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.
Vice President, Chief Legal Officer,
Counsel and Secretary for Registrant
100 Pearl Street
Hartford, CT 06103-4506
(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, 2009
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
Zweig Advisers LLC
900 Third Avenue
New York, NY 10022-4793
Fund Administrator
VP Distributors, Inc
100 Pearl Street
Hartford, CT 06103-4506
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.
Q2-09
Semiannual Report
Zweig
The Zweig Fund, Inc.
June 30, 2009
[LOGO]
VIRTUS
INVESTMENT PARTNERS
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 quarterly, fixed 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, for
example, when some or all of the money that you invested in the Fund is paid
back to you. A return of capital distribution does not necessarily reflect the
Fund's investment performance and should not be confused with "yield" or
"income".
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. The
Fund will send shareholders a Form 1099-DIV for the calendar year that will
tell you how to report distributions for federal income tax purposes.
The Board may amend, suspend or terminate the Managed Distribution Plan at
any time, 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 www.Virtus.com. Section 19(a)
notices are posted on the website at:.
http://www.virtus.com/products/closed/details.aspx?type=individual&fundid=ZF
July 31, 2009
Dear Fellow Zweig Fund Shareholder:
I am pleased to share with you the manager's report and commentary for the
Zweig Fund, Inc. for the six-months ended June 30, 2009.
The Zweig Fund's net asset value climbed 14.79% for the quarter ended
June 30, 2009, including $0.075 in re-invested distributions. During the same
period, the S&P 500 Index gained 15.93%, including re-invested dividends. The
Fund's average equity exposure for the quarter was approximately 79%.
For the six-months ended June 30, 2009, the Fund's net asset value increased
4.58%, including $0.159 in re-invested distributions. For the same period, the
S&P 500 Index was up 3.16%, including re-invested dividends. The Fund's average
equity exposure for the first half was also approximately 79%.
Sincerely,
/s/ George R. Aylward
George R. Aylward
President, Chairman and Chief Executive Officer
The Zweig Fund, Inc.
MARKET OVERVIEW AND OUTLOOK
The stock market came to life in the second quarter of 2009 but still has a
long road to climb for a full recovery. The Dow Jones Industrial Average closed
the quarter at 8,447, a gain of 838 points, or 11%,/(1)/ from the previous
three months. It was the Dow's best quarterly performance since the fourth
quarter of 2003. However, the Dow closed down 3.8%/(1)/ for the first half and
is still 40%/(1)/ below its all-time high of 14,168 in October 2007. It would
take three more rallies like the second quarter's to regain that peak.
Incidentally, in early June the Dow Index dropped General Motors and Citicorp
from its line-up of thirty blue-chip companies and replaced them with Cisco
Systems and Travelers Companies.
The other major indexes outperformed the Dow. The NASDAQ Composite ended the
quarter at 1,835.04, up 20%/(1)/ from the prior three months and 16.4%/(1)/
higher for the first half. Also doing well, the S&P 500 closed at 919.32, a
gain of 15.2%/(1)/ for the quarter and 1.8%/(1)/ for the year.
World-wide, the markets also rallied in the second quarter. Europe saw
Britain's FTSE gain 8%/(1)/, Germany's DAX 18%/(1)/, with France's CAC 40 up
12%/(1)/. In Asia, Japan's NIKKEI Stock Average at 220 Companies and China's
benchmark Shanghai Index each surged 25%/(1)/. India was the top scorer, with
its benchmark SENSEX soaring 49%/(1)/.
On the domestic side, the Federal Reserve noted signs of slower economic
contraction and improved financial conditions. It said it would keep its key
interest rate at virtually zero for "an extended period" and leave its rescue
programs unchanged. While stating that "economic activity
/(1)/ Return excludes reinvested dividends.
2
is likely to remain weak for a time," it added that it expects current fiscal
and stimulus policies to "contribute to a gradual resumption of sustainable
economic growth in a context of price stability."
The housing market, a key element in the economy, witnessed some encouraging
developments. The Commerce Department reported that construction of new homes
increased to an annual rate of 530,000 in May, a gain of 17.2% from April but
still 45.2% below the pace a year ago. Pending home sales in May increased to
the highest level since last September, according to the National Association
of Realtors.
Another positive note was sounded by the Institute for Supply Management
("ISM"). It reported that its manufacturing index was up to 44.8 in June from
42.8 in May to its strongest level since last September. This figure is still
below 50, indicating contraction. The Commerce Department reported that orders
for durable goods in May increased 1.8%, matching the gain in April, and rising
for the third time in four months. However, orders are still down 27% from a
year ago.
