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
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(Address of principal executive offices) (Zip code)
Kevin J. Carr, Esq. John R. Flores, Esq.
Chief Legal Officer and Secretary for Vice President
Registrant Litigation/Employment Counsel
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: 800-272-2700
Date of fiscal year end: December 31
Date of reporting period: June 30, 2005
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. Section 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
Kevin J.Carr
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
One American Row
Hartford, CT 06102
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Legal Counsel
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, NY 10022
Transfer Agent
EquiServe Trust Co., N.A.
P.O. Box 43010
Providence, RI 02940-3010
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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 Q2-05
Semi-Annual Report
Zweig
The Zweig Fund, Inc.
June 30, 2005
[GRAPHIC]
PHOENIX
INVESTMENT PARTNERS, LTD.
August 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 June 30, 2005. In it, Dr. Martin Zweig,
president of Zweig Consulting, subadviser to the Fund, presents his market
review and outlook, and Carlton Neel, the Fund's portfolio manager, reports on
changes to the portfolio during the quarter, including sector allocations and
top holdings.
For the quarter ended June 30, 2005, the Zweig Fund's net asset value
declined 0.82%, including the $0.149 distribution paid on April 26, 2005.
During the same period, the S&P 500(R) Index gained 1.37%, including reinvested
dividends. The Fund's average equity exposure during the quarter was
approximately 74%.
For the six months ended June 30, 2005, the Fund's net asset value increased
1.24%, including the latest distribution. During the same period, the S&P 500
Index fell 0.81%, including reinvested dividends. The Fund's average equity
exposure for the first half of this year was approximately 72%.
As previously announced, the Fund's distribution for the quarter ended June
30, 2005, was $0.147 payable on July 26, 2005 to shareholders of record on July
8, 2005. Including this distribution, the Fund's total payout since inception
is $18.59.
For updates on The Zweig Fund, Inc., including performance and holdings,
please visit the Individual Investors section of our Web site, PhoenixFunds.com.
Thank you for your continued investment in The Zweig Fund, Inc. We are
firmly committed to serving your best interests.
Sincerely,
/s/ Daniel T. Geraci
Daniel T. Geraci
President
The Zweig Fund, Inc.
MARKET REVIEW AND OUTLOOK
The stock market's performance in the second quarter was nothing to write
home about. The Dow Jones Industrial Average finished off 1.6%. The S&P 500(R)
Index scratched out a mere 1.4% gain while the NASDAQ Composite Index rose
3.1%. All three major markets closed lower for the first half. The Dow was down
3.8%, falling back to its level at the close of 2003. The S&P dipped 0.8% and
the NASDAQ slumped 5.1%.
As widely expected, the Federal Reserve (the "Fed") raised its short-term
benchmark interest rate by a quarter-point to 3.25%, the ninth consecutive
increase by that amount in a year. Although the chief of the Dallas Fed
previously said that we are in the "eighth inning" of the current tightening
cycle, Fed chairman Alan Greenspan took us into extra innings, with no
indication as to when this particular game will be over.
We believe that many investors were disappointed when the Fed repeated its
previous assertions that it expects to continue to increase rates at a
"measured pace" and the market closed down sharply after that announcement. In
its economic outlook, the Fed said that, despite
higher energy prices, expansion remains firm and labor conditions continue to
improve gradually. It added that pressures on inflation have stayed elevated
but longer-term expectations remain well contained.
In our opinion, one problem with the Fed is that it seems to wait too long
and then goes too far. It may do the same this time around. We believe it
should not have driven rates down to 1% at a time when the economy was
improving. Now it may do the reverse by raising rates too high as the economy
is slowing.
Some analysts point to last year's market surge after the presidential
election and predicted a similar response this year if the Fed stops raising
interest rates. To us, that is not a reasonable assumption. When an election is
over, you know who won and the market can rally. But, we believe that Greenspan
will never ring a bell and announce that he has finished raising rates because
he wants to stay flexible. In our view, he'll leave himself enough of an
opening to do what he thinks is necessary.
We agree with Greenspan on one issue: his view of the housing boom.
Greenspan said that a nationwide bubble is unlikely but saw signs of "froth" in
some areas, with speculation a possible growing factor. Sales of new homes rose
21% in May and home prices climbed 51% in the five years ended March 31,
according to the Office of Federal Housing Enterprise Oversight.
To put the situation in perspective, a 51% rise over five years comes out to
about 8.6% a year. Assets gaining 8.6% a year don't seem like a bubble to us.
When the stock market was soaring 25% a year for five years and the NASDAQ was
doing a lot more, people were denying there was a bubble. With housing, we are
getting a fraction of those gains and analysts are talking about a bubble that
may burst.
As Greenspan suggested, there are certain pockets where there is excessive
speculation in housing. For example, in the city of Miami alone, 62,000 condo
units are either being built or planned. In the previous decade, there were
only about 7,000 condos built in all of Miami. Heavy growth is also taking
place in certain areas of California, New York and Nevada. On balance, the
housing boom is very localized, with a lot of the country not seeing
overspeculation.
