<PAGE>
August 1, 1998
Dear Shareholder:
For the three months ended June 30, 1998. The Zweig Fund's net asset
value decreased 2.3%, including $0.33 in reinvested distributions. This
performance assumes participation in the recent rights offering. During the
same period, the Standard & Poor 500 Index rose 3.3%, with dividends
reinvested.
The Fund's net asset value for the six months ended June 30, 1998,
increased 7.0%, including $0.64 per share with reinvested distributions. The
S&P 500, with dividends reinvested, gained 17.7% for the same period.
Consistent with our policy of trying to minimize risk, our average equity
exposure during the first six months of 1998 was approximately 84%.
To put our performance in perspective, I would like to point out that the
value-oriented stocks that we generally favor have lagged growth stocks by a
wide margin. We do own some Dell, Microsoft and Intel but our portfolio is
overwhelmingly biased toward low price/earnings ratios, high dividends, low
price-to-book levels, and market or better rates of growth. These stocks simply
haven't worked out as well recently. However I have found that stocks with
strong fundamentals and attractive valuations tend to outperform the market
over long periods of time with less risk. And that's us. We will always seek to
achieve reasonable results with minimum risk.
DISTRIBUTION DECLARED
On June 15, 1998, the Fund announced a distribution of $0.31 per share
payable on July 27, 1998 to shareholders of record on July 10, 1998. Including
this payout, the Fund's total payout since its inception is now $13.20 per
share.
MARKET OUTLOOK
Counting from October 1990, this is the third longest bull market on
record, only months away from the previous record period that ended in 1929.
Some market observers have expressed concern over this comparison. I don't
think there is any significance about the length of either bull or bear
markets. What does matter are economic conditions. If they can stay positive
for an extended period of time, the markets can do the same -- or vice versa.
In 1929 the economy deteriorated drastically and that's what caused the crash.
Many people get trapped into measuring the length of various markets and start
worrying. I don't see any reason for concern on that basis.
If there is one fly in the ointment, it is the fact that the tape action
has been ragged with a lot of divergences. The blue chips have led the market
and the growth stocks have done well while the cyclicals and the smaller stocks
have fallen behind. This is exemplified in the performance difference in the
year to date between the Russell 2000 Index of smaller stocks and the S&P 500.
The Russell 2000 returned 4.9% vs. the S&P return of 17.7%. Interestingly, the
same divergence held true within the S&P 500. The top 50 stocks returned 32.2%
while the bottom 100 returned 0.3% through June 30.
It has been a strange market. The number of new highs is much lower than
it was several months ago while the breadth of the market -- the relationship
between advances and declines -- has been mediocre at best. The advance/decline
index topped out a few months ago. So we have seen the Dow, the S&P 500 and the
NASDAQ Composite setting new peaks while many of the other averages languished.
That's what we mean by negative divergences.
The real question is whether the divergences are a negative for the
market. Sometime, as in 1929 and 1987, it was. However, the divergences then
went on much longer and were more dramatic. Also, there have been instances
such as in the 1963-64 period when the market continued to do well despite the
divergences. So, while it is a negative in our model, it is offset by other
positive factors.
<PAGE>
We have also seen divergences in the U.S. economy largely because of the
Asian situation. Instead of a Goldilocks economy -- not too hot or too cold --
we are shifting to what some refer as a Dr. Jekyll and Mr. Hyde economy, with
some companies prospering and others faltering. Companies that would export a
lot to Asia are being hurt. Also hurt are companies with heavy commodities
exposure. These include some of the groups we hold -- oils, steels, coppers,
and aluminum. On the other hand, companies that import goods from Asia are
benefiting. This would include some retailers. So it is a mixed bag.
While there is much understandable concern about the Asian effect on the
U.S. economy, I think the impact so far is more positive than negative because
it is taking the edge off inflation. Both the Consumer and Producer Price
Indexes rose by only 0.1% in June. And Asia hasn't affected our basic economy
yet. Overall earnings have slowed down but are still O.K. The offset is lower
interest rates and lower inflation, which are good for stocks. While I am not a
betting person, I would say the odds are maybe three-to-one that we can work
out of this all right.
If Asia does stabilize -- and that would take some time -- it is possible
our economy could pick up even more steam and bring inflationary pressures.
However, I do not see it happening in the near term. On the longer view, if
inflation takes off I believe the Fed would hike rates. In fact, there are some
members of the Fed who would raise rates now. Frankly, I don't agree with them
but it is not my job to agree or disagree with the Fed. My responsibility is to
react to what the Fed will do.
