.21 $ 8.98
====== ====== ======
Total return (1) 12.43% 24.83 % (4.97)% (2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $1,062 $634 $99
RATIO TO AVERAGE NET ASSETS OF:
Net operating expenses 2.40% (5) 2.40 % 2.41 % (3)
Gross operating expenses 2.60% 2.73 % 2.41 % (3)
Net investment income (loss) 0.02% (0.70)% (0.51)% (3)
Portfolio turnover 33% 49 % 65 %
<FN>
(1) Sales charges are not reflected in the total return calculation.
(2) Not annualized.
(3) Annualized.
(4) Computed using average shares outstanding.
(5) Amount is less than $0.01.
</FN>
See Notes to Financial Statements 35
PHOENIX-KAYNE RISING DIVIDENDS FUND
A DISCUSSION WITH THE FUND'S PORTFOLIO MANAGEMENT TEAM
Q: WHAT IS THE PHOENIX-KAYNE RISING DIVIDENDS FUND'S INVESTMENT OBJECTIVE?
A: The Fund has an investment objective of long-term capital appreciation, with
dividend income a secondary consideration. There is no guarantee the Fund will
achieve its objective.
Q: HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED DECEMBER 31, 2004?
A: For the 12-month reporting period, the Fund's Class A shares returned 4.61%,
Class B shares returned 3.80%, Class C shares returned 3.85%, and Class X shares
returned 4.76%. For the same period, the S&P 500(R) Index, a broad-based equity
index and the Fund's style-specific benchmark, returned 10.86%. All performance
figures assume reinvestment of distributions and exclude the effect of sales
charges. Past performance is no guarantee of future results and current
performance may be higher or lower than the performance shown above.
Q: HOW WOULD YOU CHARACTERIZE THE EQUITY MARKET ENVIRONMENT DURING THE FUND'S
FISCAL YEAR?
A: Definite themes were apparent in the full year of 2004. The stocks of smaller
companies and lower quality companies performed much better than did the stocks
of larger companies and higher quality companies. To illustrate, those companies
in the S&P 500 Index with market capitalization of $75 billion or greater
returned 4.75% in 2004, while the companies in the S&P 500 Index under $10
billion in market capital returned 19.11%. The companies in the S&P 500 Index
with an S&P bond credit rating of triple-A returned 6.59% for the year, while
those companies with debt rated below investment grade returned 17.23%.
Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THAT TIME?
A: The Fund underperformed the S&P 500 Index in 2004 and the return of the Fund
was more in line with that of the Dow Jones Industrial Average. To a substantial
degree, the Fund's underperformance versus the S&P 500 Index reflected the
strong returns of lower quality and smaller companies. The Fund is focused
exclusively on higher quality companies and is larger in capitalization than the
S&P 500 Index.
However, negative stock selection did play a role in the underperformance.
In particular, the underperformance of Marsh & McLennan, Merck, and Pfizer
significantly detracted from the total return for the year. Marsh & McLennan and
Merck were sold from the portfolio. The position in Pfizer was increased in
December because the safety data news on Celebrex appeared to be substantially
discounted into the stock price, which appeared attractive. Pfizer has a very
strong financial position and, in our view, is a well-managed company.
Q: WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS?
A: A stock market environment favoring lower quality and smaller companies does
not play to the strengths of the Fund, which focuses on high quality larger cap
companies. However, historically, the Fund has performed well during periods
when the earnings momentum in the overall economy cyclically peaks and begins to
decelerate. Such earnings deceleration appears to be occurring now. Higher
quality companies generate more consistent earnings and dividend growth. These
attributes
36
Phoenix-Kayne Rising Dividends Fund (continued)
become more prized during a general earnings deceleration.
Given the historical defensiveness of the Fund, reflecting its quality
attributes and stream of cash dividends, the Fund also tends to perform well on
a relative basis in periods of rising interest rates, as was evident in the
spring of 2004. In view of the inflationary pressures that are developing, the
Federal Reserve appears intent on continuing to increase short-term interest
rates.
Over the longer term, the Fund is well positioned to generate consistent
double-digit earnings and dividend growth, which provide solid underpinnings for
long-term growth of investor capital.
JANUARY 2005
THE PRECEDING INFORMATION IS THE OPINION OF PORTFOLIO MANAGEMENT. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT
MARKET FORECASTS DISCUSSED WILL BE REALIZED.
For definitions of indexes cited and certain investment terms used in this
report, see the glossary on page 3.
37
Phoenix-Kayne Rising Dividends Fund
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS 1 PERIODS ENDING 12/31/04
- --------------------------------------------------------------------------------
INCEPTION INCEPTION
1 YEAR 5 YEAR TO 12/31/04 DATE
------ ------ ----------- ---------
Class X Shares at NAV 2 4.76% (2.19)% 8.68% 5/1/95
Class A Shares at NAV 2 4.61 -- 7.66 8/30/02
Class A Shares at POP 3 (1.41) -- 4.97 8/30/02
Class B Shares at NAV 2 3.80 -- 6.86 8/30/02
Class B Shares with CDSC 4 (0.20) -- 5.68 8/30/02
Class C Shares at NAV 2 3.85 -- 6.86 8/30/02
Class C Shares with CDSC 4 3.85 -- 6.86 8/30/02
S&P 500(R) Index 10.86 (2.31) Note 5 Note 5
- --------------------------------------------------------------------------------
GROWTH OF $10,000 PERIODS ENDING 12/31
- --------------------------------------------------------------------------------
This Growth of $10,000 chart assumes an initial investment of $10,000 made on
5/1/95 (inception of the Fund) in Class X shares. The total return for Class X
shares reflects no sales charge. Performance assumes dividends and capital gains
are reinvested. The performance of other shares will be greater or less than
that shown based on differences in inception dates, fees and sales charges.
[CHART OMITTED - GRAPHIC INTERPRETATION OF DATA IS AS FOLLOWS]
Phoenix-Kayne
Rising
Dividends Fund S&P 500(R)
Class X 6 Index
-------------- ----------
5/1/95 $10,000 $10,000
12/29/95 12,065 12,184
12/31/96 14,368 15,017
12/31/97 18,821 20,029
12/31/98 21,483 25,789
12/31/99 24,991 31,239
12/29/00 24,492 28,369
12/31/01 21,791 25,000
12/31/02 18,032 19,475
12/31/03 21,359 25,067
12/31/04 22,376 27,789
- --------------------------------------------------------------------------------
SECTOR WEIGHTINGS 12/31/04
- --------------------------------------------------------------------------------
As a percentage of total investments
[CHART OMITTED - GRAPHIC INTERPRETATION OF DATA IS AS FOLLOWS]
Financials 18%
Information Technology 17
Consumer Staples 17
Health Care 12
Industrials 12
Consumer Discretionary 11
Energy 5
Other 8
1 Total returns are historical and include changes in share price and the
reinvestment of both dividends and capital gain distributions.
2 "NAV" (Net Asset Value) total returns do not include the effect of any sales
charge.
3 "POP" (Public Offering Price) total returns include the effect of the maximum
frontend 5.75% sales charge.
4 CDSC (contingent deferred sales charge) is applied to redemptions of certain
classes of shares that do not have a sales charge applied at the time of
purchase. CDSC charges for B shares decline from 5% to 0% over a five year
period. CDSC charges for C shares are 1% in the first year and 0% thereafter.
5 Index performance is 11.14% for Class X (since 5/1/95) and 14.73% for Class A,
Class B and Class C (since 8/30/02).
6 This chart illustrates NAV returns on Class X shares since inception. Returns
on Class A, Class B and Class C shares will vary due to differing sales
charges.
For information regarding the index, see the glossary on page 3.
ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS.
CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE SHOWN. THE
INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE VISIT PHOENIXINVESTMENTS.COM FOR PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH-END.
38
Phoenix-Kayne Rising Dividends Fund
ABOUT YOUR FUND'S EXPENSES
We believe it is important for you to understand the impact of costs on your
investment. All mutual funds have operating expenses. As a shareholder of the
Kayne Rising Dividends Fund, you incur two types of costs: (1) transaction
costs, including sales charges on purchases of Class A shares and contingent
deferred sales charges on Class B and Class C shares; and (2) ongoing costs,
including investment advisory fees; distribution and service fees; and other
expenses. Class X shares are sold without a sales charge and do not incur
distribution and service fees. These examples are intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of
the period and held for the entire six-month period.
ACTUAL EXPENSES
The first line of the accompanying tables provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the accompanying tables provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not your Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your Fund and other funds. To do so, compare these
5% hypothetical examples with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the accompanying tables are meant to
highlight your ongoing costs only and do not reflect any transactional costs,
such as sales charges or contingent deferred sales charges. Therefore, the
second line of the accompanying tables is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs could have been higher. The calculations assume no shares were bought or
sold during the period. Your actual costs may have been higher or lower,
depending on the amount of your investment and the timing of any purchases or
redemptions.
Beginning Ending Expenses Paid
Rising Dividends Fund Account Value Account Value During
Class X June 30, 2004 December 31, 2004 Period*
- ---------------------- -------------- ----------------- -------------
Actual $1,000.00 $1,006.90 $5.10
Hypothetical (5% return
before expenses) 1,000.00 1,019.99 5.15
*EXPENSES ARE EQUAL TO THE FUND'S CLASS X ANNUALIZED EXPENSE RATIO OF 1.01%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS X
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 4.76%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,047.60.
Beginning Ending Expenses Paid
Rising Dividends Fund Account Value Account Value During
Class A June 30, 2004 December 31, 2004 Period*
- ---------------------- -------------- ----------------- -------------
Actual $1,000.00 $1,005.70 $6.37
Hypothetical (5% return
before expenses) 1,000.00 1,018.70 6.44
*EXPENSES ARE EQUAL TO THE FUND'S CLASS A ANNUALIZED EXPENSE RATIO OF 1.26%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS A
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 4.61%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,046.10.
Beginning Ending Expenses Paid
Rising Dividends Fund Account Value Account Value During
Class B June 30, 2004 December 31, 2004 Period*
- ---------------------- -------------- ----------------- -------------
Actual $1,000.00 $1,002.40 $10.16
Hypothetical (5% return
before expenses) 1,000.00 1,014.86 10.27
*EXPENSES ARE EQUAL TO THE FUND'S CLASS B ANNUALIZED EXPENSE RATIO OF 2.02%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS B
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 3.80%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,038.00.
39
Phoenix-Kayne Rising Dividends Fund
Beginning Ending Expenses Paid
Rising Dividends Fund Account Value Account Value During
Class C June 30, 2004 December 31, 2004 Period*
- ---------------------- -------------- ----------------- -------------
Actual $1,000.00 $1,002.20 $10.16
Hypothetical (5% return
before expenses) 1,000.00 1,014.86 10.28
*EXPENSES ARE EQUAL TO THE FUND'S CLASS C ANNUALIZED EXPENSE RATIO OF 2.02%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS C
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 3.85%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,038.50.
YOU CAN FIND MORE INFORMATION ABOUT THE FUND'S EXPENSES IN THE FINANCIAL
STATEMENTS SECTION THAT FOLLOWS. FOR ADDITIONAL INFORMATION ON OPERATING
EXPENSES AND OTHER SHAREHOLDER COSTS, PLEASE REFER TO THE PROSPECTUS.
