<PAGE>
May 1, 1999
Dear Shareholder:
The Zweig Total Return Fund's net asset value, including $0.21 in reinvested
distributions, decreased 1.1% during the quarter ended March 31, 1999.
Consistent with our policy of seeking to minimize risk while earning
reasonable returns, the Fund's average exposure during the period was 78%.
The first quarter was a volatile and difficult period for U.S. Treasuries.
Yields of the long bond--the 30-year Treasury--began the year at a 5.10% yield
to maturity. As the quarter progressed and the slowdown, expected by many
street economists, failed to materialize, the yield of the long bond soared as
high as a 5.70% yield to maturity.
Although the S&P 500 Index gained 5.0%, including dividends, in the first
quarter, it is important to note that the index does not really reflect the
performance of the overall market. Actually the few top stocks in the S&P 500
were responsible for most of the advance. For comparison purposes, the
unweighted S&P 500 was up 1.2% while the S&P 500 midcap was down 6.4%. The
Value Line Index, which measures the average performance of 1,700 major
stocks, also dropped 6.4%. The Russell 2000 Index fell 5.8%
You can see by these numbers what kind of market it was. We hold many mid-
cap and big-cap value stocks in our portfolio and they have been
underperforming for some time. There has been somewhat of a turnaround in that
picture recently but that was the market situation from mid-April of 1998
through mid-April, 1999.
Out of a universe of 8,000 stocks, about 78% were down from April, 1998 to
April, 1999, according to Ned Davis Research. The market was buoyed by some of
the big stocks like Microsoft and Dell, both of which we own. However, the
average stock just wasn't keeping up.
DISTRIBUTION DECLARED
In accordance with our policy of distributing 10% of net asset value per
year, which equals 0.83% per month (10% divided by 12 months), the Fund
announced a distribution of $0.07 payable on May 26, 1999, to shareholders of
record on May 13, 1999. The value of a distribution depends on the exact net
asset value at the time of declaration. For the May 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 $9.50
MARKET OUTLOOK
Our bond exposure at the end of the first quarter was 34% compared with 53%
at year-end. If we were fully invested, we would be at 62.5% in bonds and
37.5% in stocks. Consequently, at 34% in bonds, we are at about 54% of a full
position (34%/62.5%).
As evidenced by robust job growth and healthy output numbers, the U.S.
economy in the first quarter continued to be much stronger than had been
anticipated. Unemployment hit a 30-year low of 4.2% and the Gross National
Product for the first quarter is expected to be close to 4.0%. Yields of the
30-year Treasury Bond ended the quarter at 5.625%, rising over 50 basis points
in the three-month period.
With commodity prices rising and global growth improving, our outlook for
bonds continues to be fairly bearish. Although the long bond has rallied
somewhat recently, this is largely attributed to relief that the Federal
Reserve did not tighten at its last meeting. Additionally, many central
banks--including the European Central Bank, The Bank of England,
<PAGE>
and The Bank of Canada--have eased, which has helped other bond markets.
Moreover, there is evidence that Japan has finally made an economic turnaround
and the Nikkei is certainly showing signs of life. If Japan's economic engine
is truly picking up steam, the ensuing global strength would be very bearish
for the Treasury bond market.
Our equity exposure at the end of the first quarter was 30% compared with
37% at year-end. At this figure we were 80% of a full position (30%/37.5%).
As far as equities are concerned, we seem to be in what used to be called a
"Goldilocks economy"--not too cold and not too hot. At this writing, there is
no budget deficit, virtually no inflation, low unemployment, and a growing but
not overheating economy.
Under these circumstances, price/earning ratios generally go higher, which
has been happening for some time. They are currently about the highest in
history. As long as the economy continues its present course, the stock market
will probably be okay. But if the economic variables start to deteriorate, we
will just have further down to go to achieve more normal price/earnings
levels.
I am not particularly concerned by Commerce Department figures that the
economy expanded by almost 4% last year while profits fell 2.2%. Believe it or
not, the market generally does better when profits are moderately weak. That's
because such a period usually sees less inflation and lower interest rates.
With the market focused on a shrinking number of growth stocks and with most
stocks declining, some market observers see a similarity to the situation in
the 1970's when the steady rise of the so-called "Nifty Fifty" stocks
foreshadowed a bear market. While there are some parallels in the current
market, there are important differences.