As for today's market, a source of strength is the huge inflow of cash
into mutual funds. Stock funds took in $24 billion in June against $18.7
billion in May. The first-half inflow was $130.5 billion, topping last year's
record pace of $105.5 billion. There have also been very large inflows into
bond funds in recent months. Demographics play a big role in the money pouring
into the funds. As baby boomers approach age 50 or thereabouts, they tend to
save more and more and put a lot of their resources into stocks. All this has
been very bullish for the markets and these demographics should remain in place
for another decade or so.
With this immense cash flow pouring in day after day, mutual funds who
want to be close to fully invested find it hard to hold cash. As a result, the
cash position at mutual funds is down to about 3.9%, possibly the lowest since
such records were kept over the last 44 years. We have the cash-to-assets ratio
in our models and this is a negative indicator. However, it is partially offset
by the continuing input of cash into the funds.
We also keep a watchful eye on valuation. The price/earnings ratio of the
S&P was recently reported at 27.3. That figure is based on earnings after
write-offs. Operating earnings are something like 23, which is still very high.
You are not going to get any argument from me that the market is not cheap.
However, I think you could possibly justify the valuations if you consider that
with lower inflation, P/E ratios tend to expand. Of course, with the market
stretched as it is, you have more downside potential because of the high
ratios. But if conditions stay good for another year or two or three, the
market can keep on going strong.
Among my other indicators, I would rate sentiment as neutral or slightly
below neutral. Some of the longer-term numbers are poor. The previously
mentioned record low cash-to-assets ratios at mutual funds indicate a high
level of investor confidence and possibly declining liquidity. Also, net new
issues of stock have been too high and there have been fewer cash takeovers and
fewer stock buybacks. However, the shorter-term sentiment numbers such as the
put/call ratio are more positive.
With low and falling inflation and lower interest rates, my monetary
model is very bullish right now. Commodity prices everywhere have been coming
down and moderate deflation has been good for stocks. The worry is that we get
extreme deflation -- but I don't see that as a realistic prospect at present.
Counting stocks and bonds, we are currently at about 91% invested. As
long as our indicators remain positive and we see low levels of risk, we'll
keep our exposure high enough to participate in the market's advance. As a
defensive money manager, I will always be ready to reduce our exposure should
my indicators reflect higher risk.
2
<PAGE>
PORTFOLIO COMPOSITION
As has been the case since the beginning of 1995, the majority of our
stocks are acquired or sold on the basis of a proprietary computer-driven model
that is weighted toward a value approach with secondary emphasis on growth.
Various criteria are used to evaluate and rank the most liquid stocks with the
highest dividend yields.
There was little change in the composition of our leading industry groups
during the second quarter. On June 30 these groups included financial services,
utilities, oil and oil services, manufacturing, transportation, and
telecommunications. All of the above groups occupied prominent positions at the
end of the first quarter as well.
Some of our largest individual holdings include Ford, Dell, Bear
Stearns, Sun, Dayton Hudson, Telefonica de Espana, Paine Webber, Energy East,
NationsBank, and Edison International.
Of the above, Dell, Dayton Hudson, Telefonica de Espana, Energy East
(formerly N.Y. State Gas & Electric), and PaineWebber all were in our portfolio
previously and showed significant appreciation. The only new position is
NationsBank which will merge with BankAmerica.
We still own but trimmed our holdings in GPU, Ahmanson, General Motors,
and Travelers. After a large run-up, Providian subsequently slipped in our
rankings and we have sold out that position.
