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, 2011
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.
THE ZWEIG FUND, INC.
================================================================================
Semiannual Report
June 30, 2011
[LOGO]
Zweig
Advisers
A VIRTUS INVESTMENT PARTNER
OFFICERS AND DIRECTORS
GEORGE R. AYLWARD, President, Chairman and Chief Executive Officer
CARLTON NEEL, Executive Vice President
DAVID DICKERSON, Senior Vice President
KEVIN J. CARR, Chief Legal Officer and Secretary
W. PATRICK BRADLEY, Treasurer and Chief Financial Officer
JACQUELINE PORTER, Vice President and Assistant Treasurer
MARC BALTUCH, Chief Compliance Officer and Vice President
MOSHE LUCHINS, Vice President
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
THE BANK OF NEW YORK MELLON
One Wall Street
New York, NY 10286
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.
[LOGO]
VIRTUS
INVESTMENT PARTNERS
Q2-11
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
August 1, 2011
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, 2011.
The Zweig Fund's net asset value declined 1.27% for the quarter ending June
30, 2011, including $0.094 in re-invested distributions. During the same
period, the S&P 500 Index gained 0.10%, including re-invested dividends. The
Fund's average equity exposure for the quarter was approximately 79%.
For the six months ended June 30, 2011, the Fund's net asset value increased
4.14%, including $0.188 in re-invested distributions. For the same period, the
S&P 500 Index rose 6.02%, including re-invested dividends. The Fund's average
equity exposure for the first half was approximately 77%.
Sincerely,
/s/ George R. Aylward
George R. Aylward
President, Chairman and Chief Executive Officer
The Zweig Fund, Inc.
MARKET OVERVIEW AND OUTLOOK
Although stocks stumbled during much of June, a rally in the final week
ended the second quarter on a positive note for the Dow Jones Industrial
Average. Closing at 12,414.34, the Dow was up 0.8%/(1)/ for the three months
ending June 30, 2011, marking the eighth gain in the last nine quarters. For
the first half, the Dow rose 7.2%/(1) /and ended 27%/(1)/ above June 30, 2010.
Snapping a three-quarter winning streak, the S&P 500 Index fell 0.4%/(1)/
for the second quarter, closing at 1,230.64. However the S&P 500 increased
5%/(1)/ for the first half and closed up 28.1%/(1)/ from a year ago. The Nasdaq
Composite dipped 0.3%/(1)/ to 2,773.52 for the second quarter but gained
4.6%/(1)/ for the year to date. Its level on June 30 was 31.5%/(1)/ higher than
at the same time last year.
The international markets were relatively stable. Excluding the U.S., the
Dow Jones Global Index gained 1.50%/(1)/ for the quarter and was up 2.1%/(1)/
for the first six months. In Europe, the STOXX 600 rose 1.13%/(1)/ for the
quarter but slipped 1.1%/(1)/ for the first half. The Dow Jones Asia-Pacific
Index performed similarly, climbing 1.27%/(1)/ for the quarter and falling
1.8%/(1)/ for the half.
Here at home, the Federal Reserve (the "Fed") reported that the U.S. economy
was expanding more slowly than it had previously forecast. It now projects a
growth rate of 2.7% to 2.9% for 2011 and 3.3% to 3.7% for next year, with both
estimates well below its preliminary readings. The International Monetary Fund
was even less optimistic. It expects a U.S. growth rate of 2.5% this year and
2.7% in 2012. Earlier, the Commerce
/(1)/ Return excludes reinvested dividends.
2
Department reported that the U.S. economy actually grew at an annual rate of
1.9% in the first quarter, an uptick from its previously estimated 1.8%, but a
sharp cutback from the 3.1% rate in fourth quarter of 2010.
If the recovery is too sluggish to reduce the high unemployment level, some
Fed officials are ready to ease monetary policy further, provided inflation
moderates as expected, according to minutes of the Fed's June meeting. The Fed
completed its planned purchase of $600 billion of Treasury securities and said
it will hold its benchmark interest rates near zero "for an extended period."
Reflecting the slow pace of the economic recovery, the Labor Department
reported that only 18,000 new private industry jobs were created in June. It
also revised downward its previous figure for new April jobs to 25,000, less
than half of its earlier estimates. With more people looking for work in June,
the nation's unemployment rate edged up to 9.2% from 9.1% in May.
The weakness in the housing market remains a drag on the economic recovery.
Here the only bright note was the Commerce Department report that new home
construction increased 3.5% in May to a seasonally-adjusted annual rate of
560,000 units. April housing starts were revised upward to an annual pace of
541,000. The other housing news was uniformly negative. Sales of new homes fell
2.1% in May to an adjusted annual rate of 319,000. The National Association of
Realtors reported that May sales of existing homes slid 3.8% to an annual rate
of 4.81 million units, the lowest since last November. The median home sales
price of $166,500 in May was 4.6% below a year earlier.
