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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: December 31, 2010
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.
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ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
THE ZWEIG FUND, INC.
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Annual Report
December 31, 2010
[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
MARC BALTUCH, Chief Compliance Officer and Vice President
MOSHE LUCHINS, 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
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
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
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PRICEWATERHOUSECOOPERS LLP
2001 Market Street
Philadelphia, PA 19103-7042
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THIS REPORT IS TRANSMITTED TO THE SHAREHOLDERS OF THE ZWEIG FUND, INC. FOR
THEIR INFORMATION. THIS IS NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION
INTENDED FOR USE IN THE PURCHASE OF SHARES OF THE FUND OR ANY SECURITIES
MENTIONED IN THIS REPORT.
[LOGO]
VIRTUS
INVESTMENT PARTNERS
Q4-10
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
February 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 fiscal year ended December 31, 2010.
The Zweig Fund's net asset value increased 10.82% for the quarter ended
December 31, 2010, including $0.086 in re-invested distributions. During the
same period, the S&P 500 Index gained 10.76%, including re-invested dividends.
The Fund's average equity exposure for the quarter was approximately 78%.
For the fiscal year ended December 31, 2010, the Fund's net asset value rose
10.36%, including $0.364 in re-invested distributions. For the same period, the
S&P 500 Index increased 15.06%, including re-invested dividends. The Fund's
average equity exposure for the year 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
Marking the second year of recovery from the financial crisis, the stock
market climbed higher in 2010. Gaining 7.3%/(1)/ in the fourth quarter and
18.5%/(1)/ for the second half, the Dow Jones Industrial Average rose 11%/(1)/
for the year and closed at 11,577.51. The Dow ended 76.8%/(1)/ above its low of
6,547.05 on March 9, 2009 but still lags 18%/(1)/ below its all-time high of
14,164.53 on October 9, 2007. Increasing 6.5%/(1)/ in December alone, the S&P
500 Index moved up 12.8%/(1)/ for the year to finish at 1,257.64. This followed
a gain of 23%/(1) /in 2009. Paced by its strong technology positions, the
Nasdaq Composite finished at 2,652.87, a rise of 16.9%/(1)/ for 2010.
Despite losses in the debt-challenged countries of Portugal, Italy, Ireland,
Greece and Spain, the broad STOXX Europe 600 advanced 9%/(1)/ to end 2010 at a
two-year high. The biggest gainer was Germany's DAX Index, which increased
16%/(1)/. The U.K.'s FTSE 100 rose 9%/(1)/. In Asia, most markets soared but
China and Japan, the two biggest economies, lost ground. The Shanghai Composite
slipped 14%/(1) /and the Nikkei 225 Stock Average dipped 3%/(1)/.
Stating that he expected economic growth to be "moderately stronger this
year," Federal Reserve (the "Fed") Chairman Ben S. Bernanke told Congress that
"we have seen increased evidence that a self-sustaining recovery in consumer
and business spending may be taking hold." However, he cautioned that
employment "improved only moderately" and that "it could take four or five more
years for the job market to normalize fully."
/(1)/ Return excludes reinvested dividends.
2
The continued weakness in hiring was evident in the Labor Department's
report for December. While the jobless rate dropped to 9.4% from November's
9.8%, employers added only 103,000 jobs in December, far below the pace needed
to establish a stabilized labor market. Much of the decline in the unemployment
rate was attributed to the large number of discouraged people no longer seeking
work.
Signs of economic strength came from the Institute of Supply Management. Its
index of manufacturing activity expanded in December to 57. Figures above 50
signal expansion. The agency's barometer of service sector activities climbed
to 57.1 in December, the twelfth straight month of expansion and the highest
figure since May 2006.
Also encouraging was the report by the Commerce Department that new orders
received by American factories, excluding transportation, rose 2.4% in
November, the largest gain in eight months. October showed a 0.1% rise.
Unfilled orders increased 0.6% in November after rising 0.7% in October.
Reflecting an improved economy, the nation's gross domestic product
increased 2.6% in the third quarter, an upward revision of the earlier 2.5%
growth estimate and significantly above the 1.7% gain in the second quarter,
according to the Commerce Department. Further economic growth was indicated by
the surge in U.S. exports in October, the last month for which figures are
available. A 3.2% gain in exports and a 0.5% drop in imports brought the
domestic trade deficit to a nine-month low of $38.7 billion, according to the
Commerce Department. October exports were the largest since August 2008, the
month before the economic crisis hit.
The value of the dollar, a key factor in international trade, gained
strength in 2010, with the US Dollar Index, which measures the dollar against a
basket of world currencies, gaining 1.5%. The dollar ended the year up 6.6%
against the euro and 3.6% against the British pound. However the dollar dropped
12.8% against the Japanese yen.
Housing activity, a major component of the economy, presented a mixed
picture. The Commerce Department reported that housing starts rose 3.9% in
November to a seasonally-adjusted annual rate of 555,000 units. However new
building permits declined 4% in November to the lowest level since April 2009,
following a 0.9% gain in October. Sales of new homes reached a
seasonally-adjusted annual rate of 290,000 against 275,000 in October but was
still only at 20% of the peak level of 2005. Overall construction spending
increased 0.4% in November to an annual pace of $810.2 billion, a five-month
high.
Rather than investing in expansion and hiring workers, non-financial
companies in the U.S. were holding $1.93 trillion in cash and other liquid
assets at the end of September, up from $1.8 trillion at the end of June,
according to the Federal Reserve. Cash represented 7.4% of the total assets,
the largest proportion since 1959.
Marking the first world-wide increase in mergers and acquisitions since the
financial crisis, global volume reached $2.74 trillion last year against $2.2
trillion in 2009, according to Dealogic. The U.S. share was $874.7 billion with
9,627 deals. Europe accounted for $786.3 billion in deals and emerging markets,
with 32% of the total, saw $889.3 billion in deals. While down 4% from the
third quarter of 2010, global volume in the fourth quarter grew 17% to $738
billion from $630.3 billion in the final quarter a year ago.
Initial public offerings also came back to life in 2010. World-wide
registrations totaled 1,376 and raised $269.4 billion, more than double the
amounts in 2009 and 2008, according to Dealogic. The U.S. saw 110 new stocks,
valued at $35.5 billion, enter the market, more than double the 2009
3
total of $13.9 billion. China, with 471 offerings, raised $104.4 billion,
dominating the market. China alone raised more money than the U.S. and Europe
combined.
While U.S. consumer spending increased 0.4% in November from October, the
pace of inflation remained subdued. The consumer price index rose only 0.1% in
November and was up 1.1% for the year, according to the Labor Department. The
core measurement, which excludes volatile food and energy prices, also gained
0.1% for the month and was only 0.8% higher than a year ago. The Producer Price
Index rose 0.8% in November and was 3.5% above a year earlier. However the
producer price core gauge was only 1.2% above the 2009 level.
Consumer confidence slipped in November but stock market analysts and
investors remained very bullish. The Conference Board reported that its index
of consumer attitudes fell to 52.5 in December from an upward revised 54.3 in
November. Expressing more positive views, advisors surveyed by Investors
Intelligence showed 56% bulls at the year-end and only 20% bears. Similar views
were reported by members of the American Institute of Investors, which had 62%
bulls and 20% bears. These figures show a stronger bullish sentiment than at
the end of the third quarter when analysts stood at 43% bulls and 28% bears and
investors at 42% bulls and 32% bears. We believe that these readings indicate
an excess of optimism which is not good for the market.
A less optimistic outlook prevailed for company earnings. Analysts expect
profits to rise by 13.4% this year, far below the projected increase of 37.8%
for 2010, according to Thomson Reuters. The higher profits last year were
largely driven by cost savings by companies. During the recession they became
lean and mean, laying off workers and concentrating on reducing expenditures.
Consequently, earnings climbed substantially. However, as the latest forecast
from analysts shows, they will not rise forever.
Based on estimated earnings, Bloomberg News reported that stocks in the S&P
500 were trading at a price/earnings ratio of 15.03 on December 31, 2010
against 15.92 on September 30 and 19.61 at the end of 2009. The P/Es for
trailing twelve-month earnings were 21.25, 21.35 and 16.99 respectively. The
declines in P/Es during the year reflect the higher earnings even though the
market went up. On the surface, the valuations appear reasonable but they are
not cheap.
