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Investment Company Act File No. 811-4739
Securities Act File No. 333-46955
As filed with the Securities and Exchange Commission on April 8, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM N-2
[x] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[x] Pre-effective Amendment No. 1
[ ] Post-Effective Amendment No.
and/or
[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x] Amendment No. 14
THE ZWEIG FUND, INC.
(Exact Name of Registrant as Specified in Charter)
900 Third Avenue
New York, New York 10022
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
212-451-1100
STUART B. PANISH, ESQ.
Vice President and Secretary
The Zweig Fund, Inc.
900 Third Avenue, New York, New York 10022
(Name and Address of Agent for Service)
--------------------------
With Copies to:
ROBERT E. SMITH, ESQ. LEONARD B. MACKEY, JR., ESQ.
Rosenman & Colin LLP Rogers & Wells LLP
575 Madison Avenue 200 Park Avenue
New York, NY 10022 New York, NY 10166
-------------------- ---------------------
Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration Statement.
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If the securities being registered on this form are to be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
<TABLE>
<CAPTION>
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Per Aggregate Offering Registration Fee(2)
Share (1) Price
- ---------------------- --------------------- ------------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $.10 per share 9,500,000 Shares $13.39 $127,205,000 $37,526
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
in accordance with rule 457(c) under the Securities Act of 1933. Based
on the average of the high and low prices for the Fund's Common Stock
reported on the New York Stock Exchange on April 2, 1998.
(2) A portion of the total registration fee in the amount of $35,443 was
previously paid by the Registrant at the time of the filing of its
initial Registration Statement.
----------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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THE ZWEIG FUND, INC.
FORM N-2
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
<TABLE>
<CAPTION>
Item Number, Form N-2 Location in Prospectus
------------ -------- ----------------------
Part A
<S> <C>
1. Outside Front Cover........................................................... Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back
Cover Page.................................................................... Outside Front Cover
of Prospectus
3. Fee Table and Synopsis........................................................ Fund Expenses
4. Financial Highlights.......................................................... Financial Highlights
5. Plan of Distribution.......................................................... The Offer;
Distribution
Arrangements
6. Selling Shareholders.......................................................... Not Applicable
7. Use of Proceeds............................................................... The Offer; Use of
Proceeds
8. General Description of the Registrant......................................... The Fund; Market
Price and Net Asset Value Information;
Investment Objective and Policies; Risk
Factors and Special Considerations
9. Management................................................................... Management of the
Fund; Custodian, Dividend Paying Agent,
Transfer Agent and Registrar
10. Capital Stock, Long-Term Debt and Other
Securities..................................................................... Distributions;
Distribution Reinvestment and Cash
Purchase Plan; Taxation; Description of
Common Stock
</TABLE>
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<TABLE>
<CAPTION>
Item Number, Form N-2 Location in Prospectus
------------ -------- ----------------------
<S> <C>
11. Defaults and Arrears on Senior Securities..................................... Not Applicable
12. Legal Proceedings............................................................. Legal Matters
13. Table of Contents of the Statement of
Additional Information......................................................... Table of Contents of
the Statement of Additional Information
Part B
14. Cover Page.................................................................... Cover Page
15. Table of Contents............................................................. Table of Contents
16. General Information and History............................................... The Fund (in Part A)
17. Investment Objectives and Policies............................................ Investment Objective
and Policies; Investment Restrictions
18. Management.................................................................... Management
19. Control Persons and Principal Holders
of Securities.................................................................. Management of the
Fund (in Part A);
Principal Shareholders
20. Investment Advisory and Other Services........................................ Management of the
Fund (in Part A);
Custodian, Dividend
Paying Agent,
Transfer Agent and
Registrar (in Part A)
21. Brokerage Allocation and Other Practice....................................... Portfolio
Transactions
and Brokerage
22. Tax Status.................................................................... Taxation
23. Financial Statements.......................................................... Financial Statements;
Report of Independent Accountants
</TABLE>
4
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7,600,000 SHARES OF COMMON STOCK
THE ZWEIG FUND, INC.
ISSUABLE UPON EXERCISE OF NON-TRANSFERABLE
RIGHTS TO SUBSCRIBE FOR SUCH SHARES OF COMMON STOCK
The Zweig Fund, Inc. (the "Fund") is issuing to its shareholders of record
("Record Date Shareholders") as of the close of business on April 15, 1998 (the
"Record Date") non-transferable rights (the "Rights"). These rights entitle
their holders to subscribe for up to an aggregate of 7,600,000 shares (the
"Shares") of the Fund's Common Stock, par value $0.10 per share (the "Common
Stock") at the rate of one Share of Common Stock for every seven Rights held
(the "Offer"). Record Date Shareholders will receive one non-transferable Right
for each whole share of Common Stock held on the Record Date. Record Date
Shareholders who fully exercise their Rights will be entitled to subscribe for
additional shares of Common Stock pursuant to an over-subscription privilege
described in this Prospectus (the "Over-Subscription Privilege"). The Fund may
increase the number of shares of Common Stock subject to subscription by up to
25% of the Shares, or up to an additional 1,900,000 shares of Common Stock, for
an aggregate total of 9,500,000 Shares. Fractional Shares will not be issued
upon the exercise of Rights. The Rights are non-transferable and, therefore, may
not be purchased or sold. The Rights will not be admitted for trading on the New
York Stock Exchange (the "NYSE"), the Pacific Exchange (the "PCX") or any other
exchange. See "The Offer." THE SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION
PRICE") WILL BE 95% OF THE AVERAGE OF THE LAST REPORTED SALES PRICE OF A SHARE
OF THE FUND'S COMMON STOCK ON THE NYSE ON MAY 8, 1998 (THE "PRICING DATE") AND
THE FOUR PRECEDING BUSINESS DAYS.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MAY 8, 1998 UNLESS
EXTENDED AS DESCRIBED HEREIN (THE "EXPIRATION DATE").
The Fund announced the Offer before the commencement of trading on the NYSE on
February 27, 1998. The Fund's Common Stock trades on the NYSE and PCX under the
symbol "ZF." Shares issued upon the exercise of Rights and the Over-Subscription
Privilege will be listed for trading on the NYSE and PCX, subject to notice of
issuance. The net asset value per share of the Fund's Common Stock at the close
of business on February 26, 1998, and April 13, 1998, were $12.79 and $ ,
respectively, and the last reported sales price of a share of the Fund's Common
Stock on the NYSE on those dates were $13.25 and $ , respectively.
The Fund is a diversified, closed-end management investment company. Its
investment objective is capital appreciation, primarily through investment in
equity securities, consistent with the preservation of capital and reduction of
risk, as determined by the Fund's investment adviser, Zweig Advisors Inc. (the
"Investment Adviser"). The extent of the Fund's investment in equity securities
will be determined primarily on the basis of market timing techniques developed
by Dr. Martin E. Zweig, the President of the Investment Adviser, and his staff.
Dr. Zweig is the majority shareholder of the Investment Adviser and has been
engaged in the business of providing investment advisory services for over 25
years. While the Investment Adviser seeks to reduce the risks associated with
investing in equity securities by using these techniques, the risk of investment
in equity securities cannot be eliminated. See "Investment Objective and
Policies." No assurance can be given that the Fund's investment objective will
be realized. The Fund's administrator is Zweig/Glaser Advisers (the
"Administrator"). The Fund's Investment Adviser as well as the Administrator
will benefit from the Offer. See "Management of the Fund."
(Continued on the following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Estimated Estimated Sales Estimated Proceeds
Subscription Price (1) Load (2) to Fund (3) (4)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
Total Maximum (5) $ $ $
- --------------------------------------------------------------------------------------------------
</TABLE>
(Footnotes on the following page)
MERRILL LYNCH & CO.
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----------------------
The date of this Prospectus is April , 1998.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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Upon the completion of the Offer, Record Date Shareholders who do not fully
exercise their Rights will own a smaller proportional interest in the Fund than
they owned prior to the Offer. In addition, because the Subscription Price may
be less than the then current net asset value per share as of the Pricing Date,
the Offer may result in an immediate dilution of the net asset value per share
for all shareholders. Although it is not possible to state precisely the amount
of such decrease in net asset value per share, if any, because it is not known
how many Shares will be subscribed for, what the net asset value or market price
of the Common Stock will be on the Pricing Date or what the Subscription Price
will be, such dilution could be minimal or substantial. Any such dilution will
disproportionately affect non-exercising shareholders. See "The Offer" and "Risk
Factors and Special Considerations." Except as described in this Prospectus,
Record Date Shareholders will have no right to rescind their subscriptions after
receipt of their payment for Shares by the Subscription Agent.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and retain it for future reference. A Statement of
Additional Information, dated April , 1998 (the "SAI"), containing additional
information about the Fund, has been filed with the Securities and Exchange
Commission (the "Commission") and is incorporated by reference in its entirety
into this Prospectus.
Shareholders may obtain a copy of the SAI from, and should direct all questions
and inquires relating to the Offer to, the Fund's Information Agent, Georgeson &
Company Inc. Banks and Brokers should call (212) 440-9800 collect and all other
shareholders should call (800) 223-2064. The address of the Fund is 900 Third
Avenue, New York, New York 10022, and its telephone number is (212) 451-1100.
The Commission maintains a world wide web site at http://www.sec.gov that
contains the SAI and other information regarding the Fund.
(Footnotes from the previous page)
(1) Estimated on the basis of 95% of the average of the last reported sales
price of a share of the Fund's Common Stock on the NYSE on April 13, 1998.
(2) In connection with the Offer, the Fund has agreed to pay Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Dealer Manager"), and other
broker-dealers (including Zweig Securities Corp.) soliciting the exercise of
Rights, solicitation fees equal to 2.50% of the Subscription Price per Share for
each Share issued pursuant to the exercise of the Rights and the
Over-Subscription Privilege. The Fund has also agreed to pay the Dealer Manager
a fee for financial advisory and marketing services in connection with the Offer
equal to 1.25% of the aggregate Subscription Price for the Shares issued
pursuant to the exercise of the Rights and the Over-Subscription Privilege. See
"Distribution Arrangements." These fees will be borne by the Fund and indirectly
by all of the Fund's shareholders, including those who do not exercise their
Rights. The Fund and the Investment Adviser have agreed to indemnify the Dealer
Manager against certain liabilities including liabilities under the Securities
Act of 1933, as amended.
(3) Before deduction of offering expenses incurred by the Fund, estimated at
approximately $720,000, including $82,500 to be paid to the Dealer Manager
in reimbursement of its expenses.
(4) The funds received by check prior to the final due date of this Offer will
be deposited into a segregated interest-bearing account (which interest will be
paid to the Fund) pending proration and distribution of the Shares.
(5) Assumes all 7,600,000 Shares are purchased at the Estimated Subscription
Price. Pursuant to the Over-Subscription Privilege, the Fund may at the
discretion of the Board of Directors increase the number of Shares subject to
subscription by up to 25% of the Shares offered hereby. If the Fund increases
the number of Shares subject to subscription by 25%, the Total Maximum Estimated
Subscription Price, Estimated Sales Load and Estimated Proceeds to the Fund will
be $ , $ and $ , respectively. The Sales Load and other offering
expenses will be charged against paid-in capital of the Fund.
Certain numbers in this Prospectus have been rounded for ease of
presentation and, as a result, may not total precisely.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information included elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus assumes that the
allowable increase of 25% of the Shares offered hereby pursuant to the
Over-Subscription Privilege will not occur.
THE FUND
The Zweig Fund, Inc. (the "Fund") is a diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Fund commenced operations in October
1986. The Fund's investment objective is capital appreciation, primarily through
investment in equity securities, consistent with the preservation of capital and
reduction of risk, as determined by the Fund's investment adviser, Zweig
Advisors Inc. (the "Investment Adviser"). The extent of the Fund's investment in
equity securities will be determined primarily on the basis of market timing
techniques developed by Dr. Martin E. Zweig, the President of the Fund's
Investment Adviser, and his staff. While the Investment Adviser seeks to reduce
the risks associated with investing in equity securities by using these
techniques, the risk of investment in equity securities cannot be eliminated.
The Fund's outstanding Common Stock, par value $.10 per share (the "Common
Stock") is listed and traded on the New York Stock Exchange (the "NYSE") and the
Pacific Exchange ("PCX"). The average weekly trading volume of the Common Stock
on the NYSE during the year ended December 31, 1997 was 322,874 shares. As of
April 13, 1998, the net assets of the Fund were approximately $ .
The President and majority shareholder of the Investment Adviser is Dr.
Martin E. Zweig, who has been engaged in the business of providing investment
advisory services for over 25 years. Zweig/Glaser Advisers (the "Administrator")
serves as the Fund's administrator. The Fund pays the Investment Adviser an
investment advisory fee computed at the annual rate of 0.85% of the Fund's
average daily net assets. The Fund pays the Administrator an administrative fee
computed at the annual rate of 0.13% of the Fund's average daily net assets. See
"Management of the Fund."
TERMS OF THE OFFER
The Fund is issuing to its shareholders of record ("Record Date
Shareholders") as of the close of business on April 15, 1998 (the "Record Date")
non-transferable rights (the "Rights") to subscribe for up to an aggregate of
7,600,000 shares of Common Stock (the "Shares") of the Fund. The Fund may
increase the number of shares of Common Stock subject to subscription by up to
25% of the Shares, or up to an additional 1,900,000 shares of Common Stock, for
an aggregate total of 9,500,000 shares. Each Record Date Shareholder is being
issued one Right for each whole share of Common Stock owned on the Record Date.
The Rights entitle the holders thereof to subscribe for one Share for every
seven Rights held (the "Offer"). Fractional shares will not be issued upon the
exercise of Rights. If a Record Date Shareholder's total ownership is fewer than
seven shares, such Record Date Shareholder may subscribe for one Share.
Rights may be exercised at any time during the Subscription Period,
which commences on
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April 15, 1998 and ends at 5:00 p.m. New York City time, on May 8, 1998, unless
extended by the Fund until 5:00 p.m., New York City time to a date not later
than May 15, 1998 (such date, as it may be extended, is referred to in this
Prospectus as the "Expiration Date"). A Record Date Shareholder's right to
acquire during the Subscription Period at the Subscription Price (as described
below) one additional Share for every seven Rights held is hereinafter referred
to as the "Primary Subscription." The Rights are evidenced by subscription
certificates (the "Subscription Certificates"), which will be mailed to Record
Date Shareholders, except as discussed in "The Offer - Foreign Restrictions."
The Subscription Price per share (the "Subscription Price") will be 95%
of the average of the last reported sales prices of a share of the Fund's Common
Stock on the NYSE on May 8, 1998 (the "Pricing Date") and the four preceding
business days. Since the Expiration Date and the Pricing Date are each May 8,
1998, Record Date Shareholders who choose to exercise their Rights will not know
at the time of exercise the Subscription Price for Shares acquired pursuant to
such exercise. Record Date Shareholders will have no right to rescind a purchase
after receipt of their payment for Shares by the Fund's subscription agent,
State Street Bank & Trust Co. (the "Subscription Agent"). There is no minimum
number of Rights that must be exercised in order for the Offer to close.
Pursuant to the over-subscription privilege (the "Over-Subscription
Privilege"), any Record Date Shareholder who fully exercises all Rights issued
to such Record Date Shareholder in the Primary Subscription (other than those
Rights that cannot be exercised because they represent the right to acquire less
than one Share) will be entitled to subscribe for additional Shares at the
Subscription Price. Shares available, if any, pursuant to the Over-Subscription
Privilege are subject to allotment and may be subject to increase, as is more
fully discussed under "The Offer - Over-Subscription Privilege." For purposes of
determining the maximum number of Shares a Record Date Shareholder may acquire
pursuant to the Offer, Record Date Shareholders whose Shares are held of record
by Cede & Co. Inc. ("Cede") or by any other depository or nominee will be deemed
to be the holders of the Rights that are issued to Cede or such other depository
or nominee on their behalf.
The Rights are non-transferable. Therefore, only the underlying Shares
will be listed for trading on the NYSE, PCX or any other exchange.
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it would be in
the best interests of the Fund and its shareholders to increase the assets of
the Fund available for investment, thereby enabling the Fund to more fully take
advantage of investment opportunities consistent with the Fund's investment
objective. The Fund's Board of Directors has voted unanimously to approve the
terms of the Offer as set forth in this Prospectus.
In reaching its decision, the Board of Directors considered, among
other things, advice by the Investment Adviser that new funds would allow the
Fund additional flexibility to capitalize on available investment opportunities
without the necessity of having to sell existing portfolio securities that the
Investment Adviser believes should be held. Proceeds from the Offer will allow
the
5
<PAGE> 10
Investment Adviser to better take advantage of such existing and future
investment opportunities.
The Board of Directors also considered that the Offer would provide
shareholders with an opportunity to purchase additional shares of the Fund below
its market price. The Board of Directors also believes that a well-subscribed
rights offering may result in certain economies of scale which could reduce the
Fund's expense ratio in future years. Finally, the Board of Directors considered
that, because the Subscription Price per Share may be less than the net asset
value per share on the Pricing Date, the Offer may result in dilution of the net
asset value per share. The Board of Directors believes that the factors in favor
of the Offer outweigh this possible dilution. See "Risk Factors and Special
Considerations - Dilution and Effect of Non-Participation in the Offer."
The Fund's Investment Adviser and Administrator will benefit from the
Offer because their fees are based on the average net assets of the Fund. It is
not possible to state precisely the amount of additional compensation the
Investment Adviser or Administrator will receive as a result of the Offer
because it is not known how many Shares will be subscribed for and because the
proceeds of the Offer will be invested in additional portfolio securities, which
will fluctuate in value. See "Management of the Fund."
The information agent (the "Information Agent") for the Offer is:
GEORGESON & COMPANY INC.
Banks and Brokers Call Collect:
(212) 440-9800
All Others Call Toll-Free:
(800) 223-2064
Shareholders may also contact their brokers or nominees for information
with respect to the Offer.
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
- ----- ----
<S> <C>
Record Date April 15, 1998
Subscription Period April 15, 1998 - May 8, 1998*
Expiration Date and Pricing Date May 8, 1998*
Subscription Certificates and Payment for Shares Due+ May 8, 1998*
Notice of Guaranteed Delivery Due+ May 8, 1998*
Subscription Certificates and Payment for
Guarantees of Delivery Due May 13, 1998*
Confirmation to Participants May 20, 1998*
Final Payment for Shares June 4, 1998*
</TABLE>
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* Unless the Offer is extended to a date not later than May 15, 1998.
+ A shareholder exercising Rights must deliver by the Expiration Date either (i)
the Subscription Certificate together with payment or (ii) a Notice of
Guaranteed Delivery.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The following summarizes certain matters that should be considered,
among others, in connection with the Offer. This Prospectus contains certain
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of certain uncertainties
set forth below and elsewhere in this Prospectus.
Dilution - Net Asset Value and Record Date Shareholders who do not
Non-Participation in the Offer fully exercise their Rights will, upon
the completion of the Offer, own a
smaller proportional interest in the
Fund than they owned prior to the Offer.
In addition, an immediate dilution of
the net asset value per share may be
experienced by all shareholders as a
result of the Offer because the
Subscription Price may be less than the
then current net asset value per share,
and the number of shares outstanding
after the Offer may increase in greater
percentage than the increase in the size
of the Fund's assets. Although it is not
possible to state precisely the amount
of such decrease in net asset value per
share, if any, because it is not known
at this time what the Subscription Price
will be, what the net asset value per
share will be on the Expiration Date, or
what proportion of the Shares will be
subscribed for, such dilution could be
minimal or substantial. For example,
assuming (i) all Rights are exercised,
(ii) the Fund's net asset value on the
Expiration Date is $ per share (the net
asset value per share on April 13,
1998), and (iii) the Subscription Price
is $ per share (95% of the last reported
sale price per share on the NYSE on
April 13, 1998), then the Fund's net
asset value per share would be reduced
by approximately $ per share or %.
Certain Investment Strategies The extent of the Fund's investment in
equity securities will be determined
primarily on the basis of market timing
techniques developed by Dr. Martin E.
Zweig, the President of the Fund's
Investment Adviser, and his staff. While
the Investment Adviser seeks to reduce
the risks associated with investing in
equity securities by using these
techniques, the risk of investment in
equity securities cannot be eliminated.
There is no assurance
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<PAGE> 12
that these market timing techniques will
provide protection from the risks of
equity investment, enable the Fund to be
invested consistent with the major
trends of the market or enable the Fund
to achieve its investment objective of
capital appreciation. See "Investment
Objective and Policies - Investment
Objective." In addition, although the
Investment Adviser believes that the
special investment methods discussed in
this Prospectus under "Special
Investment Methods" (including
purchasing and selling, for hedging
purposes, stock index and other futures
contracts and purchasing options on such
futures; purchasing and writing listed
put and call security options and
options on stock indexes; short sales of
securities; borrowing from banks to
purchase securities; investing in
securities of closed-end investment
companies and foreign issuers; and
lending portfolio securities to brokers,
dealers, banks or other recognized
institutional borrowers of securities)
will further the Fund's investment
objective of capital appreciation and
reduce losses that might otherwise occur
during a time of general decline in
stock prices, no assurance can be given
that these investment methods will
achieve this result. These methods may
subject an investor in the Fund to
greater than average risks and costs.
Unrealized Appreciation As of December 31, 1997, there was
$119,601,576 or approximately $2.27 per
share of net unrealized appreciation in
the Fund's net assets of $666,365,791;
if realized and distributed, or deemed
distributed, such gains would, in
general, be taxable to shareholders,
including holders at that time of Shares
acquired upon the exercise of Rights.
See "Taxation."
Discount From Net Asset Value The Fund's shares of Common Stock have
traded in the market above, at and below
net asset value since the commencement
of the Fund's operations in October
1986. During the past nine years, the
Fund's shares have generally traded in
the market at a premium above net asset
value; however, the Fund cannot predict
whether the Fund's Common Stock will in
the future trade at a premium to or
discount from net asset value. The risk
of the Common Stock trading at a
discount is a risk separate from a
decline in the Fund's net asset value.
See "Market Price and Net Asset Value
Information" in this Prospectus and "Net
Asset Value" in the Statement of
Additional
8
<PAGE> 13
Information (the "SAI").
Distributions The Fund's policy is to make quarterly
distributions equal to 2.5% of its net
asset value (10% on an annualized
basis). If, for any quarterly
distribution, net investment income and
net realized short-term capital gains
are less than the amount of the
distribution, the difference will be
distributed from the Fund's assets. The
Fund's final distribution for each
calendar year will include any remaining
net investment income and net realized
short-term capital gains deemed, for
Federal income tax purposes,
undistributed during the year, and may,
but need not, include all net long-term
capital gains realized during the year.
If, for any calendar year, the total
distributions exceed net investment
income and net realized capital gains,
the excess, distributed from the Fund's
assets, will generally be treated as a
tax-free return of capital (up to the
amount of the shareholder's tax basis in
his or her shares). The amount treated
as a tax-free return of capital will
reduce a shareholder's adjusted basis in
his or her shares, thereby increasing
his or her potential gain or reducing
his or her potential loss on the sale of
his or her shares. Such excess, however,
will be treated as ordinary dividend
income up to the amount of the Fund's
current and accumulated earnings and
profits. Pursuant to the requirements of
the 1940 Act and other applicable laws,
a notice will accompany each quarterly
distribution with respect to the
estimated source of the distribution
made. Such distribution policy may,
under certain circumstances, have
certain adverse consequences to the Fund
and its shareholders. In the event the
Fund distributes amounts in excess of
its net investment income and net
realized capital gains, such
distributions will decrease the Fund's
total assets and, therefore, have the
likely effect of increasing the Fund's
expense ratio. In addition, in order to
make such distributions, the Fund may
have to sell a portion of its investment
portfolio at a time when independent
investment judgment might not dictate
such action.
Anti-takeover Provisions The Fund has provisions in its Articles
of Incorporation and By-Laws that may
have the effect of limiting the ability
of other entities or persons to acquire
control of the Fund, to cause it to
engage in certain transactions or to
modify its structure. The Board of
Directors is divided into three classes.
At the annual meeting of shareholders
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<PAGE> 14
each year, the term of one class will
expire and directors will be elected to
serve in that class for terms of three
10
<PAGE> 15
years. This provision could delay for up
to two years the replacement of a
majority of the Board of Directors.
Year 2000 Preparedness............ Because computers were designed only
using two fields to indicate the year,
at midnight December 31, 1999, computers
will be unable to recognize that January
1 is the year 2000. The major systems
that would impact the Fund with respect
to the year 2000 are those of the
transfer agent and custodian. The Fund
has been advised in writing by both the
transfer agent and custodian that they
are working to fix, and expect to have
fixed in time, all of the issues
relating to the year 2000. While
management of the Fund will continue to
monitor the progress of the transfer
agent and custodian in solving the year
2000 problem, no assurance can be given
that their systems will be fixed on
time, or what the magnitude of the
problems would be if such systems are
not fixed.
11
<PAGE> 16
FUND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of the Subscription Price per Share) (1) 3.75%
ANNUAL EXPENSES (as a percentage of the Fund's net assets)(2)
Advisory Fees 0.85%
Other Expenses 0.28%
------
Total Annual Expenses (3) 1.13%
-----
</TABLE>
(1) The Fund has agreed to pay the Dealer Manager, and other broker-dealers
(including Zweig Securities Corp.) soliciting the exercise of Rights,
solicitation fees equal to 2.50% of the Subscription Price per Share for each
Share issued pursuant to the exercise of the Rights and the Over-Subscription
Privilege. The Fund has also agreed to pay the Dealer Manager a fee for
financial advisory and marketing services in connection with the Offer equal to
1.25% of the aggregate Subscription Price for the Shares issued pursuant to the
exercise of the Rights and the Over-Subscription Privilege. In addition to these
fees, the offering expenses to be incurred by the Fund in connection with the
Offer are estimated at approximately $720,000, which includes the Fund's
reimbursement to the Dealer Manager for out-of-pocket expenses up to $82,500,
and the Fund's payment of a fee to each of the Subscription Agent (as defined in
this Prospectus) and Information Agent (as defined in this Prospectus) estimated
to be $335,000 and $41,500, respectively (which includes reimbursement for their
out-of-pocket expenses related to the Offer). These fees and expenses will be
charged against paid-in capital of the Fund and will be borne by the Fund and
indirectly by all of the Fund's shareholders, including those who do not
exercise their Rights. See "Distribution Arrangements."
(2) Fees payable under the Investment Advisory Agreement and Administration
Agreement (as defined in this Prospectus) are calculated on the basis of the
Fund's average net assets. "Other Expenses" have been estimated for the current
fiscal year. See "Management of the Fund - Investment Adviser; - Investment
Advisory Agreement; and - Administrator."
(3) The indicated 1.13% expense ratio assumes that the Offer (including the
Over-Subscription Privilege) is fully subscribed and assumes estimated net
proceeds from the Offer of approximately $ million (assuming an estimated
Subscription Price of $ per share). Other expenses for the fiscal year ended
December 31, 1997 were 0.31% as a percentage of average net assets and include
administration fees computed at the annual rate of 0.13% of the Fund's average
net assets.
THE FOREGOING FEE TABLE IS INTENDED TO ASSIST FUND INVESTORS IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND WILL
BEAR DIRECTLY OR INDIRECTLY.
EXAMPLE
An investor would directly or indirectly pay the following expense on a
$1,000 investment in the Fund, assuming a 5% annual return throughout the
periods:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
$49 $72 $97 $170
This hypothetical example assumes that all dividends and other
distributions are reinvested at net asset value and that the 1.13% expense ratio
listed under Total Annual Expenses remains the same in the years shown. The
example also reflects payment of the 3.75% Sales Load on the entire $1,000
investment. The above
12
<PAGE> 17
tables and the assumption in the Example of a 5% annual return are required by
regulations of the Securities and Exchange Commission (the "Commission")
applicable to all investment companies; the assumed 5% annual return is not a
prediction of, and does not represent, the projected or actual performance of
the Fund's Shares. For a more complete description of certain of the Fund's
costs and expenses, see "Management of the Fund - Investment Management; -
Investment Advisory Agreement; and - Administrator" in this Prospectus and
"Expenses" and "Portfolio Transactions and Brokerage" in the SAI.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. THE FUND'S ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
13
<PAGE> 18
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a share of
the Fund's Common Stock outstanding throughout each period presented. This
information is derived from the financial and accounting records of the Fund.
The financial highlights for the five fiscal years ended December 31, 1997 have
been audited by Coopers & Lybrand L.L.P., independent accountants, whose reports
thereon were unqualified. The report of independent accountants has been
included in the SAI. This information should be read in conjunction with the
financial statements and notes thereto included in the SAI.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993 1992 1991
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year......... $11.45 $11.06 $10.33 $11.68 $11.36 $12.40 $10.48
--------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.35 0.34 0.39 0.24 0.13 0.20 0.26
Net realized and unrealized gains(losses)
on investments......................... 2.03 1.15 1.41 (0.45) 1.41 (0.10) 2.78
--------------------------------------------------------------------------------------
Total from investment operations........... 2.38 1.49 1.80 (0.21) 1.54 0.10 3.04
--------------------------------------------------------------------------------------
Dividends and Distributions:
Dividends from net investment income....... (0.31) (0.30) (0.51) (0.03) (0.22) (0.10) (0.30)
Distributions from net realized gains
on investments......................... (0.89) (0.80) (0.56) (1.11) (1.00) (1.04) (0.82)
--------------------------------------------------------------------------------------
Total Dividends and Distributions.......... (1.20) (1.10) (1.07) (1.14) (1.22) (1.14) (1.12)
--------------------------------------------------------------------------------------
Net asset value, end of year........... $12.63 $11.45 $11.06 $10.33 $11.68 $11.36 $12.40
======================================================================================
Market value, end of year*............. $13.25 $10.875 $11.25 $10.375 $13.75 $13.00 $13.75
======================================================================================
Total investment return.................... 34.76% 6.92% 19.83% (16.95)% 16.59% 3.61% 37.42%
======================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)..... $666,366 $589,081 $547,886 $492,004 $534,813 $500,101 $526,252
Ratio of expenses to average net 1.16% 1.18% 1.22% 1.25% 1.23% 1.26% 1.28%
assets.....................................
Ratio of net investment income to average
net assets............................. 2.88% 3.12% 3.62% 2.24% 1.18% 1.73% 2.37%
Portfolio turnover rate.................... 93.0% 137.2% 160.2% 257.0% 235.5% 172.5% 144.3%
Average commission rate per share on
portfolio transactions................. $0.0589 $0.0591 $0.0606 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1990 1989 1988
--------------------------------------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year......... $11.43 $10.35 $9.73
--------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.47 0.52 0.33
Net realized and unrealized gains (losses)
on investments......................... (0.24) 1.68 1.33
--------------------------------------
Total from investment operations........... 0.23 2.20 1.66
--------------------------------------
Dividends and Distributions:
Dividends from net investment income....... (0.49) (0.52) (0.25)
Distributions from net realized gains
on investments......................... (0.69) (0.60) (0.79)
--------------------------------------
Total Dividends and Distributions.......... (1.18) (1.12) (1.04)
--------------------------------------
Net asset value, end of year........... $10.48 $11.43 $10.35
======================================
Market value, end of year*............. $11.00 $12.375 $10.375
======================================
Total investment return.................... (1.20)% 32.10% 27.76%
======================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)..... $389,816 $408,864 $356,775
Ratio of expenses to average net 1.27% 1.31% 1.39%
assets.....................................
Ratio of net investment income to average
net assets............................. 4.39% 4.68% 3.38%
Portfolio turnover rate.................... 201.8% 183.6% 205.7%
Average commission rate per share on
portfolio transactions................. N/A N/A N/A
</TABLE>
- ----------
*Closing Price - New York Stock Exchange.
14
<PAGE> 19
THE OFFER
TERMS OF THE OFFER
The Fund is issuing to the Record Date Shareholders the Rights to
subscribe for up to an aggregate of 7,600,000 Shares. The Fund may increase the
number of Shares subject to subscription by up to 25% of the Shares, or up to an
additional 1,900,000 shares, for an aggregate total of 9,500,000 shares. Each
Record Date Shareholder is being issued one Right for each whole share of Common
Stock owned on the Record Date. The Rights entitle the holders thereof to
subscribe for one Share for every seven Rights held (1 for 7). Fractional shares
will not be issued upon the exercise of Rights. A Record Date Shareholder whose
total ownership is fewer than seven shares of Common Stock and, accordingly,
receives fewer than seven Rights will be able to subscribe for one Share upon
the exercise of all of such Rights received and, if he or she subscribes for one
Share, may subscribe for additional Shares pursuant to the Over-Subscription
Privilege. Record Date Shareholders who otherwise have remaining fewer than
seven Rights will not be able to purchase a Share upon the exercise of such
Rights and will not be entitled to receive any cash in lieu thereof, although
such Record Date Shareholders may subscribe for additional Shares pursuant to
the Over-Subscription Privilege.
Rights may be exercised at any time during the Subscription Period,
which commences on April 15, 1998 and ends at 5:00 p.m. New York City time, on
May 8, 1998, unless extended by the Fund until 5:00 p.m., New York City time to
a date not later than May 15, 1998. See " - Expiration of the Offer." The Rights
are evidenced by Subscription Certificates, which will be mailed to Record Date
Shareholders, except as discussed below under "Foreign Restrictions."
Any Record Date Shareholder who fully exercises all Rights issued to
such shareholder in the Primary Subscription will be entitled to subscribe for
additional Shares at the Subscription Price pursuant to the terms of the
Over-Subscription Privilege, as described below. Shares available, if any,
pursuant to the Over-Subscription Privilege are subject to allotment and may be
subject to increase, as is more fully discussed below under "Over-Subscription
Privilege." For purposes of determining the maximum number of Shares a
shareholder may acquire pursuant to the Offer, Record Date Shareholders whose
Shares are held of record by Cede or by any other depository or nominee will be
deemed to be the holders of the Rights that are issued to Cede or such other
depository or nominee on their behalf.
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it would be in
the best interests of the Fund and its shareholders to increase the assets of
the Fund available for investment, thereby enabling the Fund to more fully take
advantage of investment opportunities consistent with the Fund's investment
objective. The Fund's Board of Directors has voted unanimously to approve the
terms of the Offer as set forth in this Prospectus.
In reaching its decision, the Board of Directors considered, among
other things, advice by the Investment Adviser that new funds would allow the
Fund additional flexibility to capitalize on
15
<PAGE> 20
available investment opportunities without the necessity of having to sell
existing portfolio securities that the Investment Adviser believes should be
held. Proceeds from the Offer will allow the Investment Adviser to better take
advantage of such existing and future investment opportunities.
The Board of Directors also considered that the Offer would provide
shareholders with an opportunity to purchase additional shares of the Fund below
its market price. The Board of Directors also believes that a well-subscribed
rights offering may result in certain economies of scale which could reduce the
Fund's expense ratio in future years. Finally, the Board of Directors considered
that, because the Subscription Price per Share may be less than the net asset
value per share on the Pricing Date, the Offer may result in dilution of the net
asset value per share. The Board of Directors believes that the factors in favor
of the Offer outweigh this possible dilution. See "Risk Factors and Special
Considerations - Dilution-Net Asset Value and Non-Participation in the Offer."
The Fund's Investment Adviser and Administrator will benefit from the
Offer because their fees are based on the average net assets of the Fund. It is
not possible to state precisely the amount of additional compensation the
Investment Adviser or Administrator will receive as a result of the Offer
because it is not known how many Shares will be subscribed for and because the
proceeds of the Offer will be invested in additional portfolio securities, which
will fluctuate in value. See "Management of the Fund."
The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms that may or may not be similar to the Offer. Any such future rights
offerings will be made in accordance with the then applicable requirements of
the 1940 Act.
OVER-SUBSCRIPTION PRIVILEGE
To the extent Record Date Shareholders do not exercise all of the
Rights issued to them, any underlying Shares represented by such Rights will be
offered by means of the Over-Subscription Privilege to the Record Date
Shareholders who have exercised all of the Rights issued to them and who wish to
acquire more than the number of Shares to which they are entitled. Only Record
Date Shareholders who exercise all the Rights issued to them may indicate, on
the Subscription Certificate, which they submit with respect to the exercise of
the Rights issued to them, how many Shares they desire to purchase pursuant to
the Over-Subscription Privilege. If sufficient Shares remain after completion of
the Primary Subscription, all over-subscription requests will be honored in
full. If sufficient Shares are not available to honor all over-subscription
requests, the Fund may, at the discretion of the Board of Directors, issue
shares of Common Stock up to an additional 25% of the Shares available pursuant
to the Offer, or 1,900,000 additional shares of Common Stock in order to cover
such over-subscription requests. Regardless of whether the Fund issues
additional shares pursuant to the Offer and to the extent Shares are not
available to honor all over-subscription requests, the available Shares will be
allocated among those who over-subscribe based on the number of Shares owned by
them in the Fund on the Record Date. The allocation process may involve a series
of allocations in order to assure that the total number of Shares available for
over-subscription is distributed on a pro rata basis. The Fund will not offer to
sell in connection
16
<PAGE> 21
with the Offer any Shares that are not subscribed for pursuant to the Primary
Subscription or the Over-Subscription Privilege.
17
<PAGE> 22
SUBSCRIPTION PRICE
The Subscription Price for the Shares to be issued pursuant to the
Offer will be 95% of the average of the last reported sales price of a share of
the Fund's Common Stock on the NYSE on May 8, 1998 (the "Pricing Date") and the
four preceding business days. For example, if the average of the last reported
sales price on the NYSE on the Pricing Date and the four preceding business days
of a share of the Fund's Common Stock is , the Subscription Price will be
(95% of ). The Subscription Price may be higher or lower than the
net asset value per share.
The Fund announced the Offer before the commencement of trading on the
NYSE on February 27, 1998. The net asset value per share of Common Stock at the
close of business on February 26, 1998 and April 13, 1998, was $12.79 and $ ,
respectively, and the last reported sales prices of a share of the Fund's Common
Stock on the NYSE on those dates was $13.25 and $ , respectively.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York City time, on May 8, 1998,
unless extended by the Fund until 5:00 p.m., New York City time to a date or
dates not later than May 15, 1998. The Rights will expire on the Expiration Date
and thereafter may not be exercised. Since the Expiration Date and the Pricing
Date will be the same date, Record Date Shareholders who decide to acquire
Shares in the Primary Subscription or pursuant to the Over-Subscription
Privilege will not know when they make such decision the purchase price of such
Shares. Any extension of the Offer will be followed as promptly as practicable
by announcement thereof. Such announcement shall be issued no later than 9:00
a.m., New York City time, on the next business day following the previously
scheduled Expiration Date. Without limiting the manner in which the Fund may
choose to make such announcement, the Fund will not, unless otherwise required
by law, have any obligation to publish, advertise or otherwise communicate any
such announcement other than by making a release to the Dow Jones News Service
or such other means of announcement as the Fund deems appropriate.
METHOD OF EXERCISE OF RIGHTS
The Subscription Certificates, which evidence the Rights, will be
mailed to Record Date Shareholders or, if a Record Date Shareholder's shares of
Common Stock are held by Cede or any other depository or nominee on their
behalf, to Cede or such depository or nominee. Rights may be exercised by
filling in completely and signing the Subscription Certificate which accompanies
this Prospectus and mailing it in the envelope provided, or otherwise delivering
the completed and signed Subscription Certificate to the Subscription Agent,
together with payment in full for the Shares at the estimated Subscription Price
(the "Estimated Subscription Price") as described below under "Payment for
Shares." Rights may also be exercised by a Record Date Shareholder contacting
his or her broker, banker or trust company, which can arrange, on his or her
behalf, to guarantee delivery of payment (using a "Notice of Guaranteed
Delivery") and of a properly
18
<PAGE> 23
completed and executed Subscription Certificate. The broker, banker or trust
company may charge a fee for this service. Fractional Shares will not be issued.
A Record Date Shareholder whose total ownership is fewer than seven shares of
Common Stock and, accordingly, receives fewer than seven Rights will be able to
subscribe for one Share upon the exercise of all of such Rights received and, if
he or she subscribes for one Share, will be able to request additional Shares
pursuant to the terms of the Offer applicable to the Over-Subscription
Privilege. Record Date Shareholders who otherwise have remaining fewer than
seven Rights will not be able to purchase a Share upon the exercise of such
Rights but will be able to request additional Shares pursuant to the terms of
the Offer applicable to the Over-Subscription Privilege. Completed Subscription
Certificates must be received by the Subscription Agent prior to 5:00 p.m., New
York City time, on the Expiration Date (unless the guaranteed delivery
procedures are complied with as described below under "Payment for Shares") at
the offices of the Subscription Agent at the address set forth below.
Shareholders who Are Record Owners. Shareholders who are record owners
can choose between either option set forth under "Payment for Shares" below. If
time is of the essence, option (2), under "Payment for Shares" below, will
permit delivery of the Subscription Certificate and payment after the Expiration
Date.
Shareholders whose Shares Are Held By A Nominee. Shareholders whose
shares are held by a nominee, such as a broker or trustee, must contact such
nominee to exercise their Rights. In that case, the nominee will complete the
Subscription Certificate on behalf of the investor and arrange for proper
payment by one of the methods set forth under "Payment for Shares" below.
Nominees. Nominees who hold shares of Common Stock for the account of
others must (to the extent required by applicable law) notify the beneficial
owners of such shares as soon as possible to ascertain such beneficial owners'
intentions and to obtain instructions with respect to the Rights. If the
beneficial owner so instructs, the nominee should complete the Subscription
Certificate and submit it to the Subscription Agent with the proper payment
described under "Payment for Shares" below.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the
Information Agent at its telephone number and address listed below:
The Information Agent for the Offer is:
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect:
(212) 440-9800
All Others Call Toll-Free:
(800) 223-2064
19
<PAGE> 24
Shareholders may also contact their brokers or nominees for information
with respect to the Offer.
The Information Agent will receive a fee estimated to be approximately
$41,500 including reimbursement for all out-of-pocket expenses related to the
Offer.
SUBSCRIPTION AGENT
The Subscription Agent is State Street Bank & Trust Co., which will
receive for its administrative, processing, invoicing and other services as
subscription agent, a fee estimated to be approximately $335,000 including
reimbursement for all out-of-pocket expenses related to the Offer. Signed
Subscription Certificates must be sent, together with payment at the Estimated
Subscription Price for all Shares subscribed in the Primary Subscription and
Over-Subscription Privilege by one of the methods described below, prior to 5:00
p.m., New York City time, on the Expiration Date. Alternatively, if using a
Notice of Guaranteed Delivery, the Notice of Guaranteed Delivery (see "Method of
Exercise of Rights" above) may also be sent by facsimile to (781) 794-6333, with
the originals to be sent promptly thereafter by one of the methods described
below. Facsimiles should be confirmed by telephone to (781) 794-6388.
(1) BY FIRST CLASS MAIL ONLY:
State Street Bank & Trust Company
Corporate Reorganization
P.O. Box 9049
Boston, MA 02205-9838
(2) BY HAND:
Securities Transfer & Reporting Services, Inc.
c/o State Street Bank & Trust Co.
