<PAGE>
August 1, 2000
[PHOTO]
Dear Shareholder:
For the three months ended June 30, 2000, the net asset value for The Zweig
Total Return Fund declined 0.2%, including $0.19 in reinvested distributions.
The Fund's net asset value for the six months ended June 30, 2000 increased
2.3%, including $0.38 per share in reinvested distributions.
Consistent with our policy of trying to minimize risk while earning reason-
able returns, our average equity exposure during the first six months of 2000
was approximately 62%.
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 $0.06 per share payable on August 24, 2000 to
shareholders of record on August 11, 2000. 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
$0.06 per share. Including this distribution, the Fund's payout since its
inception is now $10.47 per share.
MARKET OUTLOOK
Our bond exposure at the end of the second quarter was 58% compared with 44%
as of March 31. If we were fully invested, the Fund would be 62.5% invested in
bonds and 37.5% in stocks. Consequently, at 58% we are about 93% of a full
position (58%/62.5%).
Although the Fed tightened for the sixth time this cycle, bonds were
relatively flat for the quarter ended June 30, 2000. Bond yields for the 30-
year Treasury--also known as the long bond--began the quarter at 5.8% and
ended at 5.9%. The front end of the yield curve followed a similar pattern,
with the two-year note ending little changed from the 6.4% yield at the
beginning of the quarter.
However, during the quarter, the front end endured volatility as a result of
contradictory economic data. Market participants were hanging on to every
piece of information released to try and anticipate what the Fed would do
next. By the end of the quarter, the market finally settled into a more normal
summer pattern of light trading activity and more orderly moves. The Fed held
off raising rates at their last meeting, which allowed the market a breather.
Our equity exposure as of June 30 was 28%, up slightly from 23% at the end
of the first quarter. At 28%, we are at about 75% of a full position
(28%/37.5%).
People still like to talk about the summer rallies, but I don't think there
is a seasonal tendency to the market one way or another. Years back, the
months of July and August, along with December and January, were seasonally
<PAGE>
strong. However, this hasn't been true in the last 20 years or so. July and
August have become ordinary. Some people are still concerned about August, a
month that has not been pleasant for investors in some of the more recent
years. However, I can recall some very large rallies like those in 1982 and
1984 that began in August.
If our economy slows further, it is feared by some that domestic and foreign
investors may want to balance their portfolios by favoring securities of other
countries. I don't believe that is a concern. In fact, I would be delighted if
our economy slows a bit. It could lead to the end of Fed tightening and
perhaps even loosening, which would be bullish for stocks.
On the negative side, if our economy runs too strong, you risk higher
inflation and a tighter Fed, which could be damaging to the stock market. I'll
take my chances on foreigners pulling out their money if we have a domestic
slowdown. Should the U.S. economy slow, it is very possible that economies
abroad would follow suit.
It is estimated that earnings growth for companies in the S&P 500 Index
reached close to 20% in the second quarter versus 24% during the first three
months of the year. I don't think that the quarter-to-quarter comparisons will
be as favorable in the second half. I have seen estimates of 12% to 14%. These
are not my estimates, but earnings are still running strong. If the economy
slows, some of the earnings numbers will weaken. But that's not so bad if
interest rates also go down.
There have been reports that it is harder to expand profit margins because
most of our assets, especially labor, are being fully utilized. I don't agree
because productivity is increasing with all the technological gains. In many
areas where it is harder to boost productivity, work is exported offshore
where labor is plentiful and costs are lower.
Despite strong earnings and sharp share price increases over the decade,
dividends for the S&P 500 are growing at a slim 1.1% rate. There are several
reasons for this disparity. First, price/earnings ratios have risen. And, when
prices rise relative to earnings, they rise relative to dividends as well.
Second, many companies have chosen to pay out less of their earnings in the
form of dividends. They are using retained earnings to buy in their stock. I
don't think this is necessarily positive or negative for the market.
Remember, the S&P is not a static index. It is dynamic in the sense that
companies in the index are replaced fairly frequently. Some are eliminated by
takeovers and occasionally some hit hard times. A disproportionate number of
technological companies that pay no dividends but have strong growth have also
been added to the index. This group now comprises about 35% of the S&P 500
companies. Also part of the index are companies like General Motors and Philip
Morris, which pay good dividends. Comparing old and new economy companies in
this respect is like comparing apples to oranges.
