ZWEIG TOTAL RETURN FUND INC

 

 

 

The Zweig Total Return Fund, Inc.

 

Quarterly Report

September 30, 2015

 

LOGO


FUND DISTRIBUTIONS AND MANAGED DISTRIBUTION PLAN

The Fund has a Managed Distribution Plan to pay 7% of the Fund’s net asset value on an annualized basis. Distributions may represent earnings from net investment income, realized capital gains, or, if necessary, return of capital. The board believes that regular monthly, fixed cash payouts will enhance shareholder value and serve the long-term interests of shareholders. You should not draw any conclusions about the Fund’s investment performance from the amount of the distributions or from the terms of the Fund’s Managed Distribution Plan.

The Fund has not distributed more than its income and net realized capital gains in the nine months ended September 30, 2015 on a tax basis. Shareholders should note, however, that if the Fund’s aggregate investment income and net realized capital gains are less than the amount of the distribution level, the difference will be paid from the Fund’s capital and will constitute a return of the shareholder’s capital. A return of capital may occur, for example, when some or all of the money that you invested in the Fund is paid back to you. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.”

The amounts and sources of distributions reported in the Fund’s notices pursuant to Section 19(a) of the Investment Company Act of 1940 are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund’s investment experience during its fiscal year and may be subject to changes based on tax regulations. The Fund will send shareholders a Form 1099-DIV for 2015 that tells them how to report distributions for federal income tax purposes.

The Board may amend, suspend or terminate the Managed Distribution Plan at any time, without prior notice to shareholders if it deems such action to be in the best interest of the Fund and its shareholders.

Information on the Zweig funds is available at www.Virtus.com. Section 19(a) notices are posted on the website at:
http://www.virtus.com/
our-products/closed-end-fund-details/ZTR.

 

1


MESSAGE TO SHAREHOLDERS

Dear Fellow Zweig Total Return Fund Shareholder:

I am pleased to share with you the manager’s report and commentary for the Zweig Total Return Fund, Inc. for the nine months ended September 30, 2015.

For the reporting period, the fund’s net asset value (NAV) decreased 6.99%, including $0.790 in reinvested distributions. During the same period, the Fund’s benchmark index, a composite consisting of equal parts of the S&P 500® Index(1) and the Barclays U.S. Government Bond Index,(2) decreased 1.64%, including reinvested dividends. Performance for the composite’s underlying indices over this period included a loss of 5.29% for the S&P 500® Index and a 1.79% gain for the Barclays U.S. Government Bond Index. Over the period the fund’s average asset allocation was approximately 69% in equities, 24% in fixed income, and 7% in cash.

On behalf of the investment professionals at Zweig Advisers, I thank you for entrusting your assets to us. Should you have any questions or require support, please contact customer service at 1-800-272-2700 or through the closed-end fund section of our website, www.virtus.com.

Sincerely,

 

LOGO

 

George R. Aylward

Chairman, President and

Chief Executive Officer

The Zweig Total Return Fund, Inc.

October 2015

Performance data quoted represents past results. Past performance is no guarantee of future results and current performance may be higher or lower than performance shown above.

 

(1)  The S&P 500® Index is a free-float market capitalization-weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
(2)  The Barclays U.S. Aggregate Bond Index measures the U.S. investment-grade fixed-rate bond market. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.

Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.

Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.

Leverage: When a fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded.

U.S. Government Securities: U.S. government securities may be subject to price fluctuations. An agency may default on an obligation not backed by the United States. Any guarantee on U.S. government securities does not apply to the value of the fund’s shares.

 

2


MESSAGE TO SHAREHOLDERS (Continued)

Market Price/NAV: Shares of closed-end funds often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the fund’s NAV.

Short Sales: The Fund may engage in short sales, and may experience a loss if the price of a borrowed security increases before the date on which the Fund replaces the security.

This information does not represent an offer, or the solicitation of an offer, to buy or sell securities of the Fund.

 

3


THE ZWEIG TOTAL RETURN FUND, INC.

SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT

SEPTEMBER 30, 2015 (Unaudited)

 

Asset Allocation as of September 30, 2015

 
 
The following table illustrates asset allocations within certain sectors as a percentage of total investments net of securities sold short as of September 30, 2015.     

Common Stocks

    67

U.S. Government Securities

    19   

Corporate Bonds

    10   

Short-Term Investment

    4   
   

 

 

 

Total

    100
   

 

 

 

($ reported in thousands)

    Par      Value  
INVESTMENTS     
U.S. GOVERNMENT SECURITIES—17.9%  

U.S. Treasury Inflation Indexed Bonds

    

2.000%, 1/15/16(2)(3)

  $ 30,061       $ 29,978   

2.375%, 1/15/17(2)(3)

    36,686         37,668   

0.375%, 7/15/25(2)(3)

    10,064         9,810   
TOTAL U.S. GOVERNMENT SECURITIES
(Identified Cost $76,440)
          77,456   
CORPORATE BONDS AND NOTES—8.7%   
Consumer Discretionary—1.7%  

Comcast Cable Communications Holdings, Inc.
9.455%, 11/15/22

    2,534         3,537   

Historic TW, Inc.
6.625%, 5/15/29

    2,000         2,446   

Time Warner, Inc.
2.100%, 6/1/19

    1,500         1,501   
    

 

 

 
       7,484   
    

 

 

 
Consumer Staples—0.4%  

Anheuser-Busch Inbev Worldwide, Inc.
7.750%, 1/15/19

    1,500         1,763   
    

 

 

 
       1,763   
    

 

 

 
Energy—0.5%  

Chevron Corp.
3.191%, 6/24/23

    2,000         2,028   
    

 

 

 
       2,028   
    

 

 

 
    Par      Value  
Financials—1.5%  

Ford Motor Credit Co. LLC
5.000%, 5/15/18

  $ 2,000       $ 2,127   

General Electric Capital Corp.
3.150%, 9/7/22

    2,000         2,053   

Goldman Sachs Group, Inc. (The)
5.750%, 1/24/22

    2,000         2,296   
    

 

 

 
       6,476   
    

 

 

 
Industrials—3.3%  

Burlington Northern Santa Fe LLC
3.450%, 9/15/21

    1,000         1,031   

CSX Corp.
6.250%, 3/15/18

    4,000         4,437   

Ingersoll-Rand Global Holding Co., Ltd.

    

9.000%, 8/15/21

    1,000         1,290   

6.875%, 8/15/18

    4,814         5,426   

Parker-Hannifin Corp.

    

3.300%, 11/21/24

    1,000         1,021   

5.500%, 5/15/18

    1,000         1,097   
    

 

 

 
       14,302   
    

 

 

 
Materials—0.8%  

Du Pont (E.I.) de Nemours & Co.
2.800%, 2/15/23

    2,000         1,937   

Monsanto Co.
5.500%, 8/15/25

    1,401         1,555   
    

 

 

 
       3,492   
    

 

 

 
 

 

See notes to schedule of investments

 

 

4


THE ZWEIG TOTAL RETURN FUND, INC.

SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)

SEPTEMBER 30, 2015 (Unaudited)

($ reported in thousands)

 

    Par      Value  
Telecommunication Services—0.5%  

Verizon Communications, Inc.
5.150%, 9/15/23

  $ 2,000       $ 2,206   
    

 

 

 
               2,206   
TOTAL CORPORATE BONDS AND NOTES   
(Identified Cost $36,139)         37,751   
    Shares         
COMMON STOCK—65.3%   
Consumer Discretionary—12.9%  

Cheesecake Factory, Inc. (The)

    93,000         5,018   

Ford Motor Co.

    490,000         6,649   

GameStop Corp. Class A

    72,000         2,967   

General Motors Co.

    88,000         2,642   

Goodyear Tire & Rubber Co. (The)

    140,000         4,106   

Lear Corp.

    44,000         4,786   

McDonald’s Corp.

    67,000         6,602   

Mohawk Industries, Inc.(2)

    19,000         3,454   

Royal Caribbean Cruises Ltd.

