ZWEIG FUND INC /MD/, N-2/A, 1998-04-14

ZWEIG FUND INC /MD/
N-2/A, 1998-04-14

Previous: SOUTH BRANCH VALLEY BANCORP INC, DEF 14A, 1998-04-14

Next: BODDIE NOELL PROPERTIES INC, DEF 14A, 1998-04-14

<PAGE> 1
Investment Company Act File No. 811-4739
Securities Act File No. 333-46955

As filed with the Securities and Exchange Commission on April 14, 1998

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------

FORM N-2

[x] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

[x] Pre-effective Amendment No. 2

[ ] Post-Effective Amendment No.

and/or

[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

[x] Amendment No. 15

THE ZWEIG FUND, INC.
(Exact Name of Registrant as Specified in Charter)

900 Third Avenue
New York, New York 10022
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code:
212-451-1100

STUART B. PANISH, ESQ.
Vice President and Secretary
The Zweig Fund, Inc.
900 Third Avenue, New York, New York 10022
(Name and Address of Agent for Service)
--------------------------

With Copies to:

ROBERT E. SMITH, ESQ. LEONARD B. MACKEY, JR., ESQ.
Rosenman & Colin LLP Rogers & Wells LLP
575 Madison Avenue 200 Park Avenue
New York, NY 10022 New York, NY 10166
-------------------- ---------------------

Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration Statement.

1
<PAGE> 2
If the securities being registered on this form are to be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]

<TABLE>
<CAPTION>
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Per Aggregate Offering Registration Fee(2)
Share (1) Price
- ---------------------- --------------------- ------------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $.10 per share 9,500,000 Shares $12.59 $119,605,000 $35,283
</TABLE>

(1) Estimated solely for the purposes of calculating the registration fee
in accordance with rule 457(c) under the Securities Act of 1933. Based
on the average of the high and low prices for the Fund's Common Stock
reported on the New York Stock Exchange on April 2, 1998.

(2) Previously paid.

----------------------------

The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

2
<PAGE> 3
THE ZWEIG FUND, INC.
FORM N-2

CROSS REFERENCE SHEET
Pursuant to Rule 481(a)

<TABLE>
<CAPTION>
Item Number, Form N-2 Location in Prospectus
------------ -------- ----------------------

Part A
<S> <C>
1. Outside Front Cover........................................................... Outside Front Cover Page
of Prospectus

2. Inside Front and Outside Back
Cover Page.................................................................... Outside Front Cover
of Prospectus

3. Fee Table and Synopsis........................................................ Fund Expenses

4. Financial Highlights.......................................................... Financial Highlights

5. Plan of Distribution.......................................................... The Offer;
Distribution
Arrangements

6. Selling Shareholders.......................................................... Not Applicable

7. Use of Proceeds............................................................... The Offer; Use of
Proceeds

8. General Description of the Registrant......................................... The Fund; Market
Price and Net Asset Value Information;
Investment Objective and Policies; Risk
Factors and Special Considerations

9. Management................................................................... Management of the
Fund; Custodian, Dividend Paying Agent,
Transfer Agent and Registrar

10. Capital Stock, Long-Term Debt and Other
Securities..................................................................... Distributions;
Distribution Reinvestment and Cash
Purchase Plan; Taxation; Description of
Common Stock
</TABLE>

3
<PAGE> 4
<TABLE>
<CAPTION>
Item Number, Form N-2 Location in Prospectus
------------ -------- ----------------------

<S> <C>
11. Defaults and Arrears on Senior Securities..................................... Not Applicable

12. Legal Proceedings............................................................. Legal Matters

13. Table of Contents of the Statement of
Additional Information......................................................... Table of Contents of
the Statement of Additional Information

Part B

14. Cover Page.................................................................... Cover Page

15. Table of Contents............................................................. Table of Contents

16. General Information and History............................................... The Fund (in Part A)

17. Investment Objectives and Policies............................................ Investment Objective
and Policies; Investment Restrictions

18. Management.................................................................... Management

19. Control Persons and Principal Holders
of Securities.................................................................. Management of the
Fund (in Part A);
Principal Shareholders

20. Investment Advisory and Other Services........................................ Management of the
Fund (in Part A);
Custodian, Dividend
Paying Agent,
Transfer Agent and
Registrar (in Part A)

21. Brokerage Allocation and Other Practice....................................... Portfolio
Transactions
and Brokerage

22. Tax Status.................................................................... Taxation

23. Financial Statements.......................................................... Financial Statements;
Report of Independent Accountants
</TABLE>

4
<PAGE> 5

PROSPECTUS

7,600,000 SHARES OF COMMON STOCK

THE ZWEIG FUND, INC.

ISSUABLE UPON EXERCISE OF NON-TRANSFERABLE

RIGHTS TO SUBSCRIBE FOR SUCH SHARES OF COMMON STOCK

------------------------

The Zweig Fund, Inc. (the "Fund") is issuing to its shareholders of record
("Record Date Shareholders") as of the close of business on April 15, 1998 (the
"Record Date") non-transferable rights (the "Rights"). These rights entitle
their holders to subscribe for up to an aggregate of 7,600,000 shares (the
"Shares") of the Fund's Common Stock, par value $0.10 per share (the "Common
Stock") at the rate of one Share of Common Stock for every seven Rights held
(the "Offer"). Record Date Shareholders will receive one non-transferable Right
for each whole share of Common Stock held on the Record Date. Record Date
Shareholders who fully exercise their Rights will be entitled to subscribe for
additional shares of Common Stock pursuant to an over-subscription privilege
described in this Prospectus (the "Over-Subscription Privilege"). The Fund may
increase the number of shares of Common Stock subject to subscription by up to
25% of the Shares, or up to an additional 1,900,000 shares of Common Stock, for
an aggregate total of 9,500,000 Shares. Fractional Shares will not be issued
upon the exercise of Rights. The Rights are non-transferable and, therefore, may
not be purchased or sold. The Rights will not be admitted for trading on the New
York Stock Exchange (the "NYSE"), the Pacific Exchange (the "PCX") or any other
exchange. See "The Offer." THE SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION
PRICE") WILL BE 95% OF THE AVERAGE OF THE LAST REPORTED SALES PRICE OF A SHARE
OF THE FUND'S COMMON STOCK ON THE NYSE ON MAY 8, 1998 (THE "PRICING DATE") AND
THE FOUR PRECEDING BUSINESS DAYS.

THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MAY 8, 1998
UNLESS EXTENDED AS DESCRIBED HEREIN (THE "EXPIRATION DATE").

The Fund announced the Offer before the commencement of trading on the NYSE
on February 27, 1998. The Fund's Common Stock trades on the NYSE and PCX under
the symbol "ZF." Shares issued upon the exercise of Rights and the
Over-Subscription Privilege will be listed for trading on the NYSE and PCX,
subject to notice of issuance. The net asset value per share of the Fund's
Common Stock at the close of business on February 26, 1998 and April 13, 1998,
were $12.79 and $13.23, respectively, and the last reported sales price of a
share of the Fund's Common Stock on the NYSE on those dates were $13.25 and
$13.25, respectively.

The Fund is a diversified, closed-end management investment company. Its
investment objective is capital appreciation, primarily through investment in
equity securities, consistent with the preservation of capital and reduction of
risk, as determined by the Fund's investment adviser, Zweig Advisors Inc. (the
"Investment Adviser"). The extent of the Fund's investment in equity securities
will be determined primarily on the basis of market timing techniques developed
by Dr. Martin E. Zweig, the President of the Investment Adviser, and his staff.
Dr. Zweig is the majority shareholder of the Investment Adviser and has been
engaged in the business of providing investment advisory services for over 25
years. While the Investment Adviser seeks to reduce the risks associated with
investing in equity securities by using these techniques, the risk of investment
in equity securities cannot be eliminated. See "Investment Objective and
Policies." No assurance can be given that the Fund's investment objective will
be realized. The Fund's administrator is Zweig/Glaser Advisers (the
"Administrator"). The Fund's Investment Adviser as well as the Administrator
will benefit from the Offer. See "Management of the Fund."
(Continued on the following page)
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=============================================================================================================
ESTIMATED ESTIMATED SALES ESTIMATED PROCEEDS
SUBSCRIPTION PRICE(1) LOAD(2) TO FUND(3)(4)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $12.59 $.47 $12.12
- -------------------------------------------------------------------------------------------------------------
Total Maximum(5).................. $95,684,000 $3,572,000 $92,112,000
=============================================================================================================
</TABLE>

(Footnotes on the following page)
------------------------

MERRILL LYNCH & CO.

------------------------

The date of this Prospectus is April 14, 1998.

<PAGE> 6

(Continued from cover)

Upon the completion of the Offer, Record Date Shareholders who do not fully
exercise their Rights will own a smaller proportional interest in the Fund than
they owned prior to the Offer. In addition, because the Subscription Price may
be less than the then current net asset value per share as of the Pricing Date,
the Offer may result in an immediate dilution of the net asset value per share
for all shareholders. Although it is not possible to state precisely the amount
of such decrease in net asset value per share, if any, because it is not known
how many Shares will be subscribed for, what the net asset value or market price
of the Common Stock will be on the Pricing Date or what the Subscription Price
will be, such dilution could be minimal or substantial. Any such dilution will
disproportionately affect non-exercising shareholders. See "The Offer" and "Risk
Factors and Special Considerations." Except as described in this Prospectus,
Record Date Shareholders will have no right to rescind their subscriptions after
receipt of their payment for Shares by the Subscription Agent.

This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and retain it for future reference. A Statement of
Additional Information, dated April 14, 1998 (the "SAI"), containing additional
information about the Fund, has been filed with the Securities and Exchange
Commission (the "Commission") and is incorporated by reference in its entirety
into this Prospectus.

Shareholders may obtain a copy of the SAI from, and should direct all
questions and inquires relating to the Offer to, the Fund's Information Agent,
Georgeson & Company Inc. Banks and Brokers should call (212) 440-9800 collect
and all other shareholders should call (800) 223-2064. The address of the Fund
is 900 Third Avenue, New York, New York 10022, and its telephone number is (212)
451-1100. The Commission maintains a world wide web site at http://www.sec.gov
that contains the SAI and other information regarding the Fund.

(Footnotes from the previous page)
- ---------------
(1) Estimated on the basis of 95% of the average of the last reported sales
price of a share of the Fund's Common Stock on the NYSE on April 13, 1998.

(2) In connection with the Offer, the Fund has agreed to pay Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Dealer Manager"), and other
broker-dealers (including Zweig Securities Corp.) soliciting the exercise of
Rights, solicitation fees equal to 2.50% of the Subscription Price per Share
for each Share issued pursuant to the exercise of the Rights and the
Over-Subscription Privilege. The Fund has also agreed to pay the Dealer
Manager a fee for financial advisory and marketing services in connection
with the Offer equal to 1.25% of the aggregate Subscription Price for the
Shares issued pursuant to the exercise of the Rights and the
Over-Subscription Privilege. See "Distribution Arrangements." These fees
will be borne by the Fund and indirectly by all of the Fund's shareholders,
including those who do not exercise their Rights. The Fund and the
Investment Adviser have agreed to indemnify the Dealer Manager against
certain liabilities including liabilities under the Securities Act of 1933,
as amended.

(3) Before deduction of offering expenses incurred by the Fund, estimated at
approximately $720,000, including $82,500 to be paid to the Dealer Manager
in reimbursement of its expenses.

(4) The funds received by check prior to the final due date of this Offer will
be deposited into a segregated interest-bearing account (which interest will
be paid to the Fund) pending proration and distribution of the Shares.

(5) Assumes all 7,600,000 Shares are purchased at the Estimated Subscription
Price. Pursuant to the Over-Subscription Privilege, the Fund may at the
discretion of the Board of Directors increase the number of Shares subject
to subscription by up to 25% of the Shares offered hereby. If the Fund
increases the number of Shares subject to subscription by 25%, the Total
Maximum Estimated Subscription Price, Estimated Sales Load and Estimated
Proceeds to the Fund will be $119,605,000, $4,465,000 and $115,140,000,
respectively. The Sales Load and other offering expenses will be charged
against paid-in capital of the Fund.

Certain numbers in this Prospectus have been rounded for ease of
presentation and, as a result, may not total precisely.

2
<PAGE> 7

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes that the allowable
increase of 25% of the Shares offered hereby pursuant to the Over-Subscription
Privilege will not occur.

THE FUND

The Zweig Fund, Inc. (the "Fund") is a diversified, closed-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund commenced operations in October 1986. The
Fund's investment objective is capital appreciation, primarily through
investment in equity securities, consistent with the preservation of capital and
reduction of risk, as determined by the Fund's investment adviser, Zweig
Advisors Inc. (the "Investment Adviser"). The extent of the Fund's investment in
equity securities will be determined primarily on the basis of market timing
techniques developed by Dr. Martin E. Zweig, the President of the Fund's
Investment Adviser, and his staff. While the Investment Adviser seeks to reduce
the risks associated with investing in equity securities by using these
techniques, the risk of investment in equity securities cannot be eliminated.
The Fund's outstanding Common Stock, par value $.10 per share (the "Common
Stock") is listed and traded on the New York Stock Exchange (the "NYSE") and the
Pacific Exchange ("PCX"). The average weekly trading volume of the Common Stock
on the NYSE during the year ended December 31, 1997 was 322,874 shares. As of
April 13, 1998, the net assets of the Fund were approximately $703,800,000.

The President and majority shareholder of the Investment Adviser is Dr.
Martin E. Zweig, who has been engaged in the business of providing investment
advisory services for over 25 years. Zweig/Glaser Advisers (the "Administrator")
serves as the Fund's administrator. The Fund pays the Investment Adviser an
investment advisory fee computed at the annual rate of 0.85% of the Fund's
average daily net assets. The Fund pays the Administrator an administrative fee
computed at the annual rate of 0.13% of the Fund's average daily net assets. See
"Management of the Fund."

TERMS OF THE OFFER

The Fund is issuing to its shareholders of record ("Record Date
Shareholders") as of the close of business on April 15, 1998 (the "Record Date")
non-transferable rights (the "Rights") to subscribe for up to an aggregate of
7,600,000 shares of Common Stock (the "Shares") of the Fund. The Fund may
increase the number of shares of Common Stock subject to subscription by up to
25% of the Shares, or up to an additional 1,900,000 shares of Common Stock, for
an aggregate total of 9,500,000 shares. Each Record Date Shareholder is being
issued one Right for each whole share of Common Stock owned on the Record Date.
The Rights entitle the holders thereof to subscribe for one Share for every
seven Rights held (the "Offer"). Fractional shares will not be issued upon the
exercise of Rights. If a Record Date Shareholder's total ownership is fewer than
seven shares, such Record Date Shareholder may subscribe for one Share.

Rights may be exercised at any time during the Subscription Period, which
commences on April 15, 1998 and ends at 5:00 p.m. New York City time, on May 8,
1998, unless extended by the Fund until 5:00 p.m., New York City time to a date
not later than May 15, 1998 (such date, as it may be extended, is referred to in
this Prospectus as the "Expiration Date"). A Record Date Shareholder's right to
acquire during the Subscription Period at the Subscription Price (as described
below) one additional Share for every seven Rights held is hereinafter referred
to as the "Primary Subscription." The Rights are evidenced by subscription
certificates (the "Subscription Certificates"), which will be mailed to Record
Date Shareholders, except as discussed in "The Offer -- Foreign Restrictions."

The Subscription Price per share (the "Subscription Price") will be 95% of
the average of the last reported sales prices of a share of the Fund's Common
Stock on the NYSE on May 8, 1998 (the "Pricing Date") and the four preceding
business days. Since the Expiration Date and the Pricing Date are each May 8,
1998, Record Date Shareholders who choose to exercise their Rights will not know
at the time of exercise the
3
<PAGE> 8

Subscription Price for Shares acquired pursuant to such exercise. Record Date
Shareholders will have no right to rescind a purchase after receipt of their
payment for Shares by the Fund's subscription agent, State Street Bank & Trust
Co. (the "Subscription Agent"). There is no minimum number of Rights that must
be exercised in order for the Offer to close.

Pursuant to the over-subscription privilege (the "Over-Subscription
Privilege"), any Record Date Shareholder who fully exercises all Rights issued
to such Record Date Shareholder in the Primary Subscription (other than those
Rights that cannot be exercised because they represent the right to acquire less
than one Share) will be entitled to subscribe for additional Shares at the
Subscription Price. Shares available, if any, pursuant to the Over-Subscription
Privilege are subject to allotment and may be subject to increase, as is more
fully discussed under "The Offer -- Over-Subscription Privilege." For purposes
of determining the maximum number of Shares a Record Date Shareholder may
acquire pursuant to the Offer, Record Date Shareholders whose Shares are held of
record by Cede & Co. Inc. ("Cede") or by any other depository or nominee will be
deemed to be the holders of the Rights that are issued to Cede or such other
depository or nominee on their behalf.

The Rights are non-transferable. Therefore, only the underlying Shares will
be listed for trading on the NYSE, PCX or any other exchange.

PURPOSE OF THE OFFER

The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and its shareholders to increase the assets of the
Fund available for investment, thereby enabling the Fund to more fully take
advantage of investment opportunities consistent with the Fund's investment
objective. The Fund's Board of Directors has voted unanimously to approve the
terms of the Offer as set forth in this Prospectus.

In reaching its decision, the Board of Directors considered, among other
things, advice by the Investment Adviser that new funds would allow the Fund
additional flexibility to capitalize on available investment opportunities
without the necessity of having to sell existing portfolio securities that the
Investment Adviser believes should be held. Proceeds from the Offer will allow
the Investment Adviser to better take advantage of such existing and future
investment opportunities.

The Board of Directors also considered that the Offer would provide
shareholders with an opportunity to purchase additional shares of the Fund below
its market price. The Board of Directors also believes that a well-subscribed
rights offering may result in certain economies of scale which could reduce the
Fund's expense ratio in future years. Finally, the Board of Directors considered
that, because the Subscription Price per Share may be less than the net asset
value per share on the Pricing Date, the Offer may result in dilution of the net
asset value per share. The Board of Directors believes that the factors in favor
of the Offer outweigh this possible dilution. See "Risk Factors and Special
Considerations -- Dilution and Effect of Non-Participation in the Offer."

The Fund's Investment Adviser and Administrator will benefit from the Offer
because their fees are based on the average net assets of the Fund. It is not
possible to state precisely the amount of additional compensation the Investment
Adviser or Administrator will receive as a result of the Offer because it is not
known how many Shares will be subscribed for and because the proceeds of the
Offer will be invested in additional portfolio securities, which will fluctuate
in value. See "Management of the Fund."

4
<PAGE> 9

The information agent (the "Information Agent") for the Offer is:

(LOGO)
Banks and Brokers Call Collect:
(212) 440-9800
All Others Call Toll-Free:
(800) 223-2064

Shareholders may also contact their brokers or nominees for information
with respect to the Offer.

IMPORTANT DATES TO REMEMBER

<TABLE>
<CAPTION>
EVENT DATE
----- ----
<S> <C>
Record Date................................................. April 15, 1998
Subscription Period......................................... April 15, 1998 - May 8, 1998*
Expiration Date and Pricing Date............................ May 8, 1998*
Subscription Certificates and Payment for Shares Due+....... May 8, 1998*
Notice of Guaranteed Delivery Due+.......................... May 8, 1998*
Subscription Certificates and Payment for Guarantees of
Delivery Due.............................................. May 13, 1998*
Confirmation to Participants................................ May 20, 1998*
Final Payment for Shares.................................... June 4, 1998*
</TABLE>

- ---------------
* Unless the Offer is extended to a date not later than May 15, 1998.

+ A shareholder exercising Rights must deliver by the Expiration Date either (i)
the Subscription Certificate together with payment or (ii) a Notice of
Guaranteed Delivery.

RISK FACTORS AND SPECIAL CONSIDERATIONS

The following summarizes certain matters that should be considered, among
others, in connection with the Offer. This Prospectus contains certain
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of certain uncertainties
set forth below and elsewhere in this Prospectus.

Dilution -- Net Asset Value
and Non-Participation
in the Offer............. Record Date Shareholders who do not fully exercise
their Rights will, upon the completion of the
Offer, own a smaller proportional interest in the
Fund than they owned prior to the Offer. In
addition, an immediate dilution of the net asset
value per share may be experienced by all
shareholders as a result of the Offer because the
Subscription Price may be less than the then
current net asset value per share, and the number
of shares outstanding after the Offer may increase
in greater percentage than the increase in the size
of the Fund's assets. Although it is not possible
to state precisely the amount of such decrease in
net asset value per share, if any, because it is
not known at this time what the Subscription Price
will be, what the net asset value per share will be
on the Expiration Date, or what proportion of the
Shares will be subscribed for, such dilution could
be minimal or substantial. For example, assuming
(i) all Rights are exercised, (ii) the Fund's net
asset value on the Expiration Date is $13.23 per
share (the net asset value per share on

5
<PAGE> 10

April 13, 1998), and (iii) the Subscription Price
is $12.59 per share (95% of the last reported sale
price per share on the NYSE on April 13, 1998),
then the Fund's net asset value per share would be
reduced by approximately $0.15 per share or 1.13%.

Certain Investment
Strategies................. The extent of the Fund's investment in equity
securities will be determined primarily on the
basis of market timing techniques developed by Dr.
Martin E. Zweig, the President of the Fund's
Investment Adviser, and his staff. While the
Investment Adviser seeks to reduce the risks
associated with investing in equity securities by
using these techniques, the risk of investment in
equity securities cannot be eliminated. There is no
assurance that these market timing techniques will
provide protection from the risks of equity
investment, enable the Fund to be invested
consistent with the major trends of the market or
enable the Fund to achieve its investment objective
of capital appreciation. See "Investment Objective
and Policies -- Investment Objective." In addition,
although the Investment Adviser believes that the
special investment methods discussed in this
Prospectus under "Special Investment Methods"
(including purchasing and selling, for hedging
purposes, stock index and other futures contracts
and purchasing options on such futures; purchasing
and writing listed put and call security options
and options on stock indexes; short sales of
securities; borrowing from banks to purchase
securities; investing in securities of closed-end
investment companies and foreign issuers; and
lending portfolio securities to brokers, dealers,
banks or other recognized institutional borrowers
of securities) will further the Fund's investment
objective of capital appreciation and reduce losses
that might otherwise occur during a time of general
decline in stock prices, no assurance can be given
that these investment methods will achieve this
result. These methods may subject an investor in
the Fund to greater than average risks and costs.

Unrealized Appreciation.... As of December 31, 1997, there was $119,601,576 or
approximately $2.27 per share of net unrealized
appreciation in the Fund's net assets of
$666,365,791; if realized and distributed, or
deemed distributed, such gains would, in general,
be taxable to shareholders, including holders at
that time of Shares acquired upon the exercise of
Rights. See "Taxation."

Discount From
Net Asset Value.......... The Fund's shares of Common Stock have traded in
the market above, at and below net asset value
since the commencement of the Fund's operations in
October 1986. During the past nine years, the
Fund's shares have generally traded in the market
at a premium above net asset value; however, the
Fund cannot predict whether the Fund's Common Stock
will in the future trade at a premium to or
discount from net asset value. The risk of the
Common Stock trading at a discount is a risk
separate from a decline in the Fund's net asset
value. See "Market Price and Net Asset Value
Information" in this Prospectus and "Net Asset
Value" in the Statement of Additional Information
(the "SAI").

