<PAGE>
February 2, 2000
Dear Shareholder:
The Zweig Fund's total return on net asset value was 12.9% for the year
ended December 31, 1999, including $1.19 in reinvested distributions. During
the same period, the Standard & Poor's 500 Index gained 21.0% with dividends
reinvested.
In the fourth quarter of 1999, the net asset value of the Fund, including a
$0.29 distribution, increased 9.1%. During the same period, the S&P 500 Index
rose 14.9% including dividends. Investors should note that past performance is
not indicative of future results.
Keeping our portfolio consistent with our risk-averse style, the Fund's
average equity exposure for 1999 was approximately 68%.
Given the fact that we have a value bias and were only two-thirds invested
on average last year, I am not really unhappy about our 12.9% return relating
to the Net Asset Value. Many value managers with previous great records had
negative returns last year.
I have never seen a market go off on two different tracks as it did last
year. We saw several technology stocks go positively bonkers, while 61% of the
NYSE stocks, more than 50% of the S&P 500, and 50% of the OTC were down.
These results can be attributed largely to the so-called new economy. With
the technological advances--particularly in the Internet and everything sur-
rounding it like cable, wireless, telecommunications, and media--certain com-
panies have benefited greatly. The problem is that many of these companies
have no earnings and probably will have none in the near future. Others such
as America Online have earnings, but their multiples are extremely high. This
makes them tough to buy if you use any valuation yardstick.
Nevertheless, we do own AOL, Microsoft, Dell, Cisco, and others in this
field and have benefited by their performance. We stepped up to the plate on
these issues--and that took a lot of doing for value managers such as our-
selves. I thought it was important that we do so, and we may even increase our
percentage in this direction.
At the same time, we have to be conservative. While I do recognize changes
in the economy--it truly is different this time--I cannot ignore history which
shows that in the long run you can achieve superior returns with less risk by
buying stocks at more reasonable prices.
For the thirteen full years of operations ended December 31, 1999, The Zweig
Fund showed a total return on net asset value of 380.9% (12.8% on a compounded
annual basis), including reinvested distributions. Our average equity exposure
for the thirteen years was 60%.
If a shareholder had invested $10,000 (1,000 shares) in the Fund's Initial
Public Offering in October, 1986, these holdings, including reinvested
distributions, would have appreciated to $37,080 (3,685 shares) as of December
31, 1999.
DISTRIBUTION DECLARED
On January 3, 2000, the Fund declared a distribution of $0.30 payable on
January 10, 2000 to shareholders of record on December 31, 1999. Including the
fourth-quarter payout, our total distribution to shareholders for tax purposes
in 1999 was $1.20. This brings our total payout since the Fund's inception to
$14.96.
<PAGE>
Of the $1.20 taxable in 1999, $0.197 is ordinary income and $1.003 is long-
term capital gains.
MARKET OUTLOOK
As I indicated earlier, the stock markets are now tracking two different
economies--the new Internet-driven high technology model and the old one that
still accounts for most economic activity. They sometimes seem to be going in
two different directions. This disparity can continue for some time, but
ultimately the Internet will encompass the way virtually every company does
business.
The switch to the Internet economy will bring many dislocations. Middlemen
and wholesalers will see their whole industries threatened because it will be
a lot easier to match up producers and buyers. This will allow for more
competition and eventually bring prices down. Some companies will benefit
tremendously, and others will be put out of business.
It will be a wrenching change, resembling what happened a hundred years ago
when the wagon and buggy companies became obsolete with the advent of the
automobile. Companies have to adapt and that is what is going on right now.
Another major change transforming the nation's corporate landscape is the
great merger superwave that shows no sign of cresting. Generally speaking, I
think this phenomenon is having a favorable impact. A lot depends on the na-
ture of the deal. If a big cash premium is paid by the acquiring company, the
acquired company's stock normally would go up. However, as with the America
Online merger with Time Warner, more deals are being done with stock trans-
fers. In these cases, it is not clear whether stock prices will rise or fall.
One common goal that seems to be driving mergers is greater efficiencies in
business. If the combining corporate cultures can work together cohesively, a
lot of deadwood can be cleaned out. Profits tend to go up with the cost
savings. With the economy so strong, the people laid off generally land on
their feet and some even get better jobs elsewhere. I believe the merger trend
is accelerating and will also continue in a big way in Europe.
