<PAGE> 1
Investment Company Act File No. 811-5620
Securities Act File No. 333-47371
As filed with the Securities and Exchange Commission on April 9, 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. 8
THE ZWEIG TOTAL RETURN 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 Total Return 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.
1
<PAGE> 2
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
Share (1) Price (2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
par value $.001 14,111,875
per share Shares $9.2625 $130,711,242 $38,560
</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 6, 1998.
(2) A portion of the total registration fee in the amount of $37,277 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.
2
<PAGE> 3
THE ZWEIG TOTAL RETURN FUND, INC.
FORM N-2
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Item Number, Form N-2 Location in Prospectus
Part A
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
3
<PAGE> 4
Item Number, Form N-2 Location in Prospectus
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
4
<PAGE> 5
11,289,500 SHARES OF COMMON STOCK
THE ZWEIG TOTAL RETURN FUND, INC.
ISSUABLE UPON EXERCISE OF NON-TRANSFERABLE
RIGHTS TO SUBSCRIBE FOR SUCH SHARES OF COMMON STOCK
The Zweig Total Return 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 11,289,500 shares
(the "Shares") of the Fund's Common Stock, par value $0.001 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 2,822,375 shares of Common Stock, for
an aggregate total of 14,111,875 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 after the close of trading on the NYSE on March 5,
1998. The Fund's Common Stock trades on the NYSE and PCX under the symbol "ZTR."
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 March 5, 1998 and April 13, 1998 were $8.64 and $ , respectively,
and the last reported sales price of a share of the Fund's Common Stock on the
NYSE on those dates were $9.4375 and $ , respectively.
The Fund is a diversified, closed-end management investment company. Its
investment objective is to seek the highest total return, consisting of capital
appreciation and current income, consistent with the preservation of capital.
The Fund will invest up to 65% of its total assets in U.S. Government
Securities, non-convertible debt securities of domestic issuers rated among the
two highest rating categories of either Moody's Investors Services, Inc. or
Standard & Poor's Corporation (or of comparable quality), and certain Foreign
Government Securities, and up to 35% of its total assets in equity securities.
The Fund may, however, under certain circumstances, invest up to 75% of its
total assets in equity securities. The extent of the Fund's investment in debt
and 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, Zweig Total Return Advisors, Inc. (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 debt and equity securities by
using these techniques, the risk of investment in debt and 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.
----------------------
The date of this Prospectus is April ___, 1998.
<PAGE> 6
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 11,289,500 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.
<PAGE> 7
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 Total Return 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
September 1988. The Fund's investment objective is to seek the highest total
return, consisting of capital appreciation and current income, consistent with
the preservation of capital. The Fund will invest up to 65% of its total assets
in U.S. Government Securities, non-convertible debt securities of domestic
issuers rated among the two highest rating categories of either Moody's
Investors Services, Inc. or Standard & Poor's Corporation (or of comparable
quality), and certain Foreign Government Securities, and up to 35% of its total
assets in equity securities. The Fund may, however, under certain circumstances,
invest up to 75% of its total assets in equity securities. The extent of the
Fund's investment in debt and 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, Zweig Total Return Advisors, Inc.
(the "Investment Adviser"), and his staff. While the Investment Adviser seeks to
reduce the risks associated with investing in debt and equity securities by
using these techniques, the risk of investment in debt and equity securities
cannot be eliminated. The Fund's outstanding Common Stock, par value $.001 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
673,446 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 0.70% 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
11,289,500 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 2,822,375 shares of Common Stock, for
an aggregate total of 14,111,875 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").
3
<PAGE> 8
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 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.
4
<PAGE> 9
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 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
EVENT DATE
- ----- ----
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
5
<PAGE> 10
Guarantees of Delivery Due May 13, 1998*
Confirmation to Participants May 20, 1998*
Final Payment for Shares June 4, 1998*
* 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
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 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
debt and 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,
6
<PAGE> 11
and his staff. While the Investment
Adviser seeks to reduce the risks
associated with investing in debt and
equity securities by using these
techniques, the risk of investment in
debt and equity securities cannot be
eliminated. There is no assurance that
these market timing techniques will
provide protection from the risks of
debt or equity investment, enable the
Fund to be invested consistent with the
major trends of the markets or enable
the Fund to achieve its investment
objective. 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 interest rate, 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; lending portfolio securities to
brokers, dealers, banks or other
recognized institutional borrowers of
securities; entering into repurchase or
reverse repurchase agreements; and
purchasing when-issued and
delayed-delivery securities) will
further the Fund's investment objective
and reduce losses that might otherwise
occur during a time of general decline
in debt or equity security 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
$50,238,438 or approximately $0.64 per
share of net unrealized appreciation in
the Fund's net assets of $677,133,054;
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 September
1988. During the past seven 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
7
<PAGE> 12
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 Information (the "SAI").
Distributions The Fund's policy is to make monthly
distributions equal to 0.83% of its net
asset value (10% on an annualized
basis). If, for any monthly
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, as well
as 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 monthly 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. Shares purchased pursuant
to the Offer will be issued after the
record date for the monthly distribution
declared in May, and, accordingly, the
Fund
8
<PAGE> 13
will not pay a monthly distribution with
respect to such Shares until the
distribution to be declared and paid in
June.
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
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.
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.
9
<PAGE> 14
FUND EXPENSES
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 0.70%
Other Expenses 0.31%
-----
Total Annual Expenses (3) 1.01%
-----
(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 $245,000 and $42,500, 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 1.01% 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 0.34% of the Fund's 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
-------- ----------- ---------- ---------
$47 $68 $91 $156
10
<PAGE> 15
This hypothetical example assumes that all dividends and other
distributions are reinvested at net asset value and that the 1.01% 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 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.
11
<PAGE> 16
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 .... $ 8.29 $ 8.63 $ 8.11 $ 9.11 $ 9.06 $ 9.79 $ 9.02
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................. 0.36 0.36 0.39 0.29 0.26 0.32 0.44
Net realized and unrealized gains
(losses) on investments ............... 0.80 0.14 0.97 (0.43) 0.75 (0.09) 1.29
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ...... 1.16 0.50 1.36 (0.14) 1.01 0.23 1.73
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and Distributions:
Dividends from net investment income .. (0.36) (0.36) (0.39) (0.29) (0.26) (0.32) (0.43)
Distributions from net realized gains
on investments .................... (0.48) (0.24) (0.45) -- (0.70) (0.30) (0.53)
Distributions from capital paid-in .... -- (0.24) -- (0.57) -- (0.34) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions ..... (0.84) (0.84) (0.84) (0.86) (0.96) (0.96) (0.96)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ...... $ 8.61 $ 8.29 $ 8.63 $ 8.11 $ 9.11 $ 9.06 $ 9.79
====================================================================================================================================
Market value, end of year** ....... $ 9.4375 $ 8.00 $ 8.625 $ 8.00 $ 10.75 $ 10.00 $ 10.625
====================================================================================================================================
Total investment return ............... 30.22% 2.62% 19.19% (17.08)% 18.37% 2.60% 37.90%
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) $ 677,133 $ 638,768 $ 647,523 $ 591,659 $ 648,516 $ 624,097 $ 648,118
Ratio of expenses to average net assets 1.04% 1.03% 1.10% 1.12% 1.11% 1.13% 1.11%
Ratio of net investment income to
average net assets ................. 4.30% 4.31% 4.59% 3.35% 2.85% 3.43% 4.74%
Portfolio turnover rate ............... 104.7% 147.2% 179.8% 281.0% 293.0% 123.2% 148.6%
Average commission rate per share on
portfolio transactions ........... $ 0.0587 $ 0.0591 $ 0.0606 N/A N/A N/A N/A
<CAPTION>
YEARS ENDED DECEMBER 31,
1990 1989(+) 1988*(+)
----------------------------------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year .... $ 9.59 $ 9.24 $ 9.27
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................. 0.56 0.68 0.25
Net realized and unrealized gains
(losses) on investments ............... (0.20) 0.63 (0.12)
- -------------------------------------------------------------------------------
Total from investment operations ...... 0.36 1.31 0.13
- -------------------------------------------------------------------------------
Dividends and Distributions:
Dividends from net investment income .. (0.60) (0.73) (0.16)
Distributions from net realized gains
on investments .................... (0.04) (0.23) --
Distributions from capital paid-in .... (0.29) -- --
- -------------------------------------------------------------------------------
Total Dividends and Distributions ..... (0.93) (0.96) (0.16)
- -------------------------------------------------------------------------------
Net asset value, end of year ...... $ 9.02 $ 9.59 $ 9.24
===============================================================================
Market value, end of year** ....... $ 8.625 $ 9.75 $ 9.125
===============================================================================
Total investment return ............... (1.99)% 18.24% (7.17)%
===============================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) $ 573,782 $ 596,508 $ 564,330
Ratio of expenses to average net assets 1.09% 1.14% 1.19%***
Ratio of net investment income to
average net assets ................. 6.14% 7.18% 11.19%***
Portfolio turnover rate ............... 145.2% 192.7% 112.6%
Average commission rate per share on
portfolio transactions ........... N/A N/A N/A
</TABLE>
* Commenced operations on September 30, 1988.
** Closing Price - New York Stock Exchange.
*** Annualized.
(+) Not audited by Coopers & Lybrand.
12
<PAGE> 17
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 11,289,500 Shares. The Fund may increase the
number of Shares subject to subscription by up to 25% of the Shares, or up to an
additional 2,822,375 shares, for an aggregate total of 14,11,875 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, after exercising their Rights, 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.
13
<PAGE> 18
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 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 2,822,375 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
14
<PAGE> 19
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 with the Offer any Shares that are not
subscribed for pursuant to the Primary Subscription or the Over-Subscription
Privilege.
15
<PAGE> 20
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 after the close of trading on the NYSE on
March 5, 1998. The net asset value per share of Common Stock at the close of
business on March 5, 1998 and April 13, 1998 was $8.64 and $ , respectively,
and the last reported sales prices of a share of the Fund's Common Stock on the
NYSE on those dates was $9.4375 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
16
<PAGE> 21
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, after exercising their Rights, have
remaining fewer than seven Rights will not be entitled 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
17
<PAGE> 22
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
$42,500 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 $245,000 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.