For one thing, the "Nifty Fifty" were not as solid as people thought at the
time. Many of today's big stocks are benefiting from the technological
revolution which is far greater than that of the 1970's. What finally derailed
that market wasn't the speculation in those stocks. It was a return to higher
inflation, higher interest rates, and a tight monetary policy by the Federal
Reserve. If we get these conditions, the present market will also go down.
Although the Fed acknowledges that the economy is stronger than expected and
bond yields are creeping higher, I do not think that the Fed will do any
tightening in the near term. At least, that's my guess.
Some market observers believe that the so-called nosebleed valuations of
some fast-growing companies are worrisome. I think valuations will keep going
up until something happens to these individual companies or higher interest
rates hit the entire market. If interest rates and inflation remain low, I
think these stocks can move still higher. However, I would be more comfortable
if price/earnings ratios were more reasonable.
A recent phenomenon is the belief by a lot of traders that momentum is the
only yardstick and that traditional fundamentals can be ignored. I strongly
disagree. That is not an intelligent way to buy and sell stocks. The straight
momentum players will get killed when the market turns.
Summing up, the market positives include the current economy with the low
inflation and okay interest rates--the Fed cut three times last fall with no
apparent increase on the horizon. Among the negatives, there is some excess
speculation in the market and valuations are on the high side but I don't see
these as significant problems. Overall, my indicators are slightly positive.
PORTFOLIO COMPOSITION
Reflecting our investment policy guidelines, all of our bonds are U.S.
Government & Agency
2
<PAGE>
obligations. The average duration of the bond portion of our portfolio
(sensitivity to interest rates) is 4.0 years, compared with 6.1 years at the
close of the fourth quarter. Since these bonds are liquid, they give us the
flexibility to adjust swiftly to changing market conditions.
With equities, the composition of the leading industry groups in our
portfolio showed little change during the first quarter. On March 31 these
sectors included financial services, utilities, technology, telecommunications,
retail trade and services, and manufacturing. With the exception of retail
trade and services, which replaced oil and oil services, all of the above were
in our top ranking at the close of the fourth quarter of 1998.
In the retail field, our previous holdings appreciated in value and we added
three major factors: Sears, Best Buy Company (a retailer of consumer
electronics and related equipment with over 300 stores in 36 states), and
Claire's Stores (a mall-based retailer of popular-priced teen's fashion items).
As oil stocks fell in value, we trimmed the USX-Marathon Group and several
other positions.
Our largest individual positions include Ford, Telefonos de Mexico,
Microsoft, General Motors, Burlington Northern, Morgan Stanley Dean Witter,
EMC, Amgen, Daimler Chrysler, and Dell.
New to the above rankings are General Motors, which we acquired during the
quarter, and Telefonos de Mexico, Morgan Stanley Dean Witter, EMC, and Amgen,
all of which appreciated in value. We also added to our position in Telefonos
de Mexico.
Among the previous quarter's top positions, we have sold out our holdings in
Maytag, McKesson, and AT&T, and trimmed our stake in Home Depot and MCI
Worldcom.
Sincerely,
Martin E. Zweig, Ph.D.
Chairman
3
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS
March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
--------- ------------
<S> <C> <C>
Common Stocks 33.23%
Aerospace & Defense 0.62%
B.F. Goodrich & Co. .................................. 75,800 $ 2,600,888
Northrop Corp. ....................................... 32,100 1,921,987
------------
4,522,875
------------
Apparel Manufacturer 0.67%
Liz Claiborne, Inc. .................................. 35,900 1,171,238
VF Corp. ............................................. 37,600 1,774,250
Warnaco Group, Inc. .................................. 80,700 1,992,281
------------
4,937,769
------------
Automotive 1.62%
Daimler Chrysler AG................................... 42,015 3,605,412
Ford Motor Co. ....................................... 75,900 4,307,325
General Motors Corp. ................................. 45,900 3,987,563
------------
11,900,300
------------
Biotechnology 0.49%
Amgen, Inc. .......................................... 48,200 3,608,975
------------
Cable & Television 0.22%
