-----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, B41oaccn3ibQkFr2U4DSFib6B0TgabAIpCz2IisWmQ4dsEpT2F7h+m5XJHLemWwD aILTUyIX/VVlaZH8GGM8Wg== 0000940180-97-000119.txt : 19970211 0000940180-97-000119.hdr.sgml : 19970211 ACCESSION NUMBER: 0000940180-97-000119 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970207 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: 97520075 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 ANNUAL REPORT January 22, 1997 Dear Shareholder: The Zweig Total Return Fund's net asset value increased 6.3%, including $0.84 in reinvested distributions, for the year ended December 31, 1996. During the fourth quarter of 1996, the Fund's net asset value gained 4.2%, including $0.21 in reinvested distributions. Consistent with our policy of seeking to minimize risk while earning reasonable returns, our average exposure was approximately 63% for the fourth quarter and 70% for the year. Our investment levels were based on my indicators which were neutral for a good portion of the year especially the last two-thirds. I was correct with the bond market, where both long and intermediate term prices fell (resulting in a very disappointing year), but stocks did better than my indicators suggested. A combination of the Fund having a larger portion of its assets dedicated to bonds and my neutral opinion on stocks led to our underperformance. As I see it, our mandate is to protect capital in down markets while earning reasonable returns. There will be times when we are fully invested but this will not occur when my time-tested indicators, which are based on probabilities, point to a neutral or bearish position. These indicators have stood us in good stead over the years. If a shareholder had invested $10,000 (1,000 shares) at the Fund's Initial Public Offering in September, 1988, these holdings, including distributions, would have appreciated to $18,048 (2,256 shares) as of December 31, 1996. DISTRIBUTION DECLARED In accordance with our policy of distributing 10% of our net asset value per year, which equals 0.83% per month (10% divided by 12 months), the Fund announced a distribution of $0.07 per share payable on January 10, 1997, to shareholders of record on December 31, 1996. The amount of a distribution depends on the exact net asset value at the time of declaration. For the January 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 $7.54. Of the $0.84 distributed in 1996, $0.48 is taxable as ordinary income, $0.12 is long-term capital gains, and $0.24 is return of capital (return of capital distributions are tax-free and should not be reported as income). MARKET OUTLOOK As long-time investors in our Fund know, our fully-invested position would be 62 1/2% for bonds and 37 1/2% for stocks. I have not revised these percentages since we started the Fund eight years ago. I would only change them if stock dividend yields rose significantly vis-a-vis bonds. In the past eight years bond yields have consistently been a lot higher than yields on stocks. At the year-end, our bond portion of the Fund was 37%, unchanged from the close of the third quarter. That means we were at about 59% of a full position (37%/62 1/2%). This reflects my neutral position on bonds. Our average duration is about 3.5 years, a position lower than held by bond mutual funds in general. The lower a fund's duration the less sensitive it is to changes in interest rates. Up until the last month or so the bond market was O.K. However more recently bond yields have risen better than 45 basis points or nearly half of one percent. The main indicators we consider to chart the direction of the bond market are prices of commodities and economic activity. Monitoring prices, we check various indices compiled by the Commodity Research Bureau, Goldman Sachs, and the Journal of Commerce. We also follow the prices of sensitive raw materials. Among these, gold has been extremely weak, which is normally a plus for bonds, but lumber, another key commodity, has been strong, a negative for bonds. We also follow aluminum, platinum, lead, copper, and other metals and these readings are a mixed bag. Commodity prices are slightly on the negative side but within a neutral range. As for the economy, we are currently finding more signs of strength than of weakness. Strength in the economy is a negative for bonds. I cannot say the economy is rip-roaring strong, but I would call it 60 to 40 on the side of strength. That is not what most economists think nor is it consistent with the prevalent belief that looks for growth in the 2% to 3% range. I think it could be a little higher in the near term. We examine other indicators, including momentum. As I like to say, "The trend is your friend"--and the trend in bonds in the past month or so has been downward in