OFFICERS AND DIRECTORS
George R. Aylward,
President, Chairman and Chief Executive Officer
Charles H. Brunie,
Director
Wendy Luscombe,
Director
Alden C. Olson, Ph.D.,
Director
James B. Rogers, Jr.,
Director
R. Keith Walton,
Director
Carlton Neel,
Executive Vice
President
David Dickerson,
Senior Vice President
William Renahan,
Vice President, Chief Legal Officer and Secretary
W. Patrick Bradley,
Vice President, Treasurer and Chief Financial Officer
Jacqueline Porter,
Vice President and Assistant Treasurer
Nancy
Engberg,
Chief Compliance Officer and Vice President
Investment Adviser
Zweig Advisers LLC
100 Pearl Street
Hartford, CT 06103-4506
Fund Administrator
Virtus Fund Services, LLC
100 Pearl Street
Hartford, CT 06103-4506
Custodian
The Bank of New York Mellon
One Wall Street
New York, NY 10005-2588
Transfer Agent
Computershare Trust Company, NA
P.O. Box 43078
Providence, RI 02940-3078
Fund Counsel
Dechert LLP
200 Clarendon St.
27
th
Floor
Boston, MA 02116-5021
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.
Q1-13
The Zweig Fund, Inc.
Quarterly Report
March 31, 2013
FUND DISTRIBUTIONS AND MANAGED DISTRIBUTION PLAN
The Fund has a Managed Distribution Plan to pay 6% of the Funds 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 Funds investment performance from the amount of the distributions or from the terms of the Funds 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
Funds 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
Funds 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
May 1, 2013
Dear Fellow Zweig Fund Shareholder:
I am pleased to share with you the managers report and commentary for the Zweig Fund, Inc. for the quarter ended March 31, 2013.
The funds net asset value (NAV) increased 8.62% for the quarter, including $0.208 in reinvested
distributions. During the same period, the S&P 500
®
Index, which is the benchmark for the fund, gained
10.61%, including reinvested dividends. The funds average allocation for the quarter was approximately 95% in equities and 5% in bonds.
On behalf of the investment professionals at Zweig Advisers LLC, I thank you for entrusting
your assets to us. Should you have any questions or require support, please contact customer service at 1-800-272-2700 or through the closed-end fund section of our website, www.virtus.com.
Sincerely,
George R. Aylward
President, Chairman and Chief Executive Officer
The Zweig Fund, Inc.
2
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT
March 31, 2013
(Unaudited)
|
|
|
|
|
|
|
|
Asset Allocation as of March 31,
2013
|
|
The following
table illustrates asset allocations within certain sectors and as a percentage of total investments as of March 31, 2013.
|
Information Technology
|
|
|
17
|
%
|
|
|
Energy
|
|
|
15
|
%
|
|
|
Industrials
|
|
|
15
|
%
|
|
|
Financials
|
|
|
14
|
%
|
|
|
Consumer Discretionary
|
|
|
12
|
%
|
|
|
Health Care
|
|
|
10
|
%
|
|
|
Materials
|
|
|
6
|
%
|
|
|
Other (includes short-term investments
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
($ reported in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Value
|
|
I
NVESTMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
F
OREIGN
G
OVERNMENT
S
ECURITIES
|
|
|
4.7%
|
|
|
|
|
|
|
|
|
|
Commonwealth of Australia Series 118, 6.500%, 5/15/13
|
|
|
$
|
5,000
|
|
|
$
|
5,230
|
|
Commonwealth of New Zealand Series 413, 6.500%, 4/15/13
|
|
|
|
6,000
|
|
|
|
5,030
|
|
Kingdom of Norway Series 470, 6.500%, 5/15/13
|
|
|
|
30,000
|
(4)
|
|
|
5,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Foreign Government Securities
(Identified Cost $14,906)
|
|
|
|
15,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
|
|
C
OMMON
S
TOCKS
|
|
|
97.8%
|
|
|
|
|
|
|
|
|
|
C
ONSUMER
D
ISCRETIONARY
11.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
Amazon.com, Inc.
(2)
|
|
|
|
14,300
|
|
|
|
3,811
|
|
AutoZone, Inc.