With mortgage rates linked to the 10-year Treasury bond yield, housing has
become very contra-cyclical to most of the rest of the economy. We feel that if
the economy softens and bond yields decline, the housing market will stay
strong; but if the economy strengthens and bond yields rise, the housing market
will weaken. So we are not too concerned about a housing bubble hurting the
stock market.
We are also not losing much sleep over the trade imbalance. While U.S.
imports and exports set records in April (the last month for which figures are
available), the trade deficit widened 6.3% to $57 billion from $53.6 billion in
March, according to the Commerce Department. Year to date through April, the
gap was 22% higher than for the same period in 2004 and is on track to surpass
last year's record $618 billion.
Many people seem to worry about the trade deficit unnecessarily. Foreigners
want to give us dollars and are willing to take our dollars in return for goods
that are less expensive. We believe that it really does help the American
consumer to import goods that are cheaper. We may have fewer jobs because of
this, but that is sometimes a trade-off. We are not saying it is good to lose
jobs, but we think protectionism would be worse. We believe the U.S. should try
to be more efficient and produce things better than the rest of the world.
Speaking of deficits, the Federal government's budget deficit declined
dramatically in May. Reflecting a surge in tax receipts, the May deficit was
$35.29 billion, down from $62.46 billion in the like month a year ago, and the
smallest gap for May since the $27.9 billion in 2001. It is good that the
deficit is narrowing. We have
2
always felt that the economy would benefit from lower taxes and that eventually
the deficit would disappear. While it is counterintuitive, our research has
shown that the stock market does better when there is a federal deficit than
when there is a surplus.
Continuing to show unexpected strength, the dollar climbed 7% against the
euro and 3.5% against the yen in the second quarter. It was the second straight
quarter of increases and represented the dollar's best showing in over four
years. For the first half of the year, the dollar rose 12% against the euro,
the highest figure since the euro was launched in 1999. We have tested the
dollar against stock market trends but haven't found any consistent
relationship.
An interesting question to ask is: "Why would the dollar rally when the
trade and budget deficits and housing inflation are so terrible?" We believe
that much of the rest of the world is eager to buy these dollars and hold them.
The U.S. still tends to be a safe haven and foreigners seem to like investing
here, possibly because they feel secure buying our bonds, real estate or stocks.
The second quarter saw a decline in initial public offerings. Forty-seven
deals were completed, compared to 58 in the like period a year ago, according
to Thomson Financial. The second quarter deals totaled $8.15 billion against
last year's $9.5 billion. These figures seem to indicate that we're not at the
hysteria level we saw in the late 90s when the volume of new issues pointed to
an extremely overheated market. We feel that the current amount of offerings is
reasonable.
While IPOs were lower, mergers and acquisitions made a strong showing. The
amounts spent on deals spurted 73% in the second quarter against the like
period last year and increased 20% from this year's first quarter, according to
Thomson Financial.
This level of activity tends to be bullish. It doesn't surprise us because
we believe that corporations are loaded with cash. The debt-equity ratios of
non-financial corporations are way down. The amount of cash held by
corporations relative to their assets is at its highest level for at least the
last 25 years for which we have data. So there seems to be plenty of money
around, and we feel that many companies are ripe for takeover or may seek to
become buyers themselves. We think this situation will continue and is a plus
for the stock market.
The New York Stock Exchange reported that margin debt at its member firms
fell 2.7% from the end of the first quarter through May. After dropping sharply
after April's big market decline, margin debt rose in May as stock prices
recovered but not enough to offset April's large drop. We believe that this is
a figure to watch. Just like the new issues market, it can get excessive when
there is too much speculation. When margin debt rises quickly, it can be a
warning sign, but we don't think it has done that here.
American investors seem to be chasing the hottest markets. In May, Americans
invested $5.178 billion in mutual funds that invest primarily in domestic
stocks, more than double the $2.260 billion in April, according to the
Investment Company Institute. However Americans poured much more money into
world stock funds during these two months, with $6.011 billion invested in May
and $6.372 billion in April.
We don't think it is a great idea for people to chase what is hot.
Historically, foreigners tend to be wrong when they plunge into our markets,
and U.S. investors tend to do just as bad in foreign markets. So these numbers
may not be a great sign for foreign markets where there may be too much
exuberance. As far as our domestic markets are concerned, these mutual fund
numbers appear positive.
We also like the figures on stock buybacks by companies in the S&P 500
Index. These buybacks were a major factor in building company holdings of cash
and cash- equivalent securities in
3
the first quarter, according to Thomson Financial. Their holdings grew 10.1% to
a record $766 billion. Buybacks showed the biggest gain as a share of total
cash, climbing to 8% in the first quarter against 3.1% in the like 2004 period.
The stock buyback total nearly tripled to $61 billion. As indicated earlier,
this excessive cash can be put to good use. Some companies will continue to use
it for buying their own stock, buying other companies or paying out higher
dividends. We feel that all of the above are bullish for the market.
