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 811-04739
The Zweig Fund, Inc.
(Exact name of registrant as specified in charter)
900 Third Avenue
New York, NY 10022
(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: 1-800-272-2700
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. (S) 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
OFFICERS AND DIRECTORS
Daniel T. Geraci
Director, President and Chief Executive Officer
Carlton Neel
Executive Vice President
David Dickerson
Senior Vice President
Marc Baltuch
Vice President
Moshe Luchins
Vice President
Matthew A. Swendiman
Secretary
Nancy Curtiss
Treasurer
Charles H. Brunie
Director
Wendy Luscombe
Director
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
R. Keith Walton
Director
Investment Adviser
Phoenix/Zweig Advisers LLC
900 Third Avenue
New York, NY 10022
Fund Administrator
Phoenix Equity Planning Corporation
56 Prospect St.
P.O. Box 150480
Hartford, CT 06115-0480
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
125 High Street
Boston, Massachusetts 02110
Transfer Agent
EquiServe Trust Co., N.A.
P.O. Box 43010
Providence, RI 02940-3010
Legal Counsel
Katten Muchin Zavis Rosenman
575 Madison Avenue
New York, NY 10022
--------------------------------------------------------------------------------
This report is transmitted to the shareholders of The Zweig Fund, Inc. for
their information. This is not a prospectus, circular or representation
intended for use in the purchase of shares of the Fund or any securities
mentioned in this report.
PXP4132 Q4-04
Annual Report
Zweig
The Zweig Fund, Inc.
December 31, 2004
[GRAPHIC]
PHOENIX
INVESTMENT PARTNERS, LTD.
February 1, 2005
Dear Fellow ZF Shareholder:
I am pleased to share with you the manager's report and commentary for The
Zweig Fund, Inc. for the quarter ended December 31, 2004. In it, Dr. Martin
Zweig, president of Zweig Consulting LLC, sub-advisor to the Fund, presents his
market overview and outlook, followed by portfolio manager Carlton Neel's
report on changes to the portfolio during the quarter, including sector
allocations and top holdings.
For the quarter ended December 31, 2004, The Zweig Fund's net asset value
increased 6.79%, including the $0.144 distribution paid on October 26. During
the same period, the S&P 500(R) Index gained 9.22%, including dividends
reinvested. The Fund's average equity exposure for the quarter was
approximately 75%.
For the year ended December 31, 2004, the Fund's net asset value increased
10.35%, including total distributions paid during the year. During the same
period, the S&P 500 Index rose 10.86%, including dividends reinvested. The
Fund's average equity exposure for the year was approximately 72%.
As previously announced, the distribution for the quarter ended December 31,
2004, was $0.149, payable on January 10, 2005 to shareholders of record on
December 31, 2004. Including this distribution, the Fund's total payout since
inception is $18.294.
For more information on The Zweig Fund, including current performance and
monthly portfolio updates, please visit the "Individual Investors" section of
our Web site, PhoenixInvestments.com.
As always, we welcome your comments and feedback.
Sincerely,
/s/ Daniel T. Geraci
Daniel T. Geraci
President
The Zweig Fund, Inc.
MARKET OVERVIEW AND OUTLOOK
After being in the doldrums for much of the year, the Dow Jones Industrial
Average/SM/ reversed course after the presidential election and finished the
year up 3.1%. The post-election rally also provided the NASDAQ Composite(R)
Index with an 8.6% gain for the year. The year's best major performer was the
S&P 500(R) Index, which climbed 9.2%. Before the election, the Dow and the
NASDAQ were lower for the year while the S&P was up only 1.7%.
It appears that the market liked the election results. There was concern
that if Kerry won, taxes would be raised -- and the market typically doesn't
respond well to that scenario. The market did react favorably to Bush's tax
cuts, particularly on dividends and capital gains. Also, there was a lot of
uncertainty about the outcome of the election and the market doesn't like
uncertainty. That is a likely reason why the market moved within a narrow range
for most of the year. When the election results came in, the market rallied. In
our opinion, the biggest single factor for the strong market in the last two
months of the year was the president's reelection.
At its December meeting, the Federal Reserve (the "Fed"), as expected,
raised its target for the federal funds rate by 25 basis points (0.25%) to
2.25%. It was the fifth consecutive increase by that amount in 2004. When
announcing its decision, the Fed reaffirmed its intention to increase rates at
a "measured" pace and stated as before that "inflation and longer term
inflation remain well contained."
However, when the minutes of the Fed's December meeting were released later,
it was disclosed that a number of Fed officials were concerned that slow growth
in productivity, a weakening dollar, and high oil prices "could
cause upside inflation risks." There was a quick and sustained market sell-off
after the minutes were released. We believe that the market's weakness after
the Fed report was an overreaction. That can happen frequently. In this case,
it was not surprising that the Fed raised rates because the rate had been
driven down so low and the economy had been coming along nicely. Recall that
previously the economy was not performing well for some time and the Fed
probably overdid its cutting. When the economy rebounded, the Fed was slow in
hiking rates and they may have been trying to make up for lost time. We
consider the 2.25% rate still quite low. If it were to go to 3%, or even 4%, we
believe it would not necessarily be of great concern. Because of the run-up in
some commodity prices over the last year or two, the Fed's fears on inflation
make sense to us.
The dollar declined for a third consecutive year in 2004, falling 7.1%
against the euro to its lowest level since the euro's debut in 1999, and 4.3%
against the yen, to a five-year low. Despite the weakening dollar, the U.S.
trade deficit expanded to a monthly record of $55.46 billion in October. For
the first ten months, the trade gap reached $500.49 billion, topping the
deficit for all of 2003.
The weakness in the dollar is attributed in part to the trade deficit, but
in the long run it will help restore a proper balance. More foreigners will buy
our goods and we'll have to pay more to buy goods abroad, which will cut the
demand. That is normally what happens. Another reason for the dollar's weakness
is the fact that we are fighting a war in Iraq and a war on terror in general.
Historically, wars tend to hurt the currency. Also, our interest rates have
fallen quite low relative to those of some other countries and that's not good
for the dollar either. To determine the effect of the weak currency on the
market, we studied prior comparable dollar declines and found no consistent
stock market reaction. It is hard to get a definite answer.
The federal budget deficit also made news in the quarter. The Treasury
Department reported that the government's monthly budget deficit in November
rose to $57.88 billion from $42.97 billion a year earlier. Including October's
deficit of about $57 billion, the U.S. is on track to threaten the $412 billion
record set for its fiscal year ended September 30, 2004.
We are not overly concerned about the federal deficit as long as the economy
holds up. Tax cuts to aid the economy were a factor in expanding the deficit
and they seem to have worked. It appears the economy is doing pretty well right
now. If it continues to grow, the deficit should narrow. However a major factor
in the deficit is the spending for the war. Any attempts to cut the deficit by
raising taxes or cutting vital spending could be self-defeating for the economy.
American corporations have been building their cash reserves at levels not
approached since the 1950s or 60s. The Federal Reserve Board reported that
non-financial corporations boosted their liquid assets by 20%, to a record $1.3
trillion from the beginning of 2003 to June 2004. We think it is very bullish
that companies are watching liquidity, which likely means their balance sheets
are quite strong. Sooner or later companies have to do something with their
cash. Microsoft, for example, paid out a huge dividend in 2004 and raised its
regular dividend. We believe it's likely that other companies will follow suit,
especially since the dividend tax went down. That could be good for
shareholders and for stock prices.
Last year was a peak year for dividends. Total dividend payments in 2004
came to a record $213.6 billion, topping the previous peak of $160.8 billion,
according to Standard & Poor's. Companies reported 1,745 dividend increases
last year, up 7.2% from 2003, and the highest figure for any year since 1998.
In addition to increasing their dividends, corporations are expanding their
stock buybacks
2
and that tends to be bullish, too. Last year, stock repurchase programs came to
$233 billion compared to only $101 billion in 2003, according to Thomson
Financial. Incidentally, the outstanding shares of some companies are not
really shrinking because of the buybacks. For example, a company may buy back a
million shares yet give out two million shares in stock options. Nonetheless,
we view the buybacks as positive.
A company with lots of cash usually finds it easier to take over another
company. At the same time, some companies with lots of cash become sitting
ducks, or targets themselves, because that cash looks so attractive. Mergers
and acquisitions in the U.S. came to $875 billion last year, an increase of
more than 50% from 2003. With more than $260 billion of transactions announced,
December 2004 was the biggest M&A month since August 2000. We expect to see a
pickup in mergers and acquisitions this year and consider it a market positive.
While American corporations are accumulating cash, U.S. households saved
only 0.2% of their disposable income in October, down from 0.3% in September,
according to the Commerce Department. Except for a statistical anomaly in
October 2001, it was the lowest savings rate since the government began
compiling this data in 1959. During the 1950s to 1980s, household savings
averaged around 9%.
We're not quite sure about the validity of the government's numbers. They
seem too close to zero. However, we have seen evidence of a lot of consumer
spending. With interest rates so low, they have taken out second mortgages or
refinanced their homes. This has given them money to spend. However, it is
difficult to say whether low savings are bullish or bearish. Consider Japan,
where they have a huge savings rate and had it through the whole decade of the
1990s. Both the stock and real estate markets crashed. The Japanese consumer
was reluctant to spend and some businesses stagnated. We don't have that
problem here.
