<PAGE>
August 1, 1999
Dear Shareholder:
For the three months ended June 30, 1999, The Zweig Fund's net asset value
increased 8.1%, including $0.30 in reinvested distributions. During the same
period, the Standard & Poor's 500 Index rose 7.0% with dividends reinvested.
The Fund's net asset value for the six months ended June 30, 1999, gained
8.1%, including $0.59 per share in reinvested distributions. The S&P's 500
Index, with dividends, rose 12.4% for the same period.
Consistent with our policy of trying to minimize risk while earning
reasonable returns, our average equity exposure during the first six months of
1999 was approximately 80%.
We beat the market in the second quarter because value stocks, toward which
we are heavily biased, came back. Although we do own Microsoft and Dell and
other growth stocks, the bulk of our portfolio is in higher yielding stocks
with low price/earnings ratios. These are the stocks that improved during the
quarter. I believe the gulf between value and growth stocks will narrow
somewhat and not be as wide as it was in 1998 and early 1999.
Interest rates kept going up during the quarter and our monetary indicators,
which dominate our overall model, became pretty negative. As a result, we
slowly sold stocks in dribs and drabs. On June 30 we were 63% in equities
against 77% at the close of March. I wouldn't want to go below 60% unless
things get really bad.
I don't think the monetary situation is necessarily as bad as our numbers
read and I don't want to get overly bearish. It wouldn't take much of a drop
in rates to get that monetary model back to neutral. Even a dip of 15 to 20
basis points would help our indicators quite a bit.
DISTRIBUTION DECLARED
On June 21, 1999, the Fund announced a distribution of $0.31 per share
payable on July 26, 1999, to shareholders of record July 8, 1999. Including
this distribution, the Fund's total payout since inception is now $14.37 per
share.
MARKET OUTLOOK
I think there is some validity to the comment that the recent quarter-point
rise by the Fed is akin to a flu shot that will help prevent more serious
economic ailments in the future. The Fed had a good excuse to tighten because
we had a report that the Consumer Price Index had risen 0.7% in one month.
That would be horrendous on an annualized basis. However it looked like an
aberration and I think it was. In the following two months the CPI was flat.
There is very little evidence of inflation at this writing. Other than the
prices of oil and industrial-type metals, which had picked up, most
commodities have not risen. In fact, agricultural products are in a
depression. Corn, wheat, soybeans, oats, cocoa, coffee, and orange juice are
getting killed. A lot of other prices have been weak. Lumber rose because
housing was strong but turned down again. I don't see any signs that inflation
is a problem and I don't think the Fed will tighten unless there is tangible
evidence of inflation.
With low inflation, a robust economy, and strong profits--an unusual
combination--it looks like the best of all possible worlds. Earnings of the
S&P 500 rose 10.5% in the first quarter and second-quarter estimates range
from 11% to 15%. I don't have any forecasts on profits but there doesn't seem
to be anything on the horizon to sidetrack this trend.
<PAGE>
Although U.S. investors are putting less money into stock funds--about $16.4
billion in May, down 36% from April--I don't think this is a cause for
concern. The flows are down but that is only part of the equation. People seem
to be buying more stocks outright. I have studied and tested the flows into
mutual funds and have not been able to come up with all that much in terms of
forecasting the market.
A few times in recent years when the market got pounded--including last
August--the flows turned negative right at the bottom of the market. If you
look at the flows at face value, they are often more useful as a sentiment
indicator than a trend-following one. If you get a sell-off in the market and
the flows turn negative, it might be a time to buy.
The slow economic growth in Europe, Asia, and Latin America has been good
for us because it has reduced inflationary pressures around the world without
much adverse impact on our economy. Now there is anecdotal evidence that
Asia--especially Japan--is picking up. There are also signs that Europe is
beginning to strengthen. If these trends continue, the $64,000 question is
whether inflation will follow. Because there is still a lot of excess
manufacturing in the world, I don't see any inflationary alarm signals from
the international scene. It is also worth noting that countries like Japan,
China, and Argentina are experiencing deflation and parts of Europe are close
to a similar situation.
