0000950109-95-003206.txt : 19950815 0000950109-95-003206.hdr.sgml : 19950815 ACCESSION NUMBER: 0000950109-95-003206 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 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: 95563511 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, 1995 Dear Shareholder: The Zweig Total Return Fund's net asset value increased 5.9% during the three months ended June 30, 1995, including $0.21 in reinvested dividends. For the six months ended June 30, 1995, the Fund's net asset value gained 10.0%, 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 1995 was approximately 57%. DISTRIBUTION DECLARED In accordance with our policy of distributing 10% of net asset value per year, which equals 0.83% per month (10% divided by 12 months), the Fund announced a distribution of $0.07 payable on August 24, 1995 to shareholders of record on August 11, 1995. 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 $6.35. MARKET OUTLOOK At this writing our bond holdings are at about 26% compared with 30% at the end of the first quarter. If fully invested, we would be at about 62 1/2% for bonds. Consequently, we are at about 42% of a full position (26%/62 1/2%). While this appears to be a fairly low exposure, the duration of our bond portfolio is 4.5 years. Because of the maturities of our bonds, our exposure is roughly equivalent to that of the average bond fund. Following the worst bond bear market in decades in 1994, bonds rallied substantially in the first half of 1995. The slowing economy was a big factor in the gains. After the Fed's last interest rate increase in February, inflation fears dissipated. By June the bond market, bolstered by lower-than- expected economic data, began to discount a Fed rate cut. They were not disappointed, as the Fed reduced rates by a quarter of a point in early July. This was the first reduction since September of 1992. In recent days the bond market has softened somewhat. The market is nervous that at the margin the economy shows signs of stabilizing or even turning up. The good news is that inflation has eased. The key to my results in managing money over the past quarter-century is to follow my indicators faithfully. Right now the reading of my bond model is neutral. Remember, signs of economic weakness tend to be positive for bonds and vice versa. Among economic indicators, capacity utilization, consumer confidence, and the purchasing manager's index are on the favorable side. Commodity prices are mixed, with crude oil and gold down and copper and lumber up. The momentum reading is neutral. As for equities, we have increased our exposure from 20% at the end of the first quarter to 32% at this writing. With full investment in stocks at 37 1/2% for our fund, we are presently at 85% of a full position (32%/37 1/2%). This reflects the current reading of our stock market indicators which are mainly positive. Most likely, the greatest risk to stocks now would be a quick burst of speed in the economy which would probably knock down bond prices. If the economy remains cool and bond prices behave, the bulls would have the edge and stocks could surprise on the upside. Regardless of which direction the markets move, we will continue to be flexible and adjust the asset mix of our Fund in response to changing market conditions. As always, our aim is to earn reasonable returns during bull markets and preserve most of that money during bear markets--and to incur much less risk along the way. PORTFOLIO COMPOSITION In line with our investment policy guidelines, most of our bonds are U.S. Government obligations. We also own a small percentage of high grade corporate bonds. As mentioned previously, the average duration of the bond portion of the Fund is 4.5 years. As stated in the last quarterly report, the majority of our equities are being acquired on the basis of a proprietary computer-driven model that ranks the most liquid higher yielding stocks. Factors in our evaluation and ranking include earnings momentum, earnings growth, price-to-book value, cash flow trend, and payout ratio trend. While weights of the variables will fluctuate over time, valuation will tend to get more weight. Our leading industry groups include paper and forest products, oil, utilities, chemicals, metals, and technology. These sectors reflect additional purchases as we increased our exposure and price appreciation, particularly in the paper, metals, and technology areas. Companies showing the largest gains include International Paper, Weyerhaeuser, Bowater, Aluminum Company of America, Reynolds Metals, and IBM. In addition to previously named companies, our top individual holdings include Citicorp, Union Carbide, DuPont, Mobil, Goodyear Tire, Georgia- Pacific, Phelps Dodge, Chevron, and British Petroleum. We have sold our positions in Phillips Petroleum, Ford, and Chrysler. Sincerely, /s/ Martin E. Zweig Martin E. Zweig, Ph.D. Chairman 2 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS JUNE 30, 1995 (UNAUDITED)
