August 1, 2002
[PHOTO]
Dear Shareholder:
For the three months ended June 30, 2002, the net asset value of The Zweig
Fund, Inc. declined 12.67%, including $0.194 in reinvested distributions and
reflecting participation in the rights offering that ended June 17, 2002.
During the same period, the Standard & Poor's 500 Index fell 13.40% with
dividends reinvested./1/
The Fund's net asset value for the six months ended June 30, 2002, decreased
13.87%, including $0.389 per share in reinvested distributions and reflecting
participation in the rights offering. The S&P 500 Index, with dividends
reinvested, was down 13.16% for the same period.
I am not very happy with the results, although we did better than the S&P in
the quarter. I don't think it is good enough. I don't like to lose that kind of
money. Pulled down primarily by technology, the market was really bad in the
quarter. Near the end of the quarter and continuing into July, the market was
hit extremely hard. At this writing, we are holding about 27% in cash. Our
exposure had been in that ballpark for the last few weeks. We are trying to be
defensive, but it has been a very tough market and I don't think anyone can be
very happy here.
DISTRIBUTION DECLARED
On June 18, 2002, the Fund announced a distribution of $0.165 per share
payable to shareholders of record July 10, 2002. This distribution was paid on
July 26, 2002. Including this distribution, the Fund's total payout since its
inception is now $17.284.
MARKET OUTLOOK
For the markets generally, it was a brutal second quarter. The Dow Jones
Industrial Average fell 11.2%, the Nasdaq Composite Index dropped 20.7%, while
the S&P 500 Index declined 13.40%./2/ The only potential good news is that,
historically, whenever the S&P 500 dropped by 10% or more in a quarter in the
post-war period, the subsequent quarter did very well. It was up every time
with some pretty decent gains. However, I can't tell you that it will happen
this time. In fact, the quarter has gotten off to a horrible start. And that is
not because of any single factor.
As I see it, the biggest problems facing the current market include the
questionable accounting practices and outright corporate fraud. The newspaper
headlines daily feature something wrong going on with Enron, Andersen, Global
Crossing, Tyco, WorldCom, ImClone, or whichever is the topic of the day.
--------
/1/ The S&P 500 Index measures broad stock market total return performance. The
index is unmanaged, does not reflect investment management fees, and is not
available for direct investment.
/2/ The Dow Jones Industrial Average measures stock market total return
performance. The Nasdaq is a common measure of technology-oriented stock total
return performance. The indexes are unmanaged, do not reflect investment
management fees, and are not available for direct investment.
People are concerned about these shenanigans. They are also concerned about
the accounting treatment of stock options, a subject I have been upset about
for many years. As a consequence, the impression is that the emperor is not
wearing any clothes.
Most of us believed in the accounting system. While there was some
"smoothing" going on, there were auditors and there was reasonable reliance on
the earnings figures and that management was behaving properly. Now the general
impression is that there are a lot of crooks out there cooking the books. That
is taking the good stocks down with the bad.
Clearly, the abuses are taking place in a minority of companies. Yet these
bad apples are getting all the play, and Congress is making a big deal about
it. All this is severely damaging investors' belief in the integrity of the
financial markets. I have never seen anything quite like what is happening now.
The crisis in confidence is placing a heavy weight on the markets. Also, the
high valuations are not helping. Price/earnings ratios are still high, dividend
yields are low, and price-to-book values are high. It is hard to claim that the
market is cheap--it just isn't.
When you don't have a valuation cushion under the market, these shocks to
the system could make things worse. I could argue that, for several reasons,
including the low inflation rate, price/earnings ratios should be on the high
side. However, if confidence ebbs in the system, you have a problem. This, I
think, is the crux of the stock market's ills. Even though interest rates and
the Fed actions have been fine and my indicators are pretty good, there is
something clearly wrong out there.
