THE ZWEIG FUND, INC.
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Quarterly Report
March 31, 2011
[LOGO]
Zweig
Advisers
A VIRTUS INVESTMENT PARTNER
OFFICERS AND DIRECTORS
GEORGE R. AYLWARD, President, Chairman and Chief Executive Officer
CARLTON NEEL, Executive Vice President
DAVID DICKERSON, Senior Vice President
MARC BALTUCH, Chief Compliance Officer and Vice President
MOSHE LUCHINS, Vice President
KEVIN J. CARR, Chief Legal Officer and Secretary
W. PATRICK BRADLEY, Treasurer and Chief Financial Officer
JACQUELINE PORTER, Vice President and Assistant Treasurer
CHARLES H. BRUNIE, Director
WENDY LUSCOMBE, Director
ALDEN C. OLSON, PH.D., Director
JAMES B. ROGERS, JR., Director
R. KEITH WALTON, Director
INVESTMENT ADVISER
ZWEIG ADVISERS LLC
900 Third Avenue
New York, NY 10022-4793
FUND ADMINISTRATOR
VP DISTRIBUTORS, INC.
100 Pearl Street
Hartford, CT 06103-4506
CUSTODIAN
THE BANK OF NEW YORK MELLON
One Wall Street
New York, NY 10286
LEGAL COUNSEL
KATTEN MUCHIN ROSENMAN LLP
575 Madison Avenue
New York, NY 10022-2585
TRANSFER AGENT
COMPUTERSHARE TRUST COMPANY, NA
P.O. Box 43010
Providence, RI 02940-3010
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THIS REPORT IS TRANSMITTED TO THE SHAREHOLDERS OF THE ZWEIG FUND, INC. FOR
THEIR INFORMATION. THIS IS NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION
INTENDED FOR USE IN THE PURCHASE OF SHARES OF THE FUND OR ANY SECURITIES
MENTIONED IN THIS REPORT.
[LOGO]
VIRTUS
INVESTMENT PARTNERS
Q1-11
FUND DISTRIBUTIONS AND MANAGED DISTRIBUTION PLAN
The Fund has a Managed Distribution Plan to pay 10% of the Fund's net asset
value on an annualized basis. Distributions may represent earnings from net
investment income, realized capital gains, or, if necessary, return of capital.
The board believes that regular quarterly, fixed cash payouts will enhance
shareholder value and serve the long-term interests of shareholders. You should
not draw any conclusions about the Fund's investment performance from the
amount of the distributions or from the terms of the Fund's Managed
Distribution Plan.
The Fund estimates that it has distributed more than its income and net
realized capital gains in the fiscal year to date; therefore, a portion of your
distributions may be a return of capital. A return of capital may occur, for
example, when some or all of the money that you invested in the Fund is paid
back to you. A return of capital distribution does not necessarily reflect the
Fund's investment performance and should not be confused with "yield" or
"income".
The amounts and sources of distributions reported in Section 19(a) notices
of the 1940 Act are only estimates and are not being provided for tax reporting
purposes. The actual amounts and sources of the amounts for tax reporting
purposes will depend upon the Fund's investment experience during the remainder
of its fiscal year and may be subject to changes based on tax regulations. The
Fund will send shareholders a Form 1099-DIV for the calendar year that will
tell you how to report distributions for federal income tax purposes.
The Board may amend, suspend or terminate the Managed Distribution Plan at
any time, without prior notice to shareholders if it deems such action to be in
the best interest of the Fund and its shareholders.
Information on the Zweig funds is available at www.Virtus.com. Section 19(a)
notices are posted on the website at:.
http://www.virtus.com/products/closed/details.aspx?type=individual&fundid=ZF
May 1, 2011
DEAR FELLOW ZWEIG FUND SHAREHOLDER:
I am pleased to share with you the manager's report and commentary for the
Zweig Fund, Inc. for the three months ended March 31, 2011.
The Zweig Fund's net asset value increased 5.48% for the quarter ended March
31, 2011, including $0.094 in re-invested distributions. During the same
period, the S&P 500 Index gained 5.92%, including re-invested dividends. The
Fund's average equity exposure for the quarter was approximately 75%.