Heavy merger activity has pushed foreign purchases of American companies to
a record $289.1 billion last year. I consider this a bullish factor. Most
recently, we saw PaineWebber taken over by UBS, a Swiss bank. As competition
has grown and trade barriers have broken down, European companies want to
become more global. Outside the technology area, there are a lot of U.S.
companies available at very reasonable prices. So, we are going to see more
takeovers by foreign companies, but the reverse is also true.
Cash reserves at mutual funds have picked up a bit in the past month or so
but are still historically low. The reason for part of the drop in cash-to-
asset ratios at mutual funds over the years is that many mutual funds have
changed their policies. Unlike our funds, very few are market timers. They
believe their job is to be fully invested always. As more and more funds
2
<PAGE>
go that route, it means that there is less cash available to use if conditions
warrant. I don't think that is a positive for the market.
We have already seen a big shakeout in Internet companies. Many of their
stocks are down by three-quarters or more, some deservedly so. A lot of these
companies are burning cash. They have little in reserve and no earnings.
Running at deficits, they can only survive by making profits--some are years
away from such an eventuality--or they have to raise capital. With the
collapse in stock prices, many "dot.com" companies are finding it very
difficult to obtain equity financing publicly or privately.
Actually, this is not a unique phenomenon historically. This is the same
situation that the auto industry faced at the turn of the twentieth century.
Hundreds of companies entered the business, but only some earned any profits.
Eventually many collapsed. We are now down to two and a half domestic auto
companies from as many as 400 to 500 in the century's first 20 years. That is
the kind of shakeout that we are now seeing in the Internet area. Ultimately,
a few colossal companies will emerge. I only wish I knew which ones they will
be.
As of the time of this writing, our monetary model is dead neutral. On a
zero to ten scale, it is a five. Our sentiment model is similar, although we
lost some ground with the Nasdaq rally after the May lows. Sentiment is now
about a six on the zero to ten scale. That is a good sign. It is up from zero
earlier in the year when there was excessive optimism, which is dangerous and
probably the reason the market fell. The collapse in stock prices accompanied
by higher interest rates did make people more pessimistic.
The monetary and sentiment indicators were on the critical lists earlier
this year. At least that situation has been resolved. The market doesn't
usually collapse when both major indicators are in a neutral position.
In my view, the key to the market outlook is the level of inflation. We have
had many signs of economic slowdown in the last month or two, and except for
oil and natural gas, signs of lower inflation. If inflation were to heat up
again, we'd have some problems. The Fed would keep on raising rates, and
eventually, it would hurt the market. Conversely, if the slowdown continues at
the margin and inflation behaves itself, perhaps the Fed will stop tightening.
My current market stance ranges from high neutral to moderately positive.
I'm not looking for fireworks on the upside right now, but I think the market
will probably plod upward.
PORTFOLIO COMPOSITION
In accordance with our investment policy guidelines, all of our bonds are
U.S. government obligations. The portfolio's average duration (a measure of
sensitivity to interest rate movement) was 6.5 years as of June 30. This
compares with 2.2 years at the close of the first quarter. Since these bonds
are highly liquid, they provide us with the flexibility to respond quickly to
changing market conditions.
Our leading industry groups at the close of the second quarter included
technology, financial services, telecommunications, health care, energy and
media. With the exception of technology, our positions in all the listed
groups benefited from appreciation and additional purchases. Financial
services, health care and energy performed particularly well during the
quarter.
As of June 30, our leading positions included General Electric, Intel,
Cisco, American International Group, Microsoft, Pfizer, Exxon Mobil, Sun
Microsystems, Nortel Networks and Baxter International.
The only new position in the above listing is Pfizer. We made additional
purchases of Exxon Mobil, Sun Microsystems and Nortel.
3
<PAGE>
Of the stocks included among our top holdings as of March 31, we trimmed our
positions in EMC, Nokia, Dell and Morgan Stanley Dean Witter, while America
Online lost value.
BOARD CHANGE
At this point, I would like to inform you that Anthony M. Santomero, a
member of the board of The Zweig Total Return Fund since its inception, has
been appointed the next president of The Federal Reserve Bank of Philadelphia
and has therefore resigned from our board.
