<PAGE>
February 2, 2000
Dear Shareholder:
For the year ended December 31, 1999, the total return on net asset value of
The Zweig Total Return Fund was 3.9%, including $0.82 in reinvested distribu-
tions.
During the fourth quarter of 1999, the Fund's net asset value gained 4.1%,
including $0.19 in reinvested distributions. Investors should note that past
performance is not indicative of future results.
Consistent with our policy of seeking to minimize risk while earning reason-
able returns, our overall average exposure during 1999 was approximately 59%.
To put our performance in perspective, it is important to note that 1999 was
the worst calendar year for bonds since the 1920's. At the beginning of the
year, the 30-year Treasury bond was yielding 5.10%; it ended the year at
6.48%. Although we cut back our exposure dramatically throughout the year,
ending with a duration of 2.2 years (duration is a measure of the sensitivity
of a bond or bond portfolio to changes in interest rates), the damage done
early in the year was difficult to fully overcome. Furthermore, bonds in every
category had a terrible year.
Given the fact that we have a bias for value as far as equities are
concerned, I am not really unhappy about our overall return. Many value
managers with previous great records had negative returns last year.
I have never seen a stock market go off on two different tracks as it did
last year. We saw technology stocks go positively bonkers, while 61% of the
NYSE stocks, more than 50% of the S&P 500, and 50% of the OTC stocks were
down.
These results can be attributed largely to the so-called new economy. With
the technological advances--particularly in the Internet and everything sur-
rounding it like cable, wireless, telecommunications, and media--certain com-
panies have benefited greatly. The problem is that many of these companies
have no earnings and probably will have none in the near future. Others such
as America Online have earnings, but their multiples are extremely high. This
makes them tough to buy if you use any value yardstick.
Nevertheless, we do own AOL, Microsoft, Dell, Cisco, and others in this
field and have benefited by their performance. We stepped up to the plate on
these issues--and that took a lot of doing for value managers such as
ourselves. I thought it was important to do so, and we may even increase our
percentage in this direction.
At the same time, we have to be conservative. While I do recognize changes
in the economy--it truly is different this time--I cannot ignore history which
shows that in the long run you can achieve superior returns with less risk by
buying stocks at more reasonable prices.
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
declared on January 3, 2000 a distribution of $0.07 per share payable on
January 10, 2000 to shareholders of record on December 31, 1999. 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
total payout since its inception is now $10.04.
<PAGE>
Of the $0.82 taxable in 1999, $0.285 is ordinary income, $0.127 is long-term
capital gains, and $0.408 is return of capital. (The return of capital is a
tax-free return of capital and, therefore, should not be reported as income.)
MARKET OUTLOOK
Our bond exposure at year-end was 22% compared with 24% at the close of the
third quarter. If we were fully invested, we would be at 62.5% in bonds and
37.5% in stocks. Consequently, at 22% in bonds we are at about 35% of a full
position (22% / 62.5%).
Right now we are very cautious on the bond market and have significantly re-
duced our holdings. We see rising commodity prices, wage cost pressure, a hot
economy, and a Federal Reserve that has already tightened four times, all neg-
ative factors for bonds. However, flexibility is the key. If our indicators
turn around and our bond model turns positive, we would be buyers of bonds at
the lower prices.
Our equity exposure at year-end was 25% compared with 24% at the close of
the third quarter. At this figure we are at about 67% of a full position (25%
/ 37.5%).
As I indicated earlier, the stock markets are now tracking two different
economies--the new Internet-driven high technology model and the old one that
still accounts for most economic activity. They sometimes seem to be going in
two different directions. This disparity can continue for some time but
ultimately the Internet will encompass the way virtually every company does
business.
The switch to the Internet economy will bring many dislocations. Middlemen
and wholesalers will see their whole industries threatened because it will be
a lot easier to match up producers and buyers. This will allow for more compe-
tition and eventually bring prices down. Some companies will benefit tremen-
dously, and others will be put out of business.
It will be a wrenching change, resembling what happened a hundred years ago
when the wagon and buggy companies became obsolete with the advent of the
automobile. Companies have to adapt and that is what is going on right now.
