<PAGE>
February 1, 1996
[PHOTO OF MARTIN E. ZWEIG APPEARS HERE]
Dear Shareholder:
The Zweig Fund's net asset value increased 18.3% in the year ended December
31, 1995, including $1.07 in reinvested distributions. During the same period
the Standard & Poor's 500 Index gained 37.6%.
In the fourth quarter of 1995 the Fund's net asset value, including a $0.28
distribution, increased 3.3%. The S&P's 500 Index rose 6.5% during the same
period.
Consistent with our risk-averse policy, the Fund's average equity exposure
was approximately 62% for the fourth quarter and 52% for the entire year.
In retrospect, I wish we had been somewhat more invested earlier in the
year. However, my job is to protect against bear markets. Since my indicators
were negative, I was very cautious and this is reflected in our performance.
You may recall that the Federal Reserve tightened in December of 1994 and
again in February of 1995. I never like to fight the Fed--which is one reason
we were under-invested. I was protected against undue risk, but this time the
risk did not pan out.
Statistically, if you fight the Fed you are wrong perhaps seven times out of
ten. It is always important to remain flexible to meet changing market
conditions. As bonds rallied and stocks followed, we increased our exposure.
Our research continued to keep us in gear with the markets. We kept raising
our exposure and are currently at about 67% in stocks.
This equity position is more bullish than it appears at first glance. As I
mentioned in the previous quarterly report, I like to use as a benchmark for
full investment about 80% stocks and 20% bonds. Considering 80% as a fully
invested position, we are about 84% long (67%/80%) and that is quite bullish.
In the bond segment, we are currently fully invested at 20%. Also, the average
duration of our bond portfolio is 7 years, significantly greater than the
average bond fund's duration of 5 years. So we are 87% invested overall, with
only 13% in cash. This is a very low level of cash for us because we have been
as high as 60% at times.
DISTRIBUTION DECLARED
On January 2, 1996 the Fund announced a distribution of $0.28 per share
payable on January 10, 1996 to shareholders of record December 29, 1995.
Including this distribution, our total distribution to shareholders for tax
purposes in 1995 was $1.09. Of this figure, $0.95 was ordinary income (net
investment income of $0.39 and net short-term capital gains of $0.56) and
$0.14 was a long-term capital gain. The latest distribution brings our total
payout since the Fund's inception to $10.23.
For the first nine years of full operations ended December 31, 1995, The
Zweig Fund
<PAGE>
showed a total return on net asset value of 186% (12.4% on a compounded
annualized basis), including reinvested distributions. Our average equity
exposure for the nine years was 56%.
If a shareholder had invested $10,000 (1,000 shares) at the time of the
Fund's Initial Public Offering in October, 1986, the market value of these
holdings, including reinvested distributions, would have appreciated to
$27,203 (2,418 shares) as of December 31, 1995.
MARKET OUTLOOK
Last year was one for the record books. Stocks soared to new highs with
hardly a pause or a stumble. The Dow Jones Industrial Average had its best
year since 1975 and the S&P 500 Index made its strongest showing since 1958--
outperforming no less than 91% of all equity mutual funds. After a dismal
1994, bonds achieved their second best performance since 1925.
I don't believe this year will be as good as 1995 but I think the market
will do O.K. The economy is fairly weak and that should be helpful. It makes
it more likely that the Fed will loosen--and lower interest rates should be a
plus. Also, the large amount of money pouring into mutual funds should provide
a bullish prop for stocks. Meanwhile, there has been a slight shrinkage in the
supply of stocks as a result of takeovers and corporate buybacks, another
plus.
Not every indicator is positive. There are some pockets in the sentiment
area where I would like to see more pessimism. I am also not happy about the
recent bouts of speculation with Internet stocks and the number of new issues.
Also, a weaker economy could bring reduced earnings. There are always
negatives and positives. Right now I think the positives outweigh the
negatives.
I do think we will see more volatility and I am guessing that a time will
come during the year when we will have to cut back. In the midst of all the
bullish news, it is important to remember that the markets have gone more than
five years without even a 10% correction--the longest such run ever. My 34
years following the markets have taught me that the markets are ultimately
cyclical. Historically, patterns of growth are invariably punctuated by
periodic and often painful declines.
While I am somewhat more than moderately bullish at this writing, I will pay
close attention to what my indicators are saying. As a defensive money
manager, I will always be prepared to reduce our exposure if my indicators
point to changing conditions and rising risk.