Dr. Santomero was Richard K. Mellon Professor of Finance and had been deputy
director at The Wharton School of the University of Pennsylvania. Since 1995,
he served as the director of The Wharton Financial Institution Center, which
focuses academic research on the financial services industry.
We are honored to have had Dr. Santomero as a member of our board. We want
to thank him for his years of service and wish him the best in his new role.
Sincerely,
/s/ Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
Chairman
4
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- ----------
<S> <C> <C>
Common Stocks 27.49%
Aerospace & Air Transport 0.18%
Boeing Co. ............................................ 30,100 $1,258,556
----------
Automotive 0.13%
Delphi Automotive Systems Corp. ....................... 60,000 873,750
----------
Building & Forest Products 0.29%
Cemex S.A. de CV, ADR.................................. 45,000 1,051,875
Georgia-Pacific Group.................................. 30,000 787,500
Louisiana-Pacific Corp. ............................... 15,000 163,125
----------
2,002,500
----------
Chemicals 0.30%
Air Products & Chemicals, Inc. ........................ 24,000 739,500
Dow Chemical Co. ...................................... 45,000 1,358,438
----------
2,097,938
----------
Commercial Services 0.32%
Modis Professional Services, Inc. ..................... 75,100(a) 572,638
Omnicom Group, Inc. ................................... 18,000 1,603,125
----------
2,175,763
----------
Consumer Products 0.81%
Adolph Coors Co., Class B.............................. 21,200 1,282,600
Kimberly-Clark Corp. .................................. 22,500 1,290,937
PepsiCo, Inc. ......................................... 67,500 2,999,531
----------
5,573,068
----------
Electronics -- Electrical 1.03%
General Electric Co. .................................. 97,500 5,167,500
Sanmina Corp. ......................................... 22,500(a) 1,923,750
----------
7,091,250
----------
Engineering & Machinery 0.26%
Ingersoll-Rand Co. .................................... 45,000 1,811,250
----------
</TABLE>
See notes to financial statements
5
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- ----------
<S> <C> <C>
Financial Services 3.87%
ACE Ltd. .............................................. 33,500 $ 938,000
Allstate Corp. ........................................ 58,200 1,294,950
American Express Co. .................................. 15,000 781,875
American International Group, Inc. .................... 33,000 3,877,500
Bank of America Corp. ................................. 30,000 1,290,000
Capital One Financial Corp. ........................... 30,000 1,338,750
Chase Manhattan Corp. ................................. 29,950 1,379,572
CIGNA Corp. ........................................... 30,100 2,814,350
Citigroup, Inc. ....................................... 45,000 2,711,250
Fannie Mae............................................. 37,500 1,957,031
FleetBoston Financial Corp. ........................... 30,000 1,020,000
H & R Block, Inc. ..................................... 28,400 919,450
Lehman Brothers Holdings, Inc. ........................ 15,000 1,418,438
Marsh & McLennan Cos., Inc. ........................... 15,000 1,566,562
Morgan Stanley Dean Witter & Co. ...................... 17,900 1,490,175
Washington Mutual, Inc. ............................... 37,500 1,082,813
Wells Fargo & Co. ..................................... 22,500 871,875
----------
26,752,591
----------
Health Care 3.12%
Amgen, Inc. ........................................... 19,600(a) 1,376,900
Baxter International, Inc. ............................ 45,000 3,164,063
Bristol-Myers Squibb Co. .............................. 43,700 2,545,525
Johnson & Johnson...................................... 22,500 2,292,187
MedImmune, Inc. ....................................... 30,900(a) 2,286,600
Pfizer, Inc. .......................................... 79,600 3,820,800
Pharmacia, Corp. ...................................... 36,000 1,860,750