Another major change transforming the nation's corporate landscape is the
great merger superwave that shows no sign of cresting. Generally speaking, I
think this phenomenon is having a favorable impact. A lot depends on the na-
ture of the deal. If a big cash premium is paid by the acquiring company, the
acquired company's stock normally would go up. However, as with the America
Online merger with Time Warner, more deals are being done with stock trans-
fers. In these cases, it is not clear whether stock prices will rise or fall.
One common goal that seems to be driving mergers is greater efficiencies in
business. If the combining corporate cultures can work together cohesively, a
lot of deadwood can be cleaned out; profits tend to go up with the cost
savings. With the economy so strong, the people laid off generally land on
their feet and some even get better jobs elsewhere. I believe the merger trend
is accelerating and will also continue in a big way in Europe.
The changing economy is a big factor in current market volatility which, in-
cidentally, is not as great as it has been at certain times in the past. Vola-
tility in the early days of the twentieth century and in the late '20s and
early '30s was much greater than it is today. Part of the reason for the re-
cent increased turnover is lower commission costs. When commissions were fixed
it was prohibitive to do heavy trading. Now transaction costs are much lower
and one can trade directly.
Individuals, who now have more sources of information, can just get on a
computer to buy and sell stocks. With trading easier, faster, and more effi-
cient, there naturally is greater turnover. Although some analysts equate the
current
2
<PAGE>
volatility primarily to speculation that often occurs at market tops, I think
it largely reflects the changed economy and is neither bullish nor bearish.
Day traders are having a significant impact on market volatility and day-to-
day price movements, but all this will pass some day. When the markets go bad,
it will exacerbate the decline. There have been momentum followers for eons.
Buying strength and selling weakness is not all that new. Most of the margin
traders historically have traded on momentum. Computerized day trading does
make the market more volatile but doesn't change the fundamentals.
Citing the day trading and the volatility, some analysts claim that this is
the most speculative market since 1929. These same analysts have been saying
that for the last three or four years. To my way of thinking, the market is
speculative in some ways and not in others. It certainly doesn't look too
speculative for the previously mentioned 61% of the NYSE stocks that went
south last year. I believe the quality of the companies that have highlighted
this boom is far better than some of the junk we saw in 1961, 1968, or even
1929. The quality and growth of earnings is also far superior to that of
1972--the days of the so-called nifty-fifty growth stocks. Is this the most
speculative market? Probably not. Is there a certain level of speculation?
Absolutely.
One trend that cannot go on forever is the widening disparity between some
stock prices and company earnings. From 1990 to the present, the S&P 500
showed a compound annual growth of about 15% while net operating earnings had
a compound annual growth of about 6.7%. Obviously there has to be a more posi-
tive relationship between the changes in stock prices and company earnings.
Meanwhile, earnings right now are projected to be very strong for 2000. I have
heard estimates from the low range of 8% to 10% to as high as 20%.
A lot of the expansion in price/earnings differentials is a result of the
new economy. If you look at the composition of the S&P 500, the big weightings
go to companies like Microsoft, AOL, Yahoo, and Dell that weren't even in the
S&P a while back. Of course, their P/E's are very high but so are their growth
rates.
Based on their weightings, technology stocks make up roughly 30% of the S&P
500 from perhaps 10% several years ago. If you strip out these companies, the
P/E ratios in the S&P are pretty normal. Also, the performance of the non-
technology stocks should be far more in line than what we see on the surface.
That's because we have this extraordinary growth in our economy. All in all,
P/E ratios are probably more rational than what the pessimists are thinking.
Even though we are enjoying the longest economic expansion in our country's
history, it doesn't mean that the business cycle has been permanently tamed.
There will always be ups and downs, but business cycles in the future will not
resemble those of the past. We were an agricultural economy 200 years ago.
Then we were agriculture plus heavy industry like railroads, steel mills, and
chemicals. Those industries were extremely volatile, with agriculture depend-
ing on the weather while capital intensive industries had big fixed costs and
inventories subject to market influences. Now the U.S. economy is much more
service-oriented, which means little or no inventories, less investment and
fixed capital and probably fewer cycles.
Our new economy is far more diversified than it has ever been, and the
volatility of the gross national product should continue to stay low. From
time to time there will be recessions, but they will not necessarily occur as
frequently or as regularly as in the past. It is possible that we can maintain
prosperity for a much longer period. It is also possible that we could screw
it up and do something like raise taxes or interest rates too high and kill
off the boom.
