[Photograph appears here of Martin E. Zweig, Ph.D.]
February 1, 1999
Dear Shareholder:
For the year ended December 31, 1998, The Zweig Total Return Fund's net
asset value increased 8.8%, including $0.84 in reinvested distributions. During
the fourth quarter of 1998, the Fund's net asset value gained 4.3% including
$0.24 in reinvested distributions.
Consistent with our policy of seeking to minimize risk while earning
superior returns over complete market cycles, our average exposure during 1998
was approximately 86%.
I would like to put our performance in perspective. Since we are a
value-oriented fund, most of our stocks have very low price/earnings ratios.
Historical evidence attests to the rewards of such an approach. However last
year was a notable exception. Low P/E's did far worse than high P/E's and the
numbers were almost unbelievable. As a result, value managers dramatically
underperformed the S&P 500.
The market capitalization of an S&P 500 stock was also a factor in its
performance. For example, the fifty largest stocks increased by 36.4% for the
year while the fifty smallest actually declined by 0.5%. On an unweighted
basis, taking equal positions in all the S&P 500 stocks, the index was up only
7.3%. I have never seen a year like this.
If a shareholder had invested $10,000 (1,000 shares) at the Fund's
Initial Public Offering in September 1988, these holdings, including reinvested
distributions, would have appreciated to $24,593 (2,771 shares) at December 31,
1998. If a shareholder had invested $10,000 (1,000 shares) at the Fund's
Initial Public Offering in September 1988, these holdings, including reinvested
distributions, would have appreciated to $24,593 (2,771 shares) at December 31,
1998.
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) on December
14, 1998, the Fund declared a distribution of $0.07 per share payable on
January 11, 1999 to shareholders of record on December 31, 1998. 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 comes to $9.22.
Of the $0.84 taxable in 1998, $0.44 is ordinary income, $0.28 is
long-term capital gains, and $0.12 is return of capital. (The return of capital
distribution is a tax-free return of capital and therefore should not be
reported as income.)
MARKET OUTLOOK
Our bond exposure at year-end was 53% compared with 57% on September 30.
If we were fully invested, we would be at 62.5% in bonds and 37.5% for stocks.
Consequently, at 53% in bonds we were at about 85% of a full position
(53%/62.5%).
After a sluggish first quarter, government bonds rallied sharply as
equity markets around the world experienced a spate of volatility. The
turbulence was caused by a series of financial crises in Asia, Russia, and
Latin America, which prompted several flights to quality. The move from stocks
to safer investments benefited U.S. Treasuries in particular.
<PAGE>
Bond prices continued to rise after the Federal Reserve's three
consecutive interest rate cuts in the fall (bond prices rise when interest
rates fall). But the cuts were a mixed blessing. They helped avert a credit
crunch and created strong conditions for equities, yet they encouraged many
investors to sell low-yielding government bonds for riskier investments such as
corporate stocks and bonds.
Despite the difficulties in the fourth quarter, we believe that
conditions are still positive for bonds to offer meaningful gains. Central
banks around the world have adopted easy money policies, inflation is low, and
commodity prices have fallen to extreme lows. As a result, we ended the year
with a long duration (sensitivity to interest rates) of about 6.1 years.
Our equity exposure at year end was 37% compared with 26% at the end of
the third quarter. At this figure, we were close to 100% of a full position
(37%/37.5%).
At this writing I think the economy is reasonably strong and that
earnings will be decent. I am not worried about the possibility of softer
earnings. In fact, the market usually does pretty well when earnings are down
moderately or up slightly. We may run the risk of higher interest rates if the
economy and earnings show strong gains but we are not there yet.
I see Brazil as a possible trouble spot. The market rebounded after the
initial devaluation but we are not out of the woods yet. The Brazil risks are
twofold. First, that things may get so bad that they will default on their
debts. While they might stretch out their payments, I don't believe they will
default as Russia did. The second problem with Brazil is that they may cause
competitive devaluations in the rest of Latin America. This could lead to
competitive devaluations in Asia, including China, which would be a negative
for the market. At this moment I do not believe China will devalue, but if they
do it will be months down the road.
Recently we have seen a shift in investor concerns from inflation to
deflation but I think this worry is misplaced. For one thing, mild deflation
has been very bullish for stock prices. I would define mild deflation as
anywhere from zero to minus 3%. With prices at these levels, the Dow has
produced an average annual return of 26.7% since 1918. It is only extreme
deflation that is bad. When consumer prices have gone down 3% a year or more,
the Dow has dropped at an annual average rate of 13.3%. Mild deflation is even
more bullish than mild inflation. However, extreme deflation is poison and
extreme inflation is not very good either. The market doesn't like things too
hot or too cold. It likes things nice and in between.
The frenzy in Internet stocks concerns me because a great deal of
speculation is going on by a public that has no conception of the volatility
and the risks involved. Today there are more than fifty Internet stocks. I
doubt that five of them will survive ten years from now. That is what happened
with the automobile industry in the early part of this century. It was the same
with the electronics industry in the late 50's and early 60's and with the
computer business ten, twenty, or thirty years ago. We don't know who the
survivors will be on the Internet. They may not even be the companies that
exist today.
