UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934. (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
THE ZWEIG TOTAL RETURN FUND, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
N/A
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
------------------------------------------------------------------------
(5) Total fee paid:
$0
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials: N/A
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
THE ZWEIG TOTAL RETURN FUND, INC.
900 THIRD AVENUE, NEW YORK, NEW YORK 10022
March ___, 2004
DEAR SHAREHOLDER:
You are cordially invited to attend the Annual Meeting of Shareholders of
The Zweig Total Return Fund, Inc. (the "Fund") to be held on Wednesday, May 12,
2004, at 11:30 A.M. at the offices of Katten Muchin Zavis Rosenman, located at
575 Madison Avenue (between 56th and 57th Streets), 11th Floor, New York, New
York.
Details of the business to be presented at the meeting can be found in the
accompanying Notice of Annual Meeting and Proxy Statement. This meeting will
give you an opportunity to hear a report on the Fund and to discuss other
matters of interest to you as a shareholder.
We hope that you will be able to attend the meeting. Whether or not you
plan to attend, please complete, date, sign and mail the enclosed proxy card to
assure that your shares are represented at the meeting. Please return all proxy
cards that you may receive.
On behalf of the Board of Directors, I extend our appreciation for your
continued support.
DANIEL T. GERACI,
PRESIDENT OF
THE ZWEIG TOTAL RETURN FUND, INC.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE:
1. FOR THE PROPOSAL TO ELECT DIRECTORS; AND
2. AGAINST THE PROPOSAL TO CONVERT THE FUND TO AN OPEN-END INVESTMENT
COMPANY
THE ZWEIG TOTAL RETURN FUND, INC.
900 THIRD AVENUE, NEW YORK, NEW YORK 10022
---------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------
MAY 12, 2004
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of The Zweig Total Return Fund, Inc., a
Maryland corporation (the "Fund"), will be held on Wednesday, May 12, 2004 at
11:30 A.M. at the offices of Katten Muchin Zavis Rosenman, located at 575
Madison Avenue (between 56th and 57th Streets), 11th Floor, New York, New York,
for the following purposes:
1. ELECT DIRECTORS:
To elect two Directors to serve until the Annual Meeting of
Shareholders in 2007 and one Director to serve until the Annual
Meeting of Shareholders in 2005;
2. PROPOSAL REGARDING CONVERSION TO OPEN-END INVESTMENT COMPANY:
To vote on a proposal pursuant to the Fund's Articles of Incorporation
to convert the Fund to an open-end investment company and to adopt an
amendment and restatement of the Articles of Incorporation to
effectuate the proposal; and
3. OTHER BUSINESS:
To transact such other business as may properly come before the
Meeting or any adjournments thereof.
Shareholders of record of the Fund at the close of business on February 13,
2004 are entitled to notice of, and will be entitled to vote at, the Meeting or
any postponement or adjournment thereof. The enclosed Proxy is being solicited
on behalf of the Board of Directors.
By Order of the Board of Directors of
The Zweig Total Return Fund, Inc.
DANIEL T. GERACI,
PRESIDENT
New York, New York
March ___, 2004
IMPORTANT:
YOU ARE INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON, YOU ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED
FOR YOUR CONVENIENCE AND REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD MAY SAVE THE FUND THE NECESSITY
AND EXPENSE OF FURTHER SOLICITATIONS TO ASSURE A QUORUM AT THE MEETING. A PROXY
WILL NOT BE REQUIRED FOR ADMISSION TO THE MEETING.
THE ZWEIG TOTAL RETURN FUND, INC.
900 THIRD AVENUE, NEW YORK, NEW YORK 10022
---------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 2004
---------------
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of The Zweig Total Return Fund,
Inc., a Maryland corporation (the "Fund"), for use at the Annual Meeting of
Shareholders to be held at the offices of Katten Muchin Zavis Rosenman, located
at 575 Madison Avenue (between 56th and 57th Streets), 11th Floor, New York, New
York, on Wednesday, May 12, 2004 at 11:30 A.M., and at any and all adjournments
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
dated March ___, 2004.
If the accompanying form of proxy is properly executed and returned in time
to be voted at the Meeting, the shares will be voted in accordance with the
instructions marked by the shareholder. Executed proxies that are unmarked will
be voted (1) "for" the election of the three nominees of the Board of Directors
as Directors of the Fund and (2) "against" the proposal submitted for
consideration pursuant to the Fund's Articles of Incorporation to convert the
Fund to an open-end investment company and to adopt amendments to the Fund's
Articles of Incorporation to effectuate the conversion. A shareholder can revoke
the proxy prior to its use by appearing at the Meeting and voting in person, by
giving written notice of such revocation to the Secretary of the Fund, or by
returning a subsequently dated proxy.
This Proxy Statement and the accompanying form of proxy will be first sent
to shareholders on or about March ____, 2004.
The Board of Directors of the Fund has fixed the close of business on
February 13, 2004 as the record date for the determination of shareholders
entitled to notice of and to vote at the Meeting. As of the record date,
92,198,270.8797 shares of the Fund's common stock were outstanding. To the best
of the Fund's knowledge, no person beneficially owns more than five percent of
the outstanding shares of the Fund's common stock.
The Annual Report of the Fund for the year ended December 31, 2003,
including financial statements, has been mailed to shareholders of record at the
close of business on that date, and to persons who became shareholders of record
between that time and the close of business on February 13, 2004.
The Fund will furnish, without charge, a copy of the Fund's December 31,
2003 Annual Report to any shareholder who requests it by contacting the Fund's
Administrator, Phoenix Equity Planning Corporation, 56 Prospect Street, P.O. Box
150480, Hartford, Connecticut 06115-0480, Attention: Shareholder Services;
Toll-free telephone number 1-800-272-2700.
RECENT FUND DEVELOPMENTS
On March 2, 2004, the Board of Directors unanimously approved the
continuation of the advisory relationship with Phoenix/Zweig Advisers LLC (the
"Adviser") and the continuation of the sub-advisory relationship with Zweig
Consulting LLC (the "Sub-Adviser"). Under the continued sub-advisory
relationship, Dr. Martin E. Zweig, President and owner of the Sub-Adviser, will
continue to provide asset allocation services and will assume an expanded role
in reviewing the Fund's portfolio. Dr. Zweig will actively collaborate in the
stock selection process with the Adviser's new portfolio management team.
In addition to Dr. Zweig's increased involvement with the Fund, Dr. Zweig
strongly affirmed his support for maintaining the Fund as closed-end.
The portfolio management team of Carlton Neel and David Dickerson was
installed by the Adviser as of April 1, 2003, with the endorsement of the Board
of Directors, and with the support of the Sub-Adviser. Effective March 2, 2004,
Daniel T. Geraci, president of the Adviser and executive vice president of the
asset management operations of The Phoenix Companies, was appointed as President
of the Funds and a Director.
Subsequent to the filing of the Fund's preliminary proxy on February 11,
2004, several professional investors have contacted the Board of Directors or
the Fund with respect to the proposal to convert the Fund to an open-end
investment company. One such shareholder, who reported holding less than half of
one percent of the outstanding shares of the Fund, has filed a Form 13D with the
Securities and Exchange Commission. In their communications, these shareholders
supported one or more of the following: (i) conversion to an open-end investment
company; (ii) reinstatement of a fixed distribution policy; and/or (iii)
nomination of new directors.
The Board has spent considerable time evaluating the present situation and
concluded that it is inappropriate to open-end the Fund at this time for the
reasons discussed in this Proxy Statement. The Board believes that maintaining
the Fund as a closed-end fund will benefit the Fund's long-term shareholders.
Open-ending would permit the professional investors to realize a short-term
profit on their investment, without regard to the best interests of the Fund's
long-term shareholders. Moreover, the Board believes it is in the best interests
of the Fund and its shareholders to permit the new portfolio management team,
together with Dr. Zweig, to focus on the Fund's portfolio and to work on
achieving the Fund's investment objective in its closed-end structure. The Board
also has considered the effects of the Fund's distribution policy. As
communicated to shareholders by letter dated July 28, 2003, the change from a
fixed to a variable distribution policy was effected in order to avoid potential
adverse tax consequences (see Proposal 2, "Background of the Proposal" at page
____). However, the Board is currently evaluating whether it is appropriate to
reinstate a new distribution policy.
2
PROPOSAL 1
ELECTION OF DIRECTORS
The members of the Board of Directors of the Fund are divided into three
classes with the term of office of one class expiring each year. At the
forthcoming Annual Meeting, two Directors will be elected to serve a three-year
term (until the third succeeding Annual Meeting in 2007) and one Director will
be elected to serve a one-year term (until the first succeeding Annual Meeting
in 2005). Unless authority to vote for the election of Directors is withheld,
the enclosed proxy will be voted for the election of the nominees named below.
While management has no reason to believe that the nominees will not be
available as candidates, should such a situation arise, proxies may be voted for
the election of such other persons as a Director, as the holders of the proxies
may, in their discretion, determine.
The Fund's Board of Directors has appointed a Nominating Committee which
makes annual recommendations as to the individuals to be nominated by the Fund's
Board of Directors for election as Directors at the forthcoming Annual Meeting
and selects candidates for election by the Board of Directors to fill any
vacancies in the Board of Directors, including those resulting from an increase
in the number of Directors. The Fund's Nominating Committee consists of three
Directors who are not "interested persons" (as defined in the Investment Company
Act of 1940, as amended (the "Act")) of the Fund, the Adviser, or the
Sub-Adviser.
Based on the recommendations made by the Fund's Nominating Committee at its
meetings held on February 12, 2004 and March 2, 2004, the Board of Directors of
the Fund has nominated (a) R. Keith Walton, who is presently a Director of the
Fund, for re-election to the Board of the Fund, to serve until the next Annual
Meeting in 2005, and (b) Alden C. Olson and Daniel T. Geraci, who are presently
Directors of the Fund, for re-election to the Board of the Fund, to serve until
the third succeeding Annual Meeting in 2007.
3
Background information with respect to the current Directors appears
below.
NUMBER OF
PORTFOLIOS IN
TERM OF FUND
OFFICE AND COMPLEX- PRINCIPAL OCCUPATION(s)
NAME, AGE, ADDRESS AND LENGTH OF OVERSEEN BY DURING PAST 5 YEARS AND
POSITION(S) WITH FUND TIME SERVED DIRECTOR OTHER DIRECTORSHIPS HELD
----------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
Charles H. Brunie (73) Term: Until 2 Director of The Zweig Fund, Inc. (since 1998). Chairman, Brunie
Brunie Associates 2006. Associates (investments) (since April 2001). Chairman, Oppenheimer
600 Third Avenue, 17th Floor Served since: Capital (1969 to 2000). Chairman Emeritus, Board of Trustees,
New York, NY 10016 1988. Manhattan Institute (since 1990). Trustee, Milton and Rose D.
Friedman Foundation for Vouchers (1999-present). Trustee, Hudson
Director Institute (since 2002). Trustee, American Spectator (since 2002).
Wendy Luscombe (52) Term: Until 2 Director of The Zweig Fund, Inc. (since 2002). Principal, WKL
480 Churchtown Road 2005. Associates, Inc. (investment management) (since 1994). Fellow,
Craryville, NY 12521 Served since: Royal Institution of Chartered Surveyors. Member, Chartered
2002. Institute of Arbitrators. Director, Endeavour Real Estate
Director Securities, Ltd., REIT Mutual Fund (since 2000). Director, PXRE,
Corp. (reinsurance) (since 1994). Member and Chairman of Management
Oversight Committee, Deutsche Bank Real Estate Opportunities Fund
(since 2003)
Alden C. Olson (76) Term: Until 2 Director of The Zweig Fund, Inc. (since 1996); currently retired.
2711 Ramparte Path 2004. Chartered Financial Analyst (since 1964). Professor of Financial
Holt, MI 48842 Served since: Management, Investments at Michigan State University (1959 to 1990).
1996.
Director
James B. Rogers, Jr. (61) Term: Until 2 Director of The Zweig Fund, Inc. (since 1986); Private investor
352 Riverside Drive 2006. (since 1980). Chairman, Beeland Interests, Inc. (investments and
New York, NY 10025 Served since: media) (since 1980). Regular Commentator on CNBC (1998). Author
1988. of "Investment Biker: On the Road with Jim Rogers" (1994) and
Director "Adventure Capitalist" (2003). Visiting Professor, Columbia
University (1998). Columnist, WORTH Magazine (since 1995).
Director, Emerging Markets Brewery Fund (1993-2002). Director,
Levco Series Trust (since 1996).
R. Keith Walton (39) Term: Until 2 Director of The Zweig Fund, Inc. (since 2004); Secretary of the
15 Claremont Avenue 2004. University at Columbia University (since 1996).Director (since 2002);
New York, NY 10027 Served since: Chair, Nominating Committee (since 2002); Member, Executive Committee
2004. (since 2002); Chair, Audit Committee (since 2003), Apollo Theater
Director Foundation, Inc. Director, Orchestra of St. Luke's (since 2000).
Director, American Friends of the Royal Court Theatre (since 2003).
Member, Steering Committee, Association for a Better New York (since
2001). Member, Education Committee of the Board, Trinity School
(since 2003). Vice President (since 2002), Chair, Finance Committee
(since 2000), Riverside Church. Member, Advisory Board, North General
Hospital (since 2002). Member, NY Advisory Board, Enterprise
Foundation (since 1999). Member, Council on Foreign Relations (since
1997). Member, The American Law Institute (since 1999). Member,
Council for the United States and Italy (since 1999). Member,
Century Association (since 2000).
4
INTERESTED DIRECTORS
Daniel T. Geraci (46) Term: Until 2 Director and President of The Zweig Fund, Inc. (since 2004).
10 Stonemeadow Drive 2004. Executive Vice President, Asset Management, The Phoenix Companies,
Westwood, MA 02090 Served since: Inc. (wealth management) (since 2003). President and Chief
2004. Executive Officer, Phoenix Investment Partners, Ltd. (since 2003).
Director and President President and Chief Executive Officer of North American investment
operations, Pioneer Investment Management USA, Inc. (2001-2003).
President of Private Wealth Management Group (2000-2001), Executive
Vice President of Distribution and Marketing for U.S. institutional
services business (1998-2000) and Executive Vice President of
Distribution and Marketing for Fidelity Canada (1996-1998), Fidelity
Investments.
OFFICERS WHO ARE NOT DIRECTORS
Carlton Neel (36) Served since: Executive Vice President of The Zweig Fund, Inc. (since 2003).
900 Third Ave. 2003. Senior Vice President and Portfolio Manager, Phoenix/Zweig Advisers
New York, NY 10022 LLC (since 2003). Managing Director and Co-Founder, Shelter Rock
Capital Partners, LP (2002-2003). Senior Vice President and
Executive Vice President Portfolio Manager, Phoenix/Zweig Advisers LLC (1995-2002). Vice
President, JP Morgan & Co. (1990-1995).
David Dickerson (36) Served since: Senior Vice President of The Zweig Fund, Inc. (since 2003). Senior
900 Third Ave. 2003. Vice President and Portfolio Manager, Phoenix/Zweig Advisers LLC
New York, NY 10022 (since 2003). Managing Director and Co-Founder, Shelter Rock
Capital Partners, LP (2002-2003). Vice President and Portfolio
Senior Vice President Manager, Phoenix/Zweig Advisers LLC (1993-2002).
Nancy J. Engberg (47) Served since: Secretary of The Zweig Fund, Inc. (since 2000). Vice President and
56 Prospect Street 2000. Chief Compliance Officer (since December 2003) and Vice President
Hartford, CT 06115 and Investment Counsel (2002-2003), The Phoenix Companies, Inc.
(wealth management) and its insurance company subsidiaries. Vice
Secretary President and Counsel, Phoenix Investment Partners, Ltd. (since
1999). Counsel, Phoenix Home Life Mutual Insurance Company (1994 to
1999).
Nancy Curtiss (51) Served since: Treasurer of The Zweig Fund, Inc. (since 2003). Vice President,
56 Prospect Street 2003. Operations (since 2003). Vice President, Fund Accounting
Hartford, CT 06115 (1994-2003) and Treasurer (1996-2003), Phoenix Equity Planning
Corporation. Treasurer, multiple funds in Phoenix Fund Complex
Treasurer (since 1994).
