August 1, 2001
[PHOTO]
Dear Shareholder:
For the three months ended June 30, 2001, The Zweig Fund Inc.'s net asset
value increased 5.3%, including $0.22 per share in reinvested distributions.
During the same period, the S&P 500 Index/1/ rose 5.9%, including dividends.
The Fund's net asset value for the six months ended June 30, 2001, declined
9.4%, including $0.49 per share in reinvested distributions. The S&P 500 In-
dex, with dividends, fell 6.7% for the same period.
Consistent with our bullish stance, our average equity exposure during the
first half of 2001 was approximately 96%.
Our results so far this year are certainly not what we would like. Although
many of our holdings improved in line with our bullish indicators, two indus-
try groups--technology in the first quarter and energy in the second--showed
unanticipated weakness, adversely affecting our performance. However, we feel
both these areas warrant our continued support: technology because of its his-
torically strong performance after multiple aggressive Fed easings, and energy
because of its positive fundamentals.
DISTRIBUTION DECLARED
On June 18, 2001, the Fund announced a distribution of $0.22 per share to
shareholders of record July 10, 2001. This distribution is payable on July 26,
2001. Including this figure, the Fund's total payout since its inception is now
$16.55 per share.
MARKET OUTLOOK
Despite gains in the second quarter, the first half was not a happy one for
the stock market. The Dow Jones Industrial Average/2/ dipped 2.6%, the Nasdaq
Composite/3/ dropped 12.6%, and the S&P 500 Index declined 6.7%. Although
these figures are disappointing, I think the market bottomed at the end of
March and the beginning of April. It is difficult to turn around a bear mar-
ket, but I believe we are doing it. As of this writing, the market is up
fairly nicely from those lows.
We have seen six Fed cuts this year. In the past, after five cuts the S&P
500 had gained an average of 28.1% a year later. There is a much smaller his-
torical sample after six cuts, but the market then was up almost as much, or
about 26% or 27%. Monetary policy takes awhile before it begins to impact the
economy. It has been slow going so far, but I think the economy will begin
turning up during the next six months.
We have been reading a lot about the so-called summer doldrums affecting the
market, but I don't put much stock in that phenomenon. Volume does tend to
lessen in the summer because of vacations and the July 4 and Labor Day holi-
days. However, the market is not always dull in the summer. I remember the
summer of 1984
--------
/1/ The S&P 500 Index measures broad stock market total-return performance.
The indices are unmanaged and not available for direct investment.
/2/ The Dow Jones Industrial Average measures large-capitalization stock to-
tal-return performance.
/3/ The Nasdaq Composite measures technology-oriented stock total-return per-
formance.
when things were very quiet until the market shot through the roof in early
August for three straight days. In 1982 we had the big bear market bottom in
August. I have seen all sorts of summer market fireworks in both directions.
The Fed believes we are in a new economy because of the enhanced productiv-
ity due to technology and thus can avoid a recession despite the recent gloomy
economic and employment statistics. I am not in complete agreement with that
thesis. Our economy certainly is new because we are always advancing. Some in-
dustries fall by the wayside, others deteriorate, and new ones are built up.
In the early 20th century, the economy largely depended on two notoriously cy-
clical industries--farming and heavy manufacturing. These areas now are much
less important. We are much more diversified, with the service industry per-
haps the dominant factor in the overall economy. This is a plus because there
is less volatility in this sector. I'm not so sure about the Fed's emphasis on
the expanded role of productivity because that is a factor that is so hard to
measure. At any rate, we do know that productivity declines in recessions.
There is a theory going around that the strong dollar--which recently hit a
new high--tends to be bad for the economy. That is simply not true. Sometimes
a strong dollar is bullish; sometimes it is bearish. We have tested the dollar
to death and do not find its strength statistically significant. The alarmists
warn that the gross national product, prices, and inflation will all be lower
if the dollar is too strong. Well, there have been only two cases in the last
50 years when the dollar was this strong. In both cases, the economy was
strong, and inflation actually upticked. I think that there are a lot of fac-
tors that are more important to the economy than just the currency.
The current strength of the dollar is related to our trade imbalance. The
U.S. trade gap in goods and services totaled $127.2 billion in the first four
months of this year against $116.8 billion in the same period last year. How-
ever, I have never seen why this is a problem. We are so successful in this
country that we can afford to buy lots of goods and services from abroad. If
people think this is a bad thing, they should consider the situation of Japan.
They run a massive trade surplus and their economy has been in the doldrums
for a decade. Incidentally, foreigners are huge investors in U.S. stocks,
bonds, real estate, and businesses--and this inflow does not show up in the
trade figures.