Stock market advisors became more optimistic as the market rallied recently.
A recent survey by Investors Intelligence of advisors found 55.1% bullish and
only 19.1% bearish. The bullish figure is the highest since March of this year,
while the bearish total is the lowest since July of 2004. We don't think these
figures are excessive yet. We believe it would have to go to a much greater
extreme to indicate a market top.
S&P 500-listed companies are now trading at about 19.6 times earnings over
the past 12 months. Historically, the rate has been about 15 times earnings. At
these figures, we don't believe the market is excessively valued, but we don't
think it is cheap either.
The same mixed picture holds true for the economy in general. It has
definitely slowed but we don't think we are headed into a recession nor do we
see a boom. Actually, it looks fairly good to us because it is not strong
enough to make inflation a worry -- but it is not weak either.
At this writing, virtually all of our indicators are smack in the neutral
range. When this happens, the market has generally risen at a reasonable rate.
Historically, it has gone up about 10% a year. We might cut a few points off
that number because we had above normal gains in the 1980s and 90s. So with
that in mind, perhaps we'll adjust the projected gain to 7% or 8%. We'll take
it.
Overall, we think the market is okay. It has six months to consolidate the
gains it made in the fourth quarter of 2004. Our current investment posture is
moderately bullish and we are about 80% invested in common stocks.
Sincerely,
/s/Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
President
Zweig Consulting 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.
4
PORTFOLIO COMPOSITION
Our leading stock market sectors on June 30, 2005, included financials,
health care, consumer staples, information technology, and industrials.
Although there were changes in allocation amounts, all of these sectors were
listed in our previous quarterly report. During the second quarter, we added to
our positions in information technology and consumer discretionary and trimmed
our holdings in industrials and telecommunication services.
As of June 30, 2005, our top individual positions included Allstate,
Burlington Resources, Continental Airlines, Costco Wholesale Corp.,
Halliburton, Home Depot, NASDAQ 100 Trust, UnitedHealthgroup, Valero Energy,
and Wells Fargo. During the quarter, we added to our positions in Costco, Home
Depot, NASDAQ 100 Trust, and Valero. There was no change in the number of
shares held in Allstate and Wells Fargo.
Although our holdings were unchanged in Georgia Pacific, Goldman Sachs,
Kimberly Clark, and Morgan Stanley, these companies are no longer in our list
of top positions. Also out of this listing are Merck, where we reduced our
holdings, and United Defense, where we sold out.
Sincerely,
[SIGNATURE]
/s/ Carlton Neel
Carlton Neel
Executive Vice President
Phoenix/Zweig Advisers LLC
5
OUR PRIVACY COMMITMENT
The Zweig Fund, Inc. recognizes that protecting the privacy and security of
the confidential personal information we collect about you is an important
responsibility. The following information will help you understand our privacy
policy and how we will handle and maintain confidential personal information as
we fulfill our obligations to protect your privacy. "Personal information"
refers to the nonpublic financial information obtained by us in connection with
providing you a financial product or service.
Information We Collect
We collect personal information to help us serve your financial needs, offer
new products or services, provide customer service and fulfill legal and
regulatory requirements. The type of information that we collect varies
according to the products or services involved, and may include:
. Information we receive from you on applications and related forms (such as
name, address, social security number, assets and income); and
. Information about your transactions and relationships with us, our
affiliates, or others (such as products or services purchased, account
balances and payment history).
Information Disclosed in Administering Products and Services
We will not disclose personal information about current or former customers
to non-affiliated third parties except as permitted or required by law. We do
not sell any personal information about you to any third party. In the normal
course of business, personal information may be shared with persons or entities
involved in servicing and administering products and services on our behalf,
including your broker, financial advisor or financial planner and other service
providers and affiliates assisting us.
Procedures to Protect Confidentiality and Security of Your Personal Information
We have procedures in place that limit access to personal information to
those employees and service providers who need to know such information in
order to perform business services on our behalf. We educate our employees on
the importance of protecting the privacy and security of confidential personal
information. We also maintain physical, electronic and procedural safeguards
that comply with federal and state regulations to guard your personal
information.
We will update our policy and procedures where necessary to ensure that your
privacy is maintained and that we conduct our business in a way that fulfills
our commitment to you. If we make any material changes in our privacy policy,
we will make that information available to customers through our Web site
and/or other communications.
6
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.
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.
Office of Federal Housing Enterprise Oversight (OFHEO): The OFHEO promotes
housing and a strong economy by ensuring the safety and soundness of Fannie Mae
and Freddie Mac and fostering the vitality of the nation's housing finance
system.
Federal Reserve (the "Fed"): The central bank of the United States, 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.
Inflation: Rise in the prices of goods and services resulting from increased
spending relative to the supply of goods on the market.
Initial public offering (IPO): A company's first sale of stock to the public.
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.
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.
7
THE ZWEIG FUND, INC.