    49,000         4,366   

Target Corp.

    76,000         5,978   

Time Warner, Inc.

    72,000         4,950   

Whirlpool Corp.

    28,000         4,123   
    

 

 

 
       55,641   
    

 

 

 
Consumer Staples—3.2%  

Altria Group, Inc.

    61,000         3,318   

Archer-Daniels-Midland Co. (The)

    108,000         4,477   

PepsiCo, Inc.

    65,000         6,130   
    

 

 

 
       13,925   
    

 

 

 
Energy—4.0%  

Buckeye Partners LP(4)

    42,000         2,489   

Hess Corp.

    68,000         3,404   

Schlumberger Ltd.

    66,000         4,552   

TOTAL SA Sponsored ADR

    52,000         2,325   

Valero Energy Corp.

    76,000         4,568   
    

 

 

 
       17,338   
    

 

 

 
Financials—12.7%  

BB&T Corp.

    157,000         5,589   

BlackRock, Inc.

    17,700         5,265   

Blackstone Group LP (The)

    210,000         6,651   
    Shares      Value  
Financials (continued)  

Goldman Sachs Group, Inc. (The)

    25,600       $ 4,448   

JPMorgan Chase & Co.

    80,000         4,878   

Lincoln National Corp.

    90,000         4,272   

Progressive Corp. (The)

    174,000         5,331   

Prudential Financial, Inc.

    70,000         5,335   

Royal Bank of Canada

    48,000         2,652   

UBS Group AG(2)

    243,000         4,500   

Wells Fargo & Co.

    115,000         5,905   
    

 

 

 
       54,826   
    

 

 

 
Health Care—10.5%  

Abbott Laboratories

    107,000         4,304   

Becton, Dickinson & Co.

    35,000         4,643   

Biogen, Inc.(2)

    11,800         3,443   

Eli Lilly & Co.(4)

    45,000         3,766   

Gilead Sciences, Inc.

    47,000         4,615   

GlaxoSmithKline plc Sponsored ADR

    70,000         2,691   

HCA Holdings, Inc.(2)

    41,000         3,172   

Merck & Co., Inc.(4)

    58,000         2,865   

Pfizer, Inc.

    97,000         3,047   

St. Jude Medical, Inc.

    78,000         4,921   

UnitedHealth Group, Inc.

    45,000         5,220   

Valeant Pharmaceuticals International, Inc.(2)

    14,000         2,497   
    

 

 

 
       45,184   
    

 

 

 
Industrials—9.6%  

Alaska Air Group, Inc.

    58,000         4,608   

Boeing Co. (The)

    39,000         5,107   

Deere & Co.

    63,000         4,662   

FedEx Corp.

    25,000         3,599   

General Electric Co.(4)

    132,000         3,329   

L-3 Communications Holdings, Inc.

    33,000         3,449   

Lockheed Martin Corp.(4)

    16,400         3,400   

Southwest Airlines Co.

    100,000         3,804   

United Parcel Service, Inc. Class B

    59,000         5,823   

USG Corp.(2)

    144,500         3,847   
    

 

 

 
       41,628   
    

 

 

 
Information Technology—7.9%  

Apple, Inc.

    44,000         4,853   

Canon, Inc. Sponsored ADR

    94,000         2,723   

EMC Corp.

    199,000         4,808   
 

 

See notes to schedule of investments

 

 

5


THE ZWEIG TOTAL RETURN FUND, INC.

SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)

SEPTEMBER 30, 2015 (Unaudited)

($ reported in thousands)

 

    Shares      Value  
Information Technology (continued)  

Facebook, Inc. Class A(2)

    39,000       $ 3,506   

Google, Inc. Class A(2)

    800         511   

Google, Inc. Class C(2)

    4,913         2,989   

MasterCard, Inc. Class A

    45,000         4,056   

QUALCOMM, Inc.

    108,000         5,803   

Skyworks Solutions, Inc.

    59,000         4,968   
    

 

 

 
       34,217   
    

 

 

 
Materials—1.4%  

CF Industries Holdings, Inc.

