-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BljzbPjfnkL+vhrXIOZ6ewYtVjMtfShQnrQpfrFvNlkkNc2amIhhdFtP1yo3XguE D+h+Kh0Fb9Y8R95iXGuvrg== 0000940180-96-000348.txt : 19960812 0000940180-96-000348.hdr.sgml : 19960812 ACCESSION NUMBER: 0000940180-96-000348 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZWEIG TOTAL RETURN FUND INC CENTRAL INDEX KEY: 0000836412 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133474242 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05620 FILM NUMBER: 96607000 BUSINESS ADDRESS: STREET 1: 5 HANOVER SQUARE CITY: NEW YORK STATE: NY ZIP: 10004 BUSINESS PHONE: 2125100360 MAIL ADDRESS: STREET 1: 5 HANOVER SQUARE CITY: NEW YORK STATE: NY ZIP: 10004 N-30D 1 SEMI-ANNUAL REPORT August 1, 1996 Dear Shareholder: The Zweig Total Return Fund's net asset value for the three months ended June 30, 1996, increased 0.5%, including $0.21 per share in reinvested distributions. For the six months ended June 30, 1996, the Fund's net asset value increased 0.4%, including $0.42 in reinvested distributions. Consistent with our policy of trying to minimize risk while earning reasonable returns, our average overall exposure during the first half of 1996 was approximately 79%. In evaluating our performance, it is important to note that we were very conservative in our approach. This was especially true in the latter part of the first half. As our indicators deteriorated and pointed to rising risks for stocks and bonds, we scaled back our exposure. This conservative stance served us well in late June and July when the market caught up with our indicators. 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 26, 1996 to shareholders of record on August 12, 1996. 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 total payout since its inception is now $7.19. MARKET OUTLOOK The first half of 1996 was fine for stocks but dismal for bonds. U.S. bonds had a negative return of 9% for the period as measured by the bellwether 30- year Treasury Bond. At the end of the second quarter our bond holdings were at 44% compared with 49% on March 31. Since our fully invested position for bonds would be at 62 1/2%, we were at about 71% of a full position (44%/62 1/2%). While our percentage of assets committed to bonds declined, the actual duration of our bonds increased from 3.5 to 4 years. In other words, the bonds held have a greater length of time until maturity. We increased the length of our maturity because our bond model improved. Although bond yields rose from 5.95% in December to better than 7.17% in early July, they haven't changed much in recent weeks and are currently at about 7%. Short-term rates also have not moved much. The biggest positive for bonds is that inflation is low. This is reflected in the price indices compiled by the Journal of Commerce, the Commodity Research Bureau and Goldman Sachs. The weakness in cyclical stocks is also a positive in our bond model. In addition to price trends, economic activity is a prime indicator for bonds and here the reading is negative. These indicators include capacity utilization, unemployment claims, retail sales, consumer confidence, home sales and rail traffic. Each day brings new readings on the economy and the models have to be adjusted constantly. On the whole I see more positives than negatives for bonds at this writing and my bond model reads high neutral. Our equity holdings were at 24% at the end of the second quarter against 32% on March 31. With full investment in stocks at 37 1/2% for our Fund, we were at about 64% of a full position (24%/37 1/2%). This is roughly in line with my low neutral reading for stocks. PORTFOLIO COMPOSITION In conformance with our investment policy guidelines, all of our bonds are U.S. Government obligations. As mentioned earlier, the average duration of the bond portion of our Fund is 4 years. To implement my basic allocation strategy, the majority of our stocks are bought or sold on the basis of a proprietary computer-driven model that uses various criteria to evaluate and rank the most liquid stocks with the highest dividend yields. The composition of our leading industry groups showed little change in the second quarter. As of June 30, utilities was our largest sector, followed by oils and telecommunications. With brokerage firms continuing to rank well, financial services has moved into our top tier. It replaces metals, a sector in which we have reduced our positions. Although we have cut back our holdings in chemicals and paper and forest products, these two groups still retain prominent positions in our portfolio. We have trimmed our holdings in Union Carbide, Reynolds Metals and Phelps Dodge and sold out our positions in Occidental Petroleum and Aluminium Co. of America. At the quarter's end, our leading individual positions included Sprint, BankAmerica, duPont, NYNEX, Telefonica de Espana, Texaco, United Technologies, CSX Corp., General Motors-Class H, and Salomon. All of these companies were in our portfolio at the end of the first quarter. Sincerely, /s/ Martin E. Zweig Martin E. Zweig, Ph.D. Chairman 2 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS JUNE 30, 1996 (UNAUDITED)
