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 Ave
New York, NY 10022
(Address of principal executive offices) (Zip code)
Kevin J. Carr, Esq.
Chief Legal Officer and Secretary for John H. Beers, Esq.
Registrant Vice President and Secretary
Phoenix Life Insurance Company Phoenix Life Insurance Company
One American Row One American Row
Hartford, CT 06103-2899 Hartford, CT 06103-2899
(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: December 31, 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, 100 F Street, NE,
Washington, DC 20549. 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, Chief Executive Officer and President
Carlton Neel
Executive Vice President
David Dickerson
Senior Vice President
Marc Baltuch
Chief Compliance Officer and Vice President
Moshe Luchins
Vice President
Kevin J. Carr
Chief Legal Officer and 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
State Street Bank and Trust Company
P.O. Box 5501
Boston, MA 02206-5501
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
Legal Counsel
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, NY 10022
Transfer Agent
Computershare Trust Company, NA
P.O. Box 43010
Providence, RI 02940-3010
--------------------------------------------------------------------------------
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 Q4-05
Annual Report
Zweig
The Zweig Fund, Inc.
December 31, 2005
[GRAPHIC]
PHOENIX
INVESTMENT PARTNERS, LTD.
February 1, 2006
Dear Fellow ZF Shareholder:
For the quarter ended December 31, 2005, The Zweig Fund's net asset value
increased 4.11%, including the $0.145 distribution paid on October 26, 2005.
During the same period, the S&P 500/(R)/ Index gained 2.10%, including
reinvested dividends. The Fund's average equity exposure for the quarter was
approximately 81%.
For the year ended December 31, 2005, The Zweig Fund's net asset value rose
7.90%, including the latest distribution. During the same period, the S&P 500
Index increased 4.93%, including reinvested dividends. The Fund's average
equity exposure for the year was approximately 77%.
As previously announced, the Fund's distribution for the quarter ended
December 31, 2005 was $0.146, payable on January 10, 2006 to shareholders of
record on December 30, 2005.
Thank you for your continued investment in The Zweig Fund. For more current
information on performance and holdings, please visit the Individual Investors
section of our Web site, PhoenixFunds.com.
Sincerely,
/s/ Daniel T. Geraci
Daniel T. Geraci
Director, Chief Executive Officer and President
The Zweig Fund, Inc.
MARKET REVIEW AND OUTLOOK
The domestic stock markets ended 2005 with a whimper, with the Dow Jones
Industrial Average/SM/ virtually unchanged from a year ago. It was the smallest
annual change since 1926 but it still left the Dow in negative territory for
the year for the first time since 2002. The other major U.S. markets did
somewhat better with the S&P 500/(R)/ Index gaining 3% and the NASDAQ
Composite/(R)/ Index inching up just 1.4%. While the U.S. markets were biding
their time, the overseas exchanges surged ahead. In Japan, the Nikkei 225 Index
soared 40.2%, its best score since 1986. In Europe, the stock markets in
Germany, France, Switzerland, and the Netherlands each climbed more than 20%,
while Britain's rose 16.7% and Italy's 15.5%. Russia's trade index shot up a
sensational 61.8%.
Perhaps a major reason for the disparity and results between the U.S. and
world markets was the Federal Reserve's (the "Fed") actions. As widely
expected, the Fed raised its short-term interest rate from 4% to 4.25% in
December. It was the thirteenth consecutive quarter-point hike since July 2004
when the rate stood at 1%, a 46-year low. Yet this time around, the Fed no
longer called its rate policy "accommodative" and left out its familiar refrain
that it would raise rates at a "measured pace." It added, however, that some
further increases are "likely to be needed."
A measure of clarification came in early January when the Fed indicated that
it was close to ending its series of rate increases, saying "The number of
additional firming steps probably would not be large." Although the Fed also
said future decisions will be based on economic data, investors took a bullish
view and the Dow jumped 1.2% on the day of the news and launched a New Year's
rally that lifted the index above 11,000 for the first time since 2001.
We don't think the Fed itself knows if there is light at the end of the
interest rate tunnel. With Ben Bernanke replacing Alan Greenspan as Fed
Chairman on February 1, we think the Fed will be a little more hawkish at the
beginning, favoring interest rate increases, at least in its statements. In any
event, we believe we will see one or two more hikes. After that, the Fed may be
more inclined to look at the inflation numbers and react.
Interest rates also made market news when the yield curve inverted briefly.
That happens when long-term interest rates fall below short-term interest
rates. At the year-end, the two-year Treasury note yielded about 4.4%, which
was higher than the 4.39% of the 10-year Treasury note. It was the first such
occurrence in five years. Financial history buffs contend that such an event is
a harbinger of a recession.
Although much has been written about the relationship between the two-year
note and the 10-year, we think it is more important to compare the 3-month
yield to the 10-year yield. Right now they are about even. Historically, over
the past 52 years when short rates have been 95% or more of the long rate (more
would represent an inverted curve), the S&P has gone down approximately 11% on
an annualized basis. When the short rate has been 95% or less than the long
rate (less would be a relatively normal yield curve), the market has gone up
almost 12%. This time the curve has inverted because the short rate has gone up
while the long rate has been fairly flat. That seems a more neutral yield
curve. However, if bond yields rise toward 5%, we'd start to get concerned.
While the inverted yield curve was a new twist, the U.S. trade deficit was
an old story. It widened by $3 billion in October to $68.9 billion and is on
track to top last year's record of $618 billion. The growing gap is causing
some analysts to reduce their estimates of the country's economic growth. In
our view, it is hard to pinpoint the impact of the trade gap on the economy or
the stock market. It seems to have become a way of life for us. Interestingly,
there may be a positive side. Foreigners have excess dollars because they are
exporting more to the U.S. than they are buying from us. Some of these
countries, including Japan and China, are using their dollars to buy our
Treasuries, keeping yields down. This actually is good for our economy because
if bond yields are okay, it helps keep the housing sector from falling apart.