Comcast Corp. ........................................ 25,600 1,611,200
------------
Chemicals 0.31%
IMC Global, Inc. ..................................... 111,100 2,270,606
------------
Consumer Durables 0.65%
Cooper Tire & Rubber Co. ............................. 70,800 1,300,950
Whirlpool Corp. ...................................... 63,400 3,447,375
------------
4,748,325
------------
Consumer Products 0.46%
Fortune Brands, Inc. ................................. 51,900 2,007,881
Premark International, Inc. .......................... 42,100 1,386,669
------------
3,394,550
------------
Consumer Services 0.17%
Service Corp., Inc. .................................. 87,100 1,241,175
------------
Electronics 0.16%
Avnet, Inc. .......................................... 32,200 1,179,325
------------
Engineering & Construction 0.24%
Fluor Corp. .......................................... 66,200 1,787,400
------------
Financial Services 5.01%
ACE Ltd. ............................................. 88,500 2,760,093
A.G. Edwards & Sons, Inc. ............................ 47,200 1,542,850
Allstate Corp. ....................................... 81,600 3,024,300
Astoria Financial Corp. .............................. 61,900 3,095,000
Bear Stearns & Co., Inc. ............................. 46,916 2,096,559
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Value
---------- ------------
<S> <C> <C>
Financial Services -- (Continued)
Charter One Financial, Inc. ......................... 36,084 $ 1,041,362
Conseco, Inc. ....................................... 74,800 2,309,450
Dime BanCorp., Inc. ................................. 72,200 1,674,138
Fidelity National Financial Corp. ................... 38,400 576,000
GATX Corp. .......................................... 26,600 876,138
Hartford Financial Services Group, Inc. ............. 51,400 2,920,163
Loews Corp. ......................................... 37,800 2,820,825
Morgan Stanley, Dean Witter, Discover & Co. ......... 37,500 3,747,655
Old Republic International Corp. .................... 57,750 1,053,938
PaineWebber Group Inc. .............................. 67,100 2,675,613
Reliance Group Holdings, Inc. ....................... 32,500 245,781
Reliastar Financial Corp. ........................... 20,900 890,863
Ryder Systems, Inc. ................................. 84,500 2,334,313
Selective Insurance Group, Inc. ..................... 19,600 345,450
UnionBancal Corp. ................................... 19,500 664,218
------------
36,694,709
------------
Food & Beverage 0.35%
Adolph Coors Co., Class B............................ 47,800 2,581,200
------------
Home Builders & Materials 0.30%
Fleetwood Enterprises, Inc. ......................... 44,300 1,268,087
Kaufman & Broad Home Corp. .......................... 40,600 916,038
------------
2,184,125
------------
Industrial Services 0.11%
Ogden Corp. ......................................... 33,600 808,500
------------
Investment Companies 0.95%
Blackrock 2001 Term Trust, Inc. ..................... 29,000 261,000
Blackrock Strategic Term Trust, Inc. ................ 29,000 266,438
Central European Equity Fund, Inc. .................. 18,600 224,363
Emerging Markets Infrastructure Fund, Inc. .......... 94,200 765,375
Emerging Markets Telecommunications Fund, Inc. ...... 30,800 286,825
France Growth Fund, Inc. ............................ 25,700 348,556
Gabelli Equity Trust, Inc. .......................... 44,100 523,688
Gabelli Global Multimedia Trust Fund, Inc. .......... 51,700 613,938
Italy Fund, Inc. .................................... 28,900 435,306
Mexico Fund, Inc. ................................... 68,900 1,046,419
Morgan Stanley Emerging Markets Fund, Inc. .......... 51,400 491,513
Portugal Fund, Inc. ................................. 10,200 138,975
Royce Value Trust, Inc. ............................. 70,160 793,682
Swiss Helvetia Fund, Inc. ........................... 56,800 798,750
------------
6,994,828
------------
Leisure 0.13%
Brunswick Corp. ..................................... 48,700 928,344
------------
Lodging 0.18%
Starwood Hotels & Resorts............................ 45,500 1,299,594
------------
Manufacturing 2.23%
Borg-Warner Automotive, Inc. ........................ 25,600 1,224,000
Cummins Engine Company, Inc. ........................ 51,900 1,845,694
Dana Corp. .......................................... 82,700 3,142,600
Dexter Corp. ........................................ 14,900 469,350
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Value
---------- ------------
<S> <C> <C>
Manufacturing -- (Continued)
Ingersoll Rand Co. ............................... 45,100 $ 2,238,087
Johnson Controls, Inc. ........................... 26,000 1,621,750
