-----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, HT3ThhHFueDG5vBTZL1H06C98HYpakNa/7mUAeq9jMywMUlkTrG/PR0IcjDS0rqh oZYzy9bL3d0pSa+DWDZTbg== 0000950109-96-000824.txt : 19960216 0000950109-96-000824.hdr.sgml : 19960216 ACCESSION NUMBER: 0000950109-96-000824 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960214 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: 96519611 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 [PHOTO APPEARS HERE] February 1, 1996 Dear Shareholder: The Zweig Total Return Fund's net asset value increased 17.7%, including $0.84 in reinvested distributions, for the year ended December 31, 1995. During the fourth quarter of 1995 the Fund's net asset value gained 4.1%, including $0.21 in distributions. Our average exposure was approximately 87% for the fourth quarter and 67% for the entire year. In retrospect, I wish we had been somewhat more invested earlier in the year. However, my job is to protect against bear markets. Since my indicators were negative, I was very cautious and this is reflected in our performance. You may recall that the Federal Reserve tightened in December of 1994 and again in February of 1995. I never like to fight the Fed -- which is one rea- son we were under-invested. I was protected against undue risk, but this time the risk did not pan out. Statistically, if you fight the Fed you are wrong perhaps seven times out of ten. It is always important to remain flexible to meet changing market conditions. As bonds rallied and stocks followed, we in- creased our exposure. Our research continued to keep us in gear with the mar- kets. We kept raising our exposure and are currently at a combined total of 94% in bonds and stocks. 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 an- nounced a distribution of $0.07 per share payable on January 10, 1996 to shareholders of record December 29, 1995. The amount of a distribution depends on the exact net asset value at the time of declaration. For the January dis- tribution, 0.83% of the Fund's net asset value was equivalent to $0.07 per share. Our total distribution to shareholders for tax purposes in 1995 was $0.84. Of this amount, $0.78 was ordinary income (net investment income of $0.39 and net short-term capital gains of $0.39) and $0.06 is a long-term cap- ital gain. The latest distribution brings the Fund's payout since inception in September 1988 to $6.70. If a shareholder had invested $10,000 (1,000 shares) at the Fund's Initial Public Offering in September 1988, the market value of these holdings, includ- ing distributions, would have appreciated to $17,586 (2,039 shares) as of De- cember 31, 1995. MARKET OUTLOOK Our bond holdings at this writing are at 62% compared with 57% at the end of the third quarter. Since our fully invested position for bonds would be about 62 1/2%, this means that the bond portion of our Fund is fully invested. The increased exposure reflects the dramatic turnaround in the bond market during 1995. After a dismal 1994 which saw the Lehman Brothers Government Bond Index fall 3.4%, its worst performance in more than a decade, the Index rallied 18.3% for all of 1995. Overall, bonds achieved their best performance since 1925. Last year's strong market was fueled by weaker-than-expected economic condi- tions, which tend to be positive for bonds. The rally began early in 1995 as the economy showed signs of slowing and continued through the spring. When the Federal Reserve eased interest rates in July, the way was paved for continued market strength and a final Fed rate cut came in December. At this writing, the readings of our bond model are the most bullish since 1993, which was a banner year for bonds. Among economic indicators, consumer confidence, the Commodity Research Bureau's Price Index, the purchasing manag- ers' index, and commodity prices such as crude oil, copper, and lumber all continue on the favorable side. Less favorable are the flat yield curve and higher gold prices. There are always positives and negatives. Right now I think the positives outweigh the negatives. However, I would like to emphasize that the readings of our bond model can change quickly. As always, I will remain flexible and adjust our exposure as conditions warrant. Our equity holdings are at 32%, little changed from the 31% position at the end of the third quarter. With full investment in stocks at 37 1/2% for our Fund, we are presently at about 85% of a full position (32%/37 1/2%). This re- flects the current largely positive readings of our stock market indicators. PORTFOLIO COMPOSITION In line with our investment policy guidelines, all of our bonds are U.S. Government obligations. The average duration of the bond portion of the Fund is 7 years. This is significantly greater than the average bond fund's dura- tion of 5 years. Since July 5, 1995, Carlton Neel has been responsible for the implementation of our bond investment policy. He also serves as portfolio manager of two of our open-end funds--Zweig Managed Assets and Government Securities Series. Prior to joining us, he was a Vice President with J.P. Morgan & Co., Inc. As has been the case since the beginning