18
<PAGE> 23
DELIVERY TO AN ADDRESS OTHER THAN ONE OF THE ADDRESSES LISTED ABOVE, OR
TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT
CONSTITUTE VALID DELIVERY.
19
<PAGE> 24
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 TOTAL RETURN 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 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
20
<PAGE> 25
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 TOTAL RETURN 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 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.
21
<PAGE> 26
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.
22
<PAGE> 27
EDERAL 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 broker-dealers and other offering expenses
estimated to total $ . If the Fund increases
23
<PAGE> 28
the number of Shares subject to subscription by up to 2,282,375 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 July 21, 1988, is a diversified,
closed-end management investment company registered under the 1940 Act. The
Fund's investment objective is to seek the highest total return, consisting of
capital appreciation and current income, consistent with the preservation of
capital. The Fund will invest up to 65% of its total assets in U.S. Government
Securities, non-convertible debt securities of domestic issuers rated among the
two highest rating categories of either Moody's Investors Services, Inc. or
Standard & Poor's Corporation (or of comparable quality), and certain Foreign
Government Securities, and up to 35% of its total assets in equity securities.
The Fund may, however, under certain circumstances, invest up to 75% of its
total assets in equity securities. The extent of the Fund's investment in debt
and 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 debt and equity securities by using these
techniques, the risk of investment in debt and 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 Total Return 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 60,375,000 shares of
its Common Stock in September and October 1988. The net proceeds to the Fund
from such offering were approximately $559,912,503. 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
$591,344,008. The increase in the Fund's net assets since inception is
attributable primarily to appreciation in the value of its portfolio securities.
The Fund's principal office is located at 900 Third Avenue, New York,
New York 10022, and its telephone number is (212) 451-1100.
24
<PAGE> 29
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 "ZTR." 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 Low Net
Sales Asset Premium Sales Asset Premium
Quarter Ended Price* Value (Discount) Price* Value (Discount)
- ------------- ------ ----- ---------- ------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
3/31/96 $ 9.000 $ 8.45 6.51% $ 8.500 $ 8.56 (0.70)%
6/30/96 8.750 8.29 5.55 8.375 8.14 2.89
9/30/96 8.625 8.11 6.35 8.250 8.04 2.61
12/31/96 8.500 8.14 4.42 8.000 8.29 (3.50)
3/31/97 8.625 8.15 5.83 8.125 8.26 (1.63)
6/30/97 8.875 8.37 6.03 8.375 7.98 4.95
9/30/97 9.250 8.58 7.81 8.875 8.45 5.03
12/31/97 9.563 8.59 11.33 9.125 8.41 8.50
3/31/98 9.683 8.52 13.64 9.375 8.48 10.55
</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
September 1988. During the past seven 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. Since the Fund's
inception in 1988, the Fund has maintained a policy of making monthly
distributions equal to 0.83% 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 from net asset value. The Fund
has not engaged in any such repurchases. See "Description of Common Stock
Repurchase of Shares." Since the Fund's inception, the Board of Directors has
maintained a policy pursuant to which the Board of Directors considers the
making of tender offers of the Fund each quarter during periods when the Fund's
shares are trading at a discount from net asset value. The Fund has not made any
such tender offers. See "Description of Common Stock - Tender Offers." The
Fund's Articles of Incorporation provide that if during any fiscal quarter
beginning on or after January 1, 1990, the Fund's shares trade, on the principal
securities exchange on which they are traded, at an
25
<PAGE> 30
average discount from net asset value of 10% or more, the Fund generally is
required to submit to shareholders within 60 days after the end of such quarter,
a proposal to convert the Fund to an open-end investment company (the
"Conversion Proposal"). Approval of the Conversion Proposal would require the
affirmative vote of a majority of the outstanding shares of the Fund entitled to
be voted thereon. The Fund's shares have not traded at an average discount from
net asset value of 10% or more during any quarter since the Fund's inception.
Thus, the Fund has not submitted any Conversion Proposals to its shareholders.
See "Description of Common Stock - Provision for Conversion to Open-End Fund."
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 %.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek the highest total return,
consisting of capital appreciation and current income, consistent with the
preservation of capital. The Fund will invest up to 65% of its total assets in
U.S. Government Securities, non-convertible debt securities of domestic issuers
rated among the two highest rating categories of either Moody's Investors
Services, Inc. or Standard & Poor's Corporation (or of comparable quality), and
certain Foreign Government Securities, and up to 35% of its total assets in
equity securities. If the Investment Adviser believes that there is very low
risk in the stock market, then the Fund may invest up to 40% of its total assets
in equity securities. If, however, the Investment Adviser perceives a
fundamental change in the relationship between the debt and equity markets (such
as a significant change in the spread between the yields of debt and equity
securities from that experienced during the past decade), then, depending on the
nature of such change, the Fund may substantially increase the percentage of its
total assets invested in debt securities (including money market instruments) or
equity securities. The Fund will not, under any circumstances, invest more than
75% of its total assets in equity securities.
The extent of the Fund's investment in debt and 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. 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 interest rate, 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; lending portfolio
securities to brokers, dealers, banks or other recognized institutional
borrowers of securities; entering into repurchase or reverse repurchase
agreements; and purchasing when-issued and delayed-delivery securities. See
"Special Investment Methods." During periods when the Investment Adviser
believes an overall defensive position is advisable, greater than 50% (and under
certain circumstances perhaps all) of the Fund's total assets may be temporarily
invested in money market instruments and cash. There is no assurance that the
Fund will achieve its investment
26
<PAGE> 31
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
In determining the extent of the Fund's investment in debt and 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 debt and equity securities based on these techniques.
The debt market timing techniques, which seek to identify the risks and trends
in the debt markets at any given time, will incorporate various indicators,
including the momentum of bond prices, short-term interest rate trends,
inflation indicators and general economic and liquidity indicators, 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 debt markets. The equity market timing 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 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 markets. There is no assurance
that these market timing techniques will provide protection from the risks of
debt or equity investment, enable the Fund to be invested consistent with the
major trends of the markets or enable the Fund to achieve its investment
objective.
The maturities of the debt securities in the Fund's portfolio will vary
based in large part on the Investment Adviser's expectations of future changes
in interest rates using the Investment Adviser's own internal research and debt
market timing techniques. The primary consideration in choosing among bonds is
managing risk related to changes in interest rate levels. A bond's duration
measures its sensitivity to changes in interest rates (interest rate risk).
Duration is the approximate percentage change in the price of a bond or bond
portfolio in response to a 100 basis point (one percent) change in the general
level of interest rates in the market. For example, if a bond portfolio has an
average duration of five years, the value of such bond portfolio would increase
by 5% if interest rates declined by 1% and conversely would decrease by 5% if
interest rates rose by 1%. The longer the duration, the greater the bond's price
movement will be as interest rates change. The Investment Adviser manages the
duration of the Fund's portfolio, or interest rate risk, by altering the Fund's
mix of short, medium, and long term bonds, or by buying or selling interest rate
futures contracts, and also by actively using money market and cash instruments.
Over time, the duration will vary depending on the Investment Adviser's interest
rate outlook.
The U.S. government securities ("U.S. Government Securities") in which
the Fund may invest are securities issued or guaranteed by the U.S. Government
or its agencies or
27
<PAGE> 32
instrumentalities (including repurchase agreements secured by such instruments).
Certain of these securities, including U.S. Treasury bills, notes and bonds,
mortgage participation certificates guaranteed by GNMA, and Federal Housing
Administration debentures, are supported by the full faith and credit of the
United States. Other U.S. Government Securities issued or guaranteed by federal
agencies or government-sponsored enterprises are not supported by the full faith
and credit of the United States. These securities include obligations supported
by the right of the issuer to borrow from the U.S. Treasury, such as obligations
of Federal Home Loan Banks, and obligations supported only by the credit of the
instrumentality, such as Federal National Mortgage Association bonds. Debt
securities of domestic issuers, other than U.S. Government Securities, will be
limited to those that are rated, as of the date of purchase, among the two
highest rating categories (Aaa and Aa) of Moody's Investors Service, Inc.
("Moody's") or the two highest rating categories (AAA and AA) of Standard &
Poor's Corporation ("S&P").
The money market instruments in which the Fund may invest include U.S.
Government Securities or obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities ("Foreign Government Securities") having a maturity of less
than one year, commercial paper rated A-1 or higher by S&P or Prime-1 or higher
by Moody's, or if such commercial paper is not rated, issued by companies which
have an outstanding debt issue rated Aa or higher by Moody's or AA or higher by
S&P, repurchase agreements secured by collateral at least equal to the
repurchase price, 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 invest up to 10% of its total assets in Foreign Government
Securities that, in the opinion of the Investment Adviser, do not subject the
Fund to unreasonable credit risks. The percentage of the Fund's assets invested
in Foreign Government Securities will vary depending on the relative yields of
such securities, the economic and financial markets of the countries in which
the investments are made, the interest rate climate of such countries and the
relationship of such countries' currencies to the U.S. dollar. During the past
year, the Fund has not owned any Foreign Government Securities.
The Fund's investments in equity securities provide the opportunity for
enhanced returns through capital appreciation. 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 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.
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 interest
rate futures contracts, stock index futures contracts and futures contracts
based upon other financial instruments, and purchase options on such contracts.
The Fund will not write options on any futures contracts. Such investments will
generally be made by the Fund only 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
interest rate or stock index futures contracts.
Where the Fund anticipates a significant market or market sector
advance, establishing long positions in (purchasing) interest rate or 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. For example, if
the Fund anticipates a significant stock market or market sector advance, 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.
29
<PAGE> 34
Borrowing. Although the Fund has not done so in the past and does not expect to
do so during the next year, the Fund may from time to time 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 or tender offer transactions when
the shares are trading at a discount from net asset value. See "Description of
Common Stock - Repurchase of Shares," and "-Tender Offers." 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 or tender
offer 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 10% of its total assets in Foreign
Government Securities and up to 10% of its total assets in equity 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
30
<PAGE> 35
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.
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.