Net inflows to U.S. equity mutual funds totaled $21.3 billion in November,
the most since $23 billion last April, according to the Investment Company
Institute. That was a factor in the strong year-end rally in the stock market.
Some of the money being invested could have been triggered by the election
result.
Foreign investors are putting much less money into U.S. stocks. In the first
ten months of 2004 they placed $746 billion into American securities, but less
than one half of 1% went into stocks. This compares with foreign net buyers of
$458 billion of U.S. securities in 2000, with 38% of that total going into
stocks. Part of the reason foreigners are not buying is the weak dollar. If the
market stays even and the dollar declines 10%, they would have a 10% loss.
Incidentally, foreigners historically have tended to be wrong in timing their
investments in U.S. markets. They frequently have come into the market at the
tops and sold at the bottoms.
Meanwhile, American investors in foreign stocks set a record in 2004.
Through the first eleven months of last year, more than $61 billion went into
foreign stock funds, after withdrawals, according to the Investment Company
Institute and Lipper. The previous peak was $49.8 billion in 2002. U.S.
investments into foreign stock funds in the first eleven months of 2004
accounted for more than 35% of all investments in stock funds compared to just
15% in 2003. Here, again, the weak dollar is likely a major contributing factor
to that trend. If an American invests in euro-dominated or yen-dominated stocks
or mutual funds, they would benefit if the dollar continues to shrink.
Last year saw the greatest number of initial public offerings (IPOs) since
2000. There were 240 IPOs in the U.S. in 2004, raising $48.12 billion,
according to Thomson Financial. This compares with 85 companies entering the
market in 2003, which raised only $15.77 billion. These are numbers to watch.
The more new issues you have, the more money gets drained out of the
3
market. On the other hand, as the market improves, more companies will usually
come forward because it is easier to sell their stock. The time to be concerned
is if there is an excessive number of IPOs or if they explode on the first day.
We haven't yet seen the kind of "market froth" that occurred in, say, 1999,
near the top of the market. So we are comfortable with the IPO level at this
time, but it may get to a point where it becomes overdone and that would be a
negative for us.
Speculation seemed on the rise last year. Debit balances in margin accounts
for customers of the New York Stock Exchange (NYSE) reached $196.99 billion in
November, up nearly 14% from the close of 2003, the exchange reported. It was
the second straight year of increasing margin debt levels. Ending a three-year
decline, margin debt climbed nearly 29% in 2003. We think that a 14% increase
is not much to worry about. Margin debt doesn't seem excessive and is not a
problem at this point, but it could become one.
We do believe, however, that there is some cause for concern based on the
most recent Investors Intelligence sentiment survey of market advisors. As the
year ended, it reported that 62.1% of advisors are bullish, the highest
percentage since late January of 1987, the year of the October stock market
crash. However, the enthusiasm shown by investors and advisors does not appear
to be shared by company insiders. Stock sales by company insiders totaled over
$6 billion in November against purchases of only $130 million, according to
Thomson Financial. That is not helpful because it adds to the supply of stock.
Historically, insiders tend to sell on strength and buy on weakness. Since the
market has been more or less on the strong side, you might expect to see more
selling, so those lower numbers are somewhat worrisome.
Based on estimated corporate earnings growth of 19% last year and
projections of 10% growth for 2005, the S&P 500 Index currently trades at 17.9
times 2004 estimates and 16.5 times this year's projections, according to
Thomson Financial. With interest rates so low, these earnings seem relatively
satisfactory. However, it is difficult to know whether or not the market is
overvalued. One thing is sure -- it's not like it was five years ago. In our
opinion, valuations seem about right.
As far as earnings are concerned, we are going to see changes in the way
they are computed. The Financial Accounting Standards Board announced that
effective July 1, 2005, publicly traded companies will have to treat stock
options they give to employees as normal business expenses. This action has
been long overdue because options really are expenses. Although some companies
will report lower earnings, it doesn't change the economic realities of a
company. It will be interesting to see how Wall Street will react to the
revised figures.
Wall Street will also be watching what happens to President Bush's plan to
shift some Social Security money into private investment accounts. Should this
bill come to pass, it would be enormously bullish in our opinion. It would
resemble how the market was helped when individual retirement accounts (IRAs)
were introduced and pension rules were changed around 1975, causing more money
to enter the market. However, we don't know what the final version of the bill
will be or even if it will be enacted.
The White House has projected economic growth of 3.5% this year, against 4%
in 2004. On an upbeat note, the Conference Board's monthly Consumer Confidence
Index jumped to 102.3 in December from 92.6 in November, after four months of
declines. The Institute for Supply Management put its monthly index of
manufacturing at 58.6 in December against 57.8 in November -- another positive
indicator. Yet at the same time, housing, a strong prop for the economy, seems
to be losing momentum. The Commerce Department reported that housing
4
starts dropped 13.1% in November, the steepest decline since a 9.7% dip in
January 1994, and construction spending fell 0.4%, the first drop in 10 months.
Since the economy is reasonably strong, we consider the White House's 3.5%
projection for this year's growth realistic. That would indicate a fairly
upbeat economy that is not overheated. We would much rather see the economy
grow at 3.5% than at 5.5%. While it's too early to tell how the year will shape
up, the economic indicators that we follow have been picking up steam over the
last two months.
In summary, as of this writing, the stock market's "tape action" itself is
positive, although the year got off to a lukewarm start. As noted earlier, the
election result was a positive, but the year-end rally seems to have already
built it into the market. Other positives include lower taxes and more
reasonable valuations. Interest rates are still relatively low and our monetary
indicators are neutral. On the negative side, the Fed is still hiking rates.
Although rates are still low, it is not great to see them going up. Our
sentiment indicators are not very good right now. There just seems to be too
much unwarranted optimism, and we can't lose sight of the fact that we are in a
war and markets sometimes do poorly during wars. It is not clear whether
inflation will pick up, but in our view, that is a real potential threat to the
market. While it is a mixed bag, we are slightly positive on the outlook and
are currently about 70% invested.
Sincerely,
[GRAPHIC]
Martin E. Zweig, Ph.D.
President
Zweig Consulting LLC
PORTFOLIO COMPOSITION
Our leading stock market sectors as of December 31, 2004 included
financials, industrials, consumer staples, and health care. Although there were
changes in allocation amounts, all of the above-mentioned sectors were in our
previous quarterly listing. During the fourth quarter, we also added to our
position in financials and trimmed our holdings in industrials.
Our top individual stock holdings as of December 31, 2004, included
Allstate, Archer-Daniels-Midland, Fox Entertainment, PACCAR, Amgen, Altria
Group, C.R. Bard, Wells Fargo, Dow Chemical and Sanofi-Aventis. Aside from
PACCAR, Dow Chemical and Sanofi-Aventis, all of the other companies are new to
our top holdings. During the quarter, we trimmed our position in
Archer-Daniels-Midland, and there were no changes to the number of shares owned
in the other companies mentioned.
No longer among our top holdings are NASDAQ 100 Trust, Occidental Petroleum,
Angiotech Pharmaceuticals, Alcoa, Kerr-McGee, Norfolk Southern, and Valero. We
sold out of our positions in NASDAQ 100 Trust and Kerr-McGee, and we reduced
our holdings in the other companies listed.
Sincerely,
[SIGNATURE]
/s/ Carlton Neel
Carlton Neel
Executive Vice President
Phoenix/Zweig Advisers LLC
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 will be realized.
For definitions of indexes cited and certain investment terms used in this
report, see the glossary on page 6.
5
Glossary
American Depositary Receipt (ADR): 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.
Conference Board's Consumer Confidence Index: A monthly measure of consumer
confidence based on a representative sample of 5,000 U.S. households surveyed.
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.
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.
Financial Accounting Standards Board (FASB): The private sector organization
that since 1973 establishes the financial accounting and reporting standards
that govern the preparation of financial reports, and recognized as
authoritative by the Securities and Exchange Commission and the American
Institute of Certified Public Accountants.
Investors Intelligence Survey: A weekly survey published by Chartcraft, an
investment services company, of the current sentiment of approximately 150
market newsletter writers. Participants are classified into three categories:
bullish, bearish or waiting for a correction.
Initial public offering (IPO): A company's first sale of stock to the public.
Institute for Supply Management (ISM) Report on Business(R): An economic
forecast, released monthly, that measures U.S. manufacturing conditions and is
arrived at by surveying 300 purchasing professionals in the manufacturing
sector representing 20 industries in all 50 states.
NASDAQ Composite(R) Index: A market capitalization-weighted index of all issues
listed in the NASDAQ (National Association Of Securities Dealers Automated
Quotation System) Stock Market, except for closed-end funds, convertible
debentures, exchange traded funds, preferred stocks, rights, warrants, units
and other derivative securities. 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.
Indexes cited 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.