If you tried to pick the winners in the computer business twenty to
twenty-five years ago, you would have lost out. The present leaders --
Microsoft, Intel, Dell, and Cisco -- did not even exist back then. You could
have bought Burroughs, Control Data, or Sperry Rand and done very poorly. We do
know that the Internet will be a very big thing but I don't know whether it
will be economically profitable for a lot of companies.
I see the level of speculation on the Internet as waving a red flag for
the market. However, should the Internet market collapse, it may not drag down
the entire market. We saw a collapse of biotech stocks in 1992 and the market
was relatively unaffected. So I just don't know how a big drop in Internet
stocks would impact the overall market.
Summing up, the current market positives include the fact that the
Federal Reserve is on the side of the bulls. They have loosened three times in
the fourth quarter. Inflation is low and, as indicated previously, even mild
deflation would not be bad. The negatives include possible repercussions from
Brazil's actions and a
2
<PAGE>
devaluation by China of its currency. Actually, I think the bigger threat would
be if the economy picks up too much steam and profits get too strong, leading
to the Fed tightening later in the year.
I am keeping a watchful eye on valuation. With the P/E ratio for the S&P
500 climbing from 27.71 in 1997 to 35.27 in 1998, the market is not cheap by
any stretch of the imagination. That means that there is not a big shock
absorber in the market. So if something goes wrong, I don't think the value
people will be buying on a 10% dip. It would take a lot more than that.
Meanwhile, our monetary indicators are somewhat positive, reflecting the
Fed's recent moves. Our sentiment indicators are mixed. The long-term ones are
fairly decent but the short-term ones are rather overly optimistic. I am not
thrilled about my indicators but, overall, they are currently moderately
bullish. Obviously, this could change. A month down the road these indicators
could be totally different.
PORTFOLIO COMPOSITION
In line with our investment policy guidelines, all of our bonds are U.S.
Government obligations. As indicated earlier, the average duration of the bond
portion of our portfolio was 6.1 years at the close of 1998, compared with 6.5
years at the end of the third quarter. Since these bonds are liquid, they give
us the flexibility to adjust swiftly to changing market conditions.
Implementing my basic allocation strategy, most of our equities continue
to be bought and sold on the basis of a proprietary computer-driven model that
is weighted toward a value approach with secondary emphasis on growth. This
policy was instituted at the beginning of 1995.
There was very little change in the composition of our leading industry
groups during the fourth quarter. At year-end this listing included financial
services, utilities, technology, telecommunications, manufacturing, and oil &
oil services.
Among the above sectors, financial services, technology,
telecommunications, and manufacturing gained in value as a result of increased
exposure and a favorable fourth quarter. Utilities lost ground because of a
poor showing relative to the other groups. Oil & oil services were adversely
affected by declining prices and weak market performance.
Some of our largest individual holdings include Dell, Daimler Chrysler,
Ford, Microsoft, Maytag, Burlington Northern, Home Depot, McKesson, MCI
Worldcom, and AT&T.
New to our portfolio are Maytag, the dominant washing machine equipment
manufacturer; Home Depot, the giant retail building products company, and
McKesson, a major wholesale distributor of pharmaceutical supplies. We added to
our holdings in MCI Worldcom. All of the above, including AT&T, performed
extremely well in the fourth quarter.
Among our other large individual holdings, Reynolds Metals, GPU, PG&E,
Energy East, and Whirlpool all increased in value but were outperformed by
others in our current top positions. Among our other large individual
holdings, Reynolds Metals, GPU, PG&E, Energy East, and Whirlpool all increased
in value but were outperformed by others in our current top positions.
ZWEIG TOTAL RETURN ADVISORS
TO BE ACQUIRED BY PHOENIX
As I am sure you are aware, a number of well-known organizations in the
financial services industry have recently combined to build stronger companies.
With that in mind, I am pleased to report that Zweig Total Return Advisors, the
investment advisor for the Zweig Total Return Fund, has agreed to be acquired
by Phoenix Investment Partners, Ltd., a large diversified financial services
organization listed on the New York Stock Exchange. The transaction, which is
subject to shareholder approval, is expected to close later in the first
quarter of 1999. I will remain as chairman and president of the Fund and will
continue to provide asset allocation services. I have no plans to retire -- and
each portfolio manager will remain in place.
Sincerely,
/s/ Martin E. Zweig
Martin E. Zweig, Ph.D.