While there were some hopeful signs for the economy, the climbing jobless
rate indicated that the recession, which started in December 2007, the longest
since the 1930s, has not relaxed its grip. The Labor Department reported that
an additional 487,000 jobs were lost in June and the unemployment rate moved up
to 9.5%. Since the recession began, the U.S. has lost 6.5 million jobs,
bringing total U.S. employment to its lowest point since August 2004.
Reflecting the disappointing employment picture, the Conference Board
reported that its index of consumer attitudes fell to 49.3 in June from 54.8 in
May. Its survey found that Americans saying jobs are "hard to get" rose to
44.8% in June from 43.9% the previous month, while those saying jobs are
"plentiful" dipped to 4.5% in June from 5.8% in May.
Indicating that inflation may be in check, the Labor Department reported
that its Consumer Price Index ("CPI") rose only 0.1% in May following an
unchanged rate in April. Compared to a year ago, the CPI was down 1.3%, the
biggest drop since 1950. The Government also reported that producer prices
increased a less-than-expected 0.2% in May. Excluding food and energy, the core
rate declined 0.1%.
The U.S. gross domestic product ("GDP") has declined at a slower rate than
originally forecast. The Commerce Department, which originally reported that
the GDP fell at a 6.1% annual rate in the first quarter of 2009, has revised
that estimate to 5.5%. Both figures are an improvement over the 6.3% drop in
the GDP annual rate in the first quarter of 2008.
While the rate of economic contraction may be slowing, the environment is
still not conducive to mergers and acquisitions. U.S. deal volume in the second
quarter slid 57% to $144.7 billion from $334.9 billion last year, according to
Dealogic. It is the lowest second quarter level since 2003. There were 1,489
domestic deals in the quarter against 1,916 a year earlier. The same pattern
played out world-wide, with deal volume declining to $1.2 trillion, off 28%
from the 2008 second quarter, and deals crumbled 24% to 15,880.
Initial public offerings ("IPO") in the U.S. were also weak. There were 10
IPOs valued at $1.3 billion in the second quarter against 11 offerings that
raised $4.2 billion in the 2008 period, according to Dealogic. The picture was
brighter world-wide, which saw 78 deals raising $10.6 billion, up from 54 deals
raising $1.3 billion in the like quarter last year.
There was no good news in the U.S. balance of trade. The trade deficit
expanded in April, the last month for which figures are available, to $29.2
billion from $28.5 billion in March, according to the Commerce Department. U.S.
exports fell $2.8 billion to $121.1 billion while imports slipped $2.2 billion
to $150.3 billion.
3
The dollar ended a year-long rally in the second quarter, losing 5.37% of
its value against the euro and falling 2.66% against the Japanese yen. Measured
against a trade-weighted group of currencies tracked by J.P. Morgan Chase, the
dollar declined 5.5%. It was the first loss since the initial quarter of 2008.
On the plus side, the weaker dollar should help U.S. exports and boost the
revenues of American companies doing business abroad.
Wall Street analysts on average, expect second-quarter operating profits of
the S&P 500 Companies to finish down 34.9% from a year ago, according to
Thomson Reuters. It would mark the eighth consecutive year-to-year decline.
After a weak third quarter, analysts see a "really strong" fourth quarter. For
all of this year, profits were projected to shrink 11% and then rebound and
grow 27% for 2010.
With earnings soft, companies are cutting back on dividends. Standard and
Poor ("S&P") reported that among the approximately 7000 publicly-owned
corporations it surveyed, there were only 233 payment enhancements (including
increases, extras and redemptions) in the second quarter. This was a drop of
48.8% from the 455 last year and an all-time quarterly low. At the same time,
250 companies either reduced or skipped dividends compared with 97 in the same
quarter as 2008. It was the highest figure since the 272 in the second quarter
of 1958. Looking to the future, Howard Silverblatt, S&P senior index analyst,
said "until we see the economy better, and not just for one quarter, many
companies will remain gun-shy about parting with their cash."
At the end of the second quarter, companies in the S&P 500 were trading at
14.6 times earnings. This compared with P/Es of 12.9 in March 31, 2009 and 18.8
at the start of the year. The recent ratio is higher because the "price"
component has increased while the "earnings" component has declined. As we see
it, recent P/Es are somewhere between average value and somewhat overvalued.