NUMBER OF VALUE SHARES (NOTE 1) --------- ------------ Common Stocks 26.65% Aerospace & Defense 1.05% GenCorp Inc. ......................................... 10,700 $ 115,025 Lockheed Martin Corporation........................... 30,008 1,894,255 Northrop Grumman Corporation.......................... 23,500 1,224,938 Raytheon Company...................................... 7,300 566,663 Rockwell International Corporation.................... 40,800 1,866,600 Sunstrand Corporation................................. 5,800 346,550 United Technologies Corporation....................... 7,300 570,313 ------------ 6,584,344 ------------ Apparel 0.05% Oshkosh B'Gosh Inc., Class A.......................... 18,000 288,000 ------------ Banks 1.33% Bank of Boston Corporation............................ 46,500 1,743,750 BankAmerica Corporation............................... 19,500 1,026,188 Chemical Banking Corporation.......................... 35,900 1,696,275 Citicorp.............................................. 55,300 3,200,487 SouthTrust Corporation................................ 30,300 700,688 ------------ 8,367,388 ------------ Chemicals 2.61% ARCO Chemical Company................................. 12,400 562,650 Dow Chemical Company.................................. 38,100 2,738,438 du Pont (E.I.) de Nemours & Company................... 49,900 3,430,625 Eastman Chemical Company.............................. 39,200 2,332,400 Ethyl Corporation..................................... 19,700 209,313 Imperial Chemical Industries PLC, ADR................. 15,600 760,500 Lyondell Petrochemical Company........................ 53,300 1,365,813 Olin Corporation...................................... 15,700 808,550 Rohm & Haas Company................................... 22,400 1,229,200 Union Carbide Corporation............................. 87,600 2,923,650 ------------ 16,361,139 ------------ Conglomerates 0.71% Unilever N.V., ADR.................................... 18,000 1,639,575 Xerox Corporation..................................... 14,200 2,802,275 ------------ 4,441,850 ------------ Consumer Durables 0.78% Briggs & Stratton Corporation......................... 12,600 434,700 Eastman Kodak Company................................. 13,100 794,188 Goodyear Tire & Rubber Company........................ 74,800 3,085,500 Jostens Inc. ......................................... 8,900 189,125 Outboard Marine Corporation........................... 14,200 278,675 Toro Company.......................................... 4,800 134,400 ------------ 4,916,588 ------------ Drugs 0.41% Baxter International Inc. ............................ 70,200 2,553,525 ------------
3 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONTINUED) JUNE 30, 1995 (UNAUDITED)
NUMBER OF VALUE SHARES (NOTE 1) --------- ------------ Finance & Financial Services 1.01% Aetna Life & Casualty Company......................... 33,600 $ 2,112,600 American Bankers Insurance Group Inc. ................ 7,100 225,425 American General Corporation.......................... 27,800 938,250 Household International Inc. ......................... 17,900 886,050 Providian Corporation................................. 23,600 855,500 St. Paul Companies Inc. .............................. 26,400 1,300,200 ------------ 6,318,025 ------------ Food & Beverage 0.52% Cadbury Schweppes PLC, ADR............................ 12,600 374,850 Ralston-Purina Group.................................. 26,500 1,351,500 Seagram Company Ltd. ................................. 43,700 1,513,113 ------------ 3,239,463 ------------ Healthcare 0.16% Bergen Brunswig Corporation, Class A.................. 43,400 992,775 ------------ Industrial Services 0.03% Safety-Kleen Corporation.............................. 12,800 206,400 ------------ Metals & Mining 1.82% Aluminum Company of America........................... 81,000 4,060,125 Cyprus Amax Minerals Company.......................... 19,900 567,150 Homestake Mining Company.............................. 26,300 433,950 Phelps Dodge Corporation.............................. 