Looking forward, the major problem, as we mentioned earlier, is too much
optimism. As a result, our sentiment indicator is negative. With the market
continuing to rise slowly, our tape indicator is fine. Our monetary indicator,
which depends largely on Fed actions, is okay. At the moment the Fed is buying
bonds and definitely not tightening, holding short-term interest rates near
zero. Given our policy not to fight the tape or the Fed, we have these two
factors going for us. However, there still is excessive optimism to worry about.
Because of our nervousness about the sentiment data, our market posture is
somewhat better than neutral but less than moderately bullish. After cutting
back recently from 80%, we are currently at about 75% 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 December 31, 2010 included Information
Technology, Energy, Industrials, Materials, and Consumer Discretionary.
Although the percentages held varied, all of the above appeared in our previous
listing. During the quarter we added to our positions in Information Technology
and Financials and reduced our holdings in Health Care and Industrials.
Our leading individual positions on December 31, 2010 included Alcoa,
Chesapeake Energy, Chevron, Citigroup, Freeport-McMoRan, Lululemon Athletica,
Monsanto, Nucor, Petroleo Brasileiro, and Potash. All of the above, with the
exception of Freeport McMoRan, are new to this listing.
During the quarter we trimmed our holdings, in Alcoa, Citigroup and Nucor
and added to our positions in Chesapeake Energy, Petroleo Brasileiro and
Potash. Lululemon and Monsanto are new positions.
The following, where we trimmed our positions, are no longer among our top
holdings: Autozone, United Continental, Haliburton, IBM, QUALCOMM, Union
Pacific and Verizon. Also out is Johnson & Johnson, which we eliminated.
Sincerely,
/s/ Carlton Neel
Carlton Neel
Executive Vice President
Zweig Advisers, LLC
ASSET ALLOCATION AS OF DECEMBER 31, 2010
The following graph illustrates asset allocations within certain sectors and
as a percentage of total investments as of December 31, 2010.
[CHART]
Information Technology 17%
Energy 14%
Industrials 10%
Materials 10%
Consumer Discretionary 9%
Financials 6%
Health Care 4%
Other (includes short-term investments) 30%
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
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.
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.
DAX INDEX: A total return index of 30 selected German blue chip companies
traded on the Frankfurt Stock exchange. It is a free float weighted index.
DEALOGIC: Provides technology, data analytics, and consulting services platform
to Investment Bank and Capital Markets professionals.
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.
FTSE 100 INDEX: A capitalization weighted index of the 100 most capitalized
companies traded on the London Stock Exchange.
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
6
derivative securities. The index is calculated on a total return basis with
dividends reinvested.
NIKKEI 225 STOCK AVERAGE: A price weighted average of 225 top-rated Japanese
companies listed in the First Section of the Tokyo Stock Exchange.
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.
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.
SHANGHAI COMPOSITE INDEX: A capitalization weighted index that tracks the daily
price performance of all A shares and B shares listed on the Shanghai Stock
Exchange.
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.
7
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
($ REPORTED IN THOUSANDS)
NUMBER OF
SHARES VALUE
--------- -------
INVESTMENTS
COMMON STOCKS 73.9%
CONSUMER DISCRETIONARY -- 8.8%
AutoZone, Inc./(2)/.......................... 19,000 $ 5,179
Best Buy Co., Inc............................ 145,000 4,972
Comcast Corp. Class A........................ 244,000 5,361
Darden Restaurants, Inc...................... 100,000 4,644
Lululemon Athletica, Inc./(2)/............... 83,000 5,679
McDonald's Corp.............................. 66,000 5,066
-------
30,901
-------
CONSUMER STAPLES -- 2.9%
Altria Group, Inc............................ 205,000 5,047
PepsiCo, Inc................................. 77,000 5,030
-------
10,077
-------
ENERGY -- 14.0%
Chesapeake Energy Corp....................... 233,000 6,037
Chevron Corp................................. 60,000 5,475
ConocoPhillips............................... 79,000 5,380
El Paso Corp................................. 361,000 4,967
Halliburton Co............................... 126,000 5,145
Massey Energy Co./(4)/....................... 99,000 5,311
Occidental Petroleum Corp.................... 55,000 5,396
Petroleo Brasileiro S.A. ADR................. 155,000 5,865
Williams Cos., Inc. (The).................... 212,000 5,241
-------
48,817
-------
FINANCIALS -- 6.0%
Bank of America Corp......................... 390,000 5,202
Citigroup, Inc./(2)/......................... 1,145,000 5,416
Goldman Sachs Group, Inc. (The).............. 31,000 5,213
Hudson City Bancorp, Inc..................... 415,000 5,287
-------
21,118
-------
See notes to financial statements
8
NUMBER OF
SHARES VALUE
--------- --------
HEALTH CARE -- 4.2%
Biogen Idec, Inc./(2)/.................... 76,000 $ 5,096
Gilead Sciences, Inc./(2)/................ 129,000 4,675
UnitedHealth Group, Inc................... 132,000 4,766
--------
14,537
--------
INDUSTRIALS -- 9.8%
Alaska Air Group, Inc./(2)/............... 90,000 5,102
Caterpillar, Inc.......................... 57,000 5,339
DryShips, Inc./(2)/....................... 857,000 4,713
Foster Wheeler AG/(2)/.................... 146,000 5,040
L-3 Communications Holdings, Inc.......... 69,000 4,864
Union Pacific Corp........................ 54,000 5,004
United Continental Holdings, Inc./(2)(4)/. 177,000 4,216
--------
34,278
--------
INFORMATION TECHNOLOGY -- 17.1%
Amkor Technology, Inc./(2)(4)/............ 718,000 5,306
Cisco Systems, Inc./(2)/.................. 214,000 4,329
Corning, Inc.............................. 259,000 5,004
Hewlett-Packard Co........................ 117,000 4,926
Intel Corp................................ 238,000 5,005
International Business Machines Corp...... 34,000 4,990
Microsoft Corp............................ 187,500 5,235
Nokia Oyj Sponsored ADR/(4)/.............. 502,000 5,181
QUALCOMM, Inc............................. 107,000 5,295
Research In Motion Ltd./(2)/.............. 81,000 4,708
SanDisk Corp./(2)/........................ 103,000 5,136
Visa, Inc. Class A........................ 65,000 4,575
--------
59,690
--------
MATERIALS -- 9.6%
Alcoa, Inc................................ 387,000 5,956
Du Pont (E.I.) de Nemours & Co............ 103,000 5,138
Freeport-McMoRan Copper & Gold, Inc....... 46,000 5,524
Monsanto Co............................... 80,000 5,571
Nucor Corp................................ 126,000 5,521
Potash Corp. of Saskatchewan, Inc......... 37,000 5,729
--------
33,439
--------
TELECOMMUNICATION SERVICES -- 1.5%
Verizon Communications, Inc............... 150,000 5,367
--------
5,367
--------
TOTAL COMMON STOCKS (Identified Cost $229,949) 258,224
--------
See notes to financial statements
9
NUMBER OF
SHARES VALUE
----------- --------
EXCHANGE-TRADED FUNDS 1.3%
Templeton Dragon Fund, Inc.......................... 150,000 $ 4,606
--------
TOTAL EXCHANGE-TRADED FUNDS (Identified Cost $2,519)..... 4,606
--------
TOTAL LONG TERM INVESTMENTS --
75.2% (Identified Cost $232,468).......... 262,830
--------
PAR
-----------
SHORT-TERM INVESTMENTS 24.8%
U.S. TREASURY BILLS/(3)/ -- 21.8%
0.180%, 2/24/11/(4)/........................ $ 11,000 10,999
0.155%, 3/31/11............................. 7,000 6,998
0.165%, 4/21/11............................. 34,000 33,986
0.190%, 6/2/11.............................. 9,000 8,994
0.223%, 9/22/11............................. 15,000 14,976
--------
75,953
--------
NUMBER OF
SHARES
-----------
MONEY MARKET MUTUAL FUNDS -- 3.0%
Dreyfus Cash Management Fund -- Institutional
Shares (seven-day effective yield 0.140%)......... 10,516,548 10,517
--------
TOTAL SHORT-TERM INVESTMENTS (Identified Cost $86,463)... 86,470
--------
SECURITIES LENDING COLLATERAL 2.3%
Dreyfus Institutional Cash Advantage
Fund (seven-day effective yield 0.180%)/(5)/...... 7,903,000 $ 7,903
--------
TOTAL SECURITIES LENDING COLLATERAL (Identified Cost
$7,903)................................................ 7,903
--------
TOTAL INVESTMENTS (Identified Cost $326,834) -- 102.3%... 357,203/(1)/
OTHER ASSETS AND LIABILITIES, NET -- (2.3%).............. (7,991)
--------
NET ASSETS -- 100.0%..................................... $349,212
========
--------
(1) Federal Income Tax Information : For tax information at December 31, 2010,
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.
