<PAGE>
November 1, 1999
Dear Shareholder:
The Zweig Fund's net asset value decreased 4.2% during the three months
ended September 30, 1999, including the $0.31 per share distribution paid on
July 26, 1999. During the same period, the Standard & Poor's 500 Index
declined 6.2% with dividends reinvested. Maintaining our risk-averse policy,
the Fund's equity exposure during the third quarter averaged approximately
60%.
For the nine months ended September 30, 1999, the Fund's net asset value
increased 3.5%, including $0.90 per share in reinvested distributions. During
this span, the S&P's 500 Index gained 5.4%, including dividends. Our average
exposure for this period was 70%.
This was the second consecutive quarter in which we beat the S&P 500 so I
suppose it is a victory of sorts. I don't like losing money but we did beat
the market. The average diversified stock fund lost 5.8% during the third
quarter. The main reason we performed better was that our exposure was lower.
On September 30 we were 59% in stocks and held no bonds.
DISTRIBUTION DECLARED
On September 20, 1999, the Fund announced a distribution of $0.29 per share
payable on October 26, 1999 to shareholders of record October 8, 1999.
Including this distribution, our total payout since the Fund's inception is
now $14.66 per share.
MARKET OUTLOOK
The Federal Reserve recently voted to leave interest rates unchanged but
warned it was still concerned about the potential for inflation and might
raise rates soon if the economy did not cool off. I see this as a half-way
step toward a further tightening. To put the Fed action in perspective, I can
tell you that after two consecutive initial hikes the Dow was down 2.1% on
average three months later. Six months later it was up eight-tenths of a
percent and a year later it was 2.4% higher. A third hike doesn't have much
impact on the numbers but it certainly doesn't help.
Of these cases--there were seventeen in all--sometimes the market did pretty
well, sometimes it did terribly and sometimes it didn't do much at all. I'm
sort of in the middle right now. But if the Fed keeps tightening, the odds for
the stock market get worse.
Some analysts have called this market a stealth bear market because a few
big strong stocks have boosted the indexes that measure the market while most
individual stocks showed declines. It is true that more than three-quarters of
the largest 6,000 stocks are down in the last year and a half. Meanwhile, the
NASDAQ index, dominated by Microsoft, Dell, Intel, Cisco, and a few other
technology companies, doubled by mid-October since it bottomed after the
August massacre last year. These are the stocks that have done tremendously
well, leading the market and boosting the averages. Hundreds, even thousands,
of companies have seen their stocks do nothing or go down.
In some instances, poor performance was justified by poor earnings but in
many cases there just wasn't any reason to have excitement in the stocks.
There are a number of former growth stocks like Coca-Cola and Gillette that
have done terribly because their earnings have stopped growing. Microsoft and
some of the other technology stocks have had great earnings. For these reasons
there has been a big dichotomy in the market.
Technology, which now accounts for 24% of the S&P 500, up from 13% at year-
end '97 and just 7% in 1990, has been called the last bastion of the bull
market and very well could be. Are we in the eighth or ninth inning of this
bull market? We might be. We might even be in extra innings. The reason
technology has gone up so much is that the world has really changed. The
advent of the personal computer has increased productivity enormously. In the
last five years--especially in the last year or two--we have seen the
integration of the Internet into our lives. It is
<PAGE>
changing the way every business on the planet will operate from now on.
It is not only that we are witnessing a huge technological advance--it is
how rapidly it is coming to the fore. Changing everything in a dramatic way,
it has created great opportunities for business and we have seen fantastic
earnings for some companies. Other companies have been pummeled. This is an
industrial revolution that you do not see very often.
Speaking of technology, Steven Ballmer, president of Microsoft, created a
market furor when he said there is such an overvaluation in technology
stocks--even his own--that it is absurd and reflects a gold rush mentality.
There is probably some truth to that comment in some areas of technology. You
must remember that Microsoft is a company that always tries to give
conservative guidance on its stock and not to be inflammatory, which is
probably a sound approach. Microsoft stock never looks cheap. In fact, none of
these great companies look cheap. They sell at very high price/earnings
ratios, high even relative to earnings growth. Yet the earnings growth keeps
going on and on.
The rotation from growth to value stocks noted earlier this year seems to
have abated. Three months ago we saw a broadening of winning industrial stocks
but the market is getting narrower. Some groups have come on again if you want
to call oil drillers value stocks. Oil and energy prices have picked up.
