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. John H. Beers, Esq.
Chief Legal Officer and Secretary for Vice President and Counsel
Registrant 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: June 30, 2008
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. (S) 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
OFFICERS AND DIRECTORS
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
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 Q2-08
Semi Annual Report
Zweig
The Zweig Fund, Inc.
June 30, 2008
[LOGO]
August 1, 2008
Dear Fellow ZF Shareholder:
The Zweig Fund's net asset value increased 3.48% for the quarter ended June
30, 2008, including $0.126 in reinvested distributions. During the same period,
the S&P 500 Index fell 2.72%, including reinvested dividends. The Fund's
average exposure in equities was 80%. There were no bonds held.
For the first six months ended June 30, 2008 the Fund's net asset value
declined 4.07%, including $0.268 in reinvested distributions. During the same
period, the S&P 500 Index lost 11.91%, including reinvested dividends. The
Fund's average exposure for the first half was approximately 81% in equities
and 1% in bonds.
Sincerely,
/s/ George R. Aylward
George R. Aylward
President, Chairman and Chief Executive Officer
The Zweig Fund, Inc.
MARKET OVERVIEW AND OUTLOOK
Battered by a hurricane of damaging economic news including skyrocketing oil
prices, the financial meltdown, the continuing credit crunch, the implosion of
the housing bubble, fading consumer confidence, and inflation fears, the stock
market staggered through the second quarter and the first half and suffered
severe losses. The Dow Jones Industrial Average fell 7.4%/(1)/ for the second
quarter, its third straight quarterly decline and worst second quarter since
2002. For the year to date, the Dow dropped 14%/(1)/, its poorest first half
since 1970. When the market closed on June 30, the Dow was only a smidgen away
from the 20% decline from a recent high that is considered the start of a bear
market.
The other major indexes performed somewhat better than the Dow but also did
poorly. After enduring its worst June since 1930, the S&P 500 Index was off
3.2%/(1)/ for the second quarter and 12.8%/(1)/ for the half. The Nasdaq
Composite eked out a 0.6%/(1)/ gain for the quarter but was down 13.5%/(1)/ for
the half. It closed nearly 20% below its October 2007 high and more than 50%
under its record close in March 2000.
The Federal Reserve (the "Fed") has bailed out the market several times by
lowering interest rates and expanding credit, but it has little ammunition
left. By cutting the federal funds rate to 2% from 5% last August, it helped
keep the market afloat. However, at its June meeting the Fed left the 2% rate
unchanged and indicated it had shifted its focus to inflation. "Although the
downside risks to growth remain," the statement said, "they appear to have
diminished somewhat, and the upside risk to inflation and inflation
expectations have increased." It also said "the substantial easing of monetary
policy to date,
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.
combined with ongoing measures to foster market liquidity, should help to
promote modest growth over time."
It appears that the Fed has gotten itself between the proverbial rock and a
hard place. Further cuts would kill the dollar, boost oil prices further and
accelerate inflation; higher rates would risk hurting the economy even more. In
our opinion while the Fed is right to take steps to shore up the country's
shaky financial structures, it has already reduced too much.
With crude oil prices topping $140 per barrel and other commodity prices
climbing, the Fed has plenty to ponder on the inflation front. The Labor
Department reported that its consumer price index rose 0.8% in May and was up
4.2% from a year ago. Core prices, which exclude food and energy, grew 0.2% in
May and were 2.3% above last year. The producer price index was up 1.4% in May,
its fastest rate increase in six months.
One area where prices are falling is housing. Prices of new homes were down
5.7% in May from a year ago. Despite the lower prices, new home sales slid 2.5%
for the month, the fifth decline in six months. With the market so weak, the
Commerce Department reported that new home construction dropped 3.3% in May to
its lowest level since March 1991.
Reflecting the softening economic picture, the Institute for Supply
Management ("ISM") reported that its non-manufacturing index slipped to 48.2
for June from 51.7 in May. A reading below 50 signifies contraction. The
service sector represents about 80% of U.S. economic activity. ISM also
reported that its index of factory activity edged up to 50.2 in June from 49.6
in May. Its index of prices paid by manufacturers increased to 91.5 in June
from 87 in May and was at its highest level since 1979.
Although prices are rising and the economy is shrinking, we don't agree with
the view that we are facing a period of stagflation like that of the 1970s. For
one thing, inflation is nowhere as high as it was then, even as we prepare for
a big jump in the inflation figure that includes food and oil in the next few
months.
Higher prices for commodities, especially oil, were a big factor in an
expanded U.S. trade deficit in April. Imports, propelled by the surging oil
price, rose 4.5% to a record $216.4 billion, offsetting export increases of
3.3% to $155.5 billion. Consequently, the trade imbalance climbed 7.8% to $60.9
billion, the largest figure since March 2007.
The dollar, whose fallen price has spurred exports, did not play a major
role during the second quarter. From April to June it gained 0.3% against the
Euro and 6.5% against the Japanese Yen. Measured against 26 currencies, the
dollar was basically flat. The dollar plays a crucial role in our economy. If
it weakens further and oil prices soar, it would curtail our exports -- the one
strong element in our economy -- and hurt other world economies, reducing
demand for our products.
Global merger and acquisition volume in the second quarter declined 37% to
$940.75 billion from the year-ago quarter, according to Dealogic. There were
8,946 deals this year against 9,675 a year earlier. Although the number of
deals in the first half was up 7%, volume declined 33% from last year.