Consumer spending, which accounts for about 70% of economic activity, was
unchanged in May but, adjusted for inflation, actually fell 0.1%, according to
the Commerce Department. April figures were similarly revised. That represented
the first declines in inflation-adjusted spending since January 2010. After-tax
personal income, which rose 0.3% in May, was inflation-adjusted to 0.1% after
falling by a similar amount in the previous month. This indicates that personal
income has been essentially flat since the start of the year.
Inflation, meanwhile, is growing at a slower rate. The Consumer Price Index,
the most widely used inflation gauge, climbed 0.2% in May compared with 0.4% in
April, according to the Labor Department. The monthly rise was the smallest
since last November's 0.1%. The agency also reported that the Producer Price
Index, which reflects commodity prices for manufacturers, increased a
seasonally-adjusted 0.2% in May following an 0.8% rise in April.
Consumer confidence, which had declined in May, fell further in the first
half of June, according to the Conference Board. The agency's index hit a
seven-month low of 58.5 (1985=100) from a revised 61.7 in May. A Conference
Board spokesman said the decline in confidence "was driven by a less favorable
assessment of current conditions and continued pessimism about the short-term
outlook."
The manufacturing and service industries moved in different directions in
June. The Institute for Supply Management reported that its index of national
factory activity increased to 55.3 in June from 53.5 in May, which was at its
lowest level since September 2009. (A reading of 50 or more indicates
expansion.) ISM's barometer of service center activity declined to 53.3 in June
from 54.6 in May.
Confirming the strength in manufacturing, the Commerce Department reported
that factory orders increased 0.8% in May following a downwardly revised 0.9%
drop in April. Excluding the volatile transportation sector, orders rose 0.2%
in May, the same as in April.
3
More good news came from the Commerce Department which reported that U.S.
exports of goods and services hit a record high of $175.5 billion in April.
Exports of goods totaled $126.4 billion and services came to $49.1 billion.
With total imports of $219.2 billion, the trade deficit of $43.7 billion was
the lowest since last December. The weaker dollar has made American goods less
expensive overseas. In the second quarter, the euro rose 2.4% against the
dollar while the dollar lost 3.1% against the yen. The ICE U.S. Dollar Index,
which measures the dollar against a basket of currencies, declined 2.3% in the
quarter.
Proceeds from U.S. initial public offerings in the second quarter have more
than doubled the like 2010 quarter, according to PricewaterhouseCoopers
Transactions Services. Second-quarter valuations came to $11.9 billion against
$5.2 billion in the 2010 quarter. There were 47 deals in the second quarter
compared with 32 in the first three months. Average share prices of U.S.
offerings in the second quarter were up 9% one day after pricing.
U.S. mergers and acquisitions deal volume totaled $255.5 billion in the
second quarter, a decline of 11% from the first period, according to Dealogic.
By contrast, European deal volume climbed 33% to $293.1 billion in the second
quarter from the previous quarter. While the number of second-quarter global
deals fell 7%, volume hit $741.3 billion, up 23% from the like quarter last
year and 51% above the second quarter of 2009.
Operating profits of member companies in the S&P 500 in the second quarter
are expected to show an increase of almost 14%, according to Thomson Reuters.
Further strength is projected for the rest of 2011, with full-year earnings
seen climbing up more than 16% to nearly $100 per share.
Based on current earning estimates, Bloomberg News reported that stocks in
the S&P 500 were selling at a price/earnings ratio of 15.03 on June 30, 2011
compared with 15.10 on March 31, 2011 and 13.72 on June 30, 2010. The P/Es for
trailing twelve-month earnings, as reported by S&P, were 19.97 on June 30,
2011, 21.61 on March 30, 2011 and 22.57 on June 30 of last year. We don't think
that the current P/Es are cheap but they're not over the top either.
The advisory services and investors were pretty much on the same wave-length
at mid-year. Surveyed by Investors Intelligence, analysts stood at 40% bulls
and 27% bears while investors, according to the American Institute of
Investors, were at 38% bulls and 30% bears. On March 31 analysts were 52% bulls
and 23% bears while investors were less optimistic at 42% bulls and 31% bears.
On June 30 last year, analysts were at 41% bulls and 33% bears while investors
were quite negative at 25% bulls and 42% bears.
Both groups became a little more pessimistic after the market sold off but
we're not thrilled at the numbers. In our opinion, we need more pessimism to
get the market going.
Our own sentiment indicators are moderately negative but our monetary model
is flat-out bullish. The tape indicator is the big question mark. It has been
fluctuating along with the see-sawing market. Right now we'd call the tape
neutral. The Fund's market stance is also on the neutral side and we are
currently about 77% invested.
Sincerely,
/s/Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
President
Zweig Consulting LLC
4
PORTFOLIO COMPOSITION
The Fund's leading equity sectors on June 30, 2011, included Energy,
Information Technology, Industrials, Materials, and Consumer Discretionary.
Although the percentages held varied, all of the above were in our previous
listing. During the quarter we increased our weighting of Health Care and
Materials and reduced our weighting in Information Technology and Consumer
Discretionary.