Sincerely,
/s/ George R. Aylward
George R. Aylward
President, Chairman and Chief Executive Officer
The Zweig Fund, Inc.
MARKET OVERVIEW AND OUTLOOK
The stock market continued to climb in the first three months of 2011,
facing down such potentially destabilizing events as the revolutions and civil
wars in the Middle East and Africa and the massive earthquake, tsunami and
nuclear crisis in Japan.
The Dow Jones Industrial Average gained 742 points in the first quarter, its
largest point increase since 1988 and second best on record. Closing at
12,319.73, the Dow rose 6.4%/(1)/, for the quarter. Rallying for seven of the
past eight quarters, the S&P 500, ended at 1,325.83, up 5.4%/(1)/, for the
quarter. The Nasdaq Composite, closing at 2,781.07, increased 4.8%/(1)/, for
the quarter. All three major indexes have recovered sharply from their March
2009 lows, with the Dow rebounding 88%/(1)/, the S&P 96%/(1)/ and the Nasdaq a
stellar 119%/(1)/.
World-wide the markets presented a mixed picture. Up 6.1% before the
earthquake upheaval, Japan's Nikkei 225 Stock Average Index ended down
4.6%/(1)/ for the quarter. In China, the Shanghai Composite Index, which lost
14% in 2010, eked out a 4.26%/(1)/ gain. The major European markets showed
little change, with the U.K.'s FTSE 100 Index up just 0.2%/(1)/ and Germany's
DAX Index 1.8%/(1)/ higher.
Indicating that the Federal Reserve (the "Fed") is more concerned about high
unemployment than inflation, the agency announced that it would continue its
monetary measures "to foster maximum employment." At the same time, the Fed
reported "that the economy is on a firmer footing and the labor market appears
to be improving gradually." As for inflation, the Fed said it appeared that it
would remain moderate -- at
/(1)/ Return excludes reinvested dividends.
2
around 2% -- through 2013, as the economy recovered from the recession. The Fed
also said that it would maintain its target range for the federal funds rate at
zero to 0.25%.
In a separate report, the Fed forecast that the nation's output of goods and
services would grow at a range of 3.4% to 3.9% this year, an upward revision of
its estimate of 3% to 3.6% last November. Meanwhile, the Commerce Department
reported that U.S. gross domestic product ("GDP") rose 3.1% in the fourth
quarter of 2010, up from its prior estimate of 2.9%. For all of last year, it
placed GDP growth at 2.9%, the most in five years, after falling 2.6% in 2009.
Europe's progress was less robust. GDP in the euro zone, which includes ten
countries, rose an estimated 0.3% in the fourth quarter according to Eurostat,
the European Union's statistical agency.
Confirming the Fed report that the labor market is improving, non-farm
employment gained 216,000 jobs in March, the 12/th /consecutive month of
private job growth, according to the Labor Department. During the first quarter
of 2011, the private sector added, on average, 188,000 jobs monthly. This
brings the total since the recovery began to 1.8 million jobs. The nation's
unemployment rate dipped to 8.8%, a full percentage point below the 9.8% level
last November.
A less optimistic picture came from housing, which continues a drag on the
economy. New housing starts fell 22.5% in February to an annual rate of 479,000
units, only slightly above the record low set in April 2009, according to the
Commerce Department. Building permits slumped to a new low, 20% under the pace
of February of last year. New home sales, declining for the third consecutive
month, dropped 16.9% to an annual rate of 250,000 units. Also falling in
February for the third straight month was overall construction, slipping 1.4%
to a seasonally -- adjusted rate of $760.6 billion, the lowest figure since
October 1999.
Manufacturing and service sector continue to expand, but at a slightly lower
rate. The Institute of Supply Management reported that its index of
manufacturing activity came to 61.2 in March, a decline of 0.2 from February,
which was the highest level since March 2004. Since each reading of 50 or more
represents economic growth, March marked the twenty-second consecutive month of
improvement. Similar strength was shown by the service sector, which had
positive growth for sixteen consecutive months. ISM's index of service group
activity dipped to 57.3 in March from 59.7 in February, the first decline in
seven months.