In the U.S., the weaker dollar, which makes our assets look like bargains,
is enticing foreign investors. We don't think these foreign purchases are bad
for our economy; it is good to have the foreign money flowing here whether it
is to buy stocks, real estate or entire companies.
Initial public offerings ("IPOs") in the second quarter also were sharply
lower world-wide, according to Dealogic. The number of IPOs globally declined
56% to 205, with the amount of money raised falling 64% to $31.5 billion. In the
2
U.S., IPOs dropped 80% to 11 from 56 last year. The dollar volume was off 74%
to $4.2 billion. It is difficult to do IPOs in an environment where stocks are
being hit. The market will have to settle down in order to get some breathing
room for more IPOs.
On a brighter note, personal income grew 1.9% in May from April as Americans
received some $48 billion in federal economic stimulus checks, according to the
Commerce Department. Ultimately the stimulus package will disperse $107
billion. Largely because of the stimulus, consumer spending increased 0.4% in
May after adjusting for inflation, double the April figure, and the largest
gain since November. Despite the stimulus boost, the Conference Board reported
that consumer confidence in June slumped to a 16-year low. The agency's index
dipped to 50.4 in June from 58.3 in May and was at the lowest rate since early
1992.
The stimulus is a one-time occurrence, spread out for a few months. So where
will money come from to finance new consumer spending? The consumer savings
rate has been reduced to near zero. People were using their homes as ATM
machines for home equity loans. That game is over. Credit card debt has
ballooned and wages have not kept up with inflation. If the government
continues to give people cash, it would hurt the dollar. As we have already
witnessed, a weaker dollar puts more pressure on oil prices, which slows the
economy.
A poll by Thomson Reuter shows that Wall Street analysts expect earnings of
the S&P 500 companies in the second quarter to wind up 10% below the same
period in 2007, although they see an overall gain of 7% for all of 2008. These
figures are significantly less optimistic than earlier predictions -- which
projected the second quarter declining by 6.1% and the full year rising by
10% -- and still may be over-enthusiastic for the remainder of the year. It's
also important to remember, the S&P is not the best measure of earnings because
it includes a disproportionate number of hard-hit financials. Other industries
are doing fairly well or holding their own.
Companies in the S&P 500 were trading at 20 times earnings on June 30,
according to Barron's, compared with 17 times earnings on March 31 and 18 times
earnings on June 30, 2007. At the start of the bull market in October 2002, the
P/E ratio was 27. Valuations are high, in part, because earnings have declined
so much.
Market advisors surveyed by Investor Intelligence at the end of the second
quarter were pretty much holding the line on their projections. On June 30
there were 34% bulls and 40% bears, little changed from the March 31 totals of
37% bulls and 41% bears. Finally reacting to the sharp downturn in stock
prices, advisor sentiment soon shifted to 27.4% bulls and 47.3% bears. So,
pessimism among advisors is getting close to 2-1 bears.
There have been more pessimistic bear markets, so at this writing our
sentiment numbers are moderately positive. However, our monetary model is
mixed: we're buoyed by the Fed and interest rates, but worried about the deeply
troubled financial system. Balancing the positives and negatives, our market
posture is about neutral and we are approximately 80% invested.
Sincerely,
/s/Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
President
Zweig Consulting LLC
3
PORTFOLIO COMPOSITION
The Fund's leading stock market sectors on June 30, 2008 were information
technology, energy, consumer staples, financials and industrials. Although
there were some changes in percentages held, all of the above appeared in our
previous listing. During the quarter we added to our positions in consumer
discretionary and consumer staples and trimmed our holdings in energy and
information technology.
As of June 30, 2008, our leading individual equity positions included Bunge,
Foster Wheeler, Freeport-McMoRan Copper & Gold, Halliburton, IBM, McDonald's,
Nucor, PowerShares DB Agriculture Fund, QUALCOMM and Union Pacific.
New to this listing are Bunge, where we trimmed our position, and the
following where there were no changes in shares held: Foster Wheeler, Nucor,
PowerShares DB Agriculture Fund, QUALCOMM and Union Pacific.
No longer in our top positions are ConocoPhillips and Gilead Sciences, where
we trimmed positions, and Caterpillar, Hudson City Bancorp, Nike and PepsiCo,
where there were no changes in shares held.
Sincerely,
LOGO
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 6.
4
OUR PRIVACY COMMITMENT
The Zweig Fund, Inc. recognizes that protecting the privacy and security of
the confidential personal information we collect about you is an important
responsibility. The following information will help you understand our privacy
policy and how we will handle and maintain confidential personal information as
we fulfill our obligations to protect your privacy. "Personal information"
refers to the nonpublic financial information obtained by us in connection with
providing you a financial product or service.
Information We Collect
We collect personal information to help us serve your financial needs, offer
new products or services, provide customer service and fulfill legal and
regulatory requirements. The type of information that we collect varies
according to the products or services involved, and may include:
.. Information we receive from you on applications and related forms (such as
name, address, social security number, assets and income); and
.. Information about your transactions and relationships with us, our
affiliates, or others (such as products or services purchased, account
balances and payment history).
Information Disclosed in Administering Products and Services
We will not disclose personal information about current or former customers
to non-affiliated third parties except as permitted or required by law. We do
not sell any personal information about you to any third party. In the normal
course of business, personal information may be shared with persons or entities
involved in servicing and administering products and services on our behalf,
including your broker, financial advisor or financial planner and other service
providers and affiliates assisting us.