53,300 3,144,700 Reynolds Metals Company............................... 41,000 2,121,750 USX-U.S. Steel Group.................................. 32,300 1,110,313 ------------ 11,437,988 ------------ Oil & Oil Services 3.90% Amoco Corporation..................................... 11,600 772,850 Atlantic Richfield Company............................ 34,800 2,655,950 British Petroleum Company PLC, ADS.................... 34,800 2,979,750 Chevron Corporation................................... 60,600 2,825,475 Exxon Corporation..................................... 38,500 2,719,062 Halliburton Company................................... 48,100 1,719,575 Imperial Oil, Ltd. ................................... 28,500 1,058,062 Kerr-McGee Corporation................................ 25,000 1,340,625 Mobil Corporation..................................... 30,800 2,956,800 Nova Corporation...................................... 35,700 303,450 Occidental Petroleum Corporation...................... 80,500 1,841,437 Repsol S.A., ADR...................................... 62,300 1,970,237 Unocal Corporation.................................... 48,100 1,328,763 ------------ 24,472,036 ------------ Paper & Forest Products 3.90% Boise Cascade Corporation............................. 60,200 2,438,100 Bowater, Inc. ........................................ 66,400 2,979,700 Federal Paper Board Inc. ............................. 35,900 1,269,962 Georgia-Pacific Corporation........................... 32,800 2,845,400 International Paper Company........................... 40,900 3,507,175 James River Corporation of Virginia................... 42,800 1,182,350
4 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONTINUED) JUNE 30, 1995 (UNAUDITED)
NUMBER OF VALUE SHARES (NOTE 1) --------- ----------- Paper & Forest Products--(Continued) Mead Corporation....................................... 30,300 $ 1,799,062 Temple-Inland Inc. .................................... 18,200 866,775 Union Camp Corporation................................. 30,800 1,782,550 Westvaco Corporation................................... 19,000 840,750 Weyerhaeuser Company................................... 65,900 3,105,537 Willamette Industries Inc. ............................ 33,600 1,864,800 ----------- 24,482,161 ----------- Producer Manufacturing 1.43% Arvin Industries Inc. ................................. 8,900 199,138 Avery Dennison Corporation............................. 16,800 672,000 Crane Company.......................................... 7,100 257,375 Duriron Company........................................ 8,900 200,250 Eaton Corporation...................................... 27,100 1,575,188 Kennametal Inc. ....................................... 12,600 444,150 Parker-Hannifin Corporation............................ 51,500 1,866,875 Tecumseh Products Company, Class A..................... 8,900 391,600 Timken Company......................................... 19,600 904,050 Trinity Industries Inc. ............................... 20,400 678,300 TRW Inc. .............................................. 22,600 1,805,175 ----------- 8,994,101 ----------- Publishing 0.17% New York Times Company, Class A........................ 46,500 1,092,750 ----------- Retail 0.96% Bruno's, Inc. ......................................... 70,400 818,400 CPI Corporation........................................ 7,100 135,787 Giant Food Inc., Class A............................... 9,800 278,075 Rite Aid Corporation................................... 70,700 1,811,687 Sears, Roebuck & Company............................... 44,600 2,670,425 Smith's Food & Drug Centers Inc. ...................... 16,100 317,975 ----------- 6,032,349 ----------- Technology 1.15% Applied Materials, Inc. (a)............................ 5,800 502,425 Dell Computer Corporation (a).......................... 10,200 613,275 Digital Equipment Corporation (a)...................... 20,400 831,300 Harris Corporation..................................... 32,100 1,657,162 Intel Corporation...................................... 12,800 810,400 International Business Machines Corporation............ 14,200 1,363,200 Microsoft Corporation (a).............................. 14,600 1,319,475 National Computer Systems Inc. ........................ 7,300 151,475 ----------- 7,248,712 ----------- Telecommunications 1.17% BellSouth Corporation.................................. 17,400 1,104,900 Cable & Wireless Ltd., ADR............................. 34,200 701,100 Cincinnati Bell Inc. .................................. 17,900 451,975 GTE Corporation........................................ 47,000 1,603,875 NYNEX Corporation...................................... 38,800 1,561,700