Kennametal, Inc. ................................. 40,600 710,500
Milacron, Inc. ................................... 31,000 488,250
PACCAR, Inc. ..................................... 24,100 992,619
Timken Co. ....................................... 83,600 1,358,500
Tyco International Ltd. .......................... 31,900 2,288,825
------------
16,380,175
------------
Metals & Mining 1.28%
AK Steel Holding Corp. ........................... 93,400 2,107,338
Alcan Aluminum Ltd. .............................. 65,200 1,682,975
Reynolds Metals Co. .............................. 56,600 2,734,487
USX-U.S. Steel Group.............................. 120,700 2,836,450
------------
9,361,250
------------
Oil & Oil Services 1.49%
Ashland, Inc. .................................... 58,500 2,394,844
Diamond Offshore Drilling, Inc. .................. 19,900 629,338
Santa Fe International Corp. ..................... 62,500 1,167,969
Sunoco, Inc. ..................................... 57,200 2,062,775
Tidewater, Inc. .................................. 48,700 1,260,112
YPF Sociedad Anonima, ADR......................... 108,100 3,411,906
------------
10,926,944
------------
Paper & Forest Products 0.50%
Boise Cascade Corp. .............................. 39,000 1,257,750
Georgia Pacific Corp. ............................ 27,900 2,071,575
Mead Corp. ....................................... 10,000 307,500
------------
3,636,825
------------
Pharmaceuticals 0.37%
Warner Lambert Co. ............................... 41,100 2,720,306
------------
Printing & Publishing 0.21%
Knight Ridder, Inc. .............................. 30,200 1,510,000
------------
Real Estate Investment Trusts 0.13%
Crescent Real Estate Equities Co. ................ 28,100 604,150
FelCor Lodging Trust.............................. 16,400 380,275
------------
984,425
------------
Retail Trade & Services 2.55%
Best Buy, Inc. ................................... 66,200 3,442,400
Claire's Stores, Inc. ............................ 37,500 1,129,688
Home Depot, Inc. ................................. 56,800 3,535,800
May Department Stores Co. ........................ 15,000 586,875
Pier 1 Imports, Inc. ............................. 145,200 1,179,750
Sears Roebuck & Co. .............................. 75,000 3,389,063
Supervalu, Inc. .................................. 119,400 2,462,624
Wal Mart Stores, Inc. ............................ 32,000 2,950,000
------------
18,676,200
------------
Technology 3.25%
Applied Materials, Inc. .......................... 31,000(a) 1,912,313
Broadvision, Inc. ................................ 38,400(a) 2,294,400
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Value
---------- ------------
<S> <C> <C>
Technology -- (Continued)
Cisco Systems, Inc. .............................. 27,400(a) $ 3,002,013
Compaq Computer Corp. ............................ 74,402 2,357,613
Dell Computer Corp. .............................. 88,200(a) 3,605,175
EMC Corp. ........................................ 29,100(a) 3,717,524
Intel Corp. ...................................... 23,600 2,811,350
Microsoft Corp. .................................. 46,400(a) 4,158,600
------------
23,858,988
------------
Telecommunications 2.64%
Lucent Technologies Co. .......................... 31,900 3,437,225
MCI Worldcom, Inc. ............................... 39,900(a) 3,533,644
Nokia Corp. ...................................... 19,200(a) 2,990,400
Tele Norte Leste Participacoes S.A., ADR.......... 95,000 1,460,625
Telefonica de Argentina, S.A., ADR................ 52,300 1,582,075
Telefonos de Mexico S.A., ADR..................... 64,600 4,231,300
Telephone & Data Systems, Inc. ................... 9,400 531,100
Telesp Participacoes S.A., ADR.................... 77,100(a) 1,590,187
------------
19,356,556
------------
Textiles 0.20%
Armstrong World Industries, Inc. ................. 25,700 1,161,319
Shaw Industries, Inc. ............................ 15,000 277,500
------------
1,438,819
------------
Tobacco 0.36%
RJR Nabisco Holdings Corp. ....................... 105,700 2,642,500
------------
Transportation 1.79%
Airborne Freight Corp. ........................... 58,500 1,820,813
Burlington Northern Santa Fe Corp. ............... 120,900 3,974,588
Canadian Pacific Ltd. ............................ 55,300 1,074,894
CNF Transportation, Inc. ......................... 86,400 3,267,000
Comair Holdings, Inc. ............................ 68,700 1,623,036
USFreightways Corp. .............................. 42,100 1,384,038
------------
13,144,369
------------
Utilities -- Electric & Natural Gas 3.59%
Central & South West Corp. ....................... 56,100 1,314,844
DTE Energy Co. ................................... 51,200 1,968,000