Schering-Plough Corp. ................................. 52,500 2,651,250
UnitedHealth Group, Inc. .............................. 18,000 1,543,500
----------
21,541,575
----------
Investment Companies 0.53%
Asia Tigers Fund, Inc. ................................ 30,000 270,000
Emerging Markets Infrastructure Fund, Inc. ............ 54,384 639,012
Gabelli Global Multimedia Trust, Inc. ................. 32,300 444,125
INVESCO Global Health Sciences Fund, Inc. ............. 35,100 636,188
Korea Fund, Inc. ...................................... 45,000 632,812
Morgan Stanley Dean Witter Asia Pacific Fund, Inc. .... 30,000 305,625
Morgan Stanley Dean Witter Emerging Markets Fund,
Inc. ................................................. 50,400 756,000
----------
3,683,762
----------
</TABLE>
See notes to financial statements
6
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- -----------
<S> <C> <C>
Manufacturing 0.56%
Honeywell International, Inc. ........................ 30,100 $ 1,013,994
Tyco International Ltd. .............................. 60,000 2,842,500
-----------
3,856,494
-----------
Media 1.66%
Comcast Corp., Class A................................ 42,800(a) 1,733,400
Grupo Televisa S.A., GDR.............................. 30,000(a) 2,068,125
Infinity Broadcasting Corp., Class A.................. 52,500(a) 1,912,969
New York Times Co., Class A........................... 28,200 1,113,900
Tribune Co. .......................................... 15,000 525,000
Viacom, Inc., Class B................................. 30,200(a) 2,059,263
Walt Disney Co. ...................................... 52,500 2,037,656
-----------
11,450,313
-----------
Metals 0.15%
Alcoa, Inc. .......................................... 36,000 1,044,000
-----------
Oil & Oil Services 1.78%
Apache Corp. ......................................... 30,000 1,764,375
BJ Services Co. ...................................... 20,200(a) 1,262,500
Exxon Mobil Corp. .................................... 45,100 3,540,350
Talisman Energy, Inc. ................................ 30,000(a) 993,750
Transocean Sedco Forex, Inc. ......................... 24,100 1,287,844
USX-Marathon Group.................................... 75,000 1,879,687
Williams Cos., Inc. .................................. 37,600 1,567,450
-----------
12,295,956
-----------
Railroads 0.17%
Burlington Northern Santa Fe Corp. ................... 52,500 1,204,219
-----------
Retailing 1.15%
Best Buy Co., Inc. ................................... 15,000(a) 948,750
CVS Corp. ............................................ 45,000 1,800,000
Home Depot, Inc. ..................................... 23,800 1,188,512
Lowe's Cos., Inc. .................................... 15,000 615,938
Safeway, Inc. ........................................ 37,500(a) 1,692,187
Wal-Mart Stores, Inc. ................................ 29,800 1,717,225
-----------
7,962,612
-----------
Steel & Heavy Machinery 0.04%
Bethlehem Steel Corp. ................................ 75,000(a) 267,188
-----------
</TABLE>
See notes to financial statements
7
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- -----------
<S> <C> <C>
Technology 6.95%
Adobe Systems, Inc. .................................. 12,100 $ 1,573,000
America Online, Inc. ................................. 51,000(a) 2,690,250
Applied Materials, Inc. .............................. 25,200(a) 2,283,750
Atmel Corp. .......................................... 15,000(a) 553,125
Cisco Systems, Inc. .................................. 74,700(a) 4,748,119
Citrix Systems, Inc. ................................. 15,000(a) 284,063
Compaq Computer Corp. ................................ 30,000 766,875
Cypress Semiconductor Corp. .......................... 30,000(a) 1,267,500
Dell Computer Corp. .................................. 44,000(a) 2,169,750
EMC Corp. ............................................ 42,600(a) 3,277,537
Fiserv, Inc. ......................................... 22,500(a) 973,125
Intel Corp. .......................................... 36,600 4,892,963
Jabil Circuit, Inc. .................................. 30,100(a) 1,493,712
