<PAGE>
August 1, 1995
Dear Shareholder:
The Zweig Total Return Fund's net asset value increased 5.9% during the
three months ended June 30, 1995, including $0.21 in reinvested dividends.
For the six months ended June 30, 1995, the Fund's net asset value gained
10.0%, including $0.42 in reinvested distributions.
Consistent with our policy of trying to minimize risk while earning
reasonable returns, our average overall exposure during the first half of 1995
was approximately 57%.
DISTRIBUTION DECLARED
In accordance with our policy of distributing 10% of net asset value per
year, which equals 0.83% per month (10% divided by 12 months), the Fund
announced a distribution of $0.07 payable on August 24, 1995 to shareholders
of record on August 11, 1995. The amount of a distribution depends on the
exact net asset value at the time of declaration. For the August distribution,
0.83% of the Fund's net asset value was equivalent to $0.07 per share.
Including this distribution, the Fund's payout since its inception is now
$6.35.
MARKET OUTLOOK
At this writing our bond holdings are at about 26% compared with 30% at the
end of the first quarter. If fully invested, we would be at about 62 1/2% for
bonds. Consequently, we are at about 42% of a full position (26%/62 1/2%).
While this appears to be a fairly low exposure, the duration of our bond
portfolio is 4.5 years. Because of the maturities of our bonds, our exposure
is roughly equivalent to that of the average bond fund.
Following the worst bond bear market in decades in 1994, bonds rallied
substantially in the first half of 1995. The slowing economy was a big factor
in the gains. After the Fed's last interest rate increase in February,
inflation fears dissipated. By June the bond market, bolstered by lower-than-
expected economic data, began to discount a Fed rate cut. They were not
disappointed, as the Fed reduced rates by a quarter of a point in early July.
This was the first reduction since September of 1992.
In recent days the bond market has softened somewhat. The market is nervous
that at the margin the economy shows signs of stabilizing or even turning up.
The good news is that inflation has eased.
The key to my results in managing money over the past quarter-century is to
follow my indicators faithfully. Right now the reading of my bond model is
neutral. Remember, signs of economic weakness tend to be positive for bonds
and vice versa. Among economic indicators, capacity utilization, consumer
confidence, and the purchasing manager's index are on the favorable side.
Commodity prices are mixed, with crude oil and gold down and copper and lumber
up. The momentum reading is neutral.
As for equities, we have increased our exposure from 20% at the end of the
first quarter to 32% at this writing. With full investment in stocks at 37
1/2% for our fund, we are presently at 85% of a full position (32%/37 1/2%).
This reflects the current reading of our stock market indicators which are
mainly positive.
Most likely, the greatest risk to stocks now would be a quick burst of speed
in the economy which would probably knock down bond prices. If the economy
remains cool and bond prices behave, the bulls would have the edge and stocks
could surprise on the upside.
Regardless of which direction the markets move, we will continue to be
flexible and adjust the asset mix of our Fund in response to changing market
conditions. As always, our aim
<PAGE>
is to earn reasonable returns during bull markets and preserve most of that
money during bear markets--and to incur much less risk along the way.
PORTFOLIO COMPOSITION
In line with our investment policy guidelines, most of our bonds are U.S.
Government obligations. We also own a small percentage of high grade corporate
bonds. As mentioned previously, the average duration of the bond portion of
the Fund is 4.5 years.
As stated in the last quarterly report, the majority of our equities are
being acquired on the basis of a proprietary computer-driven model that ranks
the most liquid higher yielding stocks.
Factors in our evaluation and ranking include earnings momentum, earnings
growth, price-to-book value, cash flow trend, and payout ratio trend. While
weights of the variables will fluctuate over time, valuation will tend to get
more weight.
Our leading industry groups include paper and forest products, oil,
utilities, chemicals, metals, and technology. These sectors reflect additional
purchases as we increased our exposure and price appreciation, particularly in
the paper, metals, and technology areas. Companies showing the largest gains
include International Paper, Weyerhaeuser, Bowater, Aluminum Company of
America, Reynolds Metals, and IBM.
In addition to previously named companies, our top individual holdings
include Citicorp, Union Carbide, DuPont, Mobil, Goodyear Tire, Georgia-
Pacific, Phelps Dodge, Chevron, and British Petroleum. We have sold our
positions in Phillips Petroleum, Ford, and Chrysler.
Sincerely,
/s/ Martin E. Zweig
Martin E. Zweig, Ph.D.