55 Broadway, Third Floor
New York, NY 10006
(3) BY EXPRESS MAIL OR OVERNIGHT COURIER:
State Street Bank & Trust Co.
Corporate Reorganization
70 Campanelli Drive
Braintree, MA 02184
(4) GUARANTEE OF DELIVERY: FOR ELIGIBLE INSTITUTIONS ONLY:
The Notice of Guaranteed Delivery may also be sent by facsimile to
(781) 794-6333, with the originals to be sent promptly thereafter by one of the
methods described above. Facsimiles should be confirmed by telephone to (781)
794-6388.
20
<PAGE> 25
DELIVERY TO AN ADDRESS OTHER THAN ONE OF THE ADDRESSES LISTED ABOVE, OR
TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS LISTED ABOVE, WILL NOT
CONSTITUTE VALID DELIVERY.
PAYMENT FOR SHARES
Record Date Shareholders who acquire Shares in the Primary Subscription
and pursuant to the Over-Subscription Privilege may choose between the following
methods of payment:
(1) A Record Date Shareholder can send the Subscription Certificate
together with payment for the Shares acquired in the Primary Subscription and
for additional Shares subscribed for pursuant to the Over-Subscription Privilege
to the Subscription Agent. Payment should be calculated on the basis of the
Estimated Subscription Price of $ per Share for all Shares requested. To be
accepted, such payment, together with the executed Subscription Certificate,
must be received by the Subscription Agent at one of the Subscription Agent's
offices at the addresses set forth above prior to 5:00 p.m., New York City time,
on the Expiration Date. The Subscription Agent will deposit all checks and money
orders received by it prior to the final payment date into a segregated
interest-bearing account (which interest will be paid to the Fund) pending
proration and distribution of the Shares. A PAYMENT PURSUANT TO THIS METHOD MUST
BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN
THE UNITED STATES, MUST BE PAYABLE TO THE ZWEIG FUND, INC. AND MUST ACCOMPANY A
PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION
CERTIFICATE TO BE ACCEPTED.
(2) Alternatively, a subscription will be accepted by the Subscription
Agent if, prior to 5:00 p.m., New York City time, on the Expiration Date, the
Subscription Agent has received a Notice of Guaranteed Delivery by facsimile
(telecopy) or otherwise from a bank, a trust company, or a NYSE member firm
guaranteeing delivery of (i) payment of the Estimated Subscription Price of $
per share for the Shares subscribed for in the Primary Subscription and for any
additional Shares subscribed for pursuant to the Over-Subscription Privilege,
and (ii) a properly completed and executed Subscription Certificate. The
Subscription Agent will not honor a Notice of Guaranteed Delivery unless a
properly completed and executed Subscription Certificate together with full
payment is received by the Subscription Agent by the close of business on the
third business day after the Expiration Date (May 13, 1998, unless the Offer is
extended).
Within eight business days following the Expiration Date (May 20, 1998,
unless the Offer is extended, the "Confirmation Date"), a confirmation will be
sent by the Subscription Agent to each subscribing Record Date Shareholder (or,
if the Record Date Shareholder's shares of Common Stock are held by Cede or any
other depository or nominee, to Cede or such depository or nominee), showing (i)
the number of Shares acquired pursuant to the Primary Subscription, (ii) the
number of Shares, if any, acquired pursuant to the Over-Subscription Privilege,
(iii) the per Share and total purchase price of the Shares, and (iv) any
additional amount payable by such Record Date Shareholder to the Fund or any
excess to be refunded by the Fund to such Record Date Shareholder, in each case
based on the Subscription Price as determined on the Pricing Date. If any Record
Date Shareholder exercises his or her right to acquire Shares pursuant to the
Over-Subscription Privilege, any such excess payment which would otherwise be
refunded to the Record Date Shareholder will
21
<PAGE> 26
be applied by the Fund toward payment for additional Shares acquired pursuant to
exercise of the Over-Subscription Privilege. Any additional payment required
from a Record Date Shareholder must be received by the Subscription Agent within
ten business days after the Confirmation Date. Any excess payment to be refunded
by the Fund to a Record Date Shareholder will be mailed by the Subscription
Agent to such Record Date Shareholder as promptly as possible. All payments by a
Record Date Shareholder must be in United States dollars by money order or check
drawn on a bank located in the United States of America and payable to THE ZWEIG
FUND, INC.
Whichever of the two methods described above is used, issuance and
delivery of certificates for the Shares purchased are subject to collection of
checks and actual payment pursuant to any Notice of Guaranteed Delivery.
RECORD DATE SHAREHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR
SUBSCRIPTION AFTER RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION
AGENT, EXCEPT AS PROVIDED BELOW UNDER "NOTICE OF NET ASSET VALUE DECLINE."
If a Record Date Shareholder who acquires Shares pursuant to the
Primary Subscription or Over-Subscription Privilege does not make payment of any
additional amounts due by the tenth Business Day after the Confirmation Date,
the Fund reserves the right to take any or all of the following actions: (i)
sell such subscribed and unpaid-for Shares to other Record Date Shareholders,
(ii) apply any payment actually received by it toward the purchase of the
greatest whole number of Shares which could be acquired by such holder upon
exercise of the Primary Subscription or Over-Subscription Privilege, or (iii)
exercise any and all other rights or remedies to which it may be entitled.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE RIGHTS
HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND
PAYMENT BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE FUND AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR AND, MAY AT THE DISCRETION OF THE FUND, NOT BE ACCEPTED
IF NOT CLEARED PRIOR TO THE EXPIRATION DATE, YOU ARE STRONGLY ENCOURAGED TO PAY,
OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Fund, whose determinations
will be final and binding. The Fund in its sole discretion may waive any defect
or irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Fund will not
22
<PAGE> 27
be under any duty to give notification of any defect or irregularity in
connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
NOTICE OF NET ASSET VALUE DECLINE
The Fund has, pursuant to the Commission's regulatory requirements,
undertaken to suspend the Offer until it amends this Prospectus if, subsequent
to April , 1998, the effective date of the Fund's Registration Statement, the
Fund's net asset value declines more than 10% from its net asset value as of
that date. Accordingly, the Expiration Date would be extended and the Fund would
notify Record Date Shareholders of any such decline and permit them to cancel
their exercise of the Rights.
NON-TRANSFERABILITY OF RIGHTS
The Rights are non-transferable and, therefore, may not be purchased or
sold. The Rights will not be listed for trading on the NYSE, PCX or any other
exchange. However, the additional Shares of Common Stock to be issued upon the
exercise of the Rights and the Over-Subscription Privilege will be listed for
trading on the NYSE and PCX, subject to notice of issuance.
DELIVERY OF SHARE CERTIFICATES
Stock certificates for all Shares acquired in the Primary Subscription
will be mailed promptly after the expiration of the Offer and full payment for
the subscribed Shares has been received and cleared. Certificates representing
Shares acquired pursuant to the Over-Subscription Privilege will be mailed as
soon as practicable after full payment has been received and cleared and all
allocations have been effected. Participants in the Fund's Distribution
Reinvestment and Cash Purchase Plan (the "Plan") will have any Shares acquired
in the Primary Subscription and pursuant to the Over-Subscription Privilege
credited to their shareholder distribution reinvestment accounts in the Plan.
Participants in the Plan wishing to exercise Rights for the shares of Common
Stock held in their accounts in the Plan must exercise them in accordance with
the procedures set forth above. Record Date Shareholders whose shares of Common
Stock are held of record by Cede or by any other depository or nominee on their
behalf or their broker-dealers' behalf will have any Shares acquired in the
Primary Subscription credited to the account of Cede or such other depository or
nominee. Shares acquired pursuant to the Over-Subscription Privilege will be
credited directly to Cede or such other depository or nominee.
FOREIGN RESTRICTIONS
Record Date Shareholders whose record addresses are outside the United
States (for these purposes, the United States includes its territories and
possessions and the District of Columbia) will receive written notice of the
Offer; however, Subscription Certificates will not be mailed to such
shareholders. The Rights to which those Subscription Certificates relate will be
held by the Subscription Agent for such foreign Record Date Shareholders'
accounts until instructions are received in writing with payment to exercise the
Rights. If no such instructions are received by the Expiration Date, such Rights
will expire.
23
<PAGE> 28
FEDERAL INCOME TAX CONSEQUENCES
The U.S. Federal income tax consequences to holders of Common Stock
with respect to the Offer will be as follows:
For Federal income tax purposes, the distribution of Rights will not
result in taxable income to a shareholder nor will the shareholder recognize
gain or loss as a result of the exercise of the Rights. No loss will be
recognized by a shareholder if the Rights expire without exercise.
The tax basis of a U.S. shareholder's Common Stock will remain
unchanged and the shareholder's basis in the Rights will be zero, unless such
U.S. shareholder affirmatively and irrevocably elects (in a statement attached
to such shareholder's U.S. Federal income tax return for the year in which the
Rights are received) to allocate the basis in the Common Stock between such
Common Stock and the Rights in proportion to their respective fair market values
on the date of distribution.
If Rights are exercised by the holder of Common Stock, the basis of the
Common Stock received will equal the Subscription Price (plus any basis
allocated to the Rights in the manner described in the preceding paragraph). For
purposes of determining whether capital gain or loss recognized upon a
subsequent sale of the Common Stock acquired upon exercise of a Right (assuming
the Common Stock is held as a capital asset) is short-term, mid-term or
long-term, the holding period of the Common Stock so acquired will begin on the
date the Right is exercised.
The foregoing is only a general summary of the applicable U.S. Federal
income tax law and does not include any state, local or foreign tax consequences
of the Offer. Such applicable U.S. Federal income tax law is subject to change
by legislative or administrative action. Shareholders should consult their tax
advisers concerning the tax consequences of the Offer. See "Taxation" in this
Prospectus and in the SAI.
EMPLOYEE PLAN CONSIDERATIONS
Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including
corporate savings and 401(k) plans), Keogh or H.R. 10 plans of self-employed
individuals and Individual Retirement Accounts ("IRAs") (collectively, "Plans")
should be aware of the complexity of the rules and regulations governing Plans
and the penalties for noncompliance, and Plans should consult with their counsel
regarding the consequences of their exercise of Rights under ERISA and the
Internal Revenue Code of 1986, as amended (the "Code").
USE OF PROCEEDS
If all of the Rights are exercised in full and assuming a Subscription
Price of $ per share (95% of the last reported sales price per share on the
NYSE on April 13, 1998), the net proceeds to the Fund would be approximately
$ , after deducting expenses payable by the Fund, including the fees and
expenses of the Dealer Manager and soliciting
24
<PAGE> 29
broker-dealers and other offering expenses estimated to total $720,000. If the
Fund increases the number of Shares subject to subscription by up to 1,900,000
Shares, in order to satisfy over-subscription requests, the additional net
proceeds will be approximately $ . However, there can be no assurance that
all Rights will be exercised in full, and the Subscription Price will not be
determined until the close of business on the Expiration Date. The Investment
Adviser has advised the Fund that it anticipates that the net proceeds of the
Offer will be invested in investments conforming to the Fund's investment
objective and policies within a week from their receipt by the Fund, but in no
event will such investment take longer than six months from the Expiration Date.
Pending such investment, the proceeds will be invested in cash or cash
equivalent short-term obligations including, but not limited to, U.S. Government
obligations, certificates of deposit, commercial paper and short-term notes. See
"The Offer - Purpose of the Offer."
THE FUND
The Fund, incorporated in Maryland on June 30, 1986, is a diversified,
closed-end management investment company registered under the 1940 Act. The
Fund's investment objective is capital appreciation, primarily through
investment in equity securities, consistent with the preservation of capital and
reduction of risk, as determined by the Fund's Investment Adviser. The extent of
the Fund's investment in equity securities will be determined primarily on the
basis of market timing techniques developed by Dr. Martin E. Zweig, the
President of the Fund's Investment Adviser, and his staff. While the Investment
Adviser seeks to reduce the risks associated with investing in equity securities
by using these techniques, the risk of investment in equity securities cannot be
eliminated. See "Investment Objective and Policies." No assurance can be given
that the Fund's investment objective will be realized.
The Fund's Investment Adviser, Zweig Advisors Inc., is a Delaware
corporation. The President and majority shareholder of the Investment Adviser is
Dr. Zweig, who has been engaged in the business of providing investment advisory
services for over 25 years. The Investment Adviser is registered with the
Commission under the Investment Advisers Act of 1940, as amended. Such
registration does not involve supervision or approval by the Commission of
investment advice rendered by the Investment Adviser. See "Management of the
Fund."
The Fund completed an initial public offering of 34,000,000 shares of
its Common Stock in October 1986. The net proceeds to the Fund from such
offering were approximately $317,282,208. As of April 13, 1998, the net assets
of the Fund were $ , and since inception, the Fund has paid distributions
(including dividends and capital gains distributions) aggregating $533,715,546.
The increase in the Fund's net assets since inception is attributable primarily
to appreciation in the value of its portfolio securities and the receipt of net
proceeds of $44.6 million from the Fund's August 1991 rights offering.
The Fund's principal office is located at 900 Third Avenue, New York,
New York 10022, and its telephone number is (212) 451-1100.
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<PAGE> 30
MARKET PRICE AND NET ASSET VALUE INFORMATION
Shares of the Fund's Common Stock are listed on the NYSE and the PCX
under the symbol "ZF." The following table sets forth for the Common Stock for
the calendar quarters indicated: (i) the high and low net asset value per share
of the Common Stock of the Fund, (ii) the high and low closing prices on the
NYSE per share of Common Stock of the Fund, and (iii) the percentage by which
the shares of Common Stock of the Fund traded at a premium over, or discount
from, the Fund's high and low net asset values per share.
<TABLE>
<CAPTION>
High Net Asset Premium Low Net Asset Premium
Quarter Ended Sales Price* Value (Discount) Sales Price* Value (Discount)
- -------------- ------------ ----- ---------- ------------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
3/31/96 $11.250 $10.80 4.17% $10.875 $11.10 (2.03)%
6/30/96 11.375 11.24 1.20 11.000 10.79 1.95
9/30/96 11.125 10.85 2.53 10.625 10.40 2.16
12/31/96 11.250 10.99 2.37 10.750 11.38 (5.54)
3/31/97 11.375 11.52 (1.26) 10.750 11.41 (5.78)
6/30/97 12.250 12.17 0.66 11.000 10.89 1.01
9/30/97 13.313 13.09 1.70 12.063 12.29 (1.85)
12/31/97 13.750 13.31 3.31 12.188 11.98 1.73
3/31/98 13.875 13.43 3.31 13.00 11.71 11.02
</TABLE>
* As reported by the NYSE.
The Fund's Shares of Common Stock have traded in the market above, at
and below net asset value since the commencement of the Fund's operations in
October 1986. During the past nine years, the Fund's shares have generally
traded in the market at a premium above net asset value; however, the Fund's
officers cannot predict whether the Subscription Price will be above, at or
below the Fund's net asset value per Share on the Pricing Date. In June 1987,
the Fund established a policy of making quarterly distributions equal to 2.5% of
its net asset value (10% on an annualized basis). The Fund's officers believe
that such policy may be partly responsible for the Fund's shares generally
trading in the market at a premium above net asset value in recent years;
however, the Fund's officers cannot predict whether the Fund's shares in the
future will generally trade in the market at a premium above net asset value.
See "Distributions; Distribution Reinvestment and Cash Purchase Plan." The Fund
is authorized to repurchase its shares on the open market when the shares are
trading at a discount of 10% or more from net asset value. During the period
from April 15, 1987 through August 28, 1987, the Fund repurchased an aggregate
of 343,100 shares of its Common Stock at prices per share ranging from $9.00 to
$10.00 in transactions effected on the NYSE pursuant to authorization by the
Fund's Board of Directors. Such repurchases were effected at the then prevailing
market rate, and were not financed with any borrowings. See "Description of
Common Stock - Repurchase of Shares."
On April 13, 1998, the net asset value per share of Common Stock was $
and the last reported sales price was $ , representing a from net
asset value per share of %.
26
<PAGE> 31
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is capital appreciation, primarily
through investment in equity securities, consistent with the preservation of
capital and reduction of risk, as determined by the Fund's Investment Adviser.
The extent of the Fund's investment in equity securities will be determined
primarily on the basis of market timing techniques developed by Dr. Martin E.
Zweig, the President of the Fund's Investment Adviser, and his staff. While the
Investment Adviser seeks to reduce the risks associated with investing in equity
securities by using these techniques, the risk of investment in equity
securities cannot be eliminated. In an effort to meet the Fund's investment
objective, the Fund may use the following investment methods when such use is
deemed appropriate: purchasing and selling, for hedging purposes, stock index
and other futures contracts and purchasing options on such futures; purchasing
and writing listed put and call security options and options on stock indexes;
short sales of securities; borrowing from banks to purchase securities;
investing in securities of closed-end investment companies and foreign issuers;
and lending portfolio securities to brokers, dealers, banks or other recognized
institutional borrowers of securities. Debt securities which present
opportunities for capital appreciation may also be purchased. There is no
assurance that the Fund will achieve its investment objective. The Fund's
investment objective may not be changed without the approval of a majority of
the Fund's outstanding securities. As used in this Prospectus, the term
"majority of the Fund's outstanding voting securities" means the lesser of
either (i) 67% of the shares represented at a shareholders meeting at which the
holders of more than 50% of the outstanding shares are present in person or by
proxy, or (ii) more than 50% of the outstanding shares.
INVESTMENT POLICIES
The Investment Adviser expects that the stocks in the Fund's portfolio
will be widely diversified by both industry and the number of issuers. The
Investment Adviser expects that a majority of the stocks in the Fund's portfolio
will be selected on the basis of a proprietary computer-driven stock selection
model that evaluates and ranks higher dividend yield stocks. The Investment
Adviser will consider, from a list of approximately 1,500 of the most liquid
stocks, approximately 750 stocks with the highest dividend yields. The
Investment Adviser will then use, for the selection of stocks, a proprietary
stock selection model that evaluates and ranks such higher dividend yield stocks
on the basis of various factors, which may include earnings momentum, earnings
growth, price-to-book value, price-to-earnings, price-to-cash flow, cash flow
trend, payout ratio trend and other market measurements. This stock selection
model may evolve or be replaced by other stock selection models intended to
achieve the Fund's investment objective.
In determining the extent of the Fund's investment in equity
securities, the Investment Adviser will rely primarily on market timing
techniques developed by Dr. Zweig and his staff. It is expected that the
Investment Adviser will make most of the decisions with respect to the extent of
the Fund's investment in equity securities based on these techniques. These
techniques, which seek to identify the risks and trends in the equity markets at
any given time, include general market indicators, including interest rate and
monetary analysis, market sentiment indicators, price and
27
<PAGE> 32
trading volume statistics, and measures of valuation, as well as other market
indicators and statistics which the Investment Adviser believes tend to point to
significant trends in the overall performance and the risk of the stock market.
These techniques are not an all-in or all-out approach that attempts to predict
market tops and bottoms. Instead, they are intended to be a gradual and
disciplined approach that reacts to changes in risk levels as determined by the
indicators. The goal is to be invested consistent with the major trends of the
market. There is no assurance that these market timing techniques will provide
protection from the risks of equity investment, enable the Fund to be invested
consistent with the major trends of the market or enable the Fund to achieve its
investment objective.
The Investment Adviser expects that at least 65% of the Fund's net
assets will consist of equity securities, including convertible securities and
warrants, with any balance composed of cash, investments in money market
instruments, non-convertible debt securities, short sales, security and stock
index options and futures contracts and options on futures contracts. However,
if the Investment Adviser believes, in its judgment, on the basis of its market
timing techniques, that the investment environment is uncertain or unfavorable
and justifies a defensive position (during the period of such uncertainty), a
substantially lower percentage than 65% of the Fund's net assets, during the
existence of such circumstances, may consist of equity securities. If the
Investment Adviser so believes that the investment environment is particularly
uncertain or unfavorable and justifies such a defensive position, then little,
if any, of the Fund's assets, during the existence of such circumstances, may
consist of equity securities, with the balance of the Fund's assets held in cash
or investments in money market instruments. The Investment Adviser expects that
the Fund will be fully invested in equity securities only when the Investment
Adviser believes that there is very low risk in the stock market. The money
market instruments in which the Fund may invest are securities issued or
guaranteed by the U.S. Treasury or U.S. Government, or its agencies or
instrumentalities ("U.S. Government Securities"), commercial paper rated A-1 or
higher by Standard & Poor's Corporation ("S&P") or Prime-1 or higher by Moody's
Investors Service, Inc. ("Moody's"). If such commercial paper is not rated, it
will be issued by companies that have an outstanding debt issue rated Aa or
higher by Moody's or AA or higher by S&P, and certificates of deposit, bankers'
acceptances and other short-term obligations issued by domestic branches of U.S.
banks that are insured by the Federal Deposit Insurance Corporation and have
assets in excess of $500 million.
The Fund may also invest in bonds or other forms of debt instruments
that appear to present opportunities for capital appreciation through
anticipated or potential decreases in interest rates or market recognition of
improved creditworthiness. These instruments may include U.S. Government
Securities, as well as other bonds or forms of fixed-income securities. The
Investment Adviser will select debt securities primarily on the basis of certain
monetary analysis techniques and indicators. Non-convertible debt securities
other than U.S. Government Securities will be limited to those that are rated,
as of the date of purchase, among the four highest rating categories of Moody's
(Aaa, Aa, A and Baa for bonds) or S&P (AAA, AA, A and BBB for bonds), or if not
rated by either of them, determined by the Investment Adviser to be of
comparable quality. The Fund does not currently own, and has no current plans to
acquire, any bonds which are rated Baa or lower by Moody's or BBB or lower by
S&P.
SPECIAL INVESTMENT METHODS
28
<PAGE> 33
The Fund may make frequent use of some or all of the following special
investment methods where their use appears appropriate to the Investment
Adviser. The investment methods described below are subject to, and should be
read in conjunction with, the discussion under "Investment Restrictions" and
"Investment Objective and Policies" in the SAI. The restrictions set forth under
"Investment Restrictions" are fundamental, and thus may be changed only with the
approval of a majority of the Fund's outstanding voting securities.
Futures Contracts and Related Options. The Fund may purchase and sell stock
index futures contracts and futures contracts based upon interest rates and
other financial instruments, and purchase options on such contracts. The Fund
will not write options on any futures contracts. Such investments may be made by
the Fund for the purpose of hedging against the effect that changes in general
market conditions and conditions affecting particular industries may have on the
values of securities held in the Fund's portfolio, or which the Fund intends to
purchase.
In general, the Fund will establish short positions in (sell) futures
contracts to hedge against anticipated or potential declines in the market value
of the Fund's portfolio of securities. For example, when the Fund anticipates a
general market or market sector decline that may adversely affect the market
value of the Fund's portfolio securities, it may establish short positions in
stock index futures contracts.
Where the Fund anticipates a significant market or market sector
advance, establishing long positions in (purchasing) stock index futures
contracts ("long hedge") affords a hedge against not participating in such
advance at a time when the Fund is not fully invested. Such long hedges would
serve as a temporary substitute for the purchase of individual stocks, which may
then be purchased in an orderly fashion. As purchases of stock are made, an
amount of stock index futures contracts which is comparable to the amount of
stock purchased may be terminated by offsetting closing sales transactions.
There are certain risks associated with the use of futures contracts
and related options. The low margin normally required in such trading provides a
large amount of leverage. Thus, a relatively small change in the price of a
contract can produce a disproportionately large profit or loss, and the Fund may
gain or lose substantially more than the initial margin on a trade. Although the
Fund intends to purchase or sell futures which appear to have an active market,
there is no assurance that a liquid market will exist for any particular
contract at any particular time. Thus, it may not be possible to close a futures
position in anticipation of adverse price movements. In addition, there may be
an imperfect correlation between the price movements of the futures contracts
and price movements of the portfolio securities being hedged.
Security and Stock Index Options. The Fund may purchase and write listed put and
call options on securities and on stock indexes that are traded on U.S.
securities exchanges at such times as the Investment Adviser deems appropriate
and consistent with the Fund's investment objective. In general, the Fund will
purchase or write such options to hedge against anticipated or potential
declines in the market value of the Fund's portfolio of securities, or to
facilitate the rapid implementation of investment strategies if the Fund
anticipates a significant market or market sector advance.
Borrowing. Although the Fund has not done so in the past, the Fund may from time
to time
29
<PAGE> 34
increase its ownership of securities above the amounts otherwise possible by
borrowings from banks on an unsecured basis and investing the borrowed funds. In
addition, the Fund may borrow to finance share repurchase transactions when the
shares are trading at a discount of 10% or more from net asset value. See
"Description of Common Stock - Repurchase of Shares." Any such borrowing will be
made only from banks, and pursuant to the requirements of the 1940 Act, will
only be made to the extent that the value of the Fund's total assets, less its
liabilities other than borrowings, is equal to at least 300% of all borrowings
including the proposed borrowing.
Borrowing for investment and to finance share repurchase transactions
increases both investment opportunity and investment risk. Since substantially
all of the Fund's assets will fluctuate in value, but the obligation resulting
from the borrowing is relatively fixed, the Fund's shares will increase in value
more when the Fund's assets increase in value and decrease more when the Fund's
assets decrease in value than would otherwise be the case. In addition, the
cost of borrowing may exceed the income or gain on any securities purchased with
the funds borrowed, in which case the Fund's net asset value will decline.
Closed-end Investment Companies. The Fund may also invest in closed-end
investment companies if the Investment Adviser believes that such investments
will further the Fund's investment objective. If the Fund purchases shares of
another investment company at a discount which subsequently declines, the
performance of such investment generally would be better than if the Fund had
purchased the underlying portfolio investments of such other investment company.
Such investments in other investment companies will constitute less than 10% of
the Fund's net assets.
Foreign Securities. The Fund may invest up to 20% of its net assets in
securities of foreign issuers. Investments in foreign securities offer potential
benefits not available through investment solely in securities of domestic
issuers. Foreign securities offer the opportunity to invest in foreign issuers
that appear to have growth potential, or in foreign countries with economic
policies or business cycles different from those of the United States, or to
reduce fluctuations in portfolio value by taking advantage of foreign markets
that do not move in a manner parallel to United States markets. The Fund may
also enter into foreign currency transactions in connection with its investment
activity in foreign securities.
Investments in foreign securities present special additional risks and
considerations not typically associated with investments in domestic securities.
Foreign investments may be affected by changes in foreign currency rates and
exchange control regulations. There may be less information available about a
foreign company than a domestic company, and foreign companies may not be
subject to accounting, auditing and reporting standards and requirements
comparable to those applicable to domestic companies. Foreign securities may be
less liquid and subject to greater price volatility than domestic securities.
The foreign markets also have different clearance and settlement procedures.
Foreign investments may also be subject to local economic or political risks,
political instability and possible nationalization of issuers or expropriation
of their assets which might adversely affect the Fund's ability to realize or
liquidate its investment in such securities. Furthermore, legal remedies for
defaults and disputes may have to be pursued in foreign courts whose procedures
differ substantially from those of U.S. courts. In the event of a default in
payment on foreign securities, the Fund may incur increased costs to obtain
and/or to enforce a judgment against the foreign issuer (or the other parties to
the transaction) in the United States or abroad, and no assurance can be given
that the Fund will be able to collect on any such judgment.
30
<PAGE> 35
Short Sales. The Fund may from time to time make short sales of securities. A
short sale is a transaction in which the Fund sells a security it does not own
in anticipation of a decline in market price. The Fund may make short sales to
offset a potential decline in a long position or a group of long positions, or
if the Investment Adviser believes that a decline in the price of a particular
security or group of securities is likely. The Fund may also make short sales in
an attempt to maintain portfolio flexibility and facilitate the rapid
implementation of investment strategies if the Investment Adviser believes that
the price of a particular security or group of securities is likely to decline.
When the Fund determines to make a short sale of a security, it must
borrow the security. The Fund's obligation to replace the security borrowed in
connection with the short sale will be fully secured by the proceeds from the
short sale retained by the broker and by cash or liquid securities deposited in
a segregated account with the Fund's custodian.
The Fund may make a short sale only if, at the time the short sale is
made and after giving effect thereto, the market value of all securities sold
short is 25% or less of the value of its net assets and the market value of
securities sold short which are not listed on a national securities exchange
does not exceed 10% of the Fund's net assets.
In addition to the short sales described above, the Fund may make short
sales "against the box." A short sale "against the box" is a short sale where,
at the time of the short sale, the Fund owns or has the immediate and
unconditional right, at no added cost, to obtain the identical security. The
Fund would enter into such a transaction to defer a gain or loss for Federal
income tax purposes on the security owned by the Fund. Short sales against the
box are not subject to the collateral requirements described above or the
percentage limitations on short sales described above.
Lending Portfolio Securities. Although the Fund has not done so in the past, the
Fund may lend portfolio securities, generally on a short-term basis, to brokers
or dealers in corporate or governmental securities, banks or other institutional
borrowers of securities, and financial institutions as a means of earning
income. A borrower of securities from the Fund must maintain with the Fund cash
or U.S. Government Securities equal to at least 100% of the market value of the
securities borrowed. The Fund may not lend portfolio securities if such loan
would cause the aggregate amount of all outstanding securities loans to exceed
20% of the current market value of the Fund's net assets. If a borrower becomes
bankrupt or defaults on its obligation to return the loaned security, delays or
losses could result.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The following discusses certain matters that should be considered,
among others, in connection with the Offer.
DILUTION-NET ASSET VALUE AND NON-PARTICIPATION IN THE OFFER
Record Date Shareholders who do not fully exercise their Rights will,
upon the completion of the Offer, own a smaller proportional interest in the
Fund than they owned prior to the Offer. In
31
<PAGE> 36
addition, an immediate dilution of the net asset value per share may be
experienced by all shareholders as a result of the Offer because the
Subscription Price may be less than the then current net asset value per share,
and the number of shares outstanding after the Offer may increase in greater
percentage than the increase in the size of the Fund's assets. Although it is
not possible to state precisely the amount of such decrease in net asset value
per share, if any, because it is not known at this time what the Subscription
Price will be, what the net asset value per share will be on the Expiration
Date, or what proportion of the Shares will be subscribed for, such dilution
could be minimal or substantial. For example, assuming (i) all Rights are
exercised, (ii) the Fund's net asset value on the Expiration Date is $ per
share (the net asset value per share on April 13, 1998), and (iii) the
Subscription Price is $ per share (95% of the last reported sale price per
share on the NYSE on April 13, 1998), then the Fund's net asset value per share
would be reduced by approximately $ per share or %.
LEVERAGE AND BORROWING
As discussed above under "Special Investment Methods", the Fund is
authorized to borrow. The Fund has not borrowed money in the past, and does not
have any intention at this time to borrow money in the future. Borrowings create
an opportunity for greater capital appreciation with respect to the Fund's
investment portfolio, but at the same time such borrowing is speculative in that
it will increase the Fund's exposure to capital risk. In addition, borrowed
funds are subject to interest costs that may offset or exceed the return earned
on the borrowed funds.
CERTAIN INVESTMENT STRATEGIES
The extent of the Fund's investment in equity securities will be
determined primarily on the basis of market timing techniques developed by Dr.
Zweig and his staff. While the Investment Adviser seeks to reduce the risks
associated with investing in equity securities by using these techniques, the
risk of investment in equity securities cannot be eliminated. There is no
assurance that these market timing techniques will provide protection from the
risks of equity investment, enable the Fund to be invested consistent with the
major trends of the market or enable the Fund to achieve its investment
objective of capital appreciation.
In addition, although the Investment Adviser believes that the special
investment methods discussed above under "Special Investment Methods" (including
purchasing and selling, for hedging purposes, stock index and other futures
contracts and purchasing options on such futures; purchasing and writing listed
put and call security options and options on stock indexes; short sales of
securities; borrowing from banks to purchase securities; investing in securities
of closed-end investment companies and foreign issuers; and lending portfolio
securities to brokers, dealers, banks or other recognized institutional
borrowers of securities) will further the Fund's investment objective of capital
appreciation and reduce losses that might otherwise occur during a time of
general decline in stock prices, no assurance can be given that these investment
methods will achieve this result. These methods may subject an investor in the
Fund to greater than average risks and costs.
UNREALIZED APPRECIATION
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<PAGE> 37
As of December 31, 1997, there was $119,601,576 or approximately $2.27
per share of net unrealized appreciation in the Fund's net assets of
$666,365,791; if realized and distributed, or deemed distributed, such gains
would, in general, be taxable to shareholders, including holders at that time of
Shares acquired upon the exercise of Rights. See "Taxation."
DISCOUNT FROM NET ASSET VALUE
The Fund's Shares of Common Stock have traded in the market above, at
and below net asset value since the commencement of the Fund's operations in
October 1986. During the past nine years, the Fund's shares have generally
traded in the market at a premium above net asset value; however, the Fund
cannot predict whether the Fund's Common Stock will in the future trade at a
premium to or discount from net asset value. The risk of the Common Stock
trading at a discount is a risk separate from a decline in the Fund's net asset
value. See "Market Price and Net Asset Value Information" in this Prospectus and
"Net Asset Value" in the SAI.
DISTRIBUTIONS
The Fund's policy is to make quarterly distributions equal to 2.5% of
its net asset value (10% on an annualized basis). If, for any quarterly
distribution, net investment income and net realized short-term capital gains
are less than the amount of the distribution, the difference will be distributed
from the Fund's assets. The Fund's final distribution for each calendar year
will include any remaining net investment income and net realized short-term
capital gains deemed, for Federal income tax purposes, undistributed during the
year, and may, but need not, include all net long-term capital gains realized
during the year. If, for any calendar year, the total distributions exceed net
investment income and net realized capital gains, the excess, distributed from
the Fund's assets, will generally be treated as a tax-free return of capital (up
to the amount of the shareholder's tax basis in his or her shares). The amount
treated as a tax-free return of capital will reduce a shareholder's adjusted
basis in his or her shares, thereby increasing his or her potential gain or
reducing his or her potential loss on the sale of his or her shares. Such
excess, however, will be treated as ordinary dividend income, and will not
reduce a shareholder's adjusted basis in his or her shares, up to the amount of
the Fund's current and accumulated earnings and profits. Pursuant to the
requirements of the 1940 Act and other applicable laws, a notice will accompany
each quarterly distribution with respect to the estimated source of the
distribution made. Such distribution policy may, under certain circumstances,
have certain adverse consequences to the Fund and its shareholders. In the event
the Fund distributes amounts in excess of its net investment income and net
realized capital gains, such distributions will decrease the Fund's total assets
and, therefore, have the likely effect of increasing the Fund's expense ratio.
In addition, in order to make such distributions, the Fund may have to sell a
portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. See "Distributions; Distribution
Reinvestment and Cash Purchase Plan" for a discussion of the Fund's distribution
policy.
ANTI-TAKEOVER PROVISIONS
The Fund has provisions in its Articles of Incorporation and By-Laws
that may have the effect of limiting the ability of other entities or persons to
acquire control of the Fund, to cause it to engage in certain transactions or to
modify its structure. The Board of Directors is divided into
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three classes. At the annual meeting of shareholders each year, the term of one
class will expire and directors will be elected to serve in that class for terms
of three years. This provision could delay for up to two years the replacement
of a majority of the Board of Directors.
These provisions could have the effect of limiting shareholders'
opportunity to sell their shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. See "Description of Common Stock - Special
Voting Provisions."
YEAR 2000 PREPAREDNESS
Because computers were designed only using two fields to indicate the
year, at midnight December 31, 1999, computers will be unable to recognize that
January 1 is the year 2000. The major systems that would impact the Fund with
respect to the year 2000 are those of the transfer agent and custodian. The Fund
has been advised in writing by both the transfer agent and custodian that they
are working to fix, and expect to have fixed in time, all of the issues relating
to the year 2000. While management of the Fund will continue to monitor the
progress of the transfer agent and custodian in solving the year 2000 problem,
no assurance can be given that their systems will be fixed on time, or what the
magnitude of the problems would be if such systems are not fixed.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The management of the Fund, including general supervision of the duties
performed by the Investment Adviser under the Investment Advisory Agreement (as
described below), is the responsibility of the Fund's Board of Directors. For
certain information regarding the Directors and officers of the Fund, see
"Management - Directors and Officers" in the SAI.
INVESTMENT ADVISER
The Fund's Investment Adviser, Zweig Advisors Inc., is a Delaware
corporation, with offices at 900 Third Avenue, New York, New York 10022. The
Investment Adviser was organized in May 1986 for the purpose of acting as
investment adviser to the Fund. Dr. Zweig owns a majority of the outstanding
shares of the Investment Adviser.
Pursuant to an investment advisory agreement between the Investment
Adviser and the Fund, dated September 25, 1986 ("the Investment Advisory
Agreement"), the Investment Adviser is responsible for the actual management of
the Fund's portfolio. The responsibility for making decisions to buy, sell or
hold a particular investment rests with the Investment Adviser, subject to
review by the Board of Directors and the applicable provisions of the 1940 Act.
The Investment Adviser is not dependent on any other party in providing the
investment advisory services required for the management of the Fund. The
Investment Adviser may, however, consider analyses from various sources,
including broker-dealers with which the Fund does business and affiliates of the
Investment Adviser. The Investment Adviser is also obligated to provide the Fund
with such
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<PAGE> 39
executive, data processing, clerical, accounting and bookkeeping services and
statistical and research data as are deemed advisable by the Fund's Board of
Directors, except to the extent these services are provided by an administrator
hired by the Fund.
For the services provided by the Investment Adviser under the
Investment Advisory Agreement, the Fund will pay the Investment Adviser a
monthly fee computed at the annual rate of 0.85% of the Fund's average daily net
assets during the previous month. For the fiscal years ended December 31, 1997,
1996 and 1995, the Fund accrued investment advisory fees of $5,312,237,
$4,722,948, and $4,391,733.
Zweig Securities Corp. or any other brokerage affiliate (the "Brokerage
Affiliate") may act as a broker for the Fund. In order for the Brokerage
Affiliate to effect any portfolio transactions for the Fund, the commissions,
fees or other remuneration received by the Brokerage Affiliate must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. The Fund will not deal with a Brokerage Affiliate in any portfolio
transaction in which the Brokerage Affiliate would act as principal.
DR. MARTIN E. ZWEIG
Dr. Zweig, the President of the Fund and the Investment Adviser, has
been in the business of providing investment advisory services for over 25 years
and is the President and/or Chairman of investment advisory firms which, as of
December 31, 1997, managed in excess of $7 billion in assets. Dr. Zweig and his
associates determine the asset allocation strategy for the Fund. Dr. Zweig does
not select the individual securities to implement the strategy. The portfolio
managers select the specific securities for the Fund.
PORTFOLIO MANAGERS
The day-to-day stock selections for the Fund are made by Mr. Jeffrey
Lazar, and the day-to-day bond selections for the Fund are made by Mr. Carlton
Neel.
Mr. Lazar has been Vice President of the Fund since 1987, and is also a
Director of the Fund. He has been making the day-to-day stock selections for the
Fund and The Zweig Total Return Fund, Inc. since January 1995. Mr. Lazar, who is
a Vice President of the Investment Adviser, has been with the Investment Adviser
since 1986. Mr. Neel has been making the day-to-day bond selections for the Fund
and The Zweig Total Return Fund, Inc. since July 1995. He is also the portfolio
manager for the following series of Zweig Series Trust: Zweig Managed Assets,
Zweig Government Fund and Zweig Foreign Equity Fund. Prior to joining the
Investment Adviser in 1995, Mr. Neel was a Vice President with J.P. Morgan &
Co., Inc.
INVESTMENT ADVISORY AGREEMENT
The Investment Advisory Agreement sets forth the services to be
provided by and the fees to be paid to each party, as described above. The
Investment Advisory Agreement provides that the Investment Adviser's liability
to the Fund and its shareholders is limited to situations involving its own
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason
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<PAGE> 40
of its reckless disregard of its duties and obligations under the Investment
Advisory Agreement.
The services of the Investment Adviser to the Fund are not deemed to be
exclusive, and the Investment Adviser or any affiliate thereof may provide
similar services to other investment companies and other clients or engage in
other activities.
The Investment Advisory Agreement obligates the Investment Adviser to
provide advisory services and to pay all expenses arising from the performance
of its obligations under the Investment Advisory Agreement, as well as the fees
of all Directors of the Fund who are employees of the Investment Adviser or any
of its affiliates. The Fund pays all other expenses incurred in the operation of
the Fund including, but not limited to, direct charges relating to the purchase
and sale of portfolio securities, interest charges, fees and expenses of
attorneys and independent auditors, taxes and governmental fees, cost of stock
certificates and any other expenses (including clerical expenses) of issuance,
sale or repurchase of the Fund's common stock, expenses in connection with the
Fund's Distribution Reinvestment and Cash Purchase Plan, membership fees in
trade associations, expenses of registering and qualifying shares of the Fund's
common stock for sale under Federal and state securities laws, expenses of
obtaining and maintaining a stock exchange listing of the Fund's common stock,
expenses of printing and distributing reports, prospectuses, notices and proxy
materials to existing shareholders, expenses of corporate data processing and
related services, shareholder record keeping and shareholder account services,
expenses of auditors and escrow agents, expenses of printing and filing reports
and other documents filed with governmental agencies, expenses of annual and
special shareholders' meetings, fees and disbursements of any administrator to
the Fund and transfer agents, custodians and subcustodians, expenses of
disbursing dividends and distributions, fees of Directors of the Fund who are
not employees of the Investment Adviser or its affiliates, out-of-pocket
expenses of Directors related to attending meetings, insurance premiums and
litigation, indemnification and other expenses not expressly provided for in the
Investment Advisory Agreement or the Administration Agreement.
The Investment Advisory Agreement will remain in effect from year to
year if approved annually (i) by the Board of Directors of the Fund or by the
holders of a majority of the Fund's outstanding voting securities, and (ii) by a
majority of the Directors who are not parties to the Investment Advisory
Agreement or interested persons of any such party. The Investment Advisory
Agreement terminates on its assignment by either party, and may be terminated
without penalty on not more than 60 days' prior written notice at the option of
either party thereto, or by the affirmative vote of the holders of a majority of
the Fund's outstanding voting securities.
The Investment Advisory Agreement provides that the Fund may use
"Zweig" as part of its name for so long as the Investment Adviser serves as
investment adviser to the Fund. The Fund has agreed that, in the event the
Investment Advisory Agreement is terminated, the Fund will promptly take such
actions as may be necessary to change its corporate name to one not containing
the word "Zweig", and the Fund will thereafter not transact business in a
corporate name using the word "Zweig" in any form or combination whatsoever. The
Fund has also acknowledged that the word "Zweig" is a property right of Dr.
Martin E. Zweig and that Dr. Martin E. Zweig or, pursuant to his consent, the
Investment Adviser may at any time permit others to use the word "Zweig."