A slightly less pessimistic outlook for the U.S. economy was provided in the
International Monetary Fund's annual review. IMF now forecasts a 2.5%
contraction this year, an improvement from the April view of a 2.8% decline.
For all of next year, the agency raised its estimate of growth from 0 to 0.75%.
Looking toward the future of the stock market, analysts are more optimistic
than investors. Analysts surveyed by Investors Intelligence showed 41.4% bulls
and 29.9% bears on June 30. Meanwhile, members of the American Institute of
Investors had a different perspective, with only 37.8% bulls and 44.6% bears.
This market and the economy seem to be tracking the early 30s. The
difference is that the government rescue programs have truncated the risk of
depression. They seem to have turned things around to a degree. Although the
economy is better than it was a few months ago, we don't know whether it will
fully recover. The problem with all the stimulus is that it could lead to
inflation. If it doesn't work, it could result in deflation. In either case, we
would see problems for the stock market.
There was a pretty good market bottom in March but we can't be sure that it
was a real bottom. We are not convinced that this is a new bull market.
Consequently, our posture is still neutral and we are about 78% invested.
Sincerely,
/s/Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
President
Zweig Consulting LLC
4
PORTFOLIO COMPOSITION
The Fund's leading stock market sectors of June 30, 2009 included
Information Technology, Energy, Health Care, Industrials, and Consumer Staples.
Although there were some changes in percentages held, all of the above, with
the exception of Industrials, which replaced Financials, appeared in our
previous listing. During the quarter we added to our positions in Industrials
and reduced our holdings in Financials and Consumer Staples.
Our leading individual holdings on June 30 included Cisco, Corning, Gilead,
Goldman Sachs, Hewlett-Packard, NIKE, Occidental Petroleum, PepsiCo, Phillip
Morris International and QUALCOMM. Although there were no changes in shares
held, the following are new to this listing: Cisco, Corning, NIKE, Occidental
Petroleum, PepsiCo, and Phillip Morris International.
No longer among our top positions are McDonald's, where there was no change
in shares held, and the following where we trimmed our positions: Altria,
Bunge, International Business Machines Corp. (IBM), Powershares DB Agricultural
Fund, and Verizon.
Sincerely,
[SIGNATURE]
/s/ Carlton Neel
Carlton Neel
Executive Vice President
Zweig Advisers, LLC
[CHART]
Sector Weightings
June 30, 2009
(as a percentage of total investments)
Information Technology 14%
Energy 11%
Health Care 11%
Consumer Staples 9%
Industrials 9%
Financials 7%
Materials 6%
Other (includes short-term investments) 33%
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 information regarding the indexes cited and certain investment terms used
in this report see the glossary on page 7.
5
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.
6
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.
Deflation: A general decline in prices, if it persists, generally creates a
vicious spiral of negatives such as falling profits, closing factories,
shrinking employment and incomes, and increasing defaults on loans by companies
and individuals. To counter deflation, the Federal Reserve (the Fed) can use
monetary policy to increase the money supply and deliberately induce rising
prices, causing inflation.
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 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.
Gross domestic product (GDP): An important measure of the United States'
economic performance, GDP is the total market value of all final goods and
services produced in the U.S. during any quarter or year.
Inflation: Rise in the prices of goods and services resulting from increased
spending relative to the supply of goods on the market.
Initial public offering (IPO): A company's first sale of stock to the public.
Institute for Supply Management (ISM) Report on Business/(R)/: An economic
forecast, released monthly, that measures U.S. manufacturing conditions and is
arrived at by surveying 300 purchasing professionals in the manufacturing
sector representing 20 industries in all 50 states.
Investors Intelligence Survey: A weekly survey published by Chartcraft, an
investment services company, of the current sentiment of approximately 150
market newsletter writers. Participants are classified into three categories:
bullish, bearish or waiting for a correction.
NASDAQ Composite/(R)/ Index: 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.
Price-to-earnings ratio (P/E): A valuation measure calculated by dividing a
stock's price by its current or projected earnings per share. The P/E ratio
gives an idea of how much an investor is paying for current or future earnings
power.
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.
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.