JDS Uniphase Corp. ................................... 18,000(a) 2,157,750
Lucent Technologies, Inc. ............................ 44,800 2,654,400
Microsoft Corp. ...................................... 48,000(a) 3,840,000
Motorola, Inc. ....................................... 54,300 1,578,094
Network Appliance, Inc. .............................. 15,000(a) 1,207,500
Oracle Corp. ......................................... 37,600(a) 3,160,750
QUALCOMM, Inc. ....................................... 18,000(a) 1,080,000
Sun Microsystems, Inc. ............................... 37,500(a) 3,410,156
USinternetworking, Inc. .............................. 29,950(a) 612,103
Yahoo!, Inc. ......................................... 10,500(a) 1,300,687
-----------
47,975,209
-----------
Telecommunications 3.29%
ADC Telecommunications, Inc. ......................... 22,500(a) 1,887,188
Amdocs Ltd. .......................................... 15,100(a) 1,158,925
AT&T Corp. ........................................... 30,000 948,750
AT&T Wireless Group................................... 29,700(a) 827,887
CenturyTel, Inc. ..................................... 30,100 865,375
General Motors Corp., Class H......................... 22,500 1,974,375
Nokia Corp., ADR ..................................... 41,700 2,082,394
Nortel Networks Corp. ................................ 48,000 3,276,000
SBC Communications, Inc. ............................. 60,000 2,595,000
Tele Norte Leste Participacoes S.A., ADR.............. 43,000 1,015,875
Telefonos de Mexico S.A., Class L, ADR ............... 29,800 1,702,325
Telephone & Data Systems, Inc. ....................... 15,000 1,503,750
WorldCom, Inc. ....................................... 63,350(a) 2,906,181
-----------
22,744,025
-----------
</TABLE>
See notes to financial statements
8
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
----------- ------------
<S> <C> <C>
Utilities -- Electric & Gas 0.90%
AES Corp. ........................................ 45,000 $ 2,053,125
Enron Corp. ...................................... 22,500 1,451,250
PEPCO Energy Co. ................................. 45,000 1,814,062
TXU Corp. ........................................ 30,000 885,000
------------
6,203,437
------------
Total Common Stock
(Cost $167,238,300)........................................ 189,865,456
------------
Rights 0.00%
Investment Companies 0.00%
Gabelli Global Multimedia Trust, Inc., expiring
7/19/00.......................................... 32,300(a) 6,561
------------
<CAPTION>
Principal
Amount
-----------
<S> <C> <C>
United States Government Obligations 58.62%
FHLMC, 6.875%, 1/15/05............................ $70,500,000 70,133,047
FHLMC, 5.125%, 10/15/08........................... 38,100,000 33,229,601
United States Treasury Notes, 7.50%, 2/15/05...... 16,300,000 17,099,727
United States Treasury Notes, 6.50%, 5/15/05...... 7,600,000 7,685,500
United States Treasury Notes, 6.125%, 8/15/07..... 107,300,000 106,696,438
United States Treasury Notes, 6.50%, 2/15/10...... 63,400,000 65,579,375
United States Treasury Bonds, 10.75%, 5/15/03..... 15,000,000 16,692,195
United States Treasury Bonds, 6.50%, 11/15/26..... 40,700,000 42,467,926
United States Treasury Bonds, 6.25%, 5/15/30...... 43,000,000 45,150,000
------------
Total United States Government Obligations
(Cost $405,958,262)............................ 404,733,809
------------
Short-Term Investments 12.74%
Goldman Sachs Group L.P., 6.95%, 7/03/00.......... 30,000,000 29,988,417
Pharmacia & Upjohn Co., 7.00%, 7/05/00............ 28,000,000 27,978,222
SLM Holdings Corp., 6.95%, 7/05/00................ 30,000,000 29,976,833
------------
Total Short-Term Investments (Cost $87,943,472)............. 87,943,472
------------
Total Investments (Cost $661,140,034) -- 98.85%............. 682,549,298
Other Assets Less Liabilities -- 1.15%...................... 7,945,725
------------
Net Assets -- 100.00%....................................... $690,495,023
============
</TABLE>
--------
(a) Non-income producing security.
