<PAGE>
November 1, 1999
Dear Shareholder:
The Zweig Total Return Fund's net asset value decreased 1.8% during the
quarter ended September 30, 1999, including $0.21 per share in reinvested
distributions.
For the nine months ended September 30, 1999, the Fund's net asset value
decreased 0.2%, including $0.63 per share in reinvested distributions.
Maintaining our risk-averse policy, the Fund's average overall exposure during
the period was 60%.
DISTRIBUTION DECLARED
In accordance with our policy of distributing 10% of net assets per year,
which equals 0.83% per month (10% divided by 12 months), the Fund announced a
distribution of $0.06 per share payable on November 26, 1999 to shareholders
of record on November 12, 1999. The amount of the distribution depends on the
exact net asset value at the time of declaration. For the November
distribution 0.83% of the Fund's net asset value was equivalent to $0.06 per
share. Including this distribution, the Fund's payout since its inception is
now $9.90 per share.
STOCK PRICE AND DISTRIBUTION RATE
As managers of the Fund, we have no control over the fluctuations of our
stock price. The stock price of any publicly traded stock is based on supply
and demand for that particular stock. What we can influence, however, is the
net asset value. The net asset value has protected capital, currently posting
a return of 1.3% in a very difficult market. The Federal Reserve has raised
rates several times causing yields of the 30-year Treasury bond--the long
bond--to increase from 5.1% to a current level of 6.3% (an increase of over
23%). The duration of the bond component of the Fund, which is actively
managed, is currently at 2.6 versus an industry average of 4.5. This reduced
duration has partially insulated the Fund from the rising yields and the
resulting decline in bond prices.
The distribution policy of the Fund has never changed. The Fund still pays
out 10% of its net assets on a monthly basis. The recent distribution rate of
$0.06 per share was a result of a lower asset value and not a distribution
policy change. The lower net asset value was a direct result of the weak fixed
income market, which mainly suffered from the rate increases by the Federal
Reserve and a still strong economy. Should the next asset value return to a
range where 0.83% of the Fund's assets equals or exceeds $0.07 per share, the
distribution will reflect the greater figure.
MARKET OUTLOOK
Our bond exposure at the end of the third quarter was 24% compared with 27%
at the close of the second quarter. If we were fully invested, we would be at
62.5% in bonds and 37.5% in stocks. Consequently, at 24% in bonds we are at
about 38% of a full position (24%/62.5%).
Bonds suffered during the third quarter through volatility associated with a
tightening Federal Reserve, rising commodity prices and increasingly robust
economic activity both at home and abroad. The Fed tightened on June 30 and
then again at its next meeting on August 24. The cumulative rise of fifty
basis points this summer has hurt bonds and bond market returns.
Additionally, oil prices rose to over $22 per barrel and gold soared to a
new three-year high of $325 per ounce. Both oil and gold prices had been very
subdued until the past quarter. It is widely believed that increased economic
activity across Asia and Europe is driving commodity prices higher, which is a
negative for bonds.
<PAGE>
Our equity exposure at the end of the third quarter was 24% compared with
25% at the close of the second quarter. At this figure we are at about 64% of
a full position (24%/37.5%).
The Federal Reserve recently voted to leave interest rates unchanged but
warned it was still concerned about the potential for inflation and might
raise rates soon if the market did not cool off. I see this as a half-way step
toward further tightening. To put the Fed action in perspective, I can tell
you that after two consecutive initial hikes the Dow was down 2.1% three
months later. Six months later it was up eight-tenths of a percent and a year
later it was 2.4% higher. A third hike doesn't have much impact on the numbers
but it certainly doesn't help.
Of these cases--there were seventeen in all--sometimes the market did pretty
well, sometimes it did terribly and sometimes it didn't do much at all. I'm
sort of in the middle right now. But if the Fed keeps tightening, the odds for
the stock market get worse.
Some analysts have called this market a stealth bear market because a few
big stocks have boosted the indexes that measure the market while most
individual stocks showed declines. It is true that more than three quarters of
the largest 6000 stocks are down in the last year and a half. Meanwhile the
NASDAQ index, dominated by Microsoft, Dell, Intel, Cisco, and a few other
technology companies, doubled by mid-October since it bottomed after the
August massacre last year. These are the stocks that have done tremendously
well, leading the market and boosting the averages. Hundreds, even thousands,
of companies have seen their stocks do nothing or go down.