price. We lowered our exposure somewhat recently in part because momentum deteriorated. However, this factor could flip around a lot. If bonds act better, we will buy some more. Although I am more worried than most about the possibility of a stronger economy and higher inflation, I am not adamant. My stock position is neutral. At year-end we were at about 72% of a full position for equities (27%/37 1/2%). I am somewhat apprehensive about the major trends in stocks. I think that the bull market, which is the mother of all bull markets, is long in the tooth. There has not been a meaningful correction of 10% in the S&P and the Dow in almost six years, the longest stretch ever. This does not mean that stocks will not go higher. However it will be hard to keep the major elements responsible for this historic rise--modest economic growth and modest inflation--in fine balance forever. If the economy falls out of bed, it would really hurt corporate earnings. This would not be great for stocks even though interest rates might decline. If the economy gets too strong, we might see high inflation, higher interest rates, and probably a bear market. PORTFOLIO COMPOSITION Reflecting our investment policy guidelines, all of our bonds are U.S. Government obligations. As mentioned earlier, the average duration of the bond portion of our Fund is approximately 3.5 years. These bonds are liquid and provide us with the flexibility to respond quickly to changes in market conditions. Implementing my basic allocation strategy, the majority of our equities continue to be selected and sold on the basis of a proprietary computer-- driven model that employs various criteria--including earnings growth, cash flow, and price-to-book value ratios--to evaluate and rank stocks. We consider about 750 stocks with the highest dividend yields from a universe of approximately 1,500 of the most liquid stocks. This procedure has been in effect since the beginning of 1995. There was little change in the composition of our leading industry groups during the fourth 2 quarter. At the year-end, utilities continued to be the largest group in our portfolio. Other major sectors included oil and oil services, finance and financial services (which increased), telecommunications (which declined), technology, retail trade and services, and automotive. Some of our larger holdings include BankAmerica, Telefonica de Espana, Texaco, Chrysler (which increased), Rohm & Haas, Salomon, NYNEX, USX-Marathon, Merrill Lynch, and General Motors, Class H. Our portfolio also includes a number of closed-end funds that are selling at significant discounts from their net asset values. The average discount in our closed-end portfolio holdings at year-end was approximately 17%. This is equivalent to acquiring one dollar's worth of assets for 83 cents. Because they are relatively conservative investments that have been largely neglected during the long-running bull market, these funds currently are at extremely high discounts. When the market again places a premium on valuation, as it has done historically, discounts should narrow and more closely reflect the net asset values. This, of course, would enhance the profitability of these holdings in our Fund. Sincerely, /s/ Martin E. Zweig Martin E. Zweig, Ph.D. Chairman 3 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS DECEMBER 31, 1996
NUMBER OF VALUE SHARES (NOTE 1) --------- ------------ COMMON STOCKS 26.97% AEROSPACE & DEFENSE 0.47% Gencorp, Inc. ........................................ 19,800 $ 358,875 General Motors Corp., Class H......................... 47,400 2,666,250 ------------ 3,025,125 ------------ AUTOMOTIVE 1.29% Chrysler Corp. ....................................... 97,200 3,207,600 Ford Motor Co. ....................................... 76,800 2,448,000 General Motors Corp. ................................. 38,300 2,135,225 Volvo AB, ADR......................................... 19,800 430,650 ------------ 8,221,475 ------------ BANKS 1.08% Ahmanson, (H.F.) & Co. ............................... 24,500 796,250 BankAmerica Corp. .................................... 42,900 4,279,275 Chase Manhattan Corp. ................................ 14,000 1,249,500 City National Corp. .................................. 13,700 296,263 Washington Mutual, Inc. .............................. 6,900 298,856 ------------ 6,920,144 ------------ CHEMICALS 0.97% du Pont (E.I.) de Nemours & Co. ...................... 20,100 1,896,938 Olin Corp. ........................................... 36,600 1,377,075 Rohm & Haas Co. ...................................... 36,100 2,946,662 ------------ 6,220,675 ------------ CONSTRUCTION & FARM EQUIPMENT 0.32% Caterpillar Inc. ..................................... 27,300 2,054,325 ------------ CONSUMER DURABLES 0.37% Goodyear Tire & Rubber Co. ........................... 39,500 2,029,312 Huffy Corp. .......................................... 13,200 189,750 SPX Corp. ............................................ 3,200 124,000 ------------ 2,343,062 ------------ CONSUMER PRODUCTS 0.03% American Greetings Corp. ............................. 6,500 184,437 ------------ CONTAINERS & PACKAGING 0.03% Sea Containers Ltd., Class A.......................... 12,100 189,062 ------------
