<PAGE>
August 1, 1996
Dear Shareholder:
The Zweig Total Return Fund's net asset value for the three months ended
June 30, 1996, increased 0.5%, including $0.21 per share in reinvested
distributions.
For the six months ended June 30, 1996, the Fund's net asset value increased
0.4%, 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 1996
was approximately 79%.
In evaluating our performance, it is important to note that we were very
conservative in our approach. This was especially true in the latter part of
the first half. As our indicators deteriorated and pointed to rising risks for
stocks and bonds, we scaled back our exposure. This conservative stance served
us well in late June and July when the market caught up with our indicators.
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
recently announced a distribution of $0.07 per share payable on August 26,
1996 to shareholders of record on August 12, 1996. 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 total
payout since its inception is now $7.19.
MARKET OUTLOOK
The first half of 1996 was fine for stocks but dismal for bonds. U.S. bonds
had a negative return of 9% for the period as measured by the bellwether 30-
year Treasury Bond.
At the end of the second quarter our bond holdings were at 44% compared with
49% on March 31. Since our fully invested position for bonds would be at 62
1/2%, we were at about 71% of a full position (44%/62 1/2%). While our
percentage of assets committed to bonds declined, the actual duration of our
bonds increased from 3.5 to 4 years. In other words, the bonds held have a
greater length of time until maturity. We increased the length of our maturity
because our bond model improved.
Although bond yields rose from 5.95% in December to better than 7.17% in
early July, they haven't changed much in recent weeks and are currently at
about 7%. Short-term rates also have not moved much.
The biggest positive for bonds is that inflation is low. This is reflected
in the price indices compiled by the Journal of Commerce, the Commodity
Research Bureau and Goldman Sachs. The weakness in cyclical stocks is also a
positive in our bond model.
In addition to price trends, economic activity is a prime indicator for
bonds and here the reading is negative. These indicators include capacity
utilization, unemployment claims, retail sales, consumer confidence, home
sales and rail traffic. Each day brings new readings on the economy and the
models have to be adjusted constantly.
On the whole I see more positives than negatives for bonds at this writing
and my bond model reads high neutral.
Our equity holdings were at 24% at the end of the second quarter against 32%
on March 31. With full investment in stocks at 37 1/2% for our Fund, we were
at about 64% of a full position (24%/37 1/2%). This is roughly in line with my
low neutral reading for stocks.
<PAGE>
PORTFOLIO COMPOSITION
In conformance with our investment policy guidelines, all of our bonds are
U.S. Government obligations. As mentioned earlier, the average duration of the
bond portion of our Fund is 4 years.
To implement my basic allocation strategy, the majority of our stocks are
bought or sold on the basis of a proprietary computer-driven model that uses
various criteria to evaluate and rank the most liquid stocks with the highest
dividend yields.
The composition of our leading industry groups showed little change in the
second quarter. As of June 30, utilities was our largest sector, followed by
oils and telecommunications.
With brokerage firms continuing to rank well, financial services has moved
into our top tier. It replaces metals, a sector in which we have reduced our
positions. Although we have cut back our holdings in chemicals and paper and
forest products, these two groups still retain prominent positions in our
portfolio.
We have trimmed our holdings in Union Carbide, Reynolds Metals and Phelps
Dodge and sold out our positions in Occidental Petroleum and Aluminium Co. of
America.
At the quarter's end, our leading individual positions included Sprint,
BankAmerica, duPont, NYNEX, Telefonica de Espana, Texaco, United Technologies,
CSX Corp., General Motors-Class H, and Salomon. All of these companies were in
our portfolio at the end of the first quarter.
