UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-04739
The Zweig Fund, Inc.
(Exact name of registrant as specified in charter)
900 Third Avenue
New York, NY 10022
(Address of principal executive offices) (Zip code)
The Bank of New York
101 Barclay Street
New York, NY 10286
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-212-298-1635
Date of fiscal year end: December 31, 2004
Date of reporting period: June 30, 2004
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. (S) 3507.
Item 1. Report(s) to Stockholders.
The Trust's semi-annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
August 10, 2004
Dear Fellow ZF Shareholder:
At its meeting on August 10, 2004, The Zweig Fund Board of Directors
approved a new annualized 10% fixed cash distribution policy. The new policy
becomes effective with the distribution for the quarter ending September 30,
2004, which is scheduled to be paid on October 26, 2004 to shareholders of
record as of October 8, 2004.
The new policy replaces the variable cash policy adopted in July 2003 in an
effort to reduce the tax potential to shareholders for certain distributions
associated with the Fund's original fixed cash policy dating to June 1987.
Under the new fixed cash policy, the tax potential remains, however, the Board
believes that shareholders' long-term interests are better served by regular,
fixed quarterly cash payouts.
The Board also adopted amended and restated Fund bylaws at the August 10
meeting. The Board felt it was appropriate to update and modernize the bylaws
which are more than 15 years old. Among the bylaw changes are those designed to
facilitate the Fund's corporate governance as well as the fair and orderly
consideration of shareholder proposals and nominations, including the adoption
of an advance notice provision for the annual shareholder meeting. Information
on the new bylaws, including the SEC Web site link to the bylaws themselves, is
provided in the section following this letter entitled "Notice of Amended and
Restated Bylaws."
The Fund recently announced a distribution of $0.020 payable July 26, 2004,
to holders of record on July 8, 2004. Including this distribution, the Fund's
total payout since its inception is now $18.001. As referenced above, the next
quarterly distribution will be under the new fixed cash distribution policy
adopted by the Board on August 10.
Turning to performance, The Zweig Fund's net asset value declined 0.50% for
the quarter ended June 30, 2004, including the $0.010 distribution paid on
April 26. During the same period, the Standard & Poor's 500 Index gained 1.72%,
including dividends.
For the six months ended June 30, 2004, the Fund's net asset value increased
2.01%, including the latest distribution. During the same period, the S&P 500
Index rose 3.44%, including dividends.
In accordance with our policy of seeking reasonable returns while minimizing
risks, the Fund's average exposure in U.S. common stocks was 70% in the second
quarter. We also had an average exposure of 24% in U.S. Government bonds. Our
average exposure for the first half of 2004 was identical -- 70% in U.S. common
stocks and 24% in U.S. Government bonds.
In the enclosed review, Dr. Martin Zweig and Carlton Neel provide market
insights and details about the Fund's allocations and top holdings. At the Fund
Board's request, Dr. Zweig is collaborating closely with Mr. Neel and the
portfolio management team with regard to the stock selection process for the
portfolio.
As always, we welcome your comments and feedback.
Sincerely,
/s/ Daniel T. Geraci
Daniel T. Geraci
President
The Zweig Fund, Inc.
NOTICE OF AMENDED AND RESTATED BYLAWS
On August 10, 2004 the Board of Directors adopted Amended and Restated
Bylaws. The Board of Directors felt that it was appropriate and in the best
interest of shareholders to update and modernize the Fund's Bylaws, which go
back to the Fund's 1986 inception.
Some of the changes in the Bylaws are designed to facilitate the Fund's
corporate governance as well as the fair and orderly consideration of
shareholder proposals and nominations. Among other things, the Amended and
Restated Bylaws now include an advance notice provision which requires that the
Fund be given advance notice of stockholder nominations for election to the
Board of Directors and of other matters which stockholders wish to present for
action at an annual meeting of stockholders, other than matters included in the
Fund's proxy statement in accordance with SEC Rule 14a-8.
As a result of these provisions, the Fund must receive notice of any
director nominations or other matters which stockholders wish to present for
action at the Fund's 2005 Annual Meeting of Stockholders no sooner than
December 6, 2004, and no later than January 5, 2005. The notice must set forth
specific information, and provide certain representations, the details of which
are set forth in the Amended and Restated Bylaws. Any shareholder proposal must
also comply with all other legal requirements in order to be included in the
Fund's proxy statement and form of proxy for that meeting.
The persons named as proxies for the 2005 Annual Meeting of Stockholders
will, with respect to the proxies in effect at such meeting, have discretionary
authority to vote on any matter presented by a shareholder for action at that
meeting unless the Fund receives notice of the matter by February 11, 2005. If
the Fund receives such timely notice, these persons will not have this
authority except as provided in the applicable rules of the Securities and
Exchange Commission.
The foregoing description of certain provisions of the Amended and Restated
Bylaws does not purport to be complete and is qualified in its entirety by the
text of the Amended and Restated Bylaws themselves, which are being filed with
the Securities and Exchange Commission as an exhibit to the Fund's Form N-SAR.
A copy of the Fund's Form N-SAR will be available on the SEC's Web site at
www.sec.gov under Filings & Forms (EDGAR).
MARKET OUTLOOK
The stock markets generally treaded water during the second quarter of 2004.
After moving mostly sideways for three months, the Dow Jones Industrial Average
ended the period just 0.8% higher. The S&P 500 Index gained 1.72%, while the
NASDAQ Composite Index was up 2.7%. For the first half of the year, the Dow
closed down 0.18%, the S&P gained 2.6%, and the NASDAQ rose 2.2%.*
There were several factors responsible for the listless performance. For
one, we believe that investors had gotten pretty optimistic last year and there
was excessive bullishness. As a result, investors had used up much of their
cash on a short-term basis. Also, the market was marking time as it awaited a
widely anticipated interest rate hike by the Federal Reserve.
The markets also featured a decline in volume and volatility. In June,
trading volume on the New York Stock Exchange came to a daily average of 1.3
billion shares, the lowest monthly average since December 2003. In addition,
volatility recently fell to its lowest point since 1966.
2
In our opinion these figures illustrate how dull and frustrating the
sideways market was. Incidentally, there's an old saying: "Never short a dull
market." Occasionally, there is an explosive move on the upside. Sometimes it
happens in a bear market, as well. We really aren't certain what the slowdown
in activity portends. Perhaps investors were just tired and losing interest.