6
[CHART]
Sector Weightings December 31, 2004
as a percentage of total investments
U.S. Government Securities 12%
Financials 12%
Industrials 9%
Consumer Staples 9%
Health Care 9%
Consumer Discretionary 7%
Energy 7%
Other 35%
7
THE ZWEIG FUND, INC.
Ten Largest Holdings at December 31, 2004 (as a percentage of net assets)/(e)/
1. U.S. Treasury Note 12.75% 11/15/10... 12.3% 6. Amgen, Inc........ 1.5%
2. Allstate Corp........................ 1.6% 7. Altria Group, Inc. 1.5%
3. Archer-Daniels Midland Co............ 1.6% 8. C.R. Bard, Inc.... 1.5%
4. Fox Entertainment Group, Inc. Class A 1.6% 9. Wells Fargo & Co.. 1.5%
5. PACCAR, Inc.......................... 1.6% 10. Dow Chemical Co... 1.5%
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT
December 31, 2004
Number of
Shares Value
--------- ------------
INVESTMENTS
DOMESTIC COMMON STOCKS 65.36%
CONSUMER DISCRETIONARY -- 7.33%
Fox Entertainment Group, Inc. Class A/(b)/.... 220,000 $ 6,877,200
Home Depot, Inc............................... 140,000 5,983,600
McDonald's Corp............................... 205,000 6,572,300
Nike, Inc. Class B............................ 72,000 6,529,680
Viacom, Inc. Class B.......................... 175,000 6,368,250
------------
32,331,030
------------
CONSUMER STAPLES -- 8.85%
Altria Group, Inc./(d)/....................... 110,000 6,721,000
Archer-Daniels Midland Co..................... 310,000 6,916,100
Costco Wholesale Corp......................... 125,000 6,051,250
Kimberly-Clark Corp........................... 100,000 6,581,000
Procter & Gamble Co........................... 113,200 6,235,056
Sara Lee Corp................................. 270,000 6,517,800
------------
39,022,206
------------
ENERGY -- 6.58%
Burlington Resources, Inc..................... 130,000 5,655,000
ConocoPhillps................................. 65,000 5,643,950
Halliburtion Co............................... 150,000 5,886,000
Occidental Petroleum Corp..................... 90,000 5,252,400
Valero Energy Corp............................ 144,000 6,537,600
------------
28,974,950
------------
See notes to financial statements
8
Number of
Shares Value
--------- -----------
FINANCIALS -- 11.50%
Allstate Corp.............................. 135,000 $ 6,982,200
Bank America Corp./(d)/.................... 130,000 6,108,700
Capital One Financial Corp................. 75,000 6,315,750
Huntington Bancshares, Inc................. 250,000 6,195,000
Morgan Stanley............................. 115,000 6,384,800
National City Corp......................... 165,000 6,195,750
Wachovia Corp.............................. 110,000 5,786,000
Wells Fargo & Co........................... 108,000 6,712,200
-----------
50,680,400
-----------
HEALTH CARE -- 8.61%
Amgen, Inc./(b)/........................... 105,000 6,735,750
Bristol-Myers Squibb Co.................... 250,000 6,405,000
C.R. Bard, Inc............................. 105,000 6,717,900
Merck & Co., Inc........................... 190,000 6,106,600
Pfizer, Inc................................ 200,000 5,378,000
UnitedHealth Group, Inc.................... 75,000 6,602,250
-----------
37,945,500
-----------
INDUSTRIALS -- 9.42%
Boeing Co.................................. 120,000 6,212,400
Deere & Co./(d)/........................... 86,000 6,398,400
L-3 Communication Holdings, Inc............ 80,000 5,859,200
Lockheed Martin Corp....................... 70,000 3,888,500
Norfolk Southern Corp...................... 170,000 6,152,300
PACCAR, Inc................................ 85,000 6,840,800
United Defense Industries, Inc./(b)/....... 130,000 6,142,500
-----------
41,494,100
-----------
INFORMATION TECHNOLOGY -- 5.26%
Cisco Systems, Inc./(b)/................... 315,000 6,079,500
Intel Corp................................. 250,000 5,847,500
Microsoft Corp............................. 175,000 4,674,250
Qualcomm, Inc.............................. 155,000 6,572,000
-----------
23,173,250
-----------
MATERIALS -- 3.74%
Alcoa, Inc................................. 60,000 1,885,200
Dow Chemical Co./(d)/...................... 135,000 6,683,850
Freeport-McMoRan Copper & Gold, Inc. Class B 50,000 1,911,500
Georgia-Pacific Corp....................... 160,000 5,996,800
-----------
16,477,350
-----------
See notes to financial statements
9
Number of
Shares Value
--------- ------------
TELECOMMUNICATION -- 4.07%
AT&T Corp......................................... 320,000 $ 6,099,200
MCI, Inc.......................................... 300,000 6,048,000
SBC Communications, Inc........................... 225,000 5,798,250
------------
17,945,450
------------
Total Domestic Common Stocks (Cost $245,386,398)..... 288,044,236
------------
FOREIGN COMMON STOCKS/(c)/ 6.88%
CONSUMER DISCRETIONARY -- 1.42%
Honda Motor Co., Ltd. ADR (Japan)/(d)/............ 240,000 6,254,400
------------
HEALTH CARE -- 2.72%
Angiotech Pharmaceuticals (United States)/(b)/.... 290,000 5,350,500
Sanofi Aventis ADR (France)....................... 165,000 6,608,250
------------
11,958,750
------------
INFORMATION TECHNOLOGY -- 2.74%
Amdocs Ltd. (United States)/(b)/.................. 240,000 6,300,000
Nokia Corp. ADR (Finland)......................... 370,000 5,797,900
------------
12,097,900
------------
Total Foreign Common Stocks (Cost $27,721,683)....... 30,311,050
------------
PREFERRED STOCKS 0.05%
FINANCIALS -- 0.05%
Citibank NA Series A 6.34% Pfd.................... 2,000 201,500
------------
Total Preferred Stocks (Cost $202,000)............... 201,500
------------
Par
(000's)
---------
U.S. GOVERNMENT SECURITIES 12.30%
U.S. TREASURY NOTES -- 12.30%
U.S. Treasury Note 12.75%, 11/15/10............... $ 50,000 54,212,900
------------
Total U.S. Government Securities (Cost $59,227,404).. 54,212,900
------------
Total Long Term Investments -- 84.59% (Identified
Cost $332,537,485)................................. 372,769,686
------------
SHORT-TERM INVESTMENTS 15.12%
U.S. GOVERNMENT SECURITIES -- 5.66%
U.S. Treasury Note 1.625%, 3/31/05 (Cost
$24,962,007).................................... 25,000 24,960,950
------------
FEDERAL AGENCY SECURITIES -- 4.65%
Federal Home Loan Mortgage Corp. 1.875%,
1/15/05 (Cost $20,470,599)...................... 20,474 20,470,089
------------
See notes to financial statements
10
Par
(000's) Value
------- ------------
COMMERCIAL PAPER -- 4.81%
Rabobank USA Finance Corp. 2.17%, 1/3/05..... $15,000 $ 14,999,214
BNP Paribas North America, Inc. 2.28%,
2/1/05..................................... 6,200 6,186,805
------------
Total Commercial Paper (Cost $21,186,019)..... 21,186,019
------------
Total Short-Term Investments (cost $66,618,625) 66,617,058
------------
Total Investments (Cost $399,156,110) -- 99.71% 439,386,744/(a)/
Securities Sold Short (Proceeds $10,920,097) --
(2.84)%..................................... (12,530,200)
Other Assets Less Liabilities -- 3.13%........ 13,786,931
------------
Net Assets -- 100.00%......................... $440,643,475
============
--------
(a) Federal Tax information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $54,669,963 and gross
depreciation of $15,662,849 for federal tax purposes. At December 31,
2004, the aggregate cost of securities for federal income tax purposes was
$400,379,630.
(b) Non-income producing.
(c) Foreign Common Stocks are determined based on the country in which the
security is issued. The country of risk, noted parenthetically, is
determined based on criteria in Note 2G "Foreign security country
determination" in the Notes to Financial Statements.
(d) Position, or portion thereof, with an aggregate market value of
$22,048,950 has been segregated to collateralize securities sold short.
(e) Table excludes short-term investments.
Number of
Shares Value
--------- -----------
SECURITIES SOLD SHORT
DOMESTIC COMMON STOCKS 2.84%
DISCRETIONARY -- 1.51%
Wendy's International, Inc................... 170,000 $ 6,674,200
-----------
HEALTH CARE -- 0.71%
Thoratec Corp................................ 300,000 3,126,000
-----------
UTILITIES -- 0.62%
Reliant Resources, Inc....................... 200,000 2,730,000
-----------
Total Securities Sold Short (Proceeds $10,920,097) $12,530,200/(f)/
===========
--------
(f) Federal Tax information: Net unrealized depreciation of securities sold
short is comprised of gross appreciation of $454,053 and gross
depreciation of $2,064,156 for federal income tax purposes. At December
31, 2004, the aggregate proceeds of securities sold short for federal
income tax purposes was $(10,920,097).