Our leading individual equity positions included Apple, Cliffs Natural
Resources, Comcast, Freeport McMoRan, Halliburton, Monsanto, Occidental
Petroleum, Potash, Visa and Williams. With the exception of Comcast,
Halliburton and Monsanto, all of the above are new to this listing. During the
quarter we added to our positions in Apple, Cliffs Natural Resources and
Freeport McMoRan, and reduced our positions in Occidental Petroleum, Potash,
Visa and Williams.
The following, where we reduced our holdings, are no longer in our top
positions: Caterpillar, Chevron, ConocoPhillips, Cummins, Lululemon Athletica,
Petroleo Brasileiro and Verizon.
Sincerely,
/s/ Carlton Neel
Carlton Neel
Executive Vice President
Zweig Advisers, LLC
ASSET ALLOCATION AS OF JUNE 30, 2011
The following graph illustrates asset allocations within certain sectors and
as a percentage of total investments as of June 30, 2011.
[CHART]
Energy 13%
Information Technology 12%
Industrials 11%
Materials 10%
Consumer Discretionary 9%
Health Care 6%
Financials 5%
Other (includes short-term investments) 34%
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 key investment terms used in
this report see 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
KEY INVESTMENT TERMS
AMERICAN DEPOSITARY RECEIPT (ADR): Represents shares of foreign companies
traded in U.S. dollars on U.S. exchanges that are held by a U.S. bank or a
trust. Foreign companies use ADRs in order to make it easier for Americans to
buy their shares.
AMERICAN INSTITUTION OF INVESTORS: A nonprofit organization with about 150,000
members whose purpose is to educate individual investors regarding stock market
portfolios, financial planning, and retirement accounts.
COMMERCE DEPARTMENT: The cabinet department in the U.S. Government that deals
with business, trade and commerce. Its objective is to foment higher standards
of living for Americans through the creations of jobs. It aims to achieve this
by promoting an infrastructure of monetary and economic growth, competitive
technology and favorable international trade.
CONFERENCE BOARD REPORT: Widely followed economic indicators, particularly the
Consumer Confidence Index ("CCI"). The Conference Board also connects some
2,000 companies via forums and peer-to-peer meetings to discuss what matters to
companies today: issues such as top-line growth in a shifting economic
environment and corporate governance standards.
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.
DEALOGIC: Provides technology, data analytics, and consulting services platform
to Investment Bank and Capital Markets professionals.
DOW JONES ASIA-PACIFIC INDEX: A float-adjusted market capitalization index of
securities traded in the Asia/Pacific region representing 15 countries.
DOW JONES GLOBAL EX. U.S. INDEX/SM/: A market capitalization-weighted index
which covers approximately 95% of the market capitalization of the represented
countries of Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Chile,
Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece,
Hong Kong, Hungary, Indonesia, Ireland, Italy, Japan, Latvia, Lithuania,
Malaysia, Malta, Mexico, Netherlands, New Zealand, Norway, Philippines, Poland,
Portugal, Romania, Singapore, Slovakia, Slovenia, South Africa, South Korea,
Spain, Sweden, Switzerland, Taiwan, Thailand and the United Kingdom.
DOW JONES INDUSTRIAL AVERAGE/SM/: A price-weighted average of 30 blue chip
stocks. The index is calculated on 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.
ICE U.S. DOLLAR INDEX (USDX): A leading benchmark for the international value
of the U.S. dollar and the world's most widely-recognized traded currency index.
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.
7
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.
INTERNATIONAL MONETARY FUND (IMF): The Fund surveys and monitors economic and
financial developments, lends funds to countries with balance-of-payment
difficulties, and provides technical assistance and training for countries
requesting it.
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.
PRICEWATERHOUSECOOPERS TRANSACTIONS SERVICES: A transaction services group that
offers a deal process on mergers, acquisitions, sales and financing
transactions.
PRODUCER PRICE INDEX (PPI): Measures the average change over time in the
selling prices received by domestic producers for their output. The prices
included in the PPI are from the first commercial transaction for many products
and some services.
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.
STOXX 600 INDEX: A broad based capitalization weighted index of European based
stocks. It is a free float weighted index.
THOMSON REUTERS: An information company that supplies news services to
newspapers, news agencies, broadcasters and other media subscribers as well as
to businesses governments, institutions, and individuals.
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.