7
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 2009
(Unaudited)
($ reported in thousands)
Number of
Shares Value
--------- -------
INVESTMENTS
COMMON STOCKS 74.6%
CONSUMER DISCRETIONARY -- 5.7%
McDonald's Corp.............................. 105,000 $ 6,036
NIKE, Inc. Class B........................... 120,000 6,214
Under Armour, Inc. Class A/(2)/.............. 265,000 5,931
-------
18,181
-------
CONSUMER STAPLES -- 8.9%
Altria Group, Inc............................ 310,000 5,081
Bunge Ltd.................................... 88,000 5,302
Costco Wholesale Corp........................ 115,000 5,255
PepsiCo, Inc................................. 110,000 6,046
Philip Morris International, Inc............. 150,000 6,543
-------
28,227
-------
ENERGY -- 11.2%
Chesapeake Energy Corp....................... 155,000 3,074
ConocoPhillips............................... 115,000 4,837
Halliburton Co............................... 215,000 4,451
Massey Energy Co............................. 212,098 4,144
Occidental Petroleum Corp.................... 95,000 6,252
Petroleo Brasileiro SA ADR................... 130,000 5,327
St. Mary Land & Exploration Co............... 162,000 3,381
Valero Energy Corp........................... 245,000 4,138
-------
35,604
-------
FINANCIALS -- 5.4%
Allstate Corp. (The)......................... 120,000 2,928
Goldman Sachs Group, Inc. (The).............. 41,000 6,045
Hudson City Bancorp, Inc..................... 360,000 4,784
Reinsurance Group of America, Inc............ 104,000 3,631
-------
17,388
-------
See notes to financial statements
8
Number of
Shares Value
--------- --------
HEALTH CARE -- 10.7%
Celgene Corp./(2)/........................ 125,000 $ 5,980
Gilead Sciences, Inc./(2)/................ 129,000 6,042
Johnson & Johnson......................... 103,000 5,851
Merck & Co., Inc.......................... 200,000 5,592
St. Jude Medical, Inc./(2)/............... 142,000 5,836
UnitedHealth Group, Inc................... 195,000 4,871
--------
34,172
--------
INDUSTRIALS -- 9.0%
Boeing Co. (The).......................... 115,000 4,887
Caterpillar, Inc.......................... 120,000 3,965
Continental Airlines, Inc. Class B/(2)/... 636,000 5,635
Foster Wheeler Ltd./(2)/.................. 160,000 3,800
L-3 Communications Holdings, Inc.......... 65,000 4,510
Union Pacific Corp........................ 110,000 5,727
--------
28,524
--------
INFORMATION TECHNOLOGY -- 13.6%
Cisco Systems, Inc./(2)/.................. 330,000 6,151
Corning, Inc.............................. 380,000 6,103
Hewlett-Packard Co........................ 180,000 6,957
International Business Machines Corp...... 50,000 5,221
Microsoft Corp............................ 250,000 5,942
Nokia Oyj Sponsored ADR................... 345,000 5,030
QUALCOMM, Inc............................. 170,000 7,684
--------
43,088
--------
MATERIALS -- 6.5%
Alcoa, Inc................................ 335,000 3,461
FreeportMcMoRan Copper & Gold, Inc........ 110,000 5,512
NuCor Corp................................ 135,000 5,998
Potash Corp. of Saskatchewan, Inc......... 60,000 5,583
--------
20,554
--------
TELECOMMUNICATION SERVICES -- 3.6%
AT&T, Inc................................. 220,000 5,465
Verizon Communications, Inc............... 192,000 5,900
--------
11,365
--------
Total Common Stocks (Identified Cost $282,185) 237,103
--------
See notes to financial statements
9
Number of
Shares Value
---------- --------
EXCHANGE TRADED FUNDS 2.8%
PowerShares Deutsche Bank Agriculture Fund/(2)/ 206,000 $ 5,243
Templeton Dragon Fund, Inc..................... 160,000 3,737
Total Exchange Traded Funds (Identified Cost $9,591) 8,980
--------
Total Long Term Investments -- 77.4% (Identified Cost
$291,776)........................................ 246,083
--------
SHORT-TERM INVESTMENTS 22.4%
MONEY MARKET MUTUAL FUNDS -- 3.6%
State Street Institutional Liquid Reserves Fund
(seven-day effective yield 0.440%)........... 8,333,084 8,333
State Street Institutional Treasury Money
Market Fund (seven-day effective yield 0.020%) 3,001,661 3,002
--------
11,335
--------
Par
----------
U.S. TREASURY BILLS/(3)/ -- 18.8%
U.S. TREASURY BILL
0.265%, 7/16/09................................ $ 10,000 9,999
0.785%, 7/30/09................................ 30,000 29,997
0.455%, 4/1/10................................. 20,000 19,933
--------
59,929
--------
Total Short-Term Investments (Identified Cost $71,246) 71,264
--------
Total Investments (Identified Cost $363,022) -- 99.8% 317,347/(1)/
Other Assets and Liabilities, Net -- 0.2%.......... 509
--------
Net Assets -- 100.0%............................... $317,856
========
--------
(1) Federal Income Tax Information : For tax information at June 30, 2009, see
Note 7 Federal Income Tax Information in the Notes to Financial Statements.
