<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
Christopher M. Capano
Assistant Vice President
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
900 Third Avenue
New York, New York 10022
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 intend-
ed for use in the purchase of shares of the Fund or any securities mentioned in
this report.
4902-SEM-
LOGO OF THE ZWEIG FUND
SEMI-ANNUAL
REPORT
JUNE 30, 1997
<PAGE>
August 1, 1997
Dear Shareholder:
For the three months ended June 30, 1997, The Zweig Fund's net asset value
increased 10.3%, including $0.29 in reinvested distributions. During the same
period, the Standard & Poor's 500 Index rose 17.5%.
The Fund's net asset value for the six months ended June 30, 1997, increased
11.8%, including $0.57 per share in reinvested distributions. The S&P's 500
Index rose 20.6% for the same period.
Consistent with our policy of trying to minimize risk while earning superior
returns over complete market cycles, our average equity exposure during the
first six months of 1997 was approximately 63%.
Given our risk-averse strategy, I am relatively pleased with our
performance. In retrospect, we could have had a higher exposure but my job is
to protect ourselves should things go seriously wrong. As our indicators
improved, we recently increased our overall exposure, counting stocks and
bonds, to about 82%.
DISTRIBUTION DECLARED
On June 16, 1997, the Fund announced a distribution of $0.30 per share
payable on July 25, 1997, to shareholders of record on July 11, 1997.
Including this distribution, the Fund's total payout since inception is now
$11.92.
MARKET OUTLOOK
The second quarter was extraordinary in that, after the nearly 10%
correction in March and April, the market exploded and is now up over 20% from
the low point. This is an unprecedented rally thus far into a bull market.
Usually you see advances of this magnitude only at the beginning of a bull
market.
One of the things that bothered me last year was that the inflation rate,
while moderate, was going up. The Consumer Price Index rose almost a full
percentage point. However the quarter just ended saw a remarkable change. The
CPI slowed down and the Producer Price Index declined for the sixth
consecutive month. Meanwhile earnings remained good, interest rates were
easing, and the economy was not overheating--the best of all possible worlds
for the stock market. As this perception became accepted, the market kept
rallying.
Our monetary model, which largely reflects interest rates, Federal Reserve
policy and the bond market, has improved to high neutral. If you factor in the
inflation outlook, these readings are somewhat bullish. Another obviously
favorable indicator is momentum. It is difficult to criticize anything
involving recent tape action. The market rally, which has established a
tremendous number of new highs, has been pretty broad even though the blue
chips have led the way.
On the potentially negative side are my sentiment and valuation indicators.
As for sentiment, there was a fair amount of pessimism in April but that has
given way to somewhat unrealistic levels of investor optimism, particularly
among futures and options traders. However, market letter writers, while
bullish on balance, are not extreme. I went back and researched through 21
peaks in the stock market over the last three decades and in 20 of those
instances they reached a higher level of optimism than shown lately. While
optimism, which we use as a contrary indicator, is rather high, I do not
consider it especially threatening as long as monetary conditions behave.
The valuation indicators do not tell you much about the near term of the
market but they
<PAGE>
have some longer range validity. On a forward 12-month period of estimated
earnings, the Price/Earnings ratio for the S&P is above 20. Outside of a
couple of cases in the 1930's when earnings were miniscule, we have had this
condition only three times--1929, 1946 and at the end of 1961--and each was
eventually followed by a crash. I am not predicting a crash but want to point
out that the market had trouble those three times. However, in two cases you
had several months to go before the market peaked.
If earnings hold up and the economy keeps growing moderately with inflation
in check, I see room for more exuberance on the up side. Risks would include
inflation gathering steam or a deterioration into a recession. In these cases,
the stretched out valuations could present a problem.
At this writing my stance is high neutral on the stock market and bullish on
the bond market. Combining both outlooks, my overall market position ranges
from high neutral to moderately bullish.
PORTFOLIO COMPOSITION
Implementing my basic allocation strategy, the majority of our stocks
continue to be acquired or sold on the basis of a proprietary computer-driven
model that is weighted toward a value approach with secondary emphasis on
growth. We employ various criteria to evaluate and rank the most liquid stocks
with the highest dividend yields.
There was little change in the composition of our largest industry groups
during the second quarter. This listing still includes utilities, oil and oil
services, financial services, investment companies, and metals and mining.