PORTFOLIO COMPOSITION
As has been the case since the beginning of 1995, the majority of our stocks
continue to be selected on the basis of a proprietary computer-driven stock-
picking model that employs various criteria to rank the most liquid stocks
with the highest dividend yields.
Since July 5, 1995, Carlton Neel has been responsible for the implementation
of our bond investment policy. He also serves as portfolio manager of two of
our open end funds--Zweig Managed Assets and Government Securities Series.
Prior to joining us, he was a Vice President with J.P. Morgan & Co., Inc.
Generally speaking, our positions in oil, utilities, telecommunications,
aerospace, and chemicals increased during the fourth quarter while holdings
declined in paper and forest products, manufacturing, and banking.
Oil continues to be our leading industry group, followed closely by
utilities. Other top-ranking categories include chemicals, paper and forest
products, telecommunications, and aerospace.
Our largest individual position is in Telefonica de Espana which we acquired
for
2
<PAGE>
our portfolio in the fourth quarter. Telefonica provides telecommunications to
industrial, residential, and municipal companies throughout Spain. It also
produces a wide range of information age products ranging from mobile phones
and telefaxes to audio-visual communications.
Other leading individual positions include two major chemical corporations
whose products are sold world-wide--du Pont and Union Carbide. In addition to
being a large producer of chemicals and nylon, du Pont is widely involved in
energy sources such as petroleum and coal. Union Carbide's major products
include plastics as well as chemicals.
We also hold prominent positions in such international oil and gas companies
as Mobil and British Petroleum, and Atlantic Richfield, which is primarily
based in the United States.
Rounding out our top ten individual holdings are BankAmerica, which provides
retail and wholesale banking services in the western U.S. and does business
with corporate and institutional customers world-wide; Sprint, a significant
factor in domestic and international telecommunications; Phelps Dodge, a major
copper and copper products producer whose activities encompass 25 countries;
and Burlington Northern Santa Fe, whose rail transport system spans 25 western
states and two Canadian provinces.
Sincerely,
/s/ Martin E. Zweig
Martin E. Zweig, Ph.D.
Chairman
3
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
COMMON STOCKS 64.01%
AEROSPACE & DEFENSE 4.13%
Lockheed Martin Corp. ................................ 40,115 $ 3,169,085
Northrop Grumman Corp. ............................... 78,200 5,004,800
Raytheon Co. ......................................... 64,600 3,052,350
Rockwell International Corp. ......................... 89,900 4,753,462
Textron, Inc. ........................................ 38,300 2,585,250
Thiokol Corp. ........................................ 5,400 182,925
United Technologies Corp. ............................ 40,800 3,870,900
------------
22,618,772
------------
AUTOMOTIVE 0.76%
General Motors Corp. ................................. 79,000 4,177,125
------------
BANKS 3.39%
BankAmerica Corp. .................................... 94,400 6,112,400
Chemical Banking Corp. ............................... 92,300 5,422,625
Citicorp ............................................. 80,900 5,440,525
Republic New York Corp. .............................. 26,000 1,615,250
------------
18,590,800
------------
CHEMICALS 5.92%
ARCO Chemical Co. .................................... 21,900 1,064,888
Dow Chemical Co. ..................................... 72,000 5,067,000
du Pont (E.I.) de Nemours & Co. ...................... 89,900 6,281,762
Eastman Chemical Co. ................................. 76,600 4,797,075
Goodrich (B.F.) & Co. ................................ 35,300 2,404,812
Imperial Chemical Industries Plc, ADR ................ 36,400 1,701,700
Lyondell Petrochemical Co. ........................... 66,500 1,521,188
Olin Corp. ........................................... 48,400 3,593,700
Union Carbide Corp. .................................. 159,400 5,977,500
------------
32,409,625
------------
CONGLOMERATES 0.83%
Xerox Corp. .......................................... 33,100 4,534,700
------------
CONSTRUCTION & FARM EQUIPMENT 0.50%
Deere & Co. .......................................... 77,100 2,717,775
------------
CONSUMER DURABLES 0.44%
Goodyear Tire & Rubber Co. ........................... 42,300 1,919,363
Outboard Marine Corp. ................................ 5,800 118,175