For Federal income tax purposes, the tax basis of investments owned at June
30, 2000 was $661,140,034 and net unrealized appreciation of investments
consisted of
<TABLE>
<S> <C>
Gross unrealized appreciation.................................. $ 39,717,139
Gross unrealized depreciation.................................. (18,307,875)
------------
Net unrealized appreciation.................................... $ 21,409,264
============
</TABLE>
See notes to financial statements
9
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost $661,140,034)............ $682,549,298
Dividends and interest receivable............................... 8,343,726
Securities sold receivable...................................... 529,588
Prepaid expenses................................................ 51,432
------------
Total Assets.................................................. 691,474,044
------------
LIABILITIES
Due to custodian................................................ 95,085
Accrued advisory fees (Note 5).................................. 395,495
Accrued administration fees (Note 5)............................ 73,449
Payable for investment securities purchased..................... 207,082
Other accrued expenses.......................................... 207,910
------------
Total Liabilities............................................. 979,021
------------
NET ASSETS........................................................ $690,495,023
============
NET ASSET VALUE, PER SHARE
($690,495,023/90,600,166 shares outstanding--Note 6)........... $ 7.62
============
Net Assets consist of
Capital paid-in................................................. $677,605,067
Distribution in excess of net investment income................. (18,277,812)
Undistributed net realized gain on investments.................. 9,758,504
Net unrealized appreciation on investments...................... 21,409,264
------------
$690,495,023
============
</TABLE>
See notes to financial statements
10
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Income
Interest....................................................... $16,629,243
Dividends (net of foreign withholding taxes of $3,632)......... 703,521
-----------
Total Income................................................. 17,332,764
-----------
Expenses
Investment advisory fees (Note 5).............................. 2,421,776
Administration fees (Note 5)................................... 449,758
Transfer agent fees............................................ 131,384
Printing and postage expenses.................................. 121,031
Professional fees (Note 5)..................................... 53,622
Custodian fees................................................. 46,409
Directors' fees and expenses (Note 5).......................... 25,534
Miscellaneous.................................................. 102,816
-----------
Total Expenses............................................... 3,352,330
-----------
Net Investment Income...................................... 13,980,434
-----------
Net Realized and Unrealized Gains (Losses)
Net realized gain on investments................................. 5,623,184
Decrease in unrealized appreciation on investments............... (9,306,536)
-----------
Net realized and unrealized loss on investments................ (3,683,352)
-----------
Net increase in net assets resulting from operations........... $10,297,082
===========
</TABLE>
See notes to financial statements
11
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six
Months Ended For the
June 30, 2000 Year Ended
(Unaudited) December 31, 1999
------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income....................... $ 13,980,434 $ 25,806,697
Net realized gain on investments and
securities sold short...................... 5,623,184 11,528,385
Decrease in unrealized appreciation of
investments and securities sold short...... (9,306,536) (13,198,825)
------------ ------------
Net increase in net assets resulting from
operations............................... 10,297,082 24,136,257
------------ ------------
Dividends and distributions to shareholders
from
Net investment income....................... (34,439,264) (25,806,697)
Net realized gain on investments, securities
sold short and futures..................... -- (11,528,385)
Capital paid-in............................. -- (36,881,045)
------------ ------------
Total dividends and distributions to
shareholders............................. (34,439,264) (74,216,127)
------------ ------------
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............................ -- 10,534,625
Shares repurchased and retired, 0 and
460,000 shares, respectively............... -- (3,029,597)
------------ ------------
Net increase in net assets derived from
capital share transactions................. -- 7,505,028
------------ ------------
Net decrease in net assets.................. (24,142,182) (42,574,842)
Net Assets
Beginning of period........................... 714,637,205 757,212,047
------------ ------------
End of period (including distributions in
excess of net investment income and
undistributed net investment income of
($18,277,812) and $2,181,018, respectively).. $690,495,023 $714,637,205
============ ============
</TABLE>
See notes to financial statements
12
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE 1 -- Acquisition
On March 1, 1999, Phoenix Investment Partners, Ltd. ("Phoenix"), completed
the acquisition of Zweig Total Return Advisors, Inc. (the "ZTR Adviser"), the
Fund's investment adviser, Phoenix/Zweig Advisers, the Fund's administrator
("Administrator") and Zweig Securities Corp. (currently PXP Securities Corp.),
an affiliated broker-dealer registered under the Securities Exchange Act of
1934.
As a result of the acquisition, effective January 1, 2000, Phoenix/Zweig
Advisers, LLC (the "Adviser") succeeds ZTR Adviser, as the Fund's investment
adviser. 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.
As of October 31, 1999, the Administrator assigned the rights and
obligations under the Administration Agreement dated March 1, 1999, between
the Fund and the Administrator to Phoenix Equity Planning Corp. ("PEPCO")
under the same terms as the previous Administration Agreement. Effective
October 31, 1999, PEPCO sub-contracted the Fund's mutual fund accounting to
The Bank of New York. PEPCO is an affiliate of the Adviser and the Fund.
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 that 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
13
<PAGE>
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, 2000) 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.
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 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
14
<PAGE>
as a regulated investment company as compared to an ordinary taxable
corporation, are that a regulated investment company, is not itself subject to
Federal income tax on ordinary investment income and net capital gains that
are currently distributed (or deemed distributed) to its shareholders and that
the tax character of long-term capital gains recognized by a regulated
investment company flows through to its shareholders who receive distributions
of such gains.