Alan Greenspan pointed to what he called infectious greed. I think he got it
right. It also made sense to me when, in late 1996, he warned about irrational
exuberance. However, the market then soared for three more years, inflating an
enormous bubble. We are still on the flip side of that bubble. We overdid on
the upside, the speculative side, the confidence side, and the greed side. When
the pendulum swings back, it may not go back to normal right away. There's the
chance it may take us back to what it was like in 1982 when fear reigned, and
nobody wanted to play the market. Of course, that was also the start of the
great bull market, but it can be a long way between here and there.
I think the fear of terrorism is another market factor. It creates problems
because we have to reallocate resources and spend more on defense. With the
economy weak, greater budget deficits develop. However, the increased
government spending actually helps to stimulate the market. We will have to
contend with terrorism for a long time to come. Despite this threat, the market
rallied in the fourth quarter of last year and early this year. The accounting
issues and scandals came to a head more recently. I think that has been the
real market bugaboo.
Economists seem more optimistic about the economy than business executives.
Alan Greenspan attributed this disparity, in part, to the difficulty companies
have in raising prices. It is really tough, but I read recently that core
producer prices are up around 6%, the greatest year-to-year gain in two years.
A rising producer price index may give companies some leverage to raise prices
and boost profit margins. Based on this perspective, a study projected a 20%
gain in profits over the next year. This is only an indicator, and I wouldn't
make too big a deal about it. However, we do need more pricing power to lift
profit margins.
The Fed is projecting gross domestic product growth at 3.5% to 3.75% this
year and 3.5% to 4% next year. With inflation holding steady at 1.5% to 1.75%,
the Fed apparently is holding short-term interest rates at a 40-year low of
1.75%. If these figures hold--and they seem quite reasonable to me--it should
provide a pretty
2
positive environment for the market and lead to solid economic growth and
greater corporate profits. My latest fear is that the stock market itself could
work against the economy. If it keeps falling, it would hurt consumer
confidence. At some point, the negative wealth effect of the considerable stock
market losses could undercut the economy.
Some analysts have expressed concern about the 6% to 7% depreciation of the
dollar against the euro and the yen since last March. I do not see this as a
problem. People have always been worried about the dollar. We have tested the
dollar to death against the stock market and have found no real connection.
Sometimes the market does well when the dollar is strong and sometimes it does
well when the dollar is weak and vice versa. One thing that a weak dollar does
is give us some economic advantage. Our exports suddenly get cheaper and
imports get more expensive. This is good for American business. If the euro is
strong against the dollar, it is a negative for the European community because
it hurts their exports to the U.S.
One could argue this dollar thing forever. I remember when the dollar
collapsed somewhere in the 1980s, and it didn't hurt our stock market at all. I
know that foreigners own a lot of our holdings--perhaps 40% of Treasuries, 25%
of corporate bonds, and 13% of equities. They may sell some of their holdings,
but I have no idea whether they will. This isn't a big worry. It could actually
help our economy if the dollar remains where it is or even weakens some. The
weaker dollar stimulates the U.S. economy, and we need every stimulus to get us
going again.
The market would be helped if there were more corporate buybacks of stocks.
Corporate buybacks are good for the stock market because they reduce the supply
of stock and put money into the hands of investors. Recently buybacks have
diminished. In the late 1990s and early 2000, stock buybacks averaged $40
billion per quarter. The first-quarter figure was less than $20 billion, with
the second quarter estimated at between $12 billion to $13 billion.
The buybacks probably were reduced by the recession. I don't think companies
generally have the earnings right now to feel flush enough to buy back stock.
If the economy recovers they might be more inclined to do so. Now that the
market has fallen so much, I would not be surprised if more buybacks at these
lower prices were announced. Home Depot recently reported a $2 billion buyback,
and Merck announced one of $10 billion. The market could use more such buybacks.
Summing up, the market positives include my very positive monetary
model--the Fed has cut 11 times. I would like to see the money supply grow
faster. It has been relatively sluggish lately, although it is still up 5% to
6% year-to-year. My sentiment indicator, which shows a lot of pessimism, is
also very positive. The other normal indicators are pretty good. The recession
has been over for the last six months. While the economy may have stalled
slightly, I think it is getting better, not worse.