5
COMPENSATION OF DIRECTORS AND OFFICERS
During the year ended December 31, 2003, the Fund paid Directors' fees
aggregating $101,500 to the Directors who were not interested persons of the
Fund or the Adviser. The Fund pays each Director who is not an interested person
of the Fund or Adviser an annual fee of $10,000 and a fee of $1,500 for
attendance at each meeting of the Board of Directors and for each meeting of a
committee of the Board. The Fund also reimburses its Directors for their actual
out-of-pocket expenses relating to attendance at such meetings.
Set forth below is the compensation paid by the Fund to current Directors
for the year ended December 31, 2003.
COMPENSATION TABLE
PENSION OR
AGGREGATE RETIREMENT ESTIMATED TOTAL
COMPEN- BENEFITS AS ANNUAL COMPENSATION
SATION PART OF BENEFITS FROM THE FUND
FROM THE FUND UPON AND FUND COMPLEX
NAME OF PERSON, POSITION FUND EXPENSES RETIREMENT PAID TO DIRECTORS
-----------------------------------------------------------------------------------------------------------------
Charles H. Brunie - Director $ 25,000 $ 0 $ 0 $ 50,000
Wendy Luscombe - Director $ 25,000 $ 0 $ 0 $ 50,000
Alden C. Olson - Director $ 26,500 $ 0 $ 0 $ 53,000
James B. Rogers, Jr. - Director $ 25,000 $ 0 $ 0 $ 50,000
R. Keith Walton - Director $ 0 $ 0 $ 0 $ 0
Daniel T. Geraci - Interested Director $ 0 $ 0 $ 0 $ 0
and President
DIRECTOR OWNERSHIP OF SECURITIES
Set forth in the table below is the dollar range of equity securities owned
by each Director as of December 31, 2003. Since December 31, 2003, no Director
has sold any shares of the Fund held by him or her.
AGGREGATE DOLLAR RANGE OF FUND
OWNERSHIP IN ALL FUNDS OVERSEEN BY
DOLLAR RANGE OF EQUITY DIRECTOR IN FAMILY OF INVESTMENT
NAME OF DIRECTOR SECURITIES IN THE FUND (1) COMPANIES
-------------------------------------------------------------------------------------------------------------
Charles H. Brunie Over $100,000 Over $100,000
Daniel T. Geraci None None
Wendy Luscombe $1-$10,000 $10,001-$50,000
Alden C. Olson $1-$10,000 $10,001-$50,000
James B. Rogers, Jr. $10,001-$50,000 $10,001-$50,000
R. Keith Walton None None
6
(1) The information as to beneficial ownership is based on statements
furnished to the Fund by its Directors and reflects ownership as of
December 31, 2003. Except as otherwise indicated, each person has sole
voting and investment power with respect to the shares owned by him or her.
The Directors and officers of the Fund, as a group, beneficially own less
than 1% of the outstanding shares of the Fund.
COMMITTEES AND BOARD OF DIRECTORS' MEETINGS
AUDIT COMMITTEE REPORT
The Fund's Board of Directors has appointed a standing Audit Committee. The
Fund's Board of Directors has adopted a written charter for the Fund's Audit
Committee, which charter is attached hereto as EXHIBIT A. The purposes of the
Audit Committee are set forth in the Audit Committee Charter. In brief, the role
of the Audit Committee is to assist the Board of Directors in its oversight of
the Fund's financial reporting process. As set forth in the Charter, management
of the Fund is responsible for the preparation, presentation and integrity of
the Fund's financial statements, the Fund's accounting and financial reporting
principles and internal controls and procedures designed to assure compliance
with accounting standards and applicable laws and regulations. The independent
auditors are responsible for auditing the Fund's financial statements and
expressing an opinion as to their conformity with generally accepted accounting
principles.
The Audit Committee of the Board of Directors of the Fund will normally
meet at least four times during each full fiscal year, of which at least two
such meetings will be with representatives of the independent auditors, to
discuss and review various matters as contemplated by the Audit Committee
Charter. In the performance of its oversight function, the Audit Committee has
considered and discussed the audited financial statements with management and
the independent auditors of the Fund. The Audit Committee also has discussed
with the independent auditors the matters required to be discussed by Statement
on Auditing Standards No. 61, "Communication with Audit Committees", as
currently in effect. The Audit Committee also has considered whether the
provision by the Fund's independent auditors of non-audit services to the Fund,
and of professional services to the Adviser and affiliates of the Adviser that
provide services to the Fund, is compatible with maintaining the independent
auditors' independence. Finally, the Audit Committee has received the written
disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees", and has discussed with the independent auditors the
independent auditors' independence.
The members of the Fund's Audit Committee are not professionally engaged in
the practice of auditing or accounting and are not experts in the fields of
accounting or auditing or evaluating auditor independence. The Board of
Directors has determined that the Fund does not have an "audit committee
financial expert," as defined under the Securities and Exchange Commission's
Regulation S-K, Item 401(h), at this time because none of the Fund's Board of
Directors meet the technical definition of such an expert. The audit committee
of the Board is in compliance with applicable rules of the listing requirements
for closed-end fund audit committees, including the requirement that all members
of the audit committee be "financially literate" and that at least one member of
the audit committee have "accounting or related financial management expertise,"
as determined by the Board. Members of the Fund's Audit Committee rely without
independent verification on the information provided to them and on the
7
representations made by management and the independent auditors. Accordingly,
the Audit Committee's oversight does not provide an independent basis to
determine that management has maintained appropriate accounting and financial
reporting principles or appropriate internal controls and procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee's considerations and discussions referred to
above do not assure that the audit of the Fund's financial statements have been
carried out in accordance with generally accepted auditing standards, that the
financial statements are presented in accordance with generally accepted
accounting principles or that the Fund's auditors are in fact "independent."
Based upon the reports and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Audit
Committee referred to above and in the Audit Committee Charter, the Audit
Committee recommended to the Board of Directors of the Fund that the audited
financial statements of the Fund be included in the Fund's annual report to
shareholders for the year ended December 31, 2003. The members of the Audit
Committee, Messrs. Brunie, Olson, Rogers and Walton and Ms. Luscombe, are
"independent" within the meaning of the Act and the New York Stock Exchange
corporate governance standards for audit committees.
Alden C. Olson
Charles H. Brunie
Wendy Luscombe
James B. Rogers, Jr.
R. Keith Walton
NOMINATING COMMITTEE
Messrs. Brunie, Olson and Rogers, each of whom is not an interested person
of the Fund, are members of the Nominating Committee of the Board of Directors
of the Fund. The Fund's Board of Directors has adopted a written charter for the
Fund's Nominating Committee, which charter is attached hereto as EXHIBIT B. The
Fund's Nominating Committee considers candidates for election to fill vacancies
on the Fund's Board of Directors.
Director nominees are identified based on persons known to the Board of
Directors or the Nominating Committee and any persons recommended to the
Nominating Committee by shareholders or industry sources. Any recommendations
made by shareholders and industry sources must be accompanied by a biography of
the recommended candidate and should be submitted in writing to the principal
executive office of the Fund, located at 900 Third Avenue, New York, New York
10022, addressed to the Secretary of the Fund. Nominees are evaluated based on
the criteria described below. The evaluation process does not depend on the
source of the recommendation. The new independent Director, R. Keith Walton, was
recommended to the Nominating Committee by a Director of the Fund, and
subsequently nominated by the Nominating Committee to fill the vacancy on the
Board created by the retirement of Elliot Jaffe. The new interested director,
Daniel T. Geraci, was nominated by the Nominating Committee to fill the vacancy
created by the resignation of Philip R. McLoughlin effective March 2, 2004.
It is expected that all candidates for the Board will possess the following
minimum
8
qualifications: (i) unquestioned personal integrity; (ii) sound business
judgment; and (iii) the commitment required to be an effective director,
including, without limitation, the ability to attend meetings regularly. The
Nominating Committee may determine that a candidate who does not have the
experience or knowledge referred to above should nevertheless be considered as a
nominee if the Nominating Committee finds that the candidate's qualifications,
taken as a whole, demonstrate an equivalent level of qualification to serve as a
director.
BOARD OF DIRECTORS' MEETINGS
The Board of Directors of the Fund held seven meetings during the year
ended December 31, 2003. The Fund's Nominating Committee held three meetings
during the year ended December 31, 2003 and met in advance of the February 12,
2004 and March 2, 2004 Board meetings, at which times the Nominating Committee
recommended the nominees for election to the Board. The Fund's Audit Committee
held three meetings during the year ended December 31, 2003. All of the current
Directors attended at least 75% of the total number of Board meetings and his or
her respective committee meetings, for the Fund, held during the 2003 year.
SHAREHOLDERS COMMUNICATIONS
Any shareholder that wishes to communicate with the Board of Directors or a
specific Director may do so by submitting correspondence in writing to the
principal executive office of the Fund, located at 900 Third Avenue, New York,
New York 10022, specifying the intended addressee. Shareholder communications
addressed to the Board of Directors will be forwarded promptly after receipt to
Daniel T. Geraci, President of the Fund, for review. Mr. Geraci will review each
such communication in order to determine whether the communication should be
relayed directly to each Board member. Shareholder communications that Mr.
Geraci determines involve routine matters will be forwarded to the Fund
Administrator and/or officers of the Fund for review and response, and Mr.
Geraci will report to the full Board, as appropriate, on the nature and
substance of such communications. Shareholder communications that Mr. Geraci
determines involve non-routine matters will be forwarded to each member of the
Board for review. Shareholder communications addressed to a specific Director
will be forwarded to the addressee promptly upon receipt.
It is the Fund's policy that all Directors attend the annual shareholders
meeting, if reasonably possible. The 2003 Annual Shareholders Meeting was
attended by all of the Directors of the Fund.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES.
9
PROPOSAL 2
PROPOSAL PURSUANT TO THE FUND'S
ARTICLES OF INCORPORATION TO CONVERT THE FUND FROM A CLOSED-END INVESTMENT
COMPANY TO AN OPEN-END INVESTMENT COMPANY AND TO ADOPT AN AMENDMENT AND
RESTATEMENT OF THE ARTICLES OF INCORPORATION TO EFFECTUATE THE CONVERSION AS
PROPOSED
I. BACKGROUND OF THE PROPOSAL
The Fund has operated as a closed-end management investment company since
it began operations in September 1988. As a closed-end fund, the Fund's shares
are bought and sold in the securities markets at prevailing prices, which may be
equal to, less than, or greater than its net asset value. The Fund's Articles of
Incorporation provide that, if during any fiscal quarter beginning on or after
January 1, 1990, the Fund's shares trade, on the principal securities exchange
on which they are traded, at an average discount from net asset value of 10% or
more (determined on the basis of the discount as of the end of the last trading
day in each week during such quarter (the "10% Threshold")), the Board generally
is required to submit to shareholders within 60 days after the end of such
quarter (or such later time as may be required to comply with applicable laws),
a proposal to convert the Fund to an open-end investment company (the
"Conversion Proposal") and amendments to the Fund's Articles of Incorporation
required to effectuate the Conversion Proposal. Approval of the Conversion
Proposal would require the affirmative vote of a majority of the outstanding
shares of the Fund entitled to vote on the proposal. During the fiscal quarter
ended December 31, 2003, the Fund's shares traded at an average discount from
net asset value of 12.34%, determined in accordance with the provisions of the
Fund's Articles of Incorporation. Accordingly, the Fund is required to submit
the Conversion Proposal and amendments to the Fund's Articles of Incorporation
to effectuate such proposal for shareholder consideration.
FOR THE REASONS DISCUSSED BELOW, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THE CONVERSION PROPOSAL AND ADOPTION
OF THE AMENDMENT AND RESTATEMENT OF THE ARTICLES OF INCORPORATION TO EFFECTUATE
THE CONVERSION PROPOSAL.
At a meeting held on January 23, 2004, the Fund's Board of Directors
considered whether or not to recommend to shareholders that the Conversion
Proposal be approved. The Board considered the development of the
premium-discount pattern in the trading of the Fund's shares which began
following the change in 2003 from a fixed 10% distribution policy to a variable
distribution policy based upon the Fund's net investment income and variable
gains. As announced in a press release on July 28, 2003, the Board of Directors
had determined that a change of the fixed distribution policy was in the best
interests of the Fund and its shareholders, in order to avoid potential adverse
tax consequences. Two factors that the Board considered at such time were the
decline in interest rates in recent years, which meant that a distribution
payout of 10% was not sustainable from the interest and dividends on the Fund's
portfolio holdings, and the large tax loss position ($51.3 million as of
December 31, 2003) accumulated by the Fund as a result of the market downturn
which began in March of 2000. The effect of these factors, coupled with
applicable provisions of the Internal Revenue Code, meant that the portion of
the Fund's distributions considered return of capital had a strong likelihood of
being deemed a taxable distribution to shareholders. Accordingly, the Board
determined that the Fund should
10
move to a variable distribution policy. However, the Board is currently
evaluating market conditions, the Fund's tax position, and the rate of return on
the Fund's portfolios, among other factors, to determine whether it is
appropriate to reinstate a new distribution policy. At the January 23, 2004
meeting, the Board reviewed information respecting the potential advantages and
disadvantages of converting to an open-end fund, the Fund's performance to date
as a closed-end fund, the historical relationship between the market price of
its shares and their net asset value, and the possible effects of conversion on
the Fund. At that meeting, the Board voted unanimously to recommend that
shareholders vote against the Conversion Proposal.
On March 2, 2004, the Board unanimously approved the continuation of the
advisory relationship with the Adviser and the continuation of the sub-advisory
relationship with the Sub-Adviser. Under the continued sub-advisory
relationship, Dr. Martin E. Zweig, President and owner of the Sub-Adviser, will
continue to provide asset allocation services and will assume an expanded role
in reviewing the Fund's portfolio. Dr. Zweig will actively collaborate in the
stock selection process with the Adviser's portfolio management team of Carlton
Neel and David Dickerson. At the March 2, 2004 meeting, the Board also further
discussed the issue of the Conversion Proposal. Dr. Zweig strongly reaffirmed
his support for maintaining the Fund as a closed-end fund. The Board believes
that conversion to an open-end investment company presents the possibility that
the functioning of the Fund's portfolio management and its investment
performance, as described under "Impact on Portfolio Management" below, could be
adversely affected. The Board believes that the Fund's current Adviser portfolio
management team (introduced in April 2003) should be given the opportunity to
continue to manage the Fund, together with the Sub-Adviser, as a diversified
balanced closed-end fund. The Board believes that maintaining the Fund as a
closed-end fund is in the interest of long-term shareholders. The Board also
believes that conversion could expose the Fund to the risk of a possible loss of
economies of scale and an increase in the Fund's expenses as a percentage of net
asset value if there is a substantial reduction in its size, as described in
"Potential Open-End Fund Disadvantages and/or Closed-End Fund Advantages" below.
In its consideration of the Conversion Proposal, the Board took into
account the fact that conversion would eliminate the possibility of the Fund's
shares ever trading at a discount to net asset value and the likelihood that, if
the Fund were open-ended, shareholders could realize a short term gain by
redeeming their shares at net asset value. While the Board noted that during the
quarters ended March 31, 2000 and December 31, 2000, the Fund's shares traded at
an average discount from net asset value of 15% and 10.3%, respectively (for
which a Conversion Proposal was submitted to shareholders (collectively, the
"Prior Conversion Proposals")), the Board also took note that, during at least
forty consecutive quarters prior to March 31, 2000 and the ten consecutive
quarters prior to December 31, 2003, the Fund's shares had not traded at an
average discount from net asset value in excess of the 10% Threshold. The Board
further noted that the Fund's average discount to net asset value for the
quarter ended December 31, 2003, was only somewhat in excess of the 10%
Threshold, and that the shareholder vote in connection with the Prior Conversion
Proposals had not required the conversion of the Fund, notwithstanding the fact
that the discount to net asset value for the quarter ended March 31, 2000 (I.E.,
15%) was more substantial than the discount for the quarter ended December 31,
2003 (I.E., 12.34%).
The Board further noted that, notwithstanding the more recent discounts,
the shares have, from the Fund's commencement of operations through December 31,
2003, traded at an average
11
premium (based on an averaging of month-end premiums and discounts) of 2.9%.