40
Phoenix-Kayne Rising Dividends Fund
- ----------------------------------------------------------------------------------------------------
TEN LARGEST HOLDINGS AT DECEMBER 31, 2004 (AS A PERCENTAGE OF TOTAL NET ASSETS)(c)
- ----------------------------------------------------------------------------------------------------
1. General Electric Capital Corp. 5.3% 6. Wells Fargo & Co. 4.0%
2. Exxon Mobil Corp. 4.7% 7. Automatic Data Processing, Inc. 4.0%
3. Home Depot, Inc. (The) 4.5% 8. Linear Technology Corp. 3.9%
4. Johnson & Johnson 4.4% 9. Procter & Gamble Co. (The) 3.7%
5. Pfizer, Inc. 4.2% 10. Citigroup, Inc. 3.7%
- ----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2004
SHARES VALUE
------ -----------
DOMESTIC COMMON STOCKS--97.3%
ASSET MANAGEMENT & CUSTODY BANKS--3.1%
State Street Corp. .................................. 98,800 $ 4,853,056
COMPUTER HARDWARE--2.0%
International Business Machines Corp. ............... 30,810 3,037,250
CONSUMER FINANCE--1.5%
American Express Co. ................................ 42,300 2,384,451
DATA PROCESSING & OUTSOURCED SERVICES--4.0%
Automatic Data Processing, Inc. ..................... 140,830 6,245,810
DIVERSIFIED BANKS--4.0%
Wells Fargo & Co. ................................... 100,780 6,263,477
DIVERSIFIED CHEMICALS--2.8%
Du Pont (E.I.) de Nemours & Co. ..................... 87,400 4,286,970
DIVERSIFIED COMMERCIAL SERVICES--2.0%
Cintas Corp. ........................................ 71,200 3,122,832
ELECTRICAL COMPONENTS & EQUIPMENT--3.3%
Emerson Electric Co. ................................ 73,000 5,117,300
FOOD DISTRIBUTORS--2.4%
Sysco Corp. ......................................... 96,500 3,683,405
HEALTH CARE EQUIPMENT--2.0%
Medtronic, Inc. ..................................... 62,200 3,089,474
HOME FURNISHINGS--2.3%
Leggett & Platt, Inc. ............................... 127,100 3,613,453
HOME IMPROVEMENT RETAIL--4.5%
Home Depot, Inc. (The) .............................. 165,650 7,079,881
HOUSEHOLD PRODUCTS--3.7%
Procter & Gamble Co. (The) .......................... 106,000 5,838,480
HYPERMARKETS & SUPER CENTERS--2.6%
Wal-Mart Stores, Inc. ............................... 75,400 3,982,628
SHARES VALUE
------ -----------
INDUSTRIAL CONGLOMERATES--5.3%
General Electric Co. ................................ 226,960 $ 8,284,040
INDUSTRIAL MACHINERY--1.5%
Illinois Tool Works, Inc. ........................... 25,320 2,346,658
INTEGRATED OIL & GAS--4.7%
Exxon Mobil Corp. ................................... 142,340 7,296,348
INTEGRATED TELECOMMUNICATION SERVICES--2.7%
SBC Communications, Inc. ............................ 163,200 4,205,664
MOTORCYCLE MANUFACTURERS--2.4%
Harley-Davidson, Inc. ............................... 60,900 3,699,675
OTHER DIVERSIFIED FINANCIAL SERVICES--3.7%
Citigroup, Inc. ..................................... 119,400 5,752,692
PACKAGED FOODS & MEATS--3.1%
Sara Lee Corp. ...................................... 128,300 3,097,162
Wrigley (Wm.) Jr. Co. ............................... 25,820 1,786,486
------------
4,883,648
------------
PHARMACEUTICALS--10.5%
Johnson & Johnson ................................... 107,770 6,834,773
Lilly (Eli) & Co. ................................... 51,700 2,933,975
Pfizer, Inc. ........................................ 245,400 6,598,806
------------
16,367,554
------------
PUBLISHING & PRINTING--1.9%
Gannett Co., Inc. ................................... 37,000 3,022,900
REGIONAL BANKS--5.6%
Fifth Third Bancorp ................................. 107,100 5,063,688
Synovus Financial Corp. ............................. 130,500 3,729,690
------------
8,793,378
------------
See Notes to Financial Statements 41
Phoenix-Kayne Rising Dividends Fund
SHARES VALUE
------ -----------
SEMICONDUCTORS--7.3%
Intel Corp. ......................................... 228,000 $ 5,332,920
Linear Technology Corp. ............................. 157,600 6,108,576
------------
11,441,496
------------
SOFT DRINKS--4.9%
Coca-Cola Co. (The) ................................. 112,860 4,698,362
PepsiCo, Inc. ....................................... 56,700 2,959,740
------------
7,658,102
------------
SYSTEMS SOFTWARE--3.5%
Microsoft Corp. ..................................... 207,180 5,533,778
- -----------------------------------------------------------------------------
TOTAL DOMESTIC COMMON STOCKS
(IDENTIFIED COST $136,547,483) 151,884,400
- -----------------------------------------------------------------------------
WARRANTS--0.0%
COMMUNICATIONS EQUIPMENT--0.0%
Lucent Technologies, Inc.(b) ........................ 14,267 22,542
- -----------------------------------------------------------------------------
TOTAL WARRANTS
(IDENTIFIED COST $22,185) 22,542
- -----------------------------------------------------------------------------
TOTAL LONG TERM INVESTMENTS--97.3%
(IDENTIFIED COST $136,569,668) 151,906,942
- -----------------------------------------------------------------------------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- ------ ------------
SHORT-TERM INVESTMENTS--2.4%
FEDERAL AGENCY SECURITIES--2.4%
FHLB 1%, 1/3/05 ............................ A-1+ $3,727 $ 3,726,793
- -----------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $3,726,793) 3,726,793
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS--99.7%
(IDENTIFIED COST $140,296,461) 155,633,735(a)
Other assets and liabilities, net--0.3% 416,947
------------
NET ASSETS--100.0% $156,050,682
============
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $20,869,896 and gross
depreciation of $6,037,706 for federal income tax purposes. At December 31,
2004, the aggregate cost of securities for federal income tax purposes was
$140,801,545.
(b) Non-income producing.
(c) Table excludes short-term investments.
42 See Notes to Financial Statements
Phoenix-Kayne Rising Dividends Fund
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
ASSETS
Investment securities at value
(Identified cost $140,296,461) $155,633,735
Cash 882
Receivables
Fund shares sold 425,689
Dividends and interest 232,983
Trustee retainer 2,816
Prepaid expenses 26,148
------------
Total assets 156,322,253
------------
LIABILITIES
Payables
Fund shares repurchased 105,101
Investment advisory fee 97,416
Professional fees 25,360
Distribution and service fees 15,958
Transfer agent fee 12,756
Financial agent fee 9,632
Accrued expenses 5,348
------------
Total liabilities 271,571
------------
NET ASSETS $156,050,682
============
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest$ $158,570,204
Undistributed net investment income 593,673
Accumulated net realized loss (18,450,469)
Net unrealized appreciation 15,337,274
------------
NET ASSETS $156,050,682
============
CLASS X
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $96,558,161) 6,053,637
Net asset value and offering price per share $15.95
CLASS A
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $53,368,839) 3,355,067
Net asset value per share $15.91
Offering price per share $15.91/(1-5.75%) $16.88
CLASS B
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $2,986,703) 189,481
Net asset value and offering price per share $15.76
CLASS C
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $3,136,979) 198,903
Net asset value and offering price per share $15.77
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
INVESTMENT INCOME
Dividends $3,249,355
Interest 36,066
Security lending 2,276
----------
Total investment income 3,287,697
----------
EXPENSES
Investment advisory fee 1,064,263
Service fees, Class A 106,170
Distribution and service fees, Class B 24,393
Distribution and service fees, Class C 23,880
Financial agent fee 72,102
Administration fee 76,677
Transfer agent 103,423
Registration 41,845
Custodian 33,757
Professional 29,970
Trustees 18,541
Printing 17,694
Miscellaneous 12,646
----------
Total expenses 1,625,361
----------
NET INVESTMENT INCOME 1,662,336
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 404,869
Net change in unrealized appreciation (depreciation) on
investments 4,306,551
----------
NET GAIN ON INVESTMENTS 4,711,420
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,373,756
==========
See Notes to Financial Statements 43
Phoenix-Kayne Rising Dividends Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
12/31/04 12/31/03
------------ ------------
FROM OPERATIONS
Net investment income (loss) $ 1,662,336 $ 469,727
Net realized gain (loss) 404,869 (3,486,365)
Net change in unrealized appreciation (depreciation) 4,306,551 20,351,108
------------ ------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 6,373,756 17,334,470
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income, Class X (1,111,168) (201,163)
Net investment income, Class A (419,864) (11,252)
Net investment income, Class B (3,205) (1,267)
Net investment income, Class C (2,729) (1,111)
------------ ------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (1,536,966) (214,793)
------------ ------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (1,380,241 and 1,250,880 shares, respectively) 21,627,667 16,952,203
Net asset value of shares issued from reinvestment of distributions
(39,607 and 9,414 shares, respectively) 631,250 133,675
Cost of shares repurchased (716,034 and 1,840,544 shares, respectively) (11,235,744) (26,496,577)
------------ ------------
Total 11,023,173 (9,410,699)
------------ ------------
CLASS A
Proceeds from sales of shares (1,681,448 and 1,795,261 shares, respectively) 26,244,605 25,695,166
Net asset value of shares issued from reinvestment of distributions
(26,018 and 763 shares, respectively) 413,479 10,818
Cost of shares repurchased (241,473 and 215,207 shares, respectively) (3,777,804) (3,001,765)
------------ ------------
Total 22,880,280 22,704,219
------------ ------------
CLASS B
Proceeds from sales of shares (110,300 and 98,526 shares, respectively) 1,713,590 1,380,545
Net asset value of shares issued from reinvestment of distributions
(126 and 72 shares, respectively) 1,990 1,021
Cost of shares repurchased (33,910 and 11,515 shares, respectively) (522,985) (158,007)
------------ ------------
Total 1,192,595 1,223,559
------------ ------------
CLASS C
Proceeds from sales of shares (95,231 and 121,194 shares, respectively) 1,478,747 1,690,342
Net asset value of shares issued from reinvestment of distributions
(142 and 63 shares, respectively) 2,234 890
Cost of shares repurchased (24,835 and 37,218 shares, respectively) (380,847) (497,184)
------------ ------------
Total 1,100,134 1,194,048
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS 36,196,182 15,711,127
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 41,032,972 32,830,804
NET ASSETS
Beginning of period 115,017,710 82,186,906
------------ ------------
END OF PERIOD [INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$593,673 AND $468,303, RESPECTIVELY] $156,050,682 $115,017,710
============ ============
44 See Notes to Financial Statements
Phoenix-Kayne Rising Dividends Fund
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
CLASS X
--------------------------------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------------------------
2004 2003 2002 2001 2000
Net asset value, beginning of period $15.40 $13.03 $15.81 $17.97 $18.67
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.20 (2) 0.07 (2) 0.06 0.05 0.06
Net realized and unrealized gain (loss) 0.53 2.33 (2.78) (2.03) (0.44)
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.73 2.40 (2.72) (1.98) (0.38)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.18) (0.03) (0.06) (0.05) (0.03)
Distributions from net realized gain -- -- -- (0.13) (0.29)
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.18) (0.03) (0.06) (0.18) (0.32)
------ ------ ------ ------ ------
Change in net asset value 0.55 2.37 (2.78) (2.16) (0.70)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $15.95 $15.40 $13.03 $15.81 $17.97
====== ====== ====== ====== ======
Total return 4.76% 18.45% (17.25)% (11.03)% (2.00)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $96,558 $82,361 $77,263 $104,770 $131,252
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 1.04% 1.19% 1.04 % 0.95 % 0.90 %
Net investment income (loss) 1.25% 0.53% 0.42 % 0.30 % 0.30 %
Portfolio turnover 22% 26% 26 % 32 % 42 %
CLASS A
-----------------------------------
YEAR ENDED FROM INCEPTION
------------------- 8/30/02 TO
2004 2003 12/31/02
Net asset value, beginning of period $15.35 $13.02 $13.53
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.17 (2) 0.05 (2) --
Net realized and unrealized gain (loss) 0.53 2.31 (0.51)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.70 2.36 (0.51)
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.14) (0.03) --
Distributions from net realized gain -- -- --
------ ------ ------
TOTAL DISTRIBUTIONS (0.14) (0.03) --
------ ------ ------
Change in net asset value 0.56 2.33
------ ------ ------
NET ASSET VALUE, END OF PERIOD $15.91 $15.35 $13.02
====== ====== ======
Total return (1) 4.61% 18.06% (3.77)% (3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $53,369 $28,988 $4,012
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 1.28% 1.44% 1.29 % (4)
Net investment income (loss) 1.09% 0.36% 0.17 % (4)
Portfolio turnover 22% 26% 26 % (3)
<FN>
(1) Sales charges are not reflected in the total return calculation.
(2) Computed using average shares outstanding.
(3) Not annualized.
(4) Annualized.