As for the negatives, I still don't like the valuations. I am nervous about
the terrorism potentials and concerned about the accounting problems and the
corporate scandals. There are also problems out there, but my indicators are
bullish. As I have always said, you don't fight the Fed. However, you also
don't fight the tape, which is why we are holding 27% cash at this writing.
Normally with my indicators so strong, we would be 95% invested. We are holding
cash because of the negative action in the market. I won't catch the bottom
with that cash, but I at least want to see some sign that the momentum is
turning before I commit a lot of cash.
PORTFOLIO COMPOSITION
As of June 30, 2002, our leading industry groups included financial
services, health care,
3
technology, consumer products and services, energy, and retailing. With the
exception of consumer products and services, all of the above groups appeared
in our March 31 listing. During the quarter, we reduced our positions in
technology, health care, and manufacturing. We maintained our positions in
retailing and energy and increased our holdings in consumer products and
services.
Some of our largest individual holdings include Citigroup, General Electric,
Microsoft, Wal-Mart, Bank of America, Wells Fargo, Johnson & Johnson, Pfizer,
Pepsi, and Procter & Gamble. In the above grouping we added slightly to our
Procter & Gamble position. We trimmed slightly our holdings in Intel, which was
listed among our largest positions last quarter.
Sincerely,
/s/ Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
Chairman
4
OUR PRIVACY COMMITMENT
The Zweig Fund, Inc. recognizes that protecting the privacy and security of
the confidential personal information we collect about you is an important
responsibility. The following information will help you understand our privacy
policy and how we will handle and maintain confidential personal information as
we fulfill our obligations to protect your privacy. "Personal information"
refers to the nonpublic financial information obtained by us in connection with
providing you a financial product or service.
Information We Collect
We collect personal information to help us serve your financial needs, offer
new products or services, provide customer service and fulfill legal and
regulatory requirements. The type of information that we collect varies
according to the products or services involved, and may include:
.. Information we receive from you on applications and related forms (such as
name, address, social security number, assets and income); and
.. Information about your transactions and relationships with us, our
affiliates, or others (such as products or services purchased, account
balances and payment history).
Information Disclosed in Administering Products and Services
We will not disclose personal information about current or former customers
to non-affiliated third parties except as permitted or required by law. We do
not sell any personal information about you to any third party. In the normal
course of business, personal information may be shared with persons or entities
involved in servicing and administering products and services on our behalf,
including your broker, financial advisor or financial planner and other
services providers and affiliates assisting us.
Procedures to Protect Confidentiality and Security of Your Personal Information
We have procedures in place that limit access to personal information to
those employees and services providers who need to know such information in
order to perform business services on our behalf. We educate our employees on
the importance of protecting the privacy and security of confidential personal
information. We also maintain physical, electronic and procedural safeguards
that comply with federal and state regulations to guard your personal
information.
We will update our policy and procedures where necessary to ensure that your
privacy is maintained and that we conduct our business in a way that fulfills
our commitment to you. If we make any material changes in our privacy policy,
we will make that information available to customers through our Web site
and/or other communications.
