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
56 Prospect St.
Hartford, CT 06103-2899
(Name and address of agent for service)
Registrant's telephone number, including area code: 800-272-2700
Date of fiscal year end: December 31
Date of reporting period: December 31, 2008
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. (S) 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
OFFICERS AND DIRECTORS
George R. Aylward
President, Chairman and Chief Executive Officer
Carlton Neel
Executive Vice President
David Dickerson
Senior Vice President
Marc Baltuch
Chief Compliance Officer and Vice President
Moshe Luchins
Vice President
Kevin J. Carr
Chief Legal Officer and Secretary
Nancy Curtiss
Treasurer
Jacqueline Porter
Vice President and Assistant Treasurer
Charles H. Brunie
Director
Wendy Luscombe
Director
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
R. Keith Walton
Director
Investment Adviser
Zweig Advisers LLC
900 Third Avenue
New York, NY 10022-4793
Fund Administrator
VP Distributors, Inc
100 Pearl Street
Hartford, CT 06103-4506
Custodian
State Street Bank and Trust Company
P.O. Box 5501
Boston, MA 02206-5501
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLC
125 High Street
Boston, MA 02110-1707
Legal Counsel
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, NY 10022-2585
Transfer Agent
Computershare Trust Company, NA
P.O. Box 43010
Providence, RI 02940-3010
--------------------------------------------------------------------------------
This report is transmitted to the shareholders of The Zweig Fund, Inc. for
their information. This is not a prospectus, circular or representation
intended for use in the purchase of shares of the Fund or any securities
mentioned in this report.
Q4-08
Annual Report
Zweig
The Zweig Fund, Inc.
December 31, 2008
[LOGO]
VIRTUS
INVESTMENT PARTNERS
FUND DISTRIBUTIONS AND MANAGED DISTRIBUTION PLAN
The Fund has a Managed Distribution Plan to pay 10% of the Fund's net asset
value on an annualized basis. Distributions may represent earnings from net
investment income, realized capital gains, or, if necessary, return of capital.
The board believes that regular quarterly, fixed cash payouts will enhance
shareholder value and serve the long-term interests of shareholders. You should
not draw any conclusions about the Fund's investment performance from the
amount of the distributions or from the terms of the Fund's Managed
Distribution Plan.
The Fund estimates that it has distributed more than its income and net
realized capital gains in the fiscal year to date; therefore, a portion of your
distributions may be a return of capital. A return of capital may occur, for
example, when some or all of the money that you invested in the Fund is paid
back to you. A return of capital distribution does not necessarily reflect the
Fund's investment performance and should not be confused with "yield" or
"income".
The amounts and sources of distributions reported in Section 19(a) notices
of the 1940 Act are only estimates and are not being provided for tax reporting
purposes. The actual amounts and sources of the amounts for tax reporting
purposes will depend upon the Fund's investment experience during the remainder
of its fiscal year and may be subject to changes based on tax regulations. The
Fund will send shareholders a Form 1099-DIV for the calendar year that will
tell you how to report distributions for federal income tax purposes.
The Board may amend, suspend or terminate the Managed Distribution Plan at
any time, without prior notice to shareholders if it deems such action to be in
the best interest of the Fund and its shareholders.
Information on the Zweig funds is available at www.Virtus.com. Section 19(a)
notices are posted on the website at:.
http://www.virtus.com/products/closed/details.aspx?type=individual&fundid=ZF
February 1, 2009
Dear Fellow ZF 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, 2008.
The Zweig Fund's net asset value declined 16.82% for the quarter ended
December 31, 2008, including $0.116 in reinvested distributions. During the
same period, the S&P 500 Index fell 21.94%, including reinvested dividends. The
Fund's average exposure in equities was approximately 79% for the quarter.
For the year ended December 31, 2008, the Fund's net asset value was down
29.75%, including $0.517 in reinvested distributions. During the same period,
the S&P 500 Index dropped 36.99% including reinvested dividends. The Fund's
average equity exposure for the year was approximately 80%.
Sincerely,
/s/ George R. Aylward
George R. Aylward
President, Chairman and Chief Executive Officer
The Zweig Fund, Inc.
MARKET OVERVIEW AND OUTLOOK
Pounded by successive barrages of negative economic news, the stock markets
in 2008 suffered their worst year since the Great Depression. The Dow Jones
Industrial Average slumped 33.8%/(1)/, its biggest downturn since the
52.7%/(1)/ debacle in 1931. Doing no better, the S&P 500 was down 38.5 %/(1)/,
matching its 38.6%/(1)/ decline in 1937. The record S&P 500 loss was 47.1%/(1)/
in 1931. The NASDAQ Composite, created in 1971, posted its biggest drop ever,
plummeting 40.5%/(1)/, topping its 39.3%/(1)/ tumble in 2000 after the
tech-stock bubble burst.
There were no safe havens outside the U.S. The Dow Jones Stoxx index of
Europe's 600 largest companies sank 46%/(1)/ in 2008, the largest annual
decline in its 22-year history, lowering values to early 1997 levels. Britain's
FTSE 100 Index slid 31.3%/(1)/, a record drop since the index was formed in
1984. Germany's DAX stumbled 40.4%/(1)/, Asia also was hit hard, with the MSCI
Asia-Pacific Index off 43%/(1)/. Japan's Nikkei stock average of 225 companies
fell 42.1%/(1)/ and China's benchmark Shanghai Composite Index collapsed
65.4%/(1)/.
The weakness in the markets reflects the fact that the U.S. remains mired in
a recession. The National Bureau of Economic Research, the government-sponsored
recession designator and scorekeeper, reported that our current recession began
in December 2007. Only two recessions have endured longer than the current
one --those ending in 1975 and 1983, each lasting eleven months. If this
recession persists through April, it would be the longest recession since the
43-month downturn that ended in 1933.
As the impact of the recession spread, the nation's unemployment rate jumped
from 6.8% in November to 7.2% in December, a 16-year high, according to the
Labor Department. More than 524,000 jobs were lost in December, bringing the
/1/ Return excludes reinvested dividends
Managed Distribution Plan: The Fund has a policy to distribute 10% of its net
asset value annually. Please see the inside front cover for more details.
2
total for 2008 to 2.6 million. At 7.2%, the rate is the highest since 1993,
while last year's job loss was the greatest since 1945.
In a move to stimulate the economy, the Federal Reserve (the "Fed") cut its
benchmark interest rate to a historic low of zero to 0.25% at its December
meeting. In notes released after the meeting, the Fed foresaw a deep
contraction in the first half of 2009 and slow growth in the second half that
would not make up for the losses. Some officials expressed concern that the
reduction in stock and housing wealth, combined with the global economic
contraction, could lead to a longer and deeper recession than previously
predicted. As a result, the Fed's staff said the unemployment rate was likely
to rise significantly into 2010. After citing the numerous problems, the Fed
promised "to employ all available tools to promote the resumption of
sustainable economic growth and to provide price stability."
The Fed and the Treasury have already done a great deal but there is little
evidence so far that the credit squeeze is loosening. Setting up the Troubled
Assets Relief Program and drawing on the $700 billion rescue package approved
by Congress, the government has already doled out hundreds of millions to the
financial and automotive industries. Furthermore, it is reported that the Obama
administration will seek an economic stimulus package of at least $825 billion,
including a $300 billion tax cut.
While the monetary infusion is growing, the economy is moribund. The
broken-bubble housing market that ignited the financial implosion continues to
weaken. The Commerce Department reported that housing starts fell to 625,000
units in November, an 18.9% drop from October and 47% under the year-ago
figure. Meanwhile, the sales of previously owned homes tumbled 13% in November
from a year earlier, the sharpest decline in more than 40 years, according to
the National Association of Realtors.