of 1995, the majority of our stocks are selected on the basis of a proprietary computer-driven stock-picking model that employs various criteria to rank the most liquid stocks with the highest dividend rates. Generally speaking, our positions in oil, utilities, telecommunications, aerospace, and chemicals increased during the fourth quarter, while holdings declined in paper and forest products, manufacturing, and banking. Oil continues to be our leading industry group followed closely by utili- ties. Other top-ranking categories include chemicals, paper and forest prod- ucts, telecommunications, and aerospace. One of our largest individual positions is Sprint, a significant factor in domestic and international telecommunications. We also increased our position in telecommunications with the purchase of Telefonica de Espana in the fourth quarter. Other leading individual positions include: Alcoa, Mobil, Burlington North- ern Santa Fe, du Pont, Xerox, Atlantic Richfield, British Petroleum and GTE. Sincerely, /s/ Martin E. Zweig Martin E. Zweig, Ph.D. Chairman 2 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS DECEMBER 31, 1995
NUMBER OF VALUE SHARES (NOTE 1) --------- ------------ Common Stocks 29.94% Aerospace & Defense 1.95% Gencorp, Inc. ........................................ 10,700 $ 131,075 Lockheed Martin Corp. ................................ 30,608 2,418,032 Northrop Grumman Corp. ............................... 38,600 2,470,400 Raytheon Co. ......................................... 23,200 1,096,200 Rockwell International Corp. ......................... 51,300 2,712,488 Sunstrand Corp. ...................................... 2,600 182,975 Textron, Inc. ........................................ 20,200 1,363,500 Thiokol Corp. ........................................ 2,800 94,850 United Technologies Corp. ............................ 22,800 2,163,150 ------------ 12,632,670 ------------ Automotive 0.36% General Motors Corp. ................................. 44,000 2,326,500 ------------ Banks 1.50% Bank of Boston Corp. ................................. 14,500 670,625 BankAmerica Corp. .................................... 43,100 2,790,725 Chemical Banking Corp. ............................... 41,200 2,420,500 Citicorp.............................................. 43,100 2,898,475 Republic New York Corp. .............................. 14,500 900,813 ------------ 9,681,138 ------------ Chemicals 2.60% ARCO Chemical Co. .................................... 12,400 602,950 Dow Chemical Co. ..................................... 34,100 2,399,788 du Pont (E.I.) de Nemours & Co. ...................... 48,000 3,354,000 Eastman Chemical Co. ................................. 42,700 2,674,087 Goodrich (B.F.) & Co. ................................ 17,600 1,199,000 Imperial Chemical Industries Plc, ADR................. 20,300 949,025 Lyondell Petrochemical Co. ........................... 56,800 1,299,300 Olin Corp. ........................................... 20,400 1,514,700 Union Carbide Corp. .................................. 76,300 2,861,250 ------------ 16,854,100 ------------ Conglomerates 0.50% Xerox Corp. .......................................... 23,800 3,260,600 ------------ Construction & Farm Equipment 0.24% Deere & Co. .......................................... 43,500 1,533,375 ------------
3 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONTINUED) DECEMBER 31, 1995
NUMBER OF VALUE SHARES (NOTE 1) --------- ------------ Consumer Durables 0.30% Goodyear Tire & Rubber Co. ........................... 36,000 $ 1,633,500 Outboard Marine Corp. ................................ 3,200 65,200 SPX Corp. ............................................ 4,000 63,500 Toro Co. ............................................. 4,800 157,800 ------------ 1,920,000 ------------ Finance & Financial Services 0.28% American Bankers Insurance Group, Inc. ............... 14,000 561,600 Fremont General Corp.................................. 5,800 213,150 GATX Corp. ........................................... 8,700 423,038 PHH Corp. ............................................ 10,000 467,500 Quick & Reilly Group, Inc. ........................... 7,600 155,800 ------------ 1,821,088 ------------ Food & Beverage 0.28% Adolph Coors Co., Class B............................. 12,000 265,500 Michael Foods, Inc. .................................. 2,900 33,712 Unilever N.V. ........................................ 10,600 1,491,950 ------------ 1,791,162 ------------ Healthcare 0.32% Baxter International, Inc. ........................... 36,000 1,507,500 McKesson Corp. ....................................... 11,100 561,938 ------------ 2,069,438 ------------ Investment Companies 0.81% Alliance Global Environment Fund...................... 13,000 131,625 Blue Chip Value Fund, Inc. ........................... 16,500 125,812 Clemente Global Growth Fund, Inc. .................... 13,100 109,712 Emerging Germany Fund, Inc. .......................... 14,500 105,125 Emerging Markets Infrastructure Fund, Inc. ........... 22,100 232,050 First Australia Fund, Inc. ........................... 4,500 37,125 France Growth Fund, Inc. ............................. 26,100 257,738 Gabelli Equity Trust, Inc. ........................... 23,400 219,375 Gabelli Global Multimedia Trust Fund.................. 8,700 58,725 Global Health Sciences Fund, Inc. .................... 28,900 480,462 Growth Fund Spain, Inc. .............................. 10,100 108,575 India Growth Fund, Inc. .............................. 2,900 37,337 John Hancock Bank & Thrift Opportunity Fund........... 15,800 389,075