ADMINISTRATOR
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<PAGE> 41
Zweig/Glaser Advisers (the "Administrator") serves as the Fund's
administrator pursuant to an administration agreement dated September 1, 1989,
as amended by the First Amendment dated July 1, 1995 (the "Administration
Agreement"). Martin E. Zweig (the President and Chairman of the Board of the
Fund) and Eugene J. Glaser (a Director of the Fund) are the Chairman and
President, respectively, and the principal owners of the Administrator. The
Administrator generally assists in all aspects of the Fund's operations, other
than providing investment advice, subject to the overall authority of the Fund's
Board of Directors. The Administrator determines the Fund's net asset value
daily, prepares such figures for publication on a weekly basis, maintains
certain of the Fund's books and records that are not maintained by the
Investment Adviser, custodian or transfer agent, assists in the preparation of
financial information for the Fund's income tax returns, proxy statement,
quarterly and annual shareholder reports, and responds to shareholder inquiries.
The Fund pays the Administrator a monthly fee computed at an annual
rate of 0.13% of the Fund's average daily net assets during the previous month.
Prior to July 1, 1995, the administrative fee was computed at an annual rate of
0.15% of the Fund's average daily net assets during the previous month. For the
fiscal years ended December 31, 1997, 1996 and 1995, the Fund accrued
administrative fees of $812,460, $722,333, and $721,242.
DISTRIBUTIONS; DISTRIBUTION REINVESTMENT AND CASH PURCHASE PLAN
The Fund's policy is to distribute to shareholders on a quarterly basis
2.5% of its net asset value (10% on an annualized basis). If, for any quarterly
distribution, net investment income and net realized short-term capital gains
are less than the amount of the distribution, the difference will be distributed
from the Fund's assets. The Fund's final distribution for each calendar year
will include any remaining net investment income and net realized short-term
capital gains deemed, for Federal income tax purposes, undistributed during the
year, and may, but need not, include all net long-term capital gains realized
during the year. The Fund may retain for reinvestment and pay Federal income
taxes on the excess of its net realized long-term capital gains over its net
realized short-term capital losses, if any, although the Fund reserves the
authority to distribute such excess in any year. Since the Fund's inception, the
Fund has distributed such excess. If, for any calendar year, the total
distributions exceed net investment income and net realized capital gains, the
excess, distributed from the Fund's assets, will generally be treated as a
tax-free return of capital (up to the amount of the shareholder's tax basis in
his or her shares). The amount treated as a tax-free return of capital will
reduce a shareholder's adjusted basis in his or her shares, thereby increasing
his or her potential gain or reducing his or her potential loss on the sale of
his or her shares. Such excess, however, will be treated as ordinary dividend
income up to the amount of the Fund's current and accumulated earnings and
profits. In calculating the amount of each quarterly distribution, the Fund's
net asset value will be measured as of the business day immediately preceding
the declaration date of such distribution. Pursuant to the requirements of the
1940 Act and other applicable laws, a notice will accompany each quarterly
distribution with respect to the estimated source of the distribution made.
In the event the Fund distributes amounts in excess of its net
investment income and net realized capital gains, such distributions will
decrease the Fund's total assets and, therefore, have the likely effect of
increasing the Fund's expense ratio. In addition, in order to make such
distributions, the Fund may have to sell a portion of its investment portfolio
at a time when
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<PAGE> 42
independent investment judgment might not dictate such action.
Shareholders may elect to receive all distributions in cash paid by
check mailed directly to the shareholder by State Street Bank & Trust Co.
("State Street"), as dividend paying agent. Pursuant to the Distribution
Reinvestment and Cash Purchase Plan (the "Plan"), shareholders not making such
election will have all such amounts automatically reinvested by State Street, as
the Plan agent, in whole or fractional shares of the Fund, as the case may be.
If the Directors of the Fund declare a distribution payable either in
shares or in cash, as shareholders may have elected, then nonparticipants in the
Plan will receive cash and participants in the Plan will receive the equivalent
in shares determined as follows: Whenever the market price of the shares on the
record date for the distribution is equal to or exceeds their net asset value,
participants will be issued shares at the higher of net asset value or 95% of
the closing market price of the shares on the NYSE on the previous trading day.
If the net asset value of shares at such time exceeds the market price of
shares, or if the Fund should declare a distribution payable only in cash, State
Street will, as agent for the participants, buy shares in the open market, on
the NYSE or elsewhere, for the participants' account. If, before State Street
has completed its purchases, the market price exceeds the net asset value of the
shares, State Street 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. State Street will
apply all cash received as a distribution to purchase shares on the open market
as soon as practicable after the payment date of such distribution, but in no
event later than 30 days after such date, except where necessary to comply with
applicable provisions of the Federal securities laws.
Participants in the Plan have the option of making additional cash
payments monthly to State Street for investment in the shares. Such payments may
be made in any amount from $100 to $3,000. State Street will use all such
payments received from participants to purchase shares on the open market on or
about the fifteenth day of each month (or the closest business day thereto, if a
weekend or holiday). To avoid unnecessary cash accumulations, and also to allow
ample time for receipt and processing by State Street, it is suggested that
participants send voluntary cash payments to State Street by the fifth day of
the month for which a voluntary purchase is desired. A participant may withdraw
a voluntary cash payment by written notice, if the notice is received by State
Street at least 48 hours before such payment is to be invested.
State Street maintains all shareholder accounts in the Plan and
furnishes written confirmations of all transactions in the account, including
information needed by shareholders for personal and tax records. Shares in the
account of each Plan participant will be held by State Street in
non-certificated form in the name of the participant, and each shareholder's
proxy will include those shares purchased pursuant to the Plan.
There is no charge to participants for reinvesting distributions or
voluntary cash payments. State Street's fees for the handling of the
reinvestment of distributions will be paid by the Fund. There will be no
brokerage charges with respect to shares issued directly by the Fund as a result
of distributions payable either in stock or in cash. However, each participant
will pay a pro-rata share of brokerage commissions incurred with respect to
State Street's open market purchases in connection with the reinvestment of
distributions as well as from voluntary cash payments. With respect to purchases
from voluntary cash payments, State Street will charge each participant a
pro-
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<PAGE> 43
rata share of the brokerage commissions. Brokerage charges for purchasing
small amounts of stock for individual accounts through the Plan are expected to
be less than the usual brokerage charges for such transactions, as State Street
will be purchasing shares for all participants in blocks and prorating the lower
commission thus attainable. State Street may use its affiliates and/or
affiliates of the Investment Adviser for all trading activity relative to the
Plan on behalf of Plan participants. Such affiliates will receive a commission
in connection with such trading transactions.
If a shareholder desires to discontinue his or her participation in the
Plan, the shareholder may either (i) request State Street to sell part or all of
the shares in the account and remit the proceeds to the shareholder, net of any
brokerage commissions, or (ii) the shareholder may receive a certificate for the
appropriate number of full shares in the account, along with a check in payment
for any fractional shares.
Although many brokers do participate in the Plan on behalf of their
customers, a participant in the Plan who does change his or her broker may not
be able to transfer the shares to another broker and continue to participate in
the Plan.
The automatic reinvestment of distributions will not relieve
participants of any income tax that may be payable on such distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the members of the Plan
at least 90 days before the record date for such distribution. The Plan also may
be amended or terminated by State Street, with the Fund's prior written consent,
on at least 90 days' written notice to participants in the Plan. All
correspondence concerning the Plan should be directed to State Street at P.O.
Box 8040, Boston, MA 02266-8040.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Fund consists of 100,000,000 shares
of Common Stock, par value $0.10 per share, of which 53,186,244 shares were
outstanding as of April 13, 1998. The Shares when issued, will be fully paid and
nonassessable. All shares of Common Stock are equal as to dividends, assets and
voting privileges and have no conversion, preemptive or exchange rights. In the
event of liquidation, each share of Common Stock is entitled to its proportion
of the Fund's assets after payment of debts and expenses. Shareholders are
entitled to one vote per share. All voting rights for directors are
non-cumulative, which means that the holders of more than 50% of the shares of
common stock can elect 100% of the directors if they choose to do so, and, in
such event, the holders of the remaining shares of common stock will not be able
to elect any directors. The Fund's outstanding shares of Common Stock are, and
the Shares offered hereby will be, listed on the NYSE and PCX under the symbol
"ZF."
The Fund has no present intention of offering additional shares beyond
this Offering, except that additional shares may be issued under the
Distribution Reinvestment and Cash Purchase Plan. See "Distributions;
Distribution Reinvestment and Cash Purchase Plan." Other offerings of its Common
Stock, if made, will require approval of the Fund's Board of Directors. Any
additional
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<PAGE> 44
offering will be subject to the requirements of the 1940 Act that shares may not
be sold at a price below the then current net asset value (exclusive of
underwriting discounts and commissions) except in certain circumstances,
including in connection with an offering to existing shareholders or with the
consent of a majority of the Fund's outstanding shares.
REPURCHASE OF SHARES
The Fund is authorized to repurchase its shares on the open market when
the shares are trading at a discount of 10% or more from net asset value, and
the Fund may incur debt to refinance share repurchase transactions. In addition,
pursuant to the 1940 Act, the Fund retains the right to repurchase its shares
under other circumstances on a securities exchange or such other open market
designated by the Commission (provided that the Fund has informed shareholders
within the preceding six months of its intention to repurchase such shares), by
a tender offer open to all the Fund's shareholders, or as otherwise permitted by
the Commission. When a repurchase of Fund shares is to be made that is not to be
effected on a securities exchange or such an open market or by the making of a
tender offer, the 1940 Act provides that certain conditions must be met
regarding, among other things, distribution of net income, identity of the
seller, price paid, brokerage commissions, prior notice to shareholders of an
intention to purchase shares and purchasing in a manner on a basis which does
not discriminate unfairly against the other shareholders indirectly through
their interest in the Fund. The Fund may incur debt to finance share repurchase
transactions (see "Investment Restrictions" in the SAI).
When the Fund repurchases its shares for a price below their net asset
value, the net asset value of the shares that remain outstanding will be
enhanced, but this does not necessarily mean that the market price of those
outstanding shares will be affected, either positively or negatively.
During the period from April 15, 1987 through August 28, 1987, the Fund
repurchased an aggregate of 343,100 shares of its Common Stock at prices per
share ranging from $9.00 to $10.00 in transactions effected on the NYSE pursuant
to authorization by the Fund's Board of Directors. Such repurchases were
effected at the then prevailing market rate, and were not financed with any
borrowings.
The Fund currently has no established tender offer program, and no
established schedule for considering tender offers. No assurance can be given
that the Board of Directors will decide to undertake any such tender offers in
the future, or if undertaken that they will reduce any market discount.
It should be recognized that any acquisition of shares by the Fund
(whether through a share repurchase or a tender offer) will decrease the total
assets of the Fund and therefore have the effect of increasing the Fund's
expense ratio. Furthermore, if the Fund borrows to finance share repurchases or
tender offers, interest on such borrowing will reduce the Fund's net investment
income. If the Fund must liquidate a portion of its investment portfolio in
connection with a share repurchase or tender offer, such liquidation might be at
a time when independent investment judgment might not dictate such action and,
accordingly, may increase the Fund's portfolio turnover and make it more
difficult for the Fund to achieve its investment objective.
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<PAGE> 45
SPECIAL VOTING PROVISIONS
The Fund has provisions in its Articles of Incorporation and By-Laws
(collectively, the "Charter Documents") that could have the effect of limiting
the ability of other entities or persons to acquire control of the Fund, to
cause it to engage in certain transactions or to modify its structure. The Board
of Directors is divided into three classes. At the annual meeting of
shareholders each year, the term of one class will expire and directors will be
elected to serve in that class for terms of three years. This provision could
delay for up to two years the replacement of a majority of the Board of
Directors.
Under Maryland law and the Fund's Articles of Incorporation, the
affirmative vote of the holders of two-thirds of the votes entitled to be cast
is required for the consolidation of the Fund with another corporation, a merger
of the Fund with or into another corporation (except for certain mergers in
which the Fund is the successor), a statutory share exchange in which the Fund
is not the successor, a sale or transfer of all or substantially all of the
Fund's assets, the dissolution of the Fund and any amendment to the Fund's
Articles of Incorporation. In addition, the affirmative vote or consent of the
holders of two-thirds of the outstanding Shares is required to authorize the
conversion of the Fund from a closed-end to an open-end investment company, to
amend certain of the provisions of the Charter Documents or generally to
authorize any of the following transactions:
(i) a merger or consolidation of the Fund with or into any other
corporation;
(ii) the issuance of any securities of the Fund to any person or entity
for cash;
(iii) the sale, lease or exchange of all or any substantial part of the
Fund's assets to any entity or person (except assets having an aggregate fair
market value of less than $1,000,000); or
(iv) the sale, lease or exchange to the Fund, in exchange for
securities of the Fund, of any assets of any entity or person (except assets
having an aggregate fair market value of less than $1,000,000);
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares of
the Fund. However, such two-thirds vote would not be required when, under
certain conditions, the Board of Directors in accordance with the Fund's
Articles of Incorporation approves the transaction. Reference is made to the
Charter Documents of the Fund, on file with the Commission, for the full text of
these provisions. See "Further Information."
The provisions of the Charter Documents described above and the Fund's
right to repurchase its shares could have the effect of depriving shareholders
of an opportunity to sell their shares at a premium over prevailing market
prices by discouraging a third party from seeking to obtain control of the Fund
in a tender offer or similar transaction. See "Repurchase of Shares."
TAXATION
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FEDERAL TAXATION OF THE FUND AND ITS DISTRIBUTIONS
The Fund has qualified and elected to be treated, and intends to
continue to qualify and be treated, as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). The Fund currently
intends to distribute all or substantially all its investment company taxable
income (all taxable income and net short-term capital gains) and its net capital
gain each year, thereby avoiding the imposition on the Fund of Federal income
and excise taxes on such distributed income and gain. Such distributions from
investment company taxable income will be taxable as ordinary income to
shareholders of the Fund who are subject to tax, and the Fund's capital gain
distributions will be taxable as capital gain to such shareholders. For
non-corporate U.S. shareholders, the Fund's capital gains distributions will be
taxable at maximum marginal Federal income tax rates of 28% as to the portion of
such distributions designated as a 28% rate gain distribution, and 20% as to the
portion of such distributions designated as a 20% rate gain distribution,
respectively. Shareholders that are not subject to tax on their income generally
will not be required to pay tax on amounts distributed to them. Notwithstanding
the above, the Fund may decide to retain all or part of any net capital gain for
reinvestment. After the end of each taxable year, the Fund will notify
shareholders of the Federal income tax status of any distributions, or deemed
distributions, made by the Fund during such year. For a discussion of certain
income tax consequences to shareholders of the Fund, see "Taxation" in the SAI.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE OFFER
The following discussion describes certain United States Federal income
tax consequences of the Offer generally applicable to citizens or residents of
the United States and U.S. trusts, estates, corporations and any other person
who would be subject to U.S. Federal income tax upon the sale or exchange of
Common Stock acquired upon the exercise of Rights ("U.S. Shareholders"). This
summary is intended to be descriptive only and does not purport to be a complete
analysis or listing of all potential tax effects relevant to the ownership of
Rights or Common Stock. Additionally, this summary does not specifically address
the U.S. Federal income tax consequences that might be relevant to holders of
Rights or Common Stock entitled to special treatment under the U.S. Federal
income tax laws, such as individual retirement accounts and other tax deferred
accounts, financial institutions, life insurance companies and tax-exempt
organizations, and does not discuss the effect of state, local and other tax
laws. Further, this summary is based on interpretations of existing law as of
the date of this Prospectus as contained in the Code, applicable current and
proposed Treasury Regulations, judicial decisions and published administrative
positions of the Internal Revenue Service, all of which are subject to change
either prospectively or retroactively.
U.S. Shareholders who receive Rights pursuant to the Offer will not
recognize taxable income for U.S. Federal income tax purposes upon their receipt
of the Rights. If Rights issued to a U.S. Shareholder expire without being sold
or exercised, no basis will be allocated to such Rights, and such Shareholder
will not recognize any gain or loss for U.S. Federal income tax purposes upon
such expiration.
The tax basis of a U.S. Shareholder's Common Stock will remain
unchanged and the shareholder's basis in the Rights will be zero, unless such
U.S. Shareholder affirmatively and irrevocably elects (in a statement attached
to such shareholder's U.S. Federal income tax return for the year in which the
Rights are received) to allocate the basis in the Common Stock between such
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Common Stock and the Rights in proportion to their respective fair market values
on the date of distribution.
A U.S. Shareholder who exercises Rights will not recognize any gain or
loss for U.S. Federal income tax purposes upon the exercise. The basis of the
newly acquired Common Stock will equal the Subscription Price paid for the
Common Stock (plus the basis, if any, allocated to the Rights in the manner
described in the immediately preceding paragraph). Upon a sale or exchange of
the Common Stock so acquired, the Shareholder will recognize gain or loss
measured by the difference between the proceeds of the sale or exchange and the
cost basis of such Common Stock. Assuming the U.S. Shareholder holds the Common
Stock as a capital asset, any gain or loss realized upon its sale will generally
be treated as a capital gain or loss, which gain or loss will be short-term,
mid-term or long-term, depending on the length of the U.S. Shareholder's holding
period for such Common Stock. However, it currently appears that any loss
recognized upon the sale of shares of Common Stock with a tax holding period of
6 months or less will be treated as a long-term capital loss to the extent of
any capital gain distribution previously received by the U.S. Shareholder with
respect to such shares, and a loss may be disallowed under wash sale rules to
the extent that the U.S. Shareholder purchases additional Common Stock
(including by reinvestment of distributions) within 30 days before or after the
sale date. The holding period for Common Stock acquired upon the exercise of
Rights will begin on the date of exercise of the Rights.
A U.S. Shareholder may be subject to backup withholding at the rate of
31% with respect to Fund distributions and gross proceeds from the sale or
exchange of Common Stock (if the Fund is the payor) unless such U.S. Shareholder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates and/or certifies this fact, or (b) provides a correct
taxpayer identification number, along with certain required certifications, and
otherwise complies with applicable requirements of the backup withholding rules.
U.S. Shareholders who choose to transfer their Common Stock and who do not
provide the appropriate withholding agent with their correct taxpayer
identification number in the manner required may be subject to penalties imposed
by the Internal Revenue Service. Any amount withheld under these rules is not an
additional tax; it will be creditable against the U.S. Shareholder's U.S.
Federal income tax liability.
This summary is not intended to be, nor should it be, construed as
legal or tax advice to any current holder of Common Stock. Further, because the
U.S. Federal income tax consequences of the Offer may vary depending upon the
particular circumstances of each shareholder of the Fund and other facts, and
because this summary is not exhaustive of all possible U.S. Federal income tax
considerations (such as situations involving taxpayers who are dealers in
securities or whose functional currency is not the U.S. dollar), the Fund's
shareholders are urged to consult their own tax advisors to determine the U.S.
Federal income tax consequences to them of the Offer and their ownership of
Rights and Common Stock. In addition, such shareholders are urged to consult
their own tax advisors in determining the U.S. state and local tax consequences
to them of the Offer and such ownership. See "Taxation" in the SAI.
DISTRIBUTION ARRANGEMENTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated, New York, New York,
will act as the Dealer Manager for the Offer. Under the terms and subject to the
conditions contained in a Dealer
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<PAGE> 48
Manager Agreement between the Fund and the Dealer Manager, dated April 13, 1998
(the "Dealer Manager Agreement"), the Dealer Manager will provide financial
advisory, marketing and soliciting services in connection with the Offer. The
Fund has agreed to pay the Dealer Manager a fee for financial advisory and
marketing services in connection with the Offer equal to 1.25% of the aggregate
Subscription Price for the Shares issued pursuant to the exercise of the Rights
and the Over-Subscription Privilege (the "Dealer Manager Fee"). The Fund has
also agreed to pay the Dealer Manager, and other broker-dealers soliciting the
exercise of Rights, solicitation fees equal to 2.50% of the Subscription Price
per Share for each Share issued pursuant to the exercise of the Rights and the
Over-Subscription Privilege (the "Solicitation Fees"). Solicitation Fees will be
paid to the broker-dealer designated on the related Subscription Certificate,
provided that such designated broker-dealer has executed a confirmation
accepting the terms of the soliciting dealer agreement relating to the Offer or,
in the absence of such designation or confirmation, to the Dealer Manager. Zweig
Securities Corp. will be such designated broker-dealer with respect to Shares
issued to participants in the Fund's Distribution Reinvestment and Cash Purchase
Plan, unless the participant designates otherwise on the related Subscription
Certificate.
The Fund has also agreed to reimburse the Dealer Manager for its
out-of-pocket expenses up to $82,500 incurred in connection with the Offer. In
addition, the Fund has agreed to pay a fee to each of the Subscription Agent and
Information Agent estimated to be $335,000 and $41,500, respectively, which
includes reimbursement for their out-of-pocket expenses related to the Offer.
The Fund and the Investment Adviser have agreed to indemnify the Dealer Manager
against certain liabilities, including liabilities under the Securities Act.
The Fund has agreed not to offer or sell, or enter into any agreement
to sell, any equity or equity related securities of the Fund for a period of 180
days after the date of the Dealer Manager Agreement without the prior written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, except for the
Shares and Common Stock issued in reinvestment of distributions.
CUSTODIAN, DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
The Bank of New York, 48 Wall Street, New York, New York 10015, serves
as the Fund's custodian. State Street Bank & Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, serves as the Fund's dividend paying agent,
transfer agent and registrar.
EXPERTS
The financial statements at December 31, 1997, and the financial
highlights included in this Prospectus, have been so included in reliance on the
report of Coopers & Lybrand L.L.P., New York, New York, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
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<PAGE> 49
The validity of the Shares will be passed on for the Fund by Venable,
Baetjer & Howard, LLP, Baltimore, Maryland. Certain legal matters will be passed
on for the Fund by Rosenman & Colin LLP, New York, New York and for the Dealer
Manager by Rogers & Wells LLP. Rosenman & Colin LLP serves as counsel to the
Fund and the Investment Adviser. Robert E. Smith, Esq., who is Counsel to
Rosenman & Colin LLP, is a Director of the Fund.
FURTHER INFORMATION
Further information concerning these securities and the Fund may be
found in the Registration Statement on file with the Commission, of which this
Prospectus and the SAI incorporated by reference herein constitute a part.
Financial statements of the Fund for fiscal years ended December 31, 1996 and
December 31, 1997 are included in the Fund's annual reports to shareholders for
such years, copies of which are on file with and may be inspected at the
Commission as indicated below.
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the 1940 Act, and in
accordance with such requirements, the Fund files reports and other information
with the Commission. Such reports and other information can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, Washington, D.C. 20549 and the Commission's regional offices at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, Washington, D.C. 20549 at prescribed rates. The Commission
maintains a world wide web site at http://www.sec.gov that contains the SAI and
other information regarding the Fund. Such reports and other information
concerning the Fund may also be inspected at the offices of the NYSE.
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
Investment Objective and Policies 3
Investment Restrictions 8
Management........ 10
Expenses ......... 14
Portfolio Transactions and Brokerage 14
Net Asset Value... 15
Taxation ......... 16
Independent Accountants 20
Principal Shareholders 20
Financial Statements F-1
Report of Independent Accountants F-14
45
<PAGE> 50
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Fund, the Investment Adviser or the Dealer Manager. This
Prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any security other than the Shares of Common Stock offered by this
Prospectus, nor does it constitute an offer to sell or the solicitation of any
offer to buy the Shares of Common Stock by anyone in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any such person to whom
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that information contained herein is correct as of any time
subsequent to the date hereof. However, if any material change occurs while this
Prospectus is required by law to be delivered, this Prospectus will be amended
or supplemented accordingly.
.........
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary 4
Fund Expenses 12
Financial Highlights 14
The Offer 15
Use of Proceeds 24
The Fund 25
Market Price and Net Asset Value Information 26
Investment Objective and Policies 27
Risk Factors and Special Considerations 31
Management of the Fund 34
Distributions; Distribution Reinvestment
and Cash Purchase Plan 37
Description of Common Stock 39
Taxation 41
Distribution Arrangements 43
Custodian, Dividend Paying Agent,
Transfer Agent and Registrar 44
Experts 44
Legal Matters 44
Further Information 45
Table of Contents of Statement of
Additional Information 45
</TABLE>
7,600,000 SHARES OF COMMON STOCK
THE ZWEIG FUND, INC.
ISSUABLE UPON EXERCISE OF
NON-TRANSFERABLE RIGHTS TO
SUBSCRIBE FOR SUCH
SHARES OF COMMON STOCK
.........
P R O S P E C T U S
.........
MERRILL LYNCH & CO.
APRIL , 1998
46
<PAGE> 51
PART B
THE ZWEIG FUND, INC.
900 THIRD AVENUE, NEW YORK, N.Y. 10022
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a prospectus
and should be read in conjunction with the Prospectus, dated April , 1998 (the
"Prospectus"). This SAI does not include all information that a prospective
investor should consider before purchasing shares of the Fund and investors
should obtain and read the Prospectus prior to purchasing shares. A copy of the
Prospectus may be obtained without charge by calling the Fund's Information
Agent, Georgeson & Company Inc. Banks and Brokers should call (212) 440-9800
collect and all other shareholders should call (800) 223-2064. The address of
the Fund is 900 Third Avenue, New York, New York 10022, and its telephone number
is (212) 451-1100. This SAI incorporates by reference the entire Prospectus.
Defined terms used herein shall have the same meaning as provided in the
Prospectus. The date of this SAI is April , 1998.
1
<PAGE> 52
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Objective and Policies 1
Investment Restrictions 8
Management 10
Expenses 13
Portfolio Transactions and Brokerage 13
Net Asset Value 15
Taxation 15
Independent Accountants 19
Principal Shareholders 19
Financial Statements F-1
Report of Independent Accountants F-14
</TABLE>
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<PAGE> 53
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is capital appreciation, primarily
through investment in equity securities, consistent with the preservation of
capital and reduction of risk, as determined by the Fund's Investment Adviser.
The extent of the Fund's investment in equity securities will be determined
primarily on the basis of market timing techniques developed by Dr. Martin E.
Zweig, the President of the Fund's Investment Adviser, and his staff. While the
Investment Adviser seeks to reduce the risks associated with investing in equity
securities by using these techniques, the risk of investment in equity
securities cannot be eliminated. There is no assurance that the Fund will
achieve its investment objective. See "Investment Objective and Policies" in the
Prospectus.
The following describes certain investment strategies in which the
Investment Adviser may engage, on behalf of the Fund, each of which may involve
certain special risks.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into a futures contract, the Fund will initially be
required to deposit with the custodian an amount of initial margin using cash or
U.S. Treasury bills equal to approximately 2% to 5% of the contract amount. The
nature of initial margin in futures transactions is different from that of
margin in securities transactions in that the futures contract initial margin
does not involve the borrowing of funds by customers to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. In addition to initial margin, the Fund is required to deposit
cash, liquid debt obligations, liquid equity securities or cash equivalents in
an amount equal to the notional value of all long futures contracts, less the
initial margin amount, in a segregated account with the custodian to ensure that
the use of such futures contracts is not leveraged. If the value of the
securities placed in the segregated account declines, additional securities,
cash or cash equivalents must be placed in the segregated account so that the
value of the account will at least equal the amount of the Fund's commitments
with respect to such futures contracts.
Subsequent payments, called maintenance margin, to and from the broker,
will be made on a daily basis as the price of the underlying security
fluctuates, making the long and short positions in the futures contract more or
less valuable, a process known as "marking to the market." For example, when the
Fund has purchased a futures contract and the price of the underlying security
has risen, that position will have increased in value and the Fund will receive
from the broker a maintenance margin payment equal to that increase in value.
Conversely, when the Fund has purchased a futures contract and the price of the
underlying security has declined, the position would be less valuable and the
Fund would be required to make a maintenance margin payment to the broker. At
any time prior to expiration of the futures contract, the Fund may elect to
close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
While futures contracts based on securities provide for the delivery
and acceptance of securities, such deliveries and acceptances are very seldom
made. Generally, the futures contract is terminated by entering into an
offsetting transaction. An offsetting transaction for a futures contract sale is
effected by the Fund entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument with the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund
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<PAGE> 54
immediately is paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sales price, the Fund pays the difference and
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the Fund entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund realizes a gain, and if the
purchase price exceeds the offsetting price, the Fund realizes a loss.
There are several risks in connection with the use of futures contracts
as a hedging device. One risk arises due to the imperfect correlation between
movements in the price of the futures contracts and movements in the price of
the subject of the hedge. The price of the futures contract may move more than
or less than the price of the securities being hedged.
If the price of the futures contracts moves less than the price of the
securities hedged, the hedge will not be fully effective, but, if the price of
the securities being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price of
the securities being hedged has moved in a favorable direction, this advantage
will be partially offset by the movement in the price of the futures contract.
If the price of the futures contract moves more than the price of the security,
the Fund will experience either a loss or gain on the futures which will not be
completely offset by movements in the prices of the securities which are the
subject of the hedge.
To compensate for the imperfect correlation of such movements in price,
the Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of the securities being hedged if the historical volatility of the
prices of such securities have been greater than the historical volatility of
the futures contracts. Conversely, the Fund may buy or sell fewer futures
contracts if the historical volatility of the prices of the securities being
hedged is less than the historical volatility of the futures contracts.
It is also possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of securities held in the Fund's portfolio may decline. If this occurred, the
Fund would lose money on the futures contracts and also experience a decline in
value in its portfolio securities. However, while this could occur for a very
brief period or to a very small degree, over time the value of a diversified
portfolio will tend to move in the same direction as the futures contracts.
Where futures are purchased to hedge against a possible increase in the
cost of securities before the Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest in the relevant securities at
that time because of concern as to possible further market decline or for other
reasons, the Fund will realize a loss on the futures contract that is not offset
by a reduction in the price of securities purchased.
Another risk arises because the market prices of futures contracts may
be affected by certain factors. First, all participants in the futures market
are subject to initial margin and maintenance margin requirements. Rather than
meeting maintenance margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal relationship
between the securities and futures markets. Second, from the point of view of
speculators, the margin requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore, increased participation
by speculators in the futures market may also cause temporary price distortions.
Due to the possibility of price distortion in the futures market and
because of the imperfect correlation between movements in securities and
movements in the prices of futures contracts, a correct forecast of market
4
<PAGE> 55
trends by the Investment Adviser may still not result in a successful hedging
transaction over a very short period of time.
The hours of trading for futures contracts may not conform to the hours
during which the underlying securities are traded. To the extent that the
futures contracts markets close after the markets for the underlying securities,
significant price movements can take place in the futures contracts markets that
cannot be reflected in the markets of the underlying securities.
Positions in futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Fund intends to purchase or sell futures only on exchanges or boards of trade
where there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
maintenance margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contracts can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will, in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract. The Fund
does not intend to devote more than 5% of its net assets as initial margin or
option premiums for futures transactions.
SECURITY AND STOCK INDEX OPTIONS
When the Fund writes an option, an amount equal to the premium received
by the Fund is recorded as an asset and as an offsetting liability. The amount
of the liability is "marked-to-market" daily to reflect the current market value
of the option, which is the last sale price on the principal exchange on which
such option is traded or, in the absence of a sale, the mean between the latest
bid and offering prices. If an option written by the Fund expires, or the Fund
enters into a closing purchase transaction, the Fund will realize a gain (or, in
the latter case, a loss, if the cost of a closing transaction exceeds the
premium received) and the liability related to such option will be extinguished.
The premium paid by the Fund for the purchase of a put option (its
cost) is recorded initially as an investment, the value of which is subsequently
adjusted to the current market value of the option. If the current market value
of a put option exceeds its premium, the excess represents unrealized
appreciation; conversely, if the premium exceeds the current market value, the
excess represents unrealized depreciation. The current market value of an option
purchased by the Fund equals the option's last sale price on the principal
exchange on which it is traded or, in the absence of a sale, the mean between
the latest bid and offering prices.
An option position may be closed out only on an exchange which provides
a secondary market for an option of the same series. Although the Fund generally
will purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that the Fund would have to exercise its options in order to realize
any profit and would incur transaction costs on the sale of underlying
securities pursuant to the exercise of put options. If the Fund, as a covered
call option writer, is unable to effect a closing purchase transaction in a
secondary
5
<PAGE> 56
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (a) there may be insufficient interest in trading certain
options; (b) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (c) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (d) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (e) the facilities of an exchange or
the Options Clearing Corporation (the "OCC" ) may not at all times be adequate
to handle current trading volume; or (f) one or more exchanges might, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by the OCC as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
In addition, there is no assurance that higher-than-anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of the OCC inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders.
The amount of the premiums which the Fund may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing activities.
In the event of a shortage of the underlying securities deliverable on
exercise of a listed option, the OCC has the authority to permit other,
generally comparable securities to be delivered in fulfillment of option
exercise obligations. If the OCC exercises its discretionary authority to allow
such other securities to be delivered, it may also adjust the exercise prices of
the affected options by setting different prices at which otherwise ineligible
securities may be delivered. As an alternative to permitting such substitute
deliveries, the OCC may impose special exercise settlement procedures.
CLOSED-END INVESTMENT COMPANIES
When the Fund invests in other closed-end investment companies, the
investments made by such other investment companies will be effected by
independent investment managers, and the Fund will have no control over the
investment management, custodial arrangements or operations of any investments
made by such investment managers. Some of the funds in which the Fund may invest
could also incur more risks than would be the case for direct investments made
by the Fund. For example, they may engage in investment practices that entail
greater risks or invest in companies whose securities and other investments are
more volatile. In addition, the funds in which the Fund invests may or may not
have the same fundamental investment limitations as those of the Fund itself.
While a potential benefit of investing in closed-end investment companies would
be to realize value from a decrease in the discount from net asset value at
which some closed-end funds trade, there is also the potential that such
discount could grow, rather than decrease.
By investing in investment companies indirectly through the Fund, a
shareholder of the Fund will bear not only a proportionate share of the expenses
of the Fund (including operating costs and investment advisory and
administrative fees) but also, indirectly, similar expenses of the investment
companies in which the Fund
6
<PAGE> 57
invests. Pursuant to the Fund's investment restrictions and current law, the
Fund will not (i) own more than 3% of the voting securities of any one
investment company; (ii) invest more than 5% of its assets in the securities of
any one investment company; or (iii) invest more than 10% of its assets in
securities issued by investment companies.
FOREIGN SECURITIES
The Fund may invest up to 20% of its net assets in securities of
foreign issuers. Investments in foreign securities offer potential benefits not
available through investment solely in securities of domestic issuers. Foreign
securities offer the opportunity to invest in foreign issuers that appear to
have growth potential, or in foreign countries with economic policies or
business cycles different from those of the United States, or to reduce
fluctuations in portfolio value by taking advantage of foreign markets that do
not move in a manner parallel to United States markets. The Fund may also enter
into foreign currency transactions in connection with its investment activity in
foreign securities.
Investments in foreign securities present special additional risks and
considerations not typically associated with investments in domestic securities.
Foreign investments may be affected by changes in foreign currency rates and
exchange control regulations. There may be less information available about a
foreign company than a domestic company, and foreign companies may not be
subject to accounting, auditing and reporting standards and requirements
comparable to those applicable to domestic companies. Foreign securities may be
less liquid and subject to greater price volatility than domestic securities.
Foreign brokerage commissions and custodial fees are generally higher than those
in the United States. The foreign markets also have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays or
problems with settlements might affect the liquidity of the Fund's portfolio and
might adversely affect the Fund's performance. Foreign investments may also be
subject to local economic or political risks, political instability and possible
nationalization of issuers or expropriation of their assets which might
adversely affect the Fund's ability to realize or liquidate its investment in
such securities. Furthermore, some foreign securities are subject to brokerage
taxes levied by foreign governments, which have the effect of increasing the
cost of such investment and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Furthermore, legal
remedies for defaults and disputes may have to be pursued in foreign courts
whose procedures differ substantially from those of U.S. courts. In the event of
a default in payment on foreign securities, the Fund may incur increased costs
to obtain and/or to enforce a judgment against the foreign issuer (or the other
parties to the transaction) in the United States or abroad, and no assurance can
be given that the Fund will be able to collect on any such judgment.
Income earned or received by the Fund from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States,
however, may reduce or eliminate such taxes. Any such taxes paid by the Fund
will reduce its net income available for distribution to shareholders.
Pursuant to the provisions of Rule 17f-5 under the 1940 Act, the Fund's
Board of Directors has delegated to the Fund's Custodian, The Bank of New York,
as the Fund's Foreign Custody Manager the responsibilities for selecting and
monitoring any foreign custodians that may be used in connection with the Fund's
investments in foreign securities. Pursuant to and subject to the terms and
conditions of the Foreign Custody Manager Agreement between The Bank of New York
and the Fund, The Bank of New York will,
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<PAGE> 58
among other things, (i) determine that the assets held by foreign custodians are
subject to reasonable care, based on the standards applicable to custodians in
the relevant market in which such foreign custodian operates, (ii) determine
that the foreign custodial arrangements are governed by a written contract that
provides reasonable care for the Fund's assets based on such standards, (iii)
establish a system to monitor the appropriateness of maintaining the Fund's
assets with a particular foreign custodian and any material changes in such
contract, and (iv) report to the Fund's Board of Directors with respect to the
Fund's foreign custodial arrangements.
SHORT SALES
The Fund may from time to time make short sales of securities. A short
sale is a transaction in which the Fund sells a security it does not own in
anticipation of a decline in market price. The Fund may make short sales to
offset a potential decline in a long position or a group of long positions, or
if the Investment Adviser believes that a decline in the price of a particular
security or group of securities is likely. The Fund may also make short sales in
an attempt to maintain portfolio flexibility and facilitate the rapid
implementation of investment strategies if the Investment Adviser believes that
the price of a particular security or group of securities is likely to decline.
When the Fund determines to make a short sale of a security, it must
borrow the security. The Fund's obligation to replace the security borrowed in
connection with the short sale will be fully secured by the proceeds from the
short sale retained by the broker and by cash or liquid securities deposited in
a segregated account with the Fund's custodian. The Fund may have to pay a
premium to borrow the security. The Fund must also pay any dividends or interest
payable on the security until the Fund replaces the security.
If the price of the security sold short increases between the time of
the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss, and if the price declines during this period, the Fund will
realize a capital gain. Any realized capital gain will be decreased, and any
incurred loss increased, by the amount of transaction costs and any premium,
dividend or interest which the Fund may have to pay in connection with such
short sale.
In addition to the short sales described above, the Fund may make short
sales "against the box." A short sale "against the box" is a short sale where,
at the time of the short sale, the Fund owns or has the immediate and
unconditional right, at no added cost, to obtain the identical security. The
Fund would enter into such a transaction to defer a gain or loss for Federal
income tax purposes on the security owned by the Fund. Short sales against the
box are not subject to the collateral requirements described above or the
percentage limitations on short sales described below.
The Fund may make a short sale only if, at the time the short sale is
made and after giving effect thereto, the market value of all securities sold
short is 25% or less of the value of its net assets and the market value of
securities sold short which are not listed on a national securities exchange
does not exceed 10% of the Fund's net assets.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental policies which cannot be
changed without the approval of the holders of a majority of its outstanding
voting securities (as defined under "Investment Objective and
8
<PAGE> 59
Policies" in the Prospectus). Except as otherwise noted, all percentage
limitations set forth below apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting
from market fluctuations does not require elimination of any security or other
investment from the portfolio. The Fund may not:
1. With respect to 75% of its total assets, invest in
securities of any one issuer if immediately after and as a result of
such investment more than 5% of the total assets of the Fund, taken at
market value, would be invested in the securities of such issuer. This
investment restriction does not apply to investments in U.S. Government
Securities.
2. Purchase more than 10% of the outstanding voting
securities, or any class of securities, of any one issuer.
3. Purchase securities which would cause 25% or more of its
total assets at the time of such purchase to be concentrated in the
securities of issuers engaged in any one particular industry or group
of related industries. This investment restriction does not apply to
investments in U.S. Government Securities.
4. Invest more than 5% of its total assets in securities of
issuers that, at the time of purchase, have a record, together with
predecessors, of less than three years of continuous operation. This
investment restriction does not apply to investments in U.S. Government
Securities.
5. Purchase securities of other investment companies, except
in connection with a merger, consolidation, acquisition or
reorganization, if more than 10% of the market value of the Fund's
total assets would be invested in securities of other investment
companies, more than 5% of the market value of the Fund's total assets
would be invested in the securities of any one investment company, or
the Fund would own more than 3% of any other investment company's
securities.
6. Purchase or sell real estate; provided that the Fund may
invest in securities secured by real estate or real estate interests or
issued by companies which invest in real estate or real estate
interests.
7. Purchase participations or other direct interests in oil,
gas or other mineral exploration or development programs; provided that
the Fund may invest in the securities of companies which operate,
invest in or sponsor such programs.
8. Purchase any securities on margin, except that the Fund may
make margin deposits in connection with any futures contracts or any
options it may purchase or write. Effecting short sales, to the extent
permitted by 12. below, does not constitute a margin purchase for
purposes of this investment restriction.
9. Make loans of money, except that the Fund may purchase
publicly distributed debt obligations consistent with its investment
objective and policies, and the Fund may make loans of portfolio
securities; provided, that the loan is collateralized by cash or cash
equivalents or U.S. Government Securities in an amount equal, on a
daily basis, to the market value of the securities loaned; and provided
further, that immediately after giving effect to any such loan, the
aggregate amount of all outstanding loans of securities does not exceed
20% of the current market value of the Fund's net assets.
10. Borrow money, except (i) for temporary emergency purposes
in amounts not in excess of 5% of the
9
<PAGE> 60
value of the Fund's total assets at the time the loan is made; or (ii)
in an amount not greater than 20% of the Fund's net assets; provided,
that the Fund maintains asset coverage of 300% with respect to such
borrowings.
11. Issue senior securities, as defined in the 1940 Act, or
mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund except as
may be necessary in connection with borrowings mentioned in 10. above.
(For the purposes of this investment restriction, collateral or escrow
arrangements with respect to the making of short sales, writing of
stock options and collateral arrangements with respect to margin for
futures contracts or related options are not deemed to be a pledge of
assets; and neither such arrangements nor the purchase or sale of
futures contracts or purchases of related options are deemed to be the
issuance of a senior security.)
12. Make any short sales of securities, unless, if, at the
time the short sale is made and after giving effect thereto, (i) the
market value of all securities sold short is 25% or less of the value
of the Fund's net assets, (ii) the market value of such securities sold
short which are not listed on a national securities exchange does not
exceed 10% of the Fund's net assets, (iii) the market value of all
securities sold short of any one issuer does not exceed 2% of the
Fund's net assets, (iv) short sales are not made of more than 2% of the
outstanding securities of one class of any issuer, and (v) the Fund
maintains collateral deposits consisting of cash or U.S. Government
Securities in a segregated account which are at all times equal to 100%
of the current market value of the securities sold short. This
investment restriction does not apply to short sales "against the box."
13. Underwrite securities of other issuers except insofar as
it might be deemed to be an underwriter for purposes of the Securities
Act of 1933, as amended, in the resale of any securities held in its
own portfolio.
14. Invest more than 10% of the Fund's total assets in
securities that at the time of purchase are subject to restrictions on
disposition under the Securities Act of 1933, as amended.