This premium compares favorably to the average discount during the same period
of 4.73% and 2.90%, respectively, of closed-end equity funds (excluding
international equity funds) and closed-end fixed income funds (excluding
municipal funds). The graph below reflects the changes in premiums and discounts
at which the Fund's shares traded from the Fund's commencement of operations
through December 31, 2003.
NAV MARKET PREMIUM / (DISCOUNT)
--- ------ --------------------
8/31/1988
09/30/1988 9.224 9.918 7.5%
10/31/1988 9.303 10.042 7.9%
11/30/1988 9.165 9.298 1.5%
12/31/1988 9.165 9.05 -1.3%
01/31/1989 9.284 9.546 2.8%
02/28/1989 9.145 9.05 -1.0%
03/31/1989 9.165 8.803 -3.9%
04/30/1989 9.274 9.05 -2.4%
05/31/1989 9.403 9.298 -1.1%
06/30/1989 9.482 9.422 -0.6%
07/31/1989 9.73 9.546 -1.9%
08/31/1989 9.621 9.67 0.5%
09/30/1989 9.581 9.174 -4.2%
10/31/1989 9.492 9.67 1.9%
11/30/1989 9.522 9.794 2.9%
12/31/1989 9.512 9.67 1.7%
01/31/1990 9.115 9.546 4.7%
02/28/1990 9.075 9.546 5.2%
03/31/1990 9.085 9.298 2.3%
04/30/1990 8.966 9.298 3.7%
05/31/1990 9.204 9.174 -0.3%
06/30/1990 9.204 9.174 -0.3%
07/31/1990 9.194 9.174 -0.2%
08/31/1990 8.936 8.803 -1.5%
09/30/1990 8.847 8.431 -4.7%
10/31/1990 8.847 8.307 -6.1%
11/30/1990 8.927 8.555 -4.2%
12/31/1990 8.946 8.555 -4.4%
01/31/1991 9.145 9.05 -1.0%
02/28/1991 9.343 9.422 0.8%
03/31/1991 9.452 9.422 -0.3%
04/30/1991 9.284 9.67 4.2%
05/31/1991 9.333 9.67 3.6%
06/30/1991 9.085 9.794 7.8%
12
07/31/1991 9.264 9.67 4.4%
08/31/1991 9.353 10.042 7.4%
09/30/1991 9.353 10.166 8.7%
10/31/1991 9.472 10.29 8.6%
11/30/1991 9.264 10.29 11.1%
12/31/1991 9.71 10.538 8.5%
01/31/1992 9.452 10.662 12.8%
02/29/1992 9.333 10.042 7.6%
03/31/1992 9.115 10.29 12.9%
04/30/1992 9.055 10.414 15.0%
05/31/1992 9.145 10.29 12.5%
06/30/1992 9.055 9.794 8.2%
07/31/1992 9.174 10.538 14.9%
08/31/1992 9.065 10.166 12.1%
09/30/1992 9.095 10.166 11.8%
10/31/1992 8.946 9.918 10.9%
11/30/1992 8.956 10.042 12.1%
12/31/1992 8.986 9.918 10.4%
01/31/1993 9.075 10.29 13.4%
02/28/1993 9.065 10.29 13.5%
03/31/1993 9.085 10.414 14.6%
04/30/1993 8.927 10.166 13.9%
05/31/1993 8.966 9.918 10.6%
06/30/1993 9.085 10.414 14.6%
07/31/1993 9.085 10.414 14.6%
08/31/1993 9.284 10.538 13.5%
09/30/1993 9.293 10.538 13.4%
10/31/1993 9.284 10.662 14.8%
11/30/1993 9.036 10.662 18.0%
12/31/1993 9.036 10.662 18.0%
01/31/1994 9.095 10.538 15.9%
02/28/1994 8.857 10.29 16.2%
03/31/1994 8.649 9.298 7.5%
04/30/1994 8.54 9.174 7.4%
05/31/1994 8.45 9.298 10.0%
06/30/1994 8.321 9.174 10.3%
07/31/1994 8.341 8.927 7.0%
08/31/1994 8.331 8.679 4.2%
09/30/1994 8.193 8.431 2.9%
10/31/1994 8.153 8.307 1.9%
11/30/1994 8.064 8.183 1.5%
12/31/1994 8.044 7.935 -1.4%
01/31/1995 8.044 8.307 3.3%
02/28/1995 8.133 8.555 5.2%
03/31/1995 8.143 8.431 3.5%
04/30/1995 8.163 8.431 3.3%
13
05/31/1995 8.381 8.431 0.6%
06/30/1995 8.411 8.555 1.7%
07/31/1995 8.401 8.803 4.8%
08/31/1995 8.411 8.555 1.7%
09/30/1995 8.431 8.555 1.5%
10/31/1995 8.381 8.555 2.1%
11/30/1995 8.47 8.679 2.5%
12/31/1995 8.56 8.431 -1.5%
01/31/1996 8.5 8.741 2.8%
02/29/1996 8.381 8.803 5.0%
03/31/1996 8.341 8.679 4.1%
04/30/1996 8.282 8.555 3.3%
05/31/1996 8.202 8.555 4.3%
06/30/1996 8.173 8.431 3.2%
07/31/1996 8.044 8.307 3.3%
08/31/1996 8.044 8.431 4.8%
09/30/1996 8.093 8.431 4.2%
10/31/1996 8.163 8.431 3.3%
11/30/1996 8.321 8.431 1.3%
12/31/1996 8.222 7.935 -3.5%
01/31/1997 8.242 8.183 -0.7%
02/28/1997 8.193 8.431 2.9%
03/31/1997 8.024 8.307 3.5%
04/30/1997 8.083 8.555 5.8%
05/31/1997 8.222 8.679 5.6%
06/30/1997 8.302 8.803 6.0%
07/31/1997 8.639 8.927 3.3%
08/31/1997 8.411 8.988 6.9%
09/30/1997 8.619 9.05 5.0%
10/31/1997 8.45 9.236 9.3%
11/30/1997 8.47 9.422 11.2%
12/31/1997 8.54 9.36 9.6%
01/31/1998 8.5 9.422 0.8%
02/28/1998 8.609 9.36 8.7%
03/31/1998 8.718 9.484 8.8%
04/30/1998 8.679 8.555 -1.4%
05/31/1998 8.6 8.493 -1.2%
06/30/1998 8.57 8.75 2.1%
07/31/1998 8.39 8.875 5.8%
08/31/1998 8.05 8.25 2.5%
09/30/1998 8.29 8.688 4.8%
10/31/1998 8.34 8.69 4.2%
11/30/1998 8.37 8.94 6.8%
12/31/1998 8.43 8.88 5.3%
01/31/1999 8.47 8.69 2.6%
02/28/1999 8.13 8.25 1.5%
14
03/31/1999 8.13 8.25 1.5%
04/30/1999 8.27 8.31 0.5%
05/31/1999 8.17 8.56 4.8%
06/30/1999 8.14 8.5 4.4%
07/31/1999 8.02 8.5 6.0%
08/31/1999 7.89 8.44 7.0%
09/30/1999 7.79 8.13 4.4%
10/31/1999 7.84 7.31 -6.8%
11/30/1999 7.79 7 -10.1%
12/31/1999 7.89 6.5 -17.6%
01/31/2000 7.65 6.44 -15.8%
02/29/2000 7.68 6.19 -19.4%
03/31/2000 7.86 6.94 -11.7%
04/30/2000 7.68 6.75 -12.1%
05/31/2000 7.53 6.5 -13.7%
06/30/2000 7.62 6.63 -13.0%
07/31/2000 7.6 6.81 -10.4%
08/31/2000 7.78 6.94 -10.8%
09/30/2000 7.6 6.88 -9.5%
10/31/2000 7.55 6.75 -10.6%
11/30/2000 7.38 6.5 -11.9%
12/31/2000 7.48 6.57 -12.2%
01/31/2001 7.54 7.12 -5.6%
02/28/2001 7.23 7.11 -1.66%
03/30/2001 6.99 6.99 0.00%
04/30/2001 7.07 7.13 0.85%
05/31/2001 7.01 7.24 3.28%
06/29/2001 6.88 7.3 6.10%
07/31/2001 6.91 7.46 7.96%
08/31/2001 6.71 7.46 11.18%
09/28/2001 6.51 6.9 5.99%
10/31/2001 6.66 7.22 8.41%
11/30/2001 6.7 7.35 9.70%
12/31/2001 6.63 7.05 6.33%
01/31/2002 6.54 7.3 11.62%
02/28/2002 6.46 7.21 11.61%
03/28/2002 6.42 7.08 10.28%
04/30/2002 6.26 7.04 12.46%
05/31/2002 6.21 7.01 12.88%
06/28/2002 6.08 6.17 1.48%
07/31/2002 5.97 5.94 -0.50%
08/30/2002 6.01 6.12 1.83%
09/30/2002 5.89 5.95 1.02%
10/31/2002 5.9 5.81 -1.53%
11/29/2002 5.84 5.79 -0.86%
12/31/2002 5.81 5.49 -5.51%
15
01/31/2003 5.72 5.45 -4.72%
02/28/2003 5.71 5.45 -4.55%
03/31/2003 5.66 5.58 -1.41%
04/30/2003 5.7 5.65 -0.88%
05/30/2003 5.8 5.98 3.10%
06/30/2003 5.75 6.14 6.78%
07/31/2003 5.6 4.91 -12.32%
08/29/2003 5.58 4.93 -11.65%
09/30/2003 5.6 4.89 -12.68%
10/31/2003 5.62 4.94 -12.10%
11/28/2003 5.61 4.94 -11.94%
12/31/2003 5.7 5.01 -12.11%
Average 3.3%
At this time, the Board does not believe that eliminating the possibility
of a discount justifies the risk of reduced size, increases in the Fund's
expense ratio and the potential adverse effect on its investment performance
that conversion would entail. Accordingly, the Board, including all of the
independent Directors, does not believe that conversion of the Fund to an
open-end investment company is in the best interests of the Fund and its
shareholders.
If the Conversion Proposal is not approved by shareholders, the Fund would
continue as a closed-end investment company, and the Board will continue to
monitor the market discount from net asset value, if any, at which the Fund's
shares trade and will consider whether any other action should be taken with
respect to such discount. On January 30, 2004, the Fund announced that its Board
of Directors had authorized the repurchase by the Fund, in the discretion of the
Fund's management, of up to 10% annually of the Fund's shares at such times as
its shares are trading at a discount to net asset value. The Fund has not yet
repurchased any shares pursuant to such authorization. The Board will continue
to consider, as it has in the past, repurchases of the Fund's shares on the open
market or tender offers to the Fund's shareholders when the shares are trading
at a discount from net asset value. The Fund cannot predict whether any open
market repurchases or tender offer purchases of its shares made while the Fund
is a closed-end investment company would decrease the discount from net asset
value. To the extent that because of open market repurchases or tender offer
purchases or otherwise, the average discount from net asset value is decreased
below the 10% Threshold for a fiscal quarter, the Fund would not be required to
submit to its shareholders the Conversion Proposal with respect to such quarter.
If the Fund's shares continue to trade at an average discount from net
asset value in excess of the 10% Threshold during a subsequent quarter as
determined in accordance with the Fund's Articles of Incorporation, the Board of
Directors and the Fund's shareholders will continue to have an opportunity to
consider converting the Fund to an open-end fund. Pursuant to the Articles of
Incorporation, a subsequent Conversion Proposal, with respect to such quarter,
and related charter amendments that can be approved by the affirmative vote of a
majority of the outstanding shares of the Fund would be required to be submitted
to shareholders. The Articles of Incorporation provide, however, that a
Conversion Proposal need not be submitted to
16
shareholders with respect to a quarter if a Conversion Proposal was submitted to
shareholders with respect to the immediately preceding quarter.
Certain of the factors considered by the Board in making its recommendation
are discussed in more detail below.
II. ADVANTAGES AND DISADVANTAGES OF CONVERSION PROPOSAL
The Fund is currently a closed-end fund. As such, it neither redeems its
outstanding shares of stock nor continuously offers new stock for sale; thus, it
operates with a relatively fixed capitalization. The Fund's shares of stock are
principally traded on the New York Stock Exchange (the "NYSE"). Open-end funds
(also known as "mutual funds") issue redeemable shares entitling stockholders to
tender for their proportionate share of a fund's net asset value. Also, open-end
funds generally issue new shares at the fund's net asset value.
POTENTIAL OPEN-END FUND ADVANTAGES AND/OR CLOSED-END FUND DISADVANTAGES
(1) REDEEMABILITY OF SHARES; ELIMINATION OF DISCOUNT. Shareholders of an
open-end fund have the right to redeem their shares at any time (except in
certain circumstances as authorized by the Act) at the net asset value of such
shares (less any applicable redemption charges), and such redemption payment
must be made within 7 days. The ability to obtain net asset value for their
shares will constitute an immediate significant benefit to shareholders of the
Fund to the extent that shares are trading at a discount to net asset value.
(2) SHAREHOLDER SERVICES. Open-end funds typically provide more services
to stockholders than closed-end funds. One service that is frequently offered by
open-end funds is an exchange privilege which enables shareholders to transfer
their investment from one fund into another fund which is part of a family of
open-end funds, at little or no cost to the shareholders. This permits the
exchange of shares at relative net asset value when the holder's investment
objectives change. Other services that could be offered include use of the Fund
for retirement plans and permitting purchases and sales of shares in convenient
amounts. There are, of course, additional costs for these services, some of
which might need to be borne by the Fund, which must be weighed against the
anticipated benefit of the particular service. There can be no assurance that
any such services would be made available if the Conversion Proposal were
approved.
(3) RAISING CAPITAL. A closed-end fund trading at a discount may not be
able to raise capital through share sales (other than through a rights offering)
when it believes further investment would be advantageous, because the Act
restricts the ability of a closed-end fund to sell its shares at a price below
net asset value. Open-end funds, on the other hand, are priced at net asset
value and therefore can sell additional shares at any time. This ability to
raise new money can achieve greater economies of scale and improve investment
management although, as noted below, this may not occur at the most opportune
times.
(4) ELIMINATION OF ANNUAL SHAREHOLDER MEETINGS. As a closed-end fund
listed on the NYSE, the Fund is subject to NYSE rules requiring annual meetings
of stockholders. Unlike the Fund, open-end funds are not required to hold annual
shareholder meetings, except in special circumstances where shareholder approval
is required under the Act. However, pursuant to the
17
Fund's charter, as discussed under "Measures to be Adopted in the Event the Fund
Becomes an Open-End Fund" below, if the Conversion Proposal were approved, the
Fund may operate as an open-end fund with a classified board, and,
notwithstanding the conversion to open-end status, annual shareholder meetings
may, therefore, continue to be held because declassifying the Board requires an
affirmative vote of 75% of the outstanding shares of the Fund.
POTENTIAL OPEN-END FUND DISADVANTAGES AND/OR CLOSED END FUND ADVANTAGES
(1) IMPACT ON PORTFOLIO MANAGEMENT. While closed-end funds can be fully
invested, open-end funds are subject to periodic inflows and outflows of cash
that can complicate portfolio management. In particular, open-end funds may be
subject to pressure to sell portfolio securities at disadvantageous times in
order to satisfy redemption requests. In addition, open-end funds may be limited
in their ability to invest 100% of the fund's assets in portfolio securities
because of the need to maintain cash reserves to provide for shareholder
redemptions in uncertain amounts. The level of redemptions may be particularly
high immediately following conversion to open-end status and therefore,
initially, the cash reserves may have to be substantial. It is not expected,
however, that the inability of an open-end fund to be fully invested would
necessarily hinder the Adviser's ability to manage the Fund in the future
because the Fund has, from time to time, maintained substantial cash positions.
Also, although open-end funds generally maintain that their ability to sell
shares at any time (resulting from their being priced at net asset value)
produces efficiencies, others have suggested that large net purchases often
occur around market highs and net redemptions around market lows, inopportune
times to invest or liquidate portfolio positions, respectively. In a falling
market situation, for example, redemptions increase and liquidations in the
open-end fund portfolio must increase to meet those redemptions. In the event
cash reserves, temporary investments and borrowings are exhausted, the result
may be that the more liquid blue chip securities will be sold, leaving the
open-end fund with the less-liquid securities in the fund's portfolio which are
not as well suited to meeting future redemptions or changes in investment
strategy. If the Fund were to convert to an open-end fund, the Fund could be
impacted accordingly.
