<PAGE>
January 22, 1997
Dear Shareholder:
The Zweig Total Return Fund's net asset value increased 6.3%, including
$0.84 in reinvested distributions, for the year ended December 31, 1996.
During the fourth quarter of 1996, the Fund's net asset value gained 4.2%,
including $0.21 in reinvested distributions.
Consistent with our policy of seeking to minimize risk while earning
reasonable returns, our average exposure was approximately 63% for the fourth
quarter and 70% for the year.
Our investment levels were based on my indicators which were neutral for a
good portion of the year especially the last two-thirds. I was correct with
the bond market, where both long and intermediate term prices fell (resulting
in a very disappointing year), but stocks did better than my indicators
suggested. A combination of the Fund having a larger portion of its assets
dedicated to bonds and my neutral opinion on stocks led to our
underperformance. As I see it, our mandate is to protect capital in down
markets while earning reasonable returns. There will be times when we are
fully invested but this will not occur when my time-tested indicators, which
are based on probabilities, point to a neutral or bearish position. These
indicators have stood us in good stead over the years.
If a shareholder had invested $10,000 (1,000 shares) at the Fund's Initial
Public Offering in September, 1988, these holdings, including distributions,
would have appreciated to $18,048 (2,256 shares) as of December 31, 1996.
DISTRIBUTION DECLARED
In accordance with our policy of distributing 10% of our net asset value per
year, which equals 0.83% per month (10% divided by 12 months), the Fund
announced a distribution of $0.07 per share payable on January 10, 1997, to
shareholders of record on December 31, 1996. The amount of a distribution
depends on the exact net asset value at the time of declaration. For the
January distribution, 0.83% of the Fund's net asset value was equivalent to
$0.07 per share. Including this distribution, the Fund's payout since its
inception is now $7.54.
Of the $0.84 distributed in 1996, $0.48 is taxable as ordinary income, $0.12
is long-term capital gains, and $0.24 is return of capital (return of capital
distributions are tax-free and should not be reported as income).
MARKET OUTLOOK
As long-time investors in our Fund know, our fully-invested position would
be 62 1/2% for bonds and 37 1/2% for stocks. I have not revised these
percentages since we started the Fund eight years ago. I would only change
them if stock dividend yields rose significantly vis-a-vis bonds. In the past
eight years bond yields have consistently been a lot higher than yields on
stocks.
At the year-end, our bond portion of the Fund was 37%, unchanged from the
close of the
<PAGE>
third quarter. That means we were at about 59% of a full position (37%/62
1/2%). This reflects my neutral position on bonds. Our average duration is
about 3.5 years, a position lower than held by bond mutual funds in general.
The lower a fund's duration the less sensitive it is to changes in interest
rates. Up until the last month or so the bond market was O.K. However more
recently bond yields have risen better than 45 basis points or nearly half of
one percent.
The main indicators we consider to chart the direction of the bond market
are prices of commodities and economic activity. Monitoring prices, we check
various indices compiled by the Commodity Research Bureau, Goldman Sachs, and
the Journal of Commerce. We also follow the prices of sensitive raw materials.
Among these, gold has been extremely weak, which is normally a plus for bonds,
but lumber, another key commodity, has been strong, a negative for bonds. We
also follow aluminum, platinum, lead, copper, and other metals and these
readings are a mixed bag. Commodity prices are slightly on the negative side
but within a neutral range.
As for the economy, we are currently finding more signs of strength than of
weakness. Strength in the economy is a negative for bonds. I cannot say the
economy is rip-roaring strong, but I would call it 60 to 40 on the side of
strength. That is not what most economists think nor is it consistent with the
prevalent belief that looks for growth in the 2% to 3% range. I think it could
be a little higher in the near term.
We examine other indicators, including momentum. As I like to say, "The
trend is your friend"--and the trend in bonds in the past month or so has been
downward in price. We lowered our exposure somewhat recently in part because
momentum deteriorated. However, this factor could flip around a lot. If bonds
act better, we will buy some more.
Although I am more worried than most about the possibility of a stronger
economy and higher inflation, I am not adamant. My stock position is neutral.
At year-end we were at about 72% of a full position for equities (27%/37
1/2%).
I am somewhat apprehensive about the major trends in stocks. I think that
the bull market, which is the mother of all bull markets, is long in the
tooth. There has not been a meaningful correction of 10% in the S&P and the
Dow in almost six years, the longest stretch ever. This does not mean that
stocks will not go higher. However it will be hard to keep the major elements
responsible for this historic rise--modest economic growth and modest
inflation--in fine balance forever. If the economy falls out of bed, it would
really hurt corporate earnings. This would not be great for stocks even though
interest rates might decline. If the economy gets too strong, we might see
high inflation, higher interest rates, and probably a bear market.
PORTFOLIO COMPOSITION
Reflecting our investment policy guidelines, all of our bonds are U.S.