Repurchase Agreements. Although the Fund has not done so in the past, the Fund
may from time to time acquire U.S. Government Securities and concurrently enter
into so-called "repurchase agreements" with the seller, a member bank of the
Federal Reserve System or primary dealers in U.S. Government Securities, whereby
the seller agrees to repurchase such securities at the Fund's cost plus interest
within a specified time (usually on the next business day). Repurchase
agreements offer a means of generating income from excess cash that the Fund
might otherwise hold. Delays in
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payment or losses may result if the other party to the agreement defaults or
becomes bankrupt. The Fund's repurchase agreements must be fully backed by
collateral that is marked to market, or priced, each day.
Reverse Repurchase Agreements. Although the Fund has not done so in the past,
the Fund may enter from time to time into reverse repurchase agreements whereby
the Fund sells an underlying debt instrument and simultaneously obtains the
commitment of the purchaser, a commercial bank or a broker or dealer, to sell
the security back to the Fund at an agreed upon price on an agreed upon date.
The value of the underlying securities will be required to be maintained at a
level at least equal at all times to the total amount of the resale obligation,
including the interest factor. The Fund receives payment for such securities
only upon physical delivery or evidence of book entry transfer by its custodian.
The Fund will establish a segregated account with the Fund's custodian, in which
the Fund will maintain cash and U.S. Government Securities or other high grade
debt obligations at least equal in value to the total amount of the repurchase
obligation, including accrued interest. The value of the segregated securities
will be marked-to-market on a daily basis to ensure that such value is
maintained. Reverse repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities. An
additional risk is that the market value of securities sold by the Fund under a
reverse repurchase agreement could decline below the price at which the Fund is
obligated to repurchase them. Reverse repurchase agreements will be considered
borrowings by the Fund and as such will be subject to the restrictions on
borrowing described in the SAI under "Investment Restrictions." The value of all
the Fund's reverse repurchase agreements will not exceed 5% of the Fund's total
assets.
When-Issued and Delayed-Delivery Securities. The Fund may from time to time
purchase securities on a "when-issued" or "delayed-delivery" basis whereby the
Fund purchases a bond or stock with delivery of the security and payment
deferred to a future date. The money to purchase such securities will be
invested in other securities until the Fund receives delivery. This could
increase the possibility that the Fund's net asset value would increase or
decrease faster than would otherwise be the case. There is no restriction on the
percentage of the Fund's assets that may be invested in when-issued or
delayed-delivery securities, and such securities are not considered to be short
sales for purposes of the Fund's Investment Restrictions on short sales.
Securities purchased on a when-issued or delayed-delivery basis may expose the
Fund to risk, since such securities may experience fluctuations in value (based
upon, in the case of bonds, the public's perception of the creditworthiness of
the issuer and changes, real or anticipated, in the level of interest rates)
prior to their time of delivery. In addition, the yield available in the market
when the delivery takes place actually may be higher than that obtained in the
transaction itself.
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
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<PAGE> 37
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 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 debt and 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 debt and 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 debt and equity investment, enable the Fund to be
invested consistent with the major trends of the markets or enable the Fund to
achieve its investment objective.
In addition, although the Investment Adviser believes that the special
investment methods discussed above under "Special Investment Methods" (including
purchasing and selling interest rate, 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; lending portfolio
securities to brokers, dealers, banks or other recognized institutional
borrowers of securities; entering into repurchase or reverse repurchase
agreements; and purchasing when-issued and delayed-delivery securities) will
further the Fund's investment objective and reduce losses that might otherwise
occur during a time of general decline in debt or equity security 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.
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<PAGE> 38
UNREALIZED APPRECIATION
As of December 31, 1997, there was $50,238,438 or approximately $0.64
per share of net unrealized appreciation in the Fund's net assets of
$677,133,054, 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
September 1988. During the past seven 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 monthly distributions equal to 0.83% of
its net asset value (10% on an annualized basis). If, for any monthly
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, as well as 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 monthly 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. Shares purchased pursuant to the Offer will be issued after the record
date for the monthly distribution declared in May, and, accordingly, the Fund
will not pay a monthly distribution with respect to such Shares until the
distribution to be declared and paid in June. See "Distributions; Distribution
Reinvestment and Cash Purchase Plan" for a discussion of the Fund's distribution
policy.
ANTI-TAKEOVER PROVISIONS
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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 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 Total Return Advisors, Inc., is a
Delaware corporation, with offices at 900 Third Avenue, New York, New York
10022. The Investment Adviser was organized in June 1988 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 22, 1988 ("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
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<PAGE> 40
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 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 0.70% 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 $4,571,606, $4,415,349,
and $4,330,481.
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 bond selections for the Fund are made by Mr. Carlton
Neel, and the day-to-day stock selections for the Fund are made by Mr. Jeffrey
Lazar. Mr. Neel has been making the day-to-day bond selections for the Fund and
The Zweig 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. Mr. Lazar has
been Vice President of the Fund since 1988, and is also a Director of the Fund.
He has been making the day-to-day stock selections for the Fund and The Zweig
Fund, Inc. since January 1995. Mr. Lazar, who is a Vice President of the
Investment Adviser, has been with the Investment Adviser since 1988.
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
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<PAGE> 41
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 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 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 any stock exchange listings of the Fund's common stock, expenses
of printing and distributing reports, prospectuses, notices and proxy materials,
expenses of corporate data processing and related services, shareholder record
keeping and shareholder account services (including salaries of shareholder
relations personnel), 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 the Fund's administrator, transfer agent, custodian and
subcustodians (if any), expenses of disbursing dividends and distributions,
fees, expenses and out-of-pocket costs of Directors of the Fund who are not
interested persons of the Fund or the Investment Adviser, 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."
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ADMINISTRATOR
Zweig/Glaser Advisers (the "Administrator") serves as the Fund's
administrator pursuant to an administration agreement dated August 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 Zweig Fund, Inc.) 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.
For the fiscal years ended December 31, 1997 and 1996 and the period August 1,
1995 to December 31, 1995, the Fund accrued administrative fees of $849,013,
$819,993, and $345,212. During the period May 6, 1994 to July 31, 1995, The
Shareholder Services Group, Inc. ("TSSG") served as the Fund's Administrator and
received fees equal, on an annual basis, to 0.18% of the Fund's average daily
net assets during the previous month. During the period January 1, 1995 to July
31, 1995, the Fund paid TSSG administrative fees of $635,566.
DISTRIBUTIONS; DISTRIBUTION REINVESTMENT AND CASH PURCHASE PLAN
The Fund's policy is to distribute to shareholders on a monthly basis
0.83% of its net asset value (10% on an annualized basis). If, for any monthly
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, as well as 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. In calculating the amount of each monthly
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 monthly 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
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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.
Shares purchased pursuant to the Offer will be issued after the record
date for the monthly distribution declared in May, and, accordingly, the Fund
will not pay a monthly distribution with respect to such Shares until the
distribution to be declared and paid in June.
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.
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<PAGE> 44
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-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 500,000,000 shares
of Common Stock, par value $0.001 per share, of which 79,017,765 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
"ZTR."
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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 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; TENDER OFFERS
The Fund is authorized to repurchase its shares on the open market when
the shares are trading at a discount 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. The Fund
has not repurchased any shares of its Common Stock.
Since the Fund's inception in 1988, the Board of Directors has
maintained a policy pursuant to which the Board of Directors considers the
making of tender offers of the Fund each quarter during periods when the Fund's
shares are trading at a discount from net asset value. The Board may at any
time, however, decide that the Fund should not make tender offers. The net asset
value at which shares may be tendered will be established at the close of
business on the last day the tender offer is open. Since the Fund's inception,
however, the Fund has not made any tender offers for the shares of its Common
Stock.
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
41
<PAGE> 46
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.
Each person tendering shares will pay to the Fund a reasonable service
charge to help defray certain costs, including the processing of tender forms,
effecting payment, postage and handling. Any such service charge will be paid
directly by the tendering shareholder and will not be deducted from the proceeds
of the purchase. The Fund's transfer agent will receive the fee as an offset to
these costs. The Fund expects the cost to the Fund of effecting a tender offer
will exceed the aggregate of all service charges received from those who tender
their shares. Costs associated with the tender will be charged against capital.
During the pendency of any tender offer, shareholders may ascertain the net
asset value of the Fund's shares by calling a telephone number as provided in
any tender offer materials.
PROVISION FOR CONVERSION TO OPEN-END FUND
If during any fiscal quarter beginning on or after January 1, 1990, the
Fund's shares trade, on the principal securities exchange on which they are
traded, at an average discount from net asset value of 10% or more (determined
on the basis of the discount as of the end of the last trading day in each week
during such quarter), the Fund's Articles of Incorporation require the Board of
Directors to submit to shareholders a proposal to convert the Fund to an
open-end investment company (the "Conversion Proposal"). The Fund's shares have
not traded at an average discount from net asset value of 10% or more during any
quarter since the Fund's inception. Thus, the Fund has not submitted any
Conversion Proposal to its shareholders. Approval of a Conversion Proposal would
require the affirmative vote of a majority of the outstanding shares of the Fund
entitled to be voted thereon. The Fund's Articles of Incorporation provide,
however, that a Conversion Proposal need not be submitted to shareholders with
respect to a quarter if a Conversion Proposal was submitted to shareholders with
respect to the immediately preceding quarter.
If the Fund converted to an open-end investment company, its
shareholders could require the company to redeem their shares at any time
(except in certain circumstances as authorized by the 1940 Act) at the next
determined net asset value of such shares, less such redemption charges, if any,
as might be in effect at the time of redemption, and such redemption payment
must be made within seven days. This may require changes in the Fund's portfolio
management, since such redemption requests could require the Fund's liquidation
of a portion of its investment portfolio 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. In addition, if the Fund converted to an open-end
investment
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<PAGE> 47
company, its shares would no longer be listed on any stock exchange, and certain
of the Fund's expenses (including transfer agency and shareholder services
expenses) would be greater than those that would be incurred by a closed-end
investment company.