Summing up, the fact that interest rates are up about 200 basis points on
long bonds is a major negative for the stock market. Other
3
<PAGE>
negatives include the speculative elements, the valuations that on the surface
seem high, and our below normal sentiment indicators.
The positives include the really strong earnings that are expected to con-
tinue and the technology-based new economy that is increasing productivity,
cutting costs, and keeping inflation under control.
I see the negatives and positives as sort of a trade-off. The true picture
probably lies somewhere in the middle. Consequently, at this writing I'm on
the fence and my market stance is neutral.
PORTFOLIO COMPOSITION
In accordance with our investment policy guidelines, all of our bonds are
U.S. Government obligations. As mentioned previously, the average duration of
the bond portion of our portfolio (sensitivity to interest rates) was 2.2
years at year-end. This compared with 2.6 years at the close of the third
quarter. Since these bonds are liquid, they give us the flexibility to adjust
swiftly to changing market conditions.
At year-end our leading industry sectors included technology,
telecommunications, financial services, printing and publishing, and retail
trade and services.
In the above listing, technology and telecommunications gained as a result
of appreciation. We added to our holdings in printing and publishing, which
also appreciated in value, and trimmed our position in manufacturing, which
had appeared among our top groups as of September 30.
Our leading individual positions at year-end included EMC, Nokia, Wal-Mart,
Grupo Televisa, Morgan Stanley Dean Witter, Tribune Co., General Electric,
Amgen, Cisco, and Georgia-Pacific.
All of the above were previously in our portfolio, which saw significant
appreciation during the fourth quarter in Nokia, Wal-Mart, Grupo Televisa,
Morgan Stanley Dean Witter, General Electric, and Georgia-Pacific.
We sold out our positions in CNF Transportation and UniCom, and trimmed our
holdings in General Motors, Telephone & Data Systems, and Dell.
Sincerely,
/s/ Martin E. Zweig, Ph.D.
Martin E. Zweig, Ph.D.
Chairman
4
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1999
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- ----------
<S> <C> <C>
Common Stocks 24.73%
Automotive 1.16%
Borg-Warner Automotive, Inc. ........................ 35,600 $1,441,800
Delphi Automotive Systems Corp. ..................... 120,000 1,890,000
Ford Motor Co. ...................................... 31,400 1,677,938
General Motors Corp. ................................ 45,600 3,314,550
----------
8,324,288
----------
Biotechnology 0.55%
Amgen, Inc. ......................................... 65,200(a) 3,916,075
----------
Building & Forest Products 1.45%
Cemex S.A. de CV, ADR................................ 60,000(a) 1,672,500
D.R. Horton, Inc. ................................... 89,900 1,241,744
Georgia-Pacific Group................................ 75,000 3,806,250
Kaufman & Broad Home Corp. .......................... 70,900 1,714,894
Sherwin-Williams Co. ................................ 92,600 1,944,600
----------
10,379,988
----------
Commercial Services 0.43%
Manpower, Inc. ...................................... 82,500 3,104,063
----------
Consumer Products 1.19%
Adolph Coors Co., Class B............................ 26,400 1,386,000
Dial Corp. .......................................... 48,000 1,167,000
PepsiCo, Inc. ....................................... 75,000 2,643,750
Procter & Gamble Co. ................................ 30,000 3,286,875
----------
8,483,625
----------
Electronics -- Electrical 0.55%
General Electric Co. ................................ 25,500 3,946,125
----------
Engineering & Machinery 0.35%
Ingersoll-Rand Co. .................................. 30,000 1,651,875
McDermott International, Inc. ....................... 90,000 815,625
----------
2,467,500
----------
Financial Services 2.49%
Allstate Corp. ...................................... 72,700 1,744,800
Bear Stearns & Co., Inc. ............................ 77,401 3,308,893
Countrywide Credit Industries, Inc. ................. 90,000 2,272,500
H & R Block, Inc. ................................... 62,600 2,738,750
Lehman Brothers Holdings, Inc. ...................... 30,000 2,540,625
Morgan Stanley Dean Witter & Co. .................... 28,500 4,068,375
Sovereign Bancorp, Inc. ............................. 150,000 1,117,969
----------
17,791,912
----------
</TABLE>
See notes to financial statements
5