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NUMBER OF VALUE SHARES (NOTE 1) --------- ----------- Investment Companies--(Continued) Korean Investment Fund, Inc. .......................... 7,200 $ 72,900 Liberty All-Star Growth Fund, Inc. .................... 20,200 189,375 Morgan Stanley Asia-Pacific Fund, Inc. ................ 14,500 193,938 New Age Media Fund, Inc. .............................. 17,300 257,338 Pilgrim Regional Bank Shares, Inc. .................... 11,600 149,350 Preferred Income Fund, Inc. ........................... 7,300 98,550 Royce Value Trust, Inc. ............................... 7,560 90,720 Salomon Brothers Fund, Inc. ........................... 28,900 386,538 Scudder New Europe Fund, Inc. ......................... 21,700 246,838 Templeton China World Fund, Inc. ...................... 7,300 77,562 Templeton Dragon Fund, Inc. ........................... 18,800 251,450 Swiss Helvetia Fund, Inc. ............................. 24,600 522,750 Tri-Continental Corp. ................................. 18,800 425,350 ----------- 5,255,395 ----------- Manufacturing 1.44% Avery Dennison Corp. .................................. 16,800 842,100 Crane Co. ............................................. 7,100 261,812 Dana Corp. ............................................ 33,500 979,875 Duriron, Inc. ......................................... 8,900 208,038 Gleason Corp. ......................................... 10,100 328,250 Harsco Corp. .......................................... 5,800 337,125 Johnson Controls, Inc. ................................ 10,400 715,000 Kennametal, Inc. ...................................... 26,000 825,500 Parker-Hannifin Corp. ................................. 48,500 1,661,125 Timken Co. ............................................ 28,300 1,082,475 TRW, Inc. ............................................. 27,300 2,115,750 ----------- 9,357,050 ----------- Metals & Mining 1.79% Aluminum Company of America............................ 64,800 3,426,300 Cyprus Amax Minerals Co. .............................. 59,900 1,564,888 Lukens, Inc. .......................................... 7,100 204,125 Phelps Dodge Corp. .................................... 39,100 2,433,975 Reynolds Metals Co. ................................... 43,500 2,463,187 USX-U.S. Steel Group................................... 48,500 1,491,375 ----------- 11,583,850 -----------
5 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONTINUED) DECEMBER 31, 1995
NUMBER OF VALUE SHARES (NOTE 1) --------- ------------ Oil & Oil Services 5.71% Amoco Corp. .......................................... 30,000 $ 2,156,250 Atlantic Richfield Co. ............................... 27,900 3,089,925 British Petroleum Co., Plc, ADR....................... 29,200 2,982,050 Chevron Corp. ........................................ 42,400 2,226,000 Elf Aquitaine, ADR.................................... 42,000 1,543,500 Exxon Corp. .......................................... 35,700 2,860,463 Halliburton Co. ...................................... 51,700 2,617,312 Helmerich & Payne, Inc. .............................. 9,900 294,525 Kerr-McGee Corp. ..................................... 56,700 3,600,450 Louisiana Land & Exploration Co. ..................... 28,900 1,239,087 Mobil Corp. .......................................... 30,500 3,416,000 Nova Corp. ........................................... 28,400 227,200 Occidental Petroleum Corp. ........................... 110,100 2,353,388 Repsol S.A., ADR...................................... 65,900 2,166,463 Sun, Inc. ............................................ 57,400 1,571,325 Tidewater, Inc. ...................................... 91,100 2,869,650 USX-Marathon Group, Inc. ............................. 90,200 1,758,900 ------------ 36,972,488 ------------ Paper & Forest Products 2.49% Bowater, Inc. ........................................ 28,700 1,018,850 Chesapeake Corp. ..................................... 5,800 171,825 Consolidated Papers, Inc. ............................ 18,900 1,060,762 Federal Paper Board Co., Inc. ........................ 30,000 1,556,250 Glatfelter (P.H.) & Co. .............................. 6,900 118,163 International Paper Co. .............................. 59,500 2,253,563 James River Corp. of Virginia......................... 45,500 1,097,687 Longview Fibre Co. ................................... 3,000 48,750 Mead Corp. ........................................... 31,300 1,635,425 Potlatch Corp. ....................................... 8,700 348,000 Sonoco Products Co. .................................. 44,600 1,170,750 Westvaco Corp. ....................................... 56,450 1,566,487 Weyerhaeuser Co. ..................................... 51,400 2,223,050 Willamette Industries, Inc. .......................... 33,200 1,867,500 ------------ 16,137,062 ------------ Retail Trade & Services 0.15% CPI Corp. ............................................ 7,100 113,600 Giant Food, Inc., Class A............................. 9,800 308,700 Ross Stores, Inc. .................................... 28,900 552,712 ------------ 975,012 ------------