(2) EFFECT OF REDEMPTIONS. Substantial redemptions could result in an
increase in the Fund's expense ratio. In particular, a reduction in size of the
Fund would result in the fixed expenses of the Fund being spread over a smaller
asset base, thereby increasing the per-share effect of those expenses.
Significant redemptions could also increase the Fund's portfolio turnover rate
above its normal levels, thereby increasing Fund expenses. Net redemptions are
probable immediately after open-ending the Fund, although the redemption fee
mentioned below may reduce the number of redemptions that would otherwise occur.
While the Fund's portfolio securities are sufficiently liquid to satisfy
anticipated levels of redemption upon conversion without impeding the Adviser's
management of the Fund in the long term as an open-end fund, continuous
redemptions could potentially restrict the Adviser's ability to choose
investments purely in accordance with the Fund's investment strategy. Redemption
requests could, for example, require the Fund's liquidation of a portion of its
investment portfolio at a time when independent investment judgment might not
dictate such action.
18
Additionally, redemptions would result in increased brokerage expense and
increased recognition of taxable gains and losses. These redemptions could
reduce the Fund to a smaller size than is economically viable. If the Fund
decreased in size, the expense ratio may increase because the cost of many
services may remain the same although the size of the Fund will have decreased.
Of course, if the size of the Fund increases, the Fund's expense ratio may be
reduced.
(3) DISTRIBUTION COSTS. If the Fund converts to open-end status, it will
need to have an effective distribution system in place in order to avoid erosion
in its asset base through redemptions. The distribution and marketing of
open-end funds involve additional costs. These costs may be paid either by
purchasers (in the case of a front-end sales charge) or by current shareholders
(in the case of a plan of distribution adopted under Rule 12b-1 (a "12b-1
Plan"), which would require approval by shareholders). In the event that the
Conversion Proposal is approved by shareholders, it is expected that the Board
would consider the implementation of a 12b-1 Plan providing for payments by the
Fund at an annual rate of .25% of the Fund's average net assets. Redemption fees
and contingent deferred sales charges may also be employed.
(4) ADDITIONAL COSTS OF OPERATING AN OPEN-END FUND. Open-end funds are
generally more expensive to operate and administer than closed-end funds. The
Fund's per-share expense ratio would substantially increase for the reasons
mentioned above under "Effect of Redemptions" and "Distribution Costs" and the
fact that transfer agency expenses are generally higher for an open-end fund. In
the event the Fund's assets remain unchanged, and assuming a Rule 12b-1 fee of
..25% and transfer agent expenses commensurate with those of other Phoenix funds,
it is estimated that the Fund's per-share expense ratio would increase from its
current level of 1.03% to 1.50% and, assuming the same distribution and transfer
agent expenses, in the event of a 30%, 50% or 60% decrease in average net
assets, the Fund's per-share expense ratio would increase to 1.51%, 1.53% and
1.54%, respectively.
(5) TAXES/CAPITAL GAINS. If the Fund were to experience substantial
redemptions of its shares following the conversion to an open-end investment
company, it would likely be required to sell portfolio securities and incur
increased transaction costs in order to raise cash to meet such redemptions. Any
sale of portfolio securities effected to fund redemption obligations would be a
taxable transaction and may have unfavorable capital gains treatment for
non-redeeming shareholders. If the Fund's basis in the portfolio securities sold
is less than the sale price obtained, net capital gain may be realized. U.S. tax
law imposes both an income tax and an excise tax on net capital gain realized by
closed-end and open-end funds unless the fund distributes net capital gain to
all shareholders, in which case the shareholders would be subject to tax on such
gain. However, any such taxable gains realized by the Fund would be offset, in
whole or in part, by any existing capital loss carryover, which to the extent of
such offset, would reduce the capital gain distributed to, and recognized by,
shareholders. As of December 31, 2003, the Fund had $51.3 million of capital
loss carryovers expiring in 2010 and 2011 which may be used to offset future
capital gains. If the Fund remains a closed-end fund, the capital loss
carryovers may be used in the ordinary course for the benefit of shareholders.
(6) AUTOMATIC DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (THE "PLAN").
Open-end fund dividend reinvestment plans typically provide for the reinvestment
of income, dividends and capital gains distributions in shares of the fund at
net asset value. In contrast, as a closed-end investment company, the Fund's
current Plan permits shareholders to elect to reinvest
19
their distributions on a different basis than would be the case if the Fund was
an open-end investment company. Currently, if the Board declares a distribution
payable either in shares or in cash, as shareholders may have elected, then
participants in the Plan will receive the equivalent of shares determined as
follows: when Fund shares are trading at or above net asset value on the record
date for the distribution, participants will be issued shares at the higher of
their net asset value or 95% of their market value. If Fund shares are trading
at a discount from net asset value at such time, or if the Fund should declare a
distribution payable only in cash, the agent for the participants will buy
shares of the Fund in the open market, on the NYSE or elsewhere, for the
participants' account. This permits a reinvesting shareholder to benefit from
the agent's purchase of additional shares at a discount. However, if before the
agent for the participants completes its purchases, the market price exceeds the
net asset value of the shares, the agent is permitted to cease purchasing the
shares in the open market and the Fund may issue the remaining shares at a price
equal to the higher of net asset value or 95% of the then market price. Thus,
reinvesting shareholders are issued shares at the higher of net asset value or
95% of the market price. This is an advantage that is not offered by open-end
investment companies where distributions are reinvested at net asset value.
Consequently, participants in the Plan would lose the compounding benefit of
reinvesting their distributions at a price below net asset value (when Fund
shares are trading at a discount) and, thereby, the opportunity to realize a
profit (to the extent that Fund shares subsequently trade at a lower discount or
at a premium). The positive result of reinvesting at a price below net asset
value can be significant, particularly given the compounding effect over time.
(7) CONVERSION COSTS. The process of converting the Fund to an open-end
fund would involve additional printing, legal, other professional costs and
other expenses of establishing a new structure. These costs, many of which would
be non-recurring, include costs associated with the preparation of a
registration statement and prospectus as required by federal securities laws and
the payment of fees in connection with notice filings under state securities
laws. The Fund estimates that these costs, which would be paid by the Fund,
would be at least $400,000, representing approximately 0.07% of the Fund's
current net asset value.
(8) DE-LISTING FROM NEW YORK STOCK EXCHANGE. The Fund's shares are
currently listed on the NYSE. It is believed in some investment circles that a
fund listing on a U.S. stock exchange, and in particular the NYSE, is an asset,
especially in terms of attracting non-U.S. investors. In addition, certain
investors, such as pension funds, have internal restrictions on the amount of
their portfolio which can be invested in non-listed securities. Due to their
redemption features, open-end funds are not traded on exchanges. Conversion to
an open-end fund would require immediate de-listing of the Fund from the NYSE,
and thus any advantage of being a closed-end fund would be lost.
The Fund is currently exempt from state securities regulation because of
its NYSE listing. Upon de-listing, the Fund would be required to make state
registration filings and pay state fees. The Fund will thus save the annual NYSE
and Pacific Stock Exchange fees of $79,000, but will as a result of de-listing
have to pay the state blue sky fees, which could range from $30,000 to $50,000
annually, depending on the channel of distribution of the Fund's shares.
20
III. MEASURES TO BE ADOPTED IN THE EVENT THE FUND BECOMES AN OPEN-END FUND
If Proposal Two is approved by the shareholders, the Board of Directors
will convene and consider the method and time period for the conversion of the
Fund into an open-end investment company. It is contemplated that among the
matters the Board of Directors would proceed to consider would be fixing the
rate and period of application of any redemption fee as authorized by the
Articles of Amendment and Restatement and referred to in the description of
Proposal Two. This redemption fee would be similar to that imposed by other
funds which have converted into open-end funds and is a method of reducing the
number of immediate redemptions and offsetting the cost of liquidations. The
Board would also consider whether to pay for redeemed shares partly or entirely
in securities. In addition, the Board would need to consider the details of the
system for the classification and distribution of the Fund's shares, including
the approval of an appropriate distribution contract for the distribution of the
Fund's shares to become effective upon the Fund's conversion to an open-end
investment company.
Certain aspects of the operation of the Fund subsequent to its conversion
to open-end form would have to be approved by the Fund's shareholders, and it is
expected that a special meeting of shareholders would be scheduled for that
purpose as soon as practicable. These matters would include considering making
any changes in the Fund's investment management agreement considered appropriate
for an open-end fund, and considering the adoption of a Rule 12b-1 Plan
consistent with the system selected by the Board of Directors for future
distribution of the Fund's shares. Additionally, the Fund's Articles of
Incorporation would be proposed to be amended to declassify the Board of
Directors. Currently, the Fund's Articles of Incorporation provide that the
Board of Directors be divided into three classes of Directors. Each Director
serves for three years with one class being elected each year (each such
election requiring a meeting of shareholders.) The classified Board, which could
be viewed as an "anti-takeover" measure, would not be typical of an open-end
fund. Unlike the vote required to approve Proposal Two, which is a majority of
the outstanding shares of the Fund, the affirmative vote of at least 75% of the
outstanding shares of the Fund is required to declassify the Fund's Board.
Consequently, if Proposal Two is approved, the Fund would operate as an open-end
Fund with a classified Board and annual shareholder meetings would be required
to be held, until the Fund's Articles of Incorporation is subsequently amended
to declassify the Board.
Furthermore, in order to reduce administrative burdens incurred in
monitoring numerous small accounts, it is expected that the Fund would adopt
requirements that an initial investment in Fund shares be in a minimum amount.
If Proposal Two is approved by the shareholders, the Fund will file, at the
time described below, Articles of Amendment and Restatement with the State
Department of Assessments and Taxation of Maryland, which are in the form
approved by the Board of Directors at their meeting on January 23, 2004, and
change the Fund's subclassification under the Act from a closed-end investment
company to an open-end investment company. A copy of the Articles of Amendment
and Restatement (marked to reflect changes from the current Articles of
Incorporation) is attached hereto as EXHIBIT C.
Under Maryland law and the Articles of Amendment and Restatement, the Board
of Directors would have the authority to increase the number of shares of any
class, to reclassify
21
issued and unissued shares and to authorize the issuance of additional classes
of stock, in each case without the consent of shareholders. The Articles of
Amendment and Restatement would amend the current Articles of Incorporation to:
provide for class voting provisions (shareholders will generally continue to
have one vote on each matter submitted for their vote if the Fund converts to
open-end form); provide that the Fund's outstanding common stock will be
redeemable at the option of the shareholders; give the Board the right to set
standards for redemption (including the ability to impose redemption or other
charges, and to apply the redemption fee to shares outstanding at the time the
Articles of Amendment and Restatement become effective without applying similar
charges to subsequently issued shares, other shares of the same class or other
classes); permit the Board to redeem the shares of a shareholder under various
circumstances (including if the net asset value of the shares held by any
shareholder is less than a minimum amount); and permit the Board to accomplish
the automatic conversion of one class of shares into another class of shares in
the context of a multiple class structure. Furthermore, under the Articles of
Amendment and Restatement, the provision requiring submission to shareholders of
the Conversion Proposal in the event the Fund's shares trade at an average
discount from their net asset value in excess of the 10% Threshold for any
fiscal quarter, would be deleted (since that provision would be superfluous once
the Fund becomes open-ended). Another provision relating to open-ending (Article
VIII(1)), which would also become superfluous upon approval of the Conversion
Proposal, and various other provisions of the Fund's Articles of Incorporation
that may be described as "anti-takeover" provisions, are not submitted for
amendment because the Board has determined that such submission is not necessary
at this time and because such amendments would require approval by the
affirmative vote of 75% of the outstanding shares of the Fund. The
"anti-takeover" provisions, the retention of which would not be particularly
desirable for an open-end fund, include provisions with respect to (i) a
classified Board of Directors, (ii) limiting the number of directors and their
removal, and (iii) mergers, major asset sales and dissolution.
The Articles of Amendment and Restatement would not be filed until the
Fund's registration statement under the Securities Act of 1933, as amended,
covering the offering of shares of the Fund and appropriate state securities law
qualifications had become effective. Preparation of the registration statement
would commence shortly after the adoption of the Conversion Proposal, and the
registration statement would be filed as soon as practicable, which should be
before the date of the special shareholders meeting. The Articles of Amendment
and Restatement would become effective at the time the conversion is
implemented.
For the foregoing reasons, the Board of Directors believes that,
notwithstanding the benefit which those shareholders who would wish to redeem
their shares over the short term would derive from open-ending the Fund, on
balance it would be in the best interests of the Fund and its shareholders for
the Fund to remain a closed-end fund at this time.
22
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THE
CONVERSION OF THE FUND TO AN OPEN-END INVESTMENT COMPANY AND THE AMENDMENT AND
RESTATEMENT OF THE ARTICLES OF INCORPORATION TO EFFECTUATE THE CONVERSION
PROPOSAL.
INVESTMENT ADVISER, ADMINISTRATOR AND SUB-ADVISER
Phoenix/Zweig Advisers LLC, the Adviser, serves as the investment adviser
for the Fund. The Adviser's principal business office is located at 900 Third
Avenue, New York, New York 10022. All of the Adviser's outstanding equity
interests are directly owned by Phoenix Investment Partners, Ltd., the
wholly-owned investment management subsidiary of The Phoenix Companies, Inc.
("PNX") of Hartford, Connecticut. PNX is a leading provider of wealth management
products and services to individuals and businesses. PNX is located at One
American Row, Hartford, Connecticut, 06115-2520.
Phoenix Investment Partners has served investors for over 70 years. As of
December 31, 2003, Phoenix Investment Partners had approximately $59.2 billion
in assets under management through its investment partners: Aberdeen Fund
Managers, Inc. in Aberdeen, London, Singapore and Fort Lauderdale; Duff & Phelps
Investment Management Co. in Chicago; Capital West Asset Management, LLC in
Greenwood Village, CO; Kayne Anderson Rudnick Investment Management, LLC in Los
Angeles; Engemann Asset Management in Pasadena; Seneca Capital Management LLC in
San Francisco; Walnut Asset Management, LLC in Philadelphia; Phoenix/Zweig
Advisers LLC in New York; and Phoenix Investment Counsel, Inc. (Goodwin and
Oakhurst divisions) in Hartford, CT, and Scotts Valley, CA, respectively.
Phoenix Equity Planning Corporation (the "Administrator") serves as the
administrator for the Fund. The Administrator's principal business office is
located at 56 Prospect Street, P.O. Box 150480, Hartford, Connecticut
06115-0480. All of the Administrator's outstanding equity interests are owned by
Phoenix Investment Partners.
Zweig Consulting LLC, the Sub-Adviser, which serves as the sub-adviser for
the Fund, provides asset allocation services to the Adviser and has recently
assumed an expanded role in reviewing the Fund's portfolio. Dr. Martin E. Zweig,
the President and owner of the Sub-Adviser, actively collaborates in the stock
selection process with the Adviser's current portfolio management team of
Carlton Neel and David Dickerson, which has managed the Fund since April 1,
2003. A copy of the Amended and Restated Servicing Agreement between the Adviser
and the Sub-Adviser is attached hereto as EXHIBIT D. The Sub-Adviser's principal
business office is located at 900 Third Avenue, New York, New York 10022. The
Sub-Adviser's fees are paid by the Adviser.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and Section 30(h) of
the Act require, among other persons, the officers and Directors of the Fund and
the Adviser to file reports of ownership and changes in ownership of the shares
of common stock of the Fund with the Securities and Exchange Commission and the
New York Stock Exchange. The Securities and Exchange Commission's regulations
also require such reporting persons to furnish each Fund with copies of all
Section 16(a) forms they file. Based on its review of these reports and on
23
written representations from the reporting persons that no other reports were
required, the Fund believes that, during the year December 31, 2003, it was in
compliance with all Section 16(a) and Section 30(h) reporting requirements
applicable to its reporting persons.