Chairman
2
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS
JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C> <C>
Common Stocks 26.65%
Aerospace & Defense 1.05%
GenCorp Inc. ......................................... 10,700 $ 115,025
Lockheed Martin Corporation........................... 30,008 1,894,255
Northrop Grumman Corporation.......................... 23,500 1,224,938
Raytheon Company...................................... 7,300 566,663
Rockwell International Corporation.................... 40,800 1,866,600
Sunstrand Corporation................................. 5,800 346,550
United Technologies Corporation....................... 7,300 570,313
------------
6,584,344
------------
Apparel 0.05%
Oshkosh B'Gosh Inc., Class A.......................... 18,000 288,000
------------
Banks 1.33%
Bank of Boston Corporation............................ 46,500 1,743,750
BankAmerica Corporation............................... 19,500 1,026,188
Chemical Banking Corporation.......................... 35,900 1,696,275
Citicorp.............................................. 55,300 3,200,487
SouthTrust Corporation................................ 30,300 700,688
------------
8,367,388
------------
Chemicals 2.61%
ARCO Chemical Company................................. 12,400 562,650
Dow Chemical Company.................................. 38,100 2,738,438
du Pont (E.I.) de Nemours & Company................... 49,900 3,430,625
Eastman Chemical Company.............................. 39,200 2,332,400
Ethyl Corporation..................................... 19,700 209,313
Imperial Chemical Industries PLC, ADR................. 15,600 760,500
Lyondell Petrochemical Company........................ 53,300 1,365,813
Olin Corporation...................................... 15,700 808,550
Rohm & Haas Company................................... 22,400 1,229,200
Union Carbide Corporation............................. 87,600 2,923,650
------------
16,361,139
------------
Conglomerates 0.71%
Unilever N.V., ADR.................................... 18,000 1,639,575
Xerox Corporation..................................... 14,200 2,802,275
------------
4,441,850
------------
Consumer Durables 0.78%
Briggs & Stratton Corporation......................... 12,600 434,700
Eastman Kodak Company................................. 13,100 794,188
Goodyear Tire & Rubber Company........................ 74,800 3,085,500
Jostens Inc. ......................................... 8,900 189,125
Outboard Marine Corporation........................... 14,200 278,675
Toro Company.......................................... 4,800 134,400
------------
4,916,588
------------
Drugs 0.41%
Baxter International Inc. ............................ 70,200 2,553,525
------------
</TABLE>
3
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C> <C>
Finance & Financial Services 1.01%
Aetna Life & Casualty Company......................... 33,600 $ 2,112,600
American Bankers Insurance Group Inc. ................ 7,100 225,425
American General Corporation.......................... 27,800 938,250
Household International Inc. ......................... 17,900 886,050
Providian Corporation................................. 23,600 855,500
St. Paul Companies Inc. .............................. 26,400 1,300,200
------------
6,318,025
------------
Food & Beverage 0.52%
Cadbury Schweppes PLC, ADR............................ 12,600 374,850
Ralston-Purina Group.................................. 26,500 1,351,500
Seagram Company Ltd. ................................. 43,700 1,513,113
------------
3,239,463
------------
Healthcare 0.16%
Bergen Brunswig Corporation, Class A.................. 43,400 992,775
------------
Industrial Services 0.03%
Safety-Kleen Corporation.............................. 12,800 206,400
------------
Metals & Mining 1.82%
Aluminum Company of America........................... 81,000 4,060,125
Cyprus Amax Minerals Company.......................... 19,900 567,150
Homestake Mining Company.............................. 26,300 433,950
Phelps Dodge Corporation.............................. 53,300 3,144,700
Reynolds Metals Company............................... 41,000 2,121,750
USX-U.S. Steel Group.................................. 32,300 1,110,313
------------
11,437,988
------------
Oil & Oil Services 3.90%
Amoco Corporation..................................... 11,600 772,850
Atlantic Richfield Company............................ 34,800 2,655,950
British Petroleum Company PLC, ADS.................... 34,800 2,979,750
Chevron Corporation................................... 60,600 2,825,475
Exxon Corporation..................................... 38,500 2,719,062
Halliburton Company................................... 48,100 1,719,575
Imperial Oil, Ltd. ................................... 28,500 1,058,062
Kerr-McGee Corporation................................ 25,000 1,340,625
Mobil Corporation..................................... 30,800 2,956,800
Nova Corporation...................................... 35,700 303,450
Occidental Petroleum Corporation...................... 80,500 1,841,437
Repsol S.A., ADR...................................... 62,300 1,970,237