(2) Non-income producing.
(3) The rate shown is the discount rate.
See notes to financial statements
10
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2009
(Unaudited)
(Reported in thousands except shares and per share amounts)
ASSETS
Investment securities at value (Identified Cost $363,022)........ $ 317,347
Receivables
Investment securities sold................................... 278
Dividends.................................................... 579
Director retainer................................................ 31
Prepaid expenses................................................. 57
---------
Total Assets................................................. 318,292
---------
LIABILITIES
Payables
Investment advisory fee...................................... 226
Administration fee........................................... 32
Transfer agent fee........................................... 54
Professional fee............................................. 50
Other accrued expenses....................................... 74
---------
Total Liabilities............................................ 436
---------
NET ASSETS.......................................................... $ 317,856
=========
Net Assets Consist of:
Capital paid in on shares of beneficial interest................. $ 506,042
Accumulated undistributed net investment income (loss)........... (12,696)
Accumulated net realized gain (loss)............................. (129,815)
Net unrealized appreciation (depreciation)....................... (45,675)
---------
Net Assets.......................................................... $ 317,856
=========
NET ASSET VALUE PER SHARE
(Net assets/shares outstanding) Shares outstanding -- 91,955,558. $ 3.46
=========
See notes to financial statements
11
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2009
(Unaudited)
($ reported in thousands)
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld of $33).......................... $ 2,944
Interest.................................................................. 193
--------
Total Investment Income............................................ 3,137
--------
Expenses
Investment advisory fee................................................... 1,262
Administration fees....................................................... 97
Transfer agent fees and expenses.......................................... 134
Printing fees and expenses................................................ 94
Directors' fees........................................................... 72
Professional fees......................................................... 66
Custodian fees............................................................ 9
Miscellaneous expenses.................................................... 143
--------
Total Expenses..................................................... 1,877
--------
Net Investment Income........................................... 1,260
--------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments............................................................... (15,302)
Net change in unrealized appreciation (depreciation) on:
Investments............................................................... 24,226
--------
Net realized and unrealized gain (loss)................................ 8,924
--------
Net increase (decrease) in net assets resulting from operations........ $ 10,184
========
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
($ reported in thousands)
Six Months
Ended
June 30, 2009 Year Ended
(Unaudited) December 31, 2008
------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)..................................... $ 1,260 $ 3,554
Net realized gain (loss)......................................... (15,302) (3,401)
Net change in unrealized appreciation (depreciation)............. 24,226 (149,570)
-------- ---------
Net increase (decrease) in net assets resulting from
operations.................................................. 10,184 (149,417)
-------- ---------
Dividends and distributions to shareholders from
Net investment income............................................ (14,621)/(2)/ (4,008)
Net realized short-term gains.................................... -- (8,761)
Net realized long-term gains..................................... -- --
Tax return of capital............................................ -- (34,773)
-------- ---------
Total dividends and distributions to shareholders............. (14,621) (47,542)
-------- ---------
Capital share transactions
Net proceeds from the sales of shares during rights
offering....................................................... -- 148/(1)/
-------- ---------
Net increase in net assets derived from capital share
transactions................................................ -- 148
-------- ---------
Net increase (decrease) in net assets......................... (4,437) (196,811)
NET ASSETS
Beginning of period.................................................. 322,293 519,104
-------- ---------
End of period........................................................ $317,856 $ 322,293
======== =========
Accumulated undistributed net investment income (loss) at end
of period.......................................................... $(12,696) $ 665
--------
/(1)/ Adjustment to bring costs estimated in connection with the September 2007
rights offering to actual.
/(2)/ Please note that the tax status of the distributions is determined at the
end of the taxable year. However, based on interim data as of June 30,
2009, we estimate 8% of the distributions represents net investment
income and 0% represents excess gain distributions which are taxed as
ordinary income and 92% represents return of Capital. Also refer to the
inside front cover for the Managed Distribution Plan and Note 2D in the
notes to financial statements.
