May 1, 2002 [PHOTO] Dear Shareholder: The net asset value of the Zweig Fund, Inc. declined 1.4% for the three months ended March 31, 2002, including the $0.195 distribution paid on January 10, 2002. During the same period, the Standard & Poor's 500 Index gained 0.3%, including dividends. Our average equity exposure during the period was approximately 93%. Because our indicators were pretty bullish, we had a fairly high exposure. However, the market was extremely choppy, with a lot of rotation among industry groups. January was okay; February was very poor; and all the major indexes staggered during the last few weeks of the quarter. As of March 31, 2002, our exposure was approximately 90%. DISTRIBUTION DECLARED On March 18, 2002, the Fund announced a distribution of $0.194 payable on April 26, 2002, to shareholders of record on April 10, 2002. Including this distribution, our total payout since the Fund's inception is now $17.119. MARKET OUTLOOK The Dow Jones Industrial Average rose 3.8% in the first quarter, while the Nasdaq Composite Index dropped 5.3%. It was a very selective market. The Nasdaq is dominated by technology, and there were a lot of technology problems. Since the end of the first quarter, the Nasdaq has been even worse. It's not easy to make a case that technology stocks are cheap. I am not saying that some can't go up, but it has just been really tough. The Dow is a much narrower group, but here, too, there have been problems. Recently, two big Dow components--General Electric and IBM--have had accounting and other worries. So, it's not easy going for the Dow either. The Fed held interest rates steady in March, saying it viewed the risks to the economy evenly balanced between sustained weakness and growth so strong it could ignite inflation. Later, Fed Chairman Alan Greenspan indicated to Congress that there would be no rush to raise rates from their 40-year lows. He reported that inflation pressures are well contained. Following last year's 11 rate cuts, a few hikes would still leave rates on the low side. I don't think it would necessarily be a bad thing if the Fed were to lift rates. The Fed would not act unless it felt that the economy was stronger and the recession was over. A few modest hikes would not be a big deal. Once you start getting into boosts of, say, 1 1/2% or 2%, it might be time to start worrying. The latest data suggest that the U.S. economy grew by 1.7% during last year's fourth quarter, while productivity surged by 5.2%. These numbers are still going to be revised. If these numbers are real, they are very favorable. It means that you can get solid growth in the economy without inflation. Most likely, the recession was over at the end of the third quarter or during the fourth quarter. I think the first- quarter figures are likely to be a lot stronger when they come out. There are many other indications that the recession has ended. New factory orders in March came in at the fastest rate in 14 years. The Institute for Supply Management reported that its factory index rose to 55.6 in March from 54.7 in February. The Fed said that industrial production jumped 0.7% in March, the largest increase since May 2000. Also, the Conference Board reported that its index of consumer confidence rallied to 110.2 in March, its highest level since August. I think the economy will also benefit in the short run by increased military spending. Congress has authorized $17.5 billion for emergency war costs, and President Bush has proposed increasing the military budget by $48 billion next year and $120 billion over five years. This will result in a federal budget deficit. People have the wrong idea about budget surpluses and deficits. They view deficits as something horrible and surpluses as something good. It is not that simple. When the government runs a surplus, it puts a drag on the economy, as it did during the last couple of years. Under these conditions, we would be better off cutting taxes and giving the money back to the people. I certainly am not suggesting that we should always run a deficit. But, we are going to see deficits during recessions when incomes, earnings, and tax receipts are down. That is the time the government should try to spend a bit more to combat the recession. It can cut back the spending when the economy is strong. Eventually, if the economy gets too strong, increased government spending can lead to inflation and Fed hikes, and then you have problems. After a span of low profits, the companies in the S&P 500 Index are projected to report earnings of $11.23 per share for the first quarter, up nearly 7% from the fourth quarter but off nearly 9% from the final quarter of last year. I have no idea whether these figures will be met, but earnings have been depressed. Historically, when we come out of a recession, earnings tend to skyrocket. It is possible that this may not happen in the capital spending area because of so much oversupply. However, I expect that a lot of industries will see earnings recover. If not, we are in trouble, and I would get more bearish. With sales outpacing redemptions for the fifth consecutive month, investors added $4.69 billion to stock mutual funds in February. That's what I like to see--a moderate amount of money coming