Government obligations. As mentioned earlier, the average duration of the bond
portion of our Fund is approximately 3.5 years. These bonds are liquid and
provide us with the flexibility to respond quickly to changes in market
conditions.
Implementing my basic allocation strategy, the majority of our equities
continue to be selected and sold on the basis of a proprietary computer--
driven model that employs various criteria--including earnings growth, cash
flow, and price-to-book value ratios--to evaluate and rank stocks. We consider
about 750 stocks with the highest dividend yields from a universe of
approximately 1,500 of the most liquid stocks. This procedure has been in
effect since the beginning of 1995.
There was little change in the composition of our leading industry groups
during the fourth
2
<PAGE>
quarter. At the year-end, utilities continued to be the largest group in our
portfolio. Other major sectors included oil and oil services, finance and
financial services (which increased), telecommunications (which declined),
technology, retail trade and services, and automotive.
Some of our larger holdings include BankAmerica, Telefonica de Espana,
Texaco, Chrysler (which increased), Rohm & Haas, Salomon, NYNEX, USX-Marathon,
Merrill Lynch, and General Motors, Class H.
Our portfolio also includes a number of closed-end funds that are selling at
significant discounts from their net asset values. The average discount in our
closed-end portfolio holdings at year-end was approximately 17%.
This is equivalent to acquiring one dollar's worth of assets for 83 cents.
Because they are relatively conservative investments that have been largely
neglected during the long-running bull market, these funds currently are at
extremely high discounts. When the market again places a premium on valuation,
as it has done historically, discounts should narrow and more closely reflect
the net asset values. This, of course, would enhance the profitability of
these holdings in our Fund.
Sincerely,
/s/ Martin E. Zweig
Martin E. Zweig, Ph.D.
Chairman
3
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
COMMON STOCKS 26.97%
AEROSPACE & DEFENSE 0.47%
Gencorp, Inc. ........................................ 19,800 $ 358,875
General Motors Corp., Class H......................... 47,400 2,666,250
------------
3,025,125
------------
AUTOMOTIVE 1.29%
Chrysler Corp. ....................................... 97,200 3,207,600
Ford Motor Co. ....................................... 76,800 2,448,000
General Motors Corp. ................................. 38,300 2,135,225
Volvo AB, ADR......................................... 19,800 430,650
------------
8,221,475
------------
BANKS 1.08%
Ahmanson, (H.F.) & Co. ............................... 24,500 796,250
BankAmerica Corp. .................................... 42,900 4,279,275
Chase Manhattan Corp. ................................ 14,000 1,249,500
City National Corp. .................................. 13,700 296,263
Washington Mutual, Inc. .............................. 6,900 298,856
------------
6,920,144
------------
CHEMICALS 0.97%
du Pont (E.I.) de Nemours & Co. ...................... 20,100 1,896,938
Olin Corp. ........................................... 36,600 1,377,075
Rohm & Haas Co. ...................................... 36,100 2,946,662
------------
6,220,675
------------
CONSTRUCTION & FARM EQUIPMENT 0.32%
Caterpillar Inc. ..................................... 27,300 2,054,325
------------
CONSUMER DURABLES 0.37%
Goodyear Tire & Rubber Co. ........................... 39,500 2,029,312
Huffy Corp. .......................................... 13,200 189,750
SPX Corp. ............................................ 3,200 124,000
------------
2,343,062
------------
CONSUMER PRODUCTS 0.03%
American Greetings Corp. ............................. 6,500 184,437
------------
CONTAINERS & PACKAGING 0.03%
Sea Containers Ltd., Class A.......................... 12,100 189,062
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
FINANCE & FINANCIAL SERVICES 2.22%
Alex Brown Inc. ....................................... 10,000 $ 725,000
American Bankers Insurance Group, Inc. ................ 11,500 587,938
Bear, Stearns & Co., Inc. ............................. 74,840 2,086,165
Edwards (A.G.) & Sons, Inc. ........................... 55,800 1,876,275
Fremont General Corp. ................................. 19,600 607,600
GATX Corp. ............................................ 5,300 257,050
Merrill Lynch & Co., Inc. ............................. 33,000 2,689,500
Orion Capital Corp. ................................... 5,200 317,850
PaineWebber Group, Inc. ............................... 38,600 1,085,625
Salomon Inc. .......................................... 62,500 2,945,312
USLife Corp. .......................................... 29,800 990,850
-----------
14,169,165
-----------
FOOD & BEVERAGE 0.17%
Adolph Coors Co., Class B.............................. 36,500 693,500
Chiquita Brands International, Inc. ................... 13,000 165,750
Fleming Companies, Inc. ............................... 13,900 239,775
-----------
1,099,025
-----------
