-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QJUvOiGseDLFeVhM6eFHkEuzxnJwNzVVxL5XIiZ6x9z88iMx4uBKXG6tH7HbCZAk 8gXiSb5E7YoM7CozqbVr7A== 0000935069-05-000566.txt : 20050310 0000935069-05-000566.hdr.sgml : 20050310 20050310170635 ACCESSION NUMBER: 0000935069-05-000566 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050310 DATE AS OF CHANGE: 20050310 EFFECTIVENESS DATE: 20050310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOENIX-KAYNE FUNDS CENTRAL INDEX KEY: 0001018593 IRS NUMBER: 956981193 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07705 FILM NUMBER: 05673062 BUSINESS ADDRESS: STREET 1: 1800 AVENUE OF THE STARS, 2ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: (310) 556-2721 MAIL ADDRESS: STREET 1: 56 PROSPECT ST. STREET 2: P.O. BOX 150480 CITY: HARTFORD STATE: CT ZIP: 06115-0480 FORMER COMPANY: FORMER CONFORMED NAME: KAYNE ANDERSON RUDNICK MUTUAL FUNDS DATE OF NAME CHANGE: 20010226 FORMER COMPANY: FORMER CONFORMED NAME: KAYNE ANDERSON MUTUAL FUNDS DATE OF NAME CHANGE: 19960711 N-CSR 1 g13962_phnxkayne.txt PHOENIX-KAYNE FUNDS 2004 AR 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 DO YOU WANT TO STOP RECEIVING FUND DOCUMENTS BY MAIL? GO TO PHOENIXINVESTMENTS.COM, LOG IN AND SIGN UP FOR E-DELIVERY [LOGO OMITTED] PHOENIX INVESTMENT PARTNERS, LTD. COMMITTED TO INVESTOR SUCCESS(R) -------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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% (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.
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) (1) Sales charges are not reflected in the total return calculation. (2) Computed using average shares outstanding. (3) Not annualized. (4) Annualized.
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 % (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.
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) (1) Sales charges are not reflected in the total return calculation. (2) Computed using average shares outstanding. (3) Not annualized. (4) Annualized.
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) (1) Sales charges are not reflected in the total return calculation. (2) Not annualized. (3) Annualized. (4) Computed using average shares outstanding.
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) (1) Sales charges are not reflected in the total return calculation. (2) Not annualized. (3) Annualized. (4) Computed using average shares outstanding.
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) (1) Sales charges are not reflected in the total return calculation. (2) Not annualized. (3) Annualized. (4) Computed using average shares outstanding.
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. - ------------------------------------------------------------------------------------------------------------------------------------ *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.
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 -------------------------------------------------------------------- By (Signature and Title)* /s/ George R. Aylward ----------------------------------------------------- George R. Aylward, Executive Vice President (principal executive officer) Date March 9, 2005 -------------------------------------------------------------------------- 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 ----------------------------------------------------- George R. Aylward, Executive Vice President (principal executive officer) Date March 9, 2005 -------------------------------------------------------------------------- By (Signature and Title)* /s/ W. Patrick Bradley ----------------------------------------------------- W. Patrick Bradley, Treasurer (principal financial officer) Date March 9, 2005 -------------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature. EX-99.CODE ETH 2 g13962_codeeth.txt CODE OF ETHICS EX-99.CODE ETH CODE OF ETHICS FOR CHIEF EXECUTIVE AND SENIOR FINANCIAL OFFICERS The Phoenix mutual funds 1 (each, and collectively, a "FUND") is committed to conducting business in accordance with applicable laws, rules and regulations and the highest standards of business ethics, and to full and accurate disclosure -- financial and otherwise -- in compliance with applicable law. This Code of Ethics, applicable to each Fund's Chief Executive Officer, President, Chief Financial Officer and Treasurer (or persons performing similar functions) (together, "SENIOR OFFICERS"), sets forth policies to guide you in the performance of your duties. As a Senior Officer, you must comply with applicable law. You also have a responsibility to conduct yourself in an honest and ethical manner. You have leadership responsibilities that include creating a culture of high ethical standards and a commitment to compliance, maintaining