NUMBER OF VALUE SHARES (NOTE 1) ----------- ------------ Common Stocks 28.42% Aerospace & Defense 1.43% General Motors Corp., Class H....................... 47,400 $ 2,849,925 Sundstrand Corp. ................................... 40,400 1,479,650 Textron, Inc. ...................................... 20,000 1,597,500 United Technologies Corp. .......................... 26,600 3,059,000 ------------ 8,986,075 ------------ Automotive 0.41% Chrysler Corp. ..................................... 41,100 2,548,200 ------------ Banks 0.86% BankAmerica Corp. .................................. 45,400 3,439,050 Chase Manhattan Corp. .............................. 14,000 988,750 City National Corp. ................................ 13,700 215,775 TCF Financial Corp. ................................ 16,500 548,625 Washington Mutual, Inc. ............................ 6,900 206,138 ------------ 5,398,338 ------------ Chemicals 2.12% Dow Chemical Co. ................................... 16,500 1,254,000 du Pont (E.I.) de Nemours & Co. .................... 40,500 3,204,562 Goodrich (B.F.) & Co. .............................. 40,900 1,528,638 Imperial Chemical Industries Plc, ADR............... 27,200 1,336,200 Olin Corp. ......................................... 20,900 1,865,325 Rohm & Haas Co. .................................... 42,400 2,660,600 Union Carbide Corp. ................................ 35,900 1,427,025 ------------ 13,276,350 ------------ Conglomerates 0.39% Hanson Plc, ADR..................................... 79,000 1,125,750 Xerox Corp. ........................................ 24,600 1,316,100 ------------ 2,441,850 ------------ Construction & Farm Equipment 0.29% Deere & Co. ........................................ 45,600 1,824,000 ------------ Consumer Durables 0.42% Goodyear Tire & Rubber Co. ......................... 54,500 2,629,625 ------------ Containers & Packaging 0.03% Sea Container LTD., Class A......................... 9,400 178,600 ------------ Finance & Financial Services 1.69% Alex Brown Inc. .................................... 10,000 565,000 American Bankers Insurance Group, Inc. ............. 11,500 501,688 Bear Stearns & Co., Inc. ........................... 84,840 2,004,345 Edwards, (A.G.) & Sons, Inc. ....................... 60,100 1,630,212 Fremont General Corp. .............................. 19,600 450,800 Merrill Lynch & Co., Inc. .......................... 33,000 2,149,125 PHH Corp. .......................................... 10,000 570,000 Salomon Inc. ....................................... 62,500 2,750,000 ------------ 10,621,170 ------------
3 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONTINUED) JUNE 30, 1996 (UNAUDITED)
NUMBER OF VALUE SHARES (NOTE 1) ----------- ------------ Food & Beverage 0.09% Adolph Coors Co., Class B........................... 30,300 $ 541,613 ------------ Investment Companies 1.31% Blackrock 2001 Term Trust, Inc. .................... 29,000 221,125 Blackrock Strategic Term Trust, Inc. ............... 29,000 221,125 Central European Equity Fund........................ 6,900 123,338 Clemente Global Growth Fund, Inc. .................. 13,100 109,713 Emerging Germany Fund, Inc. ........................ 42,100 310,487 Emerging Markets Infrastructure, Inc. .............. 14,200 161,525 Emerging Markets Telecommunications Fund, Inc. ..... 4,800 86,400 Emerging Mexico Fund, Inc. ......................... 6,900 48,300 Europe Fund, Inc. .................................. 17,000 242,250 First Iberian Fund, Inc. ........................... 6,900 60,806 First Israel Fund, Inc. ............................ 12,000 138,000 France Growth Fund, Inc. ........................... 21,900 224,475 G.T. Global Eastern Europe Fund..................... 36,400 482,300 Gabelli Equity Trust, Inc. ......................... 47,300 455,263 Gabelli Global Multimedia Trust Fund, Inc. ......... 37,400 261,800 Global Health Sciences Fund, Inc. .................. 41,400 729,675 John Hancock Bank & Thrift Opportunity Fund......... 21,400 497,550 Liberty All-Star Growth Fund, Inc. ................. 20,200 194,425 Morgan Grenfell Small Cap Fund, Inc. ............... 17,833 185,017 New Age Media Fund, Inc. ........................... 17,300 263,825 New Germany Fund, Inc. ............................. 62,200 785,275 Pilgrim Regional Bank Shares, Inc. ................. 20,100 253,763 Royce Value Trust, Inc. ............................ 29,560 365,805 Scudder New Europe Fund, Inc. ...................... 26,900 339,612 Spain Fund, Inc. ................................... 14,400 142,200 Swiss Helvetia Fund, Inc. .......................... 34,600 735,250 Templeton China World Fund.......................... 5,200 57,200 Templeton Dragon Fund, Inc. ........................ 6,900 91,425 Tri-Continental Corp. .............................. 