The changing economy is a big factor in current market volatility which, in-
cidentally, is not as great as it has been at certain times in the past. Vola-
tility in the early days of the twentieth century and in the late '20s and
early '30s was much greater than it is today. Part of the reason for the re-
cent increased turnover is lower commission costs. When commissions were fixed
it was prohibitive to do heavy trading. Now transaction costs are much lower
and one can trade directly.
Individuals, who now have more sources of information, can just get on a
computer to buy and sell stocks. With trading easier, faster, and more effi-
cient, there naturally is greater turnover. Although some analysts equate the
current volatility primarily to speculation that often occurs at market tops,
I think it largely reflects the changed economy and is neither bullish nor
bearish.
Day traders are having a significant impact on market volatility and day-to-
day price movements, but all this will pass some day. When the markets go bad,
it will exacerbate the decline. There have been momentum followers for eons.
Buying strength and selling weakness is not all that new. Most of the margin
traders historically have traded on momentum. Computerized day trading does
make the market more volatile but doesn't change the fundamentals.
Citing the day trading and the volatility, some analysts claim that this is
the most speculative market since 1929. These same analysts have been saying
that for the last three or four years. To my way of thinking, the market is
speculative in some ways and not in others. It certainly doesn't look too
speculative for the
2
<PAGE>
previously mentioned 61% of the NYSE stocks that went south last year. I
believe the quality of the companies that have highlighted this boom is far
better than some of the junk we saw in 1961, 1968, or even 1929. The quality
and growth of earnings is also far superior to that of 1972--the days of the
so-called nifty-fifty growth stocks. Is this the most speculative market?
Probably not. Is there a certain level of speculation? Absolutely.
One trend that cannot go on forever is the widening disparity between some
stock prices and company earnings. From 1990 to the present the S&P 500 showed
a compound annual growth of about 15% while net operating earnings had a com-
pound annual growth of about 6.7%. Obviously there has to be a more positive
relationship between the changes in stock prices and company earnings. Mean-
while, earnings right now are projected to be very strong for 2000. I have
heard estimates from the low range of 8% to 10% to as high as 20%.
A lot of the expansion in price/earnings differentials is a result of the
new economy. If you look at the composition of the S&P 500, the big weightings
go to companies like Microsoft, AOL, Yahoo, and Dell that weren't even in the
S&P a while back. Of course, their P/E's are very high but so are their growth
rates.
Based on their weightings, technology stocks make up roughly 30% of the S&P
500 from perhaps 10% several years ago. If you strip out these companies, the
P/E ratios in the S&P are pretty normal. Also, the performance of the non-
technology stocks should be far more in line than what we see on the surface.
That's because we have this extraordinary growth in our economy. All in all,
P/E ratios are probably more rational than what the pessimists are thinking.
Even though we are enjoying the longest economic expansion in our country's
history, it doesn't mean that the business cycle has been permanently tamed.
There will always be ups and downs, but business cycles in the future will not
resemble those of the past. We were an agricultural economy 200 years ago.
Then we were agriculture plus heavy industry like railroads, steel mills, and
chemicals. Those industries were extremely volatile, with agriculture depend-
ing on the weather while capital intensive industries had big fixed costs and
inventories subject to market influences. Now the U.S. economy is much more
service-oriented, which means little or no inventories, less investment and
fixed capital and probably fewer cycles.
Our new economy is far more diversified than it has ever been, and the
volatility of the gross national product should continue to stay low. From
time to time there will be recessions, but they will not necessarily occur as
frequently or as regularly as in the past. It is possible that we can maintain
prosperity for a much longer period. It is also possible that we could screw
it up and do something like raise taxes or interest rates too high and kill
off the boom.
Speaking of interest rates, the bond market has clearly been negatively
influenced by the very strong economy. In the postwar period, we became used
to seeing high economic activity generate inflation. This resulted in rising
interest rates and tightening by the Federal Reserve. That is not necessarily
the natural order of things. It is possible to have a rapidly growing economy
and greater productivity without much inflation. This has actually been the
case for the last couple of years. But the bond market is focused on the old
world economy. Yields have climbed because of a booming economy. Yet we are
sitting here with about 2.6% inflation in the Consumer Price Index on a year-
to-year basis. This isn't at all bad.
