<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
Christopher M. Capano
Assistant 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
Robert E. Smith
Director
INVESTMENT ADVISER
Zweig Total Return Advisors, Inc.
900 Third Avenue
New York, New York 10022
FUND ADMINISTRATOR
Zweig/Glaser Advisers
900 Third Avenue
New York, New York 10022
CUSTODIAN
The Bank of New York
48 Wall Street
New York, New York 10015
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.
3206-SEM-
LOGO OF THE ZWEIG TOTAL RETURN FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 1997
<PAGE>
August 1, 1997
Dear Shareholder:
The Zweig Total Return Fund's net asset value for the three months ended
June 30, 1997, increased 6.1%, including $0.21 per share in reinvested
distributions.
For the six months ended June 30, 1997, the Fund's net asset value increased
6.2%, including $0.42 in reinvested distributions.
Consistent with our policy of trying to minimize risk while earning superior
returns over complete market cycles, our average overall exposure during the
first half of 1997 was approximately 65%.
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 25,
1997, to shareholders of record on August 11, 1997. 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 $8.03.
MARKET OUTLOOK
At this writing, our bond exposure is 54% compared with 34% at the close of
the first quarter. If we were fully invested, our Fund would be 62 1/2% in
bonds and 37 1/2% in stocks. Consequently, at 54%, we are at 87% of a full
position (54%/62 1/2%). This reflects my bullish position on bonds. Our
duration, or sensitivity to interest rates, is at 6.1 years against 3.7 years
on March 31 and significantly higher than the average figure of 4.8 years at
most bond funds.
The strongest positive for the bond market is the fact that commodity prices
are falling with the decline in gold a prime example. The price of gold has
been deteriorating rapidly and is now down more than 17% from last year.
Although gold has industrial uses, its primary importance is in its monetary
and psychological implications. People do not want to own gold when there is
disinflation. Historically, when gold has been this negative, it has been good
for bonds.
Basic industrial material prices in general are also lower, as reported by
the Commodity Research Bureau and Goldman Sachs. This includes such key
materials as copper, lead, aluminum, and oil. Weakness in commodity prices is
a big plus for bonds.
Also positive for bonds are the indications that the economy is slowing at
the margins. This slowdown has resulted in lower interest rates. In addition,
the Federal Reserve, after raising rates in March, decided at its May and July
meetings not to tighten further. This gave the bond market a lift.
Generally speaking, bond managers are not wildly optimistic. In fact, based
on the average duration of their bonds, I would rate them as moderately
cautious. I don't see the kind of optimism in the bond market that was visible
in late 1993 before we had a huge bear market. Therefore what I see in
sentiment is okay for bonds. Another key indicator--momentum--is very
positive.
Remaining flexible, we would be prepared to sell bonds if the economy
strengthens and inflation picks up steam. Meanwhile, our bond indicators are
bullish.
As far as equities are concerned, the positive market factors include
monetary and momentum indicators while sentiment and valuation are negatives.
If earnings hold up and the economy keeps growing moderately with inflation in
<PAGE>
check, I see room for more exuberance on the top side.
Our equity position is currently at 33% against 25% on March 31. At 33% we
are at 88% of a full position (33%/37 1/2%). This is in accordance with my
high neutral to moderately bullish market indicators.
PORTFOLIO COMPOSITION
In line with my investment policy guidelines, all of our bonds are U.S.
Government and Agency obligations. The average duration of the bond portion of
our portfolio is about 6.1 years. Since these bonds are liquid, they give us
the flexibility to adjust quickly to changing market conditions.
To implement my basic allocation strategy, most of our equities are bought
or sold on the basis of a proprietary computer-driven model that is weighted
toward a value approach with secondary emphasis on growth. We employ various
criteria to evaluate and rank the most liquid stocks with the highest dividend
yields.
There was little change in the composition of our largest industry groups
during the second quarter. This listing still includes utilities, oil and oil
services, financial services, investment companies, and metals and mining.
The only new addition to our top positions is the manufacturing sector,
which replaces the automotive category. In the manufacturing group we have
benefited from our holdings in Herman Miller and Borg-Warner Automotive.
Royal Dutch Petroleum is new to our portfolio and ranks among our largest
individual holdings. Other major individual positions include Telefonos de
Mexico, Dayton Hudson, USX-Marathon, Bear Stearns, USX-U.S. Steel, Chrysler,
Ahmanson, Microsoft, Telefonica de Espana, Harris Corp., and Ford.