(4) All or a portion of security is on loan.
(5) Represents security purchased with cash collateral received for securities
on loan.
See notes to financial statements
10
COUNTRY WEIGHTINGS+ (UNAUDITED)
United States (includes short-term investments). 90%
Canada.......................................... 3
Brazil.......................................... 2
Finland......................................... 2
Bermuda......................................... 1
China........................................... 1
Greece.......................................... 1
---
Total........................................... 100%
===
--------
+ % of total investments as of December 31, 2010
(REPORTED IN THOUSANDS)
The following table provides a summary of inputs used to value the Fund's
investments as of December 31, 2010. (See Security Valuation Note 2A in the
Notes to Financial Statements):
LEVEL 2
TOTAL VALUE AT SIGNIFICANT
DECEMBER 31, LEVEL 1 OBSERVABLE
2010 QUOTED PRICES INPUTS
-------------- ------------- -----------
Equity Securities:
Common Stocks.................................................... $258,224 $258,224 $ --
Exchange-Traded Funds............................................ 4,606 4,606 --
Money Market Mutual Funds........................................ 10,517 10,517 --
Securities Lending Collateral.................................... 7,903 7,903 --
Debt Securities:
U.S. Government Securities (includes short-term investments)..... 75,953 -- 75,953
-------- -------- -------
Total............................................................... $357,203 $281,250 $75,953
======== ======== =======
There are no Level 3 (significant unobservable inputs) priced securities.
See notes to financial statements
11
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2010
(REPORTED IN THOUSANDS EXCEPT SHARES OUTSTANDING AND PER SHARE AMOUNTS)
ASSETS
Investment securities at value (Identified cost $326,834 ). $357,203
Receivables:
Dividends and interest................................. 279
Prepaid expenses........................................... 34
--------
Total Assets........................................ 357,516
--------
LIABILITIES
Payables:
Collateral on securities loaned........................ 7,903
Investment advisory fee................................ 249
Administration fee..................................... 19
Professional fees...................................... 62
Transfer agent fee..................................... 15
Other accrued expenses................................. 56
--------
Total Liabilities................................... 8,304
--------
NET ASSETS $349,212
========
NET ASSET VALUE PER SHARE
($349,212/91,955,558)...................................... $ 3.80
========
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest........... $372,173
Accumulated undistributed net investment income (loss)..... 315
Accumulated net realized gain (loss)....................... (53,645)
Net unrealized appreciation (depreciation)................. 30,369
--------
NET ASSETS.................................................... $349,212
========
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2010
(REPORTED IN THOUSANDS)
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld of $48).......................... $ 5,150
Interest.................................................................. 132
Security lending.......................................................... 2
-------
Total Investment Income............................................ 5,284
-------
Expenses
Investment advisory fees.................................................. 2,798
Administration fees....................................................... 214
Professional fees......................................................... 298
Printing fees and expenses................................................ 173
Directors' fees........................................................... 164
Transfer agent fees and expenses.......................................... 138
Custodian fees............................................................ 10
Miscellaneous expenses.................................................... 263
-------
Total Expenses..................................................... 4,058
-------
Net Investment Income........................................... 1,226
-------
NET REALIZED AND UNREALIZED GAIN (LOSSES)
Net realized gain (loss) on:
Investments............................................................... 14,436
Net change in unrealized appreciation (depreciation) on:
Investments............................................................... 13,968
-------
Net realized and unrealized gain (loss)................................ 28,404
-------
Net increase (decrease) in net assets resulting from operations........ $29,630
=======
See notes to financial statements
13
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(REPORTED IN THOUSANDS)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2010 DECEMBER 31, 2009
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss).................................... $ 1,226 $ 2,110
Net realized gain (loss)........................................ 14,436 (26,110)
Net change in unrealized appreciation (depreciation)............ 13,968 86,302
-------- --------
Net increase (decrease) in net assets resulting from
operations................................................. 29,630 62,302
-------- --------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income........................................... (1,463) (2,174)
Net realized short-term gains................................... (7,745) --
Tax return of capital........................................... (24,264) (29,367)
-------- --------
Total dividends and distributions to shareholders............ (33,472) (31,541)
-------- --------
Net increase (decrease) in net assets........................ (3,842) 30,761
NET ASSETS
Beginning of period................................................. 353,054 322,293
-------- --------
End of period....................................................... $349,212 $353,054
======== ========
Accumulated undistributed net investment income (loss) at
end of period..................................................... $ 315 $ 553
See notes to financial statements
14
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2010 2009 2008 2007 2006
-------- -------- -------- -------- --------
PER SHARE DATA
Net asset value, beginning of period....................... $ 3.84 $ 3.50 $ 5.65 $ 5.99 $ 5.82
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)/(6)/.......................... 0.01 0.02 0.04 0.05 0.07
Net realized and unrealized gains (losses)................. 0.31 0.66 (1.67) 0.39 0.68
-------- -------- -------- -------- --------
Total from investment operations........................... 0.32 0.68 (1.63) 0.44 0.75
-------- -------- -------- -------- --------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income....................... (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.......................... (0.36) (0.34) (0.52) (0.59) (0.58)
-------- -------- -------- -------- --------
Dilutive effect on net asset values as a result of capital
contribution.............................................. -- -- -- -- --
Dilutive effect on net asset values as a result of rights
offering.................................................. -- -- -- /(4)/ (0.19)/(1)/ --
-------- -------- -------- -------- --------
Change in net asset value.................................. (0.04) 0.34 (2.15) (0.34) 0.17
-------- -------- -------- -------- --------
Net asset value, end of period......................... $ 3.80 $ 3.84 $ 3.50 $ 5.65 $ 5.99
======== ======== ======== ======== ========
Market value, end of period/(2)/....................... $ 3.35 $ 3.31 $ 2.88 $ 5.05 $ 5.90
======== ======== ======== ======== ========
Total investment return/(3)/............................... 12.87% 29.08% (35.32)% (5.12)%/(7)/ 24.87%
======== ======== ======== ======== ========
Total return on net asset value/(5)/....................... 10.36% 23.22% (29.75)% 8.75% 14.58%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................... $349,212 $353,054 $322,293 $519,104 $438,544
Ratio of expenses to average net assets
(excluding dividends on short sales)...................... 1.23% 1.22% 1.18% 1.13% 1.18%
Ratio of expenses to average net assets
(including dividends on short sales)...................... 1.23% 1.22% 1.18% 1.13% 1.21%
Ratio of net investment income to average net assets....... 0.37% 0.66% 0.83% 0.82% 1.20%
Portfolio turnover rate.................................... 42% 35% 39% 58% 39%
For definitions and explanations of the Footnotes see page 16.
See notes to financial statements
15
--------
(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)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.
(6)Computed using average shares outstanding.
(7)Total investment return includes the dilutive effect of the rights offering.
Without this effect, the total investment return would have been (3.83)%.
See notes to financial statements
16
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010
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.
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
17
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.
C. SECURITY LENDING ($ REPORTED IN THOUSANDS):
The Fund may loan securities to qualified brokers through an agreement with
The Bank of New York Mellon ("BNY Mellon"). Under the terms of the 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
18
adjusted daily in connection with changes in the market value of securities on
loan. Collateral may consist of cash and U.S. Government Securities. 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 BNY Mellon for its services in
connection with this securities lending program. Lending portfolio securities
involves a risk of delay in the recovery of the loaned securities or in the
foreclosure on collateral.
At December 31, 2010, the Fund had securities on loan with a market value of
$7,729 for which the Fund received cash collateral of $7,903 and U.S.
Government Securities Collateral of $3.