Chairman
3
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Question: I bought the Zweig Total Return Fund (ZTR) when it first
came out in 1988 for $10.00. Over 10 years later, at the end of December, 1998,
the Fund is only trading for $8.875. It seems that the Fund lost money. Am I
missing something?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1988 1988-1998
- --------------- --------------------------------------------
$10.00=value of plus $9.21 paid then $9.21 bought
1 share at on one share an additional
inception from 1988-1998 1.7713 shares
as a result of ZTR
of the 10% through the
payout policy distribution
reinvestment plan
<CAPTION>
1998
- --------------------------------------------------------------------------------
1 share purchased at inception plus 1.7713 shares received as a result of
reinvesting $9.21 in more shares of ZTR = 2.7713 shares held at the end of 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Performance Calculation
Based on the closing price of The Sweig Total Return Fund on
the New York Stock Exchange on December 31, 1998:
Shareholder owns 2.7713 shares
Closing Price on NYSE was $8.875
Shareholder's account value is $24.60 (2.7713 x $8.875)
Shareholder's account value at inception was $10.00 (1 x $10.00)
$24.60 Ending value
-10.00 Beginning value
------------------------
$14.60 Increase in Value
Total Return = 146% ($14.60/$10.00 x 100)
- -----------------------------------------------------------------------------------
Shareholders receiving distributions in cash would have a return of 80.9%
$9.21 (distribution)+$8.875 (NYSE price 12/31/98)=$18.085-$10.00=$8.085/$10.00x100.
This return does not include any return you may have earned from investing the cash
elsewhere.
- -----------------------------------------------------------------------------------
</TABLE>
CONCLUSION: Performance cannot be measured by looking only at the beginning and
ending stock price.
Calculations above reflect adjustment for participation in the Primary
Subscription of the Rights Offering (May, 1998)
4
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
Number of Value
Shares (Note 1)
---------------- -------------
<S> <C> <C>
COMMON STOCKS 36.72%
AEROSPACE & DEFENSE 0.51%
B.F.Goodrich & Co. .................. 42,200 $1,513,925
Northrop Corp. ...................... 32,100 2,347,313
----------
3,861,238
----------
AIRLINES 0.75%
AMR Corp. ........................... 63,300(a) 3,758,438
SouthWest Airlines Co. .............. 84,400 1,893,725
----------
5,652,163
----------
APPAREL MANUFACTURER 0.57%
V.F. Corp. .......................... 37,600 1,762,500
Warnaco Group, Inc. ................. 100,700 2,542,675
----------
4,305,175
----------
AUTOMOTIVE 1.57%
Daimler Chrysler AG ................. 66,215 6,360,777
Ford Motor Co. ...................... 94,700 5,557,706
----------
11,918,483
----------
BIOTECHNOLOGY 0.36%
Amgen, Inc. ......................... 26,400 2,760,450
----------
CHEMICALS 0.51%
IMC Global, Inc. .................... 136,100 2,909,138
Millennium Chemicals, Inc. .......... 35,100 697,613
Wellman, Inc. ....................... 27,600 281,174
----------
3,887,925
----------
CONSUMER DURABLES 1.30%
Cooper Tire & Rubber Co. ............ 70,800 1,446,975
Maytag Corp. ........................ 79,100 4,923,975
Whirlpool Corp. ..................... 63,400 3,510,775
----------
9,881,725
----------
CONSUMER PRODUCTS 0.41%
Fortune Brands, Inc. ................ 51,900 1,641,337
Premark International, Inc. ......... 42,100 1,457,713
----------
3,099,050
----------
CONTAINERS & PACKAGING 0.05%
Sea Containers Ltd., Class A ........ 12,100 362,244
----------
ELECTRONICS 0.61%
Avnet, Inc. ......................... 32,200 1,948,100
General Motors Corp., Class H ....... 67,400 2,674,938
----------
4,623,038
----------
ENGINEERING & CONSTRUCTION 0.33%
Fluor Corp. ......................... 58,600 2,494,163
----------
FINANCIAL SERVICES 5.40%
A.G. Edwards & Sons, Inc. ........... 47,200 1,758,200
Allstate Corp. ...................... 61,000 2,356,125
Astoria Financial Corp. ............. 56,300 2,575,725
BankAmerica Corp. ................... 46,800 2,813,850
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 1)
---------- -------------
<S> <C> <C>
FINANCIAL SERVICES -- (Continued)
Bear Stearns & Co., Inc. ............................. 44,682 $1,669,990
CIGNA Corp. .......................................... 44,700 3,455,869
Charter One Financial, Inc. .......................... 46,084 1,278,831
Conseco, Inc. ........................................ 74,800 2,286,075
Countrywide Credit Industries, Inc. .................. 50,500 2,534,469
GATX Corp. ........................................... 26,600 1,007,475
J. P. Morgan & Co., Inc. ............................. 12,800 1,344,800
Loews Corp. .......................................... 37,800 3,713,850
Morgan Stanley, Dean Witter, Discover & Co. .......... 37,500 2,662,500
Old Republic International Corp. ..................... 57,750 1,299,375
Orion Capital Corp. .................................. 25,400 1,011,238
PaineWebber Group, Inc. .............................. 77,800 3,005,025
PIMCO Advisors L.P. .................................. 13,800 429,525
Provident Companies, Inc. ............................ 43,600 1,809,400