F. Dividends and Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the ex-dividend
date. In the event that amounts distributed are in excess of accumulated net
investment income and net realized gains on investments (as determined for
financial statement purposes), such amounts would be reported as a
distribution from paid-in capital during the fiscal year in which such a
distribution is made. Income dividends and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to timing differences and differing characterization of distributions made by
the Fund as a whole.
NOTE 4 -- Portfolio Transactions
During the six months ended June 30, 2000, purchases and sales transactions,
excluding short-term investments were:
<TABLE>
<CAPTION>
United States
Government
Common and Agency
Stocks Obligations
------------ -------------
<S> <C> <C>
Purchases ........................................ $159,379,077 $478,250,621
============ ============
Sales ............................................ $140,837,679 $230,962,735
============ ============
</TABLE>
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, 2000, the Fund accrued
advisory fees of $2,421,776.
b) Administration Fee: Phoenix Equity Planning Corp. serves as the Fund's
Administrator pursuant to an Administration Agreement with the Fund. 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
15
<PAGE>
and records that are not maintained by the Investment Adviser, custodian or
transfer agent, assists in the preparation of financial information for the
Fund's income tax returns, proxy statements, quarterly and annual shareholder
reports, and responds to shareholder inquiries. Under the terms of the
Agreement, the Fund pays the Administrator a monthly fee equal, on an annual
basis, to 0.13% of the Fund's average daily net assets. During the six months
ended June 30, 2000, the Fund accrued administration fees of $449,758.
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 the 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 receive no remuneration from
the Fund.
d) Legal Fee: The Fund accrued legal fees of $27,071 during the six months
ended June 30, 2000, for the services of Rosenman & Colin LLP, of which Robert
E. Smith, a former Director of the Fund, is counsel.
e) Brokerage Commission: During the six months ended June 30, 2000, the Fund
paid PXP Securities Corp. brokerage commissions of $24,243 in connection with
portfolio transactions effected through them. In addition, PXP Securities
Corp. charged $49,748 in commissions for transactions effected on behalf of
the participants in the Fund's Automatic Reinvestment and Cash Purchase Plan.
NOTE 6 -- Capital Stock and Reinvestment Plan
At June 30, 2000, the Fund had one class of common stock, par value $.001
per share, of which 500,000,000 shares are authorized and 90,600,166 shares
are outstanding.
Registered shareholders may elect to receive all distributions in cash paid
by check mailed directly to the shareholder by EquiServe 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 EquiServe, as the Plan agent in whole or
fractional shares of the Fund, as the case may be. For the six months ended
June 30, 2000 and the year ended December 31, 1999 there were 0 and 829,627
shares, respectively, issued pursuant to the Plan.
On December 7, 1999, the Fund's Board of Directors authorized the repurchase
and retirement of up to $20,000,000 of its shares for the purpose of enhancing
shareholder value. For the year ended December 31, 1999, 460,000 shares were
repurchased and retired at a cost of $3,029,597 representing 0.6% of the
91,060,166 shares outstanding at December 10, 1999. This includes $18,630 in
commissions paid to PXP Securities Corp. The weighted average discount of
market price to net asset value of shares repurchased over the period of
December 10, 1999 to December 31, 1999 was 16.4%.