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, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
----------- ------------
<S> <C> <C>
Common Stocks 28.42%
Aerospace & Defense 1.43%
General Motors Corp., Class H....................... 47,400 $ 2,849,925
Sundstrand Corp. ................................... 40,400 1,479,650
Textron, Inc. ...................................... 20,000 1,597,500
United Technologies Corp. .......................... 26,600 3,059,000
------------
8,986,075
------------
Automotive 0.41%
Chrysler Corp. ..................................... 41,100 2,548,200
------------
Banks 0.86%
BankAmerica Corp. .................................. 45,400 3,439,050
Chase Manhattan Corp. .............................. 14,000 988,750
City National Corp. ................................ 13,700 215,775
TCF Financial Corp. ................................ 16,500 548,625
Washington Mutual, Inc. ............................ 6,900 206,138
------------
5,398,338
------------
Chemicals 2.12%
Dow Chemical Co. ................................... 16,500 1,254,000
du Pont (E.I.) de Nemours & Co. .................... 40,500 3,204,562
Goodrich (B.F.) & Co. .............................. 40,900 1,528,638
Imperial Chemical Industries Plc, ADR............... 27,200 1,336,200
Olin Corp. ......................................... 20,900 1,865,325
Rohm & Haas Co. .................................... 42,400 2,660,600
Union Carbide Corp. ................................ 35,900 1,427,025
------------
13,276,350
------------
Conglomerates 0.39%
Hanson Plc, ADR..................................... 79,000 1,125,750
Xerox Corp. ........................................ 24,600 1,316,100
------------
2,441,850
------------
Construction & Farm Equipment 0.29%
Deere & Co. ........................................ 45,600 1,824,000
------------
Consumer Durables 0.42%
Goodyear Tire & Rubber Co. ......................... 54,500 2,629,625
------------
Containers & Packaging 0.03%
Sea Container LTD., Class A......................... 9,400 178,600
------------
Finance & Financial Services 1.69%
Alex Brown Inc. .................................... 10,000 565,000
American Bankers Insurance Group, Inc. ............. 11,500 501,688
Bear Stearns & Co., Inc. ........................... 84,840 2,004,345
Edwards, (A.G.) & Sons, Inc. ....................... 60,100 1,630,212
Fremont General Corp. .............................. 19,600 450,800
Merrill Lynch & Co., Inc. .......................... 33,000 2,149,125
PHH Corp. .......................................... 10,000 570,000
Salomon Inc. ....................................... 62,500 2,750,000
------------
10,621,170
------------
</TABLE>
3
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
----------- ------------
<S> <C> <C>
Food & Beverage 0.09%
Adolph Coors Co., Class B........................... 30,300 $ 541,613
------------
Investment Companies 1.31%
Blackrock 2001 Term Trust, Inc. .................... 29,000 221,125
Blackrock Strategic Term Trust, Inc. ............... 29,000 221,125
Central European Equity Fund........................ 6,900 123,338
Clemente Global Growth Fund, Inc. .................. 13,100 109,713
Emerging Germany Fund, Inc. ........................ 42,100 310,487
Emerging Markets Infrastructure, Inc. .............. 14,200 161,525
Emerging Markets Telecommunications Fund, Inc. ..... 4,800 86,400
Emerging Mexico Fund, Inc. ......................... 6,900 48,300
Europe Fund, Inc. .................................. 17,000 242,250
First Iberian Fund, Inc. ........................... 6,900 60,806
First Israel Fund, Inc. ............................ 12,000 138,000
France Growth Fund, Inc. ........................... 21,900 224,475
G.T. Global Eastern Europe Fund..................... 36,400 482,300
Gabelli Equity Trust, Inc. ......................... 47,300 455,263
Gabelli Global Multimedia Trust Fund, Inc. ......... 37,400 261,800
Global Health Sciences Fund, Inc. .................. 41,400 729,675
John Hancock Bank & Thrift Opportunity Fund......... 21,400 497,550
Liberty All-Star Growth Fund, Inc. ................. 20,200 194,425
Morgan Grenfell Small Cap Fund, Inc. ............... 17,833 185,017
New Age Media Fund, Inc. ........................... 17,300 263,825
New Germany Fund, Inc. ............................. 62,200 785,275
Pilgrim Regional Bank Shares, Inc. ................. 20,100 253,763
Royce Value Trust, Inc. ............................ 29,560 365,805
Scudder New Europe Fund, Inc. ...................... 26,900 339,612
Spain Fund, Inc. ................................... 14,400 142,200
Swiss Helvetia Fund, Inc. .......................... 34,600 735,250
Templeton China World Fund.......................... 5,200 57,200
Templeton Dragon Fund, Inc. ........................ 6,900 91,425
Tri-Continental Corp. .............................. 18,800 451,200