Procedures to Protect Confidentiality and Security of Your Personal Information
We have procedures in place that limit access to personal information to
those employees and service providers who need to know such information in
order to perform business services on our behalf. We educate our employees on
the importance of protecting the privacy and security of confidential personal
information. We also maintain physical, electronic and procedural safeguards
that comply with federal and state regulations to guard your personal
information.
We will update our policy and procedures where necessary to ensure that your
privacy is maintained and that we conduct our business in a way that fulfills
our commitment to you. If we make any material changes in our privacy policy,
we will make that information available to customers through our Web site
and/or other communications.
5
Glossary
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.
Consumer Price Index (CPI): Measures the pace of inflation by measuring the
change in consumer prices of goods and services, including housing,
electricity, food, and transportation, as determined by a monthly survey of the
U.S. Bureau of Labor Statistics. Also called the cost-of-living index.
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 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.
Institute for Supply Management (ISM) Report on Business/(R)/: An economic
forecast, released monthly, that measures U.S. manufacturing conditions and is
arrived at by surveying 300 purchasing professionals in the manufacturing
sector representing 20 industries in all 50 states.
Investors Intelligence Survey: A weekly survey published by Chartcraft, an
investment services company, of the current sentiment of approximately 150
market newsletter writers. Participants are classified into three categories:
bullish, bearish or waiting for a correction.
NASDAQ Composite/(R)/ Index: A market capitalization-weighted index of all
issues listed in the NASDAQ (National Association Of Securities Dealers
Automated Quotation System) Stock Market, except for closed-end funds,
convertible debentures, exchange traded funds, preferred stocks, rights,
warrants, units and other derivative securities. The index is calculated on a
total return basis with dividends reinvested.
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.
Stagflation: A period of little or no economic growth.
Yield curve: A line chart that shows interest rates at a specific point in time
for securities of equivalent quality but with different maturities. A "normal
or positive" yield curve indicates that short-term securities have a lower
interest rate than long-term securities; an "inverted or negative" yield curve
indicates short-term rates are exceeding long-term rates; and a "flat yield
curve" means short- and long-term rates are about the same.
Indexes cited are unmanaged and not available for direct investment; therefore
their performance does not reflect the expenses associated with the active
management of an actual portfolio.
6
THE ZWEIG FUND, INC.
[CHART]
Sector Weightings
June 30, 2008 (Unaudited)
(as a percentage of total investments and securities sold short)
Information Technology 18%
Energy 17%
Financials 13%
Industrials 13%
Consumer Staples 11%
Materials 8%
Health Care 7%
Other (includes short-term investments) 13%
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT
June 30, 2008
(Unaudited)
Number of
Shares Value
--------- -----------
INVESTMENTS
DOMESTIC COMMON STOCKS 72.32%
CONSUMER DISCRETIONARY -- 5.29%
McDonald's Corp............................... 170,000 $ 9,557,400
NIKE, Inc. Class B............................ 145,000 8,643,450
Under Armour, Inc. Class A/(b)/............... 265,000 6,799,900
-----------
25,000,750
-----------
CONSUMER STAPLES -- 9.52%
Altria Group, Inc............................. 430,000 8,840,800
Bunge Ltd..................................... 90,000 9,692,100
Costco Wholesale Corp......................... 135,000 9,468,900
PepsiCo, Inc.................................. 130,000 8,266,700
Philip Morris International, Inc.............. 175,000 8,643,250
-----------
44,911,750
-----------
ENERGY -- 12.01%
Chesapeake Energy Corp........................ 135,000 8,904,600
ConocoPhillips................................ 95,000 8,967,050
Halliburton Co................................ 215,000 11,410,050
Massey Energy Co.............................. 95,000 8,906,250
Occidental Petroleum Corp..................... 105,000 9,435,300
St. Mary Land & Exploration Co................ 140,000 9,049,600
-----------
56,672,850
-----------
See notes to financial statements
7
Number of
Shares Value
--------- ------------
FINANCIALS -- 10.27%
Allstate Corp. (The)......................... 165,000 $ 7,522,350
Goldman Sachs Group, Inc. (The).............. 46,000 8,045,400
Hudson City Bancorp, Inc..................... 550,000 9,174,000
Reinsurance Group of America, Inc............ 165,000 7,180,800
