UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
/ / Definitive Proxy Statement
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/ / Soliciting Material Pursuant to Section 240.14a-12
THE ZWEIG TOTAL RETURN FUND, INC.
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(Name of Registrant as Specified In Its Charter)
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THE ZWEIG TOTAL RETURN FUND, INC.
900 THIRD AVENUE, NEW YORK, NEW YORK 10022
February ___, 2004
DEAR SHAREHOLDER:
You are cordially invited to attend the Annual Meeting of Shareholders of
The Zweig Total Return Fund, Inc. (the "Fund") to be held on Wednesday, May 12,
2004, at 11:30 A.M. at the offices of Katten Muchin Zavis Rosenman, located at
575 Madison Avenue (between 56th and 57th Streets), 11th Floor, New York, New
York.
This meeting will give you an opportunity to hear a report on the Fund and
to discuss other matters of interest to you as a shareholder.
We hope that you will be able to attend the meeting. Whether or not you
plan to attend, please complete, date, sign and mail the enclosed proxy card to
assure that your shares are represented at the meeting. Please return all proxy
cards that you may receive.
PHILIP R. McLOUGHLIN,
CHAIRMAN OF THE BOARD AND PRESIDENT OF
THE ZWEIG TOTAL RETURN FUND, INC.
THE ZWEIG TOTAL RETURN FUND, INC.
900 THIRD AVENUE, NEW YORK, NEW YORK 10022
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 2004
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of The Zweig Total Return Fund, Inc., a
Maryland corporation (the "Fund"), will be held on Wednesday, May 12, 2004 at
11:30 A.M. at the offices of Katten Muchin Zavis Rosenman, located at 575
Madison Avenue (between 56th and 57th Streets), 11th Floor, New York, New York,
for the following purposes:
1. ELECT DIRECTORS:
To elect one Director to serve until the Annual Meeting of
Shareholders in 2007 and one Director to serve until the Annual
Meeting of Shareholders in 2005;
2. PROPOSAL REGARDING CONVERSION TO OPEN-END INVESTMENT COMPANY:
To vote on a proposal pursuant to the Fund's Articles of Incorporation
to convert the Fund to an open-end investment company and to adopt an
amendment and restatement of the Articles of Incorporation to
effectuate the proposal; and
3. OTHER BUSINESS:
To transact such other business as may properly come before the
Meeting or any adjournments thereof.
Shareholders of record of the Fund at the close of business on February 13,
2004 are entitled to notice of, and will be entitled to vote at, the Meeting or
any postponement or adjournment thereof. The enclosed Proxy is being solicited
on behalf of the Board of Directors.
By Order of the Board of Directors of
The Zweig Total Return Fund, Inc.
PHILIP R. McLOUGHLIN,
CHAIRMAN OF THE BOARD AND PRESIDENT
New York, New York
February ___, 2004
IMPORTANT:
YOU ARE INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON, YOU ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED
FOR YOUR CONVENIENCE AND REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD MAY SAVE THE FUND THE NECESSITY
AND EXPENSE OF FURTHER SOLICITATIONS TO ASSURE A QUORUM AT THE MEETING. A PROXY
WILL NOT BE REQUIRED FOR ADMISSION TO THE MEETING.
THE ZWEIG TOTAL RETURN FUND, INC.
900 THIRD AVENUE, NEW YORK, NEW YORK 10022
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 2004
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of The Zweig Total Return Fund,
Inc., a Maryland corporation (the "Fund"), for use at the Annual Meeting of
Shareholders to be held at the offices of Katten Muchin Zavis Rosenman, located
at 575 Madison Avenue (between 56th and 57th Streets), 11th Floor, New York, New
York, on Wednesday, May 12, 2004 at 11:30 A.M., and at any and all adjournments
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
dated February ___, 2004.
If the accompanying form of proxy is properly executed and returned in time
to be voted at the Meeting, the shares will be voted in accordance with the
instructions marked by the shareholder. Executed proxies that are unmarked will
be voted (1) "for" the election of the two nominees of the Board of Directors as
Directors of the Fund and (2) "against" the proposal submitted for consideration
pursuant to the Fund's Articles of Incorporation to convert the Fund to an
open-end investment company and to adopt amendments to the Fund's Articles of
Incorporation to effectuate the conversion. A shareholder can revoke the proxy
prior to its use by appearing at the Meeting and voting in person, by giving
written notice of such revocation to the Secretary of the Fund, or by returning
a subsequently dated proxy.
This Proxy Statement and the accompanying form of proxy will be first
sent to shareholders on or about February ____, 2004.
The Board of Directors of the Funds has fixed the close of business on
February 13, 2004 as the record date for the determination of shareholders
entitled to notice of and to vote at the Meeting. As of the record date, _____
shares of the Fund's common stock were outstanding. To the best of the Fund's
knowledge, no person beneficially owns more than five percent of the outstanding
shares of the Fund's common stock.
When available, and prior to the Meeting, the Annual Report of the Fund for
the year ended December 31, 2003, including financial statements, will be mailed
to shareholders of record at the close of business on that date, and to persons
who became shareholders of record between that time and the close of business on
February 13, 2004.
The Fund will furnish, without charge and when available, a copy of the
Fund's December 31, 2003 Annual Report to any shareholder who requests it by
contacting the Fund's Administrator, Phoenix Equity Planning Corporation, 56
Prospect Street, P.O. Box 150480, Hartford, Connecticut 06115-0480, Attention:
Shareholder Services; Toll-free telephone number 1-800-272-2700.
PROPOSAL 1
ELECTION OF DIRECTORS
The members of the Board of Directors of the Fund are divided into three
classes with the term of office of one class expiring each year. At the
forthcoming Annual Meeting, one Director will be elected to serve a three-year
term (until the third succeeding Annual Meeting in 2007) and one Director will
be elected to serve a one-year term (until the first succeeding Annual Meeting
in 2005). Unless authority to vote for the election of Directors is withheld,
the enclosed proxy will be voted for the election of the nominees named below.
While management has no reason to believe that the nominees will not be
available as candidates, should such a situation arise, proxies may be voted for
the election of such other persons as a Director, as the holders of the proxies
may, in their discretion, determine.
The Fund's Board of Directors has appointed a Nominating Committee which
makes annual recommendations as to the individuals to be nominated by the Fund's
Board of Directors for election as Directors at the forthcoming Annual Meeting
and selects candidates for election by the Board of Directors to fill any
vacancies in the Board of Directors, including those resulting from an increase
in the number of Directors. The Fund's Nominating Committee consists of three
Directors who are not "interested persons" (as defined in the Investment Company
Act of 1940, as amended (the "Act")) of the Fund or its investment adviser,
Phoenix/Zweig Advisers LLC (the "Adviser").
Based on the recommendations made by the Fund's Nominating Committee at its
meeting held on February ___, 2004, the Board of Directors of the Fund has
nominated (a) R. Keith Walton, who is not presently a Director of the Fund, for
election to the Board of the Fund, to serve until the next Annual Meeting in
2005, and (b) Alden C. Olson, who is presently a Director of the Fund, for
re-election to the Board of the Fund, to serve until the third succeeding Annual
Meeting in 2007.
2
Background information with respect to the current Directors and Director
Nominees appears below.
NUMBER OF
PORTFOLIOS IN
FUND
COMPLEX-
TERM OF OVERSEEN BY
OFFICE AND DIRECTOR OR PRINCIPAL OCCUPATION(S)
NAME, AGE, ADDRESS AND LENGTH OF DIRECTOR DURING PAST 5 YEARS AND
POSITION(S) WITH FUND TIME SERVED NOMINEE OTHER DIRECTORSHIPS HELD
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DISINTERESTED DIRECTORS
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Charles H. Brunie (73) Term: Until 2 Director of The Zweig Fund, Inc. (since 1998); Chairman,
Brunie Associates 2006. Brunie Associates (investments) (since April 2001); Chairman,
600 Third Avenue, 17th Floor Served since: Oppenheimer Capital (1969 to 2000); Chairman Emeritus, Board
New York, NY 10016 1988. of Trustees, Manhattan Institute (since 1990). Trustee,
Milton and Rose D. Friedman Foundation for Vouchers
Director (1999-present). Trustee, Hudson Institute (since 2002).
Trustee, American Spectator (since 2002).
Wendy Luscombe (52) Term: Until 2 Director of The Zweig Fund, Inc. (since 2002); Principal, WKL
480 Churchtown Road 2005. Associates, Inc. (investment management) (since 1994).
Craryville, NY 12521 Served since: Fellow, Royal Institution of Chartered Surveyors. Member,
2002. Chartered Institute of Arbitrators. Director, Endeavour Real
Director Estate Securities, Ltd. REIT Mutual Fund (since 2000).
Director, PXRE, Corp. (reinsurance) (since 1994). Member and
Chairman of Management Oversight Committee, Deutsche Bank Real
Estate Opportunities Fund (since 2003)
Alden C. Olson (76) Term: Until 2 Director of The Zweig Fund, Inc. (since 1996); currently
2711 Ramparte Path 2004. retired. Chartered Financial Analyst (since 1964). Professor
Holt, MI 48842 Served since: of Financial Management, Investments at Michigan State
1996. University (1959 to 1990).
Director
James B. Rogers, Jr. (61) Term: Until 2 Director of The Zweig Fund, Inc. (since 1986); private
352 Riverside Drive 2006. investor (since 1980). Chairman, Beeland Interests
New York, NY 10025 Served since: (investments and media) (since 1980). Regular Commentator on
1988. CNBC (1998). Author of "Investment Biker: On the Road with
Director Jim Rogers" (1994) and "Adventure Capitalist" (2003).
Visiting Professor, Columbia University (1998). Columnist,
WORTH Magazine (since 1995). Director, Emerging Markets
Brewery Fund (1993-2002). Director, Levco Series Trust (since
1996).
3
NUMBER OF
PORTFOLIOS IN
TERM OF FUND
OFFICE AND COMPLEX- PRINCIPAL OCCUPATION(S)
NAME, AGE, ADDRESS AND LENGTH OF OVERSEEN BY DURING PAST 5 YEARS AND
POSITION(S) WITH FUND TIME SERVED DIRECTOR OTHER DIRECTORSHIPS HELD
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INTERESTED DIRECTORS
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Philip R. McLoughlin (57) Term: until 2004 78
56 Prospect Street Served since: Chairman of the Board and President of The Zweig Fund, Inc.
Hartford, CT 06115 2002. (since 2002); Consultant, Phoenix Investment Partners, Ltd.
(since 2002). Director, PXRE Corporation (Delaware)
Chairman of the Board (since 1985), World Trust Fund (since 1991). Chairman
and President (1997-2002), Director (1995-2002), Vice Chairman (1995-1997)
and Chief Executive Officer (1995-2002), Phoenix Investment
Partners, Ltd. Director, Executive Vice President and Director
Chief Investment Officer, The Phoenix Companies, Inc. (2000-2002).
(1994-2002) and Executive Vice President, Investments (1987-2002),
Phoenix Life Insurance Company. Director (1983-2002) and Chairman
(1995-2002), Phoenix Investment Counsel, Inc. Director (1982-2002)
and President (1990-2000), Phoenix Equity Planning Corporation.
Chairman and Chief Executive Officer, Phoenix/Zweig Advisers LLC
(2000-2002). Director (2001-2002) and President (April
2002-September 2002), Phoenix Investment Management Company.
Director and Executive Vice President, Phoenix Life and Annuity
Company (1996-2002). Director (1995-2002) and xecutive Vice
President (1994-2002), PHL Variable Insurance ompany. Director,
Phoenix National Trust Company (1996-2002). Director (1985-2002)
and Vice President (1986-2002), PM Holdings, Inc. Director,
WS Griffith Associates, Inc. (1995-2002). Director (1992-2002) and
President (1993-1994), WS Griffith Securities, Inc.
