<PAGE>
November 1, 2000
[PHOTO]
Dear Shareholder:
The Zweig Fund's net asset value increased 1.45% during the three months
ended September 30, 2000, including the $0.29 distribution paid on July 26,
2000. During the same period, the S&P 500 Index/1/ declined 0.97%, including
reinvested dividends. Maintaining our risk-averse policy, the Fund's equity
exposure during the period averaged approximately 72%.
For the nine months ended September 30, 2000, the Fund's net asset value
gained 1.49%, including $0.89 in reinvested distributions. During this period,
the S&P 500 Index fell 1.46%, including distributions. Our average equity
exposure during the first nine months of the year was 61%.
While our results are not spectacular, I am pleased that we beat the market
for the quarter as well as year to date. We benefited from our conservative
asset allocation and the conservative bias of our holdings.
As the market dropped in September, it gave us a better opportunity to buy
stocks at lower prices, and we increased our exposure. During September and
October, our sentiment indicators improved as people became more pessimistic
about the market. Our monetary models were pretty decent to begin with.
Consequently, we increased our exposure during the quarter from 65% to 79% at
the close.
DISTRIBUTION DECLARED
On September 20, 2000, the Fund announced a distribution of $0.29 per share,
payable on October 26, 2000 to shareholders of record on October 10, 2000.
Including this distribution, our total payout since the Fund's inception is
now $15.84.
MARKET OUTLOOK
A lot has been written recently about the bull market reaching its tenth
birthday on October 11. This was combined with speculation about whether the
bull market was over or merely pausing before it resumes growth at a more
moderate pace. To begin with, I disagree with setting these market-dating
labels.
We have had a bear market this year in the Nasdaq/2/ and close to one, if
not all the way, in the S&P 500. If the market is down 20%, I'll call it a
bear market. If it is down 19%, I do not know what you want to call it. Some
people think the bull market started in 1982. Others claim it began in 1974.
Labeling different dates doesn't give you an answer. I just want to raise our
exposure as things get better and lower our exposure as things get worse.
While holding rates steady, the Fed warned at its October 3 meeting that the
tight job market and rising energy costs were pushing up
inflationary pressures. Since then, producer prices rose 0.9% in September,
and consumer prices climbed 0.5%. However, I am not overly concerned about
these figures.
--------
/1/The S&P 500 Index is a commonly used measure of broad stock market total-
return performance. The Index is unmanaged and not available for direct
investment.
/2/The Nasdaq Index is a commonly used measure of technology-oriented stock
total-return performance. The Index is unmanaged and not available for
direct investment.
<PAGE>
With the exception of oil prices, which, incidentally, I don't think will
stay at current levels, I believe the economy generally is heading toward
disinflation. Oil prices are a two-edged sword. As they rise, they result in
more expensive gasoline, heating oil, and other products that use oil as a
basic raw material. The weird thing is that, over time, higher oil prices
decrease the prices of other goods.
For example, if you have to spend $1,000 a year more for gasoline and
heating oil, you will have less money to spend to go to McDonald's or do
whatever you want to do. I feel that higher oil prices, combined with the
Fed's tightening, are slowing the economy. And, if the economy slows, we're
going to see more disinflation. So, I am not particularly concerned about
inflation at this time.
Many economists think that the Fed has pulled off its goal of a so-called
soft landing in which the economy slows just enough to ward off inflation
without bringing on a recession. I don't have a strong opinion on that
premise. I don't really know whether we will end up with a soft landing or a
hard landing, which means a recession. However, I do believe that the higher
oil prices and interest rates have already had a pretty negative impact on the
economy and the odds are increasing that we could have a recession.
Some analysts compare the present to 1990 when oil price hikes induced by
the Gulf War led to an economic slowdown. They point to higher real interest
rates, a record trade deficit, with savings at an all-time low. I'll grant
that there is a similarity to 1990 in higher oil prices and the turmoil in the
Middle East. However, it was a lot worse in 1990 because we knew that there
had to be a war in Kuwait. We don't know that there will be a war this time
around.
Oil prices went up recently because of supply and demand. Tensions in the
Middle East have exacerbated the situation. That is the resemblance to 1990.
However, in 1990, the banking system was in terrible shape and literally in
danger of collapse. The Fed had to come in and rescue it. We don't have that
problem today.