5 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONTINUED) JUNE 30, 1995 (UNAUDITED)
NUMBER OF SHARES/ PRINCIPAL VALUE AMOUNT (NOTE 1) ------------ ------------ Telecommunications--(Continued) Southern New England Telecommunications Corpora- tion...................................................... 8,900 $ 313,725 Sprint Corporation......................................... 46,900 1,577,013 ------------ 7,314,288 ------------ Textiles 0.01% Guilford Mills Inc. ....................................... 1,700 41,438 ------------ Transportation 0.79% British Airways PLC, ADR................................... 12,800 860,800 Conrail Inc. .............................................. 36,900 2,052,562 CSX Corporation............................................ 28,400 2,133,550 ------------ 5,046,912 ------------ Utilities 2.69% Centerior Energy Corporation............................... 21,800 209,825 DQE Inc. .................................................. 24,050 565,175 Enron Corporation.......................................... 7,700 270,462 FPL Group Inc. ............................................ 60,400 2,332,950 Illinova Corporation....................................... 26,500 672,437 Kansas City Power & Light Company.......................... 18,000 411,750 Ohio Edison Company........................................ 36,100 816,762 Pacific Enterprises........................................ 26,500 649,250 Pacific Gas & Electric Company............................. 62,500 1,812,500 Panhandle Eastern Corporation.............................. 82,700 2,015,812 Pinnacle West Capital Corporation.......................... 34,000 833,000 Portland General Corporation............................... 65,400 1,446,975 Public Service Company of Colorado......................... 25,800 838,500 Questar Corporation........................................ 7,300 209,875 SCEcorp. .................................................. 73,000 1,250,125 Unicom Corporation......................................... 71,300 1,898,363 Williams Companies Inc. ................................... 18,900 659,137 ------------ 16,892,898 ------------ Total Common Stocks (Cost $154,620,104)...................................... 167,325,130 ------------ Corporate Bonds 2.03% Exxon Capital Corporation, 7.875%, 08/15/1997.............. $ 6,000,000 6,217,500 General Electric Capital Corporation, 8.375%, 03/01/2001................................................ 6,000,000 6,547,500 ------------ Total Corporate Bonds (Cost $12,518,640)....................................... 12,765,000 ------------ U.S. Government and Other Agency Obligations 28.70% Federal Home Loan Mortgage Corporation, 7.05%, 03/24/2004................................................ 12,185,000 12,167,452 Federal Home Loan Mortgage Corporation, 7.61%, 09/01/2004................................................ 4,000,000 4,075,840 Federal National Mortgage Association, 6.20%, 07/10/2003................................................ 4,490,000 4,336,172 Federal National Mortgage Association, 6.48%, 02/18/2004................................................ 4,000,000 3,879,120 Federal National Mortgage Association, 6.90%, 03/10/2004................................................ 4,600,000 4,558,002 Federal National Mortgage Association, 6.85%, 04/05/2004................................................ 10,385,000 10,526,962 Federal National Mortgage Association, 7.60%, 04/14/2004................................................ 6,810,000 6,886,885
6 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONCLUDED) JUNE 30, 1995 (UNAUDITED)
PRINCIPAL AMOUNT/NUMBER VALUE OF CONTRACTS (NOTE 1) ------------- ------------ U.S. Government and Other Agency Obligations-- (continued) U.S. Treasury Notes, 4.625%, 02/15/1996........... $ 2,640,000 $ 2,623,025 U.S. Treasury Bonds, 7.625%, 02/15/2025(b)........ 116,100,000 131,151,192 ------------ Total U.S. Government and Other Agency Obligations (Cost $171,282,933)............................. 180,204,650 ------------ Short-Term Money Market Instruments 40.58% Abbott Laboratories, 5.93%, 07/11/1995............ 27,000,000 26,955,525 AIG Funding, Inc., 6.05%, 07/07/1995.............. 14,900,000 14,884,976 American Telephone and Telegraph Company, 5.93%, 08/14/1995....................................... 