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, 31st Floor
New York, NY 10022-4728
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(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 Counsel
Phoenix Life Insurance Company Phoenix Life Insurance Company
One American Row One American Row
Hartford, CT 06103-2899 Harford, CT 06103-2899
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(Name and address of agent for service)
Registrant's telephone number, including area code: 800-272-2700
Date of fiscal year end: December 31
Date of reporting period: June 30, 2006
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. (Section) 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
August 1, 2006
Dear Fellow ZF Shareholder:
Here is the manager's report and commentary for The Zweig Fund, Inc. for the
quarter ended June 30, 2006.
The Zweig Fund's net asset value declined 1.01% in the quarter ended
June 30, 2006, including the $0.15 distribution paid on April 26. During the
same period, the S&P 500(R) Index decreased 1.44%, including reinvested
dividends. The Fund's average equity exposure for the quarter was approximately
76%.
For the six months ended June 30, 2006, the Fund's net asset value increased
4.52%, including the latest distribution. During the same period, the S&P 500
Index gained 2.69%, including reinvested dividends. The Fund's average equity
exposure for the first half of 2006 was approximately 77%. As previously
announced, the Fund's distribution for the quarter ended June 30, 2006, was
$0.141 payable on July 26, 2006 to shareholders of record on July 10, 2006.
For updates on the Fund's performance and holdings, please visit the
closed-end funds section of our Web site, PhoenixFunds.com.
Thank you for your investment in The Zweig Fund, Inc.
Sincerely,
/s/ Daniel T. Geraci
Daniel T. Geraci
President
The Zweig Fund, Inc.
MARKET REVIEW AND OUTLOOK
It was not exactly a wild roller coaster ride but the equity market
certainly had big upward swings and sharp dips during the second quarter. On
May 10 the Dow Jones Industrial Average/SM/ was just 75 points below its record
high of June 2000. That was the peak. Then the turbulence started, with huge
gains and losses following in rapid succession. By the quarter's end, half of
the Dow's yearly gain was wiped out.
When the dust settled, the Dow closed the quarter up 0.94%, bringing its
year-to-date gain to 5.22%. The NASDAQ Composite(R) Index dropped 7.01% for the
quarter and was down 1.08% year to date. The S&P 500 Index slipped 1.44% for
the quarter but was up 2.69% for the first half of the year. Excluding the
United States. the Dow Jones World Stock Index declined nearly 0.9% for the
quarter, bringing its net return for the first half to 7.9%.
While we saw wide fluctuations during the quarter, the bias was on the
downward side. That's likely attributable to Federal Reserve (the "Fed")
Chairman Ben Bernanke's warning in May that inflationary pressures might
warrant further interest rate increases. Consequently, there was no surprise
when the Fed raised the federal funds rate in late June by another quarter
point to 5.25%, its seventeenth consecutive increase. However, when the Fed
hinted that further firming was not a certainty, the market skyrocketed by 217
points, its biggest single-day spurt since March 2003. Although the Fed said
inflation had risen recently, it added that productivity gains had moderated
any increase in labor costs and "inflation expectations still remain contained."
While not ruling out future rate increases, the Fed said any action would
depend on the evolving outlook for inflation and economic growth. Indicating
that it did not expect an over-
heated economy, the Fed said "recent indicators suggest that economic growth is
moderating from its strong pace early this year, partly reflecting a gradual
cooling of the housing market and the lagged effects of increases in interest
rates and energy prices."
Two recent reports tend to confirm the Fed's view that economic growth is
moderating and housing is cooling. The Institute for Supply Management reported
its manufacturing index registered 53.8 in June, slightly below May, but the
lowest rating since last August, and the Commerce Department reported that a
sharp drop in home building brought new construction down 0.4% in May.
Although rising inflation and a slowing economy are a scenario for
stagflation, we do not see that on the immediate horizon. We believe that the
softening economy should ultimately put downward pressure on prices and
restrain inflation.
With our economy easing, the country's appetite for foreign goods shows no
sign of abating. The Commerce Department reported that our trade gap grew to
$63.84 billion in May, an increase of 0.8% from April. The imbalance is on
track to surpass last year's record of $716.73 billion. Import prices,
including for volatile oil and natural gas, jumped 0.6% in May following a gain
of 0.1% in April. We aren't very concerned about the trade disparity. It has
been there forever. Higher import prices, however, are a significant inflation
factor and this could present a problem in the future.
Coincident with the trade imbalance, the New York Board of Trade reported
that the U.S. dollar's performance against a trade-weighted basket of six major
countries declined 5.1% in the second quarter. While the dollar's weakness
might help a bit, we don't see it significant enough to make U.S. exports
cheaper and foreign imports more expensive to the extent that it will reduce
the trade deficit.
Despite market uncertainty, business mergers are booming. U.S. transactions
in the second quarter totaled $369 billion, up 25% from the year-earlier figure
of $294 billion, according to Thomson Financial. Worldwide, merger volume for
the quarter totaled nearly $1 trillion, topping the record of $914 billion set
in this year's first quarter. As we have said in previous reports, corporations
are flooded with cash and these mergers and acquisitions are probably the
single most bullish factor in the current market picture.