18,800 451,200 ------------ 8,239,129 ------------ Manufacturing 0.62% Duriron Co., Inc. .................................. 8,900 213,600 Harsco Corp. ....................................... 5,800 390,050 Johnson Controls, Inc. ............................. 10,400 722,800 Miller (Herman), Inc. .............................. 26,900 823,813 TRW, Inc. .......................................... 19,000 1,707,625 ------------ 3,857,888 ------------ Metals & Mining 0.98% British Steel, Plc., ADR............................ 57,600 1,461,600 M.A. Hanna Mining Co. .............................. 30,000 626,250 Oregon Steel Mills Inc. ............................ 46,300 636,625 Phelps Dodge Corp. ................................. 27,000 1,684,125 Reynolds Metals Co. ................................ 31,300 1,631,513 ------------ 6,040,113 ------------
4
NUMBER OF VALUE SHARES (NOTE 1) ----------- ------------ Oil & Oil Services 4.05% Ashland Oil Inc. ............................... 24,900 $ 986,662 British Petroleum Co., PLC, ADR................. 19,800 2,116,125 Chevron Corp. .................................. 6,800 401,200 Elf Aquitaine, ADR.............................. 46,100 1,694,175 Helmerich & Payne, Inc. ........................ 21,400 783,775 Kerr-McGee Corp. ............................... 31,000 1,887,125 Mobil Corp. .................................... 23,000 2,578,875 Pennzoil Co. ................................... 24,000 1,110,000 Philips Petroleum Co. .......................... 61,000 2,554,375 Quaker State Corp. ............................. 31,400 471,000 Repsol S.A., ADR................................ 51,700 1,796,575 Texaco Inc. .................................... 37,200 3,120,150 Tosco Corp. .................................... 33,400 1,678,350 Unocal Corp. ................................... 48,700 1,643,625 USX-Marathon Group, Inc. ....................... 126,600 2,547,825 ------------ 25,369,837 ------------ Paper & Forest Products 1.33% Boise Cascade Corp. ............................ 17,300 633,612 Bowater, Inc. .................................. 61,500 2,313,938 Consolidated Papers, Inc. ...................... 24,700 1,284,400 International Paper Co. ........................ 30,800 1,135,750 James River Corp. of Virginia................... 45,500 1,200,063 Rayonier Inc. .................................. 22,200 843,600 Westvaco Corp. ................................. 29,950 894,756 ------------ 8,306,119 ------------ Retail Trade & Services 1.41% American Stores Co. ............................ 52,800 2,178,000 Dayton Hudson Inc. ............................. 16,300 1,680,937 Mercantile Stores Inc. ......................... 2,500 146,563 Ross Stores, Inc. .............................. 18,500 642,875 Smith's Food & Drug Centers Inc. ............... 10,380 247,822 Supervalue Inc. ................................ 40,700 1,282,050 TJX Companies Inc. ............................. 78,200 2,639,250 ------------ 8,817,497 ------------ Technology 1.63% Applied Materials, Inc.......................... 11,600 (a) 353,800 Dell Computer Corp. ............................ 20,400 (a) 1,037,850 Digital Equipment Corp. ........................ 32,300 (a) 1,453,500 EG&G Inc. ...................................... 20,300 433,912 Harris Corp. ................................... 36,700 2,238,700 Intel Corp. .................................... 12,800 940,000 International Business Machines Corp. .......... 20,500 2,029,500 Microsoft Corp. ................................ 14,600 (a) 1,753,825 ------------ 10,241,087 ------------ Telecommunications 3.02% BCE Inc. ....................................... 28,400 1,121,800 Cincinnati Bell Inc. ........................... 18,700 974,737
5 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONTINUED) JUNE 30, 1996 (UNAUDITED)
NUMBER OF VALUE SHARES (NOTE 1) ----------- ------------ Telecommunications--(Continued) GTE Corp. .......................................... 36,300 $ 1,624,425 NYNEX Corp. ........................................ 72,500 3,443,750 Sprint Corp. ....................................... 101,300 4,254,600 Telefonica de Espana S.A., ADS...................... 57,900 3,191,738 Telefonos de Mexico S.A., ADS....................... 68,100 2,281,350 U.S. West Inc. ..................................... 63,700 2,030,437 ------------ 18,922,837 ------------ Tobacco 0.35% RJR Nabisco Holdings Corp. ......................... 70,700 2,191,700 ------------ Transportation 0.64% British Airways PLC, ADR............................ 8,100 694,575 CSX Corp. .......................................... 62,600 3,020,450 KLM Royal Dutch Airlines, Inc. ..................... 10,100 320,675 ------------ 4,035,700 ------------ Utilities--Electric & Natural Gas 5.37% Allegheny Power Systems, Inc. ...................... 17,000 524,875 American Electric Power Co., Inc. .................. 55,100 2,348,638 Baltimore Gas & Electric Co. ....................... 