<PAGE>
This report is transmitted to the shareholders of The Zweig Fund, Inc. for
their information. This is not a prospectus, circular or representation intend-
ed for use in the purchase of shares of the Fund or any securities mentioned in
this report.
[LOGO OF ZWEIG FUND INC.]
QUARTERLY REPORT
SEPTEMBER 30, 1996
<PAGE>
November 1, 1996
Dear Shareholder:
The Zweig Fund's net asset value increased 2.1% during the three months
ended September 30, 1996, including the $0.27 per share distribution paid on
July 26, 1996. During the same period, the Standard & Poor's 500 Index gained
3.1% including dividends. Maintaining our risk-averse policy, the Fund's
equity exposure during the third quarter averaged approximately 56%.
For the nine months ended September 30, 1996 the Fund's net asset value
increased 7.2%, including $0.83 per share in reinvested distributions. During
this span, the Standard & Poor's 500 Index rose 13.5%, including dividends.
Our average exposure for this period was 63%.
We underperformed the market because our basic mandate is to protect capital
in declining markets while earning reasonable returns in rising markets. Our
exposure levels were based on my indicators which were reading neutral or low
neutral. This worked in our favor in July when the market went down. As my
indicators improved, we then raised our exposure somewhat. In retrospect, I
wish we had increased it more but our move was in line with my indicators. As
we pass through bull, bear, and stagnant markets over the long run, I believe
our Fund will continue to provide risk-averse investors with above-average
returns.
DISTRIBUTION DECLARED
On September 16, 1996, the Fund announced a distribution of $0.27 per share
payable on October 25, 1996 to shareholders of record on October 11, 1996.
Including this distribution, our total payout since the Fund's inception is
now $11.05.
MARKET OUTLOOK
At this writing I am neither bullish nor bearish. As I see it, today's stock
market outlook is not all black or all white. Rather the overall picture is
made up of varying shades of gray. If more of the gray were a lot brighter, we
would be more heavily invested. Instead, we are in the middle-gray range and
my indicators just aren't good enough to warrant a higher exposure.
Among the various market factors, momentum since early August has clearly
been positive. However, this indicator can flip around half a dozen times a
year or more.
A smaller plus would be my monetary indicators which are neutral or slightly
positive. These are driven mainly by the direction of interest rates. Despite
market expectations, the Fed did not raise rates at its September meeting. As
a consequence, short-term rates softened. Bond prices rallied a bit and that
helped stocks.
The main negatives include my sentiment indicators. Reflecting increased
speculation, they are showing above normal levels of optimism. While not as
bad as they were in May or June prior to the market drop, they are getting
tacky. Some of the market speculation was drained off by the July selloff but
warning signs have reappeared. For example, margin debt, which is used by
speculators, dropped by more than $7 billion in the July downturn. It has
since reversed and gained back more than $9 billion to a record high.
Valuation, which is partly a sentiment indicator, is also negative. The
price/earnings ratio, not adjusted for writeoffs, for the S&P 500 is 20. The
S&P Industrials, which don't include utilities, are selling at about 23 times
earnings, which is historically high. What's more, we recently calculated the
P/E ratio on the NDX, a composite of 100 of the largest stocks on the OTC, at
42. That compares with a 35 P/E last spring before the market drop. At these
levels, I don't think valuation offers a shock absorber for the market. If
everything goes right, the market
<PAGE>
could go higher. But if it is hit with higher interest rates, valuation does
not provide a very satisfactory cushion to protect the market.
Another significant market factor is the amount of new stock offerings.
These drop off seasonally around Labor Day. Normally we see a two-week period
where there is virtually no new supply of stock but this year there was a
four-week lull. This removed a big overhang of supply and the market was able
to rally. However, offerings are again heavy. It is not clear whether they are
heavy enough to put a drag on the market but for a while the lack of offerings
helped.
Evaluating the mixed bag of indicators leads me to a neutral stance on the
market. I do not see strong possibilities for a major move up or down. My
models show that when my indicators were in this position over the last forty
years, the market has on average turned out a very slight gain.
PORTFOLIO COMPOSITION
As has been the case since the beginning of 1995, the majority of our stocks
are bought or sold on the basis of a proprietary computer-driven model that
uses various value and growth criteria to evaluate and rank the most liquid
stocks with the highest dividend yields.
There was little change in the composition of our leading industry groups
during the third quarter. However our exposure declined in paper and forest
products and increased in the oil and retail groups.