21,700,000 21,542,723 Bell Network Funding Corporation, 5.95%, 07/06/1995....................................... 25,000,000 24,979,340 Cargill Financial Services Corporation, 5.95%, 07/05/1995....................................... 14,800,000 14,790,216 Cargill Financial Services Corporation, 5.97%, 07/20/1995....................................... 10,700,000 10,666,286 Dow Chemical Company, 5.97%, 07/14/1995........... 20,000,000 19,956,884 Ford Motor Credit Company, 5.97%, 07/12/1995...... 17,000,000 16,968,989 Heinz (H.J.) Company, 6.03%, 07/13/1995........... 21,600,000 21,556,584 Motorola Credit Corporation, 5.94%, 07/19/1995.... 25,000,000 24,925,750 Northern States Power Company, 5.94%, 07/10/1995.. 5,600,000 5,591,684 Raytheon Company, 5.94%, 07/10/1995............... 20,000,000 19,970,250 Wal-Mart Stores Inc., 5.95%, 07/07/1995........... 18,000,000 17,982,150 Xerox Credit Corporation, 5.93%, 07/07/1995....... 14,000,000 13,986,162 ------------ Total Short-Term Money Market Instruments (Cost $254,757,519)............................. 254,757,519 ------------ Net Unrealized Appreciation on Futures Contracts 0.04% Standard and Poor's 500 Index, September 1995-- Long futures..................................... 45 192,375 U.S. Treasury Bond Index, September 1995--Short futures.......................................... (296) 30,503 ------------ Total Appreciation on Futures Contracts(c)....... 222,878 ------------ Total Investments (Cost $593,179,196)............. 98.00% 615,275,177 Other Assets Less Liabilities..................... 2.00 12,567,159 ------------ ------------ Net Assets (Equivalent to $8.48 per share based on 74,020,253 shares of capital stock outstanding).. 100.00% $627,842,336 ============ ============
-------- (a) Non-income producing security. (b) $2,430,985 of this security has been pledged as collateral for futures transactions. (c) The market value of the long futures was $12,310,875 (representing 1.97% of the Fund's net assets) with a cost of $12,118,500. The market value of the short futures was $33,605,250 (representing 5.35% of the Fund's net assets) with a cost of $33,635,753. For Federal income tax purposes, the tax basis of investments in securities aggregate $593,179,196. The aggregate gross unrealized appreciation of all securities was $23,441,499, and aggregate gross unrealized depreciation for all securities was $1,345,518. See Notes to Financial Statements. 7 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1995 (UNAUDITED) ASSETS: Investments, at value (identified cost $593,179,196) (Note 1).... $615,275,177 Cash............................................................. 971,799 Receivable for investments sold.................................. 9,028,981 Dividends and interest receivable................................ 5,127,292 Deposits at broker for short sales............................... 1,084,422 Prepaid expenses and other assets................................ 55,131 ------------ Total Assets................................................... 631,542,802 ------------ LIABILITIES: Payable for investments purchased................................ 2,957,775 Investment advisory fee payable (Note 3)......................... 359,284 Variation margin for futures contracts........................... 168,000 Administrative, custodian and shareholder servicing fees payable (Note 3)........................................................ 158,316 Accrued expenses and other payables.............................. 57,091 ------------ Total Liabilities.............................................. 3,700,466 ------------ NET ASSETS......................................................... $627,842,336 ============ NET ASSET VALUE, PER SHARE: ($627,842,336 / 74,020,253 shares outstanding)................... $8.48 ===== Net Assets consist of: Distributions in excess of net investment income................. $(16,253,914) Undistributed net realized gain on investments................... 15,907,760 Net unrealized appreciation on investments....................... 22,095,981 Capital paid-in (Note 4)......................................... 606,092,509 ------------ Total Net Assets............................................... $627,842,336 ============