Overall, the market has become narrower because of the technology growth
stocks. There just has not been enough of a compelling reason for the other
stocks to go up in line with the tech stocks. However, there is no way of
knowing how long this situation will continue.
Investors put $9.2 billion into stock funds in August, down 25.7% from
July's $12.4 billion but I don't think this decline is predictive of anything.
What I have found in recent years is that the few times when investors panic
and begin selling their mutual funds has been a big buying opportunity. When
they get too robust in their buying, I get a little bit nervous. Incidently,
there is a seasonality factor--a lot of money comes in at the beginning of the
year.
I am also not particularly concerned about reports that corporate and
household debt as a percentage of gross national product are both at all-time
highs. With the economy less volatile than it was, I think there is capacity
to handle this debt. The amount of debt doesn't really make much of difference
unless we enter a recession. At that time, the more debt that you have
relative to the size of the economy, the greater problems you'll have
unwinding during that period. We saw that happen in 1990. However I don't see
the present debt level as a sign that we're heading into trouble.
Concern has been voiced about the U.S. trade deficit which hit another
record in July, swelling to $25.1 billion, reflecting a flood of imports from
Japan, China, and Europe. Some investors worry that a weaker dollar, which
would raise the price of imports, could bring about a recession. Well, I have
tested the trade deficit way back and found nothing in particular that
forecasts value for the market. As a matter of fact, some of the worst trade
deficits have coincided with some decent markets. We have heard about fear of
trade deficits on and off over the last couple of decades but I do not look at
the current situation as a big deal.
While the deficit is not a risk factor, the economic recovery in most of
developing Asia and Europe could pose an inflationary danger. If demand
increases and we continue to get a surge in commodity prices, it may actually
be a negative for many markets and adversely impact the U.S. On the other
hand, if these countries do better, it will help the earnings of U.S.
multinational companies and even some domestic companies. So it's a mixed bag.
A world-wide recovery is good, higher earnings are good--but if they generate
inflation and higher interest rates, there could be a problem.
Some people still believe that when you get a lot of general magazine covers
featuring the booming stock market that it signifies that a top is near. Most
recently Atlantic Monthly
2
<PAGE>
headlined "30,000 Dow" and Time read "Get Rich Quick.Com." This is one so-
called indicator that I do not put any faith into. Around 1996 I began a file
of magazine covers and articles that looked inflammatory and might coincide
with a stock market bubble bursting. Well, the market has doubled since then
and I threw the file out a long time ago. While you could have found such
articles around previous market tops, you could also have found them months and
even years before a peak. The file I chucked was filled with similar articles
three years old.
Although a Senate committee studying the Y2K problem said the year 2000
computer glitch is likely to trigger international supply-chain disruptions and
may end eight years of U.S. economic growth, I do not consider this a realistic
danger. If computers aren't working, they will be fixed. At worst it will be a
temporary event like a flood or a hurricane and we will get through it quickly.
I am not terribly concerned about Y2K in the U.S. It could be disruptive in
some parts of the globe but even then it would be just a temporary bottleneck.
As far as today's market is concerned, the major positive is that sentiment
is getting more bearish. With investors more pessimistic, my sentiment
indicators are fairly decent right now. The major negative has been the upsurge
in interest rates. The 30-year Treasury bond--the long bond--has gone from
about 4.7% a year ago to over 6.2% at this writing. Rates have backed up about
a percent and a half since last fall. Plus we've had the two Fed hikes that I
mentioned previously.
Inflation has risen somewhat. Commodity prices have been making some noise--
oil has gone from about $11 a barrel to $22 and gold has taken off in recent
weeks. We have a price model that runs on a zero to ten scale. Ten would be
best for the market because it would signify low prices. Right now the model
reading is just at two. That's not very good and that's what is causing our
overall models to be less than satisfactory--and it explains our below normal
investment posture.
Once we get under 60% invested, it indicates I am some shade of bearish. At
this writing our stance could be called humdrum neutral. We are at the very
bottom of the neutral range.
PORTFOLIO COMPOSITION
At the close of the third quarter our leading industry sectors included
technology, telecommunications, financial services, manufacturing, retail trade
and services, and oil and oil services.