See notes to financial statements
11
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS
Investments, at value (Identified cost $399,156,110)... $ 439,386,744
Foreign currency at value (Identified cost $5,676)..... 5,893
Cash................................................... 76,215
Deposits with broker for securities sold short......... 12,547,700
Interest receivable.................................... 1,124,771
Dividends receivable................................... 725,830
Prepaid expenses....................................... 23,109
-------------
Total Assets....................................... 453,890,262
-------------
LIABILITIES
Securities sold short, at value (Proceeds $10,920,097). 12,530,200
Accrued advisory fees (Note 4)......................... 315,018
Accrued administration fees (Note 4)................... 48,179
Accrued directors fees................................. 35,552
Other accrued expenses................................. 317,838
-------------
Total Liabilities.................................. 13,246,787
-------------
NET ASSETS $ 440,643,475
=============
NET ASSET VALUE, PER SHARE
($440,643,475/73,233,013 shares outstanding -- Note 5). $ 6.02
=============
Net Assets consist of
Capital paid-in........................................ $ 574,062,590
Undistributed net investment income.................... 3,729,432
Accumulated net realized loss on investments........... (175,769,295)
Net unrealized appreciation on investments............. 40,230,851
Net unrealized depreciation on securities sold short... (1,610,103)
-------------
$ 440,643,475
=============
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of $61,853)................ $ 7,057,110
Interest............................................................... 6,556,031
-----------
Total Income........................................................ 13,613,141
-----------
Expenses
Investment advisory fees............................................... 3,561,301
Administrative fees.................................................... 544,670
Transfer agent fees.................................................... 363,902
Professional fees...................................................... 321,761
Printing and postage expenses.......................................... 256,937
Directors' fees and expenses........................................... 232,712
Custodian fees......................................................... 54,289
Miscellaneous.......................................................... 244,233
-----------
Expenses before dividends on short sales............................ 5,579,805
Dividends on short sales............................................ 211,587
-----------
Net Expenses........................................................ 5,791,392
-----------
Net Investment Income........................................... 7,821,749
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments............................................................ 33,045,802
Foreign currency transactions.......................................... 262,867
Options written........................................................ (457,763)
Short sales............................................................ (4,485,827)
Net change in unrealized appreciation (depreciation) on:
Investments............................................................ 3,468,097
Options written........................................................ 17,365
Foreign currency and foreign currency translations..................... (611)
Short sales............................................................ 376,018
-----------
Net realized and unrealized gain.................................... 32,225,948
-----------
Net increase in net assets resulting from operations............ $40,047,697
===========
See notes to financial statements
13
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
12/31/2004 12/31/2003
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.......................................... $ 7,821,749 $ 2,131,875
Net realized gain (loss)....................................... 28,365,079 (26,281,383)
Net change in unrealized appreciation (depreciation)........... 3,860,869 77,090,624
------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................ 40,047,697 52,941,116
------------ ------------
Dividends and distributions to shareholders from
Net investment income.......................................... (4,595,190) (2,018,671)
Net realized short-term gains.................................. (11,516,096) --
Tax return of capital.......................................... -- (34,378,160)
------------ ------------
Total dividends and distributions to shareholders........... (16,111,286) (36,396,831)
------------ ------------
Net increase (decrease) in net assets....................... 23,936,411 16,544,285
NET ASSETS
Beginning of year.................................................. 416,707,064 400,162,779
------------ ------------
End of year (including undistributed net investment income
of $3,729,432 and $240,006, respectively)........................ $440,643,475 $416,707,064
============ ============
See notes to financial statements
14
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1 -- ORGANIZATION
The Zweig Fund, Inc. ("the Fund") is a closed-end, diversified management
investment company registered under the Investment Company Act of 1940 ("the
Act"). The Fund was incorporated under the laws of the State of Maryland on
June 30, 1986. The Fund's objective is to increase capital primarily with
investment in equity securities, consistent with capital preservation and
reduction of risk.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principals
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 amount 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, in determining value, 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 other assets, if any, are valued at fair
value as determined in good faith by or under the direction of the Directors.
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.
15
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 Fund amortizes premiums and accretes discounts using the effective
interest method. Realized gains and losses are determined on the identified
cost basis.
C. Income Taxes:
It is the policy of the Fund to comply with the requirements of the Internal
Revenue Code (the "Code") applicable to regulated investment companies, and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes or excise taxes has been made.
The Fund may be subject to foreign taxes on income, gains on investments or
currency repatriation, a portion of which may be recoverable. The 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.
D. Dividends and Distributions to Shareholders:
Distributions are recorded by the 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, 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. As of
December 31, 2004, the Fund increased undistributed net investment income by
$262,867, increased the accumulated net realized loss by $11,253,229 and
decreased capital paid in on shares of beneficial interest by $11,516,096.
The components of distributable earnings on a tax basis (excluding
unrealized appreciation (depreciation) which is disclosed in the Schedule of
Investments and Securities Sold Short) consist of undistributed ordinary income
of $0 and undistributed long-term capital gains of $0.
The Fund has $174,545,775 of capital loss carryovers, $10,860,573 expiring
in 2009, $136,883,040 expiring in 2010 and $26,802,162 expiring in 2011 which
may be used to offset future capital gains. For the period ended December 31,
2004, the Fund utilized losses deferred in prior years of $27,608,364. The Fund
may not realize the benefit of these losses to the extent it does not realize
gains on investments prior to the expiration of the capital loss carryovers. In
addition, under certain conditions, the Fund may lose the benefit of these
losses to the extent that distributions to shareholders exceed required
distribution amounts as defined under the Internal Revenue Code. Shareholders
may also pay additional taxes on these excess distributions. For the year ended
December 31, 2004, excess distributions to the extent of current year gains
were $15,569,670. Short-term gain distributions reported in the Statement of
Changes in Net Assets are reported as ordinary income for tax purposes.
E. 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 ex-
16
change rate effective at the trade date. The gain or loss resulting from a
change in currency exchange rates between the trade and settlement dates of a
portfolio transaction is treated as a gain or loss on foreign currency.
Likewise, the gain or loss resulting from a change in currency exchange rates
between the date income is accrued and paid is treated as a gain or loss on
foreign currency. The Fund does not 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.
F. Forward Currency Contracts:
The Fund may enter into forward currency contracts in conjunction with the
planned purchase or sale of foreign denominated securities in order to hedge
the U.S. dollar cost or proceeds. Forward currency contracts involve, to
varying degrees, elements of market risk in excess of the amount recognized in
the Statement of Assets and Liabilities. Risks arise from possible movements in
foreign exchange rates or if the counterparty does not perform under the
contract.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. These contracts are traded directly between currency traders and
their customers. The contract is marked-to-market daily and the change in
market value is recorded by the Fund as an unrealized gain or loss. When the
contract is closed or offset with the same counterparty, the Fund records a
realized gain or loss equal to the change in the value of the contract when it
was opened and the value at the time it was closed or offset.
G. Foreign Security Country Determination:
A combination of the following criteria is used to assign the countries of
risk listed in the Schedule of Investments and Securities Sold Short: country
of incorporation, actual building address, primary exchange on which the
security is traded and country in which the greatest percentage of company
revenue is generated.
H. Options:
The Fund may write covered options or purchase options contracts for the
purpose of hedging against changes in the market value of the underlying
securities or foreign currencies.
The Fund will realize a gain or loss upon the expiration or closing of the
option transaction. Gains and losses on written options are reported separately
in the Statement of Operations. When a written option is exercised, the
proceeds on sales or amounts paid are adjusted by the amount of premium
received. Options written are reported as a liability in the Statement of
Assets and Liabilities and subsequently marked-to-market to reflect the current
value of the option. The risk associated with written options is that the
change in value of options contracts may not correspond to the change in value
of the hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, or if a liquid secondary market does not
exist for the contracts.
The Fund may purchase options, which are included in the Fund's Schedule of
Investments and Securities Sold Short and subsequently marked-to-market to
reflect the current value of the option. When a purchased option is exercised,
the cost of the security is adjusted by the amount of premium paid. The risk
associated with purchased options is limited to the premium paid.
17
Transactions in written options for the period ended December 31, 2004 were
as follows:
Number of Premiums
Contracts Received
--------- ---------
Option contracts outstanding at December 31, 2003.... 620 $ 100,435
Option contracts written............................. -- --
Option contracts sold................................ (620) (100,435)
Option contracts exercised........................... -- --
Option contracts expired............................. -- --
---- ---------
Option contracts outstanding as of December 31, 2004. -- --
==== =========
As of December 31, 2004, the Fund has no options outstanding.
