<PAGE>
August 1, 1999
Dear Shareholder:
The Zweig Total Return Fund's net asset value for the three months ended
June 30, 1999, increased 2.7%, including $0.21 in reinvested distributions.
For the six months ended June 30, 1999, the Fund's net asset value gained
1.6%, including $0.42 in reinvested distributions.
Consistent with our policy of trying to minimize risk while earning
reasonable returns, our average exposure during the first half of 1999 was
approximately 70%.
Because of rising commodity prices, a higher than expected Consumer Price
Index reading, and poor momentum, our bond models continued their
deterioration in the second quarter. Furthermore, bond market sentiment has
been quite positive, something we view as a negative sign. At this writing we
are cautiously positioned but will maintain our flexible approach to the fixed
income market.
As far as equities are concerned, we beat the market in the second quarter
because value stocks, toward which we are heavily biased, came back. Although
we do own Microsoft and Dell and other growth stocks, the bulk of our
portfolio is in higher yielding stocks with low price/earnings ratios. These
are the stocks that improved during the quarter. I believe the gulf between
value and growth stocks will narrow somewhat and not be as wide as it was in
1998 and early 1999.
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,
1999, to shareholders of record on August 12, 1999. 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 $9.71 per share.
MARKET OUTLOOK
Our bond exposure at the end of the second quarter was 27% compared with 34%
at the close of the first quarter. If we were fully invested, we would be at
62.5% in bonds and 37.5% in stocks. Consequently, at 27% in bonds, we are at
about 43% of a full position (27%/62.5%).
The yield of the 30-year Treasury Bond--the long bond--moved from 5.625% to
above 6% during the quarter. This bearish move reflected the rather robust
U.S. economic conditions as well as the inflationary prospects that such
strong growth produces. As a result, the duration of our U.S. bond portfolio
is at one of its lows for the year.
Although the Federal Reserve raised interest rates on June 30, it announced
that it no longer had a bias to tighten money supply. The bond market rallied
on the news but less than might have been expected given such a positive
development. The bond market may be under further pressure because there is
little bond money waiting on the sidelines and economic news continues to be
strong.
Our equity exposure at the end of the second quarter was 25% compared with
30% at the close of the first quarter. At this figure we were at about 67% of
a full position (25%/37.5%).
Interest rates kept going up during the quarter and our monetary indicators,
which
<PAGE>
dominate our overall model, became pretty negative. As a result, we slowly
sold stocks in dribs and drabs. I don't think the monetary situation is
necessarily as bad as our numbers read and I don't want to get overly bearish.
Even a dip of 15 to 20 basis points would help our indicators quite a bit.
The slow economic growth in Europe, Asia, and Latin America has been good
for us because it reduced inflationary pressures around the world without much
adverse impact on our economy. Now there is anecdotal evidence that Asia--
especially Japan--is picking up. There are also signs that Europe is beginning
to strengthen. If these trends continue, the $64,000 question is whether
inflation will follow.
Because there is still a lot of excess manufacturing capacity in the world,
I don't see any inflationary alarm signals from the international scene. It is
also worth noting that countries like Japan, China, and Argentina are
experiencing deflation and parts of Europe are close to a similar situation.
However there is concern that deflation and slower growth in China could
lead to Chinese devaluation and widespread competitive devaluations. Earlier
this year I felt that China would not devalue in the near future and it did
not. Now I think there is some chance it will devalue. I don't know what the
odds are--probably less than fifty-fifty. Will it hurt the U.S. if China
devalues? I think the market might sell off for a couple of days on the news
but I don't see it having much of a long-term effect, I believe China will
ultimately act in its own best interest and I don't think it is worth worrying
about.
There has been speculation about the likelihood of weakness in Argentina
spreading to Brazil. This is sort of funny because six months ago we were
concerned about Brazilian weakness spreading to Argentina. I don't know
whether Argentina will impact Brazil, a much larger country. So far the
situation is livable. However it is said that a bull market climbs a wall of
worry. If it is not Argentina or Brazil or China, it is something else. Of
course it is possible a crisis could start somewhere in the world and it could
be in one of those places.
I would like to take issue with those who compare the Internet boom with the
Dutch tulip mania of the 17th century. Yes, there is widespread speculation on
the Internet. The big difference is that tulips have very little inherent
value while the Internet is one of the greatest inventions mankind has ever
seen. It is revolutionizing the entire world. There will not be a single
industry on the face of the earth that will not be affected by it. It will
provide explosive growth for some businesses and hurt others.