8
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 2011
(UNAUDITED)
($ REPORTED IN THOUSANDS)
PAR VALUE
--------- -------
INVESTMENTS
FOREIGN GOVERNMENT SECURITIES 1.6%
Australia Government Bond 6.500%, 5/15/13........ $ 5,000 $ 5,529
-------
TOTAL FOREIGN GOVERNMENT SECURITIES (Identified Cost
$5,417)........................................... 5,529
-------
NUMBER OF
SHARES
---------
COMMON STOCKS 68.3%
CONSUMER DISCRETIONARY -- 8.6%
Amazon.com, Inc./(2)/............................ 24,000 4,908
AutoZone, Inc./(2)/.............................. 16,000 4,718
Comcast Corp. Class A............................ 207,000 5,245
Darden Restaurants, Inc.......................... 96,000 4,777
Lululemon Athletica, Inc./(2)/................... 45,000 5,032
McDonald's Corp.................................. 58,000 4,890
-------
29,570
-------
CONSUMER STAPLES -- 2.8%
Altria Group, Inc................................ 182,000 4,807
PepsiCo, Inc..................................... 70,000 4,930
-------
9,737
-------
ENERGY -- 12.9%
Alpha Natural Resources, Inc./(2)/............... 103,000 4,680
Chesapeake Energy Corp........................... 169,000 5,018
Chevron Corp..................................... 48,000 4,936
ConocoPhillips................................... 67,000 5,038
El Paso Corp..................................... 243,000 4,909
Halliburton Co................................... 107,000 5,457
Occidental Petroleum Corp........................ 50,000 5,202
Petroleo Brasileiro S.A. ADR..................... 120,000 4,063
Williams Cos., Inc. (The)........................ 170,000 5,142
-------
44,445
-------
See notes to financial statements
9
NUMBER OF
SHARES VALUE
--------- -------
FINANCIALS -- 4.2%
Bank of America Corp...................... 437,000 $ 4,790
Citigroup, Inc............................ 118,000 4,913
Goldman Sachs Group, Inc. (The)........... 36,000 4,791
-------
14,494
-------
HEALTH CARE -- 5.7%
Abbott Laboratories....................... 93,000 4,894
Biogen Idec, Inc./(2)/.................... 46,000 4,918
Gilead Sciences, Inc./(2)/................ 123,000 5,093
UnitedHealth Group, Inc................... 96,000 4,952
-------
19,857
-------
INDUSTRIALS -- 11.2%
Alaska Air Group, Inc./(2)/............... 71,000 4,861
Caterpillar, Inc.......................... 47,000 5,004
Cummins, Inc.............................. 47,000 4,864
Deere & Co................................ 59,000 4,865
Foster Wheeler AG/(2)/.................... 156,000 4,739
L-3 Communications Holdings, Inc.......... 56,000 4,897
Union Pacific Corp........................ 47,000 4,907
United Continental Holdings, Inc./(2)/.... 202,000 4,571
-------
38,708
-------
INFORMATION TECHNOLOGY -- 11.9%
Amkor Technology, Inc./(2)/............... 631,539 3,896
Apple, Inc./(2)/.......................... 22,000 7,385
Corning, Inc.............................. 259,000 4,701
Intel Corp................................ 224,000 4,964
International Business Machines Corp...... 28,000 4,803
QUALCOMM, Inc............................. 87,000 4,941
SanDisk Corp./(2)/........................ 122,000 5,063
Visa, Inc. Class A........................ 64,000 5,393
-------
41,146
-------
MATERIALS -- 9.6%
Alcoa, Inc................................ 227,000 3,600
Cliffs Natural Resources, Inc............. 56,000 5,177
Du Pont (E.I.) de Nemours & Co............ 92,000 4,973
Freeport-McMoRan Copper & Gold, Inc....... 99,000 5,237
Monsanto Co............................... 72,000 5,223
Nucor Corp................................ 89,000 3,669
Potash Corp. of Saskatchewan, Inc......... 90,000 5,129
-------
33,008
-------
See notes to financial statements
10
NUMBER OF
SHARES VALUE
----------- --------
TELECOMMUNICATION SERVICES -- 1.4%
Verizon Communications, Inc........................... 131,000 4,877
--------
4,877
--------
TOTAL COMMON STOCKS (Identified Cost $193,676)............ 235,842
--------
EXCHANGE-TRADED FUNDS 2.6%
Consumer Staples Select Sector SPDR Fund.............. 32,963 1,029
Health Care Select Sector SPDR Fund................... 92,000 3,268
Templeton Dragon Fund, Inc............................ 150,000 4,554
--------
TOTAL EXCHANGE-TRADED FUNDS (Identified Cost $6,810)...... 8,851
--------
TOTAL LONG TERM INVESTMENTS --
72.5% (Identified cost $205,903)........... 250,222
--------
SHORT-TERM INVESTMENTS 27.5%
MONEY MARKET MUTUAL FUNDS -- 3.2%
Dreyfus Cash Management Fund -- Institutional
Shares (seven-day effective yield 0.100%)........... 10,928,069 10,928
--------
PAR
-----------
U.S. TREASURY BILLS/(3)/ -- 24.3%
U.S. Treasury Bills
0.040%, 8/18/11................................... $ 15,000 14,999
0.183%, 9/22/11................................... 20,000 19,999
0.080%, 11/25/11.................................. 10,000 9,997
0.115%, 12/15/11.................................. 30,000 29,989
0.160%, 5/31/12................................... 9,000 8,986
--------
83,970
--------
TOTAL SHORT-TERM INVESTMENTS (Identified
Cost $94,885)............................... 94,898
--------
TOTAL INVESTMENTS (Identified Cost
$300,788) -- 100.0%/(1)/.................... 345,120
OTHER ASSETS AND LIABILITIES, NET -- 0.0%..... 116
--------
NET ASSETS -- 100.0%.......................... $345,236
========
--------
(1) Federal Income Tax Information : For tax information at June 30, 2011, see
Note 9 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
11
COUNTRY WEIGHTINGS (UNAUDITED)+
United States................... 92%
Canada.......................... 3%
Australia....................... 2%
Brazil.......................... 1%
China........................... 1%
Switzerland..................... 1%
---
Total........................... 100%
===
--------
+ % of total investments as of June 30, 2011
The following table provides a summary of inputs used to value the Fund's net
assets as of June 30, 2011. (See Security Valuation Note 2A in the Notes to
Financial Statements):
LEVEL 2
SIGNIFICANT
TOTAL VALUE AT LEVEL 1 OBSERVABLE
JUNE 30, 2011 QUOTED PRICES INPUTS
-------------- ------------- -----------
Equity Securities:
Common Stocks.................................................... $235,842 $235,842 $ --
Exchange-Traded Funds............................................ 8,851 8,851 --
Short-Term Investments........................................... 10,928 10,928 --
Debt Securities:
Foreign Government Securities.................................... 5,529 -- 5,529
U.S. Government Securities (includes short-term investments)..... 83,970 -- 83,970
-------- -------- -------
Total............................................................... $345,120 $255,621 $89,499
======== ======== =======
There are no Level 3 (significant unobservable input) securities.