Consumer spending, which accounts for about 70% of domestic economic
activity, rose 0.7% in February after a 0.3% gain in January, its eighth
consecutive monthly increase, according to the Commerce Department. Adjusted
for inflation, the improvement was 0.3% after being flat in January. Analysts
are waiting to see the direction of consumer spending in view of the Conference
Board's report that its Consumer Conference Index slumped to 63.4 in March
(1985=100). It was a drop of nearly 9 points from February's revised 72.0 and a
three-month low.
The Consumer Price Index rose 0.5% in February, the largest increase since
June 2009, according to the Commerce Department. Excluding volatile food and
energy prices, the core index moved up 0.2%, the same as in January. The Labor
Department reported that its Producer Price Index surged a seasonally-adjusted
1.6% in February. The core index was up 0.2%. For the twelve months ended in
February, the core index climbed 1.87%.
With U.S. imports growing faster than exports, the U.S. trade deficit
increased to $46.3 billion in January from $40.3 billion in December, according
to the Commerce Department. Imports rose by $10.5 billion to $214.1 billion
while exports grew by $4.4 billion to $167.7 billion. Our $23.3 billion deficit
with China continues to be the greatest with any country.
Exports normally benefit from a weaker dollar, which lowers U.S. prices
abroad. At the end
3
of the first quarter, the dollar was down 5.7% against the euro and 2.8%
against the British pound. The U.S. Dollar Index, which measures the dollar
against a basket of world currencies, dipped 3.8%. The single exception was the
dollar's 2.4% rise against the Japanese Yen.
Global mergers and acquisitions increased 16% in the first quarter to $716.3
billion from $618.5 billion a year earlier but were 4% below the fourth
quarter, according to Dealogic. Although the number of U.S. first-quarter deals
fell 14% to 2,217, the volume spurted 45% to $290.8 billion compared with
$200.6 billion last year. Emerging markets, which accounted for $205.7 billion
of total global volume, rose 1% from the 2010 period. U.S. companies bought 421
foreign firms valued at $45.8 billion in the first quarter, the highest level
since the $49.6 billion in the second quarter of 2008, according to S&P.
World-wide initial public offering ("IPO") volume declined in the first
quarter while U.S. volume increased. There were 282 global IPOs, raising a
total of $ 43.6 billion, compared with 282 offerings, raising $51.9 billion in
the like 2010 period, according to Dealogic. In the U.S., 20 companies went
public, raising $12.5 billion compared with 22 deals raising only $3.7 billion
a year ago.
S&P 500 earnings in the first three months likely increased 12.9% from the
2010 first- quarter, according to analysts tracked by S&P and Bloomberg News.
They note that profits have exceeded analysts' average forecasts for eight
consecutive quarters. For all of 2011, inflation-adjusted profits were
projected to gain 22% over last year.
The increased earnings are leading the higher dividends. In the first
quarter of this year 117 companies in the S&P 500 reported they would raise or
start paying dividends, according to Howard Silverblatt, senior index analyst
at S&P. The value of the new or raised dividends came to $16.6 billion, a
record high. In last year's first quarter only 78 companies boosted dividends.
The total first quarter dividend payout of about $39 billion is nearly 15%
above the like 2010 period. For all of 2011, the S&P anticipates $225 billion
in dividend payments.
Considering current earnings estimates, Bloomberg News reported that stocks
in the S&P 500 were trading at a price/earnings (P/E) ratio of 15.54 on
March 31, 2011 against 14.84 on December 31, 2010 and 16.92 on March 31, 2010.
The P/Es for trailing 12-month earnings were 21.61, 23.00 and 21.54,
respectively. The ten-year average for P/Es is about 15.5.
At the end of the first quarter analysts were more positive than investors
about the direction of the stock market. Surveyed by Investors Intelligence,
analysts stood at 52% bulls and 23% bears. Investors, according to the American
Institute of Investors, were at 42% bulls and 31% bears. Both groups showed a
weaker bullish sentiment than at the year-end, when analysts reported 56% bulls
and 20% bears and investors 52% bulls and 20% bears.