In some instances, poor performance was justified by poor earnings but in
many cases there just wasn't any reason to have excitement in the stocks.
There were a number of former growth stocks like Coca-Cola and Gillette that
have done terribly because their earnings have stopped growing. Microsoft and
some of the other technology stocks have had great earnings. For these reasons
there has been a big dichotomy in the market.
Technology, which now accounts for 24% of the S&P 500, up from 13% at year-
end '97 and just 7% in 1990, has been called the last bastion of the bull
market and very well could be. Are we in the eighth or ninth inning of this
bull market? We might be. We might even be in extra innings. The reason
technology has gone up so much is that the world has really changed. The
advent of the personal computer has increased productivity enormously. In the
last five years--especially in the last year or two--we have seen the
integration of the Internet into our lives. It is changing the way every
business on the planet will operate from now on.
It is not only that we are witnessing a huge technological advance--it is
how rapidly it is coming to the fore. Changing everything in a dramatic way,
it has created great opportunities for business and we have seen some
fantastic earnings for some companies. Other companies have been pummeled.
This is an industrial revolution that you do not see very often.
The rotation from growth to value stocks noted earlier this year seems to
have abated. Three months ago we saw a broadening of winning industrial stocks
but the market is getting narrower. Some groups have come on again if you want
to call oil drillers value stocks. Oil and energy prices have picked up.
Overall, the market has become narrower because of the technology growth
stocks. There just has not been a compelling reason for the other stocks to go
up in line with the tech stocks. However, there is no way of knowing how long
this situation will last.
Concern has been voiced about the U.S. trade deficit which hit another
record in July, swelling to $25.1 billion, reflecting a flood of imports from
Japan, China, and Europe. Some investors worry that a weaker dollar, which
would raise the price of imports, could bring about a recession. Well, I have
tested the trade deficit way back and found nothing in particular that
forecasts value for the market. As a matter of fact, some of the worst trade
deficits have coincided with some decent markets. We have heard about fear of
trade deficits on and off over
2
<PAGE>
the last couple of decades but I do not look at the current situation as a big
deal.
While the deficit itself is not a risk factor, the economic recovery in most
of developing Asia and Europe could cause an inflationary danger. If demand
increases and we continue to get a surge in commodity prices, it may actually
be a negative for many markets and adversely impact the U.S. On the other hand,
if these countries do better, it will help the earnings of U.S. multinational
companies and even some domestic companies. So, it's a mixed bag. A world-wide
recovery is good, higher earnings are good--but if they generate inflation and
higher interest rates, there could be a problem.
Although a Senate committee studying the Y2K problem said the year 2000
computer glitch is likely to trigger international supply-chain disruptions and
may end eight years of U.S. economic growth, I do not consider this a realistic
danger. If computers aren't working, they will be fixed. At worst it would be a
temporary event like a flood or a hurricane and we will get through it quickly.
I am not terribly concerned about Y2K in the U.S. It could be disruptive in
some parts of the globe but even then it would be just a temporary bottleneck.
As far as today's market it concerned, the major positive is that sentiment
is getting more bearish. With investors more pessimistic, my sentiment
indicators are fairly decent right now. The major negative has been the upsurge
in interest rates. Rates have backed up about a percent and a half since last
fall. Plus we've had the two Fed hikes that I mentioned previously.
Inflation has risen somewhat. We have a price model that runs on a zero to
ten scale. Ten would be best for the market because it would signify low
prices. At this writing the model is reading just at two. That's not very good
and that's what is causing our overall models to be less than satisfactory--and
it explains our below normal investment posture.
Once we get under 60% invested, it indicates I am some shade of bearish.
Right now our stance could be called humdrum neutral. We are at the very bottom
of the neutral range.
PORTFOLIO COMPOSITION
In accordance with our investment policy guidelines, all of our bonds are
U.S. Government obligations. As previously mentioned, the average duration of
the bond portion of our portfolio (sensitivity to interest rates) was 2.6 years
at the close of the quarter. This compared with 3.0 years on June 30. Since
these bonds are liquid, they give us the flexibility to adjust swiftly to
changing market conditions.
Our leading industry sectors at the end of the quarter included technology,
telecommunications, financial services, manufacturing, retail trade and
services, and oil and oil services.