-------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED) Investment Income: Income: Interest........................................................ $15,916,295 Dividends....................................................... 2,062,624 ----------- Total Investment Income....................................... 17,978,919 ----------- Expenses: Investment advisory fees (Note 3)............................... 2,097,253 Administration fees (Note 3).................................... 539,293 Printing and postage expenses................................... 318,163 Shareholder servicing agent fees (Note 3)....................... 205,500 Custodian fees (Note 3)......................................... 60,019 Professional fees............................................... 35,946 Directors' fees and expenses (Note 3)........................... 28,000 Miscellaneous................................................... 125,129 ----------- Total Expenses................................................ 3,409,303 ----------- Net Investment Income....................................... 14,569,616 ----------- Realized and Unrealized Gain on Investments: Realized gain on investments: Security transactions........................................... 17,802,150 Futures transactions............................................ 1,000,118 ----------- Net realized gain on investments............................ 18,802,268 Net increase in unrealized appreciation.......................... 24,761,406 ----------- Net realized and unrealized gain on investments............. 43,563,674 ----------- Net increase in net assets resulting from operations........ $58,133,290 ===========
See Notes to Financial Statements. 8 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1995 DECEMBER 31, 1994 ---------------- ----------------- Change in Net Assets: Operations: Net investment income.................... $ 14,569,616 $ 20,508,150 Net realized gain (loss) on investments.. 18,802,268 (2,816,932) Net unrealized appreciation (depreciation) on investments........... 24,761,406 (28,372,064) ------------ ------------ Net increase (decrease) in net assets resulting from operations............. 58,133,290 (10,680,846) ------------ ------------ Distributions to shareholders from: Net investment income.................... (30,823,530) (20,511,580) Capital paid-in.......................... -- (41,496,881) ------------ ------------ Total distributions to shareholders.... (30,823,530) (62,008,461) ------------ ------------ 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)...... 8,873,738 15,831,986 ------------ ------------ Net increase (decrease) in net assets..... 36,183,498 (56,857,321) ------------ ------------ Net Assets: Beginning of period....................... 591,658,838 648,516,159 ------------ ------------ End of period (including distributions in excess of net investment income of $16,253,914 at June 30, 1995)............ $627,842,336 $591,658,838 ============ ============
See Notes to Financial Statements. 9 THE ZWEIG TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 (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 The 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. Debt securities having a remaining maturity of 60 days or less are valued at amortized cost, if the original maturity was 60 days or less, or by amortizing their fair value as of the 61st day prior to maturity, if their original term to maturity exceeds 60 days. Futures and options thereon which are traded on commodities exchanges are valued at their closing settlement price on such exchange. Securities and investments for which market quotations are not readily available, and other investments, if any, are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund. B. 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 and is disclosed in the Statement of Operations. 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. 10 C. Option Contracts The Fund may purchase put and call options on portfolio securities and foreign currencies. Upon the purchase of a put option or a call option by the Fund, the premium paid is recorded as an investment, the value of which is marked-to-market daily to reflect the current market value. When a purchased option expires, the Fund will realize a loss in the amount of the cost of the option and is included in realized gain (loss) from security transactions in the Statement of Operations. When the Fund enters into a closing sale transaction, the Fund will realize a gain or loss depending on whether the sales proceeds from the closing sale transaction are greater or less than the cost of the option. When the Fund exercises a put option, it will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Fund exercises a call option, the cost of the security which the Fund purchases upon exercise will be increased by the premium originally paid. The risk associated with purchasing options is limited to the premium originally paid. In addition, there is the risk the Fund may not be able to enter into a closing transaction because of an illiquid secondary market. In relation to options on foreign currencies, there is also risk associated with disadvantageous exchange rates. 