into mutual funds. Historically, the huge amounts of inflows have come near market tops. That's when people get as exuberant as they did during the first quarter of 2000. Conversely, when people panic and dump their mutual funds, you are usually near a bottom. That's what happened last September. We are now way past that market bottom. What I would like to see is a slow and steady stream of money coming into the funds. We could be in that territory now, and I hope it continues. I am also pleased to see the decline in margin debt, which fell to $147.03 billion in February, a drop of 2.3% from the end of the fourth quarter. Since the peak two years ago, when we had a speculative mania in technology, margin debt has fallen approximately by half, which is good. Relative to market capitalization, it is still on the high side. Relative to credit balances, which represent cash in brokerage accounts, margin debt is very low. There is more free cash in brokerage accounts than there is debt. We have only seen that situation twice before--at the market bottoms in 1990-91 and 1987. With a lot of the debt eliminated and a lot of cash in brokerage houses, there is fuel to keep the market going. What you don't want to see is a lot of debt. Another trend to watch is the number of new issues. Newly public companies raised $10.2 billion in equity capital in the first quarter, up $7.1 billion from the first quarter of last year. The figure for the first quarter of 2000 was $17.8 billion. The current moderate numbers are not bad. What you don't want to see is what happened a few years ago when several new issues were coming out daily, and the totals were huge. New issues eat up cash and take money out of the market, so you don't want too many of them. In addition to the above straightforward new issues, there have been a lot of convertible 2 issues. This is a problem because they generally are sold by not-so-solid companies that are having a hard time getting financing. They are able to sell convertibles because people hedge them away by shorting the common stock. There have been a lot of these pseudo-equity offerings. If you add them to the overall total, I am sort of concerned, but I don't think we are at a danger level yet. Another market factor is the number of U.S. mergers and acquisitions. This volume dropped by more than half to $88.9 billion in the first quarter from $194.1 billion in the first quarter of 2001. I like to look at all these figures together--the initial public offerings, the convertibles, and the takeovers of other companies for cash. When mergers are just share for share, they have no effect on supply and demand. Cash takeovers are positive for the market because they shrink the number of shares and make cash available for the market. It is not great that these transactions are slowing down. I wish we had more cash takeovers. Summing up, my monetary model is about neutral. Money supply growth has slowed after having been very strong, but interest rates and inflation still aren't bad. The sentiment area has actually improved in the past few weeks and is at a high positive level. My overall model is consistent with somewhat above-average returns for the market. However, I am not looking for a gangbuster market. I don't have a crystal ball, but if you held a gun to my head, I'd say the market could go up about 10% in the next nine to 12 months. Right now, I am moderately bullish, but if my indicators worsen, we'll cut back. If the indicators improve, we'll increase our exposure. PORTFOLIO COMPOSITION Our leading industry groups on March 31, 2002, included technology, financial services, health care, manufacturing, retailing, and energy. With the exception of manufacturing, all of the above groups appeared in our year- end listing. During the quarter, we cut back our holdings in technology, health care, retailing, and telecommunications. We maintained our positions in financial services and energy and added to our manufacturing stocks. Some of our largest individual holdings include Microsoft, Citigroup, General Electric, Pfizer, Wal-Mart, Bank of America, Intel, Pepsi, and Wells Fargo. In the above grouping, we added to our positions in Pepsi and Wells Fargo. Sincerely, /s/ Martin E. Zweig, Ph.D. Martin E. Zweig, Ph.D. Chairman 3 THE ZWEIG FUND, INC. STATEMENT OF NET ASSETS March 31, 2002 (Unaudited) Number of Shares Value --------- ------------ Common Stocks 90.20% Aerospace & Air Transport 1.76% Raytheon Co. ....................................... 68,000 $ 2,791,400 United Technologies Corp. .......................... 74,900 5,557,580 ------------ 8,348,980 ------------ Autos -- Auto Parts 0.87% General Motors Corp. ............................... 68,000 4,110,600 ------------ Building & Forest Products 1.14% International Paper Co. ............................ 71,700 3,083,817 Smurfit-Stone Container Corp. ...................... 136,000(a) 2,331,040 ------------ 5,414,857 ------------ Chemicals 1.15% Dow Chemical Co. ................................... 68,100 2,228,232 E. I. du Pont de Nemours & Co. ..................... 68,000 3,206,200 ------------ 5,434,432 ------------ Commercial Services 3.37% Cendant Corp. ...................................... 