Wells Fargo & Co............................. 350,000 8,312,500
Wilmington Trust Corp........................ 310,000 8,196,400
------------
48,431,450
------------
HEALTH CARE -- 5.83%
Gilead Sciences, Inc./(b)/................... 170,000 9,001,500
Merck & Co., Inc............................. 250,000 9,422,500
UnitedHealth Group, Inc...................... 345,000 9,056,250
------------
27,480,250
------------
INDUSTRIALS -- 10.11%
Boeing Co. (The)............................. 100,000 6,572,000
Caterpillar, Inc............................. 120,000 8,858,400
Continental Airlines, Inc. Class B/(b)/...... 325,000 3,285,750
Foster Wheeler Ltd./(b)/..................... 140,000 10,241,000
L-3 Communications Holdings, Inc............. 90,000 8,178,300
Union Pacific Corp........................... 140,000 10,570,000
------------
47,705,450
------------
INFORMATION TECHNOLOGY -- 12.19%
Ciena Corp./(b)/............................. 285,000 6,603,450
Cisco Systems, Inc./(b)/..................... 330,000 7,675,800
Corning, Inc................................. 380,000 8,759,000
Hewlett-Packard Co........................... 180,000 7,957,800
International Business Machines Corp......... 85,000 10,075,050
Microsoft Corp............................... 250,000 6,877,500
QUALCOMM, Inc................................ 215,000 9,539,550
------------
57,488,150
------------
MATERIALS -- 3.95%
Alcoa, Inc................................... 240,000 8,548,800
NuCor Corp................................... 135,000 10,080,450
------------
18,629,250
------------
TELECOMMUNICATION SERVICES -- 3.15%
AT&T, Inc./(d)/.............................. 220,000 7,411,800
Verizon Communications, Inc./(d)/............ 210,000 7,434,000
------------
14,845,800
------------
Total Domestic Common Stocks (Identified Cost
$295,395,435)................................. 341,165,700
------------
See notes to financial statements
8
Number of
Shares Value
--------- ------------
FOREIGN COMMON STOCKS/(c)/ 5.39%
ENERGY -- 1.41%
Petroleo Brasileiro SA ADR (Brazil)............... 94,000 $ 6,658,020
------------
INFORMATION TECHNOLOGY -- 1.79%
Nokia Oyj Sponsored ADR (Finland)................. 345,000 8,452,500
------------
MATERIALS -- 2.19%
Freeport-McMoRan Copper & Gold, Inc. (United
States)......................................... 88,000 10,312,720
------------
Total Foreign Common Stocks (Identified Cost
$20,582,780)....................................... 25,423,240
------------
EXCHANGE TRADED FUNDS 2.07%
PowerShares Deutsche Bank Agriculture Fund/(b)/... 240,000 9,763,200
------------
Total Exchange Traded Funds (Identified Cost
$8,196,236)........................................ 9,763,200
------------
Total Long Term Investments -- 79.78% (Identified Cost
$324,174,451)...................................... 376,352,140
------------
Par
(000's)
---------
SHORT-TERM INVESTMENTS 19.81%
COMMERCIAL PAPER/(e)/ -- 8.25%
Caterpillar, Inc. 2.25%, 7/1/08................... $ 15,000 15,000,000
Dover Corp. 2.28%, 7/1/08......................... 3,900 3,900,000
Washington Post Co. (The) 2.10%, 7/1/08........... 20,000 20,000,000
------------
Total Commercial Paper (Identified Cost $38,900,000). 38,900,000
------------
See notes to financial statements
9
Number of
Shares Value
--------- ------------
U.S. TREASURY BILLS/(e)/ -- 11.56%
U.S. Treasury Bills 1.74%, 11/6/08/(d)/...... 15,000 $ 14,894,820
U.S. Treasury Bills 1.94%, 11/28/08.......... 40,000 39,658,320
------------
54,553,140
------------
Total Short-Term Investments (Identified Cost
$93,486,533).................................. 93,453,140
------------
Total Investments (Identified Cost $417,660,984)
-- 99.59%..................................... 469,805,280/(a)/
DOMESTIC COMMON STOCKS SOLD SHORT
CONSUMER DISCRETIONARY -- (0.53)%
Starbucks Corp............................... 160,000 (2,518,400)
------------
CONSUMER STAPLES -- (0.93)%
UST, Inc..................................... 80,000 (4,368,800)
------------
Securities Sold Short (Proceeds $7,488,607) --
(1.46)%....................................... (6,887,200)/(f)/
Other Assets and Liabilities, Net -- 1.87%...... 8,839,463
------------
Net Assets -- 100.00%........................... $471,757,543
============
--------
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $70,498,381 and gross
depreciation of $19,210,981 for federal income tax purposes. At June 30,
2008, the aggregate cost of securities for federal income tax purposes was
$418,517,880.
(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) Position, or a portion thereof, has been segregated as collateral for
securities sold short.
(e) The rate shown is the discount rate.
(f) Federal Tax Information: Net unrealized appreciation of securities sold
short is comprised of gross appreciation of $601,407, and gross
depreciation of $0 for federal income tax purposes. At June 30, 2008, the
aggregate proceeds of securities sold short for federal income tax
purposes was $7,488,607.
