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
(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 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, 2007
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.
February 1, 2008
Dear Fellow ZF Shareholder:
The Zweig Fund's net asset value increased 0.33% for the quarter ended
December 31, 2007, including $0.140 in reinvested distributions. During the
same period, the S&P 500 Index fell 3.33%, including reinvested dividends. The
Fund's average equity exposure for the quarter was approximately 84%. As
previously announced, the Fund's distribution for the fourth quarter was
$0.142, payable January 10, 2008 to shareholders of record on December 31, 2007.
For the year ended December 31, 2007 the Fund's net asset value rose 8.75%,
including $0.588 in reinvested distributions. Year-to-date taxable
distributions represent 8.0% from net investment income, 67.1% from ordinary
gains, and 24.9% from return of capital. During the same period, the S&P 500
Index gained 5.49%, including reinvested dividends. The Fund's average equity
exposure for the year was approximately 88%.
Sincerely,
/s/ George R. Aylward
George R. Aylward
President, Chairman and Chief Executive Officer
The Zweig Total Return Fund, Inc.
MARKET OVERVIEW AND OUTLOOK
Featuring wild swings in stock prices, the fourth quarter of 2007 was one
for the financial history books. On November 16, 2007, the Dow Jones Industrial
Average plummeted 237.44 points, taking it 10% below its October 9, 2007,
record high close of 14,164.53, a traditional definition of a correction. It
was a very short correction. Three days later, on November 28, the Dow soared
331.01 points, its biggest percentage gain in more than four years. That day
also marked the fifth straight day of 100-point- plus moves, up or down, for
the Dow.
Earlier, three days of losses culminating on November 9 together represented
the worst percentage decline in five years. After this whipsaw quarter, all the
major indexes lost ground for the final three months of the year. The Dow was
off 4.5%/1/, the S&P 500 Index was down 3.8%/1/ and the NASDAQ Composite Index
fell 3.0%/1/. However, when the roller-coaster finally came to a halt on
December 31, the Dow closed 6.4%/1/ higher for the year. The S&P 500 gained
3.5%/1/ and the NASDAQ climbed 9.8%/1/, its best annual showing since 2003.
For the fifth consecutive year, the world stock markets outperformed the
U.S. Excluding the U.S., the Dow Jones World Stock Index rose nearly 12%/1/ in
2007, with the gains mostly in the emerging and developing nations. China
soared 97% and Brazil, India, Indonesia and Turkey all scored over 40%. In
England, the FTSE increased only 3.8%/1/ while Japan's NIKKEI dropped 11%/1/.
Most of the domestic market troubles centered around the widening housing
slump and the slipover of its problematic subprime
Managed Distribution Plan: The Fund has a policy to distribute 10% of its net
asset value annually. Please see the inside back cover for more details.
mortgage-backed securities into the broader financial markets, creating a
credit crunch. That one-two punch had a huge impact. Its repercussions spread
to the credit card companies, retailers, and other sectors of the economy. It
hit earnings hard and caused stocks to tumble.
The housing situation remains a mess. Marking the eighth consecutive monthly
decline, construction of new homes dropped 3.7% in November, to a seasonally
adjusted annual rate of 1.19 million units the lowest since 1991, according to
the Commerce Department. Indicating a further decline, new building permits
fell 1.5% in November, down 25% from a year earlier.
Because foreclosures are spreading in the housing market, large financial
institutions have taken multi-billion dollar writedowns on their portfolios of
subprime mortgages and their various derivatives. To balance their books,
financial companies have cut back on their lending practices and received huge
cash transfusions from foreign sources. The tightness in the credit markets is
damaging the overall economy.
At this writing, it is hard to see any light in the housing and credit
tunnels.
With the economy wielding down and inflation heating up, the Fed is between
a rock and a hard place. If it continues to cut rates, it will only help the
banks and the economy at the margin in the short term. If it cuts too much, it
can weaken the dollar and exacerbate inflation.
Citing the "deterioration in financial world markets," the Fed cut its
benchmark short-term interest rate in December by 25 basis points to 4.25%.
Since the credit crunch erupted in August, the Fed has reduced the federal
funds rate by a full percentage point. Explaining its action, the Fed pointed
to "the intensification of the housing correction and some softening in
business and consumer spending." The Fed also noted that "elevated energy and
commodity prices among other factors may put upward pressure on inflation."
Stating that it would continue to monitor inflation developments carefully, the
Fed promised that it "will act as needed to foster price stability and
sustainable economic growth."
Reflecting the weaker economy, the Institute for Supply Management reported
that its index of manufacturing activity fell to 47.7 in December from 50.8 in
November, its lowest reading since April 2003. A score below 50 indicates
industrial contraction. Stoking the fear of inflation, consumer prices rose
0.8% in November, the biggest monthly gain in two years and 4.3% above a year
ago. Producer prices jumped 3.2% in November, bringing the increase for the
past 12 months to 7.7%. These parallel moves have given investors concern about
stagflation, characterized by a slowing economy and rising inflation, bringing
worries about a possible recession.
A bright spot in the economy is the rise in U.S. exports. Helped by the weak
dollar, exports in October rose for the eighth consecutive month to a record
$141.7 billion, the Commerce Department reported. From August through October,
U.S. exports spurted 9.6% while imports inched up only 1.1%. Meanwhile, the
dollar ended the year 9.6% lower against the euro and 6.4% below the Japanese
yen, according to the Fed. Calculated against a group of 20 currencies, the
dollar lost 7.5% for the year.
There are negatives as well as positive factors in the climbing exports. On
the positive side, the export rise is keeping a lot of people at work in this
country. At the same time, the soft dollar is responsible for raising prices of
imported goods, fueling inflation. Overall, the increased exports are a plus
for the economy but we don't believe it's healthy for the dollar to continue to
decline.
2
When credit markets tightened, mergers and acquisitions world-wide declined.