Sincerely,
/s/ Martin E. Zweig
--------------------
Martin E. Zweig,
Ph.D. Chairman
3
<PAGE>
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Number of Value
Shares (Note 1)
----------- ---------------
<S> <C> <C>
COMMON STOCKS 82.71%
AEROSPACE & DEFENSE 0.92%
B.F. Goodrich & Co. ........................... 85,600 $ 4,247,900
Lockheed Martin Corp. ......................... 25,800 2,731,575
------------
6,979,475
------------
APPAREL MANUFACTURER 0.41%
VF Corp. ...................................... 60,500 3,115,750
------------
AUTOMOTIVE 3.60%
Chrysler Corp. ................................ 127,200 7,170,900
Ford Motor Co. ................................ 216,100 12,749,900
General Motors Corp. .......................... 110,300 7,369,419
------------
27,290,219
------------
CHEMICALS 1.61%
Dow Chemical Corp. ............................ 78,100 7,551,293
Millennium Chemicals, Inc. .................... 97,700 3,309,588
Wellman, Inc. ................................. 58,600 1,329,488
------------
12,190,369
------------
CONSTRUCTION & FARM EQUIPMENT 0.22%
Deere & Co. ................................... 31,200 1,649,700
------------
CONSUMER DURABLES 1.54%
Cooper Tire & Rubber Co. ...................... 193,500 3,990,938
Whirlpool Corp. ............................... 112,000 7,700,000
------------
11,690,938
------------
CONSUMER PRODUCTS 0.41%
Fortune Brands, Inc. .......................... 80,100 3,078,843
------------
CONTAINERS & PACKAGING 0.13%
Sea Containers Ltd., Class A .................. 25,200 963,900
------------
ELECTRONICS 1.53%
Avnet, Inc. ................................... 79,700 4,358,594
General Motors Corp., Class H ................. 154,100 7,261,962
------------
11,620,556
------------
ENGINEERING & CONSTRUCTION 0.82%
Fluor Corp. ................................... 122,500 6,247,500
------------
FINANCIAL SERVICES 14.87%
A.G.Edwards, Inc. ............................. 184,650 7,882,247
Allstate Corp. ................................ 85,100 7,791,968
Bear, Stearns & Co., Inc. ..................... 201,136 11,439,610
Charter One Financial, Inc. ................... 82,370 2,774,839
Conseco Inc. .................................. 126,800 5,927,900
Countrywide Credit Industries, Inc. ........... 71,500 3,628,625
GATX Corp. .................................... 82,600 3,624,075
H. F. Ahmanson, & Co. ......................... 72,700 5,161,700
Hartford Financial Services Group, Inc. ....... 30,600 3,499,875
Horace Mann Education Corp. ................... 46,600 1,607,700
Loews Corp. ................................... 56,100 4,887,713
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 1)
---------- ---------------
<S> <C> <C>
FINANCIAL SERVICES -- (Continued)
Morgan Stanley, Dean Witter, Discover & Co. .......... 58,600 $ 5,354,575
NationsBank Corp. .................................... 118,100 9,034,650
Old Republic International Corp. ..................... 149,250 4,374,891
Orion Capital Corp. .................................. 58,000 3,240,750
PaineWebber Group Inc. ............................... 230,000 9,861,250
PIMCO Advisors L.P. .................................. 35,200 1,201,200
Quinenco S.A., ADR ................................... 61,500 553,500
Reliance Group Holdings, Inc. ........................ 72,100 1,261,750
Reliastar Financial Corp. ............................ 67,200 3,225,600
Ryder Systems, Inc. .................................. 168,500 5,318,281
Selective Insurance Group, Inc. ...................... 48,000 1,075,498
St. Paul Companies, Inc. ............................. 101,100 4,252,519
Travelers, Inc. ...................................... 95,800 5,807,875
------------
112,788,591
------------
FOOD & BEVERAGE 0.49%
Adolph Coors Co., Class B ............................ 110,400 3,753,600
------------
HOME BUILDERS & MATERIALS 1.01%
Fleetwood Enterprises, Inc. .......................... 53,700 2,148,000
Kaufman & Broad Home Corp. ........................... 98,600 3,130,550
Lafarge Corp. ........................................ 60,400 2,374,475
------------
7,653,025
------------
INDUSTRIAL SERVICES 0.28%
Ogden Corp. .......................................... 75,800 2,098,713
------------
INVESTMENT COMPANIES 3.14%
Argentina Fund, Inc. ................................. 61,200 665,550
Blackrock 2001 Term Trust, Inc. ...................... 52,600 463,537
Blackrock Strategic Term Trust, Inc. ................. 52,600 460,250
Brazil Fund, Inc. .................................... 59,500 1,078,437
Central European Equity Fund, Inc. ................... 46,400 748,200
Chile Fund, Inc. ..................................... 61,400 832,738
Emerging Markets Infrastructure Fund, Inc. ........... 199,600 1,946,100
Emerging Markets Telecommunications Fund, Inc. ....... 76,800 960,000
Emerging Mexico Fund, Inc. ........................... 67,800 538,162