Distributions.............. The Fund's policy is to make quarterly
distributions equal to 2.5% of its net asset value
(10% on an annualized basis). If, for any quarterly
distribution, net investment income and net
realized short-term capital gains are less than the
amount of the distribution, the difference will be
distributed from the Fund's assets. The Fund's
final distribution for each
6
<PAGE> 11

calendar year will include any remaining net
investment income and net realized short-term
capital gains deemed, for Federal income tax
purposes, undistributed during the year, and may,
but need not, include all net long-term capital
gains realized during the year. If, for any
calendar year, the total distributions exceed net
investment income and net realized capital gains,
the excess, distributed from the Fund's assets,
will generally be treated as a tax-free return of
capital (up to the amount of the shareholder's tax
basis in his or her shares). The amount treated as
a tax-free return of capital will reduce a
shareholder's adjusted basis in his or her shares,
thereby increasing his or her potential gain or
reducing his or her potential loss on the sale of
his or her shares. Such excess, however, will be
treated as ordinary dividend income up to the
amount of the Fund's current and accumulated
earnings and profits. Pursuant to the requirements
of the 1940 Act and other applicable laws, a notice
will accompany each quarterly distribution with
respect to the estimated source of the distribution
made. Such distribution policy may, under certain
circumstances, have certain adverse consequences to
the Fund and its shareholders. In the event the
Fund distributes amounts in excess of its net
investment income and net realized capital gains,
such distributions will decrease the Fund's total
assets and, therefore, have the likely effect of
increasing the Fund's expense ratio. In addition,
in order to make such distributions, the Fund may
have to sell a portion of its investment portfolio
at a time when independent investment judgment
might not dictate such action.

Anti-takeover Provisions... The Fund has provisions in its Articles of
Incorporation and By-Laws that may have the effect
of limiting the ability of other entities or
persons to acquire control of the Fund, to cause it
to engage in certain transactions or to modify its
structure. The Board of Directors is divided into
three classes. At the annual meeting of
shareholders each year, the term of one class will
expire and directors will be elected to serve in
that class for terms of three years. This provision
could delay for up to two years the replacement of
a majority of the Board of Directors.

Year 2000 Preparedness..... Because computers were designed only using two
fields to indicate the year, at midnight December
31, 1999, computers will be unable to recognize
that January 1 is the year 2000. The major systems
that would impact the Fund with respect to the year
2000 are those of the transfer agent and custodian.
The Fund has been advised in writing by both the
transfer agent and custodian that they are working
to fix, and expect to have fixed in time, all of
the issues relating to the year 2000. While
management of the Fund will continue to monitor the
progress of the transfer agent and custodian in
solving the year 2000 problem, no assurance can be
given that their systems will be fixed on time, or
what the magnitude of the problems would be if such
systems are not fixed.

7
<PAGE> 12

FUND EXPENSES

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of the Subscription Price per
Share)(1).............................................. 3.75%
ANNUAL EXPENSES (as a percentage of the Fund's net
assets)(2)
Advisory Fees............................................. 0.85%
Other Expenses............................................ 0.28%
----
Total Annual Expenses(3).................................... 1.13%
====
</TABLE>

- ---------------

(1) The Fund has agreed to pay the Dealer Manager, and other broker-dealers
(including Zweig Securities Corp.) soliciting the exercise of Rights,
solicitation fees equal to 2.50% of the Subscription Price per Share for
each Share issued pursuant to the exercise of the Rights and the
Over-Subscription Privilege. The Fund has also agreed to pay the Dealer
Manager a fee for financial advisory and marketing services in connection
with the Offer equal to 1.25% of the aggregate Subscription Price for the
Shares issued pursuant to the exercise of the Rights and the
Over-Subscription Privilege. In addition to these fees, the offering
expenses to be incurred by the Fund in connection with the Offer are
estimated at approximately $720,000, which includes the Fund's reimbursement
to the Dealer Manager for out-of-pocket expenses up to $82,500, and the
Fund's payment of a fee to each of the Subscription Agent (as defined in
this Prospectus) and Information Agent (as defined in this Prospectus)
estimated to be $335,000 and $41,500, respectively (which includes
reimbursement for their out-of-pocket expenses related to the Offer). These
fees and expenses will be charged against paid-in capital of the Fund and
will be borne by the Fund and indirectly by all of the Fund's shareholders,
including those who do not exercise their Rights. See "Distribution
Arrangements."

(2) Fees payable under the Investment Advisory Agreement and Administration
Agreement (as defined in this Prospectus) are calculated on the basis of the
Fund's average net assets. "Other Expenses" have been estimated for the
current fiscal year. See "Management of the Fund -- Investment
Adviser; -- Investment Advisory Agreement; and -- Administrator."

(3) The indicated 1.13% expense ratio assumes that the Offer (including the
Over-Subscription Privilege) is fully subscribed and assumes estimated net
proceeds from the Offer of approximately $91,392,000 million (assuming an
estimated Subscription Price of $12.59 per share). Other expenses for the
fiscal year ended December 31, 1997 were 0.31% as a percentage of average
net assets and include administration fees computed at the annual rate of
0.13% of the Fund's average net assets.

THE FOREGOING FEE TABLE IS INTENDED TO ASSIST FUND INVESTORS IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND WILL
BEAR DIRECTLY OR INDIRECTLY.

EXAMPLE

An investor would directly or indirectly pay the following expense on a
$1,000 investment in the Fund, assuming a 5% annual return throughout the
periods:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C>
$49 $72 $97 $170
</TABLE>

This hypothetical example assumes that all dividends and other
distributions are reinvested at net asset value and that the 1.13% expense ratio
listed under Total Annual Expenses remains the same in the years shown. The
example also reflects payment of the 3.75% Sales Load on the entire $1,000
investment. The above tables and the assumption in the Example of a 5% annual
return are required by regulations of the Securities and Exchange Commission
(the "Commission") applicable to all investment companies; the assumed 5% annual
return is not a prediction of, and does not represent, the projected or actual
performance of the Fund's Shares. For a more complete description of certain of
the Fund's costs and expenses, see "Management of the Fund -- Investment
Management; -- Investment Advisory Agreement; and -- Administrator" in this
Prospectus and "Expenses" and "Portfolio Transactions and Brokerage" in the SAI.

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
THE FUND'S ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

8
<PAGE> 13

FINANCIAL HIGHLIGHTS

The table below sets forth certain specified information for a share of the
Fund's Common Stock outstanding throughout each period presented. This
information is derived from the financial and accounting records of the Fund.
The financial highlights for the five fiscal years ended December 31, 1997 have
been audited by Coopers & Lybrand L.L.P., independent accountants, whose reports
thereon were unqualified. The report of independent accountants has been
included in the SAI. This information should be read in conjunction with the
financial statements and notes thereto included in the SAI.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of year..... $ 11.45 $ 11.06 $ 10.33 $ 11.68 $ 11.36 $ 12.40 $ 10.48
-------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income................ 0.35 0.34 0.39 0.24 0.13 0.20 0.26
Net realized and
unrealized
gains(losses) on
investments........... 2.03 1.15 1.41 (0.45) 1.41 (0.10) 2.78
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations............ 2.38 1.49 1.80 (0.21) 1.54 0.10 3.04
-------- -------- -------- -------- -------- -------- --------
Dividends and
Distributions:
Dividends from net
investment income..... (0.31) (0.30) (0.51) (0.03) (0.22) (0.10) (0.30)
Distributions from net
realized gains on
investments........... (0.89) (0.80) (0.56) (1.11) (1.00) (1.04) (0.82)
-------- -------- -------- -------- -------- -------- --------
Total Dividends and
Distributions......... (1.20) (1.10) (1.07) (1.14) (1.22) (1.14) (1.12)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end
of year............. $ 12.63 $ 11.45 $ 11.06 $ 10.33 $ 11.68 $ 11.36 $ 12.40
======== ======== ======== ======== ======== ======== ========
Market value, end of
year*............... $ 13.25 $ 10.875 $ 11.25 $ 10.375 $ 13.75 $ 13.00 $ 13.75
======== ======== ======== ======== ======== ======== ========
Total investment
return................ 34.76% 6.92% 19.83% (16.95)% 16.59% 3.61% 37.42%
======== ======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in thousands)........ $666,366 $589,081 $547,886 $492,004 $534,813 $500,101 $526,252
Ratio of expenses to
average net assets.... 1.16% 1.18% 1.22% 1.25% 1.23% 1.26% 1.28%
Ratio of net investment
income to average net
assets................ 2.88% 3.12% 3.62% 2.24% 1.18% 1.73% 2.37%
Portfolio turnover
rate.................. 93.0% 137.2% 160.2% 257.0% 235.5% 172.5% 144.3%
Average commission rate
per share on portfolio
transactions.......... $0.0589 $0.0591 $0.0606 N/A N/A N/A N/A

<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of year..... $ 11.43 $ 10.35 $ 9.73
-------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income................ 0.47 0.52 0.33
Net realized and
unrealized
gains(losses) on
investments........... (0.24) 1.68 1.33
-------- -------- --------
Total from investment
operations............ 0.23 2.20 1.66
-------- -------- --------
Dividends and
Distributions:
Dividends from net
investment income..... (0.49) (0.52) (0.25)
Distributions from net
realized gains on
investments........... (0.69) (0.60) (0.79)
-------- -------- --------
Total Dividends and
Distributions......... (1.18) (1.12) (1.04)
-------- -------- --------
Net asset value, end
of year............. $ 10.48 $ 11.43 $ 10.35
======== ======== ========
Market value, end of
year*............... $ 11.00 $ 12.375 $ 10.375
======== ======== ========
Total investment
return................ (1.20)% 32.10% 27.76%
======== ======== ========
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in thousands)........ $389,816 $408,864 $356,775
Ratio of expenses to
average net assets.... 1.27% 1.31% 1.39%
Ratio of net investment
income to average net
assets................ 4.39% 4.68% 3.38%
Portfolio turnover
rate.................. 201.8% 183.6% 205.7%
Average commission rate
per share on portfolio
transactions.......... N/A N/A N/A
</TABLE>

- ---------------
* Closing Price -- New York Stock Exchange.

9
<PAGE> 14

THE OFFER

TERMS OF THE OFFER

The Fund is issuing to the Record Date Shareholders the Rights to subscribe
for up to an aggregate of 7,600,000 Shares. The Fund may increase the number of
Shares subject to subscription by up to 25% of the Shares, or up to an
additional 1,900,000 shares, for an aggregate total of 9,500,000 shares. Each
Record Date Shareholder is being issued one Right for each whole share of Common
Stock owned on the Record Date. The Rights entitle the holders thereof to
subscribe for one Share for every seven Rights held (1 for 7). Fractional shares
will not be issued upon the exercise of Rights. A Record Date Shareholder whose
total ownership is fewer than seven shares of Common Stock and, accordingly,
receives fewer than seven Rights will be able to subscribe for one Share upon
the exercise of all of such Rights received and, if he or she subscribes for one
Share, may subscribe for additional Shares pursuant to the Over-Subscription
Privilege. Record Date Shareholders who otherwise have remaining fewer than
seven Rights will not be able to purchase a Share upon the exercise of such
Rights and will not be entitled to receive any cash in lieu thereof, although
such Record Date Shareholders may subscribe for additional Shares pursuant to
the Over-Subscription Privilege.

Rights may be exercised at any time during the Subscription Period, which
commences on April 15, 1998 and ends at 5:00 p.m. New York City time, on May 8,
1998, unless extended by the Fund until 5:00 p.m., New York City time to a date
not later than May 15, 1998. See "-- Expiration of the Offer." The Rights are
evidenced by Subscription Certificates, which will be mailed to Record Date
Shareholders, except as discussed below under "Foreign Restrictions."

Any Record Date Shareholder who fully exercises all Rights issued to such
shareholder in the Primary Subscription will be entitled to subscribe for
additional Shares at the Subscription Price pursuant to the terms of the
Over-Subscription Privilege, as described below. Shares available, if any,
pursuant to the Over-Subscription Privilege are subject to allotment and may be
subject to increase, as is more fully discussed below under "Over-Subscription
Privilege." For purposes of determining the maximum number of Shares a
shareholder may acquire pursuant to the Offer, Record Date Shareholders whose
Shares are held of record by Cede or by any other depository or nominee will be
deemed to be the holders of the Rights that are issued to Cede or such other
depository or nominee on their behalf.

PURPOSE OF THE OFFER

10
<PAGE> 15

compensation the Investment Adviser or Administrator will receive as a result of
the Offer because it is not known how many Shares will be subscribed for and
because the proceeds of the Offer will be invested in additional portfolio
securities, which will fluctuate in value. See "Management of the Fund."

The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms that may or may not be similar to the Offer. Any such future rights
offerings will be made in accordance with the then applicable requirements of
the 1940 Act.

OVER-SUBSCRIPTION PRIVILEGE

To the extent Record Date Shareholders do not exercise all of the Rights
issued to them, any underlying Shares represented by such Rights will be offered
by means of the Over-Subscription Privilege to the Record Date Shareholders who
have exercised all of the Rights issued to them and who wish to acquire more
than the number of Shares to which they are entitled. Only Record Date
Shareholders who exercise all the Rights issued to them may indicate, on the
Subscription Certificate, which they submit with respect to the exercise of the
Rights issued to them, how many Shares they desire to purchase pursuant to the
Over-Subscription Privilege. If sufficient Shares remain after completion of the
Primary Subscription, all over-subscription requests will be honored in full. If
sufficient Shares are not available to honor all over-subscription requests, the
Fund may, at the discretion of the Board of Directors, issue shares of Common
Stock up to an additional 25% of the Shares available pursuant to the Offer, or
1,900,000 additional shares of Common Stock in order to cover such
over-subscription requests. Regardless of whether the Fund issues additional
shares pursuant to the Offer and to the extent Shares are not available to honor
all over-subscription requests, the available Shares will be allocated among
those who over-subscribe based on the number of Shares owned by them in the Fund
on the Record Date. The allocation process may involve a series of allocations
in order to assure that the total number of Shares available for
over-subscription is distributed on a pro rata basis. The Fund will not offer to
sell in connection with the Offer any Shares that are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.

SUBSCRIPTION PRICE

The Subscription Price for the Shares to be issued pursuant to the Offer
will be 95% of the average of the last reported sales price of a share of the
Fund's Common Stock on the NYSE on May 8, 1998 (the "Pricing Date") and the four
preceding business days. For example, if the average of the last reported sales
price on the NYSE on the Pricing Date and the four preceding business days of a
share of the Fund's Common Stock is $13.25, the Subscription Price will be
$12.59 (95% of $13.25). The Subscription Price may be higher or lower than the
net asset value per share.

The Fund announced the Offer before the commencement of trading on the NYSE
on February 27, 1998. The net asset value per share of Common Stock at the close
of business on February 26, 1998 and April 13, 1998, was $12.79 and $13.23,
respectively, and the last reported sales prices of a share of the Fund's Common
Stock on the NYSE on those dates was $13.25 and $13.25, respectively.

EXPIRATION OF THE OFFER

The Offer will expire at 5:00 p.m., New York City time, on May 8, 1998,
unless extended by the Fund until 5:00 p.m., New York City time to a date or
dates not later than May 15, 1998. The Rights will expire on the Expiration Date
and thereafter may not be exercised. Since the Expiration Date and the Pricing
Date will be the same date, Record Date Shareholders who decide to acquire
Shares in the Primary Subscription or pursuant to the Over-Subscription
Privilege will not know when they make such decision the purchase price of such
Shares. Any extension of the Offer will be followed as promptly as practicable
by announcement thereof. Such announcement shall be issued no later than 9:00
a.m., New York City time, on the next business day following the previously
scheduled Expiration Date. Without limiting the manner in which the Fund may
choose to make such announcement, the Fund will not, unless otherwise required
by law, have any obligation to publish, advertise or otherwise communicate any
such announcement other than by making a release to the Dow Jones News Service
or such other means of announcement as the Fund deems appropriate.

11
<PAGE> 16

METHOD OF EXERCISE OF RIGHTS

The Subscription Certificates, which evidence the Rights, will be mailed to
Record Date Shareholders or, if a Record Date Shareholder's shares of Common
Stock are held by Cede or any other depository or nominee on their behalf, to
Cede or such depository or nominee. Rights may be exercised by filling in
completely and signing the Subscription Certificate which accompanies this
Prospectus and mailing it in the envelope provided, or otherwise delivering the
completed and signed Subscription Certificate to the Subscription Agent,
together with payment in full for the Shares at the estimated payment price (the
"Estimated Payment Price") as described below under "Payment for Shares." Rights
may also be exercised by a Record Date Shareholder contacting his or her broker,
banker or trust company, which can arrange, on his or her behalf, to guarantee
delivery of payment (using a "Notice of Guaranteed Delivery") and of a properly
completed and executed Subscription Certificate. The broker, banker or trust
company may charge a fee for this service. Fractional Shares will not be issued.
A Record Date Shareholder whose total ownership is fewer than seven shares of
Common Stock and, accordingly, receives fewer than seven Rights will be able to
subscribe for one Share upon the exercise of all of such Rights received and, if
he or she subscribes for one Share, will be able to request additional Shares
pursuant to the terms of the Offer applicable to the Over-Subscription
Privilege. Record Date Shareholders who otherwise have remaining fewer than
seven Rights will not be able to purchase a Share upon the exercise of such
Rights but will be able to request additional Shares pursuant to the terms of
the Offer applicable to the Over-Subscription Privilege. Completed Subscription
Certificates must be received by the Subscription Agent prior to 5:00 p.m., New
York City time, on the Expiration Date (unless the guaranteed delivery
procedures are complied with as described below under "Payment for Shares") at
the offices of the Subscription Agent at the address set forth below.

Shareholders who Are Record Owners. Shareholders who are record owners can
choose between either option set forth under "Payment for Shares" below. If time
is of the essence, option (2), under "Payment for Shares" below, will permit
delivery of the Subscription Certificate and payment after the Expiration Date.

Shareholders whose Shares Are Held By A Nominee. Shareholders whose shares
are held by a nominee, such as a broker or trustee, must contact such nominee to
exercise their Rights. In that case, the nominee will complete the Subscription
Certificate on behalf of the investor and arrange for proper payment by one of
the methods set forth under "Payment for Shares" below.

Nominees. Nominees who hold shares of Common Stock for the account of
others must (to the extent required by applicable law) notify the beneficial
owners of such shares as soon as possible to ascertain such beneficial owners'
intentions and to obtain instructions with respect to the Rights. If the
beneficial owner so instructs, the nominee should complete the Subscription
Certificate and submit it to the Subscription Agent with the proper payment
described under "Payment for Shares" below.

INFORMATION AGENT

Any questions or requests for assistance may be directed to the Information
Agent at its telephone number and address listed below:

The Information Agent for the Offer is:

(LOGO)

Wall Street Plaza

New York, New York 10005

Banks and Brokers Call Collect:

(212) 440-9800

All Others Call Toll-Free:

(800) 223-2064

Shareholders may also contact their brokers or nominees for information
with respect to the Offer.

12
<PAGE> 17

The Information Agent will receive a fee estimated to be approximately
$41,500 including reimbursement for all out-of-pocket expenses related to the
Offer.

SUBSCRIPTION AGENT

The Subscription Agent is State Street Bank & Trust Co., which will receive
for its administrative, processing, invoicing and other services as subscription
agent, a fee estimated to be approximately $335,000 including reimbursement for
all out-of-pocket expenses related to the Offer. Signed Subscription
Certificates must be sent, together with payment at the Estimated Payment Price
for all Shares subscribed in the Primary Subscription and Over-Subscription
Privilege by one of the methods described below, prior to 5:00 p.m., New York
City time, on the Expiration Date. Alternatively, if using a Notice of
Guaranteed Delivery, the Notice of Guaranteed Delivery (see "Method of Exercise
of Rights" above) may also be sent by facsimile to (781) 794-6333, with the
originals to be sent promptly thereafter by one of the methods described below.
Facsimiles should be confirmed by telephone to (781) 794-6388.

(1) BY FIRST CLASS MAIL ONLY:

State Street Bank & Trust Company

Corporate Reorganization

P.O. Box 9049

Boston, MA 02205-9838

(2) BY HAND:

Securities Transfer & Reporting Services, Inc.

c/o State Street Bank & Trust Co.

55 Broadway, Third Floor

New York, NY 10006

(3) BY EXPRESS MAIL OR OVERNIGHT COURIER:

State Street Bank & Trust Co.

Corporate Reorganization

70 Campanelli Drive

Braintree, MA 02184

(4) GUARANTEE OF DELIVERY: FOR ELIGIBLE INSTITUTIONS ONLY:

The Notice of Guaranteed Delivery may also be sent by facsimile to (781)
794-6333, with the originals to be sent promptly thereafter by one of the
methods described above. Facsimiles should be confirmed by telephone to (781)
794-6388.

DELIVERY TO AN ADDRESS OTHER THAN ONE OF THE ADDRESSES LISTED ABOVE, OR
TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS LISTED ABOVE, WILL NOT
CONSTITUTE VALID DELIVERY.

PAYMENT FOR SHARES

Record Date Shareholders who acquire Shares in the Primary Subscription and
pursuant to the Over-Subscription Privilege may choose between the following
methods of payment:

(1) A Record Date Shareholder can send the Subscription Certificate
together with payment for the Shares acquired in the Primary Subscription
and for additional Shares subscribed for pursuant to the Over-Subscription
Privilege to the Subscription Agent. Payment should be calculated on the
basis of the Estimated Payment Price of $12.75 per Share for all Shares
requested. To be accepted, such payment, together with the executed
Subscription Certificate, must be received by the Subscription Agent at one
of the Subscription Agent's offices at the addresses set forth above prior
to 5:00 p.m., New York City time, on the Expiration Date. The Subscription
Agent will deposit all checks and money orders received by it prior to the
final payment date into a segregated interest-bearing account (which
interest will be paid to the Fund) pending proration and distribution of
the Shares. A PAYMENT PURSUANT TO THIS

13
<PAGE> 18

METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A
BANK LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO THE ZWEIG FUND, INC.
AND MUST ACCOMPANY A PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION
CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.

(2) Alternatively, a subscription will be accepted by the Subscription
Agent if, prior to 5:00 p.m., New York City time, on the Expiration Date,
the Subscription Agent has received a Notice of Guaranteed Delivery by
facsimile (telecopy) or otherwise from a bank, a trust company, or a NYSE
member firm guaranteeing delivery of (i) payment of the Estimated Payment
Price of $12.75 per share for the Shares subscribed for in the Primary
Subscription and for any additional Shares subscribed for pursuant to the
Over-Subscription Privilege, and (ii) a properly completed and executed
Subscription Certificate. The Subscription Agent will not honor a Notice of
Guaranteed Delivery unless a properly completed and executed Subscription
Certificate together with full payment is received by the Subscription
Agent by the close of business on the third business day after the
Expiration Date (May 13, 1998, unless the Offer is extended).