HOMEBUILDING & MATERIALS 0.20%
Armstrong World Industries, Inc. ...................... 9,800 681,100
Kaufman & Broad Home Corp. ............................ 32,900 423,587
Ryland Group Inc. ..................................... 12,200 167,750
-----------
1,272,437
-----------
INVESTMENT COMPANIES 1.75%
Blackrock 2001 Term Trust, Inc. ....................... 29,000 228,375
Blackrock Strategic Term Trust, Inc. .................. 29,000 232,000
Brazil Fund, Inc. ..................................... 13,200 293,700
Central European Equity Fund, Inc. .................... 6,900 136,275
Clemente Global Growth Fund, Inc. ..................... 13,100 98,250
Emerging Germany Fund, Inc. ........................... 48,700 395,687
Emerging Markets Infrastructure, Inc. ................. 20,800 226,200
Emerging Markets Telecommunications Fund, Inc. ........ 18,000 274,500
Emerging Mexico Fund, Inc. ............................ 13,500 99,562
Europe Fund, Inc. ..................................... 17,000 274,125
First Iberian Fund, Inc. .............................. 13,500 148,500
First Israel Fund, Inc. ............................... 12,000 142,500
France Growth Fund, Inc. .............................. 24,500 254,187
G.T. Global Developing Fund, Inc. ..................... 19,700 229,012
G.T. Global Eastern Europe Fund, Inc. ................. 36,400 468,650
Gabelli Equity Trust, Inc. ............................ 25,700 240,937
Gabelli Global Multimedia Trust, Inc. ................. 50,600 347,875
Global Health Sciences Fund, Inc. ..................... 54,600 791,700
Latin America Equity Fund, Inc. ....................... 600 8,400
</TABLE>
5
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
INVESTMENT COMPANIES--(Continued)
Liberty ALL-STAR Growth Fund, Inc. ................... 33,400 $ 313,125
Mexico Fund, Inc. .................................... 6,500 97,500
Morgan Grenfell SMALLCap Fund, Inc. .................. 31,033 325,847
Morgan Stanley Russia & New Europe Fund, Inc. ........ 1,200 21,600
New Age Media Fund, Inc. ............................. 17,300 216,250
New Germany Fund, Inc. ............................... 68,800 920,200
Pilgrim America Bank & Thrift Fund, Inc. ............. 20,100 316,575
Portugal Fund, Inc. .................................. 10,600 145,750
Royce Value Trust, Inc. .............................. 65,260 823,908
Schroder Asian Growth Fund, Inc. ..................... 6,700 79,563
Scudder New Asia Fund, Inc. .......................... 15,000 187,500
Scudder New Europe Fund, Inc. ........................ 26,900 373,238
Spain Fund, Inc. ..................................... 21,000 238,875
Swiss Helvetia Fund, Inc. ............................ 36,200 719,475
Templeton China World Fund, Inc. ..................... 18,400 243,800
Templeton Dragon Fund, Inc. .......................... 39,900 643,388
Templeton Vietnam Opportunities Fund, Inc. ........... 13,200 155,100
Tri-Continental Corp. ................................ 18,800 453,550
------------
11,165,679
------------
LEISURE 0.34%
Brunswick Corp. ...................................... 51,700 1,240,800
Fleetwood Enterprises, Inc. .......................... 33,000 907,500
------------
2,148,300
------------
MANUFACTURING 1.12%
Black & Decker Corp. ................................. 10,400 313,300
Cummins Engine Co., Inc. ............................. 27,400 1,260,400
Excel Industries, Inc. ............................... 15,800 262,675
Ingersoll-Rand Co. ................................... 9,400 418,300
Johnson Controls, Inc. ............................... 13,000 1,077,375
Miller (Herman), Inc. ................................ 19,500 1,104,187
Simpson Industries, Inc. ............................. 15,900 173,161
Standard Products Co. ................................ 12,200 311,100
Timken Co. ........................................... 12,400 568,850
TRW, Inc. ............................................ 33,000 1,633,500
------------
7,122,848
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
METALS & MINING 0.79%
British Steel, Plc, ADS............................. 60,700 $ 1,669,250
Cleveland-Cliffs, Inc. ............................. 3,900 176,963
Oregon Steel Mills, Inc. ........................... 61,800 1,035,150
Quanex Corp. ....................................... 12,900 353,137
USX-US Steel Group, Inc. ........................... 56,600 1,775,825
------------
5,010,325
------------
OIL & OIL SERVICES 4.09%
Ashland Oil, Inc. .................................. 54,400 2,386,800
British Petroleum Co., Plc, ADR..................... 10,900 1,540,988
Elf Aquitaine S.A., ADR............................. 45,900 2,076,975
Helmerich & Payne, Inc. ............................ 21,400 1,115,475
Kerr-McGee Corp. ................................... 32,200 2,318,400
Occidental Petroleum Corp. ......................... 65,400 1,528,725
Pennzoil Co. ....................................... 37,000 2,090,500
Phillips Petroleum Co. ............................. 58,800 2,601,900
Repsol S.A., ADR.................................... 51,700 1,971,063