France Growth Fund, Inc. ............................. 32,300 486,519
G.T. Global Eastern Europe Fund ...................... 43,100 344,800
Gabelli Equity Trust, Inc. ........................... 106,000 1,245,500
Gabelli Global Multimedia Trust Fund, Inc. ........... 99,700 1,009,463
India Fund, Inc. ..................................... 48,100 306,637
Italy Fund, Inc. ..................................... 29,700 400,950
Mexico Equity and Income Fund, Inc. .................. 21,500 174,688
Mexico Fund, Inc. .................................... 173,900 2,543,287
Morgan Stanley Emerging Markets Fund, Inc. ........... 121,900 1,142,813
Morgan Stanley India Investment Fund, Inc. ........... 70,600 454,487
Portgugal Fund, Inc. ................................. 56,300 1,133,038
Royce Value Trust, Inc. .............................. 144,155 2,378,558
Scudder New Europe Fund, Inc. ........................ 133,400 2,801,400
Swiss Helvetia Fund, Inc. ............................ 53,600 1,715,200
------------
23,830,314
------------
LEISURE 0.31%
Brunswick Corp. ...................................... 95,800 2,371,050
------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 1)
---------- ---------------
<S> <C> <C>
MANUFACTURING 5.98%
Aeroquip-Vickers, Inc. ................... 57,300 $ 3,344,887
Borg-Warner Automotive, Inc. ............. 83,700 4,022,831
Cincinnati Milacron, Inc. ................ 71,400 1,735,913
Cummins Engine Company, Inc. ............. 110,400 5,658,000
Dexter Corp. ............................. 36,700 1,167,519
Herman Miller, Inc. ...................... 185,200 4,502,675
Johnson Controls, Inc. ................... 55,800 3,191,063
Kennametal Inc. .......................... 67,100 2,801,425
PACCAR, Inc. ............................. 92,800 4,848,800
Parker Hannifin Corp. .................... 101,000 3,850,625
Quanex Corp. ............................. 17,700 536,531
Timken Co. ............................... 166,000 5,114,875
Trinity Industries, Inc. ................. 111,300 4,618,950
------------
45,394,094
------------
METALS & MINING 3.64%
AK Steel Holdings Corp. .................. 167,000 2,985,125
Alcan Aluminum Ltd. ...................... 135,300 3,737,663
ASARCO, Inc. ............................. 105,100 2,338,475
British Steel Plc, ADR ................... 178,700 4,065,425
Cleveland-Cliffs, Inc. ................... 14,700 788,287
Cyprus Amax Minerals Co. ................. 87,000 1,152,750
Reynolds Metals Co. ...................... 96,800 5,414,750
USX-U.S. Steel Group ..................... 216,700 7,151,100
------------
27,633,575
------------
OIL & OIL SERVICES 7.98%
Ashland, Inc. ............................ 141,500 7,304,938
Elf Aquitaine S.A., ADR .................. 97,700 6,936,700
Equitable Resources, Inc. ................ 44,300 1,351,150
Helmerich & Payne, Inc. .................. 98,800 2,198,300
Murphy Oil Corp. ......................... 52,300 2,650,956
Occidental Petroleum Corp. ............... 149,900 4,047,300
Pennzoil Co. ............................. 124,600 6,307,875
Sun Company, Inc. ........................ 260,300 10,102,893
Tidewater, Inc. .......................... 108,400 3,577,200
Transocean Offshore, Inc. ................ 22,600 1,005,700
USX-Marathon Group ....................... 215,200 7,384,050
YPF Sociedad Anonima, ADR ................ 255,900 7,692,994
------------
60,560,056
------------
PAPER & FOREST PRODUCTS 2.34%
Bowater, Inc. ............................ 155,500 7,347,375
Fort James Corp. ......................... 79,800 3,551,100
Georiga-Pacfic Corp. ..................... 64,600 3,807,363
Mead Corp. ............................... 96,800 3,073,400
------------
17,779,238
------------
REAL ESTATE INVESTMENTS TRUSTS 1.21%
Camden Property Trust .................... 46,000 1,368,500
Crescent Real Estate Equities Inc. ....... 108,200 3,638,225
Excel Realty Trust, Inc. ................. 31,700 913,356
Felcor Suite Hotels, Inc. ................ 64,700 2,029,963
Reckson Associates Realty Co. ............ 47,600 1,124,550
Reckson Service Industries, Inc. ......... 19,040 63,070
------------
9,137,664
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 1)
--------------- ---------------
<S> <C> <C>
RESTAURANTS 0.46%
Bob Evans Farms, Inc. ........................... 49,500 $ 1,048,781
Wendy's International, Inc. ..................... 104,500 2,455,750
------------
3,504,531
------------
RETAIL TRADE & SERVICES 3.00%
Dayton Hudson Corp. ............................. 208,200 10,097,700
Fingerhut Co., Inc. ............................. 61,400 2,026,200
Proffitts, Inc. ................................. 55,000 2,220,625
Ross Stores, Inc. ............................... 74,600 3,207,800
Supervalu, Inc. ................................. 116,500 5,169,687
------------
22,722,012
------------
TECHNOLOGY 3.95%
Applied Materials, Inc. ......................... 56,600(a) 1,669,700