Business expenditures on capital equipment and services reportedly fell at a
20% annual rate in the second quarter to the slowest pace in nearly a decade,
but I do not find this worrisome. As I see it, the biggest danger with capital
spending is when it gets excessive, as it did in the year 2000. Capital spend-
ing last year rose over 13%. We have had 11 years in the last 51 when capital
spending climbed at least 13%. In those years, the S&P average declined 2.8%.
Sure enough, the S&P was also down last year. Conversely, there have been six
years in the last 51 when capital spending was actually negative year to year,
which is a possibility this year. I almost hope that happens because in the
six years that it occurred, the S&P was up every time, with an average annual
gain of 27%.
When capital spending gets excessive, it creates inflationary pressures. In-
terest rates go up, and the Fed starts to tighten. The market, being a dis-
counting mechanism, then goes down. When business conditions are weak, as they
are now, and capital spending is low, inflationary pressures are minimized and
the Fed tends to cut, as it has six times this year. That's when the market
looks ahead, and at some point, capital spending picks up.
Concern has been voiced about the fact that earnings in the S&P 500 are es-
timated to have fallen 17.2% in the second quarter from a year ago--the worst
drop since the third quarter of 1991 when they declined 17.9%. I do not con-
sider this a problem for the market. Historically, when
2
earnings have been negative for the S&P, the market has gone up at an
annualized rate of 15.8%. Ironically, when earnings have grown by at least 10%
a year, which we'll call high, the market has risen at only a 3.8% rate. We
are probably in a recession, or at least an earnings recession. It is in most
periods when earnings are poor that markets tend to bottom and the best ad-
vances follow. That's what happened in the recession period of 1990-1991 as
well as in 1974 and 1982 when earnings were terrible.
Stockholders added $17.2 billion more to stock funds than they took out in
May. This followed a net inflow of $19.2 billion in April. Figures for both
months indicate a big turnaround from March when we had net redemptions almost
as large. It was actually a bullish sign when investors panicked in March and
sold heavily. When that happens, markets tend to bottom. We have had 12 cases
in the last 50 years when investors hit the panic button, and we had monthly
net redemptions. One year later the market was up every time, with an average
gain of 20.4%. In six of those 12 instances, the redemptions only lasted one
month, as was true this time.
This year we have seen redemptions in March and strong net sales in April
and May. In the six prior cases of the 12 where we saw this reversal, the mar-
ket actually went up 27% in the year following. I am glad the positive inflows
have returned. However, I don't want them to get excessive and reach the boil-
ing point as they did early last year. It's not good for the market if we get
excessive speculation.
Foreign portfolio investors are also getting into the act. They bought, on
net, a record amount of our stocks and bonds in the first quarter, while our
net acquisitions of foreign investments were negligible. That's not necessar-
ily a market positive. Foreigners tend to be wrong on our markets. When their
buying gets too high, it is generally a poor indicator. When they panic and
sell, it is usually a good sign. I don't like to see them buying excessively.
An early sign that the economy might be turning is the latest report by the
National Association of Purchasing Managers. It reported that its index of
manufacturing rose to 44.7% in June from 42.1% in May and hit a seven-month
high. In the last 50 years, there have been 10 other cases when the number has
been below 44%, which is a low number, and then reversed upward by at least
three points. In every single case, the S&P was higher one year later, and the
average gain was 20.8%. When NAPM (as it is called) gets down as low as it has
been, it means that the economy is very weak. Usually, but not necessarily, it
signifies a recession. I consider it a very good sign for the market when the
NAPM figures improve.
In the first half of this year, about $377 billion in merger deals were an-
nounced in the U.S., the slowest six months since 1997. It's not great for the
investment bankers, but I prefer a market where merger activity is moderate.
It got pretty extensive during the boom years and was just one more sign of
speculation. The big proposed merger between General Electric and Honeywell
was shot down by the Europeans and may put a damper on international mergers.
It should not have any impact on the domestic ones. By the way, I love to see
cash takeovers, which reduce the supply of stock. When two companies merge in
a stock deal, it doesn't do anything for the market one way or another.
There were only 471 initial public offerings (IPOs) recorded in the first
half of this year, the lowest for any six-month period in nearly 20 years. In
1999 and 2000 we had an orgy of IPOs. The prices of many of these, mostly in
technology, were later crushed. That's why it is nearly impossible to do an
IPO in technology today. The IPOs that we are seeing now are mostly from long-
established industries, which I think is healthy. There just are not as many
of them because underwriters find it hard to find companies that people are
willing to buy. I think the low number of IPOs is a positive factor because it
means that a lot of the speculative excesses have
3
been wrung out of the market. When IPOs are light, the market is usually in
the bottoming stage.