Deals came to 10,027 in the fourth quarter against 11,082 in the third period,
according to Thomson Financial. Despite the sharp fall-off from August through
December, transactions in 2007 increased to $4.5 trillion, a jump of 24% from
2006. Total European volume of $1.8 trillion topped the U.S. for the first time
and beat the record of $1.7 trillion set by the U.S. in 2000. Last year the M&A
volume in the U.S. came to $1.6 trillion.
We don't expect a quick pickup in mergers and acquisitions. While we will
see some corporate takeovers of companies whose stock seems cheap, there will
be far fewer leveraged buyouts because of the difficulty in obtaining debt
financing. The credit crunch would have to ease a great deal before M&A
activity flourishes again.
With the emerging markets taking the lead, initial public offerings
worldwide were slightly more active in the second half of 2007, accounting for
54% of the year's offerings, according to Dealogic. Last year saw 1,317 deals
that raised $291.3 billion against 1,097 deals raising $241.6 billion in 2006.
While we have been getting IPO's, it will become harder to underwrite them if
the market declines. Nobody wants to buy IPO's in a really weak market.
Reflecting the blowouts in the housing and financial markets, earnings of
companies in the S&P 500 Index presented a mixed picture. Operating earnings
for the entire index in the fourth quarter are expected to fall 7.7% from the
2006 period, according to S&P. Excluding the financial sector, earnings of
companies in the index are expected to rise 11.6%. Following are the strongest
areas and their estimated gains: telecommunications 33%, healthcare 24%, and
information technology 23%.
As far as dividends are concerned, S&P reported that companies in its
500-Index paid a total of $246.6 billion last year, up 11.5% from 2006. The
per-share average reached a record $27.73 in 2007 and S&P forecast a further
increase of 9.3% in 2008. Eleven companies initiated a dividend payment in
2007, bringing the dividend paying total to 389 companies, a seven -- year
high. Our guess is that dividend increases will slow down simply because
earnings will not be there to support them.
At the year-end, companies in the S&P 500 were trading at 19.0 times
earnings, according to Barron's. This compares with 17.9 times earnings on
September 30, 2007, and 18.2 times earnings on December 31, 2006. When the bull
market began in October 2002, the P/E ratio was 27. Since World War II, the
average P/E ratio is 16.1. P/E ratios are higher because company earnings fell
more than the prices of their shares. While the year-end valuations may not be
expensive, we don't see many bargains out there at these levels.
Surprisingly, with all the market turmoil and talk of a possible recession,
advisors' sentiment remains bullish by a wide margin. As of December 31, 2007,
the Investor Intelligence survey of market advisors found 55% bullish and only
23% bearish. This compares with a reading of 56% bulls and 27% bears at the end
of the third quarter and 56% bulls and 20% bears at the close of 2006.
This excessive optimism by advisors certainly was not helpful for the
market. More realistic views were expressed by members of the American
Association of Individual Investors, who at the year-end stood at 25.7%, bulls
55.2% bears and 19.7% neutral. Since these readings, pessimism has definitely
gone up.
3
At the year-end, our indicators were pretty decent and we were about 80%
invested. While we didn't want to fight our indicators, we also did not want to
be overly invested because there is a lot of risk in the market. This is an
unusual situation. It is not like a normal intermediate correction, or a normal
recession, or a normal bear market. We have had a bubble that burst, something
that doesn't happen very often. Once you have a busted bubble, it is very hard
to put the pieces together again. Consequently, at this writing, we are
watching the economy and pertinent developments very carefully and are cautious
about the outlook.
Sincerely,
/s/Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
President
Zweig Consulting LLC
PORTFOLIO COMPOSITION
The Zweig Fund's leading stock market sectors on December 31, 2007 included
information technology, energy, industrials, consumer staples and health care.
New to this listing are consumer staples and health care, which replaced
financials and materials.
As of December 31, 2007, our leading individual equity positions included
Altria Group, ConocoPillips, Foster Wheeler, Freeport-McMoRan, Massey Energy,
Nucor, Occidental Petroleum, PepsiCo, UnitedHealth Group and Valero Energy.
Although there were no changes in shares held, the following are new to this
listing: Altia Group, ConocoPhillips, PepsiCo, UnitedHealth Group and Valero
Energy. Also new are Masey Energy and Occidental Petroleum, where we trimmed
our positions.
No longer in our top listing are the following, where we reduced our
holdings: Alcoa, Bunge Ltd., Nokia, and QUALCOMM. Also out are PowerShares QQQ,
which we eliminated; EMC, where there was no change in shares held, and Cisco
Systems, where we added to our position.
Sincerely,
[SIGNATURE]
/s/ Carlton Neel
Carlton Neel
Executive Vice President
Phoenix/Zweig Advisers LLC
/1/ Return excludes reinvested dividends
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 5.
4
Glossary
American Depositary Receipt (ADR): Represents shares of foreign companies
traded in U.S. dollars on U.S. exchanges that are held by a bank or a trust.
Foreign companies use ADRs in order to make it easier for Americans to buy
their shares.
Dow Jones Industrial Average/SM/: A price-weighted average of 30 blue chip
stocks. The index is calculated on a total return basis with dividends
reinvested.
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.
Initial public offering (IPO): A company's first sale of stock to the public.
Investors Intelligence Survey: A weekly survey published by Chartcraft, an
investment services company, of the current sentiment of approximately 150
market newsletter writers. Participants are classified into three categories:
bullish, bearish or waiting for a correction.
NASDAQ Composite/(R)/ Index: A market capitalization-weighted index of all
issues listed in the NASDAQ (National Association Of Securities Dealers
Automated Quotation System) Stock Market, except for closed-end funds,
convertible debentures, exchange traded funds, preferred stocks, rights,
warrants, units and other derivative securities. The index is calculated on a
total return basis with dividends reinvested.
S&P 500/(R)/ Index: A 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.
5
THE ZWEIG FUND, INC.