a work environment that encourages the internal reporting of compliance concerns and promptly addressing compliance concerns. This Code of Ethics recognizes that the Senior Officers are subject to certain conflicts of interest inherent in the operation of investment companies, because the Senior Officers (in addition to their role as senior officers of the Fund) currently or may in the future serve as officers or employees of a Phoenix investment adviser 2 (the "ADVISER"), Phoenix Investment Partners, Ltd., The Phoenix Companies, Inc. or other affiliates thereof (collectively, "PHOENIX") and as officers or trustees/directors of other registered investment companies and unregistered investment funds advised by Phoenix. This Code of Ethics also recognizes that certain laws and regulations applicable to, and certain policies and procedures adopted by, the Fund, the Adviser or Phoenix govern your conduct in connection with many of the conflict of interest situations that arise in connection with the operations of the Fund, including: o the Investment Company Act of 1940, as amended, and the rules and regulation promulgated thereunder by the Securities and Exchange Commission (the "1940 ACT"); - -------- 1 Phoenix Funds (which include Phoenix Equity Series Fund, Phoenix Equity Trust, Phoenix-Goodwin California Tax-Exempt Bond Fund, Phoenix Institutional Mutual Funds, Phoenix Investment Trust 97, Phoenix Multi-Portfolio Fund, Phoenix Multi-Series Trust, Phoenix-Oakhurst Income & Growth Fund, Phoenix-Oakhurst Strategic Allocation Fund, Phoenix Partners Select Funds, Phoenix Portfolios, Phoenix Series Fund, and Phoenix Strategic Equity Series Fund), the Phoenix Partners Funds (which includes Phoenix-Kayne Funds and Phoenix-Seneca Funds), The Phoenix Edge Series Fund ("PESF"); and, The Phoenix-Engemann Funds ("Engemann Funds"). 2 Phoenix Investment Counsel, Inc. ("PIC"), Duff & Phelps Investment Management Co. ("DPIM"), Engemann Asset Management ("EAM"), Euclid Advisors LLC ("EAL"), Kayne Anderson Rudnick Investment Management LLC ("KAR"), Phoenix Variable Advisors, Inc. ("PVA"), Seneca Capital Management, LLC ("SCM"), Phoenix/Zweig Advisers LLC ("PZA") o the Investment Advisers Act of 1940, as amended, and the rules and regulations promulgated thereunder by the Securities and Exchange Commission (the "ADVISERS ACT"); o the Code of Ethics adopted by the Fund pursuant to Rule 17j-1(c) under the 1940 Act (collectively, the "FUND'S 1940 ACT CODE OF ETHICS"); o one or more codes of ethics adopted by the Adviser that have been reviewed and approved by those trustees (the "TRUSTEES") of the Fund that are not "interested persons" of the Fund (the "INDEPENDENT TRUSTEES") within the meaning of the 1940 Act (the "ADVISER'S 1940 ACT CODE OF ETHICS" and, together with the Fund's 1940 Act Code of Ethics, the "1940 ACT CODES OF Ethics"); o the policies and procedures adopted by the Fund to address conflict of interest situations, such as procedures under Rule 10f-3 and Rule 17a-7 under the 1940 Act (collectively, the "FUND POLICIES"); and o each Adviser's general policies and procedures to address, among other things, conflict of interest situations and related matters (collectively, the "ADVISER POLICIES"). The provisions of the 1940 Act, the Advisers Act, the 1940 Act Codes of Ethics, the Fund Policies and the Adviser Policies are referred to herein collectively as the "ADDITIONAL CONFLICT RULES". This Code of Ethics is different from, and is intended to supplement, the Additional Conflict Rules. Accordingly, a violation of the Additional Conflict Rules by a Senior Officer is hereby deemed not to be a violation of this Code of Ethics, unless and until the Board of Trustees of the Fund (the "BOARD") shall determine that any such violation of the Additional Conflict Rules is also a violation of this Code of Ethics. SENIOR OFFICERS SHOULD ACT HONESTLY AND CANDIDLY Each Senior Officer has a responsibility to the Fund to act with integrity. Integrity requires, among other things, being honest and candid. Deceit and subordination of principle are inconsistent with integrity. Each Senior Officer must: o act with integrity, including being honest and candid while still maintaining the confidentiality of information where required by law or the Additional Conflict Rules; o not withhold any relevant information; o comply with the laws, rules and regulations that govern the conduct of the Fund's operations and report any suspected violations thereof in accordance with the section below entitled "Compliance With Code Of Ethics"; and 2 o adhere to a high standard of business ethics. CONFLICTS OF INTEREST A conflict of interest for the purpose of this Code of Ethics occurs when your private interests interfere in any way, or