Similar reports are coming in from the manufacturing sector. The Institute
for Supply Management ("ISM") said that its index of manufacturing activity in
December sank to the lowest level in 28 years. With a number below 50
indicating contraction, the December figure was 32.4, down from 36 in the
previous month. It was the lowest rating since 30.36 in June 1980.
In another confirmation of the economy's deterioration, the Fed reported
that industrial production declined 0.6% in November. Capacity utilization
dipped to 75.4% in November from 76% in October. New orders for durable
goods -- products expected to last at least three years -- were also off in
November, slipping 1% to $186.9 billion, according to the Commerce Department.
New orders had fallen 8.4% in October. Earlier the Commerce Department reported
that the U.S. gross domestic product slid 0.5% in the third quarter, the
steepest drop since 2001.
The U.S. trade deficit increased to $57.2 billion in October from $56.6
billion in September, according to the Commerce Department. October exports of
$151.7 billion were $3.4 billion below September's $155.1 billion. Imports of
$208.9 billion in October were $2.7 billion less than September's total of
$211.6 billion. The stronger dollar may have been a factor in the drop in
exports. In 2008 the dollar strengthened 4.5% against the Euro, 36% against the
British pound and 22% against the Canadian dollar. As the major exception, the
dollar slipped 16% against the Japanese yen.
Largely as a result of the steep decline in gasoline and fuel oil costs,
consumer prices fell 1.7% in November, the deepest decline since the Labor
Department began keeping track in 1947. The core rate of inflation, excluding
volatile food and energy, was flat for the month. While this price stability
indicates that inflation is in check, it brought concerns that deflation might
be looming. There has not been a serious period of deflation since the 1930s.
However, we are very concerned about the prospect. Based on the sharp declines
in bond yields, it seems that the market expects deflation or something very
close to it.
With the business news so bleak, there was little surprise when the
Conference Board re-
3
ported that the overall consumer confidence in December fell to its lowest
level on record. Only 6.2% of Americans said that business conditions were good
and 6.2% said jobs were plentiful, down from 23.6% a year ago.
The softness in the economy has virtually shut down the market for initial
public offerings ("IPOs"). In the U.S., 33 companies went public in 2008,
raising $26.2 billion, according to Dealogic. This compares with 183 offerings
that raised $42.7 billion in 2007. Globally, the number of IPOs totaled 663,
raising $76.4 billion against 1,708 offerings that raised $272.1 billion in
2007. The global number of offerings was the lowest since Dealogic began
keeping score in 1995 and the money raised was the least since 2003. At this
writing, conditions for the IPOs are horrendous and there seems little
likelihood of a recovery soon.
Mergers and acquisitions continued to suffer from tight credit conditions.
Not counting government-sponsored deals, domestic M&A activity in the fourth
quarter dropped 5.3% from a year earlier to $115 billion, the worst quarter in
six years, according to Dealogic. Spending $280 billion, the government
obtained 20 of the 25 largest deals. Globally the number of deals declined 24%
to 6,371, while volume dropped 38% to $585 billion. For 2008, global volume was
down 24% to $3.06 trillion, about equal to the 2005 total. Looking to the
future, cash deals will be harder and leveraged buyouts will be virtually
non-existent. However, there will always be mergers and acquisitions. Some
companies will be so beaten down that they will be considered cheap enough to
be bought by another company.
Demonstrating the severity of the recession, U.S. corporate profits are
estimated to have fallen again in the fourth quarter of 2008, marking the sixth
consecutive quarterly decline, according to Bloomberg News. That would make it
the longest quarterly slump since 1988. Earnings of companies in the S&P 500
probably dropped an average of 11.9% in the quarter from a year earlier
according to the agency. Analysts forecast that the downward streak would reach
eight quarters, with a 10.3% fall in the first quarter of 2009 and a 5.8% dip
in the second quarter.
At the year-end, companies in the S&P 500 were trading at 18.8 times
earnings, with the ratio rising to 19.6 in the first week of 2009. This
compares with P/Es of 22.9 on September 30, 2008 and 19.0 at the end of 2007.
If you consider a very broad band of so-called fair value, we believe the
current numbers are in the upper range, but not necessarily overvalued. They
are not undervalued either, but if current conditions continue, P/E ratios may
become undervalued.
Despite the market's weakness, a majority of analysts surveyed by Investors
Intelligence were optimistic. Early in 2009 there were 42% bulls and 34% bears
compared with 35% bulls and 38% bears at the year-end. Interestingly, members
of the American Institute of Individual Investors were more bearish than the
analysts. Individual investors were 29% bulls and 44% bears in early 2009
against 30% bulls and 50% bears at the end of 2008. These figures have been so
volatile lately that it is hard to put any stock in them.
Right now our indicators look bullish but we don't trust them because we
have not seen an economy like this since the 1930s. If you change the entire
economic environment, as has happened, the traditional indicators don't work.
For example, lower interest rates are usually bullish. Now the rates have gone
down to zero and look where we are.
As far as the market outlook is concerned, we don't want to be bearish while
the traditional indicators, while even if not completely reliable, are bullish.
And we certainly don't want to get too bullish because we are not convinced
that the worst is over. For us, it is a period of watchful waiting from a
neutral position. Consequently, we are at 22% cash and 78% in stocks.
Sincerely,
[GRAPHIC]
Martin E. Zweig, Ph.D.
President
Zweig Consulting LLC
4
PORTFOLIO COMPOSITION
The Fund's leading stock market sectors on December 31, 2008 were
information technology, financials, energy, industrials and consumer staples.
Although there were some changes in percentages held, all of the above appeared
in our previous listing. During the quarter we added to our positions in health
care and reduced our holdings in financials and consumer discretionary.
On December 31, our leading individual equity holdings included Celgene,
Costco, Gilead, Hewlett-Packard, L-3 Communications, Merck, Occidental
Petroleum, Reinsurance Group of America, UnitedHealth Group and Verizon.
Celegene is a new position; there were no changes in shares held in the other
companies.
No longer among our top positions are Altria, where there was no change in
shares held and the following where we trimmed our positions: Hudson City
Bancorp, McDonald's, Nike, PepsiCo, Phillip Morris International, WellsFargo
and Wilmington Trust.
Sincerely,
[SIGNATURE]
/s/ Carlton Neel
Carlton Neel
Executive Vice President
Zweig Advisers, LLC
The preceding information is the opinion of portfolio management. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts will be realized.
For definitions of indexes cited and certain investment terms used in this
report see the glossary on page 6.
5
Glossary
American Depositary Receipt (ADR): Represents shares of foreign companies
traded in U.S. dollars on U.S. exchanges that are held by a bank or a trust.
Foreign companies use ADRs in order to make it easier for Americans to buy
their shares.
Deflation: A general decline in prices, if it persists, generally creates a
vicious spiral of negatives such as falling profits, closing factories,
shrinking employment and incomes, and increasing defaults on loans by companies
and individuals. To counter deflation, the Federal Reserve (the Fed) can use
monetary policy to increase the money supply and deliberately induce rising
prices, causing inflation.
Dow Jones Industrial Average/SM/: A price-weighted average of 30 blue chip
stocks. The index is calculated on a total return basis with dividends
reinvested.
Federal Reserve: The central bank of the United States, responsible for
controlling the money supply, interest rates and credit with the goal of
keeping the U.S. economy and currency stable. Governed by a seven-member board,
the system includes 12 regional Federal Reserve Banks, 25 branches and all
national and state banks that are part of the system.
Initial public offering (IPO): A company's first sale of stock to the public.
Institute for Supply Management (ISM) Report on Business/(R)/: An economic
forecast, released monthly, that measures U.S. manufacturing conditions and is
arrived at by surveying 300 purchasing professionals in the manufacturing
sector representing 20 industries in all 50 states.