Within eight business days following the Expiration Date (May 20, 1998,
unless the Offer is extended, the "Confirmation Date"), a confirmation will be
sent by the Subscription Agent to each subscribing Record Date Shareholder (or,
if the Record Date Shareholder's shares of Common Stock are held by Cede or any
other depository or nominee, to Cede or such depository or nominee), showing (i)
the number of Shares acquired pursuant to the Primary Subscription, (ii) the
number of Shares, if any, acquired pursuant to the Over-Subscription Privilege,
(iii) the per Share and total purchase price of the Shares, and (iv) any
additional amount payable by such Record Date Shareholder to the Fund or any
excess to be refunded by the Fund to such Record Date Shareholder, in each case
based on the Subscription Price as determined on the Pricing Date. If any Record
Date Shareholder exercises his or her right to acquire Shares pursuant to the
Over-Subscription Privilege, any such excess payment which would otherwise be
refunded to the Record Date Shareholder will be applied by the Fund toward
payment for additional Shares acquired pursuant to exercise of the
Over-Subscription Privilege. Any additional payment required from a Record Date
Shareholder must be received by the Subscription Agent within ten business days
after the Confirmation Date. Any excess payment to be refunded by the Fund to a
Record Date Shareholder will be mailed by the Subscription Agent to such Record
Date Shareholder as promptly as possible. All payments by a Record Date
Shareholder must be in United States dollars by money order or check drawn on a
bank located in the United States of America and payable to THE ZWEIG FUND, INC.

Whichever of the two methods described above is used, issuance and delivery
of certificates for the Shares purchased are subject to collection of checks and
actual payment pursuant to any Notice of Guaranteed Delivery.

RECORD DATE SHAREHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION
AFTER RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT, EXCEPT AS
PROVIDED BELOW UNDER "NOTICE OF NET ASSET VALUE DECLINE."

If a Record Date Shareholder who acquires Shares pursuant to the Primary
Subscription or Over-Subscription Privilege does not make payment of any
additional amounts due by the tenth Business Day after the Confirmation Date,
the Fund reserves the right to take any or all of the following actions: (i)
sell such subscribed and unpaid-for Shares to other Record Date Shareholders,
(ii) apply any payment actually received by it toward the purchase of the
greatest whole number of Shares which could be acquired by such holder upon
exercise of the Primary Subscription or Over-Subscription Privilege, or (iii)
exercise any and all other rights or remedies to which it may be entitled.

THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE RIGHTS
HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND
PAYMENT BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE FUND AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR AND, MAY AT THE DISCRETION OF THE FUND, NOT BE ACCEPTED
IF NOT CLEARED PRIOR TO THE EXPIRATION DATE, YOU ARE STRONGLY ENCOURAGED TO PAY,
OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.

14
<PAGE> 19

All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Fund will not be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.

NOTICE OF NET ASSET VALUE DECLINE

The Fund has, pursuant to the Commission's regulatory requirements,
undertaken to suspend the Offer until it amends this Prospectus if, subsequent
to April 14, 1998, the effective date of the Fund's Registration Statement, the
Fund's net asset value declines more than 10% from its net asset value as of
that date. Accordingly, the Expiration Date would be extended and the Fund would
notify Record Date Shareholders of any such decline and permit them to cancel
their exercise of the Rights.

NON-TRANSFERABILITY OF RIGHTS

The Rights are non-transferable and, therefore, may not be purchased or
sold. The Rights will not be listed for trading on the NYSE, PCX or any other
exchange. However, the additional Shares of Common Stock to be issued upon the
exercise of the Rights and the Over-Subscription Privilege will be listed for
trading on the NYSE and PCX, subject to notice of issuance.

DELIVERY OF SHARE CERTIFICATES

Stock certificates for all Shares acquired in the Primary Subscription will
be mailed promptly after the expiration of the Offer and full payment for the
subscribed Shares has been received and cleared. Certificates representing
Shares acquired pursuant to the Over-Subscription Privilege will be mailed as
soon as practicable after full payment has been received and cleared and all
allocations have been effected. Participants in the Fund's Distribution
Reinvestment and Cash Purchase Plan (the "Plan") will have any Shares acquired
in the Primary Subscription and pursuant to the Over-Subscription Privilege
credited to their shareholder distribution reinvestment accounts in the Plan.
Participants in the Plan wishing to exercise Rights for the shares of Common
Stock held in their accounts in the Plan must exercise them in accordance with
the procedures set forth above. Record Date Shareholders whose shares of Common
Stock are held of record by Cede or by any other depository or nominee on their
behalf or their broker-dealers' behalf will have any Shares acquired in the
Primary Subscription credited to the account of Cede or such other depository or
nominee. Shares acquired pursuant to the Over-Subscription Privilege will be
credited directly to Cede or such other depository or nominee.

FOREIGN RESTRICTIONS

Record Date Shareholders whose record addresses are outside the United
States (for these purposes, the United States includes its territories and
possessions and the District of Columbia) will receive written notice of the
Offer; however, Subscription Certificates will not be mailed to such
shareholders. The Rights to which those Subscription Certificates relate will be
held by the Subscription Agent for such foreign Record Date Shareholders'
accounts until instructions are received in writing with payment to exercise the
Rights. If no such instructions are received by the Expiration Date, such Rights
will expire.

15
<PAGE> 20

FEDERAL INCOME TAX CONSEQUENCES

The U.S. Federal income tax consequences to holders of Common Stock with
respect to the Offer will be as follows:

For Federal income tax purposes, the distribution of Rights will not result
in taxable income to a shareholder nor will the shareholder recognize gain or
loss as a result of the exercise of the Rights. No loss will be recognized by a
shareholder if the Rights expire without exercise.

The tax basis of a U.S. shareholder's Common Stock will remain unchanged
and the shareholder's basis in the Rights will be zero, unless such U.S.
shareholder affirmatively and irrevocably elects (in a statement attached to
such shareholder's U.S. Federal income tax return for the year in which the
Rights are received) to allocate the basis in the Common Stock between such
Common Stock and the Rights in proportion to their respective fair market values
on the date of distribution.

If Rights are exercised by the holder of Common Stock, the basis of the
Common Stock received will equal the Subscription Price (plus any basis
allocated to the Rights in the manner described in the preceding paragraph). For
purposes of determining whether capital gain or loss recognized upon a
subsequent sale of the Common Stock acquired upon exercise of a Right (assuming
the Common Stock is held as a capital asset) is short-term, mid-term or
long-term, the holding period of the Common Stock so acquired will begin on the
date the Right is exercised.

The foregoing is only a general summary of the applicable U.S. Federal
income tax law and does not include any state, local or foreign tax consequences
of the Offer. Such applicable U.S. Federal income tax law is subject to change
by legislative or administrative action. Shareholders should consult their tax
advisers concerning the tax consequences of the Offer. See "Taxation" in this
Prospectus and in the SAI.

EMPLOYEE PLAN CONSIDERATIONS

Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including
corporate savings and 401(k) plans), Keogh or H.R. 10 plans of self-employed
individuals and Individual Retirement Accounts ("IRAs") (collectively, "Plans")
should be aware of the complexity of the rules and regulations governing Plans
and the penalties for noncompliance, and Plans should consult with their counsel
regarding the consequences of their exercise of Rights under ERISA and the
Internal Revenue Code of 1986, as amended (the "Code").

USE OF PROCEEDS

If all of the Rights are exercised in full and assuming a Subscription
Price of $12.59 per share (95% of the last reported sales price per share on the
NYSE on April 13, 1998), the net proceeds to the Fund would be approximately
$91,392,000, after deducting expenses payable by the Fund, including the fees
and expenses of the Dealer Manager and soliciting broker-dealers and other
offering expenses estimated to total $720,000. If the Fund increases the number
of Shares subject to subscription by up to 1,900,000 Shares, in order to satisfy
over-subscription requests, the additional net proceeds will be approximately
$23,028,000. However, there can be no assurance that all Rights will be
exercised in full, and the Subscription Price will not be determined until the
close of business on the Expiration Date. The Investment Adviser has advised the
Fund that it anticipates that the net proceeds of the Offer will be invested in
investments conforming to the Fund's investment objective and policies within a
week from their receipt by the Fund, but in no event will such investment take
longer than six months from the Expiration Date. Pending such investment, the
proceeds will be invested in cash or cash equivalent short-term obligations
including, but not limited to, U.S. Government obligations, certificates of
deposit, commercial paper and short-term notes. See "The Offer -- Purpose of the
Offer."

16
<PAGE> 21

THE FUND

The Fund, incorporated in Maryland on June 30, 1986, is a diversified,
closed-end management investment company registered under the 1940 Act. The
Fund's investment objective is capital appreciation, primarily through
investment in equity securities, consistent with the preservation of capital and
reduction of risk, as determined by the Fund's Investment Adviser. The extent of
the Fund's investment in equity securities will be determined primarily on the
basis of market timing techniques developed by Dr. Martin E. Zweig, the
President of the Fund's Investment Adviser, and his staff. While the Investment
Adviser seeks to reduce the risks associated with investing in equity securities
by using these techniques, the risk of investment in equity securities cannot be
eliminated. See "Investment Objective and Policies." No assurance can be given
that the Fund's investment objective will be realized.

The Fund's Investment Adviser, Zweig Advisors Inc., is a Delaware
corporation. The President and majority shareholder of the Investment Adviser is
Dr. Zweig, who has been engaged in the business of providing investment advisory
services for over 25 years. The Investment Adviser is registered with the
Commission under the Investment Advisers Act of 1940, as amended. Such
registration does not involve supervision or approval by the Commission of
investment advice rendered by the Investment Adviser. See "Management of the
Fund."

The Fund completed an initial public offering of 34,010,696 shares of its
Common Stock in October 1986. The net proceeds to the Fund from such offering
were approximately $317,282,208. As of April 13, 1998, the net assets of the
Fund were $703,800,000, and since inception, the Fund has paid distributions
(including dividends and capital gains distributions) aggregating $533,715,546.
The increase in the Fund's net assets since inception is attributable primarily
to appreciation in the value of its portfolio securities and the receipt of net
proceeds of $44.6 million from the Fund's August 1991 rights offering.

The Fund's principal office is located at 900 Third Avenue, New York, New
York 10022, and its telephone number is (212) 451-1100.

MARKET PRICE AND NET ASSET VALUE INFORMATION

Shares of the Fund's Common Stock are listed on the NYSE and the PCX under
the symbol "ZF." The following table sets forth for the Common Stock for the
calendar quarters indicated: (i) the high and low net asset value per share of
the Common Stock of the Fund, (ii) the high and low closing prices on the NYSE
per share of Common Stock of the Fund, and (iii) the percentage by which the
shares of Common Stock of the Fund traded at a premium over, or discount from,
the Fund's high and low net asset values per share.

<TABLE>
<CAPTION>
HIGH NET ASSET PREMIUM LOW NET ASSET PREMIUM
QUARTER ENDED SALES PRICE* VALUE (DISCOUNT) SALES PRICE* VALUE (DISCOUNT)
------------- ------------ --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
3/31/96...................... $11.250 $10.80 4.17% $10.875 $11.10 (2.03)%
6/30/96...................... 11.375 11.24 1.20 11.000 10.79 1.95
9/30/96...................... 11.125 10.85 2.53 10.625 10.40 2.16
12/31/96..................... 11.250 10.99 2.37 10.750 11.38 (5.54)
3/31/97...................... 11.375 11.65 (2.36) 10.750 11.41 (5.78)
6/30/97...................... 12.250 12.17 0.66 11.000 10.89 1.01
9/30/97...................... 13.313 13.09 1.70 12.063 12.29 (1.85)
12/31/97..................... 13.813 13.35 3.46 12.188 11.98 1.73
3/31/98...................... 13.875 13.43 3.31 13.000 11.71 11.02
</TABLE>

- ---------------

* As reported by the NYSE.

17
<PAGE> 22

Pricing Date. In June 1987, the Fund established a policy of making quarterly
distributions equal to 2.5% of its net asset value (10% on an annualized basis).
The Fund's officers believe that such policy may be partly responsible for the
Fund's shares generally trading in the market at a premium above net asset value
in recent years; however, the Fund's officers cannot predict whether the Fund's
shares in the future will generally trade in the market at a premium above net
asset value. See "Distributions; Distribution Reinvestment and Cash Purchase
Plan." The Fund is authorized to repurchase its shares on the open market when
the shares are trading at a discount of 10% or more from net asset value. During
the period from April 15, 1987 through August 28, 1987, the Fund repurchased an
aggregate of 343,100 shares of its Common Stock at prices per share ranging from
$9.00 to $10.00 in transactions effected on the NYSE pursuant to authorization
by the Fund's Board of Directors. Such repurchases were effected at the then
prevailing market rate, and were not financed with any borrowings. See
"Description of Common Stock -- Repurchase of Shares."

On April 13, 1998, the net asset value per share of Common Stock was $13.23
and the last reported sales price was $13.25, representing a premium from net
asset value per share of 0.15%.

INVESTMENT OBJECTIVE AND POLICIES

INVESTMENT OBJECTIVE

The Fund's investment objective is capital appreciation, primarily through
investment in equity securities, consistent with the preservation of capital and
reduction of risk, as determined by the Fund's Investment Adviser. The extent of
the Fund's investment in equity securities will be determined primarily on the
basis of market timing techniques developed by Dr. Martin E. Zweig, the
President of the Fund's Investment Adviser, and his staff. While the Investment
Adviser seeks to reduce the risks associated with investing in equity securities
by using these techniques, the risk of investment in equity securities cannot be
eliminated. In an effort to meet the Fund's investment objective, the Fund may
use the following investment methods when such use is deemed appropriate:
purchasing and selling, for hedging purposes, stock index and other futures
contracts and purchasing options on such futures; purchasing and writing listed
put and call security options and options on stock indexes; short sales of
securities; borrowing from banks to purchase securities; investing in securities
of closed-end investment companies and foreign issuers; and lending portfolio
securities to brokers, dealers, banks or other recognized institutional
borrowers of securities. Debt securities which present opportunities for capital
appreciation may also be purchased. There is no assurance that the Fund will
achieve its investment objective. The Fund's investment objective may not be
changed without the approval of a majority of the Fund's outstanding securities.
As used in this Prospectus, the term "majority of the Fund's outstanding voting
securities" means the lesser of either (i) 67% of the shares represented at a
shareholders meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (ii) more than 50% of the
outstanding shares.

INVESTMENT POLICIES

The Investment Adviser expects that the stocks in the Fund's portfolio will
be widely diversified by both industry and the number of issuers. The Investment
Adviser expects that a majority of the stocks in the Fund's portfolio will be
selected on the basis of a proprietary computer-driven stock selection model
that evaluates and ranks higher dividend yield stocks. The Investment Adviser
will consider, from a list of approximately 1,500 of the most liquid stocks,
approximately 750 stocks with the highest dividend yields. The Investment
Adviser will then use, for the selection of stocks, a proprietary stock
selection model that evaluates and ranks such higher dividend yield stocks on
the basis of various factors, which may include earnings momentum, earnings
growth, price-to-book value, price-to-earnings, price-to-cash flow, cash flow
trend, payout ratio trend and other market measurements. This stock selection
model may evolve or be replaced by other stock selection models intended to
achieve the Fund's investment objective.

In determining the extent of the Fund's investment in equity securities,
the Investment Adviser will rely primarily on market timing techniques developed
by Dr. Zweig and his staff. It is expected that the Investment Adviser will make
most of the decisions with respect to the extent of the Fund's investment in

18
<PAGE> 23

equity securities based on these techniques. These techniques, which seek to
identify the risks and trends in the equity markets at any given time, include
general market indicators, including interest rate and monetary analysis, market
sentiment indicators, price and trading volume statistics, and measures of
valuation, as well as other market indicators and statistics which the
Investment Adviser believes tend to point to significant trends in the overall
performance and the risk of the stock market. These techniques are not an all-in
or all-out approach that attempts to predict market tops and bottoms. Instead,
they are intended to be a gradual and disciplined approach that reacts to
changes in risk levels as determined by the indicators. The goal is to be
invested consistent with the major trends of the market. There is no assurance
that these market timing techniques will provide protection from the risks of
equity investment, enable the Fund to be invested consistent with the major
trends of the market or enable the Fund to achieve its investment objective.

The Investment Adviser expects that at least 65% of the Fund's net assets
will consist of equity securities, including convertible securities and
warrants, with any balance composed of cash, investments in money market
instruments, non-convertible debt securities, short sales, security and stock
index options and futures contracts and options on futures contracts. However,
if the Investment Adviser believes, in its judgment, on the basis of its market
timing techniques, that the investment environment is uncertain or unfavorable
and justifies a defensive position (during the period of such uncertainty), a
substantially lower percentage than 65% of the Fund's net assets, during the
existence of such circumstances, may consist of equity securities. If the
Investment Adviser so believes that the investment environment is particularly
uncertain or unfavorable and justifies such a defensive position, then little,
if any, of the Fund's assets, during the existence of such circumstances, may
consist of equity securities, with the balance of the Fund's assets held in cash
or investments in money market instruments. The Investment Adviser expects that
the Fund will be fully invested in equity securities only when the Investment
Adviser believes that there is very low risk in the stock market. The money
market instruments in which the Fund may invest are securities issued or
guaranteed by the U.S. Treasury or U.S. Government, or its agencies or
instrumentalities ("U.S. Government Securities"), commercial paper rated A-1 or
higher by Standard & Poor's Corporation ("S&P") or Prime-1 or higher by Moody's
Investors Service, Inc. ("Moody's"). If such commercial paper is not rated, it
will be issued by companies that have an outstanding debt issue rated Aa or
higher by Moody's or AA or higher by S&P, and certificates of deposit, bankers'
acceptances and other short-term obligations issued by domestic branches of U.S.
banks that are insured by the Federal Deposit Insurance Corporation and have
assets in excess of $500 million.

The Fund may also invest in bonds or other forms of debt instruments that
appear to present opportunities for capital appreciation through anticipated or
potential decreases in interest rates or market recognition of improved
creditworthiness. These instruments may include U.S. Government Securities, as
well as other bonds or forms of fixed-income securities. The Investment Adviser
will select debt securities primarily on the basis of certain monetary analysis
techniques and indicators. Non-convertible debt securities other than U.S.
Government Securities will be limited to those that are rated, as of the date of
purchase, among the four highest rating categories of Moody's (Aaa, Aa, A and
Baa for bonds) or S&P (AAA, AA, A and BBB for bonds), or if not rated by either
of them, determined by the Investment Adviser to be of comparable quality. The
Fund does not currently own, and has no current plans to acquire, any bonds
which are rated Baa or lower by Moody's or BBB or lower by S&P.

SPECIAL INVESTMENT METHODS

The Fund may make frequent use of some or all of the following special
investment methods where their use appears appropriate to the Investment
Adviser. The investment methods described below are subject to, and should be
read in conjunction with, the discussion under "Investment Restrictions" and
"Investment Objective and Policies" in the SAI. The restrictions set forth under
"Investment Restrictions" are fundamental, and thus may be changed only with the
approval of a majority of the Fund's outstanding voting securities.

Futures Contracts and Related Options. The Fund may purchase and sell stock
index futures contracts and futures contracts based upon interest rates and
other financial instruments, and purchase options on such contracts. The Fund
will not write options on any futures contracts. Such investments may be made by
the Fund for the purpose of hedging against the effect that changes in general
market conditions and conditions
19
<PAGE> 24

affecting particular industries may have on the values of securities held in the
Fund's portfolio, or which the Fund intends to purchase.

In general, the Fund will establish short positions in (sell) futures
contracts to hedge against anticipated or potential declines in the market value
of the Fund's portfolio of securities. For example, when the Fund anticipates a
general market or market sector decline that may adversely affect the market
value of the Fund's portfolio securities, it may establish short positions in
stock index futures contracts.

Where the Fund anticipates a significant market or market sector advance,
establishing long positions in (purchasing) stock index futures contracts ("long
hedge") affords a hedge against not participating in such advance at a time when
the Fund is not fully invested. Such long hedges would serve as a temporary
substitute for the purchase of individual stocks, which may then be purchased in
an orderly fashion. As purchases of stock are made, an amount of stock index
futures contracts which is comparable to the amount of stock purchased may be
terminated by offsetting closing sales transactions.

There are certain risks associated with the use of futures contracts and
related options. The low margin normally required in such trading provides a
large amount of leverage. Thus, a relatively small change in the price of a
contract can produce a disproportionately large profit or loss, and the Fund may
gain or lose substantially more than the initial margin on a trade. Although the
Fund intends to purchase or sell futures which appear to have an active market,
there is no assurance that a liquid market will exist for any particular
contract at any particular time. Thus, it may not be possible to close a futures
position in anticipation of adverse price movements. In addition, there may be
an imperfect correlation between the price movements of the futures contracts
and price movements of the portfolio securities being hedged.

Security and Stock Index Options. The Fund may purchase and write listed
put and call options on securities and on stock indexes that are traded on U.S.
securities exchanges at such times as the Investment Adviser deems appropriate
and consistent with the Fund's investment objective. In general, the Fund will
purchase or write such options to hedge against anticipated or potential
declines in the market value of the Fund's portfolio of securities, or to
facilitate the rapid implementation of investment strategies if the Fund
anticipates a significant market or market sector advance.

Borrowing. Although the Fund has not done so in the past, the Fund may
from time to time increase its ownership of securities above the amounts
otherwise possible by borrowings from banks on an unsecured basis and investing
the borrowed funds. In addition, the Fund may borrow to finance share repurchase
transactions when the shares are trading at a discount of 10% or more from net
asset value. See "Description of Common Stock -- Repurchase of Shares." Any such
borrowing will be made only from banks, and pursuant to the requirements of the
1940 Act, will only be made to the extent that the value of the Fund's total
assets, less its liabilities other than borrowings, is equal to at least 300% of
all borrowings including the proposed borrowing.

Borrowing for investment and to finance share repurchase transactions
increases both investment opportunity and investment risk. Since substantially
all of the Fund's assets will fluctuate in value, but the obligation resulting
from the borrowing is relatively fixed, the Fund's shares will increase in value
more when the Fund's assets increase in value and decrease more when the Fund's
assets decrease in value than would otherwise be the case. In addition, the cost
of borrowing may exceed the income or gain on any securities purchased with the
funds borrowed, in which case the Fund's net asset value will decline.

Closed-end Investment Companies. The Fund may also invest in closed-end
investment companies if the Investment Adviser believes that such investments
will further the Fund's investment objective. If the Fund purchases shares of
another investment company at a discount which subsequently declines, the
performance of such investment generally would be better than if the Fund had
purchased the underlying portfolio investments of such other investment company.
Such investments in other investment companies will constitute less than 10% of
the Fund's net assets.

Foreign Securities. The Fund may invest up to 20% of its net assets in
securities of foreign issuers. Investments in foreign securities offer potential
benefits not available through investment solely in securities of domestic
issuers. Foreign securities offer the opportunity to invest in foreign issuers
that appear to have growth potential, or in foreign countries with economic
policies or business cycles different from those of the United

20
<PAGE> 25

States, or to reduce fluctuations in portfolio value by taking advantage of
foreign markets that do not move in a manner parallel to United States markets.
The Fund may also enter into foreign currency transactions in connection with
its investment activity in foreign securities.

Short Sales. The Fund may from time to time make 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. The Fund may make
short sales to offset a potential decline in a long position or a group of long
positions, or if the Investment Adviser believes that a decline in the price of
a particular security or group of securities is likely. The Fund may also make
short sales in an attempt to maintain portfolio flexibility and facilitate the
rapid implementation of investment strategies if the Investment Adviser believes
that the price of a particular security or group of securities is likely to
decline.

The Fund may make a short sale only if, at the time the short sale is made
and after giving effect thereto, the market value of all securities sold short
is 25% or less of the value of its net assets and the market value of securities
sold short which are not listed on a national securities exchange does not
exceed 10% of the Fund's net assets.