Sector Weightings June 30, 2005
As a percentage of total investments
(Unaudited)
[CHART]
Financials 15%
Health Care 12%
Information Technology 12%
Consumer Staples 12%
Industrials 10%
Consumer Discretionary 10%
Energy 8%
Other 21%
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT
June 30, 2005
(Unaudited)
Number of
Shares Value
--------- ------------
INVESTMENTS
DOMESTIC COMMON STOCKS 72.32%
CONSUMER DISCRETIONARY -- 8.54%
Comcast Corp. Class A/(b)/.................... 190,000 $ 5,833,000
Home Depot, Inc............................... 170,000 6,613,000
McDonald's Corp............................... 210,000 5,827,500
Nike, Inc. Class B............................ 72,000 6,235,200
Omnicom Group, Inc............................ 75,000 5,989,500
Viacom, Inc. Class B.......................... 175,000 5,603,500
------------
36,101,700
------------
CONSUMER STAPLES -- 11.15%
Altria Group, Inc./(d)/....................... 95,000 6,142,700
Archer-Daniels-Midland Co..................... 260,000 5,558,800
Costco Wholesale Corp......................... 150,000 6,723,000
Kimberly-Clark Corp........................... 100,000 6,259,000
Molson Coors Brewing Co. Class B.............. 80,000 4,960,000
Procter & Gamble Co........................... 113,200 5,971,300
Ralcorp Holdings, Inc......................... 150,000 6,172,500
Sara Lee Corp................................. 270,000 5,348,700
------------
47,136,000
------------
ENERGY -- 8.03%
Burlington Resources, Inc..................... 130,000 7,181,200
ConocoPhillips................................ 110,000 6,323,900
Halliburton Co................................ 150,000 7,173,000
See notes to financial statements
8
Number of
Shares Value
--------- ------------
ENERGY (CONTINUED)
Occidental Petroleum Corp................. 85,000 $ 6,539,050
Valero Energy Corp........................ 85,000 6,724,350
------------
33,941,500
------------
FINANCIALS -- 14.61%
Allstate Corp............................. 115,000 6,871,250
Bank of America Corp./(d)/................ 130,000 5,929,300
Capital One Financial Corp................ 75,000 6,000,750
Goldman Sachs Group, Inc.................. 60,000 6,121,200
Huntington Bancshares, Inc................ 250,000 6,035,000
Morgan Stanley............................ 115,000 6,034,050
National City Corp........................ 165,000 5,629,800
PNC Financial Services Group, Inc......... 120,000 6,535,200
Wachovia Corp............................. 120,000 5,952,000
Wells Fargo & Co.......................... 108,000 6,650,640
------------
61,759,190
------------
HEALTH CARE -- 8.57%
Amgen, Inc./(b)/.......................... 105,000 6,348,300
Bard (C.R.), Inc.......................... 90,000 5,985,900
Bristol-Myers Squibb Co................... 250,000 6,245,000
Merck & Co., Inc.......................... 175,000 5,390,000
Pfizer, Inc............................... 200,000 5,516,000
UnitedHealth Group, Inc................... 130,000 6,778,200
------------
36,263,400
------------
INDUSTRIALS -- 9.97%
AMR Corp./(b)/............................ 507,000 6,139,770
Boeing Co. (The).......................... 100,000 6,600,000
Continental Airlines, Inc. Class B/(b)/... 500,000 6,640,000
Deere & Co./(d)/.......................... 86,000 5,632,140
L-3 Communication Holdings, Inc........... 80,000 6,126,400
Norfolk Southern Corp..................... 170,000 5,263,200
PACCAR, Inc............................... 85,000 5,780,000
------------
42,181,510
------------
INFORMATION TECHNOLOGY -- 8.19%
Cisco Systems, Inc./(b)/.................. 315,000 6,019,650
EMC Corp./(b)/............................ 300,000 4,113,000
Intel Corp................................ 250,000 6,515,000
International Business Machines Corp...... 80,000 5,936,000
Microsoft Corp............................ 240,000 5,961,600
QUALCOMM, Inc............................. 185,000 6,106,850
------------
34,652,100
------------
See notes to financial statements
9
Number of
Shares Value
--------- ------------
MATERIALS -- 3.26%
Dow Chemical Co./(d)/............................ 135,000 $ 6,011,550
Freeport-McMoRan Copper & Gold, Inc. Class B..... 50,000 1,872,000
Georgia-Pacific Corp............................. 185,000 5,883,000
------------
13,766,550
------------
Total Domestic Common Stocks (Identified Cost
$270,037,999)..................................... 305,801,950