Unocal Corporation.................................... 48,100 1,328,763
------------
24,472,036
------------
Paper & Forest Products 3.90%
Boise Cascade Corporation............................. 60,200 2,438,100
Bowater, Inc. ........................................ 66,400 2,979,700
Federal Paper Board Inc. ............................. 35,900 1,269,962
Georgia-Pacific Corporation........................... 32,800 2,845,400
International Paper Company........................... 40,900 3,507,175
James River Corporation of Virginia................... 42,800 1,182,350
</TABLE>
4
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C> <C>
Paper & Forest Products--(Continued)
Mead Corporation....................................... 30,300 $ 1,799,062
Temple-Inland Inc. .................................... 18,200 866,775
Union Camp Corporation................................. 30,800 1,782,550
Westvaco Corporation................................... 19,000 840,750
Weyerhaeuser Company................................... 65,900 3,105,537
Willamette Industries Inc. ............................ 33,600 1,864,800
-----------
24,482,161
-----------
Producer Manufacturing 1.43%
Arvin Industries Inc. ................................. 8,900 199,138
Avery Dennison Corporation............................. 16,800 672,000
Crane Company.......................................... 7,100 257,375
Duriron Company........................................ 8,900 200,250
Eaton Corporation...................................... 27,100 1,575,188
Kennametal Inc. ....................................... 12,600 444,150
Parker-Hannifin Corporation............................ 51,500 1,866,875
Tecumseh Products Company, Class A..................... 8,900 391,600
Timken Company......................................... 19,600 904,050
Trinity Industries Inc. ............................... 20,400 678,300
TRW Inc. .............................................. 22,600 1,805,175
-----------
8,994,101
-----------
Publishing 0.17%
New York Times Company, Class A........................ 46,500 1,092,750
-----------
Retail 0.96%
Bruno's, Inc. ......................................... 70,400 818,400
CPI Corporation........................................ 7,100 135,787
Giant Food Inc., Class A............................... 9,800 278,075
Rite Aid Corporation................................... 70,700 1,811,687
Sears, Roebuck & Company............................... 44,600 2,670,425
Smith's Food & Drug Centers Inc. ...................... 16,100 317,975
-----------
6,032,349
-----------
Technology 1.15%
Applied Materials, Inc. (a)............................ 5,800 502,425
Dell Computer Corporation (a).......................... 10,200 613,275
Digital Equipment Corporation (a)...................... 20,400 831,300
Harris Corporation..................................... 32,100 1,657,162
Intel Corporation...................................... 12,800 810,400
International Business Machines Corporation............ 14,200 1,363,200
Microsoft Corporation (a).............................. 14,600 1,319,475
National Computer Systems Inc. ........................ 7,300 151,475
-----------
7,248,712
-----------
Telecommunications 1.17%
BellSouth Corporation.................................. 17,400 1,104,900
Cable & Wireless Ltd., ADR............................. 34,200 701,100
Cincinnati Bell Inc. .................................. 17,900 451,975
GTE Corporation........................................ 47,000 1,603,875
NYNEX Corporation...................................... 38,800 1,561,700
</TABLE>
5
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES/
PRINCIPAL VALUE
AMOUNT (NOTE 1)
------------ ------------
<S> <C> <C> <C>
Telecommunications--(Continued)
Southern New England Telecommunications Corpora-
tion...................................................... 8,900 $ 313,725
Sprint Corporation......................................... 46,900 1,577,013
------------
7,314,288
------------
Textiles 0.01%
Guilford Mills Inc. ....................................... 1,700 41,438
------------
Transportation 0.79%
British Airways PLC, ADR................................... 12,800 860,800
Conrail Inc. .............................................. 36,900 2,052,562
CSX Corporation............................................ 28,400 2,133,550
------------
5,046,912
------------
Utilities 2.69%
Centerior Energy Corporation............................... 21,800 209,825
DQE Inc. .................................................. 24,050 565,175
Enron Corporation.......................................... 7,700 270,462
FPL Group Inc. ............................................ 60,400 2,332,950
Illinova Corporation....................................... 26,500 672,437
Kansas City Power & Light Company.......................... 18,000 411,750
Ohio Edison Company........................................ 36,100 816,762
Pacific Enterprises........................................ 26,500 649,250
Pacific Gas & Electric Company............................. 62,500 1,812,500
Panhandle Eastern Corporation.............................. 82,700 2,015,812