(2)
|
|
|
|
12,600
|
|
|
|
5,000
|
|
Coach, Inc.
|
|
|
|
100,000
|
|
|
|
4,999
|
|
Comcast Corp. Class A
(3)
|
|
|
|
165,000
|
|
|
|
6,932
|
|
Darden Restaurants, Inc.
(5)
|
|
|
|
43,000
|
|
|
|
2,222
|
|
DR Horton, Inc.
|
|
|
|
211,000
|
|
|
|
5,127
|
|
Ford Motor Co.
|
|
|
|
421,000
|
|
|
|
5,536
|
|
Goodyear Tire & Rubber Co. (The)
(2)
|
|
|
|
397,000
|
|
|
|
5,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to Schedule of Investments
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Value
|
|
C
ONSUMER
S
TAPLES
4.7%
|
|
|
|
|
|
|
|
|
|
|
Altria Group, Inc.
|
|
|
154,000
|
|
|
$
|
5,296
|
|
Heinz (H.J.) Co.
(5)
|
|
|
28,000
|
|
|
|
2,024
|
|
PepsiCo, Inc.
|
|
|
72,000
|
|
|
|
5,696
|
|
Safeway, Inc.
(5)
|
|
|
83,000
|
|
|
|
2,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,203
|
|
|
|
|
|
|
|
|
|
|
|
|
E
NERGY
15.3%
|
|
|
|
|
|
|
|
|
|
|
Buckeye Partners LP
(5)
|
|
|
38,000
|
|
|
|
2,324
|
|
Chevron Corp.
|
|
|
45,000
|
|
|
|
5,347
|
|
ConocoPhillips
|
|
|
48,000
|
|
|
|
2,885
|
|
Continental Resources, Inc.
(2)
|
|
|
61,000
|
|
|
|
5,303
|
|
Energy Transfer Partners LP
(5)
|
|
|
43,000
|
|
|
|
2,180
|
|
Schlumberger Ltd.
|
|
|
69,000
|
|
|
|
5,167
|
|
Tesoro Corp.
|
|
|
91,000
|
|
|
|
5,328
|
|
Total SA Sponsored ADR
(5)
|
|
|
37,000
|
|
|
|
1,775
|
|
Valero Energy Corp.
|
|
|
110,000
|
|
|
|
5,004
|
|
Whiting Petroleum Corp.
(2)
|
|
|
109,000
|
|
|
|
5,541
|
|
Williams Cos., Inc. (The)
|
|
|
143,000
|
|
|
|
5,357
|
|
WPX Energy, Inc.
(2)
|
|
|
244,000
|
|
|
|
3,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,120
|
|
|
|
|
|
|
|
|
|
|
|
|
F
INANCIALS
14.3%
|
|
|
|
|
|
|
|
|
|
|
Aflac, Inc.
|
|
|
106,000
|
|
|
|
5,514
|
|
BB&T Corp.
|
|
|
209,000
|
|
|
|
6,560
|
|
BlackRock, Inc.
|
|
|
21,600
|
|
|
|
5,549
|
|
Goldman Sachs Group, Inc. (The)
|
|
|
35,000
|
|
|
|
5,150
|
|
HCP, Inc.
(5)
|
|
|
43,000
|
|
|
|
2,144
|
|
JPMorgan Chase & Co.
|
|
|
165,000
|
|
|
|
7,831
|
|
Lincoln National Corp.
|
|
|
159,000
|
|
|
|
5,185
|
|
Silver Bay Realty Trust Corp
|
|
|
8,000
|
|
|
|
166
|
|
Two Harbors Investment Corp.
(5)
|
|
|
160,000
|
|
|
|
2,018
|
|
U.S. Bancorp
|
|
|
197,000
|
|
|
|
6,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,801
|
|
|
|
|
|
|
|
|
|
|
|
|
H
EALTH
C
ARE
10.3%
|
|
|
|
|
|
|
|
|
|
|
Abbott Laboratories
|
|
|
152,000
|
|
|
|
5,369
|
|
Biogen Idec, Inc.
(2)
|
|
|
31,000
|
|
|
|
5,980
|
|
Eli Lilly & Co.