After telegraphing its intentions for some time, the Federal Reserve finally
raised its short-term interest rate on June 30, 2004, to 1.25% from 1.00%,
which had been the lowest figure since 1958. The Fed said it would make future
moves at a measured pace, but added the caveat that it would respond to
economic prospects as needed to maintain price stability. It saw upside and
downside risks to economic growth and inflation as roughly equal.
We believe that the Fed probably should have hiked several months earlier
when the economy was very strong. Our experience tells us that, normally, the
Fed waits too long before acting and typically tends to overact. However, we
believe it was appropriate for them to make the latest move. Now that the
economy seems to be weakening on the margin, the Fed may be reluctant to raise
rates too high. But, I think we will get one or two more rate increases before
the end of the year.
Historically, stocks have been described as a long-term hedge against
inflation, but in my opinion that is sort of a myth. Stock prices may go up
during periods of intense inflation, but they usually lag the inflation rate.
On a short-term period of a year or two, stocks have actually done best when
prices were stable. Last year was a good example. The market was pretty strong
and we had pretty tame inflation. During periods of intense inflation, stocks
might outperform some other assets, but they don't always do that well. Extreme
deflation can also be a negative for stocks. But, moderate inflation to
moderate deflation are typically sweets spots for the stock market.
Some analysts have said the era of cheap money is at an end. We disagree.
The 1% Fed rate was extraordinarily cheap and so is the current 1.25% rate.
Even if the rate goes to 2% or 2.5%, we still believe that it would remain
pretty cheap. As we see it, any rate under 3% can be considered cheap.
Now that the Fed has raised the interest rate after 13 cuts, some investors
are wondering whether to take some chips off the table as called for by the
market maxim: "Don't fight the Fed." I don't think that adage applies at this
time. With the rates so low and money still reasonable, this is not really a
tight Fed. If the Fed gets short-term rates up around long-term rates or even
higher, or if they let the money supply shrink, that to me would be signs of
tightness. But, they are not doing that. So, if you are bullish on the market
you're probably not fighting the Fed. I think the situation looks more like
neutral right now.
Net deposits to stock funds by investors totaled only $564 million in May, a
steep decline from the $23 billion invested in April, according to the
Investment Company Institute. That's a big drop and it probably explains why
there wasn't as much cash around to take the market higher in the second
quarter. The most bullish environment for mutual funds is a moderate monthly
flow. We were getting pretty extreme numbers earlier this year. That concerned
us because it indicated too much exuberance. That usually means that the very
high rate of inflow cannot continue indefinitely. That is reflected in the May
figure. We consider that likely to be a negative sign.
Hedge funds did somewhat better. They received $22 billion in the first
quarter compared to $75 billion in all of last year, according to Hedge Fund
Research. It appears that a lot of people are putting more money into hedge
funds instead of mutual funds. It is important to remember that hedge funds
don't just go out there and buy stocks. A significant number of them sell
short, do arbitrage, buy convertible bonds, and trade currencies. So, it is not
all stock market money. I
3
am somewhat concerned about hedge funds because so much money has poured in and
many managers are acting with similar strategies. As a result, the profit
margins are pretty slim in certain areas. We believe that there are not as many
good opportunities out there and it is going to be tougher and tougher to make
money in this field.
Meanwhile, cash levels at stock funds showed little change, totaling 4.2% of
assets in May compared with 4.2% in April and 4.8% in May of last year. We
think this is a bearish long-term indicator. Some people will argue that the
mutual funds themselves are forcing portfolio managers to hold very little
cash. That's partly because we were in such a long-term bull market in the last
few years and they didn't want to underperform by holding extra cash. However
during bear markets, they would hold cash in the 10 to 12% range. Before the
market turns very bullish, we think we will see much higher cash levels. We
believe that some fund companies will capitulate as stocks weaken and begin to
hold cash again. But, we also believe that the current cash level is
uncomfortable for the longer term.
Foreign purchases of U.S. securities remain strong at $72.6 billion in
April. However, they were down from $80.1 billion in March, according to the
Treasury Department. We believe that this is a figure to watch. Our feeling is
that foreigners are generally not astute on our markets -- nor are Americans
very astute on foreign markets. It appears to us that the further away a market
is from you, the less astute you tend to be. If foreign investors buy our
stocks very heavily, it is usually a cautious sign because they tend to be
wrong. When they panic and start to sell heavily, it is usually a pretty good
sign. We believe it is fine when foreign flows are moderate. As such, we find
the current figures to be a probable warning sign.
The U.S. trade deficit expanded in April to a record of $48.3 billion, with
imports of cars the highest ever. Imports rose 0.2% to $142.3 billion, while
exports fell 1.5% to $93.9 billion. The U.S. has been running a negative trade
deficit for some time and it is getting worse. That's put pressure on the
dollar, which has been weak over the last year or more. The weak dollar has
various repercussions on financial markets. While it makes assets here cheaper
for foreigners, it could present a problem. If foreigners expect the dollar to
continue weakening, they might pull some of their holdings from our stock or
bond markets. While it is always hard to analyze the trade figures, we feel
they are probably somewhat of a negative factor.
Largely because of the trade deficit, the Commerce Department reported that
it has revised downward its first-quarter figure for gross domestic product
(GDP) to 3.9% from its previous figure of 4.4%. Usually it takes several years
of revisions before the revisions stop. Meanwhile, 3.9 % is still a pretty good
number. However, we don't think the third quarter will reach that level.
