<PAGE>
August 1, 1996
Dear Shareholder:
For the three months ended June 30, 1996, The Zweig Fund's net asset value
increased 0.9%, including $0.28 in reinvested distributions. During the same
period, the Standard & Poor's 500 Index rose 4.5%.
The Fund's net asset value for the six months ended June 30, 1996, increased
4.9%, including $0.56 per share in reinvested distributions. The S&P's 500
Index gained 10.1% for the same period.
Consistent with our policy of trying to minimize risk while earning
reasonable returns, our average equity exposure during the first six months of
1996 was approximately 66%.
In evaluating our performance, it is important to note that we were very
conservative in our approach, especially in the latter part of the first half.
As our indicators deteriorated and pointed to rising risks for stocks and
bonds, we scaled back our exposure. This conservative stance served us well in
late June and July as the market caught up with our indicators.
DISTRIBUTION DECLARED
On June 17, 1996, the Fund announced a distribution of $0.27 per share
payable on July 26, 1996, to shareholders of record July 12, 1996. Including
this distribution, the Fund's total payout since its inception is now $10.78.
MARKET OUTLOOK
Currently we are about 58% invested. Our portfolio is mainly in stocks with
only a small portion in bonds. Overall, this is consistent with the reading of
our indicators.
I think today's stock market has some problems. It is overvalued and has
been so for quite a while. This overvaluation is particularly acute in the
over-the-counter market where, I might add, our exposure is very small. Our
technology exposure is also extremely low. We have been acquiring stocks where
the emphasis is on value.
There are also a lot of excesses in the market. For example, we have seen a
34% growth in margin debt over the past year. While this is not a record
relative to market capitalization, it is easily a record high relative to
gross national product and personal income.
Then we have anecdotal indicators of excesses. These include a record price
for a seat on the New York Stock Exchange ($1.45 million or $300,000 above the
previous high set in 1987); the 24,000-plus registered investment clubs
(nearly twice 1994's prior peak and triple 1987's); and the record number of
people taking the Chartered Financial Analysts exam (32,400 candidates, about
four times the figure of 1990).
What we saw in June and in July is a correction to wring out some of the
speculative excesses. Whether this correction will lead to a bear market, I
don't know at this time. I am not outright bearish because monetary conditions
are about neutral.
Although bond yields rose from 5.95% in December to better than 7.17% in
early July, they have not changed much in yield in the last six weeks or so
and are currently at about 7%. Short-term rates have not moved much.
Consequently, our monetary model only tipped toward neutral.
On the positive side for stocks, the downturn in the Dow and NASDAQ turned a
lot of people pessimistic. This helped move my short-term sentiment indicators
from negative to positive. Some of these indicators include the
<PAGE>
puts/calls ratios and various polls taken of futures traders.
The biggest positive at the moment is the recent improvement in short-term
sentiment. We did have a selling climax in mid-July. There was a day when the
Dow was down 167 points and closed up 9 on record volume. This kind of washout
leads to a rally attempt more often than not. It can also fail but,
statistically, it is a market plus.
Overall, my indicators for stocks read low neutral. If the tape action
improves, the indicators may advance to neutral. If, for some reason, the
economy were to weaken and bonds to rally--and this is not a prediction--I
would get moderately positive. Conversely, should market conditions
deteriorate, I would not hesitate to go fully defensive.
PORTFOLIO COMPOSITION
To implement my basic allocation strategy, the majority of our stocks are
purchased or sold on the basis of a proprietary computer-driven model that
uses various criteria to evaluate and rank the most liquid stocks with the
highest dividend yields.
The composition of our leading industry groups showed little change during
the second quarter. As of June 30, the largest group in our portfolio was
utilities. Other leading sectors included oils and telecommunications.
With brokerage firms continuing to rank well, financial services has moved
into our top tier. It replaced metals, a grouping in which we have reduced our
holdings. Although we also trimmed our positions in chemicals and paper and
forest products, these groups retain prominent places in our portfolio.
We have cut back our holdings in Union Carbide, Reynolds Metals and Phelps
Dodge and sold out our positions in Occidental Petroleum and Aluminum Co. of
America.
At the quarter's end, our leading individual company positions included
Sprint, Chrysler, Telefonica de Espana, Texaco, Telefonos de Mexico, USX-
Marathon, Salomon, Bowater, American Stores and PanEnergy. All of these
companies were in our portfolio at the end of the first quarter.
