SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D/A
(Amendment No. 2)
Under the Securities and Exchange Act of 1934
The Zweig Total Return Fund, Inc.
(ZTR)
(Name of Issuer)
Common Stock
(Title of Class of Securities)
989837109
(CUSIP Number)
George W. Karpus, President
Karpus Management, Inc. d/b/a
Karpus Investment Management
183 Sullys Trail
Pittsford, New York 14534
(585) 586-4680
(Name, Address, and Telephone Number of Person Authorized to Receive Notices
and Communications)
March 9, 2004
(Date of Event which Requires Filing of this Statement)
If the person has previously filed a statement on Schedule 13G to report the
acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1 (b) (3) or (4), check the following box. [ ]
(Page 1 of 10 pages)
There are 2 exhibits.
ITEM 1 Security and Issuer
Common Stock
The Zweig Total Return Fund, Inc.
Zweig Funds
c/o Phoenix/Zweig Advisers LLC
900 Third Avenue
New York, New York 10022
ITEM 2 Identity and Background
a) Karpus Management, Inc. d/b/a Karpus Investment Management
(?KIM?)
George W. Karpus, President, Director and Controlling Stockholder
JoAnn VanDegriff, Vice President and Director
Sophie Karpus, Director
b) 183 Sullys Trail
Pittsford, New York 14534
c) Principal business and occupation - Investment Management for
individuals, pension and profit sharing plans, corporations,
endowments, trust and others, specializing in conservative asset
management (i.e. fixed income investments).
d) None of George W. Karpus, JoAnn Van Degriff, or Sophie Karpus
(?the Principals?) or KIM has been convicted in the past five years of
any criminal proceeding (excluding traffic violations).
e) During the last five years none of the principals or KIM has been a party
to a civil proceeding as a result of which any of them is subject to a
judgment, decree or final order enjoining future violations of or
prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
f) Each of the Principals is a United States citizen.
KIM is a New York corporation.
ITEM 3 Source and Amount of Funds or Other Considerations
KIM, an independent investment advisor, has accumulated shares of ZTR
on behalf of accounts that are managed by KIM (?the Accounts?) under
limited powers of attorney. All funds that have been utilized in making
such purchases are from such Accounts.
ITEM 4 Purpose of Transaction
a) KIM has purchased Shares for investment purposes. Being primarily a
fixed income manager, with a specialty focus in the closed end fund
sector, the profile of ZTR fit the investment guidelines for various
Accounts. Shares have been acquired since September 4, 2003.
b) Although originally purchased for investment purposes only, the
Fund?s February 9, 2004 press release and their subsequent preliminary
proxy filing on February 11 prompted us to write to each Board member.
(Exhibit One)
c) On February 18, 2004, KIM sent two potential independent director
nominees to the Fund?s secretary to distribute to the nominating
committee. (Exhibit Two)
ITEM 5 Interest in Securities of the Issuer
a) As of the date of this Report, KIM owns 397,765 shares, which
represents .43 % of the outstanding Shares. George W. Karpus presently
owns 5000 shares purchased on December 22, 2003 at $4.95 (4000 shares)
and January 8, 2004 at $5.09 (1000 shares). Dana R. Consler presently
owns 600 shares purchased on September 30, 2003 at $4.89 per share.
None of the other Principals presently owns shares.
b) KIM has the sole power to dispose of and to vote all of such Shares
under limited powers of attorney.
c) The first open market purchase occurred on September 4, 2003 as
previously reported. Open market purchases for the last 60 days for
the Accounts. There have been no dispositions and no acquisitions,
other than by such open market purchases, during such period.
DATE
SHARES
PRICE PER
DATE
SHARES
PRICE PER
SHARE
SHARE
1/6/2004
20
5.07
2/3/2004
-300
5.13
1/8/2004
1300
5.09
2/10/2004
10000
5.20
1/20/2004
10910
5.10
2/11/2004
20000
5.17
1/22/2004
4500
5.09
2/12/2004
20450
5.17
1/23/2004
4000
5.09
2/20/2004
2000
5.17
1/27/2004
4500
5.09
2/25/2004
2000
5.17
1/30/2004
4500
5.05
2/27/2004
3000
5.16
The Accounts have the right to receive all dividends from, any proceeds
from the sale of the Shares. KIM reserves the right to further accumulate
or sell shares. None of the Accounts has an interest in shares constituting
more than 5% of the Shares outstanding.
ITEM 6 Contracts, Arrangements, Understandings, or Relationships with Respect
to Securities of the Issuer.
Except as described above, there are no contracts, arrangements,
understandings or relationships of any kind among the Principals and KIM
and between any of them and any other person with respect to any of ZTR
securities.