Investors Intelligence Survey: A weekly survey published by Chartcraft, an
investment services company, of the current sentiment of approximately 150
market newsletter writers. Participants are classified into three categories:
bullish, bearish or waiting for a correction.
NASDAQ Composite/(R)/ Index: A market capitalization-weighted index of all
issues listed in the NASDAQ (National Association Of Securities Dealers
Automated Quotation System) Stock Market, except for closed-end funds,
convertible debentures, exchange traded funds, preferred stocks, rights,
warrants, units and other derivative securities. The index is calculated on a
total return basis with dividends reinvested.
S&P 500/(R)/ Index: A free-float market capitalization-weighted index of 500 of
the largest U.S. companies. The index is calculated on a total return basis
with dividends reinvested.
TARP (Troubled Asset Relief Program): A government program created for the
establishment and management of a Treasury fund, in an attempt to curb the
ongoing financial crisis of 2007-2008. The fund was created by enacting the
Emergency Economic Stabilization Act of 2008.
Indexes cited are unmanaged and not available for direct investment; therefore
their performance does not reflect the expenses associated with the active
management of an actual portfolio.
6
THE ZWEIG FUND, INC.
Sector Weightings
December 31, 2008
(as a percentage of total investments)
[CHART]
Information Technology 12%
Financials 11%
Energy 10%
Industrials 10%
Consumer Staples 10%
Health Care 9%
Consumer Discretionary 6%
Other (includes short-term investments) 32%
SCHEDULE OF INVESTMENTS
December 31, 2008
Number of
Shares Value
--------- ------------
INVESTMENTS
DOMESTIC COMMON STOCKS....................... 72.59%
CONSUMER DISCRETIONARY -- 5.89%
McDonald's Corp............................... 105,000 $ 6,529,950
NIKE, Inc. Class B............................ 120,000 6,120,000
Under Armour, Inc. Class A/(b)/............... 265,000 6,317,600
------------
18,967,550
------------
CONSUMER STAPLES -- 9.55%
Altria Group, Inc............................. 430,000 6,475,800
Bunge Ltd..................................... 90,000 4,659,300
Costco Wholesale Corp......................... 135,000 7,087,500
PepsiCo, Inc.................................. 110,000 6,024,700
Philip Morris International, Inc.............. 150,000 6,526,500
------------
30,773,800
------------
ENERGY -- 8.44%
Chesapeake Energy Corp........................ 155,000 2,506,350
ConocoPhillips................................ 115,000 5,957,000
Halliburton Co................................ 215,000 3,908,700
Massey Energy Co.............................. 120,000 1,654,800
Occidental Petroleum Corp..................... 120,000 7,198,800
See notes to financial statements
7
Number of
Shares Value
--------- ------------
ENERGY (CONTINUED)
St. Mary Land & Exploration Co............ 225,000 $ 4,569,750
Valero Energy Corp........................ 65,000 1,406,600
------------
27,202,000
------------
FINANCIALS -- 10.55%
Allstate Corp. (The)...................... 165,000 5,405,400
Goldman Sachs Group, Inc. (The)........... 54,000 4,557,060
Hudson City Bancorp, Inc.................. 360,000 5,745,600
Reinsurance Group of America, Inc......... 165,000 7,065,301
Wells Fargo & Co.......................... 185,000 5,453,800
Wilmington Trust Corp..................... 260,000 5,782,400
------------
34,009,561
------------
HEALTH CARE -- 9.51%
Celgene Corp./(b)/........................ 125,000 6,910,000
Gilead Sciences, Inc./(b)/................ 170,000 8,693,800
Merck & Co., Inc.......................... 250,000 7,600,000
UnitedHealth Group, Inc................... 280,000 7,448,000
------------
30,651,800
------------
INDUSTRIALS -- 9.86%
Boeing Co. (The).......................... 115,000 4,907,050
Caterpillar, Inc.......................... 120,000 5,360,400
Continental Airlines, Inc. Class B/(b)/... 325,000 5,869,500
Foster Wheeler Ltd./(b)/.................. 160,000 3,740,800
L-3 Communications Holdings, Inc.......... 90,000 6,640,200
Union Pacific Corp........................ 110,000 5,258,000
------------
31,775,950
------------
INFORMATION TECHNOLOGY -- 10.05%
Cisco Systems, Inc./(b)/.................. 330,000 5,379,000
Corning, Inc.............................. 380,000 3,621,400
Hewlett-Packard Co........................ 180,000 6,532,200
International Business Machines Corp...... 70,000 5,891,200
Microsoft Corp............................ 250,000 4,860,000
QUALCOMM, Inc............................. 170,000 6,091,100
------------
32,374,900
------------
MATERIALS -- 4.59%
Alcoa, Inc................................ 240,000 2,702,400
Freeport-McMoRan Copper & Gold, Inc....... 240,000 5,865,600
NuCor Corp................................ 135,000 6,237,000
------------
14,805,000
------------
See notes to financial statements
8
Number of
Shares Value
----------- ------------
TELECOMMUNICATION SERVICES -- 4.15%
AT&T, Inc......................................... 220,000 $ 6,270,000
Verizon Communications, Inc....................... 210,000 7,119,000
------------
13,389,000
------------
Total Domestic Common Stocks (Identified Cost
$296,716,509)........................................ 233,949,561
------------
FOREIGN COMMON STOCKS/(c)/..................... 3.68%
ENERGY -- 2.01%
Petroleo Brasileiro SA ADR (Brazil)............... 265,000 6,489,850
------------
6,489,850
------------
INFORMATION TECHNOLOGY -- 1.67%
Nokia Oyj Sponsored ADR (Finland)................. 345,000 5,382,000
------------
5,382,000
------------
Total Foreign Common Stocks (Identified Cost $17,356,225) 11,871,850
------------
EXCHANGE TRADED FUNDS.......................... 1.95%
PowerShares Deutsche Bank Agriculture Fund........ 240,000 6,288,000
------------
Total Exchange Traded Funds (Identified Cost $8,088,236) 6,288,000
------------
Total Long Term Investments -- 78.22% (Identified Cost
$322,160,970)........................................ 252,109,411
------------
SHORT-TERM INVESTMENTS......................... 21.65%
MONEY MARKET MUTUAL FUNDS -- 6.16%
State Street Institutional Liquid Reserves
Fund (seven-day effective yield 1.461%)......... 5,847,772 5,847,772
State Street Institutional Treasury Money Market
Fund (seven-day effective yield 0.26%).......... 14,000,059 14,000,059
------------
19,847,831
------------
Par
(000's)
-----------
U.S. TREASURY BILLS/(d)/ -- 15.49%
U.S. Treasury Bill 0.975%, 5/15/09................ $ 10,000 9,996,440
U.S. Treasury Bill 0.785%, 7/30/09................ 40,000 39,935,248
------------
49,931,688
------------
Total Short-Term Investments (Identified Cost
$69,628,559)......................................... 69,779,519
------------
Total Investments (Identified Cost $391,789,529) --
99.87%............................................... 321,888,930/(a)/
Other Assets and Liabilities, Net -- 0.13%............. 404,463
------------
Net Assets -- 100.00%.................................. $322,293,393
============
See notes to financial statements
9
--------
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $11,649,622 and gross
depreciation of $82,319,875 for federal income tax purposes. At
December 31, 2008, the aggregate cost of securities for federal income tax
purposes was $392,559,183.
(b) Non-income producing.
(c) A security is considered to be foreign if the security is issued in a
foreign country. The country of risk, noted parenthetically, is determined
based on criteria described in Note 2F "Foreign security country
determination" in the Notes to Financial Statements.
(d) The rate shown is the discount rate.