The Commerce Department also reported that productivity of non-farm workers
grew at a 3.8 % annual rate in the first quarter, up from an earlier estimate
of 3.5 %. On a year-to-year basis, productivity climbed 5.5%, the largest gain
in about 30 years. That is a huge number. That often happens when you come out
of a recession, as we did last year. During recessions, people get laid off and
companies have a lot of excess capacity. Thus, when business begins to pick up,
companies are usually reluctant to hire new labor. Companies are lean and mean
so people work a lot harder and productivity grows. Eventually, as the economy
expands, companies begin to hire. Over-expansion leads to bloat and declining
productivity. Of course, some experts (including Federal Reserve Chairman
Greenspan) believe the productivity is largely due to all the technological
advances that we are profiting from. We feel that there is truth to that, but
we are not going to be over 5% indefinitely. We think it will be a positive
factor if we go to a 2% or 3% productivity figure for the long run.*
4
The nation's budget deficit rose to $62.47 billion in May, bringing the
deficit for the first eight months of this fiscal year to $344.32 billion. This
compares with a deficit of $290.93 billion at the same point in fiscal 2003. We
feel that the deficit is on track to top last year's record shortfall of $374
billion. Supporting this view is our belief that deficits tend to expand during
recessions. Also impacting this situation were the tax cuts that were
implemented to stimulate the economy. Eventually, the deficits should narrow if
the economy continues to do well. But that's uncertain due to the many other
factors involved, including the war. During a war, the government must spend
money to finance military operations and this increased spending widens the
deficit. The problem here is that deficits can be inflationary and weaken the
dollar. To finance these deficits, the Government has to sell more and more
bonds. If the supply of bonds increases too much, interest rates tend to rise.*
Reflecting the stronger economy, the dollar value of mergers and
acquisitions rose 25% to $167 billion in the second quarter from $134 billion
in the comparable 2003 period, according to Thomson Financial. We believe that
as people get more confident about the economy and the stock market, there will
be more takeovers and mergers. As with everything else, excess is not typically
good. It probably isn't excessive yet, but we feel that the situation may be
getting close to that.
As with mergers, when the market does better, initial public offerings
(IPO's) tend to increase. So far this year, there have been l02 IPO's, raising
$18.76 billion. In all of last year, there were only 83 IPO's, raising $15.33
billion, according to Thomson Financial. We don't think these numbers are
excessive yet. There's reason to worry when IPO's are very frothy and there is
a huge move when stock comes out at $20 and soars to $40 on the first day. On
balance, we don't believe IPO activity is at that level yet.
In June, insiders sold more than $35 worth of stock for every dollar's worth
they bought. There was a sharp drop in insider buying. In June, insiders spent
$79 million to buy shares against $178 million in May, according to Thomson
Financial. Although insiders are not selling as heavily as they were earlier,
we are very uncomfortable about these figures. It will be a good sign when we
see a lot of insider buying. That would probably indicate that stocks are
cheaper, at least in the eyes of insiders. But until that happens, we'll view
recent insider behavior as a negative factor.
Stocks may not be cheaper, but earnings are still strong. Earnings from
companies in the S&P 500 Index are estimated by First Call to have increased
27.5% in the first quarter of 2004 against 28.3% in the fourth quarter of 2003.
Growth for the second quarter of 2004 is estimated at 20%. I think the
year-to-year comparisons are going to slow quite a bit, but they will still be
rather positive.
A less positive indicator is the Investors Intelligence report that its
latest survey of market advisors showed 55.7% bullish and 17.5% bearish. The
bullish sentiment was the highest since early March and the bearish was the
lowest since February. These numbers do not encourage us because we believe
they reveal an overabundance of optimism. We feel that there are too many bulls
and too few bears. That's just not a good sign, especially with a slowing
economy.
Although the Conference Board reported that consumer confidence reached a
two-year high in June, other indicators point to a cooling down of the economy.
For example, interest rates are rising, job creation in June was only half as
strong as expected, and orders for durable goods and auto sales have declined.
Our own simple economic model that measures what the economy is doing on a
scale from 0 to 100 got up to a reading of 92 a few months ago but is now down
to about 61. Of course, a measurement of 61 isn't bad -- it is above neutral.
So, while the rate of growth is slowing, it is still positive.
It is not realistic to expect a normal, predictable market as the country
faces the continued
5
violence in Iraq, the threat of domestic terrorism, and the uncertainty of
upcoming election results. However, we believe that there may be some truth to
the old saying: "Bull markets climb a wall of worry." There has been a bull
market since early last year or even late 2002. The bull market may be at a low
point, but we are not in a bear market that we know about yet.
Summing up our market outlook, the sentiment figures represent too much
optimism for our liking. Also, we are not happy that interest rates are up,
although the Fed is not really tight. Long-term rates are way above
short-rates, which we believe is normally a positive sign. The money supply is
still increasing and we see the monetary picture as neutral. We feel that
earnings growth is a positive factor. While the economy is not growing as fast
as it did, it is in decent shape. We are somewhat worried about inflation,
which usually picks up during wars. However, our tape indicators are positive
as of this writing. In addition to the old saying about not fighting the Fed,
there is a similar quote: "Don't fight the tape." With the Fed somewhat
negative and the tape positive, we think the picture is mixed. We are more
concerned with the longer term. Consequently, our market posture is very
conservative.*
At this point, we are about 60% invested. In view of all the market
uncertainties, we don't want to make a bet here. If the market declines, we
will be holding what we see as a respectable amount of cash. On the other hand,
if the market goes up, we will lag the market, but we believe we will still
make some money. As indicated by our exposure, our current market stance could
be described as low neutral, but not bearish.
Sincerely,
[GRAPHIC]
Martin E. Zweig, Ph.D.
President
Zweig Consulting LLC
PORTFOLIO COMPOSITION
Our leading sectors on June 30, 2004, included industrials, financials,
materials, consumer discretionary and health care. During the quarter, we added
to our positions in industrials and energy and trimmed our holdings in health
care and technology. Aside from percentages held, the only change from the
previous quarter is the replacement of technology by materials.
Among individual companies, our top holdings on June 30 included
Georgia-Pacific, Deere, PACCAR, Alcoa, Honda, Kimberly Clark, Ann Taylor,
Pfizer, Kerr-McGee, and Waste Management.
Aside from Deere, PACCAR, and Pfizer, all of the other companies are new to
this listing. During the quarter, we added to our holdings in Alcoa and
Kimberly Clark and there were no changes in the shares held in the other
companies cited.
No longer in the above top listing are Citigroup, Wells Fargo, Occidental
Petroleum, and Freeport-McGee, in which we trimmed our holdings, and McKesson,
where we sold our entire position. There were no changes in the shares held in
Freeport-McMoRan and United Health Group, although both firms are no longer in
our top holdings.
Sincerely,
[SIGNATURE]
/s/ Carlton Neel
Carlton Neel
Executive Vice President
Phoenix/Zweig Advisers LLC
- --------
* Source: Zweig Consulting LLC
The preceding information is the opinion of fund management. There is no
guarantee that market forecasts discussed will be realized.