    95,000         4,265   

Potash Corp. of Saskatchewan, Inc.

    92,000         1,891   
    

 

 

 
       6,156   
    

 

 

 
Telecommunication Services—2.3%  

AT&T, Inc.(4)

    97,000         3,160   

Verizon Communications, Inc.

    160,000         6,962   
    

 

 

 
       10,122   
    

 

 

 
Utilities—0.8%  

Southern Co.

    74,000         3,308   
    

 

 

 
               3,308   
TOTAL COMMON STOCK
(Identified Cost $254,491)
         282,345   
CLOSED END FUND—0.4%  

Templeton Dragon Fund, Inc.

    99,000         1,851   
TOTAL CLOSED END FUND
(Identified Cost $1,585)
         1,851   
EXCHANGE-TRADED FUND—0.8%  

Market Vectors Gold Miners

    253,000         3,476   
TOTAL EXCHANGE-TRADED FUND
(Identified Cost $3,638)
         3,476   
TOTAL LONG TERM INVESTMENTS—93.1%   
(Identified Cost $372,293)         402,879   
    Shares     Value  
SHORT-TERM INVESTMENT—6.5%   
Money Market Mutual Fund  

Fidelity Money Market Portfolio—Institutional Shares (seven-day effective yield 0.170%)

    27,990,511      $ 27,991   
TOTAL SHORT-TERM INVESTMENT
(Identified Cost $27,991)
        27,991   
TOTAL INVESTMENTS, BEFORE SECURITIES SOLD SHORT—99.6%
(Identified Cost $400,284)
         430,870 (1) 
SECURITIES SOLD SHORT—(3.1)%   
COMMON STOCKS SOLD SHORT—(0.9)%   
Consumer Discretionary—(0.9)%  

Marriott International, Inc. Class A

    (55,000     (3,751
TOTAL COMMON STOCKS SOLD SHORT   
(Proceeds $3,755)        (3,751
EXCHANGE-TRADED FUNDS SOLD SHORT—(2.2)%    

Industrial Select Sector SPDR Fund

    (75,000     (3,742

iShares Russell 2000® Index Fund

    (23,000     (2,511

SPDR S&P 500® ETF Trust

    (17,000     (3,258
TOTAL EXCHANGE-TRADED FUNDS SOLD SHORT
(Proceeds $9,653)
         (9,511
TOTAL SECURITIES SOLD SHORT
(Proceeds 13,408)
        (13,262 )(1) 
TOTAL INVESTMENTS, NET OF SECURITIES SOLD SHORT
(Identified Cost $386,876)—96.5%
         417,608   

Other assets and liabilities,
net—3.5%

   

    14,888   
   

 

 

 
NET ASSETS—100.0%     $ 432,496   
   

 

 

 
 

 

See notes to schedule of investments

 

 

6


THE ZWEIG TOTAL RETURN FUND, INC.

SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)

SEPTEMBER 30, 2015 (Unaudited)

($ reported in thousands)

 

 

(1)  Federal Income Tax Information: For tax information at September 30, 2015, see Note 4 Federal Income Tax Information in the Notes to Schedules of Investments.
(2)  Non-income producing.
(3)  Principal amount is adjusted daily pursuant to the change in the Consumer Price Index.
(4)  All or a portion of securities segregated as collateral for securities sold short.

The following table provides a summary of inputs used to value the Fund’s investments as of September 30, 2015 (See Security Valuation Note 1A in the Notes to Schedules of Investments):

 

     Total Value at
September 30, 2015
    Level 1
Quoted Prices
    Level 2
Significant
Observable
Inputs
 

Debt Securities:

      

U.S. Government Securities

   $ 77,456      $      $ 77,456   

Corporate Bonds And Notes

     37,751               37,751   

Equity Securities:

      

Common Stocks

     282,345        282,345          

Closed End Fund

     1,851        1,851          

Exchange-Traded Fund

     3,476        3,476          

Short-Term Investment

     27,991        27,991          
  

 

 

   

 

 

   

 

 

 

Total Investments before Securities Sold Short

   $ 430,870      $ 315,663      $ 115,207   
  

 

 

   

 

 

   

 

 

 

Liabilities:

      

Common Stock Sold Short

     (3,751     (3,751       

Exchange-Traded Funds Sold Short

     (9,511     (9,511       
  

 

 

   

 

 

   

 

 

 

Total Liabilities

   $ (13,262   $ (13,262   $   
  

 

 

   

 

 

   

 

 

 

There are no Level 3 (significant unobservable inputs) priced securities.