The advisory services are quite optimistic about the market outlook while
the general investing public is much less so. The analysts' optimism is
reflected in our sentiment indicator which, consequently, is on the weak side.
Under present circumstances, if the market were to sell off and the sentiment
number improved, we would be more fully invested. As it is, with the positive
monetary indicator and the strong tape indicator, we recently increased our
total investments by 5% to 80%, a moderately bullish position for us.
Sincerely,
/s/Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
President
Zweig Consulting LLC
4
PORTFOLIO COMPOSITION
The Fund's leading equity sectors on March 31, 2011 included Information
Technology, Energy, Industrials, Consumer Discretionary and Materials. Although
the percentages held varied, all were in our previous listing. During the
quarter we increased weighting of Industrials and Consumer Discretionary and
decreased weighting of Information Technology and Financials.
Our leading equity individual positions on March 31, 2011 included
Caterpillar, Chevron, Comcast, ConocoPhillips, Cummins, Halliburton, Lululemon
Athletica, Monsanto, Petroleo Brasileiro and Verizon. Although Caterpillar,
Comcast, ConcocoPhilips and Verizon are new to this listing, there were no
changes in shares held. Also new to this listing are Cummins, a new position,
and Halliburton, where we reduced our holdings.
No longer in our top listings are Alcoa, Chesapeake Energy, Nucor and
Potash, where we trimmed our positions. Also out are Citigroup, where we added
to our holdings, and Freeport-McMoRan, where there was no change to shares held.
Sincerely,
/s/ Carlton Neel
Carlton Neel
Executive Vice President
Zweig Advisers, LLC
ASSET ALLOCATION AS OF MARCH 31, 2011
The following graph illustrates asset allocations within certain sectors and
as a percentage of total investments as of March 31, 2011.
[CHART]
Information Technology 14%
Energy 14%
Industrials 12%
Consumer Discretionary 11%
Materials 10%
Health Care 5%
Financials 4%
Other (includes short-term investments) 30%
The preceding information is the opinion of portfolio management. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts will be realized.
For information regarding the indexes cited and key investment terms used in
this report see page 6.
5
KEY INVESTMENT TERMS
AMERICAN DEPOSITARY RECEIPT (ADR): Represents shares of foreign companies
traded in U.S. dollars on U.S. exchanges that are held by a U.S. bank or a
trust. Foreign companies use ADRs in order to make it easier for Americans to
buy their shares.
COMMERCE DEPARTMENT: The cabinet department in the U.S. Government that deals
with business, trade and commerce. Its objective is to foment higher standards
of living for Americans through the creations of jobs. It aims to achieve this
by promoting an infrastructure of monetary and economic growth, competitive
technology and favorable international trade.
CONFERENCE BOARD REPORT: Widely followed economic indicators, particularly the
Consumer Confidence Index ("CCI"). The Conference Board also connects some
2,000 companies via forums and peer-to-peer meetings to discuss what matters to
companies today: issues such as top-line growth in a shifting economic
environment and corporate governance standards.
CONSUMER PRICE INDEX (CPI): Measures the pace of inflation by measuring the
change in consumer prices of goods and services, including housing,
electricity, food, and transportation, as determined by a monthly survey of the
U.S. Bureau of Labor Statistics. Also called the cost-of-living index.
DAX INDEX: A total return index of 30 selected German blue chip companies
traded on the Frankfurt Stock exchange. It is a free float weighted index.
DEALOGIC: Provides technology, data analytics, and consulting services platform
to Investment Bank and Capital Markets professionals.
DOW JONES INDUSTRIAL AVERAGE/SM/: A price-weighted average of 30 blue chip
stocks. The index is calculated on total return basis with dividends reinvested.
FEDERAL RESERVE: The central bank of the United States, responsible for
controlling the money supply, interest rates and credit with the goal of
keeping the U.S. economy and currency stable. Governed by a seven- member
board, the system includes 12 regional Federal Reserve Banks, 25 branches and
all national and state banks that are part of the system.