SPX Corp. ............................................ 6,000 95,250
Toro Co. ............................................. 8,200 269,575
------------
2,402,363
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
FINANCE & FINANCIAL SERVICES 0.58%
American Bankers Insurance Group, Inc. ............... 25,300 $ 986,700
Fremont General Corp. ................................ 20,400 749,700
PHH Corp. ............................................ 18,500 864,875
Quick & Reilly Group, Inc. ........................... 13,900 284,950
Raymond James Financial, Inc. ........................ 15,000 316,875
------------
3,203,100
------------
FOOD & BEVERAGE 0.82%
Adolph Coors Co., Class B............................. 26,600 588,525
Michael Foods, Inc. .................................. 5,200 60,450
Unilever N.V. ........................................ 27,400 3,856,550
------------
4,505,525
------------
HEALTHCARE 0.70%
Baxter International, Inc. ........................... 67,200 2,814,000
McKesson Corp. ....................................... 19,900 1,007,438
------------
3,821,438
------------
INVESTMENT COMPANIES 1.78%
Alliance Global Environment Fund...................... 23,600 238,950
Blue Chip Value Fund, Inc. ........................... 29,700 226,462
Clemente Global Growth Fund, Inc. .................... 23,400 195,975
Emerging Germany Fund, Inc............................ 26,200 189,950
Emerging Markets Infrastructure Fund, Inc. ........... 42,800 449,400
First Australia Fund, Inc. ........................... 8,100 66,825
France Growth Fund, Inc. ............................. 56,900 561,888
Gabelli Equity Trust Inc.............................. 58,100 544,688
Gabelli Global Multimedia Trust Fund.................. 15,700 105,975
Global Health Sciences Fund, Inc. .................... 52,200 867,825
Growth Fund Spain, Inc. .............................. 18,300 196,725
India Growth Fund, Inc. .............................. 5,200 66,950
John Hancock Bank & Thrift Opportunity Fund........... 28,900 711,662
Korean Investment Fund, Inc. ......................... 13,100 132,638
Liberty All-Star Growth Fund, Inc. ................... 36,700 344,062
Morgan Stanley Asia-Pacific Fund, Inc. ............... 26,200 350,425
New Age Media Fund, Inc. ............................. 31,400 467,075
Pilgrim Regional Bank Shares, Inc. ................... 20,800 267,800
Preferred Income Fund, Inc. .......................... 12,900 174,150
Royce Value Trust, Inc. .............................. 13,755 165,060
Salomon Brothers Fund, Inc. .......................... 52,200 698,175
Scudder New Europe Fund, Inc. ........................ 39,100 444,763
Templeton China World Fund, Inc. ..................... 13,000 138,125
Templeton Dragon Fund, Inc. .......................... 33,900 453,413
</TABLE>
5
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
INVESTMENT COMPANIES--(Continued)
Swiss Helvetia Fund, Inc. ............................ 44,300 $ 941,375
Tri-Continental Corp. ................................ 33,900 766,987
------------
9,767,323
------------
MANUFACTURING 1.92%
Avery Dennison Corp. ................................. 29,300 1,468,662
Crane Co. ............................................ 12,500 460,938
Duriron Co., Inc. .................................... 15,600 364,650
Gleason Corp. ........................................ 18,300 594,750
Harsco Corp. ......................................... 10,400 604,500
Johnson Controls, Inc. ............................... 22,200 1,526,250
Parker-Hannifin Corp. ................................ 84,700 2,900,975
TRW, Inc. ............................................ 33,300 2,580,750
------------
10,501,475
------------
METALS & MINING 3.72%
Aluminum Company of America........................... 94,300 4,986,113
Cyprus Amax Minerals Co. ............................. 101,600 2,654,300
Lukens, Inc. ......................................... 17,700 508,875
Phelps Dodge Corp. ................................... 95,100 5,919,975
Reynolds Metals Co. .................................. 73,300 4,150,612
USX-U.S. Steel Group.................................. 70,300 2,161,725
------------
20,381,600
------------
OIL & OIL SERVICES 12.63%
Amoco Corp. .......................................... 45,800 3,291,875
Atlantic Richfield Co. ............................... 49,400 5,471,050
British Petroleum Co., Plc, ADR....................... 56,500 5,770,062
Chevron Corp. ........................................ 75,000 3,937,500
Elf Aquitaine, ADR.................................... 102,400 3,763,200
Exxon Corp. .......................................... 58,300 4,671,288
