-----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, NMnXfNOkDnxBqjRGm3bt1U5kgwtRb3xXFsjjSVyChuQNtlOl58+QdHdhFH51RLkO +qbRCESDLcHBMVKBvVipsQ== 0000940180-97-000718.txt : 19970819 0000940180-97-000718.hdr.sgml : 19970819 ACCESSION NUMBER: 0000940180-97-000718 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970818 SROS: NYSE SROS: PSE 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: 97665600 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 FORM N-30D 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 Robert E. Smith Director INVESTMENT ADVISER Zweig Total Return Advisors, Inc. 900 Third Avenue New York, New York 10022 FUND ADMINISTRATOR Zweig/Glaser Advisers 900 Third Avenue New York, New York 10022 CUSTODIAN The Bank of New York 48 Wall Street New York, New York 10015 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. 3206-SEM- LOGO OF THE ZWEIG TOTAL RETURN FUND, INC. SEMI-ANNUAL REPORT JUNE 30, 1997 August 1, 1997 Dear Shareholder: The Zweig Total Return Fund's net asset value for the three months ended June 30, 1997, increased 6.1%, including $0.21 per share in reinvested distributions. For the six months ended June 30, 1997, the Fund's net asset value increased 6.2%, including $0.42 in reinvested distributions. Consistent with our policy of trying to minimize risk while earning superior returns over complete market cycles, our average overall exposure during the first half of 1997 was approximately 65%. DISTRIBUTION DECLARED In accordance with our policy of distributing 10% of net asset value per year, which equals 0.83% per month (10% divided by 12 months), the Fund recently announced a distribution of $0.07 per share payable on August 25, 1997, to shareholders of record on August 11, 1997. The amount of a distribution depends on the exact net asset value at the time of declaration. For the August distribution, 0.83% of the Fund's net asset value was equivalent to $0.07 per share. Including this distribution, the Fund's payout since its inception is now $8.03. MARKET OUTLOOK At this writing, our bond exposure is 54% compared with 34% at the close of the first quarter. If we were fully invested, our Fund would be 62 1/2% in bonds and 37 1/2% in stocks. Consequently, at 54%, we are at 87% of a full position (54%/62 1/2%). This reflects my bullish position on bonds. Our duration, or sensitivity to interest rates, is at 6.1 years against 3.7 years on March 31 and significantly higher than the average figure of 4.8 years at most bond funds. The strongest positive for the bond market is the fact that commodity prices are falling with the decline in gold a prime example. The price of gold has been deteriorating rapidly and is now down more than 17% from last year. Although gold has industrial uses, its primary importance is in its monetary and psychological implications. People do not want to own gold when there is disinflation. Historically, when gold has been this negative, it has been good for bonds. Basic industrial material prices in general are also lower, as reported by the Commodity Research Bureau and Goldman Sachs. This includes such key materials as copper, lead, aluminum, and oil. Weakness in commodity prices is a big plus for bonds. Also positive for bonds are the indications that the economy is slowing at the margins. This slowdown has resulted in lower interest rates. In addition, the Federal Reserve, after raising rates in March, decided at its May and July meetings not to tighten further. This gave the bond market a lift. Generally speaking, bond managers are not wildly optimistic. In fact, based on the average duration of their bonds, I would rate them as moderately cautious. I don't see the kind of optimism in the bond market that was visible in late 1993 before we had a huge bear market. Therefore what I see in sentiment is okay for bonds. Another key indicator--momentum--is very positive. Remaining flexible, we would be prepared to sell bonds if the economy strengthens and inflation picks up steam. Meanwhile, our bond indicators are bullish. As far as equities are concerned, the positive market factors include monetary and momentum indicators while sentiment and valuation are negatives. If earnings hold up and the economy keeps growing moderately with inflation in check, I see room for more exuberance on the top side. Our equity position is currently at 33% against 25% on March 31. At 33% we are at 88% of a full position (33%/37 1/2%). This is in accordance with my high neutral to moderately bullish market indicators. PORTFOLIO COMPOSITION In line with my investment policy guidelines, all of our bonds are U.S. Government and Agency obligations. The average duration of the bond portion of our portfolio is about 6.1 years. Since