Compaq Computer Corp. ........................... 40,675 1,154,153
Dell Computer Corp. ............................. 132,000(a) 12,251,250
Harris Corp. .................................... 81,600 3,646,500
Intel Corp. ..................................... 45,600 3,380,100
Microsoft Corp. ................................. 72,400(a) 7,846,350
------------
29,948,053
------------
TELECOMMUNICATIONS 4.04%
BCE, Inc. ....................................... 64,700 2,761,881
Telefonica de Argentina S.A., ADR ............... 158,200 5,131,613
Telecomunicacoes Brasileiras S.A., ADR .......... 70,400 7,686,800
Telefonica de Espana S.A., ADR .................. 72,436 10,073,131
Telefonos de Mexico S.A., ADR ................... 104,400 5,017,725
------------
30,671,150
------------
TEXTILES 0.43%
Interface, Inc. ................................. 73,600 1,485,800
Shaw Industries, Inc. ........................... 99,000 1,744,875
------------
3,230,675
------------
TOBACCO 0.95%
RJR Nabisco Holdings Corp. ...................... 252,600 5,999,250
Universal Corp. ................................. 32,300 1,207,212
------------
7,206,462
------------
TRANSPORTATION 4.13%
Burlington Northern Santa Fe Corp. .............. 75,900 7,452,431
Canadian Pacific Ltd. ........................... 242,500 6,880,937
CNF Transportation, Inc. ........................ 143,300 6,090,250
FDX Corp. ....................................... 93,340 5,857,085
Laidlaw, Inc. ................................... 91,800 1,118,813
USFreightways Corp. ............................. 118,900 3,905,116
------------
31,304,632
------------
UTILITIES -- ELECTRIC & NATURAL GAS 13.31%
CMS Energy Corp. ................................ 167,200 7,356,800
Columbia Gas System, Inc. ....................... 85,800 4,772,625
Consolidated Edison Co. of New York, Inc. ....... 75,100 3,459,294
DQE Inc. ........................................ 85,950 3,094,200
DTE Energy Co. .................................. 99,100 4,001,162
Edison International ............................ 281,500 8,321,844
Energy East Corp. ............................... 225,900 9,403,088
FPL Group, Inc. ................................. 120,600 7,597,800
FirstEnergy Co. ................................. 79,200 2,435,400
GPU, Inc. ....................................... 212,500 8,035,156
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 1)
---------- --------------
<S> <C> <C>
UTILITIES -- ELECTRIC & NATURAL GAS -- (Continued)
PECO Energy Co. ............................... 216,800 $ 6,327,850
PG&E Corp. .................................... 202,100 6,378,781
Pinnacle West Capital Corp. ................... 166,900 7,510,500
PP&L Resources, Inc. .......................... 163,900 3,718,481
Public Service Co. of New Mexico .............. 101,600 2,305,050
Sierra Pacific Resources ...................... 59,800 2,171,488
Southern Co. .................................. 186,400 5,160,950
Texas Utilities Co. ........................... 134,600 5,602,725
UtiliCorp United Inc. ......................... 88,100 3,320,268
-----------
100,973,462
-----------
Total Common Stocks (Cost $509,503,448)................. 627,388,147
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
------------------
<S> <C> <C>
UNITED STATES GOVERNMENT OBLIGATIONS 6.72%
United States Treasury Bonds, 10.750%, 5/15/2003 ....... $ 4,000,000 4,875,000
United States Treasury Bonds, 7.50%, 11/15/2024 ........ 5,600,000 6,947,500
United States Treasury Bonds, 6.375%, 8/15/2027 ........ 300,000 329,625
United States Treasury Notes, 6.875%, 5/15/2006 ........ 7,500,000 8,125,778
United States Treasury Notes, 6.50%, 10/15/2006 ........ 8,100,000(b) 8,606,250
United States Treasury Notes, 6.625%, 5/15/2007 ........ 15,500,000 16,662,500
United States Treasury Notes, 6.125%, 8/15/2007 ........ 5,200,000 5,414,500
----------
Total United States Government Obligations
(Cost $50,422,219)..................................................... 50,961,153
----------
SHORT-TERM INVESTMENTS 10.01%
Goldman Sachs Corp., 5.60%, 7/01/98 .................... 29,400,000 29,400,000
Merrill Lynch & Co., Inc., 5.55%, 7/01/98 .............. 21,500,000 21,500,000
Sara Lee Corp., 6.05%, 7/01/98 ......................... 25,000,000 25,000,000
----------
Total Short-Term Investments (Cost $75,900,000).......................... 75,900,000
----------
Total Investments (Cost $635,825,667) - 99.44%........................... $754,249,300
Other assets less liabilities - 0.56% ................................... 4,298,780
------------
Net Assets - 100.00% .................................................... $758,548,080
============
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares
----------
<S> <C> <C>
SECURITY SOLD SHORT (NOTE 1D)
W.E.B.S. Index Fund, Inc. - Mexico Series
(Proceeds $985,054)..................... 71,600 $886,050
========
</TABLE>
- ----------
(a) Non-income producing security.