------------
FOREIGN COMMON STOCKS/(c)/ 8.37%
CONSUMER DISCRETIONARY -- 2.74%
Honda Motor Co., Ltd. ADR (Japan)/(d)/........... 240,000 5,906,400
Sony Corp. ADR (Japan)........................... 165,000 5,682,600
------------
11,589,000
------------
HEALTH CARE -- 2.67%
Angiotech Pharmaceuticals (United States)/(b)/... 400,000 5,544,000
Sanofi-aventis ADR (France)...................... 140,000 5,738,600
------------
11,282,600
------------
INFORMATION TECHNOLOGY -- 2.96%
Amdocs Ltd. (United States)/(b)/................. 240,000 6,343,200
Nokia Oyj ADR (Finland).......................... 370,000 6,156,800
------------
12,500,000
------------
Total Foreign Common Stocks (Identified Cost
$35,272,868)...................................... 35,371,600
------------
PREFERRED STOCKS 0.05%
FINANCIALS -- 0.05%
Citibank NA Series A 6.34% Pfd................... 2,000 201,438
------------
Total Preferred Stocks (Identified Cost $202,000)... 201,438
------------
EXCHANGE TRADED FUNDS 2.19%
NASDAQ-100 Index(R) Tracking Shares.............. 252,000 9,271,080
------------
Total Exchange Traded Funds (Identified Cost
$9,479,221)....................................... 9,271,080
------------
See notes to financial statements
10
Par
(000's) Value
------- ------------
U.S. GOVERNMENT SECURITIES 7.34%
U.S. TREASURY NOTES -- 7.34%
U.S. Treasury Note 12.75%, 11/15/10/(e)/.......... $30,000 $ 31,033,590
------------
Total U.S. Government Securities (Identified Cost
$35,107,888)..................................... 31,033,590
------------
Total Long Term Investments -- 90.27% (Identified
Cost $350,099,976)............................... 381,679,658
------------
SHORT-TERM INVESTMENTS 10.39%
FEDERAL AGENCY SECURITIES -- 4.74%
FNMA 7%, 7/15/05 (Identified Cost $20,032,590).... 20,000 20,026,540
------------
COMMERCIAL PAPER -- 5.65%
Rabobank USA 3.35%, 7/1/05........................ 8,900 8,900,000
UBS Finance Delaware LLC 3.35%, 7/1/05............ 15,000 15,000,000
------------
Total Commercial Paper (Identified Cost $23,900,000) 23,900,000
------------
Total Short-Term Investments (Identified cost
$43,932,590)..................................... 43,926,540
------------
Total Investments (Identified Cost $394,032,566) --
100.66%.......................................... 425,606,198/(a)/
Securities Sold Short (Proceeds $16,926,456) --
(4.64)%.......................................... (19,619,700)
Other Assets Less Liabilities -- 3.98%............. 16,741,427
------------
Net Assets -- 100.00%.............................. $422,727,925
============
--------
(a) Federal Tax information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $53,376,489 and gross
depreciation of $21,822,345 for federal tax purposes. At June 30, 2005,
the aggregate cost of securities for federal income tax purposes was
$394,052,054.
(b) Non-income producing.
(c) Foreign common stocks are determined based on the country in which the
security is issued. The country of risk is determined based on criteria in
Note 2G "Foreign Security Country Determination" in the Notes to Financial
Statements.
(d) Position, or a portion thereof, has been segregated to collateralize
securities sold short.
(e) Position, or a portion thereof, has been segregated as collateral for
written options.
Number of
Shares Value
--------- -----------
SECURITIES SOLD SHORT
DOMESTIC COMMON STOCKS 2.54%
CONSUMER DISCRETIONARY -- 1.52%
Wendy's International, Inc................... 135,000 $ 6,432,750
MATERIALS -- 0.43%
Nucor Corp................................... 40,000 1,824,800
See notes to financial statements
11
Number of
Shares Value
--------- -----------
UTILITIES -- 0.59%
Reliant Energy, Inc.......................... 200,000 $ 2,476,000
-----------
Total Domestic Common Stocks (Proceeds $8,286,519) 10,733,550
-----------
EXCHANGE TRADED FUNDS 2.10%
iShares Russell 2000 Index Fund (Proceeds
$8,639,937)................................ 139,500 8,886,150
-----------
Total Securities Sold Short (Proceeds $16,926,456) $19,619,700/(f)/
===========
--------
(f) Federal Tax information: Net unrealized depreciation of securities sold
short is comprised of gross appreciation of $266,976 and gross
depreciation of $2,960,220 for federal income tax purposes. At June 30,
2005, the aggregate proceeds of securities sold short for federal income
tax purposes was ($16,926,456).