15. Purchase or sell commodities or futures contracts or
options on commodity or futures contracts, except if: (i) the purchase
or sale of futures contracts or options thereon is to hedge the Fund's
existing portfolio of securities, or to anticipate a market or market
sector advance; and (ii) the Fund creates, at the time of its purchase
of a futures contract, a segregated account with its Custodian
consisting of cash, U.S. Government Securities or other appropriate
high-grade debt obligations in an amount equal to the total market
value of such contract, less the amount of initial margin for such
contract.
MANAGEMENT
DIRECTORS AND OFFICERS
The names and addresses of the directors and officers of the Fund are
set forth below, together with their positions and their principal occupations
during the past five years and, in the case of the directors, their positions
with certain other organizations and companies.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address Age Position with the Fund Principal Occupations and Other Affiliations
- ---------------- ---- ---------------------- --------------------------------------------
</TABLE>
10
<PAGE> 61
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Martin E. Zweig* 55 Director, Chairman of President and Director of the Investment
900 Third Avenue the Board and President Adviser; Chairman of the Board and President
New York, NY 10022 (Chief Executive of The Zweig Total Return Fund, Inc.;
Officer) President and Director of Zweig Total Return
Advisors, Inc.; Consultant to Avatar
Investors Associates Corp.; Managing
Director of the Managing General Partner of
Zweig-DiMenna Partners, L.P. and
Zweig-DiMenna Special Opportunities, L.P.;
President and Director of Zweig-DiMenna
International Managers, Inc.; Chairman of
Zweig/Glaser Advisers; President of Zweig
Series Trust; President and Director of
Gotham Advisors, Inc.; Chairman of Euclid
Advisors LLC; formerly General Partner of
Zweig-Katzen Investors, L.P.; Member of the
Undergraduate Executive Board of The Wharton
School, University of Pennsylvania.
Annemarie Gilly* 46 Director First Vice President of Zweig/Glaser
900 Third Avenue Advisers; First Vice President of Euclid
New York, NY 10022 Mutual Funds; First Vice President of Zweig
Securities Corp.; First Vice President of
Zweig Series Trust; Director of The Zweig
Total Return Fund, Inc.; formerly Vice
President of Concord Financial Group Inc.
Eugene J. Glaser* 57 Director Chairman and Chief Executive Officer of
900 Third Avenue Zweig Series Trust; President of
New York, NY 10022 Zweig/Glaser Advisers; Chairman, President,
Chief Executive Officer and Trustee of
Euclid Mutual Funds; President of Euclid
Advisers LLC; President and Director of
Zweig Securities Corp.
Elliot S. Jaffe 71 Director Chairman and Chief Executive Officer of The
30 Dunnigan Drive Dress Barn, Inc.; Director of The Zweig
Suffern, NY 1091 Total Return Fund, Inc.; Director of
National Retail Federation; Director of
Shearson Appreciation Fund; Director of
Shearson Managed Governments, Inc.;
</TABLE>
11
<PAGE> 62
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Director of Shearson Income Trust; Director
of Shearson Lehman Small Capitalization
Fund; Director of Stamford Hospital
Foundation; Member of the Board of Overseers
of The School of Arts and Sciences,
University of Pennsylvania; Trustee Teachers
College, Columbia University.
Jeffrey Lazar* 38 Director, Vice Vice President, Treasurer and Secretary of
900 Third Avenue President, Treasurer the Investment Adviser; Vice President,
New York, NY 10022 and Assistant Secretary Treasurer and Director of The Zweig Total
Return Fund, Inc; Vice President, Treasurer
and Secretary of Zweig Total Return
Advisors, Inc.; Vice President of Zweig
Series Trust.
Alden C. Olson 69 Director Director of The Zweig Total Return Fund,
2711 Ramparte Path Inc; Director of First National Bank of
Holt, Michigan 48842 Michigan; formerly, Professor of Financial
Management, Investments at Michigan State
University.
James B. Rogers, Jr. 55 Director Private Investor; Director of The Zweig
352 Riverside Drive Total Return Fund, Inc.; Chairman of Beeland
New York, NY 10025 Interests; Regular Commentator on CNBC;
Author of "Investment Biker: On the Road
with Jim Rogers"; Director of Emerging
Markets Brewery Fund; Director of Levco
Series Trust; Sometimes Visiting Professor
at Columbia University; Columnist for WORTH
Magazine.
Anthony M. Santomero 51 Director Richard K. Mellon Professor of Finance, The
Steinberg-Dietrich Hall Wharton School, University of Pennsylvania;
Wharton School Director of The Zweig Total Return Fund,
University of Pennsylvania Inc.; Director of Municipal Fund for New
Philadelphia, PA 19104 York Investors; Director of Municipal Fund
for California Investors; Trustee of Compass
Capital Funds.
Robert E. Smith* 62 Director Counsel of Rosenman & Colin LLP; Director of
575 Madison Avenue The Zweig Total Return Fund, Inc.; Director
New York, NY 10022 of Ogden Corporation; formerly Secretary of
the Fund and The Zweig Total Return Fund,
Inc.
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
<S> <C>
Stuart B. Panish* 41 Vice President and Vice President and Secretary of The Zweig
900 Third Avenue Secretary Total Return Fund, Inc.; Counsel to the
New York, NY 10022 Adviser and Zweig Total Return Advisors,
Inc.; General Counsel to Zweig-DiMenna
Partners, L.P., Zweig-DiMenna Special
Opportunities, L.P. and Zweig-DiMenna
International Managers, Inc.; formerly
Special Counsel-Securities at Rosenman &
Colin LLP.
</TABLE>
* Indicates a person who is an "interested person" of the Fund, as defined in
the 1940 Act. All the interested persons of the Fund (other than Robert E.
Smith) are also owners of the Investment Adviser and Administrator.
The following table sets forth the compensation paid by the Fund and
The Zweig Total Return Fund, Inc. to the Directors for the fiscal year ended
December 31, 1997. The Fund does not pay any pension or retirement benefits to
its Directors.
<TABLE>
<CAPTION>
Aggregate Compensation Aggregate Compensation from the Fund and
Director from the Fund The Zweig Total Return Fund, Inc.
- -------- -------------------------- ---------------------------------
<S> <C> <C>
Elliot S. Jaffe $19,000 $38,000
Alden C. Olson $19,000 $38,000
James B. Rogers, Jr. $16,000 $32,000
Anthony M. Santomero $20,500 $41,000
</TABLE>
EXECUTIVE COMPENSATION
No current or former employees, officers or directors received
remuneration from the Fund in excess of $60,000 in the last fiscal year for
service in all their respective capacities.
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY
The Fund's Articles of Incorporation limit the personal liability of
its Officers and Directors to the Fund and its shareholders for money damages to
the maximum extent permitted by the Maryland General Corporation Law.
Accordingly, a shareholder will be able to recover money damages against a
Director or Officer of the Fund only if he is able to prove that (a) the action,
or failure to act, by the Director or Officer was the result of active and
deliberate dishonesty which was material to the cause of action adjudicated in
the proceeding, (b) the Director or Officer actually received an improper
benefit or profit in money, property or services (in which case recovery is
limited to the actual amount of such improper benefit or profit), or (c) the
Director or Officer acted with willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of his or her
office. The limitation on liability does not apply to any act or omission by a
Director or Officer occurring prior to February 18, 1988, regardless of when a
claim might be asserted. The limitation also does not apply to claims against
Directors or Officers arising out of their responsibilities under the Federal
securities laws. The Fund's Articles of Incorporation do not limit the right of
the Fund or any shareholder to sue for an injunction or any other nonmonetary
relief in the event of a breach of a Director's or Officer's duty of care or
other breach of duty or responsibility.
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<PAGE> 64
EXPENSES
For the fiscal years ended December 31, 1997, 1996 and 1995, the Fund's
expenses amounted to $7,224,277, $6,519,079 and $6,290,356, respectively.
Expenses of the Offer will be charged to capital. The Fund's annual
expense ratio was 1.16%, 1.18% and 1.22% of the Fund's net assets for the fiscal
years ended December 31, 1997, 1996 and 1995, respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In the purchase and sale of portfolio securities for the Fund, the
Investment Adviser will seek the best combination of price (inclusive of
brokerage commissions) and execution, and, consistent with that policy, may give
consideration to the research, statistical and other services furnished by
brokers or dealers to the Investment Adviser for its use. The Investment Adviser
is also authorized to place orders with brokers who provide supplemental
investment, market research and security and economic analysis, although the use
of such brokers may result in a higher brokerage charge to the Fund than the use
of brokers selected on the basis of seeking the best combination of price
(inclusive of brokerage commissions) and execution for the same order. Brokerage
may be allocated entirely on the basis of net results to the Fund, including the
difficulty of the order and the reputation of the broker-dealer. Research and
analysis received by the Investment Adviser may benefit the Investment Adviser
and its affiliates in connection with their services to other clients, as well
as the Fund. Subject to the foregoing, the Fund may effect a portion of its
securities transactions through affiliated broker-dealers of the Investment
Adviser, including Zweig Securities Corp., a broker-dealer of which Eugene J.
Glaser, a Director of the Fund, is President, and Martin E. Zweig and Eugene J.
Glaser are the shareholders. In accordance with the provisions of Rule 17e-1 of
the 1940 Act, the Fund's Board of Directors has adopted certain procedures which
are designed to provide that brokerage commissions paid to Zweig Securities
Corp. and any other affiliated broker-dealer are reasonable and fair as compared
to the brokerage commissions received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
securities exchanges during a comparable period of time. The Fund, however, has
no obligation to deal with Zweig Securities Corp. or any other broker-dealer in
effecting portfolio transactions.
The Fund paid brokerage commissions of $1,295,050 to brokers for the
year ended December 31, 1997, of which $182,134 was paid to Zweig Securities
Corp., representing 14.06% of the aggregate brokerage commissions paid by the
Fund and 14.83% of the aggregate amount of transactions involving the payment of
commissions for such year. The Fund paid brokerage commissions of $1,446,356 to
brokers for the year ended December 31, 1996, of which $134,919 was paid to
Zweig Securities Corp , representing 9.33% of the aggregate brokerage
commissions paid by the Fund and 7.88% of the aggregate amount of transactions
involving the payment of commissions for such year The Fund paid brokerage
commissions of $1,413,504 to brokers for the year ended December 31, 1995, of
which $225,075 was paid to Watermark Securities, Inc., representing 15.92% of
the aggregate brokerage commissions paid by the Fund and 17.31% of the aggregate
amount of transactions involving the payment of commissions for such year.
Martin E. Zweig is a principal shareholder of Watermark Securities, Inc.
A portion of the securities in which the Fund will invest may be traded
in the over-the-counter markets, and the Fund intends to deal directly with the
dealers who make markets in the securities involved, except in
14
<PAGE> 65
those circumstances where better prices and execution are available elsewhere.
Fixed income securities purchased or sold on behalf of the Fund normally will be
traded in the over-the-counter market on a net basis (i.e. without a commission)
through dealers acting for their own account and not as brokers or otherwise
through transactions directly with the issuer of the instrument. Some fixed
income securities may be purchased and sold on an exchange or in
over-the-counter transactions conducted on an agency basis involving a
commission. Futures transactions generally will be effected through those
futures commission merchants the Fund believes will obtain the most favorable
results for the Fund.
When the Fund and one or more accounts managed by the Investment
Adviser or its affiliates propose to purchase or sell the same security, the
available opportunities will be allocated in a manner the Investment Adviser
believes to be equitable. In some cases, this procedure may affect adversely the
price paid or received by the Fund or the size of the position purchased or sold
by the Fund. In other cases, coordination with transactions for other accounts
and the ability to participate in volume transactions could benefit the Fund.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rates for the fiscal years ended December
31, 1997, December 31, 1996 and December 31, 1995 were 93.0%, 137.2% and 160.2%,
respectively. Portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities by the monthly
average value of securities in the portfolio during the year, excluding
portfolio securities the maturities of which at the time of acquisition were one
year or less. Portfolio turnover will not be a limiting factor in making
investment decisions, and the Fund's investment policies may result in portfolio
turnover substantially greater than that of other investment companies. A high
rate of portfolio turnover (over 100%) involves greater brokerage commission
expense, which must be borne by the Fund and its shareholders. A high rate of
portfolio turnover may also result in the realization of capital gains, and to
the extent that portfolio turnover results in the realization of net short-term
capital gains, such gains generally are taxed to shareholders at ordinary income
tax rates.
NET ASSET VALUE
The net asset value of the Fund's shares will be determined by the
Administrator as of the close of regular trading on the New York Stock Exchange,
on each day the Exchange is open for trading, by dividing the Fund's total
assets, less the Fund's total liabilities, by the total number of Shares
outstanding. Net asset value will be published weekly in a financial newspaper
of general circulation.
Portfolio securities (including stock options) which are traded only on
stock exchanges will be valued at the last sale price. Securities traded in the
over-the-counter market which are National Market Systems securities will be
valued at the last sale price. Other over-the-counter securities will be valued
on the basis of the mean between the current bid and asked prices obtained from
market makers in such securities. Debt securities that mature in 60 days or less
will be valued at amortized cost, unless the Board of Directors determines that
such valuation does not constitute fair value. Debt securities that have an
original maturity of less than 61 days will be valued at their cost, plus or
minus amortized discount or premium, unless the Board of Directors determines
that such valuation does not constitute fair value. Futures and options thereon
which are traded on commodities exchanges will be valued at their closing
settlement price on such exchange. Securities and assets for which market
quotations are not readily available, and other assets, if any, will be valued
at fair
15
<PAGE> 66
value as determined in good faith and pursuant to procedures established by the
Board of Directors of the Fund.
The outstanding shares of Common Stock are, and the Shares will be,
listed on the New York Stock Exchange Incorporated and the Pacific Exchange. The
Fund's Shares of Common Stock have traded in the market above, at and below net
asset value since the commencement of the Fund's operations in October 1986.
During the past nine years, the Fund's shares have generally traded in the
market at a premium above net asset value; however, the Fund's officers cannot
predict whether the Fund's Common Stock will trade in the future at a premium or
a discount to net asset value, and if so, the level of such premium or discount.
TAXATION
The following is a summary of the principal U.S. Federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares of the Fund. The summary does not address special tax
rules applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Each prospective shareholder is
urged to consult his or her own tax adviser with respect to the specific
Federal, state, local and foreign tax consequences of investing in the Fund. The
summary is based on the laws in effect on the date of this SAI, which are
subject to change.
GENERAL
The Fund has elected to be treated, has qualified and intends to
continue to qualify for each taxable year, as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To so qualify, the Fund must comply with certain requirements of the
Code relating to, among other things, the source of its income and the
diversification of its assets.
If the Fund complies with such requirements, then in any taxable year
for which the Fund distributes, in accordance with the Code's timing
requirements, ordinary income dividends of at least 90% of its investment
company taxable income, the Fund (but not its shareholders) will be relieved of
Federal income tax on any income of the Fund, including capital gains, that is
distributed to shareholders in accordance with the Code's requirements. However,
if the Fund retains any investment company taxable income or net capital gain,
it will be subject to a tax at regular corporate rates on the amount retained.
If the Fund retains any net capital gain, the Fund may designate the retained
amount as undistributed capital gains in a notice to its shareholders who, if
subject to U.S. Federal income tax on capital gains, (i) will be required to
include in income for Federal income tax purposes, as capital gain, their shares
of such undistributed amount, and (ii) will be entitled to credit their
proportionate shares of the tax paid by the Fund against their U.S. Federal
income tax liabilities, if any, and to claim refunds to the extent the credit
exceeds such liabilities. For U.S. Federal income tax purposes, the tax basis of
shares owned by a shareholder of the Fund will be increased by an amount equal
under current law to 65% of the amount of undistributed net capital gain
included in the shareholder's gross income.
In order to avoid a 4% Federal excise tax, the Fund must distribute (or
be deemed to have distributed) by December 31 of each calendar year at least 98%
of its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses, and all taxable ordinary income and the
excess of capital gains over capital losses for the previous year that were not
distributed for such year and on which the Fund did not pay Federal income
16
<PAGE> 67
tax. The Fund intends to distribute at least annually to its shareholders all or
substantially all of its investment company taxable income and its net capital
gain, but reserves the right to retain and designate as described in the above
paragraph, its net capital gain.
The Fund's investments, if any, in securities issued at a discount or
providing for deferred interest payments or payments of interest in kind will
generally cause the Fund to realize income prior to the receipt of cash payments
with respect to these securities. Mark to market rules applicable to certain
options and futures contracts may also require that net gains be recognized
without a concurrent receipt of cash. In order to obtain cash to distribute its
income or gains, maintain its qualification as a regulated investment company
and avoid Federal income or excise taxes, the Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold.
TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS
For U.S. Federal income tax purposes, distributions by the Fund,
whether reinvested in additional shares or paid in cash, generally will be
taxable to shareholders who are subject to tax.
Distributions from the Fund's investment company taxable income will be
taxable as ordinary income, and generally cannot be offset by capital losses.
For corporate shareholders, distributions designated as derived from the Fund's
dividend income that would be eligible for the dividends received deduction if
the Fund were not a regulated investment company will be eligible, subject to
certain holding period and debt-financing restrictions, for the 70% dividends
received deduction. (However, the entire dividend, including the deducted
amount, is includable in determining a corporate shareholder's alternative
minimum taxable income.) So long as the Fund qualifies as a regulated investment
company and satisfies the 90% distribution requirement, capital gain dividends
if properly designated as such in a written notice to shareholders mailed not
later than 60 days after the Fund's taxable year closes, will be taxed to
shareholders as capital gain which, as to non-corporate shareholders, will be
taxable at maximum marginal Federal income tax rates of (i) 28% for the portion
of such dividends designated by the Fund as a 28% rate gain distribution, and
(ii) 20% for the portion of such dividends designated by the Fund as a 20% rate
gain distribution, respectively, regardless of how long the shareholder has held
his or her Fund shares. Distributions, if any, that are in excess of the Fund's
current and accumulated earnings and profits, as computed for Federal income tax
purposes, will first reduce a shareholder's tax basis in his or her shares and,
after such basis is reduced to zero, will constitute capital gains to a
shareholder who holds his or her shares as capital assets.
All distributions, whether received in shares or in cash, as well as
sales and exchanges of Fund shares, must be reported by each shareholder who is
required to file a U.S. Federal income tax return. For Federal income tax
purposes, dividends declared by the Fund in October, November or December to
shareholders on a specified date in such a month and paid during January of the
following year are treated as if they were paid by the Fund and received by such
shareholders on December 31 of the year declared. In addition, certain other
distributions made after the close of a taxable year may be "spilled back" and
treated as paid by the Fund (other than for purposes of avoiding the 4% excise
tax) during such year. Such dividends would be taxable to the shareholders in
the taxable year in which the distribution was actually made by the Fund.
The Fund will send written notices to shareholders regarding the amount
and Federal income tax status of all distributions made during each calendar
year.
17
<PAGE> 68
With respect to distributions paid in cash or, for shareholders
participating in the Distribution Reinvestment and Cash Purchase Plan (the
"Plan"), reinvested in shares purchased in the open market, the amount of the
distribution for tax purposes is the amount of cash distributed or allocated to
the shareholder. With respect to distributions issued in shares of the Fund, the
amount of the distribution for tax purposes is the fair market value of the
issued shares on the payment date.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares and may also reduce their market value. Should a
distribution reduce the net asset value or market value below a shareholder's
cost basis, such distribution (to the extent paid from the Fund's current or
accumulated earnings and profits) would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. Since the market price of shares
purchased at that time may include the amount of any forthcoming distribution,
investors purchasing shares just prior to a distribution will in effect receive
a return of a portion of their investment in the form of a distribution which
nevertheless will be taxable to them.
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<PAGE> 69
TAXABLE U.S. SHAREHOLDERS - SALE OF SHARES
When a shareholder's shares are sold, exchanged or otherwise disposed
of, the shareholder will generally recognize gain or loss equal to the
difference between the shareholder's adjusted tax basis in the shares and the
cash, or fair market value of any property, received. Assuming the shareholder
holds the shares as a capital asset at the time of such sale or other
disposition, such gain or loss should be capital gain or loss which will be
long-term if the shares were held for more than 18 months, mid-term if the
shares were held between 12 and 18 months, and short-term if the shares were
held for 12 months or less. For non-corporate shareholders, short-term gain is
taxable at a maximum marginal Federal income tax rate of 39.6%, whereas mid-term
and long-term capital gains qualify for lower maximum marginal Federal income
tax rates (i.e., 28% and 20%, respectively). However, it currently appears that
any loss realized on the sale, exchange or other disposition of Fund shares with
a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividend received by the selling
shareholder with respect to such shares, even if part or all of such dividend
was taxed at the 28% rate applicable to mid-term capital gains as discussed
under the preceding subheading. Additionally, any loss realized on a sale or
other disposition of shares of the Fund may be disallowed under "wash sale"
rules to the extent the shares disposed of are replaced with other shares of the
Fund within a period of 61 days beginning 30 days before and ending 30 days
after the shares are disposed of, such as pursuant to a distribution
reinvestment in shares of the Fund under the Plan. If disallowed, the loss will
be reflected in an adjustment to the basis of the shares acquired.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service all
distributions, as well as gross proceeds from the sale or exchange of Fund
shares with respect to which the Fund is a payor (such as pursuant to a tender
offer), except in the case of certain exempt recipients, i.e., corporations and
certain other investors to which distributions are exempt from the information
reporting provisions of the Code. Under the backup withholding provisions of
Code Section 3406 and applicable Treasury regulations, all such reportable
distributions and proceeds may be subject to backup withholding of Federal
income tax at the rate of 31% in the case of nonexempt shareholders who fail to
furnish the Fund with their correct taxpayer identification number and with
certain required certifications or if the Internal Revenue Service or a broker
notifies the Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding as a result of failure to
report interest or dividend income. The Fund may refuse to accept any
subscription that does not contain any required taxpayer identification number
or certification that the number provided is correct. If the backup withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in shares, will be reduced by the amounts required to be
withheld. Any amounts withheld would be credited against a shareholder's U.S.
Federal income tax liability. Investors should consult their tax advisers about
the applicability of the backup withholding provisions.
NON-U.S. SHAREHOLDERS
The foregoing discussion relates solely to U.S. Federal income tax law
as it applies to "U.S. persons" (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. Dividends of investment company taxable income distributed by the Fund
to a shareholder who is not a U.S. person will be subject to U.S. withholding
tax at the rate of 30% (or a lower rate provided by an applicable tax treaty)
unless the dividends are effectively connected with a U.S. trade or business of
the
19
<PAGE> 70
shareholder, in which case the dividends will be subject to tax on a net income
basis at the graduated rates applicable to U.S. individuals or domestic
corporations and, in the case of a shareholder that is a foreign corporation,
may be subject to U.S. "branch profit tax." Capital gain distributions,
including amounts retained by the Fund which are designated as undistributed
capital gains, to a non-U.S. shareholder will not be subject to U.S. income or
withholding tax unless the distributions are effectively connected with the
shareholder's trade or business in the U.S. or, in the case of a shareholder who
is a nonresident alien individual, the shareholder is present in the U.S. for
183 days or more during the taxable year and certain other conditions are met.
Any gain realized by a shareholder who is not a U.S. person upon a sale
or other disposition of shares of the Fund will not be subject to U.S. Federal
income or withholding tax unless the gain is effectively connected with the
shareholder's trade or business in the U.S., or in the case of a shareholder who
is a nonresident alien individual, the shareholder is present in the U.S. for
183 days or more during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish the Fund with an IRS Form W-8 or acceptable
substitute Form W-8 may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of certain sales of their shares with
respect to which the Fund is a payor (such as pursuant to a tender offer).
Investors who are not U.S. persons should consult their tax advisers about the
U.S. and non-U.S. tax consequences of ownership of shares of, and receipt of
distributions from, the Fund.
STATE AND LOCAL TAXES
The Fund may be subject to state or local taxes in jurisdictions in
which the Fund may be deemed to be doing business. In addition, in those states
or localities which have income tax laws, the treatment of the Fund and its
shareholders under such laws may differ from their treatment under Federal
income tax laws, and an investment in the Fund may have tax consequences for
shareholders different from those of a direct investment in the Fund's portfolio
securities. Shareholders should consult their own tax advisers concerning these
matters.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 1301 Avenue of the Americas, New York, New
York 10019, serves as the independent accountants for the Fund. In addition to
reporting annually on the financial statements of the Fund, the Fund's
accountants also review certain filings of the Fund with the Commission.
PRINCIPAL SHAREHOLDERS
There are no persons known to the Fund to be control persons of the
Fund, as such term is defined in Section 2(a)(9) of the 1940 Act. There is no
person known to the Fund to hold beneficially more than 5% of the outstanding
shares of the Fund. The following person is the only person holding of record
more than 5% of the 53,186,244 outstanding shares of the Fund as of March 31,
1998:
AMOUNT OF PERCENT
NAME AND ADDRESS OF RECORD OF
RECORD OWNER OWNERSHIP CLASS
Cede & Co. 35,170,922 66.1%
7 Hanover Square
20
<PAGE> 71
New York, New York 10004
As of March 31, 1998, the current Directors and Officers of the Fund,
as a group, beneficially owned less than 1% of the Fund's outstanding shares.
21
<PAGE> 72
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------ ------------
<S> <C> <C> <C>
COMMON STOCKS 87.30%
AEROSPACE & DEFENSE 0.35%
Raytheon Co., Class A ................................................ 47,430 $ 2,338,892
------------
AUTOMOTIVE 4.54%
Chrysler Corp. ....................................................... 134,400 4,729,200
Ford Motor Co. ....................................................... 243,100 11,835,931
General Motors Corp. ................................................. 147,600 8,948,250
Volvo AB, ADR ........................................................ 175,100 4,727,700
------------
30,241,081
------------
CHEMICALS 2.92%
Albemarle Corp. ...................................................... 79,800 1,905,225
B.F. Goodrich Co. .................................................... 73,300 3,037,369
Dow Chemical Co. ..................................................... 68,100 6,912,150
Millennium Chemicals, Inc. ........................................... 87,700 2,066,431
Rohm and Haas Co. .................................................... 46,000 4,404,500
Wellman, Inc. ........................................................ 58,600 1,142,700
------------
19,468,375
------------
CONSUMER DURABLES 1.94%
Cooper Tire & Rubber Co. ............................................. 193,500 4,716,563
Goodyear Tire & Rubber Co. ........................................... 56,700(b) 3,607,537
Huffy Corp. .......................................................... 28,500 384,750
Whirlpool Corp. ...................................................... 77,000 4,235,000
------------
12,943,850
------------
CONTAINERS & PACKAGING 0.12%
Sea Containers Ltd., Class A ......................................... 25,200 806,400
------------
ELECTRONICS 0.88%
General Motors Corp., Class H ........................................ 67,600 2,496,975
Hitachi Ltd., ADR .................................................... 12,200 844,088
Philips Electronics N.V., ADR ........................................ 41,400 2,504,700
------------
5,845,763
------------
FINANCIAL SERVICES 11.29%
A.G. Edwards & Sons, Inc. ............................................ 184,650 7,339,837
Bear, Stearns & Co., Inc. ............................................ 231,736 11,007,460
Charter One Financial, Inc. .......................................... 41,185 2,599,803
Fremont General Corp. ................................................ 67,050 3,670,988
H. F. Ahmanson & Co. ................................................. 146,600 9,813,037
Lincoln National Corp. ............................................... 43,300 3,382,813
Old Republic International Corp. ..................................... 99,500 3,700,156
Orion Capital Corp. .................................................. 58,000 2,693,375
</TABLE>
F-1
<PAGE> 73
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS--(Continued)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------ ------------
<S> <C> <C> <C>
FINANCIAL SERVICES--(Continued)
PaineWebber Group Inc. ............................................... 235,000 $ 8,122,188
PIMCO Advisors L.P., Class A ......................................... 47,600 1,436,925
Providian Corp. ...................................................... 176,200 7,962,038
Selective Insurance Group, Inc. ...................................... 48,000 1,296,000
St. Paul Bancorp Inc. ................................................ 26,700 700,875
Travelers Group Inc. ................................................. 213,229 11,487,712
------------
75,213,207
------------
FOOD & BEVERAGE 0.48%
Adolph Coors Co., Class B ............................................ 95,400 3,172,050
------------
HOME BUILDERS & MATERIALS 0.56%
Kaufman & Broad Home Corp. ........................................... 98,600 2,212,338
Lafarge Corp. ........................................................ 50,400 1,489,950
------------
3,702,288
------------
INDUSTRIAL SERVICES 1.26%
Browning-Ferris Industries Inc. ...................................... 175,000 6,475,000
Ogden Corp. .......................................................... 67,600 1,905,475
------------
8,380,475
------------
INVESTMENT COMPANIES 4.66%
Argentina Fund, Inc. ................................................. 49,100 641,369
Blackrock 2001 Term Trust, Inc. ...................................... 52,600 453,675
Blackrock Strategic Term Trust, Inc. ................................. 52,600 447,100
Brazil Fund, Inc. .................................................... 59,500 1,249,500
Central European Equity Fund, Inc. ................................... 46,400 849,700
Chile Fund, Inc. ..................................................... 61,400 1,093,687
Clemente Global Growth Fund, Inc. .................................... 23,400 220,838
Emerging Markets Infrastructure Fund, Inc. ........................... 158,200 1,858,850
Emerging Markets Telecommunications Fund, Inc. ....................... 61,500 822,562
Emerging Mexico Fund, Inc. ........................................... 36,200 384,625
G.T. Global Eastern Europe Fund ...................................... 43,100 544,138
Gabelli Equity Trust, Inc. ........................................... 89,800 1,049,538
Gabelli Global Multimedia Trust Fund, Inc. ........................... 99,700 872,375
India Fund, Inc. ..................................................... 48,100 354,737
Italy Fund, Inc. ..................................................... 29,700 319,275
Latin American Discovery Fund, Inc. .................................. 56,200 1,008,088
Mexico Equity & Income Fund, Inc. .................................... 21,500 229,781
Mexico Fund, Inc. .................................................... 173,900 3,575,818
Morgan Stanley Asia-Pacific Fund, Inc. ............................... 121,900 906,631
Morgan Stanley Emerging Markets Fund, Inc. ........................... 152,300 1,989,419
Morgan Stanley India Investment Fund, Inc. ........................... 40,000 335,000
</TABLE>
F-2
<PAGE> 74
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------ ------------
<S> <C> <C> <C>
INVESTMENT COMPANIES--(Continued)
New Germany Fund, Inc. ............................................... 125,400 $ 1,692,900
Portugal Fund, Inc. .................................................. 38,200 604,038
Royce Value Trust, Inc. .............................................. 144,155 2,171,334
Southern Africa Fund, Inc. ........................................... 34,400 434,300
Spain Fund, Inc. ..................................................... 23,900 346,550
Swiss Helvetia Fund, Inc. ............................................ 77,000 2,112,688
Taiwan Fund, Inc. .................................................... 94,800 1,564,200
Templeton China World Fund, Inc. ..................................... 47,000 393,625
Templeton Dragon Fund, Inc. .......................................... 157,500 1,693,125
Tri-Continental Corp. ................................................ 30,700 819,306
------------
31,038,772
------------
LEISURE 0.79%
Brunswick Corp. ...................................................... 95,800 2,903,937
Royal Caribbean Cruises Ltd. ......................................... 44,300 2,361,744
------------
5,265,681
------------
LODGING 0.11%
Marcus Corp. ......................................................... 41,550 766,078
------------
MANUFACTURING 5.89%
Aeroquip-Vickers, Inc. ............................................... 57,300 2,811,281
Borg-Warner Automotive, Inc. ......................................... 52,700 2,740,400
Brown Group, Inc. .................................................... 59,000 785,437
Cummins Engine Company, Inc. ......................................... 110,400 6,520,500
Dexter Corp. ......................................................... 36,700 1,584,981
Excel Industries, Inc. ............................................... 38,500 695,406
Herman Miller, Inc. .................................................. 92,600 5,052,488
Johnson Controls, Inc. ............................................... 55,800 2,664,450
PACCAR, Inc. ......................................................... 77,800 4,084,500
Simpson Industries, Inc. ............................................. 43,000 505,250
Standard Products Co. ................................................ 46,300 1,186,438
Timken Co. ........................................................... 166,000 5,706,250
Trinity Industries, Inc. ............................................. 110,400 4,926,600
------------
39,263,981
------------
METALS & MINING 3.58%
AK Steel Holdings Corp. .............................................. 137,000 2,423,188
Alcan Aluminium Ltd. ................................................. 135,300 3,737,662
ASARCO, Inc. ......................................................... 105,100 2,358,181
Birmingham Steel Corp. ............................................... 59,100 930,825
British Steel Plc, ADR ............................................... 128,700 2,759,006
Cleveland-Cliffs, Inc. ............................................... 14,700 673,444
Cyprus Amax Minerals Co. ............................................. 87,000 1,337,625
Oregon Steel Mills, Inc. ............................................. 110,800 2,361,425
Quanex Corp. ......................................................... 17,700 497,813
USX-U.S. Steel Group ................................................. 216,700 6,771,875
------------
23,851,044
------------
</TABLE>
F-3
<PAGE> 75
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS--(Continued)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------ ------------
<S> <C> <C> <C>
OIL & OIL SERVICES 13.08%
Ashland Inc. ......................................................... 141,500 $ 7,596,781
Atlantic Richfield Co. ............................................... 96,600 7,740,075
Elf Aquitaine S.A., ADR .............................................. 97,700 5,727,663
Equitable Resources, Inc. ............................................ 44,300 1,567,112
Helmerich & Payne, Inc. .............................................. 49,400 3,353,025
Mobil Corp. .......................................................... 53,700 3,876,469
Murphy Oil Corp. ..................................................... 64,700 3,505,931
Occidental Petroleum Corp. ........................................... 205,400 6,020,787
Pennzoil Co. ......................................................... 124,600(b) 8,324,838
Phillips Petroleum Co. ............................................... 61,400 2,985,575
Royal Dutch Petroleum Co., ADR ....................................... 135,200 7,326,150
Sun Company, Inc. .................................................... 260,300 10,948,869
USX-Marathon Group ................................................... 279,800 9,443,250
YPF Sociedad Anonima, ADR ............................................ 255,900 8,748,581
------------
87,165,106
------------
PAPER & FOREST PRODUCTS 2.31%
Bowater Inc. ......................................................... 126,300 5,612,456
Fort James Corp. ..................................................... 179,400 6,862,050
International Paper Co. .............................................. 54,700(b) 2,358,938
Pope & Talbot, Inc. .................................................. 35,200 530,200
------------
15,363,644
------------
RETAIL TRADE & SERVICES 2.35%
Dayton Hudson Corp. .................................................. 104,100 7,026,750
Ross Stores, Inc. .................................................... 74,600 2,713,575
Shopko Stores Inc. ................................................... 68,400 1,487,700
Supervalu Inc. ....................................................... 106,500 4,459,687
------------
15,687,712
------------
TECHNOLOGY 3.21%
Applied Materials Inc. ............................................... 41,600(a) 1,253,200
Dell Computer Corp. .................................................. 72,000(a)(b) 6,048,000
Digital Equipment Corp. .............................................. 57,600(a) 2,131,200
Harris Corp. ......................................................... 81,600 3,743,400
Intel Corp. .......................................................... 45,600 3,203,400
Microsoft Corp. ...................................................... 38,700(a) 5,001,975
------------
21,381,175
------------
TELECOMMUNICATIONS 4.65%
BCE Inc. ............................................................. 79,000 2,631,688
Comsat Corp. ......................................................... 174,400 4,229,200
Telecomunicacoes Brasileiras, S.A., ADR .............................. 47,900 5,577,356
</TABLE>
F-4
<PAGE> 76
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------ ------------
<S> <C> <C> <C>
TELECOMMUNICATIONS--(Continued)
Telefonica de Espana, S.A., ADR ...................................... 90,500 $ 8,241,156
Telefonos de Mexico, S.A., ADR ....................................... 184,400(b) 10,337,925
------------
31,017,325
------------
TOBACCO 1.69%
RJR Nabisco Holdings Corp. ........................................... 264,600 9,922,500
Universal Corp. ...................................................... 32,300 1,328,338
------------
11,250,838
------------
TRANSPORTATION 5.04%
British Airways Plc, ADR ............................................. 18,600 1,742,588
Caliber Systems, Inc. ................................................ 168,300 8,194,106
Canadian Pacific Ltd. ................................................ 232,500 6,335,625
CNF Transportation, Inc. ............................................. 143,300 5,499,137
GATX Corp. ........................................................... 41,300 2,996,831
KLM Royal Dutch Airlines N.V., ADR ................................... 61,933 2,337,971
Rollins Truck Leasing Corp. .......................................... 52,300 934,863
Ryder System, Inc. ................................................... 168,500 5,518,375
------------
33,559,496
------------
UTILITIES-ELECTRIC & NATURAL GAS 15.60%
Allegheny Energy, Inc. ............................................... 64,700 2,102,750
American Electric Power Co., Inc. .................................... 59,800 3,087,175
Columbia Gas System, Inc. ............................................ 92,200 7,243,463
CMS Energy Corp. ..................................................... 167,200 7,367,250
DQE Inc. ............................................................. 85,950 3,018,993
DTE Energy Co. ....................................................... 99,100 3,437,531
Edison International ................................................. 294,500 8,006,719
FPL Group, Inc. ...................................................... 129,600 7,670,700
FirstEnergy Co. ...................................................... 99,700 2,891,300
GPU, Inc. ............................................................ 240,700 10,139,487
IPALCO Enterprises, Inc. ............................................. 16,200 679,388
New York State Electric & Gas Corp. .................................. 228,000 8,094,000
Pacific Enterprises .................................................. 61,300 2,306,412
PacifiCorp. .......................................................... 92,500 2,526,406
PECO Energy Co. ...................................................... 134,500 3,261,625
PG&E Corp. ........................................................... 199,100 6,060,106
Pinnacle West Capital Corp. .......................................... 166,900 7,072,388
PP&L Resources, Inc. ................................................. 143,400 3,432,637
Public Service Co. of New Mexico ..................................... 101,600 2,406,650
Sierra Pacific Resources ............................................. 59,800 2,242,500
Transcanada Pipelines Ltd. ........................................... 101,500 2,271,063
United Illuminating Co. .............................................. 29,300 1,345,969
UtiliCorp United Inc. ................................................ 88,100 3,419,381
Valero Energy Corp. .................................................. 124,500 3,913,969
------------
103,997,862
------------
TOTAL COMMON STOCKS (Cost $465,868,041) ........................................ 581,721,095
------------
</TABLE>
F-5
<PAGE> 77
THE ZWEIG FUND, INC.
SCHEDULE OF INVESTMENTS--(Concluded)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
------------ ------------
<S> <C> <C> <C>
UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS 7.58%
Federal National Mortgage Association, 6.85%, 4/5/2004 ............... $ 2,765,000 $ 2,888,565
United States Treasury Bonds, 10.75%, 5/15/2003 ...................... 4,000,000 4,912,500
United States Treasury Bonds, 7.25%, 8/15/2022 ....................... 4,300,000 4,967,842
United States Treasury Bonds, 7.50%, 11/15/2024 ...................... 17,600,000 21,054,000
United States Treasury Notes, 6.875%, 5/15/2006 ...................... 7,500,000 8,029,687
United States Treasury Notes, 6.50%, 10/15/2006 ...................... 8,300,000 8,694,250
------------
TOTAL UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS
(Cost $48,135,718) ............................................................. 50,546,844
------------
SHORT-TERM INVESTMENTS 4.05%
Baker Hughes, Inc., 6.70%, 1/02/98 (cost $26,994,975) ................ 27,000,000 26,994,975
------------
TOTAL INVESTMENTS (Cost $540,998,734) - 98.93% ................................. $659,262,914
Other Assets less liabilities - 1.07% .......................................... 7,102,877
------------
NET ASSETS - 100.00% ........................................................... $666,365,791
============
<CAPTION>
NUMBER OF
SHARES
------------
<S> <C> <C>
SECURITIES SOLD SHORT (NOTE 1D)
Goodyear Tire & Rubber Co. ........................................... 56,700(b) $ 3,607,537
International Paper Co. .............................................. 54,700(b) 2,358,938
Pennzoil Co. ......................................................... 46,400(b) 3,100,100
Telefonos de Mexico, S.A., ADR. ...................................... 59,800(b) 3,352,537
W.E.B.S. Index Fund, Inc. - Hong Kong Series ......................... 184,900 2,010,788
-----------
TOTAL SECURITIES SOLD SHORT (Proceeds $15,767,296) ............................ $14,429,900
===========
</TABLE>
- ------------
(a) Non-income producing security.
(b) Short "against the box" or used as collateral on short sales.
For Federal income tax purposes, the tax basis of investments owned at
December 31, 1997 was $541,235,757 and net unrealized appreciation on
investments consisted of:
Gross unrealized appreciation ................. $128,071,973
Gross unrealized depreciation ................. (10,044,816)
------------
Net unrealized appreciation ................... $118,027,157
============
See notes to financial statements.
F-6
<PAGE> 78
THE ZWEIG FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31,1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost $540,998,734) ............... $659,262,914
Cash ............................................................... 1,159,922
Dividends and interest receivable .................................. 4,272,330
Deposits with broker for securities sold short ..................... 16,792,950
Prepaid expenses ................................................... 44,361
------------
Total Assets .................................................. 681,532,477
------------
LIABILITIES:
Accrued advisory fees (Note 3) ..................................... 471,253
Accrued administration fees (Note 3) ............................... 2,361
Other accrued expenses ............................................. 263,172
Securities sold short, at value (proceeds $15,767,296) ............. 14,429,900
------------
Total Liabilities ............................................. 15,166,686
------------
NET ASSETS ............................................................... $666,365,791
============
NET ASSET VALUE, PER SHARE:
($666,365,791/52,765,559 shares outstanding--Note 4) ..................... $ 12.63
============
Net Assets consist of:
Capital paid-in .................................................... $532,026,118
Undistributed net investment income ................................ 9,497,801
Undistributed net realized gain on investments ..................... 5,240,296
Net unrealized appreciation on investments and securities sold short 119,601,576
------------
$666,365,791
============
</TABLE>
See notes to financial statements.
F-7
<PAGE> 79
THE ZWEIG FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends .............................................................. $ 14,155,484
Interest ............................................................... 11,091,944
------------
Total Income ....................................................... 25,247,428
------------
Expenses:
Investment advisory fees (Note 3) ...................................... 5,312,237
Administration fees (Note 3) ........................................... 812,460
Transfer agent fees .................................................... 421,292
Printing and postage expenses .......................................... 284,097
Professional fees (Note 3) ............................................. 70,030
Custodian fees ......................................................... 108,770
Directors' fees and expenses (Note 3) .................................. 76,054
Miscellaneous .......................................................... 139,337
------------
Total Expenses ..................................................... 7,224,277
------------
Net Investment Income ............................................ 18,023,151
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments (Note 2):
Security transactions .................................................. 39,417,996
Short sales transactions ............................................... 109,606
Futures transactions ................................................... 4,241,447
------------
Net realized gain on investments ................................... 43,769,049
Increase in unrealized appreciation on investments and securities sold short 61,835,402
------------
Net realized and unrealized gain on investments ........................ 105,604,451
------------
Net increase in net assets resulting from operations ................... $123,627,602
============
</TABLE>
See notes to financial statements.