13,700 388,737 Carolina Power & Light Co., Inc. ................... 41,500 1,577,000 CINergy Corp. ...................................... 55,600 1,779,200 CMS Energy Corp. ................................... 29,400 907,725 Dominion Resources Inc. ............................ 13,800 552,000 DQE Inc. ........................................... 37,250 1,024,375 DTE Energy Co. ..................................... 31,800 981,825 Eastern Enterprises................................. 10,500 349,125 Edison International Inc. .......................... 54,800 965,850 El Paso Natural Gas Co. ............................ 15,100 581,350 Enova Corp. ........................................ 36,200 837,125 Entergy Corp. ...................................... 17,900 507,912 General Public Utilities Corp. ..................... 46,500 1,639,125 Illinova Corp. ..................................... 40,500 1,164,375 MCN Corp. .......................................... 39,100 953,063 New England Electric Systems, Inc. ................. 21,600 785,700 New York State Gas & Electric Co. .................. 7,400 180,375 NIPSCO Industries, Inc. ............................ 33,000 1,328,250 NorAm Energy Corp. ................................. 121,911 1,325,663 Pacificorp.......................................... 28,600 636,350 PanEnergy Corp. .................................... 61,000 2,005,375 Pinnacle West Capital Corp. ........................ 36,100 1,096,538 Portland General Corp. ............................. 85,500 2,639,812 Texas Utilities Co. ................................ 55,700 2,381,175 Transcanada Pipeline Ltd. .......................... 56,700 836,325 Unicom Corp. ....................................... 80,600 2,246,725 United Illuminating Co. ............................ 6,500 242,937 Western Resources Inc. ............................. 29,500 881,312 ------------ 33,668,837 ------------ Total Common Stocks (Cost $163,827,447)............................... 178,136,565 ------------
6
PRINCIPAL AMOUNT/ NUMBER OF VALUE CONTRACTS (NOTE 1) ----------- ------------ United States Government & Agency Obligations 43.95% Federal National Mortgage Association, 6.85%, 4/5/2004....................................... $10,385,000 $ 10,321,174 United States Treasury Bills, 5.12%, 10/31/1996. 2,000,000 1,965,296 United States Treasury Bonds, 10.75%, 5/15/2003. 15,000,000 18,379,665 United States Treasury Bonds, 7.25%, 8/15/2022.. 26,000,000 26,650,000 United States Treasury Bonds, 7.50%, 11/15/2024. 27,600,000 29,264,583 United States Treasury Bonds, 7.50%, 2/15/2025.. 18,800,000 20,274,597 United States Treasury Bonds, 6.875%, 8/15/2025. 24,600,000 24,346,276 United States Treasury Notes, 6.25%, 8/31/2000.. 85,300,000 (b) 84,740,091 United States Treasury Notes, 5.625%, 11/30/2000..................................... 19,745,000 19,115,628 United States Treasury Notes, 7.50%, 2/15/2005.. 31,300,000 32,923,687 United States Treasury Notes, 6.50%, 5/15/2005.. 7,600,000 7,495,500 ------------ Total United States Government & Agency Obligations (Cost $279,946,384)............... 275,476,497 ------------ Short-Term Investments 28.77% AT&T Capital Corp., 5.33%, 7/22/96.............. 10,000,000 9,968,908 Bell Atlantic Network Funding, 5.34%, 7/12/96... 13,900,000 13,877,320 Exxon Imperial Inc., 5.40%, 7/3/96.............. 14,000,000 13,995,800 Ford Motor Credit Co., 5.36%, 7/3/96............ 11,000,000 10,996,724 Gannett Co., 5.35%, 7/24/96..................... 25,000,000 24,914,549 Lilly, Eli & Co., 5.33%, 7/1/96................. 20,000,000 20,000,000 Lucent Technologies Corp., 5.32%, 7/9/96........ 19,600,000 19,576,828 Merrill Lynch & Co., Inc., 5.34%, 7/2/96........ 11,500,000 11,498,294 Merrill Lynch & Co., Inc., 5.39%, 7/8/96........ 12,100,000 12,087,319 Minnesota Mining & Manufacturing Inc., 5.32%, 7/9/96......................................... 23,500,000 23,472,218 Philip Morris Capital Corp., 5.33%, 7/12/96..... 7,400,000 7,387,948 Smithkline Beecham Corp., 5.33%, 7/17/96........ 12,600,000 12,570,152 ------------ Total Short-Term Investments (Cost $180,346,060)........................... 180,346,060 ------------ Net Unrealized Depreciation on Futures Contracts (0.04)% Standard and Poor's 500 Index, September 1996 Short futures.................................. (91)(c) (231,231) ------------ Total Investments (Cost $624,119,892)........... 101.10% 633,727,891 Liabilities, in excess of Cash and Other Assets. (1.10) (6,864,252) ----------- ------------ Net Assets (Equivalent to $8.24 per share based on 76,049,799 shares of capital stock outstanding)................................... 100.00% $626,863,639 =========== ============
- -------- (a) Non-income producing security. (b) $2,000,000 of this security has been pledged as collateral for futures transactions. (c) The market value of the short futures was $30,794,400 (representing 4.91% of the Fund's net assets) with a cost of $30,563,169. For Federal income tax purposes, the tax basis of investments owned at June 30, 1996 was $624,167,525 and unrealized appreciation on investments consisted of: Gross unrealized appreciation.... $16,544,869 Gross unrealized depreciation.... (6,984,503) ----------- Net unrealized appreciation...... $ 9,560,366 ===========
