<PAGE> 1
[ZWEIG SERIES TRUST LOGO]
PROSPECTUS
November 1, 1996
ZWEIG STRATEGY FUND
ZWEIG APPRECIATION FUND
ZWEIG GROWTH & INCOME FUND
ZWEIG MANAGED ASSETS
ZWEIG GOVERNMENT FUND
ZWEIG CASH FUND
Zweig Series Trust offers investors the opportunity to invest in one or more of
six mutual funds. The six funds, or series, of the Trust, are:
- - Zweig Strategy Fund
- - Zweig Appreciation Fund
- - Zweig Growth & Income Fund
- - Zweig Managed Assets
- - Zweig Government Fund
- - Zweig Cash Fund
Each fund has its own investment objectives and policies. A shareholder's
interest is limited to the fund in which she or he owns shares.
The funds are designed for investors who intend to invest for the long term,
including those who wish to purchase shares for tax-qualified retirement plans
and Individual Retirement Accounts (IRAs). The funds are not appropriate for
investors who intend to liquidate their investment after a short period of
time.
Each fund offers four classes of shares: Class A, Class B, Class C and Class I
Shares. Investors in Class A Shares pay an initial sales charge. Investors in
Class B Shares pay no initial sales charge, but are subject to a declining
contingent deferred sales charge (CDSC) if they sell their shares within six
years of purchase. Investors in Class C Shares pay no initial sales charge, but
are subject to a CDSC if they sell their shares within one year of purchase.
Investors in Class I Shares pay no initial sales charge nor are they subject to
any CDSC, but they are available for purchase only from Zweig Securities Corp.
to tax-exempt retirement plans of Zweig Securities Corp. and its affiliates and
certain institutional investors. The different classes of shares have different
annual operating expenses, Class I Shares having the lowest and Class B and
Class C Shares the highest. Class B Shares convert to Class A Shares after a
holding period of seven years from the initial purchase. Class C Shares have a
shorter CDSC period than Class B Shares, but they do not convert to Class A
Shares. When choosing among classes of shares, you should consider the amount
of the purchase, the planned length of time for the investment and other
relevant circumstances. Zweig Cash Fund, a money market fund, also offers Class
M Shares, which are described in a separate prospectus.
Zweig/Glaser Advisers is the investment manager of the funds. Zweig Securities
Corp. is the principal distributor of the funds' shares.
Shares of the Zweig Mutual Funds are not deposits or obligations of, or
guaranteed, endorsed or insured by, the U.S. Government, any bank, the Federal
Deposit Insurance Corp., the Federal Reserve Board, or any other agency, entity
or person. There can be no assurance that the Zweig Cash Fund will be able to
maintain a stable net asset value of $1.00 a share.
This Prospectus contains important information that you should know before
investing. Please keep it for future reference. A Statement of Additional
Information (SAI) dated November 1, 1996, has been filed with the Securities
and Exchange Commission. The SAI is incorporated by reference into this
Prospectus. You can obtain a copy without charge by calling 1-800-272-2700.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Zweig Series Trust
5 Hanover Square-17th Floor
New York, NY 10004
1-800-272-2700
<PAGE> 2
FEE TABLE
We've provided the following table to help you understand the expenses of
investing in the Zweig Mutual Funds. Mutual fund investors bear two types of
expenses: transaction expenses and operating expenses. You pay transaction
expenses when you buy shares in a fund. The fund as a whole pays operating
expenses, which reduce the fund's annual return to you.
<TABLE>
<CAPTION>
CLASS A SHARES
--------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Charge on purchases
(as % of Offering Price)
Zweig Strategy Fund, Zweig Appreciation Fund, Zweig Growth & Income Fund and Zweig Managed
Assets....................................................................................... 5.50%
Zweig Government Fund.......................................................................... 4.75%
Zweig Cash Fund................................................................................ None*
Maximum Contingent Deferred Sales Charge (CDSC)................................................... None**
<CAPTION>
CLASS B SHARES
--------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Charge on purchases
(as % of Offering Price)
Zweig Strategy Fund, Zweig Appreciation Fund, Zweig Growth & Income Fund and Zweig Managed
Assets....................................................................................... None
Zweig Government Fund.......................................................................... None
Zweig Cash Fund................................................................................ None
Maximum Contingent Deferred Sales Charge (CDSC)................................................... 5.00%***
<CAPTION>
CLASS C SHARES
--------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Charge on purchases
(as % of Offering Price)
Zweig Strategy Fund, Zweig Appreciation Fund, Zweig Growth & Income Fund and Zweig Managed
Assets....................................................................................... None
Zweig Government Fund.......................................................................... None
Zweig Cash Fund................................................................................ None
Maximum Contingent Deferred Sales Charge (CDSC)................................................... 1.25%****
<CAPTION>
CLASS I SHARES
--------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Charge on purchases
(as % of Offering Price)
Zweig Strategy Fund, Zweig Appreciation Fund, Zweig Growth & Income Fund and Zweig Managed
Assets....................................................................................... None
Zweig Government Fund.......................................................................... None
Zweig Cash Fund................................................................................ None
Maximum Contingent Deferred Sales Charge (CDSC)................................................... None
</TABLE>
- ---------------
* Sales charges apply on exchanges of Class A Shares of Zweig Cash Fund (on
which no initial sales charge was paid) for Class A Shares of any other fund.
** A 1% CDSC is imposed on redemptions within 18 months of purchases of $1
million or more originally purchased without an initial sales charge as
described in "Quantity discounts on Class A Shares," except for shares of
Zweig Cash Fund.
*** The maximum CDSC is imposed on Class B Shares redeemed in the first year;
thereafter, the CDSC declines according to the schedules set forth under
"Class B Shares" in this Prospectus.
**** The CDSC on Class C Shares applies only if redemption occurs in the first
year.
EXAMPLES -- The table below is based on operating expenses for the last fiscal
year for Class A Shares and Class C Shares. The expenses for Class B and Class I
Shares and for Zweig Growth & Income Fund are based on expenses that would have
been incurred if Class B and Class I Shares and Zweig Growth & Income Fund had
been in existence for such fiscal year. The table does not represent future
expense levels, which may be greater or less than those shown. Federal
regulations require the examples to assume a 5% annual return, but actual annual
returns have varied as shown in the column headed "Total Return" in the table on
the following page.
<TABLE>
<CAPTION>
EXAMPLE: You would
pay the following
expenses on a
$1,000 investment
assuming (1) 5%
annual return
and (2) redemption
ANNUAL FUND at the end
OPERATING EXPENSES of each time
(As % of average net assets) period:
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Total Fund
Management 12b-1 Other Operating 1 3
FUND Fees Fees(2) Expenses Expenses Year Years
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Zweig Strategy Fund.................... 0.75% 0.30% 0.22% 1.27% $ 67 $ 93
Zweig Appreciation Fund................ 1.00 0.30 0.33 1.63 71 104
Zweig Growth & Income Fund(5).......... 0.75 0.30 0.25 1.30 68 94
Zweig Managed Assets................... 1.00 0.30 0.29 1.59 70 102
Zweig Government Fund(4)............... 0.60 0.30 0.36 1.26 60 86
Zweig Cash Fund(1)..................... -0-* 0.30 0.35* 0.65* 7 21
CLASS B SHARES
Zweig Strategy Fund.................... 0.75 1.00 0.22 1.97 70 92
Zweig Appreciation Fund................ 1.00 1.00 0.33 2.33 74 103
Zweig Growth & Income Fund(5).......... 0.75 1.00 0.25 2.00 70 93
Zweig Managed Assets................... 1.00 1.00 0.29 2.29 73 102
Zweig Government Fund(4)............... 0.60 1.00 0.36 1.96 70 92
Zweig Cash Fund(1)..................... -0-* 1.00 0.35 1.35* 64 73
CLASS C SHARES
Zweig Strategy Fund.................... 0.75 1.00 0.22 1.97 33 62
Zweig Appreciation Fund................ 1.00 1.00 0.33 2.33 36 73
Zweig Growth & Income Fund(5).......... 0.75 1.00 0.25 2.00 33 63
Zweig Managed Assets................... 1.00 1.00 0.29 2.29 36 72
Zweig Government Fund(4)............... 0.60 0.75 0.36 1.71 30 54
Zweig Cash Fund(1)..................... -0-* 0.30 0.35 0.65* 19 21
CLASS I SHARES
Zweig Strategy Fund.................... 0.75 -- 0.22 0.97 10 31
Zweig Appreciation Fund................ 1.00 -- 0.33 1.33 14 42
Zweig Growth & Income Fund(5).......... 0.75 -- 0.25 1.00 10 32
Zweig Managed Assets................... 1.00 -- 0.29 1.29 13 41
Zweig Government Fund(4)............... 0.60 -- 0.36 0.96 10 31
Zweig Cash Fund(1)..................... -0-* -- 0.35 0.35* 4 11
<CAPTION>
EXAMPLE: You would pay the following
expenses on a $1,000 investment assuming
(1) 5% annual return
and (2) no redemption:
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
5 10 1 3 5 10
FUND Years Years Year Years Years Years
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Zweig Strategy Fund.................... $ 121 $200 $ 67 $ 93 $ 121 $200
Zweig Appreciation Fund................ 139 238 71 104 139 298
Zweig Growth & Income Fund(5).......... N/A N/A 68 94 N/A N/A
Zweig Managed Assets................... 137 234 70 102 137 234
Zweig Government Fund(4)............... 113 193 60 86 113 193
Zweig Cash Fund(1)..................... 36 81 7 21 36 81
CLASS B SHARES
Zweig Strategy Fund.................... 126 203(3) 20 62 106 203(3)
Zweig Appreciation Fund................ 145 244(3) 24 73 125 241(3)
Zweig Growth & Income Fund(5).......... N/A N/A 20 63 N/A N/A
Zweig Managed Assets................... 143 237(3) 23 72 123 233(3)
Zweig Government Fund(4)............... 126 202(3) 20 62 106 202(3)
Zweig Cash Fund(1)..................... 94 134(3) 14 43 74 134(3)
CLASS C SHARES
Zweig Strategy Fund.................... 106 230 20 62 106 230
Zweig Appreciation Fund................ 125 267 24 73 125 267
Zweig Growth & Income Fund(5).......... N/A N/A 20 63 N/A N/A
Zweig Managed Assets................... 123 263 23 72 123 263
Zweig Government Fund(4)............... 93 202 17 54 93 202
Zweig Cash Fund(1)..................... 36 81 7 21 36 81
CLASS I SHARES
Zweig Strategy Fund.................... 54 119 10 31 54 119
Zweig Appreciation Fund................ 73 160 14 42 73 160
Zweig Growth & Income Fund(5).......... N/A N/A 10 32 N/A N/A
Zweig Managed Assets................... 71 156 13 41 71 156
Zweig Government Fund(4)............... 53 118 10 31 53 118
Zweig Cash Fund(1)..................... 20 44 4 11 20 44
</TABLE>
- --------------------------------------------------------------------------------
* After expense reimbursement
(1) The manager has voluntarily undertaken to limit the expenses of Zweig Cash
Fund (exclusive of taxes, interest, brokerage commissions, 12b-1 fees and
extraordinary expenses) until April 30, 1997 to 0.35% of its average net
assets. The manager reserves the right to discontinue this policy at any
time after April 30, 1997. The Management Fees noted above, without
reimbursement, would be 0.50% for each Class, Other Expenses would be as
shown above except for Class A Shares which would be 0.54%, and Total Fund
Operating Expenses would be 1.34% for Class A Shares, 1.85% for Class B
Shares, 1.15% for Class C Shares and 0.85% for Class I Shares assuming Other
Expenses for Class B and Class I Shares (as a percent of average net assets)
are the same as for Class C Shares.