D. 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 follows 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 following of this authoritative
guidance. The Fund does not expect that the total amount of unrecognized tax
benefits will materially change over the next twelve months. 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 December 31,
2010, 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).
E. 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.
19
F. 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.
NOTE 3 -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
($ REPORTED IN THOUSANDS UNLESS OTHERWISE NOTED)
Zweig Advisers LLC, (the "Adviser") 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 to, on an annual basis, 0.85% of the Fund's average daily net assets.
During the fiscal year ended (the "period") December 31, 2010, the Fund
incurred advisory fees of $2,798.
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 year ended December 31,
2010, the Fund incurred Administration fees of $214. A portion of these fees
are paid to an external service provider.
C) DIRECTORS FEE ($ 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 year ended December 31, 2010,
were as follows:
Purchases. $108,024
Sales..... 156,015
20
There were no purchases and sales of long-term U.S. Government and agency
securities for the year ended December 31, 2010.
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 December 31, 2010, 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 December 31, 2010 and
December 31, 2009, there were no shares issued pursuant to the Plan.
On December 20, 2010, the Fund announced a distribution of $0.094 per share
to shareholders of record on December 31, 2010. This distribution has an
ex-dividend date of January 4, 2011, and is payable on January 10, 2011. Please
see inside front cover for more information on the Fund's distributions.
NOTE 7 -- CREDIT RISK AND ASSET CONCENTRATIONS
In countries with limited or developing markets, investments may present
greater risks than in more developed markets and the prices of such investments
may be volatile. The consequences of political, social or economic changes in
these markets may have disruptive effects on the market prices of these
investments and the income they generate, as well as the Fund's ability to
repatriate such amounts.
The Fund may invest a high percentage of its assets in specific sectors of
the market in its pursuit of a greater investment return. Fluctuations in these
sectors of concentration may have a greater impact on the Fund, positive or
negative, than if the Fund did not concentrate its investments in such sectors.
NOTE 8 -- REGULATORY EXAMS
Federal and state regulatory authorities from time to time make inquiries
and conduct examinations regarding compliance by Virtus and its subsidiaries
(collectively "the Company") with securities and other laws and regulations
affecting their registered products.
There are currently no such matters which the Company believes will be
material to these financial statements.
21
NOTE 9 -- FEDERAL INCOME TAX INFORMATION
($ REPORTED IN THOUSANDS)
At December 31, 2010, 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)
-------------- -------------- -------------- --------------
$330,680 $43,226 $(16,703) $26,523
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.
For the period ended December 31, 2010, the Fund utilized losses of $10,452
deferred in prior years against current year capital gains. The Fund had
capital loss carryovers of $72,622 which expired in 2010.
Under current tax law, foreign currency and capital losses realized after
October 31 may be deferred and treated as occurring on the first day of the
following fiscal year. For the fiscal year ended December 31, 2010, the Fund
deferred $0 and recognized $4,984 of post-October losses.
The components of distributable earnings on a tax basis (excluding
unrealized appreciation (depreciation) which is disclosed in the table above)
consist of undistributed ordinary income of $0 and undistributed long-term
capital gains of $0.
The differences between the book and tax basis components of distributable
earnings relate principally to the timing of recognition of income and gains
for federal income tax purposes. Short-term gain distributions reported in the
Statement of Changes in Net Assets, if any, are reported as ordinary income for
federal tax purposes. Distributions are determined on a tax basis and may
differ from net investment income and realized capital gains for financial
reporting purposes.
NOTE 10 -- RECLASSIFICATION OF CAPITAL ACCOUNTS
As of December 31, 2010, the Fund increased undistributed net investment
income by $24,263, decreased the accumulated net realized loss by $80,237, and
decreased capital paid in on shares of beneficial interest by $104,500.
22
NOTE 11 -- RECENT ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board issued Accounting
Standards Update ("ASU") No. 2010-06 "Improving Disclosures about Fair Value
Measurements." ASU 2010-06 will require reporting entities to make new
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. The new and revised
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2010. At this time, management is evaluating the
implications of ASU No. 2010-06 and its impact on the financial statements has
not been determined.
NOTE 12 -- 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
[LOGO]
pwc
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of The Zweig Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of The Zweig Fund, Inc. (the
"Fund") at December 31, 2010, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2010 by correspondence with the
custodian, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 25, 2011
24
CERTIFICATION (UNAUDITED)
In accordance with the requirements of the Sarbanes-Oxley Act, the Fund's
CEO (the President of the Fund) and CFO (the Treasurer of the Fund) have filed
the required "Section 302" certifications with the SEC on Form N-CSR.
In accordance with Section 303A of the NYSE listed company manual, the CEO
certification has been filed with the NYSE.
TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2010, for federal income tax
purposes, 41% of the ordinary income dividends earned by the Fund qualify for
the dividends received deduction ("DRD") for corporate shareholders.
For the fiscal year ended December 31, 2010, the Fund hereby designates 44%,
or the maximum amount allowable, of its ordinary income dividends ("QDI") to
qualify for the lower tax rates applicable to individual shareholders.
For the fiscal year ended December 31, 2010, the Fund hereby designates $0,
or if subsequently different, as long-term capital gains dividends.
The actual percentages for the calendar year will be designated in the
year-end tax statements.
25
FUND MANAGEMENT
Information pertaining to the Directors and officers of the Fund as of
December 31, 2010 is set forth below. The address of each individual, unless
otherwise noted, is c/o Zweig Advisers LLC, 900 Third Avenue, New York, NY
10022.
DISINTERESTED DIRECTORS
NAME, YEAR OF BIRTH
(YOB) AND
POSITION(S) WITH FUNDS
NUMBER OF PORTFOLIOS IN TERM OF OFFICE
FUND COMPLEX OVERSEEN AND LENGTH OF PRINCIPAL OCCUPATION(S)
BY DIRECTOR TIME SERVED DURING PAST 5 YEARS AND OTHER DIRECTORSHIPS HELD
----------------------- ------------------ ---------------------------------------------------------------------------------
Charles H. Brunie...... Term: Until 2012. Chairman, Brunie Associates (investments) (since April 2001); Oppenheimer
YOB: 1930 Served since: Capital (1969-2000), Chairman (1980-1990), Chairman Emeritus (1990-2000);
Director 1998 Chairman Emeritus, Board of Trustees, Manhattan Institute (since 1990);
2 Trustee, Milton and Rose D. Friedman Foundation for Vouchers (since 1996);
Trustee, Hudson Institute (2002-2008); Chairman of the Board, American
Spectator (since 2002); Chartered Financial Analyst (since 1969).
Wendy Luscombe......... Term: Until 2011. Co-lead Independent Director of The Zweig Total Return Fund, Inc. and of The
YOB: 1951 Served since: Zweig Fund, Inc. (since 2006); Principal, WKL Associates, Inc. (independent
Director 2002 fiduciary and consultant) (since 1994); Fellow, Royal Institution of Chartered
2 Surveyors; Member, Chartered Institute of Arbitrators; Director, Endeavour
Real Estate Securities, Ltd. REIT Mutual Fund (2000-2005); Director, PXRE
Corp. (reinsurance) (1994-2007); Member and Chairman of Management
Oversight Committee, Deutsche Bank Real Estate Opportunity Fund 1A and 1B
(since 2003); Trustee, Acadia Realty Trust (since 2004); Member of National
Association of Corporate Directors Teaching Facility (since 2007); Independent
Director of Feldman Mall Properties, a private REIT (since 2010).
Alden C. Olson......... Term: Until 2013. Chairman of the Audit Committee of The Zweig Total Return Fund, Inc. and of
YOB: 1928 Served since: The Zweig Fund, Inc. (since 2004); Currently retired; Chartered Financial
Director 1996 Analyst (since 1964); Professor of Financial Management, Investments at
2 Michigan State University (1959 to 1990).
James B. Rogers, Jr.... Term: Until 2012. Private investor (since 1980); Chairman, Beeland Interests (Media and
YOB: 1942 Served since: Investments) (since 1980); Regular Commentator on Fox News (2002-2007);
Director 1986 Author of "Investment Biker: On the Road with Jim Rogers" (1994), "Adventure
2 Capitalist" (2003), "Hot Commodities" (2004), "A BULL IN CHINA" (2007) and
"A Gift to My Children" (2009).