LOGO
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT
December 31, 2007
Number of
Shares Value
--------- -----------
INVESTMENTS
DOMESTIC COMMON STOCKS 77.28%
CONSUMER DISCRETIONARY -- 3.50%
McDonald's Corp............................... 150,000 $ 8,836,500
NIKE, Inc. Class B............................ 145,000 9,314,800
-----------
18,151,300
-----------
CONSUMER STAPLES -- 7.48%
Altria Group, Inc............................. 135,000 10,203,300
Bunge Ltd..................................... 80,000 9,312,800
Costco Wholesale Corp......................... 135,000 9,417,600
PepsiCo, Inc.................................. 130,000 9,867,000
-----------
38,800,700
-----------
ENERGY -- 12.71%
Chesapeake Energy Corp........................ 220,000 8,624,000
ConocoPhillips................................ 110,000 9,713,000
Halliburton Co................................ 245,000 9,287,950
Massey Energy Co.............................. 280,000 10,010,000
Occidental Petroleum Corp..................... 125,000 9,623,750
St. Mary Land & Exploration Co................ 240,000 9,266,400
Valero Energy Corp............................ 135,000 9,454,050
-----------
65,979,150
-----------
See notes to financial statements
6
Number of
Shares Value
--------- -----------
FINANCIALS -- 6.86%
Allstate Corp. (The)...................... 165,000 $ 8,617,950
American International Group, Inc......... 140,000 8,162,000
Citigroup, Inc............................ 200,000 5,888,000
Goldman Sachs Group, Inc. (The)........... 20,000 4,301,000
Reinsurance Group of America, Inc......... 165,000 8,659,200
-----------
35,628,150
-----------
HEALTH CARE -- 7.09%
Bristol-Myers Squibb Co................... 315,000 8,353,800
Gilead Sciences, Inc./(b)/................ 195,000 8,971,950
Merck & Co., Inc.......................... 155,000 9,007,050
UnitedHealth Group, Inc................... 180,000 10,476,000
-----------
36,808,800
-----------
INDUSTRIALS -- 12.97%
3M Co..................................... 25,000 2,108,000
AMR Corp./(b)/............................ 380,000 5,331,400
Boeing Co. (The).......................... 100,000 8,746,000
Caterpillar, Inc.......................... 120,000 8,707,200
Continental Airlines, Inc. Class B/(b)(d)/ 325,000 7,231,250
Foster Wheeler Ltd./(b)/.................. 62,000 9,611,240
General Electric Co....................... 225,000 8,340,750
L-3 Communications Holdings, Inc.......... 80,000 8,475,200
Union Pacific Corp........................ 70,000 8,793,400
-----------
67,344,440
-----------
INFORMATION TECHNOLOGY -- 16.82%
Ciena Corp./(b)(d)/....................... 255,000 8,698,050
Cisco Systems, Inc./(b)/.................. 330,000 8,933,100
Corning, Inc.............................. 380,000 9,116,200
Dell, Inc./(b)/........................... 335,000 8,210,850
EMC Corp./(b)/............................ 475,000 8,801,750
Hewlett-Packard Co........................ 180,000 9,086,400
International Business Machines Corp...... 85,000 9,188,500
Microsoft Corp............................ 250,000 8,900,000
National Semiconductor Corp............... 350,000 7,924,000
QUALCOMM, Inc............................. 215,000 8,460,250
-----------
87,319,100
-----------
See notes to financial statements
7
Number of
Shares Value
--------- ------------
MATERIALS -- 6.32%
Alcoa, Inc..................................... 240,000 $ 8,772,000
Dow Chemical Co. (The)......................... 100,000 3,942,000
Freeport-McMoRan Copper & Gold, Inc. (Indonesia) 95,000 9,731,800
NuCor Corp..................................... 175,000 10,363,500
------------
32,809,300
------------
TELECOMMUNICATION SERVICES -- 3.53%
AT&T, Inc./(e)/................................ 220,000 9,143,200
Verizon Communications, Inc./(e)/.............. 210,000 9,174,900
------------
18,318,100
------------
Total Domestic Common Stocks (Identified Cost
$328,207,446)................................... 401,159,040
------------
FOREIGN COMMON STOCKS/(c)/ 3.16%
ENERGY -- 1.53%
Nabors Industries Ltd. (United States)/(b)(d)/. 290,000 7,943,100
------------
7,943,100
------------
INFORMATION TECHNOLOGY -- 1.63%
Nokia Oyj Sponsored ADR (Finland).............. 220,000 8,445,800
------------
8,445,800
------------
Total Foreign Common Stocks (Identified Cost
$13,300,167).................................... 16,388,900
------------
EXCHANGE TRADED FUNDS 0.57%
PowerShares Deutsche Bank Agriculture Fund/(b)/ 90,000 2,969,100
------------
Total Exchange Traded Funds (Identified Cost
$2,901,102)..................................... 2,969,100
------------
Par
(000's)
---------
U.S. GOVERNMENT SECURITIES 5.03%
U.S. Treasury Note 4.625%, 2/15/17/(e)/........ $ 25,000 26,136,725
------------
Total U.S. Government Securities (Identified Cost
$25,103,355).................................... 26,136,725
------------
Total Long Term Investments -- 86.04% (Identified
Cost $369,512,070).............................. 446,653,765
------------
See notes to financial statements
8
Par
(000's) Value
--------- ------------
SHORT-TERM INVESTMENTS 14.06%
COMMERCIAL PAPER/(g)/ -- 13.90%
Dover Corp. 3.85%, 1/2/08....................... $ 2,100 $ 2,099,775
Northern Illinois Gas Co. 4%, 1/2/08............ 20,000 19,997,778
Unilever Capital Corp. 4.23%, 1/11/08........... 25,000 24,970,625
Nestle Capital Corp. 4.15%, 1/25/08............. 3,100 3,091,423
Sysco Corp. 4.23%, 1/28/08...................... 22,100 22,029,888
------------
Total Commercial Paper (Identified Cost $72,189,489) 72,189,489
------------
Number of
Shares
---------
MONEY MARKET MUTUAL FUNDS -- 0.16%
State Street Navigator Prime Plus (4.88%
seven-day effective yield)/(f)/............... 805,148 805,148
------------
Total Short-Term Investments (Identified Cost
$72,994,637)..................................... 72,994,637
------------
Total Investments (Identified Cost $442,506,707) --
100.1%........................................... 519,648,402/(a)/
Securities Sold Short (Proceeds $6,744,124) -- (0.81)% (4,216,100)
Other assets and liabilities, net -- 0.71%......... 3,672,054
------------
Net Assets -- 100.00%.............................. $519,104,356
============
--------
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $86,052,729 and gross
depreciation of $10,066,983 for federal income tax purposes. At December
31, 2007, the aggregate cost of securities for federal income tax purposes
was $443,662,656.