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DIRECTOR NOMINEES
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R. Keith Walton (39) 2 Secretary of the University at Columbia University (since
15 Claremont Avenue 1996). Director (since 2000); Chair, Nominating Committee
No. 43 (since 2002); Member, Executive Committee (since 2002); Chair,
New York, NY 10027 Audit Committee (since 2003), Apollo Theater Foundation, Inc.
Director, Orchestra of St. Luke's (since 2000). Director,
American Friends of the Royal Court Theatre (since 2003). Member,
Steering Committee, Association for a Better New York (since
2001). Member, Education Committee of the Board, Trinity School
(since 2003). Vice President (since 2000), Chair, Finance
Committee (since 2000), Riverside Church. Member, Advisory
Board, North General Hospital (since 2002). Member, NY Advisory
Board, Enterprise Foundation (since 1999). Member, Council on
Foreign Relations (since 1997). Member, The American Law
Institute (since 1999). Member, Council for the United States
and Italy (since 1999). Member, Century Association (since 2000).
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OFFICERS WHO ARE NOT DIRECTORS
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Carlton Neel (36) Served since: Executive Vice President of The Zweig Fund, Inc. (since 2003);
900 Third Ave. 2003. Senior Vice President and Portfolio Manager, Phoenix/Zweig
New York, NY 10022 Advisers LLC (since 2003). Managing Director and Co-Founder,
Shelter Rock Capital Partners, LP (2002-2003). Senior Vice
Executive Vice President President and Portfolio Manager, Phoenix/Zweig Advisers LLC
(1995-2002). Vice President, JP Morgan & Co. (1990-1995).
David Dickerson (36) Served since: Vice President of The Zweig Fund, Inc. (since 2003); Senior Vice
900 Third Ave. 2003. President and Portfolio Manager, Phoenix/Zweig Advisers LLC (since
New York, NY 10022 2003). Managing Director and Co-Founder, Shelter Rock Capital
Partners, LP (2002-2003). Vice President and Portfolio Manager,
Vice President Phoenix/Zweig Advisers LLC (1993-2002).
Nancy J. Engberg (47) Served since: Secretary of The Zweig Fund, Inc. (since 2000);Vice President and
56 Prospect Street 2000. Chief Compliance Officer (since December 2003) and Vice President
Hartford, CT 06115 and Investment Counsel (2002-2003), The Phoenix Companies, Inc.
and its insurance company subsidiaries; Vice President and
Secretary Counsel, Phoenix Investment Partners, Ltd. (since 1999). Counsel,
Phoenix Home Life Mutual Insurance Company (1994 to 1999).
Nancy Curtiss (51) Served since: Treasurer of The Zweig Fund, Inc. (since 2003); Vice President,
56 Prospect Street 2003. Operations (since 2003); Vice President, Fund Accounting
Hartford, CT 06115 (1994-2003) and Treasurer (1996-2003), Phoenix Equity Planning
Corporation. Treasurer, multiple funds in Phoenix Fund Complex
Treasurer (since 1994).
4
COMPENSATION OF DIRECTORS AND OFFICERS
During the year ended December 31, 2003, the Fund paid Directors' fees
aggregating $101,500 to the Directors who were not interested persons of the
Fund or the Adviser. The Fund pays each Director who is not an interested person
of the Fund or Adviser an annual fee of $10,000 and a fee of $1,500 for
attendance at each meeting of the Board of Directors and for each meeting of a
committee of the Board. The Fund also reimburses its Directors for their actual
out-of-pocket expenses relating to attendance at such meetings.
Set forth below is the compensation paid by the Fund to current Directors
for the year ended December 31, 2003.
COMPENSATION TABLE
TOTAL
PENSION OR ESTIMATED COMPENSATION
AGGREGATE RETIREMENT ANNUAL FROM THE FUND
COMPENSATION BENEFITS AS BENEFITS AND FUND
FROM THE PART OF FUND UPON COMPLEX PAID TO
NAME OF PERSON, POSITION FUND EXPENSES RETIREMENT DIRECTORS
------------------------------------------------------------------------------------------------------------------------
Charles H. Brunie - Director $ 25,000 $ 0 $ 0 $ 50,000
Wendy Luscombe - Director $ 25,000 $ 0 $ 0 $ 50,000
Alden C. Olson - Director $ 26,500 $ 0 $ 0 $ 53,000
James B. Rogers, Jr. - Director $ 25,000 $ 0 $ 0 $ 50,000
Philip R. McLoughlin - Interested
Director, Chairman of the Board and
President $ 0 $ 0 $ 0 $ 0
DIRECTOR OWNERSHIP OF SECURITIES
Set forth in the table below is the dollar range of equity securities owned
by each Director and Director Nominee as of December 31, 2003.
AGGREGATE DOLLAR RANGE OF FUND
OWNERSHIP IN ALL FUNDS OVERSEEN BY
NAME OF DIRECTOR OR DOLLAR RANGE OF EQUITY DIRECTOR IN FAMILY OF INVESTMENT
DIRECTOR NOMINEE SECURITIES IN THE FUND(1) COMPANIES
----------------------------------------------------------------------------------------------------------------------
Charles H. Brunie Over $100,000 Over $100,000
Wendy Luscombe $1-$10,000 $10,001-$50,000
Alden C. Olson $1-$10,000 $10,001-$50,000
James B. Rogers, Jr. $10,001-$50,000 $10,001-$50,000
Philip R. McLoughlin $1-$10,000 Over $100,000
R. Keith Walton None None
(1) The information as to beneficial ownership is based on statements
furnished to the Fund by its Directors and Director Nominees and reflects
ownership as of December 31, 2003. Except as otherwise indicated, each
5
person has sole voting and investment power with respect to the shares owned
by him or her. The Directors and officers of the Fund, as a group,
beneficially own less than 1% of the outstanding shares of the Fund.
COMMITTEES AND BOARD OF DIRECTORS' MEETINGS
AUDIT COMMITTEE REPORT
The Fund's Board of Directors has appointed a standing Audit Committee. The
Fund's Board of Directors has adopted a written charter for the Fund's Audit
Committee, which charter is attached hereto as EXHIBIT A. The purposes of the
Audit Committee are set forth in the Audit Committee Charter. In brief, the role
of the Audit Committee is to assist the Board of Directors in its oversight of
the Fund's financial reporting process. As set forth in the Charter, management
of the Fund is responsible for the preparation, presentation and integrity of
the Fund's financial statements, the Fund's accounting and financial reporting
principles and internal controls and procedures designed to assure compliance
with accounting standards and applicable laws and regulations. The independent
auditors are responsible for auditing the Fund's financial statements and
expressing an opinion as to their conformity with generally accepted accounting
principles.
The Audit Committee of the Board of Directors of the Fund will normally
meet at least two times during each full fiscal year with representatives of the
independent auditors to discuss and review various matters as contemplated by
the Audit Committee Charter. In the performance of its oversight function, the
Audit Committee has considered and discussed the audited financial statements
with management and the independent auditors of the Fund. The Audit Committee
also has discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, "Communication with Audit
Committees", as currently in effect. The Audit Committee also has considered
whether the provision by the Fund's independent auditors of non-audit services
to the Fund, and of professional services to the Adviser and affiliates of the
Adviser that provide services to the Fund, is compatible with maintaining the
independent auditors' independence. Finally, the Audit Committee has received
the written disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees", and has discussed with the independent auditors the
independent auditors' independence.
The members of the Fund's Audit Committee are not professionally engaged in
the practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members of
the Fund's Audit Committee rely without independent verification on the
information provided to them and on the representations made by management and
the independent auditors. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not assure that
the audit of the Fund's financial statements have been carried out in accordance
with generally accepted auditing standards, that the financial statements are
6
presented in accordance with generally accepted accounting principles or that
the Fund's auditors are in fact "independent."
Based upon the reports and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Audit
Committee referred to above and in the Audit Committee Charter, the Audit
Committee recommended to the Board of Directors of the Fund that the audited
financial statements of the Fund be included in the Fund's annual report to
shareholders for the year ended December 31, 2003. The members of the Audit
Committee, Messrs. Brunie, Olson and Rogers and Ms. Luscombe, are "independent"
within the meaning of the Act and the New York Stock Exchange corporate
governance standards for audit committees.
Alden C. Olson
Charles H. Brunie
Wendy Luscombe
James B. Rogers, Jr.
NOMINATING COMMITTEE
Messrs. Brunie, Olson and Rogers, each of whom is not an interested person
of the Fund, are members of the Nominating Committee of the Board of Directors
of the Fund. The Board of Directors has not adopted a charter for the Nominating
Committee. The Fund's Nominating Committee considers candidates for election to
fill vacancies on the Fund's Board of Directors.
Director nominees are identified based on persons known to the Nominating
Committee and any persons recommended to the Nominating Committee by
shareholders or industry sources. Any recommendations made by shareholders and
industry sources must be accompanied by a biography of the recommended candidate
and should be submitted to the Secretary of the Fund. Nominees are evaluated
based on the criteria described below. The evaluation process does not depend on
the source of the recommendation. The current Director Nominee, R. Keith Walton,
was recommended to the Nominating Committee by a Director of the Fund.
It is expected that all candidates will possess the following minimum
qualifications: (i) unquestioned personal integrity; (ii) not be an "interested
person" of the Fund or its affiliates within the meaning of, or otherwise
disqualified from serving as a director under, the Act; (iii) not have a
material relationship that could create an appearance of lack of independence in
respect of the Fund and its affiliates; (iv) sound business judgment; and (v)
the commitment required to be an effective non-interested director, including,
without limitation, the ability to attend meetings regularly. The Nominating
Committee may determine that a candidate who does not have the experience or
knowledge referred to above should nevertheless be considered as a nominee if
the Nominating Committee finds that the candidate's qualifications, taken as a
whole, demonstrate an equivalent level of qualification to serve as a
non-interested director.
BOARD OF DIRECTORS' MEETINGS
The Board of Directors of the Fund held seven meetings during the year
ended December 31, 2003. The Fund's Nominating Committee held two meetings
during the year ended December 31, 2003 and met in advance of the February __,
2004 Board meeting, at which time
7
the Nominating Committee recommended the nominees for election to the Board. The
Fund's Audit Committee held three meetings during the year ended December 31,
2003. All of the current Directors attended at least 75% of the total number of
Board meetings and his or her respective committee meetings, for the Fund, held
during the 2003 year.
SHAREHOLDERS COMMUNICATIONS
The Board of Directors has a process for shareholders to send
communications to the Board of Directors. Any shareholder that wishes to
communicate with the Board of Directors or a specific director may do so by
submitting correspondence in writing to the principal executive office of the
Fund, located at 900 Third Avenue, New York, New York 10022, specifying the
intended addressee. Shareholder communications addressed to the Board of
Directors will be forwarded promptly after receipt to the Chairman of the
Board for review. The Chairman will review each such communication in order
to determine whether the communication should be relayed directly to each
Board member. Shareholder communications that the Chairman determines involve
routine matters will be forwarded to the Fund Administrator and/or officers
of the Fund for review and response, and the Chairman will report to the full
Board, as appropriate, on the nature and substance of such communications.
Shareholder communications that the Chairman determines involve non-routine
matters will be forwarded to each member of the Board for review. Shareholder
communications addressed to a specific Director will be forwarded to the
addressee promptly upon receipt.
It is the Fund's policy that all Directors attend the annual shareholders
meeting, if reasonably possible. The 2003 Annual Shareholders Meeting was
attended by all of the Directors of the Fund at such time.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES.