5
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 2002
(Unaudited)
Number of
Shares Value
--------- -----------
COMMON STOCKS 76.64%
AEROSPACE & AIR TRANSPORT 2.03%
Boeing Co...................... 90,000 $ 4,050,000
Raytheon Co.................... 51,000 2,078,250
United Technologies Corp....... 51,100 3,469,690
-----------
9,597,940
-----------
AUTOS -- AUTO PARTS 0.86%
Ford Motor Co.................. 141,000 2,256,000
General Motors Corp............ 34,000 1,817,300
-----------
4,073,300
-----------
BUILDING & FOREST PRODUCTS 2.08%
International Paper Co......... 54,700 2,383,826
Masco Corp..................... 90,000 2,439,900
Smurfit-Stone Container Corp... 141,000(a) 2,174,220
Weyerhaeuser Co................ 44,200 2,822,170
-----------
9,820,116
-----------
CHEMICALS 0.98%
Dow Chemical Co................ 57,900 1,990,602
E. I. du Pont de Nemours & Co.. 59,400 2,637,360
-----------
4,627,962
-----------
COMMERCIAL SERVICES 2.24%
Cendant Corp................... 170,000(a) 2,699,600
FedEx Corp..................... 62,800 3,353,520
First Data Corp................ 121,200 4,508,640
-----------
10,561,760
-----------
CONSUMER PRODUCTS & SERVICES 6.90%
Anheuser-Busch Cos., Inc....... 90,000 4,500,000
Avon Products, Inc............. 39,000 2,037,360
Black & Decker Corp............ 45,800 2,207,560
Coca-Cola Co................... 107,000 5,992,000
Kimberly-Clark Corp............ 73,000 4,526,000
PepsiCo, Inc................... 141,200 6,805,840
Procter & Gamble Co............ 73,000 6,518,900
-----------
32,587,660
-----------
See notes to financial statements
6
Number of
Shares Value
--------- -----------
FINANCE -- FINANCIAL SERVICES 14.41%.
Allstate Corp............................. 90,000 $ 3,328,200
American Express Co....................... 79,800 2,898,336
American International Group, Inc......... 68,100 4,646,463
Bank of America Corp...................... 124,200 8,738,712
Capital One Financial Corp................ 73,000 4,456,650
Citigroup, Inc............................ 282,600 10,950,750
Fannie Mae................................ 73,100 5,391,125
Freddie Mac............................... 73,200 4,479,840
Household International, Inc.............. 73,000 3,628,100
John Hancock Financial Services, Inc...... 56,000 1,971,200
Lehman Brothers Holdings, Inc............. 73,000 4,563,960
Merrill Lynch & Co., Inc.................. 56,000 2,268,000
Morgan Stanley............................ 72,900 3,140,532
Wells Fargo & Co.......................... 151,200 7,569,072
-----------
68,030,940
-----------
FOOD, BEVERAGES, TOBACCO 0.89%.
Kraft Foods, Inc., Class A................ 102,000 4,176,900
-----------
HEALTH CARE 10.05%.
AmerisourceBergen Corp.................... 73,000 5,548,000
Amgen, Inc................................ 68,000(a) 2,847,840
Baxter International, Inc................. 45,800 2,035,810
Cardinal Health, Inc...................... 38,900 2,388,849
Eli Lilly & Co............................ 39,000 2,199,600
Guidant Corp.............................. 51,000(a) 1,541,730
Johnson & Johnson......................... 138,100 7,217,106
MedImmune, Inc............................ 51,100(a) 1,349,040
Pfizer, Inc............................... 214,600 7,511,000
Tenet Healthcare Corp..................... 73,200(a) 5,237,460
UnitedHealth Group, Inc................... 73,000 6,683,150
Wyeth..................................... 56,000 2,867,200
-----------
47,426,785
-----------
HOTELS 0.59%.
Starwood Hotels & Resorts Worldwide, Inc.. 85,000 2,795,650
-----------
INVESTMENT COMPANIES 0.65%.
S&P Mid-Cap 400 Depository Receipts....... 34,000 3,044,700
-----------
MANUFACTURING 3.76%.
General Electric Co....................... 365,300 10,611,965
Pitney Bowes, Inc......................... 79,800 3,169,656
SPX Corp.................................. 33,800 3,971,500
-----------
17,753,121
-----------
See notes to financial statements
7
Number of
Shares Value
--------- -----------
MEDIA 4.65%.
AOL Time Warner, Inc......................... 175,100(a) $ 2,575,721
Clear Channel Communications, Inc............ 68,000(a) 2,177,360
Comcast Corp., Class A....................... 73,900(a) 1,761,776
Gannett Co., Inc............................. 56,000 4,250,400
General Motors Corp., Class H................ 102,400 1,064,960
McGraw-Hill Cos., Inc........................ 55,800 3,331,260
New York Times Co., Class A.................. 80,000 4,120,000
Walt Disney Co............................... 141,000 2,664,900
-----------
21,946,377
-----------
METALS -- NONFERROUS 0.67%.
