<PAGE>
January 22, 1997
Dear Shareholder:
The Zweig Fund's net asset value increased 14.5% for the year ended December
31, 1996, including $1.10 in reinvested distributions. During the same period,
the Standard & Poor's 500 Index gained 23.0%.
In the fourth quarter of 1996 the net asset value of the Fund, including a
$0.28 distribution, rose 7.0%. During the same period, the Standard & Poor's
500 Index increased 8.3%.
Keeping our portfolio consistent with our risk-averse strategy, the Fund's
average exposure was approximately 69% for the fourth quarter and 63% for the
year.
Our investment levels were based on my indicators which were neutral for a
good portion of the year, especially the last two-thirds. However, the market
did better than my indicators would have suggested. That is why we
underperformed. I played the hand as it was dealt, but it doesn't work every
time. I have seen this happen in the past and, in the long run, it evens out.
As I see it, our mandate is to protect capital in down markets while earning
reasonable returns. There will be times when we are fully invested but this
will not occur when my time-tested indicators, which are based on
probabilities, point to a neutral or bearish position. These indicators have
stood us in good stead over the years and have kept our exposure down during
rough market periods.
For the first ten full years of operations ended December 31, 1996, our Fund
showed a total return on net asset value of 229.0% (12.6% on a compounded
annualized basis) including reinvested distributions. Our average equity
exposure for the ten years was 57%.
If a shareholder had invested $10,000 (1,000 shares) at the time of the
Fund's Initial Public Offering in October 1986, these holdings, including
distributions reinvested, would have appreciated to $29,090 (2,675 shares) as
of December 31, 1996.
DISTRIBUTION DECLARED
On January 2, 1997, the Fund announced a distribution of $0.28 per share
payable on January 10, 1997, to shareholders of record December 31, 1996.
Including the fourth-quarter payout, our total distribution to shareholders
for tax purposes in 1996 was $1.10. Of this amount, $0.82 is ordinary income
and $0.28 is long-term capital gains. The latest distribution brings our total
payout since the Fund's inception to $11.33.
MARKET OUTLOOK
At this writing in mid-January, my indicators are neutral or low neutral and
I am cautious. Up until the last month or so the bond market had been O.K. and
our monetary indicators had gone positive. However, bond yields have since
risen almost half a point and
<PAGE>
our monetary indicators have downticked somewhat but are still slightly
positive.
The bad news is that our sentiment indicators, to which I give about as much
weight as I do to the monetary ones, are in poor shape. The cash-to-assets
ratio in mutual funds is at a twenty-year low. This means that mutual fund
managers are extremely optimistic--and that is not a good sign. There is still
a massive amount of speculation in mutual funds. Money is pouring in from a
public that is not exactly sure what it is doing. The market has come an
awfully long way and people have become exuberantly unrealistic.
Another cause for concern is the fact that stock offerings hit a record high
for the year. Aside from the traditional seasonal slowdowns around Labor Day
and at year-end, offerings have been very heavy--and they have generally not
done well a year after they come out.
There are some market positives and that includes the trend. As I like to
say, "Don't fight the tape" and "Don't fight the Fed." We move a certain
portion of the portfolio just on the basis of momentum and the momentum since
August has been positive.
So far the economy has also been positive. Growth has been slow and the
inflation rate has been moderate. I don't think the economy is rip-roaring
strong but I believe it is 60 to 40 on the side of strength. Some call it
"Goldilocks" economy--not too cold, not too hot--but just right. The problem
is that this has been going on for several years and it will come to an end at
some point. Because everyone knows about the "Goldilocks" scenario, prices
have been bid up to what I see as a high-risk zone.
The 15-year price return (not even counting dividends) since 1982 is a
staggering 14.2% per annum, the greatest in U.S. history. That even tops the
prior 15-year record of 13.3% which ended in 1929. Investors might not want to
know that in the subsequent 15 years the Dow produced an annualized loss of
6.1% (not including dividends).
There has not been a meaningful correction in almost six years--the longest
period the S&P and the Dow have gone without at least a 10% correction. In my
opinion, this upward price movement has made the market expensive on a
valuation basis. This is true even if we discount the historically low 2%
dividend yield as being partly because of companies using some of their
retained earnings to buy back stock.