Quinenco S.A., ADR ................................... 24,700 197,600
Reliance Group Holdings, Inc. ........................ 65,700 845,886
Reliastar Financial Corp. ............................ 20,900 964,013
Ryder Systems, Inc. .................................. 57,400 1,492,400
Selective Insurance Group, Inc. ...................... 19,600 394,450
----------
40,906,671
----------
FOOD & BEVERAGE 0.36%
Adolph Coors Co., Class B ............................ 47,800 2,697,713
----------
HOME BUILDERS & MATERIALS 0.43%
Fleetwood Enterprises, Inc. .......................... 44,300 1,539,425
Kaufman & Broad Home Corp. ........................... 29,500 848,125
Lafarge Corp. ........................................ 20,800 842,400
----------
3,229,950
----------
INDUSTRIAL SERVICES 0.13%
Ogden Corp. .......................................... 38,400 962,400
----------
INVESTMENT COMPANIES 1.04%
Blackrock 2001 Term Trust, Inc. ...................... 29,000 261,000
Blackrock Strategic Term Trust, Inc. ................. 29,000 266,438
Central European Equity Fund, Inc. ................... 18,600 247,613
Emerging Markets Infrastructure Fund, Inc. ........... 94,200 682,950
Emerging Markets Telecommunications Fund, Inc. ....... 30,800 275,275
France Growth Fund, Inc. ............................. 25,700 350,163
Gabelli Equity Trust, Inc. ........................... 44,100 509,904
Gabelli Global Multimedia Trust Fund, Inc. ........... 51,700 565,469
Italy Fund, Inc. ..................................... 16,100 241,500
Mexico Fund, Inc. .................................... 74,400 832,350
Morgan Stanley Emerging Markets Fund, Inc. ........... 51,400 417,625
Morgan Stanley India Investment Fund, Inc. ........... 28,300 191,025
Portugal Fund, Inc. .................................. 23,900 373,438
Royce Value Trust, Inc. .............................. 70,160 964,700
Scudder New Europe Fund, Inc. ........................ 43,600 768,450
Swiss Helvetia Fund, Inc. ............................ 56,800 908,800
----------
7,856,700
----------
LEISURE 0.56%
Brunswick Corp. ...................................... 24,400 603,900
Royal Caribbean Cruises Ltd. ......................... 97,400 3,603,800
----------
4,207,700
----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 1)
---------- -------------
<S> <C> <C>
MANUFACTURING 2.18%
Aeroquip-Vickers, Inc. .................. 42,400 $1,269,350
Borg-Warner Automotive, Inc. ............ 25,600 1,428,800
Cummins Engine Company, Inc. ............ 51,900 1,842,450
Dana Corp. .............................. 82,700 3,380,363
Dexter Corp. ............................ 14,900 468,418
Herman Miller, Inc. ..................... 34,400 924,500
Johnson Controls, Inc. .................. 26,000 1,534,000
Kennametal, Inc. ........................ 40,600 862,750
Milacron, Inc. .......................... 31,000 596,750
PACCAR, Inc. ............................ 16,400 674,450
Timken Co. .............................. 83,600 1,577,950
Trinity Industries, Inc. ................ 50,400 1,940,400
----------
16,500,181
----------
METALS & MINING 1.28%
AK Steel Holding Corp. .................. 79,200 1,861,200
Alcan Aluminum Ltd. ..................... 65,200 1,764,475
British Steel Plc, ADR .................. 55,800 816,075
Reynolds Metals Co. ..................... 67,000 3,530,063
USX-U.S. Steel Group .................... 73,600 1,692,800
----------
9,664,613
----------
OIL & OIL SERVICES 2.11%
Ashland, Inc. ........................... 58,500 2,829,938
Equitable Resources, Inc. ............... 22,100 643,663
Occidental Petroleum Corp. .............. 40,900 690,188
PennzEnergy Co. ......................... 51,200 835,200
Pennzoil-Quaker State Co. ............... 51,200 758,400
Santa Fe International Corp. ............ 78,600 1,149,525
Sunoco, Inc. ............................ 57,200 2,062,775
Tidewater, Inc. ......................... 48,700 1,129,231
Transocean Offshore, Inc. ............... 34,600 927,713
USX-Marathon Group ...................... 63,400 1,909,925
YPF Sociedad Anonima, ADR ............... 108,100 3,020,042
----------
15,956,600
----------
PAPER & FOREST PRODUCTS 0.58%
Bowater, Inc. ........................... 79,400 3,290,138
Mead Corp. .............................. 38,500 1,128,531
----------
4,418,669
----------
PHARMACEUTICALS 0.95%
McKesson Corp. .......................... 52,100 4,119,156
Warner Lambert Co. ...................... 41,100 3,090,205
----------
7,209,361
----------
REAL ESTATE INVESTMENT TRUSTS 0.37%
Camden Property Trust ................... 18,500 481,000
Crescent Real Estate Equities Co. ....... 42,700 982,100
FelCor Lodging Trust .................... 25,600 590,400
New Plan Excel Realty Trust, Inc. ....... 15,240 338,137
Reckson Associates Realty Corp. ......... 18,900 419,344
----------
2,810,981
----------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 1)
---------------- -------------
<S> <C> <C>
RESTAURANTS 0.19%
Bob Evans Farms, Inc. ........................... 19,900 $ 518,644
Wendy's International, Inc. ..................... 41,900 913,944
----------
1,432,588
----------
RETAIL TRADE & SERVICES 1.27%
Home Depot, Inc. ................................ 69,900 4,277,006
Pier 1 Imports, Inc. ............................ 44,800 434,000
Ross Stores, Inc. ............................... 17,000 669,375