these bonds are liquid, they give us the flexibility to adjust quickly to changing market conditions. To implement my basic allocation strategy, most of our equities are bought or sold on the basis of a proprietary computer-driven model that is weighted toward a value approach with secondary emphasis on growth. We employ various criteria to evaluate and rank the most liquid stocks with the highest dividend yields. There was little change in the composition of our largest industry groups during the second quarter. This listing still includes utilities, oil and oil services, financial services, investment companies, and metals and mining. The only new addition to our top positions is the manufacturing sector, which replaces the automotive category. In the manufacturing group we have benefited from our holdings in Herman Miller and Borg-Warner Automotive. Royal Dutch Petroleum is new to our portfolio and ranks among our largest individual holdings. Other major individual positions include Telefonos de Mexico, Dayton Hudson, USX-Marathon, Bear Stearns, USX-U.S. Steel, Chrysler, Ahmanson, Microsoft, Telefonica de Espana, Harris Corp., and Ford. Among the above, we have increased our holdings in USX-U.S. Steel, Bear Stearns, and Ahmanson and trimmed our position in Dayton Hudson. Other positions that have been reduced include General Motors, Elf-Aquitaine, American Stores, Salomon, Telefonos de Mexico, and General Motors Hughes. Sincerely, /s/ Martin E. Zweig Martin E. Zweig, Ph.D. Chairman 2 THE ZWEIG TOTAL RETURN FUND, INC. SCHEDULE OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
NUMBER OF VALUE SHARES (NOTE 1) --------- ------------ COMMON STOCKS 27.03% AEROSPACE & DEFENSE 0.43% Gencorp Inc. ......................................... 19,800 $ 457,875 General Motors Corp., Class H......................... 41,100 2,373,525 ------------ 2,831,400 ------------ AUTOMOTIVE 1.26% Chrysler Corp. ....................................... 85,000 2,789,063 Ford Motor Co. ....................................... 70,800 2,672,700 General Motors Corp. ................................. 29,000 1,614,937 Volvo AB, ADR......................................... 43,300 1,158,275 ------------ 8,234,975 ------------ CHEMICALS 0.30% Rohm and Haas Co. .................................... 21,500 1,936,344 ------------ CONSTRUCTION & FARM EQUIPMENT 0.30% Caterpillar Inc. ..................................... 18,200 1,954,225 ------------ CONSUMER DURABLES 0.41% Goodyear Tire & Rubber Co. ........................... 39,500 2,500,844 Huffy Corp. .......................................... 13,200 193,050 ------------ 2,693,894 ------------ CONSUMER PRODUCTS 0.14% American Greetings Corp. ............................. 24,000 891,000 ------------ CONTAINERS & PACKAGING 0.04% Sea Containers Ltd., Class A.......................... 12,100 273,763 ------------ ELECTRONICS 0.26% Philips Electronics N.V. ............................. 23,700 1,703,438 ------------ FINANCIAL SERVICES 3.12% A.G. Edwards, & Sons, Inc. ........................... 58,400 2,496,600 American General Corp. ............................... 33,000 1,575,750 Bear, Stearns & Co., Inc. ............................ 89,782 3,069,422 Charter One Financial, Inc. .......................... 12,900 694,987 Fremont General Corp. ................................ 24,300 978,075 GATX Corp. ........................................... 9,100 525,525 H.F. Ahmanson & Co. .................................. 64,600 2,777,800 Lincoln National Corp. ............................... 15,500 997,813 Orion Capital Corp. .................................. 12,700 936,625 PaineWebber Group Inc. ............................... 32,000 1,120,000 RCSB Financial, Inc. ................................. 10,400 497,900
3 THE ZWEIG TOTAL RETURN FUND, INC. SCHEDULE OF INVESTMENTS--(CONTINUED) JUNE 30, 1997 (UNAUDITED)
NUMBER OF VALUE SHARES (NOTE 1) ---------- ------------ FINANCIAL SERVICES (Continued) Ryder System, Inc. .................................. 45,400 $ 1,498,200 Salomon Inc. ........................................ 47,800 2,658,875 Selective Insurance Group, Inc. ..................... 9,800 474,687 ------------ 20,302,259 ------------ FOOD & BEVERAGE 0.31% Adolph Coors Co., Class B............................ 48,300 1,285,988 Chiquita Brands International, Inc. ................. 51,800 712,250 ------------ 1,998,238 ------------ HOME BUILDERS & MATERIALS 0.18% Kaufman & Broad Home Corp. .......................... 44,500 781,531 Lafarge Corp. ....................................... 14,600 357,700 ------------ 1,139,231 ------------ INVESTMENT COMPANIES 1.97% Argentina Fund, Inc. ................................ 12,700 187,325 Blackrock 2001 Term Trust Inc. ...................... 