(2) The 12b-1 Fees include a 0.25% Service Fee, 100% of which is reallocated to
National Association of Securities Dealers, Inc. ("NASD") member firms
(commencing one year after purchase with respect to Class B and Class C
Shares) for continuous personal service by such members to investors in the
Trust, such as responding to shareholder inquiries, quoting net asset
values, providing current marketing materials and attending to other
shareholder matters. The distributor retains all or a portion of the
asset-based sales charge also included in the 12b-1 Fees; the remainder is
paid to brokers for promoting sales of the Trust's shares. The NASD limits
asset based sales charges to 6.25% of new sales, plus interest. Long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
(3) Class B Shares automatically convert to Class A Shares after seven years
(see Class B Share Conversion Feature), accordingly, years eight through ten
reflect expenses of the Class A Shares.
(4) The manager has voluntarily undertaken to limit the expenses of Zweig
Government Fund (exclusive of taxes, interest, brokerage commissions, 12b-1
fees and extraordinary expenses) only until December 31, 1996 to 0.75% of
its average net assets. The expenses shown above do not reflect such explore
limitation. The Management Fees noted above, with reimbursement, are 0.39%
for each Class, Other Expenses are as shown above, and Total Fund Operating
Expenses are 1.05% for Class A Shares, 1.75% for Class B Shares, and 1.50%
for Class C Shares, and will be 0.75% for Class I Shares offered during
1996.
(5) The manager has voluntarily undertaken to limit the expenses of Zweig Growth
& Income Fund (exclusive of taxes, interest, brokerage commissions, 12b-1
fees and extraordinary expenses) until April 30, 1997 to 1.00% of its
average daily net assets effective upon its commencement of operations. The
manager reserves the right to discontinue this policy at any time after
April 30, 1997.
2
<PAGE> 3
FINANCIAL HIGHLIGHTS
The information presented below is for the six months ended June 30, 1996
and the fiscal year or period ended December 31 for each of the years indicated.
Except for the six months ended June 30, 1996, Coopers & Lybrand L.L.P.,
the funds' independent accountants, has audited this information. Their report
for each of the last five years is included in the 1995 Annual Report of the
Trust which is available upon request and is incorporated by reference into the
Statement of Additional Information (SAI).
The distribution of Zweig Growth & Income Fund and Class I Shares commenced
on the effective date of this Prospectus.
<TABLE>
<CAPTION>
NET DISTRIBU-
REALIZED TIONS DISTRIBU-
NET ASSET AND DIVIDENDS FROM TIONS
VALUE NET UNREALIZED TOTAL FROM FROM NET REALIZED FROM TOTAL
PERIOD BEGINNING INVESTMENT GAINS INVESTMENT INVESTMENT CAPITAL CAPITAL DISTRIBU-
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS PAID-IN TIONS
----------- --------- ---------- ---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ZWEIG STRATEGY FUND CLASS A
1996 $ 14.51 $ 0.10 $ 0.51 $ 0.61 $(0.09) $ -- $ -- $ (0.09)
1995 12.36 0.27 2.80 3.07 (0.37) (0.55) -- (0.92)
1994 12.52 0.24 (0.10) 0.14 (0.20) (0.10) -- (0.30)
1993 13.60 0.13 1.72 1.85 (0.12) (2.81) -- (2.93)
1992 13.03 0.17 0.80 0.97 (0.21) (0.19) -- (0.40)
1991 10.81 0.21 2.27 2.48 (0.26) -- -- (0.26)
1990 11.36 0.42 (0.67) (0.25) (0.30) -- -- (0.30)
1989(1) 11.34 -- 0.02 0.02 -- -- -- --
ZWEIG STRATEGY FUND CLASS B
1996(7) 15.12 0.02 (0.05) (0.03) (0.02) -- -- (0.02)
ZWEIG STRATEGY FUND CLASS C
1996 14.56 0.05 0.50 0.55 (0.06) -- -- (0.06)
1995 12.35 0.16 2.82 2.98 (0.22) (0.55) -- (0.77)
1994 12.51 0.15 (0.10) 0.05 (0.11) (0.10) -- (0.21)
1993 13.61 0.05 1.71 1.76 (0.05) (2.81) -- (2.86)
1992(2) 12.89 0.08 0.69 0.77 (0.05) -- -- (0.05)
ZWEIG APPRECIATION FUND CLASS A
1996 15.91 0.09 0.90 0.99 -- -- -- --
1995 13.54 0.16 3.05 3.21 (0.33) (0.51) -- (0.84)
1994 14.33 0.16 (0.43) (0.27) (0.06) (0.46) -- (0.52)
1993 13.10 0.07 1.83 1.90 (0.06) (0.61) -- (0.67)
1992 12.03 0.06 1.07 1.13 (0.03) (0.03) -- (0.06)
1991(3) 11.34 0.03 0.66 0.69 -- -- -- --
ZWEIG APPRECIATION FUND CLASS B
1996(7) 16.34 0.01 0.39 0.40 -- -- -- --
ZWEIG APPRECIATION FUND CLASS C
1996 15.83 0.03 0.89 0.92 -- -- -- --
1995 13.36 0.06 3.03 3.09 (0.11) (0.51) -- (0.62)
1994 14.19 0.06 (0.43) (0.37) -- (0.46) -- (0.46)
1993 13.01 (0.01) 1.80 1.79 -- (0.61) -- (0.61)
1992(2) 12.33 (0.02) 0.70 0.68 -- -- -- --
ZWEIG MANAGED ASSETS CLASS A
1996 12.48 0.24 0.03 0.27 (0.17) -- -- (0.17)
1995 11.76 0.47 1.40 1.87 (0.75) (0.40) -- (1.15)
1994 12.38 0.33 (0.69) (0.36) (0.26) -- -- (0.26)
1993(4) 11.34 0.22 1.13 1.35 (0.14) (0.17) -- (0.31)
ZWEIG MANAGED ASSETS CLASS B
1996(7) 12.43 0.09 0.14 0.23 (0.04) -- -- (0.04)
ZWEIG MANAGED ASSETS CLASS C
1996 12.49 0.20 0.02 0.22 (0.13) -- -- (0.13)
1995 11.73 0.38 1.40 1.78 (0.62) (0.40) -- (1.02)
1994 12.36 0.23 (0.68) (0.45) (0.18) -- -- (0.18)
1993(4) 11.34 0.15 1.13 1.28 (0.09) (0.17) -- (0.26)
<CAPTION>
RATIOS TO AVERAGE NET
AVERAGE
COMMISSION
NET ASSETS PER SHARE
ASSET ----------------------- ON
VALUE *** NET PORTFOLIO PORTFOLIO END OF PERIOD
PERIOD END OF TOTAL INVESTMENT TURNOVER TRANS- NET ASSETS
ENDED PERIOD RETURN EXPENSES INCOME RATE(9) ACTIONS (IN THOUSANDS)
----------- ------ ------ -------- ---------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
ZWEIG STRATEGY FUND CLASS A
1996 $15.03 4.20% 1.24%* 1.24%* 213%* $.03 $598,066
1995 14.51 25.12 1.27 1.92 95 .03 558,286
1994 12.36 1.14 1.40 1.90 70 N/A 424,805
1993 12.52 14.97 1.43 1.00 359 N/A 405,884
1992 13.60 7.61 1.63 1.32 249 N/A 358,318
1991 13.03 23.34 1.58 1.79 179 N/A 367,343
1990 10.81 (2.16) 1.67 3.89 105 N/A 298,734
1989(1) 11.36 0.18 N/A N/A N/A N/A 333,391
ZWEIG STRATEGY FUND CLASS B
1996(7) 15.07 (0.20) 1.94* 0.54* 213* .03 19,327
ZWEIG STRATEGY FUND CLASS C
1996 15.05 3.78 1.94* 0.54* 213* .03 627,744
1995 14.56 24.26 1.97 1.22 95 .03 530,300
1994 12.35 0.41 2.10 1.20 70 N/A 307,011
1993 12.51 14.18 2.13 0.30 359 N/A 188,631
1992(2) 13.61 6.00 2.43* 0.40* 249 N/A 64,697
ZWEIG APPRECIATION FUND CLASS A
1996 16.90 6.22 1.59* 1.02* 110* .03 276,694
1995 15.91 24.00 1.63 1.10 68 .03 272,590
1994 13.54 (1.83) 1.70 1.09 97 N/A 213,400
1993 14.33 14.65 1.73 0.52 69 N/A 230,230
1992 13.10 9.52 1.96 0.49 61 N/A 200,656
1991(3) 12.03 6.08 2.19* 1.27* 8 N/A 157,948
ZWEIG APPRECIATION FUND CLASS B
1996(7) 16.74 2.45 2.29* 0.32* 110* .03 3,442
ZWEIG APPRECIATION FUND CLASS C
1996 16.75 5.81 2.29* 0.32* 110* .03 216,342
1995 15.83 23.20 2.33 0.40 68 .03 195,204
1994 13.36 (2.55) 2.40 0.39 97 N/A 139,397
1993 14.19 13.84 2.43 (0.18) 69 N/A 105,957
1992(2) 13.01 5.52 2.80* (0.32)* 61 N/A 42,089
ZWEIG MANAGED ASSETS CLASS A
1996 12.58 2.18 1.62* 2.76* 228* .02 129,424
1995 12.48 16.26 1.59 3.69 239 .03 141,110
1994 11.76 (2.93) 1.68 2.70 299 N/A 154,441
1993(4) 12.38 11.98 1.67* 1.93* 196 N/A 121,620
ZWEIG MANAGED ASSETS CLASS B
1996(7) 12.62 1.85 2.32* 2.06* 228* .02 3,443
ZWEIG MANAGED ASSETS CLASS C
1996 12.58 1.77 2.32* 2.06* 228* .02 478,898
1995 12.49 15.44 2.29 2.99 239 .03 527,432
1994 11.73 (3.66) 2.38 2.00 299 N/A 570,710
1993(4) 12.36 11.34 2.37* 1.23* 196 N/A 429,088
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
NET DISTRIBU-
REALIZED TIONS DISTRIBU-
NET ASSET AND DIVIDENDS FROM TIONS
VALUE NET UNREALIZED TOTAL FROM FROM NET REALIZED FROM TOTAL
PERIOD BEGINNING INVESTMENT GAINS INVESTMENT INVESTMENT CAPITAL CAPITAL DISTRIBU-
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS PAID-IN TIONS
----------- --------- ---------- ---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ZWEIG GOVERNMENT FUND CLASS A
1996(8) $ 10.39 $ 0.26 $(0.64) $(0.38) $(0.25) $ -- $ -- $ (0.25)
1995 9.63 0.52 0.77 1.29 (0.53) -- -- (0.53)
1994 10.43 0.50 (0.79) (0.29) (0.51) -- -- (0.51)
1993 10.01 0.55 0.46 1.01 (0.59) -- -- (0.59)
1992 10.21 0.65 (0.22) 0.43 (0.63) -- -- (0.63)
1991 9.60 0.68 0.62 1.30 (0.69) -- -- (0.69)
1990 9.75 0.70 (0.15) 0.55 (0.70) -- -- (0.70)
1989 9.29 0.66 0.46 1.12 (0.66) -- -- (0.66)
1988 9.54 0.68 (0.25) 0.43 (0.68) -- -- (0.68)
1987 10.70 0.70 (0.92) (0.22) (0.70) (0.11) (0.13) (0.94)
1986 10.87 0.76 0.28 1.04 (0.92) (0.29) -- (1.21)
ZWEIG GOVERNMENT FUND CLASS B
1996(7)(8) 9.76 0.08 0.02 0.10 (0.08) -- -- (0.08)
ZWEIG GOVERNMENT FUND CLASS C
1996(8) 10.38 0.24 (0.65) (0.41) (0.22) -- -- (0.22)
1995 9.62 0.48 0.76 1.24 (0.48) -- -- (0.48)
1994 10.40 0.46 (0.79) (0.33) (0.45) -- -- (0.45)
1993 10.02 0.52 0.41 0.93 (0.55) -- -- (0.55)
1992(2) 9.86 0.52 0.09 0.61 (0.45) -- -- (0.45)
ZWEIG CASH FUND CLASS A(5)
1996 1.00 0.02 -- 0.02 (0.02) -- -- (0.02)
1995 1.00 0.05 -- 0.05 (0.05) -- -- (0.05)
1994(6) 1.00 0.03 -- 0.03 (0.03) -- -- (0.03)
ZWEIG CASH FUND CLASS B(5)
1996(7) 1.00 0.01 -- 0.01 (0.01) -- -- (0.01)
ZWEIG CASH FUND CLASS C(5)
1996 1.00 0.02 -- 0.02 (0.02) -- -- (0.02)
1995 1.00 0.05 -- 0.05 (0.05) -- -- (0.05)
1994(6) 1.00 0.03 -- 0.03 (0.03) -- -- (0.03)
<CAPTION>
RATIOS TO AVERAGE NET
AVERAGE
COMMISSION
NET ASSETS PER SHARE
ASSET ----------------------- ON
VALUE *** NET PORTFOLIO PORTFOLIO END OF PERIOD
PERIOD END OF TOTAL INVESTMENT TURNOVER TRANS- NET ASSETS
ENDED PERIOD RETURN EXPENSES INCOME RATE(9) ACTIONS (IN THOUSANDS)
----------- ------ ------ -------- ---------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
ZWEIG GOVERNMENT FUND CLASS A
1996(8) $9.76 (3.71)% 1.22* 5.17%* 306%* N/A $ 36,108
1995 10.39 13.84 1.26 5.22 195 N/A 42,207
1994 9.63 (2.83) 1.28 5.07 191 N/A 47,622
1993 10.43 10.35 1.30 5.46 256 N/A 60,207
1992 10.01 4.51 1.30 6.58 200 N/A 70,062
1991 10.21 14.35 1.42 7.10 361 N/A 83,859
1990 9.60 6.09 1.44 7.44 263 N/A 102,209
1989 9.75 12.46 1.88 7.04 445 N/A 119,742
1988 9.29 4.63 1.91 7.27 24 N/A 203,999
1987 9.54 (2.02) 1.81 7.09 58 N/A 350,614
1986 10.70 10.23 1.87 6.93 169 N/A 421,837
ZWEIG GOVERNMENT FUND CLASS B
1996(7)(8) 9.78 0.99 1.92* 4.47* 306* N/A 85
ZWEIG GOVERNMENT FUND CLASS C
1996(8) 9.75 (3.96) 1.67* 4.72* 306* N/A 16,116
1995 10.38 13.27 1.72 4.77 195 N/A 19,778
1994 9.62 (3.18) 1.73 4.62 191 N/A 22,599
1993 10.40 9.48 1.75 5.01 256 N/A 21,301
1992(2) 10.02 6.31 1.81* 5.93* 200 N/A 9,210
ZWEIG CASH FUND CLASS A(5)
1996 1.00 2.37 0.65* 4.71* N/A N/A 3,366
1995 1.00 5.08 0.87 4.97 N/A N/A 3,661
1994(6) 1.00 2.55** 0.62** 2.52** N/A N/A 4,303
ZWEIG CASH FUND CLASS B(5)
1996(7) 1.00 0.97 1.35* 4.01* N/A N/A 58
ZWEIG CASH FUND CLASS C(5)
1996 1.00 2.37 0.65* 4.72* N/A N/A 3,415
1995 1.00 5.08 0.87 4.97 N/A N/A 4,458
1994(6) 1.00 2.55** 0.61** 2.52** N/A N/A 5,040
</TABLE>
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(1) Commenced operations December 29, 1989.