INDEPENDENT ACCOUNTANTS
At the recommendation of the Audit Committee of the Fund, the Board of
Directors of the Fund, including a majority of the Directors who are not
interested persons of the Fund, has selected the firm of PricewaterhouseCoopers
LLP ("PwC") to serve as independent accountants of the Fund for the year ending
December 31, 2003. A representative of PwC is expected to be present at the
Meeting and will have the opportunity to make a statement if he or she so
desires and to respond to questions from shareholders.
The aggregate fees billed for services rendered by PwC during the years
ended December 31, 2002 and 2003, respectively, are described below.
AUDIT FEES
The aggregate fees billed by PwC to the Fund in connection with the annual
audit of the Fund's financial statements for the fiscal years ended December 31,
2002 and 2003 were $53,000 and $55,500, respectively.
AUDIT-RELATED FEES
Fees billed by PwC to the Fund for the fiscal year ended December 31, 2002
for any audit-related services were $1,000. No fees were billed by PwC to the
Fund for the fiscal year ended December 31, 2003 for any audit-related services.
TAX FEES
The aggregate fees billed by PwC to the Fund for the fiscal years ended
December 31, 2002 and 2003 in connection with tax review, compliance and advice
were approximately $7,650 and $6,350, respectively.
ALL OTHER FEES
No fees were billed by PwC to the Fund for the fiscal years ended December
31, 2002 and 2003 for any other services.
AGGREGATE NON-AUDIT FEES
The aggregate non-audit fees billed by PwC for services rendered to the
Fund, the Adviser, and any entity controlling, controlled by, or under common
control with the Adviser that provides ongoing services to the Fund for the
fiscal years ended December 31, 2002 and 2003 were $248,000 and $46,250,
respectively.
The Audit Committee considered whether the services described above,
including all non-audit services rendered to the Fund, the Adviser or an
affiliate of the Adviser that provides
24
ongoing services to the Fund, were compatible with maintaining the independence
of PwC. The Audit Committee pre-approves: (i) all audit and non-audit services
to be rendered to the Fund by PwC; and (ii) all non-audit services relating to
the operations and financial reporting of the Fund provided by PwC to the
Adviser or any affiliate thereof that provides ongoing services to the Fund
(collectively, "Covered Services"). The Audit Committee has adopted pre-approval
procedures authorizing a member of the Audit Committee to pre-approve from time
to time, on behalf of the Audit Committee, all Covered Services to be provided
by PwC which are not otherwise pre-approved at a meeting of the Audit Committee,
provided that such delegate reports to the full Audit Committee at its next
meeting. The pre-approval procedures do not include delegation of the Audit
Committee's responsibilities to management. Pre-approval has not been waived
with respect to any of the services described above since the date on which the
Audit Committee adopted its current pre-approval procedures.
ADDITIONAL INFORMATION
OTHER MATTERS
The Board of Directors of the Fund knows of no matters to be presented at
the Meeting other than those specified in the accompanying Notice of Annual
Meeting. However, if any other matter is properly presented before the Meeting,
it is the intention of the persons named as proxies to vote in accordance with
their best judgment.
EXPENSES
The Fund will bear the expense of the Meeting, including preparation,
printing and mailing of the enclosed form of proxy and accompanying Notice of
Annual Meeting and this Proxy Statement. The Fund, upon request, will reimburse
banks, brokers and others for their reasonable expenses in forwarding proxy
solicitation material to the beneficial owners of the Fund's common stock. In
order to obtain the necessary quorum at the Meeting, supplementary solicitation
may be made by mail, telephone or personal interviews by officers or employees
of the Fund and/or Adviser, or their affiliates.
VOTE REQUIRED
The election of Directors for the Fund requires a plurality of the votes
cast at the Meeting by the shareholders of the Fund. Pursuant to the Fund's
Articles of Incorporation, the Conversion Proposal must be approved by the
affirmative vote of a majority of the outstanding shares of the Fund. The
following principles of Maryland law apply to the voting of shares of common
stock at the Meeting. The presence in person or by proxy of shareholders
entitled to vote a majority of the outstanding shares will constitute a quorum.
Shares represented by proxy or in person at the Meeting, including shares
represented by proxies that reflect abstentions and broker non-votes
(hereinafter defined), will be counted as present in the determination of a
quorum. With respect to the election of directors, an abstention does not
constitute a vote "for" or "against" and will be disregarded in calculating the
votes cast as to such matter, and "broker non-votes" (I.E., where a broker or
nominee submits a proxy specifically indicating the lack of discretionary
authority to vote on a matter) will be treated in the same manner as
abstentions. With respect to the Conversion Proposal, the adoption of which
requires the affirmative vote of a
25
majority of the Fund's outstanding shares, an abstention or broker non-vote will
have the effect of a vote "against" the matter. It is anticipated that votes
will be tabulated by EquiServe Trust Co., N.A., the Funds' transfer agent.
PROPOSALS FOR 2005 MEETING
Any proposals of shareholders that are intended to be presented at the
Fund's 2005 Annual Meeting of Shareholders must be received at such Fund's
principal executive offices no later than _______, 2005, and must comply with
all other legal requirements in order to be included in the Fund's proxy
statement and form of proxy for that meeting.
The persons named as proxies for the 2005 Annual Meeting of Shareholders
will, with respect to the proxies in effect at such meeting, have discretionary
authority to vote on any matter presented by a shareholder for action at that
meeting unless the Fund receives notice of the matter by _______, 2005. If the
Fund receives such timely notice, these persons will not have this authority
except as provided in the applicable rules of the Securities and Exchange
Commission.
New York, New York By Order of the Board of Directors of
March ____, 2004 The Zweig Total Return Fund, Inc.
DANIEL T. GERACI,
PRESIDENT
26
EXHIBIT A
THE ZWEIG TOTAL RETURN FUND, INC.
AUDIT COMMITTEE CHARTER
(SEPTEMBER 2003)
I. Purpose
A. The Audit Committee is appointed by the Board of Directors (the
"Board") of The Zweig Total Return Fund, Inc. (the "Fund") for the
following purposes:
1. to oversee the accounting and financial reporting processes of
the Fund and its internal controls and, as the Audit Committee
deems appropriate, to inquire into the internal controls of
certain third-party service providers;
2. to oversee the quality and integrity of the Fund's financial
statements and the independent audit thereof;
3. to oversee, or, as appropriate, assist Board oversight of, the
Fund's compliance with legal and regulatory requirements that
relate to the Fund's accounting and financial reporting, internal
controls and independent audits; and
4. to approve, prior to the appointment, the engagement of the
Fund's independent auditor and, in connection therewith, to
review and evaluate the qualifications, independence and
performance of the Fund's independent auditor.
B. While the Audit Committee has the responsibilities and powers set
forth in this Charter, it is not the duty of the Audit Committee to
plan or conduct audits or to determine that the Fund's financial
statements are complete and accurate and are in accordance with
generally accepted accounting principles. This is the responsibility
of the Fund's investment adviser ("Management") and the independent
auditor. Nor is it the duty of the Audit Committee to assure
compliance with laws and regulations and/or the Fund's Code of Ethics.
II. Audit Committee Structure, Composition and Operations
A. The Audit Committee shall consist of at least three members, all of
whom shall be directors of the Fund. Each member of the Audit
Committee shall be appointed by the full Board.
B. The members of the Audit Committee shall meet the independence and
experience requirements of the New York Stock Exchange. All members of
the Audit Committee must have been determined by the Board to be
"financially literate" as required by the New York Stock Exchange
Listed Company Manual.
A-1
C. All members of the Audit Committee shall meet the "independence"
requirement of Rule 10A-3(b)(1) under the Securities Exchange Act of
1934. None of the members of the Audit Committee shall be an
"interested person" of the Fund, as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended.
D. The Audit Committee shall meet on a regular basis and at least 4 times
annually, although it may hold special meetings as it deems necessary
or advisable. The chair or a majority of the members shall be
authorized to call a meeting of the Audit Committee and send notice
thereof.
E. The Audit Committee shall ordinarily meet in person. However,
individual members may attend telephonically, and entire meetings may
be held by telephone conference. The Audit Committee may act by
written consent of the members to the extent permitted by law and the
Fund's bylaws.
F. The Audit Committee may select one of its members to be the chair and
may also select one of its members to be a vice chair.
G. A majority of the members of the Audit Committee shall constitute a
quorum for the transaction of business at any meeting of the Audit
Committee. The action of a majority of the members of the Audit
Committee at a meeting at which a quorum is present shall be the
action of the Audit Committee.
III. Authority, Responsibilities and Duties
The Audit Committee shall have the following responsibilities and duties.
The Board has granted the Audit Committee the authority to fully and
effectively carry out these responsibilities and duties and will provide
the Audit Committee with sufficient funding to competently perform all of
the following, including, without limitation, funding (i) for ordinary
administrative expenses, (ii) to appropriately compensate advisors employed
by the Audit Committee, and (iii) to compensate the Fund's independent
auditor.
A. The Audit Committee shall report regularly to the full board of
directors.
B. The Audit Committee may request any officer or employee of the Fund,
counsel to the independent directors, the Fund's outside counsel and
independent auditor to attend a meeting of the Audit Committee or to
meet with any members of, or consultants to, the Audit Committee. The
Audit Committee shall meet separately, periodically with Management,
with internal auditors (or other personnel responsible for the
internal audit function) and with independent auditors.
C. The Audit Committee shall have the authority to retain special legal,
accounting or other consultants to advise the Audit Committee as it
deems necessary to carry out its duties.
A-2
D. The Audit Committee shall be directly responsible for the appointment,
compensation, retention and oversight (including resolution of
disagreements between Management and the auditor regarding financial
reporting) of any registered public accounting firm engaged for the
purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Fund. Each such registered
public accounting firm shall report directly to the Audit Committee
and shall be ultimately responsible to the Audit Committee and the
Board.
1. This power shall include the authority to establish the scope of
services, including non-audit related services to the Fund or
Management, to be provided by the independent auditor and to
approve all fees paid to the independent auditor.
2. After the Audit Committee has selected the independent auditor,
its selection will be ratified by the Fund's independent
directors.
E. The Audit Committee shall review the annual audited financial
statements with Management and the independent auditor, including
major issues regarding the accounting and auditing principles and
practices and including any related disclosures.
F. The Audit Committee shall confer with the Board annually regarding the
Board's determination of (i) whether any member of the Audit Committee
has accounting or related financial management expertise, as required
by Section 303.01(B)(2)(c) of the New York Stock Exchange Listed
Company Manual, and (ii) whether the Audit Committee includes an
"audit committee financial expert" as defined in the instructions to
Item 3 on SEC Form N-CSR.
G. The Audit Committee shall review an analysis prepared by management
and the independent auditor of significant financial reporting issues
and judgments made in connection with the preparation of the Fund's
financial statements.
H. The Audit Committee shall review major changes to the Fund's auditing
and accounting principles and practices as suggested by the
independent auditor or Management.
I. The Audit Committee shall receive periodic written reports (on not
less than an annual basis) from the independent auditor regarding the
auditor's independence, discuss such reports with the auditor, and if
so determined by the Audit Committee, recommend that the Board take
action to satisfy itself of the independence of the auditor. Such
reports shall address any relationships between the independent
auditors and the Fund or affiliated persons of the Fund.
A-3
1. In connection with this review, the Audit Committee will review
all non-audit services to the Fund or Management performed by the
independent auditor and the fees earned for such services.
J. The Audit Committee shall receive annual written reports from the
independent auditor describing (i) the Fund's internal quality-control
procedures, and (ii) any material issues raised by the most recent
internal quality-control review of the Fund or by any governmental or
professional authorities, within the preceding five years, respecting
the one or more independent audits carried out by the Fund and any
steps taken to deal with any such issues.
K. The Audit Committee shall discuss and review the Fund's policies with
respect to risk assessment and risk management.
L. The Audit Committee shall evaluate together with the Board the
performance of the independent auditor and, if so determined by the
Audit Committee, recommend that the Board replace the independent
auditor.
M. The Audit Committee shall meet with the independent auditor prior to
the audit to review the planning and staffing of the audit.
N. The Audit Committee shall discuss with the independent auditor the
matters required by Statement on Auditing Standards No. 61 (as amended
by Statement on Auditing Standards No. 90) relating to the conduct of
the audit and shall review with the independent auditor any problems
or difficulties the auditor may have encountered and any management
letter provided by the auditor and the Fund's response to that letter.
Such review should include any difficulties encountered in the course
of the audit work, including any restrictions on the scope of
activities or access to required information.
O. The Audit Committee shall review with the Fund's principal executive
officer and principal financial officer in connection with their
annual certifications on Form N-CSR any significant deficiencies or
material weaknesses in the design or operation of the Fund's
disclosure controls and procedures and any reported evidence of fraud
involving Management or other employees who have a significant role in
the Fund's disclosure controls and procedures.
P. The Audit Committee shall prepare or cause to be prepared the report
of the Audit Committee required by the rules of the Securities and
Exchange Commission to be included in the Fund's annual proxy
statement.
Q. The Audit Committee shall review with counsel legal matters that may
have a material impact on the financial statements, the Fund's
compliance policies and any material reports or inquiries received
from regulators or government agencies.
A-4
R. The Audit Committee shall establish procedures for the receipt,
retention, and treatment of complaints received by the Fund relating
to the Fund's accounting, internal accounting controls, and auditing
matters. Such procedures shall include procedures for the
confidential, anonymous submission by officers and employees of the
Fund or Management of concerns related to questionable accounting or
auditing matters of the Fund.
1. The Audit Committee shall have the authority to investigate, or
to initiate an investigation of improprieties or suspected
improprieties in connection with the Fund's accounting or
financial reporting.
2. The Audit Committee shall confer with the Board regarding the
Fund's and Management's approach to the Securities and Exchange
Commission's standards of professional conduct for attorneys
adopted under Section 307 of the Sarbanes-Oxley Act of 2002.
S. The Audit Committee shall review with the independent auditor any
audit problems or difficulties and management's response.
T. The Audit Committee shall review any proposed hiring of employees or
former employees of the independent auditor by Management.
U. The Audit Committee shall perform such other functions and have such
powers as may be necessary or appropriate in the efficient and lawful
discharge of the foregoing.
IV. Annual Performance Evaluation
The Audit Committee shall perform a review and evaluation, at least
annually, of the performance of the Audit Committee and its members,
including a review of the compliance of the Audit Committee with this
Charter. In addition, the Audit Committee shall review and reassess, at
least annually, the adequacy of this Charter and recommend to the Board any
improvements to this Charter that the Audit Committee considers necessary
or valuable. The Audit Committee shall conduct such evaluations and reviews
in such manner as it deems appropriate. The Board shall adopt and approve
this Charter and may amend it as the Board deems appropriate.
A-5
EXHIBIT B
THE ZWEIG TOTAL RETURN FUND, INC.
NOMINATING COMMITTEE CHARTER
PURPOSE
The purposes of the Committee are to identify individuals qualified to become
Board members and to recommend that the Board select particular director
nominees.
COMMITTEE COMPOSITION
The Committee shall be composed of three (3) or more members of the Board of
Directors of the Fund, each of whom shall be an Independent Director and not an
interested person (as such term is defined by section 2(a)(19) of the Investment
Company Act of 1940, as amended (the "1940 Act")). The Board shall select the
members of the Committee. Other directors of the Fund, while not serving as
members of the Committee, nonetheless may have a role in the nominating process
by identifying and recommending potential candidates to the Committee for its
consideration, and by otherwise assisting the Committee in the discharge of its
responsibilities.
BOARD NOMINATIONS
1. The Committee shall recommend to the Board director nominees for election
at the Stockholders' annual meeting. Additionally, in the event of any
vacancies on or additions to the Board, the Committee shall evaluate the
qualifications of candidates and make nominations for membership on the
Board. The Committee may also recommend that a vacancy in the membership of
the Board not be filled based on the then current Board's size, composition
and structure. In carrying out its responsibilities under this paragraph,
the Committee shall have sole authority to retain and terminate any search
firm to be used to identify director candidates, including sole authority
to approve the search firm's fees and other retention terms.
2. Persons nominated as Independent Directors may not be "interested persons"
of the Fund as that term is defined in the 1940 Act. With respect to such
nominees, the Committee shall carefully evaluate their independence from
any investment adviser or other principal service provider to the Fund. The
Committee shall also consider the effect of any relationships beyond those
delineated in the 1940 Act that might impair the independence of a
prospective Independent Director.