------------
8,239,129
------------
Manufacturing 0.62%
Duriron Co., Inc. .................................. 8,900 213,600
Harsco Corp. ....................................... 5,800 390,050
Johnson Controls, Inc. ............................. 10,400 722,800
Miller (Herman), Inc. .............................. 26,900 823,813
TRW, Inc. .......................................... 19,000 1,707,625
------------
3,857,888
------------
Metals & Mining 0.98%
British Steel, Plc., ADR............................ 57,600 1,461,600
M.A. Hanna Mining Co. .............................. 30,000 626,250
Oregon Steel Mills Inc. ............................ 46,300 636,625
Phelps Dodge Corp. ................................. 27,000 1,684,125
Reynolds Metals Co. ................................ 31,300 1,631,513
------------
6,040,113
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
----------- ------------
<S> <C> <C>
Oil & Oil Services 4.05%
Ashland Oil Inc. ............................... 24,900 $ 986,662
British Petroleum Co., PLC, ADR................. 19,800 2,116,125
Chevron Corp. .................................. 6,800 401,200
Elf Aquitaine, ADR.............................. 46,100 1,694,175
Helmerich & Payne, Inc. ........................ 21,400 783,775
Kerr-McGee Corp. ............................... 31,000 1,887,125
Mobil Corp. .................................... 23,000 2,578,875
Pennzoil Co. ................................... 24,000 1,110,000
Philips Petroleum Co. .......................... 61,000 2,554,375
Quaker State Corp. ............................. 31,400 471,000
Repsol S.A., ADR................................ 51,700 1,796,575
Texaco Inc. .................................... 37,200 3,120,150
Tosco Corp. .................................... 33,400 1,678,350
Unocal Corp. ................................... 48,700 1,643,625
USX-Marathon Group, Inc. ....................... 126,600 2,547,825
------------
25,369,837
------------
Paper & Forest Products 1.33%
Boise Cascade Corp. ............................ 17,300 633,612
Bowater, Inc. .................................. 61,500 2,313,938
Consolidated Papers, Inc. ...................... 24,700 1,284,400
International Paper Co. ........................ 30,800 1,135,750
James River Corp. of Virginia................... 45,500 1,200,063
Rayonier Inc. .................................. 22,200 843,600
Westvaco Corp. ................................. 29,950 894,756
------------
8,306,119
------------
Retail Trade & Services 1.41%
American Stores Co. ............................ 52,800 2,178,000
Dayton Hudson Inc. ............................. 16,300 1,680,937
Mercantile Stores Inc. ......................... 2,500 146,563
Ross Stores, Inc. .............................. 18,500 642,875
Smith's Food & Drug Centers Inc. ............... 10,380 247,822
Supervalue Inc. ................................ 40,700 1,282,050
TJX Companies Inc. ............................. 78,200 2,639,250
------------
8,817,497
------------
Technology 1.63%
Applied Materials, Inc.......................... 11,600 (a) 353,800
Dell Computer Corp. ............................ 20,400 (a) 1,037,850
Digital Equipment Corp. ........................ 32,300 (a) 1,453,500
EG&G Inc. ...................................... 20,300 433,912
Harris Corp. ................................... 36,700 2,238,700
Intel Corp. .................................... 12,800 940,000
International Business Machines Corp. .......... 20,500 2,029,500
Microsoft Corp. ................................ 14,600 (a) 1,753,825
------------
10,241,087
------------
Telecommunications 3.02%
BCE Inc. ....................................... 28,400 1,121,800
Cincinnati Bell Inc. ........................... 18,700 974,737
</TABLE>
5
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
----------- ------------
<S> <C> <C>
Telecommunications--(Continued)
GTE Corp. .......................................... 36,300 $ 1,624,425
NYNEX Corp. ........................................ 72,500 3,443,750
Sprint Corp. ....................................... 101,300 4,254,600
Telefonica de Espana S.A., ADS...................... 57,900 3,191,738
Telefonos de Mexico S.A., ADS....................... 68,100 2,281,350
U.S. West Inc. ..................................... 63,700 2,030,437
------------
18,922,837
------------
Tobacco 0.35%
RJR Nabisco Holdings Corp. ......................... 70,700 2,191,700
------------
Transportation 0.64%
British Airways PLC, ADR............................ 8,100 694,575
CSX Corp. .......................................... 62,600 3,020,450
KLM Royal Dutch Airlines, Inc. ..................... 10,100 320,675
------------
4,035,700
------------
Utilities--Electric & Natural Gas 5.37%
Allegheny Power Systems, Inc. ...................... 17,000 524,875
American Electric Power Co., Inc. .................. 55,100 2,348,638