PROPOSAL 2
PROPOSAL PURSUANT TO THE FUND'S
ARTICLES OF INCORPORATION TO CONVERT THE FUND FROM A CLOSED-
END INVESTMENT COMPANY TO AN OPEN-END INVESTMENT COMPANY
AND TO ADOPT AN AMENDMENT AND RESTATEMENT OF THE ARTICLES
OF INCORPORATION TO EFFECTUATE THE CONVERSION AS PROPOSED
I. BACKGROUND OF THE PROPOSAL
The Fund has operated as a closed-end management investment company since
it began operations in September 1988. As a closed-end fund, the Fund's shares
are bought and sold in the securities markets at prevailing prices, which may be
equal to, less than, or greater than its net asset value. The Fund's Articles of
Incorporation provide that, if during any fiscal quarter beginning on or after
January 1, 1990, the Fund's shares trade, on the principal securities exchange
on which they are traded, at an average discount from net asset value of 10% or
more (determined on the basis of the discount as of the end of the last trading
day in each week during such quarter (the "10% Threshold")), the Board generally
is required to submit to shareholders within 60 days after the end of such
quarter, a proposal to convert the Fund to an open-end
8
investment company (the "Conversion Proposal") and amendments to the Fund's
Articles of Incorporation required to effectuate the Conversion Proposal.
Approval of the Conversion Proposal would require the affirmative vote of a
majority of the outstanding shares of the Fund entitled to vote on the proposal.
During the fiscal quarter ended December 31, 2003, the Fund's shares traded at
an average discount from net asset value of 12.34%, determined in accordance
with the provisions of the Fund's Articles of Incorporation. Accordingly, the
Fund is required to submit the Conversion Proposal and amendments to the Fund's
Articles of Incorporation to effectuate such proposal for shareholders'
consideration.
FOR THE REASONS DISCUSSED BELOW, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THE CONVERSION PROPOSAL AND ADOPTION
OF THE AMENDMENT AND RESTATEMENT OF THE ARTICLES OF INCORPORATION TO EFFECTUATE
THE CONVERSION PROPOSAL.
At a meeting held on January 23, 2004, the Fund's Board of Directors
considered whether or not to recommend to shareholders that the Conversion
Proposal be approved. At the meeting, the Board reviewed information respecting
the potential advantages and disadvantages of converting to an open-end fund,
the Fund's performance to date as a closed-end fund, the historical relationship
between the market price of its shares and their net asset value, and the
possible effects of conversion on the Fund.
The Board believes that conversion to an open-end investment company could
expose the Fund to the risk of a possible loss of economies of scale and an
increase in the Fund's expenses as a percentage of net asset value if there is a
substantial reduction in its size, as described in "Potential Open-End Fund
Disadvantages and/or Closed-End Fund Advantages" below. The Board believes that
conversion also presents the possibility that the functioning of the Fund's
portfolio management and its investment performance, as described under "Impact
on Portfolio Management" below, could be adversely affected.
The Board took into account the fact that conversion would eliminate the
possibility of the Fund's shares ever trading at a discount to net asset value
and the likelihood that, if the Fund were open-ended, shareholders could realize
a short-term gain. While the Board noted that during the quarters ended March
31, 2000 and December 31, 2000, the Fund's shares traded at an average discount
from net asset value of 15% and 10.3%, respectively (for which a Conversion
Proposal was submitted to shareholders (collectively, the "Prior Conversion
Proposals")), the Board also took note that, during at least forty consecutive
quarters prior to March 31, 2000 and the eleven consecutive quarters prior to
December 31, 2000, the Fund's shares had not traded at an average discount from
net asset value in excess of the 10% Threshold. The Board further noted that the
Fund's average discount to net asset value for the quarter ended December 31,
2003, was only somewhat in excess of the 10% Threshold, and that the shareholder
vote in connection with the Prior Conversion Proposals had not required the
conversion of the Fund, notwithstanding the fact that the discount to net asset
value for the quarter ended March 31, 2000 (i.e., 15%) was more substantial than
the discount for the quarter ended December 31, 2003 (i.e., 12.34%).
The Board further noted that, notwithstanding the more recent discounts,
the shares have, from the Fund's commencement of operations through December 31,
2003, traded at an average premium (based on an averaging of month-end premiums
and discounts) of 2.9%. This premium
9
compares favorably to the average discount during the same period of 4.73% and
2.90%, respectively, of closed-end equity funds (excluding international equity
funds) and closed-end fixed income funds (excluding municipal funds). The graph
below reflects the changes in premiums and discounts at which the Fund's shares
traded from the Fund's commencement of operations through December 31, 2003.
[CHART]
ZWEIG TOTAL RETURN FUND PREMIUM/ DISCOUNT HISTORY
NAV Market Premium / (Discount)
--- ------ --------------------
8/31/1988
09/30/1988 9.224 9.918 7.5%
10/31/1988 9.303 10.042 7.9%
11/30/1988 9.165 9.298 1.5%
12/31/1988 9.165 9.05 -1.3%
01/31/1989 9.284 9.546 2.8%
02/28/1989 9.145 9.05 -1.0%
03/31/1989 9.165 8.803 -3.9%
04/30/1989 9.274 9.05 -2.4%
05/31/1989 9.403 9.298 -1.1%
06/30/1989 9.482 9.422 -0.6%
07/31/1989 9.73 9.546 -1.9%
08/31/1989 9.621 9.67 0.5%
09/30/1989 9.581 9.174 -4.2%
10/31/1989 9.492 9.67 1.9%
11/30/1989 9.522 9.794 2.9%
12/31/1989 9.512 9.67 1.7%
01/31/1990 9.115 9.546 4.7%
02/28/1990 9.075 9.546 5.2%
03/31/1990 9.085 9.298 2.3%
04/30/1990 8.966 9.298 3.7%
05/31/1990 9.204 9.174 -0.3%
06/30/1990 9.204 9.174 -0.3%
07/31/1990 9.194 9.174 -0.2%
08/31/1990 8.936 8.803 -1.5%
09/30/1990 8.847 8.431 -4.7%
10/31/1990 8.847 8.307 -6.1%
11/30/1990 8.927 8.555 -4.2%
12/31/1990 8.946 8.555 -4.4%
01/31/1991 9.145 9.05 -1.0%
02/28/1991 9.343 9.422 0.8%
03/31/1991 9.452 9.422 -0.3%
04/30/1991 9.284 9.67 4.2%
05/31/1991 9.333 9.67 3.6%
06/30/1991 9.085 9.794 7.8%
07/31/1991 9.264 9.67 4.4%
08/31/1991 9.353 10.042 7.4%
09/30/1991 9.353 10.166 8.7%
10/31/1991 9.472 10.29 8.6%
11/30/1991 9.264 10.29 11.1%
12/31/1991 9.71 10.538 8.5%
01/31/1992 9.452 10.662 12.8%
02/29/1992 9.333 10.042 7.6%
03/31/1992 9.115 10.29 12.9%
04/30/1992 9.055 10.414 15.0%
05/31/1992 9.145 10.29 12.5%
06/30/1992 9.055 9.794 8.2%
07/31/1992 9.174 10.538 14.9%
08/31/1992 9.065 10.166 12.1%
09/30/1992 9.095 10.166 11.8%
10/31/1992 8.946 9.918 10.9%
11/30/1992 8.956 10.042 12.1%
12/31/1992 8.986 9.918 10.4%
01/31/1993 9.075 10.29 13.4%
02/28/1993 9.065 10.29 13.5%
03/31/1993 9.085 10.414 14.6%
04/30/1993 8.927 10.166 13.9%
05/31/1993 8.966 9.918 10.6%
06/30/1993 9.085 10.414 14.6%
07/31/1993 9.085 10.414 14.6%
08/31/1993 9.284 10.538 13.5%
09/30/1993 9.293 10.538 13.4%
10/31/1993 9.284 10.662 14.8%
11/30/1993 9.036 10.662 18.0%
12/31/1993 9.036 10.662 18.0%
01/31/1994 9.095 10.538 15.9%
02/28/1994 8.857 10.29 16.2%
03/31/1994 8.649 9.298 7.5%
04/30/1994 8.54 9.174 7.4%
05/31/1994 8.45 9.298 10.0%
06/30/1994 8.321 9.174 10.3%
07/31/1994 8.341 8.927 7.0%
08/31/1994 8.331 8.679 4.2%
09/30/1994 8.193 8.431 2.9%
10/31/1994 8.153 8.307 1.9%
11/30/1994 8.064 8.183 1.5%
12/31/1994 8.044 7.935 -1.4%
01/31/1995 8.044 8.307 3.3%
02/28/1995 8.133 8.555 5.2%
03/31/1995 8.143 8.431 3.5%
04/30/1995 8.163 8.431 3.3%
05/31/1995 8.381 8.431 0.6%
06/30/1995 8.411 8.555 1.7%
07/31/1995 8.401 8.803 4.8%
08/31/1995 8.411 8.555 1.7%
09/30/1995 8.431 8.555 1.5%
10/31/1995 8.381 8.555 2.1%
11/30/1995 8.47 8.679 2.5%
12/31/1995 8.56 8.431 -1.5%
01/31/1996 8.5 8.741 2.8%
02/29/1996 8.381 8.803 5.0%
03/31/1996 8.341 8.679 4.1%
04/30/1996 8.282 8.555 3.3%
05/31/1996 8.202 8.555 4.3%
06/30/1996 8.173 8.431 3.2%
07/31/1996 8.044 8.307 3.3%
08/31/1996 8.044 8.431 4.8%
09/30/1996 8.093 8.431 4.2%
10/31/1996 8.163 8.431 3.3%
11/30/1996 8.321 8.431 1.3%
12/31/1996 8.222 7.935 -3.5%
01/31/1997 8.242 8.183 -0.7%
02/28/1997 8.193 8.431 2.9%
03/31/1997 8.024 8.307 3.5%
04/30/1997 8.083 8.555 5.8%
05/31/1997 8.222 8.679 5.6%
06/30/1997 8.302 8.803 6.0%
07/31/1997 8.639 8.927 3.3%
08/31/1997 8.411 8.988 6.9%
09/30/1997 8.619 9.05 5.0%
10/31/1997 8.45 9.236 9.3%
11/30/1997 8.47 9.422 11.2%
12/31/1997 8.54 9.36 9.6%
01/31/1998 8.5 9.422 10.8%
02/28/1998 8.609 9.36 8.7%
03/31/1998 8.718 9.484 8.8%
04/30/1998 8.679 8.555 -1.4%
05/31/1998 8.6 8.493 -1.2%
06/30/1998 8.57 8.75 2.1%
07/31/1998 8.39 8.875 5.8%
08/31/1998 8.05 8.25 2.5%
09/30/1998 8.29 8.688 4.8%
10/31/1998 8.34 8.69 4.2%
11/30/1998 8.37 8.94 6.8%
12/31/1998 8.43 8.88 5.3%
01/31/1999 8.47 8.69 2.6%
02/28/1999 8.13 8.25 1.5%
03/31/1999 8.13 8.25 1.5%
04/30/1999 8.27 8.31 0.5%
05/31/1999 8.17 8.56 4.8%
06/30/1999 8.14 8.5 4.4%
07/31/1999 8.02 8.5 6.0%
08/31/1999 7.89 8.44 7.0%
09/30/1999 7.79 8.13 4.4%
10/31/1999 7.84 7.31 -6.8%
11/30/1999 7.79 7 -10.1%
12/31/1999 7.89 6.5 -17.6%
01/31/2000 7.65 6.44 -15.8%
02/29/2000 7.68 6.19 -19.4%
03/31/2000 7.86 6.94 -11.7%
04/30/2000 7.68 6.75 -12.1%
05/31/2000 7.53 6.5 -13.7%
06/30/2000 7.62 6.63 -13.0%
07/31/2000 7.6 6.81 -10.4%
08/31/2000 7.78 6.94 -10.8%
09/30/2000 7.6 6.88 -9.5%
10/31/2000 7.55 6.75 -10.6%
11/30/2000 7.38 6.5 -11.9%
12/31/2000 7.48 6.57 -12.2%
01/31/2001 7.54 7.12 -5.6%
02/28/2001 7.23 7.11 -1.66%
03/30/2001 6.99 6.99 0.00%
04/30/2001 7.07 7.13 0.85%
05/31/2001 7.01 7.24 3.28%
06/29/2001 6.88 7.3 6.10%
07/31/2001 6.91 7.46 7.96%
08/31/2001 6.71 7.46 11.18%
09/28/2001 6.51 6.9 5.99%
10/31/2001 6.66 7.22 8.41%
11/30/2001 6.7 7.35 9.70%
12/31/2001 6.63 7.05 6.33%
01/31/2002 6.54 7.3 11.62%
02/28/2002 6.46 7.21 11.61%
03/28/2002 6.42 7.08 10.28%
04/30/2002 6.26 7.04 12.46%
05/31/2002 6.21 7.01 12.88%
06/28/2002 6.08 6.17 1.48%
07/31/2002 5.97 5.94 -0.50%
08/30/2002 6.01 6.12 1.83%
09/30/2002 5.89 5.95 1.02%
10/31/2002 5.9 5.81 -1.53%
11/29/2002 5.84 5.79 -0.86%
12/31/2002 5.81 5.49 -5.51%
01/31/2003 5.72 5.45 -4.72%
02/28/2003 5.71 5.45 -4.55%
03/31/2003 5.66 5.58 -1.41%
04/30/2003 5.7 5.65 -0.88%
05/30/2003 5.8 5.98 3.10%
06/30/2003 5.75 6.14 6.78%
07/31/2003 5.6 4.91 -12.32%
08/29/2003 5.58 4.93 -11.65%
09/30/2003 5.6 4.89 -12.68%
10/31/2003 5.62 4.94 -12.10%
11/28/2003 5.61 4.94 -11.94%
12/31/2003 5.7 5.01 -12.11%
Average 3.3%
At this time, the Board does not believe that eliminating the possibility
of a discount justifies the risk of reduced size, increases in the Fund's
expense ratio and potential adverse effect on its investment performance that
conversion would entail. Accordingly, the Board, including all of the
independent Directors, does not believe that conversion of the Fund to an
open-end investment company is in the best interests of the Fund and its
shareholders.