The long-running housing boom, which some analysts now call a bubble, has
been a strong underpinning for the economy. It is showing contradictory trends.
The U.S. Labor Department reported that new housing starts increased 5.3% in
November to an annual rate of 2.2 million and 17.5% above the same month last
year. Meanwhile the U.S. Commerce Department reported that sales of newly built
homes fell 11% in November from October, the largest decline since 1994.
It seems that the housing market is cooling down but the problem is not
universal. It depends on location. In hot spots such as Boston, New York,
Washington, South Florida, California, Nevada, and a few other regions, the
market has been red hot or even white hot. For example, there has been a lot of
speculation in south Florida where there is overbuilding and condo flipping has
become a widespread pastime. But in other areas such as Texas and much of the
Midwest, there has been no boom to speak of and prices seem normal. We'd be
mainly concerned about those regions where there is a huge amount of
speculation and prices have gone up 30% or 40% a year.
As far as the U.S. overall economy is concerned, the economic signals are
mixed. The gross domestic product grew 4.1% in the third quarter, the fastest
pace since early 2004, according to the Commerce Department. The agency also
reported that productivity spurted 4.7% in the quarter, the fastest rate in two
years. However the Institute for Supply Management
2
reported that its manufacturing index fell to 54.2 in December from 58.1 in
November, the biggest drop since July of 2002. Despite some clouds on the
horizon, the Conference Board reported that its Consumer Confidence Index
climbed to 103.6 in December from 98.3 in November.
We think the economy is fairly strong but is slowing somewhat. Short-term
rates and high energy prices are having a dampening effect on the margin but we
don't see any signs of recession. Although the previously cited yield curve
inversion has correctly forecast some recessions in the past, it is by no means
a sure thing. Sometimes the curve inverts and you don't get a recession. As
mentioned, we don't believe this inversion is significant unless long-term
rates also go up.
Some currency analysts had expected the U.S. dollar would weaken to redress
the trade imbalance. Instead the dollar ended the year 14.6% stronger against
the euro and 15.2% stronger against the yen, hitting a two-year high in both
cases. Despite intensive testing, we just can't find any relationship between
the value of the dollar and the stock market. Sometimes a strong dollar is
bullish and sometimes it is bearish. The same holds true for a weak dollar.
However, the value of the dollar does impact international companies. If they
earn euros or yen, a strong dollar dilutes their profits and a weak dollar
enhances their offshore earnings.
Although the stock market last year was as thin as it was flat, the volume
of options trading increased at a record rate for the thirteenth time in
fourteen years, according to the Options Clearing Corporation. In the U.S.,
over 1.5 billion options were traded, an increase of 27% from last year. We
don't think the increase in options activity tells you much except that there
are more hedge funds around. Hedge funds are more likely to use options than
individual investors or even traditional institutional investors. The market is
affected if option trades are excessively bullish or bearish. Of course, when
they get too one-sided, often they are wrong.
While initial public offerings (IPOs) grew strongly overseas, they declined
in number and dollar volume in the U.S., according to Thomson Financial.
Domestic deals in 2005 dropped to 215 IPOs with a dollar volume of $36.1
billion, from 257 deals and a dollar volume of $45 billion in 2004. Although
the U.S. was the only major world power to show a decline in both IPOs and the
dollar value, the activity here was not exactly slow. It is just that the
domestic market was not as hot as foreign markets. One doesn't normally see a
hot IPO market unless the market itself is strong.
We recently saw a significant increase in industrial capital spending. In
the third quarter, companies in the S&P 500 Index boosted their capital
expenditures by 24% over the 2004 period, according to Thomson Financial.
Capital spending had declined on an annual basis between the third quarter of
2001 and the fourth quarter of 2003. Since then, there has been an average gain
of 9% each quarter.
The current surge follows the recession we had in the early part of the
decade when capital spending was cut back tremendously, especially in
information technology. That is an area where capital spending is extremely
strong. As far as the stock market is concerned, there is a paradox here. When
you're in the depths of a recession, it is usually a good time to buy stock. On
the flip side, if you're in an economic boom and capital spending is too
intense, that is probably a good time to sell. We are not saying we are in an
economic boom but if capital spending gets out of sight, it is probably more of
a negative than a positive.
Standard & Poor's estimates that the earnings of companies in its S&P 500
Index last year increased 13.3% over 2004. The fourth quarter year-to-year gain
was estimated at 13.6%. These are pretty good numbers -- even when adjusted for
inflation. With inflation up about 2%, we are talking about earnings being up
over 11%. Such earnings would not be surprising early in a
3
business recovery. However, we are about four years into a recovery and these
are really strong profits. You typically will not see earnings grow at such a
rate in the long run.
Strong earnings boosted many companies to sharply increase their dividends
and stock buybacks last year. Standard & Poor's also reported that firms in the
S&P 500 Index paid a record $202 billion in dividends last year, up 11% from
2004. Buybacks came to $315 billion, up 60% from the previous peak of $197
billion in 2004. Combined dividends and stock buybacks were up 37% for the year.
These figures reflect a huge amount of corporate cash. Aside from
corporations, there is substantial excess cash in the hands of leverage buyout
firms and some hedge funds that participate in such ventures. They have
hundreds of billions of dollars to put into play. Whether this cash hoard is
used to increase dividends, expand buyouts, or buy other companies, it is the
most bullish factor in the stock market right now.
As far as valuations are concerned, S&P 500 companies ended 2005 trading at
19.1 times earnings over the past year. There was very little change from the
18.6 times earnings at the end of the third quarter and 20.5 at the start of
the year. While not totally off the charts, these figures do not look cheap to
us. That won't happen until the market gets down to 10 times earnings or less.