Summing up, the fact that interest rates are up about 200 basis points on
long bonds is a major negative for the stock market. Other negatives include
the speculative elements, the valuations that on the surface seem high, and
our below normal sentiment indicators.
The positives include the really strong earnings that are expected to
continue and the technology-based new economy that is increasing
3
<PAGE>
productivity, cutting costs, and keeping inflation under control.
I see the negatives and positives as sort of a trade-off. The true picture
probably lies somewhere in the middle. Consequently, at this writing I'm on the
fence and my market stance is neutral.
PORTFOLIO COMPOSITION
Our leading industry sectors at year-end included technology,
telecommunications, financial services, printing and publishing, and retail
trade and services.
In the above listing, technology and telecom- munications gained as a result
of appreciation. We added to our holdings in printing and publishing, which
also appreciated in value, and trimmed our position in manufacturing, which had
appeared among our top groups on September 30.
As far as individual holdings, our leading positions at year-end included
EMC, Nokia, Morgan Stanley Dean Witter, Wal-Mart, Amgen, Grupo Televisa, Cisco,
Tribune Co., General Electric, and Knight-Ridder.
All of the above were previously in our portfolio which saw significant ap-
preciation in Nokia, Morgan Stanley Dean Witter, Wal-Mart, Amgen, Grupo
Televisa, Cisco, and General Electric.
During the fourth quarter we sold out our holdings in Tyco, UniCom, and CNF
Transportation and trimmed our positions in Telephone & Data Systems, General
Motors, and Dell.
Sincerely,
/s/ Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
Chairman
4
<PAGE>
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1999
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- -----------
<S> <C> <C>
Common Stocks 58.25%
Automotive 2.60%
Borg-Warner Automotive, Inc. ........................ 84,400 $ 3,418,200
Delphi Automotive Systems Corp. ..................... 280,000 4,410,000
Ford Motor Co. ...................................... 68,600 3,665,812
General Motors Corp. ................................ 104,400 7,588,575
-----------
19,082,587
-----------
Biotechnology 1.31%
Amgen, Inc. ......................................... 159,800(a) 9,597,987
-----------
Building & Forest Products 3.36%
Cemex S.A. de CV, ADR................................ 140,000(a) 3,902,500
D.R. Horton, Inc. ................................... 210,100 2,902,006
Georgia-Pacific Group................................ 175,000 8,881,250
Kaufman & Broad Home Corp. .......................... 174,100 4,211,044
Sherwin-Williams Co. ................................ 227,400 4,775,400
-----------
24,672,200
-----------
Commercial Services 0.99%
Manpower, Inc. ...................................... 192,500 7,242,812
-----------
Consumer Products 2.75%
Adolph Coors Co., Class B............................ 68,600 3,601,500
Dial Corp. .......................................... 112,000 2,723,000
PepsiCo, Inc. ....................................... 175,000 6,168,750
Procter & Gamble Co. ................................ 70,000 7,669,375
-----------
20,162,625
-----------
Electronics -- Electrical 1.26%
General Electric Co. ................................ 59,500 9,207,625
-----------
Engineering & Machinery 0.78%
Ingersoll-Rand Co. .................................. 70,000 3,854,375
McDermott International, Inc. ....................... 210,000 1,903,125
-----------
5,757,500
-----------
</TABLE>
See notes to financial statements
5
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- -----------
<S> <C> <C>
Financial Services 5.88%
Allstate Corp. ...................................... 177,300 $ 4,255,200
Bear Stearns & Co., Inc. ............................ 185,098 7,912,940
Countrywide Credit Industries, Inc. ................. 210,000 5,302,500
H & R Block, Inc. ................................... 157,400 6,886,250
Lehman Brothers Holdings, Inc. ...................... 70,000 5,928,125
Morgan Stanley Dean Witter & Co. .................... 71,500 10,206,625
Sovereign Bancorp, Inc. ............................. 350,000 2,608,594
-----------
43,100,234
-----------
Health Care 1.21%
Elan Corp. Plc, ADR.................................. 175,000(a) 5,162,500
United HealthCare Corp. ............................. 70,000 3,718,750
-----------
8,881,250
-----------
Investment Companies 2.29%
Asia Tigers Fund, Inc. .............................. 70,000 713,125
Central European Equity Fund, Inc. .................. 70,900 1,023,619
Emerging Markets Infrastructure Fund, Inc. .......... 142,716 1,605,555
Emerging Markets Telecommunications Fund, Inc. ...... 71,400 1,151,325
France Growth Fund, Inc. ............................ 60,800 931,000