4
NUMBER OF VALUE SHARES (NOTE 1) --------- ----------- FINANCE & FINANCIAL SERVICES 2.22% Alex Brown Inc. ....................................... 10,000 $ 725,000 American Bankers Insurance Group, Inc. ................ 11,500 587,938 Bear, Stearns & Co., Inc. ............................. 74,840 2,086,165 Edwards (A.G.) & Sons, Inc. ........................... 55,800 1,876,275 Fremont General Corp. ................................. 19,600 607,600 GATX Corp. ............................................ 5,300 257,050 Merrill Lynch & Co., Inc. ............................. 33,000 2,689,500 Orion Capital Corp. ................................... 5,200 317,850 PaineWebber Group, Inc. ............................... 38,600 1,085,625 Salomon Inc. .......................................... 62,500 2,945,312 USLife Corp. .......................................... 29,800 990,850 ----------- 14,169,165 ----------- FOOD & BEVERAGE 0.17% Adolph Coors Co., Class B.............................. 36,500 693,500 Chiquita Brands International, Inc. ................... 13,000 165,750 Fleming Companies, Inc. ............................... 13,900 239,775 ----------- 1,099,025 ----------- HOMEBUILDING & MATERIALS 0.20% Armstrong World Industries, Inc. ...................... 9,800 681,100 Kaufman & Broad Home Corp. ............................ 32,900 423,587 Ryland Group Inc. ..................................... 12,200 167,750 ----------- 1,272,437 ----------- INVESTMENT COMPANIES 1.75% Blackrock 2001 Term Trust, Inc. ....................... 29,000 228,375 Blackrock Strategic Term Trust, Inc. .................. 29,000 232,000 Brazil Fund, Inc. ..................................... 13,200 293,700 Central European Equity Fund, Inc. .................... 6,900 136,275 Clemente Global Growth Fund, Inc. ..................... 13,100 98,250 Emerging Germany Fund, Inc. ........................... 48,700 395,687 Emerging Markets Infrastructure, Inc. ................. 20,800 226,200 Emerging Markets Telecommunications Fund, Inc. ........ 18,000 274,500 Emerging Mexico Fund, Inc. ............................ 13,500 99,562 Europe Fund, Inc. ..................................... 17,000 274,125 First Iberian Fund, Inc. .............................. 13,500 148,500 First Israel Fund, Inc. ............................... 12,000 142,500 France Growth Fund, Inc. .............................. 24,500 254,187 G.T. Global Developing Fund, Inc. ..................... 19,700 229,012 G.T. Global Eastern Europe Fund, Inc. ................. 36,400 468,650 Gabelli Equity Trust, Inc. ............................ 25,700 240,937 Gabelli Global Multimedia Trust, Inc. ................. 50,600 347,875 Global Health Sciences Fund, Inc. ..................... 54,600 791,700 Latin America Equity Fund, Inc. ....................... 600 8,400
5 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONTINUED) DECEMBER 31, 1996
NUMBER OF VALUE SHARES (NOTE 1) --------- ------------ INVESTMENT COMPANIES--(Continued) Liberty ALL-STAR Growth Fund, Inc. ................... 33,400 $ 313,125 Mexico Fund, Inc. .................................... 6,500 97,500 Morgan Grenfell SMALLCap Fund, Inc. .................. 31,033 325,847 Morgan Stanley Russia & New Europe Fund, Inc. ........ 1,200 21,600 New Age Media Fund, Inc. ............................. 17,300 216,250 New Germany Fund, Inc. ............................... 68,800 920,200 Pilgrim America Bank & Thrift Fund, Inc. ............. 20,100 316,575 Portugal Fund, Inc. .................................. 10,600 145,750 Royce Value Trust, Inc. .............................. 65,260 823,908 Schroder Asian Growth Fund, Inc. ..................... 6,700 79,563 Scudder New Asia Fund, Inc. .......................... 15,000 187,500 Scudder New Europe Fund, Inc. ........................ 26,900 373,238 Spain Fund, Inc. ..................................... 21,000 238,875 Swiss Helvetia Fund, Inc. ............................ 36,200 719,475 Templeton China World Fund, Inc. ..................... 18,400 243,800 Templeton Dragon Fund, Inc. .......................... 39,900 643,388 Templeton Vietnam Opportunities Fund, Inc. ........... 13,200 155,100 Tri-Continental Corp. ................................ 18,800 453,550 ------------ 11,165,679 ------------ LEISURE 0.34% Brunswick Corp. ...................................... 