Summing up, I believe the bull market, which is the mother of all bull
markets, is long in the tooth. This does not mean that it cannot go higher.
However, it will be hard to retain forever that fine balance between modest
growth and modest inflation. If the economy falls out of bed, it will really
hurt corporate earnings. It may not be great for stocks even if interest rates
decline. If the market strengthens to the extent that too much inflation
results, it could lead to a bear market. Consequently, I must be cautious.
These concerns are the reason why we are not more fully invested at this time
and hold one-third of our portfolio in cash. There are just times when it is
prudent to do this.
PORTFOLIO COMPOSITION
Implementing my basic allocation strategy, the majority of our stocks
continue to be selected and sold on the basis of a proprietary computer-driven
model that employs various criteria--including price/earnings ratios, earnings
growth, cash flow, and price-to-book value ratios--to evaluate and rank
stocks. We consider about 750 stocks with the highest dividend yields from a
universe of approximately 1,500 of the most liquid stocks. This procedure has
been in effect since the beginning of 1995.
There was little change in the composition of our leading industry groups
during the fourth quarter. At the year-end, utilities continued to be the
largest group in our portfolio. Other major sectors included oil and oil
services, finance and financial services (which
2
<PAGE>
increased), telecommunications (which declined), retail trade and services,
and automotive.
Some of our larger holdings include Chrysler, Telefonica de Espana, General
Motors, American Stores, Texaco, USX-Marathon, Telefonos de Mexico (which
increased), Rohm & Haas, BankAmerica, and Salomon.
Although our holdings declined in Sprint and TJX, these stocks still occupy
prominent positions in our portfolio.
Our portfolio also includes a number of closed-end funds that are selling at
significant discounts from their net asset values. The average discount in our
closed-end portfolio holdings at year-end was approximately 17%. This is
equivalent to acquiring one dollar's worth of assets for 83 cents. Because
they are relatively conservative investments that have been largely neglected
during the long-running bull market, these funds currently are at extremely
high discounts. When the market again places a premium on valuation, as it has
done historically, discounts should narrow and more closely reflect the net
asset values. This, of course, would enhance the profitability of these
holdings in our Fund.
Sincerely,
/s/ Martin E. Zweig
Martin E. Zweig, Ph.D.
Chairman
3
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
COMMON STOCKS 65.59%
AEROSPACE & DEFENSE 2.52%
Boeing Co............................................. 3,431 $ 364,973
Gencorp, Inc.......................................... 42,600 772,125
General Motors Corp., Class H......................... 80,000 4,500,000
Rockwell International Corp. ......................... 81,700 4,973,487
United Technologies Corp. ............................ 64,200 4,237,200
------------
14,847,785
------------
AUTOMOTIVE 3.74%
Chrysler Corp......................................... 247,200 8,157,600
Ford Motor Co. ....................................... 182,400 5,814,000
General Motors Corp. ................................. 127,600 7,113,700
Volvo AB, ADR......................................... 42,700 928,725
------------
22,014,025
------------
BANKS 2.02%
Ahmanson, (H.F.) & Co................................. 52,900 1,719,250
BankAmerica Corp. .................................... 60,500 6,034,875
Chase Manhattan Corp.................................. 33,500 2,989,875
City National Corp.................................... 27,500 594,687
Washington Mutual, Inc................................ 13,700 593,381
------------
11,932,068
------------
CHEMICALS 2.28%
du Pont (E.I.) de Nemours & Co. ...................... 43,400 4,095,875
Olin Corp. ........................................... 83,800 3,152,975
Rohm & Haas Co. ...................................... 75,500 6,162,688
------------
13,411,538
------------
CONSTRUCTION & FARM EQUIPMENT 0.82%
Caterpillar Inc....................................... 64,000 4,816,000
------------
CONSUMER DURABLES 0.80%
Goodyear Tire & Rubber Co. ........................... 78,700 4,043,213
Huffy Corp............................................ 28,500 409,687
SPX Corp. ............................................ 6,800 263,500
------------