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 sale are recorded as expenses. While the short sales are outstanding, the Fund pledges cash and securities to cover its margin requirements. At June 30, 1995, cash of $1,084,422 was on deposit in an interest-bearing account with a broker to cover any short sales the Fund may enter into. E. 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 an accrual basis. Realized gains or losses on sales of investments are determined on the identified cost basis for accounting and tax purposes. F. 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 is that a regulated investment company, as opposed to an ordinary taxable corporation, 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 the tax character of long-term capital gains recognized by a regulated investment company flows through to its shareholders who receive distributions of such income. 11 G. Distributions to Shareholders 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 gain 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 distributions 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. NOTE 2--PORTFOLIO TRANSACTIONS During the six months ended June 30, 1995, the Fund entered into purchase and sale transactions excluding short term instruments, as follows: Cost of Purchases............................................. $434,113,797 ============ Proceeds from Sales........................................... $411,267,662 ============
NOTE 3--INVESTMENT ADVISORY FEES, ADMINISTRATIVE 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 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 .70 of 1% of the Fund's average daily net assets. During the six months ended June 30, 1995, the Fund accrued advisory fees of $2,097,253. b) Administrative, Custodian and Shareholder Servicing Agent Fees: The Administrator for the Fund is The Shareholder Services Group, Inc. ("TSSG"), a wholly-owned subsidiary of First Data Corporation. Under the Administration Agreement, TSSG generally assists in all aspects of the Fund's administration. TSSG furnishes the Fund with office facilities, clerical help and accounting, data processing, bookkeeping, internal auditing and legal services, prepares reports to the Fund's shareholders, prepares tax returns and reports to and filings with the Securities and Exchange Commission and determines the Fund's net asset value. For these services provided by TSSG, and the custodial services provided by Boston Safe Deposit and Trust Company, an indirect wholly-owned subsidiary of Mellon Bank Corporation, and transfer agency, registrar and dividend paying agent services provided by TSSG, the Fund pays a monthly fee at the annual rate of .25 of 1% of the Fund's average daily net assets and reimburse certain out-of-pocket expenses. During the six months ended June 30, 1995, the Fund accrued fees of $804,812 for such services and expenses. Effective August 1, 1995, Zweig/Glaser Advisers became the Administrator for the Fund. c) Directors Fees: The Fund pays each Director who is not an interested person of the Fund or the Investment Adviser a fee of $8,000 per year plus $1,000 per Directors' or committee meeting 12 attended, together with the actual out-of-pocket costs relating to attendance at such meetings of each Director who is not an interested person of the Fund or the Investment Adviser. The Directors of the Fund who are interested persons of the Fund or the Investment Adviser receive no remuneration from the Fund. d) Legal Fees: The fund accrued legal fees of $8,446 for the six months ended June 30, 1995, for the services of Rosenman & Colin, of which Robert E. Smith, Director of the Fund, is a partner. e) Brokerage Commissions: During the six months ended June 30, 1995, the Fund paid Watermark Securities, Inc. brokerage commissions of $83,191 in connection with portfolio transactions. NOTE 4--CAPITAL STOCK AND DISTRIBUTION REINVESTMENTS At June 30, 1995 the Fund has one class of common stock, par value $.001 per share, of which 500,000,000 shares are authorized and 74,020,253 shares are outstanding. For the six months ended June 30, 1995 and the year ended December 31, 1994, 1,083,786 and 1,764,971 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 TSSG, 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 TSSG, as the dividend paying agent. NOTE 5--FINANCIAL HIGHLIGHTS Selected data for a share outstanding throughout each period:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31 JUNE 30, ------------------------------------------------- 1995 1994 1993 1992 1991 1990 ---------- -------- -------- -------- -------- -------- Operating performance Net Asset Value, beginning of period.... $ 8.11 $ 9.11 $ 9.06 $ 9.79 $ 9.02 $ 9.59 -------- -------- -------- -------- -------- -------- Net investment income... 