Among the above, we have increased our holdings in USX-U.S. Steel, Bear
Stearns, and Ahmanson and trimmed our position in Dayton Hudson. Other
positions that have been reduced include General Motors, Elf-Aquitaine,
American Stores, Salomon, Telefonos de Mexico, and General Motors Hughes.
Sincerely,
/s/ Martin E. Zweig
Martin E. Zweig, Ph.D.
Chairman
2
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
COMMON STOCKS 27.03%
AEROSPACE & DEFENSE 0.43%
Gencorp Inc. ......................................... 19,800 $ 457,875
General Motors Corp., Class H......................... 41,100 2,373,525
------------
2,831,400
------------
AUTOMOTIVE 1.26%
Chrysler Corp. ....................................... 85,000 2,789,063
Ford Motor Co. ....................................... 70,800 2,672,700
General Motors Corp. ................................. 29,000 1,614,937
Volvo AB, ADR......................................... 43,300 1,158,275
------------
8,234,975
------------
CHEMICALS 0.30%
Rohm and Haas Co. .................................... 21,500 1,936,344
------------
CONSTRUCTION & FARM EQUIPMENT 0.30%
Caterpillar Inc. ..................................... 18,200 1,954,225
------------
CONSUMER DURABLES 0.41%
Goodyear Tire & Rubber Co. ........................... 39,500 2,500,844
Huffy Corp. .......................................... 13,200 193,050
------------
2,693,894
------------
CONSUMER PRODUCTS 0.14%
American Greetings Corp. ............................. 24,000 891,000
------------
CONTAINERS & PACKAGING 0.04%
Sea Containers Ltd., Class A.......................... 12,100 273,763
------------
ELECTRONICS 0.26%
Philips Electronics N.V. ............................. 23,700 1,703,438
------------
FINANCIAL SERVICES 3.12%
A.G. Edwards, & Sons, Inc. ........................... 58,400 2,496,600
American General Corp. ............................... 33,000 1,575,750
Bear, Stearns & Co., Inc. ............................ 89,782 3,069,422
Charter One Financial, Inc. .......................... 12,900 694,987
Fremont General Corp. ................................ 24,300 978,075
GATX Corp. ........................................... 9,100 525,525
H.F. Ahmanson & Co. .................................. 64,600 2,777,800
Lincoln National Corp. ............................... 15,500 997,813
Orion Capital Corp. .................................. 12,700 936,625
PaineWebber Group Inc. ............................... 32,000 1,120,000
RCSB Financial, Inc. ................................. 10,400 497,900
</TABLE>
3
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
---------- ------------
<S> <C> <C>
FINANCIAL SERVICES (Continued)
Ryder System, Inc. .................................. 45,400 $ 1,498,200
Salomon Inc. ........................................ 47,800 2,658,875
Selective Insurance Group, Inc. ..................... 9,800 474,687
------------
20,302,259
------------
FOOD & BEVERAGE 0.31%
Adolph Coors Co., Class B............................ 48,300 1,285,988
Chiquita Brands International, Inc. ................. 51,800 712,250
------------
1,998,238
------------
HOME BUILDERS & MATERIALS 0.18%
Kaufman & Broad Home Corp. .......................... 44,500 781,531
Lafarge Corp. ....................................... 14,600 357,700
------------
1,139,231
------------
INVESTMENT COMPANIES 1.97%
Argentina Fund, Inc. ................................ 12,700 187,325
Blackrock 2001 Term Trust Inc. ...................... 29,000 235,625
Blackrock Strategic Term Trust Inc. ................. 29,000 235,625
Brazil Fund, Inc. ................................... 16,400 504,300
Chile Fund, Inc. .................................... 12,900 337,013
China Fund Inc. ..................................... 18,700 329,587
Clemente Global Growth Fund, Inc. ................... 13,100 131,819
Emerging Markets Infrastructure Fund, Inc. .......... 38,300 524,232
Emerging Mexico Fund, Inc. .......................... 27,900 258,075
Fidelity Advisor Emerging Asia Fund Inc. ............ 13,800 198,375
G.T. Global Developing Markets Fund, Inc. ........... 19,200 270,000
Gabelli Equity Trust Inc. ........................... 50,500 508,156
Gabelli Global Multimedia Trust Fund, Inc. .......... 50,600 382,662
Indonesia Fund, Inc. ................................ 9,100 98,962
Jakarta Growth Fund, Inc. ........................... 10,100 101,000
Mexico Fund, Inc. ................................... 37,100 718,813
Morgan Stanley Asia-Pacific Fund, Inc. .............. 26,000 273,000
Morgan Stanley Russia & New Europe Fund, Inc. ....... 6,400 194,400
New Germany Fund, Inc. .............................. 55,400 872,550
Portgugal Fund, Inc. ................................ 14,800 259,000