Barrick Gold Corp............................ 85,000 1,614,150
Freeport McMoRan Copper & Gold, Inc. Class B. 86,600(a) 1,545,810
-----------
3,159,960
-----------
OIL & OIL -- GAS DRILLING 6.19%.
Amerada Hess Corp............................ 45,800 3,778,500
Anadarko Petroleum Corp...................... 81,600 4,022,880
Ashland, Inc................................. 68,000 2,754,000
ChevronTexaco Corp........................... 38,900 3,442,650
Exxon Mobil Corp............................. 158,300 6,477,636
Marathon Oil Corp............................ 73,200 1,985,184
Phillips Petroleum Co........................ 68,000 4,003,840
Talisman Energy, Inc......................... 61,200 2,763,180
-----------
29,227,870
-----------
RAILROADS -- TRUCKING -- COAL 0.13%.
CSX Corp..................................... 17,000 595,850
-----------
RESTAURANTS 0.97%.
McDonald's Corp.............................. 90,000 2,560,500
Wendy's International, Inc................... 51,000 2,031,330
-----------
4,591,830
-----------
RETAILING 5.58%.
Best Buy Co., Inc............................ 17,000(a) 617,100
Home Depot, Inc.............................. 69,300 2,545,389
Kroger Co.................................... 56,000 1,114,400
Limited Brands............................... 107,000 2,279,100
Lowe's Cos., Inc............................. 106,900 4,853,260
Reebok International Ltd..................... 90,000(a) 2,655,000
Staples, Inc................................. 73,000(a) 1,438,100
Target Corp.................................. 52,600 2,004,060
Wal-Mart Stores, Inc......................... 160,900 8,851,109
-----------
26,357,518
-----------
See notes to financial statements
8
Number of
Shares Value
--------- ------------
TECHNOLOGY 9.11%.
Applied Materials, Inc................ 132,800(a) $ 2,525,856
Cisco Systems, Inc.................... 283,200(a) 3,950,640
Corning, Inc.......................... 35,000(a) 124,250
Dell Computer Corp.................... 141,600(a) 3,701,424
Electronic Data Systems Corp.......... 56,000 2,080,400
EMC Corp.............................. 86,300(a) 651,565
Hewlett-Packard Co.................... 90,000 1,375,200
Intel Corp............................ 266,400 4,867,128
International Business Machines Corp.. 56,000 4,032,000
Lucent Technologies, Inc.............. 147,200(a) 244,352
Micron Technology, Inc................ 68,000(a) 1,374,960
Microsoft Corp........................ 195,700(a) 10,704,790
Motorola, Inc......................... 84,800 1,222,816
Nokia Corp., ADR...................... 73,200 1,059,936
Nortel Networks Corp.................. 102,400(a) 148,480
Oracle Corp........................... 170,300(a) 1,612,741
Siebel Systems, Inc................... 68,200(a) 969,804
Sun Microsystems, Inc................. 85,300(a) 427,353
Texas Instruments, Inc................ 68,000 1,611,600
Yahoo!, Inc........................... 21,200(a) 312,912
------------
42,998,207
------------
TELECOMMUNICATIONS 2.18%.
AT&T Corp............................. 221,600 2,371,120
BellSouth Corp........................ 127,400 4,013,100
SBC Communications, Inc............... 127,500 3,888,750
------------
10,272,970
------------
UTILITIES -- ELECTRIC & GAS 1.72%.
Dominion Resources, Inc............... 45,800 3,031,960
Entergy Corp.......................... 39,000 1,655,160
TXU Corp.............................. 66,200 3,412,610
------------
8,099,730
------------
Total Common Stocks
(Cost $437,351,444).................. 361,747,146
------------
See notes to financial statements
9
Principal
Amount Value
----------- ------------
SHORT-TERM INVESTMENTS 28.12%.......