Baltimore Gas & Electric Co. ....................... 13,700 388,737
Carolina Power & Light Co., Inc. ................... 41,500 1,577,000
CINergy Corp. ...................................... 55,600 1,779,200
CMS Energy Corp. ................................... 29,400 907,725
Dominion Resources Inc. ............................ 13,800 552,000
DQE Inc. ........................................... 37,250 1,024,375
DTE Energy Co. ..................................... 31,800 981,825
Eastern Enterprises................................. 10,500 349,125
Edison International Inc. .......................... 54,800 965,850
El Paso Natural Gas Co. ............................ 15,100 581,350
Enova Corp. ........................................ 36,200 837,125
Entergy Corp. ...................................... 17,900 507,912
General Public Utilities Corp. ..................... 46,500 1,639,125
Illinova Corp. ..................................... 40,500 1,164,375
MCN Corp. .......................................... 39,100 953,063
New England Electric Systems, Inc. ................. 21,600 785,700
New York State Gas & Electric Co. .................. 7,400 180,375
NIPSCO Industries, Inc. ............................ 33,000 1,328,250
NorAm Energy Corp. ................................. 121,911 1,325,663
Pacificorp.......................................... 28,600 636,350
PanEnergy Corp. .................................... 61,000 2,005,375
Pinnacle West Capital Corp. ........................ 36,100 1,096,538
Portland General Corp. ............................. 85,500 2,639,812
Texas Utilities Co. ................................ 55,700 2,381,175
Transcanada Pipeline Ltd. .......................... 56,700 836,325
Unicom Corp. ....................................... 80,600 2,246,725
United Illuminating Co. ............................ 6,500 242,937
Western Resources Inc. ............................. 29,500 881,312
------------
33,668,837
------------
Total Common Stocks
(Cost $163,827,447)............................... 178,136,565
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/
NUMBER OF VALUE
CONTRACTS (NOTE 1)
----------- ------------
<S> <C> <C>
United States Government & Agency
Obligations 43.95%
Federal National Mortgage Association, 6.85%,
4/5/2004....................................... $10,385,000 $ 10,321,174
United States Treasury Bills, 5.12%, 10/31/1996. 2,000,000 1,965,296
United States Treasury Bonds, 10.75%, 5/15/2003. 15,000,000 18,379,665
United States Treasury Bonds, 7.25%, 8/15/2022.. 26,000,000 26,650,000
United States Treasury Bonds, 7.50%, 11/15/2024. 27,600,000 29,264,583
United States Treasury Bonds, 7.50%, 2/15/2025.. 18,800,000 20,274,597
United States Treasury Bonds, 6.875%, 8/15/2025. 24,600,000 24,346,276
United States Treasury Notes, 6.25%, 8/31/2000.. 85,300,000 (b) 84,740,091
United States Treasury Notes, 5.625%,
11/30/2000..................................... 19,745,000 19,115,628
United States Treasury Notes, 7.50%, 2/15/2005.. 31,300,000 32,923,687
United States Treasury Notes, 6.50%, 5/15/2005.. 7,600,000 7,495,500
------------
Total United States Government & Agency
Obligations (Cost $279,946,384)............... 275,476,497
------------
Short-Term Investments 28.77%
AT&T Capital Corp., 5.33%, 7/22/96.............. 10,000,000 9,968,908
Bell Atlantic Network Funding, 5.34%, 7/12/96... 13,900,000 13,877,320
Exxon Imperial Inc., 5.40%, 7/3/96.............. 14,000,000 13,995,800
Ford Motor Credit Co., 5.36%, 7/3/96............ 11,000,000 10,996,724
Gannett Co., 5.35%, 7/24/96..................... 25,000,000 24,914,549
Lilly, Eli & Co., 5.33%, 7/1/96................. 20,000,000 20,000,000
Lucent Technologies Corp., 5.32%, 7/9/96........ 19,600,000 19,576,828
Merrill Lynch & Co., Inc., 5.34%, 7/2/96........ 11,500,000 11,498,294
Merrill Lynch & Co., Inc., 5.39%, 7/8/96........ 12,100,000 12,087,319
Minnesota Mining & Manufacturing Inc., 5.32%,
7/9/96......................................... 23,500,000 23,472,218
Philip Morris Capital Corp., 5.33%, 7/12/96..... 7,400,000 7,387,948
Smithkline Beecham Corp., 5.33%, 7/17/96........ 12,600,000 12,570,152
------------
Total Short-Term Investments
(Cost $180,346,060)........................... 180,346,060
------------
Net Unrealized Depreciation on Futures
Contracts (0.04)%
Standard and Poor's 500 Index, September 1996
Short futures.................................. (91)(c) (231,231)
------------
Total Investments (Cost $624,119,892)........... 101.10% 633,727,891
Liabilities, in excess of Cash and Other Assets. (1.10) (6,864,252)
----------- ------------
Net Assets (Equivalent to $8.24 per share based
on 76,049,799 shares of capital stock
outstanding)................................... 100.00% $626,863,639
=========== ============
</TABLE>
- --------
(a) Non-income producing security.