Initial Public Offerings are another growth industry. IPOs in the U.S.
totaled $11.15 billion in the second quarter, nearly double the $6.7 billion in
the like 2005 period, according to data provider Dealogic. Globally, second
quarter IPOs came to $61.15 billion against $33.71 billion a year earlier. We
believe the current level of IPO activity is okay. The rate is not red hot or
overheated yet, and the quality of offerings isn't that bad. However, we would
be concerned if many more offerings of lesser quality come into the market.
While stocks have been gyrating, companies in the S&P 500 have been buying
back their shares in record numbers. They spent over $100 billion in stock
buybacks in the first quarter, according to Standard & Poor's. This was an
increase of more than 22% from the like 2005 quarter. For the year ended
March 31, 2006, buybacks set a record of $367 billion. By shrinking the supply
of stock and putting cash back into the marketplace where it belongs, buybacks
have a positive impact on the market. Whether it is the best way for companies
to spend their money varies from case to case. If a company's stock price is
cheap and buying back shares provides a better return than expanding the
business, it's a good thing. If a company has better potential business
opportunities elsewhere, then a buyback is not an appropriate activity.
As far as earnings are concerned, Standard & Poor's predicted a 9% increase
in the S&P 500 Index for the second quarter. This would
2
mark the first time in the last sixteen quarters that there was less than a
double-digit rise. The gain in the second quarter of last year was 14%. The
current decline reflects the slowdown in the economy and the effects of Fed
tightening. This could lead to some problems for the market down the road.
S&P 500-listed companies ended the second quarter of 2006 trading at 17.01
times earnings compared to 17.97 times earnings at March 31, 2006, and 18.87
times earnings at June 30, 2005, according to Bloomberg. The current P/E ratio
is below the 17.5 it has averaged since 1960. The lower ratios reflect the fact
that profits have moved up at a much faster pace than stock prices in recent
years. We don't believe these ratios are the biggest driving force in the
market. What's more important are expected earnings going forward, and, as has
been the case for some time, these values appear reasonable for today's equity
market.
There also seems to be less optimism in the market. Recently the Investors
Intelligence survey of market advisors revealed investor sentiment as 38.7%
bullish and 34.4% bearish. This level of bullishness was the lowest it's been
since October 2002. At the start of the year, the bulls were at 47.7% and the
bears at 28.3%, and at the beginning of the second quarter, the bulls stood at
55.7% and the bears at 23.7%. The Association of Individual Investors showed a
similar trend. While not off the wall, these figures look pretty good. In our
view, when there is more fear and pessimism in the market, that's a plus.
Looking to the future, some analysts are skeptical about the outlook for
equities. They believe that the bull market which started in October of 2002
and has not had a 10% correction since March 2003 has run its course and a
cyclical bear market is emerging. Others see the bull market lingering awhile
longer. We are not particularly concerned about giving a label to the present
market. As always, we will carefully monitor the economic data and the
inflation trends and continue to follow our indicators in making our investment
decisions.
Right now we are about 83% invested, which, for us, is a moderately bullish
position. However, in view of the tense international situation and the
worrisome recent tape action, we may cut back a few points in coming days.
Sincerely,
[GRAPHIC]
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.
3
PORTFOLIO COMPOSITION
As of June 30, 2006, The Zweig Fund's leading stock market sectors included
financials, information technology, consumer discretionary, industrials, and
health care. While there were changes in allocation amounts, all of these
sectors appeared in our previous quarterly report. During the second quarter,
we added to our holdings in telecommunications and energy and reduced our
positions in health care and industrials.
The Fund's top individual equity positions on June 30, 2006 included
Bristol-Myers, Continental Airlines, Costco Wholesale Corp., Goldman Sachs,
Microsoft, Nabors Industries, NASDAQ 100 Trust, Occidental Petroleum, PepsiCo
and Valero. Although there were no changes in shares owned, Bristol-Myers,
Occidental Petroleum, PepsiCo and Valero are new to this listing. Also new are
Microsoft, where we added to our holdings, and Nabors Industries, which was not
previously in our portfolio.
No longer among the Fund's top positions are AMR Corp., Freeport-McMoRan and
Wachovia Corp., where we trimmed our holdings; Cisco Systems and L.3
Communities, where there were no changes in shares held; and QUALCOMM, where we
added to our position.
Sincerely,
[SIGNATURE]
/s/ Carlton Neel
Carlton Neel
Executive Vice President
Phoenix/Zweig Advisers LLC
4
OUR PRIVACY COMMITMENT
The Zweig Fund, Inc. recognizes that protecting the privacy and security of
the confidential personal information we collect about you is an important
responsibility. The following information will help you understand our privacy
policy and how we will handle and maintain confidential personal information as
we fulfill our obligations to protect your privacy. "Personal information"
refers to the nonpublic financial information obtained by us in connection with
providing you a financial product or service.
Information We Collect
We collect personal information to help us serve your financial needs, offer
new products or services, provide customer service and fulfill legal and
regulatory requirements. The type of information that we collect varies
according to the products or services involved, and may include:
.. Information we receive from you on applications and related forms (such as
name, address, social security number, assets and income); and
.. Information about your transactions and relationships with us, our
affiliates, or others (such as products or services purchased, account
balances and payment history).
Information Disclosed in Administering Products and Services
We will not disclose personal information about current or former customers
to non-affiliated third parties except as permitted or required by law. We do
not sell any personal information about you to any third party. In the normal
course of business, personal information may be shared with persons or entities
involved in servicing and administering products and services on our behalf,
including your broker, financial advisor or financial planner and other service
providers and affiliates assisting us.