51,700 1,240,800 Fleetwood Enterprises, Inc. .......................... 33,000 907,500 ------------ 2,148,300 ------------ MANUFACTURING 1.12% Black & Decker Corp. ................................. 10,400 313,300 Cummins Engine Co., Inc. ............................. 27,400 1,260,400 Excel Industries, Inc. ............................... 15,800 262,675 Ingersoll-Rand Co. ................................... 9,400 418,300 Johnson Controls, Inc. ............................... 13,000 1,077,375 Miller (Herman), Inc. ................................ 19,500 1,104,187 Simpson Industries, Inc. ............................. 15,900 173,161 Standard Products Co. ................................ 12,200 311,100 Timken Co. ........................................... 12,400 568,850 TRW, Inc. ............................................ 33,000 1,633,500 ------------ 7,122,848 ------------
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NUMBER OF VALUE SHARES (NOTE 1) --------- ------------ METALS & MINING 0.79% British Steel, Plc, ADS............................. 60,700 $ 1,669,250 Cleveland-Cliffs, Inc. ............................. 3,900 176,963 Oregon Steel Mills, Inc. ........................... 61,800 1,035,150 Quanex Corp. ....................................... 12,900 353,137 USX-US Steel Group, Inc. ........................... 56,600 1,775,825 ------------ 5,010,325 ------------ OIL & OIL SERVICES 4.09% Ashland Oil, Inc. .................................. 54,400 2,386,800 British Petroleum Co., Plc, ADR..................... 10,900 1,540,988 Elf Aquitaine S.A., ADR............................. 45,900 2,076,975 Helmerich & Payne, Inc. ............................ 21,400 1,115,475 Kerr-McGee Corp. ................................... 32,200 2,318,400 Occidental Petroleum Corp. ......................... 65,400 1,528,725 Pennzoil Co. ....................................... 37,000 2,090,500 Phillips Petroleum Co. ............................. 58,800 2,601,900 Repsol S.A., ADR.................................... 51,700 1,971,063 Sun Co., Inc. ...................................... 14,500 353,437 Texaco Inc. ........................................ 33,000 3,238,125 Unocal Corp. ....................................... 44,600 1,811,875 USX-Marathon Group, Inc. ........................... 119,000 2,841,125 YPF Sociedad Anonima, ADR........................... 10,400 262,600 ------------ 26,137,988 ------------ PAPER & FOREST PRODUCTS 0.50% Bowater, Inc. ...................................... 35,400 1,331,925 International Paper Co. ............................ 23,800 960,925 Pope & Talbot, Inc. ................................ 13,400 212,725 Westvaco Corp. ..................................... 24,750 711,563 ------------ 3,217,138 ------------ RETAIL TRADE & SERVICES 1.56% American Stores Co. ................................ 56,800 2,321,700 Dayton Hudson Corp. ................................ 67,400 2,645,450 Mercantile Stores, Inc. ............................ 19,800 977,625 Ross Stores, Inc. .................................. 18,500 925,000 Shopko Stores, Inc. ................................ 15,900 238,500 Supervalu, Inc. .................................... 43,300 1,228,638 TJX Companies, Inc. ................................ 34,900 1,653,387 ------------ 9,990,300 ------------ TECHNOLOGY 1.76% Applied Materials, Inc. ............................ 11,600(a) 416,875 Dell Computer Corp. ................................ 20,400(a) 1,083,750 Digital Equipment Corp. ............................ 32,300(a) 1,174,912
7 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONTINUED) DECEMBER 31, 1996
NUMBER OF VALUE SHARES (NOTE 1) --------- ------------ TECHNOLOGY--(Continued) Harris Corp. ........................................ 36,700 $ 2,518,538 Intel Corp. ......................................... 12,800 1,676,000 International Business Machines Corp. ............... 13,100 1,978,100 Microsoft Corp. ..................................... 29,200(a) 2,412,650 ------------ 11,260,825 ------------ TELECOMMUNICATIONS 2.14% BCE, Inc. ........................................... 28,400 1,356,100 NYNEX Corp. ......................................... 60,500 2,911,562 Sprint Corp. ........................................ 57,100 2,276,863 Telefonica de Espana S.A., ADS....................... 55,400 3,836,450 Telefonos de Mexico S.A., ADS........................ 74,700 2,465,100 U.S. West, Inc. ..................................... 25,700 828,825 ------------ 13,674,900 ------------ TOBACCO 0.39% RJR Nabisco Holdings Corp. .......................... 73,300 2,492,200 ------------ TRANSPORTATION 0.69% Alexander & Baldwin Co. ............................. 4,600 115,000 APL Ltd. ............................................ 