(5)
|
|
|
37,000
|
|
|
|
2,101
|
|
Gilead Sciences, Inc.
(2)
|
|
|
145,000
|
|
|
|
7,095
|
|
Johnson & Johnson
|
|
|
69,000
|
|
|
|
5,625
|
|
Merck & Co., Inc.
(5)
|
|
|
46,000
|
|
|
|
2,035
|
|
UnitedHealth Group, Inc.
|
|
|
97,000
|
|
|
|
5,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,754
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to Schedule of Investments
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Value
|
|
I
NDUSTRIALS
14.7%
|
|
|
|
|
|
|
|
|
|
|
Alaska Air Group, Inc.
(2)
|
|
|
86,000
|
|
|
$
|
5,500
|
|
Caterpillar, Inc.
|
|
|
60,000
|
|
|
|
5,218
|
|
Cummins, Inc.
|
|
|
55,000
|
|
|
|
6,369
|
|
Deere & Co.
|
|
|
58,000
|
|
|
|
4,987
|
|
Dover Corp.
|
|
|
73,000
|
|
|
|
5,320
|
|
Lockheed Martin Corp.
(5)
|
|
|
21,000
|
|
|
|
2,027
|
|
Parker Hannifin Corp.
|
|
|
55,000
|
|
|
|
5,037
|
|
Robinson (C.H.) Worldwide, Inc.
|
|
|
43,000
|
|
|
|
2,557
|
|
Trinity Industries, Inc.
|
|
|
121,000
|
|
|
|
5,485
|
|
Union Pacific Corp.
|
|
|
38,000
|
|
|
|
5,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,912
|
|
|
|
|
|
|
|
|
|
|
|
|
I
NFORMATION
T
ECHNOLOGY
17.1%
|
|
|
|
|
|
|
|
|
|
|
Apple, Inc.
|
|
|
28,500
|
|
|
|
12,615
|
|
Citrix Systems, Inc.
(2)
|
|
|
73,000
|
|
|
|
5,268
|
|
EMC Corp.
(2)
|
|
|
223,000
|
|
|
|
5,327
|
|
Google, Inc. Class A
(2)
|
|
|
6,400
|
|
|
|
5,082
|
|
Intel Corp.
(5)
|
|
|
90,000
|
|
|
|
1,966
|
|
MasterCard, Inc. Class A
|
|
|
12,300
|
|
|
|
6,656
|
|
QUALCOMM, Inc.
|
|
|
123,000
|
|
|
|
8,235
|
|
VeriSign, Inc.
(2)
(5)
|
|
|
114,000
|
|
|
|
5,390
|
|
Visa, Inc. Class A
(3)
|
|
|
32,000
|
|
|
|
5,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,974
|
|
|
|
|
|
|
|
|
|
|
|
|
M
ATERIALS
5.9%
|
|
|
|
|
|
|
|
|
|
|
CF Industries Holdings, Inc.
|
|
|
19,800
|
|
|
|
3,769
|
|
Cliffs Natural Resources, Inc.
(5)
|
|
|
224,000
|
|
|
|
4,258
|
|
Du Pont (E.I.) de Nemours & Co.
|
|
|
41,000
|
|
|
|
2,016
|
|
Freeport-McMoRan Copper & Gold, Inc.
|
|
|
162,000
|
|
|
|
5,362
|
|
Monsanto Co.
|
|
|
38,000
|
|
|
|
4,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,419
|
|
|
|
|
|
|
|
|
|
|
|
|
T
ELECOMMUNICATION
S
ERVICES
3.0%
|
|
|
|
|
|
|
|
|
|
|
AT&T, Inc.
(5)
|
|
|
59,000
|
|
|
|
2,165
|
|
CenturyLink, Inc.
(5)
|
|
|
61,000
|
|
|
|
2,143
|
|
Verizon Communications, Inc.
|
|
|
111,000
|
|
|
|
5,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,763
|
|
|
|
|
|
|
|
|
|
|
|
|
U
TILITIES
0.7%
|
|
|
|
|
|
|
|
|
|
|
FirstEnergy Corp.