See notes to financial statements. 7 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS: Investments, at value (identified cost $624,119,892)............ $633,959,122 Cash............................................................ 616,246 Dividends and interest receivable............................... 5,982,714 Deposit at broker for short sales............................... 1,141,280 Prepaid expenses................................................ 15,743 Receivable for investments sold................................. 1,879,592 ------------ Total Assets.................................................. 643,594,697 ------------ LIABILITIES: Payable for investments purchased............................... 16,147,577 Variation margin for futures contracts.......................... 170,625 Accrued advisory fees (Note 3).................................. 356,835 Other accrued expenses.......................................... 56,021 ------------ Total Liabilities............................................. 16,731,058 ------------ NET ASSETS........................................................ $626,863,639 ============ NET ASSET VALUE, PER SHARE: ($626,863,639 / 76,049,799 shares outstanding--Note 4).......... $8.24 ===== Net Assets consist of: Capital paid-in................................................. $617,255,640 Net unrealized appreciation on investments...................... 9,607,999 ------------ Total Net Assets.............................................. $626,863,639 ============
- -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) Investment Income: Income: Interest....................................................... $ 13,176,119 Dividends...................................................... 3,293,910 ------------ Total Income................................................. 16,470,029 ------------ Expenses: Investment advisory fees (Note 3).............................. 2,208,494 Administration fees (Note 3)................................... 410,149 Custodian fees................................................. 15,384 Transfer agent fees............................................ 156,903 Printing and postage expenses.................................. 237,600 Professional fees (Note 3)..................................... 41,940 Directors' fees and expenses (Note 3).......................... 37,500 Miscellaneous expense.......................................... 41,295 ------------ Total Expenses............................................... 3,149,265 ------------ Net Investment Income...................................... 13,320,764 ------------ Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) on investments (Note 2): Securities transactions........................................ 12,996,389 Futures transactions........................................... (948,768) ------------ Net realized gain on investments........................... 12,047,621 Decrease in unrealized appreciation on investments.............. (22,681,595) ------------ Net realized and unrealized loss on investments............ (10,633,974) ------------ Net increase in net assets resulting from operations....... $ 2,686,790 ============
See notes to financial statements. 8 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995 ------------- ----------------- Increase (Decrease) in Net Assets: Operations: Net investment income........................ $ 13,320,764 $ 28,405,525 Net realized gain on investments............. 12,047,621 36,959,802 Increase (decrease) in unrealized appreciation on investments................. (22,681,595) 34,955,020 ------------ ------------ Net increase in net assets resulting from operations................................ 2,686,790 100,320,347 ------------ ------------ Dividends and distributions to shareholders from: Net investment income........................ (13,320,764) (28,405,525) Net realized gains on investments............ (12,424,483) (33,688,432) Capital paid-in.............................. (5,948,885) -- ------------ ------------ Total dividends and distributions to shareholders.............................. (31,694,132) (62,093,957) ------------ ------------ 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 (Note 4)............................ 8,347,566 17,638,187 ------------ ------------ Net increase (decrease) in net assets......... (20,659,776) 55,864,577 Net Assets: Beginning of period........................... 647,523,415 591,658,838 ------------ ------------ End of period................................. $626,863,639 $647,523,415 ============ ============