</FN>
See Notes to Financial Statements 45
Phoenix-Kayne Rising Dividends Fund
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
CLASS B
-----------------------------------
YEAR ENDED FROM INCEPTION
------------------- 8/30/02 TO
2004 2003 12/31/02
Net asset value, beginning of period $15.20 $12.98 $13.53
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.06 (4) (0.06) (4) (0.01)
Net realized and unrealized gain 0.52 2.30 (0.54)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.58 2.24 (0.55)
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.02) (0.02) --
Distributions from net realized gain -- -- --
------ ------ ------
TOTAL DISTRIBUTIONS (0.02) (0.02) --
------ ------ ------
Change in net asset value 0.56 2.22 (0.55)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $15.76 $15.20 $12.98
====== ====== ======
Total return (1) 3.80% 17.29 % (4.07)% (2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $2,987 $1,717 $336
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 2.04% 2.19 % 2.04 % (3)
Net investment income (loss) 0.36% (0.47)% (0.58)% (3)
Portfolio turnover 22% 26 % 26 % (2)
CLASS C
-----------------------------------
YEAR ENDED FROM INCEPTION
------------------- 8/30/02 TO
2004 2003 12/31/02
Net asset value, beginning of period $15.20 $12.98 $13.53
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.05 (4) (0.06) (4) (0.01)
Net realized and unrealized gain 0.54 2.30 (0.54)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.59 2.24 (0.55)
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income (0.02) (0.02) --
Distributions from net realized gain -- -- --
------ ------ ------
TOTAL DISTRIBUTIONS (0.02) (0.02) --
------ ------ ------
Change in net asset value 0.57 2.22 (0.55)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $15.77 $15.20 $12.98
====== ====== ======
Total return (1) 3.85% 17.24 % (4.07)% (2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $3,137 $1,952 $575
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 2.04% 2.19 % 2.04 % (3)
Net investment income (loss) 0.32% (0.47)% (0.58)% (3)
Portfolio turnover 22% 26 % 26 % (2)
<FN>
(1) Sales charges are not reflected in the total return calculation.
(2) Not annualized.
(3) Annualized.
(4) Computed using average shares outstanding.
</FN>
46 See Notes to Financial Statements
PHOENIX-KAYNE SMALL-MID CAP FUND
A DISCUSSION WITH THE FUND'S PORTFOLIO MANAGEMENT TEAM
Q: WHAT IS THE PHOENIX-KAYNE SMALL-MID CAP FUND'S INVESTMENT OBJECTIVE?
A: The Fund has an investment objective of long-term capital appreciation, with
dividend income as secondary consideration. Investing in the securities of small
and mid-sized companies involves risks, such as relatively low trading volumes,
more price volatility and less liquidity than securities from larger, more
established companies. There is no guarantee the Fund will achieve its
objective.
Q: HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED DECEMBER 31, 2004?
A: For the 12-month reporting period, the Fund's Class A shares returned 13.63%,
Class B shares returned 12.99%, Class C shares returned 13.03%, and Class X
shares returned 13.92%. For the same period, the S&P 500(R) Index, a broad-based
equity index, returned 10.86% and the Russell 2500(TM) Index, the Fund's
style-specific benchmark, returned 18.29%. All performance figures assume
reinvestment of distributions and exclude the effect of sales charges. Past
performance is no guarantee of future results and current performance may be
higher or lower than the performance shown above.
Q: HOW WOULD YOU CHARACTERIZE THE EQUITY MARKET ENVIRONMENT DURING THE FUND'S
FISCAL YEAR?
A: Small stocks outperformed large-capitalization stocks. With the strong
economic recovery, companies with cyclical earnings, such as those in the basic
materials, consumer durables, and capital goods sectors, produced strong
positive returns, but high energy prices made the volatile energy sector the
best performing sector for the year. The financial sector, a classic value
sector, also performed well in 2004. Low interest rates and a rapid economic
expansion allowed low quality companies, as measured by credit ratings and stock
rankings, to outperform high quality companies.
Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THAT TIME?
A: Although the Fund produced strong returns in 2004, the forces at play in the
marketplace did not support the Fund's investment style when compared to the
benchmark. The Fund invests in companies with strong balance sheets, while, in
2004, companies with poor credit ratings outperformed. In addition, the Fund
invests in companies with an S&P quality ranking of B-minus or higher, while in
general, companies with the lowest quality ranking produced the highest returns.
Finally, the Fund has a core investment style at a time when deep value stocks
outperformed.
Stock specific issues also affected performance. A stock that contributed
to the underperformance was 99 Cents Only Stores, a regional discount store
chain in the southwest with the best store-level economics in the industry. The
stock was affected by weak performance in its newly entered Texas market and by
inventory issues at its Southern California distribution facility. Management is
implementing several sales initiatives to address issues in Texas, which is a
more competitive market in terms of dollar stores than other areas. The company
is dealing with the inventory issues that affect the California distribution
center by introducing a new inventory management system. By taking the
corrective steps to beef up its inventory controls and by improving logistics in
new store openings, the company expects to restore earnings growth in 2005.
47
Phoenix-Kayne Small-Mid Cap Fund (continued)
A strong contributor to performance was Copart, the foremost auctioneer of
salvage vehicles for insurance companies. The company continues to have success
with its new Internet bidding platform as higher gross proceeds per vehicle and
increased customer reach have won increased market share and enhanced
profitability. We believe Copart is years ahead of the competition in this new
proprietary technology and should continue to reap benefits in auto auctions as
well as new applications in non-auto auctions.
Q: WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS?
A: We believe that the maturing of the economic recovery from the 2001-2002
recession, combined with five increases in the federal funds interest rate over
the past five months, should continue to dampen the rate of growth of corporate
earnings in 2005, as depicted in the chart below.
[CHART OMITTED - EDGAR REPRESENTATION OF DATA IS AS FOLLOWS]
TIGHT MONETARY POLICY AND SLOWING PROFIT GROWTH EXPECTED
Fed Funds and the profit Cycle (1/87-10/04)
S&P 500(R) Y/Y Fed Funds Y/Y Change
EPS Growth % (Bars) Basis Points (Line)
[CHART OMITTED - EDGAR REPRESENTATION OF DATA IS AS FOLLOWS]
S&P 500 AFTER TAX EPS
($/SHARE) ANNUAL YR/YR % CHANGE
SE500
1 Q 87 871 4.44 15.10 3.9945
2 Q 87 872 3.14 14.42 -1.9714
3 Q 87 873 5.32 15.86 6.8013
4 Q 87 874 4.60 17.50 20.8564
1 Q 88 881 5.53 18.59 23.1126
2 Q 88 882 6.22 21.67 50.2774
3 Q 88 883 6.38 22.73 43.3165
4 Q 88 884 5.62 23.75 35.7143
1 Q 89 891 6.74 24.96 34.2657
2 Q 89 892 6.48 25.22 16.3821
3 Q 89 893 4.85 23.69 4.2235
4 Q 89 894 4.80 22.87 -3.7053
1 Q 90 901 5.54 21.67 -13.1811
2 Q 90 902 6.07 21.26 -15.7018
3 Q 90 903 5.33 21.74 -8.2313
4 Q 90 904 4.40 21.34 -6.6900
1 Q 91 911 5.14 20.94 -3.3687
2 Q 91 912 4.54 19.41 -8.7018
3 Q 91 913 3.74 17.82 -18.0313
4 Q 91 914 2.55 15.97 -25.1640
1 Q 92 921 5.36 16.19 -22.6839
2 Q 92 922 5.40 17.05 -12.1587
3 Q 92 923 4.73 18.04 1.2346
4 Q 92 924 3.60 19.09 19.5366
1 Q 93 931 6.11 19.84 22.5448
2 Q 93 932 4.89 19.33 13.3724
3 Q 93 933 5.81 20.41 13.1375
4 Q 93 934 5.08 21.89 14.6674
1 Q 94 941 6.93 22.71 14.4657
2 Q 94 942 7.38 25.20 30.3673
3 Q 94 943 7.94 27.33 33.9049
4 Q 94 944 8.35 30.60 39.7899
1 Q 95 951 8.88 32.55 43.3289
2 Q 95 952 9.26 34.43 36.6270
3 Q 95 953 8.69 35.18 28.7230
4 Q 95 954 7.13 33.96 10.9804
1 Q 96 961 8.96 34.04 4.5776
2 Q 96 962 10.13 34.91 1.3941
3 Q 96 963 9.78 36.00 2.3309
4 Q 96 964 9.86 38.73 14.0459
1 Q 97 971 10.47 40.24 18.2139
2 Q 97 972 10.44 40.55 16.1558
3 Q 97 973 9.87 40.64 12.8889
4 Q 97 974 8.94 39.72 2.5562
1 Q 98 981 10.29 39.54 -1.7396
2 Q 98 982 9.87 38.97 -3.8964
3 Q 98 983 8.99 38.09 -6.2746
4 Q 98 984 8.56 37.71 -5.0604
1 Q 99 991 10.96 38.38 -2.9337
2 Q 99 992 12.51 41.02 5.2605
3 Q 99 993 11.93 43.96 15.4109
4 Q 99 994 12.77 48.17 27.7380
1 Q 00 001 13.74 50.95 32.7514
2 Q 00 002 13.48 51.92 26.5724
3 Q 00 003 13.71 53.70 22.1565
4 Q 00 004 9.07 50.00 3.7990
1 Q 01 011 9.18 45.44 -10.8145
2 Q 01 012 4.83 36.79 -29.1410
3 Q 01 013 5.23 28.31 -47.2812
4 Q 01 014 5.46 24.70 -50.6000
1 Q 02 021 9.19 24.71 -45.6206
2 Q 02 022 6.87 26.75 -27.2900
3 Q 02 023 8.53 30.05 6.1462
4 Q 02 024 3.00 27.59 11.7004
1 Q 03 031 11.92 30.32 22.7034
2 Q 03 032 11.10 34.55 29.1589
3 Q 03 033 12.56 38.58 28.3860
4 Q 03 034 13.16 48.74 76.6582
1 Q 04 041 15.18 52.00 71.5040
2 Q 04 042 15.25 56.15 62.5181
3 Q 04 043 14.18 57.77 49.7408
4 Q 04 044 14.40 59.01 21.0710
1 Q 05 051 16.94 60.77 16.8654
2 Q 05 052 17.81 63.33 12.7872
3 Q 05 053 17.72 66.87 15.7521
4 Q 05 054 18.19 70.66 19.7424
Fed Funds
1 Q 87 6.13 -1.35 -135
2 Q 87 6.73 -0.19 -19
3 Q 87 7.22 1.33 133
4 Q 87 6.77 -0.14 -14
1 Q 88 6.58 0.45 45
2 Q 88 7.51 0.78 78
3 Q 88 8.19 0.97 97
4 Q 88 8.76 1.99 199
1 Q 89 9.85 3.27 327
2 Q 89 9.53 2.02 202
3 Q 89 9.02 0.83 83
4 Q 89 8.45 -0.31 -31
1 Q 90 8.28 -1.57 -157
2 Q 90 8.29 -1.24 -124
3 Q 90 8.20 -0.82 -82
4 Q 90 7.31 -1.14 -114
1 Q 91 6.12 -2.16 -216
2 Q 91 5.90 -2.39 -239
3 Q 91 5.45 -2.75 -275
4 Q 91 4.43 -2.88 -288
1 Q 92 3.98 -2.14 -214
2 Q 92 3.76 -2.14 -214
3 Q 92 3.22 -2.23 -223
4 Q 92 2.92 -1.51 -151
1 Q 93 3.07 -0.91 -91
2 Q 93 3.04 -0.72 -72
3 Q 93 3.09 -0.13 -13
4 Q 93 2.96 0.04 4
1 Q 94 3.34 0.27 27
2 Q 94 4.25 1.21 121
3 Q 94 4.73 1.64 164
4 Q 94 5.45 2.49 249
1 Q 95 5.98 2.64 264
2 Q 95 6.00 1.75 175
3 Q 95 5.80 1.07 107
4 Q 95 5.60 0.15 15
1 Q 96 5.31 -0.67 -67
2 Q 96 5.27 -0.73 -73
3 Q 96 5.30 -0.50 -50
4 Q 96 5.29 -0.31 -31
1 Q 97 5.39 0.08 8
2 Q 97 5.56 0.29 29
3 Q 97 5.54 0.24 24
4 Q 97 5.50 0.21 21
1 Q 98 5.49 0.10 10
2 Q 98 5.56 0.00 0
3 Q 98 5.51 -0.03 -3
4 Q 98 4.68 -0.82 -82
1 Q 99 4.81 -0.68 -68
2 Q 99 4.76 -0.80 -80
3 Q 99 5.22 -0.29 -29
4 Q 99 5.30 0.62 62
1 Q 00 5.85 1.04 104
2 Q 00 6.53 1.77 177
3 Q 00 6.52 1.30 130
4 Q 00 6.40 1.10 110
1 Q 01 5.31 -0.54 -54
2 Q 01 3.97 -2.56 -256
3 Q 01 3.07 -3.45 -345
4 Q 01 1.82 -4.58 -458
1 Q 02 1.73 -3.58 -358
2 Q 02 1.75 -2.22 -222
3 Q 02 1.75 -1.32 -132
4 Q 02 1.24 -0.58 -58
1 Q 03 1.25 -0.48 -48
2 Q 03 1.22 -0.53 -53
3 Q 03 1.01 -0.74 -74
4 Q 03 0.98 -0.26 -26
1 Q 04 1.00 -0.25 -25
2 Q 04 1.03 -0.19 -19
3 Q 04 1.61 0.60 60
4 Q 04 2.16 1.18 118
Source: Standard and Poor's; Federal Reserve; First Call;
Clarion Inv. Research, Inc.