(b) $2,000,000 of this security has been pledged as collateral for futures
transactions.
(c) The market value of the short futures was $30,794,400 (representing 4.91%
of the Fund's net assets) with a cost of $30,563,169.
For Federal income tax purposes, the tax basis of investments owned at June
30, 1996 was $624,167,525 and unrealized appreciation on investments consisted
of:
<TABLE>
<S> <C>
Gross unrealized appreciation.... $16,544,869
Gross unrealized depreciation.... (6,984,503)
-----------
Net unrealized appreciation...... $ 9,560,366
===========
</TABLE>
See notes to financial statements.
7
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost $624,119,892)............ $633,959,122
Cash............................................................ 616,246
Dividends and interest receivable............................... 5,982,714
Deposit at broker for short sales............................... 1,141,280
Prepaid expenses................................................ 15,743
Receivable for investments sold................................. 1,879,592
------------
Total Assets.................................................. 643,594,697
------------
LIABILITIES:
Payable for investments purchased............................... 16,147,577
Variation margin for futures contracts.......................... 170,625
Accrued advisory fees (Note 3).................................. 356,835
Other accrued expenses.......................................... 56,021
------------
Total Liabilities............................................. 16,731,058
------------
NET ASSETS........................................................ $626,863,639
============
NET ASSET VALUE, PER SHARE:
($626,863,639 / 76,049,799 shares outstanding--Note 4).......... $8.24
=====
Net Assets consist of:
Capital paid-in................................................. $617,255,640
Net unrealized appreciation on investments...................... 9,607,999
------------
Total Net Assets.............................................. $626,863,639
============
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income:
Income:
Interest....................................................... $ 13,176,119
Dividends...................................................... 3,293,910
------------
Total Income................................................. 16,470,029
------------
Expenses:
Investment advisory fees (Note 3).............................. 2,208,494
Administration fees (Note 3)................................... 410,149
Custodian fees................................................. 15,384
Transfer agent fees............................................ 156,903
Printing and postage expenses.................................. 237,600
Professional fees (Note 3)..................................... 41,940
Directors' fees and expenses (Note 3).......................... 37,500
Miscellaneous expense.......................................... 41,295
------------
Total Expenses............................................... 3,149,265
------------
Net Investment Income...................................... 13,320,764
------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments (Note 2):
Securities transactions........................................ 12,996,389
Futures transactions........................................... (948,768)
------------
Net realized gain on investments........................... 12,047,621
Decrease in unrealized appreciation on investments.............. (22,681,595)
------------
Net realized and unrealized loss on investments............ (10,633,974)
------------
Net increase in net assets resulting from operations....... $ 2,686,790
============
</TABLE>
See notes to financial statements.
8
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income........................ $ 13,320,764 $ 28,405,525
Net realized gain on investments............. 12,047,621 36,959,802
Increase (decrease) in unrealized
appreciation on investments................. (22,681,595) 34,955,020
------------ ------------
Net increase in net assets resulting from
operations................................ 2,686,790 100,320,347
------------ ------------
Dividends and distributions to shareholders
from:
Net investment income........................ (13,320,764) (28,405,525)
Net realized gains on investments............ (12,424,483) (33,688,432)
Capital paid-in.............................. (5,948,885) --
------------ ------------
Total dividends and distributions to
shareholders.............................. (31,694,132) (62,093,957)
------------ ------------
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)............................ 8,347,566 17,638,187
------------ ------------
Net increase (decrease) in net assets......... (20,659,776) 55,864,577
Net Assets:
Beginning of period........................... 647,523,415 591,658,838
------------ ------------
End of period................................. $626,863,639 $647,523,415
============ ============
</TABLE>
See notes to financial statements.