29,000 235,625 Blackrock Strategic Term Trust Inc. ................. 29,000 235,625 Brazil Fund, Inc. ................................... 16,400 504,300 Chile Fund, Inc. .................................... 12,900 337,013 China Fund Inc. ..................................... 18,700 329,587 Clemente Global Growth Fund, Inc. ................... 13,100 131,819 Emerging Markets Infrastructure Fund, Inc. .......... 38,300 524,232 Emerging Mexico Fund, Inc. .......................... 27,900 258,075 Fidelity Advisor Emerging Asia Fund Inc. ............ 13,800 198,375 G.T. Global Developing Markets Fund, Inc. ........... 19,200 270,000 Gabelli Equity Trust Inc. ........................... 50,500 508,156 Gabelli Global Multimedia Trust Fund, Inc. .......... 50,600 382,662 Indonesia Fund, Inc. ................................ 9,100 98,962 Jakarta Growth Fund, Inc. ........................... 10,100 101,000 Mexico Fund, Inc. ................................... 37,100 718,813 Morgan Stanley Asia-Pacific Fund, Inc. .............. 26,000 273,000 Morgan Stanley Russia & New Europe Fund, Inc. ....... 6,400 194,400 New Germany Fund, Inc. .............................. 55,400 872,550 Portgugal Fund, Inc. ................................ 14,800 259,000 R.O.C. Taiwan Fund................................... 65,300 763,193 Royce Value Trust Inc. .............................. 70,160 964,700 Schroder Asian Growth Fund, Inc. .................... 22,018 282,106 Scudder New Asia Fund Inc. .......................... 15,000 219,375 Southern Africa Fund, Inc. .......................... 14,900 264,475 Spain Fund Inc. ..................................... 25,400 368,300 Swiss Helvetia Fund, Inc. ........................... 40,800 1,045,500
4
NUMBER OF VALUE SHARES (NOTE 1) ---------- ------------ INVESTMENT COMPANIES (Continued) Taiwan Fund, Inc. ................................... 30,600 $ 772,650 Templeton China World Fund, Inc. .................... 28,500 397,219 Templeton Dragon Fund, Inc. ......................... 57,900 940,875 Templeton Vietnam Opportunities Fund, Inc. .......... 15,700 195,269 ------------ 12,834,181 ------------ INDUSTRIAL SERVICES 0.09% Ogden Corp. ......................................... 28,400 617,700 ------------ LEISURE 0.34% Brunswick Corp. ..................................... 48,900 1,528,125 Royal Caribbean Cruises Ltd. ........................ 19,500 681,281 ------------ 2,209,406 ------------ LODGING 0.04% Marcus Corp. ........................................ 11,000 270,875 ------------ MANUFACTURING 1.90% Borg-Warner Automotive, Inc. ........................ 18,600 1,005,563 Brown Group, Inc. ................................... 26,000 485,875 Cummins Engine Company, Inc. ........................ 32,500 2,293,281 Dexter Corp. ........................................ 14,900 476,800 Excel Industries, Inc. .............................. 18,000 351,000 Herman Miller, Inc. ................................. 29,200 1,051,200 Johnson Controls Inc. ............................... 26,000 1,067,625 PACCAR Inc. ......................................... 43,600 2,024,675 Simpson Industries, Inc. ............................ 20,300 215,687 Standard Products Co. ............................... 12,200 308,050 Timken Co. .......................................... 34,800 1,237,575 TRW Inc. ............................................ 33,000 1,874,813 ------------ 12,392,144 ------------ METALS & MINING 1.75% ASARCO, Inc. ........................................ 59,400 1,819,125 Birmingham Steel Corp. .............................. 27,600 427,800 British Steel Plc, ADR............................... 69,000 1,742,250 Cleveland-Cliffs Inc. ............................... 6,400 260,800 Cyprus Amax Minerals Co. ............................ 33,500 820,750 Oregon Steel Mills, Inc. ............................ 49,400 984,912 Phelps Dodge Corp. .................................. 27,400 2,334,138 USX-U.S. Steel Group................................. 85,100 2,983,819 ------------ 11,373,594 ------------ OIL & OIL SERVICES 3.45% Ashland Inc. ........................................ 28,200 1,307,775 Elf Aquitaine S.A., ADR.............................. 28,300 1,540,581
5 THE ZWEIG TOTAL RETURN FUND, INC. SCHEDULE OF INVESTMENTS--(CONTINUED) JUNE 30, 1997 (UNAUDITED)