Sincerely,
/s/ Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
Chairman
2
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
---------- ------------
<S> <C> <C>
Common Stocks 60.55%
Aerospace & Defense 2.57%
General Motors Corp., Class H........................ 80,000 $ 4,810,000
Sunstrand Corp. ..................................... 81,100 2,970,287
Textron, Inc. ....................................... 28,800 2,300,400
United Technologies Corp. ........................... 36,700 4,220,500
------------
14,301,187
------------
Automotive 1.18%
Chrysler Corp. ...................................... 106,100 6,578,200
------------
Banks 1.60%
BankAmerica Corp. ................................... 60,500 4,582,875
Chase Manhattan Corp. ............................... 33,500 2,365,938
City National Corp. ................................. 27,500 433,125
TCF Financial Corp. ................................. 33,000 1,097,250
Washington Mutual, Inc. ............................. 13,700 409,287
------------
8,888,475
------------
Chemicals 4.37%
Dow Chemical Co. .................................... 29,500 2,242,000
du Pont (E.I.) de Nemours & Co. ..................... 61,400 4,858,275
Goodrich (B.F.) & Co. ............................... 82,400 3,079,700
Imperial Chemical Industries Plc, ADR................ 60,100 2,952,412
Olin Corp. .......................................... 47,700 4,257,225
Rohm & Haas Co. ..................................... 65,100 4,085,025
Union Carbide Corp. ................................. 71,600 2,846,100
------------
24,320,737
------------
Conglomerates 0.63%
Hanson Plc, ADR...................................... 166,100 2,366,925
Xerox Corp. ......................................... 20,900 1,118,150
------------
3,485,075
------------
Construction & Farm Equipment 0.41%
Deere & Co. ......................................... 57,100 2,284,000
------------
Consumer Durables 0.68%
Goodyear Tire & Rubber Co. .......................... 78,700 3,797,275
------------
Containers & Packaging 0.07%
Sea Container LTD., Class A.......................... 19,600 372,400
------------
Finance & Financial Services 3.46%
Alex Brown Inc. ..................................... 20,100 1,135,650
American Bankers Insurance Group, Inc. .............. 20,100 876,863
Bear Stearns & Co., Inc. ............................ 145,320 3,433,185
Edwards, (A.G.) & Sons, Inc. ........................ 98,400 2,669,100
Fremont General Corp. ............................... 51,450 1,183,350
Merrill Lynch & Co., Inc. ........................... 51,300 3,340,912
PHH Corp. ........................................... 18,500 1,054,500
Salomon Inc. ........................................ 126,900 5,583,600
------------
19,277,160
------------
</TABLE>
3
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
---------- ------------
<S> <C> <C>
Food & Beverage 0.16%
Adolph Coors Co., Class B............................ 51,000 $ 911,625
------------
Investment Companies 2.80%
Blackrock 2001 Term Trust, Inc. ..................... 52,600 401,075
Blackrock Strategic Term Trust, Inc. ................ 52,600 401,075
Central European Equity Fund......................... 13,700 244,887
Clemente Global Growth Fund, Inc. ................... 23,400 195,975
Emerging Germany Fund, Inc. ......................... 77,800 573,775
Emerging Markets Infrastructure, Inc. ............... 28,600 325,325
Emerging Markets Telecommunications Fund, Inc. ...... 9,800 176,400
Emerging Mexico Fund, Inc. .......................... 13,700 95,900
Europe Fund, Inc. ................................... 32,000 456,000
First Iberian Fund, Inc. ............................ 13,800 121,613
First Israel Fund, Inc. ............................. 24,000 276,000
France Growth Fund, Inc. ............................ 41,100 421,275
G.T. Global Eastern Europe Fund...................... 72,800 964,600
Gabelli Equity Trust, Inc. .......................... 102,900 990,412
Gabelli Global Multimedia Trust Fund, Inc. .......... 68,600 480,200
Global Health Sciences Fund, Inc. ................... 76,700 1,351,838
John Hancock Bank & Thrift Opportunity Fund.......... 39,700 923,025
Liberty All-Star Growth Fund, Inc. .................. 36,700 353,238
Morgan Grenfell Small Cap Fund, Inc. ................ 35,833 371,767
New Age Media Fund, Inc. ............................ 31,400 478,850
New Germany Fund, Inc. .............................. 119,500 1,508,688
Pilgrim Regional Bank Shares, Inc. .................. 36,800 464,600
Royce Value Trust, Inc. ............................. 55,055 681,306
Scudder New Europe Fund, Inc. ....................... 49,500 624,937
Spain Fund, Inc. .................................... 26,500 261,687