The record trade deficit has helped keep inflation in check. As for the low
savings rate, I have felt for a long time that the savings rate has been
underestimated. There are some flukes in the data. But consumers have spent
quite a bit and maybe it is time for them to retrench. If they have seriously
undersaved, then we probably do face a greater risk of a steep economic
slowdown.
As an indication of a slowing economy, only 73 companies raised their
dividends in September, the fewest number since 1991. In the third quarter,
dividend increases fell 16% from the year-ago period. Companies are trying to
get more liquid. One way to do it is not to raise dividends or as in the case
of at least one big company--Xerox--to slash dividends to conserve cash.
Investors are worried about earnings because of slowing economic expansion
here and abroad, the weakness in the euro and the strong dollar that are
cutting earnings of multinationals, and the oil price hikes that are hurting
companies and countries dependent on oil. I believe concern about future
earnings is justified--they will slow. The good news, though, is that the
stock market tends to do better when earnings slip. Weaker earnings generally
bring lower inflation and lower interest rates, and that's good for stocks. It
is only when earnings utterly collapse--when they are down as much as 20%
year-to-year--that the stock market does poorly.
Last year some stocks with no earnings did better than stocks with earnings.
This year stocks without earnings are in the tank. Many of them are down 90%
or more. There were dozens, if not hundreds, of companies that were
underwritten in the past year or two. A lot of dot-com names had bad business
plans and poor financing. It was truly a bubble, and it finally burst.
2
<PAGE>
These stocks have collapsed, and we are probably seeing the last stages of
this washout. Some of these stocks will never come back. A handful might. Many
of these companies never had earnings so their multiples were actually
infinite. You can't carry stocks forever without earnings. Ultimately the
market catches up. But, remember, this is only a sector of the market and by
no means the entire market.
Although stock prices are generally off their peaks, some market observers
do not consider them cheap. They point out that the S&P 500 is now at about 26
times earnings, down from 34 last June and well above the post-World War II
average of 15. What they cite is the average price/earnings ratio--the median
P/E is far lower. There are a handful of stocks in the S&P 500 with little in
the way of earnings and with very large market caps. This distorts the average
P/E ratio.
Frankly, I don't know anymore whether the market is really overvalued. A lot
depends on earnings forecasts, and these are mostly guesses. If there is
overvaluation, I believe it is a lot less than it was early in the year. In
our research, we use different valuation models. Some of them show the market
overvalued; others show the reverse. So I could argue the question either way.
I do not consider the market cheap, but it is not necessarily very overvalued.
Margin debt on the New York Stock Exchange and the Nasdaq increased about
40% over the past year to a record $250 billion. I am not overly concerned
about these figures because I think a lot of margin debt has been washed out
of the market. We saw a lot of margin calls in April and May. You tend to see
many margin calls at a market bottom. Off that bottom, we rallied quite a bit
into the end of August. In recent days we have again seen significant margin
calls. I would like to see even more debt wrung out. It would put the market
on firmer ground. Too much margin debt is a risk for the market. Although it
is not as bad as a year ago, I am not going to tell you that the margin debt
situation is good, but it might be tolerable right now.
Today half of U.S. households own stocks compared with just one-third in
1989. Despite voices to the contrary, I do not think that the recent
lackluster performance will drive people out of the market. I believe
investing is becoming more and more of a national pastime. With growing
disposable income, people have extra money to invest. They also have the
opportunity to do it now with greater technology and increased knowledge.
When you turn on the television, you can't help but follow the market all
day long. You can get on the Internet and trade stocks that way. And, you can
trade a lot cheaper than you could previously. I see nothing wrong with people
making their own decisions about how they want to save either through the
stock or bond markets. What I think is foolhardy is when people overspeculate,
use margin, buy penny stocks and gamble. That's a way to the poorhouse, in my
opinion.
Summing up, the chief positive factor in the market is the big increase in
the sentiment indicator that I have previously mentioned. And, bonds have
performed fairly well this year as well. On the negative side are the last
moves by the Fed toward tightening, although the Fed has not acted for several
months. I am guessing that the next Fed moves will be to lower rates.
Oil, of course, has been a negative. But, as I stated earlier, I think the
economy is slowing, and we will see lower inflation and possible disinflation.
It does not appear that earnings news will be great, but I believe the market
can overcome that if we get lower interest rates and lower inflation. It is a
mixed bag, but I consider the overall situation as moderately bullish.
We are about 80% invested as of this writing. For us, that's bullish--not
flat out bullish but in the low end of the bullish zone.