Halliburton Co. ...................................... 101,000 5,113,125
Helmerich & Payne, Inc. .............................. 32,700 972,825
Kerr-McGee Corp. ..................................... 85,500 5,429,250
Louisiana Land & Exploration Co. ..................... 52,200 2,238,075
Mobil Corp. .......................................... 55,100 6,171,200
Nova Corp. ........................................... 48,900 391,200
Occidental Petroleum Corp. ........................... 213,900 4,572,112
Repsol S.A., ADR...................................... 133,800 4,398,675
Sun, Inc. ............................................ 122,700 3,358,913
Tidewater, Inc. ...................................... 164,700 5,188,050
USX-Marathon Group, Inc. ............................. 228,100 4,447,950
------------
69,186,350
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
PAPER & FOREST PRODUCTS 5.24%
Boise Cascade Corp. ................................ 47,600 $ 1,648,150
Bowater, Inc. ...................................... 71,300 2,531,150
Chesapeake Corp. ................................... 20,500 607,312
Consolidated Papers, Inc. .......................... 35,000 1,964,375
Federal Paper Board Co., Inc. ...................... 51,700 2,681,938
Glatfelter (P.H.) & Co. ............................ 12,600 215,775
International Paper Co. ............................ 105,500 3,995,812
James River Corp. of Virginia....................... 70,600 1,703,225
Longview Fibre Co. ................................. 25,100 407,875
Mead Corp. ......................................... 34,300 1,792,175
Sonoco Products Co. ................................ 72,800 1,911,000
Westvaco Corp. ..................................... 83,950 2,329,613
Weyerhaeuser Co. ................................... 84,600 3,658,950
Willamette Industries, Inc. ........................ 57,800 3,251,250
------------
28,698,600
------------
RETAIL TRADE & SERVICES 0.34%
CPI Corp. .......................................... 12,300 196,800
Giant Food, Inc., Class A .......................... 17,300 544,950
Ross Stores, Inc. .................................. 58,500 1,118,812
------------
1,860,562
------------
TECHNOLOGY 2.77%
Applied Materials, Inc. ............................ 20,800(a) 819,000
Dell Computer Corp. ................................ 36,000(a) 1,246,500
Digital Equipment Corp. ............................ 51,800(a) 3,321,675
Harris Corp. ....................................... 63,200 3,452,300
Intel Corp. ........................................ 22,800 1,293,900
International Business Machines Corp. .............. 30,000 2,752,500
Microsoft Corp. .................................... 25,800(a) 2,263,950
------------
15,149,825
------------
TELECOMMUNICATIONS 4.46%
Cable & Wireless Ltd. Co., ADR...................... 69,900 1,476,637
Cincinnati Bell Inc. ............................... 41,300 1,435,175
GTE Corp. .......................................... 109,800 4,831,200
NYNEX Corp. ........................................ 76,300 4,120,200
Sprint Corp. ....................................... 152,900 6,096,888
Telefonica de Espana, S.A., ADS..................... 154,600 6,473,875
------------
24,433,975
------------
</TABLE>
7
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
TEXTILES 0.06%
Guilford Mills, Inc. ................................. 2,800 $ 57,050
Interface, Inc., Class A.............................. 17,000 289,000
------------
346,050
------------
TRANSPORTATION 2.00%
Atlantic Southeast Airlines, Inc. .................... 61,800 1,328,700
Burlington Northern Santa Fe Corp. ................... 74,300 5,795,400
CSX Corp. ............................................ 84,500 3,855,312
------------
10,979,412
------------
UTILITIES--ELECTRIC & NATURAL GAS 11.02%
Baltimore Gas & Electric Co. ......................... 37,900 1,080,150
CINergy Corp. ........................................ 108,500 3,322,812
Detroit Edison Co. ................................... 139,900 4,826,550
DQE, Inc. ............................................ 60,650 1,864,987
Eastern Enterprises................................... 22,000 775,500
FPL Group, Inc. ...................................... 78,600 3,645,075
General Public Utilities Corp. ....................... 69,300 2,356,200
Illinova Corp. ....................................... 63,400 1,902,000
MCN Corp. ............................................ 37,300 867,225
New England Electric Systems, Inc. ................... 23,500 931,188
New York State Electric & Gas Co. .................... 101,900 2,636,663
NIPSCO Industries, Inc. .............................. 54,800 2,096,100