Sun Co., Inc. ...................................... 14,500 353,437
Texaco Inc. ........................................ 33,000 3,238,125
Unocal Corp. ....................................... 44,600 1,811,875
USX-Marathon Group, Inc. ........................... 119,000 2,841,125
YPF Sociedad Anonima, ADR........................... 10,400 262,600
------------
26,137,988
------------
PAPER & FOREST PRODUCTS 0.50%
Bowater, Inc. ...................................... 35,400 1,331,925
International Paper Co. ............................ 23,800 960,925
Pope & Talbot, Inc. ................................ 13,400 212,725
Westvaco Corp. ..................................... 24,750 711,563
------------
3,217,138
------------
RETAIL TRADE & SERVICES 1.56%
American Stores Co. ................................ 56,800 2,321,700
Dayton Hudson Corp. ................................ 67,400 2,645,450
Mercantile Stores, Inc. ............................ 19,800 977,625
Ross Stores, Inc. .................................. 18,500 925,000
Shopko Stores, Inc. ................................ 15,900 238,500
Supervalu, Inc. .................................... 43,300 1,228,638
TJX Companies, Inc. ................................ 34,900 1,653,387
------------
9,990,300
------------
TECHNOLOGY 1.76%
Applied Materials, Inc. ............................ 11,600(a) 416,875
Dell Computer Corp. ................................ 20,400(a) 1,083,750
Digital Equipment Corp. ............................ 32,300(a) 1,174,912
</TABLE>
7
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ------------
<S> <C> <C>
TECHNOLOGY--(Continued)
Harris Corp. ........................................ 36,700 $ 2,518,538
Intel Corp. ......................................... 12,800 1,676,000
International Business Machines Corp. ............... 13,100 1,978,100
Microsoft Corp. ..................................... 29,200(a) 2,412,650
------------
11,260,825
------------
TELECOMMUNICATIONS 2.14%
BCE, Inc. ........................................... 28,400 1,356,100
NYNEX Corp. ......................................... 60,500 2,911,562
Sprint Corp. ........................................ 57,100 2,276,863
Telefonica de Espana S.A., ADS....................... 55,400 3,836,450
Telefonos de Mexico S.A., ADS........................ 74,700 2,465,100
U.S. West, Inc. ..................................... 25,700 828,825
------------
13,674,900
------------
TOBACCO 0.39%
RJR Nabisco Holdings Corp. .......................... 73,300 2,492,200
------------
TRANSPORTATION 0.69%
Alexander & Baldwin Co. ............................. 4,600 115,000
APL Ltd. ............................................ 19,800 467,775
British Airways Plc, ADR............................. 8,100 832,275
CSX Corp. ........................................... 62,600 2,644,850
KLM Royal Dutch Airlines, N.V. ADR .................. 12,700 354,013
------------
4,413,913
------------
UTILITIES--ELECTRIC & NATURAL GAS 4.69%
Allegheny Power Systems, Inc. ....................... 17,000 516,375
American Electric Power Co., Inc. ................... 55,100 2,265,987
Baltimore Gas & Electric Co. ........................ 13,700 366,475
CMS Energy Corp. .................................... 32,000 1,076,000
Consolidated Natural Gas Co. ........................ 15,800 872,950
DQE, Inc. ........................................... 37,250 1,080,250
DTE Energy Co. ...................................... 18,800 608,650
Eastern Enterprises, Inc. ........................... 10,500 371,438
Edison International, Inc. .......................... 75,900 1,508,512
El Paso Natural Gas Co. ............................. 18,400 929,200
Entergy Corp. ....................................... 44,300 1,229,325
GPU, Inc. ........................................... 49,100 1,650,988
Illinova Corp. ...................................... 48,400 1,331,000
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES/PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------------- ------------
<S> <C> <C>
UTILITIES--ELECTRIC & NATURAL GAS--(Continued)
Montana Power Co. ............................. 19,700 $ 421,088
New York State Electric & Gas Co. ............. 26,200 566,575
Ohio Edison Co. ............................... 28,800 655,200
Pacific Gas & Electric Co. .................... 38,900 816,900
PacifiCorp..................................... 28,600 586,300
PanEnergy Corp. ............................... 48,200 2,169,000
Pinnacle West Capital Corp. ................... 36,100 1,146,175
PP&L Resources, Inc. .......................... 15,700 361,100
Public Service Enterprises Group, Inc. ........ 69,500 1,893,875
Questar Corp. ................................. 13,200 485,100
Sierra Pacific Resources, Inc. ................ 9,300 267,375
Sonat, Inc. ................................... 37,200 1,915,800
Texas Utilities Co. ........................... 55,700 2,269,775
Transcanada Pipeline Ltd. ..................... 46,700 817,250
Unicom Corp. .................................. 19,500 528,937
United Illuminating Co. ....................... 6,500 203,937
UtiliCorp United, Inc. ........................ 5,300 143,100