R.O.C. Taiwan Fund................................... 65,300 763,193
Royce Value Trust Inc. .............................. 70,160 964,700
Schroder Asian Growth Fund, Inc. .................... 22,018 282,106
Scudder New Asia Fund Inc. .......................... 15,000 219,375
Southern Africa Fund, Inc. .......................... 14,900 264,475
Spain Fund Inc. ..................................... 25,400 368,300
Swiss Helvetia Fund, Inc. ........................... 40,800 1,045,500
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
---------- ------------
<S> <C> <C>
INVESTMENT COMPANIES (Continued)
Taiwan Fund, Inc. ................................... 30,600 $ 772,650
Templeton China World Fund, Inc. .................... 28,500 397,219
Templeton Dragon Fund, Inc. ......................... 57,900 940,875
Templeton Vietnam Opportunities Fund, Inc. .......... 15,700 195,269
------------
12,834,181
------------
INDUSTRIAL SERVICES 0.09%
Ogden Corp. ......................................... 28,400 617,700
------------
LEISURE 0.34%
Brunswick Corp. ..................................... 48,900 1,528,125
Royal Caribbean Cruises Ltd. ........................ 19,500 681,281
------------
2,209,406
------------
LODGING 0.04%
Marcus Corp. ........................................ 11,000 270,875
------------
MANUFACTURING 1.90%
Borg-Warner Automotive, Inc. ........................ 18,600 1,005,563
Brown Group, Inc. ................................... 26,000 485,875
Cummins Engine Company, Inc. ........................ 32,500 2,293,281
Dexter Corp. ........................................ 14,900 476,800
Excel Industries, Inc. .............................. 18,000 351,000
Herman Miller, Inc. ................................. 29,200 1,051,200
Johnson Controls Inc. ............................... 26,000 1,067,625
PACCAR Inc. ......................................... 43,600 2,024,675
Simpson Industries, Inc. ............................ 20,300 215,687
Standard Products Co. ............................... 12,200 308,050
Timken Co. .......................................... 34,800 1,237,575
TRW Inc. ............................................ 33,000 1,874,813
------------
12,392,144
------------
METALS & MINING 1.75%
ASARCO, Inc. ........................................ 59,400 1,819,125
Birmingham Steel Corp. .............................. 27,600 427,800
British Steel Plc, ADR............................... 69,000 1,742,250
Cleveland-Cliffs Inc. ............................... 6,400 260,800
Cyprus Amax Minerals Co. ............................ 33,500 820,750
Oregon Steel Mills, Inc. ............................ 49,400 984,912
Phelps Dodge Corp. .................................. 27,400 2,334,138
USX-U.S. Steel Group................................. 85,100 2,983,819
------------
11,373,594
------------
OIL & OIL SERVICES 3.45%
Ashland Inc. ........................................ 28,200 1,307,775
Elf Aquitaine S.A., ADR.............................. 28,300 1,540,581
</TABLE>
5
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
---------- ------------
<S> <C> <C>
OIL & OIL SERVICES (Continued)
Helmerich & Payne, Inc. .......................... 21,400 $ 1,233,175
Kerr-McGee Corp. ................................. 32,200 2,040,675
Murphy Oil Corp. ................................. 24,900 1,213,875
Occidental Petroleum Corp. ....................... 70,900 1,776,931
Pennzoil Co. ..................................... 20,500 1,573,375
Repsol S.A., ADR.................................. 25,400 1,077,913
Royal Dutch Petroleum Co., ADR.................... 54,400 2,958,000
Sun Company, Inc. ................................ 68,300 2,117,300
USX-Marathon Group................................ 112,800 3,257,100
YPF Sociedad Anonima, ADR......................... 75,900 2,333,925
------------
22,430,625
------------
PAPER & FOREST PRODUCTS 0.85%
Bowater Inc. ..................................... 37,300 1,725,125
International Paper Co............................ 23,800 1,155,787
James River Corp. of Virginia..................... 44,800 1,657,600
Pope & Talbot, Inc. .............................. 13,400 220,263
Westvaco Corp..................................... 24,750 778,078
------------
5,536,853
------------
RETAIL TRADE & SERVICES 1.61%
American Stores Co. .............................. 39,800 1,965,125
Dayton Hudson Corp. .............................. 63,800 3,393,362
Heilig-Meyers Co. ................................ 46,700 916,488
Mercantile Stores Co., Inc........................ 17,100 1,076,231
Ross Stores Inc. ................................. 37,000 1,209,437
Shopko Stores Inc................................. 15,900 405,450
Supervalu Inc. ................................... 43,300 1,493,850