Summing up, most of our indicators are positive. I mentioned heavy foreign
buying as a negative. Valuation could be a moderate problem. However, our mon-
etary indicators are very positive. We have had six Fed rate cuts, a decent
drop in interest rates, and, I should add, the Fed has allowed the money sup-
ply to grow. Historically, whenever the Fed has cut aggressively and increased
the money supply, it has managed to turn the market upward in several months.
I believe that will happen here.
Also, we have had a lot of pessimism in the market, illustrated, in part, by
the fewer IPOs. We also had that panic for awhile with redemptions of mutual
funds. There have been any number of signs of increasing pessimism so that I
think the market is okay. I believe we're going to see a pretty decent ad-
vance. It probably will not be like the 1980s or 1990s when the market went up
forever, but I think it will do well for the next six to 12 months. It's been
rough for the past couple of months, and I'm sort of sitting here waiting for
the pot to boil. But I do think the market bottomed at the beginning of April,
but it's just taking its own sweet time. At the time of this writing, our pos-
ture is bullish, and we are approximately 97% invested.
PORTFOLIO COMPOSITION
Our leading industry groups on June 30 consisted of technology, financial
services, health care, energy, telecommunications, and retailing. Except for
minor shifts in percentages held, this listing is basically unchanged from the
close of the first quarter. We increased our position in technology, which
also benefited from appreciation, and trimmed our holdings in retailing and
energy.
Microsoft was our largest individual position. Other prominent holdings in-
cluded General Electric, Citigroup, Exxon Mobil, Pfizer, Tyco, AOL Time Warn-
er, Wal-Mart, IBM, and Intel.
Sincerely,
/s/ Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
Chairman
4
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 2001
(Unaudited)
Number of Value
Shares (Note 3)
--------- ------------
Common Stocks 94.51%
Aerospace & Air Transport 1.42%
Boeing Co........................................... 68,100 $ 3,786,360
United Technologies Corp. .......................... 52,500 3,846,150
------------
7,632,510
------------
Automotive 0.41%
General Motors Corp. ............................... 34,000 2,187,900
------------
Building & Forest Products 1.34%
Cemex S.A. de CV, ADR............................... 73,301 1,942,476
International Paper Co. ............................ 85,300 3,045,210
Weyerhaeuser Co. ................................... 40,800 2,242,776
------------
7,230,462
------------
Chemicals 1.39%
Air Products & Chemicals, Inc....................... 40,800 1,866,600
Dow Chemical Co..................................... 98,000 3,258,500
Praxair, Inc. ...................................... 50,600 2,378,200
------------
7,503,300
------------
Commercial Services 0.76%
Modis Professional Services, Inc.................... 69,900(a) 482,310
Omnicom Group, Inc. ................................ 42,000 3,612,000
------------
4,094,310
------------
Consumer Products 2.88%
Anheuser-Busch Cos., Inc. .......................... 85,000 3,502,000
Coca-Cola Co. ...................................... 34,000 1,530,000
Leggett & Platt, Inc. .............................. 70,000 1,542,100
PepsiCo, Inc. ...................................... 105,000 4,641,000
Procter & Gamble Co. ............................... 68,000 4,338,400
------------
15,553,500
------------
Electronics -- Electrical 4.04%
Celestica, Inc. .................................... 34,000(a) 1,751,000
Flextronics International Ltd. ..................... 34,000(a) 887,740
General Electric Co. ............................... 350,000 17,062,500
Jabil Circuit, Inc. ................................ 68,000(a) 2,098,480
------------
21,799,720
------------
See notes to financial statements
5
Number of Value
Shares (Note 3)
--------- ------------
Engineering & Machinery 0.80%
Ingersoll-Rand Co................................... 51,300 $ 2,113,560
SPX Corp. .......................................... 17,500 2,190,650
------------
4,304,210
------------
Financial Services 18.44%
ACE Ltd............................................. 69,900 2,732,391
Allstate Corp. ..................................... 124,100 5,459,159
American International Group, Inc................... 98,000 8,428,000
Bank of America Corp................................ 115,200 6,915,456
Capital One Financial Corp. ........................ 34,000 2,040,000
Citigroup, Inc...................................... 238,600 12,607,624
Fannie Mae.......................................... 81,700 6,956,755
Fifth Third Bancorp................................. 68,000 4,083,400
FleetBoston Financial Corp. ........................ 70,000 2,761,500
Freddie Mac......................................... 115,500 8,085,000
H & R Block, Inc. .................................. 85,000 5,486,750
Household International, Inc........................ 85,000 5,669,500
J.P. Morgan Chase & Co. ............................ 68,550 3,057,330
Lehman Brothers Holdings, Inc....................... 70,000 5,442,500
Merrill Lynch & Co., Inc. .......................... 51,000 3,021,750
Morgan Stanley Dean Witter & Co. ................... 66,500 4,271,295
SouthTrust Corp. ................................... 135,600 3,525,600