The retail section is new to our leading categories. Here we have expanded
our positions in the following: American Stores, which owns and operates drug
and food stores nationwide; TJX Companies, whose chains include T.J. Maxx,
Winners Apparel Ltd., HomeGoods and Marshalls; and Dayton-Hudson, whose
holdings include the Target and Mervyn's chains, as well as many other
department stores.
At September 30, 1996, utilities continued to be our largest industry group,
closely followed by oils. Other prominent categories include
telecommunications, retail, financial services, and chemicals.
Our leading individual company positions include Sprint, Chrysler, American
Stores, Telefonica de Espana, Texaco, CSX, General Motors, USX-Marathon, TJX,
and Salomon.
General Motors is new to our holdings. All of the other companies cited
above were in our portfolio at the end of the second quarter.
Sincerely,
/s/ Martin E. Zweig
Martin E. Zweig, Ph.D.
Chairman
2
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ----------
<S> <C> <C>
Common Stocks 65.72%
Aerospace & Defense 2.80%
General Motors Corp., Class H........................... 80,000 $4,620,000
Rockwell International Corp. ........................... 81,700 4,605,838
Textron, Inc. .......................................... 23,700 2,014,500
United Technologies Corp. .............................. 36,700 4,408,587
----------
15,648,925
----------
Automotive 3.23%
Chrysler Corp. ......................................... 247,200 7,076,100
Ford Motor Company...................................... 155,200 4,850,000
General Motors Corp. ................................... 127,600 6,124,800
----------
18,050,900
----------
Banks 1.55%
BankAmerica Corp. ...................................... 60,500 4,968,562
Chase Manhattan Corp. .................................. 33,500 2,684,187
City National Corp. .................................... 27,500 498,438
Washington Mutual, Inc. ................................ 13,700 510,325
----------
8,661,512
----------
Chemicals 3.46%
du Pont (E.I.) de Nemours & Co. ........................ 53,700 4,739,025
Goodrich (B.F.) & Co. .................................. 88,100 3,975,513
Hanna (M.A.) Co. ....................................... 18,000 411,750
Olin Corp. ............................................. 47,700 4,006,800
Rhone-Poulenc Co., S.A., ADR............................ 45,500 1,274,000
Rohm & Haas Co. ........................................ 75,500 4,945,250
----------
19,352,338
----------
Construction & Farm Equipment 1.26%
Caterpillar Inc. ....................................... 52,600 3,964,725
Deere & Co. ............................................ 73,300 3,078,600
----------
7,043,325
----------
Consumer Durables 0.95%
Goodyear Tire & Rubber Co. ............................. 78,700 3,630,037
Maytag Co. ............................................. 76,800 1,497,600
SPX Corp. .............................................. 6,800 203,150
----------
5,330,787
----------
Containers & Packaging 0.09%
Sea Container LTD., Class A............................. 25,200 494,550
----------
Finance & Financial Services 4.11%
Alex Brown Inc. ........................................ 20,100 1,163,287
American Bankers Insurance Group, Inc. ................. 20,100 1,005,000
Bear Stearns & Co., Inc. ............................... 145,320 3,378,690
Edwards, (A.G.) Inc. ................................... 103,400 3,011,525
</TABLE>
3
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
Finance & Financial Services (Continued)
Fremont General Corp. ................................. 51,450 $ 1,517,775
Merrill Lynch & Co., Inc. ............................. 67,300 4,416,562
PaineWebber Group, Inc. ............................... 67,700 1,421,700
PHH Corp. ............................................. 42,800 1,273,300
Salomon Inc. .......................................... 126,900 5,789,813
-----------
22,977,652
-----------
Food & Beverage 0.21%
Adolph Coors Co., Class B.............................. 54,000 1,184,625
-----------
Home Builders & Materials 0.46%
Apogee Enterprises, Inc. .............................. 25,600 896,000
Armstrong World Industries, Inc. ...................... 21,000 1,309,875
Ryland Group Inc. ..................................... 26,200 389,725
-----------
2,595,600
-----------
Investment Companies 3.58%
Blackrock 2001 Term Trust, Inc. ....................... 52,600 407,650
Blackrock Strategic Term Trust, Inc. .................. 52,600 407,650
Central European Equity Fund........................... 13,700 265,437
Clemente Global Growth Fund, Inc. ..................... 23,400 193,050
Emerging Germany Fund, Inc. ........................... 92,000 736,000