Noram Energy Corp. ................................... 173,100 1,536,262
Northeast Utilities Corp. ............................ 31,200 760,500
ONEOK, Inc. .......................................... 14,300 327,113
Pacific Enterprises................................... 157,100 4,438,075
Panhandle Eastern Corp. .............................. 195,500 5,449,563
PECO Energy Co. ...................................... 58,200 1,753,275
Pinnacle West Capital Corp. .......................... 59,100 1,699,125
Portland General Corp. ............................... 156,000 4,543,500
PP&L Resources, Inc. ................................. 44,700 1,117,500
Public Service Co. of Colorado........................ 32,200 1,139,075
Rochester Gas & Electric Corp. ....................... 33,900 766,987
San Diego Gas & Electric Co. ......................... 40,100 952,375
Southwest Gas Corp. .................................. 48,000 846,000
Tenneco, Inc. ........................................ 60,100 2,982,462
Transcanada Pipelines Ltd. ........................... 76,000 1,045,000
Unicom Corp. ......................................... 129,900 4,254,225
United Illuminating Co. .............................. 13,000 485,875
------------
60,401,362
------------
Total Common Stocks (Cost $316,947,476)........................ 350,687,757
------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
----------- ------------
<S> <C> <C>
UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS 17.65%
Federal Home Loan Mortgage Corp., 7.61%, 9/1/2004. $ 1,100,000 $ 1,127,610
Federal National Mortgage Association, 6.48%,
2/18/2004........................................ 1,100,000 1,110,947
Federal National Mortgage Association, 6.90%,
3/10/2004........................................ 1,300,000 1,315,519
Federal National Mortgage Association, 6.85%,
4/5/2004......................................... 2,765,000 2,931,025
Federal National Mortgage Association, 7.60%,
4/14/2004........................................ 1,810,000 1,848,527
United States Treasury Bonds, 8.125%, 8/15/2019... 5,000,000 6,289,060
United States Treasury Bonds, 7.50%, 11/15/2024... 2,900,000 3,484,527
United States Treasury Bonds, 7.625%, 2/15/2025... 9,900,000 12,099,642
United States Treasury Notes, 4.625%, 2/15/96..... 700,000 700,438
United States Treasury Notes, 4.25%, 5/15/96...... 5,000 4,986
United States Treasury Notes, 6.125%, 5/15/98..... 10,000,000 10,200,000
United States Treasury Notes, 6.125%, 7/31/2000... 18,000,000 18,540,000
United States Treasury Notes, 6.250%, 8/31/2000... 13,000,000 13,459,043
United States Treasury Notes, 7.50%, 2/15/2005.... 14,000,000 15,894,354
United States Treasury Notes, 6.50%, 5/15/2005.... 7,200,000 7,674,739
------------
TOTAL UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS
(Cost $92,146,693).......................................... 96,680,417
------------
SHORT-TERM INVESTMENTS 17.61%
Campbell Soup Co., 5.68%, 1/5/96.................. 15,000,000 14,990,533
Exxon Asset Management Corp., 5.65%, 1/3/96....... 5,800,000 5,798,180
Ford Motor Credit Co., 5.80%, 1/2/96.............. 6,500,000 6,498,953
Gannett Co., 5.80%, 1/10/96....................... 5,500,000 5,492,025
Gannett Co., 5.65%, 1/11/96....................... 15,000,000 14,976,458
Met Life Funding, Inc., 5.77%, 1/8/96............. 9,300,000 9,289,566
Pfizer, Inc., 5.65%, 1/12/96...................... 9,600,000 9,583,427
Philip Morris Capital Corp., 5.95%, 1/4/96........ 9,900,000 9,895,091
Raytheon Co., 5.93%, 1/5/96....................... 10,000,000 9,993,411
US West Telecommunications, Inc., 5.82%, 1/9/96... 10,000,000 9,987,067
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $96,504,711).............. 96,504,711
------------
TOTAL INVESTMENTS (Cost $505,598,880)............... 99.27% 543,872,885
CASH AND OTHER ASSETS, LESS LIABILITIES............. 0.73 4,012,898
----------- ------------
NET ASSETS (Equivalent to $11.06 per share based on
49,550,369 shares of capital stock outstanding).... 100.00% $547,885,783
=========== ============
</TABLE>
- --------
(a) Non-income producing security.
9
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONCLUDED)
DECEMBER 31, 1995
For Federal income tax purposes, the tax basis of investments owned at
December 31, 1995 was $505,737,272 and unrealized appreciation on investments
consisted of:
<TABLE>
<S> <C>
Gross unrealized appreciation................................ $40,778,048
Gross unrealized depreciation................................ (2,642,435)
-----------
Net unrealized appreciation.................................. $38,135,613
===========
</TABLE>
See notes to financial statements.