(2) Commenced operations February 4, 1992.
(3) Commenced operations October 7, 1991.
(4) Commenced operations February 8, 1993.
(5) During 1996 and 1995, the manager voluntarily reimbursed Zweig Cash Fund
Class A, Class B and Class C $.003, $.001 and $.003 per share (0.60%, 0.39%
and 0.57% ratio of expenses to average net assets) and $.005, $0 and $.003
per share (0.47%, 0% and 0.28% ratio of expenses to average net assets),
respectively.
(6) Commenced operations May 1, 1994.
(7) Commenced operations April 8, 1996.
(8) During 1996, the manager voluntarily reimbursed Zweig Government Fund Class
A, Class B and Class C $.005, $.008 and $.005 per share (0.11%, 0.34% and
0.10% ratio of expenses to average net assets), respectively.
(9) See "Portfolio Turnover Rate" on page 9.
* Annualized.
** Not annualized.
*** Total Return does not consider the effect of any initial or contingent
deferred sales charge.
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ZWEIG SERIES TRUST
Zweig Series Trust offers investors the opportunity to pool their money to
achieve the benefits of a mutual fund: economies of scale, diversification and
professional money management. Economies of scale result in lower costs per
investor, due to the large number of investors sharing the expenses of the
funds. Investors can achieve greater diversification in a mutual fund than they
could by investing in individual securities. The Trust offers investors access
to the professional investment expertise of Zweig/Glaser Advisers, the manager.
Dr. Martin E. Zweig, Ph.D., is Chairman of the manager and President of the
Trust.
INVESTMENT OBJECTIVES OF THE ZWEIG MUTUAL FUNDS
ZWEIG STRATEGY FUND seeks long-term capital appreciation through investment
primarily in "Blue Chip Stocks" (see Portfolio Securities), consistent with
preservation of capital and reduction of portfolio exposure to market risk. The
fund is managed using risk management strategies and a stock selection model
developed by Dr. Zweig and his staff.
Dr. Zweig's risk management strategies rely on a series of monetary, sentiment
and market indicators. The indicators measure risk levels in the stock and bond
markets. As the indicators point to increasing levels of market risk, the
portfolio manager reduces, or can offset entirely, the fund's market exposure by
gradually selling portions of the fund's stock holdings and buying cash
equivalents, such as money market securities. Stock index futures or options
also may be used as a means of adjusting the fund's exposure to market risk, but
not for the purpose of leverage (see Risk Factors and Managing Exposure to
Market Risk). As long as the indicators continue to show high levels of risk in
the securities markets, Zweig Strategy Fund will continue to maintain its
exposure to market risk at lower than normal levels. Under normal conditions,
Dr. Zweig's investment models will not reallocate more than 10% of a fund's
assets among asset classes at any one time.
ZWEIG APPRECIATION FUND seeks long-term capital appreciation through investment
primarily in "Small Company Stocks" (see Portfolio Securities), consistent with
preservation of capital and reduction of portfolio exposure to market risk.
Current income is not an objective. Under normal circumstances, the fund will
have between 50% and 65% of its invested assets in Small Company Stocks and may
invest up to 35% in large company stocks. The risk management strategies
described in the preceding paragraph also are used in managing this fund. As
long as the indicators continue to show high levels of risk in the securities
markets, Zweig Appreciation Fund will continue to maintain its exposure to
market risk at lower than normal levels.
ZWEIG GROWTH & INCOME FUND seeks long-term capital appreciation, with dividend
income a secondary consideration, consistent with preservation of capital and
reduction of portfolio exposure to market risk. The risk management strategies
described above under Zweig Strategy Fund also are used in managing this fund.
As long as the indicators show high levels of risk in the securities markets,
Zweig Growth & Income Fund will maintain its exposure to market risk at lower
than normal levels by investing in cash equivalents, such as money market
instruments, or otherwise managing its risk exposure in a manner consistent with
the risk management strategies described above.
ZWEIG MANAGED ASSETS seeks a high level of total return over the long-term from
capital appreciation, dividends and interest, with a reduction of portfolio
exposure to market risk by allocating its assets among domestic and foreign
stocks, bonds, short-term debt instruments, currencies and currency-related
instruments. Up to 50% of the fund's assets may be invested in foreign
securities, as conditions warrant (see Portfolio Securities). The asset
allocation mix will be determined using risk management strategies and
investment models developed by Dr. Zweig and his staff.
The fund's assets normally will be allocated within the following parameters:
0-60% in stocks, 0-60% in bonds and 0-100% in short-term debt instruments. A
neutral mix will consist of 35% stocks, 35% bonds and 30% cash equivalents. This
will occur when the research indicates that conditions do not favor one asset
class over another. The fund may use futures, forward currency contracts, and
options to increase or decrease its exposure to changing securities prices,
interest rates or currency exchange rates.
ZWEIG GOVERNMENT FUND seeks a high total return from current income and capital
appreciation consistent with preservation of capital over the long term by
investing primarily in U.S. Government and agency securities, including
Government National Mortgage Association mortgage-backed certificates, and
repurchase agreements collateralized by such securities. The fund may use
futures contracts and options as a means of hedging against changes in interest
rates.
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<PAGE> 6
ZWEIG CASH FUND seeks high current income consistent with maintaining liquidity
and preserving capital. The goal of the fund is to maintain a stable share price
of $1.00. The fund invests exclusively in short-term securities issued or
guaranteed as to the payment of principal and interest by the U.S. Government,
its agencies or instrumentalities, and repurchase agreements collateralized by
such obligations. Zweig Cash Fund also offers Class M Shares which are described
in a separate Prospectus. Class M Shares have different distribution fees and
expenses, which may affect performance. You may obtain more information about
Class M Shares by calling 1-800-272-2700. Class M Shares of Zweig Cash Fund have
no exchange privileges with other funds in the Trust.
The investment objectives described in the first sentence under the name of each
fund above, except for those of Zweig Managed Assets, are fundamental. They can
be changed only by vote of a majority of the outstanding shares of a fund. A
majority for this purpose is defined as the lesser of either: (a) 67% of the
shares represented at a meeting if more than 50% of all shares are represented,
or (b) more than 50% of all outstanding shares. We do not anticipate that Zweig
Managed Assets will change its objectives or alter its "neutral" asset mix. If
the fund should change its investment objective, we will notify shareholders 30
days prior to making the change.
Please read the Risk Factors and Managing Exposure to Market Risk, Stock
Selection and Bond Duration, and Portfolio Securities sections of this
prospectus for more detailed information about the investment practices of each
fund. The SAI has further details. As with any mutual fund, there is no
assurance that a fund's objectives will be achieved.
DR. MARTIN E. ZWEIG
Dr. Martin E. Zweig has created and refined a risk-averse style of money
management over a 25-year career providing investment advisory and portfolio
management services. Dr. Zweig is President and/or Chairman of investment
advisory firms that presently manage over $6.6 billion of assets. This $6.6
billion includes approximately $1.2 billion in publicly traded closed-end
investment companies and $2.4 billion in open-end mutual funds, as well as other
accounts.
Dr. Zweig is the Chairman of the manager and President of the Trust. He has been
a regular panelist on PBS television's Wall Street Week with Louis Rukeyser for
22 years and, in 1992, became the ninth person selected for the program's Hall
of Fame. Dr. Zweig is the publisher of various investment advisory newsletters,
including The Zweig Forecast. He is also the author of the books Winning on Wall
Street, The ABCs of Market Forecasting and Winning with New IRAs.
Dr. Zweig determines the asset allocation strategy for each of the Zweig Mutual
Funds; he does not select the individual securities to implement the strategy.
The portfolio manager of each individual fund selects the specific securities
for that fund (see Stock Selection and Bond Duration).
THE PORTFOLIO MANAGERS
David Katzen has been the portfolio manager for Zweig Strategy Fund, Zweig
Appreciation Fund and Zweig Growth & Income Fund since their inceptions. Mr.
Katzen is a Senior Vice President of the funds. He has been with the Zweig
Organization since 1986. Mr. Katzen received his B.A. in Mathematics from City
University of New York and an M.A. in Mathematics from Dartmouth College, where
he was admitted to the Ph.D. program.
Carlton Neel has been the portfolio manager for Zweig Managed Assets and Zweig
Government Fund since July 5, 1995. Mr. Neel is a First Vice President of the
funds. Mr. Neel received a dual B.A. in Economics and Political Science from
Brown University. Prior to joining the Zweig Organization, he was a Vice
President with J.P. Morgan & Co., Inc.