(b) Non-income producing.
(c) A security 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 described in Note 2F "Foreign security country
determination" in the Notes to Financial Statements.
(d) All or a portion of security is on loan.
(e) Position, or a portion thereof, has been segregated as collateral for
securities sold short.
(f) Represents security purchased with cash collateral received for securities
on loan.
(g) The rate shown is the discount rate.
See notes to financial statements
9
Number of
Shares Value
--------- ----------
DOMESTIC COMMON STOCKS SOLD SHORT 0.81%
CONSUMER DISCRETIONARY -- 0.53%
Starbucks Corp................................... 135,000 $2,763,450
----------
INDUSTRIALS -- 0.28%
YRC Worldwide, Inc............................... 85,000 1,452,650
----------
Total Domestic Common Stocks Sold Short (Proceeds
$6,744,124)....................................... $4,216,100/(h)/
----------
--------
(h) Federal Tax Information: Net unrealized appreciation of securities sold
short is comprised of gross appreciation of $2,528,024 and gross
depreciation of $0 for federal income tax purposes. At December 31, 2007,
the aggregate proceeds of securities sold short for federal income tax
purposes was $6,744,124.
See notes to financial statements
10
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2007
ASSETS
Investment securities at value, including $1,187,247 of securities on loan
(Identified cost $442,506,707 ).......................................... $ 519,648,402
Cash....................................................................... 33,008
Deposits with broker for securities sold short............................. 4,178,600
Receivables
Dividends and interest................................................. 1,077,497
Prepaid expenses........................................................... 50,929
-------------
Total Assets........................................................... 524,988,436
-------------
LIABILITIES
Payables
Securities sold short at value, (Proceeds $6,744,124 )..................... 4,216,100
Upon return of securities loaned........................................... 805,148
Investment advisory fee.................................................... 378,667
Rights offering expenses................................................... 192,991
Transfer agent fee......................................................... 88,609
Printing fee............................................................... 77,603
Professional fee........................................................... 55,374
Administration fee......................................................... 28,957
Directors' fees and expenses............................................... 27,000
Custodian fee.............................................................. 7,989
Other accrued expenses..................................................... 5,642
-------------
Total Liabilities...................................................... 5,884,080
-------------
NET ASSETS $ 519,104,356
=============
NET ASSET VALUE PER SHARE
($519,104,356 / 91,955,558)................................................ $ 5.65
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest........................... $ 549,427,310
Undistributed net investment income........................................ 1,038,978
Accumulated net realized loss.............................................. (111,031,651)
Net unrealized appreciation on investments................................. 77,141,695
Net unrealized appreciation on short sales................................. 2,528,024
-------------
Net Assets $ 519,104,356
=============
See notes to financial statements
11
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 2007
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld of $109,753)..................... $ 6,328,262
Interest.................................................................. 2,622,765
Security lending.......................................................... 78,155
-----------
Total Investment Income............................................ 9,029,182
-----------
Expenses
Investment advisory fees.................................................. 3,927,515
Transfer agent fees....................................................... 267,835
Administration fees....................................................... 300,339
Directors' fees and expenses.............................................. 151,932
Registration fees......................................................... 119,628
Printing and postage fees................................................. 115,579
Professional fees......................................................... 112,019
Custodian fees............................................................ 40,374
Miscellaneous............................................................. 209,458
-----------
Total Expenses..................................................... 5,244,679
Less custodian fees paid indirectly.................................... (13,309)
-----------
Net Expenses....................................................... 5,231,370
-----------
Net Investment Income........................................... 3,797,812
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments............................................................... 30,782,067
Short Sales............................................................... 1,154,441
Net change in unrealized appreciation (depreciation) on:
Investments............................................................... (1,701,083)
Short Sales............................................................... 2,528,024
-----------
Net realized and unrealized gain (loss)................................ 32,763,449
-----------
Net increase (decrease) in net assets resulting from operations........ $36,561,261
===========
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, 2007 December 31, 2006
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss).................................... $ 3,797,812 $ 5,104,305
Net realized gain (loss)........................................ 31,936,508 14,396,083
Net change in unrealized appreciation (depreciation)............ 826,941 35,214,063
------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................. 36,561,261 54,714,451
------------ ------------
Dividends and distributions to shareholders from
Net investment income........................................... (4,074,106) (5,164,215)
Net realized short-term gains................................... (27,002,933) (15,285,877)
Tax return of capital........................................... (14,653,646) (22,098,318)
------------ ------------
Total dividends and distributions to shareholders............ (45,730,685) (42,548,410)
------------ ------------
Capital Share transaction
Net asset value of shares issued to shareholders in
reinvestment of distributions resulting in issuance of
common stock.................................................. 1,870,759 --
Net proceeds from the sales of shares during rights
offering (net of expenses of $645,000)........................ 87,859,000 --
------------ ------------
Net increase in net assets derived from capital share
transactions............................................... 89,729,759 --
------------ ------------
Net increase (decrease ) in net assets....................... 80,560,335 12,166,041
NET ASSETS
Beginning of period................................................. 438,544,021 426,377,980
------------ ------------
End of period (including undistributed net investment
income of $1,038,978 and $1,315,272 respectively)................. $519,104,356 $438,544,021
============ ============
See notes to financial statements
13