3. In assessing the qualifications of a potential candidate for Independent
Director membership on the Board, the Committee shall consider such other
factors, as it may deem relevant.
B-1
COMMITTEE NOMINATIONS
1. The Committee shall review and make recommendations from time to time to
the Board regarding the nature and duties of Board committees, including:
(i) committee member qualifications; (ii) committee member appointment,
removal or replacement in the event of a vacancy; (iii) committee structure
and operations (including authority to delegate to subcommittees); and (iv)
committee reporting to the Board.
2. The Committee shall make recommendations to the Board concerning the
responsibilities or establishment of Board committees.
OTHER POWERS AND RESPONSIBILITIES
1. The Committee shall meet as necessary in connection with any vacancy on or
addition to the Board and otherwise from time to time as it deems
appropriate to perform its responsibilities.
2. The Committee shall have the resources and authority appropriate to
discharge its responsibilities. It shall consult with counsel to the Fund
concerning the requirements of the 1940 Act applicable to the selection and
qualification of Independent Directors.
3. The Committee shall recommend to the Board any revisions or modifications
to this Charter that the Committee deems necessary or appropriate to the
effective exercise of its responsibilities.
4. The Committee shall prepare and maintain minutes of the resolutions adopted
at all meetings and provide copies thereof to the Board within a reasonable
period of time following each meeting.
Dated: February 18, 2004
B-2
EXHIBIT C
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
THE ZWEIG TOTAL RETURN FUND, INC.
The Zweig Total Return Fund, Inc., a Maryland corporation, having its
principal office in Maryland in Baltimore City (hereinafter called the
"Corporation") hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is amended and as so amended is
restated in its entirety by striking out Articles I through X and inserting in
lieu thereof the following:
"ARTICLE I
The undersigned, Stuart B. Panish, whose post office address is 575 Madison
Avenue, New York, New York 10022 being at least eighteen (18) years of age does
hereby act as an incorporator and form a corporation under and by virtue of the
Maryland General Corporation Law.
ARTICLE II
NAME
The name of the corporation (herein referred to as the "Corporation") is
The Zweig Total Return Fund, Inc.
ARTICLE III
PURPOSES AND POWERS
The Corporation is formed for the following purposes:
(1) To conduct, operate and carry on the business of an investment
company.
(2) To hold, invest and reinvest its assets in securities, commodities and
other investments or to hold part of all of its assets in cash.
(3) To issue and sell shares of its capital stock in such amounts and on
such terms and conditions and for such purposes and for such amount or kind of
consideration as may now or hereafter be permitted by law.
(4) To do any and all additional acts and to exercise any and all
additional powers or rights as may be necessary, incidental, appropriate or
desirable for the accomplishment of all or any of the foregoing purposes.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by the
Maryland General Corporation Law
C-1
now or hereafter in force, and the enumeration of the foregoing shall not be
deemed to exclude any powers, rights or privileges so granted or conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the
State of Maryland is c/o The Prentice-Hall Corporation System, 11E Chase Street,
Baltimore, Maryland 21202. The name of the resident agent of the Corporation in
the State of Maryland is The Prentice Hall Corporation System, Maryland, a
Maryland corporation. The post office address of the resident agent is 11E Chase
Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock that the Corporation shall
have authority to issue is Five Hundred Million (500,000,000) shares of the par
value of one-tenth of one cent ($.001) per share and of the aggregate par value
of Five Hundred Thousand Dollars ($500,000), all of which Five Hundred Million
(500,000,000) shares are designated Common Stock.
(2) The Corporation may issue fractional shares. Any fractional share
shall carry proportionately the rights of a whole share including, without
limitation, the right to vote and the right to receive dividends. The holder of
a fractional share shall not, however, have the right to receive a certificate
evidencing it.
(3) All persons who shall acquire shares of capital stock in the
Corporation shall acquire the same subject to the provisions of the Charter and
the By-Laws of the Corporation.
(4) No holder of stock of the Corporation by virtue of being such a holder
shall have any right to purchase or subscribe for any shares of the
Corporation's capital stock or any other security that the Corporation may issue
or sell (whether out of the number of shares authorized by the Charter or out of
any shares of the Corporation's capital stock that the Corporation may acquire)
other than a right that the Board of Directors in its discretion may determine
to grant.
(5) The Board of Directors shall have authority by resolution to classify
and reclassify any authorized but unissued shares of capital stock from time to
time by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of the capital
stock.
(6) Notwithstanding any provision of law requiring any action to be taken
or authorized by the affirmative vote of the holders of a greater proportion of
the votes of all classes or of any class of stock of the Corporation, such
action shall be effective and valid if taken or
C-2
authorized by the affirmative vote of a majority of the total number of votes
entitled to be cast thereon, except as otherwise provided in the Charter.
(7) On each matter submitted to a vote of the stockholders, each holder
of a share of stock shall be entitled to one vote for each such share
standing in such holder's name upon the books of the Corporation regardless
of the class thereof, and all shares of all classes shall vote together as a
single class; provided, however, that (i) when the Maryland General
Corporation Law or the Investment Company Act of 1940, as amended, requires
that a class vote separately with respect to a given matter, the separate
voting requirements of the applicable law shall govern with respect to the
affected class or classes: (ii) in the event that the separate vote
requirement referred to in (i) above applies with respect to one or more
classes, then, subject to (iii) below, the shares of all other classes shall
vote as one single class; and (iii) as to any matter, which, in the judgment
of the Board of Directors (which shall be conclusive and binding for all
purposes), does not affect the interests of a particular class, such class
shall not be entitled to any vote and only the holders of shares of the
affected class or classes shall be entitled to vote.
(8) To the extent permitted by law, each holder of shares of the
Corporation's stock shall be entitled to require the Corporation to redeem
all or any part of the shares of stock of the Corporation standing in the
name of the holder on the books of the Corporation, and all shares of stock
issued by the Corporation shall be subject to redemption by the Corporation,
at the redemption price of the shares as in effect from time to time as may
be determined by or pursuant to the direction of the Board of Directors of
the Corporation in accordance with the provisions of Article VI(5)(v), less
the amount of any applicable redemption charge, deferred sales charge or
other amount imposed by the Board of Directors (to the extent consistent with
applicable law), subject to the right of the Board of Directors of the
Corporation to suspend the right of redemption or postpone the date of
payment of the redemption price in accordance with provisions of applicable
law. The Board of Directors may impose a redemption charge, deferred sales
charge or other amount on the redemption of such shares of Common Stock
issued and outstanding immediately prior to these Articles of Amendment and
Restatement becoming effective even though the Board may choose not to impose
a similar redemption charge, deferred sales charge or other amount on the
redemption of other shares of the same class or other classes of Common Stock
that are issued after the effective date of these Articles of Amendment and
Restatement. The proceeds of the redemption of a share (including a
fractional share) of any class of stock of the Corporation shall be reduced
by the amount of any redemption charge, deferred sales charge or other amount
payable on such redemption pursuant to the terms of issuance of such shares
or otherwise imposed by the Board of Directors. Without limiting the
generality of the foregoing, the Corporation shall, to the extent permitted
by applicable law, have the right at any time, at the Corporation's option,
to redeem, in whole or in part, the shares owned by any holder of stock of
the Corporation (i) if the value of the shares in the account maintained by
the Corporation or its transfer agent for any class of stock for the
stockholder is below an amount determined from time to time by the Board of
Directors of the Corporation (the "Minimum Account Balance") and (a) the
stockholder has been given notice of the redemption and has failed to make
additional purchases of shares in an amount sufficient to bring the value in
his account to at least the Minimum Account Balance before the redemption is
effected by the
C-3
Corporation or (b) the redemption is with respect to fees to be paid by the
stockholder to the Corporation for failing to maintain the Minimum Account
Balance or (ii) the Board of Directors has otherwise determined that it is in
the best interests of the Corporation to redeem the shares. Notwithstanding
any other provision of this Article V(8), if certificates representing the
redeemed shares have been issued, the redemption price need not be paid by
the Corporation until such certificates are presented in proper form for
transfer to the Corporation or the agent of the Corporation appointed for
such purpose; however, the redemption shall be effective in accordance with
the action of the Board of Directors, regardless of whether or not such
presentation has been made. Payment of the redemption price shall be made in
cash by the Corporation at the time and in the manner as may be determined
from time to time by the Board of Directors of the Corporation unless, in the
opinion of the Board of Directors, which shall be conclusive, conditions
exist that make payment wholly in cash unwise or undesirable; in such event
the Corporation may make payment wholly or partly by securities or other
property included in the assets allocable to the class of the shares for
which redemption is being sought, the value of which shall be determined as
provided by the Board of Directors in accordance with the provisions of
Article VI(5)(v).
(9) At such times as may be determined by the Board of Directors (or
with the authorization of the Board of Directors, by the officers of the
Corporation) in accordance with the Investment Company Act of 1940, as
amended, applicable rules and regulations thereunder and applicable rules and
regulations of NASD Inc. and from time to time reflected in the registration
statement of the Corporation (the "Corporation's Registration Statement"),
shares of a particular class of stock of the Corporation may be automatically
converted into shares of another class of stock of the Corporation based on
the relative net asset values of such classes at the time of conversion,
subject, however, to any conditions of conversion that may be imposed by the
Board of Directors (or with the authorization of the Board of Directors, by
the officers of the Corporation) and reflected in the Corporation's
Registration Statement. The terms and conditions of such conversion may vary
within and among the classes to the extent determined by the Board of
Directors (or with the authorization of the Board of Directors, by the
officers of the Corporation) and set forth in the Corporation's Registration
Statement.
ARTICLE VI
BOARD OF DIRECTORS
(1) The current number of directors of the corporation is six. This number
may be changed pursuant to the By-Laws of the Corporation, but shall at no time
be less than the minimum number required under the Maryland General Corporation
Law nor more than twelve (12). The names of the current directors who shall act
until their successors are duly chosen and qualify are:
Charles H. Brunie
Daniel T. Geraci
C-4
Wendy Luscombe
Alden C. Olson
James B. Rogers, Jr.
R. Keith Walton
(2) Beginning with the first annual meeting of shareholders of the
Corporation held after the initial public offering of the shares of the
Corporation's capital stock (the "first annual meeting"), the Board of Directors
of the Corporation shall be divided into three classes: Class I, Class II, and
Class III. The term of one class of directors elected at the first annual
meeting shall expire each year. At the first annual meeting, directors of Class
I shall be elected to the Board of Directors for a term expiring at the next
succeeding annual meeting of shareholders, directors of Class II shall be
elected to the Board of Directors for a term expiring at the second succeeding
annual meeting of shareholders and directors of Class III shall be elected to
the Board of Directors for a term expiring at the third succeeding annual
meeting of shareholders. At each subsequent annual meeting of shareholders, the
directors chosen to succeed those whose terms are expiring shall be identified
as being of the same class as the directors whom they succeed and shall be
elected for a term expiring at the time of the third succeeding annual meeting
of shareholders, or thereafter in each case when their respective successors are
elected and qualified. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes by resolution of the Board of
Directors so as to maintain the number of directors in each class as nearly
equal as possible, but in no case shall a decrease in the number of directors
shorten the term of any incumbent director.
(3) Any vacancy occurring in the Board of Directors may be filled by a
majority of the directors in office. A new directorship resulting from an
increase in the number of directors shall be filled by a majority of the entire
Board of Directors.
(4) A director of the Corporation may be removed from office only by vote
of the holders of at least seventy-five percent (75%) of the outstanding shares
of capital stock of the Corporation entitled to vote for the election of
directors.
(5) In furtherance, and not in limitation, of the powers conferred by the
laws of the State of Maryland, the Board of Directors is expressly authorized:
(i) To make, alter or repeal the By-Laws of the Corporation, except
where such power is reserved by the By-Laws to the shareholders, and except
as otherwise required by the Investment Company Act of 1940, as amended.
(ii) From time to time to determine whether and to what extent and
at what times and places and under what conditions and regulations the
books and accounts of the Corporation, or any of them other than the stock
ledger, shall be open to the inspection of the shareholders. No shareholder
shall have any right to inspect any account or book or document of the
Corporation, except as conferred by law or authorized by resolution of the
Board of Directors or of the shareholders.
C-5
(iii) Without the assent or vote of the shareholders, to authorize
the issuance from time to time of shares of the stock of any class of the
Corporation, whether now or hereafter authorized, and securities
convertible into shares of stock of the Corporation of any class or
classes, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable.
(iv) Without the assent or vote of the shareholders, to authorize
and issue obligations of the Corporation, secured and unsecured, as the
Board of Directors may determine, and to authorize and cause to be executed
mortgages and liens upon the real or personal property of the Corporation.
(v) To establish the basis or method for determining the value of
the assets and the amount of the liabilities of the Corporation and the net
asset value of each share of the Corporation's capital stock.
(vi) To determine what constitutes net profits, earnings, surplus or
net assets in excess of capital, and to determine what accounting periods
shall be used by the Corporation for any purpose; to set apart out of any
funds of the Corporation reserves for such purposes as it shall determine
and to abolish the same; to declare and pay any dividends and distributions
in cash, securities or other property from surplus or any funds legally
available therefor, at such intervals as it shall determine; to declare
dividends or distributions by means of a formula or other method of
determination, at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for
dividends or any other distributions on any basis, including dates
occurring less frequently than the effectiveness of declarations thereof.
(vii) In addition to the powers and authorities granted herein and by
statute expressly conferred upon it, the Board of Directors is authorized
to exercise all powers and do all acts that may be exercised or done by the
Corporation pursuant to the provisions of the laws of the State of
Maryland, these Articles of Incorporation and the By-Laws of the
Corporation.
(6) Any determination made in good faith, and in accordance with the
Charter of the Corporation, if applicable, by or pursuant to the direction of
the Board of Directors, with respect to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the proprietary thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which the reserves or
charges have been created has been paid or discharged or is then or thereafter
required to be paid or discharged), as to the value of any security owned by the
Corporation, the determination of the net asset value of shares of any class of
the Corporation's capital stock, or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposition of securities or
shares of capital stock of the Corporation, and any reasonable determination
made in good faith by the Board of Directors shall be final and conclusive, and
shall be binding upon the Corporation and all holders of its capital stock,
past, present and future, and shares of the capital stock of the Corporation are
C-6
issued and sold on the condition and understanding, evidenced by the purchase of
shares of capital stock or acceptance of share certificates, that any and all
such determinations shall be binding as aforesaid. No provision of the Charter
of the Corporation shall be effective to require a waiver of compliance with any
provision of the Securities Act of 1933, as amended, or the Investment Company
Act of 1940, as amended, or of any valid rule, regulation or order of the
Securities and Exchange Commission under those Acts.
ARTICLE VII
LIABILITY AND INDEMNIFICATION
(1) To the fullest extent that limitations on the liability of directors
and officers are permitted by the Maryland General Corporation Law, no director
or officer of the Corporation shall have any liability to the Corporation or its
shareholders for damages. This limitation on liability applies to events
occurring at the time a person serves as a director or officer of the
Corporation whether or not such person is a director or officer at the time of
any proceeding in which liability is asserted.
(2) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law. The Board of
Directors may by By-Law, resolution or agreement make further provisions for
indemnification of directors, officers, employees and agents to the fullest
extent permitted by the Maryland General Corporation Law.
(3) No provision of the Charter of the Corporation shall be effective to
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
(4) References to the Maryland General Corporation Law in this Article VII
are to the law as from time to time amended. No amendment to the the Charter of
the Corporation shall affect any right of any person under this Article VII
based on any event, omission or proceeding prior to such amendment.
ARTICLE VIII
CHANGE OF STRUCTURE
(1) Notwithstanding any other provision of these Articles of
Incorporation, but subject to the exceptions provided in Section (2) of this
Article VIII, the conversion of the Corporation from a "closed-end company" to
an "open-end company," as those terms are defined in Sections 5(a)(2) and
5(a)(1), respectively, of the Investment Company Act of 1940, as amended, shall
require the affirmative vote or consent of the holders of at least seventy-five
percent (75%) of the outstanding shares of capital stock of the Corporation;
provided, however, that if such action previously has been approved, adopted or
authorized by the affirmative vote of
C-7
two-thirds of the total number of directors fixed in accordance with the
By-Laws, in such case the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Corporation entitled to vote thereon
shall be required.