Financial advisors continue to be very optimistic about the direction of the
stock market. Investors Intelligence reported that its year-end poll of
financial advisors showed 64% bulls and 20.8% bears. At the end of the third
quarter, the bulls numbered 53.2% and the bears were at 26.6%. This compares
with 62.9% bulls and 19.6% bears at the start of last year. While we don't know
if the current optimism level is off the wall, it is pretty high.
Looking ahead, there is one slight possible negative for the market relating
to the presidential election cycle. Statistically, the post-election year and
the mid-term year, which we are now in, have not been great years. Based on
historical performance, the next pre-election year (2007) and election year
(2008) would turn out to be better years according to this cycle.
While we are not strongly supportive of this particular thesis, data going
back to 1949 indicates a significant market bottom occurs about every four
years. Our last market bottom was in 2002 and it's possible we may experience
the next bottom in 2006. However, we are far from convinced that this will be
the case.
Given the high level of optimism, our sentiment model is not good at all. On
a scale of zero to 10, it is a zero. Our monetary model is not great either,
coming in at three or almost four on a zero-to-10 scale. While our models are
not in the best shape, I dislike being bearish at this strong seasonal time of
year so we are about 77% or 78% invested. Below 60% would be outright bearish
and above 80% bullish. At this writing, we consider our investment posture to
be high neutral or slightly positive.
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.
For definitions of indexes cited and certain investment terms used in this
report see the glossary on page 6.
4
PORTFOLIO COMPOSITION
Our leading stock market sectors as of December 31, 2005, included
financials, information technology, and health care. While there were changes
in allocation amounts, all of these sectors appeared in our previous quarterly
report. During the fourth quarter we added to our holdings in financials and
information technology and trimmed our holdings in industrials and materials.
As of December 31, 2005, our top individual positions included Allstate,
Amgen, Continental Airlines, iShares MSCI Japan Index, NASDAQ 100 Trust, Nokia,
Norfolk Southern, Sony, UnitedHealth Group and Wells Fargo. Although there were
no changes in shares held, Amgen, Nokia, Sony, and Wells Fargo are new to this
listing. Also new is iShares MSCI Japan Index, where we added to our position,
and Norfolk Southern, where we trimmed our holdings.
We reduced our positions in the following companies which are no longer in
our list of top positions: Burlington Resources, ConocoPhillips, Gilead
Sciences, Goldman Sachs, Halliburton, Occidental Petroleum, and Qualcomm.
Sincerely,
[SIGNATURE]
/s/ Carlton Neel
Carlton Neel
Executive Vice President
Phoenix/Zweig Advisers LLC
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.
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 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.
Gross domestic product (GDP): An important measure of the United States'
economic performance, GDP is the total market value of all final goods and
services produced in the U.S. during any quarter or year.
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.
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.
Nikkei 225 Index: Index of 225 leading stocks traded on the Tokyo Stock
Exchange. It is similar to the Dow Jones Industrial Average (DJIA) because it
is composed of representative blue chip companies.
Options Clearing Corporation (OCC): The largest clearing organization in the
world for options, founded in 1973.
S&P 500/(R)/ Index: A free-float market capitalization-weighted index of 500 of
the largest U.S. companies. The index is calculated on a total return basis
with dividends reinvested.
Yield curve: A line chart that shows interest rates at a specific point in time
for securities of equivalent quality but with different maturities. A "normal
or positive" yield curve indicates that short-term securities have a lower
interest rate than long-term securities; an "inverted or negative" yield curve
indicates short-term rates are exceeding long-term rates; and a "flat yield
curve" means short- and long-term rates are about the same.
Indexes 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
THE ZWEIG FUND, INC.
Sector Weightings 12/31/05
(as a percentage of total investments
plus securities sold short)
--------------------------------------
Financials 18%
Information Technology 16%
Health Care 12%
Industrials 9%
Consumer Staples 9%
Consumer Discretionary 7%
Energy 7%
Other 22%
7
THE ZWEIG FUND, INC.
Ten Largest Holdings at December 31, 2005 (as a percentage of net assets)/(f)/
1. NASDAQ-100 Shares................. 2.4% 6. Wells Fargo & Co....... 1.6%
2. Continental Airlines, Inc. Class B 1.8% 7. Nokia OYJ ADR (Finland) 1.6%
3. iShares MSCI Japan Index Fund..... 1.8% 8. Sony Corp. ADR (Japan). 1.6%
4. Allstate Corp..................... 1.7% 9. Norfolk Southern Corp.. 1.6%
5. UnitedHealth Group, Inc........... 1.6% 10. Amgen, Inc............. 1.6%
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT
December 31, 2005
Number of
Shares Value
--------- ------------
INVESTMENTS
DOMESTIC COMMON STOCKS 71.61%
CONSUMER DISCRETIONARY -- 5.88%
Comcast Corp. Class A/(b)/...... 190,000 $ 4,932,400
McDonald's Corp................. 180,000 6,069,600
NIKE, Inc. Class B.............. 72,000 6,248,880
Omnicom Group, Inc.............. 25,000 2,128,250
Viacom, Inc. Class B............ 175,000 5,705,000
------------
25,084,130
------------
CONSUMER STAPLES -- 8.82%