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2011
(UNAUDITED)
(REPORTED IN THOUSANDS EXCEPT SHARES AND PER SHARE AMOUNTS)
ASSETS
Investment securities at value (Identified Cost $300,788). $345,120
Receivables:
Investment securities sold............................ 4,335
Dividends and interest................................ 276
Prepaid expenses.......................................... 86
--------
Total Assets....................................... 349,817
--------
LIABILITIES
Payables:
Investment securities purchased....................... 4,290
Investment advisory fee............................... 188
Administration fee.................................... 18
Professional fees..................................... 43
Transfer agent fee.................................... 19
Other accrued expenses................................ 23
--------
Total Liabilities.................................. 4,581
--------
NET ASSETS $345,236
========
NET ASSET VALUE PER SHARE
($345,236 / 91,955,558)................................... $ 3.75
========
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $372,173
Accumulated undistributed net investment income (loss).... (16,884)
Accumulated net realized gain (loss)...................... (54,386)
Net unrealized appreciation (depreciation)................ 44,333
--------
NET ASSETS................................................... $345,236
========
See notes to financial statements
13
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2011
(UNAUDITED)
($ REPORTED IN THOUSANDS)
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld of $12)............... $ 1,962
Interest....................................................... 60
Security lending............................................... 2
-------
Total Investment Income................................. 2,024
-------
Expenses
Investment advisory fees....................................... 1,470
Administration fees............................................ 112
Directors' fees................................................ 106
Printing fees and expenses..................................... 86
Professional fees.............................................. 75
Transfer agent fees and expenses............................... 55
Custodian fees................................................. 4
Miscellaneous expenses......................................... 110
-------
Total Expenses.......................................... 2,018
-------
Less expenses reimbursed by investment adviser................. (83)
Net Expenses............................................ 1,935
-------
Net Investment Income................................ 89
-------
NET REALIZED AND UNREALIZED GAIN (LOSSES)
Net realized gain (loss) on:
Investments.................................................... (741)
Net change in unrealized appreciation (depreciation) on:
Investments.................................................... 13,963
Foreign currency translations.................................. 1
-------
Net realized and unrealized gain............................ 13,223
-------
Net increase in net assets resulting from operations........ $13,312
=======
See notes to financial statements
14
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
($ REPORTED IN THOUSANDS)
FOR THE
SIX MONTHS ENDED FOR THE
JUNE 30, 2011 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2010
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income....................................... $ 89 $ 1,226
Net realized gain (loss).................................... (741) 14,436
Net change in unrealized appreciation (depreciation)........ 13,964 13,968
-------- --------
Net increase in net assets resulting from
operations............................................. 13,312 29,630
-------- --------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income....................................... (17,288)/(1)/ (1,463)
Net realized short-term gains............................... -- (7,745)
Tax return of capital....................................... -- (24,264)
-------- --------
Total dividends and distributions to shareholders........ (17,288) (33,472)
-------- --------
Net increase (decrease) in net assets.................... (3,976) (3,842)
NET ASSETS
Beginning of period............................................. 349,212 353,054
-------- --------
End of period................................................... $345,236 $349,212
======== ========
Accumulated undistributed net investment income (loss) at
end of period................................................. $(16,884) $ 315
--------
/(1)/ Please note that the tax status of our distributions is determined at the
end of the taxable year. However, based on interim data as of June 30,
2011, we estimate 1% of the distributions will represent net investment
income, 0% will represent excess gain distributions which are taxed as
ordinary income and 99% will represent return of capital. Also refer to
the inside front cover for the Managed Distribution Plan.