Procedures to Protect Confidentiality and Security of Your Personal Information
We have procedures in place that limit access to personal information to
those employees and service providers who need to know such information in
order to perform business services on our behalf. We educate our employees on
the importance of protecting the privacy and security of confidential personal
information. We also maintain physical, electronic and procedural safeguards
that comply with federal and state regulations to guard your personal
information.
We will update our policy and procedures where necessary to ensure that your
privacy is maintained and that we conduct our business in a way that fulfills
our commitment to you. If we make any material changes in our privacy policy,
we will make that information available to customers through our Web site
and/or other communications.
5
Glossary
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.
Dow Jones World Stock Index: The Dow Jones World Stock Index measures the
performance of companies worldwide as represented by various foreign stock
markets.
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.
Inflation: Rise in the prices of goods and services resulting from increased
spending relative to the supply of goods on the market.
Initial public offering (IPO): A company's first sale of stock to the public.
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: The NASDAQ Composite(R) Index is 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.
New York Board of Trade (NYBOT): A commodities exchange in New York that trades
futures and options on sugar, cotton, coffee, cocoa, and orange juice, in
addition to interest rates, currency, and indexes.
S&P 500(R) Index: The S&P 500 Index is 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.
Stagflation: A period of little or no economic growth.
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
(Unaudited)
[CHART]
As a percentage of total investments
and securities sold short
Financials 16%
Information Technology 15%
Consumer Discretionary 9%
Industrials 8%
Health Care 8%
Consumer Staples 7%
Energy 7%
Other 30%
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT
June 30, 2006
(Unaudited)
Number of
Shares Value
--------- ------------
INVESTMENTS
DOMESTIC COMMON STOCKS 73.85%
CONSUMER DISCRETIONARY -- 9.13%
Abercrombie & Fitch Co........................ 105,000 $ 5,820,150
CBS Corp. Class B............................. 230,000 6,221,500
Ford Motor Corp./(e)/......................... 400,000 2,772,000
Gap, Inc. (The)............................... 330,000 5,742,000
McDonald's Corp............................... 180,000 6,048,000
Newell Rubbermaid, Inc........................ 235,000 6,070,050
Nike, Inc. Class B............................ 72,000 5,832,000
------------
38,505,700
------------
CONSUMER STAPLES -- 7.61%
Archer-Daniels-Midland Co..................... 140,000 5,779,200
Costco Wholesale Corp./(e)/................... 125,000 7,141,250
Kimberly-Clark Corp........................... 100,000 6,170,000
PepsiCo, Inc./(d)/............................ 110,000 6,604,400
Procter & Gamble Co........................... 115,000 6,394,000
------------
32,088,850
------------
ENERGY -- 6.04%
ConocoPhillips................................ 95,000 6,225,350
Halliburton Co................................ 80,000 5,936,800
Occidental Petroleum Corp..................... 65,000 6,665,750
Valero Energy Corp............................ 100,000 6,652,000
------------
25,479,900
------------
See notes to financial statements
7
Number of
Shares Value
--------- ------------
FINANCIALS -- 16.08%
Allstate Corp............................. 115,000 $ 6,293,950
Bank of America Corp./(d)/................ 130,000 6,253,000
Goldman Sachs Group, Inc.................. 45,000 6,769,350
Huntington Bancshares, Inc./(e)/.......... 250,000 5,895,000
JPMorgan Chase & Co....................... 150,000 6,300,000
Merrill Lynch & Co., Inc.................. 90,000 6,260,400
Morgan Stanley............................ 100,000 6,321,000
New York Community Bancorp, Inc./(e)/..... 340,000 5,613,400
PNC Financial Services Group, Inc......... 90,000 6,315,300
Wachovia Corp............................. 100,000 5,408,000
Wells Fargo & Co.......................... 95,000 6,372,600
------------
67,802,000
------------
HEALTH CARE -- 8.59%
Amgen, Inc./(b)/.......................... 85,000 5,544,550
Bristol-Myers Squibb Co................... 250,000 6,465,000
Gilead Sciences, Inc./(b)/................ 100,000 5,916,000
Merck & Co., Inc.......................... 175,000 6,375,250
Pfizer, Inc............................... 240,000 5,632,800
UnitedHealth Group, Inc................... 140,000 6,269,200
------------
36,202,800
------------
INDUSTRIALS -- 8.91%
AMR Corp./(b)(e)/......................... 250,000 6,355,000
Boeing Co. (The).......................... 70,000 5,733,700
Continental Airlines, Inc. Class B/(b)(e)/ 250,000 7,450,000
General Electric Co./(d)/................. 170,000 5,603,200
L-3 Communications Holdings, Inc./(d)(e)/. 80,000 6,033,600
Norfolk Southern Corp..................... 120,000 6,386,400
------------
37,561,900
------------
INFORMATION TECHNOLOGY -- 11.82%
Cisco Systems, Inc./(b)/.................. 315,000 6,151,950