The problem is that there are already dozens if not hundreds of Internet
stocks just as there were hundreds of automobile companies in the early
1900's. Somewhere between 1905 and 1908 there were close to 500 auto
companies. By the 1950's there were just five and today there are only two and
a half. The automobile industry did grow and transformed the world. The
Internet will do the same. Substituting cable for roads, it is going to change
forever the way commerce is done.
It may be that people are speculating excessively on certain Internet
companies. Some of the speculation may even be akin to what happened with
tulip bulbs. As with any type of newly created industries such as railroads,
automobiles, biotechs, and personal computers, there will be excessive
speculation. Ultimately, there will be a huge shakeout and many companies will
go down the tubes. Some won't be around five years from now. The biggest
winners may not yet be on the stage. That is the way it has always been.
Actually I view the Internet as a very positive market factor. It will cause
tremendous competition and expand trade but will decrease profit margins. It
will increase employment, keep
2
<PAGE>
real rages from rising, and put long-term downward pressure on inflation for
years to come. However, it is important to remember that even with the
Internet and the efficiencies of computerization, a lot can still go wrong.
I would describe our current stock position as slightly less than neutral
but we are not in a bearish posture. Although we are relatively neutral on the
market, that doesn't mean it can't go up. I would give the bulls the edge for
the moment. We cut back because of the rise in interest rates and other risks
out there. However, I am not yet ready to throw in the towel on this market.
PORTFOLIO COMPOSITION
In accordance with our investment policy guidelines, all of our bonds are
U.S. Government obligations. The average duration of the bond portion of our
portfolio (sensitivity to interest rates) was 3.0 years on June 30 compared
with 4.0 years at the close of the first quarter. Since these bonds are
liquid, they give us the flexibility to adjust swiftly to changing market
conditions.
While the composition of our leading equity groups was basically unchanged
during the second quarter, there were some variations in percentages held and
in rankings because of our reduced exposure. On June 30 these sectors included
financial services, technology, manufacturing, utilities, telecommunications,
and retail trade and services. Of the above groups, the strong performances of
manufacturing and technology were especially noteworthy.
At this writing, our largest individual holdings include Whirlpool, CNF
Transportation, Knight-Ridder, General Motors, Cisco, GPU, PACCAR, Wal-Mart,
Johnson Controls and B.F. Goodrich. With the exception of General Motors, all
are new to this listing.
We have added to our positions in CNF Transportation, which provides
transportation and logistical services worldwide; Knight Ridder, the newspaper
publisher; PACCAR, which produces trucks under various nameplates; and Johnson
Controls, which produces auto products and building controls.
Whirlpool, GPU, B.F. Goodrich, Wal-Mart, and Cisco gained by appreciation.
We have sold out our position in Daimler Chrysler and trimmed, but still
own, Ford, Telefonos de Mexico, Microsoft, EMC, Amgen, and Dell.
Sincerely,
/s/ Martin E. Zweig
Martin E. Zweig, Ph.D.