Washington Mutual, Inc.............................. 153,150 5,750,783
Wells Fargo & Co. .................................. 68,000 3,157,240
------------
99,452,033
------------
Health Care 11.80%
Amgen, Inc.......................................... 68,000(a) 4,126,240
Baxter International, Inc. ......................... 70,000 3,430,000
Becton, Dickinson & Co. ............................ 85,000 3,042,150
Bristol-Myers Squibb Co............................. 102,200 5,345,060
Cardinal Health, Inc................................ 63,000 4,347,000
Johnson & Johnson................................... 168,000 8,400,000
MedImmune, Inc...................................... 59,300(a) 2,798,960
Merck & Co., Inc.................................... 95,500 6,103,405
Pfizer, Inc. ....................................... 272,800 10,925,640
Pharmacia Corp. .................................... 70,000 3,216,500
St. Jude Medical, Inc. ............................. 70,000 4,200,000
Tenet Healthcare Corp. ............................. 68,300(a) 3,523,597
UnitedHealth Group, Inc. ........................... 68,000 4,199,000
------------
63,657,552
------------
Investment Companies 2.39%
Nasdaq-100 Index.................................... 210,000 9,586,500
Semiconductor Holders Trust......................... 69,000 3,329,250
------------
12,915,750
------------
See notes to financial statements
6
Number of Value
Shares (Note 3)
--------- ------------
Manufacturing 2.12%
Tyco International Ltd.............................. 210,000 $ 11,445,000
------------
Media 5.10%
Comcast Corp., Class A.............................. 120,500(a) 5,229,700
Gemstar--TV Guide International, Inc................ 86,000(a) 3,784,000
Grupo Televisa S.A., GDR............................ 70,000(a) 2,800,700
McGraw-Hill Cos., Inc............................... 67,700 4,478,355
New York Times Co., Class A......................... 54,700 2,297,400
News Corp. Ltd...................................... 70,000 2,600,500
Viacom, Inc., Class B............................... 64,500(a) 3,337,875
Walt Disney Co...................................... 102,500 2,961,225
------------
27,489,755
------------
Metals 0.50%
Alcoa, Inc.......................................... 68,100 2,683,140
------------
Oil & Oil Services 7.58%
Anadarko Petroleum Corp............................. 68,000 3,674,040
BJ Services Co...................................... 102,000(a) 2,894,760
Chevron Corp........................................ 63,000 5,701,500
El Paso Corp........................................ 68,000 3,572,720
Enron Corp.......................................... 69,900 3,425,100
Exxon Mobil Corp.................................... 132,900 11,608,815
Santa Fe International Corp......................... 52,400 1,519,600
Talisman Energy, Inc................................ 74,800(a) 2,849,132
Transocean Sedco Forex, Inc......................... 36,000 1,485,000
USX-Marathon Group.................................. 140,000 4,131,400
------------
40,862,067
------------
Railroads 0.37%
Canadian Pacific Ltd................................ 51,000 1,976,250
------------
Restaurants 0.33%
Wendy's International, Inc.......................... 70,000 1,787,800
------------
Retailing 5.63%
CVS Corp............................................ 51,000 1,968,600
Home Depot, Inc..................................... 140,200 6,526,310
Lowe's Cos., Inc.................................... 70,000 5,078,500
Safeway, Inc........................................ 87,500(a) 4,200,000
Target Corp......................................... 70,000 2,422,000
Wal-Mart Stores, Inc................................ 208,700 10,184,560
------------
30,379,970
------------
See notes to financial statements
7
Number of Value
Shares (Note 3)
--------- ------------
Technology 18.68%
AOL Time Warner, Inc................................ 210,900(a) $ 11,177,700
Applied Materials, Inc.............................. 70,200(a) 3,446,820
Atmel Corp.......................................... 105,000(a) 1,416,450
Cisco Systems, Inc.................................. 280,300(a) 5,101,460
Corning, Inc........................................ 35,000 584,850
Cypress Semiconductor Corp.......................... 70,000(a) 1,669,500
Dell Computer Corp.................................. 187,900(a) 4,876,005
Electronic Data Systems Corp........................ 68,100 4,256,250
EMC Corp............................................ 115,000(a) 3,340,750
First Data Corp..................................... 84,000 5,397,000
Fiserv, Inc......................................... 34,000(a) 2,175,320
Intel Corp.......................................... 305,600 8,938,800
International Business Machines Corp................ 81,600 9,220,800
JDS Uniphase Corp................................... 35,000(a) 446,250
Lucent Technologies, Inc............................ 147,200 912,640
Microchip Technology, Inc........................... 52,500(a) 1,798,125
Microsoft Corp...................................... 255,500(a) 18,549,300
Motorola, Inc....................................... 67,800 1,122,768
Network Appliance, Inc.............................. 35,000(a) 479,500
Oracle Corp......................................... 262,300(a) 4,983,700
QUALCOMM, Inc....................................... 52,500(a) 3,070,200
Siebel Systems, Inc................................. 85,200(a) 3,995,880
Sun Microsystems, Inc............................... 210,000(a) 3,301,200