10
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost $505,598,880)............. $543,872,885
Cash............................................................. 1,224,454
Dividends and interest receivable................................ 2,916,756
Deposit at broker for short sales................................ 1,073,808
------------
Total Assets................................................... 549,087,903
------------
LIABILITIES:
Payable for investments purchased................................ 505,720
Accrued advisory fees (Note 3)................................... 392,751
Other accrued expenses........................................... 303,649
------------
Total Liabilities.............................................. 1,202,120
------------
NET ASSETS......................................................... $547,885,783
============
NET ASSET VALUE, PER SHARE:
($547,885,783 / 49,550,369 shares outstanding--Note 4)........... $11.06
======
Net Assets consist of:
Capital paid-in.................................................. $496,223,500
Undistributed net investment income.............................. 4,127,891
Undistributed net realized gain on investments................... 9,260,387
Net unrealized appreciation on investments....................... 38,274,005
------------
$547,885,783
============
</TABLE>
See notes to financial statements.
11
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Investment Income:
Income:
Dividends...................................................... $ 8,348,276
Interest....................................................... 16,633,259
-----------
Total Income................................................. 24,981,535
-----------
Expenses:
Investment advisory fees (Note 3).............................. 4,391,733
Administration fees (Note 3)................................... 721,242
Transfer agent fees............................................ 438,354
Printing and postage expenses.................................. 310,686
Professional fees (Note 3)..................................... 85,523
Custodian fees................................................. 110,214
Directors' fees and expenses (Note 3).......................... 51,264
Miscellaneous.................................................. 181,340
-----------
Total Expenses............................................... 6,290,356
-----------
Net Investment Income...................................... 18,691,179
-----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments (Note 2):
Securities transactions........................................ 29,722,150
Futures transactions........................................... 4,535,976
-----------
Net realized gain on investments........................... 34,258,126
Increase in unrealized appreciation on investments............... 34,291,057
-----------
Net realized and unrealized gain on investments................ 68,549,183
-----------
Net increase in net assets resulting from operations........... $87,240,362
===========
</TABLE>
See notes to financial statements.
12
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Increase (Decrease) In Net Assets:
Operations:
Net investment income.................... $ 18,691,179 $ 11,269,495
Net realized gain on investments......... 34,258,126 40,463,314
Increase (decrease) in unrealized appre-
ciation on investments.................. 34,291,057 (63,271,850)
--------------- ---------------
Net increase (decrease) in net assets
resulting from operations............. 87,240,362 (11,539,041)
--------------- ---------------
Dividends and distributions to shareholders
from:
Net investment income.................... (24,654,850) (1,178,509)
Net realized gains on investments........ (27,081,681) (51,758,709)
--------------- ---------------
Total dividends and distributions to
shareholders.......................... (51,736,531) (52,937,218)
--------------- ---------------
Capital share transactions:
Net asset value of shares issued to
shareholders in reinvestment of divi-
dends from net investment income and
distributions from net realized gains
(Note 4)................................ 20,378,445 21,667,228
--------------- ---------------
Increase in net assets derived from capi-
tal share transactions.................. 20,378,445 21,667,228
--------------- ---------------
Net increase (decrease) in net assets...... 55,882,276 (42,809,031)
Net Assets:
Beginning of year.......................... 492,003,507 534,812,538
--------------- ---------------
End of year (including undistributed net
investment income of $4,127,891 and
$10,091,562, respectively)................ $547,885,783 $492,003,507
=============== ===============
</TABLE>
See notes to financial statements.
13
<PAGE>
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
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.
A. Portfolio Valuation
Portfolio securities (including stock options and short sales) 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 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 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. Futures and options thereon 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,
and other assets, if any, are valued at fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund.
B. Security Transactions and Investment Income
Security transactions are recorded on trade date. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis.
Realized gains or losses on sales of investments are determined on the
identified cost basis for accounting and tax purposes.
C. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Fund's agent in acquiring the
futures position). 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 due from or liabilities due to the
broker, depending upon whether unrealized gains or losses are incurred. When
the contract is closed, the Fund records a realized 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.