However, there is concern that deflation and slower growth in China could
lead to Chinese devaluation and widespread competitive devaluations. Earlier
this year I felt that China would not devalue in the near future and it did
not. Now I think there is some chance that it will devalue. I don't know what
the odds are--probably less than fifty-fifty. Will it hurt the U.S. if China
devalues? I think the market might sell off for a couple of days on that news
but I don't see it having much of a long-term effect. I believe China
ultimately will act in its own best interest and I don't think it is worth our
worrying about.
There has been speculation about the likelihood of weakness in Argentina
spreading to Brazil. This is sort of funny because six months ago we were
concerned about the Brazilian weakness spreading to Argentina. Brazil
meanwhile has kind of muddled through. I don't know whether Argentina will
impact Brazil, a much larger country. So far the situation is livable but it
is one of the things the market worries about. However, it is said that a bull
market climbs a wall of worry. If it is not Argentina or Brazil or China, it
is something else. Of course it is possible that a crisis could start
somewhere in the world and it could be in one of those places.
I would like to take issue with those who compare the Internet boom with the
Dutch tulip mania of the 17th century. Yes, there is widespread speculation on
the Internet. The big difference is that tulips have very little inherent
value while the Internet is one of the greatest inventions mankind has ever
seen. It is revolutionizing the entire world. There will not be a single
industry on the face of the earth that will not be affected by it. It will
provide explosive growth for some businesses and hurt others.
The problem is that there are already dozens if not hundreds of Internet
stocks just as there were hundreds of automobile companies in the early
1900's. Somewhere between 1905 and 1908 there were close to 500 auto companies
in the U.S. By the 1950's, there were just five and today there are only two
and a half. The automobile industry did grow and transformed the world. The
Internet will do the same. Substituting cable for roads, it is going to change
forever the way commerce is done.
It may be that people are speculating excessively on certain Internet
companies. Some of the speculation may even be akin to what
2
<PAGE>
happened with tulip bulbs. As with any type of newly created industries such as
railroads, automobiles, biotechs, or personal computers, there will be
excessive speculation. Ultimately, there will be a huge shakeout and lots of
companies will go down the tubes. Some won't be around five years from now. The
biggest winners may not yet be on the stage. That is the way it has always
been.
Actually I view the Internet as a very positive market factor. It will cause
tremendous competition and expand trade but will decrease profit margins. It
will increase employment, keep real wages from rising, and put long-term
downward pressure on inflation for years to come. However, it is important to
remember that even with the Internet and the efficiencies of computerization, a
lot can still go wrong.
I would describe our current stock position as slightly less than normal but
we are not in a bearish posture. Although we are relatively neutral on the
market, that doesn't mean it can't go up. I would still give the bulls the edge
for the moment. We cut back because of the rise in interest rates and other
risks out there. However, I am not yet ready to throw in the towel on this
market.
PORTFOLIO COMPOSITION
While the composition of our leading industry groups was basically unchanged
during the second quarter, there were some variations in percentages held and
in rankings because of our reduced exposure. On June 30 these sectors included
financial services, technology, manufacturing, utilities, telecommunications,
and retail trade and services. Of the above groups, the strong performances of
manufacturing and technology were especially noteworthy.
At this writing, our largest individual holdings include Whirlpool, Knight-
Ridder, Allstate, Wal-Mart, CNF Transportation, General Motors, GPU,
International Paper, PACCAR and B.F. Goodrich. With the exception of Allstate
and General Motors, all are new to this listing.
We have added to our positions in CNF Transportation, which provides
transportation and logistical services worldwide; Knight Ridder, the newspaper
publisher; and PACCAR, which produces trucks under various nameplates.
Whirlpool, GPU, B.F. Goodrich, and Wal Mart gained by appreciation.
International Paper has been added to our portfolio.
We have trimmed our positions in Microsoft, Morgan Stanley, EMC, Telefonos de
Mexico, Lucent, Ford, and Burlington Northern but all are still held.