See notes to financial statements. 9 THE ZWEIG TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES The Zweig Total Return Fund, Inc. (the "Fund") is a closed-end, diversified management investment company registered under the Investment Company Act of 1940 (the "Act"). The Fund was incorporated under the laws of the State of Maryland on July 21, 1988. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. A. Portfolio Valuation Portfolio securities which are traded only on stock exchanges are valued at the last sale price. Securities traded in the over-the-counter market which are National Market System securities are valued at the last sale price. Other over-the-counter securities are valued at the most recently quoted bid price provided by the principal market makers. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market, as determined by the Investment Adviser. Debt securities may be valued on the basis of prices provided by an independent pricing service when such prices are believed by the Investment Adviser to reflect the fair market value of such securities. Short-term investments having a remaining maturity of 60 days or less when purchased, are valued at amortized cost. Futures which are traded on commodities exchanges are valued at their closing settlement price on such exchange. Securities for which market quotations are not readily available, and other assets, if any, are valued at fair market value as determined in good faith by or under the direction of the Board of Directors of the Fund. B. Security Transactions and Investment Income Security transactions are recorded on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Realized gains and losses on sales of investments are determined on the identified cost basis for accounting and tax purposes. C. Futures Contracts Initial margin deposits made upon entering into futures contracts are recognized as assets due from the broker (the Fund's agent in acquiring the futures position). During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by marking the contract to market on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received and recognized as assets due from or liabilities due to the broker, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. 10 The Fund may purchase and sell interest rate, stock index and other futures contracts based upon other financial instruments, and the Fund may purchase and sell stock index options, for hedging purposes. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in value of the hedged investments. Therefore, anticipated gains may not result and anticipated losses may not be offset. In addition, as no secondary market exists for futures contracts, there is no assurance that there will be an active market at any particular time. D. Short Sales The Fund may engage in short sales of securities. 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. When the Fund engages in a short sale, the proceeds it receives are retained by the broker until the Fund replaces the borrowed security. 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. 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 this period, the Fund will realize a gain. Any gain will be decreased, and any incurred loss increased, by the amount of transaction costs. Dividends or interest which the Fund may have to pay in connection with such short sales are recorded as expenses. While the short sales are outstanding, the Fund pledges cash and securities to cover its margin requirements. At June 30, 1996, cash of $1,141,280 was on deposit in an interest-bearing account with a broker to cover any short sales the Fund may enter into. E. Federal Income Tax The Fund has elected to qualify and intends to remain qualified as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended. The principal tax benefits of qualifying as a regulated investment company as compared to an ordinary taxable corporation, are that a regulated investment company is not itself subject to Federal income tax on ordinary investment income and net capital gains that are currently distributed (or deemed distributed) to its shareholders and that the tax character of long-term capital gains recognized by a regulated investment company flows through to its shareholders who receive distributions of such gains. 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 11 THE ZWEIG TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) JUNE 30, 1996 (UNAUDITED) dividends and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to timing differences and differing characterization of distributions made by the Fund as a whole. NOTE 2--PORTFOLIO TRANSACTIONS During the six months ended June 30, 1996, the Fund entered into purchase and sale transactions excluding short term investments and futures transactions as follows: Cost of Purchases............................................ $615,446,069 ============ Proceeds from Sales.......................................... $701,682,969 ============