Chairman
3
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- ------------
<S> <C> <C>
Common Stocks 28.53%
Aerospace & Defense 0.70%
B.F. Goodrich & Co. ................................ 75,800 $ 3,221,500
Northrop Corp. ..................................... 29,000 1,923,062
------------
5,144,562
------------
Apparel Manufacturer 0.29%
Liz Claiborne, Inc. ................................ 58,000 2,117,000
------------
Automotive 0.87%
Ford Motor Co. ..................................... 54,900 3,098,419
General Motors Corp. ............................... 50,400 3,326,400
------------
6,424,819
------------
Biotechnology 0.59%
Amgen, Inc. ........................................ 38,100 2,319,338
Medimmune, Inc. .................................... 30,000(a) 2,032,500
------------
4,351,838
------------
Cable & Television 0.27%
Comcast Corp. ...................................... 51,200 1,968,000
------------
Consumer Durables 0.75%
Cooper Tire & Rubber Co. ........................... 77,200 1,823,850
Whirlpool Corp. .................................... 49,900 3,692,600
------------
5,516,450
------------
Consumer Products 0.23%
Premark International, Inc. ........................ 46,000 1,725,000
------------
Consumer Services 0.40%
H & R Block, Inc. .................................. 60,000 3,000,000
------------
Engineering & Construction 0.34%
Fluor Corp. ........................................ 61,400 2,486,700
------------
Financial Services 3.43%
A.G. Edwards & Sons, Inc. .......................... 38,600 1,244,850
Aetna, Inc. ........................................ 30,000 2,683,124
Allstate Corp. ..................................... 87,200 3,128,300
Bear Stearns & Co., Inc. ........................... 58,716 2,744,973
Fidelity National Financial Corp. .................. 42,800 898,800
Fleet Financial Group, Inc. ........................ 60,000 2,662,500
Knight/Trimark Group, Inc. ......................... 30,000 1,809,375
Loews Corp. ........................................ 31,000 2,452,875
Morgan Stanley, Dean Witter, Discover & Co. ........ 28,500 2,921,250
PaineWebber Group Inc. ............................. 60,100 2,809,675
Ryder Systems, Inc. ................................ 75,400 1,960,400
------------
25,316,122
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
---------- ------------
<S> <C> <C>
Food & Beverage 0.21%
Adolph Coors Co., Class B............................ 31,400 $ 1,554,300
------------
Home Builders & Materials 0.43%
Fleetwood Enterprises, Inc. ......................... 64,200 1,697,287
Kaufman & Broad Home Corp. .......................... 60,900 1,514,888
------------
3,212,175
------------
Industrial Services 0.12%
Ogden Corp. ......................................... 33,600 905,100
------------
Investment Companies 0.98%
Blackrock 2001 Term Trust, Inc. ..................... 29,000 261,000
Blackrock Strategic Term Trust, Inc. ................ 29,000 264,625
Central European Equity Fund, Inc. .................. 29,100 380,119
Emerging Markets Infrastructure Fund, Inc. .......... 94,200 877,238
Emerging Markets Telecommunications Fund, Inc. ...... 30,800 340,725
France Growth Fund, Inc. ............................ 25,700 353,375
Gabelli Global Multimedia Trust Fund, Inc. .......... 45,700 685,500
Italy Fund, Inc. .................................... 28,900 422,663
Mexico Fund, Inc. ................................... 68,900 1,192,830
Morgan Stanley Emerging Markets Fund, Inc. .......... 51,400 603,950
Royce Value Trust, Inc. ............................. 68,160 903,120
Swiss Helvetia Fund, Inc. ........................... 56,800 791,650
Templeton Dragon Fund, Inc. ......................... 15,000 165,938
------------
7,242,733
------------
Leisure 0.24%
Brunswick Corp. ..................................... 63,700 1,775,638
------------
Manufacturing 2.84%
Borg-Warner Automotive, Inc. ........................ 40,600 2,233,000
Cummins Engine Company, Inc. ........................ 48,000 2,742,000
Dana Corp. .......................................... 45,300 2,086,630
Delphi Automotive Systems............................ 75,000 1,392,187
Ingersoll-Rand Co. .................................. 40,500 2,617,313
Johnson Controls, Inc. .............................. 46,500 3,223,031
Milacron, Inc. ...................................... 35,900 664,150
PACCAR, Inc. ........................................ 61,100 3,261,213
Tyco International Ltd. ............................. 28,600 2,709,850
------------
20,929,374
------------
Medical Supplies 0.45%
Guidant Corp. ....................................... 21,700 1,116,194
Mallinckrodt, Inc. .................................. 60,000 2,182,500
------------
3,298,694
------------
Metals & Mining 1.07%
AK Steel Holdings Corp. ............................. 88,400 1,989,000
Alcan Aluminum Ltd. ................................. 58,800 1,877,925
Placer Dome Inc. .................................... 99,000 1,169,438
USX-U.S. Steel Group................................. 105,600 2,851,200
------------
7,887,563
------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