See notes to financial statements
10
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2008
ASSETS
Investment securities at value (Identified cost $391,789,529). $ 321,888,930
Receivables
Dividends and interest.................................... 790,658
Prepaid expenses.............................................. 75,555
-------------
Total Assets.............................................. 322,755,143
-------------
LIABILITIES
Payables
Investment advisory fee....................................... 220,933
Professional fee.............................................. 68,994
Printing fee.................................................. 65,384
Transfer agent fee............................................ 37,354
Directors' fees............................................... 22,174
Administration fee............................................ 16,895
Custodian fee................................................. 8,693
Other accrued expenses........................................ 21,323
-------------
Total Liabilities......................................... 461,750
-------------
NET ASSETS....................................................... $ 322,293,393
=============
NET ASSET VALUE PER SHARE
($322,293,393 / 91,955,558)................................... $ 3.50
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest.............. $ 506,041,606
Undistributed net investment income........................... 665,036
Accumulated net realized loss................................. (114,512,650)
Net unrealized depreciation................................... (69,900,599)
-------------
Net Assets....................................................... $ 322,293,393
=============
See notes to financial statements
11
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 2008
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld of $16,245)...................... $ 6,676,642
Interest.................................................................. 1,918,118
Security lending.......................................................... 31,565
-------------
Total Investment Income............................................ 8,626,325
-------------
Expenses
Investment advisory fees.................................................. 3,648,816
Administration fees....................................................... 279,027
Professional fees......................................................... 229,919
Transfer agent fees and expenses.......................................... 222,910
Printing and postage fees................................................. 175,455
Directors' fees........................................................... 166,174
Custodian fees............................................................ 42,532
Miscellaneous expenses.................................................... 309,302
-------------
Total Expenses..................................................... 5,074,135
Less custodian fees paid indirectly.................................... (1,982)
-------------
Net Expenses....................................................... 5,072,153
-------------
Net Investment Income........................................... 3,554,172
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments............................................................... (6,276,990)
Short sales............................................................... 2,875,842
Net change in unrealized appreciation (depreciation) on:
Investments............................................................... (147,042,294)
Short sales............................................................... (2,528,024)
-------------
Net realized and unrealized gain (loss)................................ (152,971,466)
-------------
Net increase (decrease) in net assets resulting from operations........ $(149,417,294)
=============
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, 2008 December 31, 2007
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)..................................... $ 3,554,172 $ 3,797,812
Net realized gain (loss)......................................... (3,401,148) 31,936,508
Net change in unrealized appreciation (depreciation)............. (149,570,318) 826,941
------------- ------------
Net increase (decrease) in net assets resulting from
operations.................................................. (149,417,294) 36,561,261
------------- ------------
Dividends and distributions to shareholders from
Net investment income............................................ (4,007,964) (4,074,106)
Net realized short-term gains.................................... (8,760,532) --
Net realized long-term gains..................................... -- (27,002,933)
Tax return of capital............................................ (34,773,384) (14,653,646)
------------- ------------
Total dividends and distributions to shareholders............. (47,541,880) (45,730,685)
------------- ------------
Capital share transactions
Net asset value of shares issued to shareholders in
reinvestment of distributions resulting in issuance of
common stock................................................... -- 1,870,759
Net proceeds from the sales of shares during rights
offering (net of expenses of $645,000)......................... 148,211/(1)/ 87,859,000
------------- ------------
Net increase in net assets derived from capital share
transactions................................................ 148,211 89,729,759
------------- ------------
Net increase (decrease) in net assets......................... (196,810,963) 80,560,335
NET ASSETS
Beginning of period.................................................. 519,104,356 438,544,021
------------- ------------
End of period (undistributed net investment income of
$665,036 and $1,038,978, respectively)............................. $ 322,293,393 $519,104,356
============= ============
--------
/(1) /Adjustment to bring costs estimated in connection with the September 2007
rights offering to actual.
See notes to financial statements
13
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout each year)
Year Ended December 31,
--------------------------------------------------------------
2008 2007 2006 2005 2004
-------- -------- -------- -------- --------
Per Share Data
Net asset value, beginning of period............... $ 5.65 $ 5.99 $ 5.82 $ 6.02 $ 5.69
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income (loss)/(6)/.................. 0.04 0.05 0.07 0.08 0.11
Net realized and unrealized gains (losses)......... (1.67) 0.39 0.68 0.31/(5)/ 0.44
-------- -------- -------- -------- --------
Total from investment operations................... (1.63) 0.44 0.75 0.39 0.55
-------- -------- -------- -------- --------
Dividends and Distributions
Dividends from net investment income............... (0.04) (0.05) (0.07) (0.11) (0.06)
Distributions from net realized gains.............. (0.10) (0.34) (0.21) (0.28) (0.16)
Tax return of capital.............................. (0.38) (0.20) (0.30) (0.20) --
-------- -------- -------- -------- --------
Total dividends and distributions.................. (0.52) (0.59) (0.58) (0.59) (0.22)
-------- -------- -------- -------- --------
Dilutive effect on net asset values as a result of
capital contribution............................. -- -- -- -- /(4)/ --
Dilutive effect on net asset values as a result of
rights offering.................................. -- /(4)/ (0.19)/(1)/ -- -- --
-------- -------- -------- -------- --------
Change in net asset value.......................... (2.15) (0.34) 0.17 (0.20) 0.33
-------- -------- -------- -------- --------
Net asset value, end of period.................. $ 3.50 $ 5.65 $ 5.99 $ 5.82 $ 6.02
======== ======== ======== ======== ========
Market value, end of period/(2)/................ $ 2.88 $ 5.05 $ 5.90 $ 5.25 $ 5.55
======== ======== ======== ======== ========
Total investment return/(3)/....................... (35.32)% (5.12)%/(7)/ 24.87% 5.78% 18.13%
======== ======== ======== ======== ========
Total return on net asset value/(8)/............... (29.75)% 8.75% 14.58% 7.90% 10.35%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands)........... $322,293 $519,104 $438,544 $426,378 $440,643
Ratio of expenses to average net assets
(excluding dividends on short sales)............. 1.18% 1.13% 1.18% 1.26% 1.33%
Ratio of expenses to average net assets
(including dividends on short sales)............. 1.18% 1.13% 1.21% 1.33% 1.38%
Ratio of net investment income to average net
assets........................................... 0.83% 0.82% 1.20% 1.31% 1.87%
Portfolio turnover rate............................ 39% 58% 39% 45% 89%
For definitions and explanations of the Footnotes see page 15.
See notes to financial statements
14
--------
(1)Shares were sold at a 5% discount from a 5-day average market price from
8/29/07 to 9/5/07.
(2)Closing Price -- New York Stock Exchange.
(3)Total investment return is calculated assuming a purchase of a share of the
Fund's common stock at the opening NYSE share price on the first business
day and a sale at the closing NYSE share price on the last business day of
each period reported. Dividends and distributions, if any, are assumed for
the purpose of this calculation, to be reinvested at prices obtained under
the Fund's Automatic Reinvestment and Cash Purchase Plan. Generally, total
investment return based on net asset value will be higher than total
investment return based on market value in periods where there is an
increase in the discount or a decrease in the premium of the market value to
the net assets from the beginning to the end of such periods. Conversely,
total investment return based on net asset value will be lower than total
investment return based on market value in periods where there is a decrease
in the discount or an increase in the premium of the market value to the net
asset value from the beginning to the end of such periods.
(4)Amount is less than $0.005.
(5)The net realized and unrealized gains (losses) includes a voluntary payment
made by the Adviser to fully offset the net gains and losses associated with
a violation of investment restrictions. If this payment was not included,
the per share impact would be less than $0.01.
(6)Computed using average shares outstanding.
(7)Total investment return includes the dilutive effect of the rights offering.
Without this effect, the total investment return would have been (3.83)%.