R. Keith Walton........ Term: Until 2011. Co-lead Independent Director of The Zweig Total Return Fund, Inc. and of The
YOB: 1964 Served since: Zweig Fund, Inc. (since 2006); Global Head of Government Affairs for Alcoa
Director 2004 (since 2011); Senior Managing Director, BSE Management LLC (2010); Principal
2 and Chief Administrative Officer, Global Infrastructure Partners (2007-
2009); Director, Blue Crest Capital Management Funds (since 2006); Executive
Vice President and Secretary (1996-2007) of the University at Columbia
University; Director, Orchestra of St. Luke's (since 2000); Member (since 1997),
Nominating and Governance Committee Board of Directors (since 2004),
Council on Foreign Relations; Member of the Trilateral Commission (since
2009); Director of the Association for the Benefit of Children (since 2009);
Director (2002-2009), Member, Executive Committee (2002-2009), Chair, Audit
Committee ( 2003-2009), Apollo Theater Foundation, Inc.; Vice President and
Trustee, The Trinity Episcopal School Corporation (2003-2009); Member, The
Gillen Brewer School Board (2007-2009).
26
INTERESTED DIRECTOR*
TERM OF OFFICE
NAME, ADDRESS, AGE AND AND LENGTH OF PRINCIPAL OCCUPATION(S)
POSITION(S) WITH FUNDS TIME SERVED DURING PAST 5 YEARS AND OTHER DIRECTORSHIPS HELD
---------------------- ------------------ --------------------------------------------------------------------------------
George R. Aylward......... Term: Until 2013. Director, President and Chief Executive Officer (since 2008), Director and
100 Pearl Street Served since: President (2006-2008), Chief Operating Officer (2004-2006), Vice President,
Hartford, CT 06103 2006 Finance, (2001-2002), Virtus Investment Partners, Inc. and/or certain of its
YOB: 1964 subsidiaries; Senior Executive Vice President and President, Asset Management
Director, Chairman of the (2007-2008), Senior Vice President and Chief Operating Officer, Asset
Board and President Management (2004-2007), Vice President and Chief of Staff (2001-2004), The
48 Phoenix Companies, Inc.; Various senior officer and directorship positions with
Phoenix affiliates (2005-2008); President (2006-present), Executive Vice
President (2004-2006), the Virtus Mutual Funds Family. Chairman, President
and Chief Executive Officer, The Zweig Fund, Inc. and The Zweig Total Return
Fund, Inc. (2006-present).
OFFICERS WHO ARE NOT DIRECTORS**
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION(S)
POSITION(S) WITH FUNDS DURING PAST 5 YEARS AND OTHER DIRECTORSHIPS HELD
---------------------- ----------------------------------------------------------------------------------------------------
Carlton Neel................. Senior Vice President and Portfolio Manager, Zweig Advisers LLC (since 2003); Managing Director
YOB: 1967 and Co-Founder, Shelter Rock Capital Partners, LP (2002-2003); Senior Vice President and Portfolio
Executive Vice President Manager, Zweig Advisers LLC (1995-2002); Vice President, JP Morgan & Co. (1990-1995).
David Dickerson.............. Senior Vice President and Portfolio Manager, Zweig Advisers LLC (since 2003); Managing Director
YOB: 1967 and Co-Founder, Shelter Rock Capital Partners, LP (2002-2003); Vice President and Portfolio
Senior Vice President Manager, Phoenix/Zweig Advisers LLC (1993-2002).
Marc Baltuch................. Chief Compliance Officer of Zweig Advisers LLC (since 2004); President and Director of Watermark
YOB: 1945 Securities, Inc. (since 1991); Secretary of Phoenix-Zweig Trust (1989-2003); Secretary of Phoenix-
Vice President and Chief Euclid Market Neutral Fund (1998-2002); Assistant Secretary of Gotham Advisors, Inc. (1990-2005);
Compliance Officer Chief Compliance Officer of the Zweig Companies (since 1989) and of the Virtus, formerly Phoenix,
Funds Complex (2004-2010); Chief Compliance Officer of Virtus Variable Insurance Trust, formerly
The Phoenix Edge Series Fund (2004-February, 2011).
Kevin J. Carr................ Senior Vice President, Legal and Secretary, Virtus Investment Partners, Inc. and/or certain of its
100 Pearl Street subsidiaries (since 2008); Vice President and Counsel, Phoenix Life Insurance Company (2005-
Hartford, CT 06103 2008); Compliance Officer of Investments and Counsel, Travelers Life & Annuity Company (January
YOB: 1954 2005-May 2005); Assistant General Counsel and certain other positions, The Hartford Financial
Secretary and Chief Legal Services Group (1995-2005).
Officer
Moshe Luchins................ Associate Counsel (1996-2005), Associate General Counsel (since 2006) of the Zweig Companies.
YOB: 1971
Vice President
W. Patrick Bradley........... Senior Vice President, Fund Administration (since 2009), Vice President, Fund Administration
100 Pearl Street (2007-2009) Second Vice President, Fund Control & Tax (2004-2006), Virtus Investment Partners,
Hartford, CT 06103 Inc. and/or certain of its subsidiaries (formerly Phoenix) Vice President, Chief Financial Officer,
YOB: 1972 Treasurer and Principal Accounting Officer (2006-present), Assistant Treasurer (2004-2006), Virtus
Treasurer, Chief Financial Variable Insurance Trust. Chief Financial Officer and Treasurer (2005-present), Assistant Treasurer
Officer (2004-2006), certain funds within the Virtus Mutual Funds Family (formerly Phoenix).
Jacqueline Porter............ Vice President, Fund Administration and Tax, Virtus Investment Partners (since 2008); Phoenix
100 Pearl Street Equity Planning Corporation (1995-2008); Vice President and Assistant Treasurer, multiple funds in
Hartford, CT 06103 the Virtus Mutual Fund Complex and Virtus Variable Insurance Trust (formerly Phoenix Edge
YOB: 1958 Series Fund) (since 1995).
Vice President and Assistant
Treasurer
--------
* Director considered to be an "interested person," as that term is defined
in the Act. George R. Aylward is considered an interested person because,
among other things, he is an officer of the Funds.
** The Term of each Officer expires immediately following the 2011 Annual
Meeting of Shareholders. Each Board considers reappointments annually.
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 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, 2010, 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.
28
AUTOMATIC REINVESTMENT AND CASH PURCHASE PLAN
The Zweig Fund, Inc. (the "Fund") allows you to conveniently reinvest
distributions quarterly in additional Fund shares thereby enabling you to
compound your returns from the Fund. By choosing to reinvest, you'll be able to
invest money regularly and automatically, and watch your investment grow.
It is important to note that an automatic reinvestment plan does not ensure
a profit, nor does it protect you against loss in a declining market.
ENROLLMENT IN THE REINVESTMENT PLAN
It is the policy of the Fund to automatically reinvest distributions payable
to shareholders. A "registered" shareholder automatically becomes a participant
in the Fund's Automatic Dividend Reinvestment and Cash Purchase Plan (the
"Plan"). The Plan authorizes the Fund to credit all shares of common stock to
participants upon a distribution regardless of whether the shares are trading
at a discount or premium to the net asset value. Registered shareholders may
terminate their participation and receive distributions in cash by contacting
Computershare Trust Company, N.A. (the "Plan Administrator"). The termination
will become effective with the next distribution if the Plan Administrator is
notified at least 7 business days prior to the distribution payment date.
Registered shareholders that wish to change their distribution option from cash
payment to reinvest may do so by contacting the Plan Administrator at
1-800-272-2700.
In the case of banks, brokers, or other nominees which hold your shares for
you as the beneficial owner, the Plan Administrator will administer the Plan
based on the information provided by the bank, broker or nominee. To the extent
that you wish to participate in the Plan, you should contact the broker, bank
or nominee holding your shares to ensure that your account is properly
represented. If necessary, you may have your shares taken out of the name of
the broker, bank or nominee and register them in your own name.
HOW SHARES ARE PURCHASED THROUGH THE REINVESTMENT PLAN
When a distribution is declared, nonparticipants in the plan will receive
cash. Participants in the plan will receive shares of the Fund valued as
described below:
If on the payable date of the distribution, the market price of the Fund's
common stock is less than the net asset value, the Plan Administrator will buy
Fund shares on behalf of the Participant in the open market, on the New York
Stock Exchange (NYSE) or elsewhere. The price per share will be equal to the
weighted average price of all shares purchased, including commissions.