Emerging Markets Infrastructure, Inc. ................. 42,900 466,537
Emerging Markets Telecommunications Fund, Inc. ........ 24,000 423,000
Emerging Mexico Fund, Inc. ............................ 27,900 202,275
Europe Fund, Inc. ..................................... 32,000 500,000
First Iberian Fund, Inc. .............................. 28,000 248,500
First Israel Fund, Inc. ............................... 24,000 270,000
France Growth Fund, Inc. .............................. 46,800 485,550
G.T. Global Developing Markets Fund.................... 14,300 157,300
G.T. Global Eastern Europe Fund........................ 72,800 1,010,100
Gabelli Equity Trust, Inc. ............................ 55,900 517,075
Gabelli Global Multimedia Trust Fund, Inc. ............ 97,100 667,563
Global Health Sciences Fund, Inc. ..................... 105,200 1,880,450
John Hancock Bank & Thrift Opportunity Fund............ 39,700 1,047,087
Liberty All-Star Growth Fund, Inc. .................... 65,200 635,700
Morgan Grenfell Small Cap Fund, Inc. .................. 64,333 691,580
New Age Media Fund, Inc. .............................. 31,400 478,850
New Germany Fund, Inc. ................................ 133,800 1,839,750
Pilgrim America Bank & Thrift Fund, Inc. .............. 36,800 510,600
Royce Value Trust, Inc. ............................... 111,955 1,413,432
Schroder Asian Growth Fund............................. 14,100 170,963
Scudder New Asia Fund, Inc. ........................... 17,900 234,937
Scudder New Europe Fund, Inc. ......................... 49,500 680,625
Spain Fund, Inc. ...................................... 40,700 401,913
Swiss Helvetia Fund, Inc. ............................. 66,300 1,408,875
Templeton China World Fund, Inc. ...................... 38,800 451,050
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
Investment Companies (Continued)
Templeton Dragon Fund, Inc. ........................... 13,700 $ 186,663
Templeton Vietnam Fund, Inc. .......................... 14,200 161,525
Tri-Continental Corp. ................................. 33,900 847,500
-----------
19,999,187
-----------
Leisure 0.79%
Brunswick Corp. ....................................... 111,500 2,676,000
Fleetwood Enterprises, Inc. ........................... 57,000 1,752,750
-----------
4,428,750
-----------
Manufacturing 2.02%
Duriron Co., Inc. ..................................... 15,600 413,400
Harsco Corp. .......................................... 16,100 1,014,300
Ingersoll Rand Co. .................................... 20,400 969,000
Johnson Controls, Inc. ................................ 27,200 2,040,000
Miller (Herman), Inc. ................................. 61,700 2,498,850
Premark International Inc. ............................ 78,500 1,481,687
Simpson Industries Inc. ............................... 34,200 346,275
TRW, Inc. ............................................. 27,200 2,529,600
-----------
11,293,112
-----------
Metals & Mining 0.88%
British Steel, Plc., ADR .............................. 102,000 3,111,000
Oregon Steel Mills Inc. ............................... 119,500 1,837,313
-----------
4,948,313
-----------
Oil & Oil Services 11.02%
Ashland Oil Inc. ...................................... 113,900 4,527,525
British Petroleum Co., Plc., ADR....................... 27,400 3,425,000
Chevron Corp. ......................................... 27,200 1,703,400
Elf Aquitaine, ADR..................................... 94,700 3,728,813
Helmerich & Payne, Inc. ............................... 54,400 2,373,200
Kerr-McGee Corp. ...................................... 62,600 3,810,775
Mobil Corp. ........................................... 37,600 4,352,200
Pennzoil Co. .......................................... 82,800 4,378,050
Phillips Petroleum Co. ................................ 106,900 4,569,975
Quaker State Corp. .................................... 66,500 1,147,125
Repsol S.A., ADR....................................... 106,800 3,537,750
Sun Co., Inc. ......................................... 31,300 719,900
Texaco Inc. ........................................... 70,400 6,476,800
Tosco Corp. ........................................... 104,500 5,734,437
Ultramar Corp. ........................................ 59,700 1,805,925
Unocal Corp. .......................................... 89,200 3,211,200
USX-Marathon Group, Inc. .............................. 282,000 6,098,250
-----------
61,600,325
-----------
</TABLE>
5
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
Paper & Forest Products 1.68%
Boise Cascade Corp. ................................. 60,100 $ 2,043,400
Bowater, Inc. ....................................... 83,000 3,154,000