Light blue bars represent First Call estimates.
Past performance is no guarantee of future results.
We expect this slowdown in the growth of earnings to favor high quality
consistently growing companies over low quality cyclically growing companies in
2005. (See chart below.) We endeavor to manage the Fund by purchasing the
highest quality businesses that outgrow their markets, and which we purchase at
discount values.
[CHART OMITTED - EDGAR REPRESENTATION OF DATA IS AS FOLLOWS]
AVERAGE PERFORMANCE BY QUALITY WHEN
THE PROFIT CYCLE DECELERATED (Last Three Cycles)
A+ 16.59%
A 20.00%
A- 5.73%
B+ 4.60%
B 1.68%
B- -3.68%
C&D -8.88%
Source: Clarion Inv. Research, Inc., Wilshire Associates Inc.
Performance represented by the S&P 500(R) Index.
Past performance is no guarantee of future results.
JANUARY 2005
THE PRECEDING INFORMATION IS THE OPINION OF PORTFOLIO MANAGEMENT. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT
MARKET FORECASTS DISCUSSED WILL BE REALIZED.
For definitions of indexes cited and certain investment terms used in this
report, see the glossary on page 3.
48
Phoenix-Kayne Small-Mid Cap Fund
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS 1 PERIODS ENDING 12/31/04
- --------------------------------------------------------------------------------
INCEPTION INCEPTION
1 YEAR 5 YEAR TO 12/31/04 DATE
------ ------ ----------- ---------
Class X Shares at NAV 2 13.92% 9.20% 10.81% 10/18/96
Class A Shares at NAV 2 13.63 -- 13.56 8/30/02
Class A Shares at POP 3 7.10 -- 10.73 8/30/02
Class B Shares at NAV 2 12.99 -- 12.81 8/30/02
Class B Shares with CDSC 4 8.99 -- 11.71 8/30/02
Class C Shares at NAV 2 13.03 -- 12.88 8/30/02
Class C Shares with CDSC 4 13.03 -- 12.88 8/30/02
S&P 500(R) Index 5 10.86 (2.31) Note 5 Note 5
Russell 2500(TM) Index 6 18.29 8.35 Note 6 Note 6
- --------------------------------------------------------------------------------
GROWTH OF $10,000 PERIODS ENDING 12/31
- --------------------------------------------------------------------------------
This Growth of $10,000 chart assumes an initial investment of $10,000 made on
10/18/96 (inception of the Fund) in Class X shares. The total return for Class X
shares reflects no sales charge. Performance assumes dividends and capital gains
are reinvested.
[CHART OMITTED - EDGAR REPRESENTATION OF DATA IS AS FOLLOWS]
Phoenix-Kayne
Small-Mid Cap S&P 500(R) Russell 2500(TM)
Fund Class X 7 Index Index
-------------- ---------- ----------------
10/18/96 $10,000 $10,000 $10,000
12/31/96 10,400 10,474 10,642
12/31/97 12,424 13,970 13,234
12/31/98 14,433 17,988 13,285
12/31/99 14,958 21,789 16,493
12/29/00 18,663 19,788 17,197
12/31/01 19,857 17,438 17,407
12/31/02 16,087 13,584 14,309
12/31/03 20,384 17,484 20,821
12/31/04 23,222 19,383 24,630
- --------------------------------------------------------------------------------
SECTOR WEIGHTINGS 12/31/04
- --------------------------------------------------------------------------------
As a percentage of total investments
[CHART OMITTED - EDGAR REPRESENTATION OF DATA IS AS FOLLOWS]
Information Technology 25%
Industrials 18
Financials 17
Consumer Discretionary 15
Health Care 11
Energy 6
Materials 4
Other 4
1 Total returns are historical and include changes in share price and the
reinvestment of both dividends and capital gain distributions.
2 "NAV" (Net Asset Value) total returns do not include the effect of any sales
charge.
3 "POP" (Public Offering Price) total returns include the effect of the maximum
front-end 5.75% sales charge.
4 CDSC (contingent deferred sales charge) is applied to redemptions of certain
classes of shares that do not have a sales charge applied at the time of
purchase. CDSC charges for B shares decline from 5% to 0% over a five year
period. CDSC charges for C shares are 1% in the first year and 0% thereafter.
5 Index performance is 14.73% for Class A, Class B, Class C (since 8/30/02) and
8.40% for Class X (since 10/18/96).
6 Index performance is 25.14% for Class A, Class B, Class C (since 8/30/02) and
11.61% for Class X (since 10/18/96).
7 This chart illustrates NAV returns on Class X shares since inception. Returns
on Class A, Class B and Class C shares will vary due to differing sales
charges.
For information regarding the indexes, see the glossary on page 3.
ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS.
CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE SHOWN. THE
INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE VISIT PHOENIXINVESTMENTS.COM FOR PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH-END.
49
Phoenix-Kayne Small-Mid Cap Fund
ABOUT YOUR FUND'S EXPENSES
We believe it is important for you to understand the impact of costs on your
investment. All mutual funds have operating expenses. As a shareholder of the
Kayne Small-Mid Cap Fund, you incur two types of costs: (1) transaction costs,
including sales charges on purchases of Class A shares and contingent deferred
sales charges on Class B and Class C shares; and (2) ongoing costs, including
investment advisory fees; distribution and service fees; and other expenses.
Class X shares are sold without a sales charge and do not incur distribution and
service fees. These examples are intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds. These examples are based on an
investment of $1,000 invested at the beginning of the period and held for the
entire six-month period.
ACTUAL EXPENSES
The first line of the accompanying tables provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the accompanying tables provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not your Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your Fund and other funds. To do so, compare these
5% hypothetical examples with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the accompanying tables are meant to
highlight your ongoing costs only and do not reflect any transactional costs,
such as sales charges or contingent deferred sales charges. Therefore, the
second line of the accompanying tables is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs could have been higher. The calculations assume no shares were bought or
sold during the period. Your actual costs may have been higher or lower,
depending on the amount of your investment and the timing of any purchases or
redemptions.
Beginning Ending Expenses Paid
Small Mid-Cap Fund Account Value Account Value During
Class X June 30, 2004 December 31, 2004 Period*
- ----------------------- ------------- ----------------- -------------
Actual $1,000.00 $1,097.60 $6.08
Hypothetical (5% return
before expenses) 1,000.00 1,019.26 5.87
* EXPENSES ARE EQUAL TO THE FUND'S CLASS X ANNUALIZED EXPENSE RATIO OF 1.15%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS X
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 13.92%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,139.20.
Beginning Ending Expenses Paid
Small Mid-Cap Fund Account Value Account Value During
Class A June 30, 2004 December 31, 2004 Period*
- ----------------------- ------------- ----------------- -------------
Actual $1,000.00 $1,096.40 $7.41
Hypothetical (5% return
before expenses) 1,000.00 1,017.98 7.16
* EXPENSES ARE EQUAL TO THE FUND'S CLASS A ANNUALIZED EXPENSE RATIO OF 1.41%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS A
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 13.63%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,136.30.
Beginning Ending Expenses Paid
Small Mid-Cap Fund Account Value Account Value During
Class B June 30, 2004 December 31, 2004 Period*
- ----------------------- ------------- ----------------- -------------
Actual $1,000.00 $1,093.90 $11.39
Hypothetical (5% return
before expenses) 1,000.00 1,014.12 11.02
* EXPENSES ARE EQUAL TO THE FUND'S CLASS B ANNUALIZED EXPENSE RATIO OF 2.16%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS B
RETURN FOR THEPAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 12.99%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,129.90.
50
Phoenix-Kayne Small-Mid Cap Fund
Beginning Ending Expenses Paid
Small Mid-Cap Fund Account Value Account Value During
Class C June 30, 2004 December 31, 2004 Period*
- ----------------------- ------------- ----------------- -------------
Actual $1,000.00 $1,094.30 $11.38
Hypothetical (5% return
before expenses) 1,000.00 1,014.14 11.00
* EXPENSES ARE EQUAL TO THE FUND'S CLASS C ANNUALIZED EXPENSE RATIO OF 2.16%,
WHICH INCLUDES WAIVED FEES AND REIMBURSED EXPENSES, IF APPLICABLE, MULTIPLIED
BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE NUMBER OF DAYS
IN THE MOST RECENT FISCAL HALF-YEAR, THEN DIVIDED BY 366 TO REFLECT THE
ONE-HALF YEAR PERIOD.
ACTUAL RETURN AS CALCULATED IN THE ABOVE TABLE IS BASED ON THE FUND'S CLASS C
RETURN FOR THE PAST SIX MONTHS. WHILE REQUIRED TO BE PRESENTED IN THIS FORMAT,
IT IS NOT THE CLASS' ACTUAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2004. THE
CLASS' ACTUAL RETURN AT NAV FOR THE FISCAL YEAR WAS 13.03%. UTILIZING THIS 12
MONTH RETURN YIELDS AN ACCOUNT VALUE AT DECEMBER 31, 2004 OF $1,130.30.
YOU CAN FIND MORE INFORMATION ABOUT THE FUND'S EXPENSES IN THE FINANCIAL
STATEMENTS SECTION THAT FOLLOWS. FOR ADDITIONAL INFORMATION ON OPERATING
EXPENSES AND OTHER SHAREHOLDER COSTS, PLEASE REFER TO THE PROSPECTUS.