3
<PAGE>
PORTFOLIO COMPOSITION
Except for minor revisions, our leading industry groups as of September 30
were unchanged from the previous quarter-end. They included technology, finan-
cial services, health care, energy, telecommunications, and media. During the
third quarter, we made additional purchases in the technology, financial serv-
ices, health care, and energy sectors. Our telecommunications and media hold-
ings were trimmed.
As of September 30, 2000, our leading individual positions included General
Electric, Cisco, Exxon Mobil, Sun Microsystems, EMC, American International
Group, Citigroup, Microsoft, Pfizer, and Tyco.
The only new positions of those holdings listed above are EMC and Tyco, which
benefited from increased purchases and appreciation, and Citigroup, which
appreciated.
Of the stocks included among our top holdings as of June 30, Intel declined
in value, and we trimmed our positions in Nortel Networks and Baxter
International.
Sincerely,
/s/ Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
Chairman
4
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- -----------
<S> <C> <C>
Common Stocks 79.32%
Aerospace & Air Transport 1.47%
AMR Corp. ........................................... 105,000 $3,432,187
Boeing Co. .......................................... 104,900 6,608,700
-----------
10,040,887
-----------
Building & Forest Products 0.49%
Cemex S.A. de CV, ADR................................ 70,000 1,404,375
Georgia-Pacific Group................................ 70,000 1,645,000
Louisiana-Pacific Corp. ............................. 35,000 321,563
-----------
3,370,938
-----------
Chemicals 0.75%
Air Products & Chemicals, Inc. ...................... 70,000 2,520,000
Dow Chemical Co. .................................... 105,000 2,618,438
-----------
5,138,438
-----------
Commercial Services 0.62%
Modis Professional Services, Inc. ................... 174,900(a) 907,294
Omnicom Group, Inc. ................................. 45,500 3,318,656
-----------
4,225,950
-----------
Consumer Products 1.92%
Kimberly-Clark Corp. ................................ 105,000 5,860,313
PepsiCo, Inc. ....................................... 157,500 7,245,000
-----------
13,105,313
-----------
Electronics -- Electrical 3.66%
Emerson Electric Co. ................................ 52,500 3,517,500
General Electric Co. ................................ 315,000 18,171,562
Sanmina Corp. ....................................... 35,000(a) 3,276,875
-----------
24,965,937
-----------
Engineering & Machinery 0.81%
Ingersoll-Rand Co. .................................. 105,000 3,556,875
SPX Corp. ........................................... 14,000 1,987,125
-----------
5,544,000
-----------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Value
--------- -----------
<S> <C> <C>
Financial Services 12.24%
ACE Ltd. ............................................ 104,900 $4,117,325
Allstate Corp. ...................................... 141,800 4,927,550
American Express Co. ................................ 70,000 4,252,500
American International Group, Inc. .................. 122,500 11,721,719
Bank of America Corp. ............................... 87,500 4,582,812
Capital One Financial Corp. ......................... 73,500 5,149,594
Chase Manhattan Corp. ............................... 122,550 5,660,278
CIGNA Corp. ......................................... 69,900 7,297,560
Citigroup, Inc. ..................................... 210,000 11,353,125
FleetBoston Financial Corp. ......................... 105,000 4,095,000
Lehman Brothers Holdings, Inc. ...................... 35,000 5,171,250
Marsh & McLennan Cos., Inc. ......................... 52,500 6,969,375
Morgan Stanley Dean Witter & Co. .................... 52,600 4,809,612
Washington Mutual, Inc. ............................. 87,500 3,483,594
-----------
83,591,294
-----------
Health Care 8.34%
Amgen, Inc. ......................................... 87,400(a) 6,102,978
Baxter International, Inc. .......................... 70,000 5,586,875
Bristol-Myers Squibb Co. ............................ 122,300 6,986,387
MedImmune, Inc. ..................................... 34,800(a) 2,688,300
Merck & Co., Inc. ................................... 105,000 7,815,938
Pfizer, Inc. ........................................ 227,400 10,218,787
Pharmacia Corp. ..................................... 122,500 7,372,969
Schering-Plough Corp. ............................... 70,000 3,255,000
St. Jude Medical, Inc. .............................. 70,000 3,570,000
Wellpoint Health Networks, Inc. ..................... 35,000(a) 3,360,000
-----------
56,957,234
-----------
Investment Companies 1.26%
Asia Tigers Fund, Inc. .............................. 70,000 538,125