204,000(a) 3,916,800 FedEx Corp. ........................................ 34,000(a) 1,975,400 First Data Corp. ................................... 51,300 4,475,925 Omnicom Group, Inc. ................................ 42,400 4,002,560 Sabre Holdings Corp. ............................... 34,000(a) 1,588,140 ------------ 15,958,825 ------------ Consumer Products & Services 5.07% Anheuser-Busch Cos., Inc. .......................... 68,000 3,549,600 Colgate-Palmolive Co. .............................. 51,000 2,914,650 Kimberly-Clark Corp. ............................... 68,000 4,396,200 PepsiCo, Inc. ...................................... 136,200 7,014,300 Procter & Gamble Co. ............................... 68,000 6,126,120 ------------ 24,000,870 ------------ 4 Number of Shares Value --------- ------------ Finance -- Financial Services 15.03% Allstate Corp. ..................................... 68,000 $ 2,568,360 American International Group, Inc. ................. 91,900 6,629,666 Bank of America Corp. .............................. 126,000 8,570,520 Capital One Financial Corp. ........................ 85,000 5,427,250 Citigroup, Inc. .................................... 286,200 14,172,624 Fannie Mae.......................................... 68,100 5,439,828 Freddie Mac......................................... 68,200 4,321,834 Lehman Brothers Holdings, Inc. ..................... 74,800 4,835,072 MBNA Corp. ......................................... 51,000 1,967,070 Merrill Lynch & Co., Inc. .......................... 74,800 4,142,424 Morgan Stanley Dean Witter & Co. ................... 108,700 6,229,597 Travelers Property Casualty Corp., Class A.......... 6,800(a) 136,000 Wells Fargo & Co. .................................. 136,000 6,718,400 ------------ 71,158,645 ------------ Food, Beverages, Tobacco 1.11% Kraft Foods, Inc., Class A.......................... 136,000 5,256,400 ------------ Health Care 11.99% AmerisourceBergen Corp. ............................ 34,000 2,322,200 Amgen, Inc. ........................................ 102,000(a) 6,087,360 Baxter International, Inc. ......................... 54,400 3,237,888 Bristol-Myers Squibb Co. ........................... 51,100 2,069,039 Cardinal Health, Inc. .............................. 33,900 2,403,171 Eli Lilly & Co. .................................... 34,000 2,590,800 Guidant Corp. ...................................... 85,000(a) 3,682,200 Johnson & Johnson................................... 133,100 8,644,845 MedImmune, Inc. .................................... 34,100(a) 1,341,153 Pfizer, Inc. ....................................... 272,800 10,841,072 Tenet Healthcare Corp. ............................. 68,200(a) 4,570,764 UnitedHealth Group, Inc. ........................... 68,000 5,196,560 Wyeth............................................... 57,800 3,794,570 ------------ 56,781,622 ------------ Hotels 0.91% Harrah's Entertainment, Inc. ....................... 34,000(a) 1,504,840 Starwood Hotels & Resorts Worldwide, Inc. .......... 74,800 2,813,228 ------------ 4,318,068 ------------ Manufacturing 6.49% Caterpillar, Inc. .................................. 102,000 5,798,700 General Electric Co. ............................... 341,700 12,796,665 Pitney Bowes, Inc. ................................. 68,000 2,910,400 SPX Corp. .......................................... 33,800 4,785,404 Tyco International Ltd. ............................ 136,400 4,408,448 ------------ 30,699,617 ------------ 5 Number of Shares Value --------- ------------ Media 5.48% AOL Time Warner, Inc. .............................. 170,100(a) $ 4,022,865 Clear Channel Communications, Inc. ................. 68,000(a) 3,495,880 Comcast Corp., Class A.............................. 103,300(a) 3,284,940 Gannett Co., Inc. .................................. 34,000 2,587,400 General Motors Corp., Class H....................... 140,000 2,303,000 McGraw-Hill Cos., Inc. ............................. 67,700 4,620,525 New York Times Co., Class A......................... 68,200 3,264,052 Walt Disney Co. .................................... 102,000 2,354,160 ------------ 25,932,822 ------------ Metals Nonferrous 0.54% Alcoa, Inc. ........................................ 68,100 2,570,094 ------------ Oil & Oil-Gas Drilling 5.64% Anadarko Petroleum Corp. ........................... 81,600 4,605,504 Ashland, Inc. ...................................... 68,000 3,094,680 ChevronTexaco Corp. ................................ 33,900 3,060,153 Exxon Mobil Corp. .................................. 153,300 6,719,139 Marathon Oil Corp. ................................. 68,200 1,964,160 Phillips Petroleum Co. ............................. 81,600 5,124,480 Talisman Energy, Inc. .............................. 51,000 2,128,740 ------------ 26,696,856 ------------ Restaurants 0.78% McDonald's Corp. ................................... 68,000 1,887,000 Wendy's International, Inc. ........................ 51,000 1,783,980 ------------ 3,670,980 ------------ Retailing 5.72% Circuit City Stores -- Circuit City Group........... 102,000 1,840,080 Home Depot, Inc. ................................... 103,900 5,050,579 Jones Apparel Group, Inc. .......................... 51,000(a) 1,782,450 Lowe's Cos., Inc. .................................. 