Swiss Helvetia Fund, Inc. ........................... 62,900 1,336,625
Templeton China World Fund........................... 10,400 114,400
Templeton Dragon Fund, Inc. ......................... 13,700 181,525
Tri-Continental Corp. ............................... 33,900 813,600
------------
15,590,598
------------
Manufacturing 1.17%
Duriron Co., Inc. ................................... 15,600 374,400
Harsco Corp. ........................................ 10,400 699,400
Johnson Controls, Inc. .............................. 27,200 1,890,400
Miller (Herman), Inc. ............................... 56,000 1,715,000
TRW, Inc. ........................................... 20,700 1,860,413
------------
6,539,613
------------
Metals & Mining 2.09%
British Steel, Plc., ADR............................. 115,700 2,935,888
M.A. Hanna Mining Co. ............................... 18,000 375,750
Oregon Steel Mills Inc. ............................. 99,600 1,369,500
Phelps Dodge Corp. .................................. 70,400 4,391,200
Reynolds Metals Co. ................................. 49,000 2,554,125
------------
11,626,463
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
---------- ------------
<S> <C> <C>
Oil and Oil Services 8.73%
Ashland Oil Inc. ................................. 50,100 $ 1,985,212
British Petroleum Co., PLC., ADR.................. 32,600 3,484,125
Chevron Corp. .................................... 13,800 814,200
Elf Aquitaine, ADR................................ 100,700 3,700,725
Helmerich & Payne, Inc. .......................... 54,400 1,992,400
Kerr-McGee Corp. ................................. 52,600 3,202,025
Mobil Corp. ...................................... 32,200 3,610,425
Pennzoil Co. ..................................... 37,000 1,711,250
Philips Petroleum Co. ............................ 106,200 4,447,125
Quaker State Corp. ............................... 66,500 997,500
Repsol S.A., ADR.................................. 106,800 3,711,300
Texaco Inc. ...................................... 76,000 6,374,500
Tosco Corp. ...................................... 67,400 3,386,850
Unocal Corp. ..................................... 97,500 3,290,625
USX-Marathon Group, Inc. ......................... 293,700 5,910,713
------------
48,618,975
------------
Paper & Forest Products 3.13%
Boise Cascade Corp. .............................. 60,100 2,201,162
Bowater, Inc. .................................... 144,200 5,425,525
Consolidated Papers, Inc. ........................ 45,600 2,371,200
International Paper Co. .......................... 54,700 2,017,063
James River Corp. of Virginia..................... 70,600 1,862,075
Rayonier Inc. .................................... 53,900 2,048,200
Westvaco Corp. ................................... 50,950 1,522,131
------------
17,447,356
------------
Retail Trade & Services 3.16%
American Stores Co. .............................. 131,100 5,407,875
Dayton Hudson Inc. ............................... 33,100 3,413,438
Mercantile Stores Inc. ........................... 4,900 287,262
Ross Stores, Inc. ................................ 37,300 1,296,175
Smith's Food & Drug Centers, Inc. ................ 38,754 925,252
Supervalue Inc. .................................. 77,900 2,453,850
TJX Companies Inc. ............................... 112,900 3,810,375
------------
17,594,227
------------
Technology 3.17%
Applied Materials, Inc. .......................... 20,800(a) 634,400
Dell Computer Corp. .............................. 36,000(a) 1,831,500
Digital Equipment Corp. .......................... 57,600(a) 2,592,000
EG&G Inc. ........................................ 35,500 758,812
Harris Corp. ..................................... 47,700 2,909,700
Intel Corp. ...................................... 22,800 1,674,375
International Business Machines Corp. ............ 42,100 4,167,900
Microsoft Corp. .................................. 25,800(a) 3,099,225
------------
17,667,912
------------
</TABLE>
5
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
---------- ------------
<S> <C> <C>
Telecommunications 6.01%
BCE Inc. ............................................ 58,500 $ 2,310,750
Cincinnati Bell Inc. ................................ 26,800 1,396,950
GTE Corp. ........................................... 47,300 2,116,675
NYNEX Corp. ......................................... 98,300 4,669,250
Sprint Corp. ........................................ 161,300 6,774,600
Telefonica de Espana S.A., ADS....................... 116,800 6,438,600
Telefonos de Mexico S.A., ADS........................ 180,500 6,046,750
U.S. West Inc. ...................................... 115,500 3,681,563
------------
33,435,138
------------
Tobacco 0.92%