NUMBER OF VALUE SHARES (NOTE 1) ---------- ------------ OIL & OIL SERVICES (Continued) Helmerich & Payne, Inc. .......................... 21,400 $ 1,233,175 Kerr-McGee Corp. ................................. 32,200 2,040,675 Murphy Oil Corp. ................................. 24,900 1,213,875 Occidental Petroleum Corp. ....................... 70,900 1,776,931 Pennzoil Co. ..................................... 20,500 1,573,375 Repsol S.A., ADR.................................. 25,400 1,077,913 Royal Dutch Petroleum Co., ADR.................... 54,400 2,958,000 Sun Company, Inc. ................................ 68,300 2,117,300 USX-Marathon Group................................ 112,800 3,257,100 YPF Sociedad Anonima, ADR......................... 75,900 2,333,925 ------------ 22,430,625 ------------ PAPER & FOREST PRODUCTS 0.85% Bowater Inc. ..................................... 37,300 1,725,125 International Paper Co............................ 23,800 1,155,787 James River Corp. of Virginia..................... 44,800 1,657,600 Pope & Talbot, Inc. .............................. 13,400 220,263 Westvaco Corp..................................... 24,750 778,078 ------------ 5,536,853 ------------ RETAIL TRADE & SERVICES 1.61% American Stores Co. .............................. 39,800 1,965,125 Dayton Hudson Corp. .............................. 63,800 3,393,362 Heilig-Meyers Co. ................................ 46,700 916,488 Mercantile Stores Co., Inc........................ 17,100 1,076,231 Ross Stores Inc. ................................. 37,000 1,209,437 Shopko Stores Inc................................. 15,900 405,450 Supervalu Inc. ................................... 43,300 1,493,850 ------------ 10,459,943 ------------ TECHNOLOGY 1.78% Applied Materials Inc. ........................... 11,600(a) 821,425 Dell Computer Corp. .............................. 20,400(a) 2,395,725 Digital Equipment Corp. .......................... 32,300(a) 1,144,631 Harris Corp. ..................................... 31,400 2,637,600 Intel Corp. ...................................... 12,800 1,815,200 Microsoft Corp. .................................. 21,900(a) 2,767,613 ------------ 11,582,194 ------------ TELECOMMUNICATIONS 1.23% BCE Inc. ......................................... 56,800 1,590,400 Telefonica de Espana S.A., ADR.................... 31,400 2,708,250 Telefonos de Mexico S.A., ADR..................... 77,800 3,714,950 ------------ 8,013,600 ------------
6
NUMBER OF VALUE SHARES (NOTE 1) ---------- ------------ TOBACCO 0.40% RJR Nabisco Holdings Corp. .......................... 76,100 $ 2,577,300 ------------ TRANSPORTATION 1.21% British Airways Plc, ADR............................. 8,100 930,993 Canadian Pacific Ltd. ............................... 81,400 2,314,813 CNF Transportation, Inc. ............................ 61,200 1,973,700 CSX Corp. ........................................... 36,600 2,031,300 KLM Royal Dutch Airlines N.V., ADR................... 19,900 614,412 ------------ 7,865,218 ------------ UTILITIES--ELECTRIC & NATURAL GAS 3.66% American Electric Power Co., Inc. ................... 48,800 2,049,600 Baltimore Gas & Electric Co. ........................ 28,900 771,269 CMS Energy Corp. .................................... 32,000 1,128,000 DQE Inc. ............................................ 37,250 1,052,313 DTE Energy Co. ...................................... 18,800 519,350 Edison International................................. 92,000 2,288,500 Entergy Corp. ....................................... 44,300 1,212,713 GPU, Inc. ........................................... 49,100 1,761,462 Illinova Corp. ...................................... 48,400 1,064,800 Montana Power Co. ................................... 19,700 456,794 New York State Electric & Gas Corp. ................. 45,700 953,987 Ohio Edison Co. ..................................... 28,800 628,200 Pacific Gas & Electric Co. .......................... 38,900 943,325 PacifiCorp. ......................................... 33,600 739,200 Pinnacle West Capital Corp. ......................... 42,500 1,277,656 PP&L Resources, Inc. ................................ 15,700 313,019 Public Service Enterprise Group Inc. ................ 69,500 1,737,500 Public Service Co. of New Mexico..................... 33,600 600,600 Questar Corp. ....................................... 23,800 960,925 Sierra Pacific Resources Inc. ....................... 9,300 297,600 Transcanada Pipelines Ltd. .......................... 46,700 939,837 United Illuminating Co. ............................. 6,500 200,688 UtiliCorp United Inc. ............................... 5,300 154,362 Valero Energy Corp. ................................. 27,800 1,007,750 Western Resources Inc. .............................. 23,200 752,550 ------------ 23,812,000 ------------ TOTAL COMMON STOCKS (Cost $139,310,716).......................................... 175,934,400
------------ 7 THE ZWEIG TOTAL RETURN FUND, INC. SCHEDULE OF INVESTMENTS--(CONCLUDED) JUNE 30, 1997 (UNAUDITED)