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- ----------
<S> <C> <C>
Health Care 0.53%
Elan Corp. Plc, ADR.................................... 75,000(a) $2,212,500
United HealthCare Corp. ............................... 30,000 1,593,750
----------
3,806,250
----------
Investment Companies 0.96%
Asia Tigers Fund, Inc. ................................ 30,000 305,625
Central European Equity Fund, Inc. .................... 29,100 420,131
Emerging Markets Infrastructure Fund, Inc. ............ 57,284 644,445
Emerging Markets Telecommunications Fund, Inc. ........ 28,600 461,175
France Growth Fund, Inc. .............................. 24,200 370,563
Gabelli Global Multimedia Trust, Inc. ................. 40,700 763,125
INVESCO Global Health Sciences Fund, Inc. ............. 55,100 812,725
Mexico Fund, Inc. ..................................... 68,900 1,197,137
Morgan Stanley Dean Witter Asia Pacific Fund, Inc. .... 30,000 354,375
Morgan Stanley Dean Witter Emerging Markets Fund,
Inc. ................................................. 50,400 822,150
Royce Value Trust, Inc. ............................... 54,160 707,465
----------
6,858,916
----------
Leisure Time 0.70%
Brunswick Corp. ....................................... 63,700 1,417,325
Hasbro, Inc. .......................................... 90,000 1,715,625
Marriot International, Inc., Class A................... 60,000 1,893,750
----------
5,026,700
----------
Manufacturing 0.83%
Crown Cork & Seal Co., Inc. ........................... 75,000 1,678,125
Johnson Controls, Inc. ................................ 33,800 1,922,375
Whirlpool Corp. ....................................... 35,700 2,322,731
----------
5,923,231
----------
Media 2.42%
Comcast Corp., Class A................................. 57,000 2,882,062
Grupo Televisa S.A., GDR............................... 60,000 4,095,000
Knight-Ridder, Inc. ................................... 59,700 3,552,150
The New York Times Co., Class A........................ 55,100 2,706,787
Tribune Co. ........................................... 73,500 4,047,094
----------
17,283,093
----------
Oil & Oil Services 0.94%
Amerada Hess Corp. .................................... 45,000 2,553,750
Apache Corp. .......................................... 45,000 1,662,187
Kerr-McGee Corp. ...................................... 40,200 2,492,400
----------
6,708,337
----------
Railroads 0.38%
USFreightways Corp. ................................... 56,900 2,724,087
----------
</TABLE>
See notes to financial statements
6
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (Note 3)
--------- -----------
<S> <C> <C>
Retailing 1.63%
Best Buy Inc. ....................................... 31,300(a) $1,570,869
Home Depot, Inc. .................................... 44,700 3,064,744
Ross Stores, Inc. ................................... 75,000 1,345,312
TJX Cos., Inc. ................. . .................. 75,000 1,532,812
Wal-Mart Stores, Inc. ............................... 59,500 4,112,938
-----------
11,626,675
-----------
Steel & Heavy Machinery 0.14%
Worthington Industries, Inc. ........................ 60,000 993,750
-----------
Technology 3.31%
America Online, Inc. ................................ 45,000(a) 3,394,687
Applied Materials, Inc. ............................. 26,900(a) 3,407,894
Cisco Systems, Inc. ................................. 36,300(a) 3,888,637
Dell Computer Corp. ................................. 55,400(a) 2,825,400
EMC Corp. ........................................... 40,500(a) 4,424,625
Intel Corp. ......................................... 33,100 2,724,544
Microsoft Corp. ..................................... 25,500(a) 2,977,125
-----------
23,642,912
-----------
Telecommunications 3.36%
AT&T Corp. .......................................... 60,000 3,045,000
CenturyTel, Inc. .................................... 45,100 2,136,613
Lucent Technologies, Inc. ........................... 41,500 3,104,719
MCI WorldCom, Inc. .................................. 38,550(a) 2,045,559
Nokia Corp., ADR..................................... 22,100 4,199,000
Tele Norte Leste Participacoes S.A., ADR............. 101,000 2,575,500
Telefonos de Mexico S.A., Class L, ADR............... 31,300 3,521,250
Telephone & Data Systems, Inc. ...................... 27,000 3,402,000
-----------
24,029,641
-----------
Textile & Apparel Manufacturer 0.60%
Liz Claiborne, Inc. ................................. 58,000 2,182,250
Shaw Industries, Inc. ............................... 135,000 2,084,063
-----------
4,266,313
-----------