54,300 2,361,507 Sears, Roebuck & Co. ............................... 47,600 2,440,452 Staples, Inc. ...................................... 68,000(a) 1,357,960 Target Corp. ....................................... 47,600 2,052,512 Wal-Mart Stores, Inc. .............................. 166,100 10,180,269 ------------ 27,065,809 ------------ Technology 17.10% ADC Telecommunications, Inc. ....................... 122,500(a) 498,575 Amdocs Ltd. ........................................ 51,000(a) 1,359,150 Analog Devices, Inc. ............................... 34,000(a) 1,531,360 Applied Materials, Inc. ............................ 69,900(a) 3,793,473 Celestica, Inc. .................................... 68,000(a) 2,465,680 Cisco Systems, Inc. ................................ 372,100(a) 6,299,653 Corning, Inc. ...................................... 35,000(a) 266,700 6 Number of Shares Value --------- ------------ Technology (continued) Dell Computer Corp. ................................ 170,700 $ 4,456,977 EMC Corp. .......................................... 193,200(a) 2,302,944 Intel Corp. ........................................ 273,500 8,317,135 JDS Uniphase Corp. ................................. 35,000(a) 206,150 Lucent Technologies, Inc. .......................... 147,200(a) 696,256 Microsoft Corp. .................................... 272,500(a) 16,434,475 Micron Technology, Inc. ............................ 68,000(a) 2,237,200 Motorola, Inc. ..................................... 67,800 962,760 Nokia Corp., ADR.................................... 102,300 2,121,702 Nortel Networks Corp. .............................. 140,000(a) 628,600 Oracle Corp. ....................................... 292,900(a) 3,749,120 QUALCOMM, Inc. ..................................... 34,100(a) 1,283,524 Siebel Systems, Inc. ............................... 102,200(a) 3,332,742 Sun Microsystems, Inc. ............................. 210,000(a) 1,852,200 Technology Select Sector SPDR....................... 340,000 7,367,800 Texas Instruments, Inc. ............................ 136,000 4,501,600 VeriSign, Inc. ..................................... 34,000(a) 918,000 VERITAS Software Corp. ............................. 68,000(a) 2,980,440 Yahoo!, Inc. ....................................... 21,200(a) 391,564 ------------ 80,955,780 ------------ Telecommunications 3.69% AT&T Corp. ......................................... 221,600 3,479,120 BellSouth Corp. .................................... 136,000 5,012,960 SBC Communications, Inc. ........................... 136,100 5,095,584 Verizon Communications, Inc. ....................... 61,300 2,798,345 WorldCom, Inc. -- WorldCom Group.................... 161,050(a) 1,085,477 ------------ 17,471,486 ------------ Utilities -- Electric & Gas 2.36% Dominion Resources, Inc. ........................... 40,800 2,658,528 Duke Energy Corp. .................................. 47,600 1,799,280 El Paso Corp. ...................................... 68,000 2,994,040 TXU Corp. .......................................... 68,000 3,706,680 ------------ 11,158,528 ------------ Total Common Stocks............................... 427,005,271 ------------ 7 Principal Amount Value ----------- ------------ Short-Term Investments 9.72% Anheuser-Busch Cos., Inc., 1.78%, 4/01/02........... $ 6,000,000 $ 6,000,000 Avery Dennison, 1.84%, 4/01/02...................... 20,000,000 20,000,000 UBS Financial Corp., 1.85%, 4/01/02................. 20,000,000 20,000,000 ------------ Total Short-Term Investments.................................. 46,000,000 ------------ Total Investments -- 99.92%................................... 473,005,271 Cash and Other Assets Less Liabilities -- 0.08%............... 365,302 ------------ Net Assets (Equivalent to $7.66 per share based on 61,834,947 shares of capital stock outstanding) -- 100%................. $473,370,573 ============ -------- (a) Non-income producing security. 8 THE ZWEIG FUND, INC. FINANCIAL HIGHLIGHTS March 31, 2002 (Unaudited) Net Asset Value Total Net Assets per share -------------------------- ---------------- Beginning of period: December 31, 2001............................ $489,261,310 $ 7.96 Net investment loss............ $ (28,204) $ -- Net realized and unrealized loss on investments........... (6,938,878) (0.11) Dividends from net investment income and distributions from net long-term and short-term capital gains................. (11,981,945) (0.19) Net asset value of shares issued to shareholders in reinvestment of dividends resulting in issuance of common stock.................. 3,058,290 -- ------------ ------- Net decrease in net assets/net asset value................... (15,890,737) (0.30) ------------ ------- End of period: March 31, 2002.... $473,370,573 $ 7.66 ============ ======= ------------------------------------------------------------------------------- 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 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 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 -------------------------------------------------------------------------------- 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 4902-1Q-02 Quarterly Report [LOGO] ZWEIG The Zweig Fund, Inc. March 31, 2002 [LOGO] PHOENIX INVESTMENT PARTNERS