Pinnacle West Capital Corporation.......................... 34,000 833,000
Portland General Corporation............................... 65,400 1,446,975
Public Service Company of Colorado......................... 25,800 838,500
Questar Corporation........................................ 7,300 209,875
SCEcorp. .................................................. 73,000 1,250,125
Unicom Corporation......................................... 71,300 1,898,363
Williams Companies Inc. ................................... 18,900 659,137
------------
16,892,898
------------
Total Common Stocks
(Cost $154,620,104)...................................... 167,325,130
------------
Corporate Bonds 2.03%
Exxon Capital Corporation, 7.875%, 08/15/1997.............. $ 6,000,000 6,217,500
General Electric Capital Corporation, 8.375%,
03/01/2001................................................ 6,000,000 6,547,500
------------
Total Corporate Bonds
(Cost $12,518,640)....................................... 12,765,000
------------
U.S. Government and Other Agency Obligations 28.70%
Federal Home Loan Mortgage Corporation, 7.05%,
03/24/2004................................................ 12,185,000 12,167,452
Federal Home Loan Mortgage Corporation, 7.61%,
09/01/2004................................................ 4,000,000 4,075,840
Federal National Mortgage Association, 6.20%,
07/10/2003................................................ 4,490,000 4,336,172
Federal National Mortgage Association, 6.48%,
02/18/2004................................................ 4,000,000 3,879,120
Federal National Mortgage Association, 6.90%,
03/10/2004................................................ 4,600,000 4,558,002
Federal National Mortgage Association, 6.85%,
04/05/2004................................................ 10,385,000 10,526,962
Federal National Mortgage Association, 7.60%,
04/14/2004................................................ 6,810,000 6,886,885
</TABLE>
6
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONCLUDED)
JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/NUMBER VALUE
OF CONTRACTS (NOTE 1)
------------- ------------
<S> <C> <C>
U.S. Government and Other Agency Obligations--
(continued)
U.S. Treasury Notes, 4.625%, 02/15/1996........... $ 2,640,000 $ 2,623,025
U.S. Treasury Bonds, 7.625%, 02/15/2025(b)........ 116,100,000 131,151,192
------------
Total U.S. Government and Other Agency
Obligations
(Cost $171,282,933)............................. 180,204,650
------------
Short-Term Money Market Instruments 40.58%
Abbott Laboratories, 5.93%, 07/11/1995............ 27,000,000 26,955,525
AIG Funding, Inc., 6.05%, 07/07/1995.............. 14,900,000 14,884,976
American Telephone and Telegraph Company, 5.93%,
08/14/1995....................................... 21,700,000 21,542,723
Bell Network Funding Corporation, 5.95%,
07/06/1995....................................... 25,000,000 24,979,340
Cargill Financial Services Corporation, 5.95%,
07/05/1995....................................... 14,800,000 14,790,216
Cargill Financial Services Corporation, 5.97%,
07/20/1995....................................... 10,700,000 10,666,286
Dow Chemical Company, 5.97%, 07/14/1995........... 20,000,000 19,956,884
Ford Motor Credit Company, 5.97%, 07/12/1995...... 17,000,000 16,968,989
Heinz (H.J.) Company, 6.03%, 07/13/1995........... 21,600,000 21,556,584
Motorola Credit Corporation, 5.94%, 07/19/1995.... 25,000,000 24,925,750
Northern States Power Company, 5.94%, 07/10/1995.. 5,600,000 5,591,684
Raytheon Company, 5.94%, 07/10/1995............... 20,000,000 19,970,250
Wal-Mart Stores Inc., 5.95%, 07/07/1995........... 18,000,000 17,982,150
Xerox Credit Corporation, 5.93%, 07/07/1995....... 14,000,000 13,986,162
------------
Total Short-Term Money Market Instruments
(Cost $254,757,519)............................. 254,757,519
------------
Net Unrealized Appreciation on Futures
Contracts 0.04%
Standard and Poor's 500 Index, September 1995--
Long futures..................................... 45 192,375
U.S. Treasury Bond Index, September 1995--Short
futures.......................................... (296) 30,503
------------
Total Appreciation on Futures Contracts(c)....... 222,878
------------
Total Investments (Cost $593,179,196)............. 98.00% 615,275,177
Other Assets Less Liabilities..................... 2.00 12,567,159
------------ ------------
Net Assets (Equivalent to $8.48 per share based on
74,020,253 shares of capital stock outstanding).. 100.00% $627,842,336
============ ============
</TABLE>
--------
(a) Non-income producing security.
(b) $2,430,985 of this security has been pledged as collateral for futures
transactions.
(c) The market value of the long futures was $12,310,875 (representing 1.97%
of the Fund's net assets) with a cost of $12,118,500. The market value of
the short futures was $33,605,250 (representing 5.35% of the Fund's net
assets) with a cost of $33,635,753.
For Federal income tax purposes, the tax basis of investments in securities
aggregate $593,179,196. The aggregate gross unrealized appreciation of all
securities was $23,441,499, and aggregate gross unrealized depreciation for
all securities was $1,345,518.