There were no transfers between Level 1 and Level 2 related to securities held at September 30, 2015.

 

See notes to schedule of investments

 

7


THE ZWEIG TOTAL RETURN FUND, INC.

FINANCIAL HIGHLIGHTS

SEPTEMBER 30, 2015 (Unaudited)

 

(Reported in thousands except for the per share amounts)

 

     Total Net Assets     Net Asset Value
per share
 

Beginning of period: December 31, 2014

     $ 500,825        $ 15.43   

Net investment income*

   $ 5,384        $ 0.17     

Net realized and unrealized gain on investments

     (42,244       (1.31  

Dividends from net investment income and distributions from net long-term and short-term capital gains**

     (25,474       (0.79  

Capital shares transactions—Common shares repurchased

     (5,995       0.02     
  

 

 

     

 

 

   

Net increase (decrease) in net assets/net asset value

       (68,329       (1.91
    

 

 

     

 

 

 

End of period: September 30, 2015

     $ 432,496        $ 13.52   
    

 

 

     

 

 

 

 

* Computed using average shares outstanding.
** Please note that the tax status of our distributions is determined at the end of the taxable year. However, based on interim data as of September 30, 2015, we estimate that 22% of distributions will represent net investment income, and 78% will represent long-term gains. Also refer to inside front cover for information on the Managed Distribution Plan.

 

See notes to schedule of investments

 

8


THE ZWEIG TOTAL RETURN FUND, INC.

NOTES TO SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT

SEPTEMBER 30, 2015 (Unaudited)

 

Note 1. Significant Accounting Policies

The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates and those differences could be significant.

 

  A. Security Valuation:

Security valuation procedures for the Fund, which include nightly price variance, as well as back-testing such as bi-weekly unchanged price, monthly secondary source and transaction analysis, have been approved by the Board of Directors (the “Board”, or the “Directors”). All internally fair valued securities are approved by a valuation committee (the “Valuation Committee”) appointed by the Board. The Valuation Committee is comprised of certain members of management as identified to the Board, and convenes independently from portfolio management. All internally fair valued securities, referred to below, are updated daily and reviewed in detail by the Valuation Committee monthly unless changes occur within the period. The Valuation Committee reviews the validity of the model inputs and any changes to the model. Quarterly internal fair valuations are reviewed and ratified by the Board.

The Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. It is the Fund’s policy to recognize transfers at the end of the reporting period.

 

      Level 1 – quoted prices in active markets for identical securities (security types generally include listed equities)

 

      Level 2 – prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)

 

      Level 3 – prices determined using significant unobservable inputs (including the Valuation Committee’s own assumptions in determining the fair value of investments)

A description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows:

Equity securities are valued at the official closing price (typically last sale) on the exchange on which the securities are primarily traded or, if no closing price is available, at the last bid price and are categorized as Level 1 in the hierarchy. Restricted equity securities and private placements that are not widely traded, are illiquid, or are internally fair valued by the Valuation Committee are generally categorized as Level 3 in the hierarchy.

Certain non-U.S. securities may be fair valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market, or other regional and local developments) may occur between the time that non-U.S. markets

 

9


THE ZWEIG TOTAL RETURN FUND, INC.