Sincerely,
/s/ Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
Chairman
3
<PAGE>
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- ------------
<S> <C> <C>
Common Stocks 65.90%
Aerospace & Defense 1.63%
B.F. Goodrich & Co.................................. 174,200 $ 7,403,500
Northrop Corp....................................... 71,000 4,708,187
------------
12,111,687
------------
Apparel Manufacturer 0.70%
Liz Claiborne, Inc.................................. 142,000 5,183,000
------------
Automotive 1.94%
Ford Motor Co....................................... 120,100 6,778,143
General Motors Corp................................. 114,600 7,563,600
------------
14,341,743
------------
Biotechnology 1.35%
Amgen, Inc.......................................... 86,900 5,290,037
Medimmune, Inc...................................... 70,000(a) 4,742,500
------------
10,032,537
------------
Cable & Television 0.67%
Comcast Corp........................................ 129,400 4,973,813
------------
Consumer Durables 1.80%
Cooper Tire & Rubber Co............................. 172,800 4,082,400
Whirlpool Corp...................................... 125,100 9,257,400
------------
13,339,800
------------
Consumer Products 0.53%
Premark International, Inc.......................... 104,000 3,900,000
------------
Consumer Services 0.94%
H & R Block, Inc.................................... 140,000 7,000,000
------------
Engineering & Construction 0.76%
Fluor Corp.......................................... 138,600 5,613,300
------------
Financial Services 8.07%
A.G. Edwards & Sons, Inc............................ 86,400 2,786,400
Aetna, Inc.......................................... 70,000 6,260,625
Allstate Corp....................................... 212,800 7,634,200
Bear Stearns & Co., Inc............................. 141,284 6,605,027
Fidelity National Financial Corp.................... 107,200 2,251,200
Fleet Financial Group, Inc.......................... 140,000 6,212,500
Knight/Trimark Group, Inc........................... 70,000 4,221,874
Loews Corp.......................................... 69,000 5,459,625
Morgan Stanley, Dean Witter, Discover & Co.......... 71,500 7,328,750
PaineWebber Group Inc............................... 139,900 6,540,325
Ryder Systems, Inc.................................. 174,600 4,539,600
------------
59,840,126
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- ------------
<S> <C> <C>
Food & Beverage 0.46%
Adolph Coors Co., Class B............................. 68,600 $ 3,395,700
------------
Home Builders & Materials 0.95%
Fleetwood Enterprises, Inc............................ 135,800 3,590,213
Kaufman & Broad Home Corp............................. 139,100 3,460,112
------------
7,050,325
------------
Industrial Services 0.24%
Ogden Corp............................................ 66,400 1,788,650
------------
Investment Companies 2.14%
Blackrock 2001 Term Trust, Inc........................ 52,600 473,400
Blackrock Strategic Term Trust, Inc................... 52,600 479,975
Central European Equity Fund, Inc..................... 70,900 926,131
Emerging Markets Infrastructure Fund, Inc............. 199,600 1,858,775
Emerging Markets Telecommunications Fund, Inc......... 76,800 849,600
France Growth Fund, Inc............................... 64,500 886,875
Gabelli Global Multimedia Trust Fund, Inc............. 99,700 1,495,500
Italy Fund, Inc....................................... 62,000 906,750
Mexico Fund, Inc...................................... 161,100 2,789,044
Morgan Stanley Emerging Markets Fund, Inc............. 121,900 1,432,325
Royce Value Trust, Inc................................ 144,155 1,910,054
Swiss Helvetia Fund, Inc.............................. 107,200 1,494,100
Templeton Dragon Fund, Inc............................ 35,000 387,188
------------
15,889,717
------------
Leisure 0.61%
Brunswick Corp........................................ 161,300 4,496,238