See Notes to Financial Statements.
7
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost $593,179,196) (Note 1).... $615,275,177
Cash............................................................. 971,799
Receivable for investments sold.................................. 9,028,981
Dividends and interest receivable................................ 5,127,292
Deposits at broker for short sales............................... 1,084,422
Prepaid expenses and other assets................................ 55,131
------------
Total Assets................................................... 631,542,802
------------
LIABILITIES:
Payable for investments purchased................................ 2,957,775
Investment advisory fee payable (Note 3)......................... 359,284
Variation margin for futures contracts........................... 168,000
Administrative, custodian and shareholder servicing fees payable
(Note 3)........................................................ 158,316
Accrued expenses and other payables.............................. 57,091
------------
Total Liabilities.............................................. 3,700,466
------------
NET ASSETS......................................................... $627,842,336
============
NET ASSET VALUE, PER SHARE:
($627,842,336 / 74,020,253 shares outstanding)................... $8.48
=====
Net Assets consist of:
Distributions in excess of net investment income................. $(16,253,914)
Undistributed net realized gain on investments................... 15,907,760
Net unrealized appreciation on investments....................... 22,095,981
Capital paid-in (Note 4)......................................... 606,092,509
------------
Total Net Assets............................................... $627,842,336
============
</TABLE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income:
Income:
Interest........................................................ $15,916,295
Dividends....................................................... 2,062,624
-----------
Total Investment Income....................................... 17,978,919
-----------
Expenses:
Investment advisory fees (Note 3)............................... 2,097,253
Administration fees (Note 3).................................... 539,293
Printing and postage expenses................................... 318,163
Shareholder servicing agent fees (Note 3)....................... 205,500
Custodian fees (Note 3)......................................... 60,019
Professional fees............................................... 35,946
Directors' fees and expenses (Note 3)........................... 28,000
Miscellaneous................................................... 125,129
-----------
Total Expenses................................................ 3,409,303
-----------
Net Investment Income....................................... 14,569,616
-----------
Realized and Unrealized Gain on Investments:
Realized gain on investments:
Security transactions........................................... 17,802,150
Futures transactions............................................ 1,000,118
-----------
Net realized gain on investments............................ 18,802,268
Net increase in unrealized appreciation.......................... 24,761,406
-----------
Net realized and unrealized gain on investments............. 43,563,674
-----------
Net increase in net assets resulting from operations........ $58,133,290
===========
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
---------------- -----------------
<S> <C> <C>
Change in Net Assets:
Operations:
Net investment income.................... $ 14,569,616 $ 20,508,150
Net realized gain (loss) on investments.. 18,802,268 (2,816,932)
Net unrealized appreciation
(depreciation) on investments........... 24,761,406 (28,372,064)
------------ ------------
Net increase (decrease) in net assets
resulting from operations............. 58,133,290 (10,680,846)
------------ ------------
Distributions to shareholders from:
Net investment income.................... (30,823,530) (20,511,580)
Capital paid-in.......................... -- (41,496,881)
------------ ------------
Total distributions to shareholders.... (30,823,530) (62,008,461)
------------ ------------
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 and capital paid-in (Note 4)...... 8,873,738 15,831,986
------------ ------------
Net increase (decrease) in net assets..... 36,183,498 (56,857,321)
------------ ------------
Net Assets:
Beginning of period....................... 591,658,838 648,516,159
------------ ------------
End of period (including distributions in
excess of net investment income of
$16,253,914 at June 30, 1995)............ $627,842,336 $591,658,838
============ ============
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 (UNAUDITED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The Zweig Total Return 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 July 21, 1988. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of
its financial statements.
A. Portfolio Valuation
The portfolio securities which are traded only on stock exchanges are valued
at the last sale price. Securities traded in the over-the-counter market which
are National Market System securities are valued at the last sale price. Other
over-the-counter securities are valued at the most recently quoted 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.
Debt securities having a remaining maturity of 60 days or less are valued at
amortized cost, if the original maturity was 60 days or less, or by amortizing
their fair value as of the 61st day prior to maturity, if their original term
to maturity exceeds 60 days. Futures and options thereon which are traded on
commodities exchanges are valued at their closing settlement price on such
exchange. Securities and investments for which market quotations are not
readily available, and other investments, if any, are valued at fair value as
determined in good faith by or under the direction of the Board of Directors
of the Fund.
B. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Fund's agent in acquiring the
futures position). During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
marking the contract to market on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to the
broker, depending upon whether unrealized gains or losses are incurred. When
the contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract and is disclosed in the Statement of
Operations.