RJR Nabisco Holdings Corp. .......................... 165,800 5,139,800
------------
Transportation 1.25%
British Airways PLC, ADR............................. 13,600 1,166,200
CSX Corp. ........................................... 101,700 4,907,025
KLM Royal Dutch Airlines, Inc. ...................... 28,500 904,875
------------
6,978,100
------------
Utilities--Electric & Natural Gas 12.99%
Allegheny Power Systems, Inc. ....................... 52,600 1,624,025
American Electric Power Co., Inc. ................... 105,400 4,492,675
Baltimore Gas & Electric Co. ........................ 27,500 780,312
Carolina Power & Light Co., Inc. .................... 64,000 2,432,000
CINergy Corp. ....................................... 128,100 4,099,200
CMS Energy Corp. .................................... 54,300 1,676,513
Dominion Resources Inc. ............................. 27,400 1,096,000
DQE Inc. ............................................ 65,950 1,813,625
DTE Energy Co. ...................................... 135,600 4,186,650
Eastern Enterprises.................................. 22,000 731,500
Edison International Inc. ........................... 110,100 1,940,512
El Paso Natural Gas Co. ............................. 30,300 1,166,550
Enova Corp. ......................................... 40,100 927,313
Entergy Corp. ....................................... 60,600 1,719,525
General Public Utilities Corp. ...................... 105,100 3,704,775
Illinova Corp. ...................................... 83,300 2,394,875
MCN Corp. ........................................... 67,100 1,635,563
New England Electric Systems, Inc. .................. 58,600 2,131,575
New York State Gas & Electric Co. ................... 16,000 390,000
NIPSCO Industries, Inc. ............................. 69,400 2,793,350
NorAm Energy Corp. .................................. 247,300 2,689,388
Pacificorp........................................... 87,500 1,946,875
PanEnergy Corp. ..................................... 156,800 5,154,800
Pinnacle West Capital Corp. ......................... 106,400 3,231,900
Portland General Corp. .............................. 155,600 4,804,150
Texas Utilities Co. ................................. 82,000 3,505,500
Transcanada Pipeline Ltd. ........................... 86,500 1,275,875
Unicom Corp. ........................................ 170,100 4,741,537
United Illuminating Co. ............................. 29,300 1,095,087
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES/PRINCIPAL
AMOUNT/
NUMBER OF VALUE
CONTRACTS (NOTE 1)
---------------- ------------
<S> <C> <C>
Utilities--Electric & Natural Gas--(Continued)
Western Resources Inc. ...................... 72,600 $ 2,168,925
------------
72,350,575
------------
Total Common Stocks
(Cost $313,860,966)........................ 337,204,891
------------
United States Government & Agency Obliga-
tions 7.57%
Federal National Mortgage Association, 6.85%,
4/5/2004.................................... $ 2,765,000 2,748,006
United States Treasury Bills, 5.12%,
10/31/1996.................................. 2,000,000 1,965,296
United States Treasury Bonds, 10.75%,
5/15/2003................................... 4,000,000 4,901,244
United States Treasury Bonds, 7.25%,
8/15/2022................................... 2,400,000 2,460,000
United States Treasury Bonds, 7.50%,
11/15/2024.................................. 5,000,000 5,301,555
United States Treasury Bonds, 7.50%,
2/15/2025................................... 2,200,000 2,372,559
United States Treasury Bonds, 6.875%,
8/15/2025................................... 3,600,000 3,562,870
United States Treasury Notes, 6.25%,
8/31/2000................................... 14,500,000(b) 14,404,822
United States Treasury Notes, 7.50%,
2/15/2005................................... 4,200,000 4,417,875
------------
Total United States Government & Agency
Obligations (Cost $42,609,930)............. 42,134,227
------------
Short-Term Investments 31.77%
Ameritech Co., 5.35%, 7/26/96................ 15,000,000 14,944,271
AT&T Capital Corp., 5.33%, 7/22/96........... 10,000,000 9,968,908
Bell Atlantic Network Funding, 5.35%,
7/10/96..................................... 10,000,000 9,986,625
du Pont (E.I.) de Nemours & Co., 5.32%,
7/17/96..................................... 20,000,000 19,952,711
Exxon Imperial Inc., 5.40%, 7/3/96........... 10,900,000 10,896,730
Ford Motor Credit Co., 5.36%, 7/1/96......... 11,700,000 11,700,000
Gannett Co., 5.35%, 7/24/96.................. 21,800,000 21,725,486
Lucent Technologies Corp., 5.32%, 7/9/96..... 7,900,000 7,890,660
Merrill Lynch & Co., Inc., 5.34%, 7/2/96..... 12,400,000 12,398,161
Minnesota Mining & Manufacturing Inc., 5.32%,
7/9/96...................................... 14,300,000 14,283,094