------------
Manufacturing 6.53%
Borg-Warner Automotive, Inc........................... 94,400 5,192,000
Cummins Engine Company, Inc........................... 102,000 5,826,750
Dana Corp............................................. 104,700 4,822,744
Delphi Automotive Systems............................. 175,000 3,248,438
Ingersoll-Rand Co..................................... 94,500 6,107,063
Johnson Controls, Inc................................. 103,500 7,173,844
Milacron, Inc......................................... 99,100 1,833,350
PACCAR, Inc........................................... 138,900 7,413,786
Tyco International Ltd................................ 71,400 6,765,150
------------
48,383,125
------------
Medical Supplies 1.04%
Guidant Corp.......................................... 50,800 2,613,025
Mallinckrodt, Inc..................................... 140,000 5,092,500
------------
7,705,525
------------
Metals & Mining 2.46%
AK Steel Holdings Corp................................ 201,500 4,533,750
Alcan Aluminum Ltd.................................... 136,200 4,349,888
Placer Dome Inc....................................... 231,000 2,728,687
USX-U.S. Steel Group.................................. 244,400 6,598,800
------------
18,211,125
------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- ------------
<S> <C> <C>
Oil & Oil Services 1.32%
Sunoco, Inc......................................... 210,400 $ 6,351,450
Tidewater, Inc...................................... 113,000 3,446,500
------------
9,797,950
------------
Paper & Forest Products 2.37%
Boise Cascade Corp.................................. 71,400 3,070,200
Fort James Corp..................................... 70,000 2,651,250
International Paper Co.............................. 147,000 7,423,500
Louisiana-Pacific Corp.............................. 184,800 4,389,000
------------
17,533,950
------------
Pharmaceuticals 1.10%
Elan Corp........................................... 122,500 3,399,375
Warner Lambert Co................................... 68,300 4,738,312
------------
8,137,687
------------
Printing & Publishing 1.06%
Knight-Ridder, Inc.................................. 143,300 7,872,544
------------
Retail Trade & Services 4.67%
Best Buy, Inc....................................... 107,500(a) 7,256,250
Home Depot, Inc..................................... 105,400 6,791,713
Limited, Inc........................................ 31,500 1,429,313
Pier 1 Imports, Inc................................. 354,800 3,991,500
Sears Roebuck & Co.................................. 50,400 2,245,950
Supervalu, Inc...................................... 206,400 5,301,900
Wal-Mart Stores, Inc................................ 158,100 7,628,325
------------
34,644,951
------------
Technology 6.91%
Adaptec, Inc........................................ 105,000(a) 3,707,813
America Online, Inc................................. 49,000(a) 5,414,500
Applied Materials, Inc.............................. 65,400(a) 4,831,425
Autodesk, Inc....................................... 210,000 6,208,124
Cisco Systems, Inc.................................. 98,600(a) 6,359,700
Dell Computer Corp.................................. 157,100(a) 5,812,700
EMC Corp............................................ 106,600(a) 5,863,000
Intel Corp.......................................... 97,300 5,789,350
Microsoft Corp...................................... 79,900(a) 7,205,981
------------
51,192,593
------------
Telecommunications 5.61%
Lucent Technologies Co.............................. 105,500 7,114,656
MCI Worldcom, Inc................................... 62,300(a) 5,373,375
Nokia Corp.......................................... 67,300 6,162,156
Tele Norte Leste Participacoes S.A., ADR............ 320,100 5,941,856
Telefonos de Mexico S.A., ADR....................... 70,200 5,673,038
Telephone & Data Systems, Inc....................... 87,500 6,392,969