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 where,
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. The
Fund would enter into such a transaction to defer a gain or loss for Federal
income tax purposes on the security owned by the Fund. Short sales against the
box are not subject to the collateral requirements described above or the
percentage limitations on short sales described above.

Lending Portfolio Securities. Although the Fund has not done so in the
past, the Fund may lend portfolio securities, generally on a short-term basis,
to brokers or dealers in corporate or governmental securities, banks or other
institutional borrowers of securities, and financial institutions as a means of
earning income. A borrower of securities from the Fund must maintain with the
Fund cash or U.S. Government Securities equal to at least 100% of the market
value of the securities borrowed. The Fund may not lend portfolio securities if
such loan would cause the aggregate amount of all outstanding securities loans
to exceed 20% of the current market value of the Fund's net assets. If a
borrower becomes bankrupt or defaults on its obligation to return the loaned
security, delays or losses could result.

21
<PAGE> 26

RISK FACTORS AND SPECIAL CONSIDERATIONS

The following discusses certain matters that should be considered, among
others, in connection with the Offer.

DILUTION -- NET ASSET VALUE AND NON-PARTICIPATION IN THE OFFER

Record Date Shareholders who do not fully exercise their Rights will, upon
the completion of the Offer, own a smaller proportional interest in the Fund
than they owned prior to the Offer. In addition, an immediate dilution of the
net asset value per share may be experienced by all shareholders as a result of
the Offer because the Subscription Price may be less than the then current net
asset value per share, and the number of shares outstanding after the Offer may
increase in greater percentage than the increase in the size of the Fund's
assets. Although it is not possible to state precisely the amount of such
decrease in net asset value per share, if any, because it is not known at this
time what the Subscription Price will be, what the net asset value per share
will be on the Expiration Date, or what proportion of the Shares will be
subscribed for, such dilution could be minimal or substantial. For example,
assuming (i) all Rights are exercised, (ii) the Fund's net asset value on the
Expiration Date is $13.23 per share (the net asset value per share on April 13,
1998), and (iii) the Subscription Price is $12.59 per share (95% of the last
reported sale price per share on the NYSE on April 13, 1998), then the Fund's
net asset value per share would be reduced by approximately $0.15 per share or
1.13%.

LEVERAGE AND BORROWING

As discussed above under "Special Investment Methods," the Fund is
authorized to borrow. The Fund has not borrowed money in the past, and does not
have any intention at this time to borrow money in the future. Borrowings create
an opportunity for greater capital appreciation with respect to the Fund's
investment portfolio, but at the same time such borrowing is speculative in that
it will increase the Fund's exposure to capital risk. In addition, borrowed
funds are subject to interest costs that may offset or exceed the return earned
on the borrowed funds.

CERTAIN INVESTMENT STRATEGIES

The extent of the Fund's investment in equity securities will be determined
primarily on the basis of market timing techniques developed by Dr. Zweig and
his staff. While the Investment Adviser seeks to reduce the risks associated
with investing in equity securities by using these techniques, the risk of
investment in equity securities cannot be eliminated. There is no assurance that
these market timing techniques will provide protection from the risks of equity
investment, enable the Fund to be invested consistent with the major trends of
the market or enable the Fund to achieve its investment objective of capital
appreciation.

In addition, although the Investment Adviser believes that the special
investment methods discussed above under "Special Investment Methods" (including
purchasing and selling, for hedging purposes, stock index and other futures
contracts and purchasing options on such futures; purchasing and writing listed
put and call security options and options on stock indexes; short sales of
securities; borrowing from banks to purchase securities; investing in securities
of closed-end investment companies and foreign issuers; and lending portfolio
securities to brokers, dealers, banks or other recognized institutional
borrowers of securities) will further the Fund's investment objective of capital
appreciation and reduce losses that might otherwise occur during a time of
general decline in stock prices, no assurance can be given that these investment
methods will achieve this result. These methods may subject an investor in the
Fund to greater than average risks and costs.

UNREALIZED APPRECIATION

As of December 31, 1997, there was $119,601,576 or approximately $2.27 per
share of net unrealized appreciation in the Fund's net assets of $666,365,791;
if realized and distributed, or deemed distributed, such gains would, in
general, be taxable to shareholders, including holders at that time of Shares
acquired upon the exercise of Rights. See "Taxation."

22
<PAGE> 27

DISCOUNT FROM NET ASSET VALUE

The Fund's Shares of Common Stock have traded in the market above, at and
below net asset value since the commencement of the Fund's operations in October
1986. During the past nine years, the Fund's shares have generally traded in the
market at a premium above net asset value; however, the Fund cannot predict
whether the Fund's Common Stock will in the future trade at a premium to or
discount from net asset value. The risk of the Common Stock trading at a
discount is a risk separate from a decline in the Fund's net asset value. See
"Market Price and Net Asset Value Information" in this Prospectus and "Net Asset
Value" in the SAI.

DISTRIBUTIONS

The Fund's policy is to make quarterly distributions equal to 2.5% of its
net asset value (10% on an annualized basis). If, for any quarterly
distribution, net investment income and net realized short-term capital gains
are less than the amount of the distribution, the difference will be distributed
from the Fund's assets. The Fund's final distribution for each calendar year
will include any remaining net investment income and net realized short-term
capital gains deemed, for Federal income tax purposes, undistributed during the
year, and may, but need not, include all net long-term capital gains realized
during the year. If, for any calendar year, the total distributions exceed net
investment income and net realized capital gains, the excess, distributed from
the Fund's assets, will generally be treated as a tax-free return of capital (up
to the amount of the shareholder's tax basis in his or her shares). The amount
treated as a tax-free return of capital will reduce a shareholder's adjusted
basis in his or her shares, thereby increasing his or her potential gain or
reducing his or her potential loss on the sale of his or her shares. Such
excess, however, will be treated as ordinary dividend income, and will not
reduce a shareholder's adjusted basis in his or her shares, up to the amount of
the Fund's current and accumulated earnings and profits. Pursuant to the
requirements of the 1940 Act and other applicable laws, a notice will accompany
each quarterly distribution with respect to the estimated source of the
distribution made. Such distribution policy may, under certain circumstances,
have certain adverse consequences to the Fund and its shareholders. In the event
the Fund distributes amounts in excess of its net investment income and net
realized capital gains, such distributions will decrease the Fund's total assets
and, therefore, have the likely effect of increasing the Fund's expense ratio.
In addition, in order to make such distributions, the Fund may have to sell a
portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. See "Distributions; Distribution
Reinvestment and Cash Purchase Plan" for a discussion of the Fund's distribution
policy.

ANTI-TAKEOVER PROVISIONS

The Fund has provisions in its Articles of Incorporation and By-Laws that
may have the effect of limiting the ability of other entities or persons to
acquire control of the Fund, to cause it to engage in certain transactions or to
modify its structure. The Board of Directors is divided into three classes. At
the annual meeting of shareholders each year, the term of one class will expire
and directors will be elected to serve in that class for terms of three years.
This provision could delay for up to two years the replacement of a majority of
the Board of Directors.

These provisions could have the effect of limiting shareholders'
opportunity to sell their shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. See "Description of Common Stock -- Special
Voting Provisions."

YEAR 2000 PREPAREDNESS

Because computers were designed only using two fields to indicate the year,
at midnight December 31, 1999, computers will be unable to recognize that
January 1 is the year 2000. The major systems that would impact the Fund with
respect to the year 2000 are those of the transfer agent and custodian. The Fund
has been advised in writing by both the transfer agent and custodian that they
are working to fix, and expect to have fixed in time, all of the issues relating
to the year 2000. While management of the Fund will continue to

23
<PAGE> 28

monitor the progress of the transfer agent and custodian in solving the year
2000 problem, no assurance can be given that their systems will be fixed on
time, or what the magnitude of the problems would be if such systems are not
fixed.

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

The management of the Fund, including general supervision of the duties
performed by the Investment Adviser under the Investment Advisory Agreement (as
described below), is the responsibility of the Fund's Board of Directors. For
certain information regarding the Directors and officers of the Fund, see
"Management -- Directors and Officers" in the SAI.

INVESTMENT ADVISER

The Fund's Investment Adviser, Zweig Advisors Inc., is a Delaware
corporation, with offices at 900 Third Avenue, New York, New York 10022. The
Investment Adviser was organized in May 1986 for the purpose of acting as
investment adviser to the Fund. Dr. Zweig owns a majority of the outstanding
shares of the Investment Adviser.

Pursuant to an investment advisory agreement between the Investment Adviser
and the Fund, dated September 25, 1986 ("the Investment Advisory Agreement"),
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 1940 Act. The
Investment Adviser is not dependent on any other party in providing the
investment advisory services required for the management of the Fund. The
Investment Adviser may, however, consider analyses from various sources,
including broker-dealers with which the Fund does business and affiliates of the
Investment Adviser. The Investment Adviser is also obligated to provide the Fund
with such executive, data processing, clerical, accounting and bookkeeping
services and statistical and research data as are deemed advisable by the Fund's
Board of Directors, except to the extent these services are provided by an
administrator hired by the Fund.

For the services provided by the Investment Adviser under the Investment
Advisory Agreement, the Fund will pay the Investment Adviser a monthly fee
computed at the annual rate of 0.85% of the Fund's average daily net assets
during the previous month. For the fiscal years ended December 31, 1997, 1996
and 1995, the Fund accrued investment advisory fees of $5,312,237, $4,722,948,
and $4,391,733.

Zweig Securities Corp. or any other brokerage affiliate (the "Brokerage
Affiliate") may act as a broker for the Fund. In order for the Brokerage
Affiliate to effect any portfolio transactions for the Fund, the commissions,
fees or other remuneration received by the Brokerage Affiliate must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. The Fund will not deal with a Brokerage Affiliate in any portfolio
transaction in which the Brokerage Affiliate would act as principal.

DR. MARTIN E. ZWEIG

Dr. Zweig, the President of the Fund and the Investment Adviser, has been
in the business of providing investment advisory services for over 25 years and
is the President and/or Chairman of investment advisory firms which, as of
December 31, 1997, managed in excess of $7 billion in assets. Dr. Zweig and his
associates determine the asset allocation strategy for the Fund. Dr. Zweig does
not select the individual securities to implement the strategy. The portfolio
managers select the specific securities for the Fund.

24
<PAGE> 29

PORTFOLIO MANAGERS

The day-to-day stock selections for the Fund are made by Mr. Jeffrey Lazar,
and the day-to-day bond selections for the Fund are made by Mr. Carlton Neel.

Mr. Lazar has been Vice President of the Fund since 1987, and is also a
Director of the Fund. He has been making the day-to-day stock selections for the
Fund and The Zweig Total Return Fund, Inc. since January 1995. Mr. Lazar, who is
a Vice President of the Investment Adviser, has been with the Investment Adviser
since 1986. Mr. Neel has been making the day-to-day bond selections for the Fund
and The Zweig Total Return Fund, Inc. since July 1995. He is also the portfolio
manager for the following series of Zweig Series Trust: Zweig Managed Assets,
Zweig Government Fund and Zweig Foreign Equity Fund. Prior to joining the
Investment Adviser in 1995, Mr. Neel was a Vice President with J.P. Morgan &
Co., Inc.

INVESTMENT ADVISORY AGREEMENT

The Investment Advisory Agreement sets forth the services to be provided by
and the fees to be paid to each party, as described above. The Investment
Advisory Agreement provides that the Investment Adviser's liability to the Fund
and its shareholders is limited to situations involving its own willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its duties and obligations under the
Investment Advisory Agreement.

The services of the Investment Adviser to the Fund are not deemed to be
exclusive, and the Investment Adviser or any affiliate thereof may provide
similar services to other investment companies and other clients or engage in
other activities.

The Investment Advisory Agreement obligates the Investment Adviser to
provide advisory services and to pay all expenses arising from the performance
of its obligations under the Investment Advisory Agreement, as well as the fees
of all Directors of the Fund who are employees of the Investment Adviser or any
of its affiliates. The Fund pays all other expenses incurred in the operation of
the Fund including, but not limited to, direct charges relating to the purchase
and sale of portfolio securities, interest charges, fees and expenses of
attorneys and independent auditors, taxes and governmental fees, cost of stock
certificates and any other expenses (including clerical expenses) of issuance,
sale or repurchase of the Fund's common stock, expenses in connection with the
Fund's Distribution Reinvestment and Cash Purchase Plan, membership fees in
trade associations, expenses of registering and qualifying shares of the Fund's
common stock for sale under Federal and state securities laws, expenses of
obtaining and maintaining a stock exchange listing of the Fund's common stock,
expenses of printing and distributing reports, prospectuses, notices and proxy
materials to existing shareholders, expenses of corporate data processing and
related services, shareholder record keeping and shareholder account services,
expenses of auditors and escrow agents, expenses of printing and filing reports
and other documents filed with governmental agencies, expenses of annual and
special shareholders' meetings, fees and disbursements of any administrator to
the Fund and transfer agents, custodians and subcustodians, expenses of
disbursing dividends and distributions, fees of Directors of the Fund who are
not employees of the Investment Adviser or its affiliates, out-of-pocket
expenses of Directors related to attending meetings, insurance premiums and
litigation, indemnification and other expenses not expressly provided for in the
Investment Advisory Agreement or the Administration Agreement.

The Investment Advisory Agreement will remain in effect from year to year
if approved annually (i) by the Board of Directors of the Fund or by the holders
of a majority of the Fund's outstanding voting securities, and (ii) by a
majority of the Directors who are not parties to the Investment Advisory
Agreement or interested persons of any such party. The Investment Advisory
Agreement terminates on its assignment by either party, and may be terminated
without penalty on not more than 60 days' prior written notice at the option of
either party thereto, or by the affirmative vote of the holders of a majority of
the Fund's outstanding voting securities.

The Investment Advisory Agreement provides that the Fund may use "Zweig" as
part of its name for so long as the Investment Adviser serves as investment
adviser to the Fund. The Fund has agreed that, in the event the Investment
Advisory Agreement is terminated, the Fund will promptly take such actions as
may be necessary to change its corporate name to one not containing the word
"Zweig", and the Fund will thereafter

25
<PAGE> 30

not transact business in a corporate name using the word "Zweig" in any form or
combination whatsoever. The Fund has also acknowledged that the word "Zweig" is
a property right of Dr. Martin E. Zweig and that Dr. Martin E. Zweig or,
pursuant to his consent, the Investment Adviser may at any time permit others to
use the word "Zweig."

ADMINISTRATOR

Zweig/Glaser Advisers (the "Administrator") serves as the Fund's
administrator pursuant to an administration agreement dated September 1, 1989,
as amended by the First Amendment dated July 1, 1995 (the "Administration
Agreement"). Martin E. Zweig (the President and Chairman of the Board of the
Fund) and Eugene J. Glaser (a Director of the Fund) are the Chairman and
President, respectively, and the principal owners of the Administrator. 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 statement,
quarterly and annual shareholder reports, and responds to shareholder inquiries.

The Fund pays the Administrator a monthly fee computed at an annual rate of
0.13% of the Fund's average daily net assets during the previous month. Prior to
July 1, 1995, the administrative fee was computed at an annual rate of 0.15% of
the Fund's average daily net assets during the previous month. For the fiscal
years ended December 31, 1997, 1996 and 1995, the Fund accrued administrative
fees of $812,460, $722,333, and $721,242.

DISTRIBUTIONS; DISTRIBUTION REINVESTMENT AND CASH PURCHASE PLAN

The Fund's policy is to distribute to shareholders on a quarterly basis
2.5% of its net asset value (10% on an annualized basis). If, for any quarterly
distribution, net investment income and net realized short-term capital gains
are less than the amount of the distribution, the difference will be distributed
from the Fund's assets. The Fund's final distribution for each calendar year
will include any remaining net investment income and net realized short-term
capital gains deemed, for Federal income tax purposes, undistributed during the
year, and may, but need not, include all net long-term capital gains realized
during the year. The Fund may retain for reinvestment and pay Federal income
taxes on the excess of its net realized long-term capital gains over its net
realized short-term capital losses, if any, although the Fund reserves the
authority to distribute such excess in any year. Since the Fund's inception, the
Fund has distributed such excess. If, for any calendar year, the total
distributions exceed net investment income and net realized capital gains, the
excess, distributed from the Fund's assets, will generally be treated as a
tax-free return of capital (up to the amount of the shareholder's tax basis in
his or her shares). The amount treated as a tax-free return of capital will
reduce a shareholder's adjusted basis in his or her shares, thereby increasing
his or her potential gain or reducing his or her potential loss on the sale of
his or her shares. Such excess, however, will be treated as ordinary dividend
income up to the amount of the Fund's current and accumulated earnings and
profits. In calculating the amount of each quarterly distribution, the Fund's
net asset value will be measured as of the business day immediately preceding
the declaration date of such distribution. Pursuant to the requirements of the
1940 Act and other applicable laws, a notice will accompany each quarterly
distribution with respect to the estimated source of the distribution made.

In the event the Fund distributes amounts in excess of its net investment
income and net realized capital gains, such distributions will decrease the
Fund's total assets and, therefore, have the likely effect of increasing the
Fund's expense ratio. In addition, in order to make such distributions, the Fund
may have to sell a portion of its investment portfolio at a time when
independent investment judgment might not dictate such action.

Shareholders may elect to receive all distributions in cash paid by check
mailed directly to the shareholder by State Street Bank & Trust Co. ("State
Street"), as dividend paying agent. Pursuant to the Distribution Reinvestment
and Cash Purchase Plan (the "Plan"), shareholders not making such election will

26
<PAGE> 31

have all such amounts automatically reinvested by State Street, as the Plan
agent, in whole or fractional shares of the Fund, as the case may be.

If the Directors of the Fund declare a distribution payable either in
shares or in cash, as shareholders may have elected, then nonparticipants in the
Plan will receive cash and participants in the Plan will receive the equivalent
in shares determined as follows: Whenever the market price of the shares on the
record date for the distribution is equal to or exceeds their net asset value,
participants will be issued shares at the higher of net asset value or 95% of
the closing market price of the shares on the NYSE on the previous trading day.
If the net asset value of shares at such time exceeds the market price of
shares, or if the Fund should declare a distribution payable only in cash, State
Street will, as agent for the participants, buy shares in the open market, on
the NYSE or elsewhere, for the participants' account. If, before State Street
has completed its purchases, the market price exceeds the net asset value of the
shares, State Street is permitted to cease purchasing the shares in the open
market and the Fund may issue the remaining shares at a price equal to the
higher of net asset value or 95% of the then market price. State Street will
apply all cash received as a distribution to purchase shares on the open market
as soon as practicable after the payment date of such distribution, but in no
event later than 30 days after such date, except where necessary to comply with
applicable provisions of the Federal securities laws.

Participants in the Plan have the option of making additional cash payments
monthly to State Street for investment in the shares. Such payments may be made
in any amount from $100 to $3,000. State Street will use all such payments
received from participants to purchase shares on the open market on or about the
fifteenth day of each month (or the closest business day thereto, if a weekend
or holiday). To avoid unnecessary cash accumulations, and also to allow ample
time for receipt and processing by State Street, it is suggested that
participants send voluntary cash payments to State Street by the fifth day of
the month for which a voluntary purchase is desired. A participant may withdraw
a voluntary cash payment by written notice, if the notice is received by State
Street at least 48 hours before such payment is to be invested.

State Street maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by State Street in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan.

There is no charge to participants for reinvesting distributions or
voluntary cash payments. State Street's fees for the handling of the
reinvestment of distributions will be paid by the Fund. There will be no
brokerage charges with respect to shares issued directly by the Fund as a result
of distributions payable either in stock or in cash. However, each participant
will pay a pro-rata share of brokerage commissions incurred with respect to
State Street's open market purchases in connection with the reinvestment of
distributions as well as from voluntary cash payments. With respect to purchases
from voluntary cash payments, State Street will charge each participant a
pro-rata share of the brokerage commissions. Brokerage charges for purchasing
small amounts of stock for individual accounts through the Plan are expected to
be less than the usual brokerage charges for such transactions, as State Street
will be purchasing shares for all participants in blocks and prorating the lower
commission thus attainable. State Street may use its affiliates and/or
affiliates of the Investment Adviser for all trading activity relative to the
Plan on behalf of Plan participants. Such affiliates will receive a commission
in connection with such trading transactions.

If a shareholder desires to discontinue his or her participation in the
Plan, the shareholder may either (i) request State Street to sell part or all of
the shares in the account and remit the proceeds to the shareholder, net of any
brokerage commissions, or (ii) the shareholder may receive a certificate for the
appropriate number of full shares in the account, along with a check in payment
for any fractional shares.

Although many brokers do participate in the Plan on behalf of their
customers, a participant in the Plan who does change his or her broker may not
be able to transfer the shares to another broker and continue to participate in
the Plan.

The automatic reinvestment of distributions will not relieve participants
of any income tax that may be payable on such distributions.

27
<PAGE> 32

Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the members of the Plan
at least 90 days before the record date for such distribution. The Plan also may
be amended or terminated by State Street, with the Fund's prior written consent,
on at least 90 days' written notice to participants in the Plan. All
correspondence concerning the Plan should be directed to State Street at P.O.
Box 8040, Boston, MA 02266-8040.

DESCRIPTION OF COMMON STOCK

The authorized capital stock of the Fund consists of 100,000,000 shares of
Common Stock, par value $0.10 per share, of which 53,186,244 shares were
outstanding as of April 13, 1998. The Shares when issued, will be fully paid and
nonassessable. All shares of Common Stock are equal as to dividends, assets and
voting privileges and have no conversion, preemptive or exchange rights. In the
event of liquidation, each share of Common Stock is entitled to its proportion
of the Fund's assets after payment of debts and expenses. Shareholders are
entitled to one vote per share. All voting rights for directors are
non-cumulative, which means that the holders of more than 50% of the shares of
common stock can elect 100% of the directors if they choose to do so, and, in
such event, the holders of the remaining shares of common stock will not be able
to elect any directors. The Fund's outstanding shares of Common Stock are, and
the Shares offered hereby will be, listed on the NYSE and PCX under the symbol
"ZF."

The Fund has no present intention of offering additional shares beyond this
Offering, except that additional shares may be issued under the Distribution
Reinvestment and Cash Purchase Plan. See "Distributions; Distribution
Reinvestment and Cash Purchase Plan." Other offerings of its Common Stock, if
made, will require approval of the Fund's Board of Directors. Any additional
offering will be subject to the requirements of the 1940 Act that shares may not
be sold at a price below the then current net asset value (exclusive of
underwriting discounts and commissions) except in certain circumstances,
including in connection with an offering to existing shareholders or with the
consent of a majority of the Fund's outstanding shares.

REPURCHASE OF SHARES

The Fund is authorized to repurchase its shares on the open market when the
shares are trading at a discount of 10% or more from net asset value, and the
Fund may incur debt to refinance share repurchase transactions. In addition,
pursuant to the 1940 Act, the Fund retains the right to repurchase its shares
under other circumstances on a securities exchange or such other open market
designated by the Commission (provided that the Fund has informed shareholders
within the preceding six months of its intention to repurchase such shares), by
a tender offer open to all the Fund's shareholders, or as otherwise permitted by
the Commission. When a repurchase of Fund shares is to be made that is not to be
effected on a securities exchange or such an open market or by the making of a
tender offer, the 1940 Act provides that certain conditions must be met
regarding, among other things, distribution of net income, identity of the
seller, price paid, brokerage commissions, prior notice to shareholders of an
intention to purchase shares and purchasing in a manner on a basis which does
not discriminate unfairly against the other shareholders indirectly through
their interest in the Fund. The Fund may incur debt to finance share repurchase
transactions (see "Investment Restrictions" in the SAI).