------------
10,459,943
------------
TECHNOLOGY 1.78%
Applied Materials Inc. ........................... 11,600(a) 821,425
Dell Computer Corp. .............................. 20,400(a) 2,395,725
Digital Equipment Corp. .......................... 32,300(a) 1,144,631
Harris Corp. ..................................... 31,400 2,637,600
Intel Corp. ...................................... 12,800 1,815,200
Microsoft Corp. .................................. 21,900(a) 2,767,613
------------
11,582,194
------------
TELECOMMUNICATIONS 1.23%
BCE Inc. ......................................... 56,800 1,590,400
Telefonica de Espana S.A., ADR.................... 31,400 2,708,250
Telefonos de Mexico S.A., ADR..................... 77,800 3,714,950
------------
8,013,600
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
---------- ------------
<S> <C> <C>
TOBACCO 0.40%
RJR Nabisco Holdings Corp. .......................... 76,100 $ 2,577,300
------------
TRANSPORTATION 1.21%
British Airways Plc, ADR............................. 8,100 930,993
Canadian Pacific Ltd. ............................... 81,400 2,314,813
CNF Transportation, Inc. ............................ 61,200 1,973,700
CSX Corp. ........................................... 36,600 2,031,300
KLM Royal Dutch Airlines N.V., ADR................... 19,900 614,412
------------
7,865,218
------------
UTILITIES--ELECTRIC & NATURAL GAS 3.66%
American Electric Power Co., Inc. ................... 48,800 2,049,600
Baltimore Gas & Electric Co. ........................ 28,900 771,269
CMS Energy Corp. .................................... 32,000 1,128,000
DQE Inc. ............................................ 37,250 1,052,313
DTE Energy Co. ...................................... 18,800 519,350
Edison International................................. 92,000 2,288,500
Entergy Corp. ....................................... 44,300 1,212,713
GPU, Inc. ........................................... 49,100 1,761,462
Illinova Corp. ...................................... 48,400 1,064,800
Montana Power Co. ................................... 19,700 456,794
New York State Electric & Gas Corp. ................. 45,700 953,987
Ohio Edison Co. ..................................... 28,800 628,200
Pacific Gas & Electric Co. .......................... 38,900 943,325
PacifiCorp. ......................................... 33,600 739,200
Pinnacle West Capital Corp. ......................... 42,500 1,277,656
PP&L Resources, Inc. ................................ 15,700 313,019
Public Service Enterprise Group Inc. ................ 69,500 1,737,500
Public Service Co. of New Mexico..................... 33,600 600,600
Questar Corp. ....................................... 23,800 960,925
Sierra Pacific Resources Inc. ....................... 9,300 297,600
Transcanada Pipelines Ltd. .......................... 46,700 939,837
United Illuminating Co. ............................. 6,500 200,688
UtiliCorp United Inc. ............................... 5,300 154,362
Valero Energy Corp. ................................. 27,800 1,007,750
Western Resources Inc. .............................. 23,200 752,550
------------
23,812,000
------------
TOTAL COMMON STOCKS
(Cost $139,310,716).......................................... 175,934,400
</TABLE> ------------
7
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS--(CONCLUDED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
------------ ------------
<S> <C> <C>
UNITED STATES GOVERNMENT & AGENCY OBLIGA-
TIONS 50.52%
Federal National Mortgage Association, 6.85%,
4/5/2004...................................... $ 10,385,000 $ 10,506,297
United States Treasury Bonds, 10.750%,
5/15/2003..................................... 15,000,000 18,126,555
United States Treasury Bonds, 7.25%, 8/15/2022. 27,500,000 28,703,125
United States Treasury Bonds, 7.50%,
11/15/2024.................................... 3,200,000 3,452,000
United States Treasury Notes, 6.25%, 8/31/2000. 13,500,000 13,495,774
United States Treasury Notes, 5.625%,
11/30/2000.................................... 19,745,000 19,350,100
United States Treasury Notes, 7.50%, 2/15/2005. 16,300,000 17,252,523
United States Treasury Notes, 6.50%, 5/15/2005. 7,600,000 7,590,500
United States Treasury Notes, 6.875%,
5/15/2006..................................... 101,400,000 103,523,012
United States Treasury Notes, 6.50%,
10/15/2006.................................... 107,300,000 106,864,040
TOTAL UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS ------------
(Cost $330,064,422)...................................... 328,863,926
------------
SHORT-TERM INVESTMENTS 21.42%
AT&T Capital Corp., 5.44%, 7/31/97............. 14,600,000 14,533,813