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each year)
Year Ended December 31,
-------------------------------------------------
2007 2006 2005 2004
-------- -------- -------- --------
Per Share Data
Net asset value, beginning of period................................... $ 5.99 $ 5.82 $ 6.02 $ 5.69
-------- -------- -------- --------
Income From Investment Operations
Net investment income (loss)/(6)/...................................... 0.05 0.07 0.08 0.11
Net realized and unrealized gains (losses)............................. 0.39 0.68 0.31/(5)/ 0.44
-------- -------- -------- --------
Total from investment operations....................................... 0.44 0.75 0.39 0.55
-------- -------- -------- --------
Dividends and Distributions
Dividends from net investment income................................... (0.05) (0.07) (0.11) (0.06)
Distributions from net realized gains.................................. (0.34) (0.21) (0.28) (0.16)
Tax return of capital.................................................. (0.20) (0.30) (0.20) --
-------- -------- -------- --------
Total dividends and distributions...................................... (0.59) (0.58) (0.59) (0.22)
-------- -------- -------- --------
Dilutive effect on net asset values as a result of capital contribution -- -- -- /(4)/ --
Dilutive effect on net asset values as a result of rights offering/(1)/ (0.19) -- -- --
-------- -------- -------- --------
Change in net asset value.............................................. (0.34) 0.17 (0.20) 0.33
-------- -------- -------- --------
Net asset value, end of period...................................... $ 5.65 $ 5.99 $ 5.82 $ 6.02
======== ======== ======== ========
Market value, end of period/(2)/.................................... $ 5.05 $ 5.90 $ 5.25 $ 5.55
======== ======== ======== ========
Total investment return/(3)/........................................... (5.12)%/(7)/ 24.87% 5.78% 18.13%
======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands)............................... $519,104 $438,544 $426,378 $440,643
Ratio of expenses to average net assets
(excluding dividends on short sales).................................. 1.13% 1.18% 1.26% 1.33%
Ratio of expenses to average net assets
(including dividends on short sales).................................. 1.13% 1.21% 1.33% 1.38%
Ratio of net investment income to average net assets................... 0.82% 1.20% 1.31% 1.87%
Portfolio turnover rate................................................ 57.8% 38.9% 44.6% 89.2%
---------
2003
--------
Per Share Data
Net asset value, beginning of period................................... $ 5.46
--------
Income From Investment Operations
Net investment income (loss)/(6)/...................................... 0.03
Net realized and unrealized gains (losses)............................. 0.70
--------
Total from investment operations....................................... 0.73
--------
Dividends and Distributions
Dividends from net investment income................................... (0.03)
Distributions from net realized gains.................................. --
Tax return of capital.................................................. (0.47)
--------
Total dividends and distributions...................................... (0.50)
--------
Dilutive effect on net asset values as a result of capital contribution --
Dilutive effect on net asset values as a result of rights offering/(1)/ --
--------
Change in net asset value.............................................. 0.23
--------
Net asset value, end of period...................................... $ 5.69
========
Market value, end of period/(2)/.................................... $ 4.90
========
Total investment return/(3)/........................................... 9.53%
========
Ratios/Supplemental Data:
Net assets, end of period (in thousands)............................... $416,707
Ratio of expenses to average net assets
(excluding dividends on short sales).................................. 1.28%
Ratio of expenses to average net assets
(including dividends on short sales).................................. 1.33%
Ratio of net investment income to average net assets................... 0.54%
Portfolio turnover rate................................................ 74.8%
--------
(1)Shares were sold at a 5% discount from a 5-day average market price from
8/29/07 to 9/5/07.
(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.
(7)Total investment return includes the dilutive effect of the rights offering.
Without this effect, the total investment return would have been (3.83)%.
See notes to financial statements
14
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
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 capital appreciation primarily through
investment in equity securities, consistent with the preservation of capital
and reduction of risk.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principals
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of increases and decreases 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.
15
In September 2006, Statement of Financial Accounting Standards No. 157,
"Fair Value Measurements" ("SFAS 157"), was issued and is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Fund's financial statement disclosures.
The Fund will be adopting SFAS 157 effective with the 3/31/08 reporting of the
financial statements.
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 it 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. Management has analyzed the fund's tax
positions taken on federal income tax returns for all open tax years (tax years
ended December 31, 2004-2007) for purposes of implementing FIN 48, and has
concluded that no provision for income tax is required in the Fund's financial
statements. Management is not aware of any events that are reasonably possible
to occur in the next twelve months that would result in the amount of any
unrecognized tax benefits significantly increasing or decreasing for the Fund.
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, 2007, the Fund increased undistributed net investment income by
$14,653,647, decreased the accumulated net realized loss by $27,002,934, and
decreased capital paid in on shares of beneficial interest by $41,656,581.
16
The components of distributable earnings on a tax basis (excluding
unrealized appreciation (depreciation) which is disclosed in the Schedules of
Investments and Securities Sold Short) consist of undistributed ordinary income
of $0 and undistributed long-term capital gains of $0.
The Fund has $109,875,702 of capital loss carryovers, $83,073,540 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. For the fiscal year (the "period") ended December 31,
2007, the Fund utilized losses deferred in prior years of $32,022,653.
In addition, under certain conditions, the Fund may lose the benefit of
these losses to the extent that distributions to shareholders exceed required
distribution amounts as defined under the Internal Revenue Code. Shareholders
may also pay additional taxes on these excess distributions.
E. Foreign Currency Translation:
Foreign securities and other assets and liabilities are valued using the
foreign currency exchange rate effective at the end of the reporting period.
Cost of investments is translated at the currency exchange rate effective at
the trade date. The gain or loss resulting from a change in currency exchange
rates between the trade and settlement 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. 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 December 31, 2007, the value of
securities sold short amounted to $4,216,100 against which collateral of
$24,130,140 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.