See notes to financial statements
10
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
ASSETS
Investment securities at value (Identified cost $417,660,984). $ 469,805,280
Cash.......................................................... 88,676
Deposits with broker for securities sold short................ 4,748,952
Receivables
Investment securities sold................................ 10,401,799
Dividends and interest.................................... 459,271
Directors' retainer........................................... 10,068
Prepaid expenses.............................................. 55,126
-------------
Total Assets.............................................. 485,569,172
-------------
LIABILITIES
Payables
Securities sold short at value, (Proceeds $7,488,607)......... 6,887,200
Investment securities purchased............................... 6,330,188
Investment advisory fee....................................... 339,105
Printing fee.................................................. 97,147
Transfer agent fee............................................ 64,397
Professional fee.............................................. 45,508
Administration fee............................................ 25,932
Custodian fee................................................. 7,362
Other accrued expenses........................................ 14,790
-------------
Total Liabilities......................................... 13,811,629
-------------
NET ASSETS $ 471,757,543
=============
NET ASSET VALUE PER SHARE
($471,757,543 / 91,955,558)................................... $ 5.13
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest.............. $ 549,575,521
Distributions in excess of net investment income.............. (21,804,077)
Accumulated net realized loss................................. (108,759,604)
Net unrealized appreciation................................... 52,144,296
Net unrealized appreciation on short sales.................... 601,407
-------------
Net Assets $ 471,757,543
=============
See notes to financial statements
11
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2008
(Unaudited)
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld of $10,200)...................... $ 3,300,964
Interest.................................................................. 1,249,643
Security lending.......................................................... 31,565
------------
Total Investment Income............................................ 4,582,172
------------
Expenses
Investment advisory fees.................................................. 2,038,255
Administration fees....................................................... 155,867
Professional fees......................................................... 112,313
Transfer agent fees and expenses.......................................... 109,492
Directors' fees........................................................... 100,324
Printing and postage fees................................................. 94,395
Custodian fees............................................................ 33,754
Miscellaneous expenses.................................................... 149,716
------------
Total Expenses..................................................... 2,794,116
Less custodian fees paid indirectly.................................... (13,835)
------------
Net Expenses....................................................... 2,780,281
------------
Net Investment Income........................................... 1,801,891
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments............................................................... (745,543)
Short sales............................................................... 3,017,590
Net change in unrealized appreciation (depreciation) on:
Investments............................................................... (24,997,399)
Short sales............................................................... (1,926,617)
------------
Net realized and unrealized gain (loss)................................ (24,651,969)
------------
Net increase (decrease) in net assets resulting from operations........ $(22,850,078)
============
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
June 30, 2008 Year Ended
(Unaudited) December 31, 2007
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)..................................... $ 1,801,891 $ 3,797,812
Net realized gain (loss)......................................... 2,272,047 31,936,508
Net change in unrealized appreciation (depreciation)............. (26,924,016) 826,941
------------ ------------
Net increase (decrease) in net assets resulting from
operations.................................................. (22,850,078) 36,561,261
------------ ------------
Dividends and distributions to shareholders from
Net investment income............................................ (24,644,946)* (4,074,106)
Net realized short-term gains.................................... -- (27,002,933)
Tax return of capital............................................ -- (14,653,646)
------------ ------------
Total dividends and distributions to shareholders............. (24,644,946) (45,730,685)
------------ ------------
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 estimated expenses of $645,000 for
2007).......................................................... 148,211/(1)/ 87,859,000
------------ ------------
Net increase in net assets derived from capital share
transactions................................................ 148,211 89,729,759
------------ ------------
Net increase (decrease ) in net assets........................ (47,346,813) 80,560,335
NET ASSETS
Beginning of period.................................................. 519,104,356 438,544,021
------------ ------------
End of period (including undistributed (distributions in
excess of) net investment income of ($21,804,077) and
$1,038,978 respectively)........................................... $471,757,543 $519,104,356
============ ============
--------
* Please note that the tax status of distributions is determined at the end of
the taxable year. However, based on interim data as of June 30, 2008, we
estimate that 8% of the distributions represent net investment income
distributions, 8% represents excess gain distributions which are taxed as
ordinary income, and 84% represents return of capital. Also refer to Note 2D
in the notes to financial statements.
(1) Adjustment to bring costs estimated in connection with rights offering to
actual.
See notes to financial statements
13
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each year)
Six Months
Ended
June 30, Year Ended December 31,
2008 ----------------------------------------------------------
(Unaudited) 2007 2006 2005 2004 2003
----------- -------- -------- -------- -------- --------
Per Share Data
Net asset value, beginning of period............... $ 5.65 $ 5.99 $ 5.82 $ 6.02 $ 5.69 $ 5.46
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net investment income (loss)/(6)/.................. 0.02 0.05 0.07 0.08 0.11 0.03
Net realized and unrealized gains (losses)......... (0.27) 0.39 0.68 0.31/(5)/ 0.44 0.70
-------- -------- -------- -------- -------- --------
Total from investment operations................... (0.25) 0.44 0.75 0.39 0.55 0.73
-------- -------- -------- -------- -------- --------
Dividends and Distributions
Dividends from net investment income............... (0.27) (0.05) (0.07) (0.11) (0.06) (0.03)
Distributions from net realized gains.............. -- (0.34) (0.21) (0.28) (0.16) --
Tax return of capital.............................. -- (0.20) (0.30) (0.20) -- (0.47)
-------- -------- -------- -------- -------- --------
Total dividends and distributions.................. (0.27) (0.59) (0.58) (0.59) (0.22) (0.50)
-------- -------- -------- -------- -------- --------
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)/.............................. -- /(4)/ (0.19) -- -- -- --
-------- -------- -------- -------- -------- --------
Change in net asset value.......................... (0.52) (0.34) 0.17 (0.20) 0.33 0.23
-------- -------- -------- -------- -------- --------
Net asset value, end of period.................. $ 5.13 $ 5.65 $ 5.99 $ 5.82 $ 6.02 $ 5.69
======== ======== ======== ======== ======== ========
Market value, end of period/(2)/................ $ 4.62 $ 5.05 $ 5.90 $ 5.25 $ 5.55 $ 4.90
======== ======== ======== ======== ======== ========
Total investment return/(3)/....................... (3.34)%/(9)/ (5.12)%/(7)/ 24.87% 5.78% 18.13% 9.53%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands)........... $471,758 $519,104 $438,544 $426,378 $440,643 $416,707
Ratio of expenses to average net assets
(excluding dividends on short sales).............. 1.16%/(8)/ 1.13% 1.18% 1.26% 1.33% 1.28%
Ratio of expenses to average net assets
(including dividends on short sales).............. 1.16%/(8)/ 1.13% 1.21% 1.33% 1.38% 1.33%
Ratio of net investment income to average net
assets............................................ 0.75%/(8)/ 0.82% 1.20% 1.31% 1.87% 0.54%
Portfolio turnover rate............................ 24.5%/(9)/ 57.8% 38.9% 44.6% 89.2% 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 periods. Conversely,
total investment return based on net asset value will be lower than total
investment return based on market value in periods where there is a decrease
in the discount or an increase in the premium of the market value to the net
asset value from the beginning to the end of such periods.