FTSE 100 INDEX: A capitalization weighted index of the 100 most capitalized
companies traded on the London Stock Exchange.
GROSS DOMESTIC PRODUCT (GDP): An important measure of the United States'
economic performance, GDP is the total market value of all final goods and
services produced in the U.S. during any quarter or year.
INFLATION: Rise in the prices of goods and services resulting from increased
spending relative to the supply of goods on the market.
INITIAL PUBLIC OFFERING (IPO): A company's first sale of stock to the public.
INSTITUTE FOR SUPPLY MANAGEMENT (ISM) REPORT ON BUSINESS/(R)/: An economic
forecast, released monthly, that measures U.S. manufacturing conditions and is
arrived at by surveying 300 purchasing professionals in the manufacturing
sector representing 20 industries in all 50 states.
INVESTORS INTELLIGENCE SURVEY: A weekly survey published by Chartcraft, an
investment services company, of the current sentiment of approximately 150
market newsletter writers. Participants are classified into three categories:
bullish, bearish or waiting for a correction.
NASDAQ COMPOSITE/(R)/ INDEX: A market capitalization-weighted index of all
issues listed in the NASDAQ (National Association Of Securities Dealers
Automated Quotation System) Stock Market, except for closed-end funds,
convertible debentures, exchange traded funds, preferred stocks, rights,
warrants, units and other
6
derivative securities. The index is calculated on a total return basis with
dividends reinvested.
NIKKEI 225 STOCK AVERAGE: A price weighted average of 225 top-rated Japanese
companies listed in the First Section of the Tokyo Stock Exchange.
PRICE-TO-EARNINGS RATIO (P/E): A valuation measure calculated by dividing a
stock's price by its current or projected earnings per share. The P/E ratio
gives an idea of how much an investor is paying for current or future earnings
power.
PRODUCER PRICE INDEX (PPI): Measures the average change over time in the
selling prices received by domestic producers for their output. The prices
included in the PPI are from the first commercial transaction for many products
and some services.
S&P 500/(R)/ INDEX: A free-float market capitalization-weighted index of 500 of
the largest U.S. companies. The index is calculated on a total return basis
with dividends reinvested.
SHANGHAI COMPOSITE INDEX: A capitalization weighted index that tracks the daily
price performance of all A shares and B shares listed on the Shanghai Stock
Exchange.
Indexes cited are unmanaged and not available for direct investment; therefore
their performance does not reflect the expenses associated with the active
management of an actual portfolio.
7
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 2011
(UNAUDITED)
($ REPORTED IN THOUSANDS)
NUMBER OF
SHARES VALUE
--------- -------
INVESTMENTS
COMMON STOCKS 74.9%
CONSUMER DISCRETIONARY -- 10.8%
Amazon.com, Inc./(2)/........................ 32,000 $ 5,764
AutoZone, Inc./(2)/.......................... 19,000 5,198
Best Buy Co., Inc............................ 197,000 5,658
Comcast Corp. Class A........................ 244,000 6,032
Darden Restaurants, Inc...................... 100,000 4,913
Lululemon Athletica, Inc./(2)/............... 68,000 6,055
McDonald's Corp.............................. 66,000 5,022
-------
38,642
-------
CONSUMER STAPLES -- 2.9%
Altria Group, Inc............................ 205,000 5,336
PepsiCo, Inc................................. 77,000 4,960
-------
10,296
-------
ENERGY -- 14.4%
Chesapeake Energy Corp....................... 147,000 4,927
Chevron Corp................................. 60,000 6,446
ConocoPhillips............................... 79,000 6,309
El Paso Corp................................. 286,000 5,148
Halliburton Co............................... 117,000 5,831
Massey Energy Co............................. 79,000 5,400