Philip Morris Capital Corp., 5.33%, 7/12/96.. 6,900,000 6,888,763
Smithkline Beecham Corp., 5.33%, 7/18/96..... 15,000,000 14,962,246
Wal-Mart Stores Inc., 5.30%, 7/8/96.......... 21,300,000 21,278,049
------------
Total Short-Term Investments (Cost
$176,875,704).............................. 176,875,704
------------
Net Unrealized Depreciation on Futures
Contracts (0.02)%
Standard and Poor's 500 Index, September 1996
Short futures............................... (53)(c) (134,673)
------------
Total Investments (Cost $533,346,600)....... 99.87% 556,080,149
Cash and Other Assets, Less Liabilities..... 0.13 707,835
----------- ------------
Net Assets (Equivalent to $11.02 per share
based on 50,518,355 shares of capital stock
outstanding)............................... 100.00% $556,787,984
=========== ============
</TABLE>
7
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONCLUDED)
JUNE 30, 1996 (UNAUDITED)
- --------
(a) Non-income producing security.
(b) $2,000,000 of this security has been pledged as collateral for futures
transactions.
(c) The market value of the short futures was $17,935,200 (representing 3.22%
of the Fund's net assets) with a cost of $17,800,527.
For Federal income tax purposes, the tax basis of investments owned at June
30, 1996 was $533,410,187 and unrealized appreciation on investments consisted
of:
<TABLE>
<S> <C>
Gross unrealized appreciation.... $27,266,636
Gross unrealized depreciation.... (4,596,674)
-----------
Net unrealized appreciation...... $22,669,962
===========
</TABLE>
See notes to financial statements.
8
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $533,346,600)............ $556,214,822
Cash............................................................. 626,909
Dividends and interest receivable................................ 2,070,002
Deposit at broker for short sales................................ 1,100,309
Receivable for investments sold.................................. 3,668,399
------------
Total Assets.................................................... 563,680,441
------------
Liabilities:
Payable for investments purchased................................ 6,125,652
Accrued advisory fees (Note 3)................................... 386,147
Other accrued expenses........................................... 281,283
Variation margin for futures contracts........................... 99,375
------------
Total Liabilities............................................... 6,892,457
------------
NET ASSETS......................................................... $556,787,984
============
NET ASSET VALUE, PER SHARE:
($556,787,984 / 50,518,355 shares outstanding--Note 4)........... $11.02
======
Net Assets consist of:
Capital paid-in.................................................. $506,697,101
Undistributed net investment income.............................. 7,581,731
Undistributed net realized gain on investments................... 19,775,603
Net unrealized appreciation on investments....................... 22,733,549
------------
$556,787,984
============
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income:
Income:
Dividends...................................................... $ 6,200,421
Interest....................................................... 4,989,619
------------
Total Income................................................. 11,190,040
------------
Expenses:
Investment advisory fees (Note 3).............................. 2,332,708
Administration fees (Note 3)................................... 356,767
Transfer agent fees............................................ 218,396
Printing and postage expenses.................................. 152,113
Professional fees (Note 3)..................................... 42,586
Custodian fees................................................. 54,782
Directors' fees and expenses (Note 3).......................... 37,500
Miscellaneous.................................................. 81,815
------------
Total Expenses............................................... 3,276,667
------------
Net Investment Income...................................... 7,913,373
------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments (Note 2):
Security transactions.......................................... 35,547,652
Futures transactions........................................... (1,608,148)
------------
Net realized gain on investments........................... 33,939,504
Decrease in unrealized appreciation on investments.............. (15,540,456)
------------
Net realized and unrealized gain on investments............ 18,399,048
------------
Net increase in net assets resulting from operations....... $ 26,312,421
============
</TABLE>
See notes to financial statements.