19,800 467,775 British Airways Plc, ADR............................. 8,100 832,275 CSX Corp. ........................................... 62,600 2,644,850 KLM Royal Dutch Airlines, N.V. ADR .................. 12,700 354,013 ------------ 4,413,913 ------------ UTILITIES--ELECTRIC & NATURAL GAS 4.69% Allegheny Power Systems, Inc. ....................... 17,000 516,375 American Electric Power Co., Inc. ................... 55,100 2,265,987 Baltimore Gas & Electric Co. ........................ 13,700 366,475 CMS Energy Corp. .................................... 32,000 1,076,000 Consolidated Natural Gas Co. ........................ 15,800 872,950 DQE, Inc. ........................................... 37,250 1,080,250 DTE Energy Co. ...................................... 18,800 608,650 Eastern Enterprises, Inc. ........................... 10,500 371,438 Edison International, Inc. .......................... 75,900 1,508,512 El Paso Natural Gas Co. ............................. 18,400 929,200 Entergy Corp. ....................................... 44,300 1,229,325 GPU, Inc. ........................................... 49,100 1,650,988 Illinova Corp. ...................................... 48,400 1,331,000
8
NUMBER OF SHARES/PRINCIPAL VALUE AMOUNT (NOTE 1) ---------------- ------------ UTILITIES--ELECTRIC & NATURAL GAS--(Continued) Montana Power Co. ............................. 19,700 $ 421,088 New York State Electric & Gas Co. ............. 26,200 566,575 Ohio Edison Co. ............................... 28,800 655,200 Pacific Gas & Electric Co. .................... 38,900 816,900 PacifiCorp..................................... 28,600 586,300 PanEnergy Corp. ............................... 48,200 2,169,000 Pinnacle West Capital Corp. ................... 36,100 1,146,175 PP&L Resources, Inc. .......................... 15,700 361,100 Public Service Enterprises Group, Inc. ........ 69,500 1,893,875 Questar Corp. ................................. 13,200 485,100 Sierra Pacific Resources, Inc. ................ 9,300 267,375 Sonat, Inc. ................................... 37,200 1,915,800 Texas Utilities Co. ........................... 55,700 2,269,775 Transcanada Pipeline Ltd. ..................... 46,700 817,250 Unicom Corp. .................................. 19,500 528,937 United Illuminating Co. ....................... 6,500 203,937 UtiliCorp United, Inc. ........................ 5,300 143,100 Western Resources, Inc. ....................... 29,500 910,813 ------------ 29,965,450 ------------ TOTAL COMMON STOCKS (Cost $147,231,174)....................... 172,298,798 ------------ UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS 36.60% Federal National Mortgage Association, 6.85%, 4/5/2004...................................... $10,385,000 10,556,321 United States Treasury Bills, 5.01%, 1/30/1997. 2,000,000 1,991,928 United States Treasury Bonds, 10.750%, 5/15/2003..................................... 15,000,000 18,459,375 United States Treasury Bonds, 7.25%, 8/15/2022. 26,000,000 27,511,250 United States Treasury Bonds, 7.50%, 11/15/2024.................................... 10,400,000 11,375,000 United States Treasury Bonds, 7.625%, 2/15/2025..................................... 14,000,000 15,548,750 United States Treasury Bonds, 6.875%, 8/15/2025..................................... 9,500,000 9,684,063 United States Treasury Notes, 6.25%, 8/31/2000. 77,800,000 78,116,024 United States Treasury Notes, 5.625%, 11/30/2000.................................... 19,745,000 19,393,282 United States Treasury Notes, 7.50%, 2/15/2005. 31,300,000 33,491,000 United States Treasury Notes, 6.50%, 5/15/2005. 7,600,000 7,657,000 ------------ TOTAL UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS (Cost $233,464,226).......................................... 233,783,993 ------------
9 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONTINUED) DECEMBER 31, 1996
PRINCIPAL VALUE AMOUNT (NOTE 1) ----------- ------------ SHORT-TERM INVESTMENTS 35.57% Abbott Laboratories, Inc., 5.33%, 1/6/97........... $ 3,400,000 $ 3,397,483 Allied Signal, Inc., 5.55%, 1/24/97................ 5,000,000 4,982,271 Amoco Co., Inc., 5.40%, 1/10/97.................... 20,000,000 19,973,000 Bell Atlantic Financial Services Inc., 5.38%, 1/13/97........................................... 15,100,000 15,072,920 Bell Network Funding Corp., 5.55%, 1/9/97.......... 5,500,000 5,493,217 Coca-Cola Co., 5.40%, 1/8/97....................... 25,000,000 24,973,750 Duke Power Co., 6.15%, 1/2/97...................... 10,000,000 9,998,292 Duracell, Inc., 5.60%, 1/2/97...................... 21,200,000 21,196,702 Ford Motor Credit Co., 5.91%, 1/6/97............... 9,700,000 9,692,038 Gannett Co., 5.35%, 1/7/97......................... 10,100,000 10,090,994 General Electric Capital Corp., 5.37%, 1/3/97...... 