17
H. Security Lending:
The Fund may loan securities to qualified brokers through an agreement with
State Street Bank and Trust Company (the "Custodian"). Under the terns of
agreement, the Fund is required to maintain 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, sovereign debt of foreign countries and/or
irrevocable letters of credit issued by banks. Cash collateral is invested in a
short-term money market fund. Dividends earned on the collateral and premiums
paid by the broker 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.
At December 31, 2007, the Fund had securities valued at $1,187,247 on loan,
for which it received cash collateral of $805,148 and non-cash collateral of
$391,868.
NOTE 3 -- PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding U.S. Government and agency
securities and short-term securities) for the period ended December 31, 2007,
were as follows:
Purchases...................... $249,382,874
Sales.......................... 248,577,714
Short sales.................... 5,390,989
Purchases to cover short sales. 6,545,430
Purchases and sales of long-term U.S. Government and agency securities for
the period ended December 31, 2007, were as follows:
Purchases......................... $25,109,375
Sales............................. --
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 December 31, 2007, the Fund incurred advisory fees of
$3,927,515.
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.
18
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 December 31, 2007, the Fund
incurred Administration fees of $300,339.
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.
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 arrangements.
NOTE 6 -- CAPITAL STOCK AND REINVESTMENT PLAN
At December 31, 2007, the Fund had one class of common stock, par value $.10
per share, of which 100,000,000 shares are authorized and 91,955,558 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 years ended December 31, 2007 and
2006, 322,545 and 0 shares respectively, were issued pursuant to the Plan.
In a non-transferable rights offering ended September 5, 2007, shareholders
exercised rights to purchase 18,400,000 shares of common stock at an offering
price of $4.81 per share for proceeds, net of expenses, of $87,859,000.
On December 17, 2007, the Fund announced a distribution of $0.142 per share
to shareholders of record on December 31, 2007. This distribution has an
ex-dividend date of January 3, 2008, and is payable on January 10, 2008.
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.
19
NOTE 8 -- REGULATORY EXAMS
In February 2005, the NASD notified PNX that it was asserting violations of
trade reporting rules by a subsidiary. PNX responded to the NASD allegations in
May 2005. Thereafter, in January 2007, the NASD notified PNX that the matter is
being referred for potential violations and possible action. On May 3, 2007,
the NASD accepted a letter of acceptance, waiver and consent submitted by the
PXP subsidiary to resolve this matter. Without admitting or denying the NASD's
findings, in accordance with the terms of the letter the PXP subsidiary agreed
to a censure, to pay a fine of $8,000 and to revise its supervisory procedures.
The company does not believe that the outcome of these matters will be
material to these financial statements.
NOTE 9 -- THE ZWEIG FUND YEAR END RESULTS
Total Return
on Net Asset Net Asset NYSE Premium
Value Value Share Price (Discount)
------------ --------- ----------- ----------
Year ended 12/31/2007......... 8.7%* $ 5.65 $ 5.0500 (10.6%)
Year ended 12/31/2006......... 14.6% 5.99 5.9000 (1.5%)
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%)
--------
* Total return on net asset value includes the dilutive effect of the rights
offering.
NOTE 10 -- SUBSEQUENT EVENT
On February 7, 2008, Phoenix Companies, Inc. ("PNX") announced that it
intends to spin off its asset management subsidiary, Phoenix Investment
Partners, Ltd. (PXP), to PNX's shareholders. As direct subsidiaries of PXP,
Phoenix/Zweig Advisers LLC, the Adviser to the Fund and Phoenix Equity Planning
Corporation, the Fund's Administrator, are also intended to be a part of the
spin-off.
20
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, 2007, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the 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, 2007 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PricewaterhouseCooper LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 15, 2008
21
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, 2007, for federal income tax
purposes, 15.9% 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, 2007, the Fund hereby designates
16.6%, or the maximum amount allowable, of its ordinary income dividends to
qualify for the lower tax rates applicable to individual shareholders.
The actual percentage for the calendar year will be designated in the
year-end tax statements.
22
FUND MANAGEMENT
Information pertaining to the Directors and officers of the Fund as of
December 31, 2007 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 (Age) Address and and Length of Overseen by Principal Occupation(s)
Position(s) with Fund Time Served Director During Past 5 Years and Other Directorships Held
---------------------- ----------------- ----------- ----------------------------------------------------------
Charles H. Brunie........... Term: Until 2009. 2 Director, The Zweig Total Return Fund, Inc. (since
Brunie Associates Served since: 1988); Chairman, Brunie Associates (investments)
600 Third Avenue, 17th Floor 1998. (since April 2001); Oppenheimer Capital (1969-2000);
New York, NY 10016 Chairman (1980-1990), Chairman Emeritus (1990-2000).
YOB: 1930 Chairman Emeritus, Board of Trustees, Manhattan
Director Institute (since 1990); Trustee, Milton and Rose D.
Friedman Foundation for Vouchers (since 1999);
Trustee, Hudson Institute (since 2002); Chairman of the
Board, 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 Rd. Served since: 2002); Co-lead Independent Director of the Zweig Total
Craryville, NY 12521 2002. Return Fund, Inc. and of The Zweig Fund, Inc. (since
YOB: 1951 2006); Principal, WKL Associates, Inc. (Private Investor
Director and Consultant) (since 1994); Fellow, Royal Institution of
Chartered Surveyors; Member, Chartered Institute of
Arbitrators; Director, Endeavour Real Estate Securities,
Ltd. REIT Mutual Fund (2000-2005); Director, PXRE,
Group (reinsurance) (1994-2007); Member and Chairman
of Management Oversight Committee, Deutsche Bank
Real Estate Opportunity Fund 1A and 1B (since 2003);
Trustee Acadia Realty Trust (since 2004); Member of
National Association of Corporate Directors Teachers
Facility (since 2007).
Alden C. Olson.............. Term: Until 2010. 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,
YOB: 1928 Investments at Michigan State University (1959 to
Director 1990).