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NUMBER OF VALUE SHARES (NOTE 1) ------- ------------ Technology 1.29% Applied Materials, Inc. ............................. 11,600(a) $ 456,750 Dell Computer Corp. ................................. 20,400(a) 706,350 Digital Equipment Corp. ............................. 29,100(a) 1,866,038 Harris Corp. ........................................ 36,500 1,993,812 Intel Corp. ......................................... 14,200 1,302,850 International Business Machines Corp. ............... 12,800 726,400 Microsoft Corp. ..................................... 14,600(a) 1,281,150 ------------ 8,333,350 ------------ Telecommunications 2.21% Cable & Wireless Ltd. Co., ADR....................... 41,000 866,125 Cincinnati Bell, Inc. ............................... 28,700 997,325 GTE Corp. ........................................... 67,500 2,970,000 NYNEX Corp. ......................................... 54,900 2,964,600 Sprint Corp. ........................................ 101,700 4,055,287 Telefonica de Espana, S.A., ADS...................... 58,400 2,445,500 ------------ 14,298,837 ------------ Textiles 0.03% Guilford Mills, Inc. ................................ 1,700 34,637 Interface, Inc., Class A............................. 9,400 159,800 ------------ 194,437 ------------ Transportation 1.03% Atlantic Southeast Airlines, Inc. ................... 33,900 728,850 Burlington Northern Santa Fe Corp. .................. 43,500 3,393,000 CSX Corp. ........................................... 56,400 2,573,250 ------------ 6,695,100 ------------ Utilities--Electric & Natural Gas 4.66% Baltimore Gas & Electric Co. ........................ 20,600 587,100 CINergy Corp. ....................................... 56,200 1,721,125 Detroit Edison Co. .................................. 32,500 1,121,250 DQE, Inc. ........................................... 34,350 1,056,263 Eastern Enterprises.................................. 10,500 370,125 FPL Group, Inc. ..................................... 45,200 2,096,150 General Public Utilities Corp. ...................... 37,800 1,285,200 Illinova Corp. ...................................... 30,600 918,000 MCN Corp. ........................................... 23,400 544,050 New England Electric Systems, Inc. .................. 13,000 515,125 New York State Electric & Gas Co. ................... 43,800 1,133,325
7 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF NET ASSETS--(CONTINUED) DECEMBER 31, 1995
NUMBER OF SHARES/PRINCIPAL VALUE AMOUNT (NOTE 1) ---------------- ------------ Utilities--Electric & Natural Gas--(Continued) NIPSCO Industries, Inc. ....................... 26,000 $ 994,500 Noram Energy Corp. ............................ 81,800 725,975 Northeast Utilities Corp. ..................... 21,700 528,937 ONEOK, Inc. ................................... 6,100 139,537 Pacific Enterprises............................ 72,100 2,036,825 Panhandle Eastern Corp. ....................... 99,500 2,773,562 PECO Energy Co. ............................... 37,500 1,129,688 Pinnacle West Capital Corp. ................... 21,700 623,875 Portland General Corp. ........................ 85,600 2,493,100 PP&L Resources, Inc. .......................... 24,600 615,000 Public Service Co. of Colorado................. 15,200 537,700 Rochester Gas & Electric Corp. ................ 18,800 425,350 San Diego Gas & Electric Co. .................. 36,200 859,750 Southwest Gas Corp. ........................... 25,000 440,625 Tenneco, Inc. ................................. 23,200 1,151,300 Transcanada Pipelines Ltd. .................... 50,900 699,875 Unicom Corp. .................................. 73,100 2,394,025 United Illuminating Co. ....................... 6,500 242,938 ------------ 30,160,275 ------------ Total Common Stocks (Cost $175,822,995)....................... 193,852,927 ------------ United States Government & Agency Obligations 54.59% Federal Home Loan Mortgage Corp., 7.61%, 9/1/2004...................................... $ 4,000,000 4,100,400 Federal National Mortgage Association, 6.48%, 2/18/2004..................................... 4,000,000 4,039,808 Federal National Mortgage Association, 6.90%, 3/10/2004..................................... 4,600,000 4,654,915 Federal National Mortgage Association, 6.85%, 4/5/2004...................................... 10,385,000 11,008,567 Federal National Mortgage Association, 7.60%, 4/14/2004..................................... 6,810,000 6,954,958 United States Treasury Bonds, 8.125%, 8/15/2019..................................... 19,000,000 23,898,428 United States Treasury Bonds, 7.50%, 11/15/2024.................................... 12,100,000 14,538,888 United States Treasury Bonds, 7.625%, 2/15/2025..................................... 34,200,000 41,798,761 United States Treasury Notes, 4.625%, 2/15/96.. 2,640,000 2,641,650 United States Treasury Notes, 6.125%, 5/15/98.. 34,000,000 34,680,000 United States Treasury Notes, 6.125%, 7/31/2000..................................... 65,000,000 66,950,000 United States Treasury Notes, 6.250%, 8/31/2000..................................... 48,000,000 49,694,928 United States Treasury Notes, 7.50%, 2/15/2005. 53,000,000 60,171,483 United States Treasury Notes, 6.50%, 5/15/2005. 26,600,000 28,353,898 ------------ Total United States Government & Agency Obligations (Cost $339,227,021).......................................... 353,486,684 ------------