6
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.
7
THE ZWEIG FUND, INC.
INVESTMENTS AND SECURITIES SOLD SHORT
June 30, 2004
(Unaudited)
Number of
Shares Value
--------- ------------
INVESTMENTS
DOMESTIC COMMON STOCKS 61.88%
CONSUMER DISCRETIONARY 6.96%
AnnTaylor Stores Corp......................... 225,000(a) $ 6,520,500
Fox Entertainment Group, Inc. Class A......... 220,000(a) 5,874,000
GAP (The), Inc................................ 242,000 5,868,500
Home Depot, Inc............................... 160,000(b) 5,632,000
Viacom, Inc. Class B.......................... 150,000 5,358,000
------------
29,253,000
------------
CONSUMER STAPLES 6.62%
Altria Group, Inc............................. 110,000(b) 5,505,500
Coca-Cola Enterprises, Inc.................... 220,000 6,377,800
Kimberly-Clark Corp........................... 100,000 6,588,000
PepsiCo, Inc.................................. 58,900 3,173,532
Procter & Gamble Co........................... 113,200 6,162,608
------------
27,807,440
------------
ENERGY 5.51%
ConocoPhillips................................ 76,000 5,798,040
Halliburton Co................................ 160,000 4,841,600
Kerr-McGee Corp............................... 120,000(b) 6,452,400
Occidental Petroleum Corp..................... 125,000 6,051,250
------------
23,143,290
------------
FINANCIALS 12.00%
Allstate Corp................................. 135,000 6,284,250
Bank of America Corp.......................... 75,000(b) 6,346,500
Capital One Financial Corp.................... 85,000(b) 5,812,300
Citigroup, Inc................................ 117,000 5,440,500
First Horizon National Corp................... 135,000 6,138,450
Morgan Stanley................................ 50,000 2,638,500
National City Corp............................ 165,000 5,776,650
Wachovia Corp................................. 130,000 5,785,000
Wells Fargo & Co.............................. 108,000 6,180,840
------------
50,402,990
------------
See notes to financial statements
8
Number of
Shares Value
--------- ------------
HEALTH CARE 8.83%
Amgen, Inc.................................... 100,000(a) $ 5,457,000
Bristol-Myers Squibb Co....................... 250,000 6,125,000
C. R. Bard, Inc............................... 86,000 4,871,900
Merck & Co., Inc.............................. 85,000 4,037,500
Mylan Laboratories, Inc....................... 190,000 3,847,500
Pfizer, Inc................................... 190,000 6,513,200
UnitedHealth Group, Inc....................... 100,000 6,225,000
------------
37,077,100
------------
INDUSTRIALS 10.89%
Boeing Co..................................... 120,000 6,130,800
Deere & Co.................................... 100,000(b) 7,014,000
L-3 Communications Holdings, Inc.............. 95,000 6,346,000
Lockheed Martin Corp.......................... 70,000 3,645,600
Norfolk Southern Corp......................... 230,000 6,099,600
Northrop Grumman Corp......................... 58,000 3,114,600
PACCAR, Inc................................... 120,000 6,958,800
Waste Management, Inc......................... 210,000 6,436,500
------------
45,745,900
------------
INFORMATION TECHNOLOGY 3.93%
Amdocs Ltd.................................... 220,000(a) 5,154,600
Cisco Systems, Inc............................ 269,000(a) 6,375,300
Microsoft Corp................................ 175,000 4,998,000
------------
16,527,900
------------
MATERIALS 6.03%
Alcoa, Inc.................................... 205,000 6,771,150
Dow Chemical Co. (The)........................ 145,000(b) 5,901,500
Freeport-McMoRan Copper & Gold, Inc., Class B
(Indonesia)................................. 170,000(b) 5,635,500
Georgia-Pacific Corp.......................... 190,000 7,026,200
------------
25,334,350
------------
TELECOMMUNICATION SERVICES 1.11%
AT&T Corp..................................... 320,000 4,681,600
------------
Total Domestic Common Stocks (Cost $232,179,129)..... 259,973,570
------------
FOREIGN COMMON STOCKS 10.42%
CONSUMER DISCRETIONARY 1.59%
Honda Motor Co., Ltd. ADR (Japan)............. 275,000(b)(d) 6,688,000
------------
ENERGY 2.31%
Talisman Energy, Inc. (Canada)................ 225,000 4,891,500
Total S.A., ADR (France)...................... 50,000(d) 4,804,000
------------
9,695,500
------------
See notes to financial statements
9
Number of
Shares Value
----------- ------------
HEALTH CARE 2.60%
Angiotech Pharmaceuticals, Inc. (United States) 240,000 (a) $ 4,836,000
Sanofi-Synthelabo S.A., ADR (France).......... 190,000(d) 6,078,100
------------
10,914,100
------------
INFORMATION TECHNOLOGY 1.18%
Nokia Corp., ADR (Finland).................... 340,000(d) 4,943,600
------------
MATERIALS 2.74%
BHP Billiton Ltd. (Australia)................. 405,032 3,535,290
Newcrest Mining Ltd. (Australia).............. 266,563 2,558,785
Rio Tinto Ltd. (Australia).................... 128,086 3,207,637
WMC Resources Ltd. (Australia)................ 650,343 2,228,909
------------
11,530,621
------------
Total Foreign Common Stocks (Cost $41,317,324)....... 43,771,821
------------
PREFERRED STOCKS 6.77%
FINANCIALS 6.77%
ABN Amro North America, Series A, 144A, 8.75%
Pfd......................................... 11,500 (c) 11,615,000
Citibank NA Series A, 6.34% Pfd............... 2,000 201,500
Fannie Mae, Series J, 1.89% Pfd............... 330,000 16,623,750
------------
Total Preferred Stocks (Cost $29,101,172)............ 28,440,250
------------
Principal
Amount
-----------
U.S. GOVERNMENT SECURITIES 18.51%
United States Treasury Notes, 9.25% 2/15/16... $15,000,000 20,827,155
United States Treasury Notes, 12.75% 11/15/10. 50,000,000 56,916,050
------------
Total U.S. Government Securities (Cost $80,517,376).. 77,743,205
------------
Contracts
-----------
OPTIONS 0.02%
Japanese Yen Call Option expiring 10/29/04 @ 90 800,000 (a) 20,000
Swiss Franc Put Option expiring 10/21/04 @ 1.35 25,000,000(a) 85,400
------------
Total Options (Cost $205,000)........................ 105,400
------------
See notes to financial statements
10
Principal
Amount Value
---------- ------------
SHORT-TERM INVESTMENT 1.50%
UBS Finance Delaware LLC, 1.42%, 7/01/04 (cost
$6,300,000).................................... $6,300,000 $ 6,300,000
------------
Total Investments (Cost $389,620,001) -- 99.10%....... 416,334,246(e)
Securities Sold Short (Proceeds $28,133,230) -- (7.07)% (29,700,150)
Other Assets Less Liabilities -- 7.97%................ 33,468,035
------------
Net Assets -- 100%.................................... $420,102,131
============
- --------
(a) Non-income producing security.