In the event the Fund's shareholders did not approve a proposal to
convert the Fund to an open-end investment company, the Fund would continue as a
closed-end investment company, but pursuant to the Fund's Articles of
Incorporation, the Board of Directors would be required to submit to the Fund's
shareholders a subsequent Conversion Proposal with respect to any subsequent
quarter during which there was an average discount of 10% or more from net asset
value, unless the Conversion Proposal had been submitted to shareholders with
respect to the immediately preceding quarter. The Fund cannot predict whether
any open market repurchases or tender offer purchases of its shares made while
the Fund is a closed-end investment company would decrease the discount from net
asset value. To the extent that any such open market repurchases or tender offer
purchases decreased the average discount from net asset value to below 10% for a
fiscal quarter, the Fund would not be required to submit to its shareholders the
Conversion Proposal with respect to such quarter.
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.
The maximum number of Directors (twelve) may be increased, or a
Director may be removed from office, only by the affirmative vote of the holders
of at least 75% of the shares of the Fund entitled to be voted for the election
of Directors. In addition, the affirmative vote of the holders of 75% of the
outstanding shares of the Fund is required to authorize the conversion of the
Fund from a closed-end to an open-end investment company (except pursuant to the
Conversion Proposal described above), to amend certain of the provisions of the
Articles of Incorporation or generally to authorize any of the following
transactions:
(i) merger or consolidation or statutory share exchange of the Fund
with or into any other corporation;
(ii) a sale of all or substantially all of the Fund's assets (other
than in the regular course of the Fund's investment activities); or
(iii) a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of two-thirds of the total number of Directors fixed in accordance with the
By-Laws, in which case the affirmative vote of a majority of the Fund's
outstanding shares is required. Such 75% voting requirements described above,
which are greater than the minimum requirements under Maryland law or the Act,
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<PAGE> 48
can only be changed by a similar 75% vote. 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 or make a tender offer for shares of its common stock could
have the effect of depriving the owners of shares of opportunities 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" and "Tender Offers."
TAXATION
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
44
<PAGE> 49
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
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
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<PAGE> 50
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 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 $245,000 and $42,500, 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.
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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
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.
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<PAGE> 52
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
Investment Objective and Policies 1
Investment Restrictions 7
Management 9
Expenses 12
Portfolio Transactions and Brokerage 12
Net Asset Value 14
Taxation 14
Independent Accountants 18
Principal Shareholders 18
Financial Statements F-1
Report of Independent Accountants F-14
48
<PAGE> 53
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
Prospectus Summary 3
Fund Expenses 10
Financial Highlights 12
The Offer 13
Use of Proceeds 23
The Fund 24
Market Price and Net Asset Value Information 25
Investment Objective and Policies 26
Risk Factors and Special Considerations 32
Management of the Fund 35
Distributions; Distribution Reinvestment
and Cash Purchase Plan 38
Description of Common Stock 40
Taxation 44
Distribution Arrangements 46
Custodian, Dividend Paying Agent,
Transfer Agent and Registrar 46
Experts 47
Legal Matters 47
Further Information 47
Table of Contents of Statement of
Additional Information 48
11,289,500 SHARES OF COMMON STOCK
THE ZWEIG TOTAL RETURN 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
49
<PAGE> 54
PART B
THE ZWEIG TOTAL RETURN 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.
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<PAGE> 55
TABLE OF CONTENTS
Investment Objective and Policies 1
Investment Restrictions 7
Management 9
Expenses 12
Portfolio Transactions and Brokerage 12
Net Asset Value 14
Taxation 14
Independent Accountants 18
Principal Shareholders 18
Financial Statements F-1
Report of Independent Accountants F-14
2
<PAGE> 56
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek the highest total return,
consisting of capital appreciation and current income, consistent with the
preservation of capital. The Fund will invest up to 65% of its total assets in
U.S. Government Securities, non-convertible debt securities of domestic issuers
rated among the two highest rating categories of either Moody's Investors
Services, Inc. or Standard & Poor's Corporation (or of comparable quality), and
certain Foreign Government Securities, and up to 35% of its total assets in
equity securities. The Fund may, however, under certain circumstances, invest up
to 75% of its total assets in equity securities. The extent of the Fund's
investment in debt and 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 debt and equity
securities by using these techniques, the risk of investment in debt and 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.
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<PAGE> 57
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 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
2
<PAGE> 58
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
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
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<PAGE> 59
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 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
4
<PAGE> 60
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 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 10% of its total assets in Foreign Government
Securities and up to 10% of its total assets in equity 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
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<PAGE> 61
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, 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
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<PAGE> 62
net assets.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund may from time to time purchase securities on a "when-issued"
or "delayed-delivery" basis whereby the Fund purchases a bond or stock with
delivery of the security and payment deferred to a future date. The money to
purchase such securities will be invested in other securities until the Fund
receives delivery. This could increase the possibility that the Fund's net asset
value would increase or decrease faster than would otherwise be the case.
Securities purchased on a when-issued or delayed-delivery basis may expose the
Fund to risk, since such securities may experience fluctuations in value (based
upon, in the case of bonds, the public's perception of the creditworthiness of
the issuer and changes, real or anticipated, in the level of interest rates)
prior to their time of delivery. In addition, the yield available in the market
when the delivery takes place actually may be higher than that obtained in the
transaction itself. At the time the Fund makes the commitment to purchase a
security on a when-issued or delayed-delivery basis, it will record the
transaction and reflect the value of the security less the liability to pay the
purchase price in determining the fund's net asset value. The value of the
security on the settlement date may be more or less than the price paid. No
interest accrues on the security between the time the Fund enters into the
commitment and the time the security is delivered. The Fund will establish a
segregated account with the Custodian in which it will maintain cash and
short-term high quality debt securities equal in value to commitments for
when-issued or delayed-delivery securities. Such segregated securities will be
"marked-to-market" daily. While when-issued or delayed-delivery securities may
be sold prior to the settlement date, it is intended that the Fund will purchase
such securities with the purpose of actually acquiring them unless a sale
appears desirable for investment reasons. The Fund is dependent on the other
party to successfully complete when-issued and delayed delivery transactions. If
such other party fails to complete its portion of the transaction, the Fund may
have lost a favorable investment opportunity. There is no limitation on the
percentage of the Fund's assets that may be invested in when-issued or
delayed-delivery securities.
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 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.
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<PAGE> 63
2. Purchase more than 10% of the outstanding voting securities, or any
class of securities, of any one issuer. This investment restriction does not
apply to investments in U.S. Government Securities.
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. 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.
5. Purchase any securities on margin. For purposes of this investment
restriction, the following do not constitute margin purchases: (i) effecting
short sales, to the extent permitted by 9. below, (ii) making margin deposits in
connection with any futures contracts or any options the Fund may purchase, sell
or write, or (iii) entering into any currency transactions.
6. Lend any funds or other assets, except that the Fund may purchase
publicly distributed debt obligations (including repurchase agreements)
consistent with its investment objective and policies, and the Fund may make
loans of portfolio securities if such loans do not cause the aggregate amount of
all outstanding securities loans to exceed 33 1/3% of the Fund's total assets,
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.
7. Borrow money (through reverse repurchase agreements or otherwise),
except (i) for temporary emergency purposes in amounts not in excess of 5% of
the value of the Fund's total assets at the time the loan is made; or (ii) in an
amount not greater than 33 1/3% of the Fund's total assets.
8. 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 7. above. For the purposes of this investment
restriction and 7. above, collateral or escrow arrangements with respect to the
making of short sales, writing of stock options, purchase of securities on a
forward commitment or delayed-delivery basis, and purchase of foreign currency
forward contracts and collateral arrangements with respect to margin for futures
contracts and foreign currency forward 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, foreign currency forward contracts or related
options are deemed to be the issuance of a senior security.
9. Make any short sales of securities, unless 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 total 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 total assets,
(iii) the market value of all securities of any one issuer sold short does not
exceed 2% of the Fund's total 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, together with collateral deposited with the
broker-dealer, 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." For the purposes of this investment restriction, sales
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<PAGE> 64
of securities on a when-issued or delayed-delivery basis are not considered to
be short sales.
10. 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.
11. 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.
12. Purchase or sell commodities or commodity or futures contracts or
options on commodity or futures contracts except in compliance with such rules
and interpretations of the Commodity Futures Trading Commission which exempt the
Fund from regulation as a commodity pool operator.
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>
Name and Address Age Position with the Fund Principal Occupations and Other Affiliations
- ---------------- ---- ---------------------- --------------------------------------------
<S> <C> <C> <C>
Martin E. Zweig* 55 Director, Chairman of President and Director of the Investment Adviser;
900 Third Avenue the Board and President Chairman of the Board and President of The Zweig
New York, NY 10022 (Chief Executive Fund, Inc.; President and Director of Zweig
Officer) 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.
Charles H. Brunie 67 Director Chairman Emeritus of Oppenheimer
</TABLE>
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<PAGE> 65
<TABLE>
<S> <C> <C> <C>
21 Elm Rock Road Capital; Chairman Emeritus, Board of Trustees of the
Bronxville, NY 10708 Manhattan Institute for Policy Research.
Annemarie Gilly* 46 Director First Vice President of Zweig/Glaser Advisers;
900 Third Avenue First Vice President of Euclid Mutual Funds; First
New York, NY 10022 Vice President of Zweig Securities Corp.; First
Vice President of Zweig Series Trust; Director of
The Zweig Fund, Inc.; formerly Vice President of Concord
Financial Group Inc.
Elliot S. Jaffe 71 Director Chairman and Chief Executive Officer of The Dress
30 Dunnigan Drive Barn, Inc.; Director of The Zweig Fund, Inc.;
Suffern, NY 1091 Director of National Retail Federation; Director of
Shearson Appreciation Fund; Director of Shearson
Managed Governments, Inc.; 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 the
900 Third Avenue President, Treasurer Investment Adviser; Vice President, Treasurer and
New York, NY 10022 and Assistant Secretary Director of The Zweig Fund, Inc; Vice President,
Treasurer and Secretary of Zweig Advisors Inc.;
Vice President of Zweig Series Trust.
Alden C. Olson 69 Director Director of The Zweig Fund, Inc; Director of
2711 Ramparte Path First National Bank of Michigan; formerly,
Holt, Michigan 48842 Professor of Financial Management, Investments at
Michigan State University.