Saks, Inc. ...................................... 28,200 890,063
Supervalu, Inc. ................................. 119,400 3,343,200
----------
9,613,644
----------
TECHNOLOGY 3.55%
Applied Materials, Inc. ......................... 36,900(a) 1,575,169
Cisco Systems, Inc. ............................. 33,600(a) 3,118,500
Compaq Computer Corp. ........................... 80,402 3,371,859
Dell Computer Corp. ............................. 97,500(a) 7,135,781
EMC Corp. ....................................... 41,400(a) 3,519,000
Intel Corp. ..................................... 26,200 3,106,338
Microsoft Corp. ................................. 36,300(a) 5,034,356
----------
26,861,003
----------
TELECOMMUNICATIONS 3.10%
AT&T Corp. ...................................... 51,200 3,852,800
BCE, Inc. ....................................... 21,900 830,830
L.M. Ericsson Telephone Co. ..................... 67,500 1,615,781
Lucent Technologies Co. ......................... 34,500 3,795,000
MCI Worldcom, Inc. .............................. 54,000 3,874,500
Telebras Holders, S.A., ADR ..................... 41,600 3,023,800
Telefonica DE Argentina, S.A., ADR .............. 52,300 1,461,131
Telefonica de Espana S.A., ADR .................. 18,654 2,525,285
Telefonos de Mexico S.A., ADR ................... 51,800 2,522,013
----------
23,501,140
----------
TEXTILES 0.40%
Interface, Inc. ................................. 57,600 534,603
Shaw Industries, Inc. ........................... 103,000 2,497,750
----------
3,032,353
----------
TOBACCO 0.06%
Universal Corp. ................................. 13,000 456,625
----------
TRANSPORTATION 1.96%
Airborne Freight Corp. .......................... 58,500 2,109,656
Burlington Northern Santa Fe Corp. .............. 140,900 4,755,375
Canadian Pacific Ltd. ........................... 99,600 1,879,950
CNF Transportation, Inc. ........................ 76,500 2,873,531
FDX Corp. ....................................... 22,980 2,045,220
USFreightways Corp. ............................. 42,100 1,226,163
----------
14,889,895
----------
UTILITES -- ELECTRIC & NATURAL GAS 3.83%
CMS Energy Corp. ................................ 43,800 2,121,563
Central & South West Corp. ...................... 56,100 1,539,244
Consolidated Edison Co. of New York, Inc. ....... 26,100 1,380,038
DTE Energy Co. .................................. 51,200 2,195,200
Edison International ............................ 102,900 2,868,338
Energy East Corp. ............................... 55,300 3,124,450
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 1)
---------- --------------
<S> <C> <C>
UTILITIES -- ELECTRIC & NATURAL GAS -- (CONTINUED)
GPU, Inc. ........................................ 83,000 $ 3,667,560
PECO Energy Co. .................................. 81,400 3,388,275
PG&E Corp. ....................................... 98,300 3,096,450
Pinnacle West Capital Corp. ...................... 11,400 483,075
Public Service Co. of New Mexico ................. 30,100 615,169
UniCom Corp. ..................................... 92,200 3,555,463
UtiliCorp United, Inc. ........................... 25,800 946,538
-----------
28,981,363
-----------
Total Common Stocks (Cost $242,988,383)......... 278,035,804
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
--------------------
<S> <C> <C>
UNITED STATES GOVERNMENT OBLIGATIONS 53.09%
United States Treasury Notes, 6.25%, 8/31/2000 ......... $ 13,500,000 13,845,938
United States Treasury Notes, 10.75%, 5/15/2003 ........ 15,000,000 18,515,625
Unites States Treasury Notes, 7.50%, 2/15/2005 ......... 16,300,000 18,663,500
United States Treasury Notes, 6.50%, 5/15/2005 ......... 7,600,000 8,331,500
United States Treasury Notes, 7.00%, 7/15/2006 ......... 70,000,000 79,734,410
United States Treasury Notes, 6.50%, 10/15/2006 ........ 30,100,000|pS(b) 33,420,421
United States Treasury Notes, 6.625%, 5/15/2007 ........ 102,500,000 115,312,500
United States Treasury Notes, 6.125%, 8/15/2007 ........ 42,300,000 46,239,187
United States Treasury Bonds, 8.125%, 8/15/2021 ........ 13,000,000 17,598,750
United States Treasury Bonds, 7.50%, 11/15/2024 ........ 1,200,000 1,556,250
United States Treasury Bonds, 6.50%, 11/15/2026 ........ 300,000 349,219
United States Treasury Bonds, 6.375%, 8/15/2027 ........ 42,100,000 48,428,177
-----------
Total United States Government Obligations
(Cost $393,227,898)................................... 401,995,477
-----------
SHORT-TERM INVESTMENTS 9.13%
Ford Motor Credit Corp., 5.655%, 1/7/99 ................ 21,200,000 21,180,002
GMAC Corp., 5.52%, 1/6/99 .............................. 20,000,000 19,984,634
Goldman Sachs Corp., 5.20%, 1/4/99 ..................... 28,000,000 27,987,865
-----------
Total Short-Term Investments (Cost $69,152,501) ....... 69,152,501
-----------
Total Investments (Cost $705,368,782)--98.94% ......... 749,183,782
Other assets less liabilities -- 1.06% ................ 8,028,265
-----------
Net Assets -- 100.00% ................................. $757,212,047
============
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares
----------
<S> <C> <C>
SECURITIES SOLD SHORT (Note 1D)
W.E.B.S. Index Fund, Inc. -- Mexico Series
(Proceeds $390,725)...................... 28,400 $ 291,100
============
</TABLE>
- ----------
(a) Non-income producing security.