9
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (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
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.
Short-term investments having a remaining maturity of 60 days or less when
purchased, are valued at amortized cost. Futures which are traded on
commodities exchanges are valued at their closing settlement price on such
exchange. Securities for which market quotations are not readily available,
and other assets, if any, are valued at fair market value as determined in
good faith by or under the direction of the Board of Directors of the Fund.
B. 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 the accrual
basis.
Realized gains and losses on sales of investments are determined on the
identified cost basis for accounting and tax purposes.
C. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Fund's agent in acquiring the
futures position). During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
marking the contract to market on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to the
broker, depending upon whether unrealized gains or losses are incurred. When
the contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract.
10
<PAGE>
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.
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 sales are recorded as
expenses. While the short sales are outstanding, the Fund pledges cash and
securities to cover its margin requirements. At June 30, 1996, cash of
$1,141,280 was on deposit in an interest-bearing account with a broker to
cover any short sales the Fund may enter into.
E. 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 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.
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
11
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996 (UNAUDITED)
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 2--PORTFOLIO TRANSACTIONS
During the six months ended June 30, 1996, the Fund entered into purchase
and sale transactions excluding short term investments and futures
transactions as follows:
<TABLE>
<S> <C>
Cost of Purchases............................................ $615,446,069
============
Proceeds from Sales.......................................... $701,682,969
============
</TABLE>
NOTE 3--INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
a) Investment Advisory Fees: The Investment Advisory Agreement (the
"Advisory Agreement") between the Investment Adviser, Zweig 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 the 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 0.70% of the Fund's average daily net assets. During the six
months ended June 30, 1996, the Fund accrued advisory fees of $2,208,494.
b) Administration Fees: Zweig/Glaser Advisers serves as the Fund's
Administrator pursuant to an Administration Agreement with the Fund. Under
such Agreement, the Administrator generally assists in all aspects of the
Fund's operations, other than providing investment advice, subject to the
overall authority of the Fund's Board of Directors. The Administrator
determines the Fund's net asset 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 six months
ended June 30, 1996, the Fund accrued administration fees of $410,149.
c) Directors Fees: The Fund pays each Director who is not an interested
person of the Fund or the Investment Adviser a fee of $10,000 per year plus
$1,500 per Directors' or committee meeting attended, together with out-of-
pocket costs relating to attendance at such meetings. The Directors of the
Fund who are interested persons of the Fund or the Investment Adviser receive
no remuneration from the Fund.
12
<PAGE>
d) Legal Fees: The Fund accrued legal fees of $11,340 during the six months
ended June 30, 1996, for the services of Rosenman & Colin, LLP, of which
Robert E. Smith, Director of the Fund, is a partner.
e) Brokerage Commissions: During the six months ended June 30, 1996, the
Fund paid Zweig Securities Corp. brokerage commissions of $13,385 in
connection with portfolio transactions effected through them.
NOTE 4--CAPITAL STOCK AND REINVESTMENT PLAN
At June 30, 1996, the Fund has one class of common stock, par value $.001
per share of which 500,000,000 shares are authorized and 76,049,799 shares are
outstanding. For the six months ended June 30, 1996 and the year ended
December 31, 1995, 997,142 and 2,116,190 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 First Data Investor Services Group, Inc. ("First Data"),
as the Plan agent, 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 First Data,
as the dividend paying agent.