Telesp Participacoes S.A., ADR...................... 214,100 4,897,538
------------
41,555,588
------------
Textiles 1.16%
Armstrong World Industries, Inc..................... 88,900 5,139,531
Shaw Industries, Inc................................ 210,000 3,465,000
------------
8,604,531
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
----------- ------------
<S> <C> <C>
Transportation 2.90%
Burlington Northern Santa Fe Corp.................. 229,800 $ 7,123,800
CNF Transportation, Inc............................ 198,300 7,609,763
USFreightways Corp................................. 146,200 6,770,888
------------
21,504,451
------------
Utilities-Electric & Natural Gas 5.98%
CMS Energy......................................... 63,100 2,642,313
Edison International............................... 203,000 5,430,250
Energy East Corp................................... 70,000 1,820,000
GPU, Inc........................................... 177,000 7,467,188
PG&E Corp.......................................... 208,300 6,769,750
Public Service Co. of New Mexico................... 130,500 2,593,688
Texas Utilities Co................................. 178,500 7,363,124
UniCom Corp........................................ 175,300 6,760,006
UtiliCorp United, Inc.............................. 141,300 3,435,356
------------
44,281,675
------------
Total Common Stocks (Cost $413,723,285)...................... 488,382,331
------------
<CAPTION>
Principal
Amount
-----------
<S> <C> <C>
United States Government & Agency Obligations 2.73%
Federal Home Loan Mortgage Corp., 5.125%,
10/15/2008........................................ $12,100,000 10,998,440
United States Treasury Notes, 10.75%, 5/15/2003.... 4,000,000 4,678,752
United States Treasury Notes, 6.875%, 5/15/2006.... 2,500,000 2,632,813
United States Treasury Notes, 6.125%, 8/15/2007.... 1,900,000 1,921,375
------------
Total United States Government & Agency Obligations (Cost
$21,332,456)................................................ 20,231,380
------------
Short-Term Investments 30.81%
AT&T Capital Corp., 5.00%, 7/8/99.................. 25,000,000 24,975,671
Bell Atlantic Network Funding, 4.95%, 7/7/99....... 25,000,000 24,979,338
BellSouth Telecommunications, Inc., 4.83%, 7/9/99.. 31,500,000 31,466,062
BP America Inc., 5.70%, 7/1/99..................... 20,000,000 20,000,000
Citibank Capital Market, 5.875%, 7/1/99............ 30,000,000 30,000,000
Exxon Imperial Inc., 5.80%, 7/1/99................. 17,000,000 17,000,000
Gannett Co., 4.90%, 7/8/99......................... 25,000,000 24,976,151
General Electric Capital Corp., 4.96%, 7/6/99...... 30,000,000 29,979,308
Mobil Corp., 5.04%, 7/2/99......................... 25,000,000 24,996,497
------------
Total Short-Term Investments (Cost $228,373,027)............. 228,373,027
------------
Total Investments (Cost $663,428,768)............ 99.44% 736,986,738
Cash and Other Assets Less Liabilities........... 0.56% 4,175,610
----- ------------
Net Assets....................................... 100.00% $741,162,348
====== ============
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Number of
Contracts Value
--------- ------------
<S> <C> <C>
Net Unrealized Depreciation on Futures Contracts
Standard and Poor's September 1999 Short Futures...... 57(b) $ (841,192)
------------
</TABLE>
- --------
(a) Non-income producing security.
(b) The extended market value of the short futures was $19,689,225
(representing 2.66% of the Fund's net assets) with a cost of $18,848,033.
For Federal income tax purposes, the tax basis of investments owned at June
30, 1999 was $663,619,154 and net unrealized appreciation on investments
consisted of:
<TABLE>
<S> <C>
Gross unrealized appreciation................................ $ 91,089,065
Gross unrealized depreciation................................ (17,721,481)
------------
Net unrealized appreciation.................................. $ 73,367,584
============
</TABLE>
See notes to financial statements.