(2)
ARTICLE IX
SHAREHOLDER VOTE
(1) The affirmative vote of the holders of at least seventy-five percent
(75%) of the outstanding shares of capital stock of the Corporation entitled to
vote thereon shall be required to approve, adopt or authorize any of the
following:
(i) A merger or consolidation or statutory share exchange of the
Corporation with or into another corporation;
C-8
(ii) A sale of all or substantially all of the assets of the
Corporation (other than in the regular course of the Corporation's investment
activities); or
(iii) A liquidation or dissolution of the Corporation;
unless such action previously has been approved, adopted or authorized by the
affirmative vote of two-thirds of the total number of directors fixed in
accordance with the By-Laws, in which case the affirmative vote of the holders
of a majority of the outstanding shares of capital stock of the Corporation
entitled to vote thereon shall be required.
ARTICLE X
AMENDMENTS
(1) The Corporation reserves the right from time to time to make any
amendment to its Articles of Incorporation, now or hereafter authorized by law,
including any amendment that alters the contract rights, as expressly set forth
in its Articles of Incorporation, of any outstanding stock.
(2) In addition to the voting requirements imposed by law or by any other
provision of these Articles of Incorporation, the provisions set forth in this
Article X, the provisions of Sections (2) and (4) of Article VI, the provisions
of Article IX, the provisions of these Articles of Incorporation setting the
maximum number of directors at twelve (12), and the provisions of Section (1) of
Article VIII may not be amended, altered or repealed in any respect, nor may any
provision inconsistent with this Article X, the provisions of Sections (2) and
(4) of Article VI, the provisions of Article IX, the provision setting the
maximum number of directors, or the provisions of Section (1) of Article VIII be
adopted, unless such section is approved by the affirmative vote of at least
seventy-five (75%) of the outstanding shares of capital stock of the Corporation
entitled to vote thereon."
SECOND: The Corporation desires to amend and restate its Charter as
currently in effect. The provisions set forth in these Articles of Amendment and
Restatement are all of the provisions of the Charter currently in effect as
herein amended. The current address of the principal office of the Corporation,
and the name and address of the Corporation's current resident agent are as set
forth in Article IV. The number of directors is currently set at six and their
names are as set forth in Article VI(1).
THIRD: The amendment and restatement of the Charter of the Corporation as
hereinabove set forth has been duly advised by the Directors and approved by the
stockholders pursuant to the Maryland General Corporation Law.
FOURTH: These Articles of Amendment and Restatement shall become effective
on _____________, 2004 at ___ {a.m./p.m.} Eastern Time.
IN WITNESS WHEREOF, The Zweig Total Return Fund, Inc.
C-9
has caused these Articles of Amendment and Restatement to be signed in its name
and on its behalf by its President, Daniel T. Geraci, and witnessed by its
Secretary, Nancy J. Engberg, as of __________, 2004. The President acknowledges
these Articles of Amendment and Restatement to be the corporate act of the
Corporation and states that to the best of his knowledge, information and
belief, the matters and facts set forth in these Articles with respect to the
authorization and approval of this amendment and restatement of the
Corporation's Charter are true in all material respects and that this statement
is made under penalties of perjury.
By:
------------------------
Daniel T. Geraci
President
Witness:
-----------------------------
Secretary
C-10
EXHIBIT D
AMENDED AND RESTATED SERVICING AGREEMENT
THIS AMENDED AND RESTATED SERVICING AGREEMENT (the "Agreement") is made
and entered into as of the 2nd day of March, 2004 by and between Phoenix/Zweig
Advisers LLC, a Delaware limited liability company (the "Company") and Zweig
Consulting LLC, a New York limited liability company ("Zweig").
WHEREAS pursuant to an Acquisition Agreement (the "Acquisition
Agreement") by and among Zweig/Glaser Advisers, a New York general partnership,
Zweig Advisors Inc., a Delaware corporation and Zweig Total Return Advisors,
Inc., a Delaware corporation (collectively, the "Predecessor Company"), Phoenix
Investment Partners, Ltd., a Delaware corporation ("Phoenix") and the other
parties thereto, Phoenix acquired the Predecessor Company on March 1, 1999
(initially capitalized terms defined in the Acquisition Agreement and not
otherwise defined herein are used herein with such defined meanings);
WHEREAS prior to the Closing, Martin E. Zweig (the "President") provided
certain services to the Predecessor Company, and Phoenix and the Predecessor
Company were desirous of continuing to receive such services following the
Closing, and the President indicated to Phoenix and the Predecessor Company that
he and his designated research associates (the "Associates") would continue to
provide the Predecessor Company and its Affiliates with such services following
the Closing;
WHEREAS in connection with the foregoing, Zweig entered into this
Agreement with the Predecessor Company, dated as of March 1, 1999, which became
effective on the Closing Date for an initial three year term, and this Agreement
was thereafter continued until the date hereof by the agreement of Zweig and the
Company (which was the successor to the Predecessor Company on or about December
31, 1999) with respect to such continuation;
WHEREAS since the Closing, the Predecessor Company or the Company has
served as the investment adviser with respect to The Zweig Fund, Inc. and The
Zweig Total Return Fund, Inc. (each, a "Fund" and collectively "Funds"),
closed-end funds traded on the New York Stock Exchange, and pursuant to this
Agreement Zweig has provided investment subadvisory services with respect to
each Fund (with this Agreement having at all relevant times been approved by the
board of directors of each Fund, and having been initially approved by the
shareholders of each Fund, in each such case as an investment subadvisory
agreement with respect to such Fund in accordance with the requirements of the
Investment Company Act of 1940);
WHEREAS, the Company recognizes the importance that the Funds' portfolio
management process reflect the asset allocation techniques of Zweig; and
WHEREAS the Company and Zweig desire to continue the Servicing Agreement
from and after the date hereof on the terms set forth herein, and to amend and
restate the Servicing Agreement as set forth herein to provide for an additional
Term (as defined herein) and to reflect the other terms and conditions set forth
herein (and this amendment and restatement has been
D-1
approved by the board of directors of each Fund in accordance with the
requirements of the Investment Company Act of 1940 insofar as this Agreement
relates to such Fund).
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto, intending to be legally bound, agree as follows
(which amended and restated terms shall supercede in their entirety the terms
set forth in the Servicing Agreement prior to this amendment and restatement):
1. SERVICES
1.1 During the Term, Zweig and the President agree that the
President and the Associates will devote their skill and approximately one-half
of their full working time consistent with the practices of Zweig prior to the
date hereof, to the business and affairs of the Company and its Affiliates and
to the promotion of its and their interests, in particular (i) performing asset
allocation research and analysis and providing advice thereon at a level and in
a manner consistent with the practices of Zweig and the Company prior to the
date hereof, (ii) playing an active role in collaborating with the Company's
portfolio management team on a frequent basis regarding the investment advisory
services provided by the Company to the Funds in the Company's capacity as
investment adviser to the Funds and, in particular, advising the Company on the
methodology and process utilized by the Company's portfolio management team for
purposes of selecting individual securities that will be purchased and sold by
the Funds, and actively reviewing the Funds' portfolios with respect to the
individual securities that have been purchased and sold by the Funds (it being
understood that, except to the extent that its fiduciary duties and/or
obligations under its investment advisory agreement with a Fund may otherwise
require, the Company intends to follow Zweig's recommendations with respect to
the methodology and process utilized by the Company's portfolio management team
for purposes of selecting individual securities that will be purchased and sold
by the Funds), (iii) the President, together with such of the Associates as any
such board may request, meeting with the boards of directors of the Funds (in
person and/or telephonically) at such times as they may request (including
without limitation attendance at meetings of such boards of directors, to the
extent so requested by such boards of directors), and participating (in person
and/or telephonically) at the annual and any special meetings of shareholders of
the Funds, (iv) collaborating with the Company on an active basis with respect
to strategic and other Fund-related matters, and (v) in the event that Carlton
Neel is no longer serving as the Company's portfolio manager with respect to the
Funds for any reason, the President advising the board of directors of each Fund
with respect to Zweig's approval or disapproval of such replacement portfolio
manager of the Company with respect to such Fund as is proposed by the Company
to replace Carlton Neel (the "Services"). The Services will be performed by the
President and the Associates in a manner and at a level consistent with the
practices of Zweig and the Company prior to the date hereof.
1.2 The Services will be provided to the Company and its Affiliates
during normal business hours at the offices of the Company in New York City or
at such other times and places as Zweig may reasonably determine, taking into
account the nature, exigencies and reasons for the assistance required.
1.3 For so long as this Agreement remains in effect with respect to
one or both of the Funds, (i) the Company agrees that neither it nor any of its
Affiliates shall, directly or indirectly, employ or seek to employ any employee
of Zweig or any of its Affiliates, or any person who was
D-2
such an employee of Zweig or any of its Affiliates at any time during the twelve
months preceding such action by the Company or its Affiliates, nor seek to
persuade any such employee or former employee to become employed by any direct
or indirect competitor of Zweig or any of its Affiliates, and (ii) Zweig and the
President agree that neither they nor any of their respective Affiliates shall,
directly or indirectly, employ or seek to employ any employee of the Company or
any of its Affiliates, or any person who was such an employee of the Company or
any of its Affiliates at any time during the twelve months preceding such action
by Zweig, the President or their respective Affiliates, nor seek to persuade any
such employee or former employee to become employed by any direct or indirect
competitor of the Company or any of its Affiliates; PROVIDED that nothing
contained in this Section 1.3 shall prohibit employment advertisements in mass
media (or similar general solicitations available to the public at large and not
targeted at particular individuals); and PROVIDED, FURTHER, that the
restrictions set forth in this Section 1.3 shall not apply in respect of
secretaries or other persons holding similar responsibilities that are primarily
clerical in nature.
2. TERM
2.1 This Agreement shall remain effective from and after the date
hereof until the third anniversary of the date hereof (the "Term") or such
earlier date as provided in Section 2.2; PROVIDED, HOWEVER, that, with respect
to a particular Fund (and Services being performed by Zweig hereunder with
respect to such Fund), this Agreement shall terminate automatically on the first
March 1 during the Term (if any) at which the continuation of this Agreement
with respect to such Fund has not been specifically approved on or prior to such
March 1 in accordance with the requirements of the Investment Company Act of
1940 by (i) a majority of such Fund's outstanding voting securities or a
majority of its board of directors and (ii) a majority of the directors who are
not "interested persons", as defined in the Investment Company Act of 1940, cast
in person at a meeting called for the purpose of voting on such approval; and
PROVIDED, FURTHER, that this Agreement shall terminate immediately in full at
such time (as any) as it has been terminated with respect to both Funds.
2.2 The Company may terminate this Agreement immediately in full (i)
for Cause (as defined below) or (ii) in the event of the President's death or
Disability (as defined below). With respect to a particular Fund, this Agreement
(and Services being performed by Zweig hereunder with respect to such Fund) may
be terminated at any time (with or without Cause), without payment of any
penalty, by (i) the board of directors of that Fund, or (ii) by a vote of a
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of that Fund, in either such case upon not less than sixty
(60) day's written notice. This Agreement shall automatically terminate in full
in the event of its assignment, within the meaning of the Investment Company Act
of 1940, unless such automatic termination shall be prevented by an exemptive
order of the Securities and Exchange Commission, and shall automatically
terminate with respect to a particular Fund (and Services being performed by
Zweig hereunder with respect to such Fund) upon the termination of such Fund's
investment advisory agreement with the Company.
2.3 Upon termination of this Agreement in full pursuant to Section
2.2 hereof or Section 2.5 hereof, the Company's payment to Zweig of fees earned
by Zweig under this Agreement to the date of such termination shall be in full
satisfaction of all claims against the Company under this Agreement. Upon
termination of this Agreement with respect to a particular Fund pursuant
D-3
to Section 2.2 hereof, the Company's payment to Zweig of fees earned by Zweig
under this Agreement with respect to such Fund to the date of such termination
shall be in full satisfaction of all claims against the Company under this
Agreement relating to such termination with respect to such Fund (provided that,
if this Agreement shall also terminate in full as a result of such termination
with respect to such particular Fund, then this sentence shall not require a
separate payment to Zweig, and the first sentence of this Section 2.3 shall
instead apply to such termination of this Agreement in full).
2.4 (i) For purposes of this Agreement, "Cause" shall mean a
reasonable determination made by the Chief Executive Officer of Phoenix that:
(a) Zweig has willfully neglected its assigned duties with the Company, which
neglect has continued for a period of at least thirty (30) days after a written
notice of such neglect was delivered to the President specifying the claimed
neglect, (b) the President has been enjoined (other than temporary suspensions
of not more than ninety-one (91) days) by the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc. or any other
industry regulatory authority from working in the investment advisory or
securities industry, (c) the President has been convicted by a court of
competent jurisdiction of, or has pleaded guilty or NOLO CONTENDRE to, any
felony or misdemeanor involving an investment or investment-related business, or
(d) Zweig has engaged in a continuing violation of a material provision of this
Agreement, which violation has continued for a period of at least thirty (30)
days after a written notice of such violation was delivered to the President
specifying the claimed violation.
(ii) For purposes of this Agreement, "Disability" shall mean the
President's inability to perform the Services he is required to perform under
this Agreement by reason of sickness, accident, injury, illness or any similar
event and which condition has existed for at least 180 consecutive days, or for
such shorter periods aggregating 180 days during any twelve month period.
2.5 Zweig may terminate this Agreement immediately in full if (a)
the Company has been enjoined (other than temporary suspensions of not more than
ninety-one (91) days) by the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc. or any other industry regulatory
authority from acting as an investment adviser to the Funds or (b) the Company
has engaged in a continuing violation of a material provision of this Agreement,
which violation has continued for a period of at least thirty (30) days after a
written notice of such violation was delivered to the Company specifying the
claimed violation, or (c) Zweig reasonably determines that, as a result of new
regulatory requirements or developments applicable to persons or entities
engaged (or affiliated with those engaged) in the business of acting as
investment advisers to and/or sponsors of collective investment vehicles that
are exempt from registration under the Investment Company Act of 1940, Zweig's
continued performance of its Services under this Agreement would have a material
adverse effect upon the business of Zweig's Affiliates.