16
<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, 2000 -------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
Net asset value,
beginning of period.... $ 7.89 $ 8.43 $ 8.61 $ 8.29 $ 8.63 $ 8.11
-------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net investment income... 0.15 0.28 0.33 0.36 0.36 0.39
Net realized and
unrealized
gains(losses).......... (0.04) (0.01) 0.39 0.80 0.14 0.97
-------- -------- -------- -------- -------- --------
Total from investment
operations............. 0.11 0.27 0.72 1.16 0.50 1.36
-------- -------- -------- -------- -------- --------
Anti-dilutive effect of
share repurchase
program................ -- 0.01 -- -- -- --
-------- -------- -------- -------- -------- --------
Dividends and
Distributions:
Dividends from net
investment income...... (0.38) (0.28) (0.33) (0.36) (0.36) (0.39)
Distributions from net
realized gains......... -- (0.13) (0.46) (0.48) (0.24) (0.45)
Distributions from
capital paid-in........ -- (0.41) (0.05) -- (0.24) --
-------- -------- -------- -------- -------- --------
Total Dividends and
Distributions.......... (0.38) (0.82) (0.84) (0.84) (0.84) (0.84)
-------- -------- -------- -------- -------- --------
Effect on net asset
value as a result of
rights offering*....... -- -- (0.06) -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................ $ 7.62 $ 7.89 $ 8.43 $ 8.61 $ 8.29 $ 8.63
======== ======== ======== ======== ======== ========
Market value, end of
period**.............. $ 6.63 $ 6.50 $ 8.88 $ 9.44 $ 8.00 $ 8.63
======== ======== ======== ======== ======== ========
Total investment
return***.............. 7.94% (18.72)% 4.49% 30.22% 2.62% 19.19%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data
Net assets, end of
period (in thousands).. $690,495 $714,637 $757,212 $677,133 $638,768 $647,523
Ratio of expenses to
average net assets..... 0.97%**** 0.97% 0.97% 1.04% 1.03% 1.10%
Ratio of net investment
income to average net
assets................. 4.04%**** 3.50% 3.88% 4.30% 4.31% 4.59%
Portfolio turnover rate. 80.7% 172.3% 87.9% 104.7% 147.2% 179.8%
</TABLE>
--------
* Shares were sold at a 5% discount from the average market price.
** Closing Price -- New York Stock Exchange.
*** Total investment return is calculated assuming a purchase of common stock
on the opening of the first business day and a sale on the closing of the
last business day of each period reported. Dividends and distributions, if
any, are assumed for the purposes of this calculation, to be reinvested at
prices obtained under the Fund's Distribution Reinvestment and Cash
Purchase Plan. Generally, total investment return based on net asset value
will be higher than total investment return based on market value in
periods where there is an increase in the discount or a decrease in the
premium of the market value to the net assets from the beginning to the end
of such years. Conversely, total investment return based on net asset value
will be lower than total investment return based on market value in periods
where there is a decrease in the discount or an increase in the premium of
the market value to the net asset value from the beginning to end of such
periods.
**** Annualized.
17
<PAGE>
SUPPLEMENTARY PROXY INFORMATION
The Annual Meeting of Shareholders of The Zweig Total Return Fund, Inc. was
held on May 22, 2000. The meeting was held for the purpose of electing Charles
H. Brunie and James B. Rogers, Jr. as Directors, to ratify
PricewaterhouseCoopers LLP as the Fund's independent accountants for the year
ending December 31, 2000 and to vote on a proposal to convert the Fund to an
open-end investment company. The Fund's other Directors who continue in office
are Elliot S. Jaffe, Alden C. Olson and Martin Zweig.
The results of the above matters were as follows:
<TABLE>
<CAPTION>
Directors/Independent Votes Votes
Accountants Votes For Against Withheld Abstentions
--------------------- ---------- ---------- --------- ------------------
<S> <C> <C> <C> <C>
Charles H. Brunie....... 76,544,990 N/A 1,565,116 N/A
James B. Rogers, Jr..... 76,487,077 N/A 1,623,029 N/A
PricewaterhouseCoopers
LLP.................... 76,649,261 764,729 -- 696,116
Proposal to convert to an open-end investment company:
<CAPTION>
Votes Votes Abstentions/Broker
Votes For Against Withheld Non-Votes
---------- ---------- --------- ------------------
<S> <C> <C> <C> <C>
8,754,221 26,752,906 -- 42,602,979
</TABLE>
-------------------------------------------------------------------------------
KEY INFORMATION
1-800-272-2700 Zweig Shareholder Relations:
For general information and literature
1-800-272-2700 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.
18
<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
Nancy J. Engberg
Secretary
Elliot S. Jaffe
Director
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
Investment Adviser
Phoenix/Zweig Advisers LLC
900 Third Avenue
New York, NY 10022
Fund Administrator
Phoenix Equity Planning Corp.
100 Bright Meadow Boulevard
PO Box 2200
Enfield, CT 06083-2200
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer Agent
State Street Bank & Trust Co.
c/o EquiServe
PO Box 8040
Boston, MA 02266
Legal Counsel
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 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.
PXP 1376 3206-SEM 06/00
Semiannual Report
Zweig
The Zweig Total Return Fund, Inc.
June 30, 2000
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INVESTMENT PARTNERS