USinternetworking, Inc.............................. 70,050(a) 84,060
Yahoo!, Inc......................................... 21,200(a) 423,788
------------
100,769,116
------------
Telecommunications 7.06%
ADC Telecommunications, Inc......................... 122,500(a) 808,500
Amdocs Ltd.......................................... 68,000(a) 3,661,800
AT&T Corp........................................... 210,000 4,620,000
AT&T Wireless Group................................. 87,800(a) 1,435,530
General Motors Corp., Class H....................... 140,000 2,835,000
Nokia Corp., ADR.................................... 150,000 3,306,000
Nortel Networks Corp................................ 140,000 1,272,600
SBC Communications, Inc............................. 122,500 4,907,350
Tele Norte Leste Participacoes S.A., ADR............ 107,000 1,632,820
Telephone & Data Systems, Inc....................... 34,100 3,708,375
TyCom Ltd........................................... 52,500(a) 903,000
Verizon Communications, Inc......................... 122,500 6,553,750
WorldCom, Inc.--WorldCom Group...................... 161,050(a) 2,409,308
------------
38,054,033
------------
See notes to financial statements
8
Number of Value
Shares (Note 3)
----------- ------------
Utilities -- Electric & Gas 1.47%
Calpine Corp..................................... 91,600(a) $ 3,462,480
Exelon Corp...................................... 70,000 4,488,400
------------
7,950,880
------------
Total Common Stocks
(Cost $561,789,932)....................................... 509,729,258
------------
Unit Investment Trusts 1.85%
S&P MidCap 400 Depositary Receipts (Cost
$9,981,289)..................................... 105,000 9,960,300
------------
Principal
Amount
-----------
Short-Term Investments 3.60%
UBS Finance Corp., 4.14%, 7/02/01 (Cost
$19,397,769).................................... $19,400,000 19,397,769
------------
Total Investments (Cost $591,168,990) -- 99.96%............ 539,087,327
Other assets less liabilities-- 0.04%...................... 215,524
------------
Net Assets -- 100.00%...................................... $539,302,851
============
--------
(a) Non-income producing security.
For Federal income tax purposes, the tax basis of investments owned at June
30, 2001 was $592,153,593 and net unrealized depreciation of investments
consisted of:
Gross unrealized appreciation................................. $ 37,920,633
Gross unrealized depreciation................................. (90,986,899)
------------
Net unrealized depreciation................................... $(53,066,266)
============
See notes to financial statements
9
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2001
(Unaudited)
ASSETS
Investments, at value (identified cost $591,168,990)............ $539,087,327
Cash............................................................ 101,146
Receivable for investment securities sold....................... 1,827,273
Dividends receivable............................................ 288,667
Prepaid expenses................................................ 54,048
------------
Total Assets.................................................. 541,358,461
------------
LIABILITIES
Payable for investment securities purchased..................... 1,538,160
Accrued advisory fees (Note 4).................................. 381,215
Accrued administration fees (Note 4)............................ 58,303
Other accrued expenses.......................................... 77,932
------------
Total Liabilities............................................. 2,055,610
------------
NET ASSETS........................................................ $539,302,851
============
NET ASSET VALUE, PER SHARE
($539,302,851/60,693,922 shares outstanding -- Note 5).......... $ 8.89
============
Net Assets consist of
Capital paid-in................................................. $623,545,506
Distribution in excess of net investment income................. (28,639,402)
Accumulated net realized loss on investments.................... (3,521,590)
Net unrealized depreciation on investments...................... (52,081,663)
------------
$539,302,851
============
See notes to financial statements
10
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2001
(Unaudited)
Investment Income
Income
Interest..................................................... $ 1,029,457
Dividends (net of foreign withholding taxes of $9,237)....... 2,588,781
------------
Total Income............................................... 3,618,238
------------
Expenses
Investment advisory fees (Note 4)............................ 2,374,943
Administrative fees (Note 4)................................. 363,226
Transfer agent fees.......................................... 185,665
Printing and postage expenses................................ 108,210
Custodian fees............................................... 43,188
Professional fees (Note 4)................................... 38,817
Directors' fees and expenses (Note 4)........................ 38,429
Miscellaneous................................................ 79,360
------------
Total Expenses............................................. 3,231,838
------------
Net Investment Income.................................... 386,400
------------
Net Realized and Unrealized Losses
Net realized loss on investments............................... (18,742,861)