See notes to financial statements
13
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios for a share outstanding throughout each
year)
Six-Months Ended Year Ended December 31,
June 30, 2009 -----------------------------------------------------
(Unaudited) 2008 2007 2006 2005
---------------- -------- -------- -------- --------
Per Share Data
Net asset value, beginning of period............... $ 3.50 $ 5.65 $ 5.99 $ 5.82 $ 6.02
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income (loss)/(6)/.................. 0.01 0.04 0.05 0.07 0.08
Net realized and unrealized gains (losses)......... 0.11 (1.67) 0.39 0.68 0.31/(5)/
-------- -------- -------- -------- --------
Total from investment operations................... 0.12 (1.63) 0.44 0.75 0.39
-------- -------- -------- -------- --------
Dividends and Distributions/ /
Dividends from net investment income............... (0.16)/(11)/ (0.04) (0.05) (0.07) (0.11)
Distributions from net realized gains.............. -- (0.10) (0.34) (0.21) (0.28)
Tax return of capital.............................. -- (0.38) (0.20) (0.30) (0.20)
-------- -------- -------- -------- --------
Total dividends and distributions.................. (0.16) (0.52) (0.59) (0.58) (0.59)
-------- -------- -------- -------- --------
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................................... -- -- /(4)/ (0.19)/(1)/ -- --
-------- -------- -------- -------- --------
Change in net asset value.......................... (0.04) (2.15) (0.34) 0.17 (0.20)
-------- -------- -------- -------- --------
Net asset value, end of period.................. $ 3.46 $ 3.50 $ 5.65 $ 5.99 $ 5.82
======== ======== ======== ======== ========
Market value, end of period/(2)/................ $ 2.83 $ 2.88 $ 5.05 $ 5.90 $ 5.25
======== ======== ======== ======== ========
Total investment return/(3)/....................... 3.95%/(10)/ (35.32)% (5.12)%/(7)/ 24.87% 5.78%
======== ======== ======== ======== ========
Total return on net asset value/(8)/............... 4.58%/(10)/ (29.75)% 8.75% 14.58% 7.90%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands)........... $317,856 $322,293 $519,104 $438,544 $426,378
Ratio of expenses to average net assets
(excluding dividends on short sales).............. 1.26%/(9)/ 1.18% 1.13% 1.18% 1.26%
Ratio of expenses to average net assets
(including dividends on short sales).............. 1.26%/(9)/ 1.18% 1.13% 1.21% 1.33%
Ratio of net investment income to average net
assets............................................ 0.85%/(9)/ 0.83% 0.82% 1.20% 1.31%
Portfolio turnover rate............................ 14%/(10)/ 39% 58% 39% 45%
---------
2004
--------
Per Share Data
Net asset value, beginning of period............... $ 5.69
--------
Income From Investment Operations
Net investment income (loss)/(6)/.................. 0.11
Net realized and unrealized gains (losses)......... 0.44
--------
Total from investment operations................... 0.55
--------
Dividends and Distributions/ /
Dividends from net investment income............... (0.06)
Distributions from net realized gains.............. (0.16)
Tax return of capital.............................. --
--------
Total dividends and distributions.................. (0.22)
--------
Dilutive effect on net asset values as a result of
capital contribution.............................. --
Dilutive effect on net asset values as a result of
rights offering................................... --
--------
Change in net asset value.......................... 0.33
--------
Net asset value, end of period.................. $ 6.02
========
Market value, end of period/(2)/................ $ 5.55
========
Total investment return/(3)/....................... 18.13%
========
Total return on net asset value/(8)/............... 10.35%
========
Ratios/Supplemental Data:
Net assets, end of period (in thousands)........... $440,643
Ratio of expenses to average net assets
(excluding dividends on short sales).............. 1.33%
Ratio of expenses to average net assets
(including dividends on short sales).............. 1.38%
Ratio of net investment income to average net
assets............................................ 1.87%
Portfolio turnover rate............................ 89%
For explanations of the Footnotes see page 15.
See notes to financial statements
14
--------
(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.
(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)NAV return is calculated using the opening Net Asset Value price of the
Fund's common stock on the first business day and the closing Net Asset
Value price of the Fund's common stock 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.
(9)Annualized.
(10)Not annualized.
(11) Please note that the tax status of the distributions is determined at the
end of the taxable year. However, based on interim data as of June 30,
2009, we estimate 8% of the distributions represents net investment income
and 0% represents excess gain distributions which are taxed as ordinary
income and 92% represents return of Capital. Also refer to the inside
front cover for the Managed Distribution Plan and Note 2D in the notes to
financial statements.