Avery Dennison, 1.98%, 7/01/02............ $14,750,000 $ 14,750,000
Becton Dickinson, 1.97%, 7/01/02.......... 4,000,000 4,000,000
BMW US Capital LLC, 1.98%, 7/01/02........ 23,500,000 23,500,000
Con Edison, 2.00%, 7/01/02................ 20,000,000 20,000,000
Deluxe Corp., 2.00%, 7/01/02.............. 23,500,000 23,500,000
SLM Corp., 2.00%, 7/01/02................. 23,500,000 23,500,000
UBS Financial Corp., 2.00%, 7/01/02....... 23,500,000 23,500,000
------------
Total Short-Term Investments
(Cost $132,750,000)........................... 132,750,000
------------
Total Investments (Cost $570,101,444) -- 104.76% 494,497,146
Liabilities in excess of other assets -- (4.76)% (22,481,248)
------------
Net Assets -- 100%.............................. $472,015,898
============
--------
(a) Non-income producing security.
For Federal income tax purposes, the tax basis of investments owned at June
30, 2002 was $570,887,650 and net unrealized depreciation of investments
consisted of:
Gross unrealized appreciation. $ 17,058,034
Gross unrealized depreciation. (93,448,538)
------------
Net unrealized depreciation... $(76,390,504)
============
See notes to financial statements
10
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2002
(Unaudited)
ASSETS
Investments, at value (identified cost $570,101,444).......... $494,497,146
Cash.......................................................... 82,942
Dividends receivable.......................................... 273,154
Prepaid expenses and other assets............................. 117,032
------------
Total Assets.............................................. 494,970,274
============
LIABILITIES
Payable for investment securities purchased................... 21,673,416
Rights offering payable....................................... 789,758
Accrued advisory fees (Note 4)................................ 300,308
Accrued administration fees (Note 4).......................... 45,929
Other accrued expenses........................................ 144,965
------------
Total Liabilities......................................... 22,954,376
------------
NET ASSETS $472,015,898
============
NET ASSET VALUE, PER SHARE
($472,015,898 / 73,233,013 shares outstanding -- Note 5)...... $ 6.45
============
Net Assets consist of
Capital paid-in............................................... $629,985,758
Accumulated net realized loss on investments.................. (82,365,562)
Net unrealized depreciation on investments.................... (75,604,298)
------------
$472,015,898
============
See notes to financial statements
11
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2002
(Unaudited)
Investment Income
Income.........................................................
Interest................................................... $ 456,703
Dividends (net of foreign withholding taxes of $5,369)..... 2,331,063
------------
Total Income............................................ 2,787,766
------------
Expenses.......................................................
Investment advisory fees (Note 4).......................... 1,913,897
Administrative fees (Note 4)............................... 292,714
Transfer agent fees........................................ 144,438
Printing and postage expenses.............................. 83,260
Professional fees.......................................... 47,060
Directors' fees and expenses (Note 4)...................... 46,155
Custodian fees............................................. 35,657
Miscellaneous.............................................. 91,224
------------
Total Expenses.......................................... 2,654,405
------------
Net Investment Income............................... 133,361
------------
Net Realized and Unrealized Losses
Net realized loss on investments............................... (54,718,151)
Increase in unrealized depreciation on investments............. (11,931,030)
------------
Net realized and unrealized loss on investments............ (66,649,181)
------------
Net decrease in net assets resulting from operations....... $(66,515,820)
============
See notes to financial statements
12
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Six
Months Ended For the Year
June 30, 2002 Ended
(Unaudited) December 31, 2001
------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)..................................... $ 133,361 $ (174,304)
Net realized loss on investments................................. (54,718,151) (38,614,009)
Increase in unrealized depreciation of investments............... (11,931,030) (50,005,448)
------------ -------------
Net decrease in net assets resulting from
operations.................................................. (66,515,820) (88,793,761)
------------ -------------
Dividends and distributions to shareholders from
Net investment income............................................ (133,361) (477,795)
Net realized short-term gains.................................... -- (4,254,673)
Tax return of capital............................................ (23,844,563) (49,117,006)
------------ -------------
Total dividends and distributions to shareholders............. (23,977,924) (53,849,474)
------------ -------------
Capital share transactions
Net asset value of shares issued to shareholders in
reinvestment of dividends resulting in the issuance
of common stock................................................ 6,178,332 11,550,317
Net proceeds from the sales of shares during rights offering..... 67,070,000 --
------------ -------------
Net increase in net assets derived from capital share
transactions................................................... 73,248,332 11,550,317
------------ -------------
Net decrease in net assets....................................... (17,245,412) (131,092,918)
NET ASSETS
Beginning of period.................................................. 489,261,310 620,354,228
------------ -------------
End of period........................................................ $472,015,898 $ 489,261,310
============ =============
See notes to financial statements
13
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2002
(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 principles
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
Adviser. Debt securities may be valued on the basis of prices provided by an
independent pricing service, when such prices are believed by the 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, 2002) 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. Discount and premium on securities
purchased other than short-term securities are accreted on the constant yield
method over the life of the respective securities.