Utilities--Electric 0.76%
Energy East Corp. ................................... 102,600 2,135,362
GPU, Inc. ........................................... 52,500 1,571,719
Reliant Energy, Inc. ................................ 75,000 1,715,625
-----------
5,422,706
-----------
Total Common Stock
(Cost $138,386,674)......................................... 176,726,187
-----------
</TABLE>
See notes to financial statements
7
<PAGE>
<TABLE>
<CAPTION>
Principal Value
Amount (Note 3)
----------- ------------
<S> <C> <C> <C>
United States Government Obligations 21.80%
FHLMC, 5.125%,10/15/08......................... $38,100,000 $ 33,358,379
United States Treasury Notes, 6.25%, 8/31/00... 13,500,000 13,533,750
United States Treasury Bonds, 10.75%, 5/15/03.. 15,000,000 16,931,250
United States Treasury Notes, 7.50%, 2/15/05... 16,300,000 17,008,039
United States Treasury Notes, 6.50%, 5/15/05... 7,600,000 7,604,750
United States Treasury Notes, 6.125%, 8/15/07.. 38,300,000 37,342,500
United States Treasury Bonds, 8.75%, 8/15/20... 14,800,000 17,935,750
United States Treasury Bonds, 5.25%, 2/15/29... 14,600,000 12,081,500
------------
Total United States Government Obligations
(Cost $163,356,735)..................................... 155,795,918
------------
Short-Term Investments 53.10%
AT&T Co., 6.01%, 1/10/00....................... 25,000,000 24,958,263
Coca-Cola Enterprises, Inc., 6.40%, 1/05/00.... 24,900,000 24,877,866
DuPont & Co., 5.48%, 1/19/00................... 25,000,000 24,927,694
Ford Motor Credit Corp., 6.35%, 1/04/00........ 25,000,000 24,982,361
General Electric Capital Corp., 6.50%, 1/13/00. 30,000,000 29,929,582
GMAC Corp., 6.22%, 1/07/00..................... 25,000,000 24,969,764
Goldman Sachs Group L.P., 6.50%, 1/11/00....... 30,000,000 29,940,782
Marsh & McLennan Co., 6.48%, 1/14/00........... 30,000,000 29,924,400
Merrill Lynch & Co., 5.60%, 1/20/00............ 30,000,000 29,906,666
Toyota Motor Credit Co., 5.30%, 2/01/00........ 31,400,000 31,252,071
UBS Financial Corp., 4.50%, 1/03/00............ 29,000,000 28,989,125
Warner-Lambert Corp., 5.05%, 1/26/00........... 25,000,000 24,908,819
Washington Post Co., 6.45%, 1/12/00............ 25,000,000 24,946,249
WW Grainger Inc., 6.70%, 1/06/00............... 25,000,000 24,972,083
------------
Total Short-Term Investments (Cost $379,548,621)......... 379,485,725
------------
Total Investments (Cost $681,292,030) -- 99.63%.......... 712,007,830
Other assets less liabilities -- 0.37%................... 2,629,375
------------
Net Assets -- 100.00%.................................... $ 714,637,205
============
- --------
(a) Non-income producing security.
For Federal income tax purposes, the tax basis of investments owned at
December 31, 1999 was $681,292,030 and net unrealized appreciation of
investments consisted of:
Gross unrealized appreciation............................ $ 47,510,950
Gross unrealized depreciation............................ (16,795,150)
------------
Net unrealized appreciation.............................. $ 30,715,800
============
</TABLE>
See notes to financial statements
8
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost $681,292,030)..............$712,007,830
Cash............................................................. 1,201,694
Dividends and interest receivable................................ 3,290,116
Prepaid expenses................................................. 16,117
------------
Total Assets................................................... 716,515,757
------------
LIABILITIES
Accrued advisory fees (Note 5)................................... 422,254
Accrued administration fees (Note 5)............................. 78,419
Payable for treasury shares...................................... 1,035,456
Other accrued expenses........................................... 342,423
------------
Total Liabilities.............................................. 1,878,552
------------
NET ASSETS......................................................... $714,637,205
============
NET ASSET VALUE, PER SHARE
($714,637,205/90,600,166 shares outstanding--Note 6)............. $ 7.89
============
Net Assets consist of
Capital paid-in.................................................. $677,605,067
Undistributed net investment income.............................. 2,181,018
Undistributed net realized gain on investments................... 4,135,320
Net unrealized appreciation on investments....................... 30,715,800
------------
$714,637,205
============
</TABLE>
See notes to financial statements.