Commission rates are currently $0.02 per share, although the rate is subject to
change and may vary. If, following the commencement of purchases and before the
Plan Administrator has completed its purchases, the trading price equals or
exceeds the most recent net asset value of the common shares, the Plan
Administrator may cease purchasing shares on the open market and the Fund may
issue the remaining shares at a price equal to the greater of (a) the net asset
value on the last day the Plan Administrator purchased shares or (b) 95% of the
market price on such day. In the case where the Plan Administrator has
terminated open market purchase and the Fund has issued the remaining shares,
the number of shares received by the Participant in respect of the cash
distribution will be based on the weighted average of prices paid for shares
purchased in the open market and the price at which the Fund issued the
remaining shares. Under certain circumstances, the rules and regulations of the
Securities and Exchange Commission may require
29
limitation or temporary suspension of market purchases of shares under the
Plan. The Plan Administrator will not be accountable for its inability to make
a purchase during such a period.
If on the payable date of the distribution, the market price is equal to or
exceeds the net asset value, Participants will be issued new shares by the Fund
at the greater of the (a) the net asset value on the payable date or (b) 95% of
the market price on such date.
The automatic reinvestment of distributions will not relieve Participants of
any income tax which may be payable on such distributions. A Participant in the
Plan will be treated for federal income tax purposes, as having received on a
payment date, a distribution in an amount equal to the cash the participant
could have received instead of shares. If you participate in the Plan, you will
receive a Form 1099-DIV concerning the Federal tax status of distributions paid
during the year.
VOLUNTARY CASH PURCHASE PLAN
Participants in the Plan have the option of making additional cash payments
for investment in shares of the Fund. Such payments can be made in any amount
from $100 per payment to $3,000 per month. The Plan Administrator will use the
funds received to purchase Fund shares in the open market on the 15/th/ of each
month or the next business day if the 15/th/ falls on a weekend or holiday (the
"Investment Date"). The purchase price per share will be equal to the weighted
average price of all shares purchased on the Investment Date, including
commissions. There is no charge to shareholders for Cash Purchases. The plan
administrator's fee will be paid by the Fund. However, each participating
shareholder will pay pro rata share of brokerage commissions incurred
(currently $0.02 per share, but may vary and is subject to change) with respect
to the Plan Administrator's open market purchases in connection with all cash
investments. Voluntary cash payments should be sent to Computershare Trust
Company, N.A., PO Box 43078, Providence, RI 02940-3078.
Participants have an unconditional right to obtain the return of any cash
payment if the Plan Administrator receives written notice at least 5 business
days before such payment is to be invested.
AUTOMATIC MONTHLY INVESTMENT
Participants in the Plan may purchase additional shares by means of an
Automatic Monthly Investment of not less than $100 nor more than $3,000 per
month by electronic funds transfer from a predesignated U.S. bank account. If a
Participant has already established a Plan account and wishes to initiate
Automatic Monthly Investments, the Participant must complete and sign an
automatic monthly investment form and return it to the Plan Administrator
together with a voided check or deposit slip for the account from which funds
are to be withdrawn. Automatic monthly investment forms may be obtained from
the Plan Administrator by calling 1-800-272-2700.
TERMINATION OF SHARES
Shareholders wishing to liquidate shares held with the Plan Administrator
must do so in writing or by calling 1-800-272-2700. The Plan Administrator does
not charge a fee for liquidating your shares; however, currently a brokerage
commission of $0.02 will be charged. This charge may vary and is subject to
change.
Once terminated, you may re-enroll in the Plan (provided you still have
shares registered in your name) by contacting the Plan Administrator at
1-800-272-2700.
30
ADDITIONAL INFORMATION
For more information regarding the Automatic Reinvestment and Cash Purchase
Plan, please contact the Plan Administrator at 1-800-272-2700 or visit our
website at Virtus.com.
The Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any distribution paid subsequent to written
notice of the change sent to the members of the Plan at least 90 days before
the record date for such distribution. The Plan also may be amended or
terminated by the Plan Administrator with at least 90 days written notice to
participants in the Plan.
31
ITEM 2. CODE OF ETHICS.
(a)The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.
(c)There have been no amendments, during the period covered by this report,
to a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, and that relates to any element of the code
of ethics described in Item 2(b) of the instructions for completion of
Form N-CSR.
(d)The registrant has not granted any waivers, during the period covered by
this report, including an implicit waiver, from a provision of the code
of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller,
or persons performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, that
relates to one or more of the items set forth in paragraph (b) of the
instructions for completion of this Item.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1)The Registrant's Board of Trustees has determined that the Registrant has
an "audit committee financial expert" serving on its Audit Committee.
(a)(2)Wendy Luscombe has been determined by the Registrant to possess the
technical attributes identified in Instruction 2(b) of Item 3 to Form
N-CSR to qualify as an "audit committee financial expert" effective
December 12, 2007. Ms. Luscombe is an "independent" trustee pursuant to
paragraph (a)(2) of Item 3 to Form N-CSR.
(a)(3)Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
----------
(a)The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the audit
of the registrant's annual financial statements or services that are
normally provided by the accountant in connection with statutory and
regulatory filings or engagements for those fiscal years are $32,000 for
2010 and $32,000 for 2009.
Audit-Related Fees
------------------
(b)The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item are $3,042 for 2010 and $4,447 for 2009. This represents the review
of the semi-annual financial statements, and out of pocket expenses.
Tax Fees
--------
(c)The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $4.600 for 2010 and $4,644
for 2009.
"Tax Fees" are those primarily associated with review of the Trust's tax
provision and qualification as a regulated investment company (RIC) in
connection with audits of the Trust's financial statement, review of
year-end distributions by the Fund to avoid excise tax for the Trust,
periodic discussion with management on tax issues affecting the Trust,
and reviewing and signing the Fund's federal income tax returns.
All Other Fees
--------------
(d)The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are $0
for 2010 and $0 for 2009.
(e)(1)Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
The Zweig Fund, Inc. (the "Fund") Board has adopted policies and
procedures with regard to the pre-approval of services provided by PwC.
The Audit Committee pre-approves: (i) all audit and non-audit services
to be rendered to the Fund by PwC; and (ii) all non-audit services to be
rendered to the Fund, financial reporting of the Fund provided by PwC to
the Adviser or any affiliate thereof that provides ongoing services to
the Fund (collectively, "Covered Services"). The Audit Committee has
adopted pre-approval procedures authorizing a member of the Audit
Committee to pre-approve from time to time, on behalf of the Audit
Committee, all Covered Services to be provided by PwC which are not
otherwise pre-approved at a meeting of the Audit committee, provided
that such delegate reports to the full Audit Committee at its next
meeting. The pre-approval procedures do not include delegation of the
Audit committee's responsibilities to management. Pre-approval has not
been waived with respect to any of the services described above since
the date on which the Audit Committee adopted its current pre-approval
procedures.
(e)(2)The percentage of services described in each of paragraphs (b) through
(d) of this Item that were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:
(b) 0% for 2010 and 2009
(c) 0% for 2010 and 2009
(d) Not applicable
(f)The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees was
less than fifty percent.
(g)The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services
to the registrant for each of the last two fiscal years of the
registrant was $398,818 for 2010 and $446,121 for 2009.
(h)The registrant's audit committee of the board of directors has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant that
were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated audit committee consisting of all
the independent directors of the registrant. Audit Committee Members are:
Charles H. Brunie, Wendy Luscombe, Prof. Alden C. Olson, James B. Rogers and R.
Keith Walton.
ITEM 6. 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.
The Proxy Voting Policies are attached herewith.
THE ZWEIG FUND, INC
THE ZWEIG TOTAL RETURN FUND, INC
STATEMENT OF POLICY WITH RESPECT TO PROXY VOTING
I Definitions. As used in this Statement of Policy, the following terms shall
have the meanings ascribed below:
A. "Adviser" refers to Phoenix/Zweig Advisers LLC.
B. "Corporate Governance Matters" refers to changes involving the corporate
ownership or structure of an issuer whose securities are within a
Portfolio Holding, including changes in the state of incorporation,
changes in capital structure, including increases and decreases of
capital and preferred stock issuance, mergers and other corporate
restructurings, and anti-takeover provisions such as staggered boards,
poison pills, and supermajority voting provisions.