In the above grouping, telecommunications showed good appreciation and we
added to our positions in the oil segment. The financial, technology, and
retail holdings declined primarily due to reductions in exposure and a
difficult market. The same holds true for utilities and transportation, which
were in our top groups on June 30.
Among individual holdings, some of our top positions included Telephone &
Data Systems, Tribune Co., General Motors, EMC, Tyco, Knight-Ridder, UniCom, US
Freightways, Lucent, CNF Transportation and General Electric.
General Electric and Tribune Co., a multi-media company that publishes the
Chicago Tribune and also owns radio and television companies, are new to our
portfolio. We have added to our positions in UniCom, while Telephone & Data
Systems, EMC, Tyco, and USFreightways have gained by appreciation.
We have sold out our holdings in GPU and reduced our positions in Whirlpool,
International Paper, Allstate, PACCAR, and Wal-Mart.
Sincerely,
/s/ Martin E. Zweig
Martin E. Zweig, Ph.D.
Chairman
3
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF NET ASSETS
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- ------------
<S> <C> <C>
Common Stocks 56.14%
Aerospace & Defense 1.38%
B.F. Goodrich & Co. .................................. 174,200 $ 5,051,800
Northrop Corp. ....................................... 71,000 4,512,937
------------
9,564,737
------------
Apparel Manufacturer 0.64%
Liz Claiborne, Inc. .................................. 142,000 4,402,000
------------
Automotive 1.73%
Ford Motor Co. ....................................... 85,800 4,306,088
General Motors Corp. ................................. 121,700 7,659,494
------------
11,965,582
------------
Biotechnology 0.94%
Amgen, Inc. .......................................... 79,900 6,511,850
------------
Cable & Television 1.63%
Comcast Corp. ........................................ 143,000 5,702,125
Grupo Televisa S.A., ADR.............................. 140,000 5,591,250
------------
11,293,375
------------
Chemicals 0.53%
Sherwin-Williams Co. ................................. 175,000 3,664,063
------------
Consumer Durables 1.29%
Hasbro, Inc. ......................................... 143,500 3,076,281
Whirlpool Corp. ...................................... 89,300 5,832,406
------------
8,908,687
------------
Consumer Products 0.95%
Procter & Gamble Co. ................................. 70,000 6,562,500
------------
Consumer Services 1.17%
H & R Block, Inc. .................................... 140,000 6,081,250
Manpower Inc. ........................................ 69,900 2,035,838
------------
8,117,088
------------
Engineering & Construction 0.81%
Fluor Corp. .......................................... 138,600 5,578,650
------------
Financial Services 5.87%
A.G. Edwards & Sons, Inc. ............................ 86,400 2,278,800
Allstate Corp. ....................................... 177,300 4,421,419
Bear Stearns & Co., Inc. ............................. 141,284 5,430,604
Countrywide Credit Industries, Inc. .................. 175,000 5,643,750
Knight/Trimark Group, Inc. ........................... 70,000 2,073,750
Loews Corp. .......................................... 86,500 6,071,219
Morgan Stanley, Dean Witter, Discover & Co. .......... 71,500 6,376,906
PaineWebber Group Inc. ............................... 139,900 5,071,375
Sovereign Bancorp, Inc.. ............................. 350,000 3,182,830
------------
40,550,653
------------
Food & Beverage 1.23%
Adolph Coors Co., Class B............................. 68,600 3,712,975
PepsiCo, Inc. ........................................ 157,500 4,764,375
------------
8,477,350
------------
Home Builders & Materials 0.81%
D.R. Horton, Inc. .................................... 210,100 2,718,169
Kaufman & Broad Home Corp. ........................... 139,100 2,868,938
------------
5,587,107
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Value
--------- ------------
<S> <C> <C>
Investment Companies 1.83%
Central European Equity Fund, Inc. ................. 70,900 $ 872,956
Emerging Markets Infrastructure Fund, Inc. ......... 142,716 1,230,926
Emerging Markets Telecommunications Fund, Inc. ..... 71,400 736,312
France Growth Fund, Inc. ........................... 60,800 858,800
Gabelli Global Multimedia Trust Fund, Inc. ......... 104,300 1,512,350