PRINCIPAL VALUE AMOUNT (NOTE 1) ------------ ------------ UNITED STATES GOVERNMENT & AGENCY OBLIGA- TIONS 50.52% Federal National Mortgage Association, 6.85%, 4/5/2004...................................... $ 10,385,000 $ 10,506,297 United States Treasury Bonds, 10.750%, 5/15/2003..................................... 15,000,000 18,126,555 United States Treasury Bonds, 7.25%, 8/15/2022. 27,500,000 28,703,125 United States Treasury Bonds, 7.50%, 11/15/2024.................................... 3,200,000 3,452,000 United States Treasury Notes, 6.25%, 8/31/2000. 13,500,000 13,495,774 United States Treasury Notes, 5.625%, 11/30/2000.................................... 19,745,000 19,350,100 United States Treasury Notes, 7.50%, 2/15/2005. 16,300,000 17,252,523 United States Treasury Notes, 6.50%, 5/15/2005. 7,600,000 7,590,500 United States Treasury Notes, 6.875%, 5/15/2006..................................... 101,400,000 103,523,012 United States Treasury Notes, 6.50%, 10/15/2006.................................... 107,300,000 106,864,040 TOTAL UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS ------------ (Cost $330,064,422)...................................... 328,863,926 ------------ SHORT-TERM INVESTMENTS 21.42% AT&T Capital Corp., 5.44%, 7/31/97............. 14,600,000 14,533,813 Campbell Soup Co., 5.50%, 7/02/97.............. 5,600,000 5,599,145 Florida Power & Light Co., 5.50%, 7/10/97...... 19,100,000 19,073,738 Gannett Co., Inc., 5.50%, 7/21/97.............. 30,000,000 29,908,333 Goldman, Sachs & Co., 5.65%, 7/08/97........... 9,500,000 9,489,563 Goldman, Sachs & Co., 5.50%, 7/11/97........... 4,900,000 4,892,514 Merrill Lynch & Co., Inc., 5.55%, 7/01/97...... 19,800,000 19,800,000 PepsiCo. Inc., 5.50%, 7/28/97.................. 25,900,000 25,793,162 Unilever N.V., 5.55%, 7/07/97.................. 10,400,000 10,390,380 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $139,480,648)...................................... 139,480,648 ------------ TOTAL INVESTMENTS IN SECURITIES (Cost $608,855,787)........... $644,278,974 ============ NUMBER OF NET UNREALIZED DEPRECIATION ON FUTURES CONTRACTS CONTRACTS ------------ Standard and Poor's 500 September 1997 Long futures....................................... 87(b) $ (327,770) ============
- -------- (a) Non-income producing security. (b) The market value of the long futures was $38,725,875 (representing 5.95% of the Fund's net assets) with a cost of $39,053,645. For Federal income tax purposes, the tax basis of investments owned at June 30, 1997 was $608,938,201 and net unrealized appreciation on investments consisted of: Gross unrealized appreciation................................. $39,028,150 Gross unrealized depreciation................................. (4,015,147) ----------- Net unrealized appreciation................................... $35,013,003 ===========
See notes to financial statements 8 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS: Investments in securities, at value (identified cost, $608,855,787).................................................... $644,278,974 Cash.............................................................. 409,858 Dividends and interest receivable................................. 4,884,364 Receivable for investments sold................................... 935,623 Prepaid expenses.................................................. 19,730 Deposit with broker for futures contracts......................... 1,461,600 ------------ Total Assets..................................................... 651,990,149 ------------ LIABILITIES: Payable for investments purchased ................................ 326,075 Variation margin for futures contracts............................ 285,252 Accrued advisory fees (Note 3).................................... 373,597 Accrued administration fees (Note 3).............................. 2,328 ------------ Total Liabilities................................................ 987,252 ------------ NET ASSETS......................................................... $651,002,897 ------------ NET ASSET VALUE, PER SHARE: ($651,002,897 / 77,791,649 shares outstanding--Note 4)............ $ 8.37 ============ NET ASSETS CONSIST OF: Capital paid-in................................................... $615,907,480 Net unrealized appreciation on investments and futures contracts.. 35,095,417 ------------ $651,002,897 ============