Western Resources, Inc. ....................... 29,500 910,813
------------
29,965,450
------------
TOTAL COMMON STOCKS (Cost $147,231,174)....................... 172,298,798
------------
UNITED STATES GOVERNMENT & AGENCY
OBLIGATIONS 36.60%
Federal National Mortgage Association, 6.85%,
4/5/2004...................................... $10,385,000 10,556,321
United States Treasury Bills, 5.01%, 1/30/1997. 2,000,000 1,991,928
United States Treasury Bonds, 10.750%,
5/15/2003..................................... 15,000,000 18,459,375
United States Treasury Bonds, 7.25%, 8/15/2022. 26,000,000 27,511,250
United States Treasury Bonds, 7.50%,
11/15/2024.................................... 10,400,000 11,375,000
United States Treasury Bonds, 7.625%,
2/15/2025..................................... 14,000,000 15,548,750
United States Treasury Bonds, 6.875%,
8/15/2025..................................... 9,500,000 9,684,063
United States Treasury Notes, 6.25%, 8/31/2000. 77,800,000 78,116,024
United States Treasury Notes, 5.625%,
11/30/2000.................................... 19,745,000 19,393,282
United States Treasury Notes, 7.50%, 2/15/2005. 31,300,000 33,491,000
United States Treasury Notes, 6.50%, 5/15/2005. 7,600,000 7,657,000
------------
TOTAL UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS
(Cost $233,464,226).......................................... 233,783,993
------------
</TABLE>
9
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF NET ASSETS--(CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
----------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS 35.57%
Abbott Laboratories, Inc., 5.33%, 1/6/97........... $ 3,400,000 $ 3,397,483
Allied Signal, Inc., 5.55%, 1/24/97................ 5,000,000 4,982,271
Amoco Co., Inc., 5.40%, 1/10/97.................... 20,000,000 19,973,000
Bell Atlantic Financial Services Inc., 5.38%,
1/13/97........................................... 15,100,000 15,072,920
Bell Network Funding Corp., 5.55%, 1/9/97.......... 5,500,000 5,493,217
Coca-Cola Co., 5.40%, 1/8/97....................... 25,000,000 24,973,750
Duke Power Co., 6.15%, 1/2/97...................... 10,000,000 9,998,292
Duracell, Inc., 5.60%, 1/2/97...................... 21,200,000 21,196,702
Ford Motor Credit Co., 5.91%, 1/6/97............... 9,700,000 9,692,038
Gannett Co., 5.35%, 1/7/97......................... 10,100,000 10,090,994
General Electric Capital Corp., 5.37%, 1/3/97...... 25,000,000 24,992,541
Lucent Technologies Corp., 5.41%, 1/15/97.......... 19,300,000 19,259,395
Merrill Lynch & Co., Inc., 6.60%, 1/2/97........... 10,800,000 10,798,020
Panasonic Financial, Inc., 5.58%, 1/21/97.......... 11,300,000 11,264,970
PepsiCo Inc., 5.35%, 1/14/97....................... 16,700,000 16,667,737
Xerox Credit Corp., 5.35%, 1/9/97.................. 19,400,000 19,376,936
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $227,230,266)............. 227,230,266
------------
TOTAL INVESTMENTS (Cost $607,925,666).............. 99.15% 633,313,057
Cash and Other Assets, Less Liabilities............ 0.85 5,454,511
----------- ------------
NET ASSETS (Equivalent to $8.29 per share based on
77,032,215 shares of capital stock outstanding)... 100.00% $638,767,568
=========== ============
</TABLE>
- --------
(a) Non-income producing security.
For Federal income tax purposes, the tax basis of investments owned at
December 31, 1996 was $608,010,570 and net unrealized appreciation on
investments consisted of:
<TABLE>
<S> <C>
Gross unrealized appreciation................................ $29,001,130
Gross unrealized depreciation................................ (3,698,643)
-----------
Net unrealized appreciation.................................. $25,302,487
===========
</TABLE>
See notes to financial statements.
10
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost $607,925,666)............ $633,313,057
Cash............................................................ 1,131,323
Dividends and interest receivable............................... 5,245,543
Receivable for investments sold................................. 548,434
Prepaid expense................................................. 45,451
------------
Total Assets.................................................. 640,283,808
------------
LIABILITIES:
Payable for investments purchased............................... 933,014
Accrued advisory fees (Note 3).................................. 378,588
Accrued administration fees (Note 3)............................ 70,309
Other accrued expenses.......................................... 134,329
------------
Total Liabilities............................................. 1,516,240
------------
NET ASSETS........................................................ $638,767,568
============
NET ASSET VALUE, PER SHARE:
($638,767,568/77,032,215 shares outstanding--Note 4)............. $8.29
============
Net Assets consist of:
Capital paid-in................................................. $613,380,177
Net unrealized appreciation on investments...................... 25,387,391
------------
$638,767,568
============
</TABLE>
See notes to financial statements.