If the Conversion Proposal is not approved by shareholders, the Fund would
continue as a closed-end investment company, and the Board will continue to
monitor the market discount from net asset value, if any, at which the Fund's
shares trade and will consider whether any other action should be taken with
respect to such discount. The Board will continue to have the right to consider,
as it has in the past, repurchases of the Fund's shares on the open market or
tender offers to the Fund's shareholders when the shares are trading at a
discount from net asset value. The Fund cannot predict whether any open market
repurchases or tender offer purchases of its shares made while the Fund is a
closed-end investment company would decrease the discount from net asset value.
To the extent that because of open market repurchases or tender offer purchases
or otherwise, the average discount from net asset value is decreased below the
10% Threshold for a fiscal quarter, the Fund would not be required to submit to
its shareholders the Conversion Proposal with respect to such quarter.
If the Fund's shares continue to trade at an average discount from net
asset value in excess of the 10% Threshold during a subsequent quarter as
determined in accordance with the Fund's Articles of Incorporation, the Board of
Directors and the Fund's shareholders will continue to have an opportunity to
consider converting the Fund to an open-end fund. Pursuant to the Articles of
Incorporation, a subsequent Conversion Proposal, with respect to such quarter,
and related charter amendments that can be approved by the affirmative vote of a
majority of the outstanding shares of the Fund would be required to be submitted
to shareholders. The Articles of Incorporation provide, however, that a
Conversion Proposal need not be submitted to shareholders with respect to a
quarter if a Conversion Proposal was submitted to shareholders with respect to
the immediately preceding quarter.
Certain of the factors considered by the Board in making its recommendation
are discussed in more detail below.
II. ADVANTAGES AND DISADVANTAGES OF CONVERSION PROPOSAL
The Fund is currently a closed-end fund. As such, it neither redeems its
outstanding shares of stock nor continuously offers new stock for sale; thus, it
operates with a relatively fixed capitalization. The Fund's shares of stock are
principally traded on the New York Stock Exchange (the "NYSE"). Open-end funds
(also known as "mutual funds") issue redeemable
10
shares entitling stockholders to tender for their proportionate share of a
fund's net asset value. Also, open-end funds generally issue new shares at the
fund's net asset value.
POTENTIAL OPEN-END FUND ADVANTAGES AND/OR CLOSED-END FUND DISADVANTAGES
(1) REDEEMABILITY OF SHARES; ELIMINATION OF DISCOUNT. Shareholders of an
open-end fund have the right to redeem their shares at any time (except in
certain circumstances as authorized by the Act) at the net asset value of such
shares (less any applicable redemption charges), and such redemption payment
must be made within 7 days. The ability to obtain net asset value for their
shares will constitute an immediate significant benefit to shareholders of the
Fund to the extent that shares are trading at a discount to net asset value.
(2) SHAREHOLDER SERVICES. Open-end funds typically provide more services
to stockholders than closed-end funds. One service that is frequently offered by
open-end funds is an exchange privilege which enables shareholders to transfer
their investment from one fund into another fund which is part of a family of
open-end funds, at little or no cost to the shareholders. This permits the
exchange of shares at relative net asset value when the holder's investment
objectives change. Other services that could be offered include use of the Fund
for retirement plans and permitting purchases and sales of shares in convenient
amounts. There are, of course, additional costs for these services, some of
which might need to be borne by the Fund, which must be weighed against the
anticipated benefit of the particular service. There can be no assurance that
any such services would be made available if the Conversion Proposal were
approved.
(3) RAISING CAPITAL. A closed-end fund trading at a discount may not be
able to raise capital through share sales (other than through a rights offering)
when it believes further investment would be advantageous, because the Act
restricts the ability of a closed-end fund to sell its shares at a price below
net asset value. Open-end funds, on the other hand, are priced at net asset
value and therefore can sell additional shares at any time. This ability to
raise new money can achieve greater economies of scale and improve investment
management although, as noted below, this may not occur at the most opportune
times.
(4) ELIMINATION OF ANNUAL SHAREHOLDER MEETINGS. As a closed-end fund
listed on the NYSE, the Fund is subject to NYSE rules requiring annual meetings
of stockholders. Unlike the Fund, open-end funds are not required to hold annual
shareholder meetings, except in special circumstances where shareholder approval
is required under the Act. However, pursuant to the Fund's charter, as discussed
under "Measures to be Adopted in the Event the Fund Becomes an Open-End Fund"
below, if the Conversion Proposal were approved, the Fund may operate as an
open-end fund with a classified board, and, notwithstanding the conversion to
open-end status, annual shareholder meetings may, therefore, continue to be held
because declassifying the Board requires an affirmative vote of 75% of the
outstanding shares of the Fund.
POTENTIAL OPEN-END FUND DISADVANTAGES AND/OR CLOSED END FUND ADVANTAGES
(1) IMPACT ON PORTFOLIO MANAGEMENT. While closed-end funds can be fully
invested, open-end funds are subject to periodic inflows and outflows of cash
that can complicate portfolio management. In particular, open-end funds may be
subject to pressure to sell portfolio securities
11
at disadvantageous times in order to satisfy redemption requests. In addition,
open-end funds may be limited in their ability to invest 100% of the fund's
assets in portfolio securities because of the need to maintain cash reserves to
provide for shareholder redemptions in uncertain amounts. The level of
redemptions may be particularly high immediately following conversion to
open-end status and therefore, initially, the cash reserves may have to be
substantial. It is not expected, however, that the inability of an open-end fund
to be fully invested would necessarily hinder the Adviser's ability to manage
the Fund in the future because the Fund has, from time to time, maintained
substantial cash positions.
Also, although open-end funds generally maintain that their ability to sell
shares at any time (resulting from their being priced at net asset value)
produces efficiencies, others have suggested that large net purchases often
occur around market highs and net redemptions around market lows, inopportune
times to invest or liquidate portfolio positions, respectively. In a falling
market situation, for example, redemptions increase and liquidations in the
open-end fund portfolio must increase to meet those redemptions. In the event
temporary investments and borrowings are exhausted, the result may be that the
more liquid blue chip securities will be sold, leaving the open-end fund with
the less-liquid securities in the fund's portfolio which are not as well suited
to meeting future redemptions or changes in investment strategy. If the Fund
were to convert to an open-end fund, the Fund could be impacted accordingly.
(2) EFFECT OF REDEMPTIONS. Substantial redemptions could result in an
increase in the Fund's expense ratio. In particular, a reduction in size of the
Fund would result in the fixed expenses of the Fund being spread over a smaller
asset base, thereby increasing the per-share effect of those expenses.
Significant redemptions could also increase the Fund's portfolio turnover rate
above its normal levels, thereby increasing Fund expenses. Net redemptions are
probable immediately after open-ending the Fund, although the redemption fee
mentioned below may reduce the number of redemptions that would otherwise occur.
While the Fund's portfolio securities are sufficiently liquid to satisfy
anticipated levels of redemption upon conversion without impeding the Adviser's
management of the Fund in the long term as an open-end fund, continuous
redemptions could potentially restrict the Adviser's ability to choose
investments purely in accordance with the Fund's investment strategy. Redemption
requests could, for example, require the Fund's liquidation of a portion of its
investment portfolio at a time when independent investment judgment might not
dictate such action.
Additionally, redemptions would result in increased brokerage expense and
increased recognition of taxable gains and losses. These redemptions could
reduce the Fund to a smaller size than is economically viable. If the Fund
decreased in size, the expense ratio may increase because the cost of many
services may remain the same although the size of the Fund will have decreased.
Of course, if the size of the Fund increases, the Fund's expense ratio may be
reduced.
(3) DISTRIBUTION COSTS. If the Fund converts to open-end status, it will
need to have an effective distribution system in place in order to avoid erosion
in its asset base through redemptions. The distribution and marketing of
open-end funds involve additional costs. These costs may be paid either by
purchasers (in the case of a front-end sales charge) or by current shareholders
(in the case of a plan of distribution adopted under Rule 12b-1 (a "12b-1
Plan"), which would require approval by shareholders). In the event that the
Conversion Proposal is approved by shareholders, it is expected that the Board
would consider the implementation of a
12
12b-1 Plan providing for payments by the Fund at an annual rate of 0.25% of the
Fund's average net assets. Redemption fees and contingent deferred sales charges
may also be employed.
(4) ADDITIONAL COSTS OF OPERATING AN OPEN-END FUND. Open-end funds are
generally more expensive to operate and administer than closed-end funds. The
Fund's per-share expense ratio would substantially increase for the reasons
mentioned above under "Effect of Redemptions" and "Distribution Costs" and
the fact that transfer agency expenses are generally higher for an open-end
fund. In the event the Fund's assets remain unchanged, and assuming a Rule
12b-1 fee of 0.25% and transfer agent expenses commensurate with those of
other Phoenix funds, it is estimated that the Fund's per-share expense ratio
would increase from its current level of 1.03% to 1.50% and, assuming the
same distribution and transfer agent expenses, in the event of a 30%, 50% or
60% decrease in average net assets, the Fund's per-share expense ratio would
increase to 1.51%, 1.53% and 1.54%, respectively.
(5) TAXES/CAPITAL GAINS. If the Fund were to experience substantial
redemptions of its shares following the conversion to an open-end investment
company, it would likely be required to sell portfolio securities and incur
increased transaction costs in order to raise cash to meet such redemptions.