NOTE 3--INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES a) Investment Advisory Fees: The Investment Advisory Agreement (the "Advisory Agreement") between the Investment Adviser, Zweig Total Return Advisors, Inc., and the Fund provides that, subject to the direction of the Board of Directors of the Fund and the applicable provisions of the Act, the Investment Adviser is responsible for the actual management of the Fund's portfolio. The responsibility for making decisions to buy, sell or hold a particular investment rests with the Investment Adviser, subject to review by the Board of Directors and the applicable provisions of the Act. Certain directors and officers of the Fund are also directors and officers of the Investment Adviser. For the services provided by the Investment Adviser under the Advisory Agreement, the Fund pays the Investment Adviser a monthly fee equal, on an annual basis, to 0.70% of the Fund's average daily net assets. During the six months ended June 30, 1996, the Fund accrued advisory fees of $2,208,494. b) Administration Fees: Zweig/Glaser Advisers serves as the Fund's Administrator pursuant to an Administration Agreement with the Fund. Under such Agreement, the Administrator generally assists in all aspects of the Fund's operations, other than providing investment advice, subject to the overall authority of the Fund's Board of Directors. The Administrator determines the Fund's net asset value daily, prepares such figures for publication on a weekly basis, maintains certain of the Fund's books and records that are not maintained by the Investment Adviser, custodian or transfer agent, assists in the preparation of financial information for the Fund's income tax returns, proxy statements, quarterly and annual shareholder reports, and responds to shareholder inquiries. Under the terms of the Agreement, the Fund pays the Administrator a monthly fee equal, on an annual basis, to 0.13% of the Fund's average daily net assets. During the six months ended June 30, 1996, the Fund accrued administration fees of $410,149. c) Directors Fees: The Fund pays each Director who is not an interested person of the Fund or the Investment Adviser a fee of $10,000 per year plus $1,500 per Directors' or committee meeting attended, together with out-of- pocket costs relating to attendance at such meetings. The Directors of the Fund who are interested persons of the Fund or the Investment Adviser receive no remuneration from the Fund. 12 d) Legal Fees: The Fund accrued legal fees of $11,340 during the six months ended June 30, 1996, for the services of Rosenman & Colin, LLP, of which Robert E. Smith, Director of the Fund, is a partner. e) Brokerage Commissions: During the six months ended June 30, 1996, the Fund paid Zweig Securities Corp. brokerage commissions of $13,385 in connection with portfolio transactions effected through them. NOTE 4--CAPITAL STOCK AND REINVESTMENT PLAN At June 30, 1996, the Fund has one class of common stock, par value $.001 per share of which 500,000,000 shares are authorized and 76,049,799 shares are outstanding. For the six months ended June 30, 1996 and the year ended December 31, 1995, 997,142 and 2,116,190 shares, respectively, were issued in accordance with the Fund's Distribution Reinvestment Plan (the "Plan"). Pursuant to the Plan, all shareholders whose shares are registered in their own names will have all distributions reinvested automatically in additional shares of the Fund by First Data Investor Services Group, Inc. ("First Data"), as the Plan agent, unless a shareholder elects to receive cash. Shareholders whose shares are held in the name of a broker or nominee will have distributions reinvested automatically by the broker or the nominee in additional shares under the Plan, unless the service is not provided by the broker or the nominee or the shareholder elects to receive distributions in cash. If the service is not available, such distributions will be paid in cash. All distributions to investors who elect not to participate (or whose broker or nominee elects not to participate) in the Plan will be paid by check mailed directly to the record holder by or under the direction of First Data, as the dividend paying agent. 13 THE ZWEIG TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) JUNE 30, 1996 (UNAUDITED) NOTE 5--FINANCIAL HIGHLIGHTS Selected data for a share outstanding throughout each period:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------- 1996 1995 1994 1993 1992 1991 --------------------- -------- -------- -------- -------- PER SHARE DATA Net asset value, beginning of period..... $ 8.63 $ 8.11 $ 9.11 $ 9.06 $ 9.79 $ 9.02 --------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net investment income.... 0.18 0.39 0.29 0.26 0.32 0.44 Net realized and unrealized gains (losses) on investments. (0.15) 0.97 (0.43) 0.75 (0.09) 1.29 --------- -------- -------- -------- -------- -------- Total from investment operations.............. 