4,716,400
------------
CONSUMER PRODUCTS 0.07%
American Greetings Corp. ............................. 14,800 419,950
------------
CONTAINERS & PACKAGING 0.07%
Sea Containers Ltd., Class A.......................... 25,200 393,750
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
FINANCE & FINANCIAL SERVICES 5.32%
Alex Brown Inc........................................ 20,100 $ 1,457,250
American Bankers Insurance Group, Inc................. 20,100 1,027,613
Bear, Stearns & Co., Inc. ............................ 145,320 4,050,795
Edwards (A.G.) & Sons, Inc............................ 117,200 3,940,850
Fremont General Corp. ................................ 51,450 1,594,950
GATX Corp. ........................................... 11,400 552,900
Merrill Lynch & Co., Inc. ............................ 67,300 5,484,950
Orion Capital Corp.................................... 11,500 702,937
PaineWebber Group, Inc. .............................. 83,400 2,345,625
PHH Corp. ............................................ 48,500 2,085,500
Salomon Inc........................................... 126,900 5,980,163
USLife Corp........................................... 63,700 2,118,025
------------
31,341,558
------------
FOOD & BEVERAGE 0.37%
Adolph Coors Co., Class B............................. 68,200 1,295,800
Chiquita Brands International, Inc. .................. 29,500 376,125
Fleming Companies, Inc. .............................. 30,000 517,500
------------
2,189,425
------------
HOMEBUILDING & MATERIALS 0.46%
Armstrong World Industries, Inc. ..................... 21,000 1,459,500
Kaufman & Broad Home Corp. ........................... 71,800 924,425
Ryland Group Inc. .................................... 26,200 360,250
------------
2,744,175
------------
INVESTMENT COMPANIES 3.74%
Blackrock 2001 Term Trust, Inc. ...................... 52,600 414,225
Blackrock Strategic Term Trust, Inc. ................. 52,600 420,800
Brazil Fund, Inc. .................................... 28,500 634,125
Central European Equity Fund Inc. .................... 13,700 270,575
Clemente Global Growth Fund, Inc. .................... 23,400 175,500
Emerging Germany Fund, Inc. .......................... 92,000 747,500
Emerging Markets Infrastructure, Inc. ................ 42,900 466,537
Emerging Markets Telecommunications Fund, Inc. ....... 38,200 582,550
Emerging Mexico Fund, Inc. ........................... 27,900 205,762
Europe Fund, Inc. .................................... 32,000 516,000
First Iberian Fund, Inc. ............................. 28,000 308,000
First Israel Fund, Inc. .............................. 24,000 285,000
France Growth Fund, Inc. ............................. 46,800 485,550
G.T. Global Developing Fund, Inc. .................... 43,300 503,363
</TABLE>
5
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
INVESTMENT COMPANIES--(Continued)
G.T. Global Eastern Europe Fund, Inc. ................ 72,800 $ 937,300
Gabelli Equity Trust, Inc. ........................... 55,900 524,063
Gabelli Global Multimedia Trust, Inc. ................ 97,100 667,562
Global Health Sciences Fund, Inc. .................... 105,200 1,525,400
Latin America Equity Fund, Inc. ...................... 1,400 19,600
Liberty ALL-STAR Growth Fund, Inc. ................... 65,200 611,250
Mexico Fund, Inc. .................................... 14,800 222,000
Morgan Grenfell SMALLCap Fund, Inc. .................. 64,333 675,497
Morgan Stanley Russia & New Europe Fund, Inc. ........ 2,800 50,400
New Age Media Fund, Inc. ............................. 31,400 392,500
New Germany Fund, Inc. ............................... 133,800 1,789,575
Pilgrim America Bank & Thrift Fund, Inc. ............. 36,800 579,600
Portugal Fund, Inc. .................................. 22,700 312,125
Royce Value Trust, Inc. .............................. 131,855 1,664,669
Schroder Asian Growth Fund, Inc. ..................... 14,100 167,437
Scudder New Asia Fund, Inc. .......................... 32,100 401,250
Scudder New Europe Fund, Inc. ........................ 49,500 686,813
Spain Fund, Inc. ..................................... 40,700 462,962
Swiss Helvetia Fund, Inc. ............................ 66,300 1,317,713
Templeton China World Fund, Inc. ..................... 38,800 514,100
Templeton Dragon Fund, Inc. .......................... 84,900 1,369,012
Templeton Vietnam Opportunities Fund, Inc. ........... 28,400 333,700
Tri-Continental Corp. ................................ 33,900 817,838
------------
22,057,853
------------
LEISURE 0.79%