8
PRINCIPAL VALUE AMOUNT (NOTE 1) ----------- ------------ Short-Term Investments 15.69% Abbott Laboratories, Inc., 5.62%, 1/9/96.......... $18,000,000 $ 17,977,520 Anheuser Busch Capital Corp., 5.80%, 1/2/96....... 10,000,000 9,998,389 Bellsouth Capital Corp., 5.65%, 1/12/96........... 4,100,000 4,092,922 Met Life Funding, Inc., 5.77%, 1/8/96............. 16,000,000 15,982,049 Pfizer, Inc., 5.65%, 1/12/96...................... 4,000,000 3,993,094 Philip Morris Capital Corp., 5.62%, 1/3/96........ 12,000,000 11,996,253 Philip Morris Capital Corp., 5.95%, 1/4/96........ 3,200,000 3,198,413 Raytheon Co., 5.93%, 1/15/96...................... 10,000,000 9,993,411 Sara Lee Corp., 5.80%, 1/2/96..................... 9,000,000 8,998,550 Xerox Credit Corp. 5.85%, 1/4/96.................. 15,400,000 15,392,493 ------------ Total Short-Term Investments (Cost $101,623,094)............ 101,623,094 ------------ Total Investments (Cost $616,673,110)............... 100.22% 648,962,705 Liabilities, in excess of Cash and Other Assets..... (0.22) (1,439,290) ----------- ------------ Net Assets (Equivalent to $8.63 per share based on 75,052,657 shares of capital stock outstanding).... 100.00% $647,523,415 =========== ============
- -------- (a) Non-income producing security. For Federal income tax purposes, the tax basis of investments owned at December 31, 1995 was $616,775,278 and unrealized appreciation on investments consisted of: Gross unrealized appreciation................................ $33,990,477 Gross unrealized depreciation................................ (1,803,050) ----------- Net unrealized appreciation.................................. $32,187,427 ===========
See notes to financial statements. 9 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1995 ASSETS: Investments, at value (identified cost $616,673,110).............. $648,962,705 Cash.............................................................. 1,004,803 Dividends and interest receivable................................. 7,589,567 Deposit at broker for short sales................................. 1,113,792 Prepaid expense................................................... 39,357 ------------ Total Assets.................................................... 658,710,224 ------------ LIABILITIES: Payable for investments purchased................................. 10,457,077 Accrued advisory fees (Note 3).................................... 381,489 Other accrued expenses............................................ 348,243 ------------ Total Liabilities............................................... 11,186,809 ------------ NET ASSETS.......................................................... $647,523,415 ============ NET ASSET VALUE, PER SHARE: ($647,523,415 / 75,052,657 shares outstanding--Note 4)............. $8.63 ============ Net Assets consist of: Capital paid-in................................................... $614,856,958 Undistributed net realized gain on investments.................... 376,862 Net unrealized appreciation on investments........................ 32,289,595 ------------ $647,523,415 ============
See notes to financial statements. 10 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 Investment Income: Income: Interest...................................................... $ 30,418,192 Dividends..................................................... 4,794,648 ------------ Total Income................................................ 35,212,840 ------------ Expenses: Investment advisory fees (Note 3)............................. 4,330,481 Administration fees (Note 3).................................. 980,778 Custodian fees (Note 3)....................................... 123,728 Transfer agent fees (Note 3).................................. 504,794 Printing and postage expenses................................. 482,004 Professional fees (Note 3).................................... 85,175 Directors' fees and expenses (Note 3)......................... 51,752 Miscellaneous................................................. 248,603 ------------ Total Expenses.............................................. 6,807,315 ------------ Net Investment Income..................................... 28,405,525 ------------ Realized and Unrealized Gain on Investments: Net realized gain on investments (Note 2): Securities transactions....................................... 34,421,790 Futures transactions.......................................... 2,538,012 ------------ Net realized gain on investments.......................... 36,959,802 ------------ Increase in unrealized appreciation on investments.............. 34,955,020 ------------ Net realized and unrealized gain on investments............... 71,914,822 ------------ Net increase in net assets resulting from operations.......... $100,320,347 ============