When the Fund repurchases its shares for a price below their net asset
value, the net asset value of the shares that remain outstanding will be
enhanced, but this does not necessarily mean that the market price of those
outstanding shares will be affected, either positively or negatively.

During the period from April 15, 1987 through August 28, 1987, the Fund
repurchased an aggregate of 343,100 shares of its Common Stock at prices per
share ranging from $9.00 to $10.00 in transactions effected on the NYSE pursuant
to authorization by the Fund's Board of Directors. Such repurchases were
effected at the then prevailing market rate, and were not financed with any
borrowings.

28
<PAGE> 33

The Fund currently has no established tender offer program, and no
established schedule for considering tender offers. No assurance can be given
that the Board of Directors will decide to undertake any such tender offers in
the future, or if undertaken that they will reduce any market discount.

It should be recognized that any acquisition of shares by the Fund (whether
through a share repurchase or a tender offer) will decrease the total assets of
the Fund and therefore have the effect of increasing the Fund's expense ratio.
Furthermore, if the Fund borrows to finance share repurchases or tender offers,
interest on such borrowing will reduce the Fund's net investment income. If the
Fund must liquidate a portion of its investment portfolio in connection with a
share repurchase or tender offer, such liquidation might be at a time when
independent investment judgment might not dictate such action and, accordingly,
may increase the Fund's portfolio turnover and make it more difficult for the
Fund to achieve its investment objective.

SPECIAL VOTING PROVISIONS

The Fund has provisions in its Articles of Incorporation and By-Laws
(collectively, the "Charter Documents") that could have the effect of limiting
the ability of other entities or persons to acquire control of the Fund, to
cause it to engage in certain transactions or to modify its structure. The Board
of Directors is divided into three classes. At the annual meeting of
shareholders each year, the term of one class will expire and directors will be
elected to serve in that class for terms of three years. This provision could
delay for up to two years the replacement of a majority of the Board of
Directors.

Under Maryland law and the Fund's Articles of Incorporation, the
affirmative vote of the holders of two-thirds of the votes entitled to be cast
is required for the consolidation of the Fund with another corporation, a merger
of the Fund with or into another corporation (except for certain mergers in
which the Fund is the successor), a statutory share exchange in which the Fund
is not the successor, a sale or transfer of all or substantially all of the
Fund's assets, the dissolution of the Fund and any amendment to the Fund's
Articles of Incorporation. In addition, the affirmative vote or consent of the
holders of two-thirds of the outstanding Shares is required to authorize the
conversion of the Fund from a closed-end to an open-end investment company, to
amend certain of the provisions of the Charter Documents or generally to
authorize any of the following transactions:

(i) a merger or consolidation of the Fund with or into any other
corporation;

(ii) the issuance of any securities of the Fund to any person or
entity for cash;

(iii) the sale, lease or exchange of all or any substantial part of
the Fund's assets to any entity or person (except assets having an
aggregate fair market value of less than $1,000,000); or

(iv) the sale, lease or exchange to the Fund, in exchange for
securities of the Fund, of any assets of any entity or person (except
assets having an aggregate fair market value of less than $1,000,000);

if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares of
the Fund. However, such two-thirds vote would not be required when, under
certain conditions, the Board of Directors in accordance with the Fund's
Articles of Incorporation approves the transaction. Reference is made to the
Charter Documents of the Fund, on file with the Commission, for the full text of
these provisions. See "Further Information."

The provisions of the Charter Documents described above and the Fund's
right to repurchase its shares could have the effect of depriving shareholders
of an opportunity to sell their shares at a premium over prevailing market
prices by discouraging a third party from seeking to obtain control of the Fund
in a tender offer or similar transaction. See "Repurchase of Shares."

29
<PAGE> 34

TAXATION

FEDERAL TAXATION OF THE FUND AND ITS DISTRIBUTIONS

The Fund has qualified and elected to be treated, and intends to continue
to qualify and be treated, as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"). The Fund currently intends to
distribute all or substantially all its investment company taxable income (all
taxable income and net short-term capital gains) and its net capital gain each
year, thereby avoiding the imposition on the Fund of Federal income and excise
taxes on such distributed income and gain. Such distributions from investment
company taxable income will be taxable as ordinary income to shareholders of the
Fund who are subject to tax, and the Fund's capital gain distributions will be
taxable as capital gain to such shareholders. For non-corporate U.S.
shareholders, the Fund's capital gains distributions will be taxable at maximum
marginal Federal income tax rates of 28% as to the portion of such distributions
designated as a 28% rate gain distribution, and 20% as to the portion of such
distributions designated as a 20% rate gain distribution, respectively.
Shareholders that are not subject to tax on their income generally will not be
required to pay tax on amounts distributed to them. Notwithstanding the above,
the Fund may decide to retain all or part of any net capital gain for
reinvestment. After the end of each taxable year, the Fund will notify
shareholders of the Federal income tax status of any distributions, or deemed
distributions, made by the Fund during such year. For a discussion of certain
income tax consequences to shareholders of the Fund, see "Taxation" in the SAI.

FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE OFFER

The following discussion describes certain United States Federal income tax
consequences of the Offer generally applicable to citizens or residents of the
United States and U.S. trusts, estates, corporations and any other person who
would be subject to U.S. Federal income tax upon the sale or exchange of Common
Stock acquired upon the exercise of Rights ("U.S. Shareholders"). This summary
is intended to be descriptive only and does not purport to be a complete
analysis or listing of all potential tax effects relevant to the ownership of
Rights or Common Stock. Additionally, this summary does not specifically address
the U.S. Federal income tax consequences that might be relevant to holders of
Rights or Common Stock entitled to special treatment under the U.S. Federal
income tax laws, such as individual retirement accounts and other tax deferred
accounts, financial institutions, life insurance companies and tax-exempt
organizations, and does not discuss the effect of state, local and other tax
laws. Further, this summary is based on interpretations of existing law as of
the date of this Prospectus as contained in the Code, applicable current and
proposed Treasury Regulations, judicial decisions and published administrative
positions of the Internal Revenue Service, all of which are subject to change
either prospectively or retroactively.

U.S. Shareholders who receive Rights pursuant to the Offer will not
recognize taxable income for U.S. Federal income tax purposes upon their receipt
of the Rights. If Rights issued to a U.S. Shareholder expire without being sold
or exercised, no basis will be allocated to such Rights, and such Shareholder
will not recognize any gain or loss for U.S. Federal income tax purposes upon
such expiration.

The tax basis of a U.S. Shareholder's Common Stock will remain unchanged
and the shareholder's basis in the Rights will be zero, unless such U.S.
Shareholder affirmatively and irrevocably elects (in a statement attached to
such shareholder's U.S. Federal income tax return for the year in which the
Rights are received) to allocate the basis in the Common Stock between such
Common Stock and the Rights in proportion to their respective fair market values
on the date of distribution.

A U.S. Shareholder who exercises Rights will not recognize any gain or loss
for U.S. Federal income tax purposes upon the exercise. The basis of the newly
acquired Common Stock will equal the Subscription Price paid for the Common
Stock (plus the basis, if any, allocated to the Rights in the manner described
in the immediately preceding paragraph). Upon a sale or exchange of the Common
Stock so acquired, the Shareholder will recognize gain or loss measured by the
difference between the proceeds of the sale or exchange and the cost basis of
such Common Stock. Assuming the U.S. Shareholder holds the Common Stock as a
capital asset, any gain or loss realized upon its sale will generally be treated
as a capital gain or loss, which gain or loss will be short-term, mid-term or
long-term, depending on the length of the

30
<PAGE> 35

U.S. Shareholder's holding period for such Common Stock. However, it currently
appears that any loss recognized upon the sale of shares of Common Stock with a
tax holding period of 6 months or less will be treated as a long-term capital
loss to the extent of any capital gain distribution previously received by the
U.S. Shareholder with respect to such shares, and a loss may be disallowed under
wash sale rules to the extent that the U.S. Shareholder purchases additional
Common Stock (including by reinvestment of distributions) within 30 days before
or after the sale date. The holding period for Common Stock acquired upon the
exercise of Rights will begin on the date of exercise of the Rights.

A U.S. Shareholder may be subject to backup withholding at the rate of 31%
with respect to Fund distributions and gross proceeds from the sale or exchange
of Common Stock (if the Fund is the payor) unless such U.S. Shareholder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates and/or certifies this fact, or (b) provides a correct taxpayer
identification number, along with certain required certifications, and otherwise
complies with applicable requirements of the backup withholding rules. U.S.
Shareholders who choose to transfer their Common Stock and who do not provide
the appropriate withholding agent with their correct taxpayer identification
number in the manner required may be subject to penalties imposed by the
Internal Revenue Service. Any amount withheld under these rules is not an
additional tax; it will be creditable against the U.S. Shareholder's U.S.
Federal income tax liability.

This summary is not intended to be, nor should it be, construed as legal or
tax advice to any current holder of Common Stock. Further, because the U.S.
Federal income tax consequences of the Offer may vary depending upon the
particular circumstances of each shareholder of the Fund and other facts, and
because this summary is not exhaustive of all possible U.S. Federal income tax
considerations (such as situations involving taxpayers who are dealers in
securities or whose functional currency is not the U.S. dollar), the Fund's
shareholders are urged to consult their own tax advisors to determine the U.S.
Federal income tax consequences to them of the Offer and their ownership of
Rights and Common Stock. In addition, such shareholders are urged to consult
their own tax advisors in determining the U.S. state and local tax consequences
to them of the Offer and such ownership. See "Taxation" in the SAI.

DISTRIBUTION ARRANGEMENTS

Merrill Lynch, Pierce, Fenner & Smith Incorporated, New York, New York,
will act as the Dealer Manager for the Offer. Under the terms and subject to the
conditions contained in a Dealer Manager Agreement between the Fund and the
Dealer Manager, dated April 14, 1998 (the "Dealer Manager Agreement"), the
Dealer Manager will provide financial advisory, marketing and soliciting
services in connection with the Offer. The Fund has agreed to pay the Dealer
Manager a fee for financial advisory and marketing services in connection with
the Offer equal to 1.25% of the aggregate Subscription Price for the Shares
issued pursuant to the exercise of the Rights and the Over-Subscription
Privilege (the "Dealer Manager Fee"). The Fund has also agreed to pay the Dealer
Manager, and other broker-dealers soliciting the exercise of Rights,
solicitation fees equal to 2.50% of the Subscription Price per Share for each
Share issued pursuant to the exercise of the Rights and the Over-Subscription
Privilege (the "Solicitation Fees"). Solicitation Fees will be paid to the
broker-dealer designated on the related Subscription Certificate, provided that
such designated broker-dealer has executed a confirmation accepting the terms of
the soliciting dealer agreement relating to the Offer or, in the absence of such
designation or confirmation, to the Dealer Manager. Zweig Securities Corp. will
be such designated broker-dealer with respect to Shares issued to participants
in the Fund's Distribution Reinvestment and Cash Purchase Plan, unless the
participant designates otherwise on the related Subscription Certificate.

The Fund has also agreed to reimburse the Dealer Manager for its
out-of-pocket expenses up to $82,500 incurred in connection with the Offer. In
addition, the Fund has agreed to pay a fee to each of the Subscription Agent and
Information Agent estimated to be $335,000 and $41,500, respectively, which
includes reimbursement for their out-of-pocket expenses related to the Offer.
The Fund and the Investment Adviser have agreed to indemnify the Dealer Manager
against certain liabilities, including liabilities under the Securities Act.

The Fund has agreed not to offer or sell, or enter into any agreement to
sell, any equity or equity related securities of the Fund for a period of 180
days after the date of the Dealer Manager Agreement without the
31
<PAGE> 36

prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated,
except for the Shares and Common Stock issued in reinvestment of distributions.

CUSTODIAN, DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR

The Bank of New York, 48 Wall Street, New York, New York 10015, serves as
the Fund's custodian. State Street Bank & Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, serves as the Fund's dividend paying agent,
transfer agent and registrar.

EXPERTS

The financial statements at December 31, 1997, and the financial highlights
included in this Prospectus, have been so included in reliance on the report of
Coopers & Lybrand L.L.P., New York, New York, independent accountants, given on
the authority of said firm as experts in auditing and accounting.

LEGAL MATTERS

The validity of the Shares will be passed on for the Fund by Venable,
Baetjer & Howard, LLP, Baltimore, Maryland. Certain legal matters will be passed
on for the Fund by Rosenman & Colin LLP, New York, New York and for the Dealer
Manager by Rogers & Wells LLP. Rosenman & Colin LLP serves as counsel to the
Fund and the Investment Adviser. Robert E. Smith, Esq., who is Counsel to
Rosenman & Colin LLP, is a Director of the Fund.

FURTHER INFORMATION

Further information concerning these securities and the Fund may be found
in the Registration Statement on file with the Commission, of which this
Prospectus and the SAI incorporated by reference herein constitute a part.
Financial statements of the Fund for fiscal years ended December 31, 1996 and
December 31, 1997 are included in the Fund's annual reports to shareholders for
such years, copies of which are on file with and may be inspected at the
Commission as indicated below.

The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the 1940 Act, and in
accordance with such requirements, the Fund files reports and other information
with the Commission. Such reports and other information can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, Washington, D.C. 20549 and the Commission's regional offices at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, Washington, D.C. 20549 at prescribed rates. The Commission
maintains a world wide web site at http://www.sec.gov that contains the SAI and
other information regarding the Fund. Such reports and other information
concerning the Fund may also be inspected at the offices of the NYSE.

TABLE OF CONTENTS

STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<S> <C>
Investment Objective and Policies........................... 3
Investment Restrictions..................................... 10
Management.................................................. 12
Expenses.................................................... 15
Portfolio Transactions and Brokerage........................ 16
Net Asset Value............................................. 17
Taxation.................................................... 18
Independent Accountants..................................... 23
Principal Shareholders...................................... 23
Financial Statements........................................ F-1
Report of Independent Accountants........................... F-14
</TABLE>

32
<PAGE> 37

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE> 38

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE> 39

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE> 40

======================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND, THE INVESTMENT ADVISER OR THE DEALER MANAGER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY SUCH PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS
PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED
OR SUPPLEMENTED ACCORDINGLY.
------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY.................... 3
FUND EXPENSES......................... 8
FINANCIAL HIGHLIGHTS.................. 9
THE OFFER............................. 10
USE OF PROCEEDS....................... 16
THE FUND.............................. 17
MARKET PRICE AND NET ASSET VALUE
INFORMATION......................... 17
INVESTMENT OBJECTIVE AND POLICIES..... 18
RISK FACTORS AND SPECIAL
CONSIDERATIONS...................... 22
MANAGEMENT OF THE FUND................ 24
DISTRIBUTIONS; DISTRIBUTION
REINVESTMENT AND CASH PURCHASE
PLAN................................ 26
DESCRIPTION OF COMMON STOCK........... 28
TAXATION.............................. 30
DISTRIBUTION ARRANGEMENTS............. 31
CUSTODIAN, DIVIDEND PAYING AGENT,
TRANSFER AGENT AND REGISTRAR........ 32
EXPERTS............................... 32
LEGAL MATTERS......................... 32
FURTHER INFORMATION................... 32
TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION.............. 32
</TABLE>

======================================================
======================================================

7,600,000 SHARES
OF COMMON STOCK

THE ZWEIG FUND, INC.

ISSUABLE UPON EXERCISE OF

NON-TRANSFERABLE RIGHTS TO

SUBSCRIBE FOR SUCH

SHARES OF COMMON STOCK

----------------

PROSPECTUS
----------------

MERRILL LYNCH & CO.

APRIL 14, 1998

======================================================
<PAGE> 41

PART B

THE ZWEIG FUND, INC.
900 THIRD AVENUE, NEW YORK, N.Y. 10022

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information ("SAI") is not a prospectus
and should be read in conjunction with the Prospectus, dated April 14, 1998 (the
"Prospectus"). This SAI does not include all information that a prospective
investor should consider before purchasing shares of the Fund and investors
should obtain and read the Prospectus prior to purchasing shares. A copy of the
Prospectus may be obtained without charge by calling the Fund's Information
Agent, Georgeson & Company Inc. Banks and Brokers should call (212) 440-9800
collect and all other shareholders should call (800) 223-2064. The address of
the Fund is 900 Third Avenue, New York, New York 10022, and its telephone number
is (212) 451-1100. This SAI incorporates by reference the entire Prospectus.
Defined terms used herein shall have the same meaning as provided in the
Prospectus. The date of this SAI is April 14, 1998.

1
<PAGE> 42
TABLE OF CONTENTS

<TABLE>
<S> <C>
Investment Objective and Policies 1
Investment Restrictions 8
Management 10
Expenses 13
Portfolio Transactions and Brokerage 13
Net Asset Value 15
Taxation 15
Independent Accountants 19
Principal Shareholders 19
Financial Statements F-1
Report of Independent Accountants F-14
</TABLE>

2
<PAGE> 43
INVESTMENT OBJECTIVE AND POLICIES

The following describes certain investment strategies in which the
Investment Adviser may engage, on behalf of the Fund, each of which may involve
certain special risks.

FUTURES CONTRACTS AND RELATED OPTIONS

Upon entering into a futures contract, the Fund will initially be
required to deposit with the custodian an amount of initial margin using cash or
U.S. Treasury bills equal to approximately 2% to 5% of the contract amount. The
nature of initial margin in futures transactions is different from that of
margin in securities transactions in that the futures contract initial margin
does not involve the borrowing of funds by customers to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. In addition to initial margin, the Fund is required to deposit
cash, liquid debt obligations, liquid equity securities or cash equivalents in
an amount equal to the notional value of all long futures contracts, less the
initial margin amount, in a segregated account with the custodian to ensure that
the use of such futures contracts is not leveraged. If the value of the
securities placed in the segregated account declines, additional securities,
cash or cash equivalents must be placed in the segregated account so that the
value of the account will at least equal the amount of the Fund's commitments
with respect to such futures contracts.

Subsequent payments, called maintenance margin, to and from the broker,
will be made on a daily basis as the price of the underlying security
fluctuates, making the long and short positions in the futures contract more or
less valuable, a process known as "marking to the market." For example, when the
Fund has purchased a futures contract and the price of the underlying security
has risen, that position will have increased in value and the Fund will receive
from the broker a maintenance margin payment equal to that increase in value.
Conversely, when the Fund has purchased a futures contract and the price of the
underlying security has declined, the position would be less valuable and the
Fund would be required to make a maintenance margin payment to the broker. At
any time prior to expiration of the futures contract, the Fund may elect to
close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.

While futures contracts based on securities provide for the delivery
and acceptance of securities, such deliveries and acceptances are very seldom
made. Generally, the futures contract is terminated by entering into an
offsetting transaction. An offsetting transaction for a futures contract sale is
effected by the Fund entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument with the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund

3
<PAGE> 44
immediately is paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sales price, the Fund pays the difference and
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the Fund entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund realizes a gain, and if the
purchase price exceeds the offsetting price, the Fund realizes a loss.

There are several risks in connection with the use of futures contracts
as a hedging device. One risk arises due to the imperfect correlation between
movements in the price of the futures contracts and movements in the price of
the subject of the hedge. The price of the futures contract may move more than
or less than the price of the securities being hedged.

If the price of the futures contracts moves less than the price of the
securities hedged, the hedge will not be fully effective, but, if the price of
the securities being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price of
the securities being hedged has moved in a favorable direction, this advantage
will be partially offset by the movement in the price of the futures contract.
If the price of the futures contract moves more than the price of the security,
the Fund will experience either a loss or gain on the futures which will not be
completely offset by movements in the prices of the securities which are the
subject of the hedge.

To compensate for the imperfect correlation of such movements in price,
the Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of the securities being hedged if the historical volatility of the
prices of such securities have been greater than the historical volatility of
the futures contracts. Conversely, the Fund may buy or sell fewer futures
contracts if the historical volatility of the prices of the securities being
hedged is less than the historical volatility of the futures contracts.

It is also possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of securities held in the Fund's portfolio may decline. If this occurred, the
Fund would lose money on the futures contracts and also experience a decline in
value in its portfolio securities. However, while this could occur for a very
brief period or to a very small degree, over time the value of a diversified
portfolio will tend to move in the same direction as the futures contracts.

Where futures are purchased to hedge against a possible increase in the
cost of securities before the Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest in the relevant securities at
that time because of concern as to possible further market decline or for other
reasons, the Fund will realize a loss on the futures contract that is not offset
by a reduction in the price of securities purchased.

Another risk arises because the market prices of futures contracts may
be affected by certain factors. First, all participants in the futures market
are subject to initial margin and maintenance margin requirements. Rather than
meeting maintenance margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal relationship
between the securities and futures markets. Second, from the point of view of
speculators, the margin requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore, increased participation
by speculators in the futures market may also cause temporary price distortions.

Due to the possibility of price distortion in the futures market and
because of the imperfect correlation between movements in securities and
movements in the prices of futures contracts, a correct forecast of market

4
<PAGE> 45
trends by the Investment Adviser may still not result in a successful hedging
transaction over a very short period of time.

The hours of trading for futures contracts may not conform to the hours
during which the underlying securities are traded. To the extent that the
futures contracts markets close after the markets for the underlying securities,
significant price movements can take place in the futures contracts markets that
cannot be reflected in the markets of the underlying securities.

Positions in futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Fund intends to purchase or sell futures only on exchanges or boards of trade
where there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
maintenance margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contracts can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will, in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract. The Fund
does not intend to devote more than 5% of its net assets as initial margin or
option premiums for futures transactions.

SECURITY AND STOCK INDEX OPTIONS

When the Fund writes an option, an amount equal to the premium received
by the Fund is recorded as an asset and as an offsetting liability. The amount
of the liability is "marked-to-market" daily to reflect the current market value
of the option, which is the last sale price on the principal exchange on which
such option is traded or, in the absence of a sale, the mean between the latest
bid and offering prices. If an option written by the Fund expires, or the Fund
enters into a closing purchase transaction, the Fund will realize a gain (or, in
the latter case, a loss, if the cost of a closing transaction exceeds the
premium received) and the liability related to such option will be extinguished.

The premium paid by the Fund for the purchase of a put option (its
cost) is recorded initially as an investment, the value of which is subsequently
adjusted to the current market value of the option. If the current market value
of a put option exceeds its premium, the excess represents unrealized
appreciation; conversely, if the premium exceeds the current market value, the
excess represents unrealized depreciation. The current market value of an option
purchased by the Fund equals the option's last sale price on the principal
exchange on which it is traded or, in the absence of a sale, the mean between
the latest bid and offering prices.

An option position may be closed out only on an exchange which provides
a secondary market for an option of the same series. Although the Fund generally
will purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that the Fund would have to exercise its options in order to realize
any profit and would incur transaction costs on the sale of underlying
securities pursuant to the exercise of put options. If the Fund, as a covered
call option writer, is unable to effect a closing purchase transaction in a
secondary

5
<PAGE> 46
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.

Reasons for the absence of a liquid secondary market on an exchange
include the following: (a) there may be insufficient interest in trading certain
options; (b) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (c) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (d) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (e) the facilities of an exchange or
the Options Clearing Corporation (the "OCC" ) may not at all times be adequate
to handle current trading volume; or (f) one or more exchanges might, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by the OCC as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.