EMC Corp./(b)/............................ 575,000 6,307,750
Hewlett-Packard Co........................ 190,000 6,019,200
International Business Machines Corp...... 70,000 5,377,400
Microsoft Corp............................ 290,000 6,757,000
Palm, Inc./(b)(e)/........................ 400,000 6,440,000
QUALCOMM, Inc............................. 160,000 6,411,200
VeriSign, Inc./(b)/....................... 275,000 6,371,750
------------
49,836,250
------------
See notes to financial statements
8
Number of
Shares Value
--------- ------------
MATERIALS -- 2.70%
Dow Chemical Co./(d)/............................ 135,000 $ 5,269,050
Freeport-McMoRan Copper & Gold, Inc. Class B
(Indonesia)/(e)/............................... 110,000 6,095,100
------------
11,364,150
------------
TELECOMMUNICATIONS SERVICES -- 2.97%
AT&T Corp........................................ 220,000 6,135,800
Verizon Communications, Inc...................... 190,000 6,363,100
------------
12,498,900
------------
Total Domestic Common Stocks (Identified Cost
$268,307,195)..................................... 311,340,450
------------
FOREIGN COMMON STOCKS/(c)/ 9.89%
CONSUMER DISCRETIONARY -- 2.49%
Honda Motor Co., Ltd. ADR (Japan)/(d)/........... 170,000 5,409,400
Sony Corp. ADR (Japan)........................... 115,000 5,064,600
------------
10,474,000
------------
ENERGY -- 1.60%
Nabors Industries Ltd. (United
States)/(b)(e)/........................... 200,000 6,758,000
------------
FINANCIALS -- 1.47%
Deutsche Bank AG (Germany).................. 55,000 6,187,500
------------
INFORMATION TECHNOLOGY -- 4.33%
Amdocs Ltd. (United States)/(b)/................. 170,000 6,222,000
Nokia Oyj ADR (Finland).......................... 315,000 6,381,900
Seagate Technology (Singapore)/(b)(e)/........... 250,000 5,660,000
------------
18,263,900
------------
Total Foreign Common Stocks (Identified Cost
$36,086,900)...................................... 41,683,400
------------
EXCHANGE TRADED FUNDS 2.40%
iShares MSCI Japan Index Fund.................... 145,000 1,977,800
NASDAQ-100 Shares/(e)/........................... 210,000 8,139,600
------------
Total Exchange Traded Funds (Identified Cost
$9,847,164)....................................... 10,117,400
------------
Total Long Term Investments -- 86.14% (Identified
Cost $314,241,259)................................ 363,141,250
------------
See notes to financial statements
9
Number of
Shares Value
---------- ------------
SHORT-TERM INVESTMENTS 27.26%
MONEY MARKET MUTUAL FUNDS -- 12.81%
State Street Navigator Prime Plus (5.06% seven
day effective yield)/(f) /(Identified Cost
$54,015,512).................................... 54,015,512 $ 54,015,512
------------
Par
(000's)
----------
FEDERAL AGENCY SECURITIES -- 12.96%
FNMA 4.375%, 10/15/06/(d)/........................ $25,000 24,927,725
FNMA 2.625%, 11/15/06............................. 30,000 29,695,410
------------
(Identified Cost $54,684,229)..................... $ 54,623,135
------------
COMMERCIAL PAPER -- 1.49%/(g)/
Nestle Capital Corp. 5.25%, 7/3/06................ 6,300 6,298,162
------------
Total Commercial Paper (Identified Cost $6,298,162)... 6,298,162
------------
Total Short-Term Investments (Identified cost
$114,997,903)....................................... 114,936,809
------------
Total Investments (Identified Cost $429,239,162) --
113.40%............................................. 478,078,059/(a)/
Securities Sold Short (Proceeds $8,806,733) -- (2.82)% (11,874,700)
Other Assets Less Liabilities -- (10.58)%............. (44,612,813)
------------
Net Assets -- 100.00%................................. $421,590,546
============
--------
(a) Federal Tax information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $64,336,292 and gross
depreciation of $15,497,395 for federal tax purposes. At June 30, 2006,
the aggregate cost of securities for federal income tax purposes was
$429,239,162.
(b) Non-income producing.
(c) A common stock is considered to be foreign if the security is issued in a
foreign country. The country of risk, noted parenthetically, 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 for
securities sold short.
(e) All or a portion of security is on loan.
(f) Represents security purchased with cash collateral for securities on loan.
(g) The rate shown is the discount rate.
See notes to financial statements
10
Number of
Shares Value
--------- -----------
SECURITIES SOLD SHORT
DOMESTIC COMMON STOCKS -- 1.45%
CONSUMER DISCRETIONARY -- 1.45%
American Eagle Outfitters, Inc............... 60,000 $ 2,042,400
Wendy's International, Inc................... 70,000 4,080,300
-----------
Total Domestic Common Stocks (Proceeds $3,876,858) 6,122,700
-----------
EXCHANGE TRADED FUNDS -- 1.37%
iShares Russell 2000 Index Fund (Proceeds
$4,929,875)................................ 80,000 5,752,000
-----------
Total Securities Sold Short (Proceeds $8,806,733) $11,874,700/(h)/
===========
--------
(h) Federal Tax information: Net unrealized depreciation of securities sold
short is comprised of gross appreciation of $0 and gross depreciation of
$3,067,967 for federal income tax purposes. At June 30, 2006, the
aggregate proceeds of securities sold short for federal income tax
purposes was ($8,806,733).