Gabelli Global Multimedia Trust, Inc. ............... 104,300 1,955,625
INVESCO Global Health Sciences Fund, Inc. ........... 139,900 2,063,525
Mexico Fund, Inc. ................................... 161,100 2,799,112
Morgan Stanley Dean Witter Asia Pacific Fund, Inc. .. 70,000 826,875
Morgan Stanley Dean Witter Emerging Markets Fund,
Inc. ............................................... 119,600 1,950,975
Royce Value Trust, Inc. ............................. 135,840 1,774,410
-----------
16,795,146
-----------
Leisure Time 1.64%
Brunswick Corp. ..................................... 161,300 3,588,925
Hasbro, Inc. ........................................ 210,000 4,003,125
Marriot International, Inc., Class A................. 140,000 4,418,750
-----------
12,010,800
-----------
Manufacturing 1.99%
Crown Cork & Seal Co., Inc. ......................... 175,000 3,915,625
Johnson Controls, Inc. .............................. 86,200 4,902,625
Whirlpool Corp. ..................................... 89,300 5,810,081
-----------
14,628,331
-----------
</TABLE>
See notes to financial statements
6
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- -----------
<S> <C> <C>
Media 5.73%
Comcast Corp., Class A............................... 143,000 $ 7,230,437
Grupo Televisa S.A., GDR............................. 140,000 9,555,000
Knight-Ridder, Inc. ................................. 150,300 8,942,850
The New York Times Co., Class A...................... 139,900 6,872,588
Tribune Co. ......................................... 171,500 9,443,219
-----------
42,044,094
-----------
Oil & Oil Services 2.23%
Amerada Hess Corp. .................................. 105,000 5,958,750
Apache Corp. ........................................ 105,000 3,878,437
Kerr-McGee Corp. .................................... 104,800 6,497,600
-----------
16,334,787
-----------
Railroads 0.93%
USFreightways Corp. ................................. 143,100 6,850,913
-----------
Retailing 3.76%
Best Buy, Inc. ...................................... 78,700(a) 3,949,756
Home Depot, Inc. .................................... 105,300 7,219,631
Ross Stores, Inc. ................................... 175,000 3,139,063
TJX Cos., Inc. ...................................... 175,000 3,576,563
Wal-Mart Stores, Inc. ............................... 140,500 9,712,062
-----------
27,597,075
-----------
Steel & Heavy Machinery 0.32%
Worthington Industries, Inc. ........................ 140,000 2,318,750
-----------
Technology 8.09%
America Online, Inc. ................................ 105,000(a) 7,920,937
Applied Materials, Inc. ............................. 68,100(a) 8,627,419
Cisco Systems, Inc. ................................. 88,700(a) 9,501,988
Dell Computer Corp. ................................. 139,600(a) 7,119,600
EMC Corp. ........................................... 99,500(a) 10,870,375
Intel Corp. ......................................... 86,900 7,152,956
Microsoft Corp. ..................................... 69,500(a) 8,114,125
-----------
59,307,400
-----------
Telecommunications 7.95%
AT&T Corp. .......................................... 140,000 7,105,000
CenturyTel, Inc. .................................... 104,900 4,969,638
Lucent Technologies, Inc. ........................... 98,500 7,369,031
MCI WorldCom, Inc. .................................. 103,950(a) 5,515,847
Nokia Corp., ADR..................................... 56,900 10,811,000
Tele Norte Leste Participacoes S.A., ADR............. 249,000 6,349,500
Telefonos de Mexico S.A., Class L, ADR............... 73,700 8,291,250
Telephone & Data Systems, Inc. ...................... 63,000 7,938,000
-----------
58,349,266
-----------
</TABLE>
See notes to financial statements
7
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
----------- ------------
<S> <C> <C>
Textiles & Apparel Manufacturer 1.39%
Liz Claiborne, Inc. ............................... 142,000 $ 5,342,750
Shaw Industries, Inc. ............................. 315,000 4,862,813
------------
10,205,563
------------
Utilities -- Electric 1.79%
Energy East Corp. ................................. 262,400 5,461,200
GPU, Inc. ......................................... 122,500 3,667,344
Reliant Energy, Inc. .............................. 175,000 4,003,125
------------
13,131,669
------------
Total Common Stock (Cost $330,624,422)....................... 427,278,614
------------
<CAPTION>
Principal
Amount
-----------
<S> <C> <C>
Short-Term Investments 41.66%
Alcoa Corp., 5.25%, 1/07/00........................ $10,000,000 9,991,250
American Home Products Corp., 5.25%, 1/21/00....... 25,000,000 24,927,083
AT&T Co., 6.01%, 1/10/00........................... 25,000,000 24,962,438
Coca-Cola Enterprises, Inc., 6.10%, 1/11/00........ 10,000,000 9,983,056