See notes to financial statements
15
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2009
(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 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 and those differences could be significant.
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. Due
to continued volatility in the current market, valuations developed through
pricing techniques may materially vary from the actual amounts realized upon
sale of the securities.
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.
Investments in underlying money market mutual funds are valued at each
fund's closing net asset value.
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"). 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)
In April 2009, FASB issued FASB Staff Position No. 157-4, Determining Fair
Value when the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly ("FSP
157-4"). The Fund has adopted FSP 157-4 effective with this report. FSP 157-4
provides additional guidance for estimating fair value in accordance with SFAS
157, when the volume and level of activity for the asset or liability have
significantly decreased. FSP 157-4 also includes guidance on identifying
circumstances that indicate a transaction is not orderly. FSP 157-4 requires
entities to describe the inputs used in valuation techniques used to measure
fair value and changes in inputs over the period. FSP 157-4 expands the
three-level hierarchy disclosure and the level three roll-forward disclosure
for each major security type as described in paragraph 19 of FAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
The following table provides a summary of the inputs used to value the
Fund's net assets as of June 30, 2009, as required under SFAS 157 and FAS 157-4.
Level 2
Total Level 1 Significant
Value at Quoted Observable
June 30, 2009 Price Input
------------- -------- -----------
Investments in Securities:
Equity Securities:
Common Stocks................. $237,103 $237,103 $ --
Exchange Traded Funds......... 8,980 8,980 --
Money Market Mutual Funds..... 11,335 11,335 --
Debt Securities:
U.S. Treasury Obligations..... 59,929 -- 59,929
-------- -------- -------
Total...................... $317,347 $257,418 $59,929
======== ======== =======
There were no Level 3 (significant unobservable input) priced securities.
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
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.
17
C. Income Taxes:
It is the policy of the Fund to comply with the requirements of Subchapter M
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 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. Each of the Fund's federal tax returns for the prior three
fiscal years remains 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.
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. Financial Accounting Standards No. 161
In March 2008, FASB issued Statement of Financial Accounting Standards No.
161; "Disclosures about Derivative Instruments and Hedging Activities" ("FAS
161"). The Fund has adopted the provisions of Statement 161 during the current
fiscal year. This statement 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. The adoption of Statement 161 did not have a
material impact on the amounts reported in the Fund's financial statements.
18
G. Security Lending:
The Fund may loan securities to qualified brokers through an agreement with
State Street Bank and Trust Company (the "Custodian"). Under the terms 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, 2009, the Fund had no securities on loan.
NOTE 3 -- PURCHASES AND SALES OF SECURITIES:
($ reported in thousands)
Purchases and sales of securities (excluding U.S. Government and agency
securities and short-term securities) for the period ended June 30, 2009, were
as follows:
Purchases. $33,559
Sales..... 48,521
There were no purchases and sales of long-term U.S. Government and agency
securities for the period ended June 30, 2009.
NOTE 4 -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
At end of business December 31, 2008, Virtus Investment Partners, Inc.
("Virtus") spun off from The Phoenix Companies, Inc., into an independent
publicly traded company. Virtus is the holding company for various asset
management subsidiaries, including Zweig Advisers, LLC (the "Adviser", formerly
known as Phoenix/Zweig Advisers LLC) and VP Distributors, Inc. ("VP
Distributors", formerly known as Phoenix Equity Planning Corporation). Due to
the spin-off, the asset management subsidiaries have changed their names.
a) Investment Advisory Fee: The Investment Advisory Agreement (the
"Agreement") between the Adviser and the Fund provides that, subject to the
direction of the Board of Directors of the Fund and the applicable provisions
of the Act, the adviser is responsible for the actual management of the Fund's
portfolio. The 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, 2009, the Fund incurred advisory fees of
$1,262 (reported in thousands).
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.
19
b) Administration Fee: VP Distributors 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 subagents' performance at a rate of 0.065% of the Fund's
average daily net assets. During the six-months ended June 30, 2009, the Fund
incurred Administration fees of $97 (reported in thousands).
c) Directors Fee: During the period the Fund paid 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 co-lead
Directors are paid an additional $10,000 retainer each per year. The Audit
Committee chairperson is paid an additional $5,000 retainer per year. 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 and related agreements, 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, 2009, 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 six-months ended June 30, 2009 and
the year ended December 31, 2008, there were no shares 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.
On June 15, 2009, the Fund announced a distribution of $0.089 per share to
shareholders of record on July 8, 2009. This distribution has an ex-dividend
date of July 6, 2009, and is payable on July 27, 2009. Please see inside front
cover for more information on fund distributions.