Decrease in unrealized appreciation on investments............. (38,413,843)
------------
Net realized and unrealized loss on investments.............. (57,156,704)
------------
Net decrease in net assets resulting from operations......... $(56,770,304)
============
See notes to financial statements
11
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Six
Months Ended For the Year
June 30, 2001 Ended
(Unaudited) December 31, 2000
------------- -----------------
Increase (Decrease) in Net Assets
Operations
Net investment income....................... $ 386,400 $ 11,287,717
Net realized gain (loss) on investments..... (18,742,861) 56,826,038
Decrease in unrealized appreciation of
investments................................ (38,413,843) (110,322,012)
------------ -------------
Net decrease in net assets resulting from
operations .............................. (56,770,304) (42,208,257)
------------ -------------
Dividends and distributions to shareholders
from
Net investment income....................... (386,400) (11,287,717)
Net realized gains on investments........... -- (58,346,061)
Capital paid-in............................. (29,117,197) (1,326,274)
------------ -------------
Total dividends and distributions to
shareholders ............................ (29,503,597) (70,960,052)
------------ -------------
Capital share transactions
Net asset value of shares issued to
shareholders in reinvestment of dividends
resulting in issuance of common stock...... 5,222,524 --
------------ -------------
Net increase in net assets derived from
capital share transactions................. 5,222,524 --
------------ -------------
Net decrease in net assets.................. (81,051,377) (113,168,309)
Net Assets
Beginning of period .......................... 620,354,228 733,522,537
------------ -------------
End of period (including undistributed net
investment income of $477,795 at December 31,
2000)........................................ $539,302,851 $ 620,354,228
============ =============
See notes to financial statements
12
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001
(Unaudited)
NOTE 1 -- Organization
The Zweig Fund, Inc. (the "Fund") is a closed-end, diversified management
investment company registered under the Investment Company Act of 1940 (the
"Act"). The Fund was incorporated under the laws of the State of Maryland on
June 18, 1986.
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 accordance with accounting principals
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
Portfolio securities that are traded only on stock exchanges are valued at
the last sale price. Securities traded in the over-the-counter market which
are National Market System securities are valued at the last sale price. Other
over-the-counter securities are valued at the most recently quoted bid price
provided by the principal market makers. Portfolio securities which are traded
both in the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market, as determined by the
Investment Adviser. Debt securities may be valued on the basis of prices
provided by an independent pricing service, when such prices are believed by
the Investment Adviser to reflect the fair market value of such securities.
Short-term investments having a remaining maturity of 60 days or less when
purchased are valued at amortized cost (which approximates market value).
Futures contracts traded on commodities exchanges are valued at their closing
settlement price on such exchange. Securities for which market quotations are
not readily available, (of which there were none at June 30, 2001) and other
assets, if any, are valued at fair value as determined under procedures
approved by the Board of Directors of the Fund.
B. Security Transactions and Investment Income
Security transactions are recorded on trade date. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis.
In November 2000, a revised AICPA Audit and Accounting Guide, Audits of
Investment Companies, was issued, and is effective for fiscal years beginning
after December 15, 2000. The revised guide requires the Fund to amortize
premium and discount on all fixed income securities, and classify gains and
losses on asset-backed securities presently included in realized gains and
losses, as part of interest income.
Realized gains and losses on sales of investments are determined on the
identified cost basis for financial reporting and tax purposes.
13
C. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recorded as assets. During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
marking the contract to market on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets or liabilities, depending upon
whether unrealized gains or losses are incurred. When a futures contract is
closed, the Fund realizes a gain or loss equal to the difference between the
proceeds from (or cost of) the closing transaction and the Fund's basis in the
contract. There are several risks in connection with the use of futures
contracts as a hedging device. The change in value of futures contracts
primarily corresponds with the value of their underlying instruments, which
may not correlate with the change in value of the hedged investments.
Therefore, anticipated gains may not result and anticipated losses may not be
offset. In addition, as no secondary market exists for futures contracts,
there is no assurance that there will be an active market at any particular
time.