(8)NAV return is calculated using the opening Net Asset Value price of the
Fund's common stock on the first business day and the closing Net Asset
Value price of the Fund's common stock on the last business day of each
period reported. Dividends and distributions, if any, are assumed for the
purpose of this calculation, to be reinvested at prices obtained under the
Fund's Automatic Reinvestment and Cash Purchase Plan.
See notes to financial statements
15
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 1 -- ORGANIZATION
The Zweig Fund, Inc. (the "Fund") is a closed-end, diversified management
investment company registered under the Investment Company Act of 1940 (the
"Act"). The Fund was incorporated under the laws of the State of Maryland on
June 30, 1986. The Fund's objective is capital appreciation, primarily through
investment in equity securities, consistent with the preservation of capital
and reduction of risk.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principals
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
A. Security Valuation:
Equity securities are valued at the official closing price (typically last
sale) on the exchange on which the securities are primarily traded, or if no
closing price is available, at the last bid price.
Debt securities are valued on the basis of broker quotations or valuations
provided by a pricing service, which utilizes information with respect to
recent sales, market transactions in comparable securities, quotations from
dealers, and various relationships between securities in determining value.
As required, some securities and other assets may be valued at fair value as
determined in good faith by or under the direction of the Directors.
Certain foreign common stocks may be fair valued in cases where closing
prices are not readily available or are deemed not reflective of readily
available market prices. For example, significant events (such as movement in
the U.S. securities market, or other regional and local developments) may occur
between the time that foreign markets close (where the security is principally
traded) and the time that the Fund calculates its net asset value (generally,
the close of the NYSE) that may impact the value of securities traded in these
foreign markets. In these cases, information from an external vendor may be
utilized to adjust closing market prices of certain foreign common stocks to
reflect their fair value. Because the frequency of significant events is not
predictable, fair valuation of certain foreign common stocks may occur on a
frequent basis.
Short-term investments having a remaining maturity of 60 days or less are
valued at amortized cost, which approximates market.
16
The Fund has adopted the provisions of the Statement of Financial Accounting
Standards No. 157 (SFAS 157) as of the beginning of the current fiscal period
of the Fund. This standard clarifies the definition of fair value for financial
reporting, establishes a framework for measuring fair value and requires
additional disclosures about the use of fair value measurements. To increase
consistency and comparability in fair value measurements and related
disclosures, the Fund utilizes a fair value hierarchy which prioritizes the
inputs to valuation techniques used to measure fair value into three broad
levels:
. Level 1 -- quoted prices in active markets for identical securities
. Level 2 -- prices determined using other significant observable inputs
(including quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, etc.)
. Level 3 -- prices determined using significant unobservable inputs
(including the Fund's own assumptions in determining the fair value of
investments)
The following is a summary of the inputs used to value the Fund's net assets
as of December 31, 2008. The inputs or methodology used for valuing securities
are not necessarily an indication of the risk associated with investing in
those securities.
Investments in
Valuation Inputs Securities
---------------- --------------
Assets:
Level 1 -- Quoted Prices....................... $271,957,242
Level 2 -- Other Significant Observable Inputs. 49,931,688
Level 3 -- Significant Unobservable Inputs..... --
------------
Total.......................................... $321,888,930
============
B. Security Transactions and Related Income:
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date, or in the case of certain foreign securities,
as soon as the Fund is notified. Interest income is recorded on the accrual
basis. The Fund amortizes premiums and accretes discounts using the effective
interest method. Realized gains and losses are determined on the identified
cost basis.
C. Income Taxes:
It is the policy of the Fund to comply with the requirements of Subchapter M
of the Internal Revenue Code and to distribute substantially all of its taxable
income to its shareholders. Therefore, no provision for federal income taxes or
excise taxes has been made.
The Fund may be subject to foreign taxes on income, gains on investments or
currency repatriation, a portion of which may be recoverable. The Fund will
accrue such taxes and recoveries as applicable based upon current
interpretations of the tax rules and regulations that exist in the markets in
which it invests.
FASB Interpretation No. 48, ("FIN 48") Accounting for Uncertainty in Income
Taxes, sets forth a minimum threshold for financial statement recognition of
the benefit of a tax position taken or expected to be taken in a tax return.
Management has analyzed the Fund's tax positions and has concluded that no
provision for income tax is required in the Fund's financial statements. The
Fund is not aware of any
17
tax positions for which it is reasonably possible that the total amounts of
unrecognized tax benefits will significantly change in the next twelve months.
However, management's conclusions regarding the adoption of FIN 48 may be
subject to review and adjustment at a later date based on factors including,
but not limited to, further implementation guidance from the FASB, new tax
laws, regulations and administrative interpretations (including court
decisions). Each of the Fund's federal tax returns for the prior three fiscal
years remains subject to examination by the Internal Revenue Service.
D. Dividends and Distributions to Shareholders:
Distributions are recorded by the Fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. These differences may include the treatment of
non-taxable dividends, market premium and discount, non-deductible expenses,
expiring capital loss carryovers, foreign currency gain or loss, operating
losses and losses deferred due to wash sales. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to capital paid in on shares of beneficial interest. As of
December 31, 2008, the Fund increased undistributed net investment income by
$34,853,234, decreased the accumulated net realized loss by $8,680,681, and
decreased capital paid in on shares of beneficial interest by $43,533,915.
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, 2008, the Fund
deferred $1,648,290 of post-October losses.
The components of distributable earnings on a tax basis (excluding
unrealized appreciation (depreciation) which is disclosed in the Schedule of
Investments) consist of undistributed ordinary income of $0 and undistributed
long-term capital gains of $0.
The Fund has $112,094,706 of capital loss carryovers, $83,073,540 expiring
in 2010, $26,802,162 expiring in 2011 and $2,219,004 expiring in 2016, which
may be used to offset future capital gains. The Fund may not realize the
benefit of these losses to the extent it does not realize gains on investments
prior to the expiration of the capital loss carryovers.
In addition, under certain conditions, the Fund may lose the benefit of
these losses to the extent that distributions to shareholders exceed required
distribution amounts as defined under the Internal Revenue Code. Shareholders
may also pay additional taxes on these excess distributions.
E. Foreign Currency Translation:
Foreign securities and other assets and liabilities are valued using the
foreign currency exchange rate effective at the end of the reporting period.
Cost of investments is translated at the currency exchange rate effective at
the trade date. The gain or loss resulting from a change in currency exchange
rates between the trade and settlement dates of a portfolio transaction is
treated as a gain or loss on foreign currency. Likewise, the gain or loss
resulting from a change in currency exchange rates between the date income is
accrued and paid is treated as a gain or loss on foreign currency. The Fund
does not isolate that portion of the results of operations arising from changes
in exchange rates and that portion arising from changes in the market prices of
securities.
18
F. Foreign Security Country Determination:
A combination of the following criteria is used to assign the countries of
risk listed in the Schedule of Investments country of incorporation, actual
building address, primary exchange on which the security is traded and country
in which the greatest percentage of company revenue is generated.
G. Short Sales:
A short sale is a transaction in which the Fund sells a security it does not
own in anticipation of a decline in market price. To sell a security short, the
Fund must borrow the security. The Fund's obligation to replace the security
borrowed and sold short will be fully collateralized at all times by the
proceeds from the short sale retained by the broker and by cash and securities
deposited in a segregated account with the Fund's custodian. If the price of
the security sold short increases between the time of the short sale and the
time the Fund replaces the borrowed security, the Fund will realize a loss, and
if the price declines during the period, the Fund will realize a gain. Any
realized gain will be decreased, and any realized loss increased, by the amount
of transaction costs. On ex-dividend date, dividends on short sales are
recorded as an expense to the Fund. The collateral includes the deposits with
the broker for securities held short and the value of the segregated
investments held long. Short selling used in the management of the Fund may
accelerate the velocity of potential losses if the prices of securities sold
short appreciate quickly. Stocks purchased may decline in value at the same
time stocks sold short may appreciate in value, thereby increasing potential
losses.