STOCK SELECTION AND BOND DURATION
The portfolio manager of Zweig Strategy Fund, Zweig Appreciation Fund and Zweig
Growth & Income Fund uses proprietary computer-driven models developed by Dr.
Zweig and his staff to choose stocks for the funds. The models evaluate and rank
3,000 stocks based primarily on earnings momentum, relative valuation, changes
in analysts' earnings estimates, earnings growth, price momentum, cash flow
trend, payout ratio trend and other market measurements. The stock selection
models may evolve or be replaced by other techniques intended to select stocks
with the potential for growth. We will notify shareholders of any material
change to the stock selection models.
Out of the 1,400 most liquid stocks, the portfolio manager selects up to 300
stocks for the Zweig Strategy
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<PAGE> 7
Fund. The manager of the Zweig Appreciation Fund selects a larger number of
stocks (presently more than 600) primarily from the 2,500 stocks immediately
after the 500 largest stocks ranked by market capitalization or trading volume.
The Zweig Appreciation Fund also may invest up to 35% of its assets in
large-company stocks.
The Zweig Growth & Income Fund will consist of up to 300 stocks divided
approximately equally between those selected by the portfolio manager for their
growth characteristics (including positive earnings momentum and above average
earnings growth rates) and those for their income characteristics (including
above average dividend yields and favorable dividend growth).
U.S. stocks in Zweig Managed Assets are selected using a model that is comprised
of industry specific background indicators and momentum components. These
indicators determine the optimal weighting in each major industry group. The
selection of the individual securities is determined by ranking approximately
750 stocks that the portfolio manager considers to be comparable in market
capitalization and liquidity to the stocks in the Standard & Poor's 500 Index.
Up to 200 stocks are selected in accordance with the weightings of the industry
groups.
Each foreign country in which Zweig Managed Assets intends to invest has a
currency model, as well as stock and bond models similar to those used for
determining the domestic asset allocation strategy. Zweig Managed Assets may
invest in groups of foreign stocks that, in the aggregate, are expected to
perform similarly to the major stock market index of the country in which the
stocks are located, in investment vehicles structured to track a particular
major foreign stock market index, and in investment companies, commonly referred
to as "Country Funds", that invest in the securities of a particular country.
With respect to each of the four funds described above, the concentration of
each fund in stocks will vary from time to time, depending on the manager's
determination of risk levels in the stock market. When the manager's research
points to increasing levels of market risk, the portfolio's exposure will be
reduced by gradually selling stocks and investing the proceeds in money market
instruments and/or by hedging market exposure with stock index futures or
options.
Zweig Government Fund invests in U.S. Government securities. These obligations
of the United States Government and its agencies and instrumentalities are
considered to have the lowest risk of default. Therefore, the primary
consideration in choosing U.S. Government bonds is managing risks related to
changes in interest rate levels. A bond's duration measures its sensitivity to
changes in interest rates (interest rate risk). In concept, duration is the
weighted average "maturity" of all cash flows of a bond (the interest payments
as well as the principal repayment). The longer the duration, the greater the
bond's price movement will be as interest rates change. The portfolio manager
adjusts duration by altering the mix of short-, medium- and long-term bonds, and
by buying or selling Treasury futures contracts.
Investments for Zweig Government Fund are chosen primarily by utilizing a model
that incorporates various indicators, such as: momentum of bond prices, short-
term interest rate trends, inflation indicators, general economic and liquidity
indicators, and other market indicators and statistics.
PORTFOLIO SECURITIES
The securities described below may be used in pursuit of a fund's investment
objectives. Percentage limitations on investments are considered at the time of
purchase; the sale of portfolio securities is not required in the event of a
subsequent change in value or in a fund's net assets.
STOCKS and other equity securities represent an ownership interest in a company.
Securities in this category include common stocks, fixed-rate preferred stocks,
bonds convertible into equity securities, warrants, rights, depository receipts
and other equity securities. Common stocks have a history of long-term growth in
value. However, stock prices fluctuate in response to general market and
economic conditions, as well as to factors affecting individual companies. Zweig
Government Fund and Zweig Cash Fund may not invest in stocks.
"BLUE CHIP STOCKS" (the primary investments of Zweig Strategy Fund) are
stocks with a minimum market capitalization (the total value of their
shares) of $400 million, average daily trading volume of 50,000 shares or
$425 million of total assets, that the portfolio manager considers to be
comparable to the stocks included in the Standard & Poor's 500 Index. Blue
Chip Stocks are traded on the
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<PAGE> 8
New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), over
the counter (OTC) or on foreign exchanges.
"SMALL COMPANY STOCKS" (the primary investments of Zweig Appreciation Fund)
are the 2,500 stocks traded on the NYSE, AMEX or OTC that are positioned
immediately after the 500 largest stocks ranked in terms of market
capitalization and/or trading volume. These 2,500 stocks have a market
capitalization ranging from approximately $177 million to $3.9 billion.
Their average daily trading volume is approximately $4.5 million. Small
Company Stocks historically have presented greater potential for capital
appreciation and greater risk, and they tend to be more volatile, than
stocks of larger, more established companies.
BONDS and other debt instruments represent a loan from the investor to the
issuer of the security. The issuer pays the investor a fixed or variable rate of
interest and must repay the amount borrowed when the bond matures. The value of
bonds and other debt instruments fluctuates primarily based on the maturity and
coupon (interest rate), changes in the general level of interest rates, and the
credit quality of the issuer. Zweig Strategy Fund may not invest in bonds. Zweig
Appreciation Fund and Zweig Growth & Income Fund may invest only in U.S.
Government securities with remaining maturities of five years or less. Zweig
Managed Assets may invest in foreign and domestic bonds rated "A" or higher by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, or if unrated,
the bonds must be judged by the portfolio manager to be of comparable quality.
U.S. GOVERNMENT SECURITIES are debt instruments issued or guaranteed by the
U.S. Treasury or by a U.S. Government agency or instrumentality. Not all
U.S. Government securities are backed by the full faith and credit of the
United States. Some are supported only by the credit of the agency or
instrumentality that issued them. Agencies and instrumentalities include:
Bank for Cooperatives, Export-Import Bank of the U.S., Farmers Home
Administration, Federal Financing Bank, Federal Home Loan Banks, Federal
Home Loan Mortgage Corp., Federal Housing Administration, Federal
Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association, Government National Mortgage Association (GNMA), Resolution
Funding Corp., Student Loan Marketing Association, Tennessee Valley
Authority and the U.S. Postal Service.
MORTGAGE SECURITIES are debt instruments that include mortgage-backed
securities (for example, GNMA certificates) and collateralized mortgage
obligations. In addition to price fluctuations based on changes in interest
rates and the market's perception of the issuer, mortgage securities also
are subject to prepayment risk which can result in the proceeds being
reinvested at a lower rate of interest and loss of any premium. This
typically occurs when large numbers of homeowners refinance their mortgages
at lower rates.
MONEY MARKET INSTRUMENTS are short-term, high quality debt securities that
present minimal risk of loss. We use these securities to reduce fluctuations in
a fund's net asset value -- and often refer to them as "cash" or "cash
equivalents". Money market securities include: short-term U.S. Government
obligations, commercial paper, other short-term corporate obligations, bank
deposits (including time deposits with a maturity of less than one year) and
other financial institution obligations.
REPURCHASE AGREEMENTS are arrangements by which a fund buys a security at one
price and at the same time agrees to sell the security back to the seller at a
higher price, usually on the next business day (or within seven days for foreign
repurchase agreements). Repurchase agreements offer a means of generating income
from excess cash that a fund might otherwise hold. Delays in payment or losses
may result if the other party to the agreement defaults or becomes bankrupt. A
fund will enter into repurchase agreements only with member banks of the Federal
Reserve System or primary dealers in U.S. Government securities. The fund's
repurchase agreements must be fully backed by collateral (U.S. Government
securities in the case of the Zweig Government Fund and Zweig Cash Fund) that is
marked to market, or priced, each day.
FOREIGN STOCKS AND BONDS may involve additional risks. These include currency
fluctuations and risks related to political and economic conditions in foreign
countries. These factors could make foreign investments less liquid and more
volatile. Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may be less
information available about their operations. Foreign investments also may be
subject to possible
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<PAGE> 9
nationalization of issuers or expropriation of their assets, which would
adversely affect a fund's ability to liquidate its investment. Zweig Government
Fund and Zweig Cash Fund may not invest in foreign securities. The other Zweig
Mutual Funds may invest in foreign securities and American depository receipts
that are publicly traded in the U.S. In addition, Zweig Strategy Fund, Zweig
Appreciation Fund and Zweig Growth & Income Fund may invest up to 15% of their
assets in foreign securities not publicly traded in the U.S. Zweig Managed
Assets may invest up to 50% of its assets in foreign securities not publicly
traded in the U.S., but not more than 15% of its assets in any one country.
ILLIQUID AND RESTRICTED SECURITIES may be difficult to sell promptly at an
acceptable price, or may be sold only pursuant to certain legal restrictions.
Difficulty in selling securities may result in a loss or entail expenses not
normally associated with the sale of a portfolio security. Illiquid securities
include securities not listed on a recognized foreign securities exchange and
repurchase agreements having more than seven days remaining to maturity. No more
than 15% of a fund's net assets (10% for Zweig Cash Fund) may be invested in
illiquid securities.
INDEXED SECURITIES are securities whose value depends on the price of securities
indexes, other securities, foreign currencies or other assets. Among the more
traditional indexed securities are futures and options. Futures and options are
standardized contracts that have been used by mutual funds for many years to
manage their portfolios more efficiently. Index futures, for example, enable the
manager to position assets in the market immediately, with a modest margin
deposit (roughly 5% to 10% of the position size) to simulate a much larger
invested position. Transaction costs also may be lower than purchasing or
selling the underlying securities. A fund will purchase or sell indexed
securities for hedging purposes only, including increasing or decreasing
exposure to changing securities prices, but not to leverage assets. (See Risk
Factors and Managing Exposure to Market Risk.)
OTHER INVESTMENT POLICIES
PORTFOLIO TURNOVER RATE. The length of time a fund has held a stock or bond is
not usually considered when making investment decisions. As a result of the
Zweig style of money management, a fund's turnover rate may be higher than that
of other mutual funds. (A portfolio turnover rate in excess of 100% may be
deemed to be high.) Portfolio turnover may result in realization of taxable
capital gains and generally involves expense, including brokerage costs. (The
SAI contains a detailed explanation of certain relevant tax considerations.) The
portfolio managers consider the cost of making portfolio adjustments when
deciding whether to implement a strategy by selling stocks or bonds and
investing the proceeds in money market securities, or by using futures or
options to reduce exposure to market risk. See the table under Financial
Highlights for portfolio turnover rates.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. A fund may purchase a bond or
stock with delivery of the security and payment deferred to a future date. The
money to purchase such securities will be invested in other securities until the
fund receives delivery. This could increase the possibility that the fund's net
asset value would increase or decrease faster than would otherwise be the case.
LENDING SECURITIES. A fund may lend securities to broker/ dealers and
institutions as a means of earning income. Delays or losses could result if a
borrower becomes bankrupt or defaults in its obligation to return the loaned
security. The Zweig Mutual Funds may lend securities only if: (a) the loan is
fully backed by collateral at all times, and (b) the value of all loaned
securities is less than one-third of the fund's total assets.
BORROWING. All Zweig Mutual Funds may make temporary borrowings from banks to
cover redemptions. Although they have not done so in the past, Zweig Strategy
Fund and Zweig Appreciation Fund also may borrow from banks for investment if
all borrowings would not exceed 20% of the fund's assets. Thereafter, the amount
borrowed must never exceed one-third of the fund's assets. If the performance of
the fund's investments fails to cover the cost of borrowing, including interest,
the net asset value of its shares will decrease faster than if the fund had no
borrowings outstanding.