Emerging Markets Infrastructure Fund, Inc. .......... 135,616 1,347,684
Gabelli Global Multimedia Trust, Inc. ............... 110,266 1,488,591
INVESCO Global Health Sciences Fund, Inc. ........... 88,900 1,805,781
Korea Fund, Inc. .................................... 105,000 1,260,000
Morgan Stanley Dean Witter Asia Pacific Fund, Inc. .. 70,000 660,625
Morgan Stanley Dean Witter Emerging Markets Fund,
Inc. ............................................... 119,600 1,509,950
-----------
8,610,756
-----------
Manufacturing 1.83%
Honeywell International, Inc. ....................... 69,900 2,490,188
Tyco International Ltd. ............................. 192,500 9,985,938
-----------
12,476,126
-----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Value
--------- -----------
<S> <C> <C>
Media 4.47%
Comcast Corp., Class A............................... 142,200(a) $5,821,312
Grupo Televisa S.A., GDR............................. 70,000(a) 4,038,125
Infinity Broadcasting Corp., Class A................. 70,000(a) 2,310,000
McGraw-Hill Cos., Inc. .............................. 52,500 3,337,031
New York Times Co., Class A.......................... 71,800 2,822,638
News Corp. Ltd., ADR................................. 49,000 2,747,063
Viacom, Inc., Class B................................ 69,800(a) 4,083,300
Walt Disney Co. ..................................... 140,000 5,355,000
-----------
30,514,469
-----------
Metals 0.39%
Alcoa, Inc. ......................................... 105,000 2,657,813
-----------
Oil & Oil Services 8.03%
AES Corp. ........................................... 105,000(a) 7,192,500
Apache Corp. ........................................ 77,000 4,552,625
Baker Hughes, Inc. .................................. 35,000 1,299,375
Chevron Corp. ....................................... 52,500 4,475,625
EOG Resources, Inc. ................................. 69,900 2,717,362
Enron Corp. ......................................... 69,900 6,124,988
Exxon Mobil Corp. ................................... 139,900 12,468,587
Smith International, Inc. ........................... 35,000(a) 2,854,688
Talisman Energy, Inc. ............................... 70,000(a) 2,454,375
USX-Marathon Group................................... 196,000 5,561,500
Williams Cos., Inc. ................................. 122,400 5,171,400
-----------
54,873,025
-----------
Retailing 4.57%
Best Buy Co., Inc. .................................. 70,000(a) 4,453,750
CVS Corp. ........................................... 70,000 3,241,875
Home Depot, Inc. .................................... 122,700 6,510,769
Kroger Co. .......................................... 175,000 3,948,437
Lowe's Cos., Inc. ................................... 52,500 2,355,937
Wal-Mart Stores, Inc. ............................... 156,200 7,517,125
Walgreen Co. ........................................ 84,000 3,186,750
-----------
31,214,643
-----------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Value
--------- ------------
<S> <C> <C>
Technology 19.24%
Adobe Systems, Inc. ................................ 34,900 $5,418,225
America Online, Inc. ............................... 157,500(a) 8,465,625
Applied Materials, Inc. ............................ 70,300(a) 4,169,669
Atmel Corp. ........................................ 70,000(a) 1,063,125
Cisco Systems, Inc. ................................ 227,800(a) 12,585,950
Citrix Systems, Inc. ............................... 35,000(a) 702,187
Compaq Computer Corp. .............................. 175,000 4,826,500
Cypress Semiconductor Corp. ........................ 70,000(a) 2,909,375
Dell Computer Corp. ................................ 106,000(a) 3,266,125
EMC Corp. .......................................... 118,400(a) 11,736,400
First Data Corp. ................................... 70,000 2,734,375
Fiserv, Inc. ....................................... 35,000(a) 2,095,625
Intel Corp. ........................................ 211,800 8,802,938
Jabil Circuit, Inc. ................................ 52,400(a) 2,973,700
JDS Uniphase Corp. ................................. 52,500(a) 4,971,094
Lucent Technologies, Inc. .......................... 101,700 3,108,206
Microchip Technology, Inc. ......................... 52,500(a) 1,735,781
Microsoft Corp. .................................... 176,500(a) 10,645,156
Motorola, Inc. ..................................... 83,800 2,367,350
Network Appliance, Inc. ............................ 35,000(a) 4,458,125
Oracle Corp. ....................................... 122,400(a) 9,639,000
QUALCOMM, Inc. ..................................... 70,000(a) 4,987,500
Sun Microsystems, Inc. ............................. 105,000(a) 12,258,750