Archer Daniels Midland Co....... 260,000 6,411,600
Costco Wholesale Corp........... 125,000 6,183,750
Kimberly-Clark Corp............. 100,000 5,965,000
PepsiCo, Inc.................... 110,000 6,498,800
Procter & Gamble Co............. 113,200 6,552,016
Ralcorp Holdings, Inc........... 150,000 5,986,500
------------
37,597,666
------------
ENERGY -- 6.61%
Burlington Resources, Inc....... 75,000 6,465,000
ConocoPhillps................... 95,000 5,527,100
Halliburton Co.................. 95,000 5,886,200
Occidental Petroleum Corp....... 75,000 5,991,000
Valero Energy Corp.............. 84,000 4,334,400
------------
28,203,700
------------
FINANCIALS -- 16.19%
Allstate Corp................... 135,000 7,299,450
Bank of America Corp./(d)/...... 130,000 5,999,500
See notes to financial statements
8
Number of
Shares Value
--------- -----------
FINANCIALS (CONTINUED)
Goldman Sachs Group, Inc............ 50,000 $ 6,385,500
Huntington Bancshares, Inc.......... 250,000 5,937,500
Merrill Lynch & Co., Inc............ 90,000 6,095,700
Morgan Stanley...................... 115,000 6,525,100
National City Corp.................. 165,000 5,539,050
New York Community Bancorp, Inc..... 340,000 5,616,800
PNC Financial Services Group, Inc... 105,000 6,492,150
Wachovia Corp....................... 120,000 6,343,200
Wells Fargo & Co.................... 108,000 6,785,640
-----------
69,019,590
-----------
HEALTH CARE -- 10.34%
Amgen, Inc./(b)/.................... 85,000 6,703,100
Bard (C.R.), Inc.................... 90,000 5,932,800
Bristol-Myers Squibb Co............. 250,000 5,745,000
Gilead Sciences, Inc./(b)/.......... 125,000 6,578,750
Merck & Co., Inc.................... 210,000 6,680,100
Pfizer, Inc......................... 240,000 5,596,800
UnitedHealth Group, Inc............. 110,000 6,835,400
-----------
44,071,950
-----------
INDUSTRIALS -- 9.18%
AMR Corp./(b)/...................... 300,000 6,669,000
Boeing Co. (The).................... 85,000 5,970,400
Continental Airlines, Inc. Class B/(b)/ 370,000 7,881,000
General Electric Co................. 170,000 5,958,500
L-3 Communication Holdings, Inc./(d)/ 80,000 5,948,000
Norfolk Southern Corp............... 150,000 6,724,500
-----------
39,151,400
-----------
INFORMATION TECHNOLOGY -- 12.57%
Cisco Systems, Inc./(b)/............ 315,000 5,392,800
Dell, Inc./(b)/..................... 180,000 5,398,200
EMC Corp./(b)/...................... 470,000 6,401,400
Hewlett-Packard Co.................. 220,000 6,298,600
Intel Corp.......................... 250,000 6,240,000
International Business Machines Corp. 70,000 5,754,000
Microsoft Corp...................... 240,000 6,276,000
QUALCOMM, Inc....................... 135,000 5,815,800
VeriSign, Inc./(b)/................. 275,000 6,028,000
-----------
53,604,800
-----------
See notes to financial statements
9
Number of
Shares Value
--------- ------------
MATERIALS -- 2.02%
Dow Chemical Co./(d)/..................... 135,000 $ 5,915,700
Freeport-McMoRan Copper & Gold, Inc. Class B 50,000 2,690,000
------------
8,605,700
------------
Total Domestic Common Stocks
(Identified Cost $263,886,915).............. 305,338,936
------------
FOREIGN COMMON STOCKS/(c)/ 8.99%
CONSUMER DISCRETIONARY -- 2.94%
Honda Motor Co. Ltd. ADR (Japan)/(d)/..... 200,000 5,794,000
Sony Corp. ADR (Japan).................... 165,000 6,732,000
------------
12,526,000
------------
FINANCIALS -- 1.48%
Deutsche Bank AG (Germany)................ 65,000 6,296,550
------------
HEALTH CARE -- 1.44%
Sanofi-Aventis ADR (France)............... 140,000 6,146,000
------------
INFORMATION TECHNOLOGY -- 3.13%
Amdocs Ltd. (United States)/(b)/.......... 240,000 $ 6,600,000
Nokia OYJ ADR (Finland)................... 370,000 6,771,000
------------
13,371,000
------------
Total Foreign Common Stocks
(Identified Cost $33,051,872)............. 38,339,550
------------
EXCHANGE TRADED FUNDS 4.23%
iShares MSCI Japan Index Fund............. 580,000 7,841,600
NASDAQ-100 Shares......................... 252,000 10,185,840
------------
Total Exchange Traded Funds
(Identified Cost $16,314,008)............. 18,027,440
------------
Total Long Term Investments -- 84.83%
(Identified Cost $313,252,795)............ 361,705,926
------------
Par
(000's)
---------
SHORT-TERM INVESTMENTS 15.04%
FEDERAL AGENCY SECURITIES -- 8.17%
FNMA 4.375%, 10/15/06/(d)/................ $ 20,000 19,948,600
FHLMC 3.75%, 11/15/06..................... 15,000 14,875,275
------------
Total Federal Agency Securities
(Identified Cost $34,850,020)............. 34,823,875
------------
See notes to financial statements
10
Par
(000's) Value
------- ------------
COMMERCIAL PAPER/(e)/ -- 6.87%
BMW US Capital Corp. 4.10%, 1/3/06 $15,000 $ 14,996,583
Estee Lauder 4.12%, 1/3/06...... 4,300 4,299,016
Rabobank USA 4.13%, 1/3/06...... 10,000 9,997,708
------------
Total Commercial Paper
(Identified Cost $29,293,307).... 29,293,307
------------
Total Short-Term Investments
(Identified cost $64,143,327).... 64,117,182
------------
Total Investments
(Identified Cost $377,396,122) -- 99.87% 425,823,108/(a)/
Securities Sold Short
(Proceeds $16,335,679) -- (4.96)% (21,133,950)
Other Assets Less Liabilities -- 5.09% 21,688,822
------------
Net Assets -- 100.00%.............. $426,377,980
============
--------
(a) Federal Tax information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $64,334,892 and gross
depreciation of $16,856,458 for federal income tax purposes. At December
31, 2005, the aggregate cost of securities for federal income tax purposes
was $378,344,674.
(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 2F "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) The rate shown is the discount rate.
(f) Table excludes short-term investments.