ITEM 7 Materials to be Filed as Exhibits
Not applicable.
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete,
and correct.
Karpus Management, Inc.
March 9, 2004 By:________________________
Date Signature
Sharon L. Thornton, Senior Portfolio Manager
Name/Title
EXHIBIT ONE
(Letter Sent to Each of the Directors on February 13, 2004)
February 13, 2004
The Articles of Incorporation for the Zweig Total Return Fund, Inc.
(NYSE: ZTR) provides shareholders with an extremely important
?lifeboat provision?. The provision requires the Fund to submit a
proposal to shareholders to convert the Fund to an open-end format
should the Fund trade at greater than a 10 percent discount for a full
fiscal quarter. On December 31, 2003, this condition was experienced
by the Fund and the Board has announced that they will honor the
lifeboat provision and submit such a proposal at the Fund?s May 12,
2004 annual meeting.
This provision as stipulated in the Fund?s Articles of Incorporation
provides shareholders with a safeguard against Fund management that
may be unconcerned or unmotivated to address the Fund?s wide
discount to net asset value. Karpus Investment Management (KIM)
purchased shares for our clients with the reassurance that should the
discount stay wide for an extended period of time it would be addressed
by this provision in the Articles of Incorporation.
I was very disappointed to be informed in a recent press release by the
Fund that the Board ?has voted unanimously to recommend against
conversion to an open-end fund?. After all, it was the action taken by
the Board in July of last year that caused the Fund to trade at a discount.
On July 28, 2003, the Fund announced that they would change their
distribution policy from 10 percent fixed distribution based on net asset
value to a variable distribution policy based on earnings and distribution
requirements. This is the exact opposite action taken by a few closed-end
funds recently to remedy their wide discount. On this announcement, the
Fund?s one-month average premium to net asset value of 7.9 percent
immediately eroded to a one-month post announcement discount to net asset
value of 9.5%!
In other words, the actions taken by the Fund?s Board caused shareholders to
lose 16.1 percent in market value given a stable net asset value. In addition,
investors that relied on the income stream provided by the Fund will have to
sell shares to make up the difference. These actions were devastating for such
individuals. It is intolerable that a Board that caused so much economic
loss (particularly for low income shareholders) would have the arrogance
to try to stand in the way of the lifeboat provision provided by the Fund?s
Articles of Incorporation.
The Board has attempted to justify their recommendation in the preliminary
proxy materials filed on February 11. Most of the terms of their justification
relate to the negative effects of the redemption of an open-end fund and
the reduced size of the Fund after these redemptions. These conditions
existed when the Fund put this provision in the Articles of Incorporation
and are therefore moot. Furthermore, shareholders wishing to redeem their
shares immediately following the conversion will not have to worry
about the disadvantages of the open-end format.
They do raise a few valid disadvantages of the conversion, but these costs
would only slightly mitigate the value that shareholders will realize if they
vote in favor of conversion and redeem their shares afterwards. The
conversion costs will amount to .07 percent of the Fund?s NAV; however,
shareholders will realize roughly a 10 percent increase in Fund value after
the conversion.
Another cost involved in the conversion would be a redemption fee
imposed by the Fund to cover the cost of the conversion. This fee would
only be approximately 1-2 percent of the value of Fund shares. These two
costs in aggregate would at most reduce the value added for the shareholder
by 2.07 percent, which leaves the investor with roughly a 7.93 percent net
gain. Taxes may further reduce the investor?s return but not all shareholders
in the Fund are subject to taxation and the investors that needed the income
being paid by the Fund are most likely in a low tax bracket.
The Board goes on to threaten to consider redeeming securities in lieu of cash.
Given the highly liquid nature of the Fund?s portfolio, it makes no sense that
the Board would consider this option unless it is simply out of spite.
The management of this Fund has performed poorly over just about any time
period. The following chart details both the NAV and market price
performance of the fund over various holding periods in comparison
with the Morningstar average balanced mutual fund:
ZTR Performance
Morningstar's Average
Holding Period
Price
NAV
Balanced Mutual Fund
1-Year
-0.47%
6.69%
19.10%
2-Years
-7.51%
1.69%
3.95%
3-Years
0.41%
0.49%
1.06%
5-Years
-1.50%
2.16%
3.12%
10-Years
2.13%
5.29%
7.47%
* All holding periods end 12-31-2003
** ZTR performance calculated on Bloomberg
As can be concluded from the above, Fund management has not served shareholders
well over the years. At least prior to July 28, shareholders could count on a
healthy distribution from the Fund. This distribution was in excess of what
the Fund was earning and hence the Fund was returning capital (or net asset
value) to the Shareholder. In switching to the variable distribution policy,
the Board essentially cut off the Shareholders access to their own capital!