The only new addition to our top positions is the manufacturing sector,
which replaces the automotive category. In the manufacturing group we have
benefitted from our holdings in Herman Miller, which provides furniture
systems and related products to offices, health care facilities, and other
markets, and Borg-Warner Automotive, which develops and produces engineered
components for automotive powertrain applications.
Royal Dutch Petroleum, which owns 60% of the Royal Dutch/Shell Group of
companies, is new to our portfolio and ranks among our largest individual
holdings. Other major individual positions include Telefonos de Mexico, USX-
Marathon, Chrysler, USX-U.S. Steel, Pennzoil, Bear Stearns, Ford, Salomon,
RJR/Nabisco, and Ahmanson. We also hold a significant position in Telefonica
de Espana, which provides telecommunications to industrial, residential, and
municipal customers throughout Spain.
Among the above, we have increased our holdings in USX-U.S. Steel, Bear
Stearns, and Ahmanson and trimmed our positions in Telefonos de Mexico and
Salomon. Other companies in which we have reduced our stakes include General
Motors, Elf Aquitaine, Dayton Hudson, American Stores, and General Motors
Hughes.
Sincerely,
/s/ Martin E. Zweig
Martin E. Zweig, Ph.D.
Chairman
2
<PAGE>
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
----------- ------------
<S> <C> <C>
COMMON STOCKS 60.93%
AEROSPACE & DEFENSE 0.77%
Gencorp Inc. ....................................... 42,600 $ 985,125
General Motors Corp., Class H....................... 67,600 3,903,900
------------
4,889,025
------------
AUTOMOTIVE 3.25%
Chrysler Corp. ..................................... 216,400 7,100,625
Ford Motor Co. ..................................... 167,500 6,323,125
General Motors Corp. ............................... 79,500 4,427,156
Volvo AB, ADR....................................... 98,700 2,640,225
------------
20,491,131
------------
CHEMICALS 0.57%
Rohm and Haas Co. .................................. 39,600 3,566,475
------------
CONSTRUCTION & FARM EQUIPMENT 0.45%
Caterpillar Inc. ................................... 26,400 2,834,700
------------
CONSUMER DURABLES 0.64%
Goodyear Tire & Rubber Co. ......................... 56,700 3,589,819
Huffy Corp. ........................................ 28,500 416,812
------------
4,006,631
------------
CONSUMER PRODUCTS 0.32%
American Greetings Corp. ........................... 54,800 2,034,450
------------
CONTAINERS & PACKAGING 0.09%
Sea Containers Ltd., Class A........................ 25,200 570,150
------------
ELECTRONICS 0.47%
Philips Electronics N.V. ........................... 41,400 2,975,625
------------
FINANCIAL SERVICES 7.31%
A.G. Edwards, Inc. ................................. 123,100 5,262,525
American General Corp. ............................. 82,100 3,920,275
Bear, Stearns & Co., Inc. .......................... 193,336 6,609,675
Charter One Financial, Inc. ........................ 29,700 1,600,087
Fremont General Corp. .............................. 61,950 2,493,488
GATX Corp. ......................................... 20,500 1,183,875
H. F. Ahmanson & Co. ............................... 136,600 5,873,800
Lincoln National Corp. ............................. 38,400 2,472,000
Orion Capital Corp. ................................ 29,000 2,138,750
PaineWebber Group Inc. ............................. 69,200 2,422,000
RCSB Financial, Inc. ............................... 26,200 1,254,325
</TABLE>
3
<PAGE>
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------ -----------
<S> <C> <C>
FINANCIAL SERVICES (Continued)
Ryder System, Inc. ................................. 111,100 $ 3,666,300
Salomon Inc. ....................................... 108,600 6,040,875
Selective Insurance Group, Inc. .................... 24,000 1,162,500
-----------
46,100,475
-----------
FOOD & BEVERAGE 0.65%
Adolph Coors Co., Class B........................... 93,200 2,481,450
Chiquita Brands International, Inc. ................ 118,500 1,629,375
-----------
4,110,825
-----------
HOME BUILDERS & MATERIALS 0.41%
Kaufman & Broad Home Corp. ......................... 98,600 1,731,663
Lafarge Corp. ...................................... 35,100 859,950
-----------
2,591,613