International Paper Co. ............................. 54,700 2,324,750
Pope & Talbot, Inc. ................................. 23,400 359,775
Westvaco Corp. ...................................... 50,950 1,509,394
-----------
9,391,319
-----------
Retail Trade & Services 4.09%
American Stores Co. ................................. 164,600 6,584,000
Dayton Hudson Inc. .................................. 139,600 4,606,800
Fay's Inc. .......................................... 22,800 290,700
Mercantile Stores Inc. .............................. 27,600 1,490,400
Ross Stores, Inc. ................................... 37,300 1,342,800
Supervalue Inc. ..................................... 93,600 2,574,000
TJX Companies Inc. .................................. 167,400 6,005,475
-----------
22,894,175
-----------
Technology 3.24%
Applied Materials, Inc. ............................. 20,800(a) 574,600
Dell Computer Corp. ................................. 36,000(a) 2,799,000
Digital Equipment Corp. ............................. 57,600(a) 2,059,200
EG&G Inc. ........................................... 35,500 634,563
Harris Corp. ........................................ 47,700 3,106,462
Intel Corp. ......................................... 22,800 2,175,975
International Business Machines Corp. ............... 26,800 3,336,600
Microsoft Corp. ..................................... 25,800(a) 3,402,375
-----------
18,088,775
-----------
Telecommunications 6.57%
BCE Inc. ............................................ 58,500 2,500,875
British Telecommunications Corp. Plc, ADR............ 9,700 541,988
Cincinnati Bell Inc. ................................ 26,800 1,420,400
GTE Corp. ........................................... 57,300 2,206,050
NYNEX Corp. ......................................... 98,300 4,276,050
Sprint Corp. ........................................ 211,300 8,214,287
Telefonica de Espana S.A., ADS....................... 116,800 6,497,000
Telefonos de Mexico S.A., ADS........................ 180,500 5,798,563
U.S. West Inc. ...................................... 177,900 5,292,525
-----------
36,747,738
-----------
Tobacco 0.77%
RJR Nabisco Holdings Corp. .......................... 165,800 4,310,800
-----------
Transportation 1.57%
Alexander & Baldwin.................................. 10,000 245,000
APL Ltd. ............................................ 14,200 305,300
British Airways Plc, ADR............................. 13,600 1,161,100
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<S> <C> <C>
Transportation (Continued)
CSX Corp. ............................................ 121,700 $ 6,145,850
KLM Royal Dutch Airlines, Inc. ....................... 34,200 902,025
------------
8,759,275
------------
Utilities--Electric & Natural Gas 11.39%
Allegheny Power Systems, Inc. ........................ 52,600 1,525,400
American Electric Power Co., Inc. .................... 105,400 4,281,875
Baltimore Gas & Electric Co. ......................... 27,500 718,438
Carolina Power & Light Co., Inc. ..................... 36,400 1,255,800
CINergy Corp. ........................................ 59,600 1,840,150
CMS Energy Corp. ..................................... 60,000 1,807,500
Consolidated Natural Gas Co. ......................... 22,800 1,222,650
DQE Inc............................................... 65,950 1,838,356
Dominion Resources Inc. .............................. 27,400 1,034,350
Eastern Enterprises .................................. 22,000 830,500
Edison International Inc. ............................ 155,600 2,781,350
El Paso Natural Gas Co. .............................. 37,400 1,645,600
Enova Corp. .......................................... 40,100 887,213
Entergy Corp. ........................................ 91,900 2,481,300
GPU Inc. ............................................. 110,800 3,407,100
Illinova Corp. ....................................... 100,400 2,660,600
MCN Corp. ............................................ 67,100 1,803,312
New York State Gas & Electric Co. .................... 27,400 602,800
NIPSCO Industries, Inc. .............................. 69,400 2,481,050
NorAm Energy Corp. ................................... 247,300 3,678,588
Pacificorp............................................ 87,500 1,804,687
PanEnergy Corp. ...................................... 156,800 5,429,200
Pinnacle West Capital Corp. .......................... 106,400 3,152,100
Questar Corp.......................................... 28,400 1,004,650
Sierra Pacific Resources Inc. ........................ 40,000 1,035,000
Sonat, Inc. .......................................... 80,400 3,557,700
Texas Utilities Co. .................................. 102,000 4,041,750