Invesco Global Health & Science Fund, Inc. ......... 139,900 2,194,681
Mexico Fund, Inc. .................................. 161,100 2,235,262
Morgan Stanley Emerging Markets Fund, Inc. ......... 119,600 1,315,600
Royce Value Trust, Inc. ............................ 135,840 1,681,020
------------
12,637,907
------------
Leisure 0.58%
Brunswick Corp. .................................... 161,300 4,012,338
------------
Manufacturing 5.32%
Borg-Warner Automotive, Inc. ....................... 94,400 4,059,200
Delphi Automotive Systems........................... 210,000 3,373,125
General Electric Co. ............................... 52,500 6,224,531
Ingersoll-Rand Co. ................................. 70,000 3,845,625
Johnson Controls Inc. .............................. 86,200 5,716,138
PACCAR, Inc. ....................................... 121,500 6,181,312
Tyco International Ltd. ............................ 71,400 7,372,050
------------
36,771,981
------------
Medical Supplies 0.61%
Mallinckrodt, Inc. ................................. 140,000 4,226,250
------------
Metals & Mining 0.49%
Placer Dome Inc. ................................... 210,000 3,123,750
Worthington Industries, Inc. ....................... 17,500 297,500
------------
3,421,250
------------
Oil & Oil Services 2.98%
Amerada Hess Corp. ................................. 105,000 6,431,250
Kerr-McGee Corp. ................................... 104,800 5,770,550
McDermott International, Inc. ...................... 210,000 4,252,500
Royal Dutch Petroleum Co., ADR...................... 70,000 4,134,375
------------
20,588,675
------------
Paper & Forest Products 1.93%
Boise Cascade Corp. ................................ 71,400 2,601,638
Georgia-Pacific Corp. .............................. 157,500 6,378,750
International Paper Co. ............................ 91,000 4,373,688
------------
13,354,076
------------
Pharmaceuticals 0.82%
Warner-Lambert Co. ................................. 85,800 5,694,975
------------
Printing & Publishing 2.16%
Knight-Ridder, Inc. ................................ 132,800 7,287,400
Tribune Co. ........................................ 154,000 7,661,500
------------
14,948,900
------------
Retail Trade & Services 3.17%
Best Buy, Inc. ..................................... 71,700(a) 4,449,881
Home Depot, Inc. ................................... 91,300 6,265,462
Supervalu, Inc. .................................... 206,400 4,502,100
Wal-Mart Stores, Inc. .............................. 140,500 6,682,531
------------
21,899,974
------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Value
---------- ------------
<S> <C> <C>
Technology
America Online, Inc. ............................ 49,000(a) $ 5,096,000
Applied Materials, Inc. ......................... 61,100(a) 4,758,162
Cisco Systems, Inc. ............................. 88,700(a) 6,081,494
Dell Computer Corp. ............................. 157,100(a) 6,568,744
EMC Corp. ....................................... 106,600(a) 7,615,238
Intel Corp. ..................................... 86,900 6,457,756
Microsoft Corp. ................................. 69,500(a) 6,294,094
------------
42,871,488
------------
Telecommunications 6.12%
AT&T Corp. ...................................... 122,500 5,328,750
Lucent Technologies Co. ......................... 105,500(a) 6,844,312
MCI Worldcom, Inc. .............................. 62,300(a) 4,477,812
Nokia Corp. ..................................... 50,500 4,535,531
Tele Norte Leste Participacoes S.A., ADR......... 320,100 4,961,550
Telefonos de Mexico S.A., ADR.................... 70,200 5,001,750
Telephone & Data Systems, Inc. .................. 87,500 7,771,094
Telesp Participacoes S.A., ADR................... 214,100(a) 3,372,075
------------
42,292,874
------------
Textiles 1.02%
Armstrong World Industries, Inc. ................ 71,100 3,195,055
Shaw Industries, Inc. ........................... 245,000 3,889,375
------------
7,084,430
------------
Transportation 1.98%
CNF Transportation, Inc. ........................ 181,200 6,749,700
USFreightways Corp. ............................. 146,200 6,926,225
------------
13,675,925
------------
Utilities-Electric & Natural Gas 1.93%
Energy East Corp. ............................... 262,400 6,232,000
UniCom Corp. .................................... 192,800 7,121,550