51
Phoenix-Kayne Small-Mid Cap Fund
- -----------------------------------------------------------------------------------------------------
TEN LARGEST HOLDINGS AT DECEMBER 31, 2004 (AS A PERCENTAGE OF TOTAL NET ASSETS)(d)
- -----------------------------------------------------------------------------------------------------
1. Reinsurance Group of America, Inc. 3.7% 6. 99 Cents Only Stores 2.9%
2. Rent-A-Center, Inc. 3.3% 7. Regis Corp. 2.9%
3. Copart, Inc. 3.2% 8. FactSet Research Systems, Inc. 2.8%
4. Inter-Tel, Inc. 3.2% 9. Catalina Marketing Corp. 2.8%
5. Patina Oil & Gas Corp. 3.1% 10. World Acceptance Corp. 2.6%
- -----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2004
SHARES VALUE
-------- -----------
DOMESTIC COMMON STOCKS--98.2%
ADVERTISING--4.1%
Arbitron, Inc. ..................................... 63,700 $ 2,495,766
Catalina Marketing Corp. ........................... 175,910 5,212,213
-----------
7,707,979
-----------
AEROSPACE & DEFENSE--2.0%
Heico Corp. Class A ................................ 213,764 3,695,980
AIR FREIGHT & COURIERS--2.4%
Robinson (C.H.) Worldwide, Inc. .................... 82,400 4,574,848
APPLICATION SOFTWARE--8.0%
FactSet Research Systems, Inc. ..................... 91,850 5,367,714
Fair Isaac Corp. ................................... 128,085 4,698,158
Jack Henry & Associates, Inc. ...................... 180,815 3,600,027
Reynolds & Reynolds Co. (The) Class A .............. 57,762 1,531,270
-----------
15,197,169
-----------
ASSET MANAGEMENT & CUSTODY BANKS--2.2%
Eaton Vance Corp. .................................. 80,004 4,172,209
BIOTECHNOLOGY--2.0%
Techne Corp.(b) .................................... 98,085 3,815,506
COMMUNICATIONS EQUIPMENT--4.9%
Black Box Corp. .................................... 67,995 3,265,120
Inter-Tel, Inc. .................................... 217,600 5,957,888
-----------
9,223,008
-----------
CONSTRUCTION & ENGINEERING--1.1%
Insituform Technolgies, Inc. Class A(b) ............ 95,480 2,164,532
CONSUMER FINANCE--2.6%
World Acceptance Corp.(b) .......................... 176,000 4,841,760
DATA PROCESSING & OUTSOURCED SERVICES--1.6%
Certegy, Inc. ...................................... 82,867 2,944,265
SHARES VALUE
-------- -----------
DIVERSIFIED COMMERCIAL SERVICES--8.3%
ABM Industries, Inc. ............................... 204,530 $ 4,033,332
Cintas Corp. ....................................... 68,565 3,007,260
Copart, Inc.(b) .................................... 231,000 6,079,920
Equifax, Inc. ...................................... 88,385 2,483,618
-----------
15,604,130
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.0%
Mettler Toledo International, Inc.(b) .............. 75,000 3,848,250
GENERAL MERCHANDISE STORES--2.9%
99 Cents Only Stores(b) ............................ 343,000 5,542,880
HEALTH CARE EQUIPMENT--2.3%
Diagnostic Products Corp. .......................... 79,000 4,348,950
HEALTH CARE SERVICES--2.1%
IMS Health, Inc. ................................... 172,965 4,014,518
HEALTH CARE SUPPLIES--1.5%
ICU Medical, Inc.(b) ............................... 100,000 2,734,000
INDUSTRIAL CONGLOMERATES--2.4%
Teleflex, Inc. ..................................... 87,410 4,540,075
INDUSTRIAL MACHINERY--1.9%
Donaldson Co., Inc. ................................ 110,200 3,590,316
INSURANCE BROKERS--1.7%
Brown & Brown, Inc. ................................ 74,000 3,222,700
LEISURE PRODUCTS--2.1%
Polaris Industries, Inc. ........................... 57,000 3,877,140
LIFE & HEALTH INSURANCE--1.9%
Stancorp Financial Group, Inc. ..................... 44,500 3,671,250
OFFICE ELECTRONICS--2.1%
Zebra Technologies Corp. Class A(b) ................ 69,300 3,900,204
OIL & GAS EXPLORATION & PRODUCTION--3.1%
Patina Oil & Gas Corp. ............................. 158,500 5,943,750
52 See Notes to Financial Statements
Phoenix-Kayne Small-Mid Cap Fund
SHARES VALUE
-------- -----------
OIL & GAS REFINING, MARKETING & TRANSPORTATION--2.4%
World Fuel Services Corp. .......................... 92,600 $ 4,611,480
PACKAGED FOODS & MEATS--1.2%
Lancaster Colony Corp. ............................. 52,300 2,242,101
PAPER PACKAGING--1.7%
Bemis Co., Inc. .................................... 110,944 3,227,361
PHARMACEUTICALS--3.5%
Axcan Pharma, Inc.(b) .............................. 175,000 3,382,750
Medicis Pharmaceutical Corp. Class A ............... 90,600 3,180,966
-----------
6,563,716
-----------
PROPERTY & CASUALTY INSURANCE--3.6%
Cincinnati Financial Corp. ......................... 86,357 3,822,161
Direct General Corp. ............................... 94,000 3,017,400
-----------
6,839,561
-----------
REINSURANCE--3.7%
Reinsurance Group of America, Inc. ................. 143,100 6,933,195
SEMICONDUCTOR EQUIPMENT--2.5%
Cabot Microelectronics Corp.(b) .................... 119,650 4,791,982
SEMICONDUCTORS--2.2%
Microchip Technology, Inc. ......................... 159,000 4,238,940
SPECIALTY CHEMICALS--1.9%
Balchem Corp. ...................................... 23,900 829,091
Valspar Corp. (The) ................................ 54,520 2,726,545
-----------
3,555,636
-----------
SPECIALTY STORES--6.2%
Regis Corp. ........................................ 117,000 5,399,550
Rent-A-Center, Inc.(b) ............................. 236,250 6,260,625
-----------
11,660,175
-----------
SYSTEMS SOFTWARE--2.1%
Talx Corp. ......................................... 151,500 3,907,185
THRIFTS & MORTGAGE FINANCE--1.1%
Washington Federal, Inc. ........................... 81,449 2,161,656
TOBACCO--0.9%
UST, Inc. .......................................... 35,000 1,683,850
- ---------------------------------------------------------------------------
TOTAL DOMESTIC COMMON STOCKS
(IDENTIFIED COST $136,937,473) 185,592,257
- ---------------------------------------------------------------------------
SHARES VALUE
-------- -----------
FOREIGN COMMON STOCKS(c)--1.1%
WATER UTILITIES--1.1%
Consolidated Water Co. Ltd. (Cayman Islands) ....... 64,500 $ 1,998,210
- ---------------------------------------------------------------------------
TOTAL FOREIGN COMMON STOCKS
(IDENTIFIED COST $1,013,519) 1,998,210
- ---------------------------------------------------------------------------
TOTAL LONG TERM INVESTMENTS--99.3%
(IDENTIFIED COST $137,950,992) 187,590,467
- ---------------------------------------------------------------------------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000)
----------- -------
SHORT-TERM INVESTMENTS--0.7%
FEDERAL AGENCY SECURITIES--0.7%
FHLB 1%, 1/3/05 ......................... A-1+ $1,407 1,406,922
- ---------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $1,406,922) 1,406,922
- ---------------------------------------------------------------------------
TOTAL INVESTMENTS--100.0%
(IDENTIFIED COST $139,357,914) 188,997,389(a)
Other assets and liabilities, net--0.0% (85,291)
------------
NET ASSETS--100.0% $188,912,098
============
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $53,247,593 and gross
depreciation of $3,608,118 for federal income tax purposes. At December 31,
2004, the aggregate cost of securities for federal income tax purposes was
$139,357,914.
(b) Non-income producing.
(c) Foreign Common Stocks are determined based on the country in which the
security or underlying security is issued. The country of risk, noted
parenthetically, is determined based on criteria described in Note 2J
"Foreign Security Country Determination" in the Notes to Financial
Statements.
(d) Table excludes short-term investments.
See Notes to Financial Statements 53
Phoenix-Kayne Small-Mid Cap Fund
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
ASSETS
Investment securities at value
(Identified cost $139,357,914) $188,997,389
Cash 331
Receivables
Fund shares sold 236,904
Dividends and interest 122,247
Trustee retainer 2,816
Prepaid expenses 28,311
------------
Total assets 189,387,998
------------
LIABILITIES
Payables
Fund shares repurchased 244,108
Investment advisory fee 132,809
Distribution and service fees 33,599
Transfer agent fee 25,282
Professional fees 25,110
Financial agent fee 10,777
Accrued expenses 4,215
------------
Total liabilities 475,900
------------
NET ASSETS $188,912,098
============
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $154,626,186
Accumulated net realized loss (15,353,563)
Net unrealized appreciation 49,639,475
------------
NET ASSETS $188,912,098
============
CLASS X
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $92,838,135) 4,484,466
Net asset value and offering price per share $20.70
CLASS A
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $73,825,298) 3,584,965
Net asset value per share $20.59
Offering price per share $20.59/(1-5.75%) $21.85
CLASS B
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $4,403,596) 217,198
Net asset value and offering price per share $20.27
CLASS C
Shares of beneficial interest outstanding, no par value,
unlimited authorization (Net Assets $17,845,069) 878,961
Net asset value and offering price per share $20.30
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
INVESTMENT INCOME
Dividends $ 1,387,446
Securities lending 25,192
Interest 8,383
-----------
Total investment income 1,421,021
-----------
EXPENSES
Investment advisory fee 1,429,437
Service fees, Class A 140,671
Distribution and service fees, Class B 30,442
Distribution and service fees, Class C 154,701
Financial agent fee 74,750
Administration 78,859
Transfer agent 179,164
Registration 41,785
Custodian 38,469
Printing 36,974
Professional 30,105
Trustees 18,541
Miscellaneous 15,079
-----------
Total expenses 2,268,977
-----------
NET INVESTMENT LOSS (847,956)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (2,427,226)
Net change in unrealized appreciation (depreciation) on
investments 26,148,760
-----------
NET GAIN ON INVESTMENTS 23,721,534
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $22,873,578
===========
54 See Notes to Financial Statements
Phoenix-Kayne Small-Mid Cap Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
12/31/04 12/31/03
------------- ------------
FROM OPERATIONS
Net investment income (loss) $ (847,956) $ (541,203)
Net realized gain (loss) (2,427,226) (4,057,120)
Net change in unrealized appreciation (depreciation) 26,148,760 35,896,645
------------ ------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 22,873,578 31,298,322
------------ ------------
FROM SHARE TRANSACTIONS
CLASS X
Proceeds from sales of shares (674,594 and 1,716,610 shares, respectively) 12,509,815 25,334,280
Cost of shares repurchased (1,872,057 and 2,874,955 shares, respectively) (34,757,079) (44,421,603)
------------ ------------
Total (22,247,264) (19,087,323)
------------ ------------
CLASS A
Proceeds from sales of shares (1,898,490 and 2,365,960 shares, respectively) 34,894,504 38,107,253
Cost of shares repurchased (502,551 and 322,337 shares, respectively) (9,306,773) (5,285,348)
------------ ------------
Total 25,587,731 32,821,905
------------ ------------
CLASS B
Proceeds from sales of shares (96,144 and 124,511 shares, respectively) 1,759,784 1,925,053
Cost of shares repurchased (29,932 and 17,313 shares, respectively) (536,789) (278,692)
------------ ------------
Total 1,222,995 1,646,361
------------ ------------
CLASS C
Proceeds from sales of shares (382,735 and 699,943 shares, respectively) 6,972,739 10,745,910
Cost of shares repurchased (203,578 and 40,105 shares, respectively) (3,696,766) (621,347)
------------ ------------
Total 3,275,973 10,124,563
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS 7,839,435 25,505,506
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 30,713,013 56,803,828
NET ASSETS
Beginning of period 158,199,085 101,395,257
------------ ------------
END OF PERIOD [INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$0 AND $0, RESPECTIVELY] $188,912,098 $158,199,085
============ ============
See Notes to Financial Statements 55
Phoenix-Kayne Small-Mid Cap Fund
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
CLASS X
--------------------------------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------------------------
2004 2003 2002 2001 2000
Net asset value, beginning of period $18.17 $14.34 $17.70 $17.19 $14.82
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.06) (4) (0.05) (4) (0.06) (0.01) 0.04
Net realized and unrealized gain (loss) 2.59 3.88 (3.30) 1.15 3.54
------ ------ ------ ------- ------
TOTAL FROM INVESTMENT OPERATIONS 2.53 3.83 (3.36) 1.14 3.58
------ ------ ------ ------- ------
LESS DISTRIBUTIONS
Dividends from net investment income -- -- -- (0.01) (0.04)
Distributions from net realized gain -- -- -- (0.62) (1.17)
------ ------ ------ ------- ------
TOTAL DISTRIBUTIONS -- -- -- (0.63) (1.21)
------ ------ ------ ------- ------
Change in net asset value 2.53 3.83 (3.36) 0.51 2.37
------ ------ ------ ------- ------
NET ASSET VALUE, END OF PERIOD $20.70 $18.17 $14.34 $17.70 $17.19
====== ====== ====== ====== ======
Total return 13.92 % 26.71 % (18.98)% 6.40 % 24.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $92,838 $103,269 $98,112 $95,138 $42,560
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 1.15 % 1.26 % 1.22 % 1.17 % 1.29%
Net investment income (loss) (0.32)% (0.35)% (0.38)% (0.14)% 0.26%
Portfolio turnover 16 % 17 % 16 % 17 % 50%
CLASS A
-----------------------------------
YEAR ENDED FROM INCEPTION
------------------- 8/30/02 TO
2004 2003 12/31/02
Net asset value, beginning of period $18.12 $14.34 $15.29
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.10) (4) (0.09) (4) (0.02)
Net realized and unrealized gain (loss) 2.57 3.87 (0.93)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 2.47 3.78 (0.95)
------ ------ ------
Change in net asset value 2.47 3.78 (0.95)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $20.59 $18.12 $14.34
====== ====== ======
Total return (1) 13.63 % 26.36 % (6.21)% (2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $73,825 $39,656 $2,086
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 1.41 % 1.51 % 1.47 % (3)
Net investment income (loss) (0.55)% (0.60)% 0.62 % (3)
Portfolio turnover 16 % 17 % 16 % (2)
<FN>
(1) Sales charges are not reflected in the total return calculation.
(2) Not annualized.
(3) Annualized.
(4) Computed using average shares outstanding.
</FN>
56 See Notes to Financial Statements
Phoenix-Kayne Small-Mid Cap Fund
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
CLASS B
-----------------------------------
YEAR ENDED FROM INCEPTION
------------------- 8/30/02 TO
2004 2003 12/31/02
Net asset value, beginning of period $17.94 $14.30 $15.29
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.24) (4) (0.20) (4) (0.02)
Net realized and unrealized gain (loss) 2.57 3.84 (0.97)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 2.33 3.64 (0.99)
------ ------ ------
Change in net asset value 2.33 3.64 (0.99)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $20.27 $17.94 $14.30
====== ====== ======
Total return (1) 12.99 % 25.45 % (6.47)% (2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $4,404 $2,709 $626
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 2.16 % 2.26 % 2.22 % (3)
Net investment income (loss) (1.31)% (1.35)% (1.37)% (3)
Portfolio turnover 16 % 17 % 16 % (2)
CLASS C
-----------------------------------
YEAR ENDED FROM INCEPTION
------------------- 8/30/02 TO
2004 2003 12/31/02
Net asset value, beginning of period $17.96 $14.31 $15.29
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.24) (4) (0.20) (4) (0.03)
Net realized and unrealized gain (loss) 2.58 3.85 (0.95)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 2.34 3.65 (0.98)
------ ------ ------
Change in net asset value 2.34 3.65 (0.98)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $20.30 $17.96 $14.31
====== ====== ======
Total return (1) 13.03 % 25.59 % (6.47)% (2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $17,845 $12,565 $572
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 2.16 % 2.26 % 2.22 % (3)
Net investment income (loss) (1.31)% (1.35)% (1.37)% (3)
Portfolio turnover 16 % 17 % 16 % (2)
<FN>
(1) Sales charges are not reflected in the total return calculation.