0.20 0.29 0.26 0.32 0.44 0.56 Net realized and unrealized gains (losses) from security transactions........... 0.59 (0.43) 0.75 (0.09) 1.29 (0.20) -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets.......... 0.79 (0.14) 1.01 0.23 1.73 0.36 Distributions: Dividends from net investment income...... (0.42) (0.29) (0.26) (0.32) (0.43) (0.60) Distributions from capital................ -- (0.57) -- (0.34) -- (0.29) Distributions from realized gains from investment transactions........... -- -- (0.70) (0.30) (0.53) (0.04) -------- -------- -------- -------- -------- -------- Total distributions..... (0.42) (0.86) (0.96) (0.96) (0.96) (0.93) -------- -------- -------- -------- -------- -------- Net Asset Value, end of period................. $ 8.48 $ 8.11 $ 9.11 $ 9.06 $ 9.79 $ 9.02 ======== ======== ======== ======== ======== ======== Market Value, end of period+................ $ 8.625 $ 8.00 $ 10.75 $ 10.00 $ 10.63 $ 8.63 ======== ======== ======== ======== ======== ======== Total investment return. 10.04% (17.08)% 18.37% 2.60% 37.90% (1.99)% ======== ======== ======== ======== ======== ======== Ratios and supplemental data: Net assets, end of period (in thousands).. $627,842 $591,659 $648,516 $624,097 $648,118 $573,782 Ratio of expenses to average net assets..... 1.14%* 1.12% 1.11% 1.13% 1.11% 1.09% Ratio of net investment income to average net assets................. 4.86%* 3.35% 2.85% 3.43% 4.74% 6.14% Portfolio turnover rate. 124.44% 281.00% 293.01% 123.19% 148.60% 145.16%
-------- + Closing New York Stock Exchange price. * Annualized. 13 NOTE 6--QUARTERLY RESULTS OF INVESTMENT OPERATIONS Shown in thousands of dollars and per common share:
NET REALIZED NET INCREASE AND UNREALIZED (DECREASE) TOTAL NET GAIN (LOSS) ON IN NET ASSETS INVESTMENT INVESTMENT INVESTMENTS AND RESULTING FROM INCOME INCOME NET OTHER ASSETS OPERATIONS ----------- ----------- ---------------------------------- 1995--Quarter Ended 06/30/95.......... $8,895 $.12 $7,063 $.10 $ 28,784 $ .39 $ 35,847 $ .49 03/31/95.......... 9,084 .12 7,507 .10 14,780 .20 22,286 .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 1, 1995. The meeting was held for the purpose of reelecting William M. Batten, Anthony M. Santomero and Martin E. Zweig 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, 1995. The Fund's other Directors who continued in office are Edward S. Babbitt, Jr., Charles H. Brunie, Elliot S. Jaffe, James B. Rogers, Jr. and Robert E. Smith. The results of the voting on the above matters were as follows:
DIRECTOR/AUDITOR VOTES FOR VOTES AGAINST VOTES WITHHELD ABSTENTIONS ---------------- ---------- ------------- -------------- ----------- William M. Batten........... 53,080,461 -- 823,586 -- Anthony M. Santomero........ 53,204,382 -- 699,665 -- Martin E. Zweig............. 53,226,737 -- 677,310 -- Coopers & Lybrand L.L.P. ... 52,847,472 327,374 -- 729,201
------------------------------------------------------------------------------- KEY INFORMATION The Shareholder Services Group, Inc. P.O. Box 1376 Boston, MA 02104 For questions about our Reinvestment Plan, shareholders may write to The Shareholder Services Group or call 1-800-331-1710. THE ZWEIG TOTAL RETURN FUND HOTLINE For weekly updates on the Fund's major industry holdings, our market stance and our net asset value call (212) 486-3122. THE ZWEIG TOTAL RETURN FUND, INC. GENERAL INFORMATION 1-800-272-2700 ------------------------------------------------------------------------------- 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 William M. Batten Director Charles H. Brunie Director Elliot S. Jaffe 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 The Shareholder Services Group, Inc. P.O. Box 1376 Boston, MA 02104 LEGAL COUNSEL Rosenman & Colin 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 OF THE ZWEIG TOTAL RETURN FUND APPEARS HERE] SEMI-ANNUAL REPORT JUNE 30, 1995