The Fund may purchase and sell interest rate, stock index and other futures
contracts based upon other financial instruments, and the Fund may purchase
and sell stock index options, for hedging purposes. There are several risks in
connection with the use of futures contracts as a hedging device. The change
in value of futures contracts primarily corresponds with the value of their
underlying instruments, which may not correlate with the change in value of
the hedged investments. Therefore, anticipated gains may not result and
anticipated losses may not be offset. In addition, as no secondary market
exists for futures contracts, there is no assurance that there will be an
active market at any particular time.
10
<PAGE>
C. Option Contracts
The Fund may purchase put and call options on portfolio securities and
foreign currencies. Upon the purchase of a put option or a call option by the
Fund, the premium paid is recorded as an investment, the value of which is
marked-to-market daily to reflect the current market value. When a purchased
option expires, the Fund will realize a loss in the amount of the cost of the
option and is included in realized gain (loss) from security transactions in
the Statement of Operations. When the Fund enters into a closing sale
transaction, the Fund will realize a gain or loss depending on whether the
sales proceeds from the closing sale transaction are greater or less than the
cost of the option. When the Fund exercises a put option, it will realize a
gain or loss from the sale of the underlying security and the proceeds from
such sale will be decreased by the premium originally paid. When the Fund
exercises a call option, the cost of the security which the Fund purchases
upon exercise will be increased by the premium originally paid.
The risk associated with purchasing options is limited to the premium
originally paid. In addition, there is the risk the Fund may not be able to
enter into a closing transaction because of an illiquid secondary market. In
relation to options on foreign currencies, there is also risk associated with
disadvantageous exchange rates.
D. Short Sales
The Fund may engage in short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
of a decline in market price. When the Fund engages in a short sale, the
proceeds it receives are retained by the broker until the Fund replaces the
borrowed security. In addition to the short sales described above, the Fund
may make short sales "against the box." A short sale "against the box" is a
short sale whereby at the time of the short sale, the Fund owns or has the
immediate and unconditional right, at no added cost, to obtain the identical
security. If the price of the security sold short increases between the time
of the short sale and the time the Fund replaces the borrowed security, the
Fund will incur a loss, and if the price declines during this period, the Fund
will realize a gain. Any gain will be decreased, and any incurred loss
increased, by the amount of transaction costs. Dividends or interest which the
Fund may have to pay in connection with such short sale are recorded as
expenses. While the short sales are outstanding, the Fund pledges cash and
securities to cover its margin requirements. At June 30, 1995, cash of
$1,084,422 was on deposit in an interest-bearing account with a broker to
cover any short sales the Fund may enter into.
E. Security Transactions and Investment Income
Security transactions are recorded on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on an accrual
basis.
Realized gains or losses on sales of investments are determined on the
identified cost basis for accounting and tax purposes.
F. Federal Income Tax
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 is that a regulated investment company, as opposed to an
ordinary taxable corporation, 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 the tax character
of long-term capital gains recognized by a regulated investment company flows
through to its shareholders who receive distributions of such income.
11
<PAGE>
G. Distributions to Shareholders
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 gain 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 distributions 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.
NOTE 2--PORTFOLIO TRANSACTIONS
During the six months ended June 30, 1995, the Fund entered into purchase
and sale transactions excluding short term instruments, as follows:
<TABLE>
<S> <C>
Cost of Purchases............................................. $434,113,797
============
Proceeds from Sales........................................... $411,267,662
============
</TABLE>
NOTE 3--INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
a) Investment Advisory Fees: The Investment Advisory Agreement (the
"Advisory Agreement") between the Investment Adviser, Zweig Total Return
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 Investment Adviser, subject to review by the
Board of Directors and the applicable provisions of the Act. Certain directors
and officers of the Fund are also directors and officers of the Investment
Adviser.
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 .70 of 1% of the Fund's average daily net assets. During the
six months ended June 30, 1995, the Fund accrued advisory fees of $2,097,253.
b) Administrative, Custodian and Shareholder Servicing Agent Fees: The
Administrator for the Fund is The Shareholder Services Group, Inc. ("TSSG"), a
wholly-owned subsidiary of First Data Corporation. Under the Administration
Agreement, TSSG generally assists in all aspects of the Fund's administration.