See notes to financial statements
15
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2011 ----------------------------------------------------------
(UNAUDITED) 2010 2009 2008 2007 2006
---------------- -------- -------- -------- -------- --------
PER SHARE DATA
Net asset value, beginning of period....... $ 3.80 $ 3.84 $ 3.50 $ 5.65 $ 5.99 $ 5.82
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)/(3)/.......... -- /(8)/ 0.01 0.02 0.04 0.05 0.07
Net realized and unrealized gains
(losses).................................. 0.14 0.31 0.66 (1.67) 0.39 0.68
-------- -------- -------- -------- -------- --------
Total from investment operations........... 0.14 0.32 0.68 (1.63) 0.44 0.75
-------- -------- -------- -------- -------- --------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income....... (0.19)/(10)/ (0.02) (0.02) (0.04) (0.05) (0.07)
Distributions from net realized gains...... -- (0.08) -- (0.10) (0.34) (0.21)
Tax return of capital...................... -- (0.26) (0.32) (0.38) (0.20) (0.30)
-------- -------- -------- -------- -------- --------
Total dividends and distributions.......... (0.19) (0.36) (0.34) (0.52) (0.59) (0.58)
-------- -------- -------- -------- -------- --------
Dilutive effect on net asset values as a
result of rights offering................. -- -- -- -- /(8)/ (0.19)/(6)/ --
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 3.75 $ 3.80 $ 3.84 $ 3.50 $ 5.65 $ 5.99
======== ======== ======== ======== ======== ========
Market value, end of period/(1)/........ $ 3.43 $ 3.35 $ 3.31 $ 2.88 $ 5.05 $ 5.90
======== ======== ======== ======== ======== ========
Total investment return/(2)/............... 8.05%/(5)/ 12.87% 29.08% (35.32)% (5.12)%/(7)/ 24.87%
======== ======== ======== ======== ======== ========
Total return on net asset value/(9)/....... 4.14%/(5)/ 10.36% 23.22% (29.75)% 8.75% 14.58%
======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)... $345,236 $349,212 $353,054 $322,293 $519,104 $438,544
Ratio of expenses
(excluding dividends on short sales after
expense waivers and
reimbursements)........................... 1.12%/(4)/ 1.23% 1.22% 1.18% 1.13% 1.18%
Ratio of expenses to average net assets
(excluding dividends on short sales)...... 1.17%/(4)/ 1.23% 1.22% 1.18% 1.13% 1.18%
Ratio of expenses to average net assets
(including dividends on short sales)...... 1.17%/(4)/ 1.23% 1.22% 1.18% 1.13% 1.21%
Ratio of net investment income (loss) to
average net assets........................ 0.05%/(4)/ 0.37% 0.66% 0.83% 0.82% 1.20%
Portfolio turnover rate.................... 26%/(5)/ 42% 35% 39% 58% 39%
For definitions and explanations of the Footnotes see page 17.
See notes to financial statements
16
--------
(1)Closing Price -- New York Stock Exchange.
(2)Total investment return is calculated assuming a purchase of a share of the
Fund's common stock at the opening NYSE share price on the first business
day and a sale at the closing NYSE share price on the last business day of
each period reported. Dividends and distributions, if any, are assumed for
the purpose of this calculation, to be reinvested at prices obtained under
the Fund's Automatic Reinvestment and Cash Purchase Plan. Generally, total
investment return based on net asset value will be higher than total
investment return based on market value in periods where there is an
increase in the discount or a decrease in the premium of the market value to
the net assets from the beginning to the end of such years. Conversely,
total investment return based on net asset value will be lower than total
investment return based on market value in periods where there is a decrease
in the discount or an increase in the premium of the market value to the net
asset value from the beginning to the end of such periods.
(3)Computed using average shares outstanding
(4)Annualized
(5)Not Annualized
(6)Shares were sold at a 5% discount from a 5-day average market price from
8/29/07 to 9/5/07.
(7)Total investment return includes the dilutive effect of the 2007 rights
offering. Without this effect, the total investment return would have been
(3.83)%.
(8)Amount is less than $0.005
(9)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.
(10)Please note that the tax status of the distributions is determined at the
end of the taxable year.
See notes to financial statements
17
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2010
(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 investment 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:
Security Valuation procedures for the funds have been approved by the Board
of Trustees. All internally fair valued securities referred to below are
approved by a valuation committee appointed under the direction of the Board of
Trustees.
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 valuation committee's own assumptions in determining the
fair value of investments)
A description of the valuation techniques applied to the Fund's major
categories of assets and liabilities measured at fair value on a recurring
basis is as follows:
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 and are categorized as Level
1 in the hierarchy. Restricted equity securities and private placements that
are not widely traded, are illiquid or are internally fair valued by the
valuation committee, are generally categorized as Level 3 in the hierarchy.
18
Certain foreign securities 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 such cases the Fund fair values foreign securities using an
external pricing service which considers the correlation of the trading
patterns of the foreign security to the intraday trading in the U.S. markets
for investments such as American Depositary Receipts, financial futures,
exchange-traded funds, and certain indexes as well as prices for similar
securities. Such fair valuations are categorized as Level 2 in the hierarchy.
Because the frequency of significant events is not predictable, fair valuation
of certain foreign common stocks may occur on a frequent basis.