Any sale of portfolio securities effected to fund redemption obligations
would be a taxable transaction and may have unfavorable capital gains
treatment for non-redeeming shareholders. If the Fund's basis in the
portfolio securities sold is less than the sale price obtained, net capital
gain may be realized. U.S. tax law imposes both an income tax and an excise
tax on net capital gain realized by closed-end and open-end funds unless the
fund distributes net capital gain to all shareholders, in which case the
shareholders would be subject to tax on such gain. However, any such taxable
gains realized by the Fund would be offset, in whole or in part, by any
existing capital loss carryover, which to the extent of such offset, would
reduce the capital gain distributed to, and recognized by, shareholders. As
of December 31, 2003, the Fund had $51.3 million of capital loss carryovers
expiring in 2010 and 2011 which may be used to offset future capital gains.
(6) AUTOMATIC DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (THE "PLAN").
Open-end fund dividend reinvestment plans typically provide for the reinvestment
of income, dividends and capital gains distributions in shares of the fund at
net asset value. In contrast, as a closed-end investment company, the Fund's
current Plan permits shareholders to elect to reinvest their distributions on a
different basis than would be the case if the Fund was an open-end investment
company. Currently, if the Board declares a distribution payable either in
shares or in cash, as shareholders may have elected, then participants in the
Plan will receive the equivalent of shares determined as follows: when Fund
shares are trading at or above net asset value on the record date for the
distribution, participants will be issued shares at the higher of their net
asset value or 95% of their market value. If Fund shares are trading at a
discount from net asset value at such time, or if the Fund should declare a
distribution payable only in cash, the agent for the participants will buy
shares of the Fund in the open market, on the NYSE or elsewhere, for the
participants' account. This permits a reinvesting shareholder to benefit from
the agent's purchase of additional shares at a discount. However, if before the
agent for the participants completes its purchases, the market price exceeds the
net asset value of the shares, the agent is permitted to cease purchasing the
shares in the open market and the Fund may issue the remaining shares at a price
equal to the higher of net asset value or 95% of the then market price. Thus,
reinvesting shareholders are issued shares at the higher of net asset value or
95% of the market price. This is an advantage that is not offered by open-end
investment companies where distributions are reinvested at net asset value.
Consequently, participants in the Plan would lose the compounding benefit of
reinvesting their distributions at a price below net asset value (when Fund
shares are trading at a discount) and, thereby, the opportunity to realize a
profit (to the extent that Fund shares subsequently trade at a lower discount or
at a premium). The positive result of reinvesting at a price below net asset
value can be significant, particularly given the compounding effect over time.
13
(7) CONVERSION COSTS. The process of converting the Fund to an open-end
fund would involve substantial printing, legal, other professional costs and
other expenses of establishing a new structure. These costs, many of which would
be non-recurring, include costs associated with the preparation of a
registration statement and prospectus as required by federal securities laws and
the payment of fees in connection with notice filings under state securities
laws. The Fund estimates that these costs, which would be paid by the Fund,
would be at least $400,000, representing approximately 0.07% of the Fund's
current net asset value.
(8) DELISTING FROM NEW YORK STOCK EXCHANGE. The Fund's shares are
currently listed on the NYSE. It is believed in some investment circles that a
fund listing on a U.S. stock exchange, and in particular the NYSE, is an asset,
especially in terms of attracting non-U.S. investors. In addition, certain
investors, such as pension funds, have internal restrictions on the amount of
their portfolio which can be invested in non-listed securities. Due to their
redemption features, open-end funds are not traded on exchanges. Conversion to
an open-end fund would require immediate de-listing of the Fund from the NYSE,
and thus any advantage of being a closed-end fund would be lost.
The Fund is currently exempt from state securities regulation because of
its NYSE listing. Upon delisting, the Fund would be required to make state
registration filings and pay state fees. The Fund will thus save the annual NYSE
and Pacific Stock Exchange fees of $79,000, but will as a result of de-listing
have to pay the state blue sky fees, which could range from $30,000 to $50,000
annually, depending on the channel of distribution of the Fund's shares.
III. MEASURES TO BE ADOPTED IN THE EVENT THE FUND BECOMES AN OPEN-END FUND
If Proposal Two is approved by the shareholders, the Board of Directors
will convene and consider the method and time period for the conversion of the
Fund into an open-end investment company. It is contemplated that among the
matters the Board of Directors would proceed to consider would be fixing the
rate and period of application of any redemption fee as authorized by the
Articles of Amendment and Restatement and referred to in the description of
Proposal Two. This redemption fee would be similar to that imposed by other
funds which have converted into open-end funds and is a method of reducing the
number of immediate
14
redemptions and offsetting the cost of liquidations. The Board would also
consider whether to pay for redeemed shares partly or entirely in securities. In
addition, the Board would need to consider the details of the system for the
classification and distribution of the Fund's shares, including the approval of
an appropriate distribution contract for the distribution of the Fund's shares
to become effective upon the Fund's conversion to an open-end investment
company.
Certain aspects of the operation of the Fund subsequent to its conversion
to open-end form would have to be approved by the Fund's shareholders, and it is
expected that a special meeting of shareholders would be scheduled for that
purpose as soon as practicable. These matters would include considering making
any changes in the Fund's investment management agreement considered appropriate
for an open-end fund, and considering the adoption of a Rule 12b-1 Plan
consistent with the system selected by the Board of Directors for future
distribution of the Fund's shares. Additionally, the Fund's Articles of
Incorporation would be proposed to be amended to declassify the Board of
Directors. Currently, the Fund's Articles of Incorporation provide that the
Board of Directors be divided into three classes of Directors. Each Director
serves for three years with one class being elected each year (each such
election requiring a meeting of shareholders.) The classified Board, which could
be viewed as an "anti-takeover" measure, would not be typical of an open-end
fund. Unlike the vote required to approve Proposal Two, which is a majority of
the outstanding shares of the Fund, the affirmative vote of at least 75% of the
outstanding shares of the Fund is required to declassify the Fund's Board.
Consequently, if Proposal Two is approved, the Fund would operate as an open-end
Fund with a classified Board and annual shareholder meetings would be required
to be held, until the Fund's Articles of Incorporation is subsequently amended
to declassify the Board.
Furthermore, in order to reduce administrative burdens incurred in
monitoring numerous small accounts, it is expected that the Fund would adopt
requirements that an initial investment in Fund shares be in a minimum amount.
If Proposal Two is approved by the shareholders, the Fund will file, at the
time described below, Articles of Amendment and Restatement with the State
Department of Assessments and Taxation of Maryland, which are in the form
approved by the Board of Directors at their meeting on January 23, 2004, and
change the Fund's subclassification under the Act from a closed-end investment
company to an open-end investment company. A copy of the Articles of Amendment
and Restatement (marked to reflect changes from the current Articles of
Incorporation) is attached hereto as EXHIBIT B.
Under Maryland law and the Articles of Amendment and Restatement, the Board
of Directors would have the authority to increase the number of shares of any
class, to reclassify issued and unissued shares and to authorize the issuance of
additional classes of stock, in each case without the consent of shareholders.
The Articles of Amendment and Restatement would amend the current Articles of
Incorporation to: provide for class voting provisions (shareholders will
generally continue to have one vote on each matter submitted for their vote if
the Fund converts to open-end form); provide that the Fund's outstanding common
stock will be redeemable at the option of the shareholders; give the Board the
right to set standards for redemption (including the ability to impose
redemption or other charges, and to apply the redemption fee to shares
outstanding at the time the Articles of Amendment and Restatement become
effective without applying similar charges to subsequently issued shares, other
shares of
15
the same class or other classes); permit the Board to redeem the shares of a
shareholder under various circumstances (including if the net asset value of the
shares held by any shareholder is less than a minimum amount); and permit the
Board to accomplish the automatic conversion of one class of shares into another
class of shares in the context of a multiple class structure. Furthermore, under
the Articles of Amendment and Restatement, the provision requiring submission to
shareholders of the Conversion Proposal in the event the Fund's shares trade at
an average discount from their net asset value in excess of the 10% Threshold
for any fiscal quarter, would be deleted (since that provision would be
superfluous once the Fund becomes open-ended). Another provision relating to
open-ending (Article VIII(1)), which would also become superfluous upon approval
of the Conversion Proposal, and various other provisions of the Fund's Articles
of Incorporation that may be described as "anti-takeover" provisions, are not
submitted for amendment because the Board has determined that such submission is
not necessary at this time and because such amendments would require approval by
the affirmative vote of 75% of the outstanding shares of the Fund. The
"anti-takeover" provisions, the retention of which would not be particularly
desirable for an open-end fund, include provisions with respect to (i) a
classified Board of Directors, (ii) limiting the number of directors and their
removal, and (iii) mergers, major asset sales and dissolution.
The Articles of Amendment and Restatement would not be filed until the
Fund's registration statement under the Securities Act of 1933, as amended,
covering the offering of shares of the Fund and appropriate state securities law
qualifications had become effective. Preparation of the registration statement
would commence shortly after the adoption of the Conversion Proposal, and the
registration statement would be filed as soon as practicable, which should be
before the date of the special shareholders meeting. The Articles of Amendment
and Restatement would become effective at the time the conversion is
implemented.
For the foregoing reasons, the Board of Directors believes that,
notwithstanding the benefit which those shareholders who would wish to redeem
their shares over the short term would derive from open-ending the Fund, on
balance it would be in the best interests of the Fund and its shareholders for
the Fund to remain a closed-end fund at this time.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THE
CONVERSION OF THE FUND TO AN OPEN-END INVESTMENT COMPANY AND THE AMENDMENT AND
RESTATEMENT OF THE ARTICLES OF INCORPORATION TO EFFECTUATE THE CONVERSION
PROPOSAL.
INVESTMENT ADVISER, ADMINISTRATOR AND SUB-ADVISER
Phoenix/Zweig Advisers LLC, the Adviser, serves as the investment
adviser for the Fund. The Adviser's principal business office is located at
900 Third Avenue, New York, New York 10022. All of the Adviser's outstanding
equity interests are directly owned by Phoenix Investment Partners, Ltd., the
wholly-owned investment management subsidiary of The Phoenix Companies, Inc.
("PNX") of Hartford, Connecticut. PNX is a leading provider of wealth
management products and services to individuals and businesses. PNX is
located at One American Row, Hartford, Connecticut, 06115-2520.
Phoenix Investment Partners has served investors for over 70 years. As
of December 31, 2003, Phoenix Investment Partners had approximately $59.2
billion in assets under
16
management through its investment partners: Aberdeen Fund Managers, Inc.
(Aberdeen) in Aberdeen, London, Singapore and Fort Lauderdale; Duff & Phelps
Investment Management Co. (Duff & Phelps) in Chicago; Capital West Asset
Management, LLC (Capital West) in Greenwood Village, CO; Kayne Anderson Rudnick
Investment Management, LLC (Kayne) in Los Angeles; Engemann Asset Management
(Engemann) in Pasadena; Seneca Capital Management LLC (Seneca) in San Francisco;
Walnut Asset Management, LLC (Walnut) in Philadelphia; Phoenix/Zweig Advisers
LLC (Zweig) in New York; and Phoenix Investment Counsel, Inc. (Goodwin and
Oakhurst divisions) in Hartford, CT and Scotts Valley, CA, respectively.
Phoenix Equity Planning Corporation (the "Administrator") serves as the
administrator for the Fund. The Administrator's principal business office is
located at 56 Prospect Street, P.O. Box 150480, Hartford, Connecticut
06115-0480. All of the Administrator's outstanding equity interests are owned by
Phoenix Investment Partners.