RISK FACTORS AND MANAGING EXPOSURE TO MARKET RISK
Investing in stocks and bonds, directly or through a mutual fund, involves risks
that are not found in federally insured money market and savings accounts and
CDs. The most significant is the risk of losing your principal. The prices of
individual stocks and bonds, and markets as a whole, move up and down. Markets
move based on economic factors such as interest rates and market conditions such
as investor sentiment. Indi-
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<PAGE> 10
vidual stock or bond prices also are affected by results of the issuer's
operations and factors peculiar to its industry.
Diversification can reduce the risks of investing. Diversifying includes
limiting the amount invested in any one company or, on a broader scale, limiting
the amount invested in any one industry, any one class of assets (e.g. stocks)
or any one country. The funds' Annual and Semi-Annual Reports to Shareholders
detail the holdings of each fund. Call 1-800-272-2700 to obtain the most recent
Report.
Like most mutual funds, the Zweig Mutual Funds use diversification to minimize
the effect of a loss in any one investment. U.S. Government securities (the
primary investments of Zweig Government Fund and Zweig Cash Fund) avoid the
risks related to factors affecting a particular company or industry, but they do
not eliminate market (interest rate) risk.
Unlike most mutual funds, the Zweig Mutual Funds also manage exposure to market
risk by significantly adjusting the amount of a fund's assets that are invested
in stocks or bonds and the duration (risk) of a bond portfolio. While the Zweig
Funds manage exposure to risk, we cannot eliminate risk.
We manage the Zweig Mutual Funds by diversifying portfolios very broadly (other
than funds comprised of U.S. Government securities) and by increasing or
reducing the amount of the fund's assets that are invested in stocks or bonds,
using the strategies developed by Dr. Zweig and his associates. As the research
indicates that risk levels are rising in the stock and/or bond markets, the
portfolio manager gradually sells a portion of each fund's stocks and/or bonds
and buys money market securities. As the research indicates decreasing levels of
risk in stocks and/or bonds, the portfolio manager sells some of the money
market securities and buys stocks and/or bonds. The shifts in the asset mix of a
fund are made incrementally. Under normal conditions, a fund will not adjust its
asset mix by more than 10% at any one time.
In addition to buying and selling money market securities, the portfolio manager
may use other methods to increase or reduce market exposure. The portfolio
manager may buy or sell futures contracts and options. He also may sell short
and enter into currency exchange contracts. These strategies allow the fund to
increase or decrease its exposure to changes in interest rates, exchange rates
and movements in stock prices. Used cautiously, they may be effective tools that
lend greater stability to fund assets. They may also help to reduce the cost of
administering a portfolio and allow managers to buy and sell relatively large
positions without distorting prices. The portfolio managers use these techniques
to adjust the risk and return characteristics of a fund. They do not use these
practices to leverage the fund. If a manager misjudges market conditions or
employs a strategy that does not correlate well with the fund's primary
investments, use of these techniques may result in a loss, regardless of the
manager's original intent to reduce risk. Descriptions of these strategies
follow, and the SAI contains more detailed explanations. You should understand
these investment practices and be sure that you are able to withstand the
potential risks inherent in their use.
FUTURES CONTRACTS AND OPTIONS. Each of the Zweig Mutual Funds except Zweig Cash
Fund may use futures contracts and options to manage its exposure to changing
stock and bond prices or to alter its asset mix. A fund may use any type of
future or option related to its investments. These include: stock index futures
and options, foreign stock index futures and options, interest rate futures and
options, and foreign currency futures and options, including those traded on
foreign exchanges and options not traded on exchanges. Some futures and options
strategies hedge against price fluctuations. These include: selling futures as a
portfolio hedge, buying puts and writing covered calls. Other strategies
increase market exposure. These include buying futures, writing puts and buying
calls.
A fund will not purchase puts if more than 10% of its assets would be invested
in premiums on puts. A fund will write calls only if they are covered throughout
the life of the call. A fund will write puts only if: (a) the aggregate value of
the obligations underlying the puts does not exceed 50% of a fund's assets, and
(b) the puts are fully secured by cash or liquid securities in a segregated
account with the fund's custodian, The Bank of New York. Call options on futures
must be similarly secured. Where applicable, the assets in the segregated
account will be valued on a daily basis.
Futures and options involve, to varying degrees, market risk in excess of their
value. Futures and options may be used or combined with each other, or with
forward contracts, in order to adjust the risk and return characteristics of an
overall strategy; however, there may be
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<PAGE> 11
an imperfect correlation between the prices of options and futures contracts and
the price movements of the securities being hedged. Another risk associated with
options and futures is a potential lack of liquidity. A fund may be unable to
close out, or sell, its futures or options positions at all times. Each fund
seeks to limit losses from all options transactions to 5% of its average net
assets per year. If necessary, a fund will cease options transactions in order
to comply with the 5% limitation.
CURRENCY EXCHANGE CONTRACTS. Only Zweig Managed Assets may enter into forward
currency exchange contracts. Currency exchange contracts are agreements to
exchange one currency for another at a set rate on a future date. Currency
exchange contracts may be used to lock in an exchange rate for purchases of
securities denominated in foreign currencies or used for investment purposes.
These contracts involve the risk that currency movements will be inaccurately
predicted, in which case the fund's return would be adversely affected. To
manage its exposure to fluctuations in currency exchange rates, Zweig Managed
Assets may enter into forward currency exchange contracts, may buy and sell
options and futures contracts relating to foreign currencies, or may purchase
securities indexed to foreign currencies.
Some futures and forward foreign currency contracts are customized financial
contracts between two parties. Such contracts are subject to the additional risk
that the counterparty will not meet its obligations under the contract. They
also may be less liquid and more difficult to value than standardized contracts
traded on a regulated exchange.
SELLING SHORT. Zweig Cash Fund may not sell short. A fund sells a security,
future or currency short when the manager believes the price of the security,
future or currency will decline. A fund may sell a stock index future short to
offset a potential decline in a group of stocks the fund owns. A fund may make
such short sales if the manager believes reducing portfolio exposure to changing
securities prices can be accomplished at a lower cost than if the securities
themselves were sold. A fund also may sell a security short to protect against a
decline in the price of a security it already owns, but wishes to defer the
realization of a capital gain. To sell a security short, the fund must borrow
the security. A fund's obligation to replace the security borrowed and sold
short will be fully secured at all times by the proceeds from the short sale
retained by the broker and by cash or liquid securities deposited with the
lender of the security or in a segregated account with the fund's custodian. A
fund may not sell securities short if: (a) the market value of all securities
sold short will be more than 25% of the fund's assets, or (b) the market value
of unlisted securities sold short will be more than 10% of the fund's assets.
The Board of Trustees, which has the primary responsibility for the overall
management of the Zweig Mutual Funds, has determined that, while there are
certain risks inherent in futures, options, currency exchange contracts and
short sales, Zweig/Glaser Advisers has demonstrated its expertise and ability to
use these hedging techniques effectively. The flexibility and potential for
enhanced long-term performance and risk reduction provided by such investment
techniques warrant their use, in the opinion of the Board of Trustees.
OTHER INVESTMENT COMPANIES. A direct investment by a fund in securities,
financial instruments, currencies, futures and forward contracts, and related
options involves risks described elsewhere in this prospectus. An investment in
them made through another investment company will also involve an investment
manager and service providers (e.g., custodians) over which the Trust will have
no direct control; and there will be an additional layer of expenses, including
the fee of such investment manager. Closed-end investment companies frequently
trade at a discount from net asset value. Only if the discount is sufficiently
large will the additional income earned by a portfolio purchased at a discount
offset the additional layer of expense. If shares of another investment company
are purchased at a discount which subsequently declines, performance will be
better than it would have been had the underlying instruments been purchased
directly. The risks of investing in funds are discussed more fully in the SAI. A
fund will invest in another investment company only if the portfolio manager
believes that a fund's investment objective will be furthered thereby. No more
than 10% of a fund's assets will be invested in other investment companies, or
more than 5% in any one. Zweig Cash Fund will not normally invest in any other
investment companies.
MEASURING RISK. In choosing an investment that is right for you, it is important
to consider the level of risk that you can withstand. There are many ways to
measure risk when comparing mutual funds. One that is easily understood is
maximum decline in net asset value
11
<PAGE> 12
(NAV). Many national newspapers measure the extent to which a fund's net asset
value has changed from day to day. Micropal Inc., an independent fund rating
service, takes this concept one step further by measuring the largest
high-to-low drop in the month-end to month-end net asset value of a fund during
any given period, and expressing it as a percentage decline. When comparing the
maximum NAV declines of different funds, ask yourself if you could have
experienced each particular drop without selling the fund. The maximum NAV
declines for Class A Shares and Class C Shares from the end of the month of
inception through December 31, 1995, computed by Micropal Inc., are shown below
for the Zweig Mutual Funds and for the average fund with a comparable investment
objective (distribution of the Class B Shares commenced on April 8,1996 and
distribution of Class I Shares and Zweig Growth & Income Fund will commence on
the effective date of this Prospectus. Also shown are the maximum declines for a
relevant standard measure of securities prices. In all cases, distributions have
been reinvested and maximum NAV declines do not reflect sales charges. Please
remember that past performance does not predict future results; any fund can
decline more in the future than it has in the past.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS C SHARES*
-------------------------- --------------------------
<S> <C> <C>
Max NAV Decline of ZWEIG STRATEGY FUND from inception -7.13% (3rd lowest of 246 -4.30% (9th lowest of 309
in December 1989 growth funds) growth funds)
Max NAV Decline of Average Growth Fund for period(+) -18.46% -8.59%
Max Decline of S&P 500 for period -14.69% -6.95%
Max NAV Decline of ZWEIG APPRECIATION FUND from -6.04% (8th lowest of 109 -6.20% (11th lowest of 119
inception in October 1991 small cap funds) small cap funds)
Max NAV Decline of Average Small-Cap Fund for period(+) -13.68% -11.78%
Max Decline of Value Line Geometric Index for period -9.87% -9.87%
Max NAV Decline of ZWEIG MANAGED ASSETS from inception -4.88% (4th lowest of 30 -5.44% (7th lowest of 30
in February 1993 multi-asset global multi-asset global
funds) funds)
Max NAV Decline of Average Multi-Asset Global Fund -9.50 -9.50%
for period**
Max NAV Decline of ZWEIG GOVERNMENT FUND from September -4.79% (10th lowest of 80 -5.18% (17th lowest of 104
1989*** U.S. Gov't Securities U.S. Gov't Securities
funds) funds)
Max NAV Decline of Average U.S. Govt. Fund for -8.00% -6.88%
period(+)
Max NAV Decline of Lehman Composite Government -5.41% -5.41%
Bond Index
</TABLE>
- ---------------
Definitions of Indices used for comparison:
The Standard & Poor's 500 Index is a broad-based measurement of changes in
stock market conditions based on the average performance of 500 widely held
common stocks.
The Multi-Asset Global Fund category was recently created by Morningstar. It
consists of mutual funds with investment objectives too broad and flexible
to allow them to fit comfortably into any other objective. The information
is based on 30 funds, and Micropal Inc. calculated the maximum NAV decline.
The Lehman Composite Government Bond Index measures the return of government
bonds ranging in maturity from one to 30 years.
The Value Line Geometric Index measures the returns of 1,700 stocks ranging
from large-cap to small-cap on an unweighted basis.
* From inception in February 1992 (February 1993 for Zweig Managed Assets).
** Sources: Morningstar and Micropal inc.
*** Zweig/Glaser Advisers assumed responsibility for managing the fund in
September 1989. Under the prior manager, from inception in March 1985, the
maximum NAV decline was -10.87% for the fund, -7.50% for the Average U.S.
Government Fund and -5.41% for the Lehman Composite Government Bond Index.
+ The maximum NAV decline for funds with a comparable investment objective is
an unweighted average of all such funds tracked by Micropal Inc.
Comparable information for other mutual funds, prepared by Micropal Inc., is
available by calling 1-800-444-2706.