Debt securities, including restricted securities, are valued based on
evaluated quotations received from independent pricing services or from dealers
who make markets in such securities. For most bond types, the pricing service
utilizes matrix pricing which considers yield or price of bonds of comparable
quality, coupon, maturity, current cash flows, type, and current day trade
information, as well as dealer supplied prices. These valuations are generally
categorized as Level 2 in the hierarchy. Structured debt instruments such as
mortgage-backed and asset-backed securities may also incorporate collateral
analysis and utilize cash flow models for valuation and are generally
categorized as Level 2 in the hierarchy. Pricing services do not provide
pricing for all securities and therefore dealer supplied prices are utilized
representing indicative bids based on pricing models used by market makers in
the security and are generally categorized as Level 2 in the hierarchy. Debt
securities that are not widely traded, are illiquid, or are internally fair
valued by the valuation committee are generally categorized as Level 3 in the
hierarchy.
Listed derivatives that are actively traded are valued based on quoted
prices from the exchange and are categorized as Level 1 in the hierarchy. Over
the counter (OTC) derivative contracts, which include forward currency
contracts and equity linked instruments, are valued based on inputs observed
from actively quoted markets and are categorized as Level 2 in the hierarchy.
Investments in open-end mutual funds are valued at their closing net asset
value determined as of the close of business of the New York Stock Exchange
(generally 4:00 p.m. Eastern time) each business day and are categorized as
Level 1 in the hierarchy.
Short-term notes having a remaining maturity of 60 days or less are valued
at amortized cost, which approximates market and are generally categorized as
Level 2 in the hierarchy.
A summary of the inputs used to value the Fund's major categories of assets
and liabilities, which primarily include investments of the Fund, by each major
security type is disclosed at the end of the Schedule of Investments for the
Fund. 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.
19
C. INCOME TAXES:
The Fund is treated as a separate taxable entity. 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.
The Fund has adopted the authoritative guidance on accounting for and
disclosure of uncertainty in tax positions, which requires the Fund to
determine whether a tax position is more likely than not to be sustained upon
examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. The Fund has
determined that there was no effect on the financial statements from the
adoption of this authoritative guidance. The Fund files tax returns as
prescribed by the tax laws of the jurisdictions in which they operate. In the
normal course of business, the Fund is subject to examination by federal, state
and local jurisdictions, where applicable. As of June 30, 2011, the tax years
that remain subject to examination by the major tax jurisdictions under the
statute of limitations is from the year 2007 forward (with limited exceptions).
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Distributions are recorded by the Fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. These differences may include the treatment of
non-taxable dividends, market premium and discount, non-deductible expenses,
expiring capital loss carryovers, foreign currency gain or loss, operating
losses and losses deferred due to wash sales. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to capital paid in on shares of beneficial interest.
The Fund has a Managed Distribution Plan to pay 10 percent of the Fund's net
asset value ("NAV") on an annualized basis. Distributions may represent
earnings from net investment income, realized capital gains, or, if necessary,
return of capital. Shareholders should not draw any conclusions about the
Fund's investment performance from the terms of the Fund's Managed Distribution
Plan.
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.
20
NOTE 3 -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
($ REPORTED IN THOUSANDS UNLESS OTHERWISE NOTED)
Zweig Advisers LLC, an indirect wholly-owned subsidiary of Virtus Investment
Partners, Inc. ("Virtus"), is the adviser to the Fund.
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 of 0.85% of the Fund's average daily net assets.
During the six-month period ended June 30, 2011, the Fund incurred advisory
fees of $1,470.
Effective May 10, 2011, the Adviser has voluntarily agreed to waive 20% of
the advisory fee until further notice.
Zweig Consulting LLC (the "Sub-Adviser"), which serves as the Sub-Adviser
for the Fund, performs certain asset allocation research and analysis and
provides such advice to the Adviser. The Sub-Adviser's fees are paid by the
Adviser.
B) ADMINISTRATION SERVICES: VP Distributors, Inc., an indirect wholly-owned
subsidiary of Virtus, serves as the Fund's Administrator (the "Administrator")
pursuant to an Administration Agreement. During the period ended June 30, 2011,
the Fund incurred Administration fees of $112.
C) DIRECTORS FEE ($ NOT REPORTED IN THOUSANDS):
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
Director for each 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 in lieu of compensation for
executive committee meetings. The Audit Committee chairperson is paid an
additional fee of $5,000 per year. Any Director of the Fund who is an
interested person of the Fund or the Adviser receives no remuneration from the
Fund.
NOTE 4 -- PURCHASES AND SALES OF SECURITIES:
($ 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, 2011, were
as follows:
Purchases. $ 70,928
Sales..... 100,804
There were no purchases and sales of long-term U.S. Government and agency
securities for the period ended June 30, 2011.
21
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, 2011, 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 periods ended June 30, 2011 and
December 31, 2010, there were no shares issued pursuant to the Plan.
On June 20, 2011, the Fund announced a distribution of $0.09 per share to
shareholders of record on July 11, 2011. This distribution has an ex-dividend
date of July 7, 2011, and is payable on July 18, 2011. Please see inside front
cover for more information on fund distributions.