---------- ------------
<S> <C> <C>
Oil & Oil Services 0.57%
Sunoco, Inc. ..................................... 89,600 $ 2,704,800
Tidewater, Inc. .................................. 48,700 1,485,350
------------
4,190,150
------------
Paper & Forest Products 1.01%
Boise Cascade Corp. .............................. 28,600 1,229,800
Fort James Corp. ................................. 30,000 1,136,250
International Paper Co. .......................... 63,000 3,181,500
Louisiana-Pacific Corp. .......................... 79,200 1,881,000
------------
7,428,550
------------
Pharmaceuticals 0.49%
Elan Corp. ....................................... 52,500 1,456,875
Warner Lambert Co. ............................... 31,700 2,199,188
------------
3,656,063
------------
Printing & Publishing 0.46%
Knight-Ridder, Inc. .............................. 61,700 3,389,644
------------
Retail Trade & Services 1.98%
Best Buy, Inc. ................................... 42,500(a) 2,868,750
Home Depot, Inc. ................................. 44,600 2,873,913
Limited, Inc. .................................... 13,500 612,563
Pier 1 Imports, Inc. ............................. 145,200 1,633,500
Sears Roebuck & Co. .............................. 22,800 1,016,025
Supervalu, Inc. .................................. 93,600 2,404,350
Wal-Mart Stores, Inc. ............................ 66,900 3,227,925
------------
14,637,026
------------
Technology 3.09%
Adaptec, Inc. .................................... 45,000(a) 1,589,063
America Online, Inc. ............................. 21,000(a) 2,320,500
Applied Materials, Inc. .......................... 31,000(a) 2,290,125
Autodesk, Inc. ................................... 90,000 2,660,625
Cisco Systems, Inc. .............................. 51,400(a) 3,315,300
Dell Computer Corp. .............................. 67,900(a) 2,512,300
EMC Corp. ........................................ 43,400(a) 2,387,000
Intel Corp. ...................................... 42,700 2,540,650
Microsoft Corp. .................................. 35,100(a) 3,165,581
------------
22,781,144
------------
Telecommunications 2.43%
Lucent Technologies Co. .......................... 44,500 3,000,969
MCI Worldcom, Inc. ............................... 27,700(a) 2,389,125
Nokia Corp. ...................................... 32,700 2,994,094
Tele Norte Leste Participacoes S.A., ADR.......... 129,900 2,411,267
Telefonos de Mexico S.A., ADR..................... 29,800 2,408,212
Telephone & Data Systems, Inc. ................... 37,500 2,739,844
Telesp Participacoes S.A., ADR.................... 85,900 1,964,963
------------
17,908,474
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
------------ ------------
<S> <C> <C>
Textiles 0.48%
Armstrong World Industries, Inc. .................. 36,100 $ 2,087,031
Shaw Industries, Inc. ............................. 90,000 1,485,000
------------
3,572,031
------------
Transportation 1.24%
Burlington Northern Santa Fe Corp. ................ 102,700 3,183,700
CNF Transportation, Inc. .......................... 91,700 3,518,988
USFreightways Corp. ............................... 53,800 2,491,612
------------
9,194,300
------------
Utilities -- Electric & Natural Gas 2.57%
CMS Energy......................................... 27,000 1,130,625
Edison International............................... 83,700 2,238,975
Energy East Corp. ................................. 30,000 780,000
GPU, Inc. ......................................... 78,000 3,290,625
PG&E Corp. ........................................ 91,700 2,980,250
Public Service Co. of New Mexico................... 54,900 1,083,187
Texas Utilities Co. ............................... 76,500 3,155,625
UniCom Corp. ...................................... 74,700 2,880,618
UtiliCorp United, Inc. ............................ 58,700 1,427,144
------------
18,967,049
------------
Total Common Stocks (Cost $178,695,811)....................... 210,580,499
------------
<CAPTION>
Principal
Amount
------------
<S> <C> <C>
United States Government & Agency Obligations 27.05%
Federal Home Loan Mortgage Corp., 5.125%,
10/15/2008........................................ $100,200,000 91,077,992
United States Treasury Bonds, 8.125%, 8/15/2021.... 13,000,000 15,819,375
United States Treasury Bonds, 6.50%, 11/15/2026.... 6,800,000 7,040,128
United States Treasury Bonds, 5.25%, 2/15/2029..... 17,400,000 15,621,946
United States Treasury Notes, 6.25%, 8/31/2000..... 13,500,000 13,626,564
United States Treasury Notes, 10.75%, 5/15/2003.... 15,000,000 17,545,320
United States Treasury Notes, 7.50%, 2/15/2005..... 16,300,000 17,558,164
United States Treasury Notes, 6.50%, 5/15/2005..... 7,600,000 7,835,129
United States Treasury Notes, 6.125%, 8/15/2007.... 13,400,000 13,550,750
------------
Total United States Government & Agency Obligations (Cost
$208,996,554)................................................ 199,675,368
------------
Short-Term Investments 43.63%
Allstate Corp., 5.20%, 7/7/99...................... 20,000,000 19,982,659
AT&T Capital Corp., 4.93%, 7/2/99.................. 30,000,000 29,995,887