F-8
<PAGE> 80
THE ZWEIG FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .................................. $ 18,023,151 $ 17,352,662
Net realized gain on investments ....................... 43,769,049 39,254,840
Increase in unrealized appreciation on investments and
securities sold short ............................. 61,835,402 19,492,169
------------- -------------
Net increase in net assets resulting from operations 123,627,602 76,099,671
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................. (16,029,830) (15,101,212)
Net realized gains on investments ...................... (46,130,976) (40,189,126)
------------- -------------
Total dividends and distributions to shareholders .. (62,160,806) (55,290,338)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net asset value of shares issued to shareholders in
reinvestment of dividends from net investment
income and distributions from net realized gains .. 15,818,485 20,385,394
------------- -------------
Net increase in net assets ............................. 77,285,281 41,194,727
NET ASSETS:
Beginning of year ...................................... 589,080,510 547,885,783
------------- -------------
End of year (including undistributed net investment
income of $9,497,801 and $6,379,341, respectively) $ 666,365,791 $ 589,080,510
============= =============
</TABLE>
See notes to financial statements.
F-9
<PAGE> 81
THE ZWEIG FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The Zweig Fund, Inc. (the "Fund") is a closed-end, diversified management
investment company registered under the Investment Company Act of 1940 (the
"Act"). The Fund was incorporated under the laws of the State of Maryland on
June 18, 1986. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. PORTFOLIO VALUATION
Portfolio securities which are traded only on stock exchanges will be
valued at the last sale price. Securities traded in the over-the-counter market
which are National Market System securities will be valued at the last sale
price. Other over-the-counter securities will be valued at the most recently
quoted price provided by the principal market makers. Portfolio securities which
are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market, as determined
by the Investment Adviser. Debt securities may be valued on the basis of prices
provided by an independent pricing service, when such prices are believed by the
Investment Adviser to reflect the fair market value of such securities.
Short-term investments having a remaining maturity of 60 days or less when
purchased, are valued at amortized cost (which approximates market value).
Futures which are traded on commodities exchanges are valued at their closing
settlement price on such exchange. Securities for which market quotations are
not readily available (of which there were none at December 31, 1997) and other
assets, if any, are valued at fair value as determined under procedures approved
by the Board of Directors of the Fund.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on trade date. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis.
Realized gains and losses on sales of investments are determined on the
identified cost basis for financial reporting and tax purposes.
C. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recorded as assets. During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
marking the contract to market on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets or liabilities, depending upon whether
unrealized gains or losses are incurred. When a futures contract is closed, the
Fund realizes a gain or loss equal to the difference between the proceeds from
(or cost of) the closing transaction and the Fund's basis in the contract. There
are several
F-10
<PAGE> 82
risks in connection with the use of futures contracts as a hedging device. The
change in value of futures contracts primarily corresponds with the value of
their underlying instruments, which may not correlate with the change in value
of the hedged investments. Therefore, anticipated gains may not result and
anticipated losses may not be offset. In addition, as no secondary market exists
for futures contracts, there is no assurance that there will be an active market
at any particular time.
D. SHORT SALES
A short sale is a transaction in which the Fund sells a security it does
not own in anticipation of a decline in market price. To sell a security short,
the Fund must borrow the security. The Fund's obligation to replace the security
borrowed and sold short will be fully collateralized at all times by the
proceeds from the short sale retained by the broker and by cash and securities
deposited in a segregated account with the Fund's custodian. In addition to the
short sales described above, the Fund may make short sales "against the box". A
short sale "against the box" is a short sale whereby at the time of the short
sale, the Fund owns or has the immediate and unconditional right, at no added
cost, to obtain the identical security. If the price of the security sold short
increases between the time of the short sale and the time the Fund replaces the
borrowed security, the Fund will incur a loss, and if the price declines during
the period, the Fund will realize a gain. Any realized gain will be decreased,
and any incurred loss increased, by the amount of transaction costs. Dividends
or interest the Fund pays in connection with such short sales are recorded as
expenses.
E. FEDERAL INCOME TAXES
The Fund has elected to qualify and intends to remain qualified as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. The principal tax benefits of qualifying as a regulated
investment company, as compared to an ordinary taxable corporation, are that a
regulated investment company is not itself subject to Federal income tax on
ordinary investment income and net capital gains that are currently distributed
(or deemed distributed) to its shareholders and that the tax character of
long-term capital gains recognized by a regulated investment company flows
through to its shareholders who receive distributions of such gains. During the
year ended December 31, 1997, the Fund reclassified $793,497 from undistributed
net realized gains to undistributed net investment income, $331,642 from capital
paid-in to undistributed net investment income, and $69,619 from capital paid-in
to undistributed net realized gains.
NOTE 2--PORTFOLIO TRANSACTIONS
A. PURCHASES AND SALES
During the year ended December 31, 1997, the Fund entered into purchase and
sale transactions, excluding short-term investments and futures transactions, as
follows:
UNITED STATES
GOVERNMENT
COMMON AND AGENCY
STOCKS OBLIGATIONS
------------ ------------
Cost of Purchases ............... $413,802,818 $108,962,211
============ ============
Proceeds from Sales ............. $331,754,911 $ 87,529,772
============ ============
F-11
<PAGE> 83
NOTE 3--INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A) INVESTMENT ADVISORY FEE: The Investment Advisory Agreement (the
"Advisory Agreement") between the Investment Adviser, Zweig Advisors Inc., and
the Fund provides that, subject to the direction of the Board of Directors of
the Fund and the applicable provisions of the Act, the Investment Adviser is
responsible for the actual management of the Fund's portfolio. The
responsibility for making decisions to buy, sell or hold a particular investment
rests with the Investment Adviser, subject to review by the Board of Directors
and the applicable provisions of the Act. For the services provided by the
Investment Adviser under the Advisory Agreement, the Fund pays the Investment
Adviser a monthly fee equal, on an annual basis, to 0.85% of the Fund's average
daily net assets. During the year ended December 31, 1997, the Fund accrued
advisory fees of $5,312,237.
B) ADMINISTRATIVE FEE: Zweig/Glaser Advisers serves as the Fund's
Administrator pursuant to an Administration Agreement with the Fund. Under such
Agreement, the Administrator generally assists in all aspects of the Fund's
operations, other than providing investment advice, subject to the overall
authority of the Fund's Board of Directors. The Administrator determines the
Fund's net asset value daily, prepares such figures for publication on a weekly
basis, maintains certain of the Fund's books and records that are not maintained
by the Investment Adviser, custodian or transfer agent, assists in the
preparation of financial information for the Fund's income tax returns, proxy
statements, quarterly and annual shareholder reports, and responds to
shareholder inquiries. Under the terms of the Agreement, the Fund pays the
Administrator a monthly fee equal, on an annual basis, to 0.13% of the Fund's
average daily net assets. During the year ended December 31, 1997, the Fund
accrued administration fees of $812,460.
C) DIRECTORS' FEES: The Fund pays each Director who is not an interested
person of the Fund or the Investment Adviser a fee of $10,000 per year plus
$1,500 per Directors' or committee meeting attended, together with out-of-pocket
costs relating to attendance at such meetings. The Directors of the Fund who are
interested persons of the Fund or the Investment Adviser receive no remuneration
from the Fund.
D) LEGAL FEES: The Fund incurred legal fees of $17,885 during the year
ended December 31, 1997, for the services of Rosenman & Colin LLP, of which
Robert E. Smith, a Director of the Fund, is a partner.
E) BROKERAGE COMMISSIONS: During the year ended December 31, 1997, the Fund
paid Zweig Securities Corp. brokerage commissions of $182,134 in connection with
portfolio transactions effected through them. In addition, Zweig Securities
Corp. charged $13,532 in commissions for transactions effected on behalf of the
participants in the Fund's Automatic Reinvestment and Cash Purchase Plan.
Certain directors and officers of the Fund are also directors and/or
officers of the Investment Adviser and the Administrator.
NOTE 4--CAPITAL STOCK AND REINVESTMENT PLAN
At December 31, 1997, the Fund had one class of common stock, par value
$0.10 per share, of which 100,000,000 shares are authorized and 52,765,559
shares are outstanding.
Registered shareholders may elect to receive all distributions in cash paid
by check mailed directly to the shareholder by State Street Bank & Trust Co. as
dividend paying agent. Pursuant to the Automatic Reinvestment and Cash Purchase
Plan (the "Plan") shareholders not making such election will have all such
amounts automatically reinvested by State Street, as the Plan agent in whole or
fractional shares of the Fund, as the case may be. For the years ended December
31, 1997 and December 31, 1996, 1,322,870 and 1,892,320 shares, respectively,
were issued pursuant to the Plan.
F-12
<PAGE> 84
On January 2, 1998 the Fund declared a distribution of $0.31 per share
(representing net realized gains and net investment income) to shareholders of
record December 31, 1997. This distribution has an ex-dividend date of January
5, 1998 and is payable January 9, 1998.
NOTE 5--FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year ... $ 11.45 $ 11.06 $ 10.33 $ 11.68 $ 11.36
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................ 0.35 0.34 0.39 0.24 0.13
Net realized and unrealized
gains (losses) on investments ..... 2.03 1.15 1.41 (0.45) 1.41
------------- ------------- ------------- ------------- -------------
Total from investment operations ..... 2.38 1.49 1.80 (0.21) 1.54
------------- ------------- ------------- ------------- -------------
Dividends and Distributions:
Dividends from net investment income.. (0.31) (0.30) (0.51) (0.03) (0.22)
Distributions from net realized gains
on investments .................... (0.89) (0.80) (0.56) (1.11) (1.00)
------------- ------------- ------------- ------------- -------------
Total Dividends and Distributions .... (1.20) (1.10) (1.07) (1.14) (1.22)
------------- ------------- ------------- ------------- -------------
Net asset value, end of year ......... $ 12.63 $ 11.45 $ 11.06 $ 10.33 $ 11.68
============= ============= ============= ============= =============
Market value, end of year* ........... $ 13.25 $ 10.875 $ 11.25 $ 10.375 $ 13.75
============= ============= ============= ============= =============
Total investment return .............. 34.76% 6.92% 19.83% (16.95)% 16.59%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) ..................... $ 666,366 $ 589,081 $ 547,886 $ 492,004 $ 534,813
Ratio of expenses to average
net assets ........................ 1.16% 1.18% 1.22% 1.25% 1.23%
Ratio of net investment income to
average net assets ................ 2.88% 3.12% 3.62% 2.24% 1.18%
Portfolio turnover rate .............. 93.0% 137.2% 160.2% 257.0% 235.5%
Average commission rate per share
on portfolio transactions ......... $ 0.0589 $ 0.0591 $ 0.0606 N/A N/A
</TABLE>
- ------------
*Closing Price--New York Stock Exchange.
F-13
<PAGE> 85
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Zweig Fund, Inc.
We have audited the accompanying statement of assets and liabilities of The
Zweig Fund, Inc., including the schedule of investments, as of December 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the management of the Fund. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Zweig Fund, Inc. as of December 31, 1997, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 4, 1998
F-14
<PAGE> 86
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(1) Financial Statements: The following financial statements and
schedules of the Registrant included in the Prospectus and/or the Statement of
Additional Information are filed with and made a part of this Registration
Statement: Statement of Assets and Liabilities, December 31, 1997; Statement of
Operations for the fiscal year ended December 31, 1997; Statement of Changes in
Net Assets for the fiscal years ended December 31, 1997 and 1996; Schedule of
Investments, December 31, 1997; Notes to Financial Statements at December 31,
1997; Financial Highlights for the ten fiscal years ended December 31, 1997; all
other schedules are omitted because the information is included elsewhere in the
Prospectus or SAI or is not required.
(2) Exhibits
(a) - Amended and Restated Articles of Incorporation. (Incorporated by
reference to Exhibit (1) of the Registrant's Amendment No. 11 to the
Registrant's Registration Statement (Filed on August 12, 1991, Securities
Act File No. 33-40594; Investment Company Act File No. 811-4739 (
"Amendment No. 11")).
(b) - Amended and Restated By-Laws
(c) - Not applicable
(d)(1) - Form of Subscription Certificate
(d)(2) - Form of Notice of Guaranteed Delivery
(d)(3) - Form of Nominee Holder Over-Subscription Exercise Form
(e) - Distribution Reinvestment and Cash Purchase Plan. (Incorporated by
reference to Exhibit (e) to the Registrant's Amendment No. 13 of the
Registrant's Registration Statement (Filed on February 26, 1998, Securities Act
File No. 333-46955; Investment Company Act File No. 811-4739; Accession No.
0000950123-98-002049 ("Amendment No. 13")).
(f) - Not applicable
(g) - Investment Advisory Agreement with Zweig Advisors Inc. dated September
25, 1986. (Incorporated by reference to Exhibit (6) of the Registrant's
Amendment No. 11.)
(h) - Form of Dealer Manager Agreement
(i) - Not applicable
<PAGE> 87
(j)(1) - Custodian Agreement with The Bank of New York dated as of September 17,
1986. (Incorporated by reference to Exhibit (9) of the Registrant's Amendment
No. 11 )
(j)(2) - Foreign Custody Manager Agreement with The Bank of New York dated as of
December 18, 1997.
(k)(1) - Administration Agreement with Zweig/Glaser Advisers dated as of
September 1, 1989. (Incorporated by reference to Exhibit (10)(A)(2) of the
Registrant's Amendment No. 11)
(k)(2) - Amendment, dated as of July 1, 1995, to Administration Agreement with
Zweig/Glaser Advisers. (Incorporated by reference to Exhibit (k)(2) of the
Registrant's Amendment No. 13.)
(k)(3) - Stock Transfer Agent Service Agreement with the State Street Bank &
Trust Company dated as of September 1, 1997. (Incorporated by reference to
Exhibit (k)(3) of the Registrant's Amendment No. 13.)
(k)(4) - Form of Subscription Agent Agreement between the Registrant and State
Street Bank & Trust Company.
(k)(5) - Form of Information Agent Agreement between the Registrant and
Georgeson & Company Inc.
(l) - Opinion and Consent of Rosenman & Colin LLP
(m) - Not applicable
(n) - Consent of Coopers & Lybrand L.L.P.
(o) - Not applicable
(p) - Not applicable
(q) - Not applicable
(r) - Financial Data Schedule(Incorporated by reference to Exhibit (r) of the
Registrant's Amendment No. 13.)
(s) - Powers of Attorney(Incorporated by reference to Exhibit (s) of the
Registrant's Amendment No. 13.)
ITEM 25. Marketing Arrangements
See Section 4 of Exhibit 2(h) of this Registration Statement.
ITEM 26. Other Expenses of Issuance and Distribution
<PAGE> 88
The following table sets forth the estimated expenses expected to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<CAPTION>
CATEGORY ESTIMATED EXPENSES
-------- ------------------
<S> <C>
Printing Fees $ 155,000
Dealer Manager Expense
Reimbursement $ 82,500
Legal Fees $ 40,000
Registration Fees $ 37,500
Information Agent Fees $ 41,500
Subscription Agent Fees $ 335,000
Miscellaneous $ 1,500
Stock Exchange Listing Fees $ 27,000
---------
$ 720,000
=========
</TABLE>
ITEM 27. Persons Controlled by or Under Common Control with
Registrant
None.
ITEM 28. Number of Holders of Securities as of March 31,1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TITLE OF CLASS NUMBER OF RECORD HOLDERS
- --------------------------------------------------------------------------------
<S> <C>
Common Stock, par value $0.10 per share 19,869
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 89
ITEM 29. Indemnification
Under Article VI, Sections 4 through 7, of the Registrant' Articles of
Incorporation and Article V, Section 1, of the Registrant's By-Laws, any past or
present director or officer of the Registrant will be indemnified, and will be
advanced expenses, to the fullest extent permitted by Maryland law, but not in
violation of section 17(h) or 17(i) of the Investment Company Act of 1940, as
amended.
As permitted by Section 2-418(k) of the Maryland General Corporation Law,
Article V, Section 3, of the Registrant's By-Laws provides that the Registrant
shall have the power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Registrant or who,
while a director, officer, employee or agent of the Registrant, is or was
serving at the request of the Registrant as a director, officer, partner,
trustee, employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, enterprise or employee benefit plan, against any liability
asserted against and incurred by him or her in any such capacity, or arising out
of his or her status as such, provided that no insurance may be obtained by the
Registrant for liabilities against which it would not have the power to
indemnify him or her under the Section of the By-Laws regarding indemnification
or applicable law.
ITEM 30. Business and Other Connections of Investment Adviser
The Registrant is fulfilling the requirement of this Item 30 to describe
briefly any other business, vocation or employment of a substantial nature in
which the Investment Adviser of the Registrant, and each director, executive
officer, or partner of the Investment Adviser, is, or has been, at any time
during the past two fiscal years, engaged for his or her own account or in the
capacity of director, officer, employee, partner or trustee by incorporating by
reference the information about Martin Zweig and Jeffrey Lazar contained in the
SAI. See "Management - Directors and Officers."
ITEM 31. Location of Accounts and Records
A. Zweig Advisors Inc.
900 Third Avenue
New York, N.Y. 10022
(corporate records of the Registrant and records relating to the
function of Zweig Advisors Inc. as Investment Adviser to the
Registrant).
B. Zweig/Glaser Advisers
900 Third Avenue
New York, N.Y. 10022
(records relating to its function as Administrator to the Registrant).
C. State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its function as the Registrant's Dividend Paying
Agent, Distribution Reinvestment and Cash Purchase Plan Agent, Transfer
Agent and Registrar).
D. The Bank of New York
48 Wall Street
<PAGE> 90
New York, N.Y. 10015
(records relating to its function as Custodian of the Registrant)
ITEM 32. Management Services
Not applicable
ITEM 33. Undertakings
(a) Registrant undertakes to suspend offering of the shares covered hereby
until it amends its Prospectus contained herein if (1) subsequent to the
effective date of this Registration Statement, its net asset value per share
declines more than ten percent from its net asset value per share as of the
effective date of this Registration Statement, or (2) its net asset value per
share increases to an amount greater than its net proceeds as stated in the
Prospectus contained herein.
(b) Registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in form of
prospectus filed by the Registrant pursuant to 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on the 7th day of
April, 1998.
THE ZWEIG FUND, INC.
By: /s/ Martin E. Zweig
-----------------------------------
Martin E. Zweig
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Martin E. Zweig Director, Chairman of the April 7, 1998
Martin E. Zweig President (Chief Executive
Officer)
Annemarie Gilly*
Annemarie Gilly Director April 7, 1998
Eugene J. Glaser*
Eugene J. Glaser Director April 7, 1998
Elliot S. Jaffe* Director April 7, 1998
Elliot S. Jaffe
/s/ Jeffrey Lazar Director, Vice President, April 7, 1998
Jeffrey Lazar Treasurer and Assistant
Secretary
Alden C. Olson* Director April 7, 1998
Alden C. Olson
James B. Rogers, Jr.* Director April 7, 1998
James B. Rogers, Jr.
Anthony M. Santomero* Director April 7, 1998
Anthony M. Santomero
Robert E. Smith* Director April 7, 1998
Robert E. Smith
* By: /s/ Martin E. Zweig April 7, 1998
Martin E. Zweig
Attorney-in-fact
<PAGE> 92
EXHIBIT INDEX
(b) - Amended and Restated By-Laws
(d)(1) - Form of Subscription Certificate
(d)(2) - Form of Notice of Guaranteed Delivery
(d)(3) - Form of Nominee Holder Over-Subscription Exercise Form
(h) - Form of Dealer Manager Agreement
(j)(2) - Foreign Custody Manager Agreement with The Bank of New York dated as of
December 18, 1997.
(k)(4) - Form of Subscription Agent Agreement between the Registrant and State
Street Bank & Trust Company.
(k)(5) - Form of Information Agent Agreement between the Registrant and
Georgeson & Company Inc.
(l) - Opinion and Consent of Rosenman & Colin LLP
(n) - Consent of Coopers & Lybrand L.L.P.
<PAGE> 1
EXHIBIT (b)
<PAGE> 2
BY-LAWS
OF
THE ZWEIG FUND, INC.
A Maryland Corporation
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the stockholders of
The Zweig Fund, Inc. (the "Corporation") shall be held on a date fixed from time
to time by the Board of Directors within the thirty-one (31) day period
beginning on April 30 and ending on May 30 of each year*. An annual meeting may
be held at any place in or out of the State of Maryland as may be determined by
the Board of Directors as shall be designated in the notice of the meeting and
at the time specified by the Board of Directors. Any business of the Corporation
may be transacted at an annual meeting without being specifically designated in
the notice unless otherwise provided by statute, the Corporation's Charter or
these By-Laws.
SECTION 2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Charter, may be held at any place within the United States, and
may be called at any time by the Board of Directors or by the President, and
shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors or at the request in writing of stockholders
entitled to cast at least twenty-five percent (25%) of the votes entitled to be
cast at the meeting upon payment by such stockholders to the Corporation of the
reasonably estimated cost of preparing and mailing a notice of the meeting
(which estimated cost shall be provided to such stockholders by the Secretary of
the Corporation). Notwithstanding the foregoing, unless requested by
stockholders
<PAGE> 3
entitled to cast a majority of the votes entitled to be cast at the meeting, a
special meeting of the stockholders need not be called at the request of
stockholders to consider any matter that is substantially the same as a matter
voted on at any special meeting of the stockholders held during the preceding
twelve (12) months. A written request shall state the purpose or purposes of the
proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of the purpose
or purposes and of the time and place of every meeting of the stockholders shall
be given by the Secretary of the Corporation to each stockholder of record
entitled to vote at the meeting by placing the notice in the mail at least ten
(10) days, but not more than ninety (90) days, prior to the date designated for
the meeting addressed to each stockholder at his address appearing on the books
of the Corporation or supplied by the stockholder to the Corporation for the
purpose of notice. The notice of any meeting of stockholders may be accompanied
by a form of proxy approved by the Board of Directors in favor of the actions or
persons as the Board of Directors may select. Notice of any meeting of
stockholders shall be deemed waived by any stockholder who attends the meeting
in person or by proxy, or who before or after the meeting submits a signed
waiver of notice that is filed with the records of the meeting.
SECTION 4. Quorum and Certain Voting Matters.* Except as otherwise
provided by statute or by the Corporation's Charter or these By-Laws, the
presence in person or by proxy of stockholders of the Corporation entitled to
cast at least a majority of the votes entitled to be cast shall constitute a
quorum at each meeting of the stockholders and all questions shall be decided by
a majority of all the votes cast at a meeting at which a quorum is present. A
plurality of all the votes cast at a meeting at which a quorum is present is
sufficient to elect a director. In the absence of a quorum, the stockholders
present in person or by proxy at the meeting, by majority vote and without
notice other than by announcement at the meeting, may adjourn the meeting
<PAGE> 4
from time to time as provided in Section 5 of this Article I until a quorum
shall attend. The stockholders present at any duly organized meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum. The absence from any meeting in
person or by proxy of holders of the number of shares of stock of the
Corporation in excess of a majority that may be required by the laws of the
State of Maryland, the Investment Company Act of 1940, or other applicable
statute, the Corporation's Charter or these By-Laws, for action upon any given
matter shall not prevent action at the meeting on any other matter or matters
that may properly come before the meeting, so long as there are present, in
person or by proxy, holders of the number of shares of stock of the Corporation
required for action upon the other matter or matters.
SECTION 5. Adjournment. Any meeting of the stockholders may be
adjourned from time to time, without notice other than by announcement at the
meeting at which the adjournment is taken. At any adjourned meeting at which a
quorum shall be present any action may be taken that could have been taken at
the meeting originally called. A meeting of the stockholders may not be
adjourned to a date more than one-hundred twenty (120) days after the original
record date.
SECTION 6. Organization. At every meeting of the stockholders, the
Chairman of the Board, or in his absence or inability to act, the President, or
in his absence or inability to act, a Vice President, or in the absence or
inability to act of the Chairman of the Board, the President and all the Vice
Presidents, a chairman chosen by the stockholders, shall act as chairman of the
meeting. The Secretary, or in his absence or inability to act, a person
appointed by the chairman of the meeting, shall act as secretary of the meeting
and keep the minutes of the meeting.
SECTION 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
<PAGE> 5
SECTION 8. Voting. Except as otherwise provided by statute or the
Corporation's Charter, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one (1) vote for every share of stock standing in his name on
the records of the Corporation as of the record date determined pursuant to
Section 9 of this Article I.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by the
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof, unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases in which the proxy states that
it is irrevocable and in which an irrevocable proxy is permitted by law.
SECTION 9. Fixing of Record Date for Determining Stockholders Entitled
to Vote at Meeting. The Board of Directors may set a record date for the purpose
of determining stockholders entitled to vote at any meeting of the stockholders.
The record date for a particular meeting shall be not more than ninety (90) nor
fewer than ten (10) days before the date of the meeting. All persons who were
holders of record of shares as of the record date of a meeting, and no others,
shall be entitled to vote at such meeting and any adjournment thereof.
SECTION 10. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one (1) or more inspectors to act at the
meeting or at any adjournment of the meeting. If the inspectors shall not be so
appointed or if any of them shall fail to appear or act, the chairman of the
meeting may appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall, if required by the chairman of the meeting, take
and sign an oath to execute faithfully the duties of inspector at the meeting
with strict impartiality and according to the best of his ability. The
inspectors shall determine the number of shares outstanding and the voting power
of each share, the number of shares represented at the meeting,
<PAGE> 6
the existence of a quorum and the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do those acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting or any stockholder entitled to vote at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders of
the Corporation.
SECTION 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Corporation's Charter, any action required
to be taken at any annual or special meeting of stockholders, or any action that
may be taken at any annual or special meeting of the stockholders, may be taken
without a meeting, without prior notice and without a vote, if the following are
filed with the records of stockholders' meetings: (a) a unanimous written
consent that sets forth the action and is signed by each stockholder entitled to
vote on the matter and (b) a written waiver of any right to dissent signed by
each stockholder entitled to notice of the meeting but not entitled to vote at
the meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. Except as otherwise provided in the
Corporation's Charter, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the stockholders by law, by the
Corporation's Charter or by these By-Laws.
<PAGE> 7
SECTION 2. Number, Election and Term of Directors. The number of
directors shall be fixed from time to time by resolution of the Board of
Directors adopted by a majority of the directors then in office; provided,
however, that the number of directors shall in no event be fewer than three (3)
nor more than nine (9). The Board of Directors shall be divided into three (3)
classes. Within the limits above specified, the number of directors in each
class shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting thereof. The term of office of the first
class shall expire on the date of the first annual meeting of stockholders. The
term of office of the second class shall expire one (1) year thereafter. The
term of office of the third class shall expire two (2) years thereafter. Upon
expiration of the term of office of each class as set forth above, the number of
directors in such class, as determined by the Board of Directors, shall be
elected for a term of three (3) years to succeed the directors whose terms of
office expire. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 5 of this Article II, and each
director elected shall hold office until his successor shall have been elected
and shall have qualified, or until his death, or until he shall have resigned or
have been removed as provided in these By-Laws, or as otherwise provided by
statute or the Corporation's Charter. Any vacancy created by an increase in
directors may be filled in accordance with Section 5 of this Article II. No
reduction in the number of directors shall have the effect of removing any
director from office prior to the expiration of his term unless the director is
specifically removed pursuant to Section 4 of this Article II at the time of the
decrease. A director need not be a stockholder of the Corporation, a citizen of
the United States or a resident of the State of Maryland.
SECTION 3. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors or
the Chairman of the Board or to the President or the Secretary of the
Corporation. Any resignation shall take effect at the time specified in it or,
should the time when it is to become effective not be specified in it,
immediate-
<PAGE> 8
ly upon its receipt. Acceptance of a resignation shall not be necessary to make
it effective unless the resignation states otherwise.
SECTION 4. Removal of Directors. Any director of the Corporation may be
removed by the stockholders with or without cause by a vote of a majority of the
votes entitled to be cast for the election of directors.
SECTION 5. Vacancies. Subject to the provisions of the Investment
Company Act of 1940, any vacancies in the Board of Directors, whether arising
from death, resignation, removal or any other cause except an increase in the
number of directors, shall be filled by a vote of the majority of the Board of
Directors then in office even though that majority is less than a quorum,
provided that no vacancy or vacancies shall be filled by action of the remaining
directors if, after the filling of the vacancy or vacancies, fewer than
two-thirds (2/3) of the directors then holding office shall have been elected by
the stockholders of the Corporation. A majority of the entire Board may fill a
vacancy that results from an increase in the number of directors. In the event
that at any time a vacancy exists in any office of a director that may not be
filled by the remaining directors, a special meeting of the stockholders shall
be held as promptly as possible and in any event within sixty (60) days, for the
purpose of filling the vacancy or vacancies. Any director appointed by the Board
of Directors to fill a vacancy shall hold office only until the next annual
meeting of stockholders of the Corporation and until a successor has been
elected and qualifies or until his earlier resignation or removal. Any director
elected by the stockholders to fill a vacancy shall hold office for the balance
of the term of the director whose death, resignation or removal occasioned the
vacancy and until a successor has been elected and qualifies or until his
earlier resignation or removal.
SECTION 6. Place of Meetings. Meetings of the Board may be held at any
place that the Board of Directors may from time to time determine or that is
specified in the notice of the meeting.
<PAGE> 9
SECTION 7. Regular Meetings. Regular meetings of the Board of Directors
may be held at the time and place determined by the Board of Directors.
SECTION 8. Special Meetings. Special meetings of the Board of Directors
may be called by two (2) or more directors of the Corporation or by the Chairman
of the Board or the President.
SECTION 9. Annual Meeting. The annual meeting of the newly elected and
other directors shall be held as soon as practicable after the meeting of
stockholders at which the newly elected directors were elected. No notice of
such annual meeting shall be necessary if held immediately after the
adjournment, and at the site, of the meeting of stockholders. If not so held,
notice shall be given as hereinafter provided for special meetings of the Board
of Directors.
SECTION 10. Notice of Special Meetings. Notice of each special meeting
of the Board of Directors shall be given by the Secretary as hereinafter
provided. Each notice shall state the time and place of the meeting and shall be
delivered to each director, either personally or by telephone or other standard
form of telecommunication, at least twenty-four (24) hours before the time at
which the meeting is to be held, or by first-class mail, postage prepaid,
addressed to the director at his residence or usual place of business, and
mailed at least three (3) days before the day on which the meeting is to be
held.
SECTION 11. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice that is filed with the records of the meeting or
who shall attend the meeting.
SECTION 12. Quorum and Voting. A majority of the entire Board of
Directors shall be present in person at any meeting of the Board so as to
constitute a quorum for the transaction of business at the meeting, and except
as otherwise expressly required by statute, the Corporation's
<PAGE> 10
Charter, these By-Laws, the Investment Company Act of 1940, or any other
applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present may adjourn the meeting to another time and place until a quorum shall
be present. Notice of the time and place of any adjourned meeting shall be given
to the directors who were not present at the time of the adjournment and, unless
the time and place were announced at the meeting at which the adjournment was
taken, to the other directors. At any adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted at the
meeting as originally called.
SECTION 13. Organization. The Board of Directors may designate a
Chairman of the Board, who shall preside at each meeting of the Board. In the
absence or inability of the Chairman of the Board to act, the President, or, in
his absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside at the
meeting. The Secretary (or, in his absence or inability to act, any person
appointed by the chairman) shall act as secretary of the meeting and keep the
minutes of the meeting.
SECTION 14. Committees. The Board of Directors may designate one (1) or
more committees of the Board of Directors, each consisting of two (2) or more
directors. To the extent provided in the resolution, and permitted by law, the
committee or committees shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation. Any
committee or committees shall have the name or names determined from time to
time by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and provide those minutes to the Board of
Directors when required. The members of a committee present at any meeting,
whether or not they constitute a quorum, may appoint a director to act in the
place of an absent member.
<PAGE> 11
SECTION 15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act of 1940, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee of the Board may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
or committee.
SECTION 16. Telephone Conference. Members of the Board of Directors or
any committee of the Board may participate in any Board or committee meeting by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time. Participation by such means shall constitute presence in person at the
meeting.
SECTION 17. Compensation. Each director shall be entitled to receive
compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by the
Corporation for all reasonable expenses incurred in traveling to and from the
place of a Board or committee meeting.
ARTICLE III
OFFICERS, AGENTS AND EMPLOYEES
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one (1)
or more Vice Presidents and may also appoint any other officers, agents and
employees it deems necessary or proper. Any two (2) or more offices may be held
by the same person, except the office of President and Vice President, but no
officer shall execute, acknowledge or verify in more than one capacity any
instrument
<PAGE> 12
required by law to be executed, acknowledged or verified in more than one
capacity. Officers shall be elected by the Board of Directors each year at its
first meeting held after the annual meeting of stockholders, each to hold office
until the meeting of the Board following the next annual meeting of the
stockholders and until his successor shall have been duly elected and shall have
qualified, or until his death, or until he shall have resigned or have been
removed, as provided in these By-Laws. The Board of Directors may from time to
time elect such officers (including one or more Assistant Vice Presidents, or
one or more Assistant Treasurers and one or more Assistant Secretaries) and may
appoint, or delegate to the President the power to appoint, such agents as may
be necessary or desirable for the business of the Corporation. Such other
officers and agents shall have such duties and shall hold their offices for such
terms as may be prescribed by the Board or by the appointing authority.
SECTION 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors,
the Chairman of the Board, the President or the Secretary. Any resignation shall
take effect at the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. The acceptance
of a resignation shall not be necessary to make it effective unless otherwise
stated in the resignation.
SECTION 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate the power of removal as to
agents and employees not elected or appointed by the Board of Directors. Removal
shall be without prejudice to the person's contract rights, if any, but the
appointment of any person as an officer, agent or employee of the Corporation
shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of
<PAGE> 13
the office that shall be vacant, in the manner prescribed in these By-Laws for
the regular election or appointment to the office.
SECTION 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.
SECTION 6. Bonds or Other Security. If required by the Board of
Directors, any officer, agent or employee of the Corporation shall give a bond
or other security for the faithful performance of his duties, in an amount and
with any surety or sureties as the Board may require.
SECTION 7. Chairman. The Chairman of the Board of Directors shall
preside at all meetings of the Board of Directors and he shall have and perform
such other duties as from time to time may be assigned to him by the Board of
Directors or the executive committee, if any.
SECTION 8. President. The President shall be the chief executive
officer of the Corporation. In the absence or inability of the Chairman of the
Board (or if there is none) to act, the President shall preside at all meetings
of the stockholders and of the Board of Directors. The President shall have,
subject to the control of the Board of Directors, general charge of the business
and affairs of the Corporation, and may employ and discharge employees and
agents of the Corporation, except those elected or appointed by the Board, and
he may delegate these powers.
SECTION 9. Vice President. Each Vice President shall have the powers
and perform the duties that the Board of Directors or the President may from
time to time prescribe.
SECTION 10. Treasurer. Subject to the provisions of any contract that
may be entered into with any custodian pursuant to authority granted by the
Board of Directors, the Treasurer shall have charge of all receipts and
disbursements of the Corporation and shall have or provide
<PAGE> 14
for the custody of the Corporation's funds and securities; he shall have full
authority to receive and give receipts for all money due and payable to the
Corporation, and to endorse checks, drafts, and warrants, in its name and on its
behalf and to give full discharge for the same; he shall deposit all funds of
the Corporation, except those that may be required for current use, in such
banks or other places of deposit as the Board of Directors may from time to time
designate; and, in general, he shall perform all duties incident to the office
of Treasurer and such other duties as may from time to time be assigned to him
by the Board of Directors or the President.
SECTION 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the committees
of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.
<PAGE> 15
SECTION 12. Assistant Treasurers and Assistant Secretaries. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
SECTION 13. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any director.
ARTICLE IV
STOCK
SECTION 1. Stock Certificates. Unless otherwise provided by the Board
of Directors and permitted by law, each holder of stock of the Corporation shall
be entitled upon specific written request to such person as may be designated by
the Corporation to have a certificate or certificates, in a form approved by the
Board, representing the number of shares of stock of the Corporation owned by
him; provided, however, that such person shall not be required to deliver
certificates for fractional shares. The certificates representing shares of
stock shall be signed by or in the name of the Corporation by the Chairman of
the Board, the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the seal on the
certificate may be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before the
certificate is issued, it may be issued by the Corporation with the same effect
as if the officer, transfer agent or registrar was still in office at the date
of issue.
<PAGE> 16
SECTION 2. Stock Ledger. There shall be maintained a stock ledger
containing the name and address of each stockholder and the number of shares of
stock of each class the shareholder holds. The stock ledger may be in written
form or any other form which can be converted within a reasonable time into
written form for visual inspection. The original or a duplicate of the stock
ledger shall be kept at the principal office of the Corporation or at any other
office or agency specified by the Board of Directors.
SECTION 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder of the shares, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates, if
issued, for the shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of the share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions and
to vote as the owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
SECTION 4. Regulations. The Board of Directors may authorize the
issuance of uncertificated securities if permitted by law. If stock certificates
are issued, the Board of Directors may make any additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. The Board may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer clerks
and one or more registrars and may require all certificates for shares of stock
to bear the signature or signatures of any of them.
<PAGE> 17
SECTION 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing shares of stock of the Corporation shall immediately
notify the Corporation of its loss, destruction or mutilation and the
Corporation may issue a new certificate of stock in the place of any certificate
issued by it that has been alleged to have been lost or destroyed or that shall
have been mutilated. The Board may, in its discretion, require the owner (or his
legal representative) of a lost, destroyed or mutilated certificate: to give to
the Corporation a bond in a sum, limited or unlimited, and in a form and with
any surety or sureties, as the Board in its absolute discretion shall determine,
to indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such certificate, or issuance
of a new certificate. Anything herein to the contrary notwithstanding, the Board
of Directors, in its absolute discretion, may refuse to issue any such new
certificate, except pursuant to legal proceedings under the laws of the State of
Maryland.
SECTION 6. Fixing of Record Date for Dividends, Distributions, etc. The
Board may fix, in advance, a date not more than ninety (90) days preceding the
date fixed for the payment of any dividend or the making of any distribution or
the allotment of rights to subscribe for securities of the Corporation, or for
the delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
SECTION 7. Information to Stockholders and Others. Any stockholder of
the Corporation or his agent may inspect and copy during the Corporation's usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs and voting trust agreements on
file at its principal office.
<PAGE> 18
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. Indemnification of Directors and Officers. Any person who
was or is a party or is threatened to be made a party in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is a current or former
director or officer of the Corporation, or is or was serving while a director or
officer of the Corporation at the request of the Corporation as a director,
officer, partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust enterprise or employee benefit plan, shall be
indemnified by the Corporation against judgments, penalties, fines, excise
taxes, settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under the Maryland General Corporation Law, the
Securities Act of 1933, as amended, and the Investment Company Act of 1940,
including without limitation the provisions of Sections 17(h) and (i) thereof,
as those statutes are now or hereafter in force, except that such indemnity
shall not protect any such person against any liability to the Corporation or
any stockholder thereof to which such person 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 ("disabling conduct").
SECTION 2. Advances. Any current or former director or officer of the
Corporation claiming indemnification within the scope of this Article V shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with proceedings to which he is a party in the
manner and to the full extent permissible under the Maryland General Corporation
Law, the Securities Act of 1933, as amended, and the Investment Company Act of
1940, including without limitation the provisions of Sections 17(h) and (i)
thereof, as those statutes are now or hereafter in force; provided however, that
the person seeking indemnification shall provide to the Corporation a written
affirmation of his good faith belief that
<PAGE> 19
the standard of conduct has not been met, and provided further that at least one
of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Corporation for his undertaking; (b) the Corporation is insured against losses
arising by reason of the advance; or (c) a majority of a quorum of directors of
the Corporation who are neither "interested persons" as defined in Section
2(a)(19) of the Investment Company Act of 1940 nor parties to the proceeding
("disinterested non-party directors"), or independent legal counsel, in a
written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
SECTION 3. Procedure. At the request of any current or former director
or officer, or any employee or agent whom the Corporation proposes to indemnify,
the Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the Securities Act of
1933, as amended, and the Investment Company Act of 1940, including without
limitation the provisions of Sections 17(h) and (i) thereof, as those statutes
are now or hereafter in force, whether the standards required by this Article V
have been met; provided, however, that indemnification shall be made only
following: (a) a final decision on the merits by a court or other body before
whom the proceeding was brought that the person to be indemnified was not liable
by reason of disabling conduct or (b) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by reason of disabling conduct, by (i) the vote of
a majority of a quorum of disinterested non-party directors or (ii) an
independent legal counsel in a written opinion.
<PAGE> 20
SECTION 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, in
accordance with the procedures set forth in this Article V to the extent
permissible under the Maryland General Corporation Law, the Securities Act of
1933, as amended, and the Investment Company Act of 1940, including without
limitation the provisions of Sections 17(h) and (i) thereof, as those statutes
are now or hereafter in force, and to such further extent, consistent with the
foregoing, as may be provided by action of the Board of Directors or by
contract.
SECTION 5. Other Rights. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, with respect to
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 6. Insurance. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or who, while a director,
officer, employee or agent of the Corporation, is or was serving at the request
of the Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, against any liability asserted against and incurred by
him in any such capacity, or arising out of his status as such, provided that no
insurance may be obtained by the Corporation for liabilities against which it
would not have the power to indemnify him under this Article V or applicable
law.
<PAGE> 21
ARTICLE VI
SEAL
The seal of the Corporation shall be circular in form and shall bear
the name of the Corporation, the year of its incorporation, the words "Corporate
Seal" and "Maryland" and any emblem or device approved by the Board of
Directors. The seal may be used by causing it or a facsimile to be impressed or
affixed or in any other manner reproduced, or by placing the word "(seal)"
adjacent to the signature of the authorized officer of the Corporation.
ARTICLE VII
FISCAL YEAR
SECTION 1. Fiscal Year. The Corporation's fiscal year shall be fixed by
the Board of Directors.
SECTION 2. Accountant.
(a) The Corporation shall employ an independent public accountant or a
firm of independent public accountants of national reputation as its Accountant
to examine the accounts of the Corporation and to sign and certify financial
statements filed by the Corporation. The Accountant's certificates and reports
shall be addressed both to the Board of Directors and to the stockholders. The
employment of the Accountant shall be conditioned upon the right of the
Corporation to terminate the employment forthwith without any penalty by vote of
a majority of the outstanding voting securities at any stockholders' meeting
called for that purpose.
(b) A majority of the members of the Board of Directors who are not
"interested persons" (as such term is defined in the Investment Company Act of
1940, as amended) of the Corporation shall select the Accountant at any meeting
held within thirty (30) days before or after the beginning of the fiscal year of
the Corporation or before the annual stockholders'
<PAGE> 22
meeting in that year. Such selection shall be submitted for ratification or
rejection at the next succeeding annual stockholders' meeting. If such meeting
shall reject such selection, the Accountant shall be selected by majority vote
of the Corporation's outstanding voting securities, either at the meeting at
which the rejection occurred or at a subsequent meeting of stockholders called
for that purpose.