20
NOTE 7 -- FEDERAL INCOME TAX INFORMATION
($ reported in thousands)
At June 30, 2009, federal tax cost and aggregate gross unrealized
appreciation (depreciation) of securities held by the Fund were as follows:
Net Unrealized
Federal Unrealized Unrealized Appreciation
Tax Cost Appreciation Depreciation (Depreciation)
-------- ------------ ------------ --------------
$365,291 $16,881 $(64,825) $(47,944)
The Fund has $112,095 of capital loss carryovers, $83,074 expiring in 2010,
$26,802 expiring in 2011 and $2,219 expiring in 2016, 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.
NOTE 8 -- 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 9 -- REGULATORY EXAMS
Federal and state regulatory authorities from time to time make inquiries
and conduct examinations regarding compliance by Virtus and its subsidiaries
(collectively "the Company") with securities and other laws and regulations
affecting their registered products.
There are currently no such matters which the Company believes will be
material to these financial statements.
NOTE 10 -- SUBSEQUENT EVENT EVALUATIONS
In May 2009, Statement of Financial Accounting Standards No. 165 ("FAS 165")
regarding Subsequent Events was issued and is effective with interim or annual
financial periods ending after June 15, 2009. FAS 165 is intended to introduce
the concept of the financial statements being available to be issued as a
measurement date for evaluating subsequent events. Management has evaluated the
impact of all subsequent events on the Funds through August 21, 2009, the date
the financial statements were issued, and has determined that there were no
subsequent events requiring recognition or disclosure in the financial
statements.
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 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 9-10, 2009, 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 Independent Directors
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 Fund and Adviser. The Independent Directors
considered the investment performance for the Fund over various periods of time
as compared to the Lipper, Inc. performance groups 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 Independent Directors had been informed that the Adviser and its affiliates
did not manage any fund 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 Independent Directors
considered the Fund's management fee rate and expense ratios relative to that
Fund's Lipper, Inc. expense group. The Independent Directors concluded that
those fees are acceptable based upon the qualifications, experience, reputation
and performance of the Adviser and the Sub-Adviser. The Independent Directors
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
Independent Directors considered the Adviser's and Sub-Adviser's overall
profitability and costs. The Independent Directors also considered whether the
amount of profit is a fair entrepreneurial profit. The Independent Directors
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 the Fund Grows. The Independent Directors
considered whether there have been economies of scale with respect to the
management of the Fund and whether
22
such Fund has appropriately benefited from any economies of scale. The
Independent Directors noted that economies of scale may develop for certain
funds as their assets increase and their Fund-level expenses decline as a
percentage of assets, but that closed-end funds such as the Fund typically do
not have the ability to substantially increase their asset base as do mutual
funds. The Independent Directors concluded that the Fund has appropriately
benefited from any economies of scale.
5. Whether Fee Levels Reflect Economies of Scale. The Independent Directors
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 Independent Directors 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 Independent Directors
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 Independent Directors 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 Independent Directors 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 Independent Directors 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 their decision-making
process, the Independent Directors noted their belief that a long-term
relationship with capable, conscientious advisers is in the best interests of
the Fund. The Independent Directors considered, generally, that shareholders
invested in a Fund knowing that the Adviser managed that Fund and knowing its
investment management fee schedule. As such, the Independent Directors
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
5, 2009. 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
--------- ---------- ------------- -------------- -----------
Charles H. Brunie.... 61,714,771 N/A 16,003,746 N/A
James B. Rogers, Jr.. 61,763,103 N/A 15,995,413 N/A
Based on the foregoing Charles H. Brunie and James B. Rogers, Jr., were
re-elected as Directors. The Fund's other Directors who continue in office are
George R. Aylward, Wendy Luscombe, Alden C. Olson and R. Keith Walton.
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, 2009, 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.
25
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.
(c) A copy of the Registrant's notice to shareholders pursuant to Rule
19(a) under the 1940 Act which accompanied distributions paid
during the period ended June 30, 2009 pursuant to the Registrant's
Managed Distribution Plan are filed herewith as required by the
terms of the Registrant's exemptive order issued on November 17,
2008.
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 3, 2009
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 3, 2009
By (Signature and Title)* /s/ Nancy G. Curtiss
-----------------------------------------
Nancy G. Curtiss, Treasurer
(principal financial officer)
Date September 3, 2009
--------
* Print the name and title of each signing officer under his or her signature.