25,000,000 24,992,541 Lucent Technologies Corp., 5.41%, 1/15/97.......... 19,300,000 19,259,395 Merrill Lynch & Co., Inc., 6.60%, 1/2/97........... 10,800,000 10,798,020 Panasonic Financial, Inc., 5.58%, 1/21/97.......... 11,300,000 11,264,970 PepsiCo Inc., 5.35%, 1/14/97....................... 16,700,000 16,667,737 Xerox Credit Corp., 5.35%, 1/9/97.................. 19,400,000 19,376,936 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $227,230,266)............. 227,230,266 ------------ TOTAL INVESTMENTS (Cost $607,925,666).............. 99.15% 633,313,057 Cash and Other Assets, Less Liabilities............ 0.85 5,454,511 ----------- ------------ NET ASSETS (Equivalent to $8.29 per share based on 77,032,215 shares of capital stock outstanding)... 100.00% $638,767,568 =========== ============
- -------- (a) Non-income producing security. For Federal income tax purposes, the tax basis of investments owned at December 31, 1996 was $608,010,570 and net unrealized appreciation on investments consisted of: Gross unrealized appreciation................................ $29,001,130 Gross unrealized depreciation................................ (3,698,643) ----------- Net unrealized appreciation.................................. $25,302,487 ===========
See notes to financial statements. 10 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS: Investments, at value (identified cost $607,925,666)............ $633,313,057 Cash............................................................ 1,131,323 Dividends and interest receivable............................... 5,245,543 Receivable for investments sold................................. 548,434 Prepaid expense................................................. 45,451 ------------ Total Assets.................................................. 640,283,808 ------------ LIABILITIES: Payable for investments purchased............................... 933,014 Accrued advisory fees (Note 3).................................. 378,588 Accrued administration fees (Note 3)............................ 70,309 Other accrued expenses.......................................... 134,329 ------------ Total Liabilities............................................. 1,516,240 ------------ NET ASSETS........................................................ $638,767,568 ============ NET ASSET VALUE, PER SHARE: ($638,767,568/77,032,215 shares outstanding--Note 4)............. $8.29 ============ Net Assets consist of: Capital paid-in................................................. $613,380,177 Net unrealized appreciation on investments...................... 25,387,391 ------------ $638,767,568 ============
See notes to financial statements. 11 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME: Income: Interest....................................................... $26,976,280 Dividends...................................................... 6,711,413 ----------- Total Income................................................. 33,687,693 ----------- Expenses: Investment advisory fees (Note 3).............................. 4,415,349 Administration fees (Note 3)................................... 819,993 Transfer agent fees............................................ 430,784 Printing and postage expenses.................................. 414,124 Professional fees (Note 3)..................................... 72,275 Custodian fees................................................. 54,002 Directors' fees and expenses (Note 3).......................... 76,340 Miscellaneous.................................................. 190,271 ----------- Total Expenses............................................... 6,473,138 ----------- Net Investment Income...................................... 27,214,555 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments (Note 2): Securities transactions........................................ 21,483,921 Futures transactions........................................... (3,120,960) ----------- Net realized gain on investments........................... 18,362,961 Decrease in unrealized appreciation on investments............... (6,902,204) ----------- Net realized and unrealized gain on investments................ 11,460,757 ----------- Net increase in net assets resulting from operations........... $38,675,312 ===========