The Fund may purchase and sell stock index and other futures contracts based
upon financial instruments, and the Fund may purchase and sell stock index
options, for hedging purposes. 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
14
<PAGE>
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
The Fund may engage in short sales of securities. 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. When the Fund engages in a short sale, the
proceeds it receives are retained by the broker until the Fund replaces the
borrowed security. 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 gain will be decreased, and any incurred loss
increased, by the amount of transaction costs. Dividends or interest which the
Fund may have to pay in connection with such short sales are recorded as
expenses. While the short sales are outstanding, the Fund pledges cash and
securities to cover its margin requirements. At December 31, 1995, cash of
$1,073,808 was on deposit, in an interest bearing account, with a broker to
cover any short sales the Fund may enter into.
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 year ended December 31, 1995, the Fund entered into purchase and
sale transactions, excluding short-term investments and futures transactions,
as follows:
<TABLE>
<S> <C>
Cost of Purchases............................................ $718,474,718
============
Proceeds from Sales.......................................... $513,503,022
============
</TABLE>
NOTE 3--INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
a) Investment Advisory Fees: The Investment Advisory Agreement (the
"Advisory 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 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. Certain directors and
officers of the Fund are also directors and officers of the Investment
Adviser.
15
<PAGE>
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
For the services provided by the Investment Adviser under the Advisory
Agreement, the Fund pays the Investment Adviser a monthly fee equal, on an
annual basis, to 0.85 of 1% of the Fund's average daily net assets. During the
year ended December 31, 1995, the Fund accrued advisory fees of $4,391,733.
b) Administration Fees: Zweig/Glaser Advisers (the "Administrator") 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 1% (0.15 of 1% prior to July 1,
1995) of the Fund's average daily net assets. During the year ended December
31, 1995, the Fund accrued administration fees of $721,242.
c) Directors' Fees: The Fund pays each Director who is not an interested
person of the Fund or the Investment Adviser a fee of $8,000 per year plus
$1,000 per Director's or committee meeting attended, together with the actual
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 $15,066 during the year ended
December 31, 1995, for the services of Rosenman & Colin LLP, of which Robert
E. Smith, Director of the Fund, is a partner.
e) Brokerage Commissions: During the year ended December 31, 1995, the Fund
paid Watermark Securities, Inc. brokerage commissions of $225,075 in
connection with portfolio transactions effected through them.
NOTE 4--CAPITAL STOCK AND REINVESTMENT PLAN
At December 31, 1995, the Fund has one class of common stock, par value
$0.10 per share, of which 100,000,000 shares are authorized and 49,550,369
shares are outstanding.
Registered shareholders may elect to receive all distributions in cash paid
by check mailed directly to the shareholder by The Bank of New York (the
"Bank") 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 the Bank, as the Plan agent,
in whole or fractional shares of the Fund, as the case may be. During the
years ended December 31, 1995 and 1994, 1,927,949 and 1,844,637 shares,
respectively, were issued pursuant to the Plan.
The Fund announced on January 2, 1996 a distribution of $0.28 per share
(representing long-term capital gains and net investment income) to
shareholders of record December 29, 1995. This distribution has an ex-dividend
date of January 4, 1996, payable January 10, 1996.
16
<PAGE>
NOTE 5--FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of year.................... $ 10.33 $ 11.68 $ 11.36 $ 12.40 $ 10.48
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPER-
ATIONS:
Net investment income....... 0.39 0.24 0.13 0.20 0.26
Net realized and unrealized
gains (losses) on invest-
ments...................... 1.41 (0.45) 1.41 (0.10) 2.78
-------- -------- -------- -------- --------
Total from investment opera-
tions...................... 1.80 (0.21) 1.54 0.10 3.04
-------- -------- -------- -------- --------
Less Dividends and Distribu-
tions:
Dividends from net invest-
ment income................ (0.51) (0.03) (0.22) (0.10) (0.30)
Distributions from net real-
ized gains on investments.. (0.56) (1.11) (1.00) (1.04) (0.82)
-------- -------- -------- -------- --------
Total Dividends and Distri-
butions.................... (1.07) (1.14) (1.22) (1.14) (1.12)
-------- -------- -------- -------- --------
Net asset value, end of
year..................... $ 11.06 $ 10.33 $ 11.68 $ 11.36 $ 12.40
======== ======== ======== ======== ========
Market value, end of
year*.................... $ 11.25 $ 10.375 $ 13.75 $ 13.00 $ 13.75
======== ======== ======== ======== ========
Total investment return..... 19.83% (16.95)% 16.59% 3.61% 37.42%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)................. $547,886 $492,004 $534,813 $500,101 $526,252
Ratio of expenses to average
net assets................. 1.22% 1.25% 1.23% 1.26% 1.28%
Ratio of net investment in-
come to average net assets. 3.62% 2.24% 1.18% 1.73% 2.37%
Portfolio turnover rate..... 160.2% 257.0% 235.5% 172.5% 144.3%
</TABLE>
- --------
* Closing Price--New York Stock Exchange.
