[PHOTO]
Dear Shareholder:
The net asset value of the Zweig Fund, Inc. decreased 16.4% during the three
months ended September 30, 2001, including the $0.22 distribution paid on July
26, 2001. During the same period, the S&P 500 Index declined 14.7%, including
dividends. The Fund's exposure during the third quarter averaged approximately
97%.
For the nine months ended September 30, 2001, the Fund's net asset value
declined 24.3%, including $0.71 in distributions. During this span, the S&P
500 Index fell 20.4%, including dividends. Our average exposure for this
period was 96%.
The third quarter was a difficult one for the equity markets. The Dow Jones
Industrial Average dropped 15.8%, its worst showing since the last quarter of
1987. The Nasdaq composite declined 31%, and the S&P 500 Index, as noted
above, was down nearly 15%./1/ According to Lipper Inc., 99% of equity mutual
funds finished the quarter in the red, and the average diversified mutual fund
dipped 16.2%.
In line with our indicators, which have served us so well in the past, we
were bullish during the quarter for the following reasons.
--------
/1/The Dow Jones Industrial Average and the S&P 500 Index measure broad stock
market total-return performance. The Nasdaq composite measures technology-
oriented stock total-return performance. All of the indices are unmanaged
and not available for direct investment.
November 1, 2001
Historically, going back to 1913, there have been roughly 11.9 cumulative
years when we were in a similar mode--three or more Federal Reserve interest
rate cuts and a growing money supply--and the average annual return for the
S&P 500 during that period was 32.8%. The average rate of return for the
remaining 76 years was in the vicinity of 2.2%.
That is basically why we were bullish. Other indicators pointed in the same
direction. What went wrong--and that was before the terrorist attacks on
September 11--is that I underestimated the impact of the bursting of the
technology bubble on the market and the economy. I thought the Fed actions
would induce capital expenditures in other areas sooner and stimulate consumer
spending. The housing market, for example, did show improvement. However,
conditions unexpectedly worsened in August and the events of September 11 only
exacerbated the market's weakness.
DISTRIBUTION DECLARED
On September 20, 2001, the Fund announced a distribution of $0.18 payable on
October 26, 2001, to stockholders of record as of October 10, 2001. Including
this distribution, our total payout since the Fund's inception is now $16.73.
MARKET OUTLOOK
The World Trade Center attack is perhaps the equivalent of a 1000-year
flood. It presents an entirely new and different set of largely unpredictable
eventualities. However, what happened to the market after the sneak attack on
Pearl Harbor on December 7, 1941, might provide a clue. At the time of the
attack, the market was already down roughly 10% from its previous high. On
news of the attack, the Dow fell 8.8% over a two-week period before recovering
in early
January. By November 1942, less than a year later, the Dow had rallied back to
its pre-attack level.
As far as the post-September 11 stock market is concerned, I think there
will be at least five and perhaps six areas of economic stimulus that will be
very important. They are:
One, we will see some tax cuts. I am not sure how Congress will work out the
specifics, but there is some bipartisanship and we'll get something.
Two, there will be more government spending. President Bush is requesting an
economic stimulus package of $75 billion on top of $40 billion in emergency
spending and $15 billion to the airlines. And, we expect there will be more of
that.
Three, we have lower oil prices, partly because of the attack. The effect is
almost like a tax cut.
Four, the Fed has cut rates two more times since the attack, and it is
flooding the economy with liquidity. This may be temporary, but it should
help.
Five, the insurance companies will pay out at least $40 billion. That is not
just for the World Trade Center. It includes life and other property insurance
that will go back to rebuilding the economy.
Then, there is a sixth stimulus that has nothing to do with the terrorist
attack. It is the huge inventory drop, which I was paying a lot of attention
to prior to September 11. Capacity utilization is also way down, but at some
point, inventory gets so thin that it has to be rebuilt.
These are all positives for the economy. As for negatives, we may see one
for housing, depending on the direction of prices. Also, consumer confidence
is pretty poor. Consumer confidence is also low at the end of a recession.
That did not bother me before the attack, but there's an additional fear
factor here. If consumers are reluctant to spend--and I am not making a
prediction--there could be some problems.
I don't know whether or when people will go back to living normally, but
there will be increased spending. But will it be enough to give us a vigorous
recovery? My guess is probably not. However, I think we will come off the
lows.
There is an enormous shock effect right now. Whatever the gross national
product is for the third and fourth quarters, I believe we will see a positive
first quarter in 2002, but I don't look for it to be huge.