9
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
<TABLE>
<S> <C>
Investment Income
Income
Interest..................................................... $ 29,051,100
Dividends.................................................... 3,844,068
------------
Total Income............................................... 32,895,168
------------
Expenses
Investment advisory fees (Note 5)............................ 5,106,046
Administrative fees (Note 5)................................. 948,305
Printing and postage expenses................................ 294,854
Transfer agent fees.......................................... 274,889
Directors' fees and expenses (Note 5)........................ 95,616
Custodian fees............................................... 87,837
Professional fees (Note 5)................................... 85,151
Miscellaneous................................................ 195,773
------------
Total Expenses............................................. 7,088,471
------------
Net Investment Income.................................... 25,806,697
------------
Net Realized and Unrealized Gains (Losses)
Net realized gains (losses) on
Investments.................................................. 11,808,409
Securities sold short........................................ (37,999)
Futures...................................................... (242,025)
------------
Net realized gain........................................ 11,528,385
Decrease in unrealized appreciation on investments and
securities sold short......................................... (13,198,825)
------------
Net realized and unrealized loss on investments, securities
sold short and futures...................................... (1,670,440)
------------
Net increase in net assets resulting from operations......... $ 24,136,257
------------
</TABLE>
See notes to financial statements.
10
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years Ended
December 31
--------------------------
1999 1998
------------ ------------
Increase (Decrease) in Net Assets
Operations
<S> <C> <C>
Net investment income.............................. $ 25,806,697 $ 28,065,284
Net realized gains on investments, securities sold
short and futures................................. 11,528,385 38,942,638
Decrease in unrealized appreciation of investments
and securities sold short......................... (13,198,825) (6,323,813)
------------ ------------
Net increase in net assets resulting from
operations...................................... 24,136,257 60,684,109
------------ ------------
<CAPTION>
Dividends and distributions to shareholders from
<S> <C> <C>
Net investment income.............................. (25,806,697) (28,065,284)
Net realized gains on investments, securities sold
short and futures................................. (11,528,385) (38,942,638)
Capital paid-in.................................... (36,881,045) (4,307,372)
------------ ------------
Total dividends and distributions to
shareholders.................................... (74,216,127) (71,315,294)
------------ ------------
<CAPTION>
Capital share transactions
<S> <C> <C>
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............................... 10,534,625 14,272,507
Net proceeds from the sale of shares during rights
offering.......................................... -- 76,437,671
Shares repurchased and retired, 460,000 shares..... (3,029,597) --
------------ ------------
Net increase in net assets derived from capital
share transactions................................ 7,505,028 90,710,178
------------ ------------
Net increase (decrease) in net assets.............. (42,574,842) 80,078,993
<CAPTION>
Net Assets
<S> <C> <C>
Beginning of year.................................... 757,212,047 677,133,054
------------ ------------
End of year (including undistributed net investment
income of $2,181,018 and $0, respectively).......... $714,637,205 $757,212,047
============ ============
</TABLE>
See notes to financial statements.
11
<PAGE>
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE 1 -- Acquisition
On March 1, 1999, Phoenix Investment Partners, Ltd. ("Phoenix"), completed
the acquisition of Zweig Total Return Advisors, Inc. (the "ZTR Adviser"), the
Fund's investment adviser, Zweig/Glaser Advisers, the Fund's administrator
("Administrator") and Zweig Securities Corp. (currently PXP Securities Corp.),
an affiliated broker-dealer registered under the Securities Exchange Act of
1934.
As a result of the acquisition, effective January 1, 2000, Zweig/Glaser
Advisers, LLC (the "Adviser") succeeds ZTR Adviser, as the Fund's investment
adviser. In order to continue to have access to the advisory and consulting
services of Dr. Martin E. Zweig and his associates, the Adviser entered into a
sub-advisory servicing agreement with Zweig Consulting, LLC.