(4)Amount is less than $0.005.
See notes to financial statements
14
(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)%.
(8)Annualized
(9)Not Annualized
See notes to financial statements
15
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2008 (Unaudited)
NOTE 1 -- ORGANIZATION
The Zweig Fund, Inc. (the "Fund") is a closed-end, diversified management
investment company registered under the Investment Company Act of 1940 (the
"Act"). The Fund was incorporated under the laws of the State of Maryland on
June 30, 1986. The Fund's objective is 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.
16
The Fund has adopted the provisions of the Statement of Financial Accounting
Standards No. 157 (SFAS 157) as of the beginning of the current fiscal period
of the Fund. This standard clarifies the definition of fair value for financial
reporting, establishes a framework for measuring fair value and requires
additional disclosures about the use of fair value measurements. To increase
consistency and comparability in fair value measurements and related
disclosures, the Fund utilizes a fair value hierarchy which prioritizes the
inputs to valuation techniques used to measure fair value into three broad
levels:
. Level 1 -- quoted prices in active markets for identical securities
. Level 2 -- prices determined using other significant observable
inputs (including quoted prices for similar securities, interest
rates, prepayment speeds, credit risk, etc.)
. Level 3 -- prices determined using significant unobservable inputs
(including the Fund's own assumptions in determining the fair value
of investments)
The following is a summary of the inputs used to value the Fund's net assets
as of June 30, 2008. The inputs or methodology used for valuing securities are
not necessarily an indication of the risk associated with investing in those
securities.
Valuation Inputs Investments in Securities
---------------- -------------------------
Assets:
Level 1 -- Quoted Prices....................... $376,352,140
Level 2 -- Other Significant Observable Inputs. 93,453,140
Level 3 -- Significant Unobservable Inputs..... --
------------
Total...................................... $469,805,280
============
Liabilities:
Level 1 -- Quoted Prices....................... $ 6,887,200
Level 2 -- Other Significant Observable Inputs. --
Level 3 -- Significant Unobservable Inputs..... --
------------
Total...................................... $ 6,887,200
============
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.
FASB Interpretation No. 48, ("FIN 48") Accounting for Uncertainty in Income
Taxes, sets forth a minimum threshold for financial statement recognition of
the benefit of a tax position taken or expected
17
to be taken in a tax return. Management has analyzed the Fund's tax positions
and has concluded that no provision for income tax is required in the Fund's
financial statements. The Fund is not aware of any tax positions for which it
is reasonably possible that the total amounts of unrecognized tax benefits will
significantly change in the next twelve months. However, management's
conclusions regarding the adoption of FIN 48 may be subject to review and
adjustment at a later date based on factors including, but not limited to,
further implementation guidance from the FASB, new tax laws, regulations and
administrative interpretations (including court decisions). Each of the Fund's
federal tax returns for the prior three fiscal years remain subject to
examination by the Internal Revenue Service.
D. Dividends and Distributions to Shareholders:
Distributions are recorded by the Fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. These differences may include the treatment of
non-taxable dividends, market premium and discount, non-deductible expenses,
expiring capital loss carryovers, foreign currency gain or loss, operating
losses and losses deferred due to wash sales. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to capital paid in on shares of beneficial interest.
The Fund has $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.
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
18
proceeds from the short sale retained by the broker and by cash and securities
deposited in a segregated account with the Fund's custodian. If the price of
the security sold short increases between the time of the short sale and the
time the Fund replaces the borrowed security, the Fund will realize a loss, and
if the price declines during the period, the Fund will realize a gain. Any
realized gain will be decreased, and any realized loss increased, by the amount
of transaction costs. On ex-dividend date, dividends on short sales are
recorded as an expense to the Fund. At June 30, 2008, the value of securities
sold short amounted to $6,887,200 against which collateral of $24,763,003 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.
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 June 30, 2008, the Fund had no securities on loan.
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 June 30, 2008, were
as follows:
Purchases...................... $ 98,283,539
Sales.......................... 115,800,509
Short sales.................... 7,052,478
Purchases to cover short sales. 3,290,405
Purchases and sales of long-term U.S. Government and agency securities for
the period ended June 30, 2008, were as follows:
Purchases......................... $ --
Sales............................. 27,060,550
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,
19
the adviser is responsible for the actual management of the Fund's portfolio.
The Adviser is a wholly-owned subsidiary of Phoenix Investment Partners, Ltd.