8
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30,1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost $663,428,768) ............ $736,986,738
Cash ............................................................ 339,368
Dividends and interest receivable................................ 1,107,982
Receivable for investments sold ................................. 10,623,468
Prepaid expenses ................................................ 29,267
Deposit with broker for futures contracts........................ 1,335,938
------------
Total Assets................................................... 750,422,761
------------
LIABILITIES
Payable for investments purchased................................ 8,291,433
Accrued advisory fees (Note 5) .................................. 508,471
Accrued administration fees (Note 5) ............................ 2,623
Variation margin for futures contracts .......................... 356,250
Other accrued expenses........................................... 101,636
------------
Total Liabilities.............................................. 9,260,413
------------
NET ASSETS ....................................................... $741,162,348
============
NET ASSET VALUE, PER SHARE
($741,162,348/ 60,135,623 shares outstanding--Note 6)............ $12.32
============
Net Assets consist of:
Capital paid-in ................................................. $618,446,376
Undistributed net investment income.............................. 4,791,331
Undistributed net realized gain on investments................... 45,207,863
Net unrealized appreciation on investments ...................... 72,716,778
------------
$741,162,348
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Income
Dividends...................................................... $5,233,458
Interest....................................................... 3,545,136
-----------
Total Income................................................. 8,778,594
-----------
Expenses
Investment advisory fees (Note 5) ............................. 3,026,083
Administration fees (Note 5) .................................. 462,839
Transfer agent fees............................................ 170,650
Printing and postage expenses.................................. 115,207
Professional fees (Note 5) .................................... 41,107
Custodian fees................................................. 40,562
Directors' fees and expenses (Note 5) ......................... 46,989
Miscellaneous.................................................. 83,824
-----------
Total Expenses............................................... 3,987,261
-----------
Net Investment Income....................................... 4,791,333
-----------
Realized and Unrealized Gains
Net realized gains (losses) on
Investments.................................................... 63,823,116
Securities sold short ......................................... (95,812)
Futures........................................................ (508,640)
-----------
Net realized gains.......................................... 63,218,664
Decrease in unrealized appreciation on investments, securities
sold short and futures ......................................... (14,888,751)
-----------
Net realized and unrealized gain on investments, securities
sold short and futures........................................ 48,329,913
-----------
Net increase in net assets resulting from operations........... $53,121,246
===========
</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, 1999 December 31, 1998
---------------- -----------------
<S> <C> <C>
Increase in Net Assets
Operations
Net investment income.................... $ 4,791,333 $ 13,216,655
Net realized gains on investments,
securities sold short and futures....... 63,218,664 58,058,403
Decrease in unrealized appreciation on
investments, securities sold short and
futures................................. (14,888,751) (31,996,047)
------------ ------------
Net increase in net assets resulting
from operations....................... 53,121,246 39,279,011
------------ ------------
Dividends and distributions to shareholders
from
Net investment income.................... (2,405,425) (20,309,033)
Net realized gains on investments,
securities sold short and futures....... (33,074,603) (48,234,897)
------------ ------------
Total dividends and distributions to
shareholders.......................... (35,480,028) (68,543,930)
------------ ------------
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... -- 15,249,865
Net proceeds from the sale of shares
during rights offering.................. -- 71,170,393
------------ ------------
Net increase in net assets derived from
capital share transactions.............. -- 86,420,258
------------ ------------
Net increase in net assets............... 17,641,218 57,155,339
------------ ------------
Net Assets
Beginning of period...................... 723,521,130 666,365,791
------------ ------------
End of period (including undistributed
net investment income of $4,791,331 and
2,405,423, respectively)................ $741,162,348 $723,521,130
============ ============
</TABLE>
See notes to financial statements.
10
<PAGE>
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
NOTE 1 -- Acquisition
On March 1, 1999, Phoenix Investment Partners, Ltd. ("Phoenix") completed
the acquisition of Zweig Advisors Inc., the Fund's investment adviser (the
"Adviser"); Zweig/Glaser Advisers, the Fund's administrator (the
"Administrator") and Zweig Securities Corp. ("ZSC"), an affiliated broker-
dealer registered under the Securities Exchange Act of 1934. As a result, the
Adviser and ZSC are now subsidiaries of Phoenix, and Zweig/Glaser Advisers
LLC, also a subsidiary of Phoenix, has succeeded Zweig/Glaser Advisers as the
Administrator. In order to continue to have access to the advisory and
consulting services of Dr. Martin E. Zweig and his associates, the Adviser
entered into a sub-advisory servicing agreement with Zweig Consulting LLC.
Note 2 -- 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 3 -- Significant Accounting Policies
The following is a summary of the 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 mounts 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, 1999) 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.
11
<PAGE>
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
primarily corresponds with the value of their underlying instruments, which
may not correlate with the change in value of the hedged investments.
Therefore, anticipated gains may not result and anticipated losses may not be
offset. In addition, as no secondary market exists for futures contracts,
there is no assurance that there will be an active market at any particular
time.