In addition, there is no assurance that higher-than-anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of the OCC inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders.

The amount of the premiums which the Fund may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing activities.

In the event of a shortage of the underlying securities deliverable on
exercise of a listed option, the OCC has the authority to permit other,
generally comparable securities to be delivered in fulfillment of option
exercise obligations. If the OCC exercises its discretionary authority to allow
such other securities to be delivered, it may also adjust the exercise prices of
the affected options by setting different prices at which otherwise ineligible
securities may be delivered. As an alternative to permitting such substitute
deliveries, the OCC may impose special exercise settlement procedures.

CLOSED-END INVESTMENT COMPANIES

When the Fund invests in other closed-end investment companies, the
investments made by such other investment companies will be effected by
independent investment managers, and the Fund will have no control over the
investment management, custodial arrangements or operations of any investments
made by such investment managers. Some of the funds in which the Fund may invest
could also incur more risks than would be the case for direct investments made
by the Fund. For example, they may engage in investment practices that entail
greater risks or invest in companies whose securities and other investments are
more volatile. In addition, the funds in which the Fund invests may or may not
have the same fundamental investment limitations as those of the Fund itself.
While a potential benefit of investing in closed-end investment companies would
be to realize value from a decrease in the discount from net asset value at
which some closed-end funds trade, there is also the potential that such
discount could grow, rather than decrease.

By investing in investment companies indirectly through the Fund, a
shareholder of the Fund will bear not only a proportionate share of the expenses
of the Fund (including operating costs and investment advisory and
administrative fees) but also, indirectly, similar expenses of the investment
companies in which the Fund

6
<PAGE> 47
invests. Pursuant to the Fund's investment restrictions and current law, the
Fund will not (i) own more than 3% of the voting securities of any one
investment company; (ii) invest more than 5% of its assets in the securities of
any one investment company; or (iii) invest more than 10% of its assets in
securities issued by investment companies.

FOREIGN SECURITIES

The Fund may invest up to 20% of its net assets in securities of
foreign issuers. Investments in foreign securities offer potential benefits not
available through investment solely in securities of domestic issuers. Foreign
securities offer the opportunity to invest in foreign issuers that appear to
have growth potential, or in foreign countries with economic policies or
business cycles different from those of the United States, or to reduce
fluctuations in portfolio value by taking advantage of foreign markets that do
not move in a manner parallel to United States markets. The Fund may also enter
into foreign currency transactions in connection with its investment activity in
foreign securities.

Investments in foreign securities present special additional risks and
considerations not typically associated with investments in domestic securities.
Foreign investments may be affected by changes in foreign currency rates and
exchange control regulations. There may be less information available about a
foreign company than a domestic company, and foreign companies may not be
subject to accounting, auditing and reporting standards and requirements
comparable to those applicable to domestic companies. Foreign securities may be
less liquid and subject to greater price volatility than domestic securities.
Foreign brokerage commissions and custodial fees are generally higher than those
in the United States. The foreign markets also have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays or
problems with settlements might affect the liquidity of the Fund's portfolio and
might adversely affect the Fund's performance. Foreign investments may also be
subject to local economic or political risks, political instability and possible
nationalization of issuers or expropriation of their assets which might
adversely affect the Fund's ability to realize or liquidate its investment in
such securities. Furthermore, some foreign securities are subject to brokerage
taxes levied by foreign governments, which have the effect of increasing the
cost of such investment and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Furthermore, legal
remedies for defaults and disputes may have to be pursued in foreign courts
whose procedures differ substantially from those of U.S. courts. In the event of
a default in payment on foreign securities, the Fund may incur increased costs
to obtain and/or to enforce a judgment against the foreign issuer (or the other
parties to the transaction) in the United States or abroad, and no assurance can
be given that the Fund will be able to collect on any such judgment.

Income earned or received by the Fund from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States,
however, may reduce or eliminate such taxes. Any such taxes paid by the Fund
will reduce its net income available for distribution to shareholders.

Pursuant to the provisions of Rule 17f-5 under the 1940 Act, the Fund's
Board of Directors has delegated to the Fund's Custodian, The Bank of New York,
as the Fund's Foreign Custody Manager the responsibilities for selecting and
monitoring any foreign custodians that may be used in connection with the Fund's
investments in foreign securities. Pursuant to and subject to the terms and
conditions of the Foreign Custody Manager Agreement between The Bank of New York
and the Fund, The Bank of New York will,

7
<PAGE> 48
among other things, (i) determine that the assets held by foreign custodians are
subject to reasonable care, based on the standards applicable to custodians in
the relevant market in which such foreign custodian operates, (ii) determine
that the foreign custodial arrangements are governed by a written contract that
provides reasonable care for the Fund's assets based on such standards, (iii)
establish a system to monitor the appropriateness of maintaining the Fund's
assets with a particular foreign custodian and any material changes in such
contract, and (iv) report to the Fund's Board of Directors with respect to the
Fund's foreign custodial arrangements.

SHORT SALES

The Fund may from time to time make 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. The Fund may make short sales to
offset a potential decline in a long position or a group of long positions, or
if the Investment Adviser believes that a decline in the price of a particular
security or group of securities is likely. The Fund may also make short sales in
an attempt to maintain portfolio flexibility and facilitate the rapid
implementation of investment strategies if the Investment Adviser believes that
the price of a particular security or group of securities is likely to decline.

When the Fund determines to make a short sale of a security, it must
borrow the security. The Fund's obligation to replace the security borrowed in
connection with the short sale will be fully secured by the proceeds from the
short sale retained by the broker and by cash or liquid securities deposited in
a segregated account with the Fund's custodian. The Fund may have to pay a
premium to borrow the security. The Fund must also pay any dividends or interest
payable on the security until the Fund replaces the 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 this period, the Fund will
realize a capital gain. Any realized capital gain will be decreased, and any
incurred loss increased, by the amount of transaction costs and any premium,
dividend or interest which the Fund may have to pay in connection with such
short sale.

The Fund may make a short sale only if, at the time the short sale is
made and after giving effect thereto, the market value of all securities sold
short is 25% or less of the value of its net assets and the market value of
securities sold short which are not listed on a national securities exchange
does not exceed 10% of the Fund's net assets.

INVESTMENT RESTRICTIONS

The Fund has adopted the following fundamental policies which cannot be
changed without the approval of the holders of a majority of its outstanding
voting securities (as defined under "Investment Objective and

8
<PAGE> 49
Policies" in the Prospectus). Except as otherwise noted, all percentage
limitations set forth below apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting
from market fluctuations does not require elimination of any security or other
investment from the portfolio. The Fund may not:

1. With respect to 75% of its total assets, invest in
securities of any one issuer if immediately after and as a result of
such investment more than 5% of the total assets of the Fund, taken at
market value, would be invested in the securities of such issuer. This
investment restriction does not apply to investments in U.S. Government
Securities.

2. Purchase more than 10% of the outstanding voting
securities, or any class of securities, of any one issuer.

3. Purchase securities which would cause 25% or more of its
total assets at the time of such purchase to be concentrated in the
securities of issuers engaged in any one particular industry or group
of related industries. This investment restriction does not apply to
investments in U.S. Government Securities.

4. Invest more than 5% of its total assets in securities of
issuers that, at the time of purchase, have a record, together with
predecessors, of less than three years of continuous operation. This
investment restriction does not apply to investments in U.S. Government
Securities.

5. Purchase securities of other investment companies, except
in connection with a merger, consolidation, acquisition or
reorganization, if more than 10% of the market value of the Fund's
total assets would be invested in securities of other investment
companies, more than 5% of the market value of the Fund's total assets
would be invested in the securities of any one investment company, or
the Fund would own more than 3% of any other investment company's
securities.

6. Purchase or sell real estate; provided that the Fund may
invest in securities secured by real estate or real estate interests or
issued by companies which invest in real estate or real estate
interests.

7. Purchase participations or other direct interests in oil,
gas or other mineral exploration or development programs; provided that
the Fund may invest in the securities of companies which operate,
invest in or sponsor such programs.

8. Purchase any securities on margin, except that the Fund may
make margin deposits in connection with any futures contracts or any
options it may purchase or write. Effecting short sales, to the extent
permitted by 12. below, does not constitute a margin purchase for
purposes of this investment restriction.

9. Make loans of money, except that the Fund may purchase
publicly distributed debt obligations consistent with its investment
objective and policies, and the Fund may make loans of portfolio
securities; provided, that the loan is collateralized by cash or cash
equivalents or U.S. Government Securities in an amount equal, on a
daily basis, to the market value of the securities loaned; and provided
further, that immediately after giving effect to any such loan, the
aggregate amount of all outstanding loans of securities does not exceed
20% of the current market value of the Fund's net assets.

10. Borrow money, except (i) for temporary emergency purposes
in amounts not in excess of 5% of the

9
<PAGE> 50
value of the Fund's total assets at the time the loan is made; or (ii)
in an amount not greater than 20% of the Fund's net assets; provided,
that the Fund maintains asset coverage of 300% with respect to such
borrowings.

11. Issue senior securities, as defined in the 1940 Act, or
mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund except as
may be necessary in connection with borrowings mentioned in 10. above.
(For the purposes of this investment restriction, collateral or escrow
arrangements with respect to the making of short sales, writing of
stock options and collateral arrangements with respect to margin for
futures contracts or related options are not deemed to be a pledge of
assets; and neither such arrangements nor the purchase or sale of
futures contracts or purchases of related options are deemed to be the
issuance of a senior security.)

12. Make any short sales of securities, unless, if, at the
time the short sale is made and after giving effect thereto, (i) the
market value of all securities sold short is 25% or less of the value
of the Fund's net assets, (ii) the market value of such securities sold
short which are not listed on a national securities exchange does not
exceed 10% of the Fund's net assets, (iii) the market value of all
securities sold short of any one issuer does not exceed 2% of the
Fund's net assets, (iv) short sales are not made of more than 2% of the
outstanding securities of one class of any issuer, and (v) the Fund
maintains collateral deposits consisting of cash or U.S. Government
Securities in a segregated account which are at all times equal to 100%
of the current market value of the securities sold short. This
investment restriction does not apply to short sales "against the box."

13. Underwrite securities of other issuers except insofar as
it might be deemed to be an underwriter for purposes of the Securities
Act of 1933, as amended, in the resale of any securities held in its
own portfolio.

14. Invest more than 10% of the Fund's total assets in
securities that at the time of purchase are subject to restrictions on
disposition under the Securities Act of 1933, as amended.

15. Purchase or sell commodities or futures contracts or
options on commodity or futures contracts, except if: (i) the purchase
or sale of futures contracts or options thereon is to hedge the Fund's
existing portfolio of securities, or to anticipate a market or market
sector advance; and (ii) the Fund creates, at the time of its purchase
of a futures contract, a segregated account with its Custodian
consisting of cash, U.S. Government Securities or other appropriate
high-grade debt obligations in an amount equal to the total market
value of such contract, less the amount of initial margin for such
contract.

MANAGEMENT

DIRECTORS AND OFFICERS

The names and addresses of the directors and officers of the Fund are
set forth below, together with their positions and their principal occupations
during the past five years and, in the case of the directors, their positions
with certain other organizations and companies.

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address Age Position with the Fund Principal Occupations and Other Affiliations
- ---------------- ---- ---------------------- --------------------------------------------

</TABLE>

10
<PAGE> 51
<TABLE>
<CAPTION>

<S> <C> <C> <C>
Martin E. Zweig* 55 Director, Chairman of President and Director of the Investment
900 Third Avenue the Board and President Adviser; Chairman of the Board and President
New York, NY 10022 (Chief Executive of The Zweig Total Return Fund, Inc.;
Officer) President and Director of Zweig Total Return
Advisors, Inc.; Consultant to Avatar
Investors Associates Corp.; Managing
Director of the Managing General Partner of
Zweig-DiMenna Partners, L.P. and
Zweig-DiMenna Special Opportunities, L.P.;
President and Director of Zweig-DiMenna
International Managers, Inc.; Chairman of
Zweig/Glaser Advisers; President of Zweig
Series Trust; President and Director of
Gotham Advisors, Inc.; Chairman of Euclid
Advisors LLC; formerly General Partner of
Zweig-Katzen Investors, L.P.; Member of the
Undergraduate Executive Board of The Wharton
School, University of Pennsylvania.

Annemarie Gilly* 46 Director First Vice President of Zweig/Glaser
900 Third Avenue Advisers; First Vice President of Euclid
New York, NY 10022 Mutual Funds; First Vice President of Zweig
Securities Corp.; First Vice President of
Zweig Series Trust; Director of The Zweig
Total Return Fund, Inc.; formerly Vice
President of Concord Financial Group Inc.

Eugene J. Glaser* 57 Director Chairman and Chief Executive Officer of
900 Third Avenue Zweig Series Trust; President of
New York, NY 10022 Zweig/Glaser Advisers; Chairman, President,
Chief Executive Officer and Trustee of
Euclid Mutual Funds; President of Euclid
Advisers LLC; President and Director of
Zweig Securities Corp.

Elliot S. Jaffe 71 Director Chairman and Chief Executive Officer of The
30 Dunnigan Drive Dress Barn, Inc.; Director of The Zweig
Suffern, NY 1091 Total Return Fund, Inc.; Director of
National Retail Federation; Director of
Shearson Appreciation Fund; Director of
Shearson Managed Governments, Inc.;
</TABLE>

11
<PAGE> 52
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Director of Shearson Income Trust; Director
of Shearson Lehman Small Capitalization
Fund; Director of Stamford Hospital
Foundation; Member of the Board of Overseers
of The School of Arts and Sciences,
University of Pennsylvania; Trustee Teachers
College, Columbia University.

Jeffrey Lazar* 38 Director, Vice Vice President, Treasurer and Secretary of
900 Third Avenue President, Treasurer the Investment Adviser; Vice President,
New York, NY 10022 and Assistant Secretary Treasurer and Director of The Zweig Total
Return Fund, Inc; Vice President, Treasurer
and Secretary of Zweig Total Return
Advisors, Inc.; Vice President of Zweig
Series Trust.

Alden C. Olson 69 Director Director of The Zweig Total Return Fund,
2711 Ramparte Path Inc; Director of First National Bank of
Holt, Michigan 48842 Michigan; formerly, Professor of Financial
Management, Investments at Michigan State
University.

James B. Rogers, Jr. 55 Director Private Investor; Director of The Zweig
352 Riverside Drive Total Return Fund, Inc.; Chairman of Beeland
New York, NY 10025 Interests; Regular Commentator on CNBC;
Author of "Investment Biker: On the Road
with Jim Rogers"; Director of Emerging
Markets Brewery Fund; Director of Levco
Series Trust; Sometimes Visiting Professor
at Columbia University; Columnist for WORTH
Magazine.

Anthony M. Santomero 51 Director Richard K. Mellon Professor of Finance, The
Steinberg-Dietrich Hall Wharton School, University of Pennsylvania;
Wharton School Director of The Zweig Total Return Fund,
University of Pennsylvania Inc.; Director of Municipal Fund for New
Philadelphia, PA 19104 York Investors; Director of Municipal Fund
for California Investors; Trustee of Compass
Capital Funds.

Robert E. Smith* 62 Director Counsel of Rosenman & Colin LLP; Director of
575 Madison Avenue The Zweig Total Return Fund, Inc.; Director
New York, NY 10022 of Ogden Corporation; formerly Secretary of
the Fund and The Zweig Total Return Fund,
Inc.
</TABLE>

<PAGE> 53
<TABLE>
<CAPTION>
<S> <C>
Stuart B. Panish* 41 Vice President and Vice President and Secretary of The Zweig
900 Third Avenue Secretary Total Return Fund, Inc.; Counsel to the
New York, NY 10022 Adviser and Zweig Total Return Advisors,
Inc.; General Counsel to Zweig-DiMenna
Partners, L.P., Zweig-DiMenna Special
Opportunities, L.P. and Zweig-DiMenna
International Managers, Inc.; formerly
Special Counsel-Securities at Rosenman &
Colin LLP.

</TABLE>
* Indicates a person who is an "interested person" of the Fund, as defined in
the 1940 Act. All the interested persons of the Fund (other than Robert E.
Smith) are also owners of the Investment Adviser and Administrator.

The following table sets forth the compensation paid by the Fund and
The Zweig Total Return Fund, Inc. to the Directors for the fiscal year ended
December 31, 1997. The Fund does not pay any pension or retirement benefits to
its Directors.

<TABLE>
<CAPTION>
Aggregate Compensation Aggregate Compensation from the Fund and
Director from the Fund The Zweig Total Return Fund, Inc.
- -------- -------------------------- ---------------------------------
<S> <C> <C>
Elliot S. Jaffe $19,000 $38,000
Alden C. Olson $19,000 $38,000
James B. Rogers, Jr. $16,000 $32,000
Anthony M. Santomero $20,500 $41,000
</TABLE>

EXECUTIVE COMPENSATION

No current or former employees, officers or directors received
remuneration from the Fund in excess of $60,000 in the last fiscal year for
service in all their respective capacities.

LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY

The Fund's Articles of Incorporation limit the personal liability of
its Officers and Directors to the Fund and its shareholders for money damages to
the maximum extent permitted by the Maryland General Corporation Law.
Accordingly, a shareholder will be able to recover money damages against a
Director or Officer of the Fund only if he is able to prove that (a) the action,
or failure to act, by the Director or Officer was the result of active and
deliberate dishonesty which was material to the cause of action adjudicated in
the proceeding, (b) the Director or Officer actually received an improper
benefit or profit in money, property or services (in which case recovery is
limited to the actual amount of such improper benefit or profit), or (c) the
Director or Officer acted with willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of his or her
office. The limitation on liability does not apply to any act or omission by a
Director or Officer occurring prior to February 18, 1988, regardless of when a
claim might be asserted. The limitation also does not apply to claims against
Directors or Officers arising out of their responsibilities under the Federal
securities laws. The Fund's Articles of Incorporation do not limit the right of
the Fund or any shareholder to sue for an injunction or any other nonmonetary
relief in the event of a breach of a Director's or Officer's duty of care or
other breach of duty or responsibility.

13
<PAGE> 54
EXPENSES

For the fiscal years ended December 31, 1997, 1996 and 1995, the Fund's
expenses amounted to $7,224,277, $6,519,079 and $6,290,356, respectively.

Expenses of the Offer will be charged to capital. The Fund's annual
expense ratio was 1.16%, 1.18% and 1.22% of the Fund's net assets for the fiscal
years ended December 31, 1997, 1996 and 1995, respectively.

PORTFOLIO TRANSACTIONS AND BROKERAGE

In the purchase and sale of portfolio securities for the Fund, the
Investment Adviser will seek the best combination of price (inclusive of
brokerage commissions) and execution, and, consistent with that policy, may give
consideration to the research, statistical and other services furnished by
brokers or dealers to the Investment Adviser for its use. The Investment Adviser
is also authorized to place orders with brokers who provide supplemental
investment, market research and security and economic analysis, although the use
of such brokers may result in a higher brokerage charge to the Fund than the use
of brokers selected on the basis of seeking the best combination of price
(inclusive of brokerage commissions) and execution for the same order. Brokerage
may be allocated entirely on the basis of net results to the Fund, including the
difficulty of the order and the reputation of the broker-dealer. Research and
analysis received by the Investment Adviser may benefit the Investment Adviser
and its affiliates in connection with their services to other clients, as well
as the Fund. Subject to the foregoing, the Fund may effect a portion of its
securities transactions through affiliated broker-dealers of the Investment
Adviser, including Zweig Securities Corp., a broker-dealer of which Eugene J.
Glaser, a Director of the Fund, is President, and Martin E. Zweig and Eugene J.
Glaser are the shareholders. In accordance with the provisions of Rule 17e-1 of
the 1940 Act, the Fund's Board of Directors has adopted certain procedures which
are designed to provide that brokerage commissions paid to Zweig Securities
Corp. and any other affiliated broker-dealer are reasonable and fair as compared
to the brokerage commissions received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
securities exchanges during a comparable period of time. The Fund, however, has
no obligation to deal with Zweig Securities Corp. or any other broker-dealer in
effecting portfolio transactions.

The Fund paid brokerage commissions of $1,295,050 to brokers for the
year ended December 31, 1997, of which $182,134 was paid to Zweig Securities
Corp., representing 14.06% of the aggregate brokerage commissions paid by the
Fund and 14.83% of the aggregate amount of transactions involving the payment of
commissions for such year. The Fund paid brokerage commissions of $1,446,356 to
brokers for the year ended December 31, 1996, of which $134,919 was paid to
Zweig Securities Corp , representing 9.33% of the aggregate brokerage
commissions paid by the Fund and 8.88% of the aggregate amount of transactions
involving the payment of commissions for such year The Fund paid brokerage
commissions of $1,413,504 to brokers for the year ended December 31, 1995, of
which $225,075 was paid to Watermark Securities, Inc., representing 15.92% of
the aggregate brokerage commissions paid by the Fund and 17.31% of the aggregate
amount of transactions involving the payment of commissions for such year.
Martin E. Zweig is a principal shareholder of Watermark Securities, Inc.

A portion of the securities in which the Fund will invest may be traded
in the over-the-counter markets, and the Fund intends to deal directly with the
dealers who make markets in the securities involved, except in

14
<PAGE> 55
those circumstances where better prices and execution are available elsewhere.
Fixed income securities purchased or sold on behalf of the Fund normally will be
traded in the over-the-counter market on a net basis (i.e. without a commission)
through dealers acting for their own account and not as brokers or otherwise
through transactions directly with the issuer of the instrument. Some fixed
income securities may be purchased and sold on an exchange or in
over-the-counter transactions conducted on an agency basis involving a
commission. Futures transactions generally will be effected through those
futures commission merchants the Fund believes will obtain the most favorable
results for the Fund.

When the Fund and one or more accounts managed by the Investment
Adviser or its affiliates propose to purchase or sell the same security, the
available opportunities will be allocated in a manner the Investment Adviser
believes to be equitable. In some cases, this procedure may affect adversely the
price paid or received by the Fund or the size of the position purchased or sold
by the Fund. In other cases, coordination with transactions for other accounts
and the ability to participate in volume transactions could benefit the Fund.

PORTFOLIO TURNOVER

The Fund's portfolio turnover rates for the fiscal years ended December
31, 1997, December 31, 1996 and December 31, 1995 were 93.0%, 137.2% and 160.2%,
respectively. Portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities by the monthly
average value of securities in the portfolio during the year, excluding
portfolio securities the maturities of which at the time of acquisition were one
year or less. Portfolio turnover will not be a limiting factor in making
investment decisions, and the Fund's investment policies may result in portfolio
turnover substantially greater than that of other investment companies. A high
rate of portfolio turnover (over 100%) involves greater brokerage commission
expense, which must be borne by the Fund and its shareholders. A high rate of
portfolio turnover may also result in the realization of capital gains, and to
the extent that portfolio turnover results in the realization of net short-term
capital gains, such gains generally are taxed to shareholders at ordinary income
tax rates.

NET ASSET VALUE

The net asset value of the Fund's shares will be determined by the
Administrator as of the close of regular trading on the New York Stock Exchange,
on each day the Exchange is open for trading, by dividing the Fund's total
assets, less the Fund's total liabilities, by the total number of Shares
outstanding. Net asset value will be published weekly in a financial newspaper
of general circulation.