Occidental Petroleum Corp.................... 55,000 5,747
Petroleo Brasileiro S.A. ADR................. 155,000 6,267
Williams Cos., Inc. (The).................... 175,000 5,457
-------
51,532
-------
FINANCIALS -- 4.4%
Bank of America Corp......................... 390,000 5,199
Citigroup, Inc./(2)/......................... 1,272,000 5,622
Goldman Sachs Group, Inc. (The).............. 31,000 4,912
-------
15,733
-------
See Notes to Schedule of Investments
8
NUMBER OF
SHARES VALUE
--------- -------
HEALTH CARE -- 4.6%
Biogen Idec, Inc./(2)/.................... 76,000 $ 5,577
Gilead Sciences, Inc./(2)/................ 129,000 5,475
UnitedHealth Group, Inc................... 119,000 5,379
-------
16,431
-------
INDUSTRIALS -- 12.0%
Alaska Air Group, Inc./(2)/............... 80,000 5,074
Caterpillar, Inc.......................... 57,000 6,347
Cummins, Inc.............................. 53,000 5,810
DryShips, Inc./(2)/....................... 857,000 4,242
Foster Wheeler AG/(2)/.................... 146,000 5,492
L-3 Communications Holdings, Inc.......... 69,000 5,403
Union Pacific Corp........................ 54,000 5,310
United Continental Holdings, Inc./(2)/.... 236,000 5,426
-------
43,104
-------
INFORMATION TECHNOLOGY -- 14.4%
Amkor Technology, Inc./(2)/............... 718,000 4,839
Apple, Inc./(2)/.......................... 15,000 5,227
Corning, Inc.............................. 259,000 5,343
Hewlett-Packard Co........................ 136,000 5,572
Intel Corp................................ 282,000 5,688
International Business Machines Corp...... 34,000 5,545
QUALCOMM, Inc............................. 96,000 5,264
Research In Motion Ltd./(2)/.............. 81,000 4,582
SanDisk Corp./(2)/........................ 103,000 4,747
Visa, Inc. Class A........................ 65,000 4,785
-------
51,592
-------
MATERIALS -- 9.8%
Alcoa, Inc................................ 310,000 5,471
Cliffs Natural Resources, Inc............. 29,000 2,850
Du Pont (E.I.) de Nemours & Co............ 103,000 5,662
Freeport-McMoRan Copper & Gold, Inc....... 92,000 5,111
Monsanto Co............................... 80,000 5,781
Nucor Corp................................ 108,000 4,970
Potash Corp. of Saskatchewan, Inc......... 93,000 5,480
-------
35,325
-------
See Notes to Schedule of Investments
9
NUMBER OF
SHARES VALUE
---------- --------
TELECOMMUNICATION SERVICES -- 1.6%
Verizon Communications, Inc.................... 150,000 $ 5,781
--------
5,781
--------
TOTAL COMMON STOCKS (Identified Cost $218,483)..... 268,436
--------
EXCHANGE-TRADED FUNDS 1.3%
Templeton Dragon Fund, Inc..................... 150,000 4,650
--------
TOTAL EXCHANGE-TRADED FUNDS (Identified Cost $2,520) 4,650
--------
TOTAL LONG TERM INVESTMENTS -- 76.2% (Identified cost
$221,003)........................................ 273,086
--------
SHORT-TERM INVESTMENTS 25.5%
MONEY MARKET MUTUAL FUNDS -- 3.8%
Dreyfus Cash Management Fund -- Institutional
Shares (seven-day effective yield 0.110%).......... 13,554,092 13,554
--------
PAR
----------
U.S. TREASURY BILLS/(3)/ -- 21.7%
U.S. TREASURY BILL
0.222%, 4/15/11........................ 15,000 14,999
0.165%, 4/21/11........................ 34,000 33,999
0.190%, 6/2/11......................... 9,000 8,999
0.364%, 9/22/11........................ 20,000 19,984
--------
77,981
--------
TOTAL SHORT-TERM INVESTMENTS (Identified Cost $91,528) 91,535
--------
TOTAL INVESTMENTS (Identified Cost $312,531) --
101.7%/(1)/...................................... 364,621
OTHER ASSETS AND LIABILITIES, NET -- (1.7%)........ (6,044)
--------
NET ASSETS -- 100.0%............................... $358,577
========
--------
(1) Federal Income Tax Information : For tax information at March 31, 2011,
see Note 3 Federal Income Tax Information in the Notes to Schedules of
Investments.