See notes to financial statements
11
Number of
Shares Value
--------- -----------
SECURITIES SOLD SHORT
DOMESTIC COMMON STOCKS 3.00%
CONSUMER DISCRETIONARY -- 1.75%
Wendy's International, Inc........................ 135,000 $ 7,460,100
MATERIALS -- 1.25%
Nucor Corp........................................ 80,000 5,337,600
-----------
Total Domestic Common Stocks (Proceeds $8,580,203).. 12,797,700
-----------
EXCHANGE TRADED FUNDS 1.96%
iShares Russell 2000 Index Fund
Total Exchange Traded Funds (Proceeds
$7,755,476)............................. 125,000 8,336,250
-----------
Total Securities Sold Short (Proceeds $16,335,679).. $21,133,950/(g)/
===========
--------
(g) Federal Tax information: Net unrealized depreciation of securities sold
short is comprised of gross appreciation of $0 and gross depreciation of
$4,798,271 for federal income tax purposes. At December 31, 2005, the
aggregate proceeds of securities sold short for federal income tax
purposes was ($16,335,679).
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS
Investments, at value (Identified cost $377,396,122)...... $ 425,823,108
Cash...................................................... 223,813
Deposits with broker for securities sold short............ 21,316,350
Dividends receivable...................................... 468,622
Interest receivable....................................... 304,626
Prepaid expenses.......................................... 74,114
Tax reclaims receivable................................... 10,281
-------------
Total Assets.......................................... 448,220,914
-------------
LIABILITIES
Securities sold short, at value (Proceeds $16,335,679).... 21,133,950
Accrued advisory fees (Note 4)............................ 308,915
Dividends on short sales.................................. 52,000
Accrued administration fees (Note 4)...................... 47,246
Accrued directors fees.................................... 39,000
Other accrued expenses.................................... 261,823
-------------
Total Liabilities..................................... 21,842,934
-------------
NET ASSETS $ 426,377,980
=============
NET ASSET VALUE PER SHARE
($426,377,980 / 73,233,013 shares outstanding --- Note 6). $ 5.82
=============
Net Assets Consist of:
Capital paid-in........................................... $ 538,738,326
Undistributed net investment income....................... 1,375,182
Accumulated net realized loss on investments.............. (157,364,243)
Net unrealized appreciation on investments................ 48,426,986
Net unrealized depreciation on securities sold short...... (4,798,271)
-------------
Net Assets $ 426,377,980
=============
See notes to financial statements
13
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of $57,567)........................... $ 5,815,263
Interest.......................................................................... 5,346,013
-----------
Total Investment Income.................................................... 11,161,276
-----------
Expenses
Investment advisory fees.......................................................... 3,599,090
Administrative fees............................................................... 550,449
Transfer agent fees............................................................... 333,652
Printing and postage fees......................................................... 196,417
Professional fees................................................................. 181,925
Directors' fees and expenses...................................................... 135,285
Registration fees................................................................. 68,107
Custodian fees.................................................................... 51,730
Miscellaneous..................................................................... 217,128
-----------
Expenses prior to dividends on short sales..................................... 5,333,783
Dividends on short sales.......................................................... 299,002
-----------
Total Expenses............................................................. 5,632,785
Less custodian fees paid indirectly............................................... (466)
-----------
Net Expenses............................................................... 5,632,319
-----------
Net Investment Income (Loss)............................................ 5,528,957
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments....................................................................... 19,585,010
Short sales....................................................................... (949,016)
Options........................................................................... (230,942)
Foreign currency transactions..................................................... 29
Net change in unrealized appreciation (depreciation) on:
Investments....................................................................... 8,196,352
Short sales....................................................................... (3,188,168)
Foreign currency translation...................................................... (217)
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 (loss)........................................ 23,413,048
-----------
Net increase (decrease) in net assets resulting from operations................ $28,942,005
===========
See notes to financial statements
14
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, 2005 December 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)................................... $ 5,528,957 $ 7,821,749
Net realized gain (loss)....................................... 18,405,081 28,365,079
Net change in unrealized appreciation (depreciation)........... 5,007,967 3,860,869
------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................ 28,942,005 40,047,697
------------ ------------
Dividends and distributions to shareholders from
Net investment income.......................................... (7,883,236) (4,595,190)
Net realized short-term gains.................................. (20,803,017) (11,516,096)
Tax return of capital.......................................... (14,521,247) --
------------ ------------
Total dividends and distributions to shareholders........... (43,207,500) (16,111,286)
------------ ------------
Net increase (decrease) in net assets....................... (14,265,495) 23,936,411
NET ASSETS
Beginning of period................................................ 440,643,475 416,707,064
------------ ------------
End of period (including undistributed net investment
income of $1,375,182 and $3,729,432, respectively)............... $426,377,980 $440,643,475
============ ============
See notes to financial statements
15
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each year)
Year Ended December 31,
-----------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
Per Share Data
Net asset value, beginning of period............................... $ 6.02 $ 5.69 $ 5.46 $ 7.96 $ 10.32
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income (loss)/(6)/............................... 0.08 0.11 0.03 0.01 -- /(4)/
Net realized and unrealized gains (losses)...................... 0.31/(5)/ 0.44 0.70 (1.76) (1.47)
-------- -------- -------- -------- --------
Total from investment operations................................... 0.39 0.55 0.73 (1.75) (1.47)
-------- -------- -------- -------- --------
Dividends and Distributions
Dividends from net investment income............................ (0.11) (0.06) (0.03) (0.01) (0.01)
Distributions from net realized gains........................... (0.28) (0.16) -- -- (0.07)
Tax return of capital........................................... (0.20) -- (0.47) (0.68) (0.81)
-------- -------- -------- -------- --------
Total dividends and distributions............................... (0.59) (0.22) (0.50) (0.69) (0.89)
-------- -------- -------- -------- --------
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) --
-------- -------- -------- -------- --------
Change in net asset value.......................................... (0.20) 0.33 0.23 (2.50) (2.36)
-------- -------- -------- -------- --------
Net asset value, end of period.................................. $ 5.82 $ 6.02 $ 5.69 $ 5.46 $ 7.96
======== ======== ======== ======== ========
Market value, end of period/(2)/................................ $ 5.25 $ 5.55 $ 4.90 $ 4.93 $ 7.90
======== ======== ======== ======== ========
Total investment return/(3)/....................................... 5.78% 18.13% 9.53% (29.78)% (11.27)%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands)........................... $426,378 $440,643 $416,707 $400,163 $489,261
Ratio of expenses to average net assets
(excluding dividends on short sales).............................. 1.26% 1.33% 1.28% 1.20% 1.19%
Ratio of expenses to average net assets
(including dividends on short sales).............................. 1.33% 1.38% 1.33% 1.20% 1.19%
Ratio of net investment income to average net assets............... 1.31% 1.87% 0.54% 0.14% (0.03)%
Portfolio turnover rate............................................ 44.6% 89.2% 74.8% 104.8% 80.3%
--------
(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 a share of the
Fund's common stock at the opening NYSE share price on the first business
day and a sale at the closing NYSE share price on 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 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)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.