At December 31, 2008, there were no securities sold short.
H. Security Lending:
The Fund may loan securities to qualified brokers through an agreement with
State Street Bank and Trust Company (the "Custodian"). Under the terms of
agreement, the Fund is required to maintain collateral with a market value not
less than 100% of the market value of loaned securities. Collateral is adjusted
daily in connection with changes in the market value of securities on loan.
Collateral may consist of cash, securities issued or guaranteed by the U.S.
Government or its agencies, sovereign debt of foreign countries and/or
irrevocable letters of credit issued by banks. Cash collateral is invested in a
short-term money market fund. Dividends earned on the collateral and premiums
paid by the broker are recorded as income by the Fund net of fees and rebates
charged by the Custodian for its services in connection with this securities
lending program. Lending portfolio securities involves a risk of delay in the
recovery of the loaned securities or in the foreclosure on collateral.
At December 31, 2008, the Fund had no securities on loan.
NOTE 3 -- PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding U.S. Government and agency
securities and short-term securities) for the period ended December 31, 2008,
were as follows:
Purchases...................... $138,940,833
Sales.......................... 152,822,893
Short sales.................... 8,055,373
Purchases to cover short sales. 11,923,655
19
Purchases and sales of long-term U.S. Government and agency securities for
the period ended December 31, 2008, were as follows:
Purchases......................... $ --
Sales............................. 27,060,550
NOTE 4 -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
At end of business December 31, 2008, Virtus Investment Partners, Inc.
("Virtus") spun off from The Phoenix Companies, Inc., into an independent
publicly traded company. Virtus is the holding company for various asset
management subsidiaries, including Zweig Advisers, LLC (the "Adviser", formerly
known as Phoenix/Zweig Advisers LLC) and VP Distributors, Inc. ("VP
Distributors", formerly known as Phoenix Equity Planning Corporation). Due to
the spin-off, the asset management subsidiaries have changed their names.
a) Investment Advisory Fee: The Investment Advisory Agreement (the
"Agreement") between the Adviser and the Fund provides that, subject to the
direction of the Board of Directors of the Fund and the applicable provisions
of the Act, the adviser is responsible for the actual management of the Fund's
portfolio. The responsibility for making decisions to buy, sell, or hold a
particular investment rests with the Adviser, subject to review by the Board of
Directors and the applicable provisions of the Act. For the services provided
by the Adviser under the Agreement, the Fund pays the Adviser a monthly fee
equal, on an annual basis to 0.85% of the Fund's average daily net assets.
During the year ended December 31, 2008, the Fund incurred advisory fees of
$3,648,816.
Zweig Consulting LLC (the "Sub-Adviser"), which serves as the Sub-Adviser
for the Fund, performs certain asset allocation research and analysis and
provides such advice to the Adviser. The Sub-Adviser's fees are paid by the
Adviser.
b) Administration Fee: VP Distributors serves as the Fund's Administrator
(the "Administrator") pursuant to an Administration Agreement. The
Administrator receives a fee for financial reporting, tax services, and
oversight of the subagents' performance at a rate of 0.065% of the Fund's
average daily net assets. During the year ended December 31, 2008, the Fund
incurred Administration fees of $279,027.
c) Directors Fee: During the period the Fund paid each Director who is not
an interested person of the Fund or the Adviser a fee of $11,000 per year plus
$1,500 per Directors' or committee meeting attended, together with the
out-of-pocket costs relating to attendance at such meetings. The Audit
Committee chairperson was paid an additional fee of $5,000. Any Director of the
Fund who is an interested person of the Fund or the Adviser receives no
remuneration from the Fund.
NOTE 5 -- INDEMNIFICATIONS
Under the Fund's organizational documents 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, 2008, the Fund had one class of common stock, par value $.10
per share, of which 200,000,000 shares are authorized and 91,955,558 shares are
outstanding.
20
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 years ended December 31, 2008 and
2007, there were no shares issued pursuant to the Plan.
In a non-transferable rights offering ended September 5, 2007, shareholders
exercised rights to purchase 18,400,000 shares of common stock at an offering
price of $4.81 per share for proceeds, net of expenses, of $87,859,000.
Expenses were adjusted by $148,211 in 2008, resulting in final net proceeds of
$88,007,211.
On January 2, 2009, the Fund announced a distribution of $0.084 per share to
shareholders of record on December 31, 2008. This distribution has an
ex-dividend date of January 5, 2009, and is payable on January 12, 2009. Please
see inside front cover for more information on fund distributions.
NOTE 7 -- CREDIT RISK AND ASSET CONCENTRATIONS
In countries with limited or developing markets, investments may present
greater risks than in more developed markets and the prices of such investments
may be volatile. The consequences of political, social or economic changes in
these markets may have disruptive effects on the market prices of these
investments and the income they generate, as well as the Fund's ability to
repatriate such amounts.
The Fund may invest a high percentage of its assets in specific sectors of
the market in its pursuit of a greater investment return. Fluctuations in these
sectors of concentration may have a greater impact on the Fund, positive or
negative, than if the Fund did not concentrate its investments in such sectors.
NOTE 8 -- REGULATORY EXAMS
Federal and state regulatory authorities from time to time make inquiries
and conduct examinations regarding compliance by Virtus and its subsidiaries
(collectively "the Company") with securities and other laws and regulations
affecting their registered products.
21
NOTE 9 -- RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2008, Statement of Financial Accounting Standards No. 161,
"Disclosures about Derivative Instruments and Hedging Activities" (FAS 161) was
issued and is effective for fiscal years and interim periods beginning after
November 15, 2008. FAS 161 is intended to improve financial reporting for
derivative instruments by requiring enhanced disclosure that enables investors
to understand how and why a fund uses derivatives, how derivatives are
accounted for, and how derivative instruments affect a fund's results of
operations and financial position. Management is currently evaluating the
impact, if any, of FAS 161 on financial statement disclosures.
22
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, 2008, 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, 2008 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCooper LLP
Boston, Massachusetts
February 18, 2009
23
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, 2008, for federal income tax
purposes, 100% of the ordinary income dividends earned by the Fund qualify for
the dividends received deduction for corporate shareholders.
For the fiscal year ended December 31, 2008, the Fund hereby designates
100%, or the maximum amount allowable, of its ordinary income dividends to
qualify for the lower tax rates applicable to individual shareholders.
The actual percentage for the calendar year will be designated in the
year-end tax statements.
24
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
9, 2008. The meeting was held for the purpose of electing two (2) nominees to
the Board of Directors.
The results of the above matters were as follows:
Directors Votes For Votes Against Votes Withheld Abstentions
--------- ---------- ------------- -------------- -----------
Wendy Luscombe.. 72,923,029 N/A 3,334,171 N/A
R. Keith Walton. 72,934,980 N/A 3,322,221 N/A
Based on the foregoing Wendy Luscombe and R. Keith Walton, were re-elected
as Directors. The Fund's other Directors who continue in office are George R.
Aylward, Charles H. Brunie, Alden C. Olson and James B. Rogers, Jr.
25
FUND MANAGEMENT
Information pertaining to the Directors and officers of the Fund as of
December 31, 2008 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
Number of
Portfolios
in Fund
Term of Office Complex
Name (Age) Address and and Length of Overseen by Principal Occupation(s)
Position(s) with Fund Time Served Director During Past 5 Years and Other Directorships Held
---------------------- ------------------ ----------- -----------------------------------------------------------
Charles H. Brunie...... Term: Until 2009. 2 Director, The Zweig Total Return Fund, Inc. (since
Brunie Associates Served since: 1988); Chairman, Brunie Associates (investments)
600 Third Avenue, 1998. (since April 2001); Oppenheimer Capital (1969-2000);
17th Floor Chairman (1980-1990), Chairman Emeritus (1990-2000).