- -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME: Income: Dividends........................................................ $ 2,586,587 Interest......................................................... 14,304,321 ----------- Total Income.................................................... 16,890,908 ----------- Expenses: Investment advisory fees (Note 3)................................ 2,211,268 Administration fees (Note 3)..................................... 410,664 Transfer agent fees.............................................. 215,571 Printing and postage expenses.................................... 193,670 Professional fees (Note 3)....................................... 38,372 Custodian fees................................................... 47,385 Directors' fees and expenses (Note 3)............................ 37,829 Miscellaneous.................................................... 103,577 ----------- Total Expenses.................................................. 3,258,336 ----------- Net Investment Income.......................................... 13,632,572 ----------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments (Note 2): Security transactions............................................ 13,624,098 Futures transactions............................................. 1,494,885 ----------- Net realized gain on investments: 15,118,983 Increase in unrealized appreciation on investments and futures contracts........................................................ 9,708,026 ----------- Net realized and unrealized gain on investments.................. 24,827,009 ----------- Net increase in net assets resulting from operations............. $38,459,581 ===========
See notes to financial statements 9 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE FOR THE SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ---------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income..................... $ 13,632,572 $ 27,214,555 Net realized gain on investments.......... 15,118,983 18,362,961 Increase (decrease) in unrealized appreciation on investments.............. 9,708,026 (6,902,204) Net increase in net assets resulting from ------------ ------------ operations.............................. 38,459,581 38,675,312 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS ------------ ------------ FROM: Net investment income..................... (13,632,572) (27,214,555) Net realized gains on investments......... (15,118,983) (18,739,823) Capital paid-in........................... (3,708,879) (17,854,497) ------------ ------------ Total dividends and distributions to shareholders............................ (32,460,434) (63,808,875) CAPITAL SHARE TRANSACTIONS: ------------ ------------ Net asset value of shares issued to share- holders in reinvestment of dividends from net investment income and distributions from net realized gains and capital paid- in....................................... 6,236,182 16,377,716 ------------ ------------ Net increase (decrease) in net assets...... 12,235,329 (8,755,847) ------------ ------------ NET ASSETS: Beginning of period........................ 638,767,568 647,523,415 ------------ ------------ End of period.............................. $651,002,897 $638,767,568 ============ ============
See notes to financial statements 10 THE ZWEIG TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 (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. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. PORTFOLIO VALUATION Portfolio securities which are traded only on stock exchanges are valued at the last sale price. Securities traded in the over-the-counter market which are National Market System securities are valued at the last sale price. Other over-the-counter securities are valued at the most recently quoted bid price provided by the principal market makers. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market, as determined by the 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 and 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 financial reporting 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 which 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. 11 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. 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. E. 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 2--PORTFOLIO TRANSACTIONS During the six months ended June 30, 1997, the Fund entered into purchase and sale transactions, excluding short term instruments and futures transactions, as follows:
UNITED STATES GOVERNMENT COMMON AND AGENCY STOCKS OBLIGATIONS ----------- ------------- Cost of Purchases................................ $58,275,636 $280,845,297 =========== ============ Proceeds from Sales.............................. $81,506,472 $180,572,602 =========== ============