Ford Motor Credit Co., 6.28%, 1/07/00.............. 25,000,000 24,973,833
General Electric Capital Corp., 5.25%, 1/10/00..... 25,000,000 24,967,188
GMAC Corp., 6.22%, 1/07/00......................... 22,000,000 21,977,193
Goldman Sachs Group L.P., 6.50%, 1/11/00........... 34,000,000 33,938,611
Merrill Lynch & Co., 5.60%, 1/20/00................ 30,000,000 29,911,333
Toyota Motor Credit Co., 5.30%, 2/01/00............ 24,000,000 23,890,467
UBS Financial Corp., 4.50%, 1/03/00................ 1,000,000 999,750
Warner-Lambert Co., 6.40%, 1/13/00................. 30,200,000 30,135,573
Washington Post Co., 6.45%, 1/12/00................ 25,000,000 24,950,729
WW Grainger, Inc., 6.70%, 1/06/00.................. 20,000,000 19,981,389
------------
Total Short-Term Investments (Cost $305,589,893)............. 305,589,893
------------
Total Investments (Cost $636,214,315) -- 99.91%.............. 732,868,507
Other assets less liabilities-- 0.09%........................ 654,030
------------
Net Assets -- 100.00%........................................ $733,522,537
============
- --------
(a)Non-income producing security.
For Federal income tax purposes, the tax basis of investments owned at
December 31,1999 was $636,214,315 and net unrealized appreciation of
investments consisted of:
Gross unrealized appreciation................................ $118,276,891
Gross unrealized depreciation................................ (21,622,699)
------------
Net unrealized appreciation.................................. $ 96,654,192
============
</TABLE>
See notes to financial statements.
8
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost $636,214,315)............ $732,868,507
Cash............................................................ 1,094,680
Dividends receivable............................................ 467,799
Prepaid expenses................................................ 22,618
------------
Total Assets.................................................. 734,453,604
------------
LIABILITIES
Accrued advisory fees (Note 5).................................. 514,338
Accrued administration fees (Note 5)............................ 78,664
Other accrued expenses.......................................... 338,065
------------
Total Liabilities............................................. 931,067
------------
NET ASSETS........................................................ $733,522,537
============
NET ASSET VALUE, PER SHARE
($733,522,537/60,135,623 shares outstanding--Note 6)............ $12.20
============
Net Assets consist of
Capital paid-in................................................. $618,446,376
Undistributed net investment income............................. 2,962,281
Undistributed net realized gain on investments.................. 15,459,688
Net unrealized appreciation on investments...................... 96,654,192
------------
$733,522,537
============
</TABLE>
See notes to financial statements.
9
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
<TABLE>
<S> <C>
Investment Income
Income
Interest...................................................... $10,972,222
Dividends..................................................... 8,942,847
-----------
Total Income................................................ 19,915,069
-----------
Expenses
Investment advisory fees (Note 5)............................. 6,052,325
Administrative fees (Note 5).................................. 925,676
Transfer agent fees........................................... 344,129
Printing and postage expenses................................. 232,323
Directors' fees and expenses (Note 5)......................... 95,616
Professional fees (Note 5).................................... 82,895
Custodian fees................................................ 82,624
Miscellaneous................................................. 160,775
-----------
Total Expenses.............................................. 7,976,363
-----------
Net Investment Income....................................... 11,938,706
-----------
Net Realized and Unrealized Gains (Losses)
Net realized gains (losses) on
Investments................................................... 60,683,994
Securities sold short......................................... (95,812)
Futures....................................................... (12,726)
-----------
Net realized gains.......................................... 60,575,456
Increase in unrealized appreciation on investments and
securities sold short.......................................... 9,048,663
-----------
Net realized and unrealized gains on investments, securities
sold short and futures....................................... 69,624,119
-----------
Net increase in net assets resulting from operations.......... $81,562,825
===========
</TABLE>
See notes to financial statements.