Prior to the attack, consumers were concerned about the weakening economy.
S&P 500 earnings were down about 22% for the quarter, and the unemployment
rate was up 1% this year to 4.9%. However, the S&P has returned 15.8% in
previous periods when earnings were down versus only 3.8% when earnings were
up 10% or better. In addition, in the nine previous cases when unemployment
rose 1% as it has this year, the S&P was higher a year later in every case by
an average of 24.9%. History shows that once economic weakness is this
widespread and the Fed is cutting rates, stocks soon bottom and head sharply
higher.
My indicators are bullish. Our monetary model is supported by nine Fed cuts,
T-bills yields down over 50%, long bond yields off over 20%, and a
dramatically steeper yield curve. Our sentiment model is extremely bullish as
well because of the widespread pessimism. The puts/calls ratio, investor
sentiment surveys, and cash levels show that investors have raised cash in
fear of lower stock prices. In previous instances when investors have shown
this level of pessimism, the market has returned over 32% a year.
In view of the above considerations, we remain bullish and as of this
writing, are about 97% invested.
2
PORTFOLIO COMPOSITION
Our leading industry groups as of September 30 included health care,
financial services, technology, telecommunications, oil and oil services, and
retailing. These groups all appeared on our June 30 listing. During the
quarter, we increased our position in health care, a category that held up
well in a difficult market. Our holdings were trimmed in oil and oil services,
a group that underperformed. Technology lost exposure because of market
weakness.
Some of our largest individual holdings include Pfizer, Microsoft, General
Electric, Citigroup, Wal-Mart, Johnson & Johnson, Tyco, SBC Communications,
Verizon, and Eli Lilly.
Eli Lilly is new to our portfolio. Johnson & Johnson, SBC Communications,
and Verizon showed relatively good performance during the quarter. Among the
top holdings listed in our previous quarterly report, we have reduced our
stake in AOL Time Warner, and IBM and Intel underperformed.
Sincerely,
/s/ Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
Chairman
3
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS
September 30, 2001
(Unaudited)
Number of
Shares Value
--------- -----------
Common Stocks 95.45%
Aerospace & Air Transport 0.55%
United Technologies Corp. ........................... 52,500 $ 2,441,250
-----------
Automotive 0.33%
General Motors Corp. ................................ 34,000 1,458,600
-----------
Building & Forest Products 1.70%
Cemex S.A. de CV, ADR................................ 61,144 1,255,898
International Paper Co. ............................. 86,300 2,968,440
Weyerhaeuser Co. .................................... 68,000 3,312,280
-----------
7,536,618
-----------
Chemicals 0.88%
Dow Chemical Co. .................................... 119,100 3,901,716
-----------
Commercial Services 0.61%
Omnicom Group, Inc. ................................. 42,000 2,725,800
-----------
Consumer Products 3.90%
Anheuser-Busch Cos., Inc. ........................... 68,000 2,847,840
Avon Products, Inc. ................................. 34,000 1,572,500
Kimberly-Clark Corp. ................................ 68,000 4,216,000
PepsiCo, Inc. ....................................... 102,200 4,956,700
Procter & Gamble Co. ................................ 51,000 3,712,290
-----------
17,305,330
-----------
Electronics -- Electrical 4.27%
Celestica, Inc. ..................................... 34,000(a) 928,200
Emerson Electric Co. ................................ 68,000 3,200,080
Flextronics International Ltd. ...................... 34,000(a) 562,360
General Electric Co. ................................ 350,000 13,020,000
Jabil Circuit, Inc. ................................. 68,000(a) 1,217,200
-----------
18,927,840
-----------
Engineering & Machinery 0.33%
SPX Corp. ........................................... 17,500 1,450,750
-----------
4
Number of
Shares Value
--------- -----------
Financial Services 19.02%
American International Group, Inc. .................. 108,900 $ 8,494,200
Bank of America Corp. ............................... 136,300 7,959,920
Capital One Financial Corp. ......................... 68,000 3,130,040
Citigroup, Inc. ..................................... 276,000 11,178,000
Fannie Mae........................................... 91,900 7,357,514
Freddie Mac.......................................... 123,000 7,995,000
H & R Block, Inc. ................................... 136,000 5,244,160
Household International, Inc. ....................... 68,000 3,833,840
Lehman Brothers Holdings, Inc. ...................... 78,200 4,445,670