See notes to financial statements
11
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
ASSETS
Investments, at value, including $52,661,575 of securities on loan
(Identified cost $429,239,162)................................... $ 478,078,059
Cash............................................................... 14,239
Deposits with broker for securities sold short..................... 15,980,900
Dividends receivable............................................... 476,376
Interest receivable................................................ 329,305
Prepaid expenses................................................... 34,606
Director retainer.................................................. 20,546
Tax reclaims receivable............................................ 10,739
-------------
Total Assets................................................... 494,944,770
-------------
LIABILITIES
Securities sold short, at value (Proceeds ($8,806,733))............ 11,874,700
Investment securities purchased.................................... 6,944,759
Payable upon return of securities loaned........................... 54,015,512
Accrued advisory fees (Note 4)..................................... 290,436
Accrued administration fees (Note 4)............................... 22,210
Dividends on short sales........................................... 13,500
Other accrued expenses............................................. 193,107
-------------
Total Liabilities.............................................. 73,354,224
-------------
NET ASSETS $ 421,590,546
=============
NET ASSET VALUE PER SHARE
($421,590,546 / 73,233,013 shares outstanding)..................... $ 5.76
=============
Net Assets Consist of:
Capital paid-in.................................................... $ 538,738,326
Distributions in excess of net investment income................... (17,605,179)
Accumulated net realized loss on investments....................... (145,313,531)
Net unrealized appreciation on investments......................... 48,838,897
Net unrealized depreciation on securities sold short............... (3,067,967)
-------------
Net Assets $ 421,590,546
=============
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2006
(Unaudited)
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld of $100,260)............................. $ 3,111,838
Interest.......................................................................... 2,203,854
Security lending.................................................................. 24,690
-----------
Total Investment Income.................................................... 5,340,382
-----------
Expenses
Investment advisory fees.......................................................... 1,801,698
Administrative fees............................................................... 182,656
Transfer agent fees............................................................... 183,694
Printing and postage fees......................................................... 102,417
Professional fees................................................................. 81,372
Directors' fees and expenses...................................................... 60,499
Registration fees................................................................. 33,774
Custodian fees.................................................................... 15,408
Miscellaneous..................................................................... 92,950
-----------
Expenses prior to dividends on short sales..................................... 2,554,468
Dividends on short sales.......................................................... 90,524
-----------
Total Expenses............................................................. 2,644,992
Less custodian fees paid indirectly............................................... (1,231)
-----------
Net Expenses............................................................... 2,643,761
-----------
Net Investment Income................................................... 2,696,621
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments....................................................................... 18,427,581
Short sales....................................................................... (6,376,869)
Net change in unrealized appreciation (depreciation) on:
Investments....................................................................... 411,911
Short sales....................................................................... 1,730,304
-----------
Net realized and unrealized gain (loss).................................... 14,192,927
-----------
Net increase (decrease) in net assets resulting from operations............ $16,889,548
===========
See notes to financial statements
13
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
June 30, 2006 Year Ended
(Unaudited) December 31, 2005
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)................................... $ 2,696,621 $ 5,528,957
Net realized gain (loss)....................................... 12,050,712 18,405,081
Net change in unrealized appreciation (depreciation)........... 2,142,215 5,007,967
------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................ 16,889,548 28,942,005
------------ ------------
Dividends and distributions to shareholders from
Net investment income.......................................... (21,676,982)* (7,883,236)
Net realized short-term gains.................................. -- (20,803,017)
Tax return of capital.......................................... -- (14,521,247)
------------ ------------
Total dividends and distributions to shareholders........... (21,676,982) (43,207,500)
------------ ------------
Net increase (decrease) in net assets....................... (4,787,434) (14,265,495)
NET ASSETS
Beginning of period................................................ 426,377,980 440,643,475
------------ ------------
End of period (including distributions in excess of net
investment income and undistributed net investment
income of $(17,605,179) and $1,375,182 , respectively)........... $421,590,546 $426,377,980
============ ============
--------
*Please note that the tax status of distributions is determined at the end of
the taxable year. However, based on interim data as of June 30, 2006, we
estimate that 31% of the distributions represent return of capital and 57%
represent excess gain distributions which are taxable as ordinary income.
Also refer to Note 2D in the Notes to Financial Statements.
See notes to financial statements
14
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each year)
Six Months
Ended Year Ended December 31,
June 30, 2006 -----------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
------------- -------- -------- -------- -------- --------
Per Share Data
Net asset value, beginning of period................ $ 5.82 $ 6.02 $ 5.69 $ 5.46 $ 7.96 $ 10.32
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net investment income (loss)/(6)/................... 0.04 0.08 0.11 0.03 0.01 -- /(4)/
Net realized and unrealized gains (losses).......... 0.20 0.31/(5)/ 0.44 0.70 (1.76) (1.47)
-------- -------- -------- -------- -------- --------
Total from investment operations.................... 0.24 0.39 0.55 0.73 (1.75) (1.47)
-------- -------- -------- -------- -------- --------
Dividends and Distributions
Dividends from net investment income................ (0.30) (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................... (0.30) (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........................... (0.06) (0.20) 0.33 0.23 (2.50) (2.36)
-------- -------- -------- -------- -------- --------
Net asset value, end of period................... $ 5.76 $ 5.82 $ 6.02 $ 5.69 $ 5.46 $ 7.96
======== ======== ======== ======== ======== ========
Market value, end of period/(2)/................. $ 5.33 $ 5.25 $ 5.55 $ 4.90 $ 4.93 $ 7.90
======== ======== ======== ======== ======== ========
Total investment return/(3)/........................ 7.01%/(8)/ 5.78% 18.13% 9.53% (29.78)% (11.27)%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands)............ $421,591 $426,378 $440,643 $416,707 $400,163 $489,261
Ratio of expenses to average net assets
(excluding dividends on short sales)............... 1.20%/(7)/ 1.26% 1.33% 1.28% 1.20% 1.19%
Ratio of expenses to average net assets
(including dividends on short sales)............... 1.25%/(7)/ 1.33% 1.38% 1.33% 1.20% 1.19%
Ratio of net investment income to average net assets 1.27%/(7)/ 1.31% 1.87% 0.54% 0.14% (0.03)%
Portfolio turnover rate............................. 25.3%/(8)/ 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 periods. Conversely,
total investment return based on net asset value will be lower than total
investment return based on market value in periods where there is a decrease
in the discount or an increase in the premium of the market value to the net
asset value from the beginning to the end of such periods.