D. Short Sales
A short sale is a transaction in which the Fund sells a security it does not
own in anticipation of a decline in market price. To sell a security short,
the Fund must borrow the security. The Fund's obligation to replace the
security borrowed and sold short will be fully collateralized at all times by
the proceeds from the short sale retained by the broker and by cash and
securities deposited in a segregated account with the Fund's custodian. If the
price of the security sold short increases between the time of the short sale
and the time the Fund replaces the borrowed security, the Fund will incur a
loss, and if the price declines during the period, the Fund will realize a
gain. Any realized gain will be decreased, and any incurred loss increased, by
the amount of transaction costs. Dividends or interest the Fund pays in
connection with such short sales are recorded as expenses. In addition to the
short sales described above, the Fund may make short sales "against the box".
A short sale "against the box" is a short sale whereby at the time of the
short sale, the Fund owns or has the immediate and unconditional right, at no
added cost, to obtain the identical security.
E. Federal Income Taxes
The Fund has elected to qualify and intends to remain qualified, as long as
management's view is that it is in the best interests of the shareholders, as
a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended. The principal tax benefits of qualifying as a
regulated investment company as compared to an ordinary taxable corporation,
are that a regulated investment company, is not itself subject to Federal
income tax on ordinary investment income and net capital gains that are
currently distributed (or deemed distributed) to its shareholders and that the
tax character of long-term capital gains recognized by a regulated investment
company flows through to its shareholders who receive distributions of such
gains.
12
<PAGE>
NOTE 4 -- Portfolio Transactions
During the six months ended June 30, 1999, purchases and sales of
investments, excluding short-term investments and futures contracts were:
<TABLE>
<CAPTION>
United States
Government
Common and Agency
Stocks Obligations
------------ -------------
<S> <C> <C>
Purchases....................................... $342,855,482 $27,107,527
============ ===========
Sales........................................... $552,295,584 $52,691,211
============ ===========
Purchases to cover short sales.................. $ 1,080,866
============
</TABLE>
NOTE 5 -- Investment Advisory Fees and Other Transactions with Affiliates
a) Investment Advisory Fee: The Investment Advisory Agreement (the
"Agreement") between the Adviser and the Fund provides that, subject to the
direction of the Board of Directors of the Fund and the applicable provisions
of the Act, the Adviser is responsible for the actual management of the Fund's
portfolio. The responsibility for making decisions to buy, sell or hold a
particular investment rests with the Adviser, subject to review by the Board
of Directors and the applicable provisions of the Act. For the services
provided by the Adviser under the Agreement, the Fund pays the Adviser a
monthly fee equal, on an annual basis, to 0.85% of the Fund's average daily
net assets. During the six months ended June 30, 1999, the Fund accrued
advisory fees of $3,026,083.
b) Administration Fee: Zweig/Glaser Advisers LLC 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, 1999, the Fund accrued administration fees of $462,839.
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 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) Legal Fee: The Fund accrued legal fees of $12,840 during the six months
ended June 30, 1999, for the services of Rosenman & Colin LLP, of which Robert
E. Smith, a former Director of the Fund, is counsel.
e) Brokerage Commission: During the six months ended June 30, 1999, the Fund
paid Zweig Securities Corp. brokerage commissions of $138,841 in connection
with portfolio transactions effected through them. In addition, Zweig
Securities Corp. charged $80,576 in commissions for transactions effected on
behalf of the participants in the Fund's Automatic Reinvestment and Cash Plan.
One director and certain officers of the Fund are also directors and/or
officers of the Adviser and/or Zweig Consulting LLC.
13
<PAGE>
NOTE 6 -- Capital Stock and Reinvestment Plan
At June 30, 1999, the Fund had one class of common stock, par value $0.10
per share, of which 100,000,000 shares are authorized and 60,135,623 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 year ended
December 31, 1998, 1,262,934 shares were issued pursuant to the Plan.