Lincoln National Corp. .............................. 68,000 3,170,840
MBNA Corp. .......................................... 68,000 2,059,720
Merrill Lynch & Co., Inc. ........................... 51,000 2,070,600
MetLife, Inc. ....................................... 102,000 3,029,400
Morgan Stanley Dean Witter & Co. .................... 78,100 3,619,935
SouthTrust Corp. .................................... 67,800 1,726,866
Washington Mutual, Inc. ............................. 136,150 5,239,052
Wells Fargo & Co. ................................... 85,000 3,778,250
-----------
84,333,007
-----------
Health Care 16.59%
American Home Products Corp. ........................ 68,000 3,961,000
Amgen, Inc. ......................................... 68,000(a) 3,996,360
Bristol-Myers Squibb Co. ............................ 102,200 5,678,232
Cardinal Health, Inc. ............................... 50,900 3,764,055
Eli Lilly & Co. ..................................... 102,000 8,231,400
Guidant Corp. ....................................... 81,600(a) 3,141,600
Johnson & Johnson.................................... 178,200 9,872,280
Medimmune, Inc. ..................................... 68,100(a) 2,426,403
Pfizer, Inc. ........................................ 340,800 13,666,080
Pharmacia Corp. ..................................... 119,000 4,826,640
St. Jude Medical, Inc. .............................. 51,000 3,490,950
Tenet Healthcare Corp. .............................. 81,900(a) 4,885,335
UnitedHealth Group Inc. ............................. 85,000 5,652,500
-----------
73,592,835
-----------
Investment Companies 2.73%
Nasdaq-100 Index..................................... 278,000 8,056,440
Semiconductor Holders Trust.......................... 137,000 4,049,720
-----------
12,106,160
-----------
Manufacturing 3.25%
Caterpillar, Inc. ................................... 68,000 3,046,400
Honeywell International, Inc. ....................... 68,000 1,795,200
Tyco International Ltd. ............................. 210,000 9,555,000
-----------
14,396,600
-----------
5
Number of
Shares Value
--------- -----------
Media 3.46%
Comcast Corp., Class A............................... 103,300(a) $ 3,705,371
Gannett Co., Inc. ................................... 34,000 2,043,740
Gemstar-TV Guide International, Inc. ................ 86,000(a) 1,695,060
McGraw-Hill Cos., Inc. .............................. 74,500 4,335,900
New York Times Co., Class A.......................... 61,500 2,400,345
Viacom, Inc., Class B................................ 33,900(a) 1,169,550
-----------
15,349,966
-----------
Metals 0.60%
Alcoa, Inc. ......................................... 85,100 2,638,951
-----------
Oil & Oil Services 6.43%
Anadarko Petroleum Corp. ............................ 81,600 3,923,328
BJ Services Co. ..................................... 68,000(a) 1,209,720
Chevron Corp. ....................................... 50,800 4,305,300
El Paso Corp. ....................................... 68,000 2,825,400
Enron Corp. ......................................... 69,900 1,903,377
Exxon Mobil Corp. ................................... 190,800 7,517,520
Occidental Petroleum Corp. .......................... 68,000 1,655,120
Santa Fe International Corp. ........................ 34,000 722,500
Talisman Energy, Inc. ............................... 51,000 1,734,510
USX-Marathon Group................................... 102,400 2,739,200
-----------
28,535,975
-----------
Railroads 0.36%
CSX Corp. ........................................... 51,000 1,606,500
-----------
Restaurants 0.62%
McDonald's Corp. .................................... 102,000 2,768,280
-----------
Retailing 5.65%
Home Depot, Inc. .................................... 164,000 6,292,680
Kroger Co. .......................................... 68,000 1,675,520
Lowe's Cos., Inc. ................................... 125,700 3,978,405
Target Corp. ........................................ 76,800 2,438,400
Wal-Mart Stores, Inc. ............................... 215,500 10,667,250
-----------
25,052,255
-----------
Technology 14.79%
AOL Time Warner, Inc. ............................... 170,100(a) 5,630,310
Applied Materials, Inc. ............................. 70,200(a) 1,996,488
Cisco Systems, Inc. ................................. 280,300(a) 3,414,054
Corning, Inc. ....................................... 35,000 308,700
Cypress Semiconductor Corp. ......................... 70,000(a) 1,040,200
Dell Computer Corp. ................................. 187,900(a) 3,481,787
Electronic Data Systems Corp. ....................... 85,100 4,900,058
EMC Corp. ........................................... 115,000(a) 1,351,250
6
Number of
Shares Value
--------- ------------