Campbell Soup Co., 5.50%, 7/02/97.............. 5,600,000 5,599,145
Florida Power & Light Co., 5.50%, 7/10/97...... 19,100,000 19,073,738
Gannett Co., Inc., 5.50%, 7/21/97.............. 30,000,000 29,908,333
Goldman, Sachs & Co., 5.65%, 7/08/97........... 9,500,000 9,489,563
Goldman, Sachs & Co., 5.50%, 7/11/97........... 4,900,000 4,892,514
Merrill Lynch & Co., Inc., 5.55%, 7/01/97...... 19,800,000 19,800,000
PepsiCo. Inc., 5.50%, 7/28/97.................. 25,900,000 25,793,162
Unilever N.V., 5.55%, 7/07/97.................. 10,400,000 10,390,380
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $139,480,648)...................................... 139,480,648
------------
TOTAL INVESTMENTS IN SECURITIES (Cost $608,855,787)........... $644,278,974
============
NUMBER OF
NET UNREALIZED DEPRECIATION ON FUTURES CONTRACTS CONTRACTS
------------
Standard and Poor's 500 September 1997 Long
futures....................................... 87(b) $ (327,770)
============
</TABLE>
- --------
(a) Non-income producing security.
(b) The market value of the long futures was $38,725,875 (representing 5.95%
of the Fund's net assets) with a cost of $39,053,645.
For Federal income tax purposes, the tax basis of investments owned at June
30, 1997 was $608,938,201 and net unrealized appreciation on investments
consisted of:
<TABLE>
<S> <C>
Gross unrealized appreciation................................. $39,028,150
Gross unrealized depreciation................................. (4,015,147)
-----------
Net unrealized appreciation................................... $35,013,003
===========
</TABLE>
See notes to financial statements
8
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost,
$608,855,787).................................................... $644,278,974
Cash.............................................................. 409,858
Dividends and interest receivable................................. 4,884,364
Receivable for investments sold................................... 935,623
Prepaid expenses.................................................. 19,730
Deposit with broker for futures contracts......................... 1,461,600
------------
Total Assets..................................................... 651,990,149
------------
LIABILITIES:
Payable for investments purchased ................................ 326,075
Variation margin for futures contracts............................ 285,252
Accrued advisory fees (Note 3).................................... 373,597
Accrued administration fees (Note 3).............................. 2,328
------------
Total Liabilities................................................ 987,252
------------
NET ASSETS......................................................... $651,002,897
------------
NET ASSET VALUE, PER SHARE:
($651,002,897 / 77,791,649 shares outstanding--Note 4)............ $ 8.37
============
NET ASSETS CONSIST OF:
Capital paid-in................................................... $615,907,480
Net unrealized appreciation on investments and futures contracts.. 35,095,417
------------
$651,002,897
============
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends........................................................ $ 2,586,587
Interest......................................................... 14,304,321
-----------
Total Income.................................................... 16,890,908
-----------
Expenses:
Investment advisory fees (Note 3)................................ 2,211,268
Administration fees (Note 3)..................................... 410,664
Transfer agent fees.............................................. 215,571
Printing and postage expenses.................................... 193,670
Professional fees (Note 3)....................................... 38,372
Custodian fees................................................... 47,385
Directors' fees and expenses (Note 3)............................ 37,829
Miscellaneous.................................................... 103,577
-----------
Total Expenses.................................................. 3,258,336
-----------
Net Investment Income.......................................... 13,632,572
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments (Note 2):
Security transactions............................................ 13,624,098
Futures transactions............................................. 1,494,885
-----------
Net realized gain on investments: 15,118,983
Increase in unrealized appreciation on investments and futures
contracts........................................................ 9,708,026
-----------
Net realized and unrealized gain on investments.................. 24,827,009
-----------