I. Short Sales:
A short sale is a transaction in which the Fund sells a security it does not
own in anticipation of a decline in market price. To sell a security short, the
Fund must borrow the security. The Fund's obligation to replace the security
borrowed and sold short will be fully collateralized at all times by the
proceeds from the short sale retained by the broker and by cash and securities
deposited in a segregated account with the Fund's custodian. If the price of
the security sold short increases between the time of the short sale and the
time the Fund replaces the borrowed security, the Fund will realize a loss, and
if the price declines during the period, the Fund will realize a gain. Any
realized gain will be decreased by, and any realized loss increased by, the
amount of transaction costs. Dividends on short sales are recorded as an
expense to the Fund on ex-dividend date. At December 31, 2004 the value of
securities sold short amounted to $12,530,200 against which collateral of
$34,956,650 was held. The collateral includes the deposits with the broker for
securities held short and the value of the segregated investments held long, as
shown in the Schedule of Investments and Securities Sold Short. Short selling
used in the management of the Fund may accelerate the velocity of potential
losses if the prices of securities sold short appreciate quickly. Stocks
purchased may decline in value at the same time stocks sold short may
appreciate in value, thereby increasing potential losses.
J. Contractual Obligations:
In the normal course of business, the Fund enters into contracts that
provide general indemnifications. The Fund's maximum exposure under these
arrangements is dependent on future claims that may be made against the Fund
and, therefore, cannot be established; however, in management's opinion, based
on experience, the risk of loss material from such claims is remote.
NOTE 3 -- PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding U.S. Government and agency
securities, options, forward foreign currency contracts and other securities)
for the period ended December 31, 2004, aggregated the following:
Purchases...................... $308,283,752
Sales.......................... 303,700,517
Short sales.................... 51,448,644
Purchases to cover short sales. 62,411,953
18
Purchases and sales of long-term U.S. Government and agency securities for
the period ended December 31, 2004, were as follows:
Purchases. $ 45,770,117
Sales..... 111,511,077
NOTE 4 -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
a) Investment Advisory Fee: The Investment Advisory Agreement ("the
Agreement") between Phoenix/Zweig Advisers LLC (the "Adviser"), the Fund's
investment adviser, and the Fund provides that, subject to the direction of the
Board of Directors of the Fund and the applicable provisions of the Act, the
adviser is responsible for the actual management of the Fund's portfolio.
Phoenix/Zweig Advisers LLC is a wholly-owned subsidiary of Phoenix Investment
Partners, Ltd. ("PXP"). PXP is an indirect, wholly-owned subsidiary of The
Phoenix Companies, Inc. ("PNX"). The responsibility for making decisions to
buy, sell or hold a particular investment rests, with the Adviser, subject to
review by the Board of Directors and the applicable provisions of the Act. For
the services provided by the Adviser under the Agreement, the Fund pays the
Adviser a monthly fee equal, on an annual basis to 0.85% of the Fund's average
daily net assets. During the period ended December 31, 2004 the Fund incurred
advisory fees of $3,561,301.
Zweig Consulting LLC (the "Sub-Adviser"), which serves as the Sub-Adviser
for the Fund, performs certain asset allocation research and analysis and
provides such advice to the Adviser. Effective March 2, 2004, the Sub-Adviser
assumed an expanded role in reviewing the Fund's investment portfolio and
collaborating in the security selection process with the Adviser's portfolio
management team. The Sub-Adviser's fees are paid by the Adviser.
b) Administration Fee: Phoenix Equity Planning Corporation ("PEPCO"), an
indirect wholly owned subsidiary of PNX serves as the Fund's Administrator
("the Administrator") pursuant to an Administration Agreement. The
Administrator receives a fee for financial reporting, tax services, and
oversight of the subagent's performance at a rate of 0.13% of the Fund's
average daily net assets. During the period ended December 31, 2004, the Fund
incurred Administration fees of $544,670.
c) Directors Fee: The Fund pays each Director who is not an interested
person of the Fund or the Adviser a fee of $10,000 per year plus $1,500 per
Directors' or committee meeting attended, together with the out-of-pocket costs
relating to attendance at such meetings. Any Director of the Fund who is an
interested person of the Fund or the Adviser receives no remuneration from the
Fund.
d) Brokerage Commissions: During the period ended December 31, 2004, the
Fund paid PXP Securities Corp., a wholly-owned subsidiary of PXP, brokerage
commissions of $0 in connection with portfolio transactions effected through
them. PXP Securities Corp. charged $20,601 in commissions for transactions
effected on behalf of the participants in the Fund's Automatic Reinvestment and
Cash Purchase Plan.
NOTE 5 -- CAPITAL STOCK AND REINVESTMENT PLAN
At December 31, 2004, the Fund had one class of common stock, par value $.10
per share, of which 100,000,000 shares are authorized and 73,233,013 shares are
outstanding.
19
Registered shareholders may elect to have all distributions paid by check
mailed directly to the shareholder by EquiServe as dividend paying agent.
Pursuant to the Automatic Reinvestment and Cash Purchase Plan (the "Plan"),
shareholders not making such election will have all such amounts automatically
reinvested by EquiServe, as the Plan agent, in whole or fractional shares of
the Fund, as the case may be. During the year ended December 31, 2004, and the
year ended December 31, 2003, there were no shares issued pursuant to the Plan.
On January 3, 2005, the Fund announced a distribution of $0.149 per share to
shareholders of record on December 31, 2004. This distribution has an
ex-dividend date of January 4, 2005, and is payable on January 10, 2005.
NOTE 6 -- 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 Fund may invest a high percentage of its assets in specific sectors of
the market in its pursuit of a greater investment return. Fluctuations in these
sectors of concentration may have a greater impact on the Fund, positive or
negative, than if the Fund did not concentrate its investments in such sectors.
20
NOTE 7 -- FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each year)
Year Ended December 31,
--------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
Per Share Data
Net asset value, beginning of period................................ $ 5.69 $ 5.46 $ 7.96 $ 10.32 $ 12.20
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income............................................... 0.11 0.03 0.01 -- 0.20
Net realized and unrealized gains (losses).......................... 0.44 0.70 (1.76) (1.47) (0.90)
-------- -------- -------- -------- --------
Total from investment operations.................................... 0.55 0.73 (1.75) (1.47) (0.70)
-------- -------- -------- -------- --------
Dividends and Distributions
Dividends from net investment income................................ (0.06) (0.03) (0.01) (0.01) (0.21)
Distributions from net realized gains............................... (0.16) -- -- (0.07) (0.97)
Tax return of capital............................................... -- (0.47) (0.68) (0.81) --
-------- -------- -------- -------- --------
Total dividends and distributions................................... (0.22) (0.50) (0.69) (0.89) (1.18)
-------- -------- -------- -------- --------
Effect on net asset value as a result of rights offering/(1)/....... -- -- (0.06) -- --
-------- -------- -------- -------- --------
Net asset value, end of period................................... $ 6.02 $ 5.69 $ 5.46 $ 7.96 $ 10.32
======== ======== ======== ======== ========
Market value, end of period/(2)/................................. $ 5.55 $ 4.90 $ 4.93 $ 7.90 $ 9.81
======== ======== ======== ======== ========
Total investment return/(3)/........................................ 18.13% 9.53% (29.78)% (11.27)% 9.45%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands)............................ $440,643 $416,707 $400,163 $489,261 $620,354
Ratio of expenses to average net assets (includes dividends on short
sales)............................................................. 1.38% 1.33% 1.20% 1.19% 1.12%
Ratio of expenses to average net assets (excluding dividends on
short sales)....................................................... 1.33% 1.28% 1.20% 1.19% 1.12%
Ratio of net investment income (loss) to average net assets......... 1.87% 0.54% 0.14% (0.03)% 1.74%
Portfolio turnover rate............................................. 89.2% 74.8% 104.8% 80.3% 114.8%
--------
(1) Shares were sold at a 5% discount from the average market price.
(2) Closing Price -- New York Stock Exchange.
(3) Total investment return is calculated assuming a purchase of common stock
on the opening of the first business day and a sale on the closing of the
last business day of each period reported. Dividends and distributions, if
any, are assumed for the purpose of this calculation, to be reinvested at
prices obtained under the Fund's Automatic Reinvestment and Cash Purchase
Plan. Generally, total investment return based on net asset value will be
higher than total investment return based on market value in periods where
there is an increase in the discount or a decrease in the premium of the
market value to the net assets from the beginning to the end of such
periods. Conversely, total investment return based on net asset value will
be lower than total investment return based on market value in periods
where there is a decrease in the discount or an increase in the premium of
the market value to the net asset value from the beginning to the end of
such periods.