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
ASSETS
Investment securities at value (Identified cost $394,032,566). $ 425,606,198
Foreign currency at value (Identified cost $5,318)............ 5,361
Cash.......................................................... 95,618
Deposits with broker for securities sold short................ 19,529,280
Interest receivable........................................... 1,167,212
Dividends receivable.......................................... 673,772
Receivable from adviser....................................... 131,874
Prepaid expenses.............................................. 34,333
Director retainer............................................. 14,964
-------------
Total Assets.............................................. 447,258,612
-------------
LIABILITIES
Securities sold short, at value (Proceeds $16,926,456)........ 19,619,700
Options written, at value (Premiums received $183,610)........ 146,200
Investment securities purchased............................... 4,150,845
Accrued advisory fees (Note 4)................................ 297,748
Accrued administration fees (Note 4).......................... 45,538
Dividends on short sales...................................... 16,000
Other accrued expenses........................................ 254,656
-------------
Total Liabilities......................................... 24,530,687
-------------
NET ASSETS $ 422,727,925
=============
NET ASSET VALUE PER SHARE
($422,727,925/73,233,013 shares outstanding -- Note 5)........ $ 5.77
=============
Net Assets Consist of:
Capital paid-in............................................... $ 574,062,590
Distributions in excess of net investment income.............. (14,454,826)
Accumulated net realized loss on investments.................. (165,701,060)
Net unrealized appreciation on investments.................... 31,514,465
Net unrealized depreciation on securities sold short.......... (2,693,244)
-------------
Net Assets $ 422,727,925
=============
See notes to financial statements
13
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2005
(Unaudited)
INVESTMENT INCOME
Income
Interest........................................................................... $ 3,275,614
Dividends (net of foreign withholding taxes of $43,288)............................ 3,110,306
-----------
Total Investment Income..................................................... 6,385,920
-----------
Expenses
Investment advisory fees........................................................... 1,801,862
Administrative fees................................................................ 275,579
Transfer agent fees................................................................ 168,289
Printing and postage expenses...................................................... 108,131
Professional fees.................................................................. 68,676
Directors' fees and expenses....................................................... 40,822
Custodian fees..................................................................... 24,675
Miscellaneous...................................................................... 146,217
-----------
Expenses before dividends on short sales........................................ 2,634,251
Dividends on short sales........................................................ 112,480
-----------
Total Expenses.............................................................. 2,746,731
-----------
Net Investment Income.................................................... 3,639,189
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments........................................................................ 10,642,477
Short sales........................................................................ (315,477)
Options............................................................................ (258,795)
Foreign currency transactions...................................................... 30
Net change in unrealized appreciation (depreciation) on:
Investments........................................................................ (8,753,622)
Short sales........................................................................ (1,083,141)
Options written.................................................................... 37,410
Foreign currency transactions and translation...................................... (174)
Net increase in payments by affiliates and net gains (losses) realized on the disposal
of investments in violation of restrictions (Note 4d)................................ --
-----------
Net realized and unrealized gain................................................ 268,708
-----------
Net increase in net assets resulting from operations............................ $ 3,907,897
===========
See notes to financial statements
14
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
June 30, 2005 Year Ended
(Unaudited) December 31, 2004
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)................................... $ 3,639,189 $ 7,821,749
Net realized gain (loss)....................................... 10,068,235 28,365,079
Net change in unrealized appreciation (depreciation)........... (9,799,527) 3,860,869
------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................ 3,907,897 40,047,697
------------ ------------
Dividends and distributions to shareholders from
Net investment income.......................................... (21,823,447)* (4,595,190)
Net realized short-term gains.................................. -- (11,516,096)
------------ ------------
Total dividends and distributions to shareholders........... (21,823,447) (16,111,286)
------------ ------------
Net increase (decrease) in net assets....................... (17,915,550) 23,936,411
NET ASSETS
Beginning of period................................................ 440,643,475 416,707,064
------------ ------------
End of period [including distributions in excess of net
investment income and undistributed net investment
income of ($14,454,826) and $3,729,432, respectively]............ $422,727,925 $440,643,475
============ ============
--------
*The tax status of our distributions is determined at the end of the taxable
year. However, based on interim data, we estimate that 37% of distributions
represent return of capital and 46% represent excess gain distributions
which are taxable as ordinary income. Also refer to Note 2D.
See notes to financial statements
15
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
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, contingent assets and liabilities at the date of the financial
statements and the reported amount of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
A. Security Valuation:
Equity securities are valued at the official closing price (typically last
sale) on the exchange on which the securities are primarily traded, or if no
closing price is available, at the last bid price.
Debt securities are valued on the basis of broker quotations or valuations
provided by a pricing service, which utilizes information with respect to
recent sales, market transactions in comparable securities, quotations from
dealers, and various relationships between securities in determining value.
As required, some securities and other assets may be 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.
16
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 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 declared and 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.
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. 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.
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 exchange rate effective at
the trade date. The gain or loss resulting from a change in currency exchange
rates between the trade and settlement date 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.
17
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 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.
Transactions in written options for the period ended June 30, 2005 were as
follows:
Number of Premiums
Contracts Received
--------- --------
Option contracts outstanding at December 31, 2004 -- $ --
Option contracts written......................... 430 183,610
Option contracts sold............................ -- --
Option contracts exercised....................... -- --
Option contracts expired......................... -- --
--- --------
Option contracts outstanding as of June 30, 2005. 430 $183,610
=== ========
18
As of June 30, 2005, the Fund had outstanding written options as follows:
Shares Subject Expiration
Call Option to Call Date Exercise Price Market Value
----------- -------------- ---------- -------------- ------------
Valero Energy Corp. 43,000 9/19/05 $85.00 $146,200
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, and any realized loss increased, by the amount
of transaction costs. On ex-dividend date, dividends on short sales are
recorded as an expense to the Fund. At June 30, 2005, the value of securities
sold short amounted to $19,619,700 against which collateral of $40,213,930 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. Indemnifications:
Under the Fund's organizational documents, its directors and officers are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, the Fund enters into contracts that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts and expects the risk of loss to be remote.