(2) Not annualized.
(3) Annualized.
(4) Computed using average shares outstanding.
</FN>
See Notes to Financial Statements 57
PHOENIX-KAYNE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
1. ORGANIZATION
Phoenix-Kayne Funds (the "Trust") is organized as a Delaware business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
Currently five Funds are offered for sale (each a "Fund") The California
Intermediate Tax-Free Bond Fund is a non-diversified fund and seeks current
income exempt from federal and California state personal income tax. The
Intermediate Total Return Bond Fund is a diversified fund and seeks to maximize
total return, primarily through current income, with capital appreciation as a
secondary factor. The International Fund is a diversified fund and seeks
long-term capital appreciation, with dividend income as a secondary
consideration. The Rising Dividends Fund is a diversified fund and seeks
long-term capital appreciation, with dividend income as a secondary
consideration. The Small-Mid Cap Fund is a diversified fund and seeks long-term
capital appreciation, with dividend income as a secondary consideration.The
funds offer the following classes of shares for sale:
Class X Class A Class B Class C
------- ------- ------- -------
California Intermediate
Tax-Free Bond Fund ................. X -- -- --
Intermediate Total Return
Bond Fund .......................... X -- -- --
International Fund ................... X X X X
Rising Dividends Fund ................ X X X X
Small-Mid Cap Fund ................... X X X X
Class X shares are sold without a sales charge. Class A shares are sold with
a front-end sales charge of up to 5.75%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a 1% contingent
deferred sales charge if redeemed within one year of purchase.
Each class of shares has identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that each class bears different
distribution and/or service expenses and has exclusive voting rights with
respect to its distribution plan. Class X bears no distribution and/or service
expenses. Income and expenses and realized and unrealized gains and losses of
each Fund are borne pro rata by the holders of each class of shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases of
net assets from operations during the reporting period. Actual results could
differ from those estimates.
A. SECURITY VALUATION:
Equity securities are valued at the official closing price (typically last
sale) on the exchange on which the securities are primarily traded, or if no
closing price is available, 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.
As required, some securities and assets are valued at fair value as
determined in good faith by or under the direction of the Trustees.
Certain foreign common stocks may be fair valued in cases where closing
prices are not readily available or are deemed not reflective of readily
available market prices. For example, significant events (such as movement in
the U.S. securities market, or other regional and local developments) may occur
between the time that foreign markets close (where the security is principally
traded) and the time that the Fund calculates its net asset value (generally,
the close of the NYSE) that may impact the value of securities traded in these
foreign markets. In these cases, information from an external vendor may be
utilized to adjust closing market prices of certain foreign common stocks to
reflect their fair value. Because the frequency of significant events is not
predictable, fair valuation of certain foreign common stocks may occur on a
frequent basis.
Short-term investments having a remaining maturity of 60 days or less are
valued at amortized cost which approximates market.
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 Fund is notified. Interest income is recorded on the accrual
basis. The Trust amortizes premiums and accretes discounts using the effective
interest method. Realized gains and losses are determined on the identified cost
basis.
C. INCOME TAXES:
Each Fund is treated as a separate taxable entity. It is the policy of each
Fund to comply with the requirements of the Internal Revenue Code (the "Code")
and to distribute substantially all of its income to its shareholders.
Therefore, no provision for federal income taxes or excise taxes has been made.
The Trust may be subject to foreign taxes on income, gains on investments or
currency repatriation, a portion of which may be recoverable. Each Fund will
accrue such taxes and recoveries as applicable based upon current
interpretations of the tax rules and regulations that exist in the markets in
which they invest.
58
PHOENIX-KAYNE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 (CONTINUED)
D. DISTRIBUTIONS TO SHAREHOLDERS:
Distributions are recorded by each Fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. These differences may include the treatment of
non-taxable dividends, market premium and discount, non-deductible expenses,
expiring capital loss carryovers, foreign currency gain or loss, gain or loss on
futures contracts, partnerships, operating losses and losses deferred due to
wash sales. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to capital paid in on shares of
beneficial interest.
E. SECURITIES LENDING TRANSACTIONS:
Prior to November 1, 2004, the Trust loaned securities to qualified brokers
through an agreement with Investors Bank & Trust Company (the "Custodian").
Under the terms of the agreement, the Trust received collateral with a market
value not less than 100% of the market value of loaned securities. Collateral is
adjusted daily in connection with changes in the market value of securities on
loan. Collateral consists of cash, securities issued or guaranteed by the U.S.
Government or its agencies and the sovereign debt of foreign countries. Cash
collateral has been invested in securities in which the Funds are authorized to
invest. Interest earned on the collateral and premiums paid by the borrower are
recorded as income by the Trust net of fees charged by the Custodian for its
services in connection with this securities lending program. Lending portfolio
securities involves a risk of delay in the recovery of the loaned securities or
in the foreclosure on collateral.
F. FOREIGN CURRENCY TRANSLATION:
Foreign securities and other assets and liabilities are valued using the
foreign currency exchange rate effective at the end of the reporting period.
Cost of investments is translated at the currency exchange rate effective at the
trade date. The gain or loss resulting from a change in currency exchange rates
between the trade and settlement dates of a portfolio transaction is treated as
a gain or loss on foreign currency. Likewise, the gain or loss resulting from a
change in currency exchange rates between the date income is accrued and paid is
treated as a gain or loss on foreign currency. The Trust does not isolate 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.
G. EXPENSES:
Expenses incurred by the Trust with respect to any two or more funds are
allocated in proportion to the net assets of each Fund, except where allocation
of direct expense to each Fund or an alternative allocation method can be more
appropriately made.
H. REPURCHASE AGREEMENTS:
A repurchase agreement is a transaction where a Fund acquires a security for
cash and obtains a simultaneous commitment from the seller to repurchase the
security at an agreed upon price and date. Each Fund, through its custodian,
takes possession of securities collateralizing the repurchase agreement. The
collateral is marked-to-market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of default
by the seller. If the seller defaults and the value of the collateral declines
or, if the seller enters insolvency proceedings, realization of collateral may
be delayed or limited.
I. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS:
Each Fund may engage in when-issued or delayed delivery transactions. Each
Fund records when-issued and delayed delivery securities on the trade date. Each
Fund maintains collateral for the securities purchased. Securities purchased on
a when-issued or delayed delivery basis begin earning interest on the settlement
date.
J. FOREIGN SECURITY COUNTRY DETERMINATION:
A combination of the following criteria is used to assign the countries of
risk listed in the Schedule of Investments: country of incorporation, actual
building address, primary exchange on which the security is traded and country
in which greatest percentage of company revenue is generated.
K. CONTRACTUAL OBLIGATIONS:
In the normal course of business, the Trust enters into contracts that
provide general indemnifications. The Trust's maximum exposure under these
arrangements is dependent on future claims that may be made against the Trust
and, therefore, cannot be established; however, in management's opinion, based
on experience, the risk of material loss from such claims is remote.
3. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
The Adviser, Kayne Anderson Rudnick Investment Management, LLC provides the
Funds with investment management services under an Investment Advisory Agreement
(the "Agreement"). The majority interest of the Adviser is owned by Phoenix
Investment Partners, Ltd. ("PXP"). PXP is the investment management subsidiary
of The Phoenix Companies, Inc. ("PNX"). As compensation for its services, the
Adviser is entitled to a fee based upon the following annual rates as a
percentage of the average daily net assets of each Fund:
California Intermediate Tax-Free Bond Fund ........................... 0.50%
Intermediate Total Return Bond Fund .................................. 0.50%
International Fund ................................................... 0.95%
Rising Dividends Fund ................................................ 0.75%
Small-Mid Cap Fund ................................................... 0.85%
59
PHOENIX-KAYNE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 (CONTINUED)
The Adviser has agreed to limit each Fund's operating expenses by reducing
all or a portion of its fees and reimbursing each Fund for expenses, excluding
interest, through April 30, 2005, to the extent that such expenses exceed the
following percentages of average annual net assets.
Class X Class A Class B Class C
------- ------- ------- -------
California Intermediate
Tax-Free Bond Fund .............. 0.75% -- -- --
Intermediate Total Return
Bond Fund ....................... 0.95% -- -- --
International Fund ................ 1.40% 1.65% 2.40% 2.40%
Rising Dividends Fund ............. 1.20% 1.45% 2.20% 2.20%
Small-Mid Cap Fund ................ 1.30% 1.55% 2.30% 2.30%
Any fee reimbursed and/or any Fund expense absorbed by the Adviser pursuant
to an agreed upon expense cap shall be reimbursed by the Fund to the Adviser, if
so requested by the Adviser, provided the aggregate amount of the Fund's current
operating expense for such fiscal year does not exceed the applicable limitation
on Fund expenses. For the year ended December 31, 2004, the Adviser reimbursed
fees and paid expenses of $87,348, and $108,890 for the California Intermediate
Tax-Free Bond Fund and International Fund, respectively.
The Management Agreement permits the Adviser to seek reimbursement of any
reductions made to its management fee within the three-year period following
such reduction, subject to a Fund's ability to effect such reimbursement and
remain in compliance with applicable expense limitations.
At December 31, 2004, the amount available for reimbursement that has been
paid and/or waived by the Adviser on behalf of each Fund listed below is as
follows:
California Intermediate Tax-Free Bond Fund ......................... $263,956
International Fund ................................................. 271,404
For the year ended December 31, 2004, the amounts recouped by the adviser
from the Funds are as follows:
California Intermediate Tax-Free Bond Fund ......................... $ --
International Fund ................................................. --
At December 31, 2004, the Adviser may recapture a portion of the below
amounts no later than the dates as stated below:
December 31,
-----------------------------
Fund 2005 2006 2007
- ---- ------- -------- --------
California Intermediate
Tax-Free Bond Fund ......................... $75,806 $100,802 $ 87,348
International Fund ........................... -- 162,514 108,890
Each Fund must pay its current ordinary operating expenses before the Adviser
is entitled to any reimbursement. Any such reimbursement is also contingent upon
the Board of Trustees review and approval prior to the time the reimbursement is
initiated.
As distributor of the Trust's shares, Phoenix Equity Planning Corporation,
("PEPCO") an indirect, wholly-owned subsidiary of PNX, has advised the Trust
that it retained net selling commissions and deferred sales charges for the year
ended December 31, 2004, as follows:
Class A Class B Class C
Net Selling Deferred Deferred
Commissions Sales Charges Sales Charges
----------- ------------- -------------
International Fund ................... $ 469 $ -- $1,473
Rising Dividends Fund ................ 5,963 5,228 760
Small-Mid Cap Fund ................... 13,828 6,673 9,311
In addition to these amounts, for the period of January 1, 2004, through May
31, 2004, the following was paid to W.S. Griffith Securities, Inc., an indirect
subsidiary of PNX, for Class A net selling commissions.
International Fund .................................................. $ 127
Rising Dividends Fund ............................................... 904
Small-Mid Cap Fund .................................................. 1,356
As of May 31, 2004, W.S. Griffith Securities, Inc. no longer writes any
business for the Trust.
Under certain circumstances, shares of certain Phoenix Funds may be exchanged
for shares of the same class of certain other Phoenix Funds on the basis of the
relative net asset values per share at the time of the exchange. On exchanges
with share classes that carry a contingent deferred sales charge, the CDSC
schedule of the original shares purchased continues to apply.
In addition, the International, Rising Dividends and Small-Mid Cap Funds pay
PEPCO a distribution fee at an annual rate of 0.25% for Class A shares and 1.00%
for Class B shares and Class C shares applied to the daily average net assets of
each respective class. The distributor has advised the Trust of the following
information for the period ended December 31, 2004:
Distribution Distribution
Distribution and/or and/or
and/or Service Fees Service Fees
Service Fees Paid to Paid to
Retained by Unaffiliated W.S. Griffith
Distributor Participants Securities, Inc.(1)
------------ ------------ -------------------
International Fund ......... $ 33,264 $ 2,551 $ 11
Rising Dividends Fund ...... 61,835 91,905 703
Small-Mid Cap Fund ......... 188,789 136,380 645
(1) As of May 31, 2004, W.S. Griffith Securities, Inc. no longer writes any
business for the Trust.