(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. See Note 4d "Payment by
affiliate" in the notes to financial statements.
(6)Computed using average shares outstanding.
(7)Annualized.
(8)Not annualized.
See notes to financial statements
15
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1 -- ORGANIZATION
The Zweig Fund, Inc. (the "Fund") is a closed-end, diversified management
investment company registered under the Investment Company Act of 1940 (the
"Act"). The Fund was incorporated under the laws of the State of Maryland on
June 30, 1986. The Fund's objective is to increase capital primarily with
investment in equity securities, consistent with capital preservation and
reduction of risk.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principals
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and contingent assets and liabilities at the date of the financial
statements and the reported amount of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
A. Security Valuation
Equity securities are valued at the official closing price (typically last
sale) on the exchange on which the securities are primarily traded, or if no
closing price is available, at the last bid price.
Debt securities are valued on the basis of broker quotations or valuations
provided by a pricing service, which utilizes information with respect to
recent sales, market transactions in comparable securities, quotations from
dealers, and various relationships between securities in determining value.
As required, some securities and other assets may be valued at fair value as
determined in good faith by or under the direction of the Directors.
Certain foreign common stocks may be fair valued in cases where closing
prices are not readily available or are deemed not reflective of readily
available market prices. For example, significant events (such as movement in
the U.S. securities market, or other regional and local developments) may occur
between the time that foreign markets close (where the security is principally
traded) and the time that the Fund calculates its net asset value (generally,
the close of the NYSE) that may impact the value of securities traded in these
foreign markets. In these cases, information from an external vendor may be
utilized to adjust closing market prices of certain foreign common stocks to
reflect their fair value. Because the frequency of significant events is not
predictable, fair valuation of certain foreign common stocks may occur on a
frequent basis.
Short-term investments having a remaining maturity of 60 days or less are
valued at amortized cost, which approximates market.
16
B. Security Transactions and Related Income
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date, or in the case of certain foreign securities,
as soon as the Fund is notified. Interest income is recorded on the accrual
basis. The Fund amortizes premiums and accretes discounts using the effective
interest method. Realized gains and losses are determined on the identified
cost basis.
C. Income Taxes
It is the policy of the Fund to comply with the requirements of the Internal
Revenue Code and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes or excise taxes
has been made.
The Fund may be subject to foreign taxes on income, gains on investments or
currency repatriation, a portion of which may be recoverable. The Fund will
accrue such taxes and recoveries as applicable based upon current
interpretations of the tax rules and regulations that exist in the markets in
which the Fund invests.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes."
This standard defines the threshold for recognizing the benefits of tax-return
positions in the financial statements as "more-likely-than-not" to be sustained
by the taxing authority and requires measurement of a tax position meeting the
more-likely-than-not criterion, based on the largest benefit that is more than
50 percent likely to be realized. FIN 48 is effective as of the beginning of
the first fiscal year beginning after December 15, 2006 (January 1, 2007 for
calendar-year companies), with early application permitted if no interim
financial statements have been issued. At adoption, companies must adjust their
financial statements to reflect only those tax positions that are more likely-
than-not to be sustained as of the adoption date. As of June 30, 2006, the Fund
has not completed its evaluation of the impact that will result from adopting
FIN 48.
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.
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. The Fund may not realize the benefit of these losses to the
extent it does not realize gains on investments prior to the expiration of the
capital loss carryovers. In addition, under certain conditions, the Fund may
lose the benefit of these losses to the extent that distributions to
shareholders exceed required distribution amounts as defined under the Internal
Revenue Code. Shareholders may also pay additional taxes on these excess
distributions.
E. Foreign Currency Translation
Foreign securities and other assets and liabilities are valued using the
foreign currency exchange rate effective at the end of the reporting period.
Cost of investments is translated at the currency exchange rate effective at
the trade date. The gain or loss resulting from a change in currency exchange
17
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.
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 obligation to replace the security
borrowed and sold short will be fully collateralized at all times by the
proceeds from the short sale retained by the broker and by cash and securities
deposited in a segregated account with the Fund's custodian. If the price of
the security sold short increases between the time of the short sale and the
time the Fund replaces the borrowed security, the Fund will realize a loss, and
if the price declines during the period, the Fund will realize a gain. Any
realized gain will be decreased, and any realized loss increased, by the amount
of transaction costs. On ex-dividend date, dividends on short sales are
recorded as an expense to the Fund. At June 30, 2006, the value of securities
sold short amounted to $11,874,700 against which collateral of $22,760,685 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.