James B. Rogers, Jr......... Term: Until 2009. 2 Director of The Zweig Total Return Fund, Inc. (since
352 Riverside Dr. Served since: 1986); Private investor (since 1980); Chairman, Beeland
New York, NY 10025 1988. Interests (Media and Investments) (since 1980); Regular
YOB: 1942 Commentator on Fox News (since 2002); Author of
Director "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
(1996-2006).
23
DISINTERESTED DIRECTORS
Number of
Portfolios
in Fund
Term of Office Complex
Name (Age) Address and and Length of Overseen by Principal Occupation(s)
Position(s) with Fund 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); Co-lead Independent Director of the Zweig Total
New York, NY 10027 2004. Return Fund, Inc. and of The Zweig Fund, Inc. (since
YOB: 1964 2006); Principal and Chief Administrative Officer,
Director Global Infrastructure Partners (since 2007); Director,
Blue Crest Capital Management Funds (since 2006);
Executive Vice President and the Secretary (1996-2007)
of the University at Columbia University; Director
(since 2002), Member, Executive Committee (since
2002), Chair, Audit Committee (since 2003), Apollo
Theater Foundation, Inc.; Director, Orchestra of St.
Luke's (since 2000); Vice President and Trustee, The
Trinity Episcopal School Corporation (since 2003);
Member (since 1997), Nominating and Governance
Committee Board of Directors (since 2004), Council on
Foreign Relations.
INTERESTED DIRECTOR
George R. Aylward............ Term: Until 2010. 2 Senior Executive Vice President and President, Asset
56 Prospect Street Chairman of the Management (since 2007), Senior Vice President and
Hartford, CT 06115 Board and Chief Operating Officer, Asset Management (2004-
YOB: 1964 President 2007), Vice President (2001-2004), The Phoenix
President, Chairman and Chief since Companies, Inc. Director and President (2006-present),
Executive Officer December 2006. Chief Operating Officer (2004-present), Executive Vice
President (2004-2006), Vice President, Finance, (2001-
2002), Phoenix Investment Partners, Ltd. Various senior
officer and directorship positions with Phoenix
affiliates. President (2006-present), Executive Vice
President (2004-2006), the Phoenix Funds Family.
Chairman, President and Chief Executive Officer, The
Zweig Fund Inc. and The Zweig Total Return Fund Inc.
(2006-present).
24
OFFICERS WHO ARE NOT DIRECTORS
Position
with the Fund
Name, Address and and Length of Principal Occupation(s)
Date of Birth Time Served During Past 5 Years and Other Directorships Held
----------------- ------------------------ -----------------------------------------------------------------
Carlton Neel...... Executive Vice Executive Vice President of The Zweig Total Return Fund, Inc.
900 Third Avenue President (since 2003); Senior Vice President and Portfolio Manager,
New York, NY 10022 since: 2003. Phoenix/Zweig Advisers LLC (since 2003); Managing Director and
YOB: 1967 Expires: Immediately Co-Founder, Shelter Rock Capital Partners, LP (2002-2003); Senior
following the 2008 Vice President and Portfolio Manager, Phoenix/Zweig Advisers
Annual Meeting of LLC (1995-2002); Vice President, JP Morgan & Co. (1990-1995).
Shareholders.
David Dickerson... Senior Vice President Senior Vice President of The Zweig Total Return Fund, Inc. (since
900 Third Avenue since: 2003. 2003); Senior Vice President and Portfolio Manager, Phoenix/
New York, NY 10022 Expires: Immediately Zweig Advisers LLC (since 2003); Managing Director and Co-
YOB: 1967 following the 2008 Founder, Shelter Rock Capital Partners, LP (2002-2003); Vice
Annual Meeting of President and Portfolio Manager, Phoenix/Zweig Advisers LLC
Shareholders. (1993-2002).
Marc Baltuch...... Vice President and Chief Vice President and Chief Compliance Officer of The Zweig Total
900 Third Avenue Compliance Officer Return Fund, Inc. (since 2004); Chief Compliance Officer of
New York, NY 10022 since: 2004. Phoenix/Zweig Advisers LLC (since 2004); President and Director
YOB: 1945 Expires: Immediately of Watermark Securities, Inc. (since 1991); Secretary of Phoenix-
following the 2008 Zweig Trust (1989-2003); Secretary of Phoenix-Euclid Market
Annual Meeting of Neutral Fund (1998-2002); Assistant Secretary of Gotham
Shareholders. Advisors, Inc. (1990-2005); Chief Compliance Officer of the Zweig
Companies (since 1989) and of the Phoenix Funds Complex
(since 2004).
Kevin J. Carr..... Secretary and Chief Secretary and Chief Legal Officer of The Zweig Total Return Fund,
One American Row Legal Officer Inc. (since 2005); Vice President and Counsel, Phoenix Life
Hartford, CT 06102 since: 2005. Insurance Company (since 2005); Vice President, Counsel, Chief
YOB: 1954 Expires: Immediately Legal Officer and Secretary, certain Funds within Phoenix Fund
following the 2008 Complex (since 2005); Compliance Officer of Investments and
Annual Meeting of Counsel, Travelers Life and Annuity Company (January 2005-May
Shareholders. 2005); Assistant General Counsel, The Hartford Financial Services
Group (1999-2005).
Moshe Luchins..... Vice President Vice President of The Zweig Total Return Fund, Inc. (since 2004);
900 Third Avenue since: 2004. Associate Counsel (1996-2005), Associate General Counsel (since
New York, NY 10022 Expires: Immediately 2006) of the Zweig Companies.
YOB: 1971 following the 2008
Annual Meeting of
Shareholders.
Nancy Curtiss..... Treasurer Treasurer of The Zweig Total Return Fund, Inc. (since 2003); Vice
56 Prospect Street since: 2003. President, Head of Operations, Phoenix Investment Partners
Hartford, CT 06115 Expires: Immediately (since 2007); Vice President, Operations (2003-2007); Vice
YOB: 1952 following the 2008 President, Fund Accounting (1994-2003) and Treasurer (1996-
Annual Meeting of 2003). Phoenix Equity Planning Corporation. Treasurer, multiple
Shareholders. funds in the Phoenix Fund Complex (1994-2006).