D. 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 incur a
loss, and if the price declines during the period, the Fund will realize a
gain. Any realized gain will be decreased, and any incurred loss increased, by
the amount of transaction costs. Dividends or interest the Fund pays in
connection with such short sales are recorded as expenses. In addition to the
short sales described above, the Fund may make short sales "against the box".
A short sale "against the box" is a short sale whereby at the time of the
short sale, the Fund owns or has the immediate and unconditional right, at no
added cost, to obtain the identical security.
E. Federal Income Tax
The Fund has elected to qualify and intends to remain qualified, as long as
management's view is that it is in the best interests of the shareholders, as
a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended. The principal tax benefits of qualifying as a
regulated investment company, as compared to an ordinary taxable corporation,
are that a regulated investment company is not itself subject to Federal
income tax on ordinary investment income and net capital gains that are
currently distributed (or deemed distributed) to its shareholders and that the
tax character of long-term capital gains recognized by a regulated investment
company flows through to its shareholders who receive distributions of such
gains.
F. Dividends and Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the ex-dividend
date. In the event that amounts distributed are in excess of accumulated net
investment income and net realized gains on investments (as determined for
financial statement purposes), such amounts would be reported as a
distribution from paid-in capital during the fiscal year in which such a
distribution is made. Income dividends and capital gain distributions are
determined in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States. These
differences are primarily due to timing differences and differing
characterization of distributions made by the Fund as a whole.
14
NOTE 3 -- Portfolio Transactions
During the six months ended June 30, 2001, purchases and sales of
investments, excluding short-term investments were:
Common
Stocks
------------
Purchases .................................................... $250,519,736
============
Sales ........................................................ $232,053,044
============
NOTE 4 -- Investment Advisory Fees and Other Transactions with Affiliates
a) Investment Advisory Fee: The Investment Advisory Agreement (the
"Agreement") between Phoenix/Zweig Advisers LLC (the "Adviser"), the Fund's
investment 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
six months ended June 30, 2001, the Fund accrued advisory fees of $2,374,943.
b) Administration Fee: Phoenix Equity Planning Corporation serves as the
Fund's Administrator (the "Administrator"), pursuant to an Administration
Agreement with the Fund. The Administrator generally assists in all aspects of
the Fund's operations, other than providing investment advice, subject to the
overall authority of the Fund's Board of Directors. The Administrator
determines the Fund's net asset value daily, prepares such figures for
publication on a weekly basis, maintains certain of the Fund's books and
records that are not maintained by the Adviser, custodian or transfer agent,
assists in the preparation of financial information for the Fund's income tax
returns, proxy statements, quarterly and annual shareholder reports, and
responds to shareholder inquiries. Under the terms of the Agreement, the Fund
pays the Administrator a monthly fee equal, on an annual basis, to 0.13% of
the Fund's average daily net assets. During the six months ended June 30,
2001, the Fund accrued administration fees of $363,226.
c) Directors' Fee: The Fund pays each Director who is not an interested
person of the Fund or the Adviser a fee of $10,000 per year plus $1,500 per
Directors' or committee meeting attended, together with the out-of-pocket
costs relating to attendance at such meetings. Any Director of the Fund who is
an interested person of the Fund or the Adviser receives no remuneration from
the Fund.
d) Brokerage Commission: During the six months ended June 30, 2001, the Fund
paid PXP Securities Corp. brokerage commissions of $52,384 in connection with
portfolio transactions effected through them. In addition, PXP Securities
Corp. charged $15,538 in commissions for transactions effected on behalf of
the participants in the Fund's Automatic Reinvestment and Cash Purchase Plan.
NOTE 5 -- Capital Stock and Reinvestment Plan
At June 30, 2001, the Fund had one class of common stock, par value $.10 per
share, of which 100,000,000 shares are authorized and 60,693,922 shares are
outstanding.
Registered shareholders may elect to receive all distributions in cash paid
by check mailed directly to the shareholder by EquiServe 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
15
automatically reinvested by EquiServe, as the Plan agent in whole or
fractional shares of the Fund, as the case may be. For the six months ended
June 30, 2001 and the year ended December 31, 2000 there were 558,299 and 0
shares, respectively issued pursuant to the Plan.
On June 18, 2001, the Fund announced a distribution of $0.22 per share to
shareholders of record on July 10, 2001. This distribution has an ex-dividend
date of July 6, 2001 and is payable on July 26, 2001.