10
<PAGE>
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years Ended
December 31
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income........................... $ 11,938,706 $ 13,216,655
Net realized gains on investments, securities
sold short
and futures.................................... 60,575,456 58,058,403
Increase (decrease) in unrealized appreciation
of investments and securities sold short....... 9,048,663 (31,996,047)
------------ ------------
Net increase in net assets resulting from
operations................................... 81,562,825 39,279,011
------------ ------------
Dividends and distributions to shareholders from
Net investment income........................... (11,381,848) (20,309,033)
Net realized gains on investments, securities
sold short and futures......................... (60,179,570) (48,234,897)
------------ ------------
Total dividends and distributions to
shareholders................................. (71,561,418) (68,543,930)
------------ ------------
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.......................................... -- 15,249,865
Net proceeds from the sale of shares during
rights
offering....................................... -- 71,170,393
------------ ------------
Net increase in net assets derived from capital
share transactions............................. -- 86,420,258
------------ ------------
Net increase in net assets...................... 10,001,407 57,155,339
Net Assets
Beginning of year............................... 723,521,130 666,365,791
------------ ------------
End of year (including undistributed net
investment income of $2,962,281 and $2,405,423,
respectively).................................. $733,522,537 $723,521,130
============ ============
</TABLE>
See notes to financial statements.
11
<PAGE>
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE 1 -- Acquisition
On March 1, 1999, Phoenix Investment Partners, Ltd. ("Phoenix"), completed
the acquisition of Zweig Advisors, Inc. (the "ZF Adviser"), the Fund's
investment adviser, Zweig/Glaser Advisers, the Fund's administrator
("Administrator") and Zweig Securities Corp. (currently PXP Securities Corp.),
an affiliated broker-dealer registered under the Securities Exchange Act of
1934.
As a result of the acquisition, effective January 1, 2000, Zweig/Glaser
Advisers, LLC (the "Adviser") succeeds ZF Adviser, as the Fund's investment
adviser. In order to continue to have access to the advisory and consulting
services of Dr. Martin E. Zweig and his associates, the Adviser entered into a
sub-advisory servicing agreement with Zweig Consulting, LLC.
As of October 31, 1999, the Administrator assigned the rights and obligations
under the Administration Agreement dated March 1, 1999, between the Fund and
the Administrator to Phoenix Equity Planning Corp. ("PEPCO") under the same
terms as the previous Administration Agreement. Effective October 31, 1999,
PEPCO sub-contracted the Fund's mutual fund accounting to The Bank of New York.
PEPCO is an affiliate of the Adviser and the Fund.
NOTE 2 -- Organization
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.
NOTE 3 -- Significant Accounting Policies
The following is a summary of the significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles. The preparation of financial statements in accordance with
generally accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
Portfolio securities that are traded only on stock exchanges are valued at
the last sale price. Securities traded in the over-the-counter market which are
National Market System securities are valued at the last sale price. Other
over-the-counter securities are valued at the most recently quoted bid price
provided by the principal market makers. Portfolio securities which are traded
both in the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market, as determined by the
Investment Adviser. Debt securities may be valued on the basis of prices
provided by an independent pricing service, when such prices are believed by
the Investment Adviser to reflect the fair market value of such securities.
Short-term investments having a remaining maturity of 60 days or less when
purchased are valued at amortized cost (which approximates market value).
Futures contracts 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, 1999) and other
assets, if any, are valued at fair value as determined under procedures
approved by the Board of Directors of the Fund.
12
<PAGE>
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 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. 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. 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.
E. Federal Income Taxes
The Fund has elected to qualify and intends to remain qualified, as long as
management's view is that it is in the best interests of the shareholders, 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.