3. COMPENSATION
3.1 For so long as this Agreement remains in effect with respect to
a Fund, for the Services to be provided by Zweig under this Agreement with
respect to such Fund the
D-4
Company will pay Zweig an annual fee (the "Fees") equal to forty percent (40.0%)
of the investment advisory fees actually received by the Company from such Fund
in respect of investment advisory services performed by the Company for such
Fund (which shall in no event be deemed to include administration, servicing,
distribution or other fees that may be received by the Company from such Fund);
PROVIDED, HOWEVER, that the aggregate Fees payable by the Company to Zweig
hereunder in respect of the twelve-month period ending on March 1, 2005 shall
not be less than $3,000,000 if:
(i) Both Funds remain closed-end investment companies
(within the meaning of the Investment Company Act of 1940) for the
entirety of such 12-month period; PROVIDED, HOWEVER, that, in the event
a Fund ceases to be a closed-end investment company with an effective
date (for such open-ending) prior to March 1, 2005, the minimum Fee
requirement set forth in this Section 3.1 above shall still apply in
respect of such 12-month period, but such $3,000,000 level shall be
adjusted as follows: the $3,000,000 shall be bifurcated between the
Funds in proportion to their respective aggregate net assets as of the
last business day immediately prior to the effective date for such
open-ending, such that (a) the portion of the $3,000,000 relating to the
Fund that continues to be a closed-end investment company will continue
to apply in full in respect of such 12-month period, and (b) the portion
of the $3,000,000 relating to the Fund that ceases to be a closed-end
investment company shall no longer apply for that portion of such
12-month period falling on or after the effective date of such
open-ending (provided that a ratable portion thereof shall continue to
apply in respect of that portion of such 12-month period falling prior
to the effective date of such open-ending, based upon the number of days
elapsed in such 12-month period falling prior to such effective date);
(ii) Zweig continues to provide Services to the Company
hereunder with respect to both Funds for the entirety of such 12-month
period; PROVIDED, HOWEVER, that, in the event Zweig ceases to provide
Services to the Company with respect to a Fund prior to March 1, 2005,
the minimum Fee requirement set forth in this Section 3.1 above shall
still apply in respect of such 12-month period, but such $3,000,000
level shall be adjusted as follows: the $3,000,000 shall be bifurcated
between the Funds in proportion to their respective aggregate net assets
as of the last business day immediately prior to the cessation of
Zweig's Services provided to the Company with respect to such Fund, such
that (a) the portion of the $3,000,000 relating to the Fund with respect
to which Zweig continues to provide Services hereunder will continue to
apply in full in respect of such 12-month period, and (b) the portion of
the $3,000,000 relating to the Fund with respect to which Zweig ceases
to provide Services hereunder shall no longer apply for that portion of
such 12-month period falling on or after the effective date of such
cessation of Zweig's Services hereunder with respect to such Fund
(provided that a ratable portion thereof shall continue to apply in
respect of that portion of such 12-month period falling prior to the
effective date of such cessation of Services hereunder, based upon the
number of days elapsed in such 12-month period falling prior to such
effective date); and
D-5
(iii) The Company's effective advisory fee rate (after taking
into account any waivers, reimbursements or other reductions) remains
0.85% per annum with respect to The Zweig Fund, Inc. and 0.70% with
respect to The Zweig Total Return Fund, Inc. for the entirety of such
12-month period; PROVIDED, HOWEVER, that, in the event the Company's
effective advisory fee rate with respect to a Fund is reduced from such
stated percentage prior to March 1, 2005 (other than as a result of any
reductions offered by the Company to the Funds primarily for reasons
unrelated to these Funds in particular), the minimum Fee requirement set
forth in this proviso shall still apply in respect of such 12-month
period, but such $3,000,000 dollar level shall be ratably reduced (based
upon the ratio of gross advisory fees that the Company would have
received from such Fund absent such reduction in effective fee rate to
the gross advisory fees that the Company in fact receives after taking
into account such reduction) to reflect that portion of such 12-month
period for which the Company's effective advisory fee rate with respect
to such Fund is less than such stated percentage;
and PROVIDED, FURTHER, that, in the event the Company's effective advisory fee
rate with respect to a Fund (after taking into account any waivers,
reimbursements or other reductions) is reduced in respect of the 12-month period
ending on March 1, 2006 to below 0.85% per annum, in the case of The Zweig Fund,
Inc., or 0.70% per annum, in the case of The Zweig Total Return Fund, Inc., in
either such case as a result of any reduction thereto offered by the Company to
such Fund primarily for reasons unrelated to such Fund in particular, then for
any portion of such 12-month period during which Zweig provided Services to the
Company hereunder with respect to such Fund whose effective advisory fee rate
was so reduced, the Company will pay Zweig an increased percentage of the
investment advisory fees actually received by the Company from such Fund such
that Zweig receives the same dollar amount of Fees from the Company for such
period during which Zweig performed Services for the Company hereunder with
respect to such Fund as Zweig would have received from the Company hereunder
with respect to such Services absent such reduction in effective fee rate
offered by the Company to such Fund.
The Fees with respect to a Fund shall be paid by the Company to Zweig not later
than five (5) business days following the Company's receipt of the related
investment advisory fees from such Fund.
3.2 The Company shall provide or share with Zweig research
information, benefits and services, as defined in Section 28(e) of the
Securities Exchange Act of 1934, that results, from brokerage transactions
implemented by the Company for the benefit of the Funds.
3.3 The Company shall not have any liability with respect to the
compensation of employees retained by Zweig or by any affiliated entities.
3.4 Subject to the Company's compliance with the provisions of
Section 2.3 hereof, upon termination of this Agreement for any reason, the
Company shall have no further obligations under this Agreement, but Zweig shall
continue to be bound by Section 4 and the Company shall continue to be bound by
Section 5 hereof.
D-6
4. CONFIDENTIALITY OF ZWEIG
4.1 Zweig shall not at any time during the period of its engagement
with the Company hereunder or after the termination thereof directly or
indirectly divulge, furnish, use, publish or make accessible to any person or
entity any Confidential Information (as hereinafter defined) except in
connection with the performance of its duties hereunder. Any records of
Confidential Information prepared by Zweig or which come into its possession
during the term of this Agreement are and remain the property of the Company or
its Affiliates, as the case may be, and upon termination of the engagement all
such records and copies thereof shall be either left with or returned to such
entity. Confidential Information may be shared among the President and
Associates or other employees of entities controlled by the President on a need
to know basis for purposes of providing the Services to the Company and its
Affiliates hereunder. Such Associates and any other employees shall be informed
of the confidential nature of such Confidential Information, the President shall
direct such Associates and any other employees to treat such information
confidentially and the President will be responsible for any breach of this
Section 4.1 by himself and by any persons to whom the President provides any
Confidential Information. Notwithstanding anything contained herein to the
contrary, the Company acknowledges that services overlapping or similar to the
Services provided by Zweig, the President and the Associates hereunder are also
performed on behalf of the Affiliates of Zweig and such Services are often not
exclusively performed by Zweig, the President and the Associates for the
Company. Consequently, the work product resulting from the Services is often
generated on behalf of both the Company and its Affiliates and the Affiliates of
Zweig and is shared among the employees of these entities (the "Shared Work
Product"). The Company further acknowledges that the Confidential Information
that generates such Shared Work Product may become known to the employees of
Zweig's Affiliates. The Company hereby agrees that the disclosure of
Confidential Information to the employees of the Zweig Affiliates who shall be
deemed employees covered by the fourth sentence of this Section 4.1, to the
extent such disclosure is necessary to generate any Shared Work Product, and the
use of Shared Work Product by the employees of the Zweig Affiliates, shall in no
event be deemed a breach of this Agreement.
4.2 The term "Confidential Information" includes, but is not limited
to, the following items, whether existing now or created in the future and
whether or not subject to trade secret or other statutory protection: (a) all
knowledge or information concerning the business, operations and assets of the
Company and its Affiliates which is not readily available to the public, such
as: internal operating procedures; investment strategies; sales data and
customer and client lists; financial plans, projections and reports; and
investment company programs, plans and products; (b) all property owned,
licensed and/or developed for the Company and/or its Affiliates or any of their
respective clients and not readily available to the public, such as computer
systems, programs and software devices, including information about the design,
methodology and documentation therefor; (c) information about or personal to the
Company's and/or its Affiliates' clients; (d) information, materials, products
or other tangible or intangible assets in the Company's and/or its Affiliates'
possession or under any of their control which is proprietary to, or
confidential to or about, any other person or entity; and (e) records and
repositories of all of the foregoing, in whatever form maintained.
D-7
The foregoing notwithstanding, the following shall not be
considered Confidential Information: (aa) general skills and experience gained
by providing service to the Company; (bb) information publicly available or
generally known within the Company's trade or industry; (cc) information
independently developed by the president or the Associates other than in the
course of the performance of their duties which are exclusive to the Company
hereunder; and (dd) information which becomes available to the President or the
Associates on a non-confidential basis from sources other than the Company or
its Affiliates, PROVIDED, the President or the Associates do not know or have
reason to know that such sources are prohibited by contractual, legal or
fiduciary obligation from transmitting the information. Failure to mark any
material or information "confidential" shall not affect the confidential nature
thereof. All the terms of this Section 4 shall survive the termination of this
Agreement. The obligations hereunder shall be in addition to, and not in
limitation of, any other obligations of confidentiality the President or the
Associates may have to the Company.
4.3 At any time when so requested, and upon termination of the
engagement under this Agreement for any reason whatsoever and irrespective of
whether such termination is voluntary on Zweig's part or not, Zweig will deliver
to the Company all information in its possession (whether or not Confidential
Information) pertaining exclusively to the Company or any of its Affiliates and,
to the extent any such information is Shared Work Product, shall provide copies
to the Company with the understanding that Zweig and its Affiliates shall also
retain copies of such information.
5. CONFIDENTIALITY OF THE COMPANY
5.1 The Company and its Affiliates and their respective employees
shall not at any time during the period of Zweig's engagement with the Company
hereunder or after the termination thereof directly or indirectly divulge,
furnish, use, publish or make accessible to any person or entity any Zweig
Confidential Information (as hereinafter defined). It is expressly understood
that Shared Work Product may be shared among the Company and its Affiliates and
their respective employees. The Company and its Affiliates and their respective
employees shall be informed of the confidential nature of the Zweig Confidential
Information, the Company shall direct such employees to treat such information
confidentially and the Company will be responsible for any breach of this
Section 5.1 by its employees.
5.2 The term "Zweig Confidential Information" includes, but is not
limited to, the following items, whether existing now or created in the future
and whether or not subject to trade secret or other statutory protection: (a)
all knowledge or information concerning the business, operations and assets of
Zweig and its Affiliates which is not readily available to the public, such as:
internal operating procedures; investment strategies; sales data and customer
and client lists; financial plans, projections and reports; and investment
company programs, plans and products; (b) all property owned, licensed and/or
developed for the Zweig and/or its Affiliates or any of their respective clients
and not readily available to the public, such as computer systems, programs and
software devices, including information about the design, methodology and
documentation therefor; (c) information about or personal to Zweig's and/or its
Affiliates' clients; (d) information, materials, products or other tangible or
intangible assets in Zweig's and/or its Affiliates' possession or under any of
their control which is proprietary to,
D-8
or confidential to or about, any other person or entity; and (e) records and
repositories of all of the foregoing, in whatever form maintained.
The foregoing notwithstanding, the following shall not be
considered Zweig Confidential Information: (aa) general skills and experience
gained by providing service to the Company and its Affiliates; (bb) information
publicly available, or generally known within Zweig's trade or industry, (cc)
information independently developed by the Company and its Affiliates and their
respective employees; (dd) information which becomes available to the Company
and its Affiliates and their respective employees on a non-confidential basis
from sources other than Zweig, and (ee) information, materials, property or
rights acquired by Phoenix or any Affiliate thereof pursuant to the Acquisition
Agreement or other written agreements contemplated thereby, PROVIDED the Company
and its Affiliates and their respective employees do not know or have reason to
know that such sources are prohibited by contractual, legal or fiduciary
obligation from transmitting the information. All the terms of this Section 5
shall survive the termination of this Agreement,
6. OWNERSHIP OF DOCUMENTS
All memoranda, papers, letters, notes, notebooks and all copies thereof
relating exclusively to the business or affairs of the Company that are
generated by Zweig or that come. into its possession, in each case in connection
with its performance of Services to the Company under this Agreement, shall be
held by Zweig as the Company property and shall be delivered by Zweig to the
Company as the Company may request. To the extent any such memoranda, papers,
letters, notes and notebooks are the product of Zweig Confidential Information
or are Shared Work Product, the Company understands and agrees that Zweig and
its Affiliates shall also retain copies of such documentation and information.
7. PRIOR NEGOTIATIONS AND AGREEMENTS
This Agreement contains the complete agreement concerning the servicing
arrangement between the parties. This Agreement may only be altered, amended or
rescinded by a duly executed written agreement delivered by each of the parties
hereto.
8. JURISDICTION
This Agreement shall be construed in accordance with and governed by the
laws of the State of New York governing contracts entered into and to be
performed entirely within New York and both parties consent to the jurisdiction
of the courts of New York.
9. PERFORMANCE WAIVERS
Waiver of performance of any obligation by either party shall not
constitute a waiver of performance of any other obligations or constitute future
waiver of the same obligation.
D-9
10. SEVERABILITY
If any section, subsection, clause or sentence of this Agreement shall
be deemed illegal, invalid or unenforceable under any applicable law, actually
applied by any court of competent jurisdiction, such illegality, invalidity or
unenforceability shall not affect the legality, validity and enforceability of
this Agreement or any other section, subsection, clause or sentence thereof.
Where, however, the provisions of any applicable law may be waived, they are
hereby waived by the parties to the full extent permitted by such law to the end
that this Agreement shall be a valid and binding agreement enforceable in
accordance with its terms.
11. ASSIGNMENT
This Agreement shall inure to the benefit of and be binding upon the
Company and its successors (whether direct or indirect, by purchase, merger,
consolidation or otherwise) and assigns, and upon Zweig and its successors and
assigns (whether direct or indirect, by purchase, merger, consolidation or
otherwise). Except as provided in Section 2.2, this Agreement shall not be
assignable by Zweig other than with the express written consent of the Company,
which shall not be unreasonably denied. The reorganization of Zweig and its
affiliated entities, such that the Services of the President and the Associates
are provided through an affiliated entity, shall not constitute a breach,
assignment or termination of this Agreement by Zweig.
12. NOTICES
All notices under this Agreement shall be in writing and shall be deemed
to have been given at the time when mailed by registered or certified mail,
addressed to (i) the address below stated, in the case of notices to Zweig, or
(ii) both of the addresses below stated, in the case of notices to the Company,
in either such case of the party to which notice is given, or to such changed
address or addresses (as applicable) as such party may have fixed by notice:
To the Company: Phoenix/Zweig Advisers LLC
900 Third Avenue
New York, New York 10022
Attention: President
With such notice also sent to:
Phoenix Investment Partners, Ltd.
56 Prospect Street
Hartford, Connecticut 06115-0480
Attention: Tracy L. Rich, Esq.
Executive Vice President and General Counsel
To Zweig: Zweig Consulting LLC
900 Third Avenue
New York, New York 10022 Attention:
Martin E. Zweig
D-10
With such notice also sent to:
KMZ Rosenman
575 Madison Avenue
New York, New York 10022
Attention: Robert E. Smith, Esq.
PROVIDED, HOWEVER, that any notice of change of address shall be effective only
upon receipt.
13. MISCELLANEOUS
The President hereby represents and warrants that this Agreement (i) is
valid, binding and enforceable in accordance with its terms and (ii) does not
conflict with any other agreement to which he is a party, including any
agreement with the Affiliated Investment Partnership Management Companies and
the related investment partnerships and Watermark Securities, Inc.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PHOENIX/ZWEIG ADVISERS LLC
By: /s/ Daniel T. Geraci
---------------------
Name: Daniel T. Geraci
Title: President
ZWEIG CONSULTING LLC
By: /s/ Martin E. Zweig
---------------------
Name: Martin E. Zweig
Title: President
D-11
THE ZWEIG TOTAL RETURN FUND, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 2004
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned shareholder of The Zweig Total Return Fund, Inc., a
Maryland corporation (the "Fund"), hereby appoints DANIEL T. GERACI and CARLTON
NEEL, and each of them, with full power of substitution and revocation, as
proxies to represent the undersigned at the Annual Meeting of Shareholders of
the Fund to be held at 11:30 A.M. at the offices of Katten Muchin Zavis
Rosenman, located at 575 Madison Avenue (between 56th and 57th Streets), 11th
Floor, New York, New York, at any and all adjournments thereof, and to vote at
the Annual Meeting all shares of the Fund which the undersigned would be
entitled to vote, with all powers the undersigned would possess if personally
present in accordance with the instructions on the reverse side of this proxy.
WHEN THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED HEREBY WILL BE
VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF ALL NOMINEES AS DIRECTORS AND IN THE DISCRETION OF THE PROXIES
WITH RESPECT TO ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING AND
ANY ADJOURNMENTS THEREOF. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE
ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY STATEMENT.
(CONTINUED, AND TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
SEE REVERSE SIDE SEE REVERSE SIDE
/X/ PLEASE MARK
VOTES AS IN THIS
EXAMPLE.
1. Election of Directors.
NOMINEES: (01) R. Keith Walton
(02) Alden C. Olson
(03) Daniel T. Geraci
WITHHELD
FOR ALL FROM ALL
NOMINEES NOMINEES
/ / / /
2. With respect to the proposal (Proposal 2) pursuant to the Fund's Articles
of Incorporation to convert the Fund to an open-end investment company and
to adopt an amendment and restatement of the Articles of Incorporation to
effectuate the proposal.
FOR AGAINST ABSTAIN
/ / / / / /
3. In their discretion, on such other matters as may properly come before the
meeting and any adjournments thereof.
/ /
------------------------------------------
For all nominee(s) except as written above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Please sign exactly as name or names appear on this proxy.
If stock is held jointly, each holder should sign. If
signing as attorney, trustee, executor, administrator,
custodian, guardian or corporate officer, please give full
title. Sign, Date and Return the Proxy Card Promptly Using
the Enclosed Envelope.
Signature: Date: Signature: Date:
-------------------------------- -------------- -------------------------------- --------------