As of October 31, 1999, the Administrator assigned the rights and
obligations under the Administration Agreement dated March 1, 1999, between
the Fund and the Administrator to Phoenix Equity Planning Corp. ("PEPCO")
under the same terms as the previous Administration Agreement. Effective
October 31, 1999, PEPCO sub-contracted the Fund's mutual fund accounting to
The Bank of New York. PEPCO is an affiliate of the Adviser and the Fund.
NOTE 2 -- Organization
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.
NOTE 3 -- Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles. 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
Adviser. Debt securities may be valued on the basis of prices provided by an
independent pricing service, when such prices are believed by the 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, 1999) and other assets, if any, are
valued at fair value as determined under procedures approved by the Board of
Directors of the Fund.
12
<PAGE>
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 a contract is closed,
the Fund realizes a 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 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 described above, the Fund may make short sales "against the box".
A short sale "against the box" is a short sale whereby at the time of the
short sale, the Fund owns or has the immediate and unconditional right, at no
added cost, to obtain the identical security.
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
13
<PAGE>
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,
1999, the Fund reclassified $2,181,018 and $4,135,320 to undistributed net
investment income and undistributed net realized gain on investments,
respectively, from capital paid-in.
NOTE 4 -- Portfolio Transactions
During the year ended December 31, 1999, purchases and sales transactions,
excluding short-term investments and futures contracts were:
<TABLE>
<CAPTION>
United States
Government
Common and Agency
Stocks Obligations
------------ -------------
<S> <C> <C>
Purchases ........................................ $244,923,935 $528,038,507
============ ============
Sales ............................................ $377,927,231 $741,298,735
============ ============
Purchases to cover short sales ................... $ 428,724
============
</TABLE>
NOTE 5 -- Investment Advisory Fees and Other Transactions with Affiliates
a) Investment Advisory Fee: The Investment Advisory Agreement (the
"Agreement") between the Adviser 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 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 Adviser, subject to review by the Board
of Directors and the applicable provisions of the Act. For the services
provided by the Adviser under the Agreement, the Fund pays the 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, 1999, the Fund accrued advisory
fees of $5,106,046.
b) Administration Fee: Phoenix Equity Planning Corp. serves as the Fund's
Administrator pursuant to an Administration Agreement with the Fund. Under the
same terms as the previous 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, 1999, the Fund accrued administration fees of $948,305.
c) Directors' Fee: The Fund pays each Director who is not an interested
person of the Fund or the Adviser a fee of $10,000 per year plus $1,500 per
Directors' or committee meeting attended, together
14
<PAGE>
with the out-of-pocket costs relating to attendance at such meetings. Any
Director of the Fund who is an interested person of the Fund or the Adviser
receive no remuneration from the Fund.
d) Legal Fee: The Fund accrued legal fees of $28,152 during the year ended
December 31, 1999, for the services of Rosenman & Colin LLP, of which Robert
E. Smith, a former Director of the Fund, is counsel.
e) Brokerage Commission: During the year ended December 31, 1999, the Fund
paid PXP Securities Corp. brokerage commissions of $85,853 in connection with
portfolio transactions effected through them. In addition, PXP Securities
Corp. charged $38,213 in commissions for transactions effected on behalf of
the participants in the Fund's Automatic Reinvestment and Cash Purchase Plan.
NOTE 6 -- Capital Stock and Reinvestment Plan
At December 31, 1999, the Fund had one class of common stock, par value
$.001 per share, of which 500,000,000 shares are authorized and 90,600,166
shares are outstanding.
Registered shareholders may elect to receive all distributions in cash paid
by check mailed directly to the shareholder by EquiServe 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 EquiServe, as the Plan agent in whole or
fractional shares of the Fund, as the case may be. For the years ended
December 31, 1999 and December 31, 1998, 829,627 and 1,666,475 shares,
respectively, were issued pursuant to the Plan.
On December 7, 1999, the Fund's Board of Directors authorized the repurchase
and retirement of up to $20,000,000 of its shares for the purpose of enhancing
shareholder value. For the year ended December 31, 1999, 460,000 shares were
repurchased and retired at a cost of $3,029,597 representing 0.6% of the
91,060,166 shares outstanding at December 10, 1999. This includes $18,630 in
commissions paid to PXP Securities Corp. The weighted average discount of
market price to net asset value of shares repurchased over the period of
December 10, 1999 to December 31, 1999 was 16.4%.