Zweig Consulting LLC (the "Sub-Adviser"), which serves as the sub-adviser
for the Fund, performs certain asset allocation research and analysis and
provides such advice to the Adviser. The Sub-Adviser's principal business office
is located at 900 Third Avenue, New York, New York 10022. Dr. Martin E. Zweig is
the President and principal owner of the Sub-Adviser. The Sub-Adviser's fees are
paid by the Adviser.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and Section 30(h) of
the Act require, among other persons, the officers and Directors of the Fund and
the Adviser to file reports of ownership and changes in ownership of the shares
of common stock of the Fund with the Securities and Exchange Commission and the
New York Stock Exchange. The Securities and Exchange Commission's regulations
also require such reporting persons to furnish each Fund with copies of all
Section 16(a) forms they file. Based on its review of these reports and on
written representations from the reporting persons that no other reports were
required, the Fund believes that, during the year December 31, 2003, it was in
compliance with all Section 16(a) and Section 30(h) reporting requirements
applicable to its reporting persons.
INDEPENDENT ACCOUNTANTS
At the recommendation of the Audit Committee of the Fund, the Board of
Directors of the Fund, including a majority of the Directors who are not
interested persons of the Fund, has selected the firm of PricewaterhouseCoopers
LLP ("PwC") to serve as independent accountants of the Fund for the year ending
December 31, 2003. A representative of PwC is expected to be present at the
Meeting and will have the opportunity to make a statement if he or she so
desires and to respond to questions from shareholders.
The aggregate fees billed for services rendered by PwC during the years
ended December 31, 2002 and 2003, respectively, are described below.
AUDIT FEES
17
The aggregate fees billed by PwC to the Fund in connection with the annual
audit of the Fund's financial statements for the fiscal years ended December 31,
2002 and 2003 were $54,000 and $53,000, respectively.
AUDIT-RELATED FEES
No fees were billed by PwC to the Fund for the fiscal years ended December
31, 2002 and 2003 for any audit-related services.
TAX FEES
The aggregate fees billed by PwC to the Fund for the fiscal years ended
December 31, 2002 and 2003 in connection with tax review, compliance and advice
were approximately $4,950 and $5,650, respectively.
ALL OTHER FEES
No fees were billed by PwC to the Fund for the fiscal years ended December
31, 2002 and 2003 for any other services.
AGGREGATE NON-AUDIT FEES
The aggregate non-audit fees billed by PwC for services rendered to the
Fund, the Adviser, and any entity controlling, controlled by, or under common
control with the Adviser that provides ongoing services to the Fund for the
fiscal years ended December 31, 2002 and 2003 were $250,950 and $17,650,
respectively.
The Audit Committee considered whether the services described above,
including all non-audit services rendered to the Fund, the Adviser or an
affiliate of the Adviser that provides ongoing services to the Fund, were
compatible with maintaining the independence of PwC. The Audit Committee
pre-approves: (i) all audit and non-audit services to be rendered to the Fund
by PwC; and (ii) all non-audit services relating to the operations and
financial reporting of the Fund provided by PwC to the Adviser or any
affiliate thereof that provides ongoing services to the Fund (collectively,
"Covered Services"). The Audit Committee has adopted pre-approval procedures
authorizing a member of the Audit Committee to pre-approve from time to time,
on behalf of the Audit Committee, all Covered Services to be provided by PwC
which are not otherwise pre-approved at a meeting of the Audit Committee,
provided that such delegate reports to the full Audit Committee at its next
meeting. The pre-approval procedures do not include delegation of the Audit
Committee's responsibilities to management. Pre-approval has not been waived
with respect to any of the services described above since the date on which
the Audit Committee adopted its current pre-approval procedures.
ADDITIONAL INFORMATION
OTHER MATTERS
The Board of Directors of the Fund knows of no matters to be presented at
the Meeting other than those specified in the accompanying Notice of Annual
Meeting. However, if any other matter is properly presented before the Meeting,
it is the intention of the persons named as proxies to vote in accordance with
their best judgment.
EXPENSES
The Fund will bear the expense of the Meeting, including preparation,
printing and mailing of the enclosed form of proxy and accompanying Notice of
Annual Meeting and this Proxy Statement. The Fund, upon request, will reimburse
banks, brokers and others for their reasonable expenses in forwarding proxy
solicitation material to the beneficial owners of the Fund's common stock. In
order to obtain the necessary quorum at the Meeting, supplementary solicitation
may be made by mail, telephone or personal interviews by officers or employees
of the Fund and/or Adviser, or their affiliates.
18
VOTE REQUIRED
The election of Directors for the Fund requires a plurality of the votes
cast at the Meeting by the shareholders of the Fund. The following principles of
Maryland law apply to the voting of shares of common stock at the Meeting. The
presence in person or by proxy of shareholders entitled to vote a majority of
the outstanding shares will constitute a quorum. Shares represented by proxy or
in person at the Meeting, including shares represented by proxies that reflect
abstentions and broker non-votes (hereinafter defined), will be counted as
present in the determination of a quorum. With respect to the election of
directors, an abstention does not constitute a vote "for" or "against" and will
be disregarded in calculating the votes cast as to such matter, and "broker
non-votes" (i.e., where a broker or nominee submits a proxy specifically
indicating the lack of discretionary authority to vote on a matter) will be
treated in the same manner as abstentions. It is anticipated that votes will be
tabulated by EquiServe Trust Co., N.A., the Funds' transfer agent.
PROPOSALS FOR 2005 MEETING
Any proposals of shareholders that are intended to be presented at the
Fund's 2005 Annual Meeting of Shareholders must be received at such Fund's
principal executive offices no later than January 24, 2005, and must comply with
all other legal requirements in order to be included in the Fund's proxy
statement and form of proxy for that meeting.
The persons named as proxies for the 2005 Annual Meeting of Shareholders
will, with respect to the proxies in effect at such meeting, have discretionary
authority to vote on any matter presented by a shareholder for action at that
meeting unless the Fund receives notice of the matter by April 8, 2005. If the
Fund receives such timely notice, these persons will not have this authority
except as provided in the applicable rules of the Securities and Exchange
Commission.
New York, New York By Order of the Board of Directors of
February ____, 2004 The Zweig Total Return Fund, Inc.
PHILIP R. McLOUGHLIN,
CHAIRMAN OF THE BOARD
AND PRESIDENT
19
EXHIBIT A
THE ZWEIG TOTAL RETURN FUND, INC.
AUDIT COMMITTEE CHARTER
(SEPTEMBER 2003)
I. Purpose
A. The Audit Committee is appointed by the Board of Directors (the
"Board") of The Zweig Total Return Fund, Inc. (the "Fund") for the
following purposes:
1. to oversee the accounting and financial reporting processes of
the Fund and its internal controls and, as the Audit Committee
deems appropriate, to inquire into the internal controls of
certain third-party service providers;
2. to oversee the quality and integrity of the Fund's financial
statements and the independent audit thereof;
3. to oversee, or, as appropriate, assist Board oversight of, the
Fund's compliance with legal and regulatory requirements that
relate to the Fund's accounting and financial reporting, internal
controls and independent audits; and
4. to approve, prior to the appointment, the engagement of the
Fund's independent auditor and, in connection therewith, to
review and evaluate the qualifications, independence and
performance of the Fund's independent auditor.
B. While the Audit Committee has the responsibilities and powers set
forth in this Charter, it is not the duty of the Audit Committee to
plan or conduct audits or to determine that the Fund's financial
statements are complete and accurate and are in accordance with
generally accepted accounting principles. This is the responsibility
of the Fund's investment adviser ("Management") and the independent
auditor. Nor is it the duty of the Audit Committee to assure
compliance with laws and regulations and/or the Fund's Code of Ethics.
II. Audit Committee Structure, Composition and Operations
A. The Audit Committee shall consist of at least three members, all of
whom shall be directors of the Fund. Each member of the Audit
Committee shall be appointed by the full Board.
B. The members of the Audit Committee shall meet the independence and
experience requirements of the New York Stock Exchange. All members of
the Audit Committee must have been determined by the Board to be
"financially literate" as required by the New York Stock Exchange
Listed Company Manual.
A-1
C. All members of the Audit Committee shall meet the "independence"
requirement of Rule 10A-3(b)(1) under the Securities Exchange Act of
1934. None of the members of the Audit Committee shall be an
"interested person" of the Fund, as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended.
D. The Audit Committee shall meet on a regular basis and at least 4 times
annually, although it may hold special meetings as it deems necessary
or advisable. The chair or a majority of the members shall be
authorized to call a meeting of the Audit Committee and send notice
thereof.
E. The Audit Committee shall ordinarily meet in person. However,
individual members may attend telephonically, and entire meetings may
be held by telephone conference. The Audit Committee may act by
written consent of the members to the extent permitted by law and the
Fund's bylaws.
F. The Audit Committee may select one of its members to be the chair and
may also select one of its members to be a vice chair.
G. A majority of the members of the Audit Committee shall constitute a
quorum for the transaction of business at any meeting of the Audit
Committee. The action of a majority of the members of the Audit
Committee at a meeting at which a quorum is present shall be the
action of the Audit Committee.
III. Authority, Responsibilities and Duties
The Audit Committee shall have the following responsibilities and duties.
The Board has granted the Audit Committee the authority to fully and
effectively carry out these responsibilities and duties and will provide
the Audit Committee with sufficient funding to competently perform all of
the following, including, without limitation, funding (i) for ordinary
administrative expenses, (ii) to appropriately compensate advisors employed
by the Audit Committee, and (iii) to compensate the Fund's independent
auditor.
A. The Audit Committee shall report regularly to the full board of
directors.
B. The Audit Committee may request any officer or employee of the Fund,
counsel to the independent directors, the Fund's outside counsel and
independent auditor to attend a meeting of the Audit Committee or to
meet with any members of, or consultants to, the Audit Committee. The
Audit Committee shall meet separately, periodically with Management,
with internal auditors (or other personnel responsible for the
internal audit function) and with independent auditors.
C. The Audit Committee shall have the authority to retain special legal,
accounting or other consultants to advise the Audit Committee as it
deems necessary to carry out its duties.
A-2
D. The Audit Committee shall be directly responsible for the appointment,
compensation, retention and oversight (including resolution of
disagreements between Management and the auditor regarding financial
reporting) of any registered public accounting firm engaged for the
purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Fund. Each such registered
public accounting firm shall report directly to the Audit Committee
and shall be ultimately responsible to the Audit Committee and the
Board.
1. This power shall include the authority to establish the scope of
services, including non-audit related services to the Fund or
Management, to be provided by the independent auditor and to
approve all fees paid to the independent auditor.
2. After the Audit Committee has selected the independent auditor,
its selection will be ratified by the Fund's independent
directors.
E. The Audit Committee shall review the annual audited financial
statements with Management and the independent auditor, including
major issues regarding the accounting and auditing principles and
practices and including any related disclosures.
F. The Audit Committee shall confer with the Board annually regarding the
Board's determination of (i) whether any member of the Audit Committee
has accounting or related financial management expertise, as required
by Section 303.01(B)(2)(c) of the New York Stock Exchange Listed
Company Manual, and (ii) whether the Audit Committee includes an
"audit committee financial expert" as defined in the instructions to
Item 3 on SEC Form N-CSR.
G. The Audit Committee shall review an analysis prepared by management
and the independent auditor of significant financial reporting issues
and judgments made in connection with the preparation of the Fund's
financial statements.
H. The Audit Committee shall review major changes to the Fund's auditing
and accounting principles and practices as suggested by the
independent auditor or Management.
I. The Audit Committee shall receive periodic written reports (on not
less than an annual basis) from the independent auditor regarding the
auditor's independence, discuss such reports with the auditor, and if
so determined by the Audit Committee, recommend that the Board take
action to satisfy itself of the independence of the auditor. Such
reports shall address any relationships between the independent
auditors and the Fund or affiliated persons of the Fund.
A-3
1. In connection with this review, the Audit Committee will review
all non-audit services to the Fund or Management performed by the
independent auditor and the fees earned for such services.
J. The Audit Committee shall receive annual written reports from the
independent auditor describing (i) the Fund's internal quality-control
procedures, and (ii) any material issues raised by the most recent
internal quality-control review of the Fund or by any governmental or
professional authorities, within the preceding five years, respecting
the one or more independent audits carried out by the Fund and any
steps taken to deal with any such issues.