TSSG furnishes the Fund with office facilities, clerical help and accounting,
data processing, bookkeeping, internal auditing and legal services, prepares
reports to the Fund's shareholders, prepares tax returns and reports to and
filings with the Securities and Exchange Commission and determines the Fund's
net asset value. For these services provided by TSSG, and the custodial
services provided by Boston Safe Deposit and Trust Company, an indirect
wholly-owned subsidiary of Mellon Bank Corporation, and transfer agency,
registrar and dividend paying agent services provided by TSSG, the Fund pays a
monthly fee at the annual rate of .25 of 1% of the Fund's average daily net
assets and reimburse certain out-of-pocket expenses. During the six months
ended June 30, 1995, the Fund accrued fees of $804,812 for such services and
expenses. Effective August 1, 1995, Zweig/Glaser Advisers became the
Administrator for the Fund.
c) Directors Fees: The Fund pays each Director who is not an interested
person of the Fund or the Investment Adviser a fee of $8,000 per year plus
$1,000 per Directors' or committee meeting
12
<PAGE>
attended, together with the actual out-of-pocket costs relating to attendance
at such meetings of each Director who is not an interested person of the Fund
or the Investment Adviser. The Directors of the Fund who are interested
persons of the Fund or the Investment Adviser receive no remuneration from the
Fund.
d) Legal Fees: The fund accrued legal fees of $8,446 for the six months
ended June 30, 1995, for the services of Rosenman & Colin, of which Robert E.
Smith, Director of the Fund, is a partner.
e) Brokerage Commissions: During the six months ended June 30, 1995, the
Fund paid Watermark Securities, Inc. brokerage commissions of $83,191 in
connection with portfolio transactions.
NOTE 4--CAPITAL STOCK AND DISTRIBUTION REINVESTMENTS
At June 30, 1995 the Fund has one class of common stock, par value $.001 per
share, of which 500,000,000 shares are authorized and 74,020,253 shares are
outstanding. For the six months ended June 30, 1995 and the year ended
December 31, 1994, 1,083,786 and 1,764,971 shares, respectively, were issued
in accordance with the Fund's Distribution Reinvestment Plan (the "Plan").
Pursuant to the Plan, all shareholders whose shares are registered in their
own names will have all distributions reinvested automatically in additional
shares of the Fund by TSSG, unless a shareholder elects to receive cash.
Shareholders whose shares are held in the name of a broker or nominee will
have distributions reinvested automatically by the broker or the nominee in
additional shares under the Plan, unless the service is not provided by the
broker or the nominee or the shareholder elects to receive distributions in
cash. If the service is not available, such distributions will be paid in
cash. All distributions to investors who elect not to participate (or whose
broker or nominee elects not to participate) in the Plan will be paid by check
mailed directly to the record holder by or under the direction of TSSG, as the
dividend paying agent.
NOTE 5--FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, -------------------------------------------------
1995 1994 1993 1992 1991 1990
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating performance
Net Asset Value,
beginning of period.... $ 8.11 $ 9.11 $ 9.06 $ 9.79 $ 9.02 $ 9.59
-------- -------- -------- -------- -------- --------
Net investment income... 0.20 0.29 0.26 0.32 0.44 0.56
Net realized and
unrealized gains
(losses) from security
transactions........... 0.59 (0.43) 0.75 (0.09) 1.29 (0.20)
-------- -------- -------- -------- -------- --------
Net increase (decrease)
in net assets.......... 0.79 (0.14) 1.01 0.23 1.73 0.36
Distributions:
Dividends from net
investment income...... (0.42) (0.29) (0.26) (0.32) (0.43) (0.60)
Distributions from
capital................ -- (0.57) -- (0.34) -- (0.29)
Distributions from
realized gains from
investment
transactions........... -- -- (0.70) (0.30) (0.53) (0.04)
-------- -------- -------- -------- -------- --------
Total distributions..... (0.42) (0.86) (0.96) (0.96) (0.96) (0.93)
-------- -------- -------- -------- -------- --------
Net Asset Value, end of
period................. $ 8.48 $ 8.11 $ 9.11 $ 9.06 $ 9.79 $ 9.02
======== ======== ======== ======== ======== ========
Market Value, end of
period+................ $ 8.625 $ 8.00 $ 10.75 $ 10.00 $ 10.63 $ 8.63
======== ======== ======== ======== ======== ========
Total investment return. 10.04% (17.08)% 18.37% 2.60% 37.90% (1.99)%
======== ======== ======== ======== ======== ========
Ratios and supplemental
data:
Net assets, end of
period (in thousands).. $627,842 $591,659 $648,516 $624,097 $648,118 $573,782
Ratio of expenses to
average net assets..... 1.14%* 1.12% 1.11% 1.13% 1.11% 1.09%
Ratio of net investment
income to average net
assets................. 4.86%* 3.35% 2.85% 3.43% 4.74% 6.14%
Portfolio turnover rate. 124.44% 281.00% 293.01% 123.19% 148.60% 145.16%
</TABLE>
--------
+ Closing New York Stock Exchange price.