NOTE 3 -- PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding U.S. Government and agency
securities, options, forward currency contracts and short-term securities) for
the period ended June 30, 2005, were as follows:
Purchases...................... $90,690,375
Sales.......................... 74,841,631
Short sales.................... 15,025,632
Purchases to cover short sales. 9,573,244
Purchases and sales of long-term U.S. Government and agency securities for
the period ended June 30, 2005, were as follows:
Purchases. $ --
Sales..... 8,360,262
19
NOTE 4 -- INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
a) Investment Advisory Fee: The Investment Advisory Agreement (the
"Agreement") between Phoenix/Zweig Advisers LLC (the "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 June 30, 2005 the Fund incurred advisory fees of $1,801,862.
Zweig Consulting LLC (the "Sub-Adviser") 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 June 30, 2005, the Fund incurred Administration
fees of $275,579.
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) Payment by Affiliate: The Adviser made a voluntary payment on August 25,
2005 in the amount of $131,874 to fully offset the net gains and losses
associated with a violation of investment restrictions.
NOTE 5 -- CAPITAL STOCK AND REINVESTMENT PLAN
At June 30, 2005, 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.
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 six-months ended June 30, 2005, and
the year ended December 31, 2004, there were no shares issued pursuant to the
Plan.
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,
20
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 the
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.
NOTE 7 -- FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each year:
Six-Months
Ended Year Ended December 31,
June 30, 2005 -----------------------------------------------------
(Unaudited) 2004 2003 2002 2001 2000
------------- -------- -------- -------- -------- --------
Per Share Data
Net asset value, beginning of period............. $ 6.02 $ 5.69 $ 5.46 $ 7.96 $ 10.32 $ 12.20
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net investment income............................ 0.05 0.11 0.03 0.01 -- /(4)/ 0.20
Net realized and unrealized gains (losses)....... -- /(4)(7)/ 0.44 0.70 (1.76) (1.47) (0.90)
-------- -------- -------- -------- -------- --------
Total from investment operations................. 0.05 0.55 0.73 (1.75) (1.47) (0.70)
-------- -------- -------- -------- -------- --------
Dividends and Distributions
Dividends from net investment income............. (0.30) (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................ (0.30) (0.22) (0.50) (0.69) (0.89) (1.18)
-------- -------- -------- -------- -------- --------
Effect on net asset values as a result of capital
contribution.................................... -- /(4)/ -- -- -- -- --
Effect on net asset values as a result of rights
offering/(1)/................................... -- -- -- (0.06) -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period................ $ 5.77 $ 6.02 $ 5.69 $ 5.46 $ 7.96 $ 10.32
======== ======== ======== ======== ======== ========
Market value, end of period/(2)/.............. $ 5.35 $ 5.55 $ 4.90 $ 4.93 $ 7.90 $ 9.81
======== ======== ======== ======== ======== ========
Total investment return/(3)/..................... 1.82%/(6)/ 18.13% 9.53% (29.78)% (11.27)% 9.45%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands)......... $422,728 $440,643 $416,707 $400,163 $489,261 $620,354
Ratio of expenses to average net assets
(excluding dividends on short sales)............ 1.24%/(5)/ 1.33% 1.28% 1.20% 1.19% 1.12%
Ratio of expenses to average net assets
(including dividends on short sales)............ 1.30%/(5)/ 1.35% 1.33% 1.20% 1.19% 1.12%
Ratio of net investment income to average net
assets.......................................... 1.72%/(5)/ 1.87% 0.54% 0.14% (0.03)% 1.74%
Portfolio turnover rate.......................... 22.0%/(6)/ 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 purchase 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 years. 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.
(4)Amount is less than $0.01.
(5)Annualized.
(6)Not annualized.
(7)The net realized and unrealized gains (losses) includes a voluntary payment
made by the Adviser to fully offset the net gains and losses associated with
a violation of investment restrictions. If this payment was not included,
the per share impact would be less than $0.01.
21
NOTE 8 -- PROXY VOTING PROCEDURES AND VOTING RECORD
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, along with
information regarding how the Fund voted proxies during the most recent
12-month period ended June 30, 2005, free of charge, by calling toll-free
1-800-243-1574. This information is also available through the Securities and
Exchange Commission's website at http://www.sec.gov.
NOTE 9 -- FORM N-Q INFORMATION
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. Form N-Q is available on the SEC's website at
http://www.sec.gov. 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 by calling toll-free 1-800-SEC-0330.