In the above grouping, telecommunications showed good appreciation and we
added to our positions in the oil segment. The financial, technology, and
retail holdings declined primarily due to reductions in exposure and a
difficult market. The same holds true for utilities and transportation, which
were in our top groups on June 30.
Some of our largest individual holdings include General Motors, Telephone &
Data Systems, Tribune Co., Cisco, Knight-Ridder, CNF Transportation, EMC,
UniCom, Tyco International, Lucent and General Electric.
General Electric and Tribune Co., which publishes the Chicago Tribune and
also owns television and radio stations, are new to our portfolio. We have
added to our UniCom holdings and our positions have appreciated in Telephone &
Data Systems, EMC, and Tyco.
We have sold out our holdings in GPU and Burlington Northern, and we have
reduced our positions in Whirlpool, Johnson Controls, Wal-Mart and PACCAR.
Sincerely,
/s/ Martin E. Zweig
Martin E. Zweig, Ph.D.
Chairman
3
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- ----------
<S> <C> <C>
Common Stocks 23.49%
Aerospace & Defense 0.57%
B.F. Goodrich & Co....................................... 75,800 $2,198,200
Northrop Corp............................................ 29,000 1,843,313
----------
4,041,513
----------
Apparel Manufacturer 0.25%
Liz Claiborne, Inc....................................... 58,000 1,798,000
----------
Automotive 0.75%
Ford Motor Co............................................ 39,200 1,967,350
General Motors Corp...................................... 53,300 3,354,569
----------
5,321,919
----------
Biotechnology 0.40%
Amgen, Inc............................................... 35,100 2,860,650
----------
Cable & Television 0.66%
Comcast Corp............................................. 57,000 2,272,875
Grupo Televisa S.A., ADR................................. 60,000 2,396,250
----------
4,669,125
----------
Chemicals 0.22%
Sherwin-Williams Co...................................... 75,000 1,570,313
----------
Consumer Durables 0.51%
Hasbro, Inc.............................................. 61,500 1,318,406
Whirlpool Corp........................................... 35,700 2,331,656
----------
3,650,062
----------
Consumer Products 0.40%
Procter & Gamble Co...................................... 30,000 2,812,500
----------
Consumer Services 0.49%
H & R Block, Inc......................................... 60,000 2,606,250
Manpower Inc............................................. 29,900 870,837
----------
3,477,087
Engineering & Construction 0.35%
Fluor Corp............................................... 61,400 2,471,350
----------
Financial Services 2.42%
A.G. Edwards & Sons, Inc................................. 38,600 1,018,075
Allstate Corp............................................ 72,700 1,812,956
Bear Stearns & Co., Inc.................................. 58,716 2,256,896
Countrywide Credit Industries, Inc....................... 75,000 2,418,750
Knight/Trimark Group, Inc................................ 30,000 888,750
Loews Corp............................................... 38,500 2,702,218
Morgan Stanley, Dean Witter, Discover & Co............... 28,500 2,541,844
PaineWebber Group Inc.................................... 60,100 2,178,625
Sovereign Bancorp., Inc. ................................ 150,000 1,364,070
----------
17,182,184
----------
Food & Beverage 0.53%
Adolph Coors Co., Class B................................ 31,400 1,699,525
PepsiCo, Inc............................................. 67,500 2,041,875
----------
3,741,400
----------
Home Builders & Materials 0.34%
D.R. Horton, Inc......................................... 89,900 1,163,081
Kaufman & Broad Home Corp................................ 60,900 1,256,062
----------
2,419,143
----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Value
--------- ----------
<S> <C> <C>
Investment Companies 0.77%
Central European Equity Fund, Inc....................... 29,100 $ 358,294
Emerging Markets Infrastructure Fund, Inc............... 67,284 580,325
Emerging Markets Telecommunications Fund, Inc........... 28,600 294,937
France Growth Fund, Inc................................. 24,200 341,825
Gabelli Global Multimedia Trust Fund, Inc............... 45,700 662,650
Invesco Global Health & Science Fund, Inc............... 60,100 942,818
Mexico Fund, Inc........................................ 68,900 955,987