-----------
INVESTMENT COMPANIES 4.47%
Argentina Fund, Inc. ............................... 31,300 461,675
Blackrock 2001 Term Trust Inc. ..................... 52,600 427,375
Blackrock Strategic Term Trust Inc. ................ 52,600 427,375
Brazil Fund, Inc. .................................. 36,400 1,119,300
Chile Fund, Inc. ................................... 32,200 841,225
China Fund Inc. .................................... 43,400 764,925
Clemente Global Growth Fund, Inc. .................. 23,400 235,462
Emerging Markets Infrastructure Fund, Inc. ......... 86,400 1,182,600
Emerging Mexico Fund, Inc. ......................... 62,500 578,125
Fidelity Advisor Emerging Asia Fund, Inc. .......... 29,600 425,500
G.T. Global Developing Markets Fund, Inc. .......... 44,600 627,188
Gabelli Equity Trust, Inc. ......................... 118,900 1,196,431
Gabelli Global Multimedia Trust Fund, Inc. ......... 97,100 734,319
Indonesia Fund, Inc. ............................... 21,900 238,162
Jakarta Growth Fund, Inc. .......................... 24,600 246,000
Mexico Fund, Inc. .................................. 86,700 1,679,813
Morgan Stanley Asia-Pacific Fund, Inc. ............. 64,100 673,050
Morgan Stanley Russia & New Europe Fund, Inc. ...... 15,000 455,625
New Germany Fund, Inc. ............................. 110,800 1,745,100
Portgugal Fund, Inc. ............................... 33,100 79,250
R.O.C. Taiwan Fund.................................. 157,800 1,844,287
Royce Value Trust Inc. ............................. 144,155 1,982,131
Schroder Asian Growth Fund, Inc. ................... 51,976 665,942
Scudder New Asia Fund Inc. ......................... 32,100 469,463
Southern Africa Fund, Inc. ......................... 34,400 610,600
Spain Fund Inc. .................................... 52,000 754,000
Swiss Helvetia Fund, Inc. .......................... 77,000 1,973,125
Taiwan Fund Inc. ................................... 72,600 1,833,150
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
---------- -----------
<S> <C> <C>
INVESTMENT COMPANIES (Continued)
Templeton China World Fund, Inc. ..................... 63,700 $ 887,819
Templeton Dragon Fund, Inc. .......................... 129,300 2,101,125
Templeton Vietnam Opportunities Fund, Inc. ........... 34,500 429,094
-----------
28,189,236
-----------
INDUSTRIAL SERVICES 0.23%
Ogden Corp. .......................................... 67,600 1,470,300
-----------
LEISURE 0.72%
Brunswick Corp. ...................................... 95,800 2,993,750
Royal Caribbean Cruises Ltd. ......................... 44,300 1,547,731
-----------
4,541,481
-----------
LODGING 0.11%
Marcus Corp. ......................................... 27,700 682,113
-----------
MANUFACTURING 4.28%
Borg-Warner Automotive, Inc. ......................... 42,700 2,308,469
Brown Group, Inc. .................................... 59,000 1,102,563
Cummins Engine Company, Inc. ......................... 71,900 5,073,443
Dexter Corp. ......................................... 36,700 1,174,400
Excel Industries, Inc. ............................... 38,500 750,750
Herman Miller, Inc. .................................. 92,600 3,333,600
Johnson Controls, Inc. ............................... 55,800 2,291,288
PACCAR Inc. .......................................... 77,800 3,612,837
Simpson Industries, Inc. ............................. 43,000 456,875
Standard Products Co. ................................ 26,300 664,075
Timken Co. ........................................... 87,800 3,122,388
TRW, Inc. ............................................ 54,400 3,090,600
-----------
26,981,288
-----------
METALS & MINING 4.22%
ASARCO, Inc. ......................................... 139,100 4,259,937
Birmingham Steel Corp. ............................... 64,400 998,200
British Steel Plc, ADR................................ 153,500 3,875,875
Cleveland-Cliffs Inc. ................................ 14,700 599,025
Cyprus Amax Minerals Co. ............................. 77,300 1,893,850
Oregon Steel Mills, Inc. ............................. 120,600 2,404,463
Phelps Dodge Corp. ................................... 64,700 5,511,631
USX-U.S. Steel Group ................................. 202,600 7,103,663