13
<PAGE>
F. Dividends and Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the ex-dividend
date. In the event that amounts distributed are in excess of accumulated net
investment income and net realized gains on investments (as determined for
financial statement purposes), such amounts would be reported as a
distribution from paid-in capital during the fiscal year in which such a
distribution is made. Income dividends and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to timing differences and differing characterization of distributions made by
the Fund as a whole.
NOTE 4 -- Portfolio Transactions
During the year ended December 31, 1999, purchases and sales of investments,
excluding short-term investments and futures contracts were:
<TABLE>
<CAPTION>
United States
Government
Common and Agency
Stocks Obligations
------------ -------------
<S> <C> <C>
Purchases ........................................ $572,243,607 $27,107,527
============ ===========
Sales ............................................ $863,171,939 $72,495,070
============ ===========
Purchases to cover short sales ................... $ 1,080,866
============
</TABLE>
NOTE 5 -- Investment Advisory Fees and Other Transactions with Affiliates
a) Investment Advisory Fee: The Investment Advisory Agreement (the
"Agreement") between the Adviser 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 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 Adviser, subject to review by the Board
of Directors and the applicable provisions of the Act. For the services
provided by the Adviser under the Agreement, the Fund pays the 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, 1999, the Fund accrued advisory
fees of $6,052,325.
b) Administrative Fee: Phoenix Equity Planning Corp. serves as the Fund's
Administrator pursuant to an Administration Agreement with the Fund. Under the
same terms as the previous 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, 1999, the Fund accrued administration fees of $925,676.
14
<PAGE>
c) Directors' Fee: The Fund pays each Director who is not an interested
person of the Fund or the 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. Any Director of the Fund who is an
interested person of the Fund or the Adviser receives no remuneration from the
Fund.
d) Legal Fee: The Fund accrued legal fees of $25,893 during the year ended
December 31, 1999, for the services of Rosenman & Colin LLP, of which Robert
E. Smith, a former Director of the Fund, is counsel.
e) Brokerage Commission: During the year ended December 31, 1999, the Fund
paid PXP Securities Corp. brokerage commissions of $202,411 in connection with
portfolio transactions effected through them. In addition, PXP Securities
Corp. charged $127,855 in commissions for transactions effected on behalf of
the participants in the Fund's Automatic Reinvestment and Cash Purchase Plan.
NOTE 6 -- Capital Stock and Reinvestment Plan
At December 31, 1999, the Fund had one class of common stock, par value
$0.10 per share, of which 100,000,000 shares are authorized and 60,135,623
shares are outstanding.
Registered shareholders may elect to receive all distributions in cash paid
by check mailed directly to the shareholder by EquiServe 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 EquiServe, as the Plan agent in whole or
fractional shares of the Fund, as the case may be. For the years ended
December 31, 1999 and December 31, 1998, 0 and 1,262,934 shares, respectively,
were issued pursuant to the Plan.
On January 3, 2000, the Fund declared a distribution of $0.30 per share to
shareholders of record on December 31, 1999. This distribution has an ex-
dividend date of January 5, 2000 and is payable on January 10, 2000.
15
<PAGE>
NOTE 7 -- Financial Highlights
Selected data for a share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning
of year.................... $ 12.03 $ 12.63 $ 11.45 $ 11.06 $ 10.33
-------- -------- -------- -------- --------
Income From Investment
Operations
Net investment income....... 0.20 0.23 0.35 0.34 0.39
Net realized and unrealized
gains (losses)............. 1.16 0.55 2.03 1.15 1.41
-------- -------- -------- -------- --------
Total from investment
operations................. 1.36 0.78 2.38 1.49 1.80
-------- -------- -------- -------- --------
Dividends and Distributions:
Dividends from net
investment income.......... (0.19) (0.35) (0.31) (0.30) (0.51)
Distributions from net
realized gains............. (1.00) (0.87) (0.89) (0.80) (0.56)
-------- -------- -------- -------- --------
Total dividends and
distributions.............. (1.19) (1.22) (1.20) (1.10) (1.07)
-------- -------- -------- -------- --------
Effect on net asset value as
a result of rights
offering*.................. -- (0.16) -- -- --
-------- -------- -------- -------- --------
Net asset value, end of
year..................... $ 12.20 $ 12.03 $ 12.63 $ 11.45 $ 11.06
======== ======== ======== ======== ========
Market value, end of
year**................... $ 10.06 $ 10.81 $ 13.25 $ 10.88 $ 11.25
======== ======== ======== ======== ========
Total investment return***.. 3.61% ( 8.68)% 34.76% 6.92% 19.83%
======== ======== ======== ======== ========
Ratios/Supplemental Data
Net assets, end of year (in
thousands)................. $733,523 $723,521 $666,366 $589,081 $547,886
Ratio of expenses to average
net assets................. 1.12% 1.12% 1.16% 1.18% 1.22%
Ratio of net investment
income to average net
assets..................... 1.68% 1.90% 2.88% 3.12% 3.62%
Portfolio turnover rate..... 114.90% 68.7% 93.0% 137.2% 160.2%
</TABLE>
- --------
* Shares were sold at a 5% discount from the average market price.