11
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest....................................................... $26,976,280
Dividends...................................................... 6,711,413
-----------
Total Income................................................. 33,687,693
-----------
Expenses:
Investment advisory fees (Note 3).............................. 4,415,349
Administration fees (Note 3)................................... 819,993
Transfer agent fees............................................ 430,784
Printing and postage expenses.................................. 414,124
Professional fees (Note 3)..................................... 72,275
Custodian fees................................................. 54,002
Directors' fees and expenses (Note 3).......................... 76,340
Miscellaneous.................................................. 190,271
-----------
Total Expenses............................................... 6,473,138
-----------
Net Investment Income...................................... 27,214,555
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments (Note 2):
Securities transactions........................................ 21,483,921
Futures transactions........................................... (3,120,960)
-----------
Net realized gain on investments........................... 18,362,961
Decrease in unrealized appreciation on investments............... (6,902,204)
-----------
Net realized and unrealized gain on investments................ 11,460,757
-----------
Net increase in net assets resulting from operations........... $38,675,312
===========
</TABLE>
See notes to financial statements.
12
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................... $ 27,214,555 $ 28,405,525
Net realized gain on investments................ 18,362,961 36,959,802
Increase (decrease) in unrealized appreciation
on investments................................. (6,902,204) 34,955,020
------------ ------------
Net increase in net assets resulting from
operations................................... 38,675,312 100,320,347
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................... (27,214,555) (28,405,525)
Net realized gains on investments............... (18,739,823) (33,688,432)
Capital paid-in................................. (17,854,497) --
------------ ------------
Total dividends and distributions to
shareholders................................. (63,808,875) (62,093,957)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Net asset value of shares issued to shareholders
in reinvestment of dividends from net
investment income, and distributions from net
realized gains and capital paid-in............. 16,377,716 17,638,187
------------ ------------
Net increase (decrease) in net assets............. (8,755,847) 55,864,577
NET ASSETS:
Beginning of year................................. 647,523,415 591,658,838
------------ ------------
End of year....................................... $638,767,568 $647,523,415
============ ============
</TABLE>
See notes to financial statements.
13
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The Zweig Total Return Fund, Inc. (the "Fund") is a closed-end, diversified
management investment company registered under the Investment Company Act of
1940 (the "Act"). The Fund was incorporated under the laws of the State of
Maryland on July 21, 1988. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of
its financial statements. The preparation of financial statements in
accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION
Portfolio securities which are traded only on stock exchanges are valued at
the last sale price. Securities traded in the over-the-counter market which
are National Market System securities are valued at the last sale price. Other
over-the-counter securities are valued at the most recently quoted bid price
provided by the principal market makers. Portfolio securities which are traded
both in the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market, as determined by the
Investment Adviser. Debt securities may be valued on the basis of prices
provided by an independent pricing service when such prices are believed by
the Investment Adviser to reflect the fair market value of such securities.
Short-term investments having a remaining maturity of 60 days or less when
purchased are valued at amortized cost. Futures which are traded on
commodities exchanges are valued at their closing settlement price on such
exchange. Securities for which market quotations are not readily available and
other assets, if any, are valued at fair market value as determined in good
faith by or under the direction of the Board of Directors of the Fund.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis.
Realized gains and losses on sales of investments are determined on the
identified cost basis for financial reporting and tax purposes.
C. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Fund's agent in acquiring the
futures position). During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
marking the contract to market on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to the
broker, depending upon whether unrealized gains or losses are incurred. When
the contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract.
14
<PAGE>
The Fund may purchase and sell interest rate, stock index and other futures
contracts based upon other financial instruments, and the Fund may purchase
and sell stock index options, for hedging purposes. There are several risks in
connection with the use of futures contracts as a hedging device. The change
in value of futures contracts primarily corresponds with the value of their
underlying instruments, which may not correlate with the change in value of
the hedged investments. Therefore, anticipated gains may not result and
anticipated losses may not be offset. In addition, as no secondary market
exists for futures contracts, there is no assurance that there will be an
active market at any particular time.