(b) Used as collateral on short sales
For Federal income tax purposes, the tax basis of investments owned at
December 31, 1998 was $705,381,039 and net unrealized appreciation on
investments consisted of:
<TABLE>
<S> <C>
Gross unrealized appreciation ......... $ 66,375,536
Gross unrealized depreciation ......... (22,572,793)
-------------
Net unrealized appreciation ........... $ 43,802,743
=============
</TABLE>
See notes to financial statements
9
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31,1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost $705,368,782).......... $ 749,183,782
Cash ......................................................... 684,712
Deposit with broker for securities sold short ................ 390,725
Dividends and interest receivable ............................ 7,862,738
Prepaid expenses ............................................. 44,772
-------------
Total Assets .............................................. 758,166,729
-------------
LIABILITIES
Accrued advisory fees (Note 3) ............................... 445,249
Accrued administration fees (Note 3) ......................... 2,684
Other accrued expenses ....................................... 215,649
Securities sold short, at value (proceeds $390,725)........... 291,100
-------------
Total Liabilities ......................................... 954,682
-------------
NET ASSETS ...................................................... $ 757,212,047
=============
NET ASSET VALUE, PER SHARE
($757,212,047/89,770,539 shares outstanding--Note 4).......... $ 8.43
=============
Net Assets consist of:
Capital paid-in .............................................. $ 713,297,422
Net unrealized appreciation on investments ................... 43,815,000
Net unrealized appreciation on securities sold short ......... 99,625
-------------
$ 757,212,047
=============
</TABLE>
See notes to financial statements.
10
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<S> <C>
Investment Income
Income
Dividends ................................................................. $ 5,865,640
Interest .................................................................. 29,241,415
-----------
Total Income ........................................................... 35,107,055
-----------
Expenses
Investment advisory fees (Note 3) ......................................... 5,058,943
Administration fees (Note 3) .............................................. 939,518
Transfer agent fees ....................................................... 274,890
Printing and postage expenses ............................................. 294,854
Professional fees (Note 3) ................................................ 85,152
Custodian fees ............................................................ 88,077
Directors' fees and expenses (Note 3) ..................................... 97,538
Miscellaneous ............................................................. 202,799
-----------
Total Expenses ......................................................... 7,041,771
-----------
Net Investment Income ............................................... 28,065,284
-----------
Realized and Unrealized Gains (Losses)
Net realized gains on
Investments ............................................................... 37,050,141
Securities sold short ..................................................... 371,891
Futures ................................................................... 1,520,606
-----------
Net realized gains .................................................. 38,942,638
Decrease in unrealized appreciation on investments and securities sold short . (6,323,813)
-----------
Net realized and unrealized gains on investments, securities sold short and
futures ................................................................. 32,618,825
-----------
Net increase in net assets resulting from operations ...................... $60,684,109
===========
</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
-----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income .......................................... $ 28,065,284 $ 28,096,287
Net realized gains on investments, securities sold short
and futures ................................................... 38,942,638 37,204,875
Increase (decrease) in unrealized appreciation on
investments and securities sold short ......................... (6,323,813) 24,851,047
------------ ------------
Net increase in net assets resulting from operations ........ 60,684,109 90,152,209
------------ ------------
Dividends and distributions to shareholders from
Net investment income .......................................... (28,065,284) (28,076,250)
Net realized gains on investments, securities sold short
and futures ................................................... (38,942,638) (37,204,875)
Capital paid-in ................................................ (4,307,372) --
------------ ------------
Total dividends and distributions to shareholders ........... (71,315,294) (65,281,125)
------------ ------------
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 ....................................................... 14,272,507 13,494,402
Net proceeds from the sale of shares during rights offering..... 76,437,671 --
------------ ------------
Net increase in net assets derived from capital share
transactions .................................................. 90,710,178 13,494,402
------------ ------------
Net increase in net assets ..................................... 80,078,993 38,365,486
------------ ------------
Net Assets
Beginning of year ................................................. 677,133,054 638,767,568
------------ ------------
End of year ....................................................... $757,212,047 $677,133,054
============ ============
</TABLE>
See notes to financial statements
12
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 that 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 (which approximates market value).