13
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
JUNE 30, 1996 (UNAUDITED)
NOTE 5--FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------
1996 1995 1994 1993 1992 1991
--------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value,
beginning of period..... $ 8.63 $ 8.11 $ 9.11 $ 9.06 $ 9.79 $ 9.02
--------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.... 0.18 0.39 0.29 0.26 0.32 0.44
Net realized and
unrealized gains
(losses) on investments. (0.15) 0.97 (0.43) 0.75 (0.09) 1.29
--------- -------- -------- -------- -------- --------
Total from investment
operations.............. 0.03 1.36 (0.14) 1.01 0.23 1.73
--------- -------- -------- -------- -------- --------
Less Dividends and
Distributions:
Dividends from net
investment income....... (0.18) (0.39) (0.29) (0.26) (0.32) (0.43)
Distributions from net
realized gains on
investments............. (0.16) (0.45) -- (0.70) (0.30) (0.53)
Distributions from
capital paid-in......... (0.08) -- (0.57) -- (0.34) --
--------- -------- -------- -------- -------- --------
Total dividends and
distributions........... (0.84) (0.86) (0.96) (0.96) (0.96)
(0.42)
--------- -------- -------- -------- -------- --------
Net asset value, end of
period................ $ 8.24 $ 8.63 $ 8.11 $ 9.11 $ 9.06 $ 9.79
$ 8.24
========= ======== ======== ======== ======== ========
Market value, end of
period**.............. $ 8.63 $ 8.00 $ 10.75 $ 10.00 $ 10.63
$ 8.50
========= ======== ======== ======== ======== ========
Total investment return.. 3.60% 19.19% (17.08)% 18.37% 2.60% 37.90%
========= ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands).......... $ 626,864 $647,523 $591,659 $648,516 $624,097 $648,118
Ratio of expenses to
average net assets...... 1.06%* 1.10% 1.12% 1.12% 1.13% 1.11%
Ratio of net investment
income to average net
assets.................. 4.20%* 4.59% 3.35% 2.85% 3.43% 4.74%
Portfolio turnover rate.. 142.0% 179.8% 281.0% 293.0% 123.2% 148.6%
</TABLE>
- --------
* Annualized.
** Closing Price--New York Stock Exchange.
NOTE 6--SELECTED QUARTERLY FINANCIAL DATA
Shown in thousands of dollars and per common share:
<TABLE>
<CAPTION>
NET INCREASE
NET REALIZED (DECREASE)
TOTAL NET AND UNREALIZED IN NET ASSETS
INVESTMENT INVESTMENT GAIN (LOSS) ON RESULTING FROM
INCOME INCOME INVESTMENTS OPERATIONS
------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996--Quarter Ended
06/30/96......... $8,196 $0.11 $6,604 $0.09 $(3,472) $(0.05) $ 3,132 $ 0.04
03/31/96......... 8,274 0.11 6,717 0.09 (7,162) (0.10) (445) (0.01)
1995--Quarter Ended
12/31/95......... $8,754 $0.12 $7,193 $0.10 $17,834 $ 0.24 $25,028 $ 0.34
09/30/95......... 8,480 0.11 6,642 0.09 10,517 0.14 17,159 0.23
06/30/95......... 8,895 0.12 7,063 0.10 28,784 0.39 35,847 0.49
03/31/95......... 9,084 0.12 7,506 0.10 14,780 0.20 22,286 0.30
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 15, 1996. The meeting was held for the purpose of reelecting
Elliot S. Jaffe, Alden C. Olson and Robert E. Smith 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, 1996. The Fund's
other Directors who continued in office are Edward S. Babbitt, Jr., Charles H.
Brunie, James B. Rogers, Jr., Anthony M. Santomero and Martin E. Zweig.
The results of the voting on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES VOTES
DIRECTOR/AUDITOR VOTES FOR AGAINST WITHHELD ABSTENTIONS
---------------- ---------- ------- --------- -----------
<S> <C> <C> <C> <C>
Elliot S. Jaffe........................ 60,762,691 N/A 1,020,029 N/A
Alden C. Olson......................... 60,806,940 N/A 975,780 N/A
Robert E. Smith........................ 60,826,964 N/A 955,756 N/A
Coopers & Lybrand L.L.P. .............. 60,642,366 402,908 -- 737,446
</TABLE>
- -------------------------------------------------------------------------------
KEY INFORMATION
1-800-331-1710 FIRST DATA INVESTOR SERVICES GROUP, INC.:
For questions regarding shareholder accounts
P.O. Box 1376
Boston, MA 02104
(212) 486-3122 THE ZWEIG TOTAL RETURN FUND HOT LINE:
For updates on net asset value, share price, major industry
groups and other key information
1-800-272-2700 ZWEIG SHAREHOLDER RELATIONS:
For general information and literature
REINVESTMENT PLAN
Many of you have questions about
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
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
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
First Data Investor Services Group, Inc.
P.O. Box 1376
Boston, MA 02104
LEGAL COUNSEL
Rosenman & Colin LLP
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
THE ZWEIG TOTAL RETURN FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 1996