The only means currently available for shareholders to access their own
capital (net asset value) is by the Fund converting to an open-end format.
Fund management, as well as the Board, has a vested interest in not
open-ending the Fund, as such an event will likely result in mass redemptions
and a loss of Fund management and Board director fees. If the Board was
truly independent, they would not have a significant financial interest in the
fees paid out by the Fund. Their primary concern would be to extract
shareholder value. The Board?s recommendation puts in question their
independence. We read in the paper everyday about such conflicts of
interest relating to mutual fund management.
In my opinion, it is a breach of the Board?s fiduciary duty to recommend
against this proposal. I strongly urge each and every shareholder to vote
their shares for this proposal and against the Board?s recommendation
and I further urge the Board to reconsider their recommendation with
regard to this proposal.
Sincerely,
Cody B. Bartlett Jr., CFA
Portfolio Manager
Karpus Investment Management
EXHIBIT TWO
(Letter Sent to Fund?s Secretary on February 18 to Suggest Nominees for
Director)
February 18, 2004
The Zweig Total Return Fund, Inc.
Zweig Funds
Nancy J. Engberg, Secretary
900 Third Avenue
New York, NY 10022
Ms. Engberg,
As per your preliminary proxy materials filed on February 11, 2004,
I (as a representative of Karpus Investment Management) would like to
submit to the nominating committee the following two potential director
nominees. KIM submits to Mr. Charles H. Brunie, Mr. Alden C. Olson, Ph.D.,
and Mr. James B. Rogers, Jr. (the nominating committee), Mr. Nelson Lacey
and Mr. Jim Somers as potential nominees for the two open director terms to
be voted upon at the May 12, 2004 annual meeting. Enclosed is the
biographical information required by the Fund. Please distribute this
information to the nominating committee. I look forward to hearing the
committee?s feedback regarding these two potential nominees.
Thank you for your consideration.
Sincerely,
Cody Bartlett Jr.
Portfolio Manager
Three-Year Term Director Nominee
Nelson Lacey
37 Hartman Road, Amherst, MA 01002
Nelson Lacey is an Associate Professor of Finance at the Isenberg School
of Management at the University of Massachusetts in Amherst. He is a CFA
charter holder. He serves currently as Chairman of the Department of
Finance and Operations Management, a position he has held since 1994.
Professor Lacey received his Ph.D. in Finance in 1985 from the Pennsylvania
State University, and holds an MBA from Arizona State University. He has
authored and co-authored over 30 articles in areas such as interest rate risk
management and control, corporate ethics, the valuation of financial
securities, efficient capital markets, and derivatives. He has co-authored the
textbook ?Modern Corporate Finance: Theory and Practice, now in fourth
edition and published by Hayden McNeil Publishing.
Professor Lacey teaches in the areas of corporate finance, markets and
institutions, risk management, and banking. He has extensive teaching
experience both in the United States and abroad in countries such as
Poland, Russia, Portugal, the Czech Republic, Greece, and Sweden. His
most recent international teaching appointments were at the Escola De
Gestao in Porto, the Athens Laboratory in Business Administration,
and at the Leon Kozminski Academy of Entrepreneurism and Management
in Warsaw. He served as Faculty Coordinator for the U.S. Consortium
for Management Education in Central and Eastern Europe from 1993 through
1999 where he helped organized workshops for faculty, Deans, and Rectors
from 18 Central and Eastern European countries. He also serves as Director
of Education for the Center for International Securities and Derivatives
Markets at the Isenberg School of Management at the University of
Massachusetts.
One-Year Term Director Nominee
James H. Somers
210 Gulph Creek Road, Radnor, PA 19087
Mr. Somers is a 1966 graduate of Lafayette College with an AB in Economics
with a focus on corporate finance and securities analysis.
He went right to Wall Street as a trainee with A.G. Becker & Co. By the mid
'70's he was the Investment Strategist for one of the leading research firms,
Spencer Trask & Co.
In the mid-'70's he moved from the equity to the fixed income side of the
Business in New York, and in '91 left Kidder Peabody and went out on his
own (Somers Asset Management Inc.) in fixed income arbitrage.
In '95 James joined Martindale Andres & Co as a senior portfolio manager,
solely managing one fixed income and two money market funds in the Governor
Fund Group (now part of the Vision Fund group after the sale to M&T Bank).
In addition, he solely managed several fixed income pension and endowment funds
and was a team member in managing the Governor Equity Funds. His fixed income
fund was four/five star Morningstar, his main money fund was consistently in the
top 10 to 15% of all money funds. The pension and endowments soundly
outperformed their benchmarks.
After a two year stint with Merrill Lynch, he?s been managing money for a small
group of people under the name Somers Asset Management Incorporated, with
the title of President.