Realized gains and losses on sales of investments are determined on the
identified cost basis for financial reporting and tax purposes.
14
C. Federal Income Tax Information
It is the policy of the Fund to comply with the requirements of the Internal
Revenue Code ("the Code"), applicable to regulated investment companies, and to
distribute all of its taxable income to its shareholders. In addition, the Fund
intends to distribute an amount sufficient to avoid the imposition of any
excise tax under Section 4982 of the Code. Therefore, no provision for federal
income taxes or excise taxes has been made.
D. Dividends and Distributions to Shareholders
Distributions to shareholders are recorded on the ex-dividend date. Income
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences include the treatment of net operating losses, losses
deferred due to wash sales and the timing of distributions. For financial
reporting purposes, book basis capital accounts are adjusted to reflect the tax
character of permanent book/tax differences. The reclassifications have no
impact on the net assets or net asset value of the Fund. As of December 31,
2001, the Fund increased undistributed net investment income by $174,304 and
decreased paid in capital by $(174,304).
As of December 31, 2001, the components of distributable earnings on a tax
basis (excluding unrealized appreciation/(depreciation) which is disclosed in
the schedule of investments) were as follows:
Undistributed Ordinary Income........... $0
Undistributed Long-term Capital Gains... $0
Capital Loss Carryovers................. $38,468,937 expiring 2009
Capital loss carryovers may be used to offset future capital gains. The
differences between the book basis and tax basis components of distributable
earnings relate principally to the timing of recognition of income and gains
and distributions for federal income tax purposes. Short-term gain
distributions reported in the statement of changes in net assets are reported
as ordinary income for federal tax purposes.
NOTE 3 -- Portfolio Transactions
During the six months ended June 30, 2002, purchases and sales of
investments, excluding short-term investments were:
Common
Stocks
------------
Purchases............................ $235,289,115
============
Sales................................ $262,421,262
============
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,
15
the Adviser is responsible for the actual management of the Fund's portfolio.
Phoenix/Zweig Advisers LLC is a wholly-owned subsidiary of Phoenix Investment
Partners, Ltd. ("PXP"). PXP is an indirect, wholly-owned subsidiary of The
Phoenix Companies, Inc. ("PNX"). 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, 2002, the Fund accrued
advisory fees of $1,913,897.
b) Administration Fee: Phoenix Equity Planning Corporation ("PEPCO"), an
indirect wholly-owned subsidiary of PNX, 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, 2002, the Fund accrued administration fees of
$292,714.
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, 2002, the Fund
paid PXP Securities Corp., a wholly-owned subsidiary of PXP, brokerage
commissions of $0 in connection with portfolio transactions effected through
them. In addition, PXP Securities Corp. charged $16,535 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, 2002, the Fund had one class of common stock, par value $.10 per
share, of which 100,000,000 shares are authorized and 73,233,013 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
automatically reinvested by EquiServe, as the Plan agent, in whole or
fractional shares of the Fund, as the case may be. For the year ended December
31, 2001 and the six months ended June 30, 2002, there were 1,310,223 and
787,167 shares, respectively, issued pursuant to the Plan.