("PXP"). PXP is an indirect, wholly-owned subsidiary of The Phoenix Companies,
Inc. ("PNX"). The responsibility for making decisions to buy, sell or hold a
particular investment rests with the Adviser, subject to review by the Board of
Directors and the applicable provisions of the Act. For the services provided
by the Adviser under the Agreement, the Fund pays the Adviser a monthly fee
equal, on an annual basis, to 0.85% of the Fund's average daily net assets.
During the period ended June 30, 2008, the Fund incurred advisory fees of
$2,038,255.
Zweig Consulting LLC (the "Sub-Adviser"), which serves as the Sub-Adviser
for the Fund, performs certain asset allocation research and analysis and
provides such advice to the Adviser. The Sub-Adviser's fees are paid by the
Adviser.
b) Administration Fee: Phoenix Equity Planning Corporation ("PEPCO"), an
indirect wholly owned subsidiary of PNX, serves as the Fund's Administrator
(the "Administrator") pursuant to an Administration Agreement. The
Administrator receives a fee for financial reporting, tax services, and
oversight of the subagent's performance at a rate of 0.065% of the Fund's
average daily net assets. During the period ended June 30, 2008, the Fund
incurred Administration fees of $155,867.
c) Directors Fee: The Fund pays each Director who is not an interested
person of the Fund or the Adviser a fee of $11,000 per year plus $1,500 per
Directors' or committee meeting attended, together with the out-of-pocket costs
relating to attendance at such meetings. The Audit Committee chairperson is
paid an additional fee of $5,000. 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 June 30, 2008, the Fund had one class of common stock, par value $.10 per
share, of which 200,000,000 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 period ended June 30, 2008 and the
year ended December 31, 2007, 0 and 322,545 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.
Expenses were adjusted by $148,211 in 2008, resulting in final net proceeds of
$88,007,211.
20
On June 16, 2008, the Fund announced a distribution of $0.133 per share to
shareholders of record on July 9, 2008. This distribution has an ex-dividend
date of July 7, 2008, and is payable on July 28, 2008. Please see inside back
cover for more information on fund distributions.
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.
NOTE 8 -- REGULATORY EXAMS
Federal and state regulatory authorities from time to time make inquiries
and conduct examinations regarding compliance by The Phoenix Companies, Inc.
and its subsidiaries (collectively "the Company") with securities and other
laws and regulations affecting their registered products.
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
was 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 this matter will be
material to these financial statements.
NOTE 9 -- RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2008, Statement of Financial Accounting Standards No. 161,
"Disclosures about Derivative Instruments and Hedging Activities" (FAS 161) was
issued and is effective for fiscal years and interim periods beginning after
November 15, 2008. FAS 161 is intended to improve financial reporting for
derivative instruments by requiring enhanced disclosure that enables investors
to understand how and why a fund uses derivatives, how derivatives are
accounted for, and how derivative instruments affect a fund's results of
operations and financial position. Management is currently evaluating the
impact, if any, of FAS 161 on financial statement disclosures.
NOTE 10 -- OTHER
On February 7, 2008, PNX announced that it intends to spin off its asset
management subsidiary ("spin-off"), PXP, to PNX's shareholders. The Fund's
Administrator, PEPCO, a subsidiary of PXP, and the Fund's Adviser,
Phoenix/Zweig Advisers LLC, are also intended to be a part of the spin-off.
21
BOARD CONSIDERATION AND RE-APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SERVICING AGREEMENT
Pursuant to Section 15(c) of the Investment Company Act of 1940, as amended
(the "1940 Act"), the Board of Directors (the "Board") of The Zweig Fund, Inc.
(the "Fund"), including a majority of the Directors who have no direct or
indirect interest in the investment advisory agreement and are not "interested
persons" of the Fund, as defined in the 1940 Act (the "Independent Directors"),
are required to annually review and re-approve the terms of the Fund's existing
investment advisory agreement (the "Advisory Agreement") with Phoenix/Zweig
Advisers LLC (the "Adviser") and the servicing agreement (the "Servicing
Agreement") between the Adviser and Zweig Consulting LLC (the "Sub-Adviser")
(collectively, the "Agreements"). In this regard, the Board reviewed and
re-approved, during the most recent six month period covered by this report,
the Agreements.
More specifically, at a meeting held on February 12, 2008, the Board,
including the Independent Directors, considered the factors and reached the
conclusions described below relating to the selection of the Adviser and the
Sub-Adviser and the re-approval of the Agreements.
1. Nature, Extent and Quality of Services. The Board considered the nature,
extent and quality of the services performed by the Adviser and the
Sub-Adviser, including portfolio management, supervision of Fund operations and
compliance and regulatory filings and disclosures to shareholders, general
oversight of other service providers, review of Fund legal issues, assisting
the Directors in that capacity and other services. The Independent Directors
concluded that the services are extensive in nature and that the Adviser and
the Sub-Adviser delivered an acceptable level of service.
2. Investment Performance of the Funds and Adviser. The Board considered the
investment performance for the Fund over various periods of time as compared to
the performance of the Fund's Lipper, Inc. performance group and performance
universe, and concluded that the Adviser was delivering acceptable performance
results consistent with the long-term investment strategies being pursued by
the Fund. The Board had been informed that the Adviser and its affiliates did
not manage any funds comparable to the Fund against which the Fund's
performance could be compared.