Morgan Stanley Emerging Markets Fund, Inc............... 50,400 554,400
Royce Value Trust, Inc.................................. 64,160 793,980
----------
5,485,216
----------
Leisure 0.22%
Brunswick Corp.......................................... 63,700 1,584,538
----------
Manufacturing 2.22%
Borg-Warner Automotive, Inc............................. 40,600 1,745,800
Delphi Automotive Systems............................... 90,000 1,445,625
General Electric Co. ................................... 22,500 2,667,656
Ingersoll-Rand Co....................................... 30,000 1,648,125
Johnson Controls Inc. .................................. 38,800 2,572,925
PACCAR, Inc............................................. 53,500 2,721,812
Tyco International Ltd.................................. 28,600 2,952,950
----------
15,754,893
----------
Medical Supplies 0.26%
Mallinckrodt, Inc....................................... 60,000 1,811,250
----------
Metals & Mining 0.21%
Placer Dome Inc......................................... 90,000 1,338,750
Worthington Industries, Inc............................. 7,500 127,500
----------
1,466,250
----------
Oil & Oil Services 1.25%
Amerada Hess Corp....................................... 45,000 2,756,250
Kerr-Mcgee Corp. ....................................... 45,200 2,488,825
McDermott International, Inc............................ 90,000 1,822,500
Royal Dutch Petroleum Co., ADR.......................... 30,000 1,771,875
----------
8,839,450
----------
Paper & Forest Products 0.80%
Boise Cascade Corp. .................................... 28,600 1,042,112
Georgia-Pacific Corp. .................................. 67,500 2,733,750
International Paper Co. ................................ 39,000 1,874,438
----------
5,650,300
----------
Pharmaceuticals 0.37%
Warner-Lambert Co. ..................................... 39,200 2,601,900
----------
Printing & Publishing 0.91%
Knight-Ridder, Inc...................................... 57,200 3,138,850
Tribune Co. ............................................ 66,000 3,283,500
----------
6,422,350
----------
Retail Trade & Services 1.31%
Best Buy, Inc. ......................................... 28,300(a) 1,756,369
Home Depot, Inc. ....................................... 38,700 2,655,788
Supervalu, Inc. ........................................ 93,600 2,041,650
Wal-Mart Stores, Inc. .................................. 59,500 2,829,969
----------
9,283,776
----------
Technology 2.70%
America Online, Inc. ................................... 21,000(a) 2,184,000
Applied Materials, Inc. ................................ 28,900(a) 2,250,588
Cisco Systems, Inc. .................................... 46,300(a) 3,174,444
Dell Computer Corp...................................... 67,900(a) 2,839,069
EMC Corp. .............................................. 43,400(a) 3,100,388
Intel Corp. ............................................ 38,100 2,831,306
Microsoft Corp. ........................................ 30,500(a) 2,762,156
----------
19,141,951
----------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Value
----------- ------------
<S> <C> <C>
Telecommunications 2.56%
AT&T Corp. ....................................... $ 2,283,750
Lucent Technologies Co. .......................... 52,500 2,886,938
MCI Worldcom, Inc. 44,500(a) 1,990,938
Nokia Corp. ...................................... 27,700(a) 2,200,406
Tele Norte Leste Participacoes S.A., ADR.......... 24,500 2,013,450
Telefones de Mexico S.A., ADR..................... 129,900 2,123,250
Telephone & Data Systems, Inc. ................... 29,800 3,330,469
Telesp Participacoes S.A., ADR.................... 37,500 1,352,925
------------
85,900(a) 18,182,126
------------
Textiles 0.42%
Armstrong World Industries, Inc. ................. 28,900 1,298,694
Shaw Industries, Inc. ............................ 105,000 1,666,875
------------
2,965,569
------------
Transportation 0.80%
CNF Transportation, Inc. ......................... 83,800 3,121,550
USFreightways Corp. .............................. 53,800 2,548,775
------------
5,670,325
------------
Utilities-Electrical & Natural Gas 0.81%
Energy East Corp.................................. 112,600 2,674,250
UniCom Corp. ..................................... 82,200 3,036,262
------------
5,710,512
------------
Total Common Stocks........................................ 166,585,652
------------
<CAPTION>
Principal
Amount
-----------
<S> <C> <C>