60
PHOENIX-KAYNE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 (CONTINUED)
Effective November 1, 2004, PEPCO serves as financial agent of the Trust. As
financial agent of the Trust PEPCO receives a financial agent fee equal to the
sum of (1) the documented cost to PEPCO to provide tax services and oversight of
the performance of PFPC Inc. (subagent to PEPCO) plus (2) the documented cost of
fund accounting and related services provided by PFPC Inc. The fee schedule of
PFPC Inc. ranges from 0.65% to 0.03% of the average daily net asset values of
each fund. Certain minimum fees may apply. For the period ended December 31,
2004, the Trust incurred PEPCO financial agent fees totaling $383,121.
Prior to November 1, 2004, U.S. Bancorp Fund Services, L.L.C. (the
"Administrator") acted as the Funds' Administrator under an Administration
agreement. For its services, each Fund paid the Administrator an annual fee
equal to 0.075% of the first $40 million of the average daily net assets, 0.050%
of the next $40 million, 0.025% of the next $40 million, and 0.010% thereafter,
subject to a minimum annual fee.
PEPCO serves as the Trust's transfer agent with State Street Bank and Trust
Company serving as sub-transfer agent. For the period ended December 31, 2004,
transfer agent fees were $378,312 as reported in the Statements of Operations,
of which PEPCO retained the following:
Transfer Agent Fee
Retained
------------------
California Intermediate Tax-Free Bond Fund .............. --
Intermediate Total Return Bond Fund ..................... --
International Fund ...................................... --
Rising Dividends Fund ................................... --
Small-Mid Cap Fund ...................................... $34,657
At December 31, 2004, PNX and its affiliates, and the retirement plans of PNX
and its affiliates held shares of the Trust, which aggregated the following:
Aggregate
Net Asset
Shares Value
---------- -----------
International Fund
- --Class B .......................................... 10,585 $ 133,371
- --Class C .......................................... 10,585 133,371
Rising Dividends Fund
- --Class A .......................................... 1,955,981 31,119,658
- --Class B .......................................... 7,411 116,797
- --Class C .......................................... 7,406 116,793
Small-Mid Cap Fund
- --Class A .......................................... 1,697,326 34,947,940
- --Class B .......................................... 6,540 132,570
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding U.S. Government securities and
agency securities, short-term investments and forward currency contracts) for
the period ended December 31, 2004, were as follows:
Fund Purchases Sales
- ------ ----------- -----------
California Intermediate Tax-Free Bond Fund ........ $23,008,205 $23,347,398
Intermediate Total Return Bond Fund ............... 32,223,617 25,700,191
International Fund ................................ 19,330,380 17,780,189
Rising Dividends Fund ............................. 63,060,255 29,706,925
Small-Mid Cap Fund ................................ 37,001,469 26,562,993
Purchases and sales of long-term U.S government and agency securities for the
period ended December 31, 2004 were as follows:
Fund Purchases Sales
- ------ ----------- -----------
Intermediate Total Return Bond Fund $ -- $2,543,588
5. CREDIT RISK AND ASSET CONCENTRATIONS
In countries with limited or developing markets, investments may present
greater risks than in more developed markets and the prices of such investments
may be volatile. The consequences of political, social or economic changes in
these markets may have disruptive effects on the market prices of these
investments and the income they generate, as well as a Fund's ability to
repatriate such amounts.
The Trust may invest a high percentage of their assets in specific sectors of
the market in their pursuit of a greater investment return. Fluctuations in
these sectors of concentration may have a greater impact on a Fund, positive or
negative, than if the Fund did not concentrate its investments in such sectors.
The California Intermediate Tax-Free Bond Fund invests primarily in
California municipal securities and is more susceptible to economic, political
and other developments that may adversely affect issuers of such securities,
than a more geographically diversified fund. Such developments could result in
certain adverse consequences including impairing the market value and
marketability of the securities, as well as impairing the ability of certain
issuers of California municipal securities to pay principal and interest on
their obligations.
At December 31, 2004, the California Intermediate Tax-Free Bond Fund invests
97.3% in California municipal securities.
At December 31, 2004, the Intermediate Total Return Bond Fund held
$13,203,948 in investments issued by the U.S. Government, comprising 26% of the
total net assets of the Fund.
61
PHOENIX-KAYNE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 (CONTINUED)
6. OTHER
As of December 31, 2004, the Trust had individual shareholders and omnibus
shareholder accounts (which are comprised of several individual shareholders)
which individually amounted to more than 10% of total shares outstanding as
detailed below.
California Intermediate Tax-Free Bond Fund ........................... 57.6%
Intermediate Total Return Bond Fund .................................. 26.7%
International Fund ................................................... 34.5%
Rising Dividends Fund ................................................ 14.1%
Small-Mid Cap Fund ................................................... 15.6%
7. FEDERAL INCOME TAX INFORMATION
Each Fund listed below has capital loss carryovers which may be used to
offset future capital gains, as follows:
Expiration Date
-----------------------------------------------
2006 2009 2010 2011
---------- ---------- ----------- ----------
International Fund ........ -- $2,033,938 $14,384,915 $7,167,821
Rising Dividends
Fund ................... -- 2,967,880 10,373,748 4,873,757
Small-Mid Cap Fund ........ $5,032,416* 1,242,993 826,352 5,824,576
Expiration Date
-----------------------
2012 Total
---------- -----------
International Fund ........ -- $23,586,674
Rising Dividends
Fund ................... -- 17,945,385
Small-Mid
Cap Fund ............... $1,326,184 14,252,521
* UTILIZATION OF THIS CAPITAL LOSS CARRYFORWARD WHICH AROSE IN CONNECTION WITH
THE TAX-FREE REORGANIZATION WITH SEFTON SMALL COMPANY VALUE FUND IS LIMITED BY
FEDERAL INCOME TAX REGULATIONS TO $5,032,416.
The Trust may not realize the benefit of these losses to the extent they do
not realize gains on investments prior to the expiration of the capital loss
carryovers.
For the period ended December 31, 2004, the Trust utilized losses deferred in
prior years against current year capital gains as follows:
Rising Dividends Fund ............................................. $270,786
International Fund ................................................ 488,294
Under the current tax law, capital and foreign currency losses realized after
October 31 may be deferred and treated as occurring on the first day of the
following fiscal year. For the period ended December 31, 2004, the Trust
deferred and recognized post-October losses as follows:
Deferred Recognized
---------- ----------
Intermediate Total Return Bond Fund .............. $ 34,804 $ --
Small-Mid Cap Fund ............................... 1,101,042 --
For the year ended December 31, 2004, the California Intermediate Tax-Free
Bond Fund distributed $1,275,024 of exempt-interest dividends.
The components of distributable earnings on a tax basis (excluding unrealized
appreciation (depreciation) which is disclosed in the Schedules of Investments)
consist of undistributed ordinary income and undistributed long-term capital
gains as follows:
Undistributed Undistributed Undistributed
Ordinary Long-Term Tax-Exempt
Income Capital Gains Income
------------- ------------- -------------
California Intermediate
Tax-Free Bond Fund ........... $ -- $ -- $4,516
International Fund ............. 42,944 -- --
Rising Dividends Fund .......... 593,673 -- --
The differences between the book and tax basis components of distributable
earnings relate principally to the timing of recognition of income and gains for
federal income tax purposes. Short-term gain distributions reported in the
Statements of Changes in Net Assets, if any, are reported as ordinary income for
federal tax purposes.
8. RECLASSIFICATION OF CAPITAL ACCOUNTS
For financial reporting purposes, book basis capital accounts are adjusted to
reflect the tax character of permanent book/tax differences. Permanent
reclassifications can arise primarily from differing treatments of certain
income and gain transactions, nondeductible current year operating losses,
expiring capital loss carryovers, and investments in passive foreign investment
companies. The reclassifications have no impact on the net assets or net asset
value of each Fund. For the period ended December 31, 2004, the Trust recorded
reclassifications to increase (decrease) the accounts listed below:
Capital Paid
in on
Shares of Accumulated Undistributed
Beneficial Net Realized Net Investment
Interest Gain (Loss) Income (Loss)
------------ ------------ --------------
California Intermediate
Tax-Free Bond Fund .......... $ -- $ -- $ --
Intermediate Total Return
Bond Fund ................... (21,429) 83 21,346
International Fund ............ (1) 58,218 (58,217)
Rising Dividends Fund ......... -- -- --
Small-Mid Cap Fund ............ (847,956) -- 847,956
62
PHOENIX-KAYNE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 (CONTINUED)
9. PROXY VOTING PROCEDURES (UNAUDITED)
The Adviser votes proxies relating to portfolio securities in accordance with
procedures that have been approved by the Trust's Board of Trustees. You may
obtain a description of these procedures, free of charge, by calling toll-free
800-243-1574. These procedures and information regarding how the Funds voted
proxies during the most recent twelve-month period ended June 30, 2004 is also
available through the Securities and Exchange Commission's website at
http://www.sec.gov.
10. FORM N-Q INFORMATION (UNAUDITED)
Effective the 3rd quarter of 2004, the Trust files complete schedules of
portfolio holdings with the Securities and Exchange Commission (the "SEC") for
the first and third quarters of each fiscal year on Form N-Q. Each Fund's Form
N-Q is available on the SEC's website at http://www.sec.gov. Furthermore, each
Fund's Form N-Q may be reviewed and copied at the SEC's Public Reference Room.
Information on the operation of the SEC's Public Reference Room can be obtained
at http://www.sec.gov/info/edgar/prrules.htm
- --------------------------------------------------------------------------------
TAX NOTICE (UNAUDITED)
For federal income tax purposes, 99.9% of the income dividends paid by the
California Intermediate Tax-Free Bond Fund qualify as exempt-interest
dividends.
For the fiscal year ended December 31, 2004, for federal income tax
purposes, 100% of the ordinary income dividends earned by the Rising
Dividends Fund qualify for the dividends received deduction for corporate
shareholders.
For the fiscal year ended December 31, 2004, the International and the
Rising Dividends Funds hereby each designate 100% and 100% respectively, or
the maximum allowable of its ordinary income dividends to qualify for the
lower tax rate applicable to individual shareholders. The actual percentage
for the calendar year will be designated in the year-end tax statements.
For the year ended December 31, 2004 the following funds designated
long-term capital gains dividends:
California Intermediate Tax-Free Bond Fund ..................... $355,823
Intermediate Total Return Bond Fund ............................ 454,985
- --------------------------------------------------------------------------------
63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
[LOGO OMITTED]
PRICEWATERHOUSECOOPERS [PCW]
To the Board of Trustees of
Phoenix-Kayne Funds and Shareholders of
Phoenix-Kayne California Intermediate Tax-Free Bond Fund
Phoenix-Kayne Intermediate Total Return Bond Fund
Phoenix-Kayne International Fund
Phoenix-Kayne Rising Dividends Fund
Phoenix-Kayne Small-Mid Cap Fund
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, 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 Phoenix-Kayne California
Intermediate Tax-Free Bond Fund, Phoenix-Kayne Intermediate Total Return Bond
Fund, Phoenix-Kayne International Fund, Phoenix-Kayne Rising Dividends Fund, and
Phoenix-Kayne Small-Mid Cap Fund (constituting Phoenix-Kayne Funds, hereinafter
referred to as the "Trust") at December 31, 2004, the results of each of their
operations for the year then ended, the changes in each of their net assets and
the financial highlights for each of the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Trust'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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards 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, 2004, by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights of the Funds as of December 31, 2002 and
for the periods then ended were audited by other independent accountants whose
report dated January 24, 2003 expressed an unqualified opinion on those
statements.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
64
FUND MANAGEMENT
Information pertaining to the Trustees and officers of the Trust is set forth
below. The statement of additional information (SAI) includes additional
information about the Trustees and is available without charge, upon request, by
calling (800) 243-4361.