(c) Any vacancy occurring between annual meetings, due to the
resignation of the Accountant, may be filled by the vote of a majority of the
members of the Board of Directors who are not "interested persons" of the
Corporation, as that term is defined in the Investment Company Act of 1940, at a
meeting called for the purpose of voting on such action.
ARTICLE VIII
CUSTODY OF SECURITIES
SECTION 1. Employment of a Custodian. The Corporation shall place and
at all times maintain in the custody of a Custodian (including any sub-custodian
for the Custodian) all funds, securities and similar investments owned by the
Corporation, except to the extent that margin for futures transactions are held
by a futures commission merchant, as permitted by the Securities and Exchange
Commission's Division of Investment Management. The Custodian (and any
sub-custodian) shall be an institution conforming to the requirements of Section
17(f) of the Investment Company Act of 1940 and the rules of the Securities and
Exchange Commission thereunder. The Custodian shall be appointed from time to
time by the Board of Directors, which shall fix its remuneration.
SECTION 2. Termination of Custodian Agreement. Upon termination of the
Custodian Agreement or inability of the Custodian to continue to serve, the
Board of Directors shall promptly appoint a successor Custodian, but in the
event that no successor Custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall
<PAGE> 23
call as promptly as possible a special meeting of the stockholders to determine
whether the Corporation shall function without a Custodian or shall be
liquidated. If so directed by vote of the holders of a majority of the
outstanding shares of stock entitled to vote of the Corporation, the Custodian
shall deliver and pay over all property of the Corporation held by it as
specified in such vote.
ARTICLE IX
INVESTMENT RESTRICTIONS
Notwithstanding any of the foregoing provisions, the power of the
Corporation to invest and reinvest its assets and to hold, sell, exchange,
pledge, mortgage, hypothecate or otherwise dispose of or turn to account or
realize upon and generally deal in securities and investments of every kind or
description or in and with its own credit, shall be expressly limited as
follows:
(a) The Corporation shall not borrow money, except (i) for temporary
emergency purposes in amounts not in excess of 5% of the value of the
Corporation's total assets at the time the loan is made; or (ii) in an amount
not greater than 20% of the Corporation's net assets; provided, that the
Corporation maintains asset coverage of 300% with respect to such borrowings.
(b) The Corporation shall not issue senior securities (as defined in
the Investment Company Act of 1940) or mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any securities owned or held by
the Corporation, except as may be necessary in connection with borrowings
described in (a) above, provided, that the Corporation may make collateral or
escrow arrangements with respect to the making of short sales, writing of stock
options and collateral arrangements with respect to margin for futures contracts
or related options. (Such collateral or escrow arrangements are not deemed to be
a pledge of assets and neither such
<PAGE> 24
arrangements nor the purchase or sale of future contracts or purchases of
related options are deemed to be the issuance of a senior security.)
(c) The Corporation shall not purchase any securities on margin, but
the Corporation may make margin deposits in connection with any futures
contracts or any options it may purchase or write, and the Corporation may
effect short sales, as permitted by (d) below.
(d) The Corporation shall not make any short sales of securities (other
than short sales "against the box") unless if, at the time the short sale is
made and after giving effect thereto, (i) the market value of all securities
sold short (other than short sales "against the box") is 25% or less of the
value of the Corporation's net assets, (ii) the market value of said securities
sold short (other than short sales "against the box") which are not listed on a
national securities exchange does not exceed 10% of the Corporation's net
assets, (iii) the market value of all securities sold short (other than short
sales "against the box") of any one issuer does not exceed 2% of the
Corporation's net assets, (iv) short sales (other than short sales "against the
box") are not made of more than 2% of the outstanding securities of one class of
any issuer, and (v) the Corporation maintains collateral deposits consisting of
cash or U.S. Government Securities in a segregated account which are at all
times equal to 100% of the current market value of the securities sold short
(other than short sales "against the box").
(e) The Corporation shall not make loans of money, but (i) the
Corporation may purchase publicly distributed debt obligations consistent with
its investment objective and policies and (ii) the Corporation may make loans of
portfolio securities; provided, that the loan is collateralized by cash or cash
equivalents or U.S. Government Securities (as defined in the Prospectus) in an
amount equal, on a daily basis, to the market value of the securities loaned,
and provided further, that immediately after giving effect to any such loan, the
aggregate amount of all outstanding loans of securities does not exceed 20% of
the current market value of the Corporation's net assets.
<PAGE> 25
(f) The Corporation shall not, with respect to 75% of its total assets,
purchase the securities of any issuer (other than U.S. Government Securities)
if, immediately after and as a result of such investment, more than 5% of the
Corporation's total assets, taken at market value, would be invested in the
securities of such issuer.
(g) The Corporation shall not purchase (i) more than 10% of the
outstanding voting securities, or any class of securities, of any one issuer
(for this purpose, all debt obligations of an issuer maturing in less than one
year are treated as a single class of securities), or (ii) securities (other
than U.S. Government Securities) which would cause 25% or more of the
Corporation's total assets, at the time of such purchase, to be concentrated in
the securities of issuers engaged in any one particular industry or a group of
related industries.
(h) The Corporation shall not invest more than 10% of its total assets
in securities that, at the time of purchase, are subject to restrictions on
disposition under the Securities Act of 1933, as amended.
(i) The Corporation shall not purchase the securities of other
investment companies, except in connection with a merger, consolidation,
acquisition or reorganization, if more than 10% of the market value of the
Corporation's total assets would be invested in securities of other investment
companies, more than 5% of the market value of the Corporation's total assets
would be invested in the securities of any one investment company, or the
Corporation would own more than 3% of any other investment company's securities.
(j) The Corporation shall not underwrite securities of other issuers
except insofar as it might be deemed to be an underwriter for purposes of the
Securities Act of 1933, as amended, in the resale of any securities held in its
own portfolio.
<PAGE> 26
(k) The Corporation shall not purchase or sell real estate, but the
Corporation may invest in securities secured by real estate or real estate
interests or issued by companies which invest in real estate or real estate
interests.
(l) The Corporation shall not purchase or sell commodities or futures
contracts, except if (i) the purchase or sale of futures contracts or options
thereon is to hedge the Corporation's existing portfolio of securities, or to
anticipate a market or market sector advance; and (ii) the Corporation creates,
at the time of its purchase of a futures contract, a segregated account with its
custodian consisting of cash, U.S. Government Securities or other appropriate
high-grade debt obligations in an amount equal to the total market value of such
contract, less the amount of initial margin for such contract.
(m) The Corporation shall not invest more than 5% of its total assets
in securities of any issuers (other than U.S. Government Securities) that, at
the time of such purchase, have a record, together with predecessors, of less
than three years of continuous operation.
(n) The Corporation shall not purchase participations or other direct
interest in oil, gas or other mineral exploration or development programs, but
the Fund may invest in the securities of companies which operate, invest in or
sponsor such programs.
<PAGE> 27
ARTICLE X
AMENDMENTS
These By-Laws may be amended or repealed by the affirmative vote of a
majority of the Board of Directors at any regular or special meeting of the
Board of Directors, subject to the requirements of the Investment Company Act of
1940.
As amended and restated,
September 19, 1986.
<PAGE> 1
EXHIBIT (d)(1)
<PAGE> 2
VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT BEFORE 5:00 PM
NEW YORK CITY TIME ON MAY 8, 1998 *
THE ZWEIG FUND, INC.
SUBSCRIPTION RIGHTS CERTIFICATE
TO BE USED TO SUBSCRIBE FOR SHARES OF COMMON STOCK
DEAR SHAREHOLDER,
As a registered owner of this Subscription Rights Certificate, you are entitled
to purchase shares of the common stock of The Zweig Fund, Inc. pursuant to the
terms and conditions set forth in the enclosed Prospectus which describes the
Rights Offering. This is a non-transferable offering.
Each shareholder will receive 1 right for each share of common stock of record
held on April 15, 1998 (the "Record Date"). You will need 7 rights to purchase 1
new share of common stock. See the box below which calculates how many shares
you are entitled to purchase through the offering (Primary Subscription
Entitlement). As an example, if you owned 100 shares on April 15, 1998, you
would be entitled to purchase 14 new shares of The Zweig Fund (100 / 7 = 14.29).
No fractional shares will be issued.
FOR FINAL PRICING OF SHARES PURSUANT TO THE RIGHTS OFFERING PLEASE READ THE BACK
OF THIS CERTIFICATE.
Full Primary Subscription Entitlement
Number of shares you owned on April 15, 1998 - 7 - new shares
(ignore fractions)
YOU HAVE FOUR CHOICES:
1. You can subscribe for all the new shares listed in the box above (the
"Primary Subscription")
2. You can subscribe for more than the number of new shares listed in the box
above (the "Over-Subscription Privilege"). Certain shareholders may not
subscribe, and their shares may be available to you subject to an allocation
process as described in the Prospectus.
3. You can subscribe for less than the number of new shares listed in the box
above, or
4. If you do not wish to purchase additional shares, disregard this material.
ENTER ONE CHOICE ONLY:
[ ] 1. I wish to apply for the Primary Subscription
------- x $------- = Total Due $---------
shares estimated price
[ ] 2. I wish to apply for the Full Primary Subscription plus the
Over-Subscription Privilege.
Primary Subscription Shares ----- x $---- = $-----
plus Additional Shares ----- + ------------ x $------ = + ------
Total Shares---------------------------- Total Due $----------
[ ] 3. I wish to apply for less than the number of new shares listed in the
box above
Enter number of shares---------- x $---- = Total Due $-------
Control No. -----------
Account No. -----------
<PAGE> 3
INSTRUCTIONS
IN ORDER TO PURCHASE SHARES OF THE ZWEIG FUND, INC. PURSUANT TO THE RIGHTS
OFFERING, PLEASE BE SURE TO:
1. COMPLETE THE INFORMATION ON THE FRONT OF THIS CERTIFICATE.
2. SIGN BELOW.
3. RETURN THIS COMPLETED AND SIGNED CERTIFICATE TOGETHER WITH PAYMENT AS
CALCULATED ON THE FRONT OF THIS CERTIFICATE TO STATE STREET BANK AND TRUST
COMPANY IN THE ENVELOPE PROVIDED BEFORE 5:00 P.M., NEW YORK CITY TIME ON MAY
8TH, 1998 (THE "EXPIRATION DATE"). REMEMBER, FULL PAYMENT MUST BE MADE IN
UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE
UNITED STATES AND MADE PAYABLE TO STATE STREET BANK AND TRUST COMPANY. NO
THIRD PARTY CHECKS WILL BE ACCEPTED.
4. ALTERNATIVELY, YOU MAY CONTACT YOUR BROKER AND COMPLETE A NOTICE OF
GUARANTEED DELIVERY FORM.
FINAL PRICING (SUBSCRIPTION PRICE)
The purchase price will be 95% of the average of the last reported price of a
share of the Fund's common stock on the New York Stock Exchange on May 8, 1998
and the four preceding business days. In other words, the closing prices of May
4th, 5th, 6th, 7th and 8th will be averaged and then multiplied by 95%. This
will be your final subscription price for the new shares. The estimated
subscription price is $______, as shown on the front of this form. It is
possible that shareholders will receive a refund or be required to pay an
additional amount equal to the difference between the estimated subscription
price of $_____, and the final subscription price.
SIGNATURE
I acknowledge that I have received the Prospectus for this Rights Offering, and
I hereby irrevocably subscribe for the number of new Shares indicated on the
front of this certificate on the terms and conditions specified in the
Prospectus. I understand and agree that I will be obligated to pay any
additional amount to the Fund if the Subscription Price, as determined on the
Expiration Date, is in excess of $_____, the estimated subscription price.
I hereby agree that if I fail to pay in full for the Shares for which I have
subscribed, the Fund may exercise any of the remedies provided for in the
Prospectus.
Signature of Subscriber(s) Signature Guarantee
if required (Please sign here)
Telephone number (including area code):
If you wish to have your Shares and refund check (if any) delivered to another
address other than that listed on this subscription certificate you must have
your signature guaranteed. Appropriate signature guarantors include: banks and
savings associations, credit unions, member firms of a national securities
exchange, municipal securities dealers and government securities dealers. Please
provide delivery address below and please note if it is a permanent change.
Other Address
DESIGNATION OF BROKER-DEALER
Please list below the name of your broker and the brokerage firm who may have
been helpful to you with respect to this offering.
BROKERAGE FIRM NAME:
BROKER'S NAME:
BROKER'S REP NUMBER:
<PAGE> 4
PLEASE CALL GEORGESON & COMPANY INC., THE FUND'S INFORMATION AGENT, AT
1-800-223-2064 IF YOU HAVE ANY QUESTIONS ABOUT THE RIGHTS OFFERING.
*UNLESS OFFER IS EXTENDED
<PAGE> 1
EXHIBIT(d)(2)
<PAGE> 2
THE ZWEIG FUND, INC.
NOTICE OF GUARANTEED DELIVERY FOR COMMON SHARES
SUBSCRIBED FOR PURSUANT TO THE PRIMARY SUBSCRIPTION AND THE
OVER-SUBSCRIPTION PRIVILEGE
As set forth in the Fund's Prospectus under "The Offer-Payment for
Shares," this form (or one substantially equivalent hereto) may be used as a
means of effecting the subscription and payment for Common Shares of The Zweig
Fund, Inc. subscribed for pursuant to the Primary Subscription and the
Over-Subscription Privilege. Such form may be delivered by hand or sent by
facsimile transmission, overnight courier or mail to the Subscription Agent and
must be received prior to 5:00 p.m. New York City time on May 8, 1998, the
Expiration Date.*
The Subscription Agent is:
STATE STREET BANK AND TRUST COMPANY
Attention: Corporate Reorganization
<TABLE>
<CAPTION>
By Express Mail or
By Mail: By Hand Overnight Courier:
- -------- ------- ------------------
<S> <C> <C>
State Street Bank & Trust Company Securities Transfer and State Street Bank & Trust
Company
Corporate Reorganization Dept. Reporting Services, Inc. Corporate Reorganization
Dept.
P.O. Box 9049 c/o State Street Bank & Trust Co. 70 Campanelli Drive
Boston, MA 02205-9838 55 Broadway, 3rd Floor Braintree, MA 02184
New York, NY 10006
</TABLE>
By Facsimile:
(781) 794-6333
Fax Confirmation by Telephone to:
(781) 794-6388
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A
FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY
The bank, trust company or New York Stock Exchange member firm that completes
this form must communicate the guarantee and the number of Common Shares
subscribed for (pursuant to both the Primary Subscription and the
Over-Subscription Privilege) to the Subscription Agent and must deliver this
Notice of Guaranteed Delivery to the Subscription Agent prior to 5:00 p.m., New
York City time, on May 8, 1998, the Expiration Date*. This Notice of Guaranteed
Delivery guarantees delivery to the Subscription Agent of (i) a properly
completed and executed Subscription Rights Certificate and (ii) delivery of
payment in full (based on 95% of the average of the last reported sales price of
a share of the fund's common stock on The New York Stock Exchange on May 8, 1998
(the "Pricing Date") and the 4 preceding business days) for all Common Shares
for which a subscription is being made. Failure to deliver this Notice or to
make the delivery guaranteed herein will result in a forfeiture of the Rights.
GUARANTEE
The undersigned; a bank or trust company having an office or
correspondent in the United States, or a New York Exchange member firm, hereby
guarantees delivery to the Subscription Agent by 5:00 p.m., New York City time,
on the third business day after the Expiration Date of a properly completed and
executed Subscription Rights Certificate and payment of the full Subscription
Price for the Common Shares subscribed for pursuant to the Primary Subscription
and, if applicable, the Over-Subscription Privilege as subscription for such
Common Shares is indicated herein and on the Subscription Rights Certificate.
*Unless extended by the Fund
<PAGE> 3
Broker Assigned Control #
THE ZWEIG FUND, INC.
<TABLE>
<S> <C> <C>
1. Primary Subscription Number of Rights Exercised Number of Common Shares
subscribed for in
Primary Subscription, for which you are
guaranteeing delivery of the Subscription
Rights Certificate and full payment:
Rights Common Shares
divided by 7 (ignore fractions) =
2. Over-Subscription Privilege Number of Common Shares
subscribed for pursuant to the
Over-Subscription Privilege,
for which you are guaranteeing
delivery of the Subscription
Rights Certificate and full
payment:
Common Shares
3. Totals Total Number of Rights Exercised Total Number of Common Shares
subscribed for, for which you
are guaranteeing delivery of
the Subscription Rights
Certificate and full payment:
Rights Common Shares
</TABLE>
Method of Delivery (circle one)
A. Through the Depository Trust Company ("DTC")
B. Direct to State Street Bank and Trust Company, as the Subscription
Agent.
Please assign above a unique control number for each guarantee
submitted. This number needs to be referenced on any direct delivery or any
delivery through DTC. In addition, please note that if you are guaranteeing for
Common Shares subscribed for pursuant to the Over-Subscription Privilege and are
a DTC participant, you must also execute and forward to State Street Bank and
Trust Company a Nominee Over-Subscription Form.
Name of Firm Authorized Signature
DTC Participant Number Title
<PAGE> 4
Address Name (Please Type or Print)
Zip Code Phone Number
Contact Name Date
<PAGE> 1
EXHIBIT (d)(3)
<PAGE> 2
THE ZWEIG FUND, INC.
RIGHTS OFFERING
NOMINEE OVER-SUBSCRIPTION FORM
PLEASE COMPLETE ALL APPLICABLE INFORMATION
THIS FORM IS TO BE USED ONLY BY NOMINEES TO EXERCISE THE OVER-SUBSCRIPTION
PRIVILEGE FOR THE ACCOUNT OF PERSONS WHOSE RIGHTS HAVE BEEN EXERCISED AND
DELIVERED IN THE PRIMARY SUBSCRIPTION THROUGH THE FACILITIES OF A COMMON
DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES MUST BE EFFECTED
BY THE DELIVERY OF THE SUBSCRIPTION RIGHTS CERTIFICATE.
THE TERMS AND CONDITIONS OF THE OFFER ARE SET FORTH IN THE FUND'S PROSPECTUS
DATED __________, 1998 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE
INFORMATION AGENT, GEORGESON & COMPANY, INC. AT (212) 440-9800 (CALL COLLECT).
THIS FORM IS VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT BY 5:00 P.M., NEW
YORK CITY TIME, ON MAY 8, 1998* (THE "EXPIRATION DATE") UNLESS PRECEDED BY A
NOTICE OF GUARANTEED DELIVERY.
1. The undersigned hereby certifies to the Fund and the
Subscription Agent that it is a participant in The Depository Trust
Company (the "Depository") and that it has either (i) exercised Rights
in the Primary Subscription by means of transfer to the Depository
Account of the Subscription Agent or (ii) delivered to the Subscription
Agent a Notice of Guaranteed Delivery in respect of the exercise of
Rights in the Primary Subscription and will exercise the Rights called
for in such Notice of Guaranteed Delivery by means of transfer to such
Depository Account of the Subscription Agent.
2. The undersigned hereby subscribes for
Common Shares pursuant to the Over-Subscription Privilege, to the
extent available, and certifies to the Fund and the Subscription Agent
that such exercise pursuant to the Over-Subscription Privilege is for
the account or accounts of persons (which may include the undersigned)
on whose behalf all Rights in the Primary Subscription have been
exercised, as set forth in the list attached to this form**.
3. The undersigned hereby agrees to make payment of the
estimated Subscription Price of $ 0.00 for each Common Share subscribed
for pursuant to the Over-Subscription Privilege to the Subscription
Agent at or before 5:00 p.m., New York City time, on the Expiration
Date*, unless a Notice of Guaranteed Delivery is delivered to the
Subscription Agent at or before 5:00 p.m., New York City time, on the
Expiration Date, and hereby represents that (check appropriate box):
/ / payment of the actual Subscription Price will be delivered to
the Subscription Agent pursuant to the Notice of ___ Guaranteed
Delivery referred to above;
or
/ / payment of the estimated Subscription Price in the aggregate
amount of $ is being delivered to the Subscription Agent
herewith;
or
/ / payment of the estimated Subscription Price in the aggregate
amount of $ has been delivered separately to the
Subscription Agent;
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check appropriate
box and complete information relating thereto):
/ / certified check
/ / certified bank
<PAGE> 3
/ / bank draft
*Unless extended by the Fund
- --------------------------------------------------------
Primary Subscription Confirmation Number
- --------------------------------------------------------
Depository Participant Number
- --------------------------------------------------------
Name of Depository Participant
Registration into which Common Shares, and/or refund checks should be issued:
- -----------------------------------------------------------------------------
Name:
- -----------------------------------------------------------------------------
Address:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Certified TIN:
- -----------------------------------------------------------------------------
By:
- -----------------------------------------------------------------------------
Name:
- -----------------------------------------------------------------------------
Title:
- -----------------------------------------------------------------------------
Contact Name:
- -----------------------------------------------------------------------------
Phone Number:
- -----------------------------------------------------------------------------
Dated: , 19
- -----------------------------------------------------------------------------
**PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE NUMBER OF RIGHTS OWNED
BY EACH BENEFICIAL OWNER, THE NUMBER OF RIGHTS EXERCISED IN THE PRIMARY
SUBSCRIPTION ON BEHALF OF EACH SUCH OWNER AND THE NUMBER OF ADDITIONAL COMMON
SHARES REQUESTED ON BEHALF OF EACH SUCH OWNER PURSUANT TO THE OVER-SUBSCRIPTION
PRIVILEGE.
<PAGE> 1
EXHIBIT (h)
<PAGE> 2
The Zweig Fund, Inc.
a Maryland corporation
___________________* Shares of Common Stock Issuable Upon
Exercise of Non-Transferable Rights to Subscribe for
Such Shares of Common Stock
Common Stock Par Value $0.10 Per Share
DEALER MANAGER AGREEMENT
April , 1998
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
The Zweig Fund, Inc., a Maryland corporation (the "Fund") and
Zweig Advisors Inc., a Delaware corporation (the "Investment Adviser") each
confirms the agreement with and appointment of Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated (the "Dealer Manager") to act as
dealer manager in connection with the issuance by the Fund to the holders of
record (the "Holders") of the Fund's common stock, par value $0.10 per share
(the "Common Stock"), of non-transferable rights entitling such Holders to
subscribe for shares of Common Stock and, subject to certain conditions,
additional shares of Common Stock pursuant to an over- subscription privilege
(the "Offer"). The shares of Common Stock for which Holders may subscribe
pursuant to the Offer are herein referred to as the "Shares." Pursuant to the
terms of the Offer, the Fund is issuing to each Holder one non-transferable
right (each a "Right" and collectively, the "Rights") for each share of Common
Stock held on the record date set forth in the Prospectus (as defined herein)
(the "Record Date"). Such Rights entitle Holders to acquire during the
subscription period set forth in the Prospectus (as defined herein) (the
"Subscription Period"), at the price set forth in such Prospectus (the
"Subscription Price"), one Share for each seven Rights exercised on the terms
and conditions set forth in such Prospectus. Pursuant to the terms of the Offer,
such
- --------
* Pursuant to the over-subscription privilege in connection with the
Offer, the Fund may, at its discretion, increase the number of Shares
subject to subscription by up to 25%.
<PAGE> 3
Rights also entitle Holders to acquire during the Subscription Period at
the Subscription Price certain additional Shares on the terms and conditions of
the over-subscription privilege as set forth in such Prospectus.
The Fund has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form N-2 (Nos. 333-46955 and
811-04739) and a related preliminary prospectus under the Investment Company Act
of 1940, as amended (the "Investment Company Act"), the Securities Act of 1933,
as amended (the "Securities Act"), and the rules and regulations of the
Commission under the Investment Company Act and the Securities Act (the "Rules
and Regulations"), and has filed such amendments to such registration statement
on Form N-2, if any, and such amended preliminary prospectuses as may have been
required to the date hereof. If the registration statement has not become
effective, a further amendment to such registration statement, including forms
of a final prospectus necessary to permit such registration statement to become
effective will promptly be filed by the Fund with the Commission. If the
registration statement has become effective and any prospectus contained therein
omits certain information at the time of effectiveness pursuant to Rule 430A of
the Rules and Regulations, a final prospectus containing such omitted
information will promptly be filed by the Fund with the Commission in accordance
with Rule 497(h) of the Rules and Regulations. The registration statement, as
amended at the time it becomes or became effective, including financial
statements and all exhibits and all documents, if any, incorporated therein by
reference, and any information deemed to be included by Rule 430A, is called the
"Registration Statement." The term "Prospectus" means the final prospectus in
the form filed with the Commission pursuant to Rule 497(c), (e), (h) or (j) of
the Rules and Regulations, as the case may be, as from time to time amended or
supplemented pursuant to the Securities Act and all documents, if any,
incorporated by reference therein. The Prospectus and letters to beneficial
owners of the shares of Common Stock of the Fund, forms used to exercise rights,
any letters from the Fund to securities dealers, commercial banks and other
nominees and any newspaper announcements, press releases and other offering
materials and information that the Fund may use, approve, prepare or authorize
for use in connection with the Offer, are collectively referred to hereinafter
as the "Offering Materials."
SECTION 1. Representations and Warranties.
(a) Each of the Fund and the Investment Adviser represents and warrants
to the Dealer Manager as of the date hereof, as of the date of the commencement
of the Offer (such later date being hereinafter referred to as the
"Representation Date") and as of the Expiration Date (as defined below) that:
(i) The Fund meets the requirements for use of Form
N-2 under the Securities Act and the Investment Company Act and the
Rules and Regulations. At the time the Registration Statement became or
becomes effective, the Registration Statement did or will comply in all
material respects with the requirements of the Securities Act, the
Investment Company Act and the Rules and Regulations and did or will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. From the time the Registration
Statement became or becomes effective through the expiration date of
the Offer set forth in the Prospectus (the "Expiration Date"), the
Prospectus and the Offering Materials
2
<PAGE> 4
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Fund in writing by the Dealer Manager expressly for
use in the Registration Statement, Prospectus or Offering Materials.
(ii) The accountants who certified the financial
statements of the Fund set forth or incorporated by reference in the
Registration Statement and the Prospectus are independent public
accountants as required by the Investment Company Act and the Rules and
Regulations.
(iii) The financial statements of the Fund set forth or
incorporated by reference in the Registration Statement and the
Prospectus present fairly the financial position of the Fund as at the
date indicated and the results of its operations for the period
specified; such financial statements have been prepared in conformity
with generally accepted accounting principles; and the information in
the Prospectus under the headings "Fund Expenses" and "Financial
Highlights" presents fairly in all material respects the information
stated therein.
(iv) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as
otherwise stated therein, (A) there has been no material adverse
change, or any development involving a prospective material adverse
change, in the condition (financial or otherwise) or management of the
Fund, or in the business affairs or business prospects of the Fund,
whether or not arising in the ordinary course of business, (B) there
have been no transactions entered into by the Fund which are material
to the Fund other than those in the ordinary course of business, and
(C) except for regular quarterly distributions on the outstanding
shares of Common Stock of the Fund, there has been no special dividend
or distribution of any kind paid or declared in respect of the Fund's
capital stock.
(v) The Fund has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland with full corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Registration Statement and the Prospectus; the Fund currently maintains
all governmental licenses, permits, consents, orders, approvals, and
other authorizations (collectively, the "Licenses and Permits")
necessary to carry on its business as contemplated in the Prospectus,
and is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which the failure to so
qualify, either individually or in the aggregate, would have a material
adverse effect upon the operations or financial condition of the Fund;
and the Fund has no subsidiaries.
(vi) The Fund is registered with the Commission under
the Investment Company Act as a closed-end, diversified management
investment company, no order of suspension or revocation of such
registration has been issued or proceedings therefor
3
<PAGE> 5
initiated or threatened by the Commission and all required action has
been taken under the Securities Act and the Investment Company Act to
consummate the issuance of the Rights and the issuance and sale of the
Shares.
(vii) The authorized, issued and outstanding capital
stock of the Fund at April __, 1998 is as set forth in the Prospectus
under the caption "Common Stock"; the outstanding shares of Common
Stock have been duly authorized by all requisite corporate action on
the part of the Fund and are validly issued, fully paid and
non-assessable; the Rights and the Shares have been duly authorized by
all requisite corporate action on the part of the Fund for issuance
pursuant to the Offer; the Shares have been duly authorized by all
requisite corporate action on the part of the Fund for sale pursuant to
the terms of the Offer and, when issued and delivered by the Fund
pursuant to the terms of the Offer against payment of the consideration
set forth in the Prospectus, will be validly issued, fully paid and
non-assessable; the Common Stock, the Rights and the Shares conform in
all material respects to the descriptions thereof set forth in the
Registration Statement, the Prospectus and the Offering Materials; and
the issuance of each of the Rights and the Shares is not subject to any
preemptive rights.
(viii) Each of this Agreement, the Investment Advisory
Agreement referred to in the Registration Statement (the "Investment
Advisory Agreement"), the Administration Agreement and Amendment
thereto referred to in the Registration Statement (the "Administration
Agreement"), the Subscription Agency Agreement referred to in the
Registration Statement (the "Subscription Agency Agreement") with State
Street Bank & Trust Co. (the "Subscription Agent"), the Custodian
Agreement referred to in the Registration Statement (the "Custodian
Agreement"), the Information Agency Agreement referred to in the
Registration Statement (the "Information Agency Agreement") with
Georgeson & Company Inc. (the "Information Agent") and the Stock
Transfer Agent Service Agreement referred to in the Registration
Statement (the "Stock Transfer Agent Service Agreement") (collectively,
all of the foregoing are the "Fund Agreements") has been duly
authorized by all requisite corporate action on the part of the Fund
and executed and delivered by the Fund, and each complies with all
applicable provisions of the Investment Company Act; and, assuming due
authorization, execution and delivery by the other parties thereto,
each of the Fund Agreements constitutes a legal, valid, binding and
enforceable obligation of the Fund, subject to the qualification that
the enforceability of the Fund's obligations thereunder may be limited
by bankruptcy, insolvency, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights,
and to general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
(ix) Neither the execution or delivery by the Fund nor
the performance by the Fund of any of its obligations under any
material contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which it is a party or by which it is bound
contravenes or constitutes a default under any provision contained in
any law, rule or regulation of any governmental or regulatory authority
or any order or regulation of any court by which the Fund or any of its
assets is bound or affected.
4
<PAGE> 6
(x) There is no action, suit or proceeding before or
by any court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Fund or the Investment Adviser
threatened against or affecting, the Fund, which might result in any
material adverse change in the condition, financial or otherwise,
business affairs, business prospects, net worth or results of
operations of the Fund, or which might materially and adversely affect
the properties or assets of the Fund; and there are no material
contracts or documents of the Fund which are required to be filed as
exhibits to the Registration Statement by the Securities Act, the
Investment Company Act or by the Rules and Regulations which have not
been so filed.
(xi) The Fund owns or possesses, or can acquire on
reasonable terms, adequate trademarks, service marks and trade names
necessary to conduct its business as described in the Registration
Statement, and the Fund has not received any notice of infringement of
or conflict with asserted rights of others with respect to any
trademarks, service marks or trade names which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially adversely affect the conduct of the business,
operations, financial condition or income of the Fund.
(xii) The Fund has complied in all previous tax years,
and intends to direct the investment of the proceeds of the offering
described in the Registration Statement and the Prospectus in such a
manner as to continue to comply, with the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended ("Subchapter M of the
Code"), and has qualified and intends to continue to qualify as a
regulated investment company under Subchapter M of the Code.
(xiii) The Fund is not in violation of its Articles of
Incorporation, as amended (the "Charter"), or its by-laws, as amended
(the "By-Laws") or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which it is a party or by which it may be bound;
the issuance of the Rights, the issuance and sale of the Shares and the
performance and consummation of the other transactions contemplated
herein and the other Fund Agreements have been duly authorized by all
necessary corporate action and will not conflict with or constitute a
breach of, or default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Fund
pursuant to any material contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Fund is a party or by
which it may be bound or to which any of the property or assets of the
Fund is subject, nor will such action result in any violation of the
provisions of the Charter or By-Laws or any law, administrative
regulation or administrative or court decree applicable to the Fund.
(xiv) The Common Stock has been duly listed on the New
York Stock Exchange ("NYSE") and the Pacific Exchange, Inc. ("PXE") and
prior to their issuance the Shares will have been duly approved for
listing, subject to official notice of issuance, on the NYSE and PXE.
5
<PAGE> 7
(xv) The Fund (A) has not taken, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Fund
to facilitate the issuance of the Rights or the sale or resale of the
Shares, (B) has not since the filing of the Registration Statement
sold, bid for or purchased, or paid anyone any compensation for
soliciting purchases of, shares of Common Stock of the Fund (except for
the solicitation of exercises of the Rights pursuant to this Agreement)
and (C) will not, until the later of the expiration of the Rights or
the completion of the distribution (within the meaning of the
anti-manipulation rules under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of the Shares, sell, bid for or purchase,
pay or agree to pay to any person any compensation for soliciting
another to purchase any other securities of the Fund (except for the
solicitation of the exercises of Rights pursuant to this Agreement);
provided that any action in connection with the Fund's Distribution
Reinvestment and Cash Purchase Plan will not be deemed to be within the
terms of this Section 1(a)(xv).
(xvi) No consent, approval, authorization, notification
or order of, or filing with, any court or governmental agency or body,
whether foreign or domestic, is legally required for the consummation
by the Fund of the transactions contemplated by the Fund Agreements or
the Registration Statement, except such as have been obtained, or if
the registration statement filed with respect to the Shares is not
effective under the Securities Act as of the time of execution hereof,
such as may be required (and shall be obtained as provided in this
Agreement) under the Investment Company Act, the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
state securities laws.
(b) The Investment Adviser represents and warrants to the Dealer
Manager as of the date hereof and as of the Representation Date and as of the
Expiration Date that:
(i) The Investment Adviser has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the State of Delaware with full corporate power and authority
to own, lease and operate its properties and conduct its business as
described in the Registration Statement and the Prospectus; the
Investment Adviser currently maintains all Licenses and Permits
necessary to carry on its business as contemplated in the Prospectus,
and is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which the failure to so
qualify, either individually or in the aggregate, would have a material
adverse effect upon the operations or financial condition of the
Investment Adviser; and the Investment Adviser has no subsidiaries.
(ii) The Investment Adviser is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and is not prohibited by the Advisers Act
or the Investment Company Act, or the rules and regulations under such
Acts, from acting as an investment adviser for the Fund as contemplated
in the Registration Statement and the Prospectus and the Investment
Advisory Agreement.
6
<PAGE> 8
(iii) The description of the Investment Adviser in the
Registration Statement and the Prospectus is true and correct and does
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order
to make the statements therein not misleading.
(iv) Each of this Agreement and the Investment Advisory
Agreement has been duly authorized, executed and delivered by the
Investment Adviser and complies with all applicable provisions of the
Advisers Act and the Investment Company Act, and is, assuming due
authorization, execution and delivery by the other parties thereto, a
legal, valid, binding and enforceable obligation of the Investment
Adviser, subject to the qualification that the enforceability of the
Investment Adviser's obligations thereunder may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights, and
to general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law).
(v) Neither the performance by the Investment Adviser
of its obligations under this Agreement or the Investment Advisory
Agreement nor the consummation of the transactions contemplated therein
or in the Registration Statement nor the fulfillment of the terms
thereof will conflict with, result in a breach or violation of, or
constitute a default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any properties or assets of the
Investment Adviser under the charter or by-laws of the Investment
Adviser, or the terms and provisions of any agreement, indenture,
mortgage, lease or other instrument to which the Investment Adviser is
a party or by which it may be bound or to which any of the property or
assets of the Investment Adviser is subject, nor will such action
result in any violation of any order, law, rule or regulation of any
court or governmental agency or body, whether foreign or domestic,
having jurisdiction over the Investment Adviser or any of its
properties.
(vi) Except as set forth in the Registration Statement
and the Prospectus, there is no pending or, to the best knowledge of
the Investment Adviser, threatened action, suit or proceeding to which
the Investment Adviser is a party before or by any court or
governmental agency, authority or body or any arbitrator, whether
foreign or domestic, which might result in any material adverse change
in the condition (financial or other), business prospects, net worth or
results of operations of the Investment Adviser, or which might
materially and adversely affect the properties or assets thereof of a
character required to be disclosed in the Registration Statement or
Prospectus.
(vii) The Investment Adviser does not require any
governmental licenses, permits, consents, orders, approvals or other
authorizations to enable the Investment Adviser to continue to
supervise investments in securities as contemplated in the Prospectus
other than those which it has already obtained.
(viii) No consent, approval, authorization, notification
or order of, or any filing with, any court or governmental agency or
body is required under federal law or the laws of any other
jurisdiction, whether foreign or domestic, for the consummation by the
7
<PAGE> 9
Investment Adviser of the transactions contemplated by this Agreement
or the Investment Advisory Agreement.
(ix) The Investment Adviser (A) has not taken, directly
or indirectly, any action designed to cause or to result in, or that
has constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of any security of the
Fund to facilitate the issuance of the Rights or the sale or resale of
the Shares, (B) has not since the filing of the Registration Statement
sold, bid for or purchased, or paid anyone any compensation for
soliciting purchases of, shares of Common Stock of the Fund (except for
the solicitation of exercises of Rights pursuant to this Agreement) and
(C) will not, until the later of the expiration of the Rights or the
completion of the distribution (within the meaning of the
anti-manipulation rules under the Exchange Act) of the Shares, sell,
bid for or purchase, pay or agree to pay any person any compensation
for soliciting another to purchase any other securities of the Fund
(except for the solicitation of exercises of Rights pursuant to this
Agreement); provided that any action in connection with the Fund's
Distribution Reinvestment and Cash Purchase Plan will not be deemed to
be within the terms of this Section 1(b)(ix).
(x) The Investment Adviser has the financial resources
available to it necessary for the performance of its services and
obligations as contemplated in the Registration Statement and the
Prospectus.
(xi) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as
otherwise stated therein, there has been no material adverse change, or
any development involving a prospective material adverse change, in the
condition (financial or otherwise) or management of the Investment
Adviser, or in the business affairs or business prospects of the
Investment Adviser, whether or not arising in the ordinary course of
business.
(c) Any certificate signed by any officer of the Fund or the Investment
Adviser and delivered to the Dealer Manager or counsel for the Dealer Manager
shall be deemed a representation and warranty by the Fund or the Investment
Adviser, as the case may be, to the Dealer Manager, as to the matters covered
thereby.
SECTION 2. Agreement to Act as Dealer Manager.
(a) On the basis of the representations and warranties contained
herein, and subject to the terms and conditions of the Offer:
(i) The Fund hereby appoints the Dealer Manager and
other soliciting dealers entering into a Soliciting Dealer Agreement in
the form attached hereto as Exhibit A (the "Soliciting Dealer
Agreement") with the Dealer Manager (the "Soliciting Dealers"), to
solicit, in accordance with the Securities Act, the Investment Company
Act and the Exchange Act, the rules and regulations under those Acts,
any applicable Blue Sky laws, and its customary practice, the exercise
of the Rights and the over-subscription privilege, subject to the terms
and conditions of this Agreement, the procedures described in the
8
<PAGE> 10
Registration Statement and the Prospectus and, where applicable, the
terms and conditions of such Soliciting Dealer Agreement; and
(ii) To the extent available, the Fund agrees to
furnish, or cause to be furnished, to the Dealer Manager, lists, or
copies of those lists, showing (to the knowledge of the Fund) the names
and addresses of, and number of shares of Common Stock held by, Holders
as of the Record Date, and the Dealer Manager agrees to use such
information only in connection with the Offer, and not to furnish the
information to any other person, except that the Dealer Manager may
furnish necessary and appropriate information to securities brokers and
dealers that the Dealer Manager has requested to solicit exercises of
Rights.
(b) The Dealer Manager agrees to provide to the Fund, in addition to
the services described in paragraph (a) of this Section 2, financial advisory
and marketing services in connection with the Offer.
(c) The Fund and the Dealer Manager agree that the Dealer Manager is an
independent contractor with respect to the solicitation of the exercise of
Rights and the performance of financial advisory and marketing services to the
Fund contemplated by this Agreement.
(d) In rendering the services contemplated by this Agreement, the
Dealer Manager will not be subject to any liability to the Fund or the
Investment Adviser, or any of their affiliates, for any act or omission on the
part of any securities broker or dealer (except with respect to the Dealer
Manager acting in such capacity) or any other person, and the Dealer Manager
will not be liable for acts or omissions in performing its obligations under
this Agreement, except for any losses, claims, damages, liabilities and expenses
determined in a final judgment by a court of competent jurisdiction to have
resulted directly from the Dealer Manager's gross negligence or willful
misconduct in such acts or omissions.
SECTION 3. Dealer Manager Fees and Solicitation Fees. In full payment
for services rendered and to be rendered hereunder by the Dealer Manager (other
than solicitation efforts), the Fund agrees to pay the Dealer Manager a fee for
its financial advisory and marketing services equal to 1.25% of the aggregate
Subscription Price for the Shares issued pursuant to the Offer (the "Dealer
Manager Fee"). In full payment for the soliciting efforts to be rendered, the
Fund agrees to pay fees (the "Solicitation Fees") to either the Soliciting
Dealer or the Dealer Manager equal to 2.50% of the Subscription Price per Share
for each Share issued pursuant to the Offer (such Solicitation Fees paid to the
Dealer Manager are in addition to the Dealer Manager Fee). The Fund agrees to
pay the Solicitation Fees to the broker-dealer designated on the related
Subscription Certificate, provided that such designated broker-dealer has
executed a confirmation accepting the terms of the Soliciting Dealer Agreement,
and if no broker-dealer is so designated or a broker-dealer is otherwise not
entitled to receive compensation pursuant to the terms of the Soliciting Dealer
Agreement, then to pay the Dealer Manager the Solicitation Fee for Shares issued
pursuant to the Offer. Payment to the Dealer Manager by the Fund will be in the
form of a wire transfer of same day funds to an account or accounts identified
by the Dealer Manager. Such payments will be made on the day after the final
payment for Shares is due as set forth in the Prospectus, or when such payments
are actually received and the corresponding funds are available. Zweig
Securities Corp. will be such designated broker-dealer with respect to Shares
issued to participants in the Fund's Distribution Reinvestment
9
<PAGE> 11
and Cash Purchase Plan, unless the participant designates otherwise on the
related Subscription Certificate. Payment of the Solicitation Fees to a
Soliciting Dealer that executed a confirmation will be made by the Fund directly
to such Soliciting Dealer by U.S. dollar checks drawn upon an account at a bank
in New York City. Such payments to such Soliciting Dealers shall be made as soon
as practicable after payment of the Dealer Manager Fee is made to the Dealer
Manager.
SECTION 4. Covenants.
(a) The Fund covenants with the Dealer Manager as follows:
(i) The Fund will use its best efforts to cause the
Registration Statement to become effective under the Securities Act,
and will advise the Dealer Manager promptly as to the time at which the
Registration Statement and any amendments thereto (including any
post-effective amendment) becomes so effective.