-----------
26,646,644
-----------
OIL & OIL SERVICES 8.67%
Ashland Inc. ......................................... 58,800 2,726,850
Elf Aquitaine S.A., ADR............................... 60,100 3,271,694
</TABLE>
5
<PAGE>
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
---------- -----------
<S> <C> <C>
OIL & OIL SERVICES (Continued)
Helmerich & Payne, Inc. ........................... 49,400 $ 2,846,675
Kerr-McGee Corp. .................................. 75,400 4,778,475
Murphy Oil Corp. .................................. 56,900 2,773,875
Occidental Petroleum Corp. ........................ 137,400 3,443,587
Pennzoil Co. ...................................... 89,400 6,861,450
Repsol S.A., ADR................................... 60,100 2,550,494
Royal Dutch Petroleum Co., ADR..................... 135,200 7,351,500
Sun Company, Inc. ................................. 164,100 5,087,100
USX-Marathon Group................................. 261,700 7,556,587
YPF Sociedad Anonima, ADR.......................... 176,800 5,436,600
-----------
54,684,887
-----------
PAPER & FOREST PRODUCTS 2.04%
Bowater Inc. ...................................... 87,600 4,051,500
International Paper Co. ........................... 54,700 2,656,369
James River Corp. of Virginia...................... 110,300 4,081,100
Pope & Talbot, Inc. ............................... 29,100 478,331
Westvaco Corp. .................................... 50,950 1,601,740
-----------
12,869,040
-----------
RETAIL TRADE & SERVICES 3.16%
American Stores Co. ............................... 61,400 3,031,625
Dayton Hudson Corp. ............................... 104,100 5,536,819
Heilig-Meyers Co. ................................. 116,000 2,276,500
Mercantile Stores Co., Inc. ....................... 36,200 2,278,337
Ross Stores Inc. .................................. 74,600 2,438,488
Shopko Stores Inc. ................................ 44,200 1,127,100
Supervalu Inc. .................................... 93,600 3,229,200
-----------
19,918,069
-----------
TECHNOLOGY 3.06%
Applied Materials Inc. ............................ 20,800(a) 1,472,900
Dell Computer Corp. ............................... 36,000(a) 4,227,750
Digital Equipment Corp. ........................... 57,600(a) 2,041,200
Harris Corp. ...................................... 40,800 3,427,200
Intel Corp. ....................................... 22,800 3,233,325
Microsoft Corp. ................................... 38,700(a) 4,890,712
-----------
19,293,087
-----------
TELECOMMUNICATIONS 2.53%
BCE Inc. .......................................... 79,000 2,212,000
Telefonica de Espana S.A., ADR..................... 57,400 4,950,750
Telefonos de Mexico S.A., ADR...................... 184,400 8,805,100
-----------
15,967,850
-----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
---------- ------------
<S> <C> <C>
TOBACCO 0.94%
RJR Nabisco Holdings Corp. .......................... 179,500 $ 5,923,500
------------
TRANSPORTATION 2.58%
British Airways Plc, ADR............................. 18,600 2,137,838
Canadian Pacific Ltd. ............................... 180,800 5,141,500
CNF Transportation, Inc. ............................ 143,300 4,621,425
CSX Corp. ........................................... 50,700 2,813,850
KLM Royal Dutch Airlines N.V., ADR................... 51,300 1,583,887
------------
16,298,500
------------
UTILITIES--ELECTRIC & Natural Gas 8.99%
American Electric Power Co., Inc. ................... 93,000 3,906,000
Baltimore Gas & Electric Co. ........................ 64,200 1,713,338
CMS Energy Corp. .................................... 80,000 2,820,000
DQE Inc. ............................................ 85,950 2,428,087
DTE Energy Co. ...................................... 43,100 1,190,638
Edison International................................. 209,800 5,218,775
Entergy Corp. ....................................... 132,500 3,627,187
GPU, Inc. ........................................... 110,800 3,974,950
Illinova Corp. ...................................... 100,400 2,208,800
Montana Power Co. ................................... 43,200 1,001,700
New York State Electric & Gas Corp. ................. 102,300 2,135,513