* Annualized.
13
<PAGE>
NOTE 6--QUARTERLY RESULTS OF INVESTMENT OPERATIONS
Shown in thousands of dollars and per common share:
<TABLE>
<CAPTION>
NET REALIZED NET INCREASE
AND UNREALIZED (DECREASE)
TOTAL NET GAIN (LOSS) ON IN NET ASSETS
INVESTMENT INVESTMENT INVESTMENTS AND RESULTING FROM
INCOME INCOME NET OTHER ASSETS OPERATIONS
----------- ----------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995--Quarter Ended
06/30/95.......... $8,895 $.12 $7,063 $.10 $ 28,784 $ .39 $ 35,847 $ .49
03/31/95.......... 9,084 .12 7,507 .10 14,780 .20 22,286 .30
1994--Quarter Ended
12/31/94.......... 8,182 .11 6,397 .09 (1,810) (.03) 4,587 .06
09/30/94.......... 7,312 .10 5,637 .08 131 .00 5,768 .08
06/30/94.......... 6,504 .09 4,823 .07 (12,950) (.17) (8,127) (.10)
03/31/94.......... 5,395 .08 3,651 .05 (16,560) (.23) (12,909) (.18)
</TABLE>
14
<PAGE>
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Total Return Fund, Inc. was
held on May 1, 1995. The meeting was held for the purpose of reelecting
William M. Batten, Anthony M. Santomero and Martin E. Zweig as Directors; and
to ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
certified public accountants for the year ending December 31, 1995. The Fund's
other Directors who continued in office are Edward S. Babbitt, Jr., Charles H.
Brunie, Elliot S. Jaffe, James B. Rogers, Jr. and Robert E. Smith.
The results of the voting on the above matters were as follows:
<TABLE>
<CAPTION>
DIRECTOR/AUDITOR VOTES FOR VOTES AGAINST VOTES WITHHELD ABSTENTIONS
---------------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
William M. Batten........... 53,080,461 -- 823,586 --
Anthony M. Santomero........ 53,204,382 -- 699,665 --
Martin E. Zweig............. 53,226,737 -- 677,310 --
Coopers & Lybrand L.L.P. ... 52,847,472 327,374 -- 729,201
</TABLE>
-------------------------------------------------------------------------------
KEY INFORMATION
The Shareholder Services Group, Inc.
P.O. Box 1376
Boston, MA 02104
For questions about our Reinvestment Plan, shareholders may write to The
Shareholder Services Group or call 1-800-331-1710.
THE ZWEIG TOTAL RETURN FUND HOTLINE
For weekly updates on the Fund's major industry holdings, our market stance
and our net asset value call (212) 486-3122.
THE ZWEIG TOTAL RETURN FUND, INC.
GENERAL INFORMATION
1-800-272-2700
-------------------------------------------------------------------------------
REINVESTMENT PLAN
Many of you have questions about the reinvestment plan. We urge
shareholders who want to take advantage of this plan and whose shares are held
in "Street Name" to consult your broker as soon as possible to determine if you
must change registration into your own name to participate.
-------------------------------------------------------------------------------
----------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may from time to time purchase its shares of
common stock in the open market when Fund shares are trading at a discount
from their net asset value.
15
<PAGE>
OFFICERS AND DIRECTORS
Martin E. Zweig, Ph.D.
Chairman of the Board and President
Jeffrey Lazar
Vice President and Treasurer
Stuart B. Panish
Vice President and Secretary
Edward S. Babbitt, Jr.
Director
William M. Batten
Director
Charles H. Brunie
Director
Elliot S. Jaffe
Director
James B. Rogers, Jr.
Director
Anthony M. Santomero, Ph.D.
Director
Robert E. Smith
Director
INVESTMENT ADVISER
Zweig Total Return Advisors, Inc.
900 Third Avenue
New York, New York 10022
FUND ADMINISTRATOR
Zweig/Glaser Advisers
5 Hanover Square
New York, New York 10004
CUSTODIAN
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02109
TRANSFER AGENT
The Shareholder Services Group, Inc.
P.O. Box 1376
Boston, MA 02104
LEGAL COUNSEL
Rosenman & Colin
575 Madison Avenue
New York, New York 10022
--------------------------------------------------------------------------------
This report is transmitted to the shareholders of The Zweig Total Return
Fund, Inc. for their information. This is not a prospectus, circular or repre-
sentation intended for use in the purchase of shares of the Fund or any securi-
ties mentioned in this report.
[LOGO OF THE ZWEIG TOTAL RETURN FUND APPEARS HERE]
SEMI-ANNUAL REPORT
JUNE 30, 1995