9
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
---------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income..................... $ 7,913,373 $ 18,691,179
Net realized gain on investments.......... 33,939,504 34,258,126
Increase (decrease) in unrealized
appreciation on investments.............. (15,540,456) 34,291,057
------------ ------------
Net increase in net assets resulting
from operations........................ 26,312,421 87,240,362
------------ ------------
Dividends and distributions to shareholders
from:
Net investment income..................... (4,459,533) (24,654,850)
Net realized gains on investments......... (23,424,288) (27,081,681)
------------ ------------
Total dividends and distributions to
shareholders........................... (27,883,821) (51,736,531)
------------ ------------
Capital share transactions:
Net asset value of shares issued to
shareholders in reinvestment of dividends
from net investment income and
distributions from net realized gains
(Note 4)................................. 10,473,601 20,378,445
------------ ------------
Net increase in net assets................. 8,902,201 55,882,276
Net Assets:
Beginning of period........................ 547,885,783 492,003,507
------------ ------------
End of period (including undistributed net
investment income of $7,581,731 and
$4,127,891, respectively)................. $556,787,984 $547,885,783
============ ============
</TABLE>
See notes to financial statements.
10
<PAGE>
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The Zweig Fund, Inc. (the "Fund") is a closed-end, diversified management
investment company registered under the Investment Company Act of 1940 (the
"Act"). The Fund was incorporated under the laws of the State of Maryland on
June 18, 1986. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
A. Portfolio Valuation
Portfolio securities which are traded only on stock exchanges are valued at
the last sale price. Securities traded in the over-the-counter market which
are National Market System securities are valued at the last sale price. Other
over-the-counter securities are valued at the most recently quoted 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 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 and 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 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.
11
<PAGE>
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996 (UNAUDITED)
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 June 30, 1996, cash of
$1,100,309 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 six months ended June 30, 1996, the Fund entered into purchase
and sale transactions, excluding short-term investments and futures
transactions, as follows:
<TABLE>
<S> <C>
Cost of Purchases............................................ $433,180,416
============
Proceeds from Sales.......................................... $523,316,637
============
</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.
12
<PAGE>
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 the Fund's average daily net assets. During the six
months ended June 30, 1996, the Fund accrued advisory fees of $2,332,708.
b) Administration Fees: Zweig/Glaser Advisers serves as the Fund's
Administrator pursuant to an Administration Agreement with the Fund. Under
such Agreement, the Administrator generally assists in all aspects of the
Fund's operations, other than providing investment advice, subject to the
overall authority of the Fund's Board of Directors. The Administrator
determines the Fund's net asset value daily, prepares such figures for
publication on a weekly basis, maintains certain of the Fund's books and
records that are not maintained by the Investment Adviser, custodian or
transfer agent, assists in the preparation of financial information for the
Fund's income tax returns, proxy statements, quarterly and annual shareholder
reports, and responds to shareholder inquiries.
Under the terms of the Agreement, the Fund pays the Administrator a monthly
fee equal, on an annual basis, to 0.13% of the Fund's average daily net
assets. During the six months ended June 30, 1996, the Fund accrued
administration fees of $356,767.
c) Directors' Fees: The Fund pays each Director who is not an interested
person of the Fund or the Investment Adviser a fee of $10,000 per year plus
$1,500 per Directors' or committee meeting attended, together with out-of-
pocket costs relating to attendance at such meetings. The Directors of the
Fund who are interested persons of the Fund or the Investment Adviser receive
no remuneration from the Fund.
d) Legal Fees: The Fund accrued legal fees of $7,462 during the six months
ended June 30, 1996, for the services of Rosenman & Colin LLP, of which Robert
E. Smith, Director of the Fund, is a partner.
e) Brokerage Commissions: During the six months ended June 30, 1996, the
Fund paid Zweig Securities Corp. brokerage commissions of $24,377 in
connection with portfolio transactions effected through them.