Ohio Edison Co. ..................................... 77,700 1,694,831
Pacific Gas & Electric Co. .......................... 87,400 2,119,450
PacifiCorp. ......................................... 92,500 2,035,000
Pinnacle West Capital Corp. ......................... 111,300 3,345,956
PP & L Resources, Inc. .............................. 35,000 697,812
Public Service Co. of New Mexico..................... 83,400 1,490,775
Public Service Enterprise Group Inc. ................ 152,900 3,822,500
Questar Corp. ....................................... 44,600 1,800,725
Sierra Pacific Resources Inc. ....................... 59,800 1,913,600
Transcanada Pipelines Ltd. .......................... 101,500 2,042,688
United Illuminating Co. ............................. 29,300 904,637
UtiliCorp United Inc. ............................... 11,400 332,025
Valero Energy Corp. ................................. 65,100 2,359,875
Western Resources Inc. .............................. 60,200 1,952,738
------------
56,737,600
------------
TOTAL COMMON STOCKS
(Cost $309,270,896).......................................... 384,374,695
</TABLE> ------------
7
<PAGE>
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS--(CONCLUDED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
PRINCIPAL AMOUNT (NOTE 1)
----------------- ------------
<S> <C> <C>
UNITED STATES GOVERNMENT & AGENCY OBLIGA-
TIONS 6.56%
Federal National Mortgage Association,
6.85%, 4/5/2004.......................... $ 2,765,000 $ 2,797,295
United States Treasury Bonds, 10.750%,
5/15/2003................................ 4,000,000 4,833,748
United States Treasury Bonds, 7.25%,
8/15/2022................................ 1,600,000 1,670,000
United States Treasury Bonds, 7.50%,
11/15/2024............................... 13,200,000 14,239,500
United States Treasury Notes, 6.875%,
5/15/2006................................ 9,400,000 9,596,808
United States Treasury Notes, 6.50%,
10/15/2006............................... 8,300,000 8,266,277
TOTAL UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS ------------
(Cost $41,635,234)....................................... 41,403,628
------------
SHORT-TERM INVESTMENTS 31.82%
Bell South Telecommunications, Inc. 5.50%,
7/11/97.................................. 8,000,000 7,987,778
Campbell Soup Co., 5.50%, 7/10/97......... 20,400,000 20,371,950
Ford Motor Credit Co., 5.56%, 7/09/97..... 19,400,000 19,376,030
Goldman, Sachs & Co., 5.55%, 7/02/97...... 20,000,000 19,996,917
IBM Credit Corp., 5.52%, 7/18/97.......... 24,400,000 24,336,397
Merrill Lynch & Co., Inc., 5.53%, 7/01/97. 10,000,000 10,000,000
Merrill Lynch & Co., Inc., 5.57%, 7/08/97. 15,900,000 15,882,779
PepsiCo, Inc., 5.50%, 7/28/97............. 24,100,000 24,000,588
Unilever N.V., 6.15%, 7/01/97............. 29,700,000 29,700,000
Walt Disney Co., 5.50%, 7/03/97........... 15,000,000 14,995,375
Xerox Credit Corp., 5.50%, 7/07/97........ 14,100,000 14,087,075
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $200,734,889)...................................... 200,734,889
------------
TOTAL INVESTMENTS IN SECURITIES (Cost $551,641,019)........... $626,513,212
============
NUMBER OF
SECURITIES SOLD SHORT (NOTE 1D) SHARES/CONTRACTS
-----------------
Pennzoil Co. ............................. 46,400(c) $ 3,561,200
------------
TOTAL SECURITIES SOLD SHORT $ 3,561,200
(Proceeds $3,648,952).................................... ============
NET UNREALIZED DEPRECIATION ON FUTURES
CONTRACTS
Standard and Poor's 500 September 1997
Long futures............................. 124(b) $ (497,481)
</TABLE> ============
- --------
(a) Non-income producing security.
(b) The market value of the long futures was $55,195,500 (representing 8.75%
of the Fund's net assets) with a cost of $55,692,981.
(c) Short "against the box."
For Federal income tax purposes, the tax basis of investments owned at June
30, 1997 was $551,717,227 and net unrealized appreciation on investments
consisted of:
<TABLE>
<S> <C>
Gross unrealized appreciation................................. $78,353,252
Gross unrealized depreciation................................. (3,966,996)
-----------
Net unrealized appreciation................................... $74,386,256
===========
</TABLE>
See notes to financial statements.