(5)
|
|
|
50,000
|
|
|
|
2,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,110
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Stocks
(Identified Cost $271,681)
|
|
|
|
319,689
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to Schedule of Investments
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Value
|
|
C
LOSED
-E
ND
F
UNDS
|
|
|
1.7%
|
|
|
|
|
|
|
|
|
|
Templeton Dragon Fund, Inc.
|
|
|
|
202,000
|
|
|
$
|
5,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Closed-End Funds
(Identified Cost $3,870)
|
|
|
|
5,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long Term Investments104.2%
(Identified cost $290,457)
|
|
|
|
340,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S
HORT
-T
ERM
I
NVESTMENTS
|
|
|
0.2%
|
|
|
|
|
|
|
|
|
|
M
ONEY
M
ARKET
M
UTUAL
F
UNDS
0.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
Fidelity Money Market Portfolio Institutional Shares
(Seven-day effective yield 0.140%)
|
|
|
|
635,729
|
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Short-Term Investments
(Identified Cost $636)
|
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, Before Securities Sold Short and Written Options
(Identified Cost $291,093)
104.4%
|
|
|
|
341,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S
ECURITIES
S
OLD
S
HORT
(2.1)%
|
|
|
|
|
|
|
|
|
|
|
|
|
C
OMMON
S
TOCK
(2.1)%
|
|
|
|
|
|
|
|
|
|
|
|
|
C
ONSUMER
D
ISCRETIONARY
(2.1)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Buffalo Wild Wings, Inc.
(2)
|
|
|
|
47,000
|
|
|
|
(4,114
|
)
|
Vail Resorts, Inc.
|
|
|
|
46,000
|
|
|
|
(2,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities Sold Short
(Proceeds $5,922)
|
|
|
|
(6,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts
|
|
|
|
|
W
RITTEN
O
PTIONS
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
C
ALL
O
PTIONS
(0.1)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Comcast Corp., expiring 4/20/13 strike price $41.00
|
|
|
|
640
|
|
|
|
(72
|
)
|
Visa, Inc., expiring 6/22/13 strike price $165.00
|
|
|
|
165
|
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Written Options
(Premiums Received $119)
|
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, Net of Securities Sold Short and Written Options
(Identified Cost $285,052)
102.2%
|
|
|
|
334,184
|
|
Other Assets and Liabilities, Net (2.2)%
|
|
|
|
(7,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets 100.0%
|
|
|
$
|
326,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Federal Income Tax Information: For tax information at March 31, 2013, see Note 4 Federal Income Tax Information in the Notes to Schedules of Investments.
|
|
(2)
|
|
Non-income producing.
|
|
(3)
|
|
All or a portion segregated as collateral for written options.
|
|
(4)
|
|
Par value represents Norwegian Krone. (reported in thousands)
|
|
(5)
|
|
All or a portion of securities segregated as collateral for margin borrowing and/or securities sold short.
|
See notes to Schedule of Investments
6
($ reported in thousands)
|
|
|
|
|
Country Weightings (Unaudited)
|
|
United States
|
|
|
93
|
%
|
Australia
|
|
|
2
|
%
|
China
|
|
|
2
|
%
|
France
|
|
|
1
|
%
|
New Zealand
|
|
|
1
|
%
|
Norway
|
|
|
1
|
%
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of total investments as of March 31, 2013
|
The following table provides a summary of inputs used to value the Funds net assets as of March 31, 2013. (See Security Valuation Note 1A in the
Notes to Financial Statements):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value at
March 31,
2013
|
|
|
Level 1
Quoted Prices
|
|
|
Level 2
Significant
Observable
Inputs
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks
|
|
$
|
319,689
|
|
|
$
|
319,689
|
|
|
$
|
|
|
Closed-End Funds
|
|
|
5,642
|
|
|
|
5,642
|
|
|
|
|
|
Short-Term Investments
|
|
|
636
|
|
|
|
636
|
|
|
|
|
|
Debt Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Government Securities
|
|
|
15,421
|
|
|
|
|
|
|
|
15,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments before Securities Sold Short and Written Options
|
|
$
|
341,388
|
|
|
$
|
325,967
|
|
|
$
|
15,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Sold Short
|
|
|
(6,981
|
)
|
|
|
(6,981
|
)
|
|
|
|
|
Written Options
|
|
|
(223
|
)
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(7,204
|
)
|
|
$
|
(7,204
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There are no Level 3 (significant unobservable input) priced securities.