NOTE 6 -- Financial Highlights
Selected data for a share outstanding throughout each period:
Six Months
Ended Year Ended December 31
June 30, 2001 -------------------------------------------------
(Unaudited) 2000 1999 1998 1997 1996
------------- -------- -------- -------- -------- --------
Per Share Data
Net asset value,
beginning of period.... $ 10.32 $ 12.20 $ 12.03 $ 12.63 $ 11.45 $ 11.06
-------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net investment income... 0.01 0.20 0.20 0.23 0.35 0.34
Net realized and
unrealized gains
(losses)............... (0.95) (0.90) 1.16 0.55 2.03 1.15
-------- -------- -------- -------- -------- --------
Total from investment
operations............. (0.94) (0.70) 1.36 0.78 2.38 1.49
-------- -------- -------- -------- -------- --------
Dividends and
Distributions
Dividends from net
investment income...... (0.01) (0.21) (0.19) (0.35) (0.31) (0.30)
Distributions from net
realized gains......... -- (0.97) (1.00) (0.87) (0.89) (0.80)
Distributions from
capital paid-in........ (0.48) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and
distributions.......... (0.49) (1.18) (1.19) (1.22) (1.20) (1.10)
-------- -------- -------- -------- -------- --------
Effect on net asset
value as a result of
rights offering*....... -- -- -- (0.16) -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................ $ 8.89 $ 10.32 $ 12.20 $ 12.03 $ 12.63 $ 11.45
======== ======== ======== ======== ======== ========
Market value, end of
period**.............. $ 9.95 $ 9.81 $ 10.06 $ 10.81 $ 13.25 $ 10.88
======== ======== ======== ======== ======== ========
Total investment
return***.............. 6.63% 9.45% 3.61% (8.68)% 34.76% 6.92%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data
Net assets, end of
period (in thousands).. $539,303 $620,354 $733,523 $723,521 $666,366 $589,081
Ratio of expenses to
average net assets..... 1.16%**** 1.12% 1.12% 1.12% 1.16% 1.18%
Ratio of net investment
income to average net
assets................. 0.14%**** 1.74% 1.68% 1.90% 2.88% 3.12%
Portfolio turnover
rate................... 43.2% 114.8% 114.9% 68.7% 93.0% 137.2%
--------
* Shares were sold at a 5% discount from the average market price.
**Closing Price -- New York Stock Exchange.
*** Total investment return is calculated assuming a purchase of common stock
on the opening of the first business day and a sale on the closing of the
last business day of each period reported. Dividends and distributions,
if any, are assumed for the purposes of this calculation, to be
reinvested at prices obtained under the Fund's Distribution Reinvestment
and Cash Purchase Plan. Generally, total investment return based on net
asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease
in the premium of the market value to the net assets from the beginning
to the end of such years. Conversely, total investment return based on
net asset value will be lower than total investment return based on
market value in periods where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from
the beginning to end of such periods.
**** Annualized.
16
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
8, 2001. The meeting was held for the purpose of electing Wendy Luscombe,
Alden C. Olson, and Martin E. Zweig as directors. The Fund's other Directors
who continue in office are Charles H. Brunie, Elliot S. Jaffe and James B.
Rogers, Jr.
The results of the above matter was as follows:
Votes Votes
Directors Votes For Against Withheld Abstentions
--------- ---------- ------- -------- -----------
Wendy Luscombe.......................... 48,931,042 N/A 852,208 N/A
Alden C. Olson.......................... 48,898,621 N/A 884,629 N/A
Martin E. Zweig......................... 49,134,102 N/A 649,148 N/A
-------------------------------------------------------------------------------
KEY INFORMATION
1-800-272-2700 Zweig Shareholder Relations:
For general information and literature
1-800-272-2700 The Zweig Fund Hot Line:
For 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.
----------------
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.
17
OFFICERS AND DIRECTORS
Martin E. Zweig, Ph.D.
Chairman of the Board and President
Jeffrey Lazar
Executive Vice President and Treasurer
Nancy J. Engberg
Secretary
Christopher M. Capano
Vice President
Charles H. Brunie
Director
Elliot S. Jaffe
Director
Wendy Luscombe
Director
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
Investment Adviser
Phoenix/Zweig Advisers LLC
900 Third Avenue
New York, NY 10022
Fund Administrator
Phoenix Equity Planning Corporation
56 Prospect St.
PO Box 150480
Hartford, CT 06115-0480
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer Agent
State Street Bank & Trust Co.
c/o EquiServe
PO Box 43010
Providence, RI 02940-3010
Legal Counsel
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
--------------------------------------------------------------------------------
This report is transmitted to the shareholders of The Zweig Fund, Inc. for
their information. This is not a prospectus, circular or representation in-
tended for use in the purchase of shares of the Fund or any securities men-
tioned in this report.
PXP 1375 4902-SEM 06/01
Semiannual Report
[LOGO OF ZWEIG]
The Zweig Fund, Inc.
June 30, 2001
[LOGO OF PHOENIX INVESTMENT PARTNERS]