D. FEDERAL INCOME TAX
The Fund has elected to qualify and intends to remain qualified as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. The principal tax benefits of qualifying as a regulated
investment company, as compared to an ordinary taxable corporation, are that a
regulated investment company, is not itself subject to Federal income tax on
ordinary investment income and net capital gains that are currently
distributed (or deemed distributed) to its shareholders and that the tax
character of long-term capital gains recognized by a regulated investment
company flows through to its shareholders who receive distributions of such
gains.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. In the event that amounts distributed are in excess of accumulated net
investment income and net realized gains on investments (as determined for
financial statement purposes), such amounts would be reported as a
distribution from paid-in capital during the fiscal year in which such a
distribution is made. Income dividends and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to timing differences and differing characterization of distributions made by
the Fund as a whole.
NOTE 2--PORTFOLIO TRANSACTIONS
During the year ended December 31, 1996, the Fund entered into purchase and
sale transactions excluding short term investments and futures transactions as
follows:
<TABLE>
<CAPTION>
UNITED STATES
GOVERNMENT
COMMON AND AGENCY
STOCKS OBLIGATIONS
------------ -------------
<S> <C> <C>
Cost of Purchases............................... $200,544,348 $466,954,203
============ ============
Proceeds from Sales............................. $258,496,529 $566,828,898
============ ============
</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
15
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
provisions of the Act, the Investment Adviser is responsible for the actual
management of the Fund's portfolio. The responsibility for making decisions to
buy, sell or hold a particular investment rests with the Investment Adviser,
subject to review by the Board of Directors and the applicable provisions of
the Act. For the services provided by the Investment Adviser under the
Advisory Agreement, the Fund pays the Investment Adviser a monthly fee equal,
on an annual basis, to 0.70% of the Fund's average daily net assets. During
the year ended December 31, 1996, the Fund accrued advisory fees of
$4,415,349.
B) ADMINISTRATION FEES. Zweig/Glaser Advisers serves as the Fund's
Administrator pursuant to an Administration Agreement with the Fund. Under
such Agreement, the Administrator generally assists in all aspects of the
Fund's operations, other than providing investment advice, subject to the
overall authority of the Fund's Board of Directors. The Administrator
determines the Fund's net asset value daily, prepares such figures for
publication on a weekly basis, maintains certain of the Fund's books and
records that are not maintained by the Investment Adviser, custodian or
transfer agent, assists in the preparation of financial information for the
Fund's income tax returns, proxy statements, quarterly and annual shareholder
reports, and responds to shareholder inquiries. Under the terms of the
Agreement, the Fund pays the Administrator a monthly fee equal, on an annual
basis, to 0.13% of the Fund's average daily net assets. During the year ended
December 31, 1996, the Fund accrued administration fees of $819,993.
C) DIRECTORS' FEES. The Fund pays each Director who is not an interested
person of the Fund or the Investment Adviser a fee of $10,000 per year plus
$1,500 per Directors' or committee meeting attended, together with out-of-
pocket costs relating to attendance at such meetings. The Directors of the
Fund who are interested persons of the Fund or the Investment Adviser receive
no remuneration from the Fund.
D) LEGAL FEES. The Fund accrued legal fees of $12,522 during the year ended
December 31, 1996, for the services of Rosenman & Colin LLP, of which Robert
E. Smith, a Director of the Fund, is a partner.
E) BROKERAGE COMMISSIONS. During the year ended December 31, 1996, the Fund
paid Zweig Securities Corp. brokerage commissions of $60,371 in connection
with portfolio transactions effected through them.
Certain directors and officers of the Fund are also directors and/or
officers of the Investment Adviser and the Administrator.
NOTE 4--CAPITAL STOCK AND REINVESTMENT PLAN
At December 31, 1996 the Fund had one class of common stock, par value $.001
per share, of which 500,000,000 shares are authorized and 77,032,215 shares
are outstanding. During the years ended December 31, 1996 and 1995, 1,979,558
and 2,116,190 shares, respectively, were issued in accordance with the Fund's
Distribution Reinvestment Plan (the "Plan").
Pursuant to the Plan, all shareholders whose shares are registered in their
own names will have all distributions reinvested automatically in additional
shares of the Fund by First Data Investor Services Group, Inc. ("First Data"),
as the Plan agent, unless a shareholder elects to receive cash.
16
<PAGE>
Shareholders whose shares are held in the name of a broker or nominee will
have distributions reinvested automatically by the broker or the nominee in
additional shares under the Plan, unless the service is not provided by the
broker or the nominee or the shareholder elects to receive distributions in
cash. If the service is not available, such distributions will be paid in
cash. All distributions to investors who elect not to participate (or whose
broker or nominee elects not to participate) in the Plan will be paid by check
mailed directly to the record holder by or under the direction of First Data,
as the dividend paying agent.
The Fund announced on January 2, 1997 a distribution of $0.07 per share to
shareholders of record December 31, 1996. This distribution has an ex-dividend
date of January 3, 1997, payable January 10, 1997.