NOTE 6--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Shown in total dollars and per common share:
<TABLE>
<CAPTION>
NET INCREASE
NET REALIZED (DECREASE) IN
TOTAL NET AND UNREALIZED NET ASSETS
INVESTMENT INVESTMENT GAIN (LOSS) RESULTING FROM
INCOME INCOME ON INVESTMENTS OPERATIONS
---------------- ---------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995-Quarter Ended
12/31/95.............. $6,151,714 $0.13 $4,592,548 $0.10 $12,405,212 $0.25 $16,997,760 $0.35
09/30/95.............. 5,777,215 0.12 4,145,753 0.08 18,934,694 0.39 23,080,447 0.47
06/30/95.............. 6,302,055 0.15 4,761,003 0.10 23,760,626 0.49 28,521,629 0.59
03/31/95.............. 6,750,551 0.14 5,191,875 0.11 13,448,651 0.28 18,640,526 0.39
1994-Quarter Ended
12/31/94.............. 5,639,871 0.12 4,044,984 0.09 (3,524,794) (0.08) 520,190 0.01
09/30/94.............. 4,973,809 0.11 3,412,314 0.07 9,142,331 0.19 12,554,645 0.26
06/30/94.............. 3,742,866 0.08 2,256,620 0.05 (12,726,865) (0.26) (10,470,245) (0.21)
03/31/94.............. 3,210,824 0.07 1,555,577 0.03 (15,699,208) (0.30) (14,143,631) (0.27)
</TABLE>
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Zweig Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of The
Zweig Fund, Inc., including the statement of net assets, as of December 31,
1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
The Zweig Fund, Inc. as of December 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 1, 1996
18
<PAGE>
THE ZWEIG FUND, INC.
YEAR-END RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL RETURN ON
NET ASSET NET ASSET NYSE PREMIUM
VALUE VALUE SHARE PRICE (DISCOUNT)
--------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Year Ended 12/31/95............ 18.3% $11.06 $11.25 1.7%
Year Ended 12/31/94............ (2.7%) 10.33 10.375 0.4%
Year Ended 12/31/93............ 13.3% 11.68 13.75 17.7%
Year Ended 12/31/92............ 0.4% 11.36 13.00 14.4%
Year Ended 12/31/91............ 30.1% 12.40 13.75 10.9%
Year Ended 12/31/90............ 1.9% 10.48 11.00 5.0%
Year Ended 12/31/89............ 22.3% 11.43 12.375 8.3%
Year Ended 12/31/88............ 17.9% 10.35 10.375 0.2%
Year Ended 12/31/87............ 14.7% 9.73 9.00 (7.5%)
Inception 10/2/86-12/31/86..... (0.4%) 9.31 9.125 (2.0%)
</TABLE>
- -------------------------------------------------------------------------------
KEY INFORMATION
1-800-432-8224 THE BANK OF NEW YORK:
For questions regarding shareholder accounts
P.O. Box 11258
Church Street Station
New York, NY 10286-1158
(212) 644-2188 THE ZWEIG FUND HOT LINE:
For updates on net asset value, share price, major industry
groups and other key information
1-800-272-2700 ZWEIG SHAREHOLDER RELATIONS:
For general information and literature
REINVESTMENT PLAN
Many of you have questions about the 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.
19
<PAGE>
OFFICERS AND DIRECTORS
Martin E. Zweig, Ph.D.
Chairman of the Board and
President
Jeffrey Lazar
Vice President and Treasurer
Stuart B. Panish
Vice President and Secretary
Edward S. Babbitt, Jr.
Director
Eugene J. Glaser
Director
Elliot S. Jaffe
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
5 Hanover Square
New York, New York 10004
CUSTODIAN AND TRANSFER AGENT
The Bank of New York
48 Wall Street
New York, New York 10015
LEGAL COUNSEL
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
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.
[LOGO OF THE ZWEIG FUND APPEARS HERE]
ANNUAL REPORT
-----------------
DECEMBER 31, 1995