NOTE 7 -- CREDIT RISK AND ASSET CONCENTRATIONS
In countries with limited or developing markets, investments may present
greater risks than in more developed markets and the prices of such investments
may be volatile. The consequences of political, social or economic changes in
these markets may have disruptive effects on the market prices of these
investments and the income they generate, as well as the Fund's ability to
repatriate such amounts.
The Fund may invest a high percentage of its assets in specific sectors of
the market in its pursuit of a greater investment return. Fluctuations in these
sectors of concentration may have a greater impact on the Fund, positive or
negative, than if the Fund did not concentrate its investments in such sectors.
NOTE 8 -- REGULATORY EXAMS
Federal and state regulatory authorities from time to time make inquiries
and conduct examinations regarding compliance by Virtus and its subsidiaries
(collectively "the Company") with securities and other laws and regulations
affecting their registered products.
There are currently no such matters which the Company believes will be
material to these financial statements.
22
NOTE 9 -- FEDERAL INCOME TAX INFORMATION
($ REPORTED IN THOUSANDS)
At June 30, 2011, 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)
------------------ ------------------ ------------------ ------------------
$305,325 $47,458 $(7,663) $39,795
The Fund has capital loss carryover, which may be used to offset future
capital gains as follows:
EXPIRATION YEAR
-----------------------------------------------------------
2011 2016 2017 TOTAL
------------- ------------- ------------- -------------
$26,802 $2,219 $20,780 $49,801
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 10 -- RECENT ACCOUNTING PRONOUNCEMENT
In May 2011, the Financial Accounting Standards Board issued Accounting
Standards Update ("ASU") No. 2011-04 "Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs". ASU 2011-04
includes common requirements for measurement of and disclosure about fair value
between U.S. GAAP and IFRS. ASU 2011-04 will require reporting entities to
disclose quantitative information about the unobservable inputs used in the
fair value measurements categorized within Level 3 of the fair value hierarchy.
In addition, ASU 2011-04 will require reporting entities to make disclosures
about amounts and reasons for all transfers in and out of Level 1 and Level 2
fair value measurements. The new and revised disclosures are effective for
interim and annual reporting periods beginning after December 15, 2011. At this
time, management is evaluating the implications of ASU No. 2011-04 and its
impact on the financial statements has not been determined.
NOTE 11 -- SUBSEQUENT EVENT EVALUATIONS
Management has evaluated the impact of all subsequent events on the Fund
through the date the financial statements were issued, and has determined that
there are no subsequent events that require recognition or disclosure in these
financial statements.
23
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 15, 2011, 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 delivered an acceptable level of service. With respect to the
services of the Sub-Adviser, the Independent Directors requested that the
Adviser provide for the next meeting additional analysis of the services
provided by the Sub-Adviser, as well as any recommendations it may have based
on such analysis for any contract and/or fee changes that may be warranted.
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 their respective 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 also considered the performance of the
portfolios of other Virtus equity mutual funds now being managed by the Fund's
portfolio managers and found that performance to be consistent with the
performance being achieved by the Fund's equity portfolios.
3. Costs of Services and Profits Realized by the Adviser and the Sub-Adviser.
(a) Costs of Services to the Fund: Fees and Expenses. The Independent
Directors considered the Fund's management fee rate and expense ratios relative
to the 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
24
concluded that the Adviser's profitability was at an acceptable level in light
of the quality of the services being provided to the Fund. The Independent
Directors further concluded that the Sub-Adviser's profitability was at an
acceptable level in light of the quality of services being provided to the
Fund, subject to any recommendations by the Adviser as requested for the next
meeting.
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 the 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 open-end 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 re-approval
of the Investment Advisory Agreement with the Adviser and the Servicing
Agreement with the Sub-Adviser was 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.
25
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, with the
understanding that further consideration may be given based on the report of
the Adviser as requested for the next meeting.
At a meeting held on May 10, 2011, based on the recommendation of the
Adviser, the Independent Directors considered and approved an Amended and
Restated Servicing Agreement, which set out a revised description of the
services provided by the Sub-Adviser and a 20% reduction in the fee paid by the
Adviser to the Sub-Adviser. It was noted that the Adviser had agreed to waive
the 20% of its advisory fee (the amount of reduction in the fee paid to the
Sub-Adviser) until further notice.
26
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
10, 2011. The meeting was held for purposes of electing two (2) nominees to the
Board of Directors.
The results of the above matters were as follows:
DIRECTORS VOTES FOR VOTES AGAINST VOTES WITHHELD ABSTENTIONS
--------- ---------- ------------- -------------- -----------
Wendy Luscombe.. 67,542,310 N/A 10,732,310 N/A
R. Keith Walton. 67,496,845 N/A 10,778,343 N/A
27
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 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, along with information regarding
how the Fund voted proxies during the most recent 12-month period ended
June 30, 2011, free of charge, by calling toll-free 800-272-2700. 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.
28
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.
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, 2011 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 6, 2011
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 6, 2011
By (Signature and Title)* /s/ W. Patrick Bradley
-----------------------------------------------------
W. Patrick Bradley, Treasurer
(principal financial officer)
Date September 6, 2011
* Print the name and title of each signing officer under his or her signature.