Brunswick Corp. ...................................... 111,500 2,676,000
Fleetwood Enterprises, Inc. .......................... 71,200 1,958,000
------------
4,634,000
------------
MANUFACTURING 2.74%
Black & Decker Corp. ................................. 23,600 710,950
Cummins Engine Co., Inc. ............................. 59,900 2,755,400
Excel Industries, Inc. ............................... 34,100 566,913
Ingersoll-Rand Co. ................................... 20,400 907,800
Johnson Controls, Inc. ............................... 32,900 2,726,587
Miller (Herman), Inc. ................................ 61,700 3,493,763
Simpson Industries, Inc. ............................. 34,200 372,458
Standard Products Co. ................................ 26,300 670,650
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
MANUFACTURING--(Continued)
Timken Co. ........................................... 26,700 $ 1,224,863
TRW, Inc. ............................................ 54,400 2,692,800
------------
16,122,184
------------
METALS & MINING 1.73%
British Steel, Plc, ADS............................... 102,000 2,805,000
Cleveland-Cliffs, Inc. ............................... 8,600 390,225
Oregon Steel Mills, Inc. ............................. 135,700 2,272,975
Quanex Corp. ......................................... 28,800 788,400
USX-US Steel Group, Inc. ............................. 125,400 3,934,425
------------
10,191,025
------------
OIL & OIL SERVICES 10.13%
Ashland Oil, Inc. .................................... 113,900 4,997,362
British Petroleum Co., Plc, ADR....................... 22,200 3,138,525
Elf Aquitaine S.A., ADR............................... 100,400 4,543,100
Helmerich & Payne, Inc. .............................. 54,400 2,835,600
Kerr-McGee Corp. ..................................... 65,400 4,708,800
Occidental Petroleum Corp. ........................... 146,400 3,422,100
Pennzoil Co. ......................................... 80,000 4,520,000
Phillips Petroleum Co. ............................... 104,300 4,615,275
Repsol S.A., ADR...................................... 106,800 4,071,750
Sun Co., Inc. ........................................ 31,300 762,938
Texaco Inc. .......................................... 67,600 6,633,250
Tosco, Inc. .......................................... 58,300 4,612,987
Unocal Corp. ......................................... 89,200 3,623,750
USX-Marathon Group, Inc. ............................. 276,100 6,591,888
YPF Sociedad Anonima, ADR............................. 23,600 595,900
------------
59,673,225
------------
PAPER & FOREST PRODUCTS 1.23%
Bowater, Inc. ........................................ 83,000 3,122,875
International Paper Co. .............................. 54,700 2,208,513
Pope & Talbot, Inc. .................................. 29,100 461,962
Westvaco Corp. ....................................... 50,950 1,464,813
------------
7,258,163
------------
RETAIL TRADE & SERVICES 4.18%
American Stores Co. .................................. 164,600 6,728,025
Dayton Hudson Corp. .................................. 139,600 5,479,300
</TABLE>
7
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
RETAIL TRADE & SERVICES--(Continued)
Mercantile Stores, Inc. ............................ 41,800 $ 2,063,875
Ross Stores, Inc. .................................. 37,300 1,865,000
Shopko Stores, Inc. ................................ 34,200 513,000
Supervalu, Inc. .................................... 93,600 2,655,900
TJX Companies, Inc. ................................ 112,200 5,315,475
------------
24,620,575
------------
TECHNOLOGY 3.28%
Applied Materials, Inc. ............................ 20,800(a) 747,500
Dell Computer Corp. ................................ 36,000(a) 1,912,500
Digital Equipment Corp. ............................ 57,600(a) 2,095,200
Harris Corp. ....................................... 47,700 3,273,412
Intel Corp. ........................................ 22,800 2,985,375
International Business Machines Corp. .............. 26,800 4,046,800
Microsoft Corp. .................................... 51,600(a) 4,263,450
------------
19,324,237
------------
TELECOMMUNICATIONS 4.87%
BCE, Inc. .......................................... 58,500 2,793,375
NYNEX Corp. ........................................ 98,300 4,730,687
Sprint Corp. ....................................... 119,000 4,745,125
Telefonica de Espana S.A., ADS...................... 116,800 8,088,400
Telefonos de Mexico S.A., ADS....................... 194,700 6,425,100