(6)Computed using average shares outstanding.
See notes to financial statements
16
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported 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.
17
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 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, 2005, the Fund increased undistributed net investment income by
$29, decreased the accumulated net realized loss by $20,802,988 and decreased
capital paid in on shares of beneficial interest by $20,803,017.
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 $156,415,691 of capital loss carryovers, $129,613,529 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, 2005, the Fund utilized losses
deferred in prior years of $18,130,084. 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 ex-
18
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. 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.
G. 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 December 31, 2005 were
as follows:
Number of Premiums
Contracts Received
--------- ---------
Option contracts outstanding at December 31, 2004.... -- $ --
Option contracts written............................. 1,287 211,463
Option contracts sold................................ -- --
Option contracts exercised........................... (430) (183,610)
Option contracts expired............................. (857) (27,853)
----- ---------
Option contracts outstanding as of December 31, 2005. -- --
===== =========
H. 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 obliga-
19
tion 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 December
31, 2005, the value of securities sold short amounted to $21,133,950 against
which collateral of $42,123,550 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.
NOTE 3 -- PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding U.S. Government and agency
securities, options, and short-term securities) for the period ended December
31, 2005, were as follows:
Purchases...................... $169,772,761
Sales.......................... 153,401,173
Short sales.................... 19,479,231
Purchases to cover short sales. 15,241,151
Purchases and sales of long-term U.S. Government and agency securities for
the period ended December 31, 2005, were as follows:
Purchases....................... $ --
Sales........................... 50,768,750
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, 2005, the Fund incurred
advisory fees of $3,599,090.
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
20
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, 2005, the Fund incurred
Administration fees of $550,449. Effective March 1, 2006, the Administration
fee will be reduced to a rate of 0.065% of the Fund's average daily net assets.
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 -- 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 6 -- CAPITAL STOCK AND REINVESTMENT PLAN
At December 31, 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 Computershare 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 Computershare, as the Plan agent, in whole or fractional shares
of the Fund, as the case may be. During the year ended December 31, 2005, and
the year ended December 31, 2004, there were no shares issued pursuant to the
Plan.
On December 19, 2005, the Fund announced a distribution of $0.146 per share
to shareholders of record on December 30, 2005. This distribution has an
ex-dividend date of January 4, 2006, and is payable on January 10, 2006.
NOTE 7 -- 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 the Fund's ability to
repatriate such amounts.
21
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 8 -- THE ZWEIG FUND, INC. YEAR END RESULTS
Total Return
on Net Asset Net Asset NYSE Premium
Value Value Share Price (Discount)
------------ --------- ----------- ----------
Year ended 12/31/2005......... 7.9% $ 5.82 $ 5.2500 (9.8%)
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%)
CERTIFICATION (Unaudited)
In accordance with the requirements of the Sarbanes-Oxley Act, the Fund's
CEO (the President of the Fund) and CFO (the Treasurer of the Fund) 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.
TAX INFORMATION (Unaudited)
For the fiscal year ended December 31, 2005, for federal income tax
purposes, 23.9% 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, 2005, the Fund hereby designates
25.1%, 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.
22
[LOGO] PRICEWATERHOUSECOOPERS
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, 2005 and the results of its
operations, the changes in its net assets and its financial highlights for 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, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCooper LLP
Boston, Massachusetts
February 16, 2006
23
SUPPLEMENTARY PROXY INFORMATION
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.
24
FUND MANAGEMENT
Information pertaining to the Directors and officers of the Fund as of
December 31, 2005 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 2008. 2 Director of The Zweig Total Return Fund, Inc. (since
480 Churchtown Road Served since: 2002); Principal, WKL Associates, Inc. (real estate
Craryville, NY 12521 2002. investment management) (since 1994). Fellow, Royal
DOB: 10/29/51 Institution of 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), Trustee, Acadia Realty Trust (since 2006).
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 Author of "Investment Biker: On the Road with Jim
Rogers" (1994), "Adventure Capitalist" (2003) and "Hot
Commodities" (2004). Director, Emerging Markets
Brewery Fund (1993-2002). Director, Levco Series Trust
(since 1996).
25
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). Member, Steering Committee,
Association for a Better New York (since 2001).
Trustee, The Trinity School, NYC (since 2003).
Nominating and Governance Committee Board of
Directors (since 2004), Member (since 1997),
Nominations and Governance Committee (since 2004),
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). The Riverside Church Finance Committee Chair
(2001-2005).
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, Chief Executive Officer and President of The
10 Stonemeadow Drive Served since: Zweig Total Return Fund, Inc. (since 2004). Executive
Westwood, MA 02090 2004. Vice President, Asset Management, The Phoenix
DOB: 6/12/57 Director, Chief Companies, Inc. (wealth management) (since 2003).