NET ASSET VALUE
Zweig Mutual Funds determine the net asset value of each class of shares on each
day that the New York Stock Exchange (NYSE) is open. Net asset values are
calculated as of 2:00 p.m. New York time for Zweig Cash Fund shares and as of
the close of regular trading
12
<PAGE> 13
on the NYSE for Zweig Cash Fund and the other funds.
We subtract the non-class specific liabilities of a fund from the fund's assets
to determine its total net assets. We then determine each class's proportionate
interest in the fund's net assets. The liabilities attributable to that class,
including its distribution fees, are then deducted and the resulting amount is
divided by the number of shares of that class outstanding to produce its net
asset value per share.
Portfolio securities for which market quotations are readily available are
stated at market value. Securities for which market quotations are not readily
available are valued at fair value as determined using procedures determined by
the Board of Trustees. Foreign forward currency contracts are valued using
forward currency exchange rates supplied by a quotation service. Short-term
obligations having a remaining maturity of 60 days or less are valued at
amortized cost (which approximates market value). Zweig Cash Fund attempts to
stabilize the net asset value of its shares at $1.00 and uses the amortized cost
method to value all its securities.
DISTRIBUTIONS AND TAXES
Each of the Zweig Mutual Funds intends to qualify as a regulated investment
company for federal income tax purposes and to distribute to its shareholders
all income and net capital gains so as to be relieved of federal taxes so long
as, in management's view, such qualification is in the shareholders' interest.
Distributions are declared separately for each class of shares of a fund.
Distributions will be reinvested at net asset value unless you elect to receive
distributions in cash. Shareholders who have elected to receive distributions in
cash but whose accounts have been classified as "stop mail" accounts because two
consecutive mailings have been returned as "undeliverable", will automatically
have their future distributions reinvested at net asset value.
The Zweig Cash Fund declares a dividend at 2:00 p.m. New York time on each day
the NYSE is open. Zweig Cash Fund's dividends include all accrued interest,
earned discounts and realized gains and losses, less amortized premiums and
accrued expenses. The fund pays or reinvests these dividends on the last
business day of each month.
Zweig Government Fund declares and pays net investment income dividends monthly.
Zweig Strategy Fund, Zweig Growth & Income Fund and Zweig Managed Assets declare
and pay net investment income dividends semi-annually. Zweig Appreciation Fund
declares and pays net investment income, if any, at least annually. Any net
realized capital gains will be paid at least annually, except that net
short-term capital gains may be paid more frequently, together with the
dividends from net investment income.
Because Class B and Class C Shares have higher distribution fees, dividends on
Class A Shares will be higher than dividends on Class B and Class C Shares of
the same fund. Because Class I Shares have no distribution fees, dividends on
Class I Shares will be higher than dividends on Class A Shares of the same fund.
Distributions of income and short-term capital gains are taxed as dividends.
Long-term capital gain distributions are taxed as long-term capital gains.
Distributions are taxable when paid, whether taken in cash or reinvested, except
that distributions declared in November and December and paid in January are
taxable as if paid on December 31st.
By January 31 of each year, we will send you a statement showing the tax status
of your distributions for the prior year and the proceeds of your redemptions
(including exchanges), if any. You should keep your account statements with your
other tax records. When you sell your shares, their tax basis is the total of
your cash investments plus all distributions that have been reinvested, less any
return of capital distributions.
The foregoing is a summary of certain federal income tax consequences. Be sure
to consult your own tax adviser to determine the precise effect of your
investments in the Zweig Mutual Funds on your particular tax situation, and any
state and local tax consequences.
EXCHANGE PRIVILEGE
You can exchange shares of one Zweig Mutual Fund for shares of the same class of
another Zweig Mutual Fund at their respective net asset values (except that
Class A Shares of Zweig Cash Fund purchased without a sales charge are
exchangeable at net asset value plus the applicable sales charge). All exchanges
are effected as of the close of regular trading on the NYSE. You can exchange
shares either through your investment dealer or, if the shares are registered in
your name, through the transfer agent. You may exchange through the
13
<PAGE> 14
transfer agent by mail, telephone, or systematically on the 15th day of each
month or quarter (see Application Form in this Prospectus).
Each exchange is a sale of shares of one fund and a purchase of the same class
of shares of another fund. An exchange may produce a gain or a loss for tax
purposes, and is subject to the terms and conditions applicable to telephone
redemptions and the minimum investment requirement of each fund. We reserve the
right to reject any exchange request, or to modify or terminate exchange
privileges upon 60 days' written notice to shareholders.
CHOOSING AMONG CLASSES WHEN PURCHASING SHARES
Zweig Mutual Funds offer investors four classes of shares (Class A Shares, Class
B Shares, Class C Shares and Class I Shares). All except Class I Shares bear
sales charges in different forms and amounts and bear different levels of
expenses (see Fee Table on page 2). You should choose the class of shares that
is most beneficial given the amount of your purchase, the length of time you
expect to hold the shares and other relevant circumstances. Class A shares are
sold with an initial sales charge that varies based upon the amount invested as
shown in the table below. Class B Shares have no initial sales charge, but are
subject to a declining contingent deferred sales charge (CDSC) if sold within
six years of purchase. Class C Shares have no initial sales charge, but are
subject to a CDSC if sold within one year of purchase. Class B and Class C
Shares have higher annual operating expenses than Class A Shares. Class B Shares
of Zweig Government Fund and Zweig Cash Fund have higher annual operating
expenses (and lower dividends) than their corresponding Class C Shares. Class B
Shares convert to Class A Shares after a holding period of seven years from the
initial purchase. Class C Shares have a shorter CDSC period than Class B Shares,
but they do not convert to Class A Shares. Class I Shares are offered at net
asset value without an initial sales charge and are not subject to a contingent
deferred sales charge or a Rule 12b-1 distribution fee. Class I Shares are only
available to tax-exempt retirement plans of Zweig Securities Corp. and its
affiliates, and certain institutional investors that invest at least $1 million
directly with Zweig Securities Corp., the principal distributor of Zweig Mutual
Funds. Institutional investors include: (1) unaffiliated benefit plans, such as
qualified retirement plans (other than individual retirement accounts and
certain other self-directed retirement plans); (2) unaffiliated banks and
insurance companies purchasing for their own accounts; and (3) endowment funds
of unaffiliated non-profit organizations.
CONTINGENT DEFERRED SALES CHARGE (CDSC). The applicable CDSC rate for each class
of shares is set forth in the Fee Table on page 2. The CDSC is imposed on the
lesser of: (a) the current market value, or (b) the initial cost of the shares
being redeemed. No CDSC is imposed upon shares acquired by reinvesting
distributions. In determining whether a CDSC applies, the order of redemption is
first of shares purchased through reinvestment and then of shares held the
longest. Any CDSC imposed on a redemption is paid to the distributor or directly
to a third party at the direction of the distributor.
We may waive the CDSC on redemption(s): (a) following the death of a
shareholder; (b) if a shareholder becomes unable to engage in any substantial
gainful activity because of a medically determinable physical or mental
impairment which can be expected to result in death or be of long-continued and
indefinite duration; (c) when a total or partial redemption is made in
connection with a distribution from (i) retirement plans after reaching age
59 1/2, except that if, immediately prior to the redemption, the aggregate
amount invested by the retirement plan in Class B Shares of the Zweig Mutual
Funds (excluding the reinvestment of distributions) during the prior four year
period equals 50% or more of the total value of the retirement plan's assets in
the Zweig Mutual Funds, then the CDSC will not be waived, or (ii) certain other
Class A Share retirement plans; (d) under the systematic withdrawal program if
the amount being withdrawn is no more than 1% per month of the value of the
account at the time the program was established; and (e) effected pursuant to
the Fund's right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then effective minimum
account size.
CLASS A SHARES. Class A Shares of all funds except Zweig Cash Fund are sold at
net asset value plus the applicable sales charge. The offering price applies to
purchases made by a single purchaser or by a single trust account. An
individual, his or her spouse, and children under 21 are considered to be a
single purchaser. The sales charge on Class A Shares is allocated between your
investment dealer and Zweig Securities Corp., the distributor, as shown below.
14
<PAGE> 15
QUANTITY DISCOUNTS ON CLASS A SHARES. When you invest in Class A Shares of the
Zweig Mutual Funds, you may receive quantity discounts at certain dollar levels,
or breakpoints. The more you invest, the smaller percentage you pay in sales
charges, as shown below.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF
----------------------------
OFFERING NET ASSET
PRICE OF THE VALUE OF THE DEALER'S
SHARES SHARES SALES
AMOUNT INVESTED PURCHASED PURCHASED CONCESSION
- ---------------------------------------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
ZWEIG STRATEGY FUND, ZWEIG APPRECIATION FUND,
ZWEIG GROWTH & INCOME FUND
AND ZWEIG MANAGED ASSETS:
Less than $50,000............................................... 5.50% 5.82% 4.75%
$50,000 but less than $100,000.................................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000................................. 3.75% 3.90% 3.25%
$250,000 but less than $500,000................................. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000............................... 1.75% 1.78% 1.50%
$1,000,000 or more.............................................. 0.00% 0.00% (see below)
ZWEIG GOVERNMENT FUND:
Less than $50,000............................................... 4.75% 4.99% 4.00%
$50,000 but less than $100,000.................................. 4.00% 4.17% 3.50%
$100,000 but less than $250,000................................. 3.00% 3.09% 2.50%
$250,000 but less than $500,000................................. 2.25% 2.30% 1.75%
$500,000 but less than $1,000,000............................... 1.75% 1.78% 1.50%
$1,000,000 or more.............................................. 0.00% 0.00% (see below)
</TABLE>
- --------------------------------------------------------------------------------
Commissions (as set forth below) will be paid to dealers who initiate and are
responsible for purchases of $1 million or more and for purchases at net asset
value made by unallocated accounts held by third party administrators,
registered investment advisers, trust companies, and bank trust departments
which exercise discretionary authority or hold accounts in fiduciary, agency,
custodial or similar capacity if in the aggregate such accounts equal or exceed
$1,000,000 and by retirement plans with assets of $1,000,000 or more or at least
50 eligible employees.
<TABLE>
<CAPTION>
DEALER'S
AMOUNT PURCHASED COMMISSION
- ----------------------------------- ------------------
<S> <C>
(AS % OF PURCHASE)
ZWEIG STRATEGY FUND, ZWEIG
APPRECIATION FUND, ZWEIG
GROWTH & INCOME FUND
AND ZWEIG MANAGED ASSETS:
$1,000,000 to $2,000,000....... 0.75%
$2,000,000 to $5,000,000....... 0.50%
Amount over $5,000,000......... 0.25%
ZWEIG GOVERNMENT FUND:
$1,000,000 to $2,000,000....... 0.50%
Amount over $2,000,000......... 0.25%
</TABLE>
No initial sales charge applies on these investments; however, a 1% CDSC will
apply on redemptions within 18 months of purchase, except for redemptions of
shares purchased by an investor in amounts of $1,000,000 or more where such
investor's dealer of record, due to the nature of the investor's account,
notifies the distributor prior to the time of the investment that the dealer
waives the commission otherwise payable to the dealer as described below or
agrees to receive such commissions ratably over an 18 month period.
Class A Shares also may be purchased at net asset value by any officer, trustee,
director or full-time employee, and their families, of Zweig Mutual Funds,
Zweig/ Glaser Advisers, Zweig Securities Corp. and any company affiliated with
these companies, or by employees and their families of securities dealers that
are members of the NASD. Class A Shares also may be sold at net asset value
through certain investment dealers regis-
15
<PAGE> 16
tered under the Investment Advisers Act of 1940 and other financial services
firms that adhere to certain standards established by the principal distributor,
including a requirement that such shares be sold for the benefit of their
clients participating in a "wrap account" or similar program under which such
clients pay an ongoing fee to the investment adviser or other firm. Such shares
are sold for investment purposes and on the condition that they will not be
resold except through redemption or repurchase by the fund. Class A Shares also
may be purchased at net asset value for shareholders by dealers where the amount
invested represents redemption proceeds from funds distributed other than by the
distributor, and where the shareholder has paid a sales charge in connection
with the purchase of such other fund's shares; provided that (i) such Class A
Shares are purchased within 30 days after redemption of such other fund's
shares; and (ii) sufficient documentation of such redemption as the distributor
may require shall be provided at the time the Class A Shares are purchased. This
provision is not available where the shares of a fund being redeemed were
subject to a deferred sales load or redemption fee.