Jacqueline Porter. Vice President and Vice President and Assistant Treasurer of The Zweig Total Return
56 Prospect Street Assistant Treasurer Fund, Inc. (since 2006); Assistant Vice President, Fund
Hartford, CT 06115 since: 2006. Administration and Tax (since 1995), Phoenix Equity Planning
YOB: 1958 Expires: Immediately Corporation. Assistant Treasurer and Vice President, multiple
following the 2008 funds in Phoenix Fund Complex (since 1995).
Annual Meeting of
Shareholders.
25
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, 2007, 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.
26
FUND DISTRIBUTIONS AND MANAGED DISTRIBUTION PLAN
The Fund has a Managed Distribution Plan to pay 10% of the Fund's net asset
value on an annualized basis. Distributions may represent earnings from net
investment income, realized capital gains, or, if necessary, return of capital.
The board believes that regular, fixed quarterly cash payouts will enhance
shareholder value and serve the long-term interests of shareholders. You should
not draw any conclusions about the Fund's investment performance from the
amount of the distributions or from the terms of the Fund's Managed
Distribution Plan.
The Fund estimates that it has distributed more than its income and net
realized capital gains in the fiscal year to date; therefore, a portion of your
distributions may be a return of capital. A return of capital may occur when
some or all of the money that you invested in the Fund is paid back to you. A
return of capital does not necessarily reflect the Fund's investment
performance and should not be confused with "yield" or "income".
Please note that the characterization of Fund distributions for federal
income tax purposes is different from book accounting generally accepted
accounting principles ("GAAP"). The amounts and sources of distributions
reported in Section 19(a) notices of the 1940 Act are only estimates and are
not being provided for tax reporting purposes. The actual amounts and sources
of the amounts for tax reporting purposes will depend upon the Fund's
investment experience during the remainder of its fiscal year and may be
subject to changes based on tax regulations. It is only after December 31 that
we will know the exact source of our distributions. Shareholders should use
only the Form 1099-DIV that will be mailed by January 31, 2008 to determine the
taxability of our distributions.
The Board may amend, suspend or terminate the Managed Distribution Plan
without prior notice to shareholders if it deems such action to be in the best
interest of the Fund and its shareholders.
Information on the Zweig funds is available at http://www.PhoenixFunds.com.
Section 19(a) notices are posted on the website at: http://www.phoenix
investments.com/phxinv/PublicSite.jsp?Target=/Individual
/Products/Closed_End_
Funds/Zweig/ZF_Fund.html.
27
OFFICERS AND DIRECTORS
George R. Aylward
President, Chairman and Chief Executive Officer
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
Jacqueline Porter
Vice President and Assistant 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 10022-4793
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
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 10022-2585
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 Q4-07
Annual Report
Zweig
The Zweig Fund, Inc.
December 31, 2007
[LOGO]
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.
(a)(1)The Registrant's Board of Trustees has determined that the Registrant
has an "audit committee financial expert" serving on its Audit Committee.
(a)(2)Wendy Luscombe has been determined by the Registrant to possess the
technical attributes identified in Instruction 2(b) of Item 3 to Form
N-CSR to qualify as an "audit committee financial expert" effective
December 12, 2007. Ms. Luscombe is an "independent" trustee pursuant to
paragraph (a)(2) of Item 3 to Form N-CSR.
(a)(3)Not applicable.
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 $32,600 for
2007 and $32,000 for 2006.
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 2007 and $1,000 for 2006. This represents the review
of the semi-annual financial statements.
Tax Fees
(c)The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $4,600 for 2007 and $5,025
for 2006.
"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 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
$5,000 for 2007 and $0 for 2006.
(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 2007 and 100% for 2006
(c)100% for 2007 and 100% for 2006
(d)Not applicable for 2007 and not applicable for 2006
(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 $961,830 for 2007 and $892,561 for 2006.
(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. 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 10, 2008: 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 ("Euclid"), 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 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 a fund managed by Euclid. From
April 1, 2003 to January 9, 2008, Messrs. Neil and Dickerson were portfolio
managers of the Phoenix Market Neutral Fund, a fund also managed by Euclid.
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.
Mr. Neel previously served as Senior Portfolio Manager for a number of the
former Phoenix-Zweig mutual funds from 1995 until July 2002.
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, 2007.
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.
and the 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.
Total Assets
Name of No. of Accounts in Accounts
Portfolio where where
Manager or Total Advisory Fee Advisory Fee
Team Type of No. of Accounts Total is Based on is Based on
Member Accounts Managed Assets Performance Performance
---------- ------------ --------------- --------- --------------- ------------
David Registered 3 783.1 mil None None
Dickerson Investment
Companies:
Other Pooled None None None None
Investment
Vehicles:
Other None None None None
Accounts:
Carlton Registered 3 783.1 mil None None
Neel Investment
Companies:
Other Pooled None None None None
Investment
Vehicles:
Other None None None None
Accounts:
Potential Conflicts of Interests
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, 2007. 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, 2007,
following is a description of Mr. Neel's and Mr. Dickerson's compensation
structure as portfolio managers of PZA and Euclid.
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, 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.
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, 2007,
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)).
Name of Portfolio Dollar ($) Range of
Manager or Fund Shares
Team Member Beneficially Owned
----------------- -------------------
David Dickerson $50,001 - $100,000
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 trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
Item 11.Controls and Procedures.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act
(17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12.Exhibits.
(a)(1)Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2)Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3)Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) The Zweig Fund, Inc.
By (Signature and Title)* /s/ George R. Aylward
----------------------------
George R. Aylward, President
(principal executive
officer)
Date March 7, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ George R. Aylward
----------------------------
George R. Aylward, President
(principal executive
officer)
Date March 7, 2008
By (Signature and Title)* /s/ Nancy G. Curtiss
---------------------------
Nancy G. Curtiss, Treasurer
(principal financial
officer)
Date March 7, 2008
* Print the name and title of each signing officer under his or her signature.