3. Costs of Services and Profits Realized by the Adviser and the Sub-Adviser.
(a) Costs of Services to Fund: Fees and Expenses. The Board considered the
Fund's management fee rate and expense ratio relative to the Fund's Lipper,
Inc. expense group. The Board concluded that the fee is acceptable based upon
the qualifications, experience, reputation and performance of the Adviser and
the Sub-Adviser. The Board also concluded that the expense ratio of the Fund
was within an acceptable range relative to its Lipper, Inc. expense group.
(b) Profitability and Costs of Services to Adviser and Sub-Adviser. The
Board considered the Adviser's and Sub-Adviser's overall profitability and
costs. The Board also considered whether the amount of profit is a fair
entrepreneurial profit. The Board concluded that the Adviser's and the
Sub-Adviser's profitability was at an acceptable level in light of the quality
of the services being provided to the Fund.
4. Extent of Economies of Scale as Fund Grows. The Board considered whether
there have been economies of scale with respect to the management of the Fund
and whether the Fund has appropriately benefited from any economies of scale.
The Board noted that economies of scale may develop for
22
certain funds as their assets increase and their fund-level expenses decline as
a percentage of assets, but that closed-end funds such as the Fund typically do
not have the ability to substantially increase their asset base as do mutual
funds. The Board concluded that the Fund has appropriately benefited from any
economies of scale.
5. Whether Fee Levels Reflect Economies of Scale. The Board also considered
whether the management fee rate is reasonable in relation to the asset size of
the Fund and any economies of scale that may exist, and concluded that, given
the Fund's closed-end structure, it was. At the same time, the Directors agreed
that it would be appropriate to monitor this issue in the event that the assets
of the Fund were to increase substantially via a rights offering or some other
means.
6. Other Relevant Considerations.
(a) Adviser Personnel and Methods. The Board considered the size, education
and experience of the Adviser's and Sub-Adviser's staff, their fundamental
research capabilities and approach to recruiting, training and retaining
portfolio managers and other research and management personnel, and concluded
that in each of these areas they were structured in such a way to support the
level of services being provided to the Fund.
(b) Other Benefits to the Adviser or Sub-Adviser. The Board also considered
the character and amount of other incidental benefits received by the Adviser
and the Sub-Adviser and their respective affiliates from their association with
the Fund. The Board concluded that potential "fall-out" benefits that they may
receive, such as greater name recognition or increased ability to obtain
research or brokerage services, appear to be reasonable, and may in some cases
benefit the Fund.
Conclusions
In considering the Agreements, the Board did not identify any factor as
all-important or all-controlling and instead considered these factors
collectively in light of the Fund's surrounding circumstances. Based on this
review, it was the judgment of the Board that shareholders had received
acceptable absolute and relative performance at reasonable fees and, therefore,
re-approval of the Investment Advisory Agreement with the Adviser and the
Servicing Agreement with the Sub-Adviser were in the best interests of the Fund
and its shareholders. As a part of its decision-making process, the Board noted
its belief that a long-term relationship with capable, conscientious advisers
is in the best interests of the Fund. The Board considered, generally, that
shareholders invested in the Fund knowing that the Adviser managed the Fund and
knowing its investment management fee schedule. As such, the Board considered,
in particular, whether the Adviser, with the assistance of the Sub-Adviser,
managed the Fund in accordance with its investment objectives and policies as
disclosed to shareholders, and concluded that the Fund was so managed.
Upon conclusion of their review and discussion, the Independent Directors,
voting separately, and the full Board unanimously approved the continuation of
the Investment Advisory Agreement and the Service Agreement.
23
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
9, 2008. The meeting was held for the purpose of electing two (2) nominees to
the Board of Directors.
The results of the above matters were as follows:
Directors Votes For Votes Against Votes Withheld Abstentions
--------- ----------- --------------- ---------------- -------------
Wendy Luscombe.. 72,923,029 N/A 3,334,171 N/A
R. Keith Walton. 72,934,980 N/A 3,322,221 N/A
Based on the foregoing Wendy Luscombe and R. Keith Walton, were elected as
Directors. The Fund's other Directors who continue in office are George R.
Aylward, Charles H. Brunie, Alden C. Olson and James B. Rogers, Jr.
24
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.
INVESTMENT GUIDELINE CHANGES
The following changes to the Investments Guidelines have been approved by
the Fund's Board of Directors:
The Fund may invest up to 30% of its total assets in securities of foreign
issuers. The Fund may engage in foreign currency transactions, even if they are
not in connection with the Fund's investment activity in foreign securities.
The Fund typically does not make significant investments in foreign securities.
The Fund reserves the right to engage in interest rate, equity, total return
and other swaps. The Fund has no current plans to do so.
25
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, 2008
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, 2009 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.
26
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed registrants.
Not applicable.
Item 6. Investments.
(a) 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.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
There has been no change, as of the date of this filing, in any of the
portfolio managers identified in response to paragraph (a)(1) of this Item in
the registrant's most recently filed annual report on Form N-CSR. In addition,
there are no newly identified portfolio managers as of the date of this filing.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
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) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached
hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes- Oxley Act of 2002 are attached
hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) The Zweig Fund, Inc.
By (Signature and Title)* /s/ George R. Aylward
-----------------------------------
George R. Aylward, President
(principal executive officer)
Date September 5, 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 September 5, 2008
By (Signature and Title)* /s/ Nancy G. Curtiss
-----------------------------------
Nancy G. Curtiss, Treasurer
(principal financial officer)
Date September 5, 2008
* Print the name and title of each signing officer under his or her signature.