even appear to interfere, with the interests of the Fund. Senior Officers are expected to use objective and unbiased standards when making decisions that affect the Fund, keeping in mind that Senior Officers are subject to certain inherent conflicts of interest because Senior Officers of a Fund also are or may be officers of the Adviser and other funds advised or serviced by Phoenix (as a result of which it is incumbent upon you to be familiar with and to seek to comply with the Additional Conflict Rules). You are required to conduct the business of the Fund in an honest and ethical manner, including the ethical handling of actual or apparent conflicts of interest between personal and business relationships. When making any investment, accepting any position or benefits, participating in any transaction or business arrangement or otherwise acting in a manner that creates or appears to create a conflict of interest with respect to the Fund where you are receiving a personal benefit, you should act in accordance with the letter and spirit of this Code of Ethics. If you are in doubt as to the application or interpretation of this Code of Ethics to you as a Senior Officer of the Fund, you should make full disclosure of all relevant facts and circumstances to the Chief Compliance Officer of the Fund (the "CHIEF COMPLIANCE OFFICER") and obtain the prior approval of the Chief Compliance Officer prior to taking or not taking action. Some conflict of interest situations that should always be approved by the Chief Compliance Officer, if material, include the following: o the receipt of any entertainment or non-nominal gift by the Senior Officer, or a member of his or her family, from any company with which the Fund has current or prospective business dealings (other than the Adviser or Phoenix), unless such entertainment or gift is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; o any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than the Adviser or Phoenix; or o a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Senior Officer's employment by the Adviser or Phoenix, such as compensation or equity ownership. Nominal gifts in the aggregate may rise to create a conflict of interest. In the event that you are involved in any of these situations, you should immediately disclose 3 the situation to the Chief Compliance Officer and to Counsel for the independent trustees. The Chief Compliance Officer will disclose the situation to the full Board. DISCLOSURES It is the policy of the Fund to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and documents that the Fund files with, or submits to, the Securities and Exchange Commission or a national securities exchange and in all other public communications made by the Fund. As a Senior Officer, you are required to promote compliance with this policy and to abide by the Fund's standards, policies and procedures designed to promote compliance with this policy. Each Senior Officer must: o familiarize himself or herself with the disclosure requirements applicable to the Fund as well as the business and financial operations of the Fund; and o not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, including to the Trustees, the Fund's independent auditors, the Fund's counsel, counsel to the Independent Directors, governmental regulators or self-regulatory organizations. o not knowingly withhold, or cause others to withhold, facts about the Fund to others, including to other Trustees, the Fund's independent auditors, the Fund's counsel, counsel to the independent Trustees, governmental regulators or self-regulatory organizations. COMPLIANCE WITH CODE OF ETHICS If you know of or suspect a violation of this Code of Ethics or other laws, regulations, policies or procedures applicable to the Fund, you must report that information on a timely basis to the Chief Compliance Officer or report it anonymously by following the "whistle blower" policies adopted by the Fund from time to time. For the purposes hereof, the Fund has endorsed usage of the Phoenix confidential, 24-hour toll-free telephone help line at 1-800-813-8180 and shall require the Phoenix Chief Compliance Officer to promptly report any calls made to such number affecting a Fund. NO ONE WILL BE SUBJECT TO RETALIATION BECAUSE OF A GOOD FAITH REPORT OF A SUSPECTED VIOLATION. The Fund will follow these procedures in investigating and enforcing this Code of Ethics, and in reporting on this Code of Ethics: o the Chief Compliance Officer will take all appropriate action to investigate any actual or potential violations reported to him or her; o violations and potential violations will be reported to the applicable Fund Board after such investigation; 4 o if the Fund Board determines that a violation has occurred, it