------------
13,353,550
------------
Total Common Stocks....................................... 388,018,235
------------
Short-Term Investments 44.10%
Ameritech Corp., 5.32%, 10/5/99.................. 25,000,000 24,985,216
AT&T Capital Corp., 5.35%, 10/8/99............... 25,000,000 24,973,985
Ford Motor Credit Co., 5.39%, 10/4/99............ 20,000,000 19,991,014
Gannett Co., Inc., 5.28%, 10/6/99................ 30,000,000 29,977,968
General Dynamics Corp., 5.34%, 10/4/99........... 25,000,000 24,988,857
General Electric Capital Corp., 5.30%, 10/5/99... 20,000,000 19,988,206
Hewlett-Packard Co., 5.30%, 10/6/99.............. 25,000,000 24,981,578
Merrill Lynch & Co., Inc., 5.30%, 10/8/99........ 25,000,000 24,974,209
Met Life Funding Co., 5.29%, 10/7/99............. 20,000,000 19,982,331
New York Life Insurance Co., 5.55%, 10/1/99...... 20,000,000 20,000,000
Pharmacia & Upjohn Inc., 5.30%, 10/1/99.......... 25,000,000 25,000,000
UBS Finance Inc., 5.60%, 10/1/99................. 25,000,000 25,000,000
Warner-Lambert Co., 5.40%, 10/4/99............... 20,000,000 19,990,999
------------
Total Short-Term Investments.............................. 304,834,363
------------
Total Investments.............................. 100.24% 692,852,598
Liabilities in Excess of Cash and Receivables.. (0.24)% (1,645,394)
---------- ------------
Net Assets (Equivalent to $11.49 per share
based on 60,135,623 shares of capital stock
outstanding).................................. 100.00% $691,207,204
========== ============
</TABLE>
- --------
(a) Non-income producing security.
6
<PAGE>
THE ZWEIG FUND, INC.
FINANCIAL HIGHLIGHTS
September 30,1999
(Unaudited)
<TABLE>
<CAPTION>
Net Asset Value
Total Net Assets Per Share
-------------------------- ----------------
<S> <C> <C> <C> <C>
Beginning of period: December
31,1998......................... $723,521,130 $ 12.03
Net investment income........... $ 8,015,406 $ 0.13
Net realized and unrealized
gains on investments........... 13,792,750 0.23
Dividends from net investment
income and distributions from
net long-term and short-term
capital gains.................. (54,122,082) (0.90)
Net decrease in net assets/net
asset value.................... (32,313,926) (0.54)
------------ -------
End of period: September 30,1999. $691,207,204 $ 11.49
============ =======
</TABLE>
- -------------------------------------------------------------------------------
KEY INFORMATION
1-800-272-2700 Zweig Shareholder Relations: For general information and
literature
(212) 644-2188 The Zweig Fund Hot Line:
For updates on net asset value, share price, major industry
groups and other key information
REINVESTMENT PLAN
Many of you have questions
about our reinvestment plan. We
urge shareholders who want to
take advantage of this plant and
whose shares are held in "Street
Name, to consult your broker as
soon as possible to determine if
you must change registration
into your own name to
participate.
----------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may from time to time purchase its shares of
common stock in the open market when Fund shares are trading at a discount of
10% or more from their net asset value.
7
<PAGE>
OFFICERS AND DIRECTORS
Martin E. Zweig, Ph.D.
Chairman of the Board and
President
Jeffrey Lazar
Executive Vice President and
Treasurer
Christopher M. Capano
Vice President
Charles H. Brunie
Director
Elliot S. Jaffe
Director
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
Anthony M. Santomero, Ph.D.
Director
Investment Adviser
Zweig Advisors Inc.
900 Third Avenue
New York, New York 10022
Fund Administrator
Zweig/Glaser Advisers LLC
900 Third Avenue
New York, New York 10022
Custodian
The Bank of New York
One Wall Street
New York, New York 10286
Transfer Agent
State Street Bank & Trust Co.
225 Franklin Street
Boston, Massachusetts 02110
Legal Counsel
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
________________________________________________________________________________
This report is transmitted to the shareholders of The Zweig Fund, Inc. for
their information. This is not a prospectus, circular or representation in-
tended for use in the purchase of shares of the Fund or any securities men-
tioned in this report.
4902-3Q(99)
[ZWEIG FUND LOGO APPEARS HERE]
QUARTERLY REPORT
----------------
September 30, 1999