(b) Position, or portion thereof, with an aggregate market value of
$42,572,960 has been segregated to collateralize securities sold short.
(c) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions except from
registration, normally to qualified institutional buyers. At June 30, 2004
these securities amounted to a value of $11,615,000 or 2.76% of net assets.
(d) ADR -- American Depositary Receipt
(e) For Federal income tax purposes, the tax basis of investments owned at
June 30, 2004 was $391,008,356 and net unrealized appreciation of
investments consisted of:
Gross unrealized appreciation.. $ 40,674,554
Gross unrealized depreciation.. (15,348,664)
------------
Net unrealized appreciation.... $ 25,325,890
============
See notes to financial statements
11
Number of
Shares Value
--------- -----------
SECURITIES SOLD SHORT 7.07%
DOMESTIC COMMON STOCKS 7.07%
FINANCIALS 2.11%
Bank of New York Co., Inc. (The)............. 100,000 $ 2,948,000
Marsh & McLennan Cos., Inc................... 130,000 5,899,400
-----------
8,847,400
-----------
HEALTH CARE 3.34%
HCA, Inc..................................... 155,000 6,446,450
Medtronic, Inc............................... 90,000 4,384,800
Thoratec Corp................................ 300,000 3,219,000
-----------
14,050,250
-----------
INDUSTRIALS 0.59%
Expeditors International of Washington, Inc.. 50,000 2,470,500
-----------
UTILITIES 1.03%
Reliant Energy, Inc.......................... 400,000 4,332,000
-----------
Total Securities Sold Short (Proceeds $28,133,230) $29,700,150(f)
===========
- --------
(f) For Federal income tax purposes, the tax basis of securities held short at
June 30, 2004 was $28,133,230 and net unrealized depreciation of
investments consisted of:
Gross unrealized appreciation.. $ 630,783
Gross unrealized depreciation.. (2,197,703)
-----------
Net unrealized depreciation.... $(1,566,920)
===========
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004
(Unaudited)
ASSETS
Investments, at value (identified cost $389,620,001)... $ 416,334,246
Foreign currency at value (identified cost $58,230).... 55,234
Cash................................................... 280,876
Deposits with broker for securities sold short......... 31,752,049
Receivable for investment securities sold.............. 1,410,418
Interest receivable.................................... 1,356,627
Dividends receivable................................... 344,280
Prepaid expenses....................................... 93,592
-------------
Total Assets....................................... 451,627,322
=============
LIABILITIES
Securities sold short, at value (proceeds $28,133,230). 29,700,150
Payable for investment securities purchased............ 1,174,800
Accrued advisory fees (Note 4)......................... 290,072
Accrued administration fees (Note 4)................... 44,363
Other accrued expenses................................. 315,806
-------------
Total Liabilities.................................. 31,525,191
-------------
NET ASSETS $ 420,102,131
=============
NET ASSET VALUE, PER SHARE
($420,102,131/73,233,013 shares outstanding -- Note 5). $ 5.74
=============
Net Assets consist of
Capital paid-in........................................ $ 585,282,318
Accumulated net realized loss on investments........... (190,324,516)
Net unrealized appreciation on investments............. 26,711,249
Net unrealized depreciation on securities held short... (1,566,920)
-------------
$ 420,102,131
=============
See notes to financial statements
13
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2004
(Unaudited)
INVESTMENT INCOME
Income
Interest............................................................... $ 3,429,371
Dividends (net of foreign withholding taxes of $45,811)................ 3,079,839
------------
Total Income........................................................ 6,509,210
------------
Expenses
Investment advisory fees............................................... 1,762,228
Administrative fees.................................................... 269,517
Transfer agent fees.................................................... 189,012
Professional fees...................................................... 181,168
Directors' fees and expenses........................................... 165,652
Printing and postage expenses.......................................... 120,784
Custodian fees......................................................... 26,520
Miscellaneous.......................................................... 112,686
------------
Expenses before dividends on short sales............................ 2,827,567
Dividends on short sales............................................ 116,962
------------
Net Expenses........................................................ 2,944,529
------------
Net Investment Income........................................... 3,564,681
------------
NET REALIZED AND UNREALIZED GAIN (LOSSES)
Net realized gain (loss) on:
Investments............................................................ 16,486,182
Foreign currency transactions.......................................... (43,276)
Options written........................................................ (457,763)
Short sales............................................................ (2,438,152)
Net change in unrealized appreciation (depreciation) on:
Investments............................................................ (10,048,292)
Options written........................................................ 17,365
Foreign currency and foreign currency transactions..................... (3,824)
Short sales............................................................ 419,201
------------
Net realized and unrealized gain.................................... 3,931,441
------------
Net increase in net assets resulting from operations............ $ 7,496,122
============
See notes to financial statements
14
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Six
Months Ended For the Year
June 30, 2004 Ended
(Unaudited) December 31, 2003
------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income......................................... $ 3,564,681 $ 2,131,875
Net realized gain (loss)...................................... 13,546,991 (26,281,383)
Net change in unrealized appreciation (depreciation).......... (9,615,550) 77,090,624
------------ ------------
Net increase in net assets resulting from
operations............................................... 7,496,122 52,941,116
------------ ------------
Dividends and distributions to shareholders from
Net investment income......................................... (3,804,687) (2,018,671)
Tax return of capital......................................... (296,368) (34,378,160)
------------ ------------
Total dividends and distributions to shareholders.......... (4,101,055) (36,396,831)
------------ ------------
Capital share transactions
Net asset value of shares issued to shareholders in
reinvestment of distributions resulting in the issuance
of common stock............................................. -- --
------------ ------------
Net increase in net assets derived from capital share
transactions................................................ -- --
------------ ------------
Net increase in net assets.................................... 3,395,067 16,544,285
NET ASSETS
Beginning of period............................................... 416,707,064 400,162,779
------------ ------------
End of period (including undistributed net investment income
of $0 and $240,006, respectively)............................... $420,102,131 $416,707,064
============ ============
See notes to financial statements
15
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(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 18, 1986. The Fund's objective is to increase capital primarily through
investment in equity securities consistent with capital preservation and
reduction of risk.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. 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, in determining value, utilizes information
with respect to recent sales, market transactions in comparable securities,
quotations from dealers and various relationships between securities.