(2) Non-income producing.
(3) The rate shown is the discount rate.
See Notes to Schedule of Investments
10
COUNTRY WEIGHTINGS (UNAUDITED)+
United States........ 90%
Canada............... 4%
Brazil............... 2%
Switzerland.......... 2%
China................ 1%
Greece............... 1%
---
Total................ 100%
===
--------
+ % of total investments as of March 31, 2011
(REPORTED IN THOUSANDS)
The following table provides a summary of inputs used to value the Fund's
investments as of March 31, 2011. (See Security Valuation Note 1A in the Notes
to Schedule of Investments):
LEVEL 2
SIGNIFICANT
TOTAL VALUE AT LEVEL 1 OBSERVABLE
MARCH 31, 2011 QUOTED PRICES INPUTS
-------------- ------------- -----------
Equity Securities:
Common Stocks.................................................... $268,436 $268,436 $ --
Exchange-Traded Funds............................................ 4,650 4,650 --
Money Market Mutual Funds........................................ 13,554 13,554 --
Debt Securities:
U.S. Government Securities (includes short-term investments)..... 77,981 -- 77,981
-------- -------- -------
Total............................................................... $364,621 $286,640 $77,981
======== ======== =======
There are no Level 3 (significant unobservable inputs) priced securities.
See Notes to Schedule of Investments
11
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
MARCH 31, 2011
(UNAUDITED)
(Reported in thousands except for the per share amounts)
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
----------------- -----------------
Beginning of period: December 31, 2010.......................... $349,212 $3.80
Net investment income........................................ $ (46) $ --/(1)/
Net realized and unrealized gain on investments.............. 18,055 0.19
Dividends from net investment income and distributions from
net long-term and short-term capital gains*................ (8,644) (0.09)
------- ------
Net increase (decrease) in net assets/net asset value........ 9,365 0.10
-------- -----
End of period: March 31, 2011................................... $358,577 $3.90
======== =====
--------
*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,
2011, we estimate that 0% of distributions will represent net investment
income, 0% will represent excess gain distributions which are taxed as
ordinary income and 100% will represent return of capital. Also refer to
inside front cover for the Managed Distribution Plan.
(1)Amount less than $0.005.
See Notes to Schedule of Investments
12
THE ZWEIG FUND, INC.
NOTES TO SCHEDULE OF INVESTMENTS
MARCH 31, 2011
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 funds have been approved by the Board
of Trustees. All internally fair valued securities referred to below are
approved by a valuation committee appointed under the direction of the Board of
Trustees.
The Fund utilizes a fair value hierarchy which prioritizes the inputs to
valuation techniques used to measure fair value into three broad levels.
. Level 1 -- quoted prices in active markets for identical securities
. Level 2 -- prices determined using other significant observable inputs
(including quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, etc.)
. Level 3 -- prices determined using significant unobservable inputs
(including the valuation committee's own assumptions in determining the
fair value of investments)
A description of the valuation techniques applied to the Fund's major
categories of assets and liabilities measured at fair value on a recurring
basis is as follows:
Equity securities are valued at the official closing price (typically last
sale) on the exchange on which the securities are primarily traded, or if no
closing price is available, at the last bid price and are categorized as Level
1 in the hierarchy. Restricted equity securities and private placements that
are not widely traded, are illiquid or are internally fair valued by the
valuation committee, are generally categorized as Level 3 in the hierarchy.
Certain foreign securities may be fair valued in cases where closing prices
are not readily available or are deemed not reflective of readily available
market prices. For example, significant events (such as movement in the U.S.
securities market, or other regional and local developments) may occur between
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
13
valuations are categorized as Level 2 in the hierarchy. Because the frequency
of significant events is not predictable, fair valuation of certain Foreign
Common stocks may occur on a frequent basis.