See notes to financial statements. 11 THE ZWEIG TOTAL RETURN FUND, INC. STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31 -------------------------- 1995 1994 ------------ ------------ Increase (Decrease) in Net Assets: Operations: Net investment income.......................... $ 28,405,525 $ 20,508,150 Net realized gain (loss) on investments........ 36,959,802 (2,816,932) Increase (decrease) in unrealized appreciation on investments................................ 34,955,020 (28,372,064) ------------ ------------ Net increase (decrease) in net assets resulting from operations................... 100,320,347 (10,680,846) ------------ ------------ Dividends and distributions to shareholders from: Net investment income.......................... (28,405,525) (20,511,580) Net realized gains on investments.............. (33,688,432) -- Capital paid-in................................ -- (41,496,881) ------------ ------------ Total dividends and distributions to shareholders................................ (62,093,957) (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)............................................ 17,638,187 15,831,986 ------------ ------------ Net increase (decrease) in net assets............ 55,864,577 (56,857,321) Net Assets: Beginning of year................................ 591,658,838 648,516,159 ------------ ------------ End of year...................................... $647,523,415 $591,658,838 ============ ============
See notes to financial statements. 12 THE ZWEIG TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES The Zweig Total Return Fund, Inc. (the "Fund") is a closed-end, diversified management investment company registered under the Investment Company Act of 1940 (the "Act"). The Fund was incorporated under the laws of the State of Maryland on July 21, 1988. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. A. Portfolio Valuation Portfolio securities (including stock options and short sales) which are traded only on stock exchanges are valued at the last sale price. Securities traded in the over-the-counter market which are National Market System securities are valued at the last sale price. Other over-the-counter securities are valued at the most recently quoted bid price provided by the principal market makers. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market, as determined by the Investment Adviser. Debt securities may be valued on the basis of prices provided by an independent pricing service when such prices are believed by the Investment Adviser to reflect the fair market value of such securities. Short-term investments having a remaining maturity of 60 days or less when purchased, are valued at amortized cost. Futures and options thereon 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 or losses on sales of investments are determined on the identified cost basis for accounting and tax purposes. C. Futures Contracts Initial margin deposits made upon entering into futures contracts are recognized as assets due from the broker (the Fund's agent in acquiring the futures position). During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by marking the contract to market on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received and recognized as assets due from or liabilities due to the broker, depending upon whether unrealized gains or losses are incurred. 13 THE ZWEIG TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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. The Fund may purchase and sell interest rate, stock index and other futures contracts based upon other financial instruments, and the Fund may purchase and sell stock index options, for hedging purposes. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in value of the hedged investments. Therefore, anticipated gains may not result and anticipated losses may not be offset. In addition, as no secondary market exists for futures contracts, there is no assurance that there will be an active market at any particular time. D. Short Sales The Fund may engage in short sales of securities. A short sale is a transaction in which the Fund sells a security it does not own in anticipation of a decline in market price. When the Fund engages in a short sale, the proceeds it receives are retained by the broker until the Fund replaces the borrowed security. In addition to the short sales described above, the Fund may make short sales "against the box." A short sale "against the box" is a short sale whereby at the time of the short sale, the Fund owns or has the immediate and unconditional right, at no added cost, to obtain the identical security. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss, and if the price declines during this period, the Fund will realize a gain. Any gain will be decreased, and any incurred loss increased, by the amount of transaction costs. Dividends or interest which the Fund may have to pay in connection with such short sales are recorded as expenses. While the short sales are outstanding, the Fund pledges cash and securities to cover its margin requirements. At December 31, 1995, cash of $1,113,792 was on deposit in an interest-bearing account with a broker to cover any short sales the Fund may enter into. E. Federal Income Tax The Fund has elected to qualify and intends to remain qualified as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended. The principal tax benefits of qualifying as a regulated investment company as compared to an ordinary taxable corporation, are that a regulated investment company is not itself subject to Federal income tax on ordinary investment income and net capital gains that are currently distributed (or deemed distributed) to its shareholders and that the tax character of long-term capital gains recognized by a regulated investment company flows through to its shareholders who receive distributions of such gains. F. Dividends and Distributions to Shareholders Dividends and distributions to shareholders are recorded on the ex-dividend date. In the event that amounts distributed are in excess of accumulated net investment income and net realized gains 14 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, 1995, the Fund entered into purchase and sale transactions excluding short term investments and futures transactions as follows: Cost of Purchases............................................ $908,760,837 ============ Proceeds from Sales.......................................... $725,906,003 ============
NOTE 3--INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES a) Investment Advisory Fees: The Investment Advisory Agreement (the "Advisory Agreement") between the Investment Adviser, Zweig Total Return Advisors, Inc., and the Fund provides that, subject to the direction of the Board of Directors of the Fund and the applicable provisions of the Act, the Investment Adviser is responsible for the actual management of the Fund's portfolio. The responsibility for making decisions to buy, sell or hold a particular investment rests with the Investment Adviser, subject to review by the Board of Directors and the applicable provisions of the Act. Certain directors and officers of the Fund are also directors and officers of the Investment Adviser. For the services provided by the Investment Adviser under the Advisory Agreement, the Fund pays the Investment Adviser a monthly fee equal, on an annual basis, to 0.70 of 1% of the Fund's average daily net assets. During the year ended December 31, 1995, the Fund accrued advisory fees of $4,330,481. b) Administration Fees: Since August 1, 1995, Zweig/Glaser Advisers (the "Administrator") has served 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 1% of the Fund's average daily net assets. During the period August 1, 1995 to December 31, 1995, the Fund accrued administration fees of $345,212. 15 THE ZWEIG TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) During the period May 6, 1994 to July 31, 1995, The Shareholder Services Group, Inc. ("TSSG") served as the Fund's Administrator and received fees equal, on an annual basis, to 0.18 of 1% of the Fund's average daily net assets. During the period January 1, 1995 to July 31, 1995, TSSG received administration fees of $635,566. TSSG continues to serve as the Fund's transfer agent. Prior to May 6, 1994, The Boston Company Advisors, Inc., an indirect wholly- owned subsidiary of Mellon Bank Corporation ("Mellon"), served as the Fund's Administrator. Boston Safe Deposit and Trust Company, also an indirect wholly- owned subsidiary of Mellon, serves as the Fund's custodian. 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 attended, together with the actual out-of-pocket costs relating to attendance at such meetings. The Directors of the Fund who are interested persons of the Fund or the Investment Adviser receive no remuneration from the Fund. d) Legal Fees: The Fund accrued legal fees of $22,943 during the year ended December 31, 1995, for the services of Rosenman & Colin, LLP, of which Robert E. Smith, Director of the Fund, is a partner. e) Brokerage Commissions: During the year ended December 31, 1995, the Fund paid Watermark Securities, Inc. brokerage commissions of $124,269 in connection with portfolio transactions effected through them. NOTE 4--CAPITAL STOCK AND REINVESTMENT PLAN At December 31, 1995, the Fund has one class of common stock, par value $.001 per share of which 500,000,000 shares are authorized and 75,052,657 shares are outstanding. During the years ended December 31, 1995 and 1994, 2,116,190 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. The Fund announced on January 2, 1996 a distribution of $0.07 per share (representing long-term capital gains and net investment income) to shareholders of record December 29, 1995. This distribution has an ex-dividend date of January 4, 1996, payable January 10, 1996. 16 NOTE 5--FINANCIAL HIGHLIGHTS Selected data for a share outstanding throughout each year:
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- PER SHARE DATA Net asset value, beginning of year.................... $ 8.11 $ 9.11 $ 9.06 $ 9.79 $ 9.02 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPER- ATIONS Net investment income....... 0.39 0.29 0.26 0.32 0.44 Net realized and unrealized gains (losses) on invest- ments...................... 0.97 (0.43) 0.75 (0.09) 1.29 -------- -------- -------- -------- -------- Total from investment opera- tions...................... 1.36 (0.14) 1.01 0.23 1.73 -------- -------- -------- -------- -------- Less Dividends and Distribu- tions: Dividends from net invest- ment income................ (0.39) (0.29) (0.26) (0.32) (0.43) Distributions from capital paid-in.................... -- (0.57) -- (0.34) -- Distributions from net real- ized gains on investments.. (0.45) -- (0.70) (0.30) (0.53) -------- -------- -------- -------- -------- Total Dividends and Distri- butions.................... (0.84) (0.86) (0.96) (0.96) (0.96) -------- -------- -------- -------- -------- Net Asset Value, end of year..................... $ 8.63 $ 8.11 $ 9.11 $ 9.06 $ 9.79 -------- -------- -------- -------- -------- Market value, end of year*.................... $ 8.625 $ 8.00 $ 10.75 $ 10.00 $ 10.625 -------- -------- -------- -------- -------- Total investment return..... 19.19% (17.08)% 18.37% 2.60% 37.90% -------- -------- -------- -------- -------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in thousands)................. $647,523 $591,659 $648,516 $624,097 $648,118 Ratio of expenses to average net assets................. 1.10% 1.12% 1.11% 1.13% 1.11% Ratio of net investment in- come to average net assets. 4.59% 3.35% 2.85% 3.43% 4.74% Portfolio turnover rate..... 179.8% 281.0% 293.0% 123.2% 148.6%
- -------- * Closing Price--New York Stock Exchange. NOTE 6--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Shown in thousands of dollars and per common share:
NET INCREASE NET REALIZED (DECREASE) TOTAL NET AND UNREALIZED IN NET ASSETS INVESTMENT INVESTMENT GAIN (LOSS) ON RESULTING FROM INCOME INCOME INVESTMENTS OPERATIONS ------------ ------------ ----------------- ----------------- 1995--Quarter Ended 12/31/95.............. $8,754 $0.12 $7,194 $0.10 $ 17,834 $ 0.24 $ 25,028 $ 0.34 09/30/95.............. 8,480 0.11 6,642 0.09 10,517 0.14 17,159 0.23 06/30/95.............. 8,895 0.12 7,063 0.10 28,784 0.39 35,847 0.49 03/31/95.............. 9,084 0.12 7,506 0.10 14,780 0.20 22,286 0.30 1994--Quarter Ended 12/31/94.............. 8,182 0.11 6,397 0.09 (1,810) (0.03) 4,587 0.06 09/30/94.............. 7,312 0.10 5,637 0.08 131 0.00 5,768 0.08 06/30/94.............. 6,504 0.09 4,823 0.07 (12,950) (0.17) (8,127) (0.10) 03/31/94.............. 5,395 0.08 3,651 0.05 (16,560) (0.23) (12,909) (0.18)
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, 1995, 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 the 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, 1995 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, 1995, 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 the 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 1, 1996 18 THE ZWEIG TOTAL RETURN FUND, INC. YEAR-END RESULTS (UNAUDITED)
TOTAL RETURN ON NET NET ASSET NYSE PREMIUM ASSET VALUE VALUE SHARE PRICE (DISCOUNT) ------------ --------- ----------- ---------- Year Ended 12/31/95 17.7% $8.63 $ 8.625 (0.1)% Year Ended 12/31/94 (1.9) 8.11 8.00 (1.4) Year Ended 12/31/93 10.7 9.11 10.75 18.0 Year Ended 12/31/92 2.1 9.06 10.00 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 9.75 1.7 Inception 9/30/88-12/31/88 1.1 9.24 9.125 (1.2)
- ------------------------------------------------------------------------------- KEY INFORMATION 1-800-331-1710 THE SHAREHOLDER SERVICES GROUP INC.: For questions regarding shareholder accounts P.O. Box 1376 Boston, MA 02104 (212) 486-3122 THE ZWEIG TOTAL RETURN FUND HOT LINE: For updates on net asset value, share price, major industry groups and other key information 1-800-272-2700 ZWEIG SHAREHOLDER RELATIONS: For general information and literature REINVESTMENT PLAN Many of you have questions about the reinvestment plan. We urge shareholders who want to take advantage of this plan and whose shares are held in "Street Name" to consult your broker as soon as possible to determine if you must change registration into your own name to participate. ---------------- Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may from time to time purchase its shares of common stock in the open market when Fund shares are trading at a discount from their net asset value. 19 OFFICERS AND DIRECTORS Martin E. Zweig, Ph.D. Chairman of the Board and President Jeffrey Lazar Vice President and Treasurer Stuart B. Panish Vice President and Secretary Edward S. Babbitt, Jr. Director Charles H. Brunie Director Elliot S. Jaffe Director 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 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 THE ZWEIG TOTAL RETURN FUND, INC. APPEARS HERE] ANNUAL REPORT - ---------------------------- DECEMBER 31, 1995 -----END PRIVACY-ENHANCED MESSAGE-----