(b) Used as collateral on short sales.
For Federal income tax purposes, the tax basis of investments owned at June
30, 1998 was $636,062,690 and net unrealized appreciation on investments
consisted of:
<TABLE>
<S> <C>
Gross unrealized appreciation ......... $140,777,969
Gross unrealized depreciation ......... (22,591,359)
------------
Net unrealized appreciation ........... $118,186,610
============
</TABLE>
See notes to financial statements.
8
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost, $635,825,667)................... $ 754,249,300
Cash ................................................................... 114,268
Receivable for investments sold ........................................ 7,404,706
Deposit with broker for security sold short ............................ 985,054
Dividends and interest receivable ...................................... 2,002,332
Prepaid expenses ....................................................... 17,744
Miscellaneous receivable ............................................... 13,717
-------------
Total Assets ........................................................ 764,787,121
-------------
LIABILITIES:
Payable for investments purchased ...................................... 4,257,024
Accrued advisory fees (Note 3) ......................................... 527,840
Accrued administration fees (Note 3) ................................... 2,696
Other accrued expenses ................................................. 565,431
Security sold short, at value (proceeds $985,054)....................... 886,050
-------------
Total Liabilities ................................................... 6,239,041
-------------
NET ASSETS ............................................................... $ 758,548,080
=============
NET ASSET VALUE, PER SHARE:
($758,548,080/59,715,651 shares outstanding--Note 4)..................... $ 12.70
=============
Net Assets consist of:
Capital paid-in ........................................................ $ 614,076,191
Undistributed net investment income .................................... 4,205,329
Undistributed net realized gain on investments ......................... 21,743,923
Net unrealized appreciation on investments and security sold short ..... 118,522,637
-------------
$ 758,548,080
=============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
Investment Income:
Income:
Dividends ................................................................ $ 7,568,025
Interest ................................................................. 3,223,830
------------
Total Income ........................................................... 10,791,855
------------
Expenses:
Investment advisory fees (Note 3) ........................................ 2,958,357
Administration fees (Note 3) ............................................. 452,455
Transfer agent fees ...................................................... 173,579
Printing and postage expenses ............................................ 122,718
Professional fees (Note 3) ............................................... 40,182
Custodian fees ........................................................... 53,938
Directors' fees and expenses (Note 3) .................................... 37,648
Miscellaneous ............................................................ 88,337
------------
Total Expenses ......................................................... 3,927,214
------------
Net Investment Income ................................................ 6,864,641
------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments (Note 2):
Security transactions .................................................... 37,601,145
Short sales transactions ................................................. 1,426,248
Futures transactions ..................................................... (772,093)
------------
Net realized gain on investments ..................................... 38,255,300
Decrease in unrealized appreciation on investments and securities sold short (1,078,939)
------------
Net realized and unrealized gain on investments .......................... 37,176,361
------------
Net increase in net assets resulting from operations ..................... $ 44,041,002
============
</TABLE>
See notes to financial statements.
9
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------------ ------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income ................................. $ 6,864,641 $ 18,023,151
Net realized gain on investments ...................... 38,255,300 43,769,049
Increase (decrease) in unrealized appreciation on
investments and securities sold short ............... (1,078,939) 61,835,402
------------- -------------
Net increase in net assets resulting from
operations ........................................ 44,041,002 123,627,602
------------- -------------
Dividends and distributions to shareholders
from:
Net investment income ................................. (12,157,113) (16,029,830)
Net realized gains on investments ..................... (21,751,673) (46,130,976)
------------- -------------
Total dividends and distributions to
shareholders ...................................... (33,908,786) (62,160,806)
------------- -------------
Capital share transactions:
Net asset value of shares issued to shareholders in
reinvestment of dividends from net investment
income and distributions from net realized gains..... 10,898,714 15,818,485
Net proceeds from the sale of shares during rights
offering ............................................ 71,151,359 --
------------- -------------
Net increase in net assets derived from capital
share tranactions ................................... 82,050,073 51,818,485
------------- -------------
Net increase in net assets ............................ 92,182,289 77,285,281
Net Assets:
Beginning of period ...................................... 666,365,791 589,080,510
------------- -------------
End of period (including undistributed net investment
income of $4,205,329 and $9,497,801, respectively)...... $ 758,548,080 $ 666,365,791
============= =============
</TABLE>
See notes to financial statements.