21
NOTE 8 -- THE ZWEIG FUND, INC. YEAR END RESULTS
Total Return
on Net Asset Net Asset NYSE Premium
Value Value Share Price (Discount)
------------ --------- ----------- ----------
Year ended 12/31/2004......... 10.4% $ 6.02 $ 5.5500 (7.8%)
Year ended 12/31/2003......... 14.9% 5.69 4.9000 (13.9%)
Year ended 12/31/2002......... (22.8%) 5.46 4.9300 (9.7%)
Year ended 12/31/2001......... (15.0%) 7.96 7.9000 (0.8%)
Year ended 12/31/2000......... (5.1%) 10.32 9.8125 (4.9%)
Year ended 12/31/1999......... 12.9% 12.20 10.0625 (17.5%)
Year ended 12/31/1998......... 6.6% 12.03 10.8125 (10.1%)
Year ended 12/31/1997......... 22.0% 12.63 13.2500 4.9%
Year ended 12/31/1996......... 14.5% 11.45 10.8750 (5.0%)
Year ended 12/31/1995......... 18.3% 11.06 11.2500 1.7%
Year ended 12/31/1994......... (2.7%) 10.33 10.3750 0.4%
Year ended 12/31/1993......... 13.3% 11.68 13.7500 17.7%
Year ended 12/31/1992......... 0.4% 11.36 13.0000 14.4%
Year ended 12/31/1991......... 30.1% 12.40 13.7500 10.9%
Year ended 12/31/1990......... 1.9% 10.48 11.0000 5.0%
Year ended 12/31/1989......... 22.3% 11.43 12.3750 8.3%
Year ended 12/31/1988......... 17.9% 10.35 10.3750 0.2%
Year ended 12/31/1987......... 14.7% 9.73 9.0000 (7.5%)
Inception 10/2/1986-12/31/1986 (0.4%) 9.31 9.1250 (2.0%)
NOTE 9 -- PROXY VOTING PROCEDURES (Unaudited)
The Adviser and Sub-Adviser vote proxies relating to portfolio securities in
accordance with procedures that have been approved by the Fund's Board of
Directors. 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 Fund voted proxies during the most recent twelve-month period ended
June 30, is also available through the Securities and Exchange Commission's
website at http://www.sec.gov.
NOTE 10 -- FORM N-Q INFORMATION (Unaudited)
Effective the 3rd quarter of 2004 the Fund files a complete schedule 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. The Fund's Form
N-Q is available on the SEC's website at http://www.sec.gov. Furthermore, the
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.
NOTE 11 -- CERTIFICATION
In accordance with the requirements of the Sarbanes-Oxley Act, the Fund's
CEO and CFO have filed the required "Section 302" certifications with the SEC
on Form N-CSR.
In accordance with Section 303A of the NYSE listed company manual, the CEO
certification has been filed with the NYSE.
22
TAX INFORMATION (Unaudited)
For the fiscal year ended December 31, 2004, for federal income tax
purposes, 26.3% of the ordinary income dividends earned by the Fund qualify
for the dividends received deduction for corporate shareholders.
For the fiscal year ended December 31, 2004, the Fund hereby designates
28.6%, or the maximum amount allowable, of its ordinary income dividends to
qualify for the lower tax rates applicable to individual shareholders.
The actual percentage for the calendar year will be designated in the
year-end tax statements.
23
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of The Zweig Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments and securities sold short, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Zweig Fund, Inc. (the "Fund") at December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated, 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 Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with 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.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
24
SUPPLEMENTARY PROXY INFORMATION (Unaudited)
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
12, 2004. The meeting was held for the purposes of electing three (3) nominees
to the Board of Directors.
The results of the above matters were as follows:
Directors Votes For Votes Against Votes Withheld Abstentions
--------- ---------- ------------- -------------- -----------
Alden C. Olson, Ph.D 59,762,915 N/A 2,641,446 N/A
Daniel T. Geraci.... 59,541,577 N/A 2,862,784 N/A
R. Keith Walton..... 59,771,164 N/A 2,633,197 N/A
Based on the foregoing, Daniel T. Geraci, Alden C. Olson, Ph.D. and R. Keith
Walton were elected as Directors. The Fund's other Directors who continue in
office are Charles H. Brunie, Wendy Luscombe and James B. Rogers, Jr.
25
FUND MANAGEMENT
Information pertaining to the Directors and officers of the Fund is set
forth below. The address of each individual, unless otherwise noted, is c/o
Phoenix/Zweig Advisers LLC, 900 Third Avenue, New York, NY 10022.
DISINTERESTED DIRECTORS
Number of
Portfolios
in Fund
Term of Office Complex
Name, Address, and and Length of Overseen by Principal Occupation(s)
Date of Birth Time Served Director During Past 5 Years and Other Directorships Held
------------------ ----------------- ----------- --------------------------------------------------------
Charles H. Brunie... Term: Until 2006. 2 Director of The Zweig Total Return Fund, Inc. (since
Brunie Associates Served since: 1988); Chairman, Brunie Associates (investments)
600 Third Avenue, 1998. (since April 2001); Chairman, Oppenheimer Capital
17th Floor (1969 to 2000); Chairman (1980-1990); Chairman
New York, NY 10016 Emeritus, Board of Trustees, Manhattan Institute (since
DOB: 7/17/30 1990). Trustee, Milton and Rose D. Friedman
Foundation for Vouchers (since 1999). Trustee, Hudson
Institute (since 2002). Trustee, American Spectator
(since 2002). Chartered Financial Analyst (since 1969).
Wendy Luscombe...... Term: Until 2005. 2 Director of The Zweig Total Return Fund, Inc. (since
480 Churchtown Road Served since: 2002); Principal, WKL Associates, Inc. (investment
Craryville, NY 12521 2002. management) (since 1994). Fellow, Royal Institution of
DOB: 10/29/51 Chartered Surveyors. Member, Chartered Institute of
Arbitrators. Director, Endeavour Real Estate Securities,
Ltd. REIT Mutual Fund (since 2000). Director, PXRE,
Corp. (reinsurance) (since 1994). Member and
Chairman of Management Oversight Committee,
Deutsche Bank Real Estate Opportunities Fund
(since 2003)
Alden C. Olson...... Term: Until 2007. 2 Director of The Zweig Total Return Fund, Inc. (since
2711 Ramparte Path Served since: 1996); currently retired. Chartered Financial Analyst
Holt, MI 48842 1996. (since 1964). Professor of Financial Management,
DOB: 5/10/28 Investments at Michigan State University
(1959 to 1990).
James B. Rogers, Jr. Term: Until 2006. 2 Director of The Zweig Total Return Fund, Inc. (since
352 Riverside Drive Served since: 1988); Private investor (since 1980). Chairman, Beeland
New York, NY 10025 1986. Interests, Inc. (investments and media) (since 1980).
DOB: 10/19/42 Regular Commentator on CNBC (1998). Author of
"Investment Biker: On the Road with Jim Rogers"
(1994), "Adventure Capitalist" (2003) and "Hot
Commodities" (2004). Visiting Professor, Columbia
University (1998). Columnist, WORTH Magazine (since
1995). Director, Emerging Markets Brewery Fund
(1993-2002). Director, Levco Series Trust (since 1996).
26
DISINTERESTED DIRECTORS
Number of
Portfolios
in Fund
Term of Office Complex
Name, Address, and and Length of Overseen by Principal Occupation(s)
Date of Birth Time Served Director During Past 5 Years and Other Directorships Held
------------------ ----------------- ----------- -------------------------------------------------------
R. Keith Walton.... Term: Until 2005. 2 Director of The Zweig Total Return Fund, Inc. (since
15 Claremont Avenue Served since: 2004). Executive Vice President (since 2004), Secretary
New York, NY 10027 2004. (since 1996) of the University at Columbia University.
DOB: 9/28/64 Director (since 2002), Chair, Nominating Committee
(since 2002), Member, Executive Committee (since
2002), Chair, Audit Committee (since 2003), Apollo
Theater Foundation, Inc. Director, Orchestra of St.
Luke's (since 2000). Director, American Friends of the
Royal Court Theatre (since 2003). Member, Steering
Committee, Association for a Better New York (since
2001). Member, Education Committee of the Board,
Trinity School (since 2003). Nominating and
Governance Committee Board of Directors (since
2004), Member (since 1997), Council on Foreign
Relations. Member, Advisory Board, North General
Hospital (since 2002). Member, NY Advisory Board,
Enterprise Foundation (since 1999). Member, The
American Law Institute (since 1999). Member, Council
for the United States and Italy (since 1999). Member,
Century Association (since 2000).
INTERESTED DIRECTORS
Term of Office, Number of
Length of Portfolios
Time Served in Fund
and Complex
Name, Address, and Position(s) Overseen by Principal Occupation(s)
Date of Birth with Fund Director During Past 5 Years and Other Directorships Held
------------------ ----------------- ----------- ------------------------------------------------------
Daniel T. Geraci.... Term: Until 2007. 2 Director and President of The Zweig Total Return Fund,
10 Stonemeadow Drive Served since: Inc. (since 2004). Executive Vice President, Asset
Westwood, MA 02090 2004. Management, The Phoenix Companies, Inc. (wealth
DOB: 6/12/57 Director and management) (since 2003). President and Chief
President Executive Officer, Phoenix Investment Partners, Ltd.
(since 2003). President certain Funds within the
Phoenix Fund complex (since December 2004).
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
Fidelity Canada (1996-1998), Fidelity Investments.
27
OFFICERS WHO ARE NOT DIRECTORS
Position(s)
with Fund and
Name, Address and Length of
Date of Birth Time Served Principal Occupation(s) During Past 5 Years
----------------- ---------------- ------------------------------------------------------
Carlton Neel........ Executive Vice Executive Vice President of The Zweig Total Return
900 Third Ave. President since: Fund, Inc. (since 2003); Senior Vice President and
New York, NY 10022 2003. Portfolio Manager, Phoenix/Zweig Advisers LLC
DOB: 12/19/67 (since 2003). Managing Director and Co-Founder,
Shelter Rock Capital Partners, LP (2002-2003). Senior
Vice President and Portfolio Manager, Phoenix/Zweig
Advisers LLC (1995-2002). Vice President,
JP Morgan & Co. (1990-1995).