Securities for which market quotations are not readily available (of which
there were none at June 30, 2004) and other assets, if any, are valued at fair
value as determined under procedures approved by the Board of Directors of the
Fund.
Short-term investments having a remaining maturity of 60 days or less are
valued at amortized cost, which approximates market value.
B. Security transactions and related income:
Security transactions are recorded on 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 premium and acretes discount 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 ("the Code"), applicable to regulated investment companies, and to
distribute substantially all of its taxable
16
income to its shareholders. In addition, the Fund intends to distribute an
amount sufficient to avoid the imposition of any excise tax under Section 4982
of the Code. 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 on current
interpretation of the tax rules and regulations that exist in the markets in
which they invest.
D. Dividends and distributions to shareholders:
Distributions to shareholders are recorded on the ex-dividend date. Income
and capital gain distributions are determined in accordance with tax
regulations that may differ from generally accepted accounting principles.
These differences include the treatment of premium amortization, losses
deferred due to wash sales, differing treatment of certain income and gain
transactions, and the timing of distributions. For financial reporting
purposes, book basis capital accounts are adjusted to reflect the tax character
of permanent book/tax differences. The reclassifications have no impact on the
net assets or net asset value of the Fund.
The Fund has $202,154,139 of capital loss carryovers, $38,468,937 expiring
in 2009, $136,883,040 expiring in 2010 and $26,802,162 expiring in 2011 which
may be used to offset future capital gains. The Fund may not realize the
benefits 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 translations:
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 separate that portion of the results of operations arising from
changes in exchange rates and that portion arising from changes in the market
prices of the securities.
F. Forward currency contracts:
The Fund may enter into forward currency contracts in conjunction with the
planned purchase or sale of foreign denominated securities in order to hedge
the U.S. dollar cost or proceeds. Forward currency contracts involve, to
varying degrees, elements of market risk in excess of the amount recognized in
the Statement of Assets and Liabilities. Risks arise from the possible
movements in foreign exchange rates or if the counterparty does not perform
under the contract. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any number
of days from the date of the contract agreed upon by the parties, at a price
set at the time of the contract. These contracts are traded directly between
currency traders and their customers. The contract is marked-to-
17
market daily and the change in market value is recorded by the Fund as an
unrealized gain or loss. When the contract is closed or offset with the same
counterparty, the Fund records a realized gain or loss equal to the change in
the value of the contract when it was opened and the value at the time it was
closed or offset.
G. Foreign security country determination:
A combination of the following criteria is used to assign the countries at
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 the country in which the greatest percentage of company
revenue is generated.
H. Options:
The Fund may write covered options or purchase options contracts for the
purpose of hedging against changes in the market value of the underlying
securities or foreign currencies.
The Fund will realize a gain or loss upon the expiration or closing of the
option transaction. Gains and losses on written options are reported separately
in the Statement of Operations. When a written option is exercised, the
proceeds on sales or amounts paid are adjusted by the amount of premium
received. Options written are reported as a liability in the Statement of
Assets and Liabilities and subsequently marked-to-market to reflect the current
value of the option. The risk associated with written options is that the
change in value of options contracts may not correspond to the change in the
value of the hedged instruments. In addition, losses may arise from changes in
the value of the underlying instruments, or if a liquid secondary market does
not exist for the contracts.
The Fund may purchase options which are included in the Fund's Schedule of
Investments and Securities Sold Short and subsequently marked-to-market to
reflect the current value of the options. When a purchased option is exercised,
the cost of the security is adjusted by the amount of the premium paid. The
risk associated with purchased options is limited to the premium paid.
I. Short sales:
A short sale is a transaction in which the Fund sells a security it does not
own in anticipation of a decline in market price. To sell a security short, the
Fund must borrow the security. The Fund's obligation to replace the security
borrowed and sold short will be fully collateralized at all times by the
proceeds from the short sale retained by the broker and by cash and securities
deposited in a segregated account with the Fund's custodian. If the price of
the security sold short increases between the time of the short sale and the
time the Fund replaces the borrowed security, the Fund will realize a loss, and
if the price declines during the period, the Fund will realize a gain. Any
realized gain will be decreased by, and any realized loss increased by, the
amount of transaction costs. Dividends on short sales are recorded as an
expense to the Fund on ex-dividend date. At June 30, 2004 the value of
securities sold short amounted to $29,700,150 against which collateral of
$74,325,009 was held. The collateral includes the deposits with 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 appreciate in
value, thereby increasing potential losses.
18
NOTE 3 -- PORTFOLIO TRANSACTIONS
During the six months ended June 30, 2004, purchases and sales transactions
(excluding short-term instruments, securities sold short, written options and
forward currency contracts) were as follows:
Purchases Sales
------------ ------------
Investment securities..... $186,597,901 $136,587,276
U.S. government securities 45,770,117 90,165,570
Transactions in written options for the six months ended June 30, 2004, were
as follows:
Number of Premiums
Contracts Received
--------- ---------
Option contracts outstanding at December 31, 2003 620 $ 100,435
Option contracts written......................... -- --
Option contracts sold............................ (620) (100,435)
Option contracts exercised....................... -- --
Option contracts expired......................... -- --
---- ---------
Option contracts outstanding at June 30, 2004.... -- $ --
==== =========
NOTE 4 -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
a) Investment Advisory Fee: The Investment Advisory Agreement (the
"Agreement") between Phoenix/Zweig Advisers LLC (the "Adviser"), the Fund's
investment adviser, and the Fund provides that, subject to the direction of the
Board of Directors of the Fund and the applicable provisions of the Act, the
Adviser is responsible for the actual management of the Fund's portfolio.