See notes to Schedule of Investments
7
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
March 31, 2013
(Unaudited)
(Reported in thousands except for the per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Assets
|
|
|
Net Asset Value
per share
|
|
Beginning of period: December 31, 2012
|
|
|
|
|
|
$
|
309,124
|
|
|
|
|
|
|
$
|
13.89
|
|
Net investment income
|
|
$
|
961
|
|
|
|
|
|
|
$
|
0.04
|
|
|
|
|
|
Net realized and unrealized loss on investments
|
|
|
21,534
|
|
|
|
|
|
|
|
1.12
|
|
|
|
|
|
Dividends from net investment income and distributions from net long-term and short-term capital gains*
|
|
|
(4,630
|
)
|
|
|
|
|
|
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets/net asset value
|
|
|
|
|
|
|
17,865
|
|
|
|
|
|
|
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period: March 31, 2013
|
|
|
|
|
|
$
|
326,989
|
|
|
|
|
|
|
$
|
14.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Please note that the tax status of our distributions is determined at the end of the taxable year. However, based on interim data as of March 31, 2013, we estimate
that 20% of distributions will represent net investment income, 80% will represent excess gain distributions which are taxed as ordinary income and 0% will represent return of capital. Also refer to inside front cover for information on the Managed
Distribution Plan.
|
See notes to
Schedule of Investments
8
THE ZWEIG FUND, INC.
NOTES TO SCHEDULE OF INVESTMENTS
March 31, 2013
(Unaudited)
NOTE
1 SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principals generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of increases and decreases in net assets from
operations during the reporting period. Actual results could differ from those estimates and those differences could be significant.
A. Security Valuation:
Security valuation procedures for the
Fund, which include, nightly price variance, as well as back-testing such as bi-weekly unchanged price, monthly secondary source and transaction analysis, have been approved by the Board of Directors. All internally fair valued securities are
approved by a valuation committee appointed by the Board. The valuation committee is comprised of the treasurer, assistant treasurer, secretary and chief compliance officer for the Fund. All internally fair valued securities, referred to below, are
updated daily and reviewed in detail by the valuation committee monthly unless changes occur within the period. The valuation committee reviews the validity of the model inputs and any changes to the model. Internal fair valuations are ratified by
the Board of Directors at least quarterly.
The Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels.
|
|
|
Level 1 quoted prices in active markets for identical securities
|
|
|
|
Level 2 prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, etc.)
|
|
|
|
Level 3 prices determined using significant unobservable inputs (including the valuation committees own assumptions in
determining the fair value of investments)
|
A description of the valuation techniques applied to the
Funds major categories of assets and liabilities measured at fair value on a recurring basis is as follows:
Equity
securities are valued at the official closing price (typically last sale) on the exchange on which the securities are primarily traded, or if no closing price is available, at the last bid price and are categorized as Level 1 in the hierarchy.
Restricted equity securities and private placements that are not widely traded, are illiquid or are internally fair valued by the valuation committee, are generally categorized as Level 3 in the hierarchy.
9
Certain foreign securities may be fair valued in cases where closing prices are not readily
available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market, or other regional and local developments) may occur between the time that foreign markets
close (where the security is principally traded) and the time that the Fund calculates its net asset value (generally, the close of the NYSE) that may impact the value of securities traded in these foreign markets. In such cases the Fund fair values
foreign securities using an external pricing service which considers the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments such as American Depositary Receipts, financial futures,
exchange-traded funds, and certain indexes as well as prices for similar securities. Such fair valuations are categorized as Level 2 in the hierarchy. Because the frequency of significant events is not predictable, fair valuation of certain foreign
common stocks may occur on a frequent basis.