United States Government & Agency Obligations23.53%
Federal Home Loan Mortgage Corp., 5.125%,
10/15/2008....................................... $38,100,000 34,279,827
United States Treasury Bonds, 8.75%, 8/15/2020.... 50,000,000 62,984,400
United States Treasury Notes, 6.25%, 8/31/2000.... 13,500,000 13,605,476
United States Treasury Notes, 10.75%, 5/15/2003... 15,000,000 17,339,070
United States Treasury Notes, 7.50%, 2/15/2005.... 16,300,000 17,425,727
United States Treasury Notes, 6.50%, 5/15/2005.... 7,600,000 7,785,250
United States Treasury Notes, 6.125%, 8/15/2007... 13,400,000 13,420,944
----------- ------------
Total United States Government & Agency Obligations........ 166,840,694
------------
Short-Term Investments 52.70%
Ameritech Corp., 5.32%, 10/1/99................... 30,000,000 30,000,000
AT&T Capital Corp., 5.35%, 10/8/99................ 25,000,000 24,973,985
Ford Motor Credit Corp., 5.39%, 10/4/99........... 20,000,000 19,991,014
GTE Funding Corp., 5.28%, 10/5/99................. 25,000,000 24,985,310
Gannett Co., Inc., 5.28%, 10/6/99................. 30,000,000 29,977,968
General Dynamics Corp., 5.34%, 10/4/99............ 25,000,000 24,988,857
General Electric Capital Corp., 5.34%, 10/7/99.... 20,000,000 19,982,192
Hewlett-Packard Co., 5.30%, 10/6/99............... 25,000,000 24,981,578
Merrill Lynch & Co., Inc., 5.30%, 10/8/99......... 30,000,000 29,969,051
Met Life Funding., 5.29%, 10/7/99................. 30,000,000 29,973,495
Pharmacia & Upjohn Inc., 5.30%, 10/1/99........... 20,000,000 20,000,000
Sara Lee Corp., 5.33%, 10/7/99.................... 25,000,000 24,977,785
Sony Capital Corp., 5.31%, 10/5/99................ 20,000,000 19,988,183
UBS Finance Inc., 5.60%, 10/1/99.................. 29,000,000 29,000,000
UST Inc., 5.35%, 10/4/99.......................... 20,000,000 19,991,078
------------
Total Short-Term Investments................................ 373,780,496
------------
Total Investments............................... 99.72% 707,206,842
Cash and Other Assets Less Liabilities.......... 0.28% 1,967,421
----------- ------------
Net Assets (Equivalent to $7.79 per share based
on 91,060,166 shares of capital stock
outstanding)................................... 100.00% $709,174,263
=========== ============
</TABLE>
- --------
(a) Non-income producing security.
6
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Net Asset Value
Total Net Assets Per Share
-------------------------- ----------------
<S> <C> <C> <C> <C>
Beginning of period: December 31,
1998............................ $757,212,047 $ 8.43
Net investment income........... $ 18,742,318 $ 0.21
Net realized and unrealized
losses on investments.......... (20,400,033) (0.22)
Dividends from net investment
income and distributions from
net long-term and short-term
capital gains.................. (56,914,694) (0.63)
Net asset value of shares issued
to shareholders for
reinvestment of dividends and
distributions.................. 10,534,625 --
------------ -------
Net decrease in net assets/net
asset value.................... (48,037,784) (0.64)
------------ -------
End of period: September 30,
1999............................ $709,174,263 $ 7.79
============ =======
</TABLE>
- -------------------------------------------------------------------------------
KEY INFORMATION
1-800-272-2700 Zweig Shareholder Relations: REINVESTMENT PLAN
For general information and literature
Many of you have questions
about our reinvestment plan. We
urger 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.
(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
----------------
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.
7
<PAGE>
OFFICERS AND DIRECTORS
Martin E. Zweig, Ph.D.
Chairman of the Board and President
Jeffrey Lazar
Executive Vice President and Treasurer
Christopher M. Capano
Vice President
Charles H. Brunie
Director
Elliot S. Jaffe
Director
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
Anthony M. Santomero, Ph.D.
Director
Investment Adviser
Zweig Total Return Advisors, Inc.
900 Third Avenue
New York, New York 10022
Fund Administrator
Zweig/Glaser Advisers LLC
900 Third Avenue
New York, New York 10022
Custodian
The Bank of New York
One Wall Street
New York, New York 10286
Transfer Agent
State Street Bank & Trust Co.
225 Franklin Street
Boston, MA 02110
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.
3206-3Q-(99)
[LOGO] THE ZWEIG TOTAL RETURN FUND, INC.
QUARTERLY REPORT
------------------
September 30, 1999