James B. Rogers, Jr. 55 Director Private Investor; Director of The Zweig Fund,
352 Riverside Drive Inc.; Chairman of Beeland Interests; Regular
New York, NY 10025 Commentator on CNBC; Author of "Investment Biker:
On the Road with Jim Rogers"; Director of Emerging
</TABLE>
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<PAGE> 66
<TABLE>
<S> <C> <C> <C>
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 Fund, Inc.; Director of
University of Pennsylvania Municipal Fund for New York Investors; Director of
Philadelphia, PA 19104 Municipal Fund for California Investors; Trustee of
Compass Capital Funds.
Robert E. Smith* 62 Director Counsel of Rosenman & Colin LLP; Director of The
575 Madison Avenue Zweig Fund, Inc.; Director of Ogden Corporation;
New York, NY 10022 formerly Secretary of the Fund and The Zweig Fund,
Inc.
Stuart B. Panish* 41 Vice President and Vice President and Secretary of The Zweig Fund,
900 Third Avenue Secretary Inc.; Counsel to the Adviser and Zweig Advisors
New York, NY 10022 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 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.
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<PAGE> 67
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 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.
EXPENSES
For the fiscal years ended December 31, 1997, 1996 and 1995, the Fund's
expenses amounted to $6,761,578, $6,473,138 and $6,807,315, respectively.
Expenses of the Offer will be charged to capital. The Fund's annual
expense ratio was 1.04%%, 1.03% and 1.10% 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, President of the Administrator and a Director of The Zweig Fund, Inc.,
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
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<PAGE> 68
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 $567,917 to brokers for the year
ended December 31, 1997, of which $80,824 was paid to Zweig Securities Corp.,
representing 14.23% of the aggregate brokerage commissions paid by the Fund and
15.17% of the aggregate amount of transactions involving the payment of
commissions for such year. The Fund paid brokerage commissions of $744,349 to
brokers for the year ended December 31, 1996, of which $60,371 was paid to Zweig
Securities Corp , representing 8.11% of the aggregate brokerage commissions paid
by the Fund and 7.65% of the aggregate amount of transactions involving the
payment of commissions for such year The Fund paid brokerage commissions of
$609,524 to brokers for the year ended December 31, 1995, of which $77,864 was
paid to Watermark Securities, Inc., representing 12.77% of the aggregate
brokerage commissions paid by the Fund and 12.17% 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 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 104.7%, 147.2% and
179.8%, 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.
13
<PAGE> 69
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 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 September 1988.
During the past seven 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.
14
<PAGE> 70
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.
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 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.
15
<PAGE> 71
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.
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.
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,
16
<PAGE> 72
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 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 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.
17
<PAGE> 73
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 79,017,765 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. 65,587,529 83.0%
7 Hanover Square
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.
18
<PAGE> 74
THE ZWEIG TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Number of Value
Shares (Note 1)
------------- -------------
<S> <C> <C> <C>
COMMON STOCKS 36.82%
AEROSPACE & DEFENSE 0.20%
Raytheon Co., Class A ................................................ 27,673 $ 1,364,625
-------------
AUTOMOTIVE 2.04%
Chrysler Corp. ....................................................... 62,800 2,209,775
Ford Motor Co. ....................................................... 112,800 5,491,950
General Motors Corp. ................................................. 71,500 4,334,687
Volvo AB, ADR ........................................................ 64,900 1,752,300
-------------
13,788,712
-------------
CHEMICALS 1.45%
Albemarle Corp. ...................................................... 36,300 866,663
B.F. Goodrich Co. .................................................... 34,100 1,413,018
Dow Chemical Co. ..................................................... 36,500 3,704,750
Millennium Chemicals, Inc. ........................................... 35,100 827,044
Rohm and Haas Co. .................................................... 24,100 2,307,575
Wellman, Inc. ........................................................ 35,600 694,200
-------------
9,813,250
-------------
CONSUMER DURABLES 0.79%
Cooper Tire & Rubber Co. ............................................. 97,400 2,374,125
Huffy Corp. .......................................................... 13,200 178,200
Whirlpool Corp. ...................................................... 50,600 2,783,000
-------------
5,335,325
-------------
CONTAINERS & PACKAGING 0.06%
Sea Containers Ltd., Class A ......................................... 12,100 387,200
-------------
ELECTRONICS 0.53%
General Motors Corp., Class H ........................................ 41,100 1,518,131
Hitachi Ltd., ADR .................................................... 5,000 345,938
Philips Electronics N.V., ADR ........................................ 28,000 1,694,000
-------------
3,558,069
-------------
FINANCIAL SERVICES 4.50%
A.G. Edwards & Sons, Inc. ............................................ 82,600 3,283,350
Bear, Stearns & Co., Inc. ............................................ 94,882 4,506,895
Charter One Financial, Inc. .......................................... 23,545 1,486,278
Fremont General Corp. ................................................ 29,500 1,615,125
H.F. Ahmanson & Co. .................................................. 54,600 3,654,788
Lincoln National Corp. ............................................... 21,900 1,710,937
Old Republic International Corp. ..................................... 38,500 1,431,719
Orion Capital Corp. .................................................. 25,400 1,179,512
</TABLE>
F-1
<PAGE> 75
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------- -------------
<S> <C> <C> <C>
FINANCIAL SERVICES--(CONTINUED)
PaineWebber Group Inc. ............................................... 102,100 $ 3,528,831
PIMCO Advisors L.P., Class A ......................................... 18,600 561,488
Providian Corp. ...................................................... 80,600 3,642,112
Selective Insurance Group, Inc. ...................................... 19,600 529,200
St. Paul Bancorp Inc. ................................................ 12,100 317,625
Travelers Group Inc. ................................................. 56,300 3,033,163
-------------
30,481,023
-------------
FOOD & BEVERAGE 0.25%
Adolph Coors Co., Class B ............................................ 50,600 1,682,450
-------------
HOME BUILDERS & MATERIALS 0.19%
Kaufman & Broad Home Corp. ........................................... 29,500 661,906
Lafarge Corp. ........................................................ 20,800 614,900
-------------
1,276,806
-------------
INDUSTRIAL SERVICES 0.69%
Browning-Ferris Industries Inc. ...................................... 97,100 3,592,700
Ogden Corp. .......................................................... 38,400 1,082,400
-------------
4,675,100
-------------
INVESTMENT COMPANIES 2.06%
Argentina Fund, Inc. ................................................. 23,700 309,581
Blackrock 2001 Term Trust, Inc. ...................................... 29,000 250,125
Blackrock Strategic Term Trust, Inc. ................................. 29,000 246,500
Brazil Fund, Inc. .................................................... 25,800 541,800
Central European Equity Fund ......................................... 18,600 340,613
Chile Fund, Inc. ..................................................... 24,600 438,187
Clemente Global Growth Fund, Inc. .................................... 13,100 123,631
Emerging Markets Infrastructure Fund, Inc. ........................... 67,500 793,125
Emerging Markets Telecommunications Fund, Inc. ....................... 24,600 329,025
Emerging Mexico Fund, Inc. ........................................... 16,400 174,250
G. T. Global Eastern Europe Fund ..................................... 17,200 217,150
Gabelli Equity Trust, Inc. ........................................... 37,700 440,618
Gabelli Global Multimedia Trust Fund, Inc. ........................... 51,700 452,375
India Fund, Inc. ..................................................... 19,200 141,600
Italy Fund, Inc. ..................................................... 16,100 173,075
Latin American Discovery Fund ........................................ 22,600 405,388
Mexico Equity & Income Fund, Inc. .................................... 17,100 182,756
Mexico Fund, Inc. .................................................... 74,400 1,529,850
Morgan Stanley Asia-Pacific Fund, Inc. ............................... 49,400 367,412
Morgan Stanley Emerging Markets Fund, Inc. ........................... 64,300 839,919
Morgan Stanley India Investment Fund, Inc. ........................... 15,900 133,163
New Germany Fund, Inc. ............................................... 61,100 824,850
Portugal Fund, Inc. .................................................. 16,700 264,069
Royce Value Trust, Inc. .............................................. 70,160 1,056,785
</TABLE>
F-2
<PAGE> 76
THE ZWEIG TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS--(Continued)
December 31, 1997
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------- -------------
<S> <C> <C> <C>
INVESTMENT COMPANIES--(Continued)
Southern Africa Fund, Inc. ........................................... 14,900 $ 188,113
Spain Fund, Inc. ..................................................... 11,600 168,200
Swiss Helvetia Fund, Inc. ............................................ 40,800 1,119,450
Taiwan Fund, Inc. .................................................... 39,500 651,750
Templeton China World Fund, Inc. ..................................... 20,400 170,850
Templeton Dragon Fund, Inc. .......................................... 68,800 739,600
Tri-Continental Corp. ................................................ 12,400 330,925
-------------
13,944,735
-------------
LODGING 0.04%
Marcus Corp. ......................................................... 16,500 304,219
-------------
MANUFACTURING 2.27%
Aeroquip-Vickers, Inc. ............................................... 27,100 1,329,593
Borg-Warner Automotive, Inc. ......................................... 23,600 1,227,200
Brown Group, Inc. .................................................... 26,000 346,125
Cummins Engine Company, Inc. ......................................... 51,900 3,065,344
Dexter Corp. ......................................................... 14,900 643,494
Excel Industries, Inc. ............................................... 18,000 325,125
Herman Miller, Inc. .................................................. 19,200 1,047,600
Johnson Controls, Inc. ............................................... 26,000 1,241,500
PACCAR, Inc. ......................................................... 13,400 703,500
Simpson Industries, Inc. ............................................. 20,300 238,525
Standard Products Co. ................................................ 22,200 568,875
Timken Co. ........................................................... 76,300 2,622,813
Trinity Industries, Inc. ............................................. 44,600 1,990,275
-------------
15,349,969
-------------
METALS & MINING 2.50%
AK Steel Holding Corp. ............................................... 85,200 1,506,975
Alcan Aluminium Ltd. ................................................. 71,200 1,966,900
ASARCO, Inc. ......................................................... 95,500 2,142,781
Birmingham Steel Corp. ............................................... 25,000 393,750
British Steel Plc, ADR ............................................... 80,700 1,730,006
Cleveland-Cliffs, Inc. ............................................... 6,400 293,200
Cyprus Amax Minerals Co. ............................................. 92,800 1,426,800
Oregon Steel Mills, Inc. ............................................. 52,800 1,125,300
Phelps Dodge Corp. ................................................... 41,300 2,570,925