In a non-transferable rights offering ended June 17, 2002, shareholders
exercised rights to purchase 11,000,000 shares of common stocks at an offering
price of $6.17 per share for proceeds of $67,070,000, net of estimated expenses
of $800,000.
16
On June 18, 2002, the Fund announced a distribution of $0.165 per share to
shareholders of record on July 10, 2002. This distribution has an ex-dividend
date of July 8, 2002 and is payable on July 26, 2002.
NOTE 6 -- Financial Highlights
Selected data for a share outstanding throughout each period:
Six Months
Ended Year Ended December 31
June 30, 2002 --------------------------------------------------
(Unaudited) 2001 2000 1999 1998 1997
------------- -------- -------- -------- -------- --------
Per Share Data
Net asset value, beginning of period..................... $ 7.96 $ 10.32 $ 12.20 $ 12.03 $ 12.63 $ 11.45
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net investment income.................................... -- -- 0.20 0.20 0.23 0.35
Net realized and unrealized gains (losses)............... (1.12) (1.47) (0.90) 1.16 0.55 2.03
-------- -------- -------- -------- -------- --------
Total from investment operations......................... (1.12) (1.47) (0.70) 1.36 0.78 2.38
-------- -------- -------- -------- -------- --------
Dividends and Distributions
Dividends from net investment income..................... -- (0.01) (0.21) (0.19) (0.35) (0.31)
Distributions from net realized gains.................... -- (0.07) (0.97) (1.00) (0.87) (0.89)
Tax return of capital.................................... (0.38) (0.81) -- -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions........................ (0.38) (0.89) (1.18) (1.19) (1.22) (1.20)
-------- -------- -------- -------- -------- --------
Effect on net asset value as a result of rights offering* (0.01) -- -- -- (0.16) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period........................ $ 6.45 $ 7.96 $ 10.32 $ 12.20 $ 12.03 $ 12.63
======== ======== ======== ======== ======== ========
Market value, end of period**......................... $ 6.30 $ 7.90 $ 9.81 $ 10.06 $ 10.81 $ 13.25
======== ======== ======== ======== ======== ========
Total investment return***............................... (16.78)% (11.27)% 9.45% 3.61% (8.68)% 34.76%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data
Net assets, end of period (in thousands)................. $472,016 $489,261 $620,354 $733,523 $723,521 $666,366
Ratio of expenses to average net assets.................. 1.18%**** 1.19% 1.12% 1.12% 1.12% 1.16%
Ratio of net investment income (loss) to average net
assets.................................................. 0.06%**** (0.03)% 1.74% 1.68% 1.90% 2.88%
Portfolio turnover rate.................................. 57.7% 80.30% 114.8% 114.9% 68.7% 93.0%
--------
* 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 purpose of this calculation,
to be reinvested at prices obtained under the Fund's Automatic
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 the end of such
periods.
**** Annualized.
17
--------------------------------------------------------------------------------
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
8, 2002. The meeting was held for the purpose of electing Elliot S. Jaffe and
Wendy Luscombe as directors. The Fund's other Directors who continue in office
are Martin E. Zweig, Ph.D., Alden C. Olson, Ph.D., Charles H. Brunie, and James
B. Rogers, Jr.
The results of the above matters were as follows:
Votes Votes
Directors Votes For Against Withheld Abstentions
--------- ---------- ------- --------- -----------
Elliot S. Jaffe 50,391,286 N/A 1,310,295 N/A
Wendy Luscombe. 50,504,218 N/A 1,197,363 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.
18
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
EquiServe Trust Co., N.A.
P.O. Box 43010
Providence, RI 02940-3010
Legal Counsel
Katten, Muchin, Zavis & Rosenman
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
intended for use in the purchase of shares of the Fund or any securities
mentioned in this report.
PXP 1375
4902-SEM 6/02
Semiannual Report
Zweig
The Zweig Fund, Inc.
June 30, 2002
[LOGO] PHOENIX INVESTMENT
PARTNERS