Net increase in net assets resulting from operations............. $38,459,581
===========
</TABLE>
See notes to financial statements
9
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income..................... $ 13,632,572 $ 27,214,555
Net realized gain on investments.......... 15,118,983 18,362,961
Increase (decrease) in unrealized
appreciation on investments.............. 9,708,026 (6,902,204)
Net increase in net assets resulting from ------------ ------------
operations.............................. 38,459,581 38,675,312
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS ------------ ------------
FROM:
Net investment income..................... (13,632,572) (27,214,555)
Net realized gains on investments......... (15,118,983) (18,739,823)
Capital paid-in........................... (3,708,879) (17,854,497)
------------ ------------
Total dividends and distributions to
shareholders............................ (32,460,434) (63,808,875)
CAPITAL SHARE TRANSACTIONS: ------------ ------------
Net asset value of shares issued to share-
holders in reinvestment of dividends from
net investment income and distributions
from net realized gains and capital paid-
in....................................... 6,236,182 16,377,716
------------ ------------
Net increase (decrease) in net assets...... 12,235,329 (8,755,847)
------------ ------------
NET ASSETS:
Beginning of period........................ 638,767,568 647,523,415
------------ ------------
End of period.............................. $651,002,897 $638,767,568
============ ============
</TABLE>
See notes to financial statements
10
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(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. The preparation of financial statements in
accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION
Portfolio securities which are traded only on stock exchanges 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 and 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 financial reporting 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 which 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.
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<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. 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.
E. 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 2--PORTFOLIO TRANSACTIONS
During the six months ended June 30, 1997, the Fund entered into purchase
and sale transactions, excluding short term instruments and futures
transactions, as follows:
<TABLE>
<CAPTION>
UNITED STATES
GOVERNMENT
COMMON AND AGENCY
STOCKS OBLIGATIONS
----------- -------------
<S> <C> <C>
Cost of Purchases................................ $58,275,636 $280,845,297
=========== ============
Proceeds from Sales.............................. $81,506,472 $180,572,602
=========== ============
</TABLE>
NOTE 3--INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A) INVESTMENT ADVISORY FEE: The Investment Advisory Agreement (the "Advisory
Agreement") between the Investment Adviser, Zweig 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.
12
<PAGE>
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 1% of the Fund's average daily net assets. During the
six months ended June 30, 1997, the Fund accrued advisory fees of $2,211,268.
B) ADMINISTRATION FEE: Zweig/Glaser Advisers serves as the Fund's
Administrator pursuant to an Administration Agreement with the Fund. Under
such Agreement, the Administrator generally assists in all aspects of the
Fund's operations, other than providing investment advice, subject to the
overall authority of the Fund's Board of Directors. The Administrator
determines the Fund's net asset value daily, prepares such figures for
publication on a weekly basis, maintains certain of the Fund's books and
records that are not maintained by the Investment Adviser, custodian or
transfer agent, assists in the preparation of financial information for the
Fund's income tax returns, proxy statements, quarterly and annual shareholder
reports, and responds to shareholder inquiries. Under the terms of the
Agreement, the Fund pays the Administrator a monthly fee equal, on an annual
basis, to 0.13% of the Fund's average daily net assets. For the six months
ended June 30, 1997 the Fund accrued administration fees of $410,664.
C) DIRECTORS' FEE: 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 the actual
out-of-pocket costs relating to attendance at such meetings. The Directors of
the Fund who are interested persons of the Fund or the Investment Adviser
receive no remuneration from the Fund.
D) LEGAL FEE: The Fund accrued legal fees of $7,059 during the six months
ended June 30, 1997, for the services of Rosenman & Colin, of which Robert E.