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX PRINCIPAL OCCUPATION(S)
NAME, ADDRESS LENGTH OF OVERSEEN BY DURING PAST 5 YEARS AND
AND DATE OF BIRTH TIME SERVED TRUSTEE OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
E. Virgil Conway Served since 37 Chairman, Rittenhouse Advisors, LLC (consulting firm) since
Rittenhouse Advisors, LLC November 2002. 2001. Trustee/Director, Realty Foundation of New York
101 Park Avenue (1972-present), Josiah Macy, Jr., Foundation (1975-present),
New York, NY 10178 Pace University (Director/Trustee Emeritus) (2003-present),
DOB: 8/2/29 New York Housing Partnership Development Corp. (Chairman)
(1981-present), Greater New York Councils, Boy Scouts of
America (1985-present), The Academy of Political Science
(Vice Chairman) (1985-present), Urstadt Biddle Property
Corp. (1989-present). Colgate University (Trustee/Emeritus)
(since 2004). Chairman, Metropolitan Transportation
Authority (1992-2001), The Harlem Youth Development
Foundation (1998-2002), Director, Trism, Inc. (1994-2001),
Consolidated Edison Company of New York, Inc. (1970-2002),
Atlantic Mutual Insurance Company (1974-2002), Centennial
Insurance Company (1974-2002), Union Pacific Corp.
(1978-2002), Blackrock Freddie Mac Mortgage Securities Fund
(Advisory Director) (1990-2002), Accuhealth (1994-2002),
Pace University (1978-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
Harry Dalzell-Payne Served since 37 Currently retired.
The Flat, Elmore Court November 2002.
Elmore, GLOS, GL2 3NT U.K.
DOB: 8/9/29
- ------------------------------------------------------------------------------------------------------------------------------------
Geraldine M. McNamara Served since 37 Managing Director, U.S. Trust Company of New York (private
U.S. Trust Company of New York November 2002. bank) (1982-present).
11 West 54th Street
New York, NY 10019
DOB: 4/17/51
- ------------------------------------------------------------------------------------------------------------------------------------
Everett L. Morris Served since 37 Currently retired. Vice President, W.H. Reaves and Company
164 Laird Road November 2002. (investment management) (1993-2003).
Colts Neck, NJ 07722
DOB: 5/26/28
- ------------------------------------------------------------------------------------------------------------------------------------
65
FUND MANAGEMENT (CONTINUED)
INTERESTED TRUSTEE
The individual listed below is an "interested person" of the Trust, as defined
in Section 2(a)(19) of the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder.
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
NAME, ADDRESS, PORTFOLIOS IN
DATE OF BIRTH FUND COMPLEX PRINCIPAL OCCUPATION(S)
AND POSITION(S) WITH LENGTH OF OVERSEEN BY DURING PAST 5 YEARS AND
TRUST TIME SERVED TRUSTEE OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
*Philip R. McLoughlin Served since 67 Director, PXRE Corporation (Delaware) (1985-present), World
56 Prospect Street November 2002. Trust Fund (1991-present), Management Consultant
Hartford, CT 06115-0480 (2002-2004), Chairman (1997-2002), Director (1995-2002),
DOB: 10/23/46 Vice Chairman (1995-1997) and Chief Executive Officer
(1995-2002), Phoenix Investment Partners, Ltd. Director and
Chairman Executive Vice President, The Phoenix Companies, Inc.
(2000-2002). Director (1994-2002) and Executive Vice
President, Investments (1987-2002), Phoenix Life Insurance
Company. Director (1983-2002) and Chairman (1995-2002),
Phoenix Investment Counsel, Inc. Director (1982-2002) and
President (1990-2000), Phoenix Equity Planning Corporation.
Chairman and President, Phoenix/Zweig Advisers LLC
(2001-2002). Director (2001-2002) and President (April
2002-September 2002), Phoenix Investment Management Company.
Director and Executive Vice President, Phoenix Life and
Annuity Company (1996-2002). Director (1995-2000) and
Executive Vice President (1994-2002) and Chief Investment
Counsel (1994-2002), PHL Variable Insurance Company.
Director, Phoenix National Trust Holding Company
(2001-2002). Director (1985-2002) and Vice President
(1986-2002), and Executive Vice President (2002-2002), PM
Holdings, Inc. Director, W.S. Griffith Associates, Inc.
(1995-2002). Director (1992-2002) and President (1993-1994),
W.S. Griffith Securities, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*Mr. McLoughlin is an "interested person," as defined in the Investment
Company Act of 1940, by reason of his former relationship with Phoenix
Investment Partners, Ltd., and its affiliates.
</FN>
66
FUND MANAGEMENT (CONTINUED)
OFFICERS OF THE TRUST WHO ARE NOT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
POSITION(S) HELD WITH
NAME, ADDRESS AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S)
DATE OF BIRTH TIME SERVED DURING PAST 5 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel T. Geraci President since 2004. Executive Vice President, Asset Management, The Phoenix
56 Prospect Street Companies, Inc. (wealth management) (since 2003). President and
Hartford, CT 06115-0480 Chief Executive Officer, Phoenix Investment Partners, Ltd. (since
DOB: 6/12/57 2003). President, certain Funds within the Phoenix Fund Complex
(2004-present), President and Chief Executive Officer of North
American investment operations, Pioneer Investment Management
USA, Inc. (2001-2003). President of Private Wealth Management
Group (2000-2001), Executive Vice President of Distribution and
Marketing for U.S. institutional services business (1998-2000)
and Executive Vice President of Distribution and Marketing for
Fidelity Canada (1996-1998), Fidelity Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
George Aylward Executive Vice President Senior Vice President and Chief Executive Officer, Asset
56 Prospect Street since 2004. Management, The Phoenix Companies, Inc. (2004-present). Executive
Hartford, CT 06115-0480 Vice President and Chief Operating Officer, Phoenix Investment
DOB: 8/17/64 Partners Ltd. (2004-present). Vice President Phoenix Life
Insurance Company (2002-2004). Vice President, The Phoenix
Companies, Inc. (2001-2004). Assistant Controller, Phoenix
Investment Partners, Ltd. (1996-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
Francis G. Waltman Senior Vice President Vice President, Chief Administrative Officer (2003-present),
56 Prospect Street since May 2004. Senior Vice President, Chief Administrative Officer, Private
Hartford, CT 06115-0480 Client Group (1999-2003), Vice President (1995-1999), Phoenix
DOB: 7/27/62 Investment Partners, Ltd. Senior Vice President, Phoenix Fund
Complex (2004-present).
- ------------------------------------------------------------------------------------------------------------------------------------
Ralph Walter Chief Operating Officer Chief Operating Officer and Treasurer, Kayne Anderson Rudnick
Kayne Anderson Rudnick Investment and Treasurer since 2000; Investment Management, LLC (2000-present). Chief Administrative
Management, LLC Chief Financial Officer Officer, ABN AMRO (1986-2000).
1800 Avenue of the Stars since 2002.
Suite 200
Los Angeles, CA 90067
DOB: 11/25/46
- ------------------------------------------------------------------------------------------------------------------------------------
Matthew A. Swendiman Secretary since 2004. Counsel, Phoenix Life Insurance Company (2002-present). Vice
One American Row President, Counsel, Chief Legal Officer and Secretary, certain of
Hartford, CT 06102 the funds within the Phoenix Fund Complex (2004-present).
DOB: 4/5/73 Assistant Vice President and Assistant Counsel, Conseco Capital
Management (2000-2002).
- ------------------------------------------------------------------------------------------------------------------------------------
67
PHOENIX-KAYNE FUNDS
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
TRUSTEES
E. Virgil Conway
Harry Dalzell-Payne
Philip R. McLoughlin
Geraldine M. McNamara
Everett L. Morris
OFFICERS
Daniel T. Geraci, President
George Aylward, Executive Vice President
Francis G. Waltman, Senior Vice President
Ralph Walter, Treasurer
Matthew A. Swendiman, Secretary and
Chief Legal Officer
- ------------------------------------------
IMPORTANT NOTICE TO SHAREHOLDERS
The Securities and Exchange Commission has
modified mailing regulations for semiannual
and annual shareholder fund reports to
allow mutual fund companies to send a
single copy of these reports to shareholders
who share the same mailing address. If you
would like additional copies, please call
Mutual Fund Services at 1-800-243-1574.
- ------------------------------------------
INVESTMENT ADVISER
Kayne Anderson Rudnick Investment
Management, LLC
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
PRINCIPAL UNDERWRITER
Phoenix Equity Planning Corporation
56 Prospect Street
Hartford, CT 06115-0480
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 5501
Boston, MA 02206-5501
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
TRANSFER AGENT
Phoenix Equity Planning Corporation
56 Prospect Street
Hartford, CT 06115-0480
HOW TO CONTACT US
Mutual Fund Services 1-800-243-1574
Advisor Consulting Group 1-800-243-4361
Text Telephone 1-800-243-1926
Web site PHOENIXINVESTMENTS.COM
-----------------
PRESORTED
STANDARD
U.S. POSTAGE
PAID
Louisville, KY
Permit No. 1051
-----------------
- --------------------------------------------------------------------------------
PHOENIX EQUITY PLANNING CORPORATION
P.O. Box 150480
Hartford, CT 06115-0480
[LOGO OMITTED] PHOENIX
INVESTMENT PARTNERS, LTD.
A MEMBER OF THE PHOENIX COMPANIES, INC.
For more information about Phoenix mutual funds,
please call your financial representative or contact us at
1-800-243-4361 or PHOENIXINVESTMENTS.COM.
NOT INSURED BY FDIC/NCUSIF OR ANY FEDERAL GOVERNMENT AGENCY.
NO BANK GUARANTEE. NOT A DEPOSIT. MAY LOSE VALUE.
PXP1739 2-05
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are
employed by the registrant or a third party, and that relates to any
element of the code of ethics described in Item 2(b) of the
instructions for completion of Form N-CSR.
(d) The registrant has not granted any waivers, during the period covered
by this report, including an implicit waiver, from a provision of the
code of ethics that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of
whether these individuals are employed by the registrant or a third
party, that relates to one or more of the items set forth in paragraph
(b) of the instructions for completion of this Item
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the Board of Trustees of the
Funds has determined that E. Virgil Conway and Everett L. Morris possess the
technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to
qualify as an "audit committee financial expert". Mr. Conway and Mr. Morris are
"independent" trustees pursuant to paragraph (a) (2) of Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
- ----------
(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$98,000 for 2004 and $102,600 for 2003.
Audit-Related Fees
- ------------------
(b) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item are $5,000 for 2004 and $0 for 2003. This represents the review
of the semi-annual financial statements.
Tax Fees
- --------
(c) The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $20,000 for 2004 and
$20,500 for 2003.
"Tax Fees" are those primarily associated with review of the Trust's
tax provision and qualification as a regulated investment company
(RIC) in connection with audits of the Trust's financial statement,
review of year-end distributions by the Fund to avoid excise tax for
the Trust, periodic discussion with management on tax issues affecting
the Trust, and reviewing and signing the Fund's federal income and
excise tax returns.
All Other Fees
- --------------
(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are
$0 for 2004 and $0 for 2003.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
The Phoenix-Kayne Funds (the "Fund") Board has adopted policies and
procedures with regard to the pre-approval of services provided by
PwC. Audit, audit-related and tax compliance services provided to the
Fund on an annual basis require specific pre-approval by the Board. As
noted above, the Board must also approve other non-audit services
provided to the Fund and those non-audit services provided to the
Fund's Affiliated Service Providers that relate directly to the
operations and financial reporting of the Fund. Certain of these
non-audit services that the Board believes are a) consistent with the
SEC's auditor independence rules and b) routine and recurring services
that will not impair the independence of the independent auditors may
be approved by the Board without consideration on a specific
case-by-case basis ("general pre-approval").
The Audit Committee has determined that Mr. E. Virgil Conway, Chair of
the Audit Committee, may provide pre-approval for such services that
meet the above requirements in the event such approval is sought
between regularly scheduled meetings. In the event that Mr. Conway
determines that the full board should review the request, he has the
opportunity to convene a meeting of the Funds Board. In any event, the
Board is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) of this Item that were approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are
as follows:
(b) 100% for 2004 and not applicable for 2003
(c) 100% for 2004 and 100% for 2003
(d) Not applicable for 2004 and not applicable for 2003
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen
by another investment adviser), and any entity controlling, controlled
by, or under common control with the adviser that provides ongoing
services to the registrant for each of the last two fiscal years of
the registrant was $1,872,791 for 2004 and $256,389 for 2003.
(h) The registrant's audit committee of the board of directors has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Schedule of Investments in securities of unaffiliated issuers as of the close of
the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act
(17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Phoenix-Kayne Funds
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By (Signature and Title)* /s/ George R. Aylward
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George R. Aylward, Executive Vice President
(principal executive officer)
Date March 9, 2005
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ George R. Aylward
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George R. Aylward, Executive Vice President
(principal executive officer)
Date March 9, 2005
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By (Signature and Title)* /s/ W. Patrick Bradley
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W. Patrick Bradley, Treasurer
(principal financial officer)
Date March 9, 2005
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* Print the name and title of each signing officer under his or her signature.