U.S. West, Inc. .................................... 59,500 1,918,875
------------
28,701,562
------------
TOBACCO 0.99%
RJR Nabisco Holdings Corp. ......................... 171,500 5,831,000
------------
TRANSPORTATION 1.49%
Alexander & Baldwin Co. ............................ 10,000 250,000
APL Ltd. ........................................... 42,600 1,006,425
British Airways Plc, ADR............................ 13,600 1,397,400
CSX Corp. .......................................... 121,700 5,141,825
KLM Royal Dutch Airlines, N.V., ADR................. 34,200 953,325
------------
8,748,975
------------
UTILITIES--ELECTRIC & NATURAL GAS 11.95%
Allegheny Power Systems, Inc. ...................... 52,600 1,597,725
American Electric Power Co., Inc. .................. 105,400 4,334,575
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
UTILITIES--ELECTRIC & NATURAL GAS--(Continued)
Baltimore Gas & Electric Co. ......................... 27,500 $ 735,625
CMS Energy Corp. ..................................... 60,000 2,017,500
Consolidated Natural Gas Co. ......................... 34,100 1,884,025
DQE, Inc. ............................................ 65,950 1,912,550
DTE Energy Co. ....................................... 43,100 1,395,363
Eastern Enterprises, Inc. ............................ 22,000 778,250
Edison International, Inc. ........................... 155,600 3,092,550
El Paso Natural Gas Co. .............................. 37,400 1,888,700
Entergy Corp. ........................................ 117,500 3,260,625
GPU, Inc. ............................................ 110,800 3,725,650
Illinova Corp. ....................................... 100,400 2,761,000
Montana Power Co. .................................... 43,200 923,400
New York State Electric & Gas Co. .................... 58,000 1,254,250
NorAm Energy Corp. ................................... 247,300 3,802,237
Ohio Edison Co. ...................................... 62,700 1,426,425
Pacific Gas & Electric Co. ........................... 62,400 1,310,400
PacifiCorp............................................ 87,500 1,793,750
PanEnergy Corp. ...................................... 123,800 5,571,000
Pinnacle West Capital Corp. .......................... 106,400 3,378,200
PP&L Resources, Inc. ................................. 35,000 805,000
Public Service Enterprises Group, Inc. ............... 127,900 3,485,275
Questar Corp. ........................................ 28,400 1,043,700
Sierra Pacific Resources, Inc. ....................... 59,800 1,719,250
Sonat, Inc. .......................................... 80,400 4,140,600
Texas Utilities Co. .................................. 102,000 4,156,500
Transcanada Pipeline Ltd. ............................ 86,500 1,513,750
Unicom Corp. ......................................... 44,700 1,212,487
United Illuminating Co. .............................. 29,300 919,288
UtiliCorp United, Inc. ............................... 11,400 307,800
Western Resources, Inc. .............................. 72,600 2,241,525
------------
70,388,975
------------
TOTAL COMMON STOCKS (Cost $328,677,312)........................ 386,378,448
------------
</TABLE>
9
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS--(CONCLUDED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
----------- ------------
<S> <C> <C>
UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS 4.87%
Federal National Mortgage Association, 6.85%,
4/5/2004.......................................... $ 2,765,000 $ 2,810,614
United States Treasury Bills, 5.01%, 1/30/1997..... 2,000,000 1,991,928
United States Treasury Bonds, 10.75%, 5/15/2003.... 4,000,000 4,922,500
United States Treasury Bonds, 7.50%, 11/15/2024.... 2,600,000 2,843,750
United States Treasury Bonds, 7.625%, 2/15/2025.... 1,600,000 1,777,000
United States Treasury Bonds, 6.875%, 8/15/2025.... 900,000 917,438
United States Treasury Notes, 6.25%, 8/31/2000..... 13,400,000 13,454,431
------------
TOTAL UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS
(Cost $28,652,623)........................................... 28,717,661
------------
SHORT-TERM INVESTMENTS 29.15%
Allied Signal, Inc., 5.55%, 1/24/97................ 15,000,000 14,946,812
Bell Atlantic Financial Services, Inc., 5.38%,
1/13/97........................................... 9,900,000 9,882,246
Coca-Cola Co., 5.40%, 1/8/97....................... 20,500,000 20,478,475
Duracell, Inc., 5.60%, 1/2/97...................... 20,400,000 20,396,827
Ford Motor Credit Corp., 5.73%, 1/9/97............. 9,900,000 9,887,394