Futures contracts traded on commodities exchanges are valued at their closing
settlement price on such exchange. Securities for which market quotations are
not readily available,(of which there were none at December 31, 1998) and other
assets, if any, are valued at fair value as determined under procedures
approved by 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
recorded as assets. 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 or liabilities, 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. 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
13
<PAGE>
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
A short sale is a transaction in which the Fund sells a security it does
not own in anticipation of a decline in market price. To sell a security short,
the Fund must borrow the security. The Fund's obligation to replace the
security borrowed and sold short will be fully collateralized at all times by
the proceeds from the short sale retained by the broker and by cash and
securities deposited in a segregated account with the Fund's custodian. If the
price of the security sold short increases between the time of the short sale
and the time the Fund replaces the borrowed security, the Fund will incur a
loss, and if the price declines during the period, the Fund will realize a
gain. Any realized gain will be decreased, and any incurred loss increased,by
the amount of transaction costs. Dividends or interest the Fund pays in
connection with such short sales are recorded as expenses. In addition to the
short sales descibed 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.
E. Federal Income Tax
The Fund has elected to qualify and intends to remain qualified, as long
as management's view is that it is in the best interests of the shareholders,
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 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. During the year ended December 31, 1998, the Fund
reclassified $64,863 from accumulated net realized losses to capital paid-in.
14
<PAGE>
NOTE 2 -- Portfolio Transactions
During the year ended December 31, 1998, 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>
Purchases .............................. $196,062,888 $402,529,820
============ ============
Sales .................................. $177,966,895 $368,838,093
============ ============
Short sales ............................ $ 390,725
============
Purchases to cover short sales ......... $ 756,794
============
</TABLE>
NOTE 3 -- Investment Advisory Fees and Other Transactions with Affiliates
a) Investment Advisory Fee: The Investment Advisory Agreement (the
"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. For the services provided
by the Investment Adviser under the 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, 1998, the Fund
accrued advisory fees of $5,058,943.
b) Administration Fee: 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, 1998, the Fund
accrued administration fees of $939,518.
c) Directors' Fee: 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 the
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 Fee: The Fund paid legal fees of $25,363 during the year ended
December 31, 1998, for the services of Rosenman & Colin LLP, of which Robert E.
Smith, a Director of the Fund, is counsel. In addition, the Fund paid legal
fees of $52,227 for the services of Rosenman & Colin LLP in connection with its
rights offering.
e) Brokerage Commission: During the year ended December 31, 1998, the Fund
paid Zweig Securities Corp. Inc. brokerage commissions of $50,859 in connection
with portfolio transactions effected
15
<PAGE>
through them. In addition, Zweig Securities Corp. charged $22,385 in
commissions for transactions effected on behalf of the participants in the
Fund's Automatic Reinvestment and Cash Purchase Plan.
Pursuant to an Acquisition Agreement dated December 15, 1998, the
Investment Adviser and the Administrator have agreed to be acquired by Phoenix
Investment Partners, Ltd. ("Phoenix"), a large financial services organization
listed on the New York Stock Exchange (the "Acquisition"). Since completion of
the Acquisition would provide for the automatic termination of the current
Investment Advisory Agreement, a new investment advisory agreement (the
"Advisory Agreement") has been proposed between the Fund and Zweig Total Return
Advisors, Inc. The Advisory Agreement has been approved by the Board of
Directors (the "Board") and has been submitted to shareholders for approval.
Except for the effective dates, the Advisory Agreement is on the same terms as
the current Investment Advisory Agreement. In addition, in order for the Fund
to continue to avail itself of the services of Dr. Martin E. Zweig and his
associates, a new sub-advisory servicing agreement with Zweig Consulting LLC
has been approved by the Board and submitted to the shareholders for approval.
It is anticipated that the Acquisition will be completed in the first quarter
of 1999.
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, 1998, the Fund had one class of common stock, par value
$.001 per share, of which 500,000,000 shares are authorized and 89,770,539
shares are outstanding.
Registered shareholders may elect to receive all distributions in cash
paid by check mailed directly to the shareholder by State Street Bank & Trust
Co. as dividend paying agent. Pursuant to the Automatic Reinvestment and Cash
Purchase Plan (the "Plan"), shareholders not making such election will have all
such amounts automatically reinvested by State Street, as the Plan agent in
whole or fractional shares of the Fund, as the case may be. For the years ended
December 31, 1998 and December 31, 1997, 1,666,475 and 1,590,261 shares,
respectively, were issued pursuant to the Plan.
In a rights offering ending May 8, 1998, shareholders exercised rights to
purchase 9,481,588 shares of common stock at an offering price of $8.42 per
share for proceeds, net of expenses, of $76,437,671.
On December 14, 1998, the Fund declared a distribution of $0.07 per share
to shareholders of record on December 31, 1998. This distribution has an
ex-dividend date of January 6, 1999 and is payable on January 11, 1999.