BellSouth Telecommunications, Inc., 4.83%, 7/9/99.. 30,700,000 30,666,924
BP America Inc., 5.70%, 7/1/99..................... 30,000,000 30,000,000
Citibank Capital Market, 5.875%, 7/1/99............ 32,000,000 32,000,000
Exxon Imperial Inc., 5.80%, 7/1/99................. 23,000,000 23,000,000
Ford Motor Credit Corp., 5.26%, 7/6/99............. 13,700,000 13,689,990
Gannett Co., 4.90%, 7/7/99......................... 27,800,000 27,777,266
General Electric Capital Corp., 5.02%, 7/12/99..... 30,000,000 29,953,938
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Principal Value
Amount (Note 3)
----------- ------------
<S> <C> <C>
Short-Term Investments -- (Continued)
General Motors Acceptance Credit Corp., 4.91%,
7/8/99......................................... $25,000,000 $ 24,976,103
Merrill Lynch & Co., 5.10%, 7/13/99............. 30,000,000 29,948,957
Mobil Corp., 5.08%, 7/6/99...................... 30,000,000 29,978,815
------------
Total Short-Term Investments (Cost $321,970,539).......... 321,970,539
------------
Total Investments (Cost $709,662,903)......... 99.21% 732,226,406
Cash and Other Assets Less Liabilities........ 0.79% 5,800,112
------ ------------
Net Assets ................................... 100.00% $738,026,518
====== ============
<CAPTION>
Number of
Contracts
-----------
<S> <C> <C>
Net Unrealized Depreciation on Futures Contracts
Standard and Poor's September 1999 Short
Futures........................................ 72(b) $ (1,110,600)
------------
</TABLE>
- --------
(a) Non-income producing security.
(b) The extended market value of the short futures was $24,870,600
(representing 3.37% of the Fund's net assets) with a cost of $23,760,000.
For Federal income tax purposes, the tax basis of investments owned at June
30, 1999 was $709,675,161 and net unrealized appreciation on investments
consisted of:
<TABLE>
<S> <C>
Gross unrealized appreciation.................................. $ 38,986,858
Gross unrealized depreciation.................................. (16,435,613)
------------
Net unrealized appreciation.................................... $ 22,551,245
============
</TABLE>
See notes to financial statements
8
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30,1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost $709,662,903).............. $732,226,406
Cash ............................................................. 404,198
Dividends and interest receivable................................. 3,568,483
Receivable for investments sold .................................. 4,620,584
Prepaid expenses ................................................. 29,702
Deposit with broker for futures contracts......................... 1,687,500
------------
Total Assets.................................................... 742,536,873
------------
LIABILITIES
Payable for investments purchased................................. 3,517,171
Accrued advisory fees (Note 5) ................................... 421,476
Accrued administration fees (Note 5) ............................. 2,617
Variation margin for futures contracts ........................... 449,180
Other accrued expenses............................................ 119,911
------------
Total Liabilities............................................... 4,510,355
------------
NET ASSETS ........................................................ $738,026,518
============
NET ASSET VALUE, PER SHARE
($738,026,518/ 90,627,345 shares outstanding--Note 6)............. $8.14
============
Net Assets consist of
Capital paid-in .................................................. $716,573,615
Net unrealized appreciation on investments ....................... 21,452,903
------------
$738,026,518
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Income
Dividends..................................................... $ 2,248,819
Interest...................................................... 13,648,405
------------
Total Income................................................ 15,897,224
------------
Expenses
Investment advisory fees (Note 5) ............................ 2,576,570
Administration fees (Note 5) ................................. 478,534
Transfer agent fees........................................... 136,315
Printing and postage expenses................................. 146,215
Professional fees (Note 5) ................................... 42,225
Custodian fees................................................ 43,436
Directors' fees and expenses (Note 5) ........................ 48,369
Miscellaneous................................................. 105,158
------------
Total Expenses.............................................. 3,576,822
------------
Net Investment Income...................................... 12,320,402
------------
Realized and Unrealized Gains (Losses)
Net realized gains (losses) on
Investments................................................... 21,895,753
Securities sold short ........................................ (37,999)
Futures....................................................... (106,256)