CUMULATIVE QUANTITY DISCOUNTS ON CLASS A SHARES. A new purchase may be combined
with Class A Shares already in your account to qualify for a discount. The sales
charge on the shares being purchased will be at the rate shown in the table
above applicable to the net asset value of the shares then owned plus the amount
of the new purchase. To receive this discount, you or your investment dealer
must request it when placing the order and give the transfer agent or
distributor sufficient information to confirm that your purchase qualifies for
the discount. We reserve the right to change or terminate quantity discounts at
any time.
QUANTITY DISCOUNTS THROUGH A LETTER OF INTENTION. You may pay a reduced sales
charge on Class A Shares if you sign a Letter of Intention at the time of your
purchase. The Letter also may be back-dated to include purchases made within 90
days prior to signing the Letter of Intention. The Letter, included on the
Application Form in this Prospectus, states your intention to purchase a
sufficient quantity of Class A Shares of the funds indicated within the 13-month
period specified to qualify for a reduced sales charge. Purchases under the
Letter are made at the sales charge applicable to the entire amount to be
purchased under the Letter, as if purchased in a single transaction.
THE LETTER OF INTENTION IS NOT BINDING. During the period covered by the Letter,
the transfer agent will hold shares in escrow representing 5% of the intended
purchase. A price adjustment based upon the actual amount invested will be made
if the purchase is not completed, by redeeming escrowed shares. A Letter of
Intention can be amended: (a) during the 13-month period by filing an amended
Letter with the same expiration date as the original, and (b) automatically
after the end of the period, if the total purchases credited to the Letter
qualify for an additional reduction in sales charges.
CLASS B SHARES. Class B Shares are sold without an initial sales charge. For
sales of Class B Shares, dealers will receive from the distributor 4% of the
purchase amount. Although you pay no sales charge at the time of purchase, if
you redeem within six years, you are charged a declining CDSC as follows:
<TABLE>
<CAPTION>
THE CDSC
YEAR SINCE PURCHASE WAS MADE IS EQUAL TO
- ---------------------------------- -----------
<S> <C>
First........................ 5%
Second....................... 4%
Third........................ 3%
Fourth....................... 3%
Fifth........................ 2%
Sixth........................ 1%
Seventh...................... None*
</TABLE>
- ---------------
* Class B Shares convert to Class A Shares as described below.
CLASS B SHARE CONVERSION FEATURE. After a holding period of seven years from the
initial date of purchase, Class B Shares automatically convert, at respective
net asset values, on the 10th business day of the month following the
anniversary date, to Class A Shares of the same fund. At the time of conversion,
Class B Shares of a fund acquired through reinvestment of distributions will
convert to the corresponding Class A Shares of that fund pro-rata with Class B
Shares of that fund not acquired through reinvestment. The conversion of Class B
Shares will relieve the Class B Shares that have been held for at least seven
years from the higher ongoing distribution fees. Only Class B Shares have this
conversion feature.
CLASS C SHARES. sold without an initial sales charge. For sales of Class C
Shares, dealers will receive from the distributor 1% (0.75% for Zweig Government
Fund and 0.30% for Zweig Cash Fund) of the purchase amount. If you
16
<PAGE> 17
redeem within one year of your purchase, you will be charged a CDSC equal to
1.25%.
Class B and Class C Shares offer the benefit of putting all of your dollars to
work immediately; however, they have higher annual expenses and pay lower
dividends than Class A Shares. Class C Shares have a shorter CDSC period than
Class B Shares; however, they do not convert to Class A Shares.
CLASS I SHARES. Class I Shares, which have no initial sales charge and no Rule
12b-1 fee, are currently available for purchase only from Zweig Securities Corp.
to tax-exempt retirement plans of Zweig Securities Corp. and its affiliates and
certain institutional investors. In addition, Class I Shares are currently
available only in New York.
Zweig Securities Corp. will reallow up to 0.15% to any dealer with sales of
Zweig Mutual Fund shares at an annual rate of $4 million or more or who can
reasonably be expected to achieve sales at that rate, provided that the dealer
has agreed to supply special assistance in marketing shares of the Zweig Mutual
Funds, including providing access to the dealer's sales personnel and
information dissemination systems such as computer screens, internal
publications, publications sent to clients and mailing lists. These reallowances
are in addition to the sales concessions shown in the above tables, and may be
subject to chargeback for redemptions within one year. An alternative
arrangement, available to any dealer that has agreed to provide marketing,
record keeping and related administrative services to tax-qualified employee
benefit plans, including the processing of orders for investment and
reinvestment of plan assets in shares of the funds at net asset value, provides
for compensation at an annual rate of up to 0.20% of plan participant holdings
of Zweig Mutual Funds. In addition, Zweig Securities Corp. also may pay dealers
a fee at the annual rate of up to 0.10% of the average daily net assets that
have been continually invested in Zweig Mutual Funds for at least four years.
Zweig Securities Corp. also may pay dealers a fee of up to 0.10% of the average
daily net assets invested through such dealers in Zweig Mutual Fund shares by
participants in programs sponsored by such dealers. Zweig Securities Corp.
reserves the right to alter or discontinue paying any of the foregoing fees at
any time. These fees will be paid from Zweig Securities Corp.'s or the manager's
own funds, including past profits or any other source available to them.
The above arrangements relate to purchases effected in the United States.
Purchases outside the United States may be subject to local rules and customs,
and different sales charges, fees and dealer compensation may apply. Certain
dealers may not sell all classes of shares.
HOW TO INVEST IN THE ZWEIG MUTUAL FUNDS
INITIAL OFFERING PERIOD FOR ZWEIG GROWTH & INCOME FUND
Shares of the Zweig Growth & Income Fund are being offered during a period
scheduled to end on November 25, 1996 ("the Closing Date"). Securities dealers
may obtain non-binding indications of interest prior to actually confirming any
orders. The Zweig Growth & Income Fund will commence investment operations and
the continuous offering of its shares on the first business day after the
Closing Date.
You can buy shares in the Zweig Mutual Funds directly from the funds' transfer
agent, through an investment professional, or automatically through a regular
investment plan. Class I Shares currently are available for purchase only from
Zweig Securities Corp. The minimum initial investment is $1,000 for a regular
account and $250 for IRA and other retirement accounts, pension and profit
sharing plans, custodial accounts under the Uniform Gifts to Minors Act, trust
and estate or qualifying group plans. The minimum initial investment for
institutional investors in Class I Shares is $1 million. There is no minimum
amount for additional investments. We reserve the right to change or waive
minimums or to reject any order. Purchases of Zweig Cash Fund become effective
after receipt of Federal funds by the transfer agent. Purchases for all other
Zweig Mutual Funds will be at the offering price next determined after the
transfer agent or investment dealer receives the order, provided the dealer
transmits the order to the transfer agent that day.
BUYING SHARES FROM AN INVESTMENT DEALER. If you invest through an investment
dealer or agent, that firm may have its own service features, transaction
charges and fees. This Prospectus should be read in conjunction with such firms'
material regarding their fees and services. If you wish us to refer you to an
investment professional, call us at 1-800-272-2700. Investment professionals
receive compensation for providing investment advice, and such compensation may
differ for selling shares of different classes of the Zweig Mutual Funds.
BUYING SHARES THROUGH THE TRANSFER AGENT. Send the Application Form in this
Prospectus or a letter with your check to: Zweig Series Trust, c/o State Street
Bank & Trust Company, P.O. Box 8505, Boston, MA 02266-8505.
17
<PAGE> 18
Make your check payable to State Street Bank & Trust Company or to a Zweig Fund.
Third party checks (i.e., any checks which are not made payable to the order of
State Street Bank & Trust Company or a Zweig Fund) will not be accepted. If you
send a letter, please specify the fund(s) and the class of shares you wish to
buy. You may deliver your order by courier or overnight mail to State Street's
offices at: 2 Heritage Drive (3rd floor), North Quincy, MA 02171, Attention:
Zweig Mutual Funds.
Purchases of Zweig Cash Fund shares made directly through the transfer agent by
check or money order do not earn dividends until converted into Federal funds,
which can take up to two business days. You also may wire Federal funds with
your order to avoid this delay. For wiring instructions, call 1-800-628-0441.
BUYING SHARES THROUGH AN AUTOMATIC INVESTMENT PLAN. You can automatically move
money from your bank account or via payroll deduction into any of your Zweig
accounts on any day of each month or quarter. For further details, see the
Application Form or call 1-800-272-2700.
HOW TO REDEEM YOUR SHARES
You can redeem your shares on any day the NYSE is open through the transfer
agent if the shares are registered in your name, or through your investment
dealer. The price you receive will be the net asset value next determined after
the transfer agent or investment dealer receives your request in proper form
(described below), less any CDSC, provided the dealer transmits the order to the
transfer agent that day. Payment for your redemption generally will be mailed to
you within seven days after your request is received. If shares are purchased
with an uncertified check and are being redeemed within 15 days following
purchase, the redemption proceeds may not be paid until 15 days following
purchase (or earlier if the Trust has evidence of cleared funds).
THROUGH AN INVESTMENT DEALER. If your account has been established by your
investment dealer, contact your investment professional, who will assist you
with your redemption.
THROUGH THE TRANSFER AGENT BY MAIL. If the shares are registered in your name,
send a letter of instruction signed exactly as the shares are registered,
together with any certificates that represent the shares you wish to redeem. If
the shares you redeem have a value of $10,000 or more, the signatures of
registered owners or their legal representatives must be guaranteed by an
appropriate guarantor. Mail your redemption request to: Zweig Series Trust, c/o
State Street Bank & Trust Company, P.O. Box 8505, Boston, MA 02266-8505.
Appropriate signature guarantors include: banks and savings associations, credit
unions, member firms of a national securities exchange, municipal securities
dealers and government securities dealers. See the SAI or call 1-800-272-2700
for more information.
Redemption instructions by corporate and fiduciary shareholders also must be
accompanied by appropriate documentation establishing the authority of the
person seeking to act on behalf of the account.
THROUGH THE TRANSFER AGENT BY TELEPHONE. You may issue a telephone redemption
request (unless you have notified Zweig Mutual Funds of an address change within
the preceding 15 days) directly to the transfer agent at 1-800-628-0441 if: (a)
your account is registered for telephone/expedited redemption privileges and (b)
your shares are held at the transfer agent without certificates. The proceeds
must be mailed to the address of record. If you have designated a domestic bank
on the Application Form when you opened your account, you may have redemption
proceeds of $1,000 or more wired to the bank. Subsequent directions for wiring
proceeds require a signature guarantee from an appropriate guarantor. The
transfer agent must receive your instructions before 2:00 p.m. New York time for
Zweig Cash Fund in order to wire the redemption proceeds to you that day. For
the other funds, the transfer agent must receive your order before the close of
regular trading on the NYSE (presently 4:00 p.m. New York time) in order to
redeem shares that day.
The maximum amount that may be redeemed for joint accounts by telephone is
$25,000. Neither the Zweig Mutual Funds, the distributor, nor the transfer agent
will be liable for any loss in acting on telephone instructions reasonably
believed to be authentic. In the event of a fraudulent telephone redemption, the
investor will bear the risk of loss. Because the funds may otherwise be liable
for any losses due to unauthorized or fraudulent instructions, reasonable
procedures are employed to confirm that instructions given by phone are genuine.
These include: requiring a form of personal identification from the caller and
recording telephone instructions. For identification purposes, the transfer
agent may require such information as it
18
<PAGE> 19
deems necessary before accepting redemption instructions.