(ii) The Fund will notify the Dealer Manager
immediately, and confirm the notice in writing, (i) of the
effectiveness of the Registration Statement and any amendment thereto
(including any post-effective amendment), (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission
for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose, (v) of the issuance by the Commission of
an order of suspension or revocation of the notification on Form N-8A
of registration of the Fund as an investment company under the
Investment Company Act or the initiation of any proceeding for that
purpose and (vi) of the suspension of the qualification of the Shares
or the Rights for offering or sale in any jurisdiction. The Fund will
make every reasonable effort to prevent the issuance of any stop order
described in subsection (iv) hereunder or any order of suspension or
revocation described in subsection (v) or subsection (vi) hereunder
and, if any such stop order or order of suspension or revocation is
issued, to obtain the lifting thereof at the earliest possible moment.
(iii) The Fund will give the Dealer Manager notice of
its intention to file any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement
to the Prospectus (including any revised prospectus which the Fund
proposes for use by the Dealer Manager in connection with the Offer,
which differs from the prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether such revised
prospectus is required to be filed pursuant to Rule 497(c), (e), (h) or
(j) of the Rules and Regulations), whether pursuant to the Investment
Company Act, the Securities Act, or otherwise, and will furnish the
Dealer Manager with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the
case may be, and will not file any such amendment or supplement to
which the Dealer Manager or counsel for the Dealer Manager shall
reasonably object.
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<PAGE> 12
(iv) The Fund will, without charge, deliver to the
Dealer Manager, as soon as practicable, the number of copies (one of
which is manually executed) of the Registration Statement as originally
filed and of each amendment thereto as it may reasonably request, in
each case with the exhibits filed therewith.
(v) The Fund will, without charge, furnish to the
Dealer Manager, from time to time during the period when the Prospectus
is required to be delivered under the Securities Act, such number of
copies of the Prospectus (as amended or supplemented) as the Dealer
Manager may reasonably request for the purposes contemplated by the
Securities Act or the Rules and Regulations.
(vi) If any event shall occur as a result of which it
is necessary, in the opinion of counsel for the Fund, to amend or
supplement the Registration Statement or the Prospectus in order to
make the Prospectus not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, the Fund will
forthwith amend or supplement the Prospectus by preparing, filing with
the Commission (and furnishing to the Dealer Manager a reasonable
number of copies of) an amendment or amendments of the Registration
Statement or an amendment or amendments of or a supplement or
supplements to, the Prospectus (in form and substance satisfactory to
counsel for the Dealer Manager) which will amend or supplement the
Registration Statement or the Prospectus so that the Prospectus will
not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time the Prospectus is
delivered to a Holder, not misleading.
(vii) The Fund will endeavor, in cooperation with the
Dealer Manager, to qualify the Rights and the Shares for offering and
sale under the applicable securities laws (if any) of such states and
other jurisdictions of the United States as the Dealer Manager may
designate, and will maintain such qualifications in effect for the
duration of the Offer; provided, however, that the Fund will not be
obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not now so qualified. The Fund will file
such statements and reports as may be required by the laws of each
jurisdiction in which the Rights and the Shares have been qualified as
above provided.
(viii) The Fund will make generally available to its
security holders as soon as practicable, but no later than 60 days
after the close of the period covered thereby, an earning statement (in
form complying with the provisions of Rule 158 of the Rules and
Regulations) covering a twelve-month period beginning not later than
the first day of the Fund's fiscal quarter next following the
"effective" date (as defined in said Rule 158) of the Registration
Statement.
(ix) For a period of 180 days from the date of this
Agreement, the Fund will not, without the prior consent of the Dealer
Manager, offer or sell, or enter into any agreement to sell, any equity
or equity related securities of the Fund, or securities convertible
into such securities, other than the Rights and the Shares and the
Common Stock issued in reinvestment of dividends or distributions.
11
<PAGE> 13
(x) The Fund will apply the net proceeds from the
Offer as set forth under "Use of Proceeds" in the Prospectus.
(xi) The Fund will use its best efforts to cause the
Shares to be duly authorized for listing by the NYSE and PXE prior to
the time the Shares are issued.
(xii) The Fund will use its best efforts to maintain its
qualification as a regulated investment company under Subchapter M of
the Code.
(xiii) The Fund will advise or cause the Subscription
Agent to advise the Dealer Manager and each Soliciting Dealer from day
to day during the period of, and promptly after the termination of, the
Offer, as to all names and addresses of Holders exercising Rights, the
total number of Rights exercised by each Holder during the immediately
preceding day, indicating the total number of Rights verified to be in
proper form for exercise, rejected for exercise and being processed
and, for the Dealer Manager and each Soliciting Dealer, the number of
Rights exercised for Shares on exercise forms indicating the Dealer
Manager or Soliciting Dealer as the broker-dealer with respect to such
exercise, and as to such other information as the Dealer Manager may
reasonably request; and will notify the Dealer Manager and each
Soliciting Dealer, not later than 5:00 P.M., New York City time, on the
first business day following the Expiration Date, of the total number
of Rights exercised and Shares related thereto, the total number of
Rights verified to be in proper form for exercise, rejected for
exercise and being processed and, for the Dealer Manager and Soliciting
Dealer, the number of Rights exercised for Shares on exercise forms
indicating the Dealer Manager or Soliciting Dealer as the broker-dealer
with respect to such exercise, and as to such other information as the
Dealer Manager may reasonably request.
(b) Neither the Fund nor the Investment Adviser will take, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Fund to
facilitate the issuance of the Rights or the sale or resale of the Shares;
provided that any action in connection with the Fund's Distribution Reinvestment
and Cash Purchase Plan will not be deemed to be within the meaning of this
Section 4(b).
SECTION 5. Payment of Expenses.
(a) The Fund will pay all expenses incident to the performance of its
obligations under this Agreement, including, but not limited to, expenses
relating to (i) the printing and filing of the registration statement as
originally filed and of each amendment thereto, (ii) the preparation, issuance
and delivery of the certificates for the Shares, (iii) the fees and
disbursements of the Fund's counsel and accountants, (iv) the qualification of
the Rights and the Shares under securities laws in accordance with the
provisions of Section 4(a)(vii) of this Agreement, including filing fees and any
reasonable fees or disbursements of counsel for the Dealer Manager in connection
therewith, (v) the printing and delivery to the Dealer Manager of copies of the
registration statement as originally filed and of each amendment thereto, of the
preliminary prospectus, of the Prospectus and any amendments or supplements
thereto, of this Agreement and of the Soliciting Dealer Agreement, (vi)
12
<PAGE> 14
the printing and delivery of copies of the Blue Sky Letter, (vii) the fees and
expenses incurred in connection with the listing of the Shares on the NYSE and
PXE, (viii) the filing fees of the Commission, (ix) the fees and expenses
incurred with respect to filing with the National Association of Securities
Dealers, Inc. (x) the printing, mailing and delivery expenses incurred in
connection with the Offering Materials, and (xi) the fees and expenses incurred
with respect to the Subscription Agent and Information Agent.
(b) In addition to any fees that may be payable to the Dealer Manager
under this Agreement, the Fund agrees to reimburse the Dealer Manager upon
request made from time to time for its reasonable expenses up to $82,500
incurred in connection with its activities under this Agreement, including the
reasonable fees and disbursements of legal counsel for the Dealer Manager.
(c) If this Agreement is terminated by the Dealer Manager in accordance
with the provisions of Section 6 or Section 9(a)(i), 9(a)(ii) or 9(a)(iii), the
Fund shall reimburse the Dealer Manager for all of its reasonable out-of-pocket
expenses incurred in connection with its performance hereunder, including the
reasonable fees and disbursements of counsel for the Dealer Manager. In the
event the transactions contemplated hereunder are not consummated, the Fund
agrees to pay all of the costs and expenses set forth in paragraphs (a) and (b)
of this Section 5 which the Fund would have paid if such transactions had been
consummated.
(d) The Investment Adviser agrees that, to the extent the Fund fails to
fulfill its obligations in paragraphs (b) and (c) of this Section 5, the
Investment Adviser will pay all the costs and expenses set forth in this Section
5. The Investment Adviser hereby abandons and waives any rights that the
Investment Adviser may have at any time under any applicable laws, existing or
future, to require that recourse be made to the assets of the Fund before any
claim is enforced against the Investment Adviser in respect of the Investment
Adviser's obligations under this paragraph (d) of this Section 5. The Investment
Adviser agrees that if at any time the Investment Adviser is sued in respect of
its obligations under this paragraph (d) of this Section 5 and the Fund is not
also sued in respect of its obligations under this Section 5, the Investment
Adviser shall not claim that the Fund be made a party to such proceedings
against the Investment Adviser.
SECTION 6. Conditions of Dealer Manager's Obligations. The obligations
of the Dealer Manager hereunder are subject to the accuracy of the
representations and warranties of the Fund and the Investment Adviser herein
contained, to the performance by the Fund and the Investment Adviser of their
respective obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York City time, on the Record Date, or at such later time
and date as may be approved by the Dealer Manager; the Prospectus and any
amendment or supplement thereto shall have been filed with the Commission in the
manner and within the time period required by Rule 497(c), (e), (h) or (j), as
the case may be, under the Securities Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto shall have
been issued, and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Fund, the Investment Adviser or the
Dealer Manager, shall be contemplated by the Commission; and the Fund
13
<PAGE> 15
shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement, the Prospectus or
otherwise).
(b) On the Representation Date and the Expiration Date, the Dealer
Manager shall have received:
(1) The favorable opinions, dated the Representation Date and
the Expiration Date, of Rosenman & Colin LLP, counsel for the Fund and
the Investment Adviser, in form and substance satisfactory to counsel
for the Dealer Manager, to the effect that:
[(i) The Fund has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the State of Maryland.
(ii) The Fund has full corporate power and authority to
own, lease and operate its properties and conduct its business
as described in the Registration Statement and the Prospectus.
(iii) The Fund currently maintains all Licenses and
Permits necessary to carry on its business as contemplated in
the Prospectus.
(iv) The Fund is duly qualified as a foreign
corporation to transact business and is in good standing in
each jurisdiction in which the failure to so qualify, either
individually or in the aggregate, would have a material
adverse effect on the operations or financial condition of the
Fund; and the Fund has no subsidiaries.
(v) The outstanding Shares of Common Stock have been
duly authorized by all requisite corporate action on the part
of the Fund and are validly issued, fully paid and
non-assessable.
(vi) The Fund's outstanding shares of Common Stock have
been duly listed on the NYSE and PXE and the Shares have been
duly approved for listing on the NYSE and PXE, subject to
official notice of issuance.
(vii) The Fund's authorized capitalization is as set
forth in the Prospectus under the heading "Common Stock." The
Rights and the Shares have been duly authorized by all
requisite corporate action on the part of the Fund for
issuance pursuant to the Offer; the Shares have been duly
authorized by all requisite corporate action on the part of
the Fund for sale pursuant to the terms of the Offer and, when
issued and delivered by the Fund pursuant to the terms of the
Offer against payment of the consideration set forth in the
Prospectus, will be validly issued, fully paid and
non-assessable; the Common Stock, the Rights and the Shares
conform in all material respects to the descriptions thereof
set forth in the Registration Statement, the Prospectus and
the Offering Materials; and the issuance of each of the Rights
and the Shares is not subject to any preemptive rights.
14
<PAGE> 16
(viii) This Agreement and the other Fund Agreements have
been duly authorized, executed and delivered by the Fund, are
valid and binding obligations of the Fund, comply as to form
in all material respects with all applicable provisions of the
Investment Company Act and are in full force and effect.
(ix) The Registration Statement is effective under the
Securities Act; any required filing of the Prospectus or any
supplement thereto pursuant to Rule 497(c), (e), (h) or (j)
required to be made to the date hereof has been made in the
manner and within the time period required by Rule 497(c),
(e), (h) or (j), as the case may be; to the best knowledge of
such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings
for that purpose have been instituted or threatened; and the
Registration Statement, the Prospectus and each amendment
thereof or supplement thereto (other than the financial
statements, schedules, the notes thereto and the schedules and
other financial data contained or incorporated by reference
therein or omitted therefrom, as to which such counsel need
express no opinion) as to their respective effective or issue
dates comply as to form in all material respects with the
applicable requirements of the Securities Act and the
Investment Company Act and the Rules and Regulations.
(x) Except as set forth in the Registration Statement
and Prospectus, to the best knowledge of such counsel, there
is no pending or threatened action, suit or proceeding to
which the Fund is a party before or by any court or
governmental agency, authority or body or any arbitrator,
whether foreign or domestic, which might result in any
material adverse change in the condition (financial or other),
business prospects, net worth or results of operations of the
Fund, or which might materially and adversely affect the
properties or assets thereof of a character required to be
disclosed in the Registration Statement or the Prospectus.
(xi) To the best of their knowledge and information,
there are no contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments of the Fund
required to be described or referred to in the Prospectus or
the Registration Statement or to be filed as exhibits thereto
other than those respectively described or referred to therein
or filed as exhibits thereto, the descriptions thereof are
correct in all material respects, references thereto are
correct, and no default exists in the due performance or
observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, loan
agreement, note or lease so described, referred to or filed.
(xii) No consent, approval, authorization or order of
any court or governmental authority or agency is required in
connection with the sale of the Shares pursuant to the Offer,
except such as has been obtained under the Securities Act, the
Investment Company Act or the Rules and Regulations or such as
may be required under state securities laws; and the execution
and delivery of this Agreement and the Fund Agreements and the
consummation of the transactions contemplated herein and
therein will not conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any
lien, charge or
15
<PAGE> 17
encumbrance upon any property or assets of the Fund pursuant
to, any contract, indenture, mortgage, loan agreement, note,
lease or other instrument known to such counsel to which the
Fund is a party or by which it may be bound or to which any of
the property or assets of the Fund is subject, nor will such
action result in any violation of the provisions of the
Charter or By-Laws of the Fund, or any law or administrative
regulation, or, to the best of their knowledge and
information, administrative or court decree.
(xiii) The Fund is registered with the Commission under
the Investment Company Act as a closed-end, diversified
management investment company, and all required action has
been taken by the Fund under the Securities Act, the
Investment Company Act and the Rules and Regulations to make
and consummate the Offer; the provisions of the Charter and
By-Laws of the Fund comply as to form in all material respects
with the requirements of the Investment Company Act and the
rules and regulations thereunder; and, to the best of their
knowledge and information, no order of suspension or
revocation of such registration under the Investment Company
Act, pursuant to Section 8(e) of the Investment Company Act,
has been issued or proceedings therefor initiated or
threatened by the Commission.
(xiv) The information in the Prospectus under the
caption "Taxation", to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by them and is
correct in all material respects.
(xv) The Investment Adviser is duly registered as an
investment adviser under the Advisers Act and is not
prohibited by the Advisers Act or the Investment Company Act,
or the rules and regulations under such acts, from acting
under the Investment Advisory Agreement for the Fund as
contemplated by the Prospectus.
(xvi) The Investment Adviser has been duly incorporated
and is validly existing as a corporation in good standing
under the laws of the State of Delaware.
(xvii) The Investment Adviser has full corporate power
and authority to own, lease and operate its properties and
conduct its business as described in the Registration
Statement and the Prospectus.
(xviii) The Investment Adviser currently maintains all
Licenses and Permits necessary to carry on its business as
contemplated in the Prospectus.
(xix) The Investment Adviser is duly qualified as a
foreign corporation to transact business and is in good
standing in each jurisdiction in which the failure to so
qualify, either individually or in the aggregate, would have a
material adverse effect on the operations or financial
condition of the Investment Adviser.
(xx) Each of this Agreement and the Investment Advisory
Agreement has been duly authorized, executed and delivered by
the Investment Adviser; each of this Agreement and the
Investment Advisory Agreement constitutes a valid and
16
<PAGE> 18
binding obligation of the Investment Adviser; no consent,
approval, authorization or order of any court or governmental
authority or agency is required that has not been obtained for
the performance of this Agreement or the Investment Advisory
Agreement by the Investment Adviser; and neither the execution
and delivery of this Agreement or the Investment Advisory
Agreement nor the performance by the Investment Adviser of its
obligations hereunder or thereunder will conflict with, or
result in a breach of, any of the terms and provisions of, or
constitute, with or without the giving of notice or the lapse
of time or both, a default under, the Investment Adviser's
Charter or By-Laws or, to the best of such counsel's knowledge
and information, any agreement or instrument to which the
Investment Adviser is a party or by which the Investment
Adviser is bound, or any law, order, rule or regulation
applicable to the Investment Adviser of any jurisdiction,
court, federal or state regulatory body, administrative agency
or other governmental body, stock exchange or securities
association having jurisdiction over the Investment Adviser or
its properties or operations.
(xxi) To the best of such counsel's knowledge and
information, the description of the Investment Adviser in the
Registration Statement and the Prospectus does not contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein.
(xxii) To the best of such counsel's knowledge and
information, there are no legal or governmental proceedings
pending or threatened against the Investment Adviser that are
required to be disclosed in the Registration Statement or the
Prospectus, other than those disclosed therein.
(xxiii) Each of this Agreement and the Investment Advisory
Agreement complies with all applicable provisions of the
Advisers act.
In rendering such opinion, such counsel may rely as to matters
of Maryland law on the opinion of Venable, Baetjer & Howard LLP and as
to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Fund and public officials. Such counsel may
state that, except with respect to matters of Maryland law covered by
an opinion of Venable, Baetjer & Howard LLP, their opinion is limited
to the federal laws of the United States and the laws of the State of
New York and that they are expressing no opinion as to the effect of
laws of any other jurisdiction, except as specifically set forth in
such opinion.
Such counsel shall also have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise
verified, and are not passing upon and assume no responsibility for the
accuracy or completeness of, the statements contained in the
Registration Statement or the Prospectus, in the course of their review
and discussion of the contents of the Registration Statement and
Prospectus with certain officers and employees of the Fund and its
independent accountants, no facts have come to their attention which
cause them to believe that the Registration Statement, on the date it
became effective,
17
<PAGE> 19
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements contained therein not misleading or that the Prospectus,
as of its date and on the Representation Date or the Expiration Date,
as the case may be, contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.]
(2) The favorable opinion, dated as of the date of this
Agreement, of Rogers & Wells LLP, counsel for the Dealer Manager, with
respect to the issuance and sale of the Shares, and such other related
matters as the Dealer Manager may reasonably require.
(c) The Fund shall have furnished to the Dealer Manager certificates of
the Fund, signed by the President, the Treasurer, the Secretary, or a Vice
President of the Fund, dated the Representation Date and the Expiration Date, to
the effect that the signer of such certificate carefully examined the
Registration Statement, the Prospectus, any supplement to the Prospectus and
this Agreement and that, to the best of their knowledge:
(i) The representations and warranties of the Fund in
this Agreement are true and correct on and as of the Representation
Date or the Expiration Date, as the case may be, with the same effect
as if made on the Representation Date or the Expiration Date, as the
case may be, and the Fund has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to the Representation Date or the Expiration Date, as the
case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Fund's knowledge, threatened;
and
(iii) Since the date of the most recent balance sheet
included or incorporated by reference in the Prospectus, there has been
no material adverse change in the condition (financial or other),
business, prospects, net worth or results of operations of the Fund
(excluding fluctuations in the Fund's net asset value due to investment
activities in the ordinary course of business), except as set forth in
or contemplated in the Prospectus.
(d) The Investment Adviser shall have furnished to the Dealer Manager
certificates of the Investment Adviser, signed by the President, Treasurer,
Secretary or Vice President, dated the Representation Date and the Expiration
Date, to the effect that the signer of such certificate has read the
Registration Statement, the Prospectus, any supplement to the Prospectus and
this Agreement and, to the best knowledge of such signer, the representations
and warranties of the Investment Adviser in this Agreement are true and correct
in all material respects on and as of the Representation Date or the Expiration
Date, as the case may be, with the same effect as if made on the Representation
Date or the Expiration Date, as the case may be.
18
<PAGE> 20
(e) Coopers & Lybrand L.L.P. shall have furnished to the Dealer Manager
letters, dated the Representation Date and the Expiration Date, in form and
substance satisfactory to the Dealer Manager, to the effect that:
(i) They are independent accountants with respect to
the Fund within the meaning of the Securities Act and the Rules and
Regulations;
(ii) In their opinion, the audited financial statements
examined by them and included or incorporated by reference in the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Securities Act and the
Investment Company Act and the Rules and Regulations;
(iii) They have performed specified procedures, not
constituting an audit in accordance with generally accepted auditing
standards, including a reading of the latest available interim
financial statements of the Fund, a reading of the minute books of the
Fund, inquiries of officials of the Fund responsible for financial
accounting matters and such other inquiries and procedures as may be
specified in such letter, and on the basis of such inquiries and
procedures nothing came to their attention that caused them to believe
that at the date of the latest available financial statements read by
such accountants, or at a subsequent specified date not more than three
days prior to the Representation Date, there was any change in the
capital stock or any decrease in the net assets of the Fund as compared
with amounts shown on the statement of net assets included or
incorporated by reference in the Registration Statement except as the
Registration Statement discloses has occurred or may occur, or they
shall state any specific changes, increases or decreases; and
(iv) In addition to the procedures referred to in
clause (iii) above, they have performed other specified procedures, not
constituting an audit, with respect to certain amounts, percentages,
numerical data, financial information and financial statements
appearing in the Registration Statement, which have previously been
specified by the Dealer Manager and which shall be specified in such
letter, and have compared certain of such items with, and have found
such items to be in agreement with, the accounting and financial
records of the Fund.
(f) At the date of this Agreement, counsel for the Dealer Manager shall
have been furnished with such further documents and opinions as they may
reasonably require for the purpose of enabling them to pass upon the issuance of
the Rights and the Shares and the sale of the Shares as contemplated herein and
in the Registration Statement and to pass upon related proceedings, or in order
to evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Fund and the Investment Adviser in connection with the issuance of
the Rights and the Shares and sale of the Shares as contemplated herein and in
the Registration Statement shall be satisfactory in form and substance to the
Dealer Manager and counsel for the Dealer Manager.
(g) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall not have been (i)
any change, increase or decrease specified in the letter or letters referred to
in paragraph (e) of this Section 6, or (ii) any
19
<PAGE> 21
change, or any development involving a prospective change, in or affecting the
business or properties of the Fund, the effect of which, in any case referred to
in clause (i) or (ii) above, is, in the reasonable judgment of the Dealer
Managers, so material and adverse as to make it impractical or inadvisable to
proceed with the Offer as contemplated by the Registration Statement and the
Prospectus.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Dealer Manager by notice to the Fund at any time at or prior to the
Representation Date by the Dealer Manager, and such termination shall be without
liability of any party to any other party except as provided in Section 5.
SECTION 7. Indemnification and Contribution.
(a) The Fund and the Investment Adviser, jointly and severally, agree
to indemnify and hold harmless the Dealer Manager and its respective directors,
officers, employees, agents and each person who controls the Dealer Manager
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (the Dealer Manager and each such person being an "Indemnified
Party") as follows:
(i) From and against any and all losses, claims,
damages, liabilities and expenses whatsoever, joint or several, as
incurred, to which such Indemnified Party may become subject under any
applicable federal or state law, or otherwise, and related to, arising
out of, or based on (A) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement
(and any amendment thereto), or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading, (B) any untrue statement
or alleged untrue statement of a material fact contained in the
Offering Materials or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, (C) any breach by the Fund or the Investment
Adviser of any of their representations, warranties or agreements
contained herein or in any certificate or document furnished pursuant
to Section 6(c), 6(d) or 6(f) hereof, (D) the Fund's failure to make
the Offer or the withdrawal, rescission, termination, amendment or
extension of the Offer or any other failure on the Fund's or the
Investment Adviser's part to comply with the terms and conditions
contained in the Registration Statement or the Offering Materials or
(E) any transaction contemplated by this Agreement or the engagement of
the Dealer Manager pursuant to, and the performance by the Dealer
Manager of the services contemplated by, this Agreement;
(ii) Against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever related to, arising out of or based on any
matter described in (i) above; and
20
<PAGE> 22
(iii) Against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by the
Dealer Manager), incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever related to, arising out of or based on any matter described
in (i) above, whether or not such Indemnified Party is a party and
whether or not such claim, action or proceeding is initiated or brought
by or on behalf of the Fund or the Investment Adviser, to the extent
that any such expense is not paid under subparagraph (i) or (ii) above;
provided, however, that the Fund and the Investment Adviser shall not be liable
under clause (i)(A) to the extent arising out of any untrue statement or
omission or alleged untrue statement or omission made in the Registration
Statement, Prospectus and Offering Materials in reliance upon and in conformity
with written information furnished to the Fund by the Dealer Manager expressly
for use in the Registration Statement, Prospectus and Offering Materials.
The Fund and the Investment Adviser agree that no Indemnified Party
shall have any liability (whether direct or indirect, in contract or tort or
otherwise) to the Fund or the Investment Adviser, their security holders or
creditors relating to or arising out of the engagement of the Dealer Manager as
set forth in Section 7(a)(i)(E) hereof except to the extent that any loss,
claim, damage or liability or expense is found in a final non-appealable
judgment by a court of competent jurisdiction to have resulted primarily from
the Dealer Manager's willful misconduct, gross negligence or bad faith.
The Fund and the Investment Adviser agree that, without the Dealer
Manager's prior written consent, it will not settle, compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any action or claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 7 (whether or not the Dealer
Manager or any other Indemnified Party is an actual or potential party to such
claim, action or proceeding), unless such settlement, compromise or consent (i)
includes an unconditional release of each Indemnified Party from all liability
arising out of such litigation, investigation, proceeding, action or claim and
(ii) does not include a statement as to, or an admission of, fault, culpability
or a failure to act by or on behalf of an Indemnified Party.
(b) If the indemnification provided for in Section 7(a) hereof is for
any reason unavailable to or insufficient to hold harmless an Indemnified Party
in respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
Indemnified Party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Fund and the Investment Adviser on
the one hand and the Dealer Manager on the other hand from the Offer or (ii) if
the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Fund and the
Investment Adviser on the one hand and of the Dealer Manager on the other hand
in connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Fund and the
Investment Adviser on
21
<PAGE> 23
the one hand and the Dealer Manager on the other hand in connection with the
Offer shall be deemed to be in the same proportion as the total proceeds from
the Offer (before deducting expenses) received by the Fund bears to the fees
actually received by the Dealer Manager hereunder. The relative fault of the
Fund or the Investment Adviser on the one hand and the Dealer Manager on the
other hand shall be determined by reference to, among other things, whether any
such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Fund or the Investment Adviser or by the Dealer Manager and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Fund, the Investment Adviser and the
Dealer Manager agree that it would not be just and equitable if contribution
pursuant to this Section 7(b) were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 7(b). The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an Indemnified
Party and referred to above in this Section 7(b) shall be deemed to include any
legal or other expenses reasonably incurred by such Indemnified Party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission; provided, however, that to the extent
permitted by applicable law, in no event shall the Dealer Manager be required to
contribute any amount which, in the aggregate, exceeds the aggregate fees
received by the Dealer Manager under this Agreement. No investigation or failure
to investigate by any Indemnified Party shall impair the foregoing
indemnification and contribution agreement or any rights an Indemnified Party
may have. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 7(b), each person, if any, who controls the Dealer Manager
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act shall have the same rights to contribution as the Dealer Manager,
and each director of the Fund or the Investment Adviser and each person, if any,
who controls the Fund or the Investment Adviser within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Fund and the Investment Adviser, as the case may
be.
(c) In the event an Indemnified Party is requested or required to
appear as a witness in any action brought by or on behalf of or against the Fund
or the Investment Adviser, the Fund and the Investment Adviser agree to
reimburse the Dealer Manager for all reasonable expenses as incurred by it in
connection with such Indemnified Party's appearing and preparing to appear as
such a witness, including, without limitation, the reasonable fees and
disbursements of its legal counsel, and to compensate the Dealer Manager in an
amount to be mutually agreed upon. In addition, the Fund and the Investment
Adviser agree to compensate the Dealer Manager in an amount to be mutually
agreed upon per employee per day for each day that a Dealer Manager officer or
employee is involved in preparation, discovery or testimony pertaining to any
litigation, discovery or investigation in connection with the Dealer Manager's
engagement under this agreement.
(d) Promptly after receipt by an Indemnified Party of written notice of
any claim or commencement of an action or proceeding with respect to which
indemnification may be sought hereunder, such Indemnified Party will notify the
Fund in writing of such claim or of the
22
<PAGE> 24
commencement of such action or proceeding, but failure so to notify the Fund
will not relieve the Fund and the Investment Adviser from any liability which it
may have to such Indemnified Party under this indemnification agreement, and in
any event will not relieve the Fund from any other liability that it may have to
such Indemnified Party. The Dealer Manager shall have the right to select
counsel in connection with any transaction for which any Indemnified Party may
be entitled to indemnification or contribution hereunder, provided that in no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all Indemnified Parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances.
(e) If at any time an Indemnified Party shall have requested an
indemnifying party to reimburse the Indemnified Party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such Indemnifying Party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(f) The Fund and the Investment Adviser, jointly and severally, agree
to indemnify each Soliciting Dealer and its affiliates and their respective
directors, officers, employees, agents and controlling persons to the same
extent and subject to the same conditions and to the same agreements, including
with respect to contribution, provided for in subsections (a), (b) and (c) of
this Section 7. This indemnity agreement will be in addition to any liability
which the Fund or the Investment Adviser may otherwise have.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Fund or the
Investment Adviser submitted pursuant hereto, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of the
Dealer Manager or any controlling person, or by or on behalf of the Fund or the
Investment Adviser and shall survive delivery of the Shares pursuant to the
Offer. The provisions of Sections 5 and 7 hereof shall survive the termination
or cancellation of this Agreement.
SECTION 9. Termination of Agreement.
(a) This Agreement may be terminated in the sole discretion of the
Dealer Manager by notice to the Fund given at or prior to the expiration of the
Offer in the event that the Fund or the Investment Adviser shall have failed,
refused or been unable to perform all material obligations and satisfy all
material conditions on its part to be performed or satisfied hereunder at or
prior thereto or, if at or prior to the termination of the Offer,
(i) The Fund or the Investment Adviser shall have
sustained any material loss or interference with its business or
properties from fire, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any legal or
governmental
23
<PAGE> 25
proceeding, or there shall have been any material adverse change or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Fund or the
Investment Adviser, as the case may be), in the condition, financial or
otherwise, or in the business affairs or business prospects of the Fund
or the Investment Adviser, whether or not arising in the ordinary
course of business, except in each case as described in or contemplated
by the Registration Statement and the Prospectus (exclusive of any
amendment or supplement thereto) and except for changes in the Fund's
net asset value due to its normal investment operations;
(ii) Trading in the Common Stock has been suspended by
the Commission or the NYSE or PXE;
(iii) There has occurred any material adverse change in
the financial markets in the United States or internationally or any
outbreak of hostilities or escalation thereof or other calamity or
crisis, or any change or development involving a prospective change in
national or international political, financial, or economic conditions,
in each case the effect of which is such as to make it, in the judgment
of the Dealer Manager, impracticable to market the Shares or to enforce
contracts for the sale of the Shares; or
(iv) Trading generally on the NYSE, PXE, or the
National Association of Securities Dealers Automated Quotations System
shall have been suspended or limited, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities
have been required, by any of said exchanges or by order of the
Commission or any other governmental authority, or if a banking
moratorium has been declared by United States or New York authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 5.
SECTION 10. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of written telecommunication. Notices to the
Dealer Manager shall be directed to Merrill Lynch & Co., Merrill Lynch World
Headquarters, North Tower, World Financial Center, New York, New York
10281-1201, Attention: Lee Whitley, Vice President; notices to the Fund shall be
directed to The Zweig Fund, Inc., 900 Third Avenue, New York, New York 10022,
Attention: Stuart B. Panish, Esq.; notices to the Investment Adviser shall be
directed to Zweig Advisors Inc., 900 Third Avenue, New York, New York 10022,
Attention: Stuart B. Panish, Esq.
SECTION 11. Parties. This Agreement shall inure to the benefit of and
be binding upon the Dealer Manager, the Fund, the Investment Adviser and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the parties hereto and their respective successors and the controlling
persons and officers and directors referred to in Section 7 and their heirs and
legal representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the parties hereto and thereto and their respective
successors, and
24
<PAGE> 26
said controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation.
SECTION 12. Governing Law and Time; Waiver. This Agreement shall be
governed by the laws of the State of New York applicable to agreements made and
to be performed in said State. Specified times of day refer to New York City
time.
The Fund, Investment Adviser and the Dealer Manager (each on its own
behalf and, to the extent permitted by applicable law, on behalf of its
shareholders) waive all right to trial by jury in any suit, action, proceeding
or counterclaim (whether based upon contract, tort or otherwise) related to or
arising out of the engagement of the Dealer Manager pursuant to, or the
performance by the Dealer Manager of the services contemplated by, this
Agreement.
SECTION 13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
25
<PAGE> 27
If the foregoing is in accordance with your understanding of
our agreement, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Fund, the
Investment Adviser and the Dealer Manager.
Very truly yours,
The Zweig Fund, Inc.
By:
Name:
Title:
Zweig Advisors Inc.
By:
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first
above written.
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
By:
Name:
Title:
<PAGE> 28
EXHIBIT A
_____________ , 1998
THE ZWEIG FUND, INC.
Rights Offering for Shares of Common Stock
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
May 8, 1998(1)
Ladies and Gentlemen:
The Zweig Fund, Inc., a Maryland corporation (the "Fund"), proposes to
issue to holders of record (the "Holders") of its outstanding shares of common
stock, par value $0.10 per share (the "Common Stock"), non-transferable rights
entitling such Holders to subscribe for shares of Common Stock and, subject to
certain conditions, additional shares of Common Stock pursuant to an
over-subscription privilege (the "Offer"). The shares of Common Stock for which
Holders may subscribe pursuant to the Offer are herein referred to as the
"Shares." Pursuant to the terms of the Offer, the Fund is issuing each Holder
one non-transferable right (each a "Right" and collectively, the "Rights") for
each share of Common Stock held on the record date set forth in the accompanying
Prospectus (the "Prospectus"). Such Rights entitle Holders to acquire during the
subscription period set forth in the Prospectus (the "Subscription Period"), and
at the subscription price set forth in the Prospectus (the "Subscription
Price"), one share for each seven Rights held on the terms and subject to the
conditions set forth in the Prospectus. Pursuant to the terms of the Offer, such
Rights also entitle Holders to acquire during the Subscription Period at the
Subscription Price certain additional Shares on the terms and conditions of the
over-subscription privilege as set forth in such Prospectus (the
"Oversubscription Privilege").
The undersigned, as the dealer manager (the "Dealer Manager") named in
the Prospectus, has entered into a Dealer Manager Agreement dated April [13],
1998 with the Fund, and Zweig Advisors Inc., a Delaware corporation (the
"Investment Adviser"), pursuant to which the undersigned has agreed to form and
manage, for purposes of soliciting exercises of Rights pursuant to the Offer, a
group of soliciting dealers, including the undersigned, consisting of brokers
and dealers who shall be members in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or any foreign broker or dealer not
eligible for membership who agrees to conform to the Rules of Fair Practice of
the NASD, including Sections 2730, 2740, 2420 and 2750 thereof, in making
solicitations in the United States to the same extent as if it were a member
thereof (the members of such group being hereinafter called the "Soliciting
Dealers"). You are
- ----------------------
(1) Unless extended to a date no later than May 15, 1998.
A-1
<PAGE> 29
invited to become one of the Soliciting Dealers and by your confirmation hereof
you agree to act in such capacity, in accordance with the terms and conditions
herein and in your confirmation hereof, to obtain exercises of Rights pursuant
to the Offer.
1. Solicitation and Solicitation Material. Solicitation and other
activities by you hereunder shall be undertaken only in accordance with this
Agreement, the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
applicable rules and regulations of the Securities and Exchange Commission and
only in those states and other jurisdictions where such solicitations and other
activities may lawfully be undertaken and in accordance with the laws thereof.
Accompanying this Agreement are copies of the following documents: the
Prospectus describing the terms of the Offer, a Subscription Certificate and
letters to stockholders. Additional copies of these documents will be supplied
in reasonable quantities upon your request. You agree that during the period of
the Offer you will not use any solicitation material other than that referred to
above and such as may hereafter be furnished to you by the Fund through us.
2. Compensation of Soliciting Dealers. In full payment for the
soliciting efforts to be rendered (excluding the exercise of Rights by a
Soliciting Dealer for its own account or for the account of any affiliate, other
than a natural person, pursuant to the Offer), the Fund agrees to pay fees (the
"Solicitation Fees") to either the Soliciting Dealer or the Dealer Manager equal
to 2.50% of the Subscription Price per Share for each Share issued pursuant to
the Offer (such Solicitation Fees paid to the Dealer Manager are in addition to
the Dealer Manager Fee). The Fund agrees to pay the Solicitation Fees to the
broker-dealer designated on the applicable portion of the related Subscription
Certificate provided that such broker dealer has executed a confirmation
accepting the terms of the Soliciting Dealer Agreement, and if no broker-dealer
is so designated or a broker-dealer is otherwise not entitled to receive
compensation pursuant to the terms of the Soliciting Dealer Agreement, then to
pay the Dealer Manager the Solicitation Fee for Shares issued pursuant to the
Offer. Payment to the Dealer Manager by the Fund will be in the form of a wire
transfer of same day funds to an account or accounts identified by the Dealer
Manager. Such payments will be made on the day after the final payment for
Shares is due as set forth in the Prospectus, or when such payments are actually
received and the corresponding funds are available. Zweig Securities Corp. will
be such designated broker-dealer with respect to Shares issued to participants
in the Fund's Distribution Reinvestment and Cash Purchase Plan, unless the
participant designates otherwise on the related Subscription Certificate.
Payment of the Solicitation Fees to a Soliciting Dealer that executed a
confirmation will be made by the Fund directly to such Soliciting Dealer by U.S.
dollar checks drawn upon an account at a bank in New York City. Such payments to
such Soliciting Dealers shall be made as soon as practicable after payment of
the Dealer Manager Fee is made to the Dealer Manager.
No Solicitation Fees shall be payable to a Soliciting Dealer in respect
of any particular exercise of Rights if no Soliciting Dealer is so designated on
the Subscription Certificate in the place so provided, and if in the opinion of
counsel for the Dealer Manager, such Solicitation Fees cannot legally be paid in
respect of such exercise of Rights because of the provisions of applicable state
law or for any other reason. In case of any dispute or disagreement as to the
amount of Solicitation Fees payable to any Soliciting Dealer hereunder or as to
the proper recipient of any such Solicitation Fees, the decision of the Dealer
Manager shall be conclusive. The payment of any
A-2
<PAGE> 30
Solicitation Fees to Soliciting Dealers shall be solely the responsibility of
the Fund, but the Dealer Manager shall have no obligation or liability to any
Soliciting Dealer for any obligation of the Fund or the Investment Adviser
hereunder.
The Offer will expire on the Expiration Date as set forth in the
Prospectus. In order for a Soliciting Dealer to receive the Solicitation Fees,
the Subscription Agent must have received from such Soliciting Dealer no later
than 5:00 P.M., New York City time, on the Expiration Date, either (i) a
properly completed and duly executed Subscription Certificate with respect to
Shares purchased pursuant to the exercise of Rights and the Over-Subscription
Privilege and full payment for such Shares; or (ii) a Notice of Guaranteed
Delivery guaranteeing delivery to the Subscription Agent by close of business on
the third business day after the Expiration Date, of (a) full payment for such
Shares and (b) a properly completed and duly executed Subscription Certificate
with respect to Shares purchased pursuant to the exercise of Rights. The
Solicitation Fees will only be paid after receipt by the Subscription Agent of a
properly completed and duly executed Soliciting Dealer Agreement and
Subscription Certificate designating the Soliciting Dealer in the applicable
portion hereof. In the case of a Notice of Guaranteed Delivery, the Solicitation
Fees will only be paid after delivery in accordance with such Notice of
Guaranteed Delivery has been effected.
3. Trading. You represent to the Fund, the Investment Adviser and the
Dealer Manager that you have not engaged, and agree that you will not engage, in
any activity in respect of the Rights or the Shares in violation of the Exchange
Act, including Regulation M thereunder. Your acceptance of Solicitation Fees
will constitute a representation that you are eligible to receive such
Solicitation Fees and that you have complied with the preceding sentence and
your other agreements hereunder.
4. Unauthorized Information and Representations. Neither you nor any
other person is authorized by the Fund or the Dealer Manager to give any
information or make any representations in connection with this Agreement or the
Offer other than those contained in the Prospectus and other authorized
solicitation material furnished by the Fund through the Dealer Manager, and you
hereby agree not to use any solicitation material other than material referred
to in this Section 4. Without limiting the generality of the foregoing, you
agree for the benefit of the Fund and the Dealer Manager not to publish,
circulate or otherwise use any other advertisement or solicitation material
without the prior written approval of the Fund and the Dealer Manager. You are
not authorized to act as agent of the Fund or the Dealer Manager in any respect,
and you agree not to act as such agent and not to purport to act as such agent.
On becoming a Soliciting Dealer and in soliciting exercises of Rights, you agree
for the benefit of the Fund and the Dealer Manager to comply with any applicable
requirements of the Securities Act, the Exchange Act, the rules and regulations
thereunder, any applicable securities laws of any state or jurisdiction where
such solicitations may lawfully be made, and the applicable rules and
regulations of any self-regulatory organization or registered national
securities exchange, and to perform and comply with the agreements set forth in
your confirmation of your acceptance of this Agreement, a copy of the form of
which is appended hereto.
5. Blue Sky and Securities Laws. The Dealer Manager assumes no
obligation or responsibility in respect of the qualification of the Shares
issuable pursuant to the Offer or the right to solicit Rights under the laws of
any jurisdiction. The enclosed Blue Sky Letter indicates the
A-3
<PAGE> 31
states in which it is believed that acceptances of the Offer may be solicited
under the applicable Blue Sky or securities laws. Under no circumstances will
you as a Soliciting Dealer engage in any activities hereunder in any state in
which you may not lawfully so engage. The Blue Sky Letter shall not be
considered solicitation material as that term is herein used. You agree that you
will not engage in any activities hereunder outside the United States except in
jurisdictions where such solicitations and other activities may lawfully be
undertaken and in accordance with the laws thereof.
6. Termination. This Agreement may be terminated by written or
telegraphic notice to you from the Dealer Manager, or to the Dealer Manager from
you, and in any case it will terminate upon the expiration or termination of the
Offer; provided, however, that such termination shall not relieve the Dealer
Manager of the obligation to pay when due any Solicitation Fees payable to you
hereunder with respect to Shares acquired pursuant to the exercise of Rights
through the close of business on the date of such termination that are
thereafter exercised pursuant to the Offer or relieve the Fund, or the
Investment Adviser of its obligations referred to under Section 8 hereof, and
shall not relieve you of any obligation or liability under Sections 3, 4, 9 and
10 hereof.