K. The Audit Committee shall discuss and review the Fund's policies with
respect to risk assessment and risk management.
L. The Audit Committee shall evaluate together with the Board the
performance of the independent auditor and, if so determined by the
Audit Committee, recommend that the Board replace the independent
auditor.
M. The Audit Committee shall meet with the independent auditor prior to
the audit to review the planning and staffing of the audit.
N. The Audit Committee shall discuss with the independent auditor the
matters required by Statement on Auditing Standards No. 61 (as amended
by Statement on Auditing Standards No. 90) relating to the conduct of
the audit and shall review with the independent auditor any problems
or difficulties the auditor may have encountered and any management
letter provided by the auditor and the Fund's response to that letter.
Such review should include any difficulties encountered in the course
of the audit work, including any restrictions on the scope of
activities or access to required information.
O. The Audit Committee shall review with the Fund's principal executive
officer and principal financial officer in connection with their
annual certifications on Form N-CSR any significant deficiencies or
material weaknesses in the design or operation of the Fund's
disclosure controls and procedures and any reported evidence of fraud
involving Management or other employees who have a significant role in
the Fund's disclosure controls and procedures.
P. The Audit Committee shall prepare or cause to be prepared the report
of the Audit Committee required by the rules of the Securities and
Exchange Commission to be included in the Fund's annual proxy
statement.
Q. The Audit Committee shall review with counsel legal matters that may
have a material impact on the financial statements, the Fund's
compliance policies and any material reports or inquiries received
from regulators or government agencies.
A-4
R. The Audit Committee shall establish procedures for the receipt,
retention, and treatment of complaints received by the Fund relating
to the Fund's accounting, internal accounting controls, and auditing
matters. Such procedures shall include procedures for the
confidential, anonymous submission by officers and employees of the
Fund or Management of concerns related to questionable accounting or
auditing matters of the Fund.
1. The Audit Committee shall have the authority to investigate, or
to initiate an investigation of improprieties or suspected
improprieties in connection with the Fund's accounting or
financial reporting.
2. The Audit Committee shall confer with the Board regarding the
Fund's and Management's approach to the Securities and Exchange
Commission's standards of professional conduct for attorneys
adopted under Section 307 of the Sarbanes-Oxley Act of 2002.
S. The Audit Committee shall review with the independent auditor any
audit problems or difficulties and management's response.
T. The Audit Committee shall review any proposed hiring of employees or
former employees of the independent auditor by Management.
U. The Audit Committee shall perform such other functions and have such
powers as may be necessary or appropriate in the efficient and lawful
discharge of the foregoing.
IV. Annual Performance Evaluation
The Audit Committee shall perform a review and evaluation, at least
annually, of the performance of the Audit Committee and its members,
including a review of the compliance of the Audit Committee with this
Charter. In addition, the Audit Committee shall review and reassess, at
least annually, the adequacy of this Charter and recommend to the Board any
improvements to this Charter that the Audit Committee considers necessary
or valuable. The Audit Committee shall conduct such evaluations and reviews
in such manner as it deems appropriate. The Board shall adopt and approve
this Charter and may amend it as the Board deems appropriate.
A-5
EXHIBIT B
[Marked to reflect changes from the Fund's Articles of Incorporation]
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
THE ZWEIG TOTAL RETURN FUND, INC.
The Zweig Total Return Fund, Inc., a Maryland corporation, having its
principal office in Maryland in Baltimore City (hereinafter called the
"Corporation") hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is amended and as so amended is
restated in its entirety by striking out Articles I through X and inserting in
lieu thereof the following:
"ARTICLE I
The undersigned, Stuart B. Panish, whose post office address is 575 Madison
Avenue, New York, New York 10022 being at least eighteen (18) years of age does
hereby act as an incorporator and form a corporation under and by virtue of the
Maryland General Corporation Law.
ARTICLE II
NAME
The name of the corporation (herein referred to as the "Corporation") is
The Zweig Total Return Fund, Inc.
ARTICLE III
PURPOSES AND POWERS
The Corporation is formed for the following purposes:
(1) To conduct, operate and carry on the business of an investment
company.
(2) To hold, invest and reinvest its assets in securities, commodities and
other investments or to hold part of all of its assets in cash.
(3) To issue and sell shares of its capital stock in such amounts and on
such terms and conditions and for such purposes and for such amount or kind of
consideration as may now or hereafter be permitted by law.
(4) To do any and all additional acts and to exercise any and all
additional powers or rights as may be necessary, incidental, appropriate or
desirable for the accomplishment of all or any of the foregoing purposes.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by the
Maryland General Corporation Law
B-1
now or hereafter in force, and the enumeration of the foregoing shall not be
deemed to exclude any powers, rights or privileges so granted or conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the
State of Maryland is c/o The Prentice-Hall Corporation System, 11E Chase Street,
Baltimore, Maryland 21202. The name of the resident agent of the Corporation in
the State of Maryland is The Prentice-Hall Corporation System, Maryland, a
Maryland corporation. The post office address of the resident agent is 11E Chase
Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock that the Corporation shall
have authority to issue is Five Hundred Million (500,000,000) shares of the par
value of one-tenth of one cent ($.001) per share and of the aggregate par value
of Five Hundred Thousand Dollars ($500,000), all of which Five Hundred Million
(500,000,000) shares are designated Common Stock.
(2) The Corporation may issue fractional shares. Any fractional share
shall carry proportionately the rights of a whole share including, without
limitation, the right to vote and the right to receive dividends. The holder of
a fractional share shall not, however, have the right to receive a certificate
evidencing it.
(3) All persons who shall acquire shares of capital stock in the
Corporation shall acquire the same subject to the provisions of the Charter and
the By-Laws of the Corporation.
(4) No holder of stock of the Corporation by virtue of being such a holder
shall have any right to purchase or subscribe for any shares of the
Corporation's capital stock or any other security that the Corporation may issue
or sell (whether out of the number of shares authorized by the Charter or out of
any shares of the Corporation's capital stock that the Corporation may acquire)
other than a right that the Board of Directors in its discretion may determine
to grant.
(5) The Board of Directors shall have authority by resolution to classify
and reclassify any authorized but unissued shares of capital stock from time to
time by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of the capital
stock.
(6) Notwithstanding any provision of law requiring any action to be taken
or authorized by the affirmative vote of the holders of a greater proportion of
the votes of all classes or of any class of stock of the Corporation, such
action shall be effective and valid if taken or
B-2
authorized by the affirmative vote of a majority of the total number of votes
entitled to be cast thereon, except as otherwise provided in the Charter.
(7) On each matter submitted to a vote of the stockholders, each holder of
a share of stock shall be entitled to one vote for each such share standing in
such holder's name upon the books of the Corporation regardless of the class
thereof, and all shares of all classes shall vote together as a single class;
provided, however, that (i) when the Maryland General Corporation Law or the
Investment Company Act of 1940, as amended, requires that a class vote
separately with respect to a given matter, the separate voting requirements of
the applicable law shall govern with respect to the affected class or classes:
(ii) in the event that the separate vote requirement referred to in (i) above
applies with respect to one or more classes, then, subject to (iii) below, the
shares of all other classes shall vote as one single class; and (iii) as to any
matter, which, in the judgment of the Board of Directors (which shall be
conclusive and binding for all purposes), does not affect the interests of a
particular class, such class shall not be entitled to any vote and only the
holders of shares of the affected class or classes shall be entitled to vote.
(8) To the extent permitted by law, each holder of shares of the
Corporation's stock shall be entitled to require the Corporation to redeem all
or any part of the shares of stock of the Corporation standing in the name of
the holder on the books of the Corporation, and all shares of stock issued by
the Corporation shall be subject to redemption by the Corporation, at the
redemption price of the shares as in effect from time to time as may be
determined by or pursuant to the direction of the Board of Directors of the
Corporation in accordance with the provisions of Article VI(5)(v), less the
amount of any applicable redemption charge, deferred sales charge or other
amount imposed by the Board of Directors (to the extent consistent with
applicable law), subject to the right of the Board of Directors of the
Corporation to suspend the right of redemption or postpone the date of payment
of the redemption price in accordance with provisions of applicable law. The
Board of Directors may impose a redemption charge, deferred sales charge or
other amount on the redemption of such shares of Common Stock issued and
outstanding immediately prior to these Articles of Amendment and Restatement
becoming effective even though the Board may choose not to impose a similar
redemption charge, deferred sales charge or other amount on the redemption of
other shares of the same class or other classes of Common Stock that are issued
after the effective date of these Articles of Amendment and Restatement. The
proceeds of the redemption of a share (including a fractional share) of any
class of stock of the Corporation shall be reduced by the amount of any
redemption charge, deferred sales charge or other amount payable on such
redemption pursuant to the terms of issuance of such shares or otherwise imposed
by the Board of Directors. Without limiting the generality of the foregoing, the
Corporation shall, to the extent permitted by applicable law, have the right at
any time, at the Corporation's option, to redeem, in whole or in part, the
shares owned by any holder of stock of the Corporation (i) if the value of the
shares in the account maintained by the Corporation or its transfer agent for
any class of stock for the stockholder is below an amount determined from time
to time by the Board of Directors of the Corporation (the "Minimum Account
Balance") and (a) the stockholder has been given notice of the redemption and
has failed to make additional purchases of shares in an amount sufficient to
bring the value in his account to at least the Minimum Account Balance before
the redemption is effected by the
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Corporation or (b) the redemption is with respect to fees to be paid by the
stockholder to the Corporation for failing to maintain the Minimum Account
Balance or (ii) the Board of Directors has otherwise determined that it is in
the best interests of the Corporation to redeem the shares. Notwithstanding any
other provision of this Article V(8), if certificates representing the redeemed
shares have been issued, the redemption price need not be paid by the
Corporation until such certificates are presented in proper form for transfer to
the Corporation or the agent of the Corporation appointed for such purpose;
however, the redemption shall be effective in accordance with the action of the
Board of Directors, regardless of whether or not such presentation has been
made. Payment of the redemption price shall be made in cash by the Corporation
at the time and in the manner as may be determined from time to time by the
Board of Directors of the Corporation unless, in the opinion of the Board of
Directors, which shall be conclusive, conditions exist that make payment wholly
in cash unwise or undesirable; in such event the Corporation may make payment
wholly or partly by securities or other property included in the assets
allocable to the class of the shares for which redemption is being sought, the
value of which shall be determined as provided by the Board of Directors in
accordance with the provisions of Article VI(5)(v).
(9) At such times as may be determined by the Board of Directors (or with
the authorization of the Board of Directors, by the officers of the Corporation)
in accordance with the Investment Company Act of 1940, as amended, applicable
rules and regulations thereunder and applicable rules and regulations of NASD
Inc. and from time to time reflected in the registration statement of the
Corporation (the "Corporation's Registration Statement"), shares of a particular
class of stock of the Corporation may be automatically converted into shares of
another class of stock of the Corporation based on the relative net asset values
of such classes at the time of conversion, subject, however, to any conditions
of conversion that may be imposed by the Board of Directors (or with the
authorization of the Board of Directors, by the officers of the Corporation) and
reflected in the Corporation's Registration Statement. The terms and conditions
of such conversion may vary within and among the classes to the extent
determined by the Board of Directors (or with the authorization of the Board of
Directors, by the officers of the Corporation) and set forth in the
Corporation's Registration Statement.
ARTICLE VI
BOARD OF DIRECTORS
(1) The current number of Directors of the Corporation is five. This
number may be changed pursuant to the By-Laws of the Corporation, but shall at
no time be less than the minimum number required under the Maryland General
Corporation Law nor more than twelve (12). The names of the current directors
who shall act until their successors are duly chosen and qualify are:
Charles H. Brunie
Wendy Luscombe
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Alden C. Olson
James B. Rogers, Jr.