will take all appropriate disciplinary or preventive action; and o appropriate disciplinary or preventive action may include a letter of censure, suspension, dismissal or, in the event of criminal or other serious violations of law, notification of the Securities and Exchange Commission or other appropriate law enforcement authorities. Senior Officers must make this Code of Ethics known to persons who might know of a potential conflict of interest, including the "whistle blower" policies adopted by the Fund from time to time. WAIVERS OF CODE OF ETHICS Except as otherwise provided in this Code of Ethics, the Chief Compliance Officer is responsible for applying this Code of Ethics to specific situations in which questions are presented to the Chief Compliance Officer and has the authority to interpret this Code of Ethics in any particular situation. The Chief Compliance Officer shall take all action he or she considers appropriate to investigate any actual or potential violations reported under this Code of Ethics. The Chief Compliance Officer is authorized to consult, as appropriate, with the chair of the Fund Board and with counsel to the Fund, the Adviser, Phoenix or the Independent Trustees, and is encouraged to do so. Each Fund Board, or any duly designated committee thereof, is responsible for granting waivers of this Code of Ethics, as appropriate. Any changes to or waivers of this Code of Ethics will, to the extent required, be disclosed on Form N-CSR, or otherwise, as provided by Securities and Exchange Commission rules. RECORDKEEPING The Fund will maintain and preserve for a period of not less than six (6) years from the date an action is taken, the first two (2) years in an easily accessible place, a copy of the information or materials supplied to the Fund Board or to any appropriate Committee thereof: o that provided the basis for any amendment or waiver to this Code of Ethics; and o relating to any violation of this Code of Ethics and sanctions imposed for such violation, together with a written record of the approval or action taken by the Board. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code of Ethics shall be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code of Ethics, such matters shall not be 5 disclosed to anyone other than the Independent Trustees and their counsel, the Fund and its counsel, the Adviser and/or other Phoenix entity and its counsel and any other advisors, consultants or counsel retained by the Trustees, the Independent Trustees or any committee of the Board. AMENDMENTS This Code of Ethics may not be amended except in written form, which is specifically approved by a majority vote of the Trustees of each Fund, including a majority of the Independent Trustees. NO RIGHTS CREATED This Code of Ethics is a statement of certain fundamental principles, policies and procedures that govern each of the Senior Officers in the conduct of each Fund's business. It is not intended to and does not create any rights in any employee, investor, supplier, competitor, shareholder or any other person or entity. 6 EX-99.CERT 3 g13962_302cert.txt 302 CERTIFICATION CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, George R. Aylward, certify that: 1. I have reviewed this report on Form N-CSR of Phoenix-Kayne Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2005 /s/ George R. Aylward ----------------------- -------------------------------------------- George R. Aylward, Executive Vice President (principal executive officer) CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, W. Patrick Bradley, certify that: 1. I have reviewed this report on Form N-CSR of Phoenix-Kayne Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2005 /s/ W. Patrick Bradley ----------------------- -------------------------------------------- W. Patrick Bradley, Treasurer (principal financial officer) EX-99.906 4 g13962_906cert.txt 906 CERTIFICATION CERTIFICATION PURSUANT TO RULE 30A-2(B) UNDER THE 1940 ACT AND SECTION 906 OF THE SARBANES-OXLEY ACT I, George R. Aylward, Executive Vice President of Phoenix-Kayne Funds (the "Registrant"), certify that: 1. The Form N-CSR of the Registrant (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: March 9, 2005 /s/ George R. Aylward ----------------------- -------------------------------------------- George R. Aylward, Executive Vice President (principal executive officer) I, W. Patrick Bradley, Treasurer of Phoenix-Kayne Funds (the "Registrant"), certify that: 1. The Form N-CSR of the Registrant (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: March 9, 2005 /s/ W. Patrick Bradley ----------------------- -------------------------------------------- W. Patrick Bradley, Treasurer (principal financial officer) -----END PRIVACY-ENHANCED MESSAGE-----