Portfolio securities (including stock options) 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 Systems securities will be
valued at the last sale price. Other over-the-counter securities will be valued
on the basis of the mean between the current bid and asked prices obtained from
market makers in such securities. Debt securities that mature in 60 days or less
will be valued at amortized cost, unless the Board of Directors determines that
such valuation does not constitute fair value. Debt securities that have an
original maturity of less than 61 days will be valued at their cost, plus or
minus amortized discount or premium, unless the Board of Directors determines
that such valuation does not constitute fair value. Futures and options thereon
which are traded on commodities exchanges will be valued at their closing
settlement price on such exchange. Securities and assets for which market
quotations are not readily available, and other assets, if any, will be valued
at fair

15
<PAGE> 56
value as determined in good faith and pursuant to procedures established by the
Board of Directors of the Fund.

The outstanding shares of Common Stock are, and the Shares will be,
listed on the New York Stock Exchange Incorporated and the Pacific Exchange. The
Fund's Shares of Common Stock have traded in the market above, at and below net
asset value since the commencement of the Fund's operations in October 1986.
During the past nine years, the Fund's shares have generally traded in the
market at a premium above net asset value; however, the Fund's officers cannot
predict whether the Fund's Common Stock will trade in the future at a premium or
a discount to net asset value, and if so, the level of such premium or discount.

TAXATION

The following is a summary of the principal U.S. Federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares of the Fund. The summary does not address special tax
rules applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Each prospective shareholder is
urged to consult his or her own tax adviser with respect to the specific
Federal, state, local and foreign tax consequences of investing in the Fund. The
summary is based on the laws in effect on the date of this SAI, which are
subject to change.

GENERAL

The Fund has elected to be treated, has qualified and intends to
continue to qualify for each taxable year, as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To so qualify, the Fund must comply with certain requirements of the
Code relating to, among other things, the source of its income and the
diversification of its assets.

If the Fund complies with such requirements, then in any taxable year
for which the Fund distributes, in accordance with the Code's timing
requirements, ordinary income dividends of at least 90% of its investment
company taxable income, the Fund (but not its shareholders) will be relieved of
Federal income tax on any income of the Fund, including capital gains, that is
distributed to shareholders in accordance with the Code's requirements. However,
if the Fund retains any investment company taxable income or net capital gain,
it will be subject to a tax at regular corporate rates on the amount retained.
If the Fund retains any net capital gain, the Fund may designate the retained
amount as undistributed capital gains in a notice to its shareholders who, if
subject to U.S. Federal income tax on capital gains, (i) will be required to
include in income for Federal income tax purposes, as capital gain, their shares
of such undistributed amount, and (ii) will be entitled to credit their
proportionate shares of the tax paid by the Fund against their U.S. Federal
income tax liabilities, if any, and to claim refunds to the extent the credit
exceeds such liabilities. For U.S. Federal income tax purposes, the tax basis of
shares owned by a shareholder of the Fund will be increased by an amount equal
under current law to 65% of the amount of undistributed net capital gain
included in the shareholder's gross income.

In order to avoid a 4% Federal excise tax, the Fund must distribute (or
be deemed to have distributed) by December 31 of each calendar year at least 98%
of its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses, and all taxable ordinary income and the
excess of capital gains over capital losses for the previous year that were not
distributed for such year and on which the Fund did not pay Federal income

16
<PAGE> 57
tax. The Fund intends to distribute at least annually to its shareholders all or
substantially all of its investment company taxable income and its net capital
gain, but reserves the right to retain and designate as described in the above
paragraph, its net capital gain.

The Fund's investments, if any, in securities issued at a discount or
providing for deferred interest payments or payments of interest in kind will
generally cause the Fund to realize income prior to the receipt of cash payments
with respect to these securities. Mark to market rules applicable to certain
options and futures contracts may also require that net gains be recognized
without a concurrent receipt of cash. In order to obtain cash to distribute its
income or gains, maintain its qualification as a regulated investment company
and avoid Federal income or excise taxes, the Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold.

TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS

For U.S. Federal income tax purposes, distributions by the Fund,
whether reinvested in additional shares or paid in cash, generally will be
taxable to shareholders who are subject to tax.

Distributions from the Fund's investment company taxable income will be
taxable as ordinary income, and generally cannot be offset by capital losses.
For corporate shareholders, distributions designated as derived from the Fund's
dividend income that would be eligible for the dividends received deduction if
the Fund were not a regulated investment company will be eligible, subject to
certain holding period and debt-financing restrictions, for the 70% dividends
received deduction. (However, the entire dividend, including the deducted
amount, is includable in determining a corporate shareholder's alternative
minimum taxable income.) So long as the Fund qualifies as a regulated investment
company and satisfies the 90% distribution requirement, capital gain dividends
if properly designated as such in a written notice to shareholders mailed not
later than 60 days after the Fund's taxable year closes, will be taxed to
shareholders as capital gain which, as to non-corporate shareholders, will be
taxable at maximum marginal Federal income tax rates of (i) 28% for the portion
of such dividends designated by the Fund as a 28% rate gain distribution, and
(ii) 20% for the portion of such dividends designated by the Fund as a 20% rate
gain distribution, respectively, regardless of how long the shareholder has held
his or her Fund shares. Distributions, if any, that are in excess of the Fund's
current and accumulated earnings and profits, as computed for Federal income tax
purposes, will first reduce a shareholder's tax basis in his or her shares and,
after such basis is reduced to zero, will constitute capital gains to a
shareholder who holds his or her shares as capital assets.

All distributions, whether received in shares or in cash, as well as
sales and exchanges of Fund shares, must be reported by each shareholder who is
required to file a U.S. Federal income tax return. For Federal income tax
purposes, dividends declared by the Fund in October, November or December to
shareholders on a specified date in such a month and paid during January of the
following year are treated as if they were paid by the Fund and received by such
shareholders on December 31 of the year declared. In addition, certain other
distributions made after the close of a taxable year may be "spilled back" and
treated as paid by the Fund (other than for purposes of avoiding the 4% excise
tax) during such year. Such dividends would be taxable to the shareholders in
the taxable year in which the distribution was actually made by the Fund.

The Fund will send written notices to shareholders regarding the amount
and Federal income tax status of all distributions made during each calendar
year.

17
<PAGE> 58
With respect to distributions paid in cash or, for shareholders
participating in the Distribution Reinvestment and Cash Purchase Plan (the
"Plan"), reinvested in shares purchased in the open market, the amount of the
distribution for tax purposes is the amount of cash distributed or allocated to
the shareholder. With respect to distributions issued in shares of the Fund, the
amount of the distribution for tax purposes is the fair market value of the
issued shares on the payment date.

Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares and may also reduce their market value. Should a
distribution reduce the net asset value or market value below a shareholder's
cost basis, such distribution (to the extent paid from the Fund's current or
accumulated earnings and profits) would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. Since the market price of shares
purchased at that time may include the amount of any forthcoming distribution,
investors purchasing shares just prior to a distribution will in effect receive
a return of a portion of their investment in the form of a distribution which
nevertheless will be taxable to them.

18
<PAGE> 59
TAXABLE U.S. SHAREHOLDERS - SALE OF SHARES

When a shareholder's shares are sold, exchanged or otherwise disposed
of, the shareholder will generally recognize gain or loss equal to the
difference between the shareholder's adjusted tax basis in the shares and the
cash, or fair market value of any property, received. Assuming the shareholder
holds the shares as a capital asset at the time of such sale or other
disposition, such gain or loss should be capital gain or loss which will be
long-term if the shares were held for more than 18 months, mid-term if the
shares were held between 12 and 18 months, and short-term if the shares were
held for 12 months or less. For non-corporate shareholders, short-term gain is
taxable at a maximum marginal Federal income tax rate of 39.6%, whereas mid-term
and long-term capital gains qualify for lower maximum marginal Federal income
tax rates (i.e., 28% and 20%, respectively). However, it currently appears that
any loss realized on the sale, exchange or other disposition of Fund shares with
a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividend received by the selling
shareholder with respect to such shares, even if part or all of such dividend
was taxed at the 28% rate applicable to mid-term capital gains as discussed
under the preceding subheading. Additionally, any loss realized on a sale or
other disposition of shares of the Fund may be disallowed under "wash sale"
rules to the extent the shares disposed of are replaced with other shares of the
Fund within a period of 61 days beginning 30 days before and ending 30 days
after the shares are disposed of, such as pursuant to a distribution
reinvestment in shares of the Fund under the Plan. If disallowed, the loss will
be reflected in an adjustment to the basis of the shares acquired.

BACKUP WITHHOLDING

The Fund will be required to report to the Internal Revenue Service all
distributions, as well as gross proceeds from the sale or exchange of Fund
shares with respect to which the Fund is a payor (such as pursuant to a tender
offer), except in the case of certain exempt recipients, i.e., corporations and
certain other investors to which distributions are exempt from the information
reporting provisions of the Code. Under the backup withholding provisions of
Code Section 3406 and applicable Treasury regulations, all such reportable
distributions and proceeds may be subject to backup withholding of Federal
income tax at the rate of 31% in the case of nonexempt shareholders who fail to
furnish the Fund with their correct taxpayer identification number and with
certain required certifications or if the Internal Revenue Service or a broker
notifies the Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding as a result of failure to
report interest or dividend income. The Fund may refuse to accept any
subscription that does not contain any required taxpayer identification number
or certification that the number provided is correct. If the backup withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in shares, will be reduced by the amounts required to be
withheld. Any amounts withheld would be credited against a shareholder's U.S.
Federal income tax liability. Investors should consult their tax advisers about
the applicability of the backup withholding provisions.

NON-U.S. SHAREHOLDERS

The foregoing discussion relates solely to U.S. Federal income tax law
as it applies to "U.S. persons" (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. Dividends of investment company taxable income distributed by the Fund
to a shareholder who is not a U.S. person will be subject to U.S. withholding
tax at the rate of 30% (or a lower rate provided by an applicable tax treaty)
unless the dividends are effectively connected with a U.S. trade or business of
the

19
<PAGE> 60
shareholder, in which case the dividends will be subject to tax on a net income
basis at the graduated rates applicable to U.S. individuals or domestic
corporations and, in the case of a shareholder that is a foreign corporation,
may be subject to U.S. "branch profit tax." Capital gain distributions,
including amounts retained by the Fund which are designated as undistributed
capital gains, to a non-U.S. shareholder will not be subject to U.S. income or
withholding tax unless the distributions are effectively connected with the
shareholder's trade or business in the U.S. or, in the case of a shareholder who
is a nonresident alien individual, the shareholder is present in the U.S. for
183 days or more during the taxable year and certain other conditions are met.

Any gain realized by a shareholder who is not a U.S. person upon a sale
or other disposition of shares of the Fund will not be subject to U.S. Federal
income or withholding tax unless the gain is effectively connected with the
shareholder's trade or business in the U.S., or in the case of a shareholder who
is a nonresident alien individual, the shareholder is present in the U.S. for
183 days or more during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish the Fund with an IRS Form W-8 or acceptable
substitute Form W-8 may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of certain sales of their shares with
respect to which the Fund is a payor (such as pursuant to a tender offer).
Investors who are not U.S. persons should consult their tax advisers about the
U.S. and non-U.S. tax consequences of ownership of shares of, and receipt of
distributions from, the Fund.

STATE AND LOCAL TAXES

The Fund may be subject to state or local taxes in jurisdictions in
which the Fund may be deemed to be doing business. In addition, in those states
or localities which have income tax laws, the treatment of the Fund and its
shareholders under such laws may differ from their treatment under Federal
income tax laws, and an investment in the Fund may have tax consequences for
shareholders different from those of a direct investment in the Fund's portfolio
securities. Shareholders should consult their own tax advisers concerning these
matters.

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P., 1301 Avenue of the Americas, New York, New
York 10019, serves as the independent accountants for the Fund. In addition to
reporting annually on the financial statements of the Fund, the Fund's
accountants also review certain filings of the Fund with the Commission.

PRINCIPAL SHAREHOLDERS

There are no persons known to the Fund to be control persons of the
Fund, as such term is defined in Section 2(a)(9) of the 1940 Act. There is no
person known to the Fund to hold beneficially more than 5% of the outstanding
shares of the Fund. The following person is the only person holding of record
more than 5% of the 53,186,244 outstanding shares of the Fund as of March 31,
1998:

AMOUNT OF PERCENT
NAME AND ADDRESS OF RECORD OF
RECORD OWNER OWNERSHIP CLASS
Cede & Co. 35,164,281 66.1%
7 Hanover Square

20
<PAGE> 61
New York, New York 10004

As of March 31, 1998, the current Directors and Officers of the Fund,
as a group, beneficially owned less than 1% of the Fund's outstanding shares.

21
<PAGE> 62
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997

<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------ ------------
<S> <C> <C> <C>
COMMON STOCKS 87.30%
AEROSPACE & DEFENSE 0.35%
Raytheon Co., Class A ................................................ 47,430 $ 2,338,892
------------
AUTOMOTIVE 4.54%
Chrysler Corp. ....................................................... 134,400 4,729,200
Ford Motor Co. ....................................................... 243,100 11,835,931
General Motors Corp. ................................................. 147,600 8,948,250
Volvo AB, ADR ........................................................ 175,100 4,727,700
------------
30,241,081
------------
CHEMICALS 2.92%
Albemarle Corp. ...................................................... 79,800 1,905,225
B.F. Goodrich Co. .................................................... 73,300 3,037,369
Dow Chemical Co. ..................................................... 68,100 6,912,150
Millennium Chemicals, Inc. ........................................... 87,700 2,066,431
Rohm and Haas Co. .................................................... 46,000 4,404,500
Wellman, Inc. ........................................................ 58,600 1,142,700
------------
19,468,375
------------
CONSUMER DURABLES 1.94%
Cooper Tire & Rubber Co. ............................................. 193,500 4,716,563
Goodyear Tire & Rubber Co. ........................................... 56,700(b) 3,607,537
Huffy Corp. .......................................................... 28,500 384,750
Whirlpool Corp. ...................................................... 77,000 4,235,000
------------
12,943,850
------------
CONTAINERS & PACKAGING 0.12%
Sea Containers Ltd., Class A ......................................... 25,200 806,400
------------
ELECTRONICS 0.88%
General Motors Corp., Class H ........................................ 67,600 2,496,975
Hitachi Ltd., ADR .................................................... 12,200 844,088
Philips Electronics N.V., ADR ........................................ 41,400 2,504,700
------------
5,845,763
------------
FINANCIAL SERVICES 11.29%
A.G. Edwards & Sons, Inc. ............................................ 184,650 7,339,837
Bear, Stearns & Co., Inc. ............................................ 231,736 11,007,460
Charter One Financial, Inc. .......................................... 41,185 2,599,803
Fremont General Corp. ................................................ 67,050 3,670,988
H. F. Ahmanson & Co. ................................................. 146,600 9,813,037
Lincoln National Corp. ............................................... 43,300 3,382,813
Old Republic International Corp. ..................................... 99,500 3,700,156
Orion Capital Corp. .................................................. 58,000 2,693,375
</TABLE>

F-1
<PAGE> 63
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS--(Continued)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------ ------------
<S> <C> <C> <C>
FINANCIAL SERVICES--(Continued)
PaineWebber Group Inc. ............................................... 235,000 $ 8,122,188
PIMCO Advisors L.P., Class A ......................................... 47,600 1,436,925
Providian Corp. ...................................................... 176,200 7,962,038
Selective Insurance Group, Inc. ...................................... 48,000 1,296,000
St. Paul Bancorp Inc. ................................................ 26,700 700,875
Travelers Group Inc. ................................................. 213,229 11,487,712
------------
75,213,207
------------
FOOD & BEVERAGE 0.48%
Adolph Coors Co., Class B ............................................ 95,400 3,172,050
------------
HOME BUILDERS & MATERIALS 0.56%
Kaufman & Broad Home Corp. ........................................... 98,600 2,212,338
Lafarge Corp. ........................................................ 50,400 1,489,950
------------
3,702,288
------------
INDUSTRIAL SERVICES 1.26%
Browning-Ferris Industries Inc. ...................................... 175,000 6,475,000
Ogden Corp. .......................................................... 67,600 1,905,475
------------
8,380,475
------------
INVESTMENT COMPANIES 4.66%
Argentina Fund, Inc. ................................................. 49,100 641,369
Blackrock 2001 Term Trust, Inc. ...................................... 52,600 453,675
Blackrock Strategic Term Trust, Inc. ................................. 52,600 447,100
Brazil Fund, Inc. .................................................... 59,500 1,249,500
Central European Equity Fund, Inc. ................................... 46,400 849,700
Chile Fund, Inc. ..................................................... 61,400 1,093,687
Clemente Global Growth Fund, Inc. .................................... 23,400 220,838
Emerging Markets Infrastructure Fund, Inc. ........................... 158,200 1,858,850
Emerging Markets Telecommunications Fund, Inc. ....................... 61,500 822,562
Emerging Mexico Fund, Inc. ........................................... 36,200 384,625
G.T. Global Eastern Europe Fund ...................................... 43,100 544,138
Gabelli Equity Trust, Inc. ........................................... 89,800 1,049,538
Gabelli Global Multimedia Trust Fund, Inc. ........................... 99,700 872,375
India Fund, Inc. ..................................................... 48,100 354,737
Italy Fund, Inc. ..................................................... 29,700 319,275
Latin American Discovery Fund, Inc. .................................. 56,200 1,008,088
Mexico Equity & Income Fund, Inc. .................................... 21,500 229,781
Mexico Fund, Inc. .................................................... 173,900 3,575,818
Morgan Stanley Asia-Pacific Fund, Inc. ............................... 121,900 906,631
Morgan Stanley Emerging Markets Fund, Inc. ........................... 152,300 1,989,419
Morgan Stanley India Investment Fund, Inc. ........................... 40,000 335,000
</TABLE>

F-2
<PAGE> 64
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------ ------------
<S> <C> <C> <C>
INVESTMENT COMPANIES--(Continued)
New Germany Fund, Inc. ............................................... 125,400 $ 1,692,900
Portugal Fund, Inc. .................................................. 38,200 604,038
Royce Value Trust, Inc. .............................................. 144,155 2,171,334
Southern Africa Fund, Inc. ........................................... 34,400 434,300
Spain Fund, Inc. ..................................................... 23,900 346,550
Swiss Helvetia Fund, Inc. ............................................ 77,000 2,112,688
Taiwan Fund, Inc. .................................................... 94,800 1,564,200
Templeton China World Fund, Inc. ..................................... 47,000 393,625
Templeton Dragon Fund, Inc. .......................................... 157,500 1,693,125
Tri-Continental Corp. ................................................ 30,700 819,306
------------
31,038,772
------------
LEISURE 0.79%
Brunswick Corp. ...................................................... 95,800 2,903,937
Royal Caribbean Cruises Ltd. ......................................... 44,300 2,361,744
------------
5,265,681
------------
LODGING 0.11%
Marcus Corp. ......................................................... 41,550 766,078
------------
MANUFACTURING 5.89%
Aeroquip-Vickers, Inc. ............................................... 57,300 2,811,281
Borg-Warner Automotive, Inc. ......................................... 52,700 2,740,400
Brown Group, Inc. .................................................... 59,000 785,437
Cummins Engine Company, Inc. ......................................... 110,400 6,520,500
Dexter Corp. ......................................................... 36,700 1,584,981
Excel Industries, Inc. ............................................... 38,500 695,406
Herman Miller, Inc. .................................................. 92,600 5,052,488
Johnson Controls, Inc. ............................................... 55,800 2,664,450
PACCAR, Inc. ......................................................... 77,800 4,084,500
Simpson Industries, Inc. ............................................. 43,000 505,250
Standard Products Co. ................................................ 46,300 1,186,438
Timken Co. ........................................................... 166,000 5,706,250
Trinity Industries, Inc. ............................................. 110,400 4,926,600
------------
39,263,981
------------
METALS & MINING 3.58%
AK Steel Holdings Corp. .............................................. 137,000 2,423,188
Alcan Aluminium Ltd. ................................................. 135,300 3,737,662
ASARCO, Inc. ......................................................... 105,100 2,358,181
Birmingham Steel Corp. ............................................... 59,100 930,825
British Steel Plc, ADR ............................................... 128,700 2,759,006
Cleveland-Cliffs, Inc. ............................................... 14,700 673,444
Cyprus Amax Minerals Co. ............................................. 87,000 1,337,625
Oregon Steel Mills, Inc. ............................................. 110,800 2,361,425
Quanex Corp. ......................................................... 17,700 497,813
USX-U.S. Steel Group ................................................. 216,700 6,771,875
------------
23,851,044
------------
</TABLE>

F-3
<PAGE> 65
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS--(Continued)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------ ------------
<S> <C> <C> <C>
OIL & OIL SERVICES 13.08%
Ashland Inc. ......................................................... 141,500 $ 7,596,781
Atlantic Richfield Co. ............................................... 96,600 7,740,075
Elf Aquitaine S.A., ADR .............................................. 97,700 5,727,663
Equitable Resources, Inc. ............................................ 44,300 1,567,112
Helmerich & Payne, Inc. .............................................. 49,400 3,353,025
Mobil Corp. .......................................................... 53,700 3,876,469
Murphy Oil Corp. ..................................................... 64,700 3,505,931
Occidental Petroleum Corp. ........................................... 205,400 6,020,787
Pennzoil Co. ......................................................... 124,600(b) 8,324,838
Phillips Petroleum Co. ............................................... 61,400 2,985,575
Royal Dutch Petroleum Co., ADR ....................................... 135,200 7,326,150
Sun Company, Inc. .................................................... 260,300 10,948,869
USX-Marathon Group ................................................... 279,800 9,443,250
YPF Sociedad Anonima, ADR ............................................ 255,900 8,748,581
------------
87,165,106
------------
PAPER & FOREST PRODUCTS 2.31%
Bowater Inc. ......................................................... 126,300 5,612,456
Fort James Corp. ..................................................... 179,400 6,862,050
International Paper Co. .............................................. 54,700(b) 2,358,938
Pope & Talbot, Inc. .................................................. 35,200 530,200
------------
15,363,644
------------
RETAIL TRADE & SERVICES 2.35%
Dayton Hudson Corp. .................................................. 104,100 7,026,750
Ross Stores, Inc. .................................................... 74,600 2,713,575
Shopko Stores Inc. ................................................... 68,400 1,487,700
Supervalu Inc. ....................................................... 106,500 4,459,687
------------
15,687,712
------------
TECHNOLOGY 3.21%
Applied Materials Inc. ............................................... 41,600(a) 1,253,200
Dell Computer Corp. .................................................. 72,000(a)(b) 6,048,000
Digital Equipment Corp. .............................................. 57,600(a) 2,131,200
Harris Corp. ......................................................... 81,600 3,743,400
Intel Corp. .......................................................... 45,600 3,203,400
Microsoft Corp. ...................................................... 38,700(a) 5,001,975
------------
21,381,175
------------
TELECOMMUNICATIONS 4.65%
BCE Inc. ............................................................. 79,000 2,631,688
Comsat Corp. ......................................................... 174,400 4,229,200
Telecomunicacoes Brasileiras, S.A., ADR .............................. 47,900 5,577,356
</TABLE>