Gannett Co., 5.35%, 1/6/97......................... 16,900,000 16,887,443
General Electric Capital Corp., 5.37%, 1/3/97...... 22,400,000 22,393,317
Merrill Lynch & Co., Inc., 6.60%, 1/2/97........... 9,600,000 9,598,240
Panasonic Financial, Inc., 5.58%, 1/21/97.......... 10,100,000 10,068,690
PepsiCo Inc., 5.35%, 1/14/97....................... 5,700,000 5,688,988
Raytheon Co., 5.35%, 1/10/97....................... 11,300,000 11,284,886
Xerox Credit Corp., 5.35%, 1/7/97.................. 20,200,000 20,181,988
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $171,695,306).............. 171,695,306
------------
TOTAL INVESTMENTS (Cost $529,025,241).............. 99.61% 586,791,415
Cash and Other Assets, Less Liabilities............ 0.39 2,289,095
----------- ------------
NET ASSETS (Equivalent to $11.45 per share based on
51,442,689 shares of capital stock outstanding) .. 100.00% $589,080,510
=========== ============
</TABLE>
- --------
(a) Non-income producing security.
For Federal income tax purposes, the tax basis of investments owned at
December 31, 1996 was $529,102,072 and net unrealized appreciation on
investments consisted of:
<TABLE>
<S> <C>
Gross unrealized appreciation................................ $62,039,989
Gross unrealized depreciation................................ (4,350,646)
-----------
Net unrealized appreciation.................................. $57,689,343
===========
</TABLE>
See notes to financial statements.
10
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost, $529,025,241)............. $586,791,415
Cash.............................................................. 1,096,669
Dividends and interest receivable................................. 2,067,044
Receivable for investments sold................................... 1,905,258
------------
Total Assets.................................................... 591,860,386
------------
LIABILITIES:
Payable for investments purchased................................. 2,118,657
Accrued advisory fees (Note 3).................................... 421,427
Accrued administration fees (Note 3).............................. 64,453
Other accrued expenses............................................ 175,339
------------
Total Liabilities............................................... 2,779,876
------------
NET ASSETS.......................................................... $589,080,510
============
NET ASSET VALUE, PER SHARE:
($589,080,510 / 51,442,689 shares outstanding--Note 4)............ $11.45
======
Net Assets consist of:
Capital paid-in................................................... $516,608,894
Undistributed net investment income............................... 6,379,341
Undistributed net realized gain on investments.................... 8,326,101
Net unrealized appreciation on investments........................ 57,766,174
------------
$589,080,510
============
</TABLE>
See notes to financial statements.
11
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends...................................................... $13,171,211
Interest....................................................... 10,700,530
-----------
Total Income................................................. 23,871,741
-----------
Expenses:
Investment advisory fees (Note 3).............................. 4,722,948
Administration fees (Note 3)................................... 722,333
Transfer agent fees............................................ 382,463
Printing and postage expenses.................................. 240,627
Professional fees (Note 3)..................................... 74,907
Custodian fees................................................. 111,171
Directors' fees and expenses (Note 3).......................... 76,690
Miscellaneous.................................................. 187,940
-----------
Total Expenses............................................... 6,519,079
-----------
Net Investment Income...................................... 17,352,662
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments (Note 2):
Security transactions.......................................... 43,699,160
Futures transactions........................................... (4,444,320)
-----------
Net realized gain on investments........................... 39,254,840
Increase in unrealized appreciation on investments............... 19,492,169
-----------
Net realized and unrealized gain on investments................ 58,747,009
-----------
Net increase in net assets resulting from operations........... $76,099,671
===========
</TABLE>
See notes to financial statements.