NOTE 7 -- Financial Highlights
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Six
Months
ended Year Ended December 31
June 30, -------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
begining of period..... $ 12.03 $ 12.63 $ 11.45 $ 11.06 $ 10.33 $ 11.68
-------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income... 0.08 0.23 0.35 0.34 0.39 0.24
Net realized and
unrealized
gains(losses).......... 0.80 0.55 2.03 1.15 1.41 (0.45)
-------- -------- -------- -------- -------- --------
Total from investment
operations............. 0.88 0.78 2.38 1.49 1.80 (0.21)
-------- -------- -------- -------- -------- --------
Dividends and
Distributions:
Dividends from net
investment income...... (0.04) (0.35) (0.31) (0.30) (0.51) (0.03)
Distributions from net
realized gains......... (0.55) (0.87) (0.89) (0.80) (0.56) (1.11)
-------- -------- -------- -------- -------- --------
Total Dividends and
Distributions.......... (0.59) (1.22) (1.20) (1.10) (1.07) (1.14)
-------- -------- -------- -------- -------- --------
Effect on net asset
value as a result of
rights offering***..... -- (0.16) -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end
of period............ $ 12.32 $ 12.03 $ 12.63 $ 11.45 $ 11.06 $ 10.33
======== ======== ======== ======== ======== ========
Market value, end of
period**............. $ 11.125 $10.8125 $ 13.25 $ 10.875 $ 11.25 $ 10.375
======== ======== ======== ======== ======== ========
Total investment return. 8.56% (8.68)% 34.76% 6.92% 19.83% (16.95)%
======== ======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $741,162 $723,521 $666,366 $589,081 $547,886 $492,004
Ratio of expenses to
average net assets..... 1.12%* 1.12% 1.16% 1.18% 1.22% 1.25%
Ratio of net investment
income to average net
assets................. 1.35%* 1.90% 2.88% 3.12% 3.62% 2.24%
Portfolio turnover rate. 63.2% 68.7% 93.0% 137.2% 160.2% 257.0%
</TABLE>
- --------
* Annualized
** Closing Price -- New York Stock Exchange.
*** Shares were sold at a 5% discount from the average market price.
14
<PAGE>
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
5, 1999.
The meeting was held for the purpose of reelecting Charles H. Brunie and
Elliot S. Jaffe as Directors and to ratify PricewaterhouseCoopers LLP as the
Fund's independent accountants for the year ending December 31, 1999. The
Fund's other Directors who continue in office are Alden C. Olson, James B.
Rogers, Jr., Anthony M. Santomero and Martin E. Zweig.
The results of the above matters were as follows:
<TABLE>
<CAPTION>
Votes Votes
Director/Independent Accountants Votes For Against Withheld Abstensions
- -------------------------------------- ---------- ------- --------- -----------
<S> <C> <C> <C> <C>
Elliot S. Jaffe....................... 47,116,421 N/A 1,104,952 N/A
Charles H.Brunie...................... 47,021,721 N/A 1,199,652 N/A
PricewaterhouseCoopers LLP............ 47,321,555 431,314 -- 468,501
</TABLE>
- -------------------------------------------------------------------------------
A Special Meeting of Shareholders of The Zweig Fund, Inc. was held on
February 25, 1999.
The meeting was held for the purpose of approving a new investment advisory
agreement with Zweig Advisors Inc. and a new servicing agreement for the
rendering of sub-advisory services with Zweig Consulting LLC.
The results of the above matters were as follows:
<TABLE>
<CAPTION>
Votes Votes
Votes For Against Withheld Abstensions
---------- --------- -------- -----------
<S> <C> <C> <C> <C>
New Investment Advisory
Agreement.............. 41,551,100 2,866,411 -- 1,076,019
New Sub-Advisory
Servicing Agreement.... 41,498,276 2,909,232 -- 1,086,022
</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
Executive Vice President and
Treasurer
Christopher M. Capano
Vice President
Charles H. Brunie
Director
Elliot S. Jaffe
Director
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
Anthony M. Santomero, Ph.D.
Director
Investment Adviser
Zweig Advisors Inc.
900 Third Avenue
New York, New York 10022
Fund Administrator
Zweig/Glaser Advisers LLC
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, Massachusetts 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 in-
tended for use in the purchase of shares of the Fund or any securities men-
tioned in this report.
4902-SEM(99)
[ZWEIG FUND LOGO APPEARS HERE]
SEMI-ANNUAL REPORT
-----------------
June 30, 1999