Executive President and Chief Executive Officer, Phoenix
Officer and Investment Partners, Ltd. (since 2003). President
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 Investments Institutional
Services (Boston) (1998-2000), Executive
Vice President of Distribution and Marketing for
Fidelity Canada (1996-1998), Fidelity Investments.
26
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...... Chief Chief Compliance Officer and Vice President of The
900 Third Avenue Compliance Zweig Total Return Fund, Inc. (since 2004). President
New York, NY 10022 Officer and Vice and Director of Watermark Securities, Inc. (since 1991).
DOB: 9/23/45 President since: Secretary of Phoenix-Zweig Trust (1989-2003).
2004. 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..... Chief Legal Chief Legal Officer and Secretary of The Zweig Total
One American Row Officer and Return Fund, Inc. (since 2005). Vice President and
Hartford, CT 06102 Secretary since: Counsel, Phoenix Life Insurance Company (since 2005).
DOB: 8/3/54 2005. Vice President, 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).
27
KEY INFORMATION
Zweig Shareholder Relations: 1-800-272-2700
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.
REPURCHASE OF SECURITIES
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.
PROXY VOTING INFORMATION (FORM N-PX)
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.
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.
28
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 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 $32,000 for
2005 and $38,000 for 2004.
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 $1,000 for 2005 and $0 for 2004. 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 $6,350 for 2005 and $5,700
for 2004.
"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 2005 and $0 for 2004.
(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 non-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) 100% for 2005; 100% for 2004
(c) 100% for 2005; 100% for 2004
(d) Not applicable for 2005; not applicable for 2004.
(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 $892,561 for 2005 and $1,877,791.
(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
are: Audit Committee Members are: Charles H. Brunie, Wendy Luscombe, Prof.
Alden C. Olson, James B. Rogers and R. Keith Walton.
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.
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.
(a)(1) Identification of Portfolio Manager(s) or Management Team Members and
Description of Role of Portfolio Manager(s) or Management Team Members
Following are the names, titles and length of service of the person or
persons employed by or associated with the registrant or an investment
adviser of the registrant who are primarily responsible for the
day-to-day management of the registrant's portfolio ("Portfolio
Manager") and each Portfolio Manager's business experience during the
past 5 years as of March 8, 2006: Carlton Neel and David Dickerson have
served as Co-Portfolio Managers of The Zweig Fund, Inc., a closed-end
fund managed by Phoenix/Zweig Advisers LLC (the "Fund") since April 1,
2003. Mr. Neel and Mr. Dickerson are Senior Vice Presidents of
Phoenix/Zweig Advisers LLC ("PZA") and Euclid Advisors, LLC, a
subsidiary of PZA. Mr. Neel and Mr. Dickerson were previously employed
by PZA and managed the Phoenix Market Neutral Fund from April 2000
through June 2002. Since April 1, 2003, they have served as Portfolio
Managers for The Zweig Total Return Fund, Inc., a closed-end fund
managed by PZA, and as Portfolio Managers for the Phoenix Small-Cap
Value Fund and Phoenix Market Neutral Fund, two funds also managed by
PZA. For the period from July 2002 until returning to PZA on April 1,
2003, Mr. Neel and Mr. Dickerson co-founded and managed a hedge fund
based on the same market neutral strategy used previously while managing
certain of the funds which they manage.
Mr. Neel previously served as Senior Portfolio Manager for a number of
the former Phoenix-Zweig mutual funds from 1995 until July 2002. Prior
to joining the Zweig Companies, he was a Vice President with J.P.
Morgan & Co.
Mr. Dickerson began his investment career at the Zweig Companies in 1993.
(a)(2) Other Accounts Managed by Portfolio Manager(s) or Management Team Member
and Potential Conflicts of Interest
Other Accounts Managed by Portfolio Manager(s) or Management Team Member
The following information is provided as of the fiscal year ended
December 31, 2005.
Mr. Neel and Mr. Dickerson are responsible for the day-to-day management
of other portfolios of other accounts, namely The Zweig Total Return
Fund, Inc., Phoenix Small-Cap Value Fund and Phoenix Market Neutral
Fund. For both Mr. Neel and Mr. Dickerson, the following are tables
which provide the number of other accounts managed within the Type of
Accounts and the Total Assets for each Type of Account. Also provided
for each Type of Account is the number of accounts and the total assets
in the accounts with respect to which the advisory fee is based on the
performance of the account.
Number of Total Assets in
Accounts where Accounts where
Name of Portfolio Total Number of Advisory Fee is Advisory Fee is
Manager or Team Accounts Based on Based on
Member Type of Accounts Managed Total Assets Performance Performance
----------------- ------------------- --------------- ------------ --------------- ---------------
David Dickerson Registered
Investment
Companies: 3 $1.1 billion None None
Other Pooled
Investment
Vehicles: None None None None
Other Accounts: None None None None
Number of Total Assets in
Accounts where Accounts where
Name of Portfolio Total Number of Advisory Fee is Advisory Fee is
Manager or Team Accounts Based on Based on
Member Type of Accounts Managed Total Assets Performance Performance
----------------- ------------------- --------------- ------------ --------------- ---------------
Carlton Neel Registered
Investment
Companies: 3 $1.1 billion None None
Other Pooled
Investment
Vehicles: None None None None
Other Accounts: None None None None
Potential Conflicts of Interest
There may be certain inherent conflicts of interest that arise in
connection with the Mr. Neel's and Mr. Dickerson's management of each
Fund's investments and the investments of any other accounts he manages.