NOTES TO SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)

SEPTEMBER 30, 2015 (Unaudited)

 

close (where the security is principally traded) and the time that a Fund calculates its net asset value (“NAV”) (at the close of regular trading on the New York Stock Exchange (“NYSE”), generally 4 p.m. Eastern time) that may impact the value of securities traded in these non-U.S. markets. In such cases the Funds fair value non-U.S. securities using an independent pricing service which considers the correlation of the trading patterns of the non-U.S. security to the intraday trading in the U.S. markets for investments such as American Depositary Receipts, financial futures, Exchange-Traded Funds (“ETFs”), and certain indexes, as well as prices for similar securities. Such fair valuations are categorized as Level 2 in the hierarchy. Because the frequency of significant events is not predictable, fair valuation of certain non-U.S. common stocks may occur on a frequent basis.

Debt securities, including restricted securities, are valued based on evaluated quotations received from independent pricing services or from dealers who make markets in such securities. For most bond types, the pricing service utilizes matrix pricing which considers yield or price of bonds of comparable quality, coupon, maturity, current cash flows, type, and current day trade information, as well as dealer supplied prices. These valuations are generally categorized as Level 2 in the hierarchy. Structured debt instruments such as mortgage-backed and asset-backed securities may also incorporate collateral analysis and utilize cash flow models for valuation and are generally categorized as Level 2 in the hierarchy. Pricing services do not provide pricing for all securities and therefore dealer supplied prices are utilized representing indicative bids based on pricing models used by market makers in the security and are generally categorized as Level 2 in the hierarchy. Debt securities that are not widely traded, are illiquid, or are internally fair valued by the Valuation Committee, are generally categorized as Level 3 in the hierarchy.

Listed derivatives, such as options, that are actively traded are valued based on quoted prices from the exchange and are categorized as Level 1 in the hierarchy. Over-the-counter derivative contracts, which include forward currency contracts and equity-linked instruments, are valued based on inputs observed from actively quoted markets and are categorized as Level 2 in the hierarchy.

Investments in open-end mutual funds are valued at NAV. Investments in closed-end funds are valued as of the close of regular trading on the NYSE each business day. Both are categorized as Level 1 in the hierarchy.

A summary of the inputs used to value the Fund’s net assets by each major security type is disclosed at the end of the Schedule of Investments and Securities Sold Short for the Fund. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

 

  B. Security Transactions and Investment Income:

Security transactions are recorded on the trade date. Realized gains and losses from sales of securities are determined on the identified cost basis. Dividend income is recognized on the ex-dividend date or, in the case of certain foreign securities, as soon as the Fund is notified. Interest income is recorded on the accrual basis. The Fund amortizes premiums and accretes discounts using the effective interest method. Any distributions from the underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.

 

10


THE ZWEIG TOTAL RETURN FUND, INC.

NOTES TO SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)

SEPTEMBER 30, 2015 (Unaudited)

 

 

  C. Foreign Currency Translation:

Non-U.S. investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the foreign currency exchange rate effective at the end of the reporting period. Cost of investments is translated at the currency exchange rate effective at the trade date. The gain or loss resulting from a change in currency exchange rates between the trade and settlement date of a portfolio transaction is treated as a gain or loss on foreign currency. Likewise, the gain or loss resulting from a change in currency exchange rates between the date income is accrued and the date it is paid is treated as a gain or loss on foreign currency. The Fund does not isolate that portion of the results of operations arising from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.

 

  D. Short Sales:

A short sale is a transaction in which the Fund sells a security it does not own in anticipation of a decline in market price. To sell a security short, the Fund must borrow the security. The Fund’s obligation to replace the security borrowed and sold short will be fully collateralized at all times by the proceeds from the short sale retained by the broker and by cash and securities deposited in a segregated account with the Fund’s custodian. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will realize a loss, and if the price declines during the period, the Fund will realize a gain. Any realized gain will be decreased by, and any realized loss increased by, the amount of transaction costs. On ex-dividend date, dividends on short sales are recorded as an expense to the Fund.

In accordance with the terms of its prime brokerage agreement, the Fund may receive rebate income or be charged a fee based on borrowed securities which is under interest expense on short sales on the Statement of Operations. Such income or fee is calculated on a daily basis based on the market value of each borrowed security and a variable rate that is dependent upon the availability of such security.

Note 2. Indemnifications

Under the Fund’s organizational documents and related agreements, its directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these arrangements.