8
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost,
$551,641,019).................................................... $626,513,212
Cash.............................................................. 554,459
Dividends and interest receivable................................. 1,411,215
Receivable for investments sold................................... 2,103,936
Proceeds receivable on securities sold short...................... 3,648,952
Deposit with broker for futures contracts......................... 2,083,200
------------
Total Assets..................................................... 636,314,974
------------
LIABILITIES:
Payable for investments purchased................................. 877,424
Accrued advisory fees (Note 3).................................... 436,994
Accrued administration fees (Note 3).............................. 2,257
Other accrued expenses............................................ 136,861
Variation margin for futures contracts............................ 407,341
Securities sold short, at value................................... 3,561,200
------------
Total Liabilities................................................ 5,422,077
------------
NET ASSETS......................................................... $630,892,897
============
NET ASSET VALUE, PER SHARE:
($630,892,897 / 51,901,571 shares outstanding--Note 4)............ $12.16
============
NET ASSETS CONSIST OF:
Capital paid-in................................................... $521,606,119
Undistributed net investment income............................... 8,397,792
Undistributed net realized gain on investments and futures con-
tracts........................................................... 26,426,522
Net unrealized appreciation on investments, securities sold short
and futures contracts............................................ 74,462,464
------------
$630,892,897
</TABLE> ============
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends........................................................ $ 5,732,506
Interest......................................................... 6,376,435
-----------
Total Income.................................................... 12,108,941
-----------
Expenses:
Investment advisory fees (Note 3)................................ 2,508,507
Administration fees (Note 3)..................................... 383,654
Transfer agent fees.............................................. 194,575
Printing and postage expenses.................................... 122,718
Professional fees (Note 3)....................................... 40,182
Custodian fees................................................... 53,938
Directors' fees and expenses (Note 3)............................ 37,648
Miscellaneous.................................................... 61,721
-----------
Total Expenses.................................................. 3,402,943
-----------
Net Investment Income.......................................... 8,705,998
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments (Note 2):
Security transactions............................................ 39,027,763
Futures transactions............................................. 1,707,439
-----------
Net realized gain on investments:............................... 40,735,202
Increase in unrealized appreciation on investments, securities
sold short and futures contracts................................. 16,696,290
-----------
Net realized and unrealized gain on investments.................. 57,431,492
-----------
Net increase in net assets resulting from operations............. $66,137,490
</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, 1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income..................... $ 8,705,998 $ 17,352,662
Net realized gain on investments.......... 40,735,202 39,254,840
Increase in unrealized appreciation on in-
vestments................................ 16,696,290 19,492,169
Net increase in net assets resulting from ------------ ------------
operations.............................. 66,137,490 76,099,671
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income..................... (6,687,547) (15,101,212)
Net realized gains on investments......... (22,634,781) (40,189,126)
------------ ------------
Total dividends and distributions to
shareholders............................ (29,322,328) (55,290,338)
------------ ------------
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.... 4,997,225 20,385,394
------------ ------------
Net increase in net assets................. 41,812,387 41,194,727
------------ ------------
NET ASSETS:
Beginning of period........................ 589,080,510 547,885,783
------------ ------------
End of period (including undistributed net
investment income of $8,397,792 and $630,892,897 $589,080,510
$6,379,341, respectively)................. ============ ============
</TABLE>
See notes to financial statements
10
<PAGE>
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(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. The policies are in conformity with generally accepted accounting
principles. The preparation of financial statements in accordance with
generally accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
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 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 market value as determined in
good faith by or under the direction of the Board of Directors of the Fund.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on trade date. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis.
Realized gains and losses on sales of investments are determined on the
identified cost basis for financial reporting and tax purposes.
C. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
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 which 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.
11
<PAGE>
The Fund may purchase and sell stock index and other future 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.
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 short sales are outstanding, the Fund pledges cash and
securities to cover its margin requirements.
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
A. PURCHASES AND SALES
During the six months ended June 30, 1997, the Fund entered into purchase
and sale transactions, excluding short-term investments and futures
transactions, as follows:
<TABLE>
<CAPTION>
UNITED STATES
GOVERNMENT
COMMON AND AGENCY
STOCKS OBLIGATIONS
------------ -------------
<S> <C> <C>
Cost of Purchases.............................. $146,600,966 $53,992,695
============ ===========
Proceeds from Sales............................ $208,845,384 $38,856,983
============ ===========
</TABLE>
12
<PAGE>
NOTE 3--INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A) INVESTMENT ADVISORY FEE: 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. 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,
1997, the Fund accrued advisory fees of $2,508,507.