SunGard Data Systems, Inc. ......................... 35,000(a) 1,498,437
Teradyne, Inc. ..................................... 35,000(a) 1,225,000
USinternetworking, Inc. ............................ 70,050(a) 467,365
Yahoo!, Inc. ....................................... 24,500(a) 2,229,500
------------
131,341,083
------------
Telecommunications 7.38%
ADC Telecommunications, Inc. ....................... 105,000(a) 2,823,516
AT&T Corp. ......................................... 70,000 2,056,250
AT&T Wireless Group................................. 70,300(a) 1,467,512
CenturyTel, Inc. ................................... 104,900 2,858,525
General Motors Corp., Class H....................... 157,497 5,855,738
Nokia Corp., ADR.................................... 72,200 2,874,463
Nortel Networks Corp. .............................. 140,000 8,338,750
SBC Communications, Inc. ........................... 157,500 7,875,000
Tele Norte Leste Participacoes S.A., ADR............ 107,000 2,447,625
Telefonos de Mexico S.A., Class L, ADR.............. 70,200 3,733,762
Telephone & Data Systems, Inc. ..................... 52,500 5,811,750
WorldCom, Inc. ..................................... 140,050(a) 4,254,019
------------
50,396,910
------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Value
----------- ------------
<S> <C> <C>
Textile & Apparel Manufacturer 0.41%
NIKE, Inc. ......................................... 70,000 $ 2,804,375
------------
Utilities -- Electric & Gas 1.44%
FPL Group, Inc. .................................... 52,500 3,451,875
PECO Energy Co. .................................... 105,000 6,359,063
------------
9,810,938
------------
Total Common Stocks............................... 541,640,129
------------
<CAPTION>
Principal
Amount
-----------
<S> <C> <C>
Short-Term Investments 20.43%
American Home Products Corp, 6.68%, 10/02/00........ $25,000,000 24,995,361
Avery Dennison Corp., 6.68%, 10/02/00............... 25,000,000 24,995,361
PG&E Corp., 6.75%, 10/02/00......................... 19,500,000 19,496,344
UBS Financial Corp., 6.68%, 10/02/00................ 30,000,000 29,994,433
USA Education, Inc., 6.60%, 10/03/00................ 20,000,000 19,992,733
Volkswagen AG, 6.68%, 10/02/00...................... 20,000,000 19,996,289
------------
Total Short-Term Investments.................................. 139,470,521
------------
Total Investments -- 99.75%................................... 681,110,650
Cash and Other Assets Less Liabilities -- 0.25%............... 1,688,048
------------
Net Assets (Equivalent to $11.35 per share based on
60,135,623 shares of capital stock outstanding) -- 100.00%... $682,798,698
============
</TABLE>
--------
(a) Non-income producing security.
9
<PAGE>
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Net Asset Value
Total Net Assets per share
------------------------- -----------------
<S> <C> <C> <C> <C>
Beginning of period: December 31,
1999............................ $733,522,537 $ 12.20
Net investment income.......... $ 9,712,373 $ 0.16
Net realized and unrealized
loss on investments........... (6,915,497) (0.12)
Dividends from net investment
income and distributions from
net long-term and short-term
capital gains................. (53,520,715) (0.89)
----------- -------
Net decrease in net assets/net
asset value................... $(50,723,839) (0.85)
------------ --------
End of period: September 30,
2000............................ $682,798,698 $ 11.35
============ ========
</TABLE>
-------------------------------------------------------------------------------
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.
10
<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
Nancy J. Engberg
Secretary
Charles H. Brunie
Director
Elliot S. Jaffe
Director
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
Investment Adviser
Phoenix/Zweig Advisers LLC
900 Third Avenue
New York, NY 10022
Fund Administrator
Phoenix Equity Planning Corp.
100 Bright Meadow Boulevard
PO Box 2200
Enfield, CT 06083-2200
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer Agent
State Street Bank & Trust Co.
c/o EquiServe
PO Box 8040
Boston, MA 02266
Legal Counsel
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
--------------------------------------------------------------------------------
This report is transmitted to the shareholders of The Zweig Fund, Inc. for
their information. This is not a prospectus, circular or representation in-
tended for use in the purchase of shares of the Fund or any securities men-
tioned in this report.
PXP 1375 4902-3Q-00
Quarterly Report
Zweig
The Zweig Fund, Inc.
September 30, 2000
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[LOGO] PHOENIX
INVESTMENT PARTNERS