Phoenix/Zweig Advisers LLC is a wholly-owned subsidiary of Phoenix Investment
Partners, Ltd. ("PXP"). PXP is an indirect, wholly-owned subsidiary of The
Phoenix Companies, Inc. ("PNX"). The responsibility for making decisions to
buy, sell or hold a particular investment rests with the Adviser, subject to
review by the Board of Directors and the applicable provisions of the Act. For
the services provided by the Adviser under the Agreement, the Fund pays the
Adviser a monthly fee equal, on an annual basis, to 0.85% of the Fund's average
daily net assets. During the six months ended June 30, 2004, the Fund accrued
advisory fees of $1,762,228.
Zweig Consulting LLC (the "Sub-Adviser"), which serves as the Sub-Adviser
for the Fund performs certain asset allocation research and analysis and
provides such advice to the Adviser. Effective March 2, 2004, the Sub-Adviser
assumed an expanded role in reviewing the Fund's investment portfolio and
collaborating in the security selection process with the Adviser's portfolio
management team. The Sub-Adviser's fees are paid by the Adviser.
b) Administration Fee: Phoenix Equity Planning Corporation ("PEPCO"), an
indirect wholly-owned subsidiary of PNX, serves as the Fund's Administrator
(the "Administrator") pursuant to an Administration Agreement with the Fund.
Under the terms of the Agreement, the Administrator receives a fee for
financial reporting, tax services and oversight of the subagent's performance
at a rate of 0.13% of the Fund's average daily net assets. During the six
months ended June 30, 2004, the Fund accrued administration fees of $269,517.
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
19
with the out-of-pocket costs relating to attendance at such meetings. Any
Director of the Fund who is an interested person of the Fund or the Adviser
receives no remuneration from the Fund.
d) Brokerage Commissions: During the six months ended June 30, 2004, the
Fund paid PXP Securities Corp., a wholly-owned subsidiary of PXP brokerage
commissions of $0 in connection with portfolio transactions effected through
them. In addition, PXP Securities Corp. charged $20,601 in commissions for
transactions effected on behalf of the participants in the Fund's Automatic
Reinvestment and Cash Purchase Plan.
NOTE 5 -- CAPITAL STOCK AND REINVESTMENT PLAN
At June 30, 2004, the Fund had one class of common stock, par value $.10 per
share, of which 100,000,000 shares are authorized and 73,233,013 shares are
outstanding.
On June 21, 2004, the Fund announced a distribution of $0.02 per share to
shareholders of record on July 8, 2004. This distribution has an ex-dividend
date of July 6, 2004 and is payable on July 26, 2004.
At its meeting on August 10, 2004, The Zweig Fund Board of Directors
approved a new annualized 10% fixed cash distribution policy. The new policy
becomes effective with the distribution for the quarter ending September 30,
2004, which is scheduled to be paid on October 26, 2004 to shareholders of
record as of October 8, 2004.
Registered shareholders may elect to have all distributions paid by check
mailed directly to the shareholder by EquiServe as dividend paying agent.
Pursuant to the Automatic Reinvestment and Cash Purchase Plan (the "Plan"),
shareholders not making such election will have all such amounts automatically
reinvested by EquiServe, as the Plan agent, in whole or fractional shares of
the Fund, as the case may be. During the six months ended June 30, 2004, and
the year ended December 31, 2003, there were no shares issued pursuant to the
Plan.
NOTE 6 -- CREDIT RISK AND ASSET CONCENTRATIONS
In countries with limited or developing markets, investments may present
greater risks than in more developed markets and the prices of such investments
may be volatile. The consequences of political, social or economic changes in
these markets may have a disruptive effect on the market prices of these
investments and the income they generate, as well as a 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.
High yield/high risk securities typically entail greater price volatility
and/or principal and interest rate risk. There is a greater chance that an
issuer will not be able to make principal and interest payments on time.
Analysis of the creditworthiness of issuers of high yield securities may be
complex, and as a result, it may be more difficult for the Adviser and/or
Sub-Adviser to accurately predict risk.
20
NOTE 7 -- FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each year:
Six Months
Ended Year Ended December 31
June 30, 2004 --------------------------------------------------
(Unaudited) 2003 2002 2001 2000 1999
------------- -------- -------- -------- -------- --------
Per Share Data
Net asset value, beginning of period.............. $ 5.69 $ 5.46 $ 7.96 $ 10.32 $ 12.20 $ 12.03
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net investment income............................. 0.05 0.03 0.01 -- 0.20 0.20
Net realized and unrealized gains (losses)........ 0.05 0.70 (1.76) (1.47) (0.90) 1.16
-------- -------- -------- -------- -------- --------
Total from investment operations.................. 0.10 0.73 (1.75) (1.47) (0.70) 1.36
-------- -------- -------- -------- -------- --------
Dividends and Distributions
Dividends from net investment income.............. (0.05) (0.03) (0.01) (0.01) (0.21) (0.19)
Distributions from net realized gains............. -- -- -- (0.07) (0.97) (1.00)
Tax return of capital/(1)/........................ (0.00) (0.47) (0.68) (0.81) -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions................. (0.05) (0.50) (0.69) (0.89) (1.18) (1.19)
-------- -------- -------- -------- -------- --------
Effect on net asset value as a result of rights
offering/(2)/.................................... -- -- (0.06) -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period................. $ 5.74 $ 5.69 $ 5.46 $ 7.96 $ 10.32 $ 12.20
======== ======== ======== ======== ======== ========
Market value, end of period/(3)/............... $ 4.83 $ 4.90 $ 4.93 $ 7.90 $ 9.81 $ 10.06
======== ======== ======== ======== ======== ========
Total investment return/(4)/...................... (0.32)% 9.53% (29.78)% (11.27)% 9.45% 3.61%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data
Net assets, end of period (in thousands).......... $420,102 $416,707 $400,163 $489,261 $620,354 $733,523
Ratio of expenses to average net assets (excluding
dividends on short sales)........................ 1.36%/(6)/ 1.28% 1.20% 1.19% 1.12% 1.12%
Ratio of expenses to average net assets (including
dividends on short sales)........................ 1.42%/(6)/ 1.33% 1.20% 1.19% 1.12% 1.12%
Ratio of net investment income (loss) to average
net assets....................................... 1.71%/(6)/ 0.54% 0.14% (0.03)% 1.74% 1.68%
Portfolio turnover rate........................... 55.90%/(5)/ 74.8% 104.8% 80.3% 114.8% 114.9%
- --------
/(1) /Tax return of capital for the period ended June 30, 2004 was less than
0.01 per share.