0.03 1.36 (0.14) 1.01 0.23 1.73 --------- -------- -------- -------- -------- -------- Less Dividends and Distributions: Dividends from net investment income....... (0.18) (0.39) (0.29) (0.26) (0.32) (0.43) Distributions from net realized gains on investments............. (0.16) (0.45) -- (0.70) (0.30) (0.53) Distributions from capital paid-in......... (0.08) -- (0.57) -- (0.34) -- --------- -------- -------- -------- -------- -------- Total dividends and distributions........... (0.84) (0.86) (0.96) (0.96) (0.96) (0.42) --------- -------- -------- -------- -------- -------- Net asset value, end of period................ $ 8.24 $ 8.63 $ 8.11 $ 9.11 $ 9.06 $ 9.79 $ 8.24 ========= ======== ======== ======== ======== ======== Market value, end of period**.............. $ 8.63 $ 8.00 $ 10.75 $ 10.00 $ 10.63 $ 8.50 ========= ======== ======== ======== ======== ======== Total investment return.. 3.60% 19.19% (17.08)% 18.37% 2.60% 37.90% ========= ======== ======== ======== ======== ======== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands).......... $ 626,864 $647,523 $591,659 $648,516 $624,097 $648,118 Ratio of expenses to average net assets...... 1.06%* 1.10% 1.12% 1.12% 1.13% 1.11% Ratio of net investment income to average net assets.................. 4.20%* 4.59% 3.35% 2.85% 3.43% 4.74% Portfolio turnover rate.. 142.0% 179.8% 281.0% 293.0% 123.2% 148.6%
- -------- * Annualized. ** Closing Price--New York Stock Exchange. NOTE 6--SELECTED QUARTERLY FINANCIAL DATA Shown in thousands of dollars and per common share:
NET INCREASE NET REALIZED (DECREASE) TOTAL NET AND UNREALIZED IN NET ASSETS INVESTMENT INVESTMENT GAIN (LOSS) ON RESULTING FROM INCOME INCOME INVESTMENTS OPERATIONS ------------ ------------ --------------- --------------- 1996--Quarter Ended 06/30/96......... $8,196 $0.11 $6,604 $0.09 $(3,472) $(0.05) $ 3,132 $ 0.04 03/31/96......... 8,274 0.11 6,717 0.09 (7,162) (0.10) (445) (0.01) 1995--Quarter Ended 12/31/95......... $8,754 $0.12 $7,193 $0.10 $17,834 $ 0.24 $25,028 $ 0.34 09/30/95......... 8,480 0.11 6,642 0.09 10,517 0.14 17,159 0.23 06/30/95......... 8,895 0.12 7,063 0.10 28,784 0.39 35,847 0.49 03/31/95......... 9,084 0.12 7,506 0.10 14,780 0.20 22,286 0.30 1994--Quarter Ended 12/31/94......... 8,182 .11 6,397 .09 (1,810) (.03) 4,587 .06 09/30/94......... 7,312 .10 5,637 .08 131 .00 5,768 .08 06/30/94......... 6,504 .09 4,823 .07 (12,950) (.17) (8,127) (.10) 03/31/94......... 5,395 .08 3,651 .05 (16,560) (.23) (12,909) (.18)
14 SUPPLEMENTARY PROXY INFORMATION The Annual Meeting of Shareholders of The Zweig Total Return Fund, Inc. was held on May 15, 1996. The meeting was held for the purpose of reelecting Elliot S. Jaffe, Alden C. Olson and Robert E. Smith as Directors; and to ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent certified public accountants for the year ending December 31, 1996. The Fund's other Directors who continued in office are Edward S. Babbitt, Jr., Charles H. Brunie, James B. Rogers, Jr., Anthony M. Santomero and Martin E. Zweig. The results of the voting on the above matters were as follows:
VOTES VOTES DIRECTOR/AUDITOR VOTES FOR AGAINST WITHHELD ABSTENTIONS ---------------- ---------- ------- --------- ----------- Elliot S. Jaffe........................ 60,762,691 N/A 1,020,029 N/A Alden C. Olson......................... 60,806,940 N/A 975,780 N/A Robert E. Smith........................ 60,826,964 N/A 955,756 N/A Coopers & Lybrand L.L.P. .............. 60,642,366 402,908 -- 737,446
- ------------------------------------------------------------------------------- KEY INFORMATION 1-800-331-1710 FIRST DATA INVESTOR SERVICES GROUP, INC.: For questions regarding shareholder accounts P.O. Box 1376 Boston, MA 02104 (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 1-800-272-2700 ZWEIG SHAREHOLDER RELATIONS: For general information and literature REINVESTMENT PLAN Many of you have questions about the 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 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 Edward S. Babbitt, Jr. Director Charles H. Brunie Director Elliot S. Jaffe Director Alden C. Olson, Ph.D. Director James B. Rogers, Jr. Director Anthony M. Santomero, Ph.D. Director Robert E. Smith Director INVESTMENT ADVISER Zweig Total Return Advisors, Inc. 900 Third Avenue New York, New York 10022 FUND ADMINISTRATOR Zweig/Glaser Advisers 5 Hanover Square New York, New York 10004 CUSTODIAN Boston Safe Deposit and Trust Company One Boston Place Boston, MA 02109 TRANSFER AGENT First Data Investor Services Group, Inc. P.O. Box 1376 Boston, MA 02104 LEGAL COUNSEL Rosenman & Colin LLP 575 Madison Avenue New York, New York 10022 - -------------------------------------------------------------------------------- This report is transmitted to the shareholders of The Zweig Total Return Fund, Inc. for their information. This is not a prospectus, circular or repre- sentation intended for use in the purchase of shares of the Fund or any securi- ties mentioned in this report. LOGO THE ZWEIG TOTAL RETURN FUND, INC. SEMI-ANNUAL REPORT JUNE 30, 1996 -----END PRIVACY-ENHANCED MESSAGE-----