<PAGE>
[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
<PAGE>
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
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
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
------------
</TABLE>
3
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
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
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
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
-----------
</TABLE>
5
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
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
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER
OF VALUE
SHARES (NOTE 1)
------- ------------
<S> <C> <C>
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
</TABLE>
7
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES/PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------------- ------------
<S> <C> <C>
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
------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
----------- ------------
<S> <C> <C>
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
=========== ============
</TABLE>
- --------
(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:
<TABLE>
<S> <C>
Gross unrealized appreciation................................ $33,990,477
Gross unrealized depreciation................................ (1,803,050)
-----------
Net unrealized appreciation.................................. $32,187,427
===========
</TABLE>
See notes to financial statements.
9
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
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
============
</TABLE>
See notes to financial statements.
10
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
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
============
</TABLE>
See notes to financial statements.
11
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
See notes to financial statements.
12
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<S> <C>
Cost of Purchases............................................ $908,760,837
============
Proceeds from Sales.......................................... $725,906,003
============
</TABLE>
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
<PAGE>
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
<PAGE>
NOTE 5--FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
- --------
* Closing Price--New York Stock Exchange.
NOTE 6--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Shown in thousands of dollars and per common share:
<TABLE>
<CAPTION>
NET INCREASE
NET REALIZED (DECREASE)
TOTAL NET AND UNREALIZED IN NET ASSETS
INVESTMENT INVESTMENT GAIN (LOSS) ON RESULTING FROM
INCOME INCOME INVESTMENTS OPERATIONS
------------ ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
17
<PAGE>
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
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
YEAR-END RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL RETURN
ON NET NET ASSET NYSE PREMIUM
ASSET VALUE VALUE SHARE PRICE (DISCOUNT)
------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
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)
</TABLE>
- -------------------------------------------------------------------------------
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
<PAGE>
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