NOTE 4--CAPITAL STOCK AND REINVESTMENT PLAN
At June 30, 1996, the Fund has one class of common stock, par value $0.10
per share, of which 100,000,000 shares are authorized and 50,518,355 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. For the six
months ended June 30, 1996 and the year ended December 31, 1995, 967,986 and
1,927,949 shares, respectively, were issued pursuant to the Plan.
13
<PAGE>
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
JUNE 30, 1996 (UNAUDITED)
NOTE 5--FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, -------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, begin-
ning of period......... $ 11.06 $ 10.33 $ 11.68 $ 11.36 $ 12.40 $ 10.48
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.16 0.39 0.24 0.13 0.20 0.26
Net realized and
unrealized gains (loss-
es)
on investments......... 0.36 1.41 (0.45) 1.41 (0.10) 2.78
-------- -------- -------- -------- -------- --------
Total from investment
operations............. 0.52 1.80 (0.21) 1.54 0.10 3.04
-------- -------- -------- -------- -------- --------
Less Dividends and Dis-
tributions:
Dividends from net in-
vestment income........ (0.09) (0.51) (0.03) (0.22) (0.10) (0.30)
Distributions from net
realized gains on
investments............ (0.47) (0.56) (1.11) (1.00) (1.04) (0.82)
-------- -------- -------- -------- -------- --------
Total dividends and dis-
tributions............. (0.56) (1.07) (1.14) (1.22) (1.14) (1.12)
-------- -------- -------- -------- -------- --------
Net asset value, end
of period............ $ 11.02 $ 11.06 $ 10.33 $ 11.68 $ 11.36 $ 12.40
======== ======== ======== ======== ======== ========
Market value, end of
period**............. $ 11.125 $ 11.25 $ 10.375 $ 13.75 $ 13.00 $ 13.75
======== ======== ======== ======== ======== ========
Total investment return. 4.07% 19.83% (16.95)% 16.59% 3.61% 37.42%
======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of pe-
riod (in thousands).... $556,788 $547,886 $492,004 $534,813 $500,101 $526,252
Ratio of expenses to av-
erage net assets....... 1.19%* 1.22% 1.25% 1.23% 1.26% 1.28%
Ratio of net investment
income to average
net assets............. 2.87%* 3.62% 2.24% 1.18% 1.73% 2.37%
Portfolio turnover rate. 100.5% 160.2% 257.0% 235.5% 172.5% 144.3%
</TABLE>
- --------
* Annualized
**Closing Price--New York Stock Exchange.
NOTE 6--SELECTED QUARTERLY FINANCIAL DATA
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>
1996--Quarter Ended
06/30/96.............. $5,748,132 $0.12 $4,103,842 $0.08 $ 1,082,707 $ 0.02 $ 5,186,549 $0.10
03/31/96.............. 5,441,908 0.11 3,809,531 0.08 17,316,341 0.34 21,125,872 0.42
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>
14
<PAGE>
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
15, 1996. The meeting was held for the purpose of reelecting Elliot S. Jaffe,
Alden C. Olson and Robert E. Smith as Directors; and to ratify the selection
of Coopers & Lybrand L.L.P. as the Fund's independent certified public
accountants for the year ending December 31, 1996. The Fund's other Directors
who continued in office are Edward S. Babbitt, Jr., Eugene J. Glaser, James B.
Rogers, Jr., Anthony M. Santomero and Martin E. Zweig.
The results of the voting on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES VOTES
DIRECTOR/AUDITOR VOTES FOR AGAINST WITHHELD ABSTENTIONS
---------------- ---------- ------- -------- -----------
<S> <C> <C> <C> <C>
Elliot S. Jaffe......................... 36,774,753 N/A 691,989 N/A
Alden C. Olson.......................... 36,811,831 N/A 654,911 N/A
Robert E. Smith......................... 36,856,685 N/A 610,057 N/A
Coopers & Lybrand L.L.P. ............... 36,735,566 298,861 -- 432,315
</TABLE>
- -------------------------------------------------------------------------------
KEY INFORMATION
1-800-237- THE BANK OF NEW YORK:
2336 For questions regarding shareholder accounts
P.O. Box 11258
Church Street Station
New York, NY 10286-1258
(212) 644- THE ZWEIG FUND HOT LINE:
2188 For updates on net asset value, share price, major industry
groups and other key information
1-800-272- ZWEIG SHAREHOLDER RELATIONS:
2700 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.
15
<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
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]
SEMI-ANNUAL REPORT
------------------
JUNE 30, 1996