16
<PAGE>
NOTE 5 -- Financial Highlights
Selected data for a share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value, beginning of year .............. $ 8.61 $ 8.29 $ 8.63 $ 8.11 $ 9.11
------- -------- ------- -------- --------
Income From Investment
Operations:
Net investment income ........................... 0.33 0.36 0.36 0.39 0.29
Net realized and unrealized gains(losses) 0.39 0.80 0.14 0.97 ( 0.43)
------- -------- ------- -------- --------
Total from investment operations ................ 0.72 1.16 0.50 1.36 ( 0.14)
------- -------- ------- -------- --------
Dividends and Distributions:
Dividends from net investment income ............ (0.33) ( 0.36) ( 0.36) ( 0.39) ( 0.29)
Distributions from net realized gains ........... (0.46) ( 0.48) ( 0.24) ( 0.45) --
Distributions from capital paid-in .............. (0.05) -- ( 0.24) -- ( 0.57)
--------- --------- -------- -------- --------
Total Dividends and Distributions ............... (0.84) ( 0.84) ( 0.84) ( 0.84) ( 0.86)
--------- --------- -------- -------- --------
Effect on net asset value as a result of
rights offering* .............................. (0.06) -- -- -- --
--------- --------- -------- -------- --------
Net asset value, end of year .................. $ 8.43 $ 8.61 $ 8.29 $ 8.63 $ 8.11
========= ========= ======== ======== ========
Market value, end of year** ................... $ 8.8750 $ 9.4375 $ 8.00 $ 8.625 $ 8.00
========= ========= ======== ======== ========
Total investment return ......................... 4.49% 30.22% 2.62% 19.19% (17.08)%
========= ========= ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of year
(in thousands) ................................ $ 757,212 $ 677,133 $638,768 $647,523 $591,659
Ratio of expenses to average net assets ......... 0.97% 1.04% 1.03% 1.10% 1.12%
Ratio of net investment income to
average net assets ............................ 3.88% 4.30% 4.31% 4.59% 3.35%
Portfolio turnover rate ......................... 87.9% 104.7% 147.2% 179.8% 281.0%
</TABLE>
- ----------
* Shares were sold at a 5% discount from the average market price.
** 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.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of The Zweig Total Return Fund,
Inc. (the "Fund") at December 31, 1998, 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. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
February 1, 1999
18
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
YEAR END RESULTS
<TABLE>
<CAPTION>
Total Return
on Net Asset Net Asset NYSE Premium
Value Value Share Price (Discount)
-------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Year ended 12/31/1998 ................ 8.8% $ 8.43 $ 8.8750 5.3%
Year ended 12/31/1997 ................ 14.6% 8.61 9.4375 9.6%
Year ended 12/31/1996 ................ 6.3% 8.29 8.0000 (3.5%)
Year ended 12/31/1995 ................ 17.7% 8.63 8.6250 (0.1%)
Year ended 12/31/1994 ................ (1.9%) 8.11 8.0000 (1.4%)
Year ended 12/31/1993 ................ 10.7% 9.11 10.7500 18.0%
Year ended 12/31/1992 ................ 2.1% 9.06 10.0000 10.4%
Year ended 12/31/1991 ................ 20.1% 9.79 10.6250 8.5%
Year ended 12/31/1990 ................ 4.2% 9.02 8.6250 (4.4%)
Year ended 12/31/1989 ................ 14.9% 9.59 9.7500 1.7%
Inception 9/30/88 - 12/31/88 ......... 1.1% 9.24 9.1250 (1.2%)
</TABLE>
- --------------------------------------------------------------------------------
1-800-272-2700 Zweig Shareholder
Relations:
For general information
and literature
(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
REINVESTMENT PLAN
Many of you have questions about our reinvestment plan. We urge
shareholders who want to take advantage of this plan and whose shares are
held in "Street Name," to consult your broker as soon as possible to
determine if you must change registration into your own name to participate.
----------------------------------
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.
YEAR 2000 PREPAREDNESS
Because computer programs were designed using only two fields to indicate the
year, at midnight December 31, 1999, computers will be unable to recognize that
January 1 is the year 2000. The major systems that would impact the Fund with
respect to the year 2000 are those of the transfer agent and custodian. The
Fund has been advised in writing by both the transfer agent and the custodian
that they are working to fix, and expect to have fixed in time, all of the
issues relating to the year 2000. Management of the Fund will continue to
monitor the progress of the transfer agent and the custodian in solving the
year 2000 problem. However, no assurance can be given that their systems will
be fixed on time, or what the magnitude of the problems would be if such
systems are not fixed.
19
<PAGE>
OFFICERS AND DIRECTORS
Martin E. Zweig, Ph.D.
Chairman of the Board and President
Jeffrey Lazar
Director, Vice President and Treasurer
Stuart B. Panish
Vice President & Secretary
Christopher M. Capano
Assistant Vice President
Charles H. Brunie
Director
Annemarie Gilly
Director
Eugene J. Glaser
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
900 Third Avenue
New York, New York 10022
Custodian
The Bank of New York
One Wall Street
New York, New York 10286
Transfer Agent
State Street Bank & Trust Co.
225 Franklin Street
Boston, MA 02110
Legal Counsel
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Independent Accountants
PricewaterhouseCoopers LLP
1177Avenue of the Americas
New York, NY 10036
- --------------------------------------------------------------------------------
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.
ZTR984 3206-ANN(12/98)
[Zweig Total Return Fund logo appears here]
THE ZWEIG TOTAL RETURN FUND, INC.
ANNUAL REPORT
-----------------------------------------------
December 31, 1998