------------
Net realized gains ......................................... 21,751,498
Decrease in unrealized appreciation on investments, securities
sold short and futures ........................................ (22,461,722)
------------
Net realized and unrealized loss on investments, securities
sold short and futures....................................... (710,224)
------------
Net increase in net assets resulting from operations.......... $ 11,610,178
============
</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
Six Months For the
Ended Year Ended
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income..................... $ 12,320,402 $ 28,065,284
Net realized gains on investments,
securities sold short
and futures ............................. 21,751,498 38,942,638
Decrease in unrealized appreciation on
investments, securities sold short and
futures ................................. (22,461,722) (6,323,813)
------------- ------------
Net increase in net assets resulting
from operations........................ 11,610,178 60,684,109
------------- ------------
Dividends and distributions to shareholders
from
Net investment income..................... (12,320,402) (28,065,284)
Net realized gains on investments,
securities sold short and futures ....... (21,751,498) (38,942,638)
Capital paid-in .......................... (3,781,055) (4,307,372)
------------- ------------
Total dividends and distributions to
shareholders .......................... (37,852,955) (71,315,294)
------------- ------------
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 ......................... 7,057,248 14,272,507
Net proceeds from the sale of shares
during rights
offering ................................ -- 76,437,671
------------- ------------
Net increase in net assets derived from
capital share transactions............... 7,057,248 90,710,178
------------- ------------
Net increase (decrease) in net assets .... (19,185,529) 80,078,993
------------- ------------
Net Assets
Beginning of period......................... 757,212,047 677,133,054
------------- ------------
End of period............................... $ 738,026,518 $757,212,047
============= ============
</TABLE>
See notes to financial statements.
10
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
Note 1 -- Acquisition
On March 1, 1999, Phoenix Investment Partners, Ltd. ("Phoenix") completed
the acquisition of Zweig Total Return Advisors, Inc., the Fund's investment
adviser (the "Adviser"); Zweig/Glaser Advisers, the Fund's administrator (the
"Administrator") and Zweig Securities Corp. ("ZSC"), an affiliated broker-
dealer registered under the Securities Exchange Act of 1934. As a result, the
Adviser and ZSC are now subsidiaries of Phoenix, and Zweig/Glaser Advisers
LLC, also a subsidiary of Phoenix, has succeeded Zweig/Glaser Advisers as the
Administrator. In order to continue to have access to the advisory and
consulting services of Dr. Martin E. Zweig and his associates, the Adviser
entered into a sub-advisory servicing agreement with Zweig Consulting LLC.
Note 2 -- Organization
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.
Note 3 -- Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles. The
preparation of financial statements in accordance with generally accepted
accounting 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
Adviser. Debt securities may be valued on the basis of prices provided by an
independent pricing service, when such prices are believed by the Adviser to
reflect the fair market value of such securities. Short-term investments
having a remaining maturity of 60 days or less when purchased are valued at
amortized cost (which approximates market value). Futures contracts traded on
commodities exchanges are valued at their closing settlement price on such
exchange. Securities for which market quotations are not readily available,
(of which there were none at June 30, 1999) and other assets, if any, are
valued at fair value as determined under procedures approved by 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.
11
<PAGE>
C. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recorded as assets. During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
marking the contract to market on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets or liabilities, depending upon
whether unrealized gains or losses are incurred. When a futures contract is
closed, the Fund realizes a gain or loss equal to the difference between the
proceeds from (or cost of ) the closing transaction and the Fund's basis in
the contract. There are several risks in connection with the use of futures
contracts as a hedging device. The change in value of futures contracts
primarily corresponds with the value of their underlying instruments, which
may not correlate with the change in value of the hedged investments.
Therefore, anticipated gains may not result and anticipated losses may not be
offset. In addition, as no secondary market exists for futures contracts,
there is no assurance that there will be an active market at any particular
time.