Such conflicts could arise from the aggregation of orders for all
accounts managed by a particular portfolio manager, the allocation of
purchases across all such accounts, the allocation of IPOs and any soft
dollar arrangements that the Adviser may have in place that could
benefit the Funds and/or such other accounts. The Board of
Trustees/Directors has adopted on behalf of the Funds policies and
procedures designed to address any such conflicts of interest to ensure
that all transactions are executed in the best interest of the Funds'
shareholders. The Advisers and Subadviser are required to certify their
compliance with these procedures to the Board of Trustees on a quarterly
basis. There have been no material compliance issues with respect to any
of these policies and procedures during the Funds' most recent fiscal
year ended December 31, 2005. Additionally, there are no material
conflicts of interest between the investment strategy of a Fund and the
investment strategy of other accounts managed by Mr. Neel and
Mr. Dickerson since portfolio managers generally manage funds and other
accounts having similar investment strategies.
(a)(3) Compensation Structure of Portfolio Manager(s) or Management Team Members
For the most recently completed fiscal year ended December 31, 2005,
following is a description of Mr. Neel's and Mr. Dickerson's
compensation structure as portfolio managers of PZA.
Phoenix Investment Partners, Ltd. and its affiliated investment
management firms (collectively, "PXP"), believe that the firm's
compensation program is adequate and competitive to attract and retain
high-caliber investment professionals. Investment professionals at PXP
receive a
competitive base salary (fixed compensation), an incentive bonus
opportunity and a benefits package. Managing Directors and portfolio
investment professionals who supervise and manage others also
participate in a management incentive program reflecting their personal
contribution and team performance. Highly compensated individuals can
also take advantage of a long-term Incentive Compensation program to
defer their compensation and reduce tax implications.
The bonus package for portfolio managers is based upon how well the
individual manager meets or exceeds assigned goals and subjective
assessment of contribution to the team effort. Their incentive bonus
also reflects a performance component for achieving and/or exceeding
performance competitive with peers managing similar strategies. Such
component is further adjusted to reward investment personnel for
managing within the stated framework and for not taking unnecessary
risks. This ensures that investment personnel will remain focused on
managing and acquiring securities that correspond to a fund's mandate
and risk profile. It also avoids the temptation for portfolio managers
to take on more risk and unnecessary exposure to chase performance for
personal gain.
Finally, Portfolio Managers and investment professionals may also
receive The Phoenix Companies, Inc. ("PNX") stock options and/or be
granted PNX restricted stock at the direction of the parent's Board of
Directors.
Following is a more detailed description of the compensation structure
of the Fund's portfolio managers.
Base Salary. Each Portfolio Manager is paid a fixed base salary, which
is determined by PXP and is designed to be competitive in light of the
individual's experience and responsibilities. PXP management uses
compensation survey results of investment industry compensation
conducted by an independent third party in evaluating competitive market
compensation for its investment management professionals. Compensation
is not based on the value of assets held in the Fund's portfolio.
Incentive Bonus. Generally, the current Performance Incentive Plan for
portfolio managers at PXP is made up of three components:
(1) Seventy percent of the target incentive is based on achieving
investment area investment goals and individual performance. The
Investment Incentive pool will be established based on actual pre-tax
investment performance compared with specific peer group or index
measures established at the beginning of each calendar year.
Performance of the funds managed is measured over one, three and
five-year periods against specified benchmarks and/or peer groups for
each fund managed. Performance of the PNX general account and growth
of revenue, if applicable to a particular portfolio manager, is
measured on a one-year basis. Generally, individual manager's
participation is based on the performance of each fund/account
managed as weighted roughly by total assets in each of those
funds/accounts.
(2) Fifteen percent of the target incentive is based on the profitability
of the investment management division with which the portfolio
manager is associated. This component of the plan is paid in
restricted stock units of The Phoenix Companies, Inc., which vest
over three years.
(3) Fifteen percent of the target incentive is based on the portfolio
manager's investment area's competencies and on individual
performance. This pool is funded based on The Phoenix Companies,
Inc.'s return on equity.
The Performance Incentive Plan applicable to some portfolio managers may
vary from the description above. For instance, plans applicable to
certain portfolio managers (I) may specify different percentages of
target incentive that is based on investment goals and individual
performance and on The Phoenix Companies, Inc. return on equity,
(ii) may not contain the component that is based on the profitability of
the management division with which the portfolio manager is associated,
or (iii) may contain a guarantee payout percentage of certain portions
of the Performance Incentive Plan.
Long-Term Incentive Bonus. Certain portfolio managers are eligible for a
long-term incentive plan that is paid in restricted stock units of The
Phoenix Companies, Inc. which vest over three years. Awards under this
plan are contingent upon PNX achieving its cash return on equity
objective, generally over a three-year period. Target award
opportunities for eligible participants are determined by PNX's
Compensation Committee.
Other Benefits. Portfolio managers are also eligible to participate in
broad-based plans offered generally to the firm's employees, including
broad-based retirement, 401(k), health and other employee benefit plans.
(a)(4) Disclosure of Securities Ownership
For the most recently completed fiscal year ended December 31, 2005,
beneficial ownership of shares of the Fund by Messrs. Dickerson and Neel
is as follows. Beneficial ownership was determined in accordance with
rule 16a-1(a)(2) under the Securities Exchange Act of 1934 (17 CFR
240.161-1(a)(2)).
Dollar ($)
Range of Fund
Name of Portfolio Shares
Manager or Beneficially
Team Member Owned
----------------- ----------------
David Dickerson $10,001-$50,000
Carlton Neel $50,001-$100,000
(b) Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.
Item 11. Controls and Procedures.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the "1940
Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days
of the filing date of the report that includes the disclosure required
by this paragraph, based on the 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 and
Chief Executive Officer
(principal executive officer)
Date March 9, 2006
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 March 9, 2006
By (Signature and Title)* /s/ Nancy G. Curtiss
-----------------------------
Nancy G. Curtiss, Treasurer
(principal financial officer)
Date March 9, 2006
* Print the name and title of each signing officer under his or her signature.