Edison International.............................. 101,800 2,265,050
Energy East Corp. ................................ 44,200 2,323,263
Entergy, Inc. .................................... 98,000 2,695,000
GPU, Inc. ........................................ 83,000 3,096,938
PG&E Corp. ....................................... 111,300 3,457,256
Pinnacle West Capital Corp. ...................... 37,000 1,345,875
Public Service Co. of New Mexico.................. 30,100 511,700
Texas Utilities Co. .............................. 75,000 3,126,562
UniCom Corp. ..................................... 92,200 3,371,062
UtiliCorp United, Inc. ........................... 38,700 880,425
------------
26,355,975
------------
Total Common Stocks............................. 243,687,132
------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
------------ ------------
<S> <C> <C>
United States Government & Agency Obliga-
tions 34.40%
Federal Home Loan Mortgage Corp., 5.125%,
10/15/2008..................................... $100,200,000 $ 95,251,622
United States Treasury Notes, 6.25%, 8/31/2000.. 13,500,000 13,732,038
United States Treasury Notes, 10.75%, 5/15/2003. 15,000,000 18,004,695
United States Treasury Notes, 7.50%, 2/15/2005.. 16,300,000 18,077,727
United States Treasury Notes, 6.50%, 5/15/2005.. 7,600,000 8,060,750
United States Treasury Notes, 6.50%, 10/15/2006. 30,100,000(b) 32,084,734
United States Treasury Notes, 6.125%, 8/15/2007. 13,400,000 14,015,569
United States Treasury Bonds, 8.125%, 8/15/2021. 13,000,000 16,514,069
United States Treasury Bonds, 7.50%, 11/15/2024. 1,200,000 1,452,000
United States Treasury Bonds, 6.50%, 11/15/2026. 19,300,000 20,898,291
United States Treasury Bonds, 6.375%, 8/15/2027. 13,300,000 14,206,063
------------
Total United States Government & Agency
Obligations.................................. 252,297,558
------------
Short-Term Investments 30.49%
BP Amoco Capital Corp., 5.00%, 4/1/99........... 27,000,000 27,000,000
Ford Motor Credit Corp., 4.82%, 4/8/99.......... 25,000,000 24,976,547
General Electric Capital Corp., 4.81%, 4/5/99... 20,000,000 19,989,297
Gillette Company, 5.00%, 4/1/99................. 27,000,000 27,000,000
GMAC Corp., 4.89%, 4/6/99....................... 25,000,000 24,983,014
Goldman Sachs Corp., 4.84%, 4/6/99.............. 20,000,000 19,986,537
Honeywell Corp., 5.00%, 4/1/99.................. 24,700,000 24,700,000
Household Financial Corp., 4.85%, 4/9/99........ 30,000,000 29,967,658
Merrill Lynch & Co., 4.85%, 4/7/99.............. 25,000,000 24,979,784
------------
Total Short-Term Investments.................. 223,582,837
------------
<CAPTION>
Number of
Contracts
------------
<S> <C> <C>
Net Unrealized Appreciation on Futures Con-
tracts 0.02%
Standard and Poor's June 1999 Short Futures..... 77(c) 142,242
------------
Total Investments............................. 98.14% 719,709,769
Cash and Other Assets Less Liabilities........ 1.86% 13,621,527
------ ------------
Net Assets (Equivalent to $8.13 per share
based on 90,197,796 shares of capital stock
outstanding)................................. 100.00% $733,331,296
====== ============
<CAPTION>
Number of
Shares
------------
<S> <C> <C>
Security Sold Short
W.E.B.S. Index Fund, Inc. -- Mexico Series
(Proceeds $390,725)............................ 28,400 $ 374,525
============
</TABLE>
- --------
(a) Non-income producing security.
(b) Used as collateral on short sales.
(c) The market value of short futures was $24,896,025 (representing 3.39% of
the Fund's net assets) with a cost of $24,753,783.
8
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS
March 31, 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........... $ 6,231,160 $ 0.07
Net realized and unrealized
losses on investments.......... (14,781,856) (0.16)
Dividends from net investment
income and distributions from
net long-term and short-term
capital gains.................. (18,881,541) (0.21)
Net asset value of shares issued
to shareholders for
reinvestment of dividends and
distributions.................. 3,551,486 --
------------ -------
Net decrease in net assets/net
asset value.................... (23,880,751) (0.30)
------------ -------
End of period: March 31, 1999.... $733,331,296 $ 8.13
============ =======
</TABLE>
9
<PAGE>
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
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.
----------------
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.
10
<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
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.
ZTR991 3206-1Q-99
[LOGO OF THE ZWEIG TOTAL RETURN FUND, INC.
QUARTERLY REPORT
-------------------
March 31, 1999