David Dickerson..... Senior Vice Senior Vice President of The Zweig Total Return Fund,
900 Third Ave. President since: Inc. (since 2003); Senior Vice President and Portfolio
New York, NY 10022 2003. Manager, Phoenix/Zweig Advisers LLC (since 2003).
DOB: 12/27/67 Managing Director and Co-Founder, Shelter Rock
Capital Partners, LP (2002-2003). Vice President
and Portfolio Manager, Phoenix/Zweig Advisers LLC
(1993-2002).
Marc Baltuch........ Vice President Vice President of The Zweig Total Return Fund, Inc.
900 Third Avenue since: 2004. (since 2004). President and Director of Watermark
New York, NY 10022 Securities, Inc. (since 1991). Secretary of Phoenix-
DOB: 9/23/45 Zweig Trust (1989-2003). Secretary of Phoenix-Euclid
Market Neutral Fund (1998-2002). Assistant Secretary
of Gotham Advisors, Inc. (since 1990). Chief
Compliance Officer of the Zweig Companies (since
1989) and of the Phoenix Mutual Funds (since 2004).
Moshe Luchins....... Vice President Vice President of The Zweig Total Return Fund, Inc.
900 Third Avenue since: 2004. (since 2004). Associate Counsel of the Zweig
New York, NY 10022 Companies (since 1996).
DOB: 12/22/71
Nancy Curtiss....... Treasurer since: Treasurer of The Zweig Total Return Fund, Inc. (since
56 Prospect Street 2003. 2003); Vice President, Operations (since 2003); Vice
Hartford, CT 06115 President, Fund Accounting (1994-2003) and Treasurer
DOB: 11/24/52 (1996-2003), Phoenix Equity Planning Corporation.
Treasurer, multiple funds in Phoenix Fund Complex
(since 1994).
Matthew A. Swendiman Secretary since: Secretary of The Zweig Total Return Fund, Inc. (since
One American Row 2004. 2004). Counsel, Phoenix Life Insurance Company
Hartford, CT 06102 (since 2002). Vice President, Counsel, Chief Legal
DOB: 4/5/73 Officer and Secretary, certain of the funds within the
Phoenix Fund Complex (since 2004). Assistant Vice
President and Assistant Counsel, Conseco Capital
Management (2000-2002).
28
KEY INFORMATION
1-800-272-2700 Zweig Shareholder Relations:
For general information and literature, as well as updates on net
asset value, share price, major industry groups and other key
information
REINVESTMENT PLAN
Many of you have questions about our reinvestment plan. We urge
shareholders who want to take advantage of this plan and whose shares are
held in "Street Name," to consult your broker as soon as possible to
determine if you must change registration into your own name to participate.
-----------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may from time to time purchase its shares of
common stock in the open market when Fund shares are trading at a discount from
their net asset value.
29
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.
The registrant does not have an audit committee financial expert at this time
because none of the registrant's board of directors meets the technical
definition of such an expert in form N-CSR. The audit committee of the board is
in compliance with I) applicable rules of the listing requirements for
closed-end fund audit committees, including the requirement that all members of
the audit committee be "financially literate" and that at least one member of
the audit committee have "accounting or related financial management expertise",
as determined by the board."
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
$38,000 for 2004 and $55,500 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 $0 for 2004 and $1,000 for 2003. This represents the
review of the semi annual report.
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 $5,700 for 2004 and
$7,000 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 Zweig Fund, Inc. (the "Fund") Board has adopted policies and
procedures with regard to the pre-approval of services provided by
PwC. The Audit Committee pre-approves: (i) all audit and no-audit
services to be rendered to the Fund by PwC; and (ii) all non-audit
services to be rendered to the Fund financial reporting of the Fund
provided by PwC to the Adviser or any affiliate thereof that provides
ongoing services to the Fund (collectively, "Covered Services"). The
Audit Committee has adopted pre-approval procedures authorizing a
member of the Audit Committee to pre-approve from time to time, on
behalf of the Audit Committee, all Covered Services to be provided by
PwC which are not otherwise pre-approved at a meeting of the Audit
committee, provided that such delegate reports to the full Audit
Committee at its next meeting. The pre-approval procedures do not
include delegation of the Audit committee's responsibilities to
management. Pre-approval has not been waived with respect to any of
the services described above since the date on which the Audit
Committee adopted its current pre-approval procedures.
(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) Not applicable for 2004 and 100% 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 $1,877,791 and $256,389.
(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.
The registrant has a separately designated audit committee consisting of all the
independent directors of the registrant. The members of the Audit Committee
Members are: Charles H. Brunie, Wendy Luscombe, Prof. Alden C. Olson, James B.
Rogers and R. Keith Alton.
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.
The Proxy Voting Policies are attached herewith.
THE ZWEIG FUND, INC
THE ZWEIG TOTAL RETURN FUND, INC
STATEMENT OF POLICY WITH RESPECT TO PROXY VOTING
I. Definitions. As used in this Statement of Policy, the following terms shall
have the meanings ascribed below:
A. "Adviser" refers to Phoenix/Zweig Advisers LLC.
B. "Corporate Governance Matters" refers to changes involving the
corporate ownership or structure of an issuer whose securities are
within a Portfolio Holding, including changes in the state of
incorporation, changes in capital structure, including increases and
decreases of capital and preferred stock issuance, mergers and other
corporate restructurings, and anti-takeover provisions such as
staggered boards, poison pills, and supermajority voting provisions.
C. "Delegate" refers to the Adviser or Subadviser to whom responsibility
has been delegated to vote proxies for the applicable Portfolio
Holding, including any qualified, independent organization engaged by
the Adviser to vote proxies on behalf of such delegated entity.
D. "Fund" shall individually and collectively mean and refer to The Zweig
Fund, Inc. and The Zweig Total Return Fund, Inc., and each of them.
E. "Management Matters" refers to stock option plans and other management
compensation issues.
F. "Portfolio Holding" refers to any company or entity whose securities
is held within the investment portfolio(s) of one or more of the Fund
as of the date a proxy is solicited.
G. "Proxy Contests" refer to any meeting of shareholders of an issuer for
which there are at least two sets of proxy statements and proxy cards,
one solicited by management and the others by a dissident or group of
dissidents.
H. "Social Issues" refers to social and environmental issues.
I. "Takeover" refers to "hostile" or "friendly" efforts to effect radical
change in the voting control of the board of directors of a company.
II. General Policy. It is the intention of the Fund to exercise stock ownership
rights in Portfolio Holdings in a manner that is reasonably anticipated to
further the best economic interests of shareholders of the Fund.
Accordingly, the Fund or its Delegate(s) shall endeavor to analyze and vote
all proxies that are considered likely to have financial implications, and,
where appropriate, to participate in corporate governance, shareholder
proposals, management communications and legal proceedings. The Fund and
its Delegate(s) must also identify potential or actual conflicts
of interests in voting proxies and address any such conflict of interest in
accordance with this Statement of Policy.
III. Factors to consider when voting.
A. A Delegate may abstain from voting when it concludes that the effect
on shareholders' economic interests or the value of the Portfolio
Holding is indeterminable or insignificant.
B. In analyzing anti-takeover measures, the Delegate shall vote on a
case-by-case basis taking into consideration such factors as overall
long-term financial performance of the target company relative to its
industry competition. Key measures which shall be considered include,
without limitation, five-year annual compound growth rates for sales,
operating income, net income, and total shareholder returns (share
price appreciation plus dividends). Other financial indicators that
will be considered include margin analysis, cash flow, and debit
levels.
C. In analyzing contested elections, the Delegate shall vote on a
case-by-case basis taking into consideration such factors as the
qualifications of all director nominees. The Delegate shall also
consider the independence and attendance record of board and key
committee members. A review of the corporate governance profile shall
be completed highlighting entrenchment devices that may reduce
accountability.
D. In analyzing corporate governance matters, the Delegate shall vote on
a case-by-case basis taking into consideration such factors as tax and
economic benefits associated with amending an issuer's state of
incorporation, dilution or improved accountability associated with
changes in capital structure, management proposals to require a
supermajority shareholder vote to amend charters and bylaws and
bundled or "conditioned" proxy proposals.
E. In analyzing executive compensation proposals and management matters,
the Adviser shall vote on a case-by-case basis taking into
consideration such factors as executive pay and spending on
perquisites, particularly in conjunction with sub-par performance and
employee layoffs.
F. In analyzing proxy contests for control, the Delegate shall vote on a
case-by-case basis taking into consideration such factors as long-term
financial performance of the target company relative to its industry;
management's track record; background to the proxy
contest; qualifications of director nominees (both slates); evaluation
of what each side is offering shareholders as well as the likelihood
that the proposed objectives and goals can be met; and stock ownership
positions.
G. A Delegate shall generally vote against shareholder social matters
proposals.