Quanex Corp. ......................................................... 13,800 388,125
USX-U.S. Steel Group ................................................. 107,400 3,356,250
-------------
16,901,012
-------------
</TABLE>
F-3
<PAGE> 77
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------- -------------
<S> <C> <C> <C>
OIL & OIL SERVICES 5.09%
Ashland Inc. ......................................................... 67,600 $ 3,629,275
Atlantic Richfield Co. ............................................... 44,600 3,573,575
Elf Aquitaine S.A., ADR .............................................. 42,500 2,491,563
Equitable Resources, Inc. ............................................ 27,700 979,888
Helmerich & Payne, Inc. .............................................. 11,400 773,775
Mobil Corp. .......................................................... 28,900 2,086,218
Murphy Oil Corp. ..................................................... 34,000 1,842,375
Occidental Petroleum Corp. ........................................... 98,100 2,875,556
Pennzoil Co. ......................................................... 51,200 3,420,800
Phillips Petroleum Co. ............................................... 24,700 1,201,038
Sun Company, Inc. .................................................... 104,300 4,387,118
USX-Marathon Group ................................................... 104,700 3,533,625
YPF Sociedad Anonima, ADR ............................................ 108,100 3,695,669
-------------
34,490,475
-------------
PAPER & FOREST PRODUCTS 0.79%
Bowater Inc. ......................................................... 62,900 2,795,119
Fort James Corp. ..................................................... 61,400 2,348,550
Pope & Talbot, Inc. .................................................. 15,900 239,494
-------------
5,383,163
-------------
RETAIL TRADE & SERVICES 0.80%
Dayton Hudson Corp. .................................................. 28,800 1,944,000
Ross Stores, Inc. .................................................... 17,000 618,375
Shopko Stores Inc. ................................................... 30,700 667,725
Supervalu Inc. ....................................................... 52,100 2,181,687
-------------
5,411,787
-------------
TECHNOLOGY 1.42%
Applied Materials Inc. ............................................... 23,200(a) 698,900
Dell Computer Corp. .................................................. 30,800(a)(b) 2,587,200
Digital Equipment Corp. .............................................. 32,300(a) 1,195,100
Harris Corp. ......................................................... 32,800 1,504,700
Intel Corp. .......................................................... 20,600 1,447,150
Microsoft Corp. ...................................................... 16,900(a) 2,184,325
-------------
9,617,375
-------------
TELECOMMUNICATIONS 1.77%
BCE Inc. ............................................................. 26,800 892,775
Comsat Corp. ......................................................... 94,300 2,286,775
Telecomunicacoes Brasileiras, S.A., ADR. ............................. 22,300 2,596,556
Telefonica de Espana, S.A., ADR ...................................... 35,100 3,196,294
Telefonos de Mexico, S.A., ADR ....................................... 53,400 2,993,738
-------------
11,966,138
-------------
</TABLE>
F-4
<PAGE> 78
THE ZWEIG TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS--(Continued)
December 31, 1997
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES (NOTE 1)
------------- -------------
<S> <C> <C> <C>
TOBACCO 0.72%
RJR Nabisco Holdings Corp. ........................................... 116,100 $ 4,353,750
Universal Corp. ...................................................... 13,000 534,625
-------------
4,888,375
-------------
TRANSPORTATION 2.09%
British Airways Plc, ADR ............................................. 8,100 758,869
Caliber Systems, Inc. ................................................ 63,100 3,072,181
Canadian Pacific Ltd. ................................................ 125,400 3,417,150
CNF Transportation, Inc. ............................................. 46,200 1,772,925
GATX Corp. ........................................................... 13,300 965,081
KLM Royal Dutch Airlines N.V., ADR ................................... 30,145 1,137,974
Rollins Truck Leasing Corp. .......................................... 21,000 375,375
Ryder System, Inc. ................................................... 82,000 2,685,500
-------------
14,185,055
-------------
UTILITIES--ELECTRIC & NATURAL GAS 6.57%
Allegheny Energy, Inc. ............................................... 25,900 841,750
American Electric Power Co., Inc. .................................... 31,400 1,621,025
CMS Energy Corp. ..................................................... 87,200 3,842,250
Columbia Gas System, Inc. ............................................ 50,300 3,951,694
DQE Inc. ............................................................. 37,250 1,308,406
DTE Energy Co. ....................................................... 46,100 1,599,093
Edison International ................................................. 140,200 3,811,688
FPL Group, Inc. ...................................................... 60,200 3,563,087
FirstEnergy Co. ...................................................... 28,800 835,200
GPU, Inc. ............................................................ 106,300 4,477,888
IPALCO Enterprises, Inc. ............................................. 6,600 276,787
New York State Electric & Gas Corp. .................................. 108,000 3,834,000
Pacific Enterprises .................................................. 34,800 1,309,350
PacifiCorp. .......................................................... 33,600 917,700
PECO Energy Co. ...................................................... 21,900 531,075
PG&E Corp. ........................................................... 96,800 2,946,350
Pinnacle West Capital Corp. .......................................... 57,400 2,432,325
PP&L Resources, Inc. ................................................. 36,600 876,113
Public Service Co. of New Mexico ..................................... 41,600 985,400
Sierra Pacific Resources ............................................. 9,300 348,750
Transcanada Pipelines Ltd. ........................................... 46,700 1,044,912
United Illuminating Co. .............................................. 6,500 298,594
UtiliCorp United Inc. ................................................ 36,200 1,405,013
Valero Energy Corp. .................................................. 45,800 1,439,838
-------------
44,498,288
-------------
Total Common Stocks ($212,906,716) ............................ 249,303,151
-------------
</TABLE>
F-5
<PAGE> 79
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
----------- -------------
<S> <C> <C> <C>
UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS 51.41%
Federal National Mortgage Association, 6.85%, 4/5/2004 ............... $10,385,000 $ 10,849,095
United States Treasury Bonds, 10.750%, 5/15/2003 ..................... 15,000,000 18,421,875
United States Treasury Bonds, 7.25%, 8/15/2022 ....................... 45,500,000 52,566,696
United States Treasury Bonds, 7.50%, 11/15/2024 ...................... 36,500,000 43,663,125
United States Treasury Notes, 6.25%, 8/31/2000 ....................... 13,500,000 13,681,400
United States Treasury Notes, 5.625%, 11/30/2000 ..................... 19,745,000 19,714,139
United States Treasury Notes, 7.50%, 2/15/2005 ....................... 16,300,000 17,914,710
United States Treasury Notes, 6.50%, 5/15/2005 ....................... 7,600,000 7,925,371
United States Treasury Notes, 6.875%, 5/15/2006 ...................... 71,600,000 76,656,750
United States Treasury Notes, 6.50%, 10/15/2006 ...................... 82,800,000 86,733,000
-------------
Total United States Government & Agency Obligations
(Cost $334,581,993) ........................................... 348,126,161
-------------
SHORT-TERM INVESTMENTS 10.78%
Baker Hughes, Inc., 6.70%, 1/02/98 ................................... 26,500,000 26,495,068
TRW, Inc., 6.60%, 1/02/98 ............................................ 21,500,000 21,496,058
Volkswagen of America Inc., 6.60%, 1/02/98 ........................... 25,000,000 24,995,417
-------------
Total Short-Term Investments (Cost $72,986,543) ............... 72,986,543
-------------
Total Investments (Cost $620,475,252) -99.01% ................. $ 670,415,855
Other Assets less liabilities - 0.99% ......................... 6,717,199
-------------
Net Assets - 100.00% .......................................... $ 677,133,054
=============
<CAPTION>
NUMBER OF
SHARES
-----------
<S> <C> <C>
SECURITIES SOLD SHORT (NOTE 1D)
W.E.B.S. Index Fund, Inc. - Hong Kong Series
(Proceeds $1,128,685) ............................................. 76,400 $ 830,850
=============
</TABLE>
- ------------
(a) Non-income producing security.
(b) Used as collateral on short sales.
For Federal income tax purposes, the tax basis of investments owned at
December 31, 1997 was $620,547,016 and net unrealized appreciation on
investments consisted of:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation ................... $57,589,077
Gross unrealized depreciation ................... (7,720,238)
-----------
Net unrealized appreciation ..................... $49,868,839
===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 80
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost $620,475,252) ............... $ 670,415,855
Cash ............................................................... 821,753
Dividends and interest receivable .................................. 6,155,074
Deposits with broker for securities sold short ..................... 1,193,557
Prepaid expenses ................................................... 44,772
-------------
Total Assets .................................................. 678,631,011
-------------
LIABILITIES:
Accrued advisory fees (Note 3) ..................................... 398,272
Accrued administration fees (Note 3) ............................... 2,402
Other accrued expenses ............................................. 266,433
Securities sold short, at value (proceeds $1,128,685) .............. 830,850
-------------
Total Liabilities ............................................. 1,497,957
-------------
NET ASSETS ............................................................... $ 677,133,054
=============
NET ASSET VALUE, PER SHARE:
($677,133,054/78,622,476 shares outstanding--Note 4) .................. $ 8.61
=============
Net Assets consist of:
Capital paid-in .................................................... $ 626,959,479
Accumulated net realized losses .................................... (64,863)
Net unrealized appreciation on investments and securities sold short 50,238,438
-------------
$ 677,133,054
=============
</TABLE>
See notes to financial statements.
F-7
<PAGE> 81
THE ZWEIG TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
For the Year ended December 31, 1997
<TABLE>
<S> <C>
Investment Income:
Income:
Dividends ................................................................ $ 6,227,857
Interest ................................................................. 28,630,008
-----------
Total Income ........................................................ 34,857,865
-----------
Expenses:
Investment advisory fees (Note 3) ........................................ 4,571,606
Administration fees (Note 3) ............................................. 849,013
Transfer agent fees ...................................................... 482,331
Printing and postage expenses ............................................ 384,550
Professional fees (Note 3) ............................................... 99,306
Custodian fees ........................................................... 97,963
Directors' fees and expenses (Note 3) .................................... 76,404
Miscellaneous ............................................................ 200,405
-----------
Total Expenses ...................................................... 6,761,578
-----------
Net Investment Income ........................................... 28,096,287
-----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments (Note 2):
Security transactions .................................................... 34,508,803
Short sales transactions ................................................. 72,199
Futures transactions ..................................................... 2,623,873
-----------
Net realized gain on investments ................................ 37,204,875
Increase in unrealized appreciation on investments and securities sold short.. 24,851,047
-----------
Net realized and unrealized gain on investments .......................... 62,055,922
-----------
Net increase in net assets resulting from operations ..................... $90,152,209
===========
</TABLE>
See notes to financial statements.