/(2) /Shares were sold at a 5% discount from the average market price.
/(3) /Closing Price -- New York Stock Exchange.
/(4) /Total investment return is calculated assuming a purchase of common stock
on the opening of the first business day and a sale on the closing of the
last business day of each period reported. Dividends and distributions, if
any, are assumed for the 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.
/(5) /Not annualized
/(6) /Annualized
21
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
12, 2004. The meeting was held for the purpose of electing Daniel T. Geraci,
Alden C. Olson, Ph.D. and R. Keith Walton as directors. The Fund's other
Directors who continue in office are Charles H. Brunie, Wendy Luscombe and
James B. Rogers, Jr.
The results of the above matters were as follows:
Directors Votes For Votes Against Votes Withheld Abstentions
--------- --------- ------------- -------------- -----------
Daniel T. Geraci 59,762,915 N/A 2,641,446 N/A
Alden C. Olson, Ph.D. 59,541,577 N/A 2,862,784 N/A
R. Keith Walton 59,771,164 N/A 2,633,197 N/A
22
KEY INFORMATION
UNAUDITED DISCLOSURES
Proxy Voting Procedures
The Adviser votes 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, free of charge, by calling
"toll-free" 800-243-1574. This information is also available through the
Securities and Exchange Commission's website at http://www.sec.gov.
1-800-272-2700 Zweig Shareholder Relations:
For general information and literature, as well as updates on net
asset value, share price, major industry groups and other key
information
REINVESTMENT PLAN
Many of you have questions about our reinvestment plan. We urge
shareholders who want to take advantage of this plan and whose shares are
held in "Street Name," to consult your broker as soon as possible to
determine if you must change registration into your own name to participate.
-----------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may from time to time purchase its shares of
common stock in the open market when Fund shares are trading at a discount from
their net asset value.
23
OFFICERS AND DIRECTORS
Daniel T. Geraci
Director, President and Chief Executive Officer
Carlton Neel
Executive Vice President
David Dickerson
Senior Vice President
Megan Huddleston
Secretary
Nancy Curtiss
Treasurer
Charles H. Brunie
Director
Wendy Luscombe
Director
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
R. Keith Walton
Director
Investment Adviser
Phoenix/Zweig Advisers LLC
900 Third Avenue
New York, NY 10022
Fund Administrator
Phoenix Equity Planning Corporation
56 Prospect St.
PO Box 150480
Hartford, CT 06115-0480
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer Agent
EquiServe Trust Co., N.A.
P.O. Box 43010
Providence, RI 02940-3010
Legal Counsel
Katten Muchin Zavis Rosenman
575 Madison Avenue
New York, NY 10022
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This report is transmitted to the shareholders of The Zweig Fund, Inc. for
their information. This is not a prospectus, circular or representation
intended for use in the purchase of shares of the Fund or any securities
mentioned in this report.
PXP 1337 4902-SEM 6/04
Semiannual Report
Zweig
The Zweig Fund, Inc.
June 30, 2004
[GRAPHIC]
Item 2. Code of Ethics.
The information required by this Item is only required in an annual report.
Item 3. Audit Committee Financial Expert.
The information required by this Item is only required in an annual report.
Item 4. Principal Accountant Fees and Services.
The information required by this Item is only required in an annual report.
Item 5. Audit Committee of Listed Registrants.
The information required by this Item is only required in an annual report.
Item 6. Schedule of Investments.
The Schedule is included as a part of the report to shareholders file under Item
1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The information required by this Item is only required in an annual report.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.
Item 10. Controls and Procedures.
a) The President (principal executive officer) and the Treasurer (principal
financial officer) of The Zweig Fund, Inc. (the "Fund") believe that there
were no significant deficiencies in the design or operation of the internal
controls of the Fund, Phoenix/Zweig Advisers LLC ("Phoenix/Zweig"), the
investment adviser, or Phoenix Equity Planning Corporation ("PEPCO"), the
administrator of the Funds, including disclosure controls and procedures
(as defined in Rule 30a-2(c) under the Investment Company Act of 1940) that
adversely affected the ability of the Fund, Phoenix/Zweig, or PEPCO on
behalf of the Funds, to record, process,
summarize, and report the subject matter contained in this Report, and the
President and Treasurer of the Fund have identified no material weaknesses
in such internal controls on behalf of the Fund. There was no fraud,
whether or not material, involving officers or employees of the Fund,
Phoenix/Zweig or PEPCO who have a significant role in the Fund's internal
controls, including disclosure controls and procedures (as defined in Rule
30a-2(c) under the Investment Company Act of 1940) that has come to the
attention of Phoenix/Zweig, PEPCO or the officers of the Fund, including
its President and Treasurer.
b) There were no significant changes in the Fund's, Phoenix/Zweig's or PEPCO's
internal controls, including disclosure controls and procedures (as defined
in Rule 30a-2(c) under the Investment Company Act of 1940) that apply to
the Funds or in other factors with respect to the Funds that could have
significantly affected the Fund's, Phoenix/Zweig's or PEPCO's internal
controls during the period covered by this Form N-CSR, and no corrective
actions with regard to significant deficiencies or material weaknesses were
taken by the Fund, Phoenix/Zweig or PEPCO during such period.
Item 11. Exhibits.
(a)(1) Not Applicable.
(a)(2) Certification of chief executive officer and chief financial officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(b) Certification of chief executive officer and chief financial officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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: /s/ Daniel T. Geraci
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Name: Daniel T. Geraci
Title: President
Date: September 3, 2004
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Daniel T. Geraci
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Name: Daniel T. Geraci
Title: President
Date: September 3, 2004
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By: /s/ Nancy Curtiss
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Name: Nancy Curtiss
Title: Treasurer
Date: September 3, 2004
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