7. Liability of Dealer Manager. Nothing herein contained shall
constitute the Soliciting Dealers as partners with the Dealer Manager or with
one another, or agents of the Dealer Manager or the Fund, or shall render the
Fund liable for the obligations of the Dealer Manager or the obligations of any
Soliciting Dealers, or shall render the Dealer Manager liable for the
obligations of any Soliciting Dealers other than itself nor constitute the Fund
or the Dealer Manager the agent of any Soliciting Dealer. The Fund and the
Investment Adviser and the Dealer Manager shall be under no liability to any
Soliciting Dealer or any other person for any act or omission or any matter
connected with this Agreement or the Offer, except that the Fund and the
Investment Adviser shall be liable on the basis set forth in Section 8 hereof to
indemnify certain persons. You represent that you have not purported, and agree
that you will not purport, to act as agent of the Fund, Investment Adviser or
the Dealer Manager in any connection or transaction relating to the Offer.
8. Indemnification. Under the Dealer Manager Agreement, each of the
Fund and the Investment Adviser has agreed, to indemnify and hold harmless the
Dealer Manager, each Soliciting Dealer, and their respective directors,
officers, employees, agents and each person who controls the Dealer Manager or a
Soliciting Dealer within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act against certain liabilities, including
liabilities under the Securities Act and the Exchange Act. By returning an
executed copy of this Agreement, you agree to indemnify the Fund, the Investment
Adviser and the Dealer Manager (the "Indemnified Persons") against losses,
claims, damages and liabilities to which the Indemnified Persons may become
subject (a) as a result of your breach of your representations or agreements
made herein or (b) if you (as custodian, trustee or fiduciary or in any other
capacity) are acting on behalf of another entity that is soliciting exercises of
Rights pursuant to the Offer (a "Soliciting Entity"), as a result of any breach
by any such Soliciting Entity of the representations or agreements made herein
by the Soliciting Dealers to the same extent as if such Soliciting Entity had
executed the confirmation referred to in Section 13 hereof and was therefore a
Soliciting Dealer that had directly made such representations and agreements.
This indemnity agreement will be in addition to any liability which you may
otherwise have.
A-4
<PAGE> 32
9. Delivery of Prospectus. You agree for the benefit of the Fund and
the Dealer Manager to deliver to each person who owns beneficially Common Stock
registered in your name, and who exercises Rights on a Subscription Certificate
on which your name, to your knowledge, has been inserted, a Prospectus prior to
the exercise of such person's Rights.
10. Status of Soliciting Dealer. Your acceptance of Solicitation Fees
will constitute a representation to the Fund and the Dealer Manager that you (i)
have not purported to act as agent of the Fund or the Dealer Manager in any
connection or in any transaction relating to the Offer, (ii) are not affiliated
with the Fund or the Investment Adviser, (iii) will not accept Solicitation Fees
from the Dealer Manager pursuant to the terms hereof with respect to Shares
purchased by you pursuant to an exercise of Rights for your own account or the
account of any affiliate, other than a natural person, (iv) will not remit,
directly or indirectly, any part of any Solicitation Fees to any beneficial
owner of Shares purchased pursuant to the Offer, (v) agree to the amount of the
Solicitation Fees and the terms and conditions set forth herein with respect to
receiving such Solicitation Fees, (vi) have read and reviewed the Prospectus,
and (vii) are a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or are a foreign broker or dealer not
eligible for membership who agrees to conform to the Rules of Fair Practice of
the NASD, including Sections 2730, 2740, 2420 and 2750 thereof, in making
solicitations in the United States to the same extent as if you were a member
thereof.
11. Notices. Any notice hereunder shall be in writing or by telegram
and if to you as a Soliciting Dealer shall be deemed to have been duly given if
mailed or telegraphed to you at the address to which this letter is addressed,
and if to the Dealer Manager, if delivered or sent to Merrill Lynch & Co.,
Merrill Lynch World Headquarters, North Tower, World Financial Center, New York,
New York 10281-1201, Attention: Lee Whitley, Vice President.
12. Parties in Interest. The Agreement herein set forth is intended for
the benefit of the Dealer Manager, the Soliciting Dealers, the Fund, and the
Investment Adviser.
13. Confirmation. Please confirm your agreement to become one of the
Soliciting Dealers under the terms and conditions set forth herein and in the
attached confirmation by completing and executing the confirmation and sending
it via facsimile (212-449-6739) to Merrill Lynch & Co., Attention: Lee Whitley,
Vice President.
14. Governing Law and Time. This Agreement shall be governed by the
laws of the State of New York applicable to agreements made and to be performed
in said State.
A-5
<PAGE> 33
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Dealer Manager Agreement or, if not defined therein, in
the Prospectus.
NOTICE: IF A COPY OF THE CONFIRMATION REFERRED TO IN SECTION 13 HEREOF
IS NOT SIGNED, DATED AND RETURNED TO THE DEALER MANAGER PRIOR TO THE EXPIRATION
OF THE OFFER, NO SOLICITATION FEES WILL BE PAYABLE TO A SOLICITING DEALER
HEREUNDER.
Very truly yours,
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Dealer Manager
By:
Name:
Title:
A-6
<PAGE> 34
CONFIRMATION
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Attention: Lee Whitley
Vice President
Facsimile: (212) 449-6739
Ladies and Gentlemen:
We hereby confirm our acceptance of the terms and conditions of the
letter captioned "Soliciting Dealer Agreement" which was attached hereto upon
our receipt hereof (this "Agreement") with reference to the Offer of The Zweig
Fund, Inc. (the "Fund") described therein.
We hereby acknowledge that we (i) have received, read and reviewed the
Prospectus and other solicitation material referred to in this Agreement, and
confirm that in executing this confirmation we have relied upon such Prospectus
and other solicitation material authorized by the Fund or Zweig Advisors Inc.
(the "Investment Adviser") and upon no other representations whatsoever, written
or oral, (ii) have not purported to act as agent of the Fund or the Dealer
Manager in any connection or in any transaction relating to the Offer, (iii) are
not affiliated with the Fund or the Investment Adviser, (iv) are not purchasing
Shares for our own account or the account of any of our affiliates, other than a
natural person, (v) will not remit, directly or indirectly, any part of any
Solicitation Fees to any beneficial owner of Shares purchased pursuant to the
Offer, and (vi) agree to the amount of the Solicitation Fees and the terms and
conditions set forth in this Agreement with respect to receiving such
Solicitation Fees. We also confirm that we are a broker or dealer who is a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD") or are a foreign broker or dealer not eligible for membership who
agrees to conform to the Rules of Fair Practice of the NASD, including Sections
2730, 2740, 2420 and 2750 thereof, in making solicitations in the United States
to the same extent as if we were a member thereof. In connection with the Offer,
we represent that we have complied, and agree that we will comply, with any
applicable requirements of the Securities Act of 1933, the Securities Exchange
Act of 1934, any applicable securities or Blue Sky laws and the rules and
regulations under the Securities Act of 1933, the Securities Exchange Act of
1934 and any applicable securities or Blue Sky laws.
Firm Name
<PAGE> 35
By
Authorized Signature
Address:
DTC Number:
Nominee Name:
Dated: , 1998
NOTICE: IF A COPY OF THIS CONFIRMATION IS NOT SIGNED, DATED AND
RETURNED TO THE DEALER MANAGER PRIOR TO THE EXPIRATION OF THE OFFER, NO
SOLICITATION FEES WILL BE PAYABLE TO A SOLICITING DEALER HEREUNDER.
<PAGE> 1
EXHIBIT (j)(2)
<PAGE> 2
FOREIGN CUSTODY MANAGER AGREEMENT
AGREEMENT made as of December 18, 1997, between THE ZWEIG FUND, INC., a
corporation organized and existing under the laws of the State of Maryland,
having its principal office and place of business at 900 Third Avenue, New York,
New York 10022-4728 (hereinafter called the "Fund"), and THE BANK OF NEW YORK,
a New York corporation authorized to do a banking business, having its principal
office and place of business at 48 Wall Street, New York, New York 10286
(hereinafter called "BNY").
W I T N E S S E T H:
WHEREAS, the Fund desires to appoint BNY as a Foreign Custody Manager on
the terms and conditions contained herein;
WHEREAS, BNY desires to serve as a Foreign Custody Manager and perform the
duties set forth herein on the terms and condition contained herein;
NOW THEREFORE, in consideration of the mutual promises hereinafter
contained in this Agreement, the Fund and BNY hereby agrees as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1. "BOARD" shall mean the board of directors or board of trustees, as
the case may be, of the Fund.
2. "ELIGIBLE FOREIGN CUSTODIAN" shall have the meaning provided in the
Rule.
3. "MONITORING SYSTEM" shall mean a system established by BNY to
fulfill the Responsibilities specified in clauses 1(d) and 1(e) of Article III
of this Agreement.
4. "QUALIFIED FOREIGN BANK" shall have the meaning provided in the
Rule.
5. "RESPONSIBILITIES" shall mean the responsibilities delegated to BNY
as a Foreign Custody Manager with respect to each Specified Country and each
Eligible Foreign Custodian selected by BNY, as such responsibilities are more
fully described in Article III of this Agreement.
6. "RULE" shall mean Rule 17f-5 under the Investment Company Act of
1940, as amended, as such Rule became effective on June 16, 1997.
7. "SECURITIES DEPOSITORY" shall mean any securities depository or
clearing agency within the meaning of Section (a)(1)(ii) or (a)(1)(iii) of the
Rule.
<PAGE> 3
2
8. "SPECIFIED COUNTRY" shall mean each country listed on Schedule I
attached hereto and each country, other than the United States, constituting the
primary market for a security with respect to which the Fund has given
settlement instructions to The Bank of New York as custodian (the "Custodian")
under its Custody Agreement with the Fund.
ARTICLE II
BNY AS A FOREIGN CUSTODY MANAGER
1. The Fund on behalf of its Board hereby delegates to BNY with respect
to each Specified Country the Responsibilities.
2. BNY accepts the Board's delegation of Responsibilities with respect
to each Specified Country and agrees in performing the Responsibilities as a
Foreign Custody Manager to exercise reasonable care, prudence and diligence such
as a person having responsibility for the safekeeping of the Fund's assets would
exercise.
3. BNY shall provide to the Board at such times as the Board deems
reasonable and appropriate based on the circumstances of the Fund's foreign
custody arrangements written reports notifying the Board of the placement of
assets of the Fund with a particular Eligible Foreign Custodian within a
Specified Country and of any material change in the arrangements (including, in
the case of Qualified Foreign Banks, any material change in any contract
governing such arrangements and in the case of Securities Depositories, any
material change in the established practices or procedures of such Securities
Depositories) with respect to assets of the Fund with any such Eligible Foreign
Custodian.
ARTICLE III
RESPONSIBILITIES
1. Subject to the provisions of this Agreement, BNY shall with respect
to each Specified Country select an Eligible Foreign Custodian. In connection
therewith, BNY shall: (a) determine that assets of the Fund held by such
Eligible Foreign Custodian will be subject to reasonable care, based on the
standards applicable to custodians in the relevant market in which such Eligible
Foreign Custodian operates, after considering all factors relevant to the
safekeeping of such assets, including, without limitation, those contained in
Section (c)(1) of the Rule; (b) determine that the Fund's foreign custody
arrangements with each Qualified Foreign Bank are governed by a written contract
with the Custodian (or, in the case of a Securities Depository, by such a
contract, by the rules or established practices or procedures of the Securities
Depository, or by any combination of the foregoing) which will provide
reasonable care for the Fund's assets based on the standards specified in
paragraph (c)(1) of the Rule; (c) determine that each contract with a Qualified
Foreign Bank shall include the provisions specified in paragraph (c)(2)(i)(A)
through (F) of the Rule or, alternatively, in lieu of any or all of such
(c)(2)(i)(A) through (F) provisions, such other provisions as BNY determines
will provide, in their entirety, the same or a greater level of care and
protection for the assets of the Fund as such specified provisions; (d) monitor
pursuant to the Monitoring System the appropriateness of maintaining the assets
of the Fund with a particular Eligible Foreign Custodian pursuant to paragraph
(c)(1) of the Rule and in the case of a Qualified Foreign Bank, any material
change in the contract governing such arrangement and in the case of a
Securities Depository, any material change in the established practices or
procedures of such Securities Depository; and (e) advise the Fund whenever an
arrangement (including, in the case of a Qualified Foreign Bank, any material
<PAGE> 4
3
change in the contract governing such arrangement and in the case of a
Securities Depository, any material change in the established practices or
procedures of such Securities Depository) described in preceding clause (d) no
longer meets the requirements of the Rule. Anything in this Agreement to the
contrary notwithstanding, BNY shall in no event be deemed to have selected any
Securities Depository the use of which is mandatory by law or regulation or
because securities cannot be withdrawn from such Securities Depository, or
because maintaining securities outside the Securities Depository is not
consistent with prevailing custodial practices in the relevant market (each, a
"Compulsory Depository") "); it being understood however, that for each
Compulsory Depository utilized or intended to be utilized by the Fund, BNY shall
provide the Fund from time to time with information addressing the factors set
forth in Section (c)(1) of the Rule and BNY's opinions with respect thereto so
that the Fund may determine the appropriateness of placing Fund assets therein.
2. (a) For purposes of Clauses (a) and (b) of preceding Section 1 of
this Article, with respect to Securities Depositories, it is understood that
such determination shall be made on the basis of, and limited by, publicly
available information with respect to each such Securities Depository.
(b) For purposes of clause (d) of preceding Section 1 of this Article,
BNY's determination of appropriateness shall not include, nor be deemed to
include, any evaluation of Country Risks associated with investment in a
particular country. For purposes hereof, "Country Risks" shall mean systemic
risks of holding assets in a particular country including, but not limited to,
(a) the use of Compulsory Depositories, (b) such country's financial
infrastructure, (c) such country's prevailing custody and settlement practices,
(d) nationalization, expropriation or other governmental actions, (e) regulation
of the banking or securities industry, (f) currency controls, restrictions,
devaluations or fluctuations, and (g) market conditions which affect the orderly
execution of securities transactions or affect the value of securities.
ARTICLE IV
REPRESENTATIONS
1. The Fund hereby represents that: (a) this Agreement has been duly
authorized, executed and delivered by the Fund, constitutes a valid and legally
binding obligation of the Fund enforceable in accordance with its terms, and no
statute, regulation, rule, order, judgment or contract binding on the Fund
prohibits the Fund's execution or performance of this Agreement; (b) this
Agreement has been approved and ratified by the Board at a meeting duly called
and at which a quorum was at all times present; and (c) the Board or its
investment advisor has considered the Country Risks associated with investment
in each Specified Country and will have considered such risks prior to any
settlement instructions being given to the Custodian with respect to any other
Specified Country.
2. BNY hereby represents that: (a) BNY is duly organized and existing
under the laws of the State of New York, with full power to carry on its
businesses as now conducted, and to enter into this Agreement and to perform its
obligations hereunder; (b) this Agreement has been duly authorized, executed and
delivered by BNY, constitutes a valid and legally binding obligation of BNY
enforceable in accordance with its terms, and no statute, regulation, rule,
order, judgment or contract binding on BNY prohibits BNY's execution or
performance of this Agreement; and (c) BNY has established the Monitoring
System.
<PAGE> 5
4
ARTICLE V
CONCERNING BNY
1. BNY shall not be liable for any costs, expenses, damages,
liabilities or claims, including attorneys' and accountants' fees, sustained or
incurred by, or asserted against, the Fund except to the extent the same arises
out of the failure of BNY to exercise the care, prudence and diligence required
by Section 2 of Article II hereof. In no event shall BNY be liable to the Fund,
the Board, or any third party for special, indirect or consequential damages, or
for lost profits or loss of business, arising in connection with this Agreement.
2. The Fund shall indemnify BNY and holds it harmless from and against
any and all costs, expenses, damages, liabilities or claims, including
attorneys' and accountants' fees, sustained or incurred by, or asserted against,
BNY by reason or as a result of any action or inaction, or arising out of BNY's
performance hereunder, provided that the Fund shall not indemnify BNY to the
extent any such costs, expenses, damages, liabilities or claims arises out of
BNY's failure to exercise the reasonable care, prudence and diligence required
by Section 2 of Article II hereof.
3. For its services hereunder, the Fund agrees to pay to BNY such
compensation and out-of-pocket expenses as shall be mutually agreed.
4. BNY shall have only such duties as are expressly set forth herein.
In no event shall BNY be liable for any Country Risks associated with
investments in a particular country.
ARTICLE VI
MISCELLANEOUS
1. This Agreement constitutes the entire agreement between the Fund and
BNY, and no provision in the Custody Agreement between the Fund and the
Custodian shall affect the duties and obligations of BNY hereunder, nor shall
any provision in this Agreement affect the duties or obligations of the
Custodian under the Custody Agreement.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to BNY, shall be sufficiently given if received by it
at its offices at 90 Washington Street, New York, New York 10286, or at such
other place as BNY may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if received
by it at its offices at 900 Third Avenue, New York, New York 10022-4728 or at
such other place as the Fund may from time to time designate in writing.
4. In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
thereby. This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties. This Agreement shall extend to and
shall be binding upon the parties hereto, and their respective successors and
assigns; provided however, that this Agreement shall not be assignable by either
party without the written consent of the other.
<PAGE> 6
5
5. This Agreement shall be construed in accordance with the substantive
laws of the State of New York, without regard to conflicts of laws principles
thereof. The Fund and BNY hereby consent to the jurisdiction of a state or
federal court situated in New York City, New York in connection with any dispute
arising hereunder. The Fund hereby irrevocably waives, to the fullest extent
permitted by applicable law, any objection which it may now or hereafter have to
the laying of venue of any such proceeding brought in such a court and any claim
that such proceeding brought in such a court has been brought in an inconvenient
forum. The Fund and BNY each hereby irrevocably waives any and all rights to
trial by jury in any legal proceeding arising out of or relating to this
Agreement.
6. The parties hereto agree that in performing hereunder, BNY is acting
solely on behalf of the Fund and no contractual or service relationship shall be
deemed to be established hereby between BNY and any other person.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
8. This Agreement shall terminate simultaneously with the termination
of the Custody Agreement between the Fund and the Custodian, and may otherwise
be terminated by either party giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than thirty
(30) days after the date of such notice.
IN WITNESS WHEREOF, the Fund and BNY have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the date
first above written.
THE ZWEIG FUND, INC.
By: /s/ Jeffrey Lazar
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Jorge E. Ramos
Title: Vice President
<PAGE> 1
EXHIBIT (k)(4)
<PAGE> 2
THE ZWEIG FUND, INC.
SUBSCRIPTION AGENT AGREEMENT
This Subscription Agent Agreement (the "Agreement") is made as of April 1,
1998 between The Zweig Fund, Inc. (the "Fund") and State Street Bank & Trust
Company, as subscription agent (the "Agent"). All terms not defined herein shall
have the meaning given in the prospectus (the "Prospectus") included in the
Registration Statement on Form N-2 (File No. 333-46955) filed by the Fund with
the Securities and Exchange Commission on February 26, 1998, as amended by any
amendment filed with respect thereto (the "Registration Statement").
WHEREAS, the Fund proposes to make a subscription offer by issuing
certificates or other evidences of subscription rights, in the form designated
by the Fund (the "Subscription Certificates") to shareholders of record (the
"Shareholders") of its Common Stock, par value $0.10 per share ("Common Stock"),
as of a record date specified by the Fund (the "Record Date"), pursuant to which
each Shareholder will have certain rights (the "Rights") to subscribe for shares
of Common Stock, as described in and upon such terms as are set forth in the
Prospectus, a final copy of which has been or, upon availability will promptly
be, delivered to the Agent; and
WHEREAS, the Fund wishes the Agent to perform certain acts on behalf of
the Fund, and the Agent is willing to so act, in connection with the
distribution of the Subscription Certificates and the issuance and exercise of
the Rights to subscribe therein set forth, all upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties agree as follows:
1. APPOINTMENT. The Fund hereby appoints the Agent to act as subscription
agent in connection with the distribution of Subscription Certificates and the
issuance and exercise of the Rights in accordance with the terms set forth in
this Agreement and the Agent hereby accepts such appointment.
2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall be irrevocable and
non-transferable. The Agent shall, in its capacity as Transfer Agent of the
Fund, maintain a register of Subscription Certificates and the holders of record
thereof (each of whom shall be deemed a "Shareholder" hereunder for purposes of
determining the rights of holders of Subscription Certificates). Each
Subscription Certificate shall, subject to the provisions thereof, entitle the
Shareholder in whose name it is recorded to the following:
(1) With respect to Record Date Shareholders only, the right to
acquire during the Subscription Period (as defined in the Prospectus) at the
Subscription Price (as defined in the Prospectus) a number of shares of Common
Stock equal to one share of Common Stock for every seven Rights (the "Primary
Subscription Right"); and
(2) With respect to Record Date Shareholders only, the right to
subscribe for additional shares of Common Stock, subject to the availability of
such shares and to the allotment of such shares as may be available among Record
Date Shareholders who exercise Over-Subscription Rights on the basis specified
in the Prospectus; provided, however, that such Record Date Shareholder has
exercised all Primary Subscription Rights issued to him or her (the
"Over-Subscription Privilege").
<PAGE> 3
The Fund may increase the number of shares of Common Stock subject to
subscription by up to 25% of the Shares. Fractional shares will not be issued
upon the exercise of Rights.
<PAGE> 4
3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall evidence the Rights of the
Shareholder therein named to purchase Common Stock upon the terms and conditions
therein and herein set forth.
(b) Upon the written advice of the Fund, signed by any of its duly
authorized officers, as to the Record Date, the Agent shall, from a list of the
Fund Shareholders as of the Record Date to be prepared by the Agent in its
capacity as Transfer Agent of the Fund, prepare and record Subscription
Certificates in the names of the Shareholders, setting forth the number of
Rights to subscribe for the Fund's Common Stock calculated on the basis of one
Right for each whole share of Common Stock recorded on the books in the name of
each such Shareholder as of the Record Date (provided that if a Shareholder owns
less than 7 shares of the Fund's Common Stock, such Shareholder shall be
entitled to subscribe for one Share of the Fund's Common Stock in the Primary
Subscription). Each Subscription Certificate shall be dated as of the Record
Date and shall be executed manually or by facsimile signature of a duly
authorized officer of the Agent. Upon the written advice, signed as aforesaid,
as to the effective date of the Registration Statement, the Agent shall promptly
countersign and deliver the Subscription Certificates, together with a copy of
the Prospectus, instruction letter and any other document as the Fund deems
necessary or appropriate, to all Shareholders with record addresses in the
United States (including its territories and possessions and the District of
Columbia). Delivery shall be by first class mail (without registration or
insurance), except for those Shareholders having a registered address outside
the United States (who will only receive copies of the Prospectus, instruction
letter and other documents as the Fund deems necessary or appropriate, if any),
delivery shall be by air mail (without registration or insurance) and by first
class mail (without registration or insurance) to those Shareholders having APO
or FPO addresses. No Subscription Certificate shall be valid for any purpose
unless so executed.
(c) The Agent will mail a copy of the Prospectus, instruction letter, a
special notice and other documents as the Fund deems necessary or appropriate,
if any, but not Subscription Certificates to Record Date Shareholders whose
record addresses are outside the United States (including its territories and
possessions and the District of Columbia) ("Foreign Record Date Shareholders").
The Rights to which such Subscription Certificates relate will be held by the
Agent for such Foreign Record Date Shareholders' accounts until instructions are
received to exercise the Rights.
4. EXERCISE.
(a) Record Date Shareholders may acquire shares of Common Stock on Primary
Subscription and pursuant to the Over-Subscription Privilege by delivery to the
Agent as specified in the Prospectus of (i) the Subscription Certificate with
respect thereto, duly executed by such Shareholder in accordance with and as
provided by the terms and conditions of the Subscription Certificate, together
with (ii) the estimated purchase price, as disclosed in the Prospectus, for each
share of Common Stock subscribed for by exercise of such Rights, in U.S. dollars
by money order or check drawn on a bank in the United States, in each case
payable to the order of the Fund.
(b) Rights may be exercised at any time after the date of issuance of the
Subscription Certificates with respect thereto but no later than 5:00 P.M. New
York time on such date as the Fund shall designate to the Agent in writing (the
"Expiration Date"). For the purpose of determining the time of the exercise of
any Rights, delivery of any material to the Agent shall be deemed to occur when
such materials are received at the Shareholder Services Division of the Agent
specified in the Prospectus.
<PAGE> 5
(c) Notwithstanding the provisions of Section 4(a) and 4(b) regarding
delivery of an executed Subscription Certificate to the Agent prior to 5:00 P.M.
New York time on the Expiration Date, if prior to such time the Agent receives a
Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise from a bank,
a trust company or a New York Stock Exchange member guaranteeing delivery of (i)
payment of the Estimated Subscription Price for the shares of Common Stock
subscribed for in the Primary Subscription and any additional shares of Common
Stock subscribed for pursuant to the Over-Subscription Privilege, and (ii) a
properly completed and executed Subscription Certificate, then such exercise of
Primary Subscription Rights and Over-Subscription Rights shall be regarded as
timely, subject, however, to receipt of the duly executed Subscription
Certificate and full payment for the Common Stock by the Agent within three
Business Days (as defined below) after the Expiration Date (the "Protect
Period") and full payment for their Common Stock within ten Business Days after
the Confirmation Date (as defined in Section 4(d)). For the purposes of the
Prospectus and this Agreement, "Business Day" shall mean any day on which
trading is conducted on the New York Stock Exchange.
(d) The Fund will determine the Subscription Price by taking 95% of the
average of the last reported sale prices of shares of Common Stock on the New
York Stock Exchange on May 8, 1998 (the "Pricing Date") and the four preceding
business days. Within eight business days following the Expiration Date (May 20,
1998, unless the Offer is extended, the "Confirmation Date"), a confirmation
will be sent by the Agent to each subscribing Record Date Shareholder (or, if
the Record Date Shareholder's shares of Common Stock are held by Cede or any
other depository or nominee, to Cede or such depository or nominee), showing (i)
the number of Shares acquired pursuant to the Primary Subscription, (ii) the
number of Shares, if any, acquired pursuant to the Over-Subscription Privilege,
(iii) the per Share and total purchase price of the Shares, and (iv) any
additional amount payable by such Record Date Shareholder to the Fund or any
excess to be refunded by the Fund to such Record Date Shareholder, in each case
based on the Subscription Price as determined on the Pricing Date. If any Record
Date Shareholder exercises his or her right to acquire Shares pursuant to the
Over-Subscription Privilege, any such excess payment which would otherwise be
refunded to the Record Date Shareholder will be applied by the Fund toward
payment for additional Shares acquired pursuant to exercise of the
Over-Subscription Privilege.
(e) Any additional payment required from a shareholder must be received by
the Agent within ten Business Days after the Confirmation Date and any excess
payment to be refunded by the Fund to a shareholder will be mailed by the Agent
as promptly as possible after the Confirmation Date. If a shareholder does not
make timely payment of any additional amounts due in accordance with Section
4(d), the Agent will consult with the Fund in accordance with Section 5 as to
the appropriate action to be taken. The Agent will not issue or deliver
certificates for shares subscribed for until payment in full therefore has been
received, including collection of checks and payment pursuant to notices of
guaranteed delivery.
5. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not otherwise covered
by specific instructions herein shall be submitted to an appropriate officer of
the Fund (or the Fund's Administrator) and handled in accordance with his or her
instructions. Such instructions will be documented by the Agent indicating the
instructing officer and the date thereof.
6. OVER-SUBSCRIPTION. To the extent Record Date Shareholders do not exercise
all of the Rights issued to them, any underlying Shares represented by such
Rights will be offered by means of the Over-Subscription Privilege to the Record
Date Shareholders who have exercised all of the Rights issued to them and who
wish to acquire more than the number of Shares to which they are entitled. Only
Record Date Shareholders who exercise all the Rights issued to them may
indicate, on the Subscription
<PAGE> 6
Certificate, which they submit with respect to the exercise of the Rights issued
to them, how many Shares they desire to purchase pursuant to the
Over-Subscription Privilege. If sufficient Shares remain after completion of the
Primary Subscription, all over-subscription requests will be honored in full. If
sufficient Shares are not available to honor all over-subscription requests, the
Fund may issue shares of Common Stock up to an additional 25% of the Shares
available pursuant to the Offer in order to cover such over-subscription
requests. Regardless of whether the Fund issues additional shares pursuant to
the Offer and to the extent Shares are not available to honor all
over-subscription requests, the available Shares will be allocated among those
who over-subscribe based on the number of Shares owned by them in the Fund on
the Record Date. The allocation process may involve a series of allocations in
order to assure that the total number of Shares available for over-subscription
is distributed on a pro rata basis.
7. DELIVERY OF CERTIFICATES. Stock certificates for all Shares acquired in
the Primary Subscription will be mailed promptly after the expiration of the
Offer and full payment for the subscribed Shares has been received and cleared.
Certificates representing Shares acquired pursuant to the Over-Subscription
Privilege will be mailed as soon as practicable after full payment has been
received and cleared and all allocations have been effected. Participants in the
Fund's Distribution Reinvestment and Cash Purchase Plan (the "Plan") will have
any Shares acquired in the Primary Subscription and pursuant to the
Over-Subscription Privilege credited to their shareholder distribution
reinvestment accounts in the Plan. Participants in the Plan wishing to exercise
Rights for the shares of Common Stock held in their accounts in the Plan must
exercise them in accordance with the procedures set forth above. Record Date
Shareholders whose shares of Common Stock are held of record by Cede & Co. Inc.
("Cede") or by any other depository or nominee on their behalf or their
broker-dealers' behalf will have any Shares acquired in the Primary Subscription
credited to the account of Cede or such other depository or nominee. Shares
acquired pursuant to the Over-Subscription Privilege will be certificated and
stock certificates representing such Shares will be sent directly to Cede or
such other depository or nominee.
8. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW.
(a) All proceeds received by the Agent from Shareholders in respect of the
exercise of Rights shall be held by the Agent, on behalf of the Fund, in a
segregated, interest-bearing account (the "Account"). Pending disbursement in
the manner described in Section 4(e) above, funds held in the Account shall be
invested by the Agent at the direction of the Fund.
(b) The Agent shall deliver all proceeds received in respect of the
exercise of Rights (including interest earned thereon) to the Fund as promptly
as practicable, but in no event later than ten business days after the
Confirmation Date. Proceeds held in respect of Excess Payments (including
interest earned thereon) shall belong to the Fund.
9. REPORTS.
(a) Daily, during the period commencing on April 15, 1998, until
termination of the Subscription Period, the Agent will report by telephone or
telecopier (by 2:00 p.m., New York time), confirmed by letter, to an Officer of
the Fund or the Fund's Administrator, data regarding Rights exercised, the total
number of shares of Common Stock subscribed for, and payments received therefor,
bringing forward the figures from the previous day's report in each case so as
to show the cumulative totals and any such other information as may be mutually
determined by the Fund and the Agent.
10. LOSS OR MUTILATION. If any Subscription Certificate is lost, stolen,
mutilated or destroyed, the Agent may, on such terms which will indemnify and
protect the Fund and the Agent as the Agent may in
<PAGE> 7
its discretion impose (which shall, in the case of a mutilated Subscription
Certificate, include the surrender and cancellation thereof), issue a new
Subscription Certificate of like denomination in substitution for the
Subscription Certificate so lost, stolen, mutilated or destroyed.
11. COMPENSATION FOR SERVICES. The Fund agrees to pay to the Agent
compensation for its services as such in accordance with its Fee Schedule to act
as Agent, dated April 1, 1998 and set forth hereto as Exhibit A. The Fund
further agrees that it will reimburse the Agent for its reasonable out-of-pocket
expenses incurred in the performance of its duties as such.
12. INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions:
(a) The Agent shall be entitled to rely upon any instructions or
directions furnished to it by an appropriate officer of the Fund, whether in
conformity with the provisions of this Agreement or constituting a modification
hereof or a supplement hereto. Without limiting the generality of the foregoing
or any other provision of this Agreement, the Agent, in connection with its
duties hereunder, shall not be under any duty or obligation to inquire into the
validity or invalidity or authority or lack thereof of any instruction or
direction from an officer of the Fund which conforms to the applicable
requirements of this Agreement and which the Agent reasonably believes to be
genuine and shall not be liable for any delays, errors or loss of data occurring
by reason of circumstances beyond the Agent's control.
(b) The Fund will indemnify the Agent and its nominees against, and hold
it harmless from, all liability and expense which may arise out of or in
connection with the services described in this Agreement or the instructions or
directions furnished to the Agent relating to this Agreement by an appropriate
officer of the Fund, except for any liability or expense which shall arise out
of the negligence, bad faith or willful misconduct of the Agent or such
nominees.
13. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the consent or
concurrence of the Shareholders in whose names Subscription Certificates are
registered, by supplemental agreement or otherwise, concur with the Fund in
making any changes or corrections in a Subscription Certificate that it shall
have been advised by counsel (who may be counsel for the Fund) is appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
clerical omission or mistake or manifest error therein or herein contained, and
which shall not be inconsistent with the provision of the Subscription
Certificate except insofar as any such change may confer additional rights upon
the Shareholders.
14. ASSIGNMENT, DELEGATION.
(a) Neither this Agreement nor any rights or obligations hereunder may be
assigned or delegated by either party without the written consent of the other
party.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns. Nothing in this
Agreement is intended or shall be construed to confer upon any other person any
right, remedy or claim or to impose upon any other person any duty, liability or
obligation.
15. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the law of the State of Massachusetts.
<PAGE> 8
16. SEVERABILITY. The parties hereto agree that if any of the provisions
contained in this Agreement shall be determined invalid, unlawful or
unenforceable to any extent, such provisions shall be deemed modified to the
extent necessary to render such provisions enforceable. The parties hereto
further agree that this Agreement shall be deemed severable, and the invalidity,
unlawfulness or unenforceability of any term or provision thereof shall not
affect the validity, legality or enforceability of this Agreement or of any term
or provision hereof.
17. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall be
considered one and the same agreement.
18. CAPTIONS. The captions and descriptive headings herein are for the
convenience of the parties only. They do not in any way modify, amplify, alter
or give full notice of the provisions hereof.
19. FACSIMILE SIGNATURES. Any facsimile signature of any party hereto shall
constitute a legal, valid and binding execution hereof by such party.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effect the purposes of this
Agreement.
21. ADDITIONAL PROVISIONS. Except as specifically modified by this Agreement,
the Agent's rights and responsibilities set forth in the Agreement for Stock
Transfer Agent Services between the Fund and the Agent are hereby ratified and
confirmed and continue in effect.
STATE STREET BANK & TRUST COMPANY THE ZWEIG FUND, INC.
/s/ STEVEN MACQUARRIE /s/ STUART B. PANISH
SIGNATURE SIGNATURE
_______________________ VICE PRESIDENT
TITLE TITLE
<PAGE> 1
EXHIBIT (k)(5)
<PAGE> 2
March 10, 1998
The Zweig Fund, Inc.
900 Third Avenue
New York, NY 10022
LETTER OF AGREEMENT
This Letter of Agreement (the "Agreement") sets forth the terms and
conditions under which Georgeson & Company Inc. ("Georgeson") has been
retained by The Zweig Fund, Inc. ("The Zweig Fund, Inc.") as Information
Agent for its Rights Offering. The term of the Agreement shall be the term
of the Offer.
1. During the term of the Agreement, Georgeson will: provide advice and
consultation with respect to the planning and execution of the Offer;
assist in the preparation and placement of newspaper ads; assist in
the distribution of Offer documents to brokers, banks, nominees,
institutional investors, and other shareholders and investment
community accounts; answer collect telephone inquiries from
shareholders and their representatives; and, if requested, call
individuals who are registered holders.
2. The Zweig Fund, Inc. will pay Georgeson a fee of $12,500.00, of which
half is payable in advance per the enclosed invoice and the balance at
the expiration of the Offer, plus an additional fee to be mutually
agreed upon if the Offer is extended more than fifteen days beyond the
initial expiration date. If Georgeson is requested to call
individuals who are registered holders of Common Stock or
non-objecting beneficial owners (NOBO's) of The Zweig Fund, Inc., The
Zweig Fund, Inc. will pay Georgeson an additional sum computed on the
basis of $4.50 per call. In addition, The Zweig Fund, Inc. will
reimburse Georgeson for reasonable costs and expenses incurred by
Georgeson in fulfilling the Agreement, including but not limited to:
expenses incurred by Georgeson in the preparation and placement of
newspaper ads, including typesetting and space charges; postage and
freight charges incurred by Georgeson in the delivery of Offer
documents; printing costs; charges for the production of shareholder
lists (paper, computer cards, etc.), statistical analyses, mailing
labels, or other forms of information requested by The Zweig Fund,
Inc. or its agents and other expenses or disbursements authorized by
The Zweig Fund, Inc. or its agents.
3. If requested, we will check, itemize and pay, on your behalf, from
funds provided by you, the charges of brokers and banks, with the
exception of ADP Proxy Services which will bill you directly, for
forwarding Offer material to beneficial owners. To ensure that we
have sufficient funds in your account to pay these bills promptly, you
agree to provide us, at the time we complete the initial delivery of
this material, with a preliminary payment equal to 75% of the
anticipated broker and bank charges for distributing this material.
For this service, you will pay us five dollars and fifty cents ($5.50)
for each broker and bank invoice paid by us. If you prefer to pay
these bills directly, please strike out and initial this clause before
returning the Agreement to us.
4. Georgeson hereby agrees not to make any representations not included in
the Offer documents.
5. The Zweig Fund, Inc. agrees to indemnify and hold Georgeson harmless
against any loss, damage, expense (including, without limitation,
legal and other related fees and expenses), liability or claim arising
out of Georgeson's fulfillment of the Agreement (except for any loss,
damage, expense, liability or claim arising out of Georgeson's own
negligence or misconduct). At its election, The Zweig Fund, Inc. may
assume the defense of any such action. Georgeson hereby agrees to
advise The Zweig Fund, Inc. of any such liability or claim promptly
after receipt of any notice thereof. The indemnification contained in
this paragraph will survive the term of the Agreement.
6. Georgeson agrees to preserve the confidentiality of all non-public
information provided by The Zweig Fund, Inc. or its agents for our use in
providing services under this Agreement, or information developed by
Georgeson based upon such non-public information.
1
<PAGE> 3
IF THE ABOVE IS AGREED TO BY YOU, PLEASE SIGN AND RETURN THE ENCLOSED DUPLICATE
OF THIS AGREEMENT TO GEORGESON & COMPANY INC., WALL STREET PLAZA, NEW YORK, NEW
YORK 10005, ATTENTION: MARCY ROTH, CONTRACT ADMINISTRATOR.
ACCEPTED: Sincerely,
THE ZWEIG FUND, INC. GEORGESON & COMPANY INC.
By: /s/ Jeffrey Lazar By: /s/ Kay De Angelis
---------------------- ---------------------------
Title: Vice President Title: Senior Managing Director
Date: 3/23/98
2
<PAGE> 1
EXHIBIT (l)
1
<PAGE> 2
April 7, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Dear Ladies and Gentlemen:
We have acted as counsel to The Zweig Fund, Inc., a corporation organized
under the laws of the State of Maryland (the "Company"), with respect to the
Registration Statement on Form N-2 (the "Registration Statement") and the
Prospectus included therein (the "Prospectus"), filed by the Company with the
Securities and Exchange Commission in connection with Amendment number 14 to the
Company's registration under the Investment Company Act of 1940, and in
connection with the registration under the Securities Act of 1933 of shares of
the common stock of the Company, par value $.10 per share (the "Shares"), both
as part of a proposed rights offering by the Company.
We have made such examination as we have deemed necessary for the purpose
of this opinion. Based upon such examination, it is our opinion that, when the
Registration Statement has become effective under the Investment Company Act of
1940 and the Securities Act of 1933, when the Shares have been qualified as and
to the extent, if any, required under the laws of those jurisdictions in which
they are to be issued and sold, and when the Shares to be issued and sold by the
Company have been sold, issued and paid for as contemplated by the Registration
Statement, such Shares will have been legally issued, and will be fully paid and
non-assessable.
As to matters governed by the laws of the State of Maryland, we have relied
on the opinion of Messrs. Venable, Baetjer and Howard, LLP that is attached to
this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm in the Prospectus under
the caption "Legal Matters." We do not thereby admit that we are "experts" as
that term is used in the Securities Act of 1933 and the regulations thereunder.
Very truly yours,
ROSENMAN & COLIN LLP
By: /s/ Robert H. Rosenblum
1
<PAGE> 3
April 7, 1998
Rosenman & Colin LLP
1300 Nineteenth Street, N.W.
Washington, DC 20036
RE: THE ZWEIG FUND, INC.
Ladies and Gentlemen:
We have acted as special Maryland counsel for The Zweig Fund, Inc., a
Maryland corporation (the "Fund"), in connection with the issuance of up to
12,000,000 shares of its common stock, $.10 par value per share (the "Common
Shares") pursuant to the exercise of rights to purchase the Common Shares of
the Fund distributed to stockholders (the "Rights").
As Maryland counsel for the Fund, we are familiar with its Charter and
Bylaws. We have examined its Registration Statement on Form N-2, Securities Act
File No. 333-46955 and Investment Company Act File No. 811-04739, including the
prospectus and statement of additional information contained therein,
substantially in the form in which it is to become effective (the "Registration
Statement"). We have further examined and relied upon a certificate of the
Maryland State Department of Assessments and Taxation to the effect that the
Fund is duly incorporated and existing under the laws of the State of Maryland
and is in good standing and duly authorized to transact business in the State
of Maryland.
We have also examined and relied upon such corporate records of the Fund
and other documents and certificates with respect to factual matters as we have
deemed necessary to render the opinion expressed herein. We have assumed,
without independent verification, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
with originals of all documents submitted to us as copies.
<PAGE> 4
Rosenman & Colin LLP
April 7, 1998
Page 2
Based on such examination, we are of the opinion and so advise you that:
1. The Fund is duly organized and validly existing as a corporation in
good standing under the laws of the State of Maryland.
2. The Common Shares to be issued pursuant to the exercise of Rights are
duly authorized and, when sold, issued and paid for as contemplated by
the Registration Statement, will have been validly and legally issued
and will be fully paid and nonassessable.
3. The Fund's stockholders have no personal liability for the debts or
obligations of the Fund solely as a result of their status as
stockholders.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the
authorization and issuance of stock. It does not extend to the securities or
"blue sky" laws of Maryland, to federal securities laws or to other laws.
You may rely upon our foregoing opinion in rendering your opinion to the
Fund that is to be filed as an exhibit to the Registration Statement. We
consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
VENABLE, BAETJER & HOWARD, LLP
<PAGE> 1
EXHIBIT (n)
1
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Pre-Effective Amendment No. 1 to the
Registration Statement of The Zweig Fund, Inc. on Form N-2 (File No.
333-46955) of our report dated February 4, 1998, on the audit of the
financial statements and financial highlights of The Zweig Fund, Inc.
We also consent to the reference to our firm under the caption "Financial
Highlights" and "Experts" in the Prospectus.
Coopers & Lybrand L.L.P.
New York, New York
April 6, 1998
1