Transcanada Pipeline Ltd. ............................ 86,500 1,394,813
United Illuminating Co. .............................. 29,300 1,007,187
Utilicorp United Inc. ................................ 11,400 314,925
Western Resources Inc. ............................... 72,600 2,114,475
------------
63,640,419
------------
Total Common Stocks ................................ 367,442,402
------------
</TABLE>
7
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONCLUDED)
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/
NUMBER OF
CONTRACTS VALUE
----------- ------------
<S> <C> <C>
United States Government & Agency Obligations 5.06%
Federal National Mortgage Association 6.85%, 4/5/2004..... $ 2,765,000 $ 2,768,047
United States Treasury Bills, 5.12%, 10/31/1996 .......... 2,000,000(b) 1,991,467
United States Treasury Bonds, 10.75%, 5/15/2003 .......... 4,000,000 4,875,000
United States Treasury Bonds, 7.50%, 11/15/2024 .......... 2,600,000 2,746,250
United States Treasury Bonds, 7.625%, 2/15/2025 .......... 1,600,000 1,718,498
United States Treasury Bonds, 6.875%, 8/15/2025 .......... 900,000 886,217
United States Treasury Notes, 6.25%, 8/31/2000 ........... 13,400,000 13,324,625
------------
Total United States Government & Agency 28,310,104
Obligations ........................................... ------------
Short-Term Investments 29.11%
AT&T Capital Corp., 5.28%, 10/1/96........................ 19,500,000 19,500,000
Coca-Cola Co., 5.25%, 10/25/96............................ 20,000,000 19,930,000
du Pont (E.I.) de Nemours & Co., 5.33%, 10/2/96........... 10,800,000 10,798,401
Exxon Imperial Inc., 5.33%, 10/15/96...................... 18,000,000 17,962,690
Ford Motor Credit Co., 5.32%, 10/7//96 ................... 22,300,000 22,280,227
Merrill Lynch & Co., Inc., 5.35%, 10/4/96................. 16,000,000 15,992,867
Met Life Funding, Inc., 5.33%, 10/3/96.................... 24,035,000 24,027,883
Mobil Corp., 5.34%, 10/21/96.............................. 1,400,000 1,395,847
Philip Morris Capital Corp., 5.33%, 10/18/96.............. 10,000,000 9,974,831
Smithkline Beecham Corp., 5.32%, 10/7/96.................. 10,000,000 9,991,133
UPS Inc., 5.74%, 10/1/96.................................. 4,900,000 4,900,000
Xerox Credit Corp., 5.30%, 10/9/96........................ 6,000,000 5,992,933
------------
Total Short-Term Investments ........................... 162,746,812
------------
Net Unrealized Appreciation on Futures Contracts 0.00%
Standard & Poor's 500 Index, December 1996 Short futures . (91)(c) 4,772
------------
Total Investments........................................... 99.89% 558,504,090
Cash And Other Assets, Less Liabilities .................... 0.11 636,682
----------- ------------
Net Assets (Equivalent to $10.97 per share based on 100.00% $559,140,772
50,987,282 shares of capital stock outstanding) ........... =========== ============
</TABLE>
- --------
(a) Non-income producing security.
(b) This security has been pledged as collateral for futures transactions.
(c) The market value of the short futures was $31,463,928 (representing 5.63%
of the Fund's net assets) with a cost of $31,468,700.
8
<PAGE>
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
------------------------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period: December 31,
1995............................ $547,885,783 $11.06
Net investment income........... $11,551,346 $ 0.23
Net realized and unrealized
gains on
investments.................... 25,783,194 0.51
Dividends from net investment
income and distributions from
net long-term and short-term
capital gains.................. (41,523,779) (0.83)
Net asset value of shares issued
to shareholders for
reinvestment of dividends and 15,444,228 0.00
distributions.................. ----------- -------
Net increase in net
assets/(decrease) in net asset
value......................... 11,254,989 (0.09)
------------ --------
End of period: September 30,
1996............................ $559,140,772 $10.97
============ ========
</TABLE>
9
<PAGE>
KEY INFORMATION
1-800-237-2336 THE BANK OF NEW YORK:
For questions regarding shareholder accounts
P.O. Box 11258
Church Street Station
New York, NY 10286-1258
(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 in-
to 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.
10
<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
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
Anthony M. Santomero, Ph.D.
Director
Robert E. Smith
Director
INVESTMENT ADVISER
Zweig Advisors Inc.
900 Third Avenue
New York, New York 10022
FUND ADMINISTRATOR
Zweig/Glaser Advisers
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
11