D. Short Sales
A short sale is a transaction in which the Fund sells a security it does not
own in anticipation of a decline in market price. To sell a security short,
the Fund must borrow the security. The Fund's obligation to replace the
security borrowed and sold short will be fully collateralized at all times by
the proceeds from the short sale retained by the broker and by cash and
securities deposited in a segregated account with the Fund's custodian. If the
price of the security sold short increases between the time of the short sale
and the time the Fund replaces the borrowed security, the Fund will incur a
loss, and if the price declines during the period, the Fund will realize a
gain. Any realized gain will be decreased, and any incurred loss increased, by
the amount of transaction costs. Dividends or interest the Fund pays in
connection with such short sales are recorded as expenses. In addition to the
short sales described above, the Fund may make short sales "against the box".
A short sale "against the box" is a short sale whereby at the time of the
short sale, the Fund owns or has the immediate and unconditional right, at no
added cost, to obtain the identical security.
E. Federal Income Tax
The Fund has elected to qualify and intends to remain qualified, as long as
management's view is that it is in the best interests of the shareholders, as
a "regulated investment company" under Subchapter M of the Internal Revenue
code of 1986, as amended. The principal tax benefits of qualifying as a
regulated investment company as compared to an ordinary taxable corporation,
are that a regulated investment company, is not itself subject to Federal
income tax on ordinary investment income and net capital gains that are
currently distributed (or deemed distributed) to its shareholders and that the
tax character of long-term capital gains recognized by a regulated investment
company flows through to its shareholders who receive distributions of such
gains.
NOTE 4 -- Portfolio Transactions
During the six months ended June 30, 1999, purchases and sales of
investments, excluding short term investments and futures contracts were:
<TABLE>
<CAPTION>
United
States
Government
Common and Agency
Stocks Obligations
------------ ------------
<S> <C> <C>
Purchases....................................... $146,580,650 $208,767,194
============ ============
Sales........................................... $237,126,450 $388,623,313
============ ============
Purchases to cover short sales.................. $ 428,724
============
</TABLE>
12
<PAGE>
NOTE 5 -- Investment Advisory Fees and Other Transactions with Affiliates
a) Investment Advisory Fee: The Investment Advisory Agreement (the
"Agreement") between the Adviser and the Fund provides that, subject to the
direction of the Board of Directors of the Fund and the applicable provisions
of the Act, the Adviser is responsible for the actual management of the Fund's
portfolio. The responsibility for making decisions to buy, sell or hold a
particular investment rests with the Adviser, subject to review by the Board
of Directors and the applicable provisions of the Act. For the services
provided by the Adviser under the Agreement, the Fund pays the Adviser a
monthly fee equal, on an annual basis, to 0.70% of the Fund's average daily
net assets. During the six months ended June 30, 1999, the Fund accrued
advisory fees of $2,576,570.
b) Administration Fee: Zweig/Glaser Advisers LLC 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, 1999, the Fund accrued administration fees of $478,534.
c) Directors' Fee: The Fund pays each Director who is not an interested
person of the Fund or the Adviser a fee of $10,000 per year plus $1,500 per
Directors' or committee meeting attended, together with out-of-pocket costs
relating to attendance at such meetings. Any Director of the Fund who is an
interested person of the Fund or the Adviser receives no remuneration from the
Fund.
d) Legal Fee: The Fund accrued legal fees of $13,961 during the six months
ended June 30, 1999, for the services of Rosenman & Colin, of which Robert E.
Smith, a former Director of the Fund, is counsel.
e) Brokerage Commission: During the six months ended June 30, 1999, the Fund
paid Zweig Securities Corp. brokerage commissions of $58,536 in connection
with portfolio transactions effected through them. In addition, Zweig
Securities Corp. charged $13,535 in commissions for transactions effected on
behalf of the participants in the Fund's Automatic Reinvestment and Cash Plan.
One director and certain officers of the Fund are also directors and/or
officers of the Adviser and Zweig Consulting LLC.
NOTE 6 -- Capital Stock and Reinvestment Plan
At June 30, 1999, the Fund had one class of common stock, par value $.001
per share of which 500,000,000 shares are authorized and 90,627,345 shares are
outstanding.
Registered shareholders may elect to receive all distributions in cash paid
by check mailed directly to the shareholder by State Street Bank & Trust Co.
as dividend paying agent. Pursuant to the Automatic Reinvestment and Cash
Purchase Plan (the "Plan"), shareholders not making such election will have
all such amounts automatically reinvested by State Street, as the Plan agent
in whole or fractional shares of the Fund, as the case may be. For the six
months ended June 30, 1999 and the year ended December 31, 1998, 856,806 and
1,666,475 shares, respectively, were issued pursuant to the Plan.