Debt securities, including restricted securities, are valued based on evaluated
quotations received from independent pricing services or from dealers who make markets in such securities. For most bond types, the pricing service utilizes matrix pricing which considers yield or price of bonds of comparable quality, coupon,
maturity, current cash flows, type, and current day trade information, as well as dealer supplied prices. These valuations are generally categorized as Level 2 in the hierarchy. Structured debt instruments such as mortgage-backed and asset-backed
securities may also incorporate collateral analysis and utilize cash flow models for valuation and are generally categorized as Level 2 in the hierarchy. Pricing services do not provide pricing for all securities and therefore dealer supplied prices
are utilized representing indicative bids based on pricing models used by market makers in the security and are generally categorized as Level 2 in the hierarchy. Debt securities that are not widely traded, are illiquid, or are internally fair
valued by the valuation committee are generally categorized as Level 3 in the hierarchy.
Listed derivatives, such as options,
that are actively traded are valued based on quoted prices from the exchange and are categorized as Level 1 in the hierarchy. Over the counter (OTC) derivative contracts, which include forward currency contracts and equity linked instruments, are
valued based on inputs observed from actively quoted markets and are categorized as Level 2 in the hierarchy.
Investments in
open-end mutual funds are valued at their closing net asset value determined as of the close of business of the New York Stock Exchange (generally 4:00 p.m. Eastern time) each business day and are categorized as Level 1 in the hierarchy.
Short-term notes having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market and are generally
categorized as Level 2 in the hierarchy.
A summary of the inputs used to value the Funds major categories of assets and
liabilities, which primarily include investments of the Fund, by each major security type is disclosed at the end of the Schedule of Investments for the Fund. The inputs or methodology used for valuing securities are not necessarily an indication of
the risk associated with investing in those securities.
B. Security Transactions and Investment Income:
Security transactions are recorded on the trade date. Realized gains and losses from sales of securities are determined on
the identified cost basis. Dividend income is recognized on the ex-dividend
10
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.
C. Foreign Currency Translation:
Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at 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 date 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 foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss on investments.
D. Derivative
Financial Instruments:
Disclosures on derivatives instruments and hedging activities are intended to improve financial
reporting for derivative instruments by enhanced disclosure that enables the investors to understand how and why a fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect a funds results of operations
and financial position. Summarized below is a specific type of derivative instrument used by the Fund.
Options contracts
An options contract provides the purchaser with the right, but not the obligation, to buy (call option) or sell (put option) a financial
instrument at an agreed upon price. The Fund may purchase or write listed covered and uncovered put and call options on portfolio securities for hedging purposes or to facilitate the rapid implementation of investment strategies if the Fund
anticipates a significant market or market sector advance. The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. The Fund may use options contracts to hedge against changes in the values of equities or
for yield enhancement.
When the Fund purchases an option, it pays a premium and an amount equal to that premium is recorded
as an asset. When the Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The asset or liability is adjusted daily to reflect the current market value of the option. Holdings of the Fund
designated to cover outstanding written options are noted in the Schedules of Investments. Purchased options are reported as an asset within Investment securities at value before written options on the Statement of Assets and
Liabilities. Options written are reported as a liability within Written options outstanding at value. Changes in value of the purchased option is included in unrealized appreciation/(depreciation) on investments on the Statement
of Operations. Changes in value of written options is included in unrealized appreciation/(depreciation) on written options on the Statement of Operations.
If an option expires unexercised, the Portfolio realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is recorded as an adjustment
to the proceeds from the sale or the cost basis of the purchase. The difference between the premium and
11
the amount received or paid on effecting a closing purchase or sale transaction is also treated as a realized gain or loss. Gain or loss on purchased options is included in net realized
gain/(loss) on investment transactions on the Statement of Operations. Gain or loss on written options is presented separately as net realized gain/(loss) on written options transactions on the Statement of Operations.
The risk in writing call options is that the Fund gives up the opportunity for profit if the market price of the security increases and
the option is exercised. The risk in writing put options is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying options is that the Fund pays a premium whether or not the
option is exercised. The use of such instruments may involve certain additional risks as a result of unanticipated movements in the market. Writers (sellers) of options are subject to unlimited risk of loss, as the seller will be obligated to
deliver or take delivery of the security at a predetermined price which may, upon exercise of the option, be significantly different from the then-market value.