IV. Delegation.
A. In the absence of a specific direction to the contrary from the Board
of Trustees of the Fund, the Adviser will be responsible for voting
proxies for all Portfolio Holdings in accordance with this Statement
of Policy, or for delegating such responsibility as described below.
B. The Adviser delegated with authority to vote proxies for Portfolio
Holdings shall be deemed to assume a duty of care to safeguard the
best interests of the Fund and its shareholders. No Delegate shall
accept direction or inappropriate influence from any other client,
director or employee of any affiliated company and shall not cast any
vote inconsistent with this Statement of Policy without obtaining the
prior approval of the Fund or its duly authorized representative(s).
C. With regard to each Series for which there is a duly appointed
Subadviser acting pursuant to an investment advisory agreement
satisfying the requirements of Section 15(a) of the Investment Company
Act of 1940, as amended, and the rules thereunder, the Subadviser may,
pursuant to delegated authority from the Adviser, vote proxies for
Portfolio Holdings with regard to the Series or portion of the assets
thereof for which the Subadviser is responsible. In such case, the
Subadviser shall vote proxies for the Portfolio Holdings in accordance
with Sections II, III and V of this Statement of Policy, provided,
however, that the Subadviser may vote proxies in accordance with its
own proxy voting policy/procedures ("Subadviser Procedures") if the
following two conditions are satisfied: (1) the Adviser must have
approved the Subadviser Procedures based upon the Adviser's
determination that the Subadviser Procedures are reasonably designed
to further the best economic interests of the affected Fund
shareholders, and (2) the Subadviser Procedures are reviewed and
approved annually by the Board of Trustees. The Subadviser will
promptly notify the Adviser of any material changes to the Subadviser
Procedures. The Adviser will periodically review the votes by the
Subadviser for consistency with this Statement of Policy.
V. Conflicts of Interest
A. The Fund and its Delegate(s) seek to avoid actual or perceived
conflicts of interest in the voting of proxies for Portfolio Holdings
between the interests of Fund shareholders, on one hand, and those of
the Adviser, Delegate, principal underwriter, or any affiliated person
of the Fund, on the other hand. The Board of Trustees may take into
account a wide array of factors in determining whether such a conflict
exists, whether such conflict is material in nature, and how to
properly address or resolve the same.
B. While each conflict situation varies based on the particular facts
presented and the requirements of governing law, the Board of Trustees
or its delegate(s) may take the following actions, among others, or
otherwise give weight to the following factors, in addressing material
conflicts of interest in voting (or directing Delegates to vote)
proxies pertaining to Portfolio Holdings: (i) rely on the
recommendations of an established, independent third party with
qualifications to vote proxies such as Institutional Shareholder
Services; (ii) vote pursuant to the recommendation of the proposing
Delegate; (iii) abstaining; or (iv) where two or more Delegates
provide conflicting requests, vote shares in proportion to the assets
under management of the each proposing Delegate.
C. The Adviser shall promptly notify the President of the Fund once any
actual or potential conflict of interest exists and their
recommendations for protecting the best interests of Fund's
shareholders. No Adviser shall waive any conflict of interest or vote
any conflicted proxies without the prior written approval of the Board
of Trustees or the President of the Fund pursuant to section D of this
Article.
D. In the event that a determination, authorization or waiver under this
Statement of Policy is requested at a time other than a regularly
scheduled meeting of the Board of Trustees, the President of the Fund
shall be empowered with the power and responsibility to interpret and
apply this Statement of Policy and provide a report of his or her
determinations at the next following meeting of the Board of Trustees.
VI. Miscellaneous.
A. A copy of the current Statement of Policy with Respect to Proxy Voting
and the voting records for the Fund reconciling proxies with Portfolio
Holdings and recording proxy voting guideline compliance and
justification, shall be kept in an easily accessible place and
available upon request.
B. The Adviser shall present a report of any material deviations from
this Statement of Policy at every regularly scheduled meeting of the
Board of Trustees and shall provide such other reports as the Board of
Trustees may request from time to time. The Adviser shall provide to
the Fund or any shareholder a record of its effectuation of proxy
voting pursuant to this Statement of Policy at such times and in such
format or medium as the Fund shall reasonably request. The Adviser
shall be solely responsible for complying with the disclosure and
reporting requirements under applicable laws and regulations,
including, without limitation, Rule 206(4)-6 under the Investment
Advisers Act of 1940. The Adviser shall gather, collate and present
information relating to the its proxy voting activities of those of
each Delegate in such format and medium as the Fund shall determine
from time to time in order for the Fund to discharge its disclosure
and reporting obligations pursuant to Rule 30b1-4 under the Investment
Company Act of 1940, as amended.
C. The Adviser shall pay all costs associated with proxy voting for
Portfolio Holdings pursuant to this Statement of Policy and assisting
the Fund in providing public notice of the manner in which such
proxies were voted.
D. The Adviser may delegate its responsibilities hereunder to a proxy
committee established from time to time by the Adviser, as the case
may be. In performing its duties hereunder, the Adviser, or any duly
authorized committee, may engage the services of a research and/or
voting adviser or agent, the cost of which shall be borne by such
entity.
E. This Statement of Policy shall be presented to the Board of Trustees
annually for their amendment and/or approval.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Only applicable to closed-end funds for a fiscal year ending on or after
December 31, 2005.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
There were no purchases of equity securities by this closed-end management
investment company and affiliated purchasers as defined by Rule 10b-18.
Item 10. Submission of Matters to a Vote of Security Holders.
The Fund's Amended and Restated Bylaws, dated August 10th, 2004, contains
an advance notice provision, which requires that the Fund be given advance
notice of shareholder nominations for election to the Board of Directors. Any
notice of shareholder nominations for election to the Board of Directors must be
received at the Fund's principal executive offices not less than ninety (90)
days nor more than one hundred and twenty (120) days before the date in the then
current year corresponding to the date on which the Fund first mailed its proxy
materials for the annual meeting held in the prior year; provided, however, that
in the event that the date of the annual meeting for the Fund is advanced by
more than thirty (30) days or delayed by more than sixty (60) days from the
first anniversary of the preceding year's annual meeting, notice by such
shareholder to be timely must be so received not earlier than the one hundred
twentieth (120th) day prior to such annual meeting and not later than the close
of business on the later of the ninetieth (90th) day prior to such annual
meeting or the tenth (10th) day following the day on which notice or public
announcement of the date of such meeting was given or made.
The notice by the shareholder must also set forth specific information, and
provide certain representations, the details of which are set forth in the
Fund's Amended and Restated Bylaws. Any such notice by a shareholder shall set
forth (i) as to each person whom the shareholder proposes to nominate for
election or re-election as a director (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the capital stock of the Fund
that are beneficially owned by such person and (D) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for the election of directors pursuant to Regulation 14A under the
Exchange Act or any successor regulation thereto (including without limitation
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected and whether any person intends to seek
reimbursement from the Fund of the expenses of any solicitation of proxies
should such person be elected a director of the Fund); and (ii) as to the
shareholder giving the notice (A) the name and address, as they appear on the
Fund's books, of such shareholder, (B) the class and number of shares of the
capital stock of the Fund which are beneficially and/or owned of record by such
shareholder, (C) the nature of any such beneficial ownership of such stock, the
beneficial ownership of any such stock held of record by such shareholder but
beneficially owned by one or more other persons, and the length of time for
which all such stock has been beneficially owned and/or owned of record by such
shareholder, (D) a representation that the shareholder is a holder of record of
shares of the Fund entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to present such nomination(s) and (E) whether
the shareholder intends or is part of a group which intends to solicit proxies
from other shareholders in support of such nomination(s). At the request of the
Board of Directors any person nominated by the Board of Directors for election
as a director shall furnish to the Secretary of the Fund that information
required to be set forth in a shareholder's notice of nomination which pertains
to the nominee.
No person shall be entitled to receive reimbursement from the Fund of the
expenses of a solicitation of proxies for the election as a director of a person
named in such notice unless such notice states that reimbursement will be sought
from the Fund and the Board of Directors approves such reimbursement. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the Bylaws, and, if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded for all purposes.
Any shareholder that gives notice of such shareholder's intention to
nominate an individual for election to the Board of Directors at a meeting of
shareholders, shall also be required, in order for such nomination to be
properly brought before such meeting, to deliver to the Secretary of the Fund,
in the manner and within the time period required for delivery of such notice, a
representation signed by such shareholder that such shareholder will attend the
applicable meeting of shareholders and present for quorum purposes at the
meeting all shares of capital stock (i) for which such shareholder has the power
to vote or direct the vote as of the record date and (ii) for which such
shareholder holds proxies as of the time and date of the meeting.
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) The Zweig Fund, Inc.
By (Signature and Title)* /s/ Daniel T. Geraci
----------------------------------------
Daniel T. Geraci, President
(principal executive officer)
Date March 11, 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/ Daniel T. Geraci
----------------------------------------
Daniel T. Geraci, President
(principal executive officer)
Date March 11, 2005
By (Signature and Title)* /s/ Nancy Curtiss
----------------------------------------
Nancy Curtiss, Treasurer
(principal financial officer)
Date March 11, 2005
* Print the name and title of each signing officer under his or her
signature.