See notes to financial statements. 12 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31 -------------------------- 1996 1995 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income........................... $ 27,214,555 $ 28,405,525 Net realized gain on investments................ 18,362,961 36,959,802 Increase (decrease) in unrealized appreciation on investments................................. (6,902,204) 34,955,020 ------------ ------------ Net increase in net assets resulting from operations................................... 38,675,312 100,320,347 ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income........................... (27,214,555) (28,405,525) Net realized gains on investments............... (18,739,823) (33,688,432) Capital paid-in................................. (17,854,497) -- ------------ ------------ Total dividends and distributions to shareholders................................. (63,808,875) (62,093,957) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Net asset value of shares issued to shareholders in reinvestment of dividends from net investment income, and distributions from net realized gains and capital paid-in............. 16,377,716 17,638,187 ------------ ------------ Net increase (decrease) in net assets............. (8,755,847) 55,864,577 NET ASSETS: Beginning of year................................. 647,523,415 591,658,838 ------------ ------------ End of year....................................... $638,767,568 $647,523,415 ============ ============
See notes to financial statements. 13 THE ZWEIG TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS 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 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 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. 14 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 year ended December 31, 1996, the Fund entered into purchase and sale transactions excluding short term investments and futures transactions as follows:
UNITED STATES GOVERNMENT COMMON AND AGENCY STOCKS OBLIGATIONS ------------ ------------- Cost of Purchases............................... $200,544,348 $466,954,203 ============ ============ Proceeds from Sales............................. $258,496,529 $566,828,898 ============ ============
NOTE 3--INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES A) INVESTMENT ADVISORY FEES. The Investment Advisory Agreement (the "Advisory Agreement") between the Investment Adviser, Zweig Total Return Advisors, Inc., and the Fund provides that, subject to the direction of the Board of Directors of the Fund and the applicable 15 THE ZWEIG TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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. For the services provided by the Investment Adviser under the Advisory Agreement, the Fund pays the Investment Adviser a monthly fee equal, on an annual basis, to 0.70% of the Fund's average daily net assets. During the year ended December 31, 1996, the Fund accrued advisory fees of $4,415,349. B) ADMINISTRATION FEES. Zweig/Glaser Advisers serves as the Fund's Administrator pursuant to an Administration Agreement with the Fund. Under such Agreement, the Administrator generally assists in all aspects of the Fund's operations, other than providing investment advice, subject to the overall authority of the Fund's Board of Directors. The Administrator determines the Fund's net asset value daily, prepares such figures for publication on a weekly basis, maintains certain of the Fund's books and records that are not maintained by the Investment Adviser, custodian or transfer agent, assists in the preparation of financial information for the Fund's income tax returns, proxy statements, quarterly and annual shareholder reports, and responds to shareholder inquiries. Under the terms of the Agreement, the Fund pays the Administrator a monthly fee equal, on an annual basis, to 0.13% of the Fund's average daily net assets. During the year ended December 31, 1996, the Fund accrued administration fees of $819,993. C) DIRECTORS' FEES. The Fund pays each Director who is not an interested person of the Fund or the Investment Adviser a fee of $10,000 per year plus $1,500 per Directors' or committee meeting attended, together with out-of- pocket costs relating to attendance at such meetings. The Directors of the Fund who are interested persons of the Fund or the Investment Adviser receive no remuneration from the Fund. D) LEGAL FEES. The Fund accrued legal fees of $12,522 during the year ended December 31, 1996, for the services of Rosenman & Colin LLP, of which Robert E. Smith, a Director of the Fund, is a partner. E) BROKERAGE COMMISSIONS. During the year ended December 31, 1996, the Fund paid Zweig Securities Corp. brokerage commissions of $60,371 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 December 31, 1996 the Fund had one class of common stock, par value $.001 per share, of which 500,000,000 shares are authorized and 77,032,215 shares are outstanding. During the years ended December 31, 1996 and 1995, 1,979,558 and 2,116,190 shares, respectively, were issued in accordance with the Fund's Distribution Reinvestment Plan (the "Plan"). Pursuant to the Plan, all shareholders whose shares are registered in their own names will have all distributions reinvested automatically in additional shares of the Fund by First Data Investor Services Group, Inc. ("First Data"), as the Plan agent, unless a shareholder elects to receive cash. 16 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. The Fund announced on January 2, 1997 a distribution of $0.07 per share to shareholders of record December 31, 1996. This distribution has an ex-dividend date of January 3, 1997, payable January 10, 1997. NOTE 5--FINANCIAL HIGHLIGHTS Selected data for a share outstanding throughout each year:
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- PER SHARE DATA Net asset value, beginning of year.................... $ 8.63 $ 8.11 $ 9.11 $ 9.06 $ 9.79 -------- -------- -------- -------- -------- Income From Investment Oper- ations Net investment income....... 0.36 0.39 0.29 0.26 0.32 Net realized and unrealized gains (losses) on investments............. 0.14 0.97 (0.43) 0.75 (0.09) -------- -------- -------- -------- -------- Total from investment opera- tions...................... 0.50 1.36 (0.14) 1.01 0.23 -------- -------- -------- -------- -------- Less Dividends and Distribu- tions: Dividends from net invest- ment income................ (0.36) (0.39) (0.29) (0.26) (0.32) Distributions from net real- ized gains on investments................ (0.24) (0.45) -- (0.70) (0.30) Distributions from capital paid-in.................... (0.24) -- (0.57) -- (0.34) -------- -------- -------- -------- -------- Total dividends and distri- butions.................... (0.84) (0.84) (0.86) (0.96) (0.96) -------- -------- -------- -------- -------- Net asset value, end of year..................... $ 8.29 $ 8.63 $ 8.11 $ 9.11 $ 9.06 ======== ======== ======== ======== ======== Market value, end of year*.................... $ 8.00 $ 8.625 $ 8.00 $ 10.75 $ 10.00 ======== ======== ======== ======== ======== Total investment return..... 2.62% 19.19% (17.08)% 18.37% 2.60% ======== ======== ======== ======== ======== RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in thousands)................. $638,768 $647,523 $591,659 $648,516 $624,097 Ratio of expenses to average net assets................. 1.03% 1.10% 1.12% 1.11% 1.13% Ratio of net investment in- come to average net assets..................... 4.31% 4.59% 3.35% 2.85% 3.43% Portfolio turnover rate..... 147.2% 179.8% 281.0% 293.0% 123.2% Average commission rate per share on portfolio transactions.............. $ 0.06 $ 0.06 N/A N/A N/A
- -------- * Closing Price--New York Stock Exchange. 17 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of The Zweig Total Return Fund, Inc.: We have audited the accompanying statement of assets and liabilities of The Zweig Total Return Fund, Inc., including the statement of net assets, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Zweig Total Return Fund, Inc., as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. New York, New York February 3, 1997 18 THE ZWEIG TOTAL RETURN FUND, INC. YEAR END RESULTS (UNAUDITED)
TOTAL RETURN ON NET ASSET NET ASSET NYSE PREMIUM VALUE VALUE SHARE PRICE (DISCOUNT) --------------- --------- ----------- ---------- Year Ended 12/31/96 6.3% $8.29 $8.000 (3.5%) Year Ended 12/31/95 17.7% 8.63 8.625 (0.1%) Year Ended 12/31/94 (1.9%) 8.11 8.000 (1.4%) Year Ended 12/31/93 10.7% 9.11 10.750 18.0% Year Ended 12/31/92 2.1% 9.06 10.000 10.4% Year Ended 12/31/91 20.1% 9.79 10.625 8.5% Year Ended 12/31/90 4.2% 9.02 8.625 (4.4%) Year Ended 12/31/89 14.9% 9.59 9.750 1.7% Inception 9/30/88-12/31/88 1.1% 9.24 9.125 (1.2%)
- ------------------------------------------------------------------------------- KEY INFORMATION 1-800-331-1710 FIRST DATA INVESTOR SERVICES GROUP, INC.: For questions regarding shareholder accounts P.O. Box 1376 Boston, MA 02104 (212) 486-3122 THE ZWEIG TOTAL RETURN FUND HOT LINE: For updates on net asset value, share price, major industry groups and other key information 1-800-272-2700 ZWEIG SHAREHOLDER RELATIONS: For general information and literature REINVESTMENT PLAN Many of you have questions about 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. 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 5 Hanover Square New York, New York 10004 CUSTODIAN Boston Safe Deposit and Trust Company One Boston Place Boston, MA 02109 TRANSFER AGENT First Data Investor Services Group, Inc. P.O. Box 1376 Boston, MA 02104 LEGAL COUNSEL Rosenman & Colin LLP 575 Madison Avenue New York, New York 10022 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. 1301 Avenue of the Americas New York, New York 10019 - -------------------------------------------------------------------------------- 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. [LOGO OF ZWEIG TOTAL RETURN FUND,INC.] ANNUAL REPORT DECEMBER 31, 1996 -----END PRIVACY-ENHANCED MESSAGE-----