NOTE 3--INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES A) INVESTMENT ADVISORY FEE: 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. 12 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 1% of the Fund's average daily net assets. During the six months ended June 30, 1997, the Fund accrued advisory fees of $2,211,268. B) ADMINISTRATION FEE: 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. For the six months ended June 30, 1997 the Fund accrued administration fees of $410,664. C) DIRECTORS' FEE: 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 the actual 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. D) LEGAL FEE: The Fund accrued legal fees of $7,059 during the six months ended June 30, 1997, for the services of Rosenman & Colin, of which Robert E. Smith, Director of the Fund, is a partner. E) BROKERAGE COMMISSION: During the six months ended June 30, 1997, the Fund paid Zweig Securities Corp. brokerage commissions of $21,416 in connection with portfolio transactions effected through them. Certain directors and officers of the Fund are also directors and/or officers of the Investment Adviser and the Administrator. NOTE 4--CAPITAL STOCK AND REINVESTMENT PLAN At June 30, 1997 the Fund had one class of common stock, par value $.001 per share of which 500,000,000 shares are authorized and 77,791,649 shares are outstanding. For the six months ended June 30, 1997, and the year ended December 31, 1996, 759,434 and 1,979,558 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. On July 1, 1997 the Fund declared a distribution of $0.07 per share to shareholders of record July 11, 1997. This distribution has an ex-dividend date of July 9, 1997 and is payable July 24, 1997. 13 NOTE 5--FINANCIAL HIGHLIGHTS Selected data for a share outstanding throughout each period:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31 JUNE 30, ------------------------------------------------- 1997 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- PER SHARE DATA: Net asset value, beginning of period.... $ 8.29 $ 8.63 $ 8.11 $ 9.11 $ 9.06 $ 9.79 -------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income... 0.18 0.36 0.39 0.29 0.26 0.32 Net realized and unrealized gains (losses) on investments............ 0.32 0.14 0.97 (0.43) 0.75 (0.09) -------- -------- -------- -------- -------- -------- Total from investment operations............. 0.50 0.50 1.36 (0.14) 1.01 0.23 -------- -------- -------- -------- -------- -------- Dividends and Distribu- tions: Dividends from net in- vestment income........ (0.18) (0.36) (0.39) (0.29) (0.26) (0.32) Distributions from net realized gains on in- vestments.............. (0.19) (0.24) (0.45) -- (0.70) (0.30) Distributions from capital paid-in........ (0.05) (0.24) -- (0.57) -- (0.34) -------- -------- -------- -------- -------- -------- Total Dividends and Distributions.......... (0.42) (0.84) (0.84) (0.86) (0.96) (0.96) -------- -------- -------- -------- -------- -------- Net asset value, end of period............ $ 8.37 $ 8.29 $ 8.63 $ 8.11 $ 9.11 $ 9.06 ======== ======== ======== ======== ======== ======== Market value, end of period**............. $ 8.875 $ 8.00 $ 8.625 $ 8.00 $ 10.75 $ 10.00 ======== ======== ======== ======== ======== ======== Total investment return. 16.73% 2.62% 19.19% (17.08)% 18.37% 2.60% ======== ======== ======== ======== ======== ======== RATIOS/SUPPLEMENTAL DA- TA: Net assets, end of peri- od (in thousands)......... $651,003 $638,768 $647,523 $591,659 $648,516 $624,097 Ratio of expenses to average net assets..... 1.03%* 1.03% 1.10% 1.12% 1.11% 1.13% Ratio of net investment income to average net assets................. 4.32%* 4.31% 4.59% 3.35% 2.85% 3.43% Portfolio turnover rate. 62.4% 147.2% 179.8% 281.0% 293.0% 123.2% Average commission rate per share on portfolio transactions........... $ 0.0589 $ 0.0591 $ 0.0606 N/A N/A N/A
- -------- * Annualized ** Closing Price--New York Stock Exchange. 14 SUPPLEMENTARY PROXY INFORMATION The Annual Meeting of Shareholders of The Zweig Total Return Fund, Inc. was held on May 15, 1997. The meeting was held for the purpose of reelecting Charles H. Brunie and James B. Rogers, Jr. 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, 1997. The Fund's other Directors who continued in office are Elliot S. Jaffe, Alden C. Olson, Anthony M. Santomero, Robert E. Smith 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 ---------------- ---------- ------- -------- ----------- Charles H. Brunie ...................... 61,759,978 N/A 877,471 N/A James B. Rogers, Jr. ................... 61,693,308 N/A 944,141 N/A Coopers & Lybrand L.L.P. ............... 61,493,750 399,516 -- 744,183 - --------------------------------------------------------------------------------
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. If you want to take advantage of this plan and your shares are held in "Street Name," we urge you to consult your broker as soon as possible to determine if you must change registration to 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 -----END PRIVACY-ENHANCED MESSAGE-----