22
SUPPLEMENTARY PROXY INFORMATION (Unaudited)
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
10, 2005. The meeting was held for the purpose of electing two (2) nominees to
the Board of Directors.
The results of the above matters were as follows:
Directors Votes For Votes Against Votes Withheld Abstentions
--------- ---------- ------------- -------------- -----------
Wendy Luscombe 55,780,250 N/A 3,897,323 N/A
R. Keith Walton 55,682,929 N/A 3,994,644 N/A
Based on the foregoing, Wendy Luscombe and R. Keith Walton were re-elected
as Directors. The Fund's other Directors who continue in office are Charles H.
Brunie, Daniel T. Geraci, Alden C. Olson, Ph.D. and James B. Rogers, Jr.
23
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 2006. 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).
24
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 2008. 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 DIRECTOR
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.
25
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 Funds Complex (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).
Kevin J. Carr..... Secretary since: Secretary of The Zweig Total Return Fund, Inc. (since
One American Row 2005. 2005). Vice President and Counsel, Phoenix Life
Hartford, CT 06102 Insurance Company (since 2005). Vice President,
DOB: 8/3/54 Counsel, Chief Legal Officer and Secretary, certain Funds
within Phoenix Fund Complex (since 2005). Compliance
Officer of Investments and Counsel, Travelers Life and
Annuity Company (January 2005-May 2005). Assistant
General Counsel, The Hartford Financial Services Group
(1999-2005).
26
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.
27
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed registrants.
Not applicable.
Item 6. Schedule of Investments.
Schedule of Investments in securities of unaffiliated issuers as of the close of
the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not yet applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
At a Board of Trustees meeting held May 16, 2005, the Trustees approved a Policy
for the Consideration of Trustee Nominees as follows:
PHOENIX FUNDS
Policy for the Consideration of Trustee Nominees
The following Policy for the Consideration of Trustee Nominees (the
"Policy") shall be followed by the Governance and Nominating Committee (the
"Committee") of the Phoenix Funds (the "Trust") in filling vacancies on the
Board of Trustees or when Trustees are to be nominated for election by
shareholders.
Minimum Nominee Qualifications
1. With respect to nominations for Trustees who are not interested persons
of the Trust as defined by Section 2(a)(19) of the Investment Company
Act of 1940 (the "1940 Act") ("Disinterested Trustees"), nominees shall
be independent of the Trust's investment advisers and other principal
service providers. The Committee shall also consider the effect of any
relationship beyond those delineated in the 1940 Act that might impair
independence, such as business, financial or family relationships with
the investment adviser or its affiliates.
2. Disinterested Trustee nominees must qualify for service on the Trust's
Audit Committees.
3. With respect to all Trustees, nominees must qualify under all applicable
laws and regulations.
4. The proposed nominee may not be within five years of the Trust's
retirement age for Trustees.
5. The Committees may also consider such other factors as they may
determine to be relevant.
Other Qualifications
1. With respect to all proposed nominees, the Committee shall consider
whether the proposed nominee serves on boards of or is otherwise
affiliated with competing financial service organizations or their
related fund complexes or companies in which the Trust may invest.
2. The Committee shall consider whether the proposed nominee is able to and
intends to commit the time necessary for the performance of Trustee
duties.
3. The Committee shall consider the integrity and character of the proposed
nominee, and the proposed nominee's compatibility with the current
Trustees.
4. The Committee may require an interview with the proposed nominee.
Nominees Recommended by Shareholders
1. The Committee shall consider nominations for openings on the Board of
Trustees from shareholders who have individually held for at least one
full year five percent of the shares of a series of the Trust.
2. The Committee shall give candidates recommended by shareholders the same
consideration as any other candidate.
3. Shareholder recommendations should be sent to the attention of the
Committee in care of the Trust's Secretary and should include
biographical information, including business experience for the past ten
years and a description of the qualifications of the proposed nominee,
along with a statement from the proposed nominee that he or she is
willing to serve and meets the requirements to be a Disinterested
Trustee, if applicable.
Process for Identifying and Evaluating Trustee Nominees
1. When identifying and evaluating prospective nominees for openings on the
Board of Trustees, the Committee shall review all recommendations in the
same manner, including those received from shareholders.
2. The Committee shall first determine if the prospective nominee meets the
minimum qualifications set forth above. Those proposed nominees meeting
the minimum qualifications will then be considered by the Committee with
respect to the other qualifications listed above, and any other
qualifications deemed to be important by the Committee.
3. Those nominees selected by the Committee shall be recommended to the
Board of Trustees.
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-2(c) under the Investment
Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-2(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 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) Not applicable.
(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 and
Chief Executive Officer
(principal executive officer)
Date September 1, 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 and
Chief Executive Officer
(principal executive officer)
Date September 1, 2005
By (Signature and Title)* /s/ Nancy G. Curtiss
------------------------------------------------------
Nancy G. Curtiss, Treasurer
(principal financial officer)
Date September 2, 2005
* Print the name and title of each signing officer under his or her signature.