Technology (continued)
First Data Corp. ................................... 68,300 $ 3,979,158
Intel Corp. ........................................ 305,600 6,246,464
International Business Machines Corp. .............. 81,600 7,531,680
JDS Uniphase Corp. ................................. 36,000(a) 221,200
Lucent Technologies, Inc. .......................... 147,200 843,456
Microchip Technology, Inc. ......................... 52,500(a) 1,407,000
Microsoft Corp. .................................... 255,500(a) 13,073,935
Motorola, Inc. ..................................... 67,800 1,057,680
Network Appliance, Inc. ............................ 35,000(a) 238,000
Oracle Corp. ....................................... 262,300(a) 3,299,734
QUALCOMM, Inc. ..................................... 52,500(a) 2,495,850
Siebel Systems, Inc. ............................... 85,200(a) 1,108,452
Sun Microsystems, Inc. ............................. 210,000(a) 1,736,700
USinternetworking, Inc. ............................ 70,050(a) 18,913
Yahoo!, Inc. ....................................... 21,200(a) 186,772
------------
65,567,841
------------
Telecommunications 8.29%
ADC Telecommunications, Inc. ....................... 122,500(a) 427,525
Amdocs Ltd. ........................................ 68,000(a) 1,812,200
AT&T Corp. ......................................... 210,000 4,053,000
AT&T Wireless Services, Inc. ....................... 155,378(a) 2,321,347
General Motors Corp., Class H....................... 140,000 1,866,200
Nokia Corp., ADR.................................... 150,000 2,347,500
Nortel Networks Corp. .............................. 140,000 785,400
SBC Communications, Inc. ........................... 187,100 8,816,152
Telephone & Data Systems, Inc. ..................... 34,100 3,215,630
TyCom Ltd. ......................................... 52,500(a) 412,125
Verizon Communications, Inc. ....................... 153,100 8,284,241
WorldCom, Inc.--WorldCom Group...................... 161,050(a) 2,422,192
------------
36,763,512
------------
Utilities -- Electric & Gas 1.09%
Calpine Corp. ...................................... 91,600(a) 2,089,396
Exelon Corp. ....................................... 61,200 2,729,520
------------
4,818,916
------------
Total Common Stocks............................... 423,278,702
------------
Unit Investment Trusts 1.22%
S&P Mid-Cap 400 Depositary Receipts................. 68,200 5,398,030
------------
7
Principal
Amount Value
----------- ------------
Short-Term Investments 3.34%
Volkswagen Corp., 3.40%, 10/01/01.................. $14,800,000 $ 14,800,000
------------
Total Investments -- 100.01%................................. 443,476,732
Cash and Other Assets Less Liabilities -- (0.01)%............ (12,469)
------------
Net Assets (Equivalent to $7.26 per share based on 61,073,403
shares of capital stock outstanding) -- 100.00%............. $443,464,263
============
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(a) Non-income producing security.
8
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
September 30, 2001
(Unaudited)
Net Asset Value
Total Net Assets per share
---------------------------- ----------------
Beginning of period: December
31, 2000...................... $ 620,354,228 $ 10.32
Net investment income........ $ 251,462 $ 0.01
Net realized and unrealized
loss on investments......... (143,001,193) (2.36)
Dividends from net investment
income and distributions
from net long-term and
short-term capital gains.... (42,856,261) (0.71)
Net asset value of shares
issued to shareholders in
reinvestment of dividends
resulting in issuance of
common stock................ 8,716,027 --
------------- -------
Net decrease in net
assets/net asset value...... (176,889,965) (3.06)
------------- -------
End of period: September 30,
2001.......................... $ 443,464,263 $ 7.26
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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.
9
OFFICERS AND DIRECTORS Quarterly Report
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. [LOGO] ZWEIG
Director The Zweig Fund, Inc.
Investment Adviser
Phoenix/Zweig Advisers LLC September 30, 2001
900 Third Avenue
New York, NY 10022
Fund Administrator
Phoenix Equity Planning Corp.
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
EquiServe Trust Co., N.A.
PO Box 43010
Providence, RI 02940-3010
Legal Counsel
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
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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 in-
tended for use in the purchase of shares of the Fund or any securities men-
tioned in this report.
PXP 1375 4902-3Q-01
[LOGO] PHOENIX INVESTMENT PARTNERS
A member of The Phoenix Companies, Inc.