12
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
1996 1995
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................... $ 17,352,662 $ 18,691,179
Net realized gain on investments......... 39,254,840 34,258,126
Increase in unrealized appreciation on
investments............................. 19,492,169 34,291,057
--------------- ---------------
Net increase in net assets resulting
from operations....................... 76,099,671 87,240,362
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income.................... (15,101,212) (24,654,850)
Net realized gains on investments........ (40,189,126) (27,081,681)
--------------- ---------------
Total dividends and distributions to
shareholders.......................... (55,290,338) (51,736,531)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Net asset value of shares issued to
shareholders in reinvestment of divi-
dends from net investment income and
distributions from net realized gains... 20,385,394 20,378,445
--------------- ---------------
Net increase in net assets................. 41,194,727 55,882,276
NET ASSETS:
Beginning of year.......................... 547,885,783 492,003,507
--------------- ---------------
End of year (including undistributed net
investment income of $6,379,341 and
$4,127,891, respectively)................. $589,080,510 $547,885,783
=============== ===============
</TABLE>
See notes to financial statements.
13
<PAGE>
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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 principles 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 will be valued
at the last sale price. Securities traded in the over-the-counter market which
are National Market System securities will be valued at the last sale price.
Other over-the-counter securities will be 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 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 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
14
<PAGE>
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. FEDERAL INCOME TAXES
The Fund has elected to qualify and intends to remain qualified as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. The principal tax benefits of qualifying as a regulated
investment company, as compared to an ordinary taxable corporation, are that a
regulated investment company is not itself subject to Federal income tax on
ordinary investment income and net capital gains that are currently
distributed (or deemed distributed) to its shareholders and that the tax
character of long-term capital gains recognized by a regulated investment
company flows through to its shareholders who receive distributions of such
gains.
NOTE 2--PORTFOLIO TRANSACTIONS
During the year ended December 31, 1996, 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.............................. $423,946,676 $140,064,336
============ ============
Proceeds from Sales............................ $457,817,333 $203,648,963
============ ============
</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. 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 year ended December 31, 1996,
the Fund accrued advisory fees of $4,722,948.
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
15
<PAGE>
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 year ended December 31, 1996, the Fund
accrued administration fees of $722,333.
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 $15,742 during the year ended
December 31, 1996, for the services of Rosenman & Colin LLP, of which Robert
E. Smith, a Director of the Fund, is a partner.
E) BROKERAGE COMMISSIONS. During the year ended December 31, 1996, the Fund
paid Zweig Securities Corp. brokerage commissions of $134,919 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 December 31, 1996, the Fund had one class of common stock, par value
$0.10 per share, of which 100,000,000 shares are authorized and 51,442,689
shares are outstanding.
Registered shareholders may elect to receive all distributions in cash paid
by check mailed directly to the shareholder by The Bank of New York (the
"Bank") as dividend paying agent. Pursuant to the Automatic Reinvestment and
Cash Purchase Plan (the "Plan") shareholders not making such election will
have all such amounts automatically reinvested by the Bank, as the Plan agent
in whole or fractional shares of the Fund, as the case may be. During the
years ended December 31, 1996 and 1995, 1,892,320 and 1,927,949 shares,
respectively, were issued pursuant to the Plan.
The Fund announced on January 2, 1997 a distribution of $0.28 per share
(representing long-term capital gains and net investment income) to
shareholders of record December 31, 1996. This distribution has an ex-dividend
date of January 3, 1997, payable January 10, 1997.