New York, NY 10016 Chairman Emeritus, Board of Trustees, Manhattan
YOB: 1930 Institute (since 1990); Trustee, Milton and Rose D.
Director Friedman Foundation for Vouchers (since 1999);
Trustee, Hudson Institute (since 2002); Chairman of the
Board, American Spectator (since 2002); Chartered
Financial Analyst (since 1969).
Wendy Luscombe......... Term: Until 2011. 2 Director of The Zweig Total Return Fund, Inc. (since
480 Churchtown Rd. Served since: 2002); Co-lead Independent Director of the Zweig Total
Craryville, NY 12521 2002. Return Fund, Inc. and of The Zweig Fund, Inc. (since
YOB: 1951 2006); Principal, WKL Associates, Inc. (Private Investor
Director and Consultant) (since 1994); Fellow, Royal Institution of
Chartered Surveyors; Member, Chartered Institute of
Arbitrators; Director, Endeavour Real Estate Securities,
Ltd. REIT Mutual Fund (2000-2005); Director, PXRE,
Group (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 Teachers
Facility (since 2007). Independent Director of Feldman
Mall Properties a private REIT (since 2008).
Alden C. Olson......... Term: Until 2010. 2 Director of The Zweig Total Return Fund, Inc. (since
2711 Ramparte Path Served since: 1996); Currently retired; Chartered Financial Analyst
Holt, MI 48842 1996. (since 1964); Professor of Financial Management,
YOB: 1928 Investments at Michigan State University (1959 to
Director 1990).
James B. Rogers, Jr.... Term: Until 2009. 2 Director of The Zweig Total Return Fund, Inc. (since
352 Riverside Dr. Served since: 1988); Private investor (since 1980); Chairman, Beeland
New York, NY 10025 1986. Interests (Media and Investments) (since 1980); Regular
YOB: 1942 Commentator on Fox News (since 2002); Author of
Director "Investment Biker: On the Road with Jim Rogers"
(1994), "Adventure Capitalist" (2003); "Hot
Commodities" (2004) and "A Bull in China" (2007).
26
DISINTERESTED DIRECTORS
Number of
Portfolios
in Fund
Term of Office Complex
Name (Age) Address and and Length of Overseen by Principal Occupation(s)
Position(s) with Fund Time Served Director During Past 5 Years and Other Directorships Held
---------------------- ------------------ ----------- -------------------------------------------------------
R. Keith Walton....... Term: Until 2011. 2 Director of The Zweig Total Return Fund, Inc. (since
15 Claremont Avenue Served since: 2004); Co-lead Independent Director of the Zweig Total
New York, NY 10027 2004. Return Fund, Inc. and of The Zweig Fund, Inc. (since
YOB: 1964 2006); Principal and Chief Administrative Officer,
Director Global Infrastructure Partners (since 2007); Director,
Blue Crest Capital Management Funds (since 2006);
Executive Vice President and the Secretary (1996-2007)
of the University at Columbia University; Director
(since 2002), Member, Executive Committee (since
2002), Chair, Audit Committee (since 2003), Apollo
Theater Foundation, Inc.; Director, Orchestra of St.
Luke's (since 2000); Vice President and Trustee, The
Trinity Episcopal School Corporation (since 2003);
Member (since 1997), Nominating and Governance
Committee Board of Directors (since 2004), Council on
Foreign Relations.
INTERESTED DIRECTOR
George R. Aylward....... Term: Until 2010. 2 Director, President and Chief Executive Officer (since
100 Pearl Street Served since: 2008), Director and President (2006-2008), Chief
Hartford, CT 06103 2006 for ZF and Operating Officer (2004-2006), Vice President, Finance,
YOB: 1964 ZTR. (2001-2002), Virtus Investment Partners, Inc. and/or
Director, Chairman of certain of its subsidiaries. Senior Executive Vice
the Board and President President and President, Asset Management (2007-
2008), Senior Vice President and Chief Operating
Officer, Asset Management (2004-2007), Vice President
and Chief of Staff (2001-2004), The 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. (since 2006).
OFFICERS WHO ARE NOT DIRECTORS
Position
with the Fund
Name, Address and and Length of Principal Occupation(s)
Date of Birth Time Served During Past 5 Years and Other Directorships Held
----------------- --------------------- -----------------------------------------------------------------
Carlton Neel....... Executive Vice Executive Vice President of The Zweig Total Return Fund, Inc.
900 Third Avenue President (since 2003); Senior Vice President and Portfolio Manager, Zweig
New York, NY 10022 since: 2003. Advisers, LLC (f/k/a Phoenix/Zweig Adviser, LLC) (since 2003);
YOB: 1967 Expires: Immediately Managing Director and Co-Founder, Shelter Rock Capital
following the 2009 Partners, LP (2002-2003); Senior Vice President and Portfolio
Annual Meeting of Manager, Zweig Advisers, LLC (1995-2002); Vice President, JP
Shareholders. Morgan & Co. (1990-1995).
27
OFFICERS WHO ARE NOT DIRECTORS
Position
with the Fund
Name, Address and and Length of Principal Occupation(s)
Date of Birth Time Served During Past 5 Years and Other Directorships Held
----------------- ------------------------- --------------------------------------------------------------------
David Dickerson.... Senior Vice President Senior Vice President of The Zweig Total Return Fund, Inc. (since
900 Third Avenue since: 2003. 2003); Senior Vice President and Portfolio Manager, Zweig
New York, NY 10022 Expires: Immediately Advisers, LLC (f/k/a Phoenix/Zweig Adviser, LLC) (since 2003);
YOB: 1967 following the 2009 Managing Director and Co-Founder, Shelter Rock Capital
Annual Meeting of Partners, LP (2002-2003); Vice President and Portfolio Manager,
Shareholders. Zweig Advisers, LLC (1993-2002).
Marc Baltuch....... Vice President and Chief Vice President and Chief Compliance Officer of The Zweig Total
900 Third Avenue Compliance Officer Return Fund, Inc. (since 2004); Chief Compliance Officer of Zweig
New York, NY 10022 since: 2004. Advisers, LLC (f/k/a Phoenix/Zweig Adviser, LLC) (since 2004);
YOB: 1945 Expires: Immediately President and Director of Watermark Securities, Inc. (since 1991);
following the 2009 Secretary of Phoenix-Zweig Trust (1989-2003); Secretary of
Annual Meeting of Phoenix-Euclid Market Neutral Fund (1998-2002); Assistant
Shareholders. Secretary of Gotham Advisors, Inc. (1990-2005); Chief Compliance
Officer of the Zweig Companies (since 1989) and of the Virtus
Mutual Funds Complex (since 2004). Chief Compliance Officer,
The Phoenix Edge Series Fund (since 2004).
Kevin J. Carr...... Secretary and Chief Secretary and Chief Legal Officer of Zweig Total Return Fund, Inc.
100 Pearl Street Legal Officer (since 2005); Vice President, Counsel and Secretary, Virtus
Hartford, CT 06103 since: 2005. Investment Partners, Inc. and/or certain of its subsidiaries (since
YOB: 1954 Expires: Immediately 2008). Vice President and Counsel, Phoenix Life Insurance
following the 2009 Company (2005-2008). Vice President, Counsel, Chief Legal
Annual Meeting of Officer and Secretary, certain funds within Virtus Mutual Fund
Shareholders. Complex (since 2005). Compliance Officer of Investments and
Counsel, Travelers Life & Annuity Company (January 2005-May
2005). Assistant General Counsel and certain other positions, The
Hartford Financial Services Group (1995-2005).