C. "Delegate" refers to the Adviser or Subadviser to whom responsibility
has been delegated to vote proxies for the applicable Portfolio Holding,
including any qualified, independent organization engaged by the Adviser
to vote proxies on behalf of such delegated entity.
D. "Fund" shall individually and collectively mean and refer to The Zweig
Fund, Inc. and The Zweig Total Return Fund, Inc., and each of them.
E. "Management Matters" refers to stock option plans and other management
compensation issues.
F. "Portfolio Holding" refers to any company or entity whose securities is
held within the investment portfolio(s) of one or more of the Fund as of
the date a proxy is solicited.
G. "Proxy Contests" refer to any meeting of shareholders of an issuer for
which there are at least two sets of proxy statements and proxy cards,
one solicited by management and the others by a dissident or group of
dissidents.
H. "Social Issues" refers to social and environmental issues.
I. "Takeover" refers to "hostile" or "friendly" efforts to effect radical
change in the voting control of the board of directors of a company.
II.General Policy. It is the intention of the Fund to exercise stock ownership
rights in Portfolio Holdings in a manner that is reasonably anticipated to
further the best economic interests of shareholders of the Fund.
Accordingly, the Fund or its Delegate(s) shall endeavor to analyze and vote
all proxies that are considered likely to have financial implications, and,
where appropriate, to participate in corporate governance, shareholder
proposals, management communications and legal proceedings. The Fund and its
Delegate(s) must also identify potential or actual conflicts of interests in
voting proxies and address any such conflict of interest in accordance with
this Statement of Policy.
IIIFactors to consider when voting.
A. A Delegate may abstain from voting when it concludes that the effect on
shareholders' economic interests or the value of the Portfolio Holding
is indeterminable or insignificant.
B In analyzing ANTI-TAKEOVER MEASURES, the Delegate shall vote on a
case-by-case basis taking into consideration such factors as overall
long-term financial performance of the target company relative to its
industry competition. Key measures which shall be considered include,
without limitation, five-year annual compound growth rates for sales,
operating income, net income, and total shareholder returns (share price
appreciation plus dividends). Other financial indicators that will be
considered include margin analysis, cash flow, and debit levels.
C. In analyzing CONTESTED ELECTIONS, the Delegate shall vote on a
case-by-case basis taking into consideration such factors as the
qualifications of all director nominees. The Delegate shall also
consider the independence and attendance record of board and key
committee members. A review of the corporate governance profile shall be
completed highlighting entrenchment devices that may reduce
accountability.
D. In analyzing CORPORATE GOVERNANCE MATTERS, the Delegate shall vote on a
case-by-case basis taking into consideration such factors as tax and
economic benefits associated with amending an issuer's state of
incorporation, dilution or improved accountability associated with
changes in capital structure, management proposals to require a
supermajority shareholder vote to amend charters and bylaws and bundled
or "conditioned" proxy proposals.
E. In analyzing EXECUTIVE COMPENSATION PROPOSALS and MANAGEMENT MATTERS,
the Adviser shall vote on a case-by-case basis taking into consideration
such factors as executive pay and spending on perquisites, particularly
in conjunction with sub-par performance and employee layoffs.
F. In analyzing PROXY CONTESTS FOR CONTROL, the Delegate shall vote on a
case-by-case basis taking into consideration such factors as long-term
financial performance of the target company relative to its industry;
management's track record; background to the proxy contest;
qualifications of director nominees (both slates); evaluation of what
each side is offering shareholders as well as the likelihood that the
proposed objectives and goals can be met; and stock ownership positions.
G. A Delegate shall generally vote against shareholder SOCIAL MATTERS
proposals.
IV Delegation.
A. In the absence of a specific direction to the contrary from the Board of
Trustees of the Fund, the Adviser will be responsible for voting proxies
for all Portfolio Holdings in accordance with this Statement of Policy,
or for delegating such responsibility as described below.
B. The Adviser delegated with authority to vote proxies for Portfolio
Holdings shall be deemed to assume a duty of care to safeguard the best
interests of the Fund and its shareholders. No Delegate shall accept
direction or inappropriate influence from any other client, director or
employee of any affiliated company and shall not cast any vote
inconsistent with this Statement of Policy without obtaining the prior
approval of the Fund or its duly authorized representative(s).
C. With regard to each Series for which there is a duly appointed
Subadviser acting pursuant to an investment advisory agreement
satisfying the requirements of Section 15(a) of the Investment Company
Act of 1940, as amended, and the rules thereunder, the Subadviser may,
pursuant to delegated authority from the Adviser, vote proxies for
Portfolio Holdings with regard to the Series or portion of the assets
thereof for which the Subadviser is responsible. In such case, the
Subadviser shall vote proxies for the Portfolio Holdings in accordance
with Sections II, III and V of this Statement of Policy, provided,
however, that the Subadviser may vote proxies in accordance with its own
proxy voting policy/procedures ("Subadviser Procedures") if the
following two conditions are satisfied: (1) the Adviser must have
approved the Subadviser Procedures based upon the Adviser's
determination that the Subadviser Procedures are reasonably designed to
further the best economic interests of the affected Fund shareholders,
and (2) the Subadviser Procedures are reviewed and approved annually by
the Board of Trustees. The Subadviser will promptly notify the Adviser
of any material changes to the Subadviser Procedures. The Adviser will
periodically review the votes by the Subadviser for consistency with
this Statement of Policy.
V. Conflicts of Interest
A. The Fund and its Delegate(s) seek to avoid actual or perceived conflicts
of interest in the voting of proxies for Portfolio Holdings between the
interests of Fund shareholders, on one hand, and those of the Adviser,
Delegate, principal underwriter, or any affiliated person of the Fund,
on the other hand. The Board of Trustees may take into account a wide
array of factors in determining whether such a conflict exists, whether
such conflict is material in nature, and how to properly address or
resolve the same.
B. While each conflict situation varies based on the particular facts
presented and the requirements of governing law, the Board of Trustees
or its delegate(s) may take the following actions, among others, or
otherwise give weight to the following factors, in addressing material
conflicts of interest in voting (or directing Delegates to vote) proxies
pertaining to Portfolio Holdings: (i) rely on the recommendations of an
established, independent third party with qualifications to vote proxies
such as Institutional Shareholder Services; (ii) vote pursuant to the
recommendation of the proposing Delegate; (iii) abstaining; or
(iv) where two or more Delegates provide conflicting requests, vote
shares in proportion to the assets under management of the each
proposing Delegate.
C. The Adviser shall promptly notify the President of the Fund once any
actual or potential conflict of interest exists and their
recommendations for protecting the best interests of Fund's
shareholders. No Adviser shall waive any conflict of interest or vote
any conflicted proxies without the prior written approval of the Board
of Trustees or the President of the Fund pursuant to section D of this
Article.
D. In the event that a determination, authorization or waiver under this
Statement of Policy is requested at a time other than a regularly
scheduled meeting of the Board of Trustees, the President of the Fund
shall be empowered with the power and responsibility to interpret and
apply this Statement of Policy and provide a report of his or her
determinations at the next following meeting of the Board of Trustees.
VI.Miscellaneous.
A. A copy of the current Statement of Policy with Respect to Proxy Voting
and the voting records for the Fund reconciling proxies with Portfolio
Holdings and recording proxy voting guideline compliance and
justification, shall be kept in an easily accessible place and available
upon request.
B. The Adviser shall present a report of any material deviations from this
Statement of Policy at every regularly scheduled meeting of the Board of
Trustees and shall provide such other reports as the Board of Trustees
may request from time to time. The Adviser shall provide to the Fund or
any shareholder a record of its effectuation of proxy voting pursuant to
this Statement of Policy at such times and in such format or medium as
the Fund shall reasonably request. The Adviser shall be solely
responsible for complying with the disclosure and reporting requirements
under applicable laws and regulations, including, without limitation,
Rule 206(4)-6 under the Investment Advisers Act of 1940. The Adviser
shall gather, collate and present information relating to the its proxy
voting activities of those of each Delegate in such format and medium as
the Fund shall determine from time to time in order for the Fund to
discharge its disclosure and reporting obligations pursuant to Rule
30b1-4 under the Investment Company Act of 1940, as amended.