E. Short Sales:
($ reported in thousands)
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 Funds 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 Funds custodian. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will realize a loss, and
if the price declines during the period, the Fund will realize a gain. Any realized gain will be decreased by, and any realized loss increased by, the amount of transaction costs. Dividends on short sales are recorded as an expense to the Fund on
ex-dividend date. At March 31, 2013 the value of securities sold short amounted to $6,981 against which collateral of $7,817 was held. The collateral includes the deposits with broker for securities held short and the value of the segregated
investments held long, as shown in the Schedule of Investments and Securities Sold Short. Short selling used in the management of the Fund may accelerate the velocity of potential losses if the prices of securities sold short appreciate quickly.
Stocks purchased may decline in value at the same time stocks sold short may appreciate in value, thereby increasing potential losses.
NOTE 2 INDEMNIFICATIONS
Under the Funds organizational documents and related agreements, its directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In
addition, the Fund enters into contracts that contain a variety of indemnifications. The Funds maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these arrangements.
NOTE 3 CREDIT RISK AND ASSET CONCENTRATIONS
In countries with limited or developing markets, investments may present greater risks than in more developed markets and the prices of such investments may be volatile. The consequences of political,
social or economic changes in these markets may have disruptive effects on the market prices of these investments and the income they generate, as well as the Funds ability to repatriate such amounts.
12
The Fund may invest a high percentage of its assets in specific sectors of the market in its
pursuit of a greater investment return. Fluctuations in these sectors of concentration may have a greater impact on the Fund, positive or negative, than if the Fund did not concentrate its investments in such sectors.
NOTE 4 FEDERAL INCOME TAX INFORMATION
($ reported in thousands)
At March 31, 2013, federal tax cost and
aggregate gross unrealized appreciation (depreciation) of securities held by the Fund were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
Tax
Cost
|
|
|
Unrealized
Appreciation
|
|
|
Unrealized
Depreciation
|
|
|
Net Unrealized
Appreciation
(Depreciation)
|
|
Investments
|
|
$
|
291,970
|
|
|
$
|
54,101
|
|
|
$
|
(4,683
|
)
|
|
$
|
49,418
|
|
Securities Sold Short
|
|
|
(5,922
|
)
|
|
|
|
|
|
|
(1,059
|
)
|
|
|
(1,059
|
)
|
Written Options
|
|
|
(119
|
)
|
|
|
|
|
|
|
(104
|
)
|
|
|
(104
|
)
|
NOTE 5 RECENT ACCOUNTING PRONOUNCEMENT
In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.
2011-11 regarding Disclosures about Offsetting Assets and Liabilities. The amendments, which will be effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, require an
entity to disclose information about offsetting and related arrangements for assets and liabilities, financial instruments and derivatives that are either currently offset in accordance with current requirements or are subject to enforceable master
netting arrangements or similar agreements. At this time, management is evaluating the implications of ASU No. 2011-11 and its impact on the financial statements has not yet been determined.
NOTE 6 SUBSEQUENT EVENT EVALUATIONS
Management has
evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there are no subsequent events that require recognition or disclosure in these financial statements.
13
KEY INFORMATION
Zweig Shareholder Relations: 1-800-272-2700
For general information and
literature, as well as updates on net asset value, share price, major industry groups and other key information
REINVESTMENT PLAN
Many of you have questions about our reinvestment plan. We urge shareholders who want to take advantage of this plan and whose shares are held in Street Name, to consult your broker as soon as
possible to determine if you must change registration into your own name to participate.
REPURCHASE OF SECURITIES
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may from time
to time purchase its shares of common stock in the open market when Fund shares are trading at a discount from their net asset value.
PROXY VOTING INFORMATION (FORM N-PX)
The Adviser votes proxies relating to
portfolio securities in accordance with procedures that have been approved by the Funds 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, 2012, free of charge, by calling toll-free 800-272-2700. This information is also available through the Securities and Exchange Commissions 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 SECs website at http://www.sec.gov. Form N-Q may be reviewed and copied at the SECs Public Reference Room. Information on the operation of the SECs Public Reference Room can be obtained by calling toll-free
1-800-SEC-0330.
14
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