** Closing Price -- New York Stock Exchange.
*** Total investment return is calculated assuming a purchase of common stock
on the opening of the first business day and a sale on the closing of the
last business day of each period reported.
Dividends and distributions, if any, are assumed for the purposes of this
calculation, to be reinvested at prices obtained under the Fund's
Distribution Reinvestment and Cash Purchase Plan. Generally, total
investment return based on net asset value will be higher than total
investment return based on market value in periods where there is an
increase in the discount or a decrease in the premium of the market value
to the net assets from the beginning to the end of such years. Conversely,
total investment return based on net asset value will be lower than total
investment return based on market value in periods where there is a
decrease in the discount or an increase in the premium of the market value
to the net asset value from the beginning to end of such periods.
16
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of The Zweig Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of The Zweig Fund,
Inc. (the "Fund") at December 31, 1999, 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 accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 4, 2000
17
<PAGE>
THE ZWEIG FUND, INC.
YEAR END RESULTS
<TABLE>
<CAPTION>
Total Return
on Net Asset Net Asset NYSE Premium
Value Value Share Price (Discount)
------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended 12/31/1999............. 12.9% $12.20 $10.0625 (17.5%)
Year ended 12/31/1998 ............ 6.6% 12.03 10.8125 (10.1%)
Year ended 12/31/1997 ............ 22.0% 12.63 13.2500 4.9%
Year ended 12/31/1996 ............ 14.5% 11.45 10.8750 ( 5.0%)
Year ended 12/31/1995 ............ 18.3% 11.06 11.2500 1.7%
Year ended 12/31/1994 ............ (2.7%) 10.33 10.3750 0.4%
Year ended 12/31/1993 ............ 13.3% 11.68 13.7500 17.7%
Year ended 12/31/1992 ............ 0.4% 11.36 13.0000 14.4%
Year ended 12/31/1991 ............ 30.1% 12.40 13.7500 10.9%
Year ended 12/31/1990 ............ 1.9% 10.48 11.0000 5.0%
Year ended 12/31/1989 ............ 22.3% 11.43 12.3750 8.3%
Year ended 12/31/1988 ............ 17.9% 10.35 10.3750 0.2%
Year ended 12/31/1987 ............ 14.7% 9.73 9.0000 ( 7.5%)
Inception 10/2/86 - 12/31/86 ..... (0.4%) 9.31 9.1250 ( 2.0%)
</TABLE>
- -------------------------------------------------------------------------------
KEY INFORMATION
1-800-272-2700 Zweig Shareholder
Relations:
For general information
and literature
1-800-272-2700 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 plan and whose
shares are held in "Street Name,"
to consult your broker as soon as
possible to determine if you must
change registration into your own
name to participate.
----------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may from time to time purchase its shares of
common stock in the open market when Fund shares are trading at a discount of
10% or more from their net asset value.
18
<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/Glaser Advisers LLC
900 Third Avenue
New York, NY 10022
Fund Administrator
Phoenix Equity Planning Corp.
100 Bright Meadow Boulevard
PO Box 2200
Enfield, CT 06083-2200
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer Agent
State Street Bank & Trust Co.
c/o EquiServe
PO Box 8040
Boston, MA 02266
Legal Counsel
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
- --------------------------------------------------------------------------------
This report is transmitted to the shareholders of The Zweig Fund, Inc. for
their information. This is not a prospectus, circular or representation
intended for use in the purchase of shares of the Fund or any securities
mentioned in this report.
PXP 1337 4902 ANN 12/99