Note 3. Credit Risk and Asset Concentrations

In countries with limited or developing markets, investments may present greater risks than in more developed markets and the prices of such investments may be volatile. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of these investments and the income they generate, as well as the Fund’s ability to repatriate such amounts.

 

11


THE ZWEIG TOTAL RETURN FUND, INC.

NOTES TO SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)

SEPTEMBER 30, 2015 (Unaudited)

 

The Fund may invest a high percentage of its assets in specific sectors of the market in the pursuit of its investment objectives. Fluctuations in these sectors of concentration may have a greater impact on the Fund, positive or negative, than if the Fund did not concentrate its investments in such sectors.

Note 4. Federal Income Tax Information

($ reported in thousands)

At September 30, 2015, federal tax cost and aggregate gross unrealized appreciation (depreciation) of securities held by the Fund were as follows:

 

    

Federal

Tax Cost

   

Unrealized

Appreciation

    

Unrealized

Depreciation

   

Net Unrealized
Appreciation
(Depreciation)

 
Investments    $ 400,725      $ 52,701       $ (22,556   $ 30,145   
Securities sold short      (13,408     148         (2     146   

Note 5. Subsequent Events

Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there are no subsequent events that require recognition or disclosure in these financial statements.

 

12


KEY INFORMATION

Zweig Shareholder Relations: 1-800-272-2700

For general information and literature, as well as updates on net asset value, share price, major industry groups and other key information

REINVESTMENT PLAN

Many of you have questions about our reinvestment plan. We urge shareholders who want to take advantage of this plan and whose shares are held in “Street Name,” to consult your broker as soon as possible to determine if you must change registration into your own name to participate.

REPURCHASE OF SECURITIES

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.

PROXY VOTING INFORMATION (FORM N-PX)

The Adviser votes proxies relating to portfolio securities in accordance with procedures that have been approved by the Fund’s Board of Directors. You may obtain a description of these procedures, along with information regarding how the Fund voted proxies during the most recent 12-month period ended June 30, free of charge, by calling toll-free 1-800-272-2700. This information is also available through the Securities and Exchange Commission’s website at http://www.sec.gov.

FORM N-Q INFORMATION

The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (the “SEC”) for the first and third quarters of each fiscal year on Form N-Q. Form N-Q is available on the SEC’s website at http://www.sec.gov. Form N-Q may be reviewed and copied at the SEC’s Public Reference Room. Information on the operation of the SEC’s Public Reference Room can be obtained by calling toll-free 1-800-SEC-0330.

 

13


DIRECTORS AND OFFICERS

George R. Aylward, Chairman, President, and Chief Executive Officer

James B. Rogers, Jr., Director

Christopher Ruddy, Director

R. Keith Walton, Director

William H. Wright II, Director

Brian T. Zino, Director

Carlton Neel, Executive Vice President

David Dickerson, Senior Vice President

W. Patrick Bradley, Senior Vice President, Treasurer, and Chief Financial Officer

William Renahan, Vice President, Chief Legal Officer, and Secretary

Jacqueline Porter, Vice President and Assistant Treasurer

Nancy Engberg, Vice President and Chief Compliance Officer

 

Investment Adviser

Zweig Advisers LLC

100 Pearl Street

Hartford, CT 06103-4506

Fund Administrator

Virtus Fund Services, LLC

100 Pearl Street

Hartford, CT 06103-4506

Custodian

JPMorgan Chase Bank, NA

1 Chase Manhattan Plaza

New York, NY 10005-1401

Transfer Agent

Computershare Trust Company, NA

P.O. Box 43078

Providence, RI 02940-3078

Fund Counsel

Dechert LLP

One International Place

40th Floor

Boston, MA 02110-2605

 

 

 

This report is transmitted to the shareholders of The Zweig Total Return Fund, Inc. for their information. This is not a prospectus, circular, or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.

 

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For more information about

The Zweig Total Return Fund, Inc.,

please contact us at 1-800-272-2700

or zweig@virtus.com

or visit Virtus.com.

 

   Q3-15

 

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