Smith, Director of the Fund, is a partner.
E) BROKERAGE COMMISSION: During the six months ended June 30, 1997, the Fund
paid Zweig Securities Corp. brokerage commissions of $21,416 in connection
with portfolio transactions effected through them.
Certain directors and officers of the Fund are also directors and/or
officers of the Investment Adviser and the Administrator.
NOTE 4--CAPITAL STOCK AND REINVESTMENT PLAN
At June 30, 1997 the Fund had one class of common stock, par value $.001 per
share of which 500,000,000 shares are authorized and 77,791,649 shares are
outstanding. For the six months ended June 30, 1997, and the year ended
December 31, 1996, 759,434 and 1,979,558 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.
On July 1, 1997 the Fund declared a distribution of $0.07 per share to
shareholders of record July 11, 1997. This distribution has an ex-dividend
date of July 9, 1997 and is payable July 24, 1997.
13
<PAGE>
NOTE 5--FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, -------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period.... $ 8.29 $ 8.63 $ 8.11 $ 9.11 $ 9.06 $ 9.79
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.18 0.36 0.39 0.29 0.26 0.32
Net realized and
unrealized gains
(losses) on
investments............ 0.32 0.14 0.97 (0.43) 0.75 (0.09)
-------- -------- -------- -------- -------- --------
Total from investment
operations............. 0.50 0.50 1.36 (0.14) 1.01 0.23
-------- -------- -------- -------- -------- --------
Dividends and Distribu-
tions:
Dividends from net in-
vestment income........ (0.18) (0.36) (0.39) (0.29) (0.26) (0.32)
Distributions from net
realized gains on in-
vestments.............. (0.19) (0.24) (0.45) -- (0.70) (0.30)
Distributions from
capital paid-in........ (0.05) (0.24) -- (0.57) -- (0.34)
-------- -------- -------- -------- -------- --------
Total Dividends and
Distributions.......... (0.42) (0.84) (0.84) (0.86) (0.96) (0.96)
-------- -------- -------- -------- -------- --------
Net asset value, end
of period............ $ 8.37 $ 8.29 $ 8.63 $ 8.11 $ 9.11 $ 9.06
======== ======== ======== ======== ======== ========
Market value, end of
period**............. $ 8.875 $ 8.00 $ 8.625 $ 8.00 $ 10.75 $ 10.00
======== ======== ======== ======== ======== ========
Total investment return. 16.73% 2.62% 19.19% (17.08)% 18.37% 2.60%
======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DA-
TA:
Net assets, end of peri-
od
(in thousands)......... $651,003 $638,768 $647,523 $591,659 $648,516 $624,097
Ratio of expenses to
average net assets..... 1.03%* 1.03% 1.10% 1.12% 1.11% 1.13%
Ratio of net investment
income to average net
assets................. 4.32%* 4.31% 4.59% 3.35% 2.85% 3.43%
Portfolio turnover rate. 62.4% 147.2% 179.8% 281.0% 293.0% 123.2%
Average commission rate
per share on portfolio
transactions........... $ 0.0589 $ 0.0591 $ 0.0606 N/A N/A N/A
</TABLE>
- --------
* Annualized
** Closing Price--New York Stock Exchange.
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<PAGE>
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Total Return Fund, Inc. was
held on May 15, 1997. The meeting was held for the purpose of reelecting
Charles H. Brunie and James B. Rogers, Jr. 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, 1997. The Fund's other
Directors who continued in office are Elliot S. Jaffe, Alden C. Olson, Anthony
M. Santomero, Robert E. Smith 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>
Charles H. Brunie ...................... 61,759,978 N/A 877,471 N/A
James B. Rogers, Jr. ................... 61,693,308 N/A 944,141 N/A
Coopers & Lybrand L.L.P. ............... 61,493,750 399,516 -- 744,183
- --------------------------------------------------------------------------------
</TABLE>
KEY INFORMATION
1-800-272-2700 ZWEIG SHAREHOLDER RELATIONS:
For general information and literature
(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
REINVESTMENT PLAN
Many of you have questions about our reinvestment plan. If you want to take
advantage of this plan and your shares are held in "Street Name," we urge you
to consult your broker as soon as possible to determine if you must change
registration to 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.
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