18
I. Security Lending
The Fund may loan securities to qualified brokers through an agreement with
State Street Bank and Trust (the "Custodian"). Under the terms of the
agreement, the Fund receives collateral with a market value not less than 100%
of the market value of loaned securities. Collateral is adjusted daily in
connection with changes in the market value of securities on loan. Collateral
may consist of cash, securities issued or guaranteed by the U.S. Government or
its agencies and the sovereign debt of foreign countries. Cash collateral has
been invested in a short-term money market fund. Dividends earned on the
collateral and premiums paid by the borrower are recorded as income by the Fund
net of fees and rebates charged by the Custodian for its services in connection
with this securities lending program. Lending portfolio securities involves a
risk of delay in the recovery of the loaned securities or in the foreclosure on
collateral.
NOTE 3 -- PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding U.S. Government and agency
securities, short-term securities, and options) for the period ended June 30,
2006, were as follows:
Purchases...................... $ 89,214,496
Sales.......................... 106,760,848
Short sales.................... 5,782,622
Purchases to cover short sales. 19,688,437
There were no purchases and sales of long-term U.S. Government and agency
securities for the period ended June 30, 2006.
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. The
Adviser is a wholly-owned subsidiary of Phoenix Investment Partners, Ltd.
("PXP"). PXP is an indirect, wholly-owned subsidiary of The Phoenix Companies,
Inc. ("PNX"). The responsibility for making decisions to buy, sell or hold a
particular investment rests, with the Adviser, subject to review by the Board
of Directors and the applicable provisions of the Act. For the services
provided by the Adviser under the Agreement, the Fund pays the Adviser a
monthly fee equal, on an annual basis, to 0.85% of the Fund's average daily net
assets. During the period ended June 30, 2006, the Fund incurred advisory fees
of $1,801,698.
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. 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 0.065% of the Fund's average daily net
assets. During the period ended June 30, 2006, the Fund incurred Administration
fees of $182,656.
19
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 June 30, 2006, 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 six-months ended June 30, 2006 and
the year ended December 31, 2005, there were no shares issued pursuant to the
Plan.
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.
The Fund may invest a high percentage of its assets in specific sectors of
the market in its pursuit of a greater investment return. Fluctuations in these
sectors of concentration may have a greater impact on the Fund, positive or
negative, than if the Fund did not concentrate its investments in such sectors.
20
BOARD OF DIRECTOR'S CONSIDERATION AND RE-APPROVAL OF INVESTMENT ADVISORY
AGREEMENT AND SERVICING AGREEMENT FOR ZWEIG FUND, INC.
Pursuant to Section 15(c) of the Investment Company Act of 1940, as amended
(the "1940 Act"), the Board of Directors (the "Board") of The Zweig Fund, Inc.
(the "Fund"), including a majority of the Directors who have no direct or
indirect interest in the investment advisory agreement and are not "interested
persons" of the Fund, as defined in the 1940 Act (the "Independent Directors"),
are required to annually review and re-approve the terms of the Fund's existing
investment advisory agreement (the "Advisory Agreement") with Phoenix/Zweig
Advisers LLC (the "Adviser") and the servicing agreement (the "Servicing
Agreement") between the Adviser and Zweig Consulting LLC (the "Sub-Adviser")
(collectively, the "Agreements"). In this regard, the Board reviewed and
re-approved the Agreements, during the most recent six month period covered by
this report.
More specifically, at a meeting held on February 15, 2006, the Board,
including the Independent Directors, considered the factors and reached the
conclusions described below relating to the selection of the Adviser and the
Sub-Adviser and the re-approval of the Agreements.
1. Nature, Extent and Quality of Services. The Board considered the nature,
extent and quality of the services performed by the Adviser and the
Sub-Adviser, including portfolio management, supervision of Fund operations and
compliance and regulatory filings and disclosures to shareholders, general
oversight of other service providers, review of Fund legal issues, assisting
the Directors in that capacity and other services. The Independent Directors
concluded that the services are extensive in nature and that the Adviser and
the Sub-Adviser delivered an acceptable level of service.
2. Investment Performance of the Funds and Adviser. The Board considered the
investment performance for the Fund over various periods of time as compared to
the performance of the Fund's Lipper, Inc. peer group universe, and concluded
that the Adviser was delivering acceptable performance results consistent with
the long-term investment strategies being pursued by the Fund, and that the
performance had continued to improve in 2005. The Board had been informed that
the Adviser and its affiliates did not manage any funds comparable to the Fund
against which the Fund's performance could be compared.
3. Costs of Services and Profits Realized by the Adviser and the Sub-Adviser.
(a) Costs of Services to Fund: Fees and Expenses. The Board considered the
Fund's management fee rate and expense ratio relative to the Fund's peer group.
The Board noted that the investment advisory fee paid by the Fund, exclusive of
the administrative fee, is generally in the mid-range of its peer group, and
concluded that the fee is acceptable based upon the qualifications, experience,
reputation, and performance of the Adviser and the Sub-Adviser. The Board also
concluded that the expense ratio of the Fund is at an appropriate level, and
both competitive and comparable to its peers.
(b) Profitability and Costs of Services to Adviser and Sub-Adviser. The Board
considered the Adviser's and Sub-Adviser's overall profitability and costs. The
Board also considered whether the amount of profit is a fair entrepreneurial
profit, and noted that the Adviser has increased its resources devoted to Fund
matters in response to recently-enacted regulatory requirements and new or
enhanced Fund policies and procedures. The Board concluded that the Adviser's
and the Sub-Adviser's profitability was at an acceptable level in light of the
quality of the services being provided to the Fund.