10
<PAGE>
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
NOTE 1 -- Significant Accounting Policies
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. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles. The preparation of financial statements in accordance with
generally accepted accounting principles 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 which 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 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 which are 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, 1998) and other
assets, if any, are valued at fair value as determined under procedures
approved by the Board of Directors of the Fund.
B. Securities 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.
Realized gains and losses on sales of investments are determined on the
identified cost basis for financial reporting and tax purposes.
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
11
<PAGE>
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 secured 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. 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. 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.
E. Federal Income Taxes
The Fund has elected to qualify and intends to remain qualified 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.
NOTE 2 -- Portfolio Transactions
During the six months ended June 30, 1998, the Fund entered into purchase
and sale transactions, excluding short-term investments and futures
transactions, as follows:
<TABLE>
<CAPTION>
United States
Government
Common and Agency
Stocks Obligations
--------------- --------------
<S> <C> <C>
Cost of Purchases ........... $213,776,171 $37,457,344
============ ===========
Proceeds from Sales ......... $190,630,180 $37,500,331
============ ===========
</TABLE>
NOTE 3 -- Investment Advisory Fees and Other Transactions with Affiliates
a) Investment Advisory Fee: The Investment Advisory Agreement (the
"Agreement") between the Investment Adviser, Zweig Advisors Inc., 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 Investment Adviser is responsible
for the actual management of the Fund's portfolio. The responsibility for
making decisions
12
<PAGE>
to buy, sell or hold a particular investment rests with the Investment Adviser,
subject to review by the Board of Directors and the applicable provisions of
the Act. For the services provided by the Investment Adviser under the
Agreement, the Fund pays the Investment 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, 1998, the Fund accrued advisory fees of $2,958,357.
b) Administrative Fee: Zweig/Glaser Advisers serves as the Fund's
Administrator pursuant to an Administration Agreement with the Fund. Under such
Agreement, 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 Investment 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, 1998, the Fund
accrued administration fees of $452,455.
c) Directors' Fees: The Fund pays each Director who is not an interested
person of the Fund or the Investment Adviser a fee of $10,000 per year plus
$1,500 per Directors' or committee meeting attended, together with
out-of-pocket costs relating to attendance at such meetings. The Directors of
the Fund who are interested persons of the Fund or the Investment Adviser
receive no remuneration from the Fund.
d) Legal Fees: The Fund accrued legal fees of $8,869 during the six months
ended June 30, 1998, for the services of Rosenman & Colin LLP, of which Robert
E. Smith, a Director of the Fund, is counsel. In addition, the Fund paid legal
fees of $52,227 for the services of Rosenman & Colin LLP in connection with its
rights offering.
e) Brokerage Commissions: During the six months ended June 30, 1998, the
Fund paid Zweig Securities Corp. brokerage commissions of $67,373 in connection
with portfolio transactions effected through them.
Certain directors and officers of the Fund are also directors and/or
officers of the Investment Adviser and the Administrator.
NOTE 4 -- Capital Stock and Reinvestment Plan
At June 30, 1998, the Fund had one class of common stock, par value $0.10
per share, of which 100,000,000 shares are authorized and 59,715,651 shares are
outstanding.
Registered shareholders may elect to receive all distributions in cash
paid by check mailed directly to the shareholder by State Street Bank & Trust
Co. 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 State Street, as the Plan agent in
whole or fractional shares of the Fund, as the case may be. For the six months
ended June 30, 1998 and for the year ended December 31, 1997, 842,550 and
1,322,870 shares, respectively, were issued pursuant to the Plan.
In a rights offering ending May 8, 1998, shareholders exercised rights to
purchase 6,107,542 shares of common stock at an offering price of $12.15 per
share for proceeds net of expenses of $71,151,359.