Debt securities, including restricted securities, are valued based on
evaluated quotations received from independent pricing services or from dealers
who make markets in such securities. For most bond types, the pricing service
utilizes matrix pricing which considers yield or price of bonds of comparable
quality, coupon, maturity, current cash flows, type, and current day trade
information, as well as dealer supplied prices. These valuations are generally
categorized as Level 2 in the hierarchy. Structured debt instruments such as
Mortgage-Backed and Asset-Backed securities may also incorporate collateral
analysis and utilize cash flow models for valuation and are generally
categorized as Level 2 in the hierarchy. Pricing services do not provide
pricing for all securities and therefore dealer supplied prices are utilized
representing indicative bids based on pricing models used by market makers in
the security and are generally categorized as Level 2 in the hierarchy. Debt
securities that are not widely traded, are illiquid, or are internally fair
valued by the valuation committee are generally categorized as Level 3 in the
hierarchy.
Listed derivatives that are actively traded are valued based on quoted
prices from the exchange and are categorized as Level 1 in the hierarchy. Over
the counter (OTC) derivative contracts, which include forward currency
contracts and equity linked instruments, are valued based on inputs observed
from actively quoted markets and are categorized as Level 2 in the hierarchy.
Investments in open-end mutual funds are valued at their closing net asset
value determined as of the close of business of the New York Stock Exchange
(generally 4:00 p.m. Eastern time) each business day and are categorized as
Level 1 in the hierarchy.
Short-term Notes having a remaining maturity of 60 days or less are valued
at amortized cost, which approximates market and are generally categorized as
Level 2 in the hierarchy.
A summary of the inputs used to value the Fund's major categories of assets
and liabilities, which primarily include investments of the Fund, by each major
security type is disclosed at the end of the Schedule of Investments for the
Fund. The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities.
B. SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date, or in the case of certain foreign securities,
as soon as the Fund is notified. Interest income is recorded on the accrual
basis. The Fund amortizes premiums and accretes discounts using the effective
interest method. Realized gains and losses are determined on the identified
cost basis.
NOTE 2 -- 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.
14
NOTE 3 -- FEDERAL INCOME TAX INFORMATION
($ REPORTED IN THOUSANDS)
At March 31, 2011, federal tax cost and aggregate gross unrealized
appreciation (depreciation) of securities held by the Fund were as follows:
NET UNREALIZED
FEDERAL UNREALIZED UNREALIZED APPRECIATION
TAX COST APPRECIATION DEPRECIATION (DEPRECIATION)
-------------- -------------- -------------- --------------
$316,108 $59,413 $(10,900) $48,513
NOTE 4 -- 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 5 -- SUBSEQUENT EVENT EVALUATIONS
Management has evaluated the impact of all subsequent events on the Fund
through the date the Schedule of Investments were available for issuance and
has determined that no subsequent events require recognition or disclosure in
these Schedule of Investments.
15
KEY INFORMATION
ZWEIG SHAREHOLDER RELATIONS: 1-800-272-2700
For general information and literature, as well as updates on net asset
value, share price, major industry groups and other key information
REINVESTMENT PLAN
Many of you have questions about our reinvestment plan. We urge shareholders
who want to take advantage of this plan and whose shares are held in "Street
Name," to consult your broker as soon as possible to determine if you must
change registration into your own name to participate.
REPURCHASE OF SECURITIES
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may from time to time purchase its shares of
common stock in the open market when Fund shares are trading at a discount from
their net asset value.
PROXY VOTING INFORMATION (FORM N-PX)
The Adviser and Sub-Adviser vote proxies relating to portfolio securities in
accordance with procedures that have been approved by the Fund's Board of
Directors. You may obtain a description of these procedures, along with
information regarding how the Fund voted proxies during the most recent
12-month period ended June 30, 2010, free of charge, by calling toll-free
1-800-243-1574. This information is also available through the Securities and
Exchange Commission's website at http://www.sec.gov.
FORM N-Q INFORMATION
The Fund files a complete schedule of portfolio holdings with the Securities
and Exchange Commission (the "SEC") for the first and third quarters of each
fiscal year on Form N-Q. Form N-Q is available on the SEC's website at
http://www.sec.gov. Form N-Q may be reviewed and copied at the SEC's Public
Reference Room. Information on the operation of the SEC's Public Reference Room
can be obtained by calling toll-free 1-800-SEC-0330.
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