21
4. Extent of Economies of Scale as Fund Grows. The Board considered whether
there have been economies of scale with respect to the management of the Fund
and whether the Fund has appropriately benefited from any economies of scale.
The Board noted that economies of scale may develop for certain funds as their
assets increase and their fund-level expenses decline as a percentage of
assets, but that closed-end funds such as the Fund typically do not have the
ability to substantially increase their asset base as do mutual funds. The
Board concluded that the Fund has appropriately benefited from any economies of
scale.
5. Whether Fee Levels Reflect Economies of Scale. The Board also considered
whether the management fee rate is reasonable in relation to the asset size of
the Fund and any economies of scale that may exist, and concluded that, given
the Fund's closed-end structure, it was. At the same time, the Directors agreed
that it would be appropriate to monitor this issue in the event that the assets
of the Fund were to increase substantially via a rights offering or some other
means.
6. Other Relevant Considerations.
(a) Adviser Personnel and Methods. The Board considered the size, education and
experience of the Adviser's and Sub-Adviser's staff, their fundamental research
capabilities and approach to recruiting, training and retaining portfolio
managers and other research and management personnel, and concluded that in
each of these areas they were structured in such a way as to support the level
of services being provided to the Fund.
(b) Other Benefits to the Adviser or Sub-Adviser. The Board also considered the
character and amount of other incidental benefits received by the Adviser and
the Sub-Adviser and their respective affiliates from their association with the
Fund. The Board concluded that potential "fall-out" benefits that they may
receive, such as greater name recognition or increased ability to obtain
research or brokerage services, appear to be reasonable, and may in some cases
benefit the Fund.
Conclusions
In considering the Agreements, the Board did not identify any factor as
all-important or all-controlling and instead considered these factors
collectively in light of the Fund's surrounding circumstances. Based on this
review, it was the judgment of the Board that shareholders had received
acceptable absolute and relative performance at reasonable fees and, therefore,
re-approval of the Investment Advisory Agreement with the Adviser and the
Servicing Agreement with the Sub-Adviser were in the best interests of the Fund
and its shareholders. As a part of its decision-making process, the Board noted
its belief that a long-term relationship with capable, conscientious advisers
is in the best interests of the Fund. The Board considered, generally, that
shareholders invested in the Fund knowing that the Adviser managed the Fund and
knowing its investment management fee schedule. As such, the Board considered,
in particular, whether the Adviser, with the assistance of the Sub-Adviser,
managed the Fund in accordance with its investment objectives and policies as
disclosed to shareholders, and concluded that the Fund was so managed.
Upon conclusion of their review and discussion, the Independent Directors,
voting separately, and the full Board unanimously approved the continuation of
the Investment Advisory Agreement and the Service Agreement.
22
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
9, 2006. The meeting was held for the purposes 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
--------- ---------- ------------- -------------- -----------
Charles H. Brunie... 78,680,273 N/A 1,584,706 N/A
James B. Rogers, Jr. 78,729,890 N/A 1,535,089 N/A
Based on the foregoing, Charles H. Brunie and James B. Rogers, Jr. were
elected as Directors. The Fund's other Directors who continue in office are
Daniel T. Geraci, Wendy Luscombe, Alden C. Olson, Ph.D. and R. Keith Walton.
23
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.
24
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 10022-4728
Fund Administrator
Phoenix Equity Planning Corporation
One American Row
Hartford, CT 06103-2899
Custodian
State Street Bank and Trust Company
P.O. Box 5501
Boston, MA 02206-5501
Legal Counsel
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, NY 10022-2585
Transfer Agent
Computershare Trust Company, NA
P.O. Box 43010
Providence, RI 02940-3010
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This report is transmitted to the shareholders of The Zweig Fund, Inc. for
their information. This is not a prospectus, circular or representation
intended for use in the purchase of shares of the Fund or any securities
mentioned in this report.
PXP 4132 Q2-06
Semi Annual Report
Zweig
The Zweig Fund, Inc.
June 30, 2006
[GRAPHIC]
PHOENIX
INVESTMENT PARTNERS, LTD.
A member of The Phoenix Companies, Inc.
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed registrants.
Not applicable.
Item 6. Schedule of Investments.
Schedule of Investments in securities of unaffiliated issuers as of the close
of the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
There has been no change, as of the date of this filing, in any of the
portfolio managers identified in response to paragraph (a)(1) of this Item in
the registrant's most recently filed annual report on Form N-CSR. In addition,
there are no newly identified portfolio managers as of the date of this filing.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
The Fund did not have repurchased shares during the period covered by this
report.
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 trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.
Item 11. Controls and Procedures.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act
(17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act
and Section 302 of the Sarbanes-Oxley Act of 2002 are attached
hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act
and Section 906 of the Sarbanes-Oxley Act of 2002 are attached
hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) The Zweig Fund, Inc.
By (Signature and Title)* /s/ Daniel T. Geraci
-------------------------------------------------
Daniel T. Geraci, President and Chief Executive
Officer
(principal executive officer)
Date September 5, 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 September 5, 2006
By (Signature and Title)*
/s/ Nancy G. Curtiss
-------------------------------------------------
Nancy G. Curtiss, Treasurer
(principal financial officer)
Date September 5, 2006
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* Print the name and title of each signing officer under his or her signature.