On January 3, 2000, the Fund declared a distribution of $0.07 per share to
shareholders of record on December 31, 1999. This distribution has an ex-
dividend date of January 5, 2000 and is payable on January 10, 2000.
15
<PAGE>
NOTE 7 -- Financial Highlights
Selected data for a share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value, beginning
of year ................... $ 8.43 $ 8.61 $ 8.29 $ 8.63 $ 8.11
-------- -------- -------- -------- --------
Income From Investment Oper-
ations:
Net investment income ...... 0.28 0.33 0.36 0.36 0.39
Net realized and unrealized
gains(losses).............. (0.01) 0.39 0.80 0.14 0.97
-------- -------- -------- -------- --------
Total from investment opera-
tions ..................... 0.27 0.72 1.16 0.50 1.36
-------- -------- -------- -------- --------
Anti-dilutive effect of
share repurchase program... 0.01 -- -- -- --
-------- -------- -------- -------- --------
Dividends and Distributions:
Dividends from net invest-
ment income ............... (0.28) (0.33) (0.36) (0.36) (0.39)
Distributions from net real-
ized gains ................ (0.13) (0.46) (0.48) (0.24) (0.45)
Distributions from capital
paid-in ................... (0.41) (0.05) -- (0.24) --
-------- -------- -------- -------- --------
Total Dividends and Distri-
butions ................... (0.82) (0.84) (0.84) (0.84) (0.84)
-------- -------- -------- -------- --------
Effect on net asset value as
a result of rights
offering* ................. -- (0.06) -- -- --
-------- -------- -------- -------- --------
Net asset value, end of
year .................... $ 7.89 $ 8.43 $ 8.61 $ 8.29 $ 8.63
======== ======== ======== ======== ========
Market value, end of
year** .................. $ 6.50 $ 8.88 $ 9.44 $ 8.00 $ 8.63
======== ======== ======== ======== ========
Total investment return*** . (18.72)% 4.49% 30.22% 2.62% 19.19%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of year (in
thousands) ................ $714,637 $757,212 $677,133 $638,768 $647,523
Ratio of expenses to average
net assets ................ 0.97% 0.97% 1.04% 1.03% 1.10%
Ratio of net investment in-
come to average net assets
........................... 3.50% 3.88% 4.30% 4.31% 4.59%
Portfolio turnover rate .... 172.3% 87.9% 104.7% 147.2% 179.8%
</TABLE>
- --------
* Shares were sold at a 5% discount from the average market price.
** Closing Price -- New York Stock Exchange.
*** Total investment return is calculated assuming a purchase of common stock
on the opening of the first business day and a sale on the closing of the
last business day of each period reported. Dividends and distributions, if
any, are assumed for the purposes of this calculation, to be reinvested at
prices obtained under the Fund's Distribution Reinvestment and Cash
Purchase Plan. Generally, total investment return based on net asset value
will be higher than total investment return based on market value in
periods where there is an increase in the discount or a decrease in the
premium of the market value to the net assets from the beginning to the
end of such years. Conversely, total investment return based on net asset
value will be lower than total investment return based on market value in
periods where there is a decrease in the discount or an increase in the
premium of the market value to the net asset value from the beginning to
end of such periods.
16
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders 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, 1999, 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 accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 4, 2000
17
<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 12/31/1999 .......... 3.9% $7.89 $ 6.5000 (17.6%)
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
1-800-272-2700 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.
18
<PAGE>
OFFICERS AND DIRECTORS
Martin E. Zweig, Ph.D.
Chairman of the Board and President
Jeffrey Lazar
Executive Vice President and Treasurer
Christopher M. Capano
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
Investment Adviser
Zweig/Glaser Advisers LLC
900 Third Avenue
New York, NY 10022
Fund Administrator
Phoenix Equity Planning Corp.
100 Bright Meadow Boulevard
PO Box 2200
Enfield, CT 06083-2200
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer Agent
State Street Bank & Trust Co.
c/o EquiServe
PO Box 8040
Boston, MA 02266
Legal Counsel
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue 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 repre-
sentation intended for use in the purchase of shares of the Fund or any securi-
ties mentioned in this report.
PXP 1336________________________________________________________3206 ANN (12/99)