C. The Adviser shall pay all costs associated with proxy voting for
Portfolio Holdings pursuant to this Statement of Policy and assisting the
Fund in providing public notice of the manner in which such proxies were
voted.
D. The Adviser may delegate its responsibilities hereunder to a proxy
committee established from time to time by the Adviser, as the case may
be. In performing its duties hereunder, the Adviser, or any duly
authorized committee, may engage the services of a research and/or voting
adviser or agent, the cost of which shall be borne by such entity.
This Statement of Policy shall be presented to the Board of Trustees annually
for their amendment and/or approval.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(A)(1)IDENTIFICATION OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS
Following are the names, titles and length of service of the person or
persons employed by or associated with the registrant or an investment
adviser of the registrant who are primarily responsible for the
day-to-day management of the registrant's portfolio ("Portfolio Manager")
and each Portfolio Manager's business experience during the past 5 years
as of the date of filing of this report: Carlton Neel and David Dickerson
have served as Co-Portfolio Managers of the Zweig Fund, Inc. (the
"Fund"), a closed end fund managed by Zweig Advisers LLC ("ZA") since
April
1, 2003. Mr. Neel and Mr. Dickerson are Senior Vice Presidents of ZA and
Euclid Advisors, LLC ("Euclid"), a subsidiary of ZA. Since April 1, 2003,
they have also served as Co-Portfolio Managers for The Zweig Total Return
Fund, Inc., a closed-end fund managed by ZA, and as Portfolio Managers
for the Virtus Alternatives Diversifier Fund. From April 1, 2003 to
June 9, 2008, Messrs. Neel and Dickerson were portfolio managers of the
Virtus Market Neutral Fund. From 2008 through September, 2009 Messrs.
Neel and Dickerson also assumed responsibility for asset allocation
activities for three Virtus mutual fund of funds. During March 2009,
Messrs. Neel and Dickerson became Portfolio Managers for the Virtus
Growth & Income Fund, Virtus Balanced Fund (equity portion), Virtus
Tactical Allocation Fund (equity portion), Virtus Growth & Income Series
and Virtus Strategic Allocation Series (equity portion).
Mr. Neel and Mr. Dickerson began their investment career at the Zweig
Companies in 1995 and 1993, respectively.
(A)(2)OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBER
AND POTENTIAL CONFLICTS OF INTEREST
Other Accounts Managed by Portfolio Manager(s) or Management Team Member
The following information is provided as of the fiscal year ended
December 31, 2010.
Mr. Neel and Mr. Dickerson are responsible for the day-to-day management
of other portfolios of other accounts, namely The Zweig Total Return
Fund, Inc., the Virtus Alternatives Diversifier, Virtus Growth & Income
Fund, Virtus Balanced Fund (equity portion), Virtus Tactical Allocation
Fund (equity portion), Virtus Growth & Income Series and Virtus Strategic
Allocation Series (equity portion). For both Mr. Neel and Mr. Dickerson,
the following are tables which provide the number of other accounts
managed within the Type of Accounts and the Total Assets for each Type of
Account. Also provided for each Type of Account is the number of accounts
and the total assets in the accounts with respect to which the advisory
fee is based on the performance of the account.
No. of Total Assets
Name of Accounts in Accounts
Portfolio Total where where
Manager or No. of Advisory Fee Advisory Fee
Team Type of Accounts is Based on is Based on
Member Accounts Managed Total Assets Performance Performance
---------- ---------------------------------- -------- ------------ ------------ ------------
David Dickerson Registered Investment Companies: 7 $1,606.1 mil None None
Other Pooled Investment Vehicles: 0 $ 0 mil None None
Other Accounts: 0 $ 0 None None
Carlton Neel Registered Investment Companies: 7 $1,606.1 mil None None
Other Pooled Investment Vehicles: 0 $ 0 mil None None
Other Accounts: 0 $ 0 None None
POTENTIAL CONFLICTS OF INTERESTS
There may be certain inherent conflicts of interest that arise in
connection with the Mr. Neel's and Mr. Dickerson's management of each
Fund's investments and the investments of any other accounts he manages.
Such conflicts could arise from the aggregation of orders for all
accounts managed by a particular portfolio manager, the allocation of
purchases across all such accounts, the allocation of IPOs and any soft
dollar arrangements that the Adviser may have in place that could benefit
the Funds and/or such other accounts. The Board of Trustees/Directors has
adopted on behalf of the Funds policies and procedures designed to
address any such conflicts of interest to ensure that all transactions
are executed in the best interest of the Funds' shareholders. The
Advisers and Sub adviser are required to certify their compliance with
these procedures to the Board of Trustees on a quarterly basis. There
have been no material compliance issues with respect to any of these
policies and procedures during the Funds' most recent fiscal year ended
December 31, 2010. Additionally, there are no material conflicts of
interest between the investment strategy of a Fund and the investment
strategy of other accounts managed by Mr. Neel and Mr. Dickerson since
portfolio managers generally manage funds and other accounts having
similar investment strategies.
(A)(3)COMPENSATION STRUCTURE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS
For the most recently completed fiscal year ended December 31, 2010,
following is a description of Mr. Neel's and Mr. Dickerson's compensation
structure as portfolio managers of ZA and Euclid.
Virtus Investment Partners, Inc. and its affiliated investment management
firms (collectively, "Virtus"), believe that the firm's compensation
program is adequate and competitive to attract and retain high-caliber
investment professionals. Investment professionals at Virtus receive a
competitive base salary, an incentive bonus opportunity and a benefits
package. Portfolio managers may also have the opportunity to participate
in long-term equity programs, including potential awards of Virtus
restricted stock units ("RSUs") with multi-year vesting, subject to
Virtus board approval.
Following is a more detailed description of the compensation structure of
the Fund's portfolio managers.
Base Salary. Each Portfolio Manager is paid a fixed base salary, which is
designed to be competitive in light of the individual's experience and
responsibilities. Base salary is determined using compensation survey
results of investment industry compensation conducted by an independent
third party in evaluating competitive market compensation for its
investment management professionals.
Incentive Bonus. Annual incentive payments are based on targeted
compensation levels, adjusted based on profitability, investment
performance factors and a subjective assessment of contribution to the
team effort. The short-term incentive payment is generally paid in cash,
but a portion may be made in Virtus RSUs. Individual payments are
assessed using comparisons of actual investment performance with specific
peer group or index measures. Performance of the funds managed is
generally measured over one-, three- and five year periods and an
individual manager's participation is based on the performance of each
fund/account managed.
While portfolio manager compensation contains a performance component,
this component is further adjusted to reward investment personnel for
managing within the stated framework and for not taking unnecessary risk.
This approach ensures that investment management personnel remain focused
on managing and acquiring securities that correspond to a fund's mandate
and risk profile and are discouraged from taking on more risk and
unnecessary exposure to chase performance for personal gain. We believe
we have appropriate controls in place to handle any potential conflicts
that may result from a substantial portion of portfolio manager
compensation being tied to performance
Other Benefits. Portfolio managers are also eligible to participate in
broad-based plans offered generally to employees of Virtus and its
affiliates, including 401(k), health and other employee benefit plans.
In summary, the Investment Manager believes that overall compensation is
both fair and competitive while rewarding employees for not taking
unnecessary risks to chase personal performance.
(A)(4)DISCLOSURE OF SECURITIES OWNERSHIP
For the most recently completed fiscal year ended December 31, 2010,
beneficial ownership of shares of the Fund by Messrs. Dickerson and Neel
are as follows. Beneficial ownership was determined in accordance with
rule 16a-1(a)(2) under the Securities Exchange Act of 1934 (17 CFR
240.161-1(a)(2)).
Name of Portfolio Dollar ($) Range of
Manager or Fund Shares
Team Member Beneficially Owned
David Dickerson $100,001-$500,000
Carlton Neel $100,001-$500,000
(B)Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a)The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the "1940
Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days
of the filing date of the report that includes the disclosure required
by this paragraph, based on their evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b)There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1)Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2)Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3)Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(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 December 31, 2010 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 March 10, 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 March 10, 2011
By (Signature and Title)* /s/ W. Patrick Bradley
---------------------
W. Patrick Bradley,
Treasurer
(principal financial
officer)
Date March 10, 2011
/*/ Print the name and title of each signing officer under his or her signature.