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(2) Beginning with the first annual meeting of shareholders of the
Corporation held after the initial public offering of the shares of the
Corporation's capital stock (the "first annual meeting"), the Board of Directors
of the Corporation shall be divided into three classes: Class I, Class II, and
Class III. The term of one class of directors elected at the first annual
meeting shall expire each year. At the first annual meeting, directors of Class
I shall be elected to the Board of Directors for a term expiring at the next
succeeding annual meeting of shareholders, directors of Class II shall be
elected to the Board of Directors for a term expiring at the second succeeding
annual meeting of shareholders and directors of Class III shall be elected to
the Board of Directors for a term expiring at the third succeeding annual
meeting of shareholders. At each subsequent annual meeting of shareholders, the
directors chosen to succeed those whose terms are expiring shall be identified
as being of the same class as the directors whom they succeed and shall be
elected for a term expiring at the time of the third succeeding annual meeting
of shareholders, or thereafter in each case when their respective successors are
elected and qualified. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes by resolution of the Board of
Directors so as to maintain the number of directors in each class as nearly
equal as possible, but in no case shall a decrease in the number of directors
shorten the term of any incumbent director.
(3) Any vacancy occurring in the Board of Directors may be filled by a
majority of the directors in office. A new directorship resulting from an
increase in the number of directors shall be filled by a majority of the entire
Board of Directors.
(4) A director of the Corporation may be removed from office only by vote
of the holders of at least seventy-five percent (75%) of the outstanding shares
of capital stock of the Corporation entitled to vote for the election of
directors.
(5) In furtherance, and not in limitation, of the powers conferred by the
laws of the State of Maryland, the Board of Directors is expressly authorized:
(i) To make, alter or repeal the By-Laws of the Corporation, except
where such power is reserved by the By-Laws to the shareholders, and except
as otherwise required by the Investment Company Act of 1940, as amended.
(ii) From time to time to determine whether and to what extent and at
what times and places and under what conditions and regulations the books
and accounts of the Corporation, or any of them other than the stock
ledger, shall be open to the inspection of the shareholders. No shareholder
shall have any right to inspect any account or book or document of the
Corporation, except as conferred by law or authorized by resolution of the
Board of Directors or of the shareholders.
(iii) Without the assent or vote of the shareholders, to authorize the
issuance from time to time of shares of the stock of any class of the
Corporation, whether now or
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hereafter authorized, and securities convertible into shares of stock of
the Corporation of any class or classes, whether now or hereafter
authorized, for such consideration as the Board of Directors may deem
advisable.
(iv) Without the assent or vote of the shareholders, to authorize and
issue obligations of the Corporation, secured and unsecured, as the Board
of Directors may determine, and to authorize and cause to be executed
mortgages and liens upon the real or personal property of the Corporation.
(v) To establish the basis or method for determining the value of the
assets and the amount of the liabilities of the Corporation and the net
asset value of each share of the Corporation's capital stock.
(vi) To determine what constitutes net profits, earnings, surplus or
net assets in excess of capital, and to determine what accounting periods
shall be used by the Corporation for any purpose; to set apart out of any
funds of the Corporation reserves for such purposes as it shall determine
and to abolish the same; to declare and pay any dividends and distributions
in cash, securities or other property from surplus or any funds legally
available therefor, at such intervals as it shall determine; to declare
dividends or distributions by means of a formula or other method of
determination, at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for
dividends or any other distributions on any basis, including dates
occurring less frequently than the effectiveness of declarations thereof.
(vii) In addition to the powers and authorities granted herein and by
statute expressly conferred upon it, the Board of Directors is authorized
to exercise all powers and do all acts that may be exercised or done by the
Corporation pursuant to the provisions of the laws of the State of
Maryland, these Articles of Incorporation and the By-Laws of the
Corporation.
(6) Any determination made in good faith, and in accordance with the
Charter of the Corporation, if applicable, by or pursuant to the direction of
the Board of Directors, with respect to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the proprietary thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which the reserves or
charges have been created has been paid or discharged or is then or thereafter
required to be paid or discharged), as to the value of any security owned by the
Corporation, the determination of the net asset value of shares of any class of
the Corporation's capital stock, or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposition of securities or
shares of capital stock of the Corporation, and any reasonable determination
made in good faith by the Board of Directors shall be final and conclusive, and
shall be binding upon the Corporation and all holders of its capital stock,
past, present and future, and shares of the capital stock of the Corporation are
issued and sold on the condition and understanding, evidenced by the purchase of
shares of capital stock or acceptance of share certificates, that any and all
such determinations shall be
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binding as aforesaid. No provision of the Charter of the Corporation shall be
effective to require a waiver of compliance with any provision of the Securities
Act of 1933, as amended, or the Investment Company Act of 1940, as amended, or
of any valid rule, regulation or order of the Securities and Exchange Commission
under those Acts.
ARTICLE VII
LIABILITY AND INDEMNIFICATION
(1) To the fullest extent that limitations on the liability of directors
and officers are permitted by the Maryland General Corporation Law, no director
or officer of the Corporation shall have any liability to the Corporation or its
shareholders for damages. This limitation on liability applies to events
occurring at the time a person serves as a director or officer of the
Corporation whether or not such person is a director or officer at the time of
any proceeding in which liability is asserted.
(2) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law. The Board of
Directors may by By-Law, resolution or agreement make further provisions for
indemnification of directors, officers, employees and agents to the fullest
extent permitted by the Maryland General Corporation Law.
(3) No provision of the Charter of the Corporation shall be effective to
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
(4) References to the Maryland General Corporation Law in this Article VII
are to the law as from time to time amended. No amendment to the the Charter of
the Corporation shall affect any right of any person under this Article VII
based on any event, omission or proceeding prior to such amendment.
ARTICLE VIII
CHANGE OF STRUCTURE
(1) Notwithstanding any other provision of these Articles of
Incorporation, but subject to the exceptions provided in Section (2) of this
Article VIII, the conversion of the Corporation from a "closed-end company" to
an "open-end company," as those terms are defined in Sections 5(a)(2) and
5(a)(1), respectively, of the Investment Company Act of 1940, as amended, shall
require the affirmative vote or consent of the holders of at least seventy-five
percent (75%) of the outstanding shares of capital stock of the Corporation;
provided, however, that if such action previously has been approved, adopted or
authorized by the affirmative vote of two-thirds of the total number of
directors fixed in accordance with the By-Laws, in such case
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the affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Corporation entitled to vote thereon shall be required.
(2)
ARTICLE IX
SHAREHOLDER VOTE
(1) The affirmative vote of the holders of at least seventy-five percent
(75%) of the outstanding shares of capital stock of the Corporation entitled to
vote thereon shall be required to approve, adopt or authorize any of the
following:
(i) A merger or consolidation or statutory share exchange of the
Corporation with or into another corporation;
(ii) A sale of all or substantially all of the assets of the
Corporation (other than in the regular course of the Corporation's investment
activities); or
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(iii) A liquidation or dissolution of the Corporation;
unless such action previously has been approved, adopted or authorized by the
affirmative vote of two-thirds of the total number of directors fixed in
accordance with the By-Laws, in which case the affirmative vote of the holders
of a majority of the outstanding shares of capital stock of the Corporation
entitled to vote thereon shall be required.
ARTICLE X
AMENDMENTS
(1) The Corporation reserves the right from time to time to make any
amendment to its Articles of Incorporation, now or hereafter authorized by law,
including any amendment that alters the contract rights, as expressly set forth
in its Articles of Incorporation, of any outstanding stock.
(2) In addition to the voting requirements imposed by law or by any other
provision of these Articles of Incorporation, the provisions set forth in this
Article X, the provisions of Sections (2) and (4) of Article VI, the provisions
of Article IX, the provisions of these Articles of Incorporation setting the
maximum number of directors at twelve (12), and the provisions of Section (1) of
Article VIII may not be amended, altered or repealed in any respect, nor may any
provision inconsistent with this Article X, the provisions of Sections (2) and
(4) of Article VI, the provisions of Article IX, the provision setting the
maximum number of directors, or the provisions of Section (1) of Article VIII be
adopted, unless such section is approved by the affirmative vote of at least
seventy-five (75%) of the outstanding shares of capital stock of the Corporation
entitled to vote thereon."
SECOND: The Corporation desires to amend and restate its Charter as
currently in effect. The provisions set forth in these Articles of Amendment and
Restatement are all of the provisions of the Charter currently in effect as
herein amended. The current address of the principal office of the Corporation,
and the name and address of the Corporation's current resident agent are as set
forth in Article IV. The number of directors is currently set at five and their
names are as set forth in Article VI(1).
THIRD: The amendment and restatement of the Charter of the Corporation as
hereinabove set forth has been duly advised by the Directors and approved by the
stockholders pursuant to the Maryland General Corporation Law.
FOURTH: These Articles of Amendment and Restatement shall become effective
on _____________, 2004 at ___ {a.m./p.m.} Eastern Time.
IN WITNESS WHEREOF, The Zweig Total Return Fund, Inc. has caused these
Articles of Amendment and Restatement to be signed in its name and on its
behalf by its President, _____________, and witnessed by its Secretary,
Nancy J. Engberg, as of __________, 2004. The President acknowledges these
Articles of
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Amendment and Restatement to be the corporate act of the Corporation and states
that to the best of his knowledge, information and belief, the matters and facts
set forth in these Articles with respect to the authorization and approval of
this amendment and restatement of the Corporation's Charter are true in all
material respects and that this statement is made under penalties of perjury.
By:
----------------------------
_____________________
President
Witness:
--------------------------
Secretary
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THE ZWEIG TOTAL RETURN FUND, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 2004
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned shareholder of The Zweig Total Return Fund, Inc., a
Maryland corporation (the "Fund"), hereby appoints PHILIP R. McLOUGHLIN and
CARLTON NEEL, and each of them, with full power of substitution and revocation,
as proxies to represent the undersigned at the Annual Meeting of Shareholders of
the Fund to be held at 11:30 A.M. at the offices of Katten Muchin Zavis
Rosenman, located at 575 Madison Avenue (between 56th and 57th Streets), 11th
Floor, New York, New York, at any and all adjournments thereof, and to vote at
the Annual Meeting all shares of the Fund which the undersigned would be
entitled to vote, with all powers the undersigned would possess if personally
present in accordance with the instructions on the reverse side of this proxy.
WHEN THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED HEREBY WILL BE
VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF ALL NOMINEES AS DIRECTORS AND IN THE DISCRETION OF THE PROXIES
WITH RESPECT TO ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING AND
ANY ADJOURNMENTS THEREOF. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE
ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY STATEMENT.
SEE REVERSE SEE REVERSE
SIDE (CONTINUED, AND TO BE SIGNED AND DATED ON THE REVERSE SIDE.) SIDE
/X/ PLEASE MARK
VOTES AS IN THIS
EXAMPLE.
1. Election of Directors.
NOMINEES: (01) R. Keith Walton
(02) Charles A. Brunie 2. With respect to the proposal (Proposal 2) pursuant to the Fund's
Articles of Incorporation to convert the Fund to an open-end
investment company and to adopt an amendment and restatement of the
Articles of Incorporation to effectuate the proposal.
FOR WITHHELD
ALL / / / / FROM ALL / / FOR / / AGAINST / / ABSTAIN
NOMINES NOMINES
3. In their discretion, on such other matters as may properly come
before the meeting and any adjournments thereof
/ /
-------------------------------------
For all nominee(s) except as written above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Please sign exactly as name or names appear on this proxy. If stock is
held jointly, each holder should sign. If signing as attorney, trustee,
executor, administrator, custodian, guardian or corporate officer,
please give full title.
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope
Signature: Date: Signature: Date:
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