NOTE 5--FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning
of year.................... $ 8.63 $ 8.11 $ 9.11 $ 9.06 $ 9.79
-------- -------- -------- -------- --------
Income From Investment Oper-
ations
Net investment income....... 0.36 0.39 0.29 0.26 0.32
Net realized and unrealized
gains (losses)
on investments............. 0.14 0.97 (0.43) 0.75 (0.09)
-------- -------- -------- -------- --------
Total from investment opera-
tions...................... 0.50 1.36 (0.14) 1.01 0.23
-------- -------- -------- -------- --------
Less Dividends and Distribu-
tions:
Dividends from net invest-
ment income................ (0.36) (0.39) (0.29) (0.26) (0.32)
Distributions from net real-
ized gains on
investments................ (0.24) (0.45) -- (0.70) (0.30)
Distributions from capital
paid-in.................... (0.24) -- (0.57) -- (0.34)
-------- -------- -------- -------- --------
Total dividends and distri-
butions.................... (0.84) (0.84) (0.86) (0.96) (0.96)
-------- -------- -------- -------- --------
Net asset value, end of
year..................... $ 8.29 $ 8.63 $ 8.11 $ 9.11 $ 9.06
======== ======== ======== ======== ========
Market value, end of
year*.................... $ 8.00 $ 8.625 $ 8.00 $ 10.75 $ 10.00
======== ======== ======== ======== ========
Total investment return..... 2.62% 19.19% (17.08)% 18.37% 2.60%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)................. $638,768 $647,523 $591,659 $648,516 $624,097
Ratio of expenses to average
net assets................. 1.03% 1.10% 1.12% 1.11% 1.13%
Ratio of net investment in-
come to average net
assets..................... 4.31% 4.59% 3.35% 2.85% 3.43%
Portfolio turnover rate..... 147.2% 179.8% 281.0% 293.0% 123.2%
Average commission rate per
share on portfolio
transactions.............. $ 0.06 $ 0.06 N/A N/A N/A
</TABLE>
- --------
* Closing Price--New York Stock Exchange.
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, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
The Zweig Total Return Fund, Inc., as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 3, 1997
18
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
YEAR END RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL RETURN ON
NET ASSET NET ASSET NYSE PREMIUM
VALUE VALUE SHARE PRICE (DISCOUNT)
--------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Year Ended 12/31/96 6.3% $8.29 $8.000 (3.5%)
Year Ended 12/31/95 17.7% 8.63 8.625 (0.1%)
Year Ended 12/31/94 (1.9%) 8.11 8.000 (1.4%)
Year Ended 12/31/93 10.7% 9.11 10.750 18.0%
Year Ended 12/31/92 2.1% 9.06 10.000 10.4%
Year Ended 12/31/91 20.1% 9.79 10.625 8.5%
Year Ended 12/31/90 4.2% 9.02 8.625 (4.4%)
Year Ended 12/31/89 14.9% 9.59 9.750 1.7%
Inception 9/30/88-12/31/88 1.1% 9.24 9.125 (1.2%)
</TABLE>
- -------------------------------------------------------------------------------
KEY INFORMATION
1-800-331-1710
FIRST DATA INVESTOR SERVICES GROUP, INC.:
For questions regarding shareholder accounts
P.O. Box 1376
Boston, MA 02104
(212) 486-3122
THE ZWEIG TOTAL RETURN FUND HOT LINE:
For updates on net asset value, share price, major industry
groups and other key information
1-800-272-2700
ZWEIG SHAREHOLDER RELATIONS:
For general information and literature
REINVESTMENT PLAN
Many of you have questions about
our reinvestment plan. If you want
to take advantage of this plan and
your shares are held in "Street
Name", we urge you to consult your
broker as soon as possible to
determine if you must change
registration to your own name to
participate.
----------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may from time to time purchase its shares of
common stock in the open market when Fund shares are trading at a discount
from their net asset value.
<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
Christopher M. Capano Assistant Vice President
Charles H. Brunie
Director
Elliot S. Jaffe
Director
Alden C. Olson, Ph.D.
Director
James B. Rogers, Jr.
Director
Anthony M. Santomero, Ph.D.
Director
Robert E. Smith
Director
INVESTMENT ADVISER
Zweig Total Return Advisors, Inc.
900 Third Avenue
New York, New York 10022
FUND ADMINISTRATOR
Zweig/Glaser Advisers
5 Hanover Square
New York, New York 10004
CUSTODIAN
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02109
TRANSFER AGENT
First Data Investor Services Group, Inc.
P.O. Box 1376
Boston, MA 02104
LEGAL COUNSEL
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
- --------------------------------------------------------------------------------
This report is transmitted to the shareholders of The Zweig Total Return
Fund, Inc. for their information. This is not a prospectus, circular or
representation intended for use in the purchase of shares of the Fund or any
securities mentioned in this report.
[LOGO OF ZWEIG TOTAL RETURN FUND,INC.]
ANNUAL REPORT
DECEMBER 31, 1996