F-4
<PAGE> 66
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------ ------------
<S> <C> <C> <C>
TELECOMMUNICATIONS--(Continued)
Telefonica de Espana, S.A., ADR ...................................... 90,500 $ 8,241,156
Telefonos de Mexico, S.A., ADR ....................................... 184,400(b) 10,337,925
------------
31,017,325
------------
TOBACCO 1.69%
RJR Nabisco Holdings Corp. ........................................... 264,600 9,922,500
Universal Corp. ...................................................... 32,300 1,328,338
------------
11,250,838
------------
TRANSPORTATION 5.04%
British Airways Plc, ADR ............................................. 18,600 1,742,588
Caliber Systems, Inc. ................................................ 168,300 8,194,106
Canadian Pacific Ltd. ................................................ 232,500 6,335,625
CNF Transportation, Inc. ............................................. 143,300 5,499,137
GATX Corp. ........................................................... 41,300 2,996,831
KLM Royal Dutch Airlines N.V., ADR ................................... 61,933 2,337,971
Rollins Truck Leasing Corp. .......................................... 52,300 934,863
Ryder System, Inc. ................................................... 168,500 5,518,375
------------
33,559,496
------------
UTILITIES-ELECTRIC & NATURAL GAS 15.60%
Allegheny Energy, Inc. ............................................... 64,700 2,102,750
American Electric Power Co., Inc. .................................... 59,800 3,087,175
Columbia Gas System, Inc. ............................................ 92,200 7,243,463
CMS Energy Corp. ..................................................... 167,200 7,367,250
DQE Inc. ............................................................. 85,950 3,018,993
DTE Energy Co. ....................................................... 99,100 3,437,531
Edison International ................................................. 294,500 8,006,719
FPL Group, Inc. ...................................................... 129,600 7,670,700
FirstEnergy Co. ...................................................... 99,700 2,891,300
GPU, Inc. ............................................................ 240,700 10,139,487
IPALCO Enterprises, Inc. ............................................. 16,200 679,388
New York State Electric & Gas Corp. .................................. 228,000 8,094,000
Pacific Enterprises .................................................. 61,300 2,306,412
PacifiCorp. .......................................................... 92,500 2,526,406
PECO Energy Co. ...................................................... 134,500 3,261,625
PG&E Corp. ........................................................... 199,100 6,060,106
Pinnacle West Capital Corp. .......................................... 166,900 7,072,388
PP&L Resources, Inc. ................................................. 143,400 3,432,637
Public Service Co. of New Mexico ..................................... 101,600 2,406,650
Sierra Pacific Resources ............................................. 59,800 2,242,500
Transcanada Pipelines Ltd. ........................................... 101,500 2,271,063
United Illuminating Co. .............................................. 29,300 1,345,969
UtiliCorp United Inc. ................................................ 88,100 3,419,381
Valero Energy Corp. .................................................. 124,500 3,913,969
------------
103,997,862
------------
TOTAL COMMON STOCKS (Cost $465,868,041) ........................................ 581,721,095
------------
</TABLE>

F-5
<PAGE> 67
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS--(Concluded)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
------------ ------------
<S> <C> <C> <C>
UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS 7.58%
Federal National Mortgage Association, 6.85%, 4/5/2004 ............... $ 2,765,000 $ 2,888,565
United States Treasury Bonds, 10.75%, 5/15/2003 ...................... 4,000,000 4,912,500
United States Treasury Bonds, 7.25%, 8/15/2022 ....................... 4,300,000 4,967,842
United States Treasury Bonds, 7.50%, 11/15/2024 ...................... 17,600,000 21,054,000
United States Treasury Notes, 6.875%, 5/15/2006 ...................... 7,500,000 8,029,687
United States Treasury Notes, 6.50%, 10/15/2006 ...................... 8,300,000 8,694,250
------------
TOTAL UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS
(Cost $48,135,718) ............................................................. 50,546,844
------------
SHORT-TERM INVESTMENTS 4.05%
Baker Hughes, Inc., 6.70%, 1/02/98 (cost $26,994,975) ................ 27,000,000 26,994,975
------------
TOTAL INVESTMENTS (Cost $540,998,734) - 98.93% ................................. $659,262,914
Other Assets less liabilities - 1.07% .......................................... 7,102,877
------------
NET ASSETS - 100.00% ........................................................... $666,365,791
============

<CAPTION>
NUMBER OF
SHARES
------------
<S> <C> <C>
SECURITIES SOLD SHORT (NOTE 1D)
Goodyear Tire & Rubber Co. ........................................... 56,700(b) $ 3,607,537
International Paper Co. .............................................. 54,700(b) 2,358,938
Pennzoil Co. ......................................................... 46,400(b) 3,100,100
Telefonos de Mexico, S.A., ADR. ...................................... 59,800(b) 3,352,537
W.E.B.S. Index Fund, Inc. - Hong Kong Series ......................... 184,900 2,010,788
-----------
TOTAL SECURITIES SOLD SHORT (Proceeds $15,767,296) ............................ $14,429,900
===========
</TABLE>

- ------------
(a) Non-income producing security.
(b) Short "against the box" or used as collateral on short sales.

For Federal income tax purposes, the tax basis of investments owned at
December 31, 1997 was $541,235,757 and net unrealized appreciation on
investments consisted of:

Gross unrealized appreciation ................. $128,071,973
Gross unrealized depreciation ................. (10,044,816)
------------
Net unrealized appreciation ................... $118,027,157
============

See notes to financial statements.

F-6
<PAGE> 68
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31,1997

<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost $540,998,734) ............... $659,262,914
Cash ............................................................... 1,159,922
Dividends and interest receivable .................................. 4,272,330
Deposits with broker for securities sold short ..................... 16,792,950
Prepaid expenses ................................................... 44,361
------------
Total Assets .................................................. 681,532,477
------------
LIABILITIES:
Accrued advisory fees (Note 3) ..................................... 471,253
Accrued administration fees (Note 3) ............................... 2,361
Other accrued expenses ............................................. 263,172
Securities sold short, at value (proceeds $15,767,296) ............. 14,429,900
------------
Total Liabilities ............................................. 15,166,686
------------
NET ASSETS ............................................................... $666,365,791
============
NET ASSET VALUE, PER SHARE:
($666,365,791/52,765,559 shares outstanding--Note 4) ..................... $ 12.63
============
Net Assets consist of:
Capital paid-in .................................................... $532,026,118
Undistributed net investment income ................................ 9,497,801
Undistributed net realized gain on investments ..................... 5,240,296
Net unrealized appreciation on investments and securities sold short 119,601,576
------------
$666,365,791
============
</TABLE>

See notes to financial statements.

F-7
<PAGE> 69
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends .............................................................. $ 14,155,484
Interest ............................................................... 11,091,944
------------
Total Income ....................................................... 25,247,428
------------
Expenses:
Investment advisory fees (Note 3) ...................................... 5,312,237
Administration fees (Note 3) ........................................... 812,460
Transfer agent fees .................................................... 421,292
Printing and postage expenses .......................................... 284,097
Professional fees (Note 3) ............................................. 70,030
Custodian fees ......................................................... 108,770
Directors' fees and expenses (Note 3) .................................. 76,054
Miscellaneous .......................................................... 139,337
------------
Total Expenses ..................................................... 7,224,277
------------
Net Investment Income ............................................ 18,023,151
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments (Note 2):
Security transactions .................................................. 39,417,996
Short sales transactions ............................................... 109,606
Futures transactions ................................................... 4,241,447
------------
Net realized gain on investments ................................... 43,769,049
Increase in unrealized appreciation on investments and securities sold short 61,835,402
------------
Net realized and unrealized gain on investments ........................ 105,604,451
------------
Net increase in net assets resulting from operations ................... $123,627,602
============
</TABLE>

See notes to financial statements.

F-8
<PAGE> 70
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .................................. $ 18,023,151 $ 17,352,662
Net realized gain on investments ....................... 43,769,049 39,254,840
Increase in unrealized appreciation on investments and
securities sold short ............................. 61,835,402 19,492,169
------------- -------------
Net increase in net assets resulting from operations 123,627,602 76,099,671
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................. (16,029,830) (15,101,212)
Net realized gains on investments ...................... (46,130,976) (40,189,126)
------------- -------------
Total dividends and distributions to shareholders .. (62,160,806) (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 .. 15,818,485 20,385,394
------------- -------------
Net increase in net assets ............................. 77,285,281 41,194,727
NET ASSETS:
Beginning of year ...................................... 589,080,510 547,885,783
------------- -------------
End of year (including undistributed net investment
income of $9,497,801 and $6,379,341, respectively) $ 666,365,791 $ 589,080,510
============= =============
</TABLE>

See notes to financial statements.

F-9
<PAGE> 71
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997

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 (which approximates market value).
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 (of which there were none at December 31, 1997) and other
assets, if any, are valued at fair value as determined under procedures approved
by 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
recorded as assets. 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 or liabilities, depending upon whether
unrealized gains or losses are incurred. When a futures contract is closed, the
Fund realizes a 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. There
are several

F-10
<PAGE> 72
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

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. To sell a security short,
the Fund must borrow the security. The Fund's obligation to replace the security
borrowed and sold short will be fully collateralized at all times by the
proceeds from the short sale retained by the broker and by cash and securities
deposited in a segregated account with the Fund's custodian. 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 realized gain will be decreased,
and any incurred loss increased, by the amount of transaction costs. Dividends
or interest the Fund pays in connection with such short sales are recorded as
expenses.

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. During the
year ended December 31, 1997, the Fund reclassified $793,497 from undistributed
net realized gains to undistributed net investment income, $331,642 from capital
paid-in to undistributed net investment income, and $69,619 from capital paid-in
to undistributed net realized gains.

NOTE 2--PORTFOLIO TRANSACTIONS

A. PURCHASES AND SALES

During the year ended December 31, 1997, the Fund entered into purchase and
sale transactions, excluding short-term investments and futures transactions, as
follows:

UNITED STATES
GOVERNMENT
COMMON AND AGENCY
STOCKS OBLIGATIONS
------------ ------------
Cost of Purchases ............... $413,802,818 $108,962,211
============ ============
Proceeds from Sales ............. $331,754,911 $ 87,529,772
============ ============

F-11
<PAGE> 73
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 year ended December 31, 1997, the Fund accrued
advisory fees of $5,312,237.

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 year ended December 31, 1997, the Fund
accrued administration fees of $812,460.

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 incurred legal fees of $17,885 during the year
ended December 31, 1997, 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, 1997, the Fund
paid Zweig Securities Corp. brokerage commissions of $182,134 in connection with
portfolio transactions effected through them. In addition, Zweig Securities
Corp. charged $13,532 in commissions for transactions effected on behalf of the
participants in the Fund's Automatic Reinvestment and Cash Purchase Plan.

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, 1997, the Fund had one class of common stock, par value
$0.10 per share, of which 100,000,000 shares are authorized and 52,765,559
shares are outstanding.

Registered shareholders may elect to receive all distributions in cash paid
by check mailed directly to the shareholder by State Street Bank & Trust Co. 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 State Street, as the Plan agent in whole or
fractional shares of the Fund, as the case may be. For the years ended December
31, 1997 and December 31, 1996, 1,322,870 and 1,892,320 shares, respectively,
were issued pursuant to the Plan.

F-12
<PAGE> 74
On January 2, 1998 the Fund declared a distribution of $0.31 per share
(representing net realized gains and net investment income) to shareholders of
record December 31, 1997. This distribution has an ex-dividend date of January
5, 1998 and is payable January 9, 1998.

NOTE 5--FINANCIAL HIGHLIGHTS

Selected data for a share outstanding throughout each year:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year ... $ 11.45 $ 11.06 $ 10.33 $ 11.68 $ 11.36
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................ 0.35 0.34 0.39 0.24 0.13
Net realized and unrealized
gains (losses) on investments ..... 2.03 1.15 1.41 (0.45) 1.41
------------- ------------- ------------- ------------- -------------
Total from investment operations ..... 2.38 1.49 1.80 (0.21) 1.54
------------- ------------- ------------- ------------- -------------
Dividends and Distributions:
Dividends from net investment income.. (0.31) (0.30) (0.51) (0.03) (0.22)
Distributions from net realized gains
on investments .................... (0.89) (0.80) (0.56) (1.11) (1.00)
------------- ------------- ------------- ------------- -------------
Total Dividends and Distributions .... (1.20) (1.10) (1.07) (1.14) (1.22)
------------- ------------- ------------- ------------- -------------
Net asset value, end of year ......... $ 12.63 $ 11.45 $ 11.06 $ 10.33 $ 11.68
============= ============= ============= ============= =============
Market value, end of year* ........... $ 13.25 $ 10.875 $ 11.25 $ 10.375 $ 13.75
============= ============= ============= ============= =============
Total investment return .............. 34.76% 6.92% 19.83% (16.95)% 16.59%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) ..................... $ 666,366 $ 589,081 $ 547,886 $ 492,004 $ 534,813
Ratio of expenses to average
net assets ........................ 1.16% 1.18% 1.22% 1.25% 1.23%
Ratio of net investment income to
average net assets ................ 2.88% 3.12% 3.62% 2.24% 1.18%
Portfolio turnover rate .............. 93.0% 137.2% 160.2% 257.0% 235.5%
Average commission rate per share
on portfolio transactions ......... $ 0.0589 $ 0.0591 $ 0.0606 N/A N/A
</TABLE>

- ------------
*Closing Price--New York Stock Exchange.

F-13
<PAGE> 75
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 schedule of investments, as of December 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the management of the Fund. 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, 1997, 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, 1997, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

New York, New York
February 4, 1998

F-14
<PAGE> 76
PART C

OTHER INFORMATION

ITEM 24. Financial Statements and Exhibits

(1) Financial Statements: The following financial statements and
schedules of the Registrant included in the Prospectus and/or the Statement of
Additional Information are filed with and made a part of this Registration
Statement: Statement of Assets and Liabilities, December 31, 1997; Statement of
Operations for the fiscal year ended December 31, 1997; Statement of Changes in
Net Assets for the fiscal years ended December 31, 1997 and 1996; Schedule of
Investments, December 31, 1997; Notes to Financial Statements at December 31,
1997; Financial Highlights for the ten fiscal years ended December 31, 1997; all
other schedules are omitted because the information is included elsewhere in the
Prospectus or SAI or is not required.

(2) Exhibits

(a) - Amended and Restated Articles of Incorporation. (Incorporated by
reference to Exhibit (1) of the Registrant's Amendment No. 11 to the
Registrant's Registration Statement (Filed on August 12, 1991, Securities
Act File No. 33-40594; Investment Company Act File No. 811-4739 (
"Amendment No. 11")).

(b) - Amended and Restated By-Laws

(d)(1) - Form of Subscription Certificate (Incorporated by reference to Exhibit
(d)(1) of the Registrants Amendment No. 14 of the Registrant's Registration
Statement (filed on April 8, 1998, Securities Act File No. 333-46955;
Investment Company Act File No. 811-4739; Accession No. 0000950123-98-003553
("Amendment No. 14."))

(d)(2) - Form of Notice of Guaranteed Delivery (Incorporated by reference
to Exhibit (d)(2) of the Registrants Amendment No. 14)

(d)(3) - Form of Nominee Holder Over-Subscription Exercise Form (Incorporated
by reference to Exhibit (d)(3) of the Registrants Amendment No. 14)

(e) - Distribution Reinvestment and Cash Purchase Plan. (Incorporated by
reference to Exhibit (e) to the Registrant's Amendment No. 13 of the
Registrant's Registration Statement (Filed on February 26, 1998, Securities Act
File No. 333-46955; Investment Company Act File No. 811-4739; Accession No.
0000950123-98-002049 ("Amendment No. 13")).

(f) - Not applicable

(g) - Investment Advisory Agreement with Zweig Advisors Inc. dated September
25, 1986. (Incorporated by reference to Exhibit (6) of the Registrant's
Amendment No. 11.)

(h) - Form of Dealer Manager Agreement (Incorporated by reference to Exhibit
(h) of the Registrants Amendment No. 14)

(i) - Not applicable
<PAGE> 77
(j)(1) - Custodian Agreement with The Bank of New York dated as of September 17,
1986. (Incorporated by reference to Exhibit (9) of the Registrant's Amendment
No. 11 )

(j)(2) - Foreign Custody Manager Agreement with The Bank of New York dated as of
December 18, 1997. (Incorporated by reference to Exhibit (j)(2) of the
Registrants Amendment No. 14)

(k)(1) - Administration Agreement with Zweig/Glaser Advisers dated as of
September 1, 1989. (Incorporated by reference to Exhibit (10)(A)(2) of the
Registrant's Amendment No. 11)

(k)(2) - Amendment, dated as of July 1, 1995, to Administration Agreement with
Zweig/Glaser Advisers. (Incorporated by reference to Exhibit (k)(2) of the
Registrant's Amendment No. 13.)

(k)(3) - Stock Transfer Agent Service Agreement with the State Street Bank &
Trust Company dated as of September 1, 1997. (Incorporated by reference to
Exhibit (k)(3) of the Registrant's Amendment No. 13.)

(k)(4) - Form of Subscription Agent Agreement between the Registrant and State
Street Bank & Trust Company. (Incorporated by reference to Exhibit (k)(4) of the
Registrants Amendment No. 14)

(k)(5) - Form of Information Agent Agreement between the Registrant and
Georgeson & Company Inc. (Incorporated by reference to Exhibit (k)(5) of the
Registrants Amendment No. 14)

(l) - Opinion and Consent of Rosenman & Colin LLP (Incorporated
by reference to Exhibit (l) of the Registrants Amendment No. 14)

(m) - Not applicable

(n) - Consent of Coopers & Lybrand L.L.P.

(o) - Not applicable

(p) - Not applicable

(q) - Not applicable

(r) - Financial Data Schedule(Incorporated by reference to Exhibit (r) of the
Registrant's Amendment No. 13.)

(s) - Powers of Attorney(Incorporated by reference to Exhibit (s) of the
Registrant's Amendment No. 13.)

ITEM 25. Marketing Arrangements

See Section 4 of Exhibit 2(h) of this Registration Statement.

ITEM 26. Other Expenses of Issuance and Distribution
<PAGE> 78
The following table sets forth the estimated expenses expected to be incurred in
connection with the offering described in this Registration Statement:

<TABLE>
<CAPTION>
CATEGORY ESTIMATED EXPENSES
-------- ------------------
<S> <C>
Printing Fees $ 155,000
Dealer Manager Expense
Reimbursement $ 82,500
Legal Fees $ 40,000
Registration Fees $ 37,500
Information Agent Fees $ 41,500
Subscription Agent Fees $ 335,000
Miscellaneous $ 1,500
Stock Exchange Listing Fees $ 27,000
---------
$ 720,000
=========
</TABLE>

ITEM 27. Persons Controlled by or Under Common Control with
Registrant

None.

ITEM 28. Number of Holders of Securities as of March 31,1998

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TITLE OF CLASS NUMBER OF RECORD HOLDERS
- --------------------------------------------------------------------------------
<S> <C>
Common Stock, par value $0.10 per share 19,869
- --------------------------------------------------------------------------------
</TABLE>

<PAGE> 79
ITEM 29. Indemnification

Under Article VI, Sections 4 through 7, of the Registrant' Articles of
Incorporation and Article V, Section 1, of the Registrant's By-Laws, any past or
present director or officer of the Registrant will be indemnified, and will be
advanced expenses, to the fullest extent permitted by Maryland law, but not in
violation of section 17(h) or 17(i) of the Investment Company Act of 1940, as
amended.

As permitted by Section 2-418(k) of the Maryland General Corporation Law,
Article V, Section 3, of the Registrant's By-Laws provides that the Registrant
shall have the power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Registrant or who,
while a director, officer, employee or agent of the Registrant, is or was
serving at the request of the Registrant as a director, officer, partner,
trustee, employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, enterprise or employee benefit plan, against any liability
asserted against and incurred by him or her in any such capacity, or arising out
of his or her status as such, provided that no insurance may be obtained by the
Registrant for liabilities against which it would not have the power to
indemnify him or her under the Section of the By-Laws regarding indemnification
or applicable law.

ITEM 30. Business and Other Connections of Investment Adviser

The Registrant is fulfilling the requirement of this Item 30 to describe
briefly any other business, vocation or employment of a substantial nature in
which the Investment Adviser of the Registrant, and each director, executive
officer, or partner of the Investment Adviser, is, or has been, at any time
during the past two fiscal years, engaged for his or her own account or in the
capacity of director, officer, employee, partner or trustee by incorporating by
reference the information about Martin Zweig and Jeffrey Lazar contained in the
SAI. See "Management - Directors and Officers."

ITEM 31. Location of Accounts and Records

A. Zweig Advisors Inc.
900 Third Avenue
New York, N.Y. 10022
(corporate records of the Registrant and records relating to the
function of Zweig Advisors Inc. as Investment Adviser to the
Registrant).

B. Zweig/Glaser Advisers
900 Third Avenue
New York, N.Y. 10022
(records relating to its function as Administrator to the Registrant).

C. State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its function as the Registrant's Dividend Paying
Agent, Distribution Reinvestment and Cash Purchase Plan Agent, Transfer
Agent and Registrar).

D. The Bank of New York
48 Wall Street
<PAGE> 80
New York, N.Y. 10015
(records relating to its function as Custodian of the Registrant)

ITEM 32. Management Services

Not applicable

ITEM 33. Undertakings

(a) Registrant undertakes to suspend offering of the shares covered hereby
until it amends its Prospectus contained herein if (1) subsequent to the
effective date of this Registration Statement, its net asset value per share
declines more than ten percent from its net asset value per share as of the
effective date of this Registration Statement, or (2) its net asset value per
share increases to an amount greater than its net proceeds as stated in the
Prospectus contained herein.

(b) Registrant undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in form of
prospectus filed by the Registrant pursuant to 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(c) The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.
<PAGE> 81
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on the 14th day of
April, 1998.

THE ZWEIG FUND, INC.

By: /s/ Martin E. Zweig
-----------------------------------
Martin E. Zweig
Chairman of the Board and President

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:

Signature Title Date
- --------- ----- ----

/s/ Martin E. Zweig Director, Chairman of the April 14, 1998
Martin E. Zweig President (Chief Executive
Officer)

Annemarie Gilly*
Annemarie Gilly Director April 14, 1998

Eugene J. Glaser*
Eugene J. Glaser Director April 14, 1998

Elliot S. Jaffe* Director April 14, 1998
Elliot S. Jaffe

/s/ Jeffrey Lazar Director, Vice President, April 14, 1998
Jeffrey Lazar Treasurer and Assistant
Secretary

Alden C. Olson* Director April 14, 1998
Alden C. Olson

James B. Rogers, Jr.* Director April 14, 1998
James B. Rogers, Jr.

Anthony M. Santomero* Director April 14, 1998
Anthony M. Santomero

Robert E. Smith* Director April 14, 1998
Robert E. Smith

* By: /s/ Martin E. Zweig April 14, 1998
Martin E. Zweig
Attorney-in-fact

<PAGE> 82
EXHIBIT INDEX

(n) - Consent of Coopers & Lybrand L.L.P.

<PAGE> 1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Pre-Effective Amendment No. 2 to the
Registration Statement of The Zweig Fund, Inc. on Form N-2 (File No.
333-46955) of our report dated February 4, 1998, on the audit of the
financial statements and financial highlights of The Zweig Fund, Inc.

We also consent to the reference to our firm under the caption "Financial
Highlights" and "Experts" in the Prospectus.

Coopers & Lybrand L.L.P.

New York, New York
April 14, 1998