B) ADMINISTRATIVE FEE: 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, 1997, the Fund accrued administration fees of $383,654.
C) DIRECTORS' FEE: 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 FEE: The Fund accrued legal fees of $8,869 during the six months
ended June 30, 1997, for the services of Rosenman & Colin, of which Robert E.
Smith, a Director of the Fund, is a partner.
E) BROKERAGE COMMISSION: During the six months ended June 30, 1997, the Fund
paid Zweig Securities Corp. brokerage commissions of $68,756 in connection
with portfolio transactions effected through them.
Certain directors and officers of the Fund are also directors and/or
officers of the Investment Adviser and the Administrator.
NOTE 4--CAPITAL STOCK AND REINVESTMENT PLAN
At June 30, 1997, the Fund had one class of common stock, par value $0.10
per share, of which 100,000,000 are authorized and 51,901,571 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, 1997 and the year ended December 31, 1996, 458,882 and
1,892,320 shares, respectively, were issued pursuant to the Plan.
13
<PAGE>
NOTE 5--FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, -------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period.... $ 11.45 $ 11.06 $ 10.33 $ 11.68 $ 11.36 $ 12.40
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.17 0.34 0.39 0.24 0.13 0.20
Net realized and
unrealized gains
(losses) on
investments............ 1.11 1.15 1.41 (0.45) 1.41 (0.10)
-------- -------- -------- -------- -------- --------
Total from investment
operations............. 1.28 1.49 1.80 (0.21) 1.54 0.10
-------- -------- -------- -------- -------- --------
Dividends and
Distributions:
Dividends from net
investment income...... (0.13) (0.30) (0.51) (0.03) (0.22) (0.10)
Distributions from net
realized gains on
investments............ (0.44) (0.80) (0.56) (1.11) (1.00) (1.04)
-------- -------- -------- -------- -------- --------
Total Dividends and
Distributions.......... (0.57) (1.10) (1.07) (1.14) (1.22) (1.14)
-------- -------- -------- -------- -------- --------
Net asset value, end
of period............ $ 12.16 $ 11.45 $ 11.06 $ 10.33 $ 11.68 $ 11.36
======== ======== ======== ======== ======== ========
Market value, end of
period**............. $12.1875 $ 10.875 11.25 $ 10.375 $ 13.75 $ 13.00
======== ======== ======== ======== ======== ========
Total investment return. 17.95% 6.92% 19.83% (16.95)% 16.59% 3.61%
======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands).. $630,893 $589,081 $547,886 $492,004 $534,813 $500,101
Ratio of expenses to
average net assets..... 1.15%* 1.18% 1.22% 1.25% 1.23% 1.26%
Ratio of net investment
income to average net
assets................. 2.95%* 3.12% 3.62% 2.24% 1.18% 1.73%
Portfolio turnover rate. 51.5% 137.2% 160.2% 257.0% 235.5% 172.5%
Average commission rate
per share on portfolio
transactions........... $ 0.0590 $ 0.0591 $ 0.0606 N/A N/A N/A
</TABLE>
- --------
* Annualized
** Closing Price--New York Stock Exchange.
14
<PAGE>
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Fund, Inc. was held on May
15, 1997. The meeting was held for the purpose of reelecting Eugene J. Glaser
and James B. Rogers, Jr. 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, 1997. The Fund's other Directors who continued in
office are Elliot S. Jaffe, Alden C. Olson, Anthony M. Santomero, Robert E.
Smith 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>
Eugene J. Glaser........................ 39,094,365 N/A 577,248 N/A
James B. Rogers, Jr. ................... 39,075,269 N/A 596,344 N/A
Coopers & Lybrand L.L.P. ............... 38,921,663 295,289 -- 454,661
- --------------------------------------------------------------------------------
</TABLE>
KEY INFORMATION
1-800-272-2700 ZWEIG SHAREHOLDER RELATIONS:
For general information and literature
(212) 644-2188 THE ZWEIG FUND HOT LINE:
For updates on net asset value, share price, major industry
groups and other key information
REINVESTMENT PLAN
Many of you have questions about 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