Moshe Luchins...... Vice President Vice President of The Zweig Total Return Fund, Inc. (since 2004);
900 Third Avenue since: 2004. Associate Counsel (1996-2005), Associate General Counsel (since
New York, NY 10022 Expires: Immediately 2006) of the Zweig Companies.
YOB: 1971 following the 2009
Annual Meeting of
Shareholders.
Nancy Curtiss...... Treasurer Treasurer of The Zweig Total Return Fund, Inc. (since 2003);
100 Pearl Street since: 2003. Senior Vice President, Operations (since 2008), Vice President,
Hartford, CT 06103 Expires: Immediately Head of Asset Management Operations (2007-2008), Vice
YOB: 1952 following the 2009 President (2003-2007), Virtus Investment Partners, Inc. and/or
Annual Meeting of certain of its subsidiaries. Assistant Treasurer (since 2001), VP
Shareholders. Distributors, Inc. (f/k/a Phoenix Equity Planning Corporation).
Treasurer of various other investment companies within the
Virtus Mutual Funds Complex (since 1994).
Jacqueline Porter.. Vice President and Vice President and Assistant Treasurer of The Zweig Total Return
100 Pearl Street Assistant Treasurer Fund, Inc. (since 2006); Assistant Vice President, Fund
Hartford, CT 06103 since: 2006. Administration and Tax, VP Distributors, Inc. (f/k/a Phoenix
YOB: 1958 Expires: Immediately Equity Planning Corporation )(since 1995); Vice President and
following the 2009 Assistant Treasurer, multiple funds in the Virtus Mutual Fund
Annual Meeting of Complex (since 1995). Vice President and Assistant Treasurer,
Shareholders. The Phoenix Edge Series Fund (since 1999).
28
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, 2008, free of charge, by calling toll-free
1-800-243-1574. This information is also available through the Securities and
Exchange Commission's website at http://www.sec.gov.
FORM N-Q INFORMATION
The Fund files a complete schedule of portfolio holdings with the Securities
and Exchange Commission (the "SEC") for the first and third quarters of each
fiscal year on Form N-Q. Form N-Q is available on the SEC's website at
http://www.sec.gov. Form N-Q may be reviewed and copied at the SEC's Public
Reference Room. Information on the operation of the SEC's Public Reference Room
can be obtained by calling toll-free 1-800-SEC-0330.
INVESTMENT GUIDELINE CHANGES
The following changes to the Investments Guidelines have been approved by
the Fund's Board of Directors:
The Fund may invest up to 30% of its total assets in securities of foreign
issuers. The Fund may engage in foreign currency transactions, even if they are
not in connection with the Fund's investment activity in foreign securities.
The Fund typically does not make significant investments in foreign securities.
The Fund reserves the right to engage in interest rate, equity, total return
and other swaps. The Fund has no current plans to do so.
29
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 $32,600 for 2008 and $32,600 for 2007.
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 $3,097 for 2008 and $1,000 for 2007. This represents the
review of the semi-annual financial statements.
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 2008 and
$4,600 for 2007.
"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
$7,500 for 2008 and $5,000 for 2007.
(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) 100% for 2008 and 100% for 2007
(c) 100% for 2008 and 100% for 2007
(d) 100% for 2008 and 100% for 2007
(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 $1,624,671 for 2008 and $961,830 for 2007.
(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.
III Factors 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 March 9, 2009: 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 (formerly
known as Phoenix/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 Small-Cap Value Fund (formerly known as
Phoenix Small-Cap Value Fund). From April 1, 2003 to June 9, 2008,
Messrs. Neil and Dickerson were portfolio managers of the Virtus
Market Neutral fund (formerly known as Phoenix Market Neutral fund), a
fund also managed by Euclid. For the period from July 2002 until
returning to ZA on April 1, 2003, Mr. Neel and Mr. Dickerson
co-founded and managed a hedge fund. During 2008 Messrs. Neil and
Dickerson also assumed responsibility for asset allocation activities
for three Virtus mutual fund of funds.
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, 2008.
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 Small-Cap Value Fund and Virtus
fund of funds namely Virtus Alternatives Diversifier, Virtus Wealth
Builder, and Virtus Wealth Guardian. 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
Accounts in Accounts
Name of where where
Portfolio Total Advisory Fee Advisory Fee
Manager or No. of Accounts Total is Based on is Based on
Team Member Type of Accounts Managed Assets Performance Performance
--------------- ----------------------- --------------- ---------- ------------ ------------
David Dickerson Registered Investment 5 $922.0 mil None None
Companies:
Other Pooled Investment None None None None
Vehicles:
Other Accounts: None None None None
Carlton Neel Registered Investment 5 $922.0 mil None None
Companies:
Other Pooled Investment None None None None
Vehicles:
Other Accounts: None None 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, 2008. 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, 2008,
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. (formerly known as Phoenix Investment
Partners, Ltd.) 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. Certain investment professionals who supervise and manage
others also participate in a management incentive program reflecting
their personal contribution and team performance. Certain key
individuals may also participate in a long-term Incentive Compensation
program, including potential awards of Virtus restricted stock units
("RSUs") with multi-year vesting, subject to Virtus board approval,
and opportunities to defer their compensation and reduce tax
implications.
The bonus package for portfolio managers is based upon how well the
individual manager meets or exceeds assigned goals and subjective
assessment of contribution to the team effort. Their incentive bonus
also reflects a performance component for achieving and/or exceeding
performance competitive with peers managing similar strategies. Such
component is further adjusted to reward investment personnel for
managing within the stated framework and for not taking unnecessary
risks. This ensures that investment personnel will remain focused on
managing and acquiring securities that correspond to a fund's mandate
and risk profile. It also avoids the temptation for portfolio managers
to take on more risk and unnecessary exposure to chase performance for
personal gain.
Prior to the Spin-off of Virtus from Phoenix Companies, Inc. ("PNX")
on December 31, 2008, certain compensation awards were paid in PNX
RSUs, which converted to Virtus RSUs at Spin-off. Other than as
described here, no material changes have been made to the compensation
structure as a result of the Spin-off.
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.
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 determined by Virtus and is designed to be competitive in light of
the individual's experience and responsibilities. Virtus management
uses 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. Incentive bonus pools are based upon individual firm
profits and in some instances overall Virtus profitability. 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 compared with specific
peer groups established at the beginning of each calendar year.
Performance of the funds managed is measured over one, three and five
year periods. Generally, an individual manager's participation is
based on the performance of each fund/account managed as weighted
roughly by total assets in each of these funds/accounts. In certain
instances comparison of portfolio risk factors to peer or index risk
factors, as well as achievement of qualitative goals, may also be
components of the individual payment potential.
The Performance Incentive Plan applicable to some portfolio managers
varies from the description above. For instance, plans applicable to
certain portfolio managers (i) may have an override based upon
revenues generated, (ii) may contain a component that is based on the
profitability of the management division with which the portfolio
manager is associated, or (iii) may contain a guarantee payout.
Other Benefits. Portfolio managers are also eligible to participate in
broad-based plans offered generally to the firm's employees, including
401(k), health and other employee benefit plans.
(a)(4) Disclosure of Securities Ownership
For the most recently completed fiscal year ended December 31, 2008,
beneficial ownership of shares of the Fund by Messrs. Dickerson and
Neel is 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 $50,001-$100,000
Carlton Neel $10,001-$50,000
(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 notices to shareholders pursuant to Rule
19(a) under the 1940 Act which accompanied distributions paid during
December, 2008 pursuant to the Registrant's Managed Distribution Plan,
are filed herewith, as required by the terms of the Fund's exemptive
order issued on November 17th, 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 03/09/09
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 03/09/09
By (Signature and Title)* /s/ Nancy G. Curtiss
-----------------------------
Nancy G. Curtiss, Treasurer
(principal financial officer)
Date 03/09/09
* Print the name and title of each signing officer under his or her
signature.