13
<PAGE>
NOTE 5 -- Financial Highlights
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Six
Months
ended Year Ended December 31
June 30, ----------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
--------------- ------------ ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value, begining
of period .................. $ 12.63 $ 11.45 $ 11.06 $ 10.33 $ 11.68 $ 11.36
-------- ------- -------- ------- -------- --------
Income From
Investment
Operations:
Net investment income ........ 0.13 0.35 0.34 0.39 0.24 0.13
Net realized and
unrealized gains
(losses) on investments..... 0.58 2.03 1.15 1.41 ( 0.45) 1.41
-------- ------- -------- ------- -------- --------
Total from investment
operations ................. 0.71 2.38 1.49 1.80 ( 0.21) 1.54
-------- ------- -------- ------- -------- --------
Dividends and
Distributions:
Dividends from net
investment income .......... ( 0.23) ( 0.31) ( 0.30) ( 0.51) ( 0.03) ( 0.22)
Distributions from net
realized gains on
investments ................ ( 0.41) ( 0.89) ( 0.80) ( 0.56) ( 1.11) ( 1.00)
--------- ------- -------- -------- -------- --------
Total Dividends and
Distributions .............. ( 0.64) ( 1.20) ( 1.10) ( 1.07) ( 1.14) ( 1.22)
--------- ------- -------- -------- -------- --------
Net asset value, end of
period .................... 12.70 $ 12.63 $ 11.45 $ 11.06 $ 10.33 $ 11.68
======== ======= ======== ======== ======== ========
Market value, end of
period** .................. $ 12.375 $ 13.25 $ 10.875 $ 11.25 $ 10.375 $ 13.75
========= ======= ======== ======== ======== ========
Total investment return ...... ( 0.62)% 34.76% 6.92% 19.83% (16.95)% 16.59%
========= ======= ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of period
(in thousands) ............. $758,548 $666,366 $589,081 $547,886 $492,004 $534,813
Ratio of expenses to
average net assets ......... 1.13%* 1.16% 1.18% 1.22% 1.25% 1.23%
Ratio of net investment
income to average net
assets ..................... 1.97%* 2.88% 3.12% 3.62% 2.24% 1.18%
Portfolio turnover rate ...... 36.9% 93.0% 137.2% 160.2% 257.0% 235.5%
</TABLE>
- ----------
* Annualized.
** Closing Price -- New York Stock Exchange.
14
<PAGE>
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
14,1998. The meeting was held for the purpose of reelecting Annemarie Gilly,
Jeffrey Lazar, Alden C. Olson, Anthony M. Santomero and Martin E. Zweig as
Directors; and to ratify Coopers & Lybrand L.L.P. as the Fund's independent
certified public accountants for the year ending December 31,1998. The Fund's
other Directors who continue in office are Eugene J. Glaser, Elliot S. Jaffe,
James B. Rogers Jr. and Robert E. Smith.
The results of the above matters were as follows:
<TABLE>
<CAPTION>
Votes Votes
Votes For Against Withheld Abstensions
------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
Annemarie Gilly .................. 40,567,525 -- 562,258 --
Jeffrey Lazar .................... 40,700,225 -- 429,558 --
Alden C. Olson ................... 40,618,319 -- 511,464 --
Anthony M. Santomero ............. 40,686,976 -- 442,807 --
Martin E. Zweig .................. 40,698,305 -- 431,478 --
Coopers & Lybrand L.L.P. ......... 40,417,524 293,738 -- 418,791
</TABLE>
- --------------------------------------------------------------------------------
KEY INFORMATION
1-800-272-2700 Zweig Shareholder
Relations:
For general information
and literature
(212) 644-2188 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 of
10% or more from their net asset value.
15
<PAGE>
OFFICERS AND DIRECTORS
Martin E. Zweig, Ph.D.
Chairman of the Board and President
Jeffrey Lazar
Director, Vice President and Treasurer
Stuart B. Panish
Vice President & Secretary
Christopher M. Capano
Assistant Vice President
Annemarie Gilly
Director
Eugene J. Glaser
Director
Elliot S. Jaffe
Director
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
Anthony M. Santomero, Ph.D.
Director
Robert E. Smith
Director
Investment Adviser
Zweig Advisors Inc.
900 Third Avenue
New York, New York 10022
Fund Administrator
Zweig/Glaser Advisers
900 Third Avenue
New York, New York 10022
Custodian
The Bank of New York
One Wall Street
New York, New York 10286
Transfer Agent
State Street Bank & Trust Co.
225 Franklin Street
Boston, MA 02110
Legal Counsel
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 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.
ZF982 4902-SEM(98)
(The Zweig Fund logo appears here)
SEMI-ANNUAL REPORT
-----------------------------------------------
June 30, 1998