F-8
<PAGE> 82
THE ZWEIG TOTAL RETURN 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 ....................................... $ 28,096,287 $ 27,214,555
Net realized gain on investments ............................ 37,204,875 18,362,961
Increase (decrease) in unrealized appreciation on investments
and securities sold short .............................. 24,851,047 (6,902,204)
------------- -------------
Net increase in net assets resulting from operations ... 90,152,209 38,675,312
------------- -------------
Dividends and distributions to shareholders from:
Net investment income ....................................... (28,076,250) (27,214,555)
Net realized gains on investments ........................... (37,204,875) (18,739,823)
Capital paid-in ............................................. -- (17,854,497)
------------- -------------
Total dividends and distributions to shareholders ...... (65,281,125) (63,808,875)
------------- -------------
Capital share transactions:
Net asset value of shares issued to shareholders in
reinvestment of dividends from net investment
income and distributions from net realized gains
and capital paid-in .................................... 13,494,402 16,377,716
------------- -------------
Net increase (decrease) in net assets ........................... 38,365,486 (8,755,847)
Net Assets:
Beginning of year ............................................... 638,767,568 647,523,415
------------- -------------
End of year ..................................................... $ 677,133,054 $ 638,767,568
============= =============
</TABLE>
See notes to financial statements.
F-9
<PAGE> 83
THE ZWEIG TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1--Significant Accounting Policies
The Zweig Total Return Fund, Inc. (the "Fund") is a closed-end, diversified
management investment company registered under the Investment Company Act of
1940 (the "Act"). The Fund was incorporated under the laws of the State of
Maryland on July 21, 1988. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. Portfolio Valuation
Portfolio securities which are traded only on stock exchanges are valued at
the last sale price. Securities traded in the over-the-counter market which are
National Market System securities are valued at the last sale price. Other
over-the-counter securities are valued at the most recently quoted bid price
provided by the principal market makers. Portfolio securities which are traded
both in the over-the-counter market and on a stock exchange are valued according
to the broadest and most representative market, as determined by the Investment
Adviser. Debt securities may be valued on the basis of prices provided by an
independent pricing service when such prices are believed by the Investment
Adviser to reflect the fair market value of such securities. Short-term
investments having a remaining maturity of 60 days or less when purchased are
valued at amortized cost (which approximates market value). Futures 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. Security Transactions and Investment Income
Security transactions are recorded on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis.
Realized gains and losses on sales of investments are determined on the
identified cost basis for financial reporting and tax purposes.
C. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recorded as assets. During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
marking the contract to market on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets or liabilities, depending upon whether
unrealized gains or losses are incurred. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the proceeds
from (or cost of) the closing transaction and the Fund's basis in the contract.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with 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.
F-10
<PAGE> 84
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 Tax
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.
F. Dividends and Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the ex-dividend
date. In the event that amounts distributed are in excess of accumulated net
investment income and net realized gains on investments (as determined for
financial statement purposes), such amounts would be reported as a distribution
from paid-in capital during the fiscal year in which such a distribution is
made. Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to timing differences
and differing characterization of distributions made by the Fund as a whole.
During the year ended December 31, 1997, the Fund reclassified $84,900 from
undistributed net realized gains to capital paid-in and $20,037 from
undistributed net investment income to undistributed net realized gains.
NOTE 2--Portfolio Transactions
During the year ended December 31, 1997, the Fund entered into purchase and
sale transactions, excluding short term instruments and futures transactions, as
follows:
<TABLE>
<CAPTION>
United States
Government
Common and Agency
Stocks Obligations
------------ ------------
<S> <C> <C>
Cost of Purchases ............... $191,637,696 $444,225,648
============ ============
Proceeds from Sales ............. $160,919,530 $341,801,914
============ ============
</TABLE>
F-11
<PAGE> 85
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 Total Return
Advisors, Inc., and the Fund provides that, subject to the direction of the
Board of Directors of the Fund and the applicable provisions of the Act, the
Investment Adviser is responsible for the actual management of the Fund's
portfolio. The responsibility for making decisions to buy, sell or hold a
particular investment rests with the Investment Adviser, subject to review by
the Board of Directors and the applicable provisions of the Act. For the
services provided by the Investment Adviser under the Advisory Agreement, the
Fund pays the Investment Adviser a monthly fee equal, on an annual basis, to
0.70% of the Fund's average daily net assets. During the year ended December 31,
1997, the Fund accrued advisory fees of $4,571,606.
b) Administration Fee: Zweig/Glaser Advisers serves as the Fund's
Administrator pursuant to an Administration Agreement with the Fund. Under such
Agreement, the Administrator generally assists in all aspects of the Fund's
operations, other than providing investment advice, subject to the overall
authority of the Fund's Board of Directors. The Administrator determines the
Fund's net asset value daily, prepares such figures for publication on a weekly
basis, maintains certain of the Fund's books and records that are not maintained
by the Investment Adviser, custodian or transfer agent, assists in the
preparation of financial information for the Fund's income tax returns, proxy
statements, quarterly and annual shareholder reports, and responds to
shareholder inquiries. Under the terms of the Agreement, the Fund pays the
Administrator a monthly fee equal, on an annual basis, to 0.13% of the Fund's
average daily net assets. For the year ended December 31, 1997, the Fund accrued
administration fees of $849,013.
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 $16,161 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 $80,824 in connection with
portfolio transactions effected through them. In addition, Zweig Securities
Corp. charged $6,529 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
$.001 per share, of which 500,000,000 shares are authorized and 78,622,476
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
F-12
<PAGE> 86
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, 1,590,261 and 1,979,527
shares, respectively, were issued pursuant to the Plan.
On January 2, 1998 the Fund declared a distribution of $0.07 per share 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 .. $ 8.29 $ 8.63 $ 8.11 $ 9.11 $ 9.06
------------- ------------- ------------- ------------- -------------
Income From Investment Operations:
Net investment income ............... 0.36 0.36 0.39 0.29 0.26
Net realized and unrealized
gains (losses) on investments .... 0.80 0.14 0.97 (0.43) 0.75
------------- ------------- ------------- ------------- -------------
Total from investment operations .... 1.16 0.50 1.36 (0.14) 1.01
------------- ------------- ------------- ------------- -------------
Dividends and Distributions:
Dividends from net investment income (0.36) (0.36) (0.39) (0.29) (0.26)
Distributions from net realized gains
on investments ................... (0.48) (0.24) (0.45) -- (0.70)
Distributions from capital paid-in .. -- (0.24) -- (0.57) --
------------- ------------- ------------- ------------- -------------
Total Dividends and Distributions ... (0.84) (0.84) (0.84) (0.86) (0.96)
------------- ------------- ------------- ------------- -------------
Net asset value, end of year .. $ 8.61 $ 8.29 $ 8.63 $ 8.11 $ 9.11
============= ============= ============= ============= =============
Market value, end of year* .... $ 9.4375 $ 8.00 $ 8.625 $ 8.00 $ 10.75
============= ============= ============= ============= =============
Total investment return ............. 30.22% 2.62% 19.19% (17.08)% 18.37%
============= ============= ============= ============= =============
Ratios/Supplemental Data:
Net assets, end of year
(in thousands) ................... $ 677,133 $ 638,768 $ 647,523 $ 591,659 $ 648,516
Ratio of expenses to average
net assets ....................... 1.04% 1.03% 1.10% 1.12% 1.11%
Ratio of net investment income to
average net assets ............... 4.30% 4.31% 4.59% 3.35% 2.85%
Portfolio turnover rate ............. 104.7% 147.2% 179.8% 281.0% 293.0%
Average commission rate per share on
portfolio transactions ........... $ 0.0587 $ 0.0591 $ 0.0606 N/A N/A
</TABLE>
- ------------
*Closing Price -- New York Stock Exchange.
F-13
<PAGE> 87
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 Total Return 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 Total Return 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> 88
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. 2 to the
Registrant's Registration Statement (Filed on September 22, 1988, Securities
Act File No. 33-23252; Investment Company Act File No. 811-5620) ("Amendment
No. 2")).
(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) of the Registrant's Amendment No. 7 to the Registrant's
Registration Statement (Filed on March 5, 1998, Securities Act File No.
333-47371; Investment Company Act File No. 811-5620; Accession No.
0000950123-98-002333) ("Amendment No. 7")).
(f) - Not applicable
(g) - Investment Advisory Agreement between the Registrant and Zweig Total
Return Advisors, Inc. dated September 22, 1988. (Incorporated by reference to
Exhibit (6) of the Registrant's Amendment No. 2)
<PAGE> 89
(h) - Form of Dealer Manager Agreement
(i) - Not applicable
(j)(1) - Custodian Agreement between the Registrant and The Bank of New York
dated as of August 1, 1997. (Incorporated by reference to Exhibit (j) of the
Registrant's Amendment No. 7)
(j)(2) - Foreign Custody Manager Agreement with The Bank of New York dated as of
December 18, 1997.
(k)(1) - Administration Agreement between the Registrant and Zweig/Glaser
Advisers dated as of August 1, 1995. (Incorporated by reference to Exhibit
(k)(1) of the Registrant's Amendment No. 7)
(k)(2) - Stock Transfer Agent Service Agreement between the Registrant and the
State Street Bank & Trust Company dated as of September 1, 1997. (Incorporated
by reference to Exhibit (k)(2) of the Registrant's Amendment No. 7)
(k)(3) - Form of Subscription Agent Agreement between the Registrant and State
Street Bank & Trust Company.