13
<PAGE>
NOTE 7 -- Financial Highlights
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Six
Months
Ended Year Ended December 31
June 30, ------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
Net asset value,
beginning of period.... $ 8.43 $ 8.61 $ 8.29 $ 8.63 $ 8.11 $ 9.11
-------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net investment income... 0.14 0.33 0.36 0.36 0.39 0.29
Net realized and
unrealized gains
(losses)............... (0.01) 0.39 0.80 0.14 0.97 (0.43)
-------- -------- -------- -------- -------- --------
Total from investment
operations............. 0.13 0.72 1.16 0.50 1.36 (0.14)
-------- -------- -------- -------- -------- --------
Dividends and
Distributions:
Dividends from net
investment income...... (0.14) (0.33) (0.36) (0.36) (0.39) (0.29)
Distributions from net
realized gains ........ (0.24) (0.46) (0.48) (0.24) (0.45) --
Distributions from
capital paid-in........ (0.04) (0.05) -- (0.24) -- (0.57)
-------- -------- -------- -------- -------- --------
Total Dividends and
Distributions.......... (0.42) (0.84) (0.84) (0.84) (0.84) (0.86)
-------- -------- -------- -------- -------- --------
Effect on net asset
value as a result of
rights offering***..... -- (0.06) -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end
of period............ $ 8.14 $ 8.43 $ 8.61 $ 8.29 $ 8.63 $ 8.11
======== ======== ======== ======== ======== ========
Market value, end of
period**............. $ 8.4375 $ 8.8750 $ 9.4375 $ 8.00 $ 8.625 $ 8.00
======== ======== ======== ======== ======== ========
Total investment return. 0.02% 4.49% 30.22% 2.62% 19.19% (17.08)%
======== ======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period
(in thousands)......... $738,027 $757,204 $677,133 $638,768 $647,523 $591,659
Ratio of expenses to
average net assets..... 0.97%* 0.97% 1.04% 1.03% 1.10% 1.12%
Ratio of net investment
income to average net
assets................. 3.35%* 3.88% 4.30% 4.31% 4.59% 3.35%
Portfolio turnover rate. 76.7% 87.9% 104.7% 147.2% 179.8% 281.0%
</TABLE>
- --------
* Annualized
** Closing Price -- New York Stock Exchange.
*** Shares were sold at a 5% discount from the average market price.
14
<PAGE>
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Total Return Fund, Inc. was
held on May 5, 1999.
The meeting was held for the purpose of reelecting Elliot S. Jaffe as a
Director and to ratify PricewaterhouseCoopers LLP as the Fund's independent
accountants for the year ending December 31, 1999. The Fund's other Directors
who continue in office are Charles H. Brunie, Alden C. Olson, James B. Rogers,
Jr., Anthony M. Santomero and Martin E. Zweig.
The results of the above matters were as follows:
<TABLE>
<CAPTION>
Votes Votes
Director/Independent Accountants Votes For Against Withheld Abstensions
- -------------------------------------- ---------- ------- --------- -----------
<S> <C> <C> <C> <C>
Elliot S. Jaffe....................... 70,060,933 N/A 1,090,970 N/A
PricewaterhouseCoopers LLP............ 70,347,682 351,485 -- 452,736
</TABLE>
- -------------------------------------------------------------------------------
A Special Meeting of Shareholders of The Zweig Total Return Fund, Inc. was
held on February 25, 1999.
The meeting was held for the purpose of approving a new investment advisory
agreement with Zweig Total Return Advisors, Inc. and a new servicing agreement
for the rendering of sub-advisory services with Zweig Consulting LLC.
The results of the above matters were as follows:
<TABLE>
<CAPTION>
Votes Votes
Votes For Against Withheld Abstensions
---------- --------- -------- -----------
<S> <C> <C> <C> <C>
New Investment Advisory
Agreement............... 68,680,523 3,313,017 -- 1,735,594
New Sub-Advisory
Servicing Agreement..... 68,570,897 3,339,850 -- 1,818,388
</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. 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
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-SEM-(99)
[LOGO APPEARS HERE]
SEMI-ANNUAL REPORT
------------------
June 30, 1999