16
<PAGE>
NOTE 5--FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of year.................... $ 11.06 $ 10.33 $ 11.68 $ 11.36 $ 12.40
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPER-
ATIONS:
Net investment income....... 0.34 0.39 0.24 0.13 0.20
Net realized and unrealized
gains (losses) on invest-
ments...................... 1.15 1.41 (0.45) 1.41 (0.10)
-------- -------- -------- -------- --------
Total from investment opera-
tions...................... 1.49 1.80 (0.21) 1.54 0.10
-------- -------- -------- -------- --------
Dividends and Distributions:
Dividends from net invest-
ment income................ (0.30) (0.51) (0.03) (0.22) (0.10)
Distributions from net
realized gains on
investments................ (0.80) (0.56) (1.11) (1.00) (1.04)
-------- -------- -------- -------- --------
Total Dividends and Distri-
butions.................... (1.10) (1.07) (1.14) (1.22) (1.14)
-------- -------- -------- -------- --------
Net asset value, end of
year..................... $ 11.45 $ 11.06 $ 10.33 $ 11.68 $ 11.36
======== ======== ======== ======== ========
Market value, end of
year*.................... $ 10.875 $ 11.25 $ 10.375 $ 13.75 $ 13.00
======== ======== ======== ======== ========
Total investment return..... 6.92% 19.83% (16.95)% 16.59% 3.61%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)................. $589,081 $547,886 $492,004 $534,813 $500,101
Ratio of expenses to average
net assets................. 1.18% 1.22% 1.25% 1.23% 1.26%
Ratio of net investment in-
come to average net assets. 3.12% 3.62% 2.24% 1.18% 1.73%
Portfolio turnover rate..... 137.2% 160.2% 257.0% 235.5% 172.5%
Average commission rate per
share on portfolio transac-
tions...................... $ 0.06 $ 0.06 N/A N/A N/A
</TABLE>
- --------
* Closing Price - New York Stock Exchange
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Zweig Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of The
Zweig Fund, Inc., including the statement of net assets, as of December 31,
1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended, and financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
The Zweig Fund, Inc. as of December 31, 1996, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and financial highlights for each of the five
years in the period then ended, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 3, 1997
18
<PAGE>
THE ZWEIG FUND, INC.
YEAR END RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL RETURN ON
NET ASSET NET ASSET NYSE PREMIUM
VALUE VALUE SHARE PRICE (DISCOUNT)
--------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Year Ended 12/31/96............ 14.5% $11.45 $10.875 (5.0%)
Year Ended 12/31/95............ 18.3% 11.06 11.250 1.7%
Year Ended 12/31/94............ (2.7%) 10.33 10.375 0.4%
Year Ended 12/31/93............ 13.3% 11.68 13.750 17.7%
Year Ended 12/31/92............ 0.4% 11.36 13.000 14.4%
Year Ended 12/31/91............ 30.1% 12.40 13.750 10.9%
Year Ended 12/31/90............ 1.9% 10.48 11.000 5.0%
Year Ended 12/31/89............ 22.3% 11.43 12.375 8.3%
Year Ended 12/31/88............ 17.9% 10.35 10.375 0.2%
Year Ended 12/31/87............ 14.7% 9.73 9.000 (7.5%)
Inception 10/2/86-12/31/86..... (0.4%) 9.31 9.125 (2.0%)
</TABLE>
- -------------------------------------------------------------------------------
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 10286-1158
(212) 644-2188
THE ZWEIG FUND HOT LINE:
For updates on net asset
value, share price, major
industry groups and other
key information
1-800-272-2700
ZWEIG SHAREHOLDER RELATIONS:
For general information and
literature
REINVESTMENT PLAN
Many of you have questions about
our reinvestment plan. If you want
to take advantage of this plan and
your shares are held in "Street
Name," we urge you to consult your
broker as soon as possible to
determine if you must change
registration 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.
<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
5 Hanover Square
New York, New York 10004
CUSTODIAN AND TRANSFER AGENT
The Bank of New York
48 Wall Street
New York, New York 10015
LEGAL COUNSEL
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
This report is transmitted to the shareholders of The Zweig Fund, Inc. for
their information. This is not a prospectus, circular or representation
intended for use in the purchase of shares of the Fund or any securities
mentioned in this report.
[LOGO OF THE ZWEIG FUND]
ANNUAL REPORT
DECEMBER 31, 1996