(k)(4) - 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. 7)
(s) - Powers of Attorney. (Incorporated by reference to Exhibit (s) of the
Registrant's Amendment No. 7)
<PAGE> 90
ITEM 25. Marketing Arrangements
See Section 4 of Exhibit 2(h) of this Registration Statement.
<PAGE> 91
ITEM 26. Other Expenses of Issuance and Distribution
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 230,000
Dealer Manager Expense
Reimbursement 82,500
Legal Fees 40,000
Registration Fees 38,500
Information Agent Fees 42,500
Subscription Agent Fees 245,000
Miscellaneous 1,500
Stock Exchange Listing Fees 40,000
-------
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 $0.001 per share 19,869
- --------------------------------------------------------------------------
</TABLE>
ITEM 29. Indemnification
Under Article VII 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
<PAGE> 92
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 Total Return Advisors, Inc.
900 Third Avenue
New York, N.Y. 10022
(corporate records of the Registrant and records relating to the
function of Zweig Total Return 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
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
<PAGE> 93
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> 94
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 8th day of
April, 1998.
THE ZWEIG TOTAL RETURN 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:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Martin E. Zweig Director, Chairman of the April 8, 1998
- ---------------------- Board and President (Chief
Martin E. Zweig Executive Officer)
Charles H. Brunie* Director April 8, 1998
- ------------------------
Charles H. Brunie
Annemarie Gilly* Director April 8, 1998
- -----------------------
Annemarie Gilly
Elliot S. Jaffe* Director April 8, 1998
- -----------------------
Elliot S. Jaffe
/s/ Jeffrey Lazar Director, Vice President, April 8, 1998
- ----------------------- Treasurer and Assistant
Jeffrey Lazar Secretary
Alden C. Olson* Director April 8, 1998
- -----------------------
Alden C. Olson
James B. Rogers, Jr.* Director April 8, 1998
- ------------------------
James B. Rogers, Jr.
Anthony M. Santomero* Director April 8, 1998
- ------------------------
Anthony M. Santomero
Robert E. Smith* Director April 8, 1998
- -----------------------
Robert E. Smith
* By: /s/ Martin E. Zweig April 8, 1998
- -----------------------
Martin E. Zweig
Attorney-in-fact
</TABLE>
<PAGE> 95
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)(3) - Form of Subscription Agent Agreement between the Registrant and State
Street Bank & Trust Company.
(k)(4) - 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 TOTAL RETURN FUND, INC.
A Maryland Corporation
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the stockholders of The
Zweig Total Return 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 Chairman or 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
2
<PAGE> 3
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 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.
- --------
* Amended on February 9, 1995
3
<PAGE> 4
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 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
- --------
* Amended - March 26, 1993.
4
<PAGE> 5
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.
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
5
<PAGE> 6
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, 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
6
<PAGE> 7
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.
7
<PAGE> 8
SECTION 2. Number, Election and Term of Directors. The number of directors
constituting the entire Board of Directors (which initially was fixed at three
(3) in the Corporation's Charter) 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
that required by law, nor more than twelve (12). Beginning with the first annual
meeting of stockholders of the Corporation held after the initial public
offering of the Corporation's stock, 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 next succeeding annual
meeting of stockholders. The term of office of the second class shall expire at
the second succeeding annual meeting of stockholders. The term of office of the
third class shall expire at the third succeeding annual meeting of stockholders.
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
8
<PAGE> 9
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,
immediately 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 vote of the holders of at
least seventy-five percent (75%) of the outstanding shares of the Corporation
entitled to vote 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
9
<PAGE> 10
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.
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
10
<PAGE> 11
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 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
11
<PAGE> 12
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.
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
12
<PAGE> 13
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, provided, however, that such participation shall not constitute
presence in person with respect to matters which pursuant to the Investment
Company Act of 1940 and the rules thereunder require the approval of directors
by vote cast in person at a 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.
13
<PAGE> 14
The Board of Directors may elect or appoint a Chairman of the Board of
Directors, 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 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 Chairman of the Board or
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.
14
<PAGE> 15
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 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.
15
<PAGE> 16
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 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.
16
<PAGE> 17
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.
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 Board of Directors or the President.
17
<PAGE> 18
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.
18
<PAGE> 19
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
19
<PAGE> 20
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.
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,
20
<PAGE> 21
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.
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
21
<PAGE> 22
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 the standard of conduct necessary for
indemnification by the Corporation has been met and a written undertaking to
repay any such advance, if it should ultimately be determined that 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
22
<PAGE> 23
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.
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
23
<PAGE> 24
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 Board of Directors may make further provision
consistent with law for indemnification and advance of expenses to directors,
officers, employees and agents by resolution, agreement or otherwise. 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.
24
<PAGE> 25
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
The Corporation's fiscal year shall be fixed by the Board of Directors.
ARTICLE VIII
AMENDMENTS
These By-Laws may be amended or repealed by the affirmative vote of a
majority of the entire 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; provided, however, that no amendment of these By-Laws shall affect
any right of any person under Article V hereof based on any event, omission or
proceeding prior to the amendment.
As Amended and Restated,
August 17, 1988.
25
<PAGE> 1
EXHIBIT (d)(1)
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 TOTAL RETURN 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 Total Return 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 Total Return 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
/ / 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._______________
1
<PAGE> 3
INSTRUCTIONS
IN ORDER TO PURCHASE SHARES OF THE ZWEIG TOTAL RETURN 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___________________________________________________________________
2
<PAGE> 4
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:____________________________________________________________
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
3
<PAGE> 1
EXHIBIT (d)(2)
1
<PAGE> 2
THE ZWEIG TOTAL RETURN 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
Total Return 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
1
<PAGE> 3
Broker Assigned Control #
THE ZWEIG TOTAL RETURN 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
_________________________________ ________________________________
Address Name (Please Type or Print)
_________________________________ ________________________________
Zip Code Phone Number
_________________________________ ________________________________
Contact Name Date
2
<PAGE> 1
EXHIBIT(d)(3)
1
<PAGE> 2
THE ZWEIG TOTAL RETURN 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;
1
<PAGE> 3
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
/ / 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
2
<PAGE> 4
** 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.
3
<PAGE> 1
EXHIBIT (h)
1
<PAGE> 2
The Zweig Total Return 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 $0.001 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 Total Return Fund, Inc., a Maryland corporation (the
"Fund") and Zweig Total Return 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 $0.01 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 Rights also entitle Holders to acquire during the Subscription Period at
the Subscription Price
- --------
* 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
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. 333-47371 and
811-05620) 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
2
<PAGE> 4
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; 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
earnings, 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
monthly 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 initiated or threatened by the
Commission and all required action has been taken under the
3
<PAGE> 5
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.
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<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 Stock 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.
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<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.
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<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.
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<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)
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<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.
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<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 Total Return 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 Total Return 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 Total Return Fund, Inc.
By:_______________________________
Name:
Title:
Zweig Total Return 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 TOTAL RETURN 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 Total Return 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 $0.01 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 Total Return 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.
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
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
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.
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.
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:
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 Total
Return 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 Total Return
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
By__________________________________
Authorized Signature
<PAGE> 35
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.
2
<PAGE> 1
EXHIBIT(j)(2)
1
<PAGE> 2
FOREIGN CUSTODY MANAGER AGREEMENT
AGREEMENT made as of December 18, 1997 between THE ZWEIG TOTAL
RETURN 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.
1
<PAGE> 3
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
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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 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.
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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.
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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 TOTAL RETURN FUND, INC.
By: /s/ Jeffrey Lazar
---------------------------------
Title: Vice President
Tax Identification No.:
THE BANK OF NEW YORK
By: /s/ Jorge E. Ramos
---------------------------------
Title: Vice President
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EXHIBIT (k)(3)
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THE ZWEIG TOTAL RETURN FUND, INC.
SUBSCRIPTION AGENT AGREEMENT
This Subscription Agent Agreement (the "Agreement") is made as of April 1,
1998 between The Zweig Total Return 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. 333-47371) filed by
the Fund with the Securities and Exchange Commission on March 5, 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 $0.001 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").
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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.
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
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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.
(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-
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<PAGE> 5
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 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.
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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 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.
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15. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the law of the State of Massachusetts.
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 TOTAL RETURN FUND, INC.
/s/ STEVEN MACQUARRIE /s/ STUART B. PANISH
SIGNATURE SIGNATURE
_________________________ VICE PRESIDENT
TITLE TITLE
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EXHIBIT (k)(4)
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March 10, 1998
The Zweig Total Return 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 Total Return Fund, Inc. ("The Zweig Total Return 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 Total Return 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 Total Return Fund, Inc., The Zweig Total Return Fund,
Inc. will pay Georgeson an additional sum computed on the basis of
$4.50 per call. In addition, The Zweig Total Return 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 Total
Return Fund, Inc. or its agents and other expenses or disbursements
authorized by The Zweig Total Return 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 Total Return 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 Total Return Fund, Inc. may assume the defense
of any such action. Georgeson hereby agrees to advise The Zweig
Total Return 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.
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6. Georgeson agrees to preserve the confidentiality of all non-public
information provided by The Zweig Total Return 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.
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 TOTAL RETURN 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
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EXHIBIT (l)
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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 Total Return 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 8 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 $.001 per share (the
"Shares"), both as part of a proposed rights offering by the Company.
[/R]
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
----------------------------
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April 7, 1998
Rosenman & Colin LLP
1300 Nineteenth Street, N.W.
Washington, DC 20036
RE: THE ZWEIG TOTAL RETURN FUND, INC.
Ladies and Gentlemen:
We have acted as special Maryland counsel for The Zweig Total Return
Fund, Inc., a Maryland corporation (the "Fund"), in connection with the issuance
of up to 15,000,000 shares of its common stock, $.001 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. 333-47371 and Investment Company Act File No. 811-05620, 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.
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
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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
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EXHIBIT (n)
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Pre-Effective Amendment No. 1 to the
Registration Statement of The Zweig Total Return Fund, Inc. on Form N-2 (File
No. 333-47371) of our report dated February 4, 1998, on our audit of the
financial statements and financial highlights of The Zweig Total Return Fund,
Inc.
We also consent to the references to our firm under the captions "Financial
Highlights" and "Experts" in the Prospectus.
Coopers & Lybrand L.L.P.
New York, New York
April 8, 1998
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