During periods of extremely drastic economic or market changes, it may become
difficult to implement a telephone redemption. In the event that you have
difficulty reaching the transfer agent at its toll-free number, you should
consider sending written redemption instructions in the manner explained above.
We reserve the right to refuse telephone redemption requests and to limit their
amount or frequency. If, however, we determine not to accept a telephone
redemption request, we will seek to advise you promptly of that decision and, to
the extent feasible, will communicate that decision by telephone.
Redemptions normally will be made in cash, but redemptions may be made in kind
pursuant to an election under Rule 18f-1 of the Investment Company Act of 1940
(the 1940 Act), as discussed more fully in the SAI. Rights of redemption may be
suspended if the NYSE is closed, other than customary weekend or holiday
closings, or for such other periods as the Securities and Exchange Commission
has permitted.
REINSTATEMENT PRIVILEGE. A shareholder who has made a partial or complete
redemption of shares may reinvest all or part of the redemption proceeds and
receive a pro rata credit for any CDSC or initial sales charge paid, provided
the reinvestment is made within 30 days after the redemption. This privilege may
be exercised only once a year by a shareholder.
SYSTEMATIC CASH WITHDRAWAL PROGRAMS are available for shareholders with accounts
of $5,000 or more who wish to receive a specific amount of cash either monthly
or quarterly. Contact your investment professional or complete the Application
Form in this Prospectus. Under these programs, all distributions must be
reinvested. Purchasing additional shares while receiving payments under these
programs ordinarily will be disadvantageous because of sales charges. Shares
redeemed may be subject to a CDSC. We may modify or terminate these programs at
any time.
MINIMUM ACCOUNT SIZE. If your account balance falls below $1,000 as a result of
redeeming shares, you may be given 60 days' notice to reestablish the minimum
balance. If you do not increase your balance, we reserve the right to close your
account and send the proceeds to you. Your shares will be redeemed at the net
asset value on the day your account is closed. We normally will not close an
account maintained in connection with a tax-deferred retirement plan.
THE DISTRIBUTOR
Zweig Securities Corp. serves as principal distributor of shares of the Zweig
Mutual Funds. At any given time, the distributor may incur expenses in
distributing shares of the funds that are in excess of the total payments made
by the funds under the Rule 12b-1 Plans for distribution (Class I Shares do not
have a Rule 12b-1 Plan). Because there is no requirement that the distributor be
reimbursed for all its expenses, or that a plan be continued from year to year,
this excess does not constitute a liability of the funds. Although there is no
legal obligation for the funds to pay expenses in excess of payments made to the
distributor under the plans, if for any reason a plan is terminated, the Board
of Trustees will consider the manner in which to treat such expenses. Any
cumulative unreimbursed expenses may or may not be recovered through future
distribution fees. If the distributor receives any Rule 12b-1 payments in excess
of actual distribution expenses (a situation which has not occurred to date),
the difference could be viewed as profit to the distributor for that year.
Accordingly, the Trust's Rule 12b-1 Plans are classified as compensation plans.
The distributor reallows the 0.25% service fee to dealer firms that are members
of the National Association of Securities Dealers, Inc. who have signed a dealer
agreement and for continuous personal service by such members to investors in
the Trust, plus a portion of the asset based sales charges so that these dealers
receive such reallowances at the following aggregate annual rates: (i) 0.25%
commencing from date of purchase for the Class A Shares, (ii) 0.25% commencing
one year after purchase for the Class B Shares, and (iii) 0.95% (0.70% and 0.25%
for the Zweig Government Fund and Zweig Cash Fund, respectively) commencing one
year after purchase for the Class C Shares.
THE MANAGER AND MANAGEMENT FEE
The investments of the Zweig Mutual Funds are managed by Zweig/Glaser Advisers.
The general partners of Zweig/Glaser Advisers are: Glaser Corp., a Delaware
corporation controlled by Eugene J. Glaser, and Zweig Management Corp., a
Delaware corporation controlled by Dr. Zweig.
Zweig/Glaser Advisers receives a fee based on the average daily net assets of
each fund at the following annual
19
<PAGE> 20
rates: Zweig Strategy Fund, 0.75%; Zweig Appreciation Fund, 1.00%; Zweig Growth
& Income Fund, 0.75%; Zweig Managed Assets, 1.00%; Zweig Government Fund, 0.60%;
Zweig Cash Fund, 0.50%. These rates are constant and do not diminish with an
increase in the net assets of a fund. The management fees are comparable to the
fees paid by mutual funds with similar investment policies.
In addition to managing the funds' investments, Zweig/Glaser Advisers also:
makes recommendations with respect to the funds' business affairs; furnishes
certain administrative services, office space and equipment; and permits its
employees to serve as the officers of the Trust without additional compensation
from the funds. All other expenses incurred in the operation of the funds are
borne by the funds, including: interest, taxes, fees and commissions of every
kind; expenses of issue, repurchase or redemption of shares; costs of
registering or qualifying shares for sale (including printing costs, legal fees
and other expenses relating to the preparation and filing of the funds'
registration statement with the appropriate regulatory authorities and the
production and filing of the funds' prospectus); costs of insurance; association
membership dues; all charges of custodians, including fees as custodian, escrow
agent, and fees for keeping books and performing portfolio valuations; all
charges of transfer agents, registrars, pricing services, independent
accountants and legal counsel; expenses of preparing, printing and distributing
prospectuses and all proxy materials, reports and notices to shareholders;
expenses of distribution of shares pursuant to Rule 12b-1 Plans; out-of-pocket
expenses of trustees; fees of trustees who are not "affiliated persons" as
defined in the 1940 Act; and all other costs incident to the Trust's existence
as a business trust. The distributor purchases copies of the fund's prospectus
and shareholder reports used for sales purposes at printer's overrun cost.
BROKERAGE TRANSACTIONS. To buy and sell securities for the Zweig Mutual Funds,
Zweig/Glaser Advisers may use its broker/dealer affiliates or other firms that
sell shares of the funds, provided they have the execution capability and that
their commission rates are comparable to those of other unaffiliated
broker/dealers.
ORGANIZATION OF THE FUNDS
The Trust was established as a Massachusetts business trust on September 24,
1984, and reorganized as a Delaware business trust on April 30, 1996. A copy of
the Agreement and Declaration of Trust is on file with the Secretary of State of
the State of Delaware. The Board of Trustees directs the management of the
business of the Trust. The Board has duties and responsibilities comparable to
those of the boards of directors of corporations, not to those of trustees under
customary trust principles. The Trustees oversee the Trust's activities, elect
the officers of the Trust who are responsible for its day-to-day operations,
review contractual arrangements with the companies that provide services to the
Trust, and review investment performance.
The Trust is a mutual fund, or, in the technical terms of the 1940 Act under
which it is regulated, an open-end, diversified management investment company.
It has an unlimited number of shares of beneficial interest which, without
shareholder approval, may be divided by the Trustees into an unlimited number of
classes and funds. The shares presently are divided into four classes of shares
in five funds, and five classes of shares in Zweig Cash Fund. Voting rights are
based on a shareholder's total dollar interest in a Series and are thus
allocated in proportion to the value of each shareholder's investment. Shares
vote together on matters that concern the entire Trust, or by individual fund or
class when the Board of Trustees determines that the matter affects only the
interests of a particular fund or class.
PERFORMANCE INFORMATION
The net asset value of a fund (other than Zweig Cash Fund) and the income it
generates will vary from day to day. This fluctuation reflects the composition
of the fund's portfolio, as well as changes in market conditions, company and
economic developments, interest rates, and other factors. Performance will
reflect Zweig/Glaser Advisers' skill in managing each fund's portfolio, the
period of time during which the investment is held, and the class of shares and
its annual operating expenses. When you sell your shares, they may be worth more
or less than what you paid for them.
Occasionally, advertisements for the Zweig Mutual Funds may include:
MAXIMUM NAV DECLINE since a fund's inception, or for shorter periods.
Micropal Inc., an independent fund rating service, measures the largest
high-to-low drop in a fund's month-end net asset value over a particular
period. The decline is expressed as a percentage of the fund's NAV per
share at the high point during the period measured. See Mea-
20
<PAGE> 21
suring Risk on page 13 for the maximum NAV
declines of Zweig Mutual Funds compared to declines for the same period of
the average comparable fund and a benchmark index. Maximum NAV declines are
historical and are not intended to indicate future performance; and they do
not reflect any sales charges.
TOTAL RETURN for the most recent one-, three-, five- and ten-year periods,
and since the inception of a class of shares through the most recent
calendar quarter. Total return represents the average annual compounded
rate of return on an investment of $1,000 at the maximum public offering
price (in the case of Class A Shares) or reflecting the deduction of any
applicable CDSC. All data are based on past investment results. Total
return also may be presented for other periods, or be based on an
investment at reduced sales charge levels. Total return does not include
the effect of taxes and does not predict future performance.
YIELD, or the rate of income earned, expressed as a percentage of a fund's
share price. We calculate yield according to accounting methods that are
standardized for all stock and bond mutual funds by taking the interest and
dividend income a fund earns in a 30-day period, net of expenses, and
dividing that amount by the average number of shares entitled to receive
dividends. We express the result as an annualized percentage rate based on
the share price at the end of the 30-day period. This yield does not
reflect gains or losses from selling securities or from transactions in
options and futures contracts. Yield accounting methods
differ from methods used for other accounting purposes. Therefore, yield
may not be the same as the distribution rate or the income reported in the
funds' financial statements. Yield figures are based on historical earnings
and are not intended to indicate future performance.
SEVEN-DAY CURRENT YIELD for the Zweig Cash Fund refers to the income
generated by an investment in the fund over a seven-day period specified in
the advertisement. This income is assumed to be generated each week for 52
weeks. This 52-week income is then shown as a percentage of the investment.
EFFECTIVE YIELD is calculated similarly to yield or seven-day current yield
but, when annualized, the income earned is assumed to be reinvested. The
effective yield will be slightly higher than the yield or seven-day current
yield because of the compounding effect of the assumed reinvestment.
The Zweig Mutual Funds also may include in advertising or marketing materials
for their shares data from financial and other publications and reference
surveys that deal with industry or investment statistics. The SAI lists the
principal industry publications.
Strategic Equity Series ("SES"), whose shares may be sold only to separate
accounts of insurance companies, is managed using the same investment policies,
investment objective, and investment personnel as Zweig Growth & Income Fund
("ZGIF"). The total return from inception on October 2, 1995 to September 30,
1996 for SES was 12.99%. This figure assumes the deduction of annual expenses of
1.00% which coincides with the expense limitation of ZGIF but does not reflect
any distribution fees which range from 0.30% to 1.00%, depending on which class
of shares of ZGIF is purchased. ZGIF may utilize the performance results of SES
in its prospectus. SES and ZGIF are separate investment portfolios, and
information about SES should not be interpreted as being indicative of the past
or future performance of ZGIF.
The following is an assessment of the 1995 performance of Class A and Class C
Shares of each of the Zweig Mutual Funds in existence during 1995 (other than
Zweig Cash Fund). Class B Shares were not offered in 1995. We've included a
graph comparing each fund's performance since inception with benchmarks.
21
<PAGE> 22
ZWEIG STRATEGY FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN ZWEIG STRATEGY FUND
CLASS A SHARES, THE STANDARD & POOR'S 500 INDEX AND THE CONSUMER PRICE INDEX FOR
THE PERIOD ENDED DECEMBER 31, 1995.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ZWEIG CONSUMER
(FISCAL YEAR COVERED) STRATEGY FUND S&P 500 INDEX PRICE INDEX
<S> <C> <C> <C>
1988 9450 10000 10000
1989 9466 10078 10010
1990 9261 9690 10636
1991 11431 12660 10953
1992 12301 13623 11278
1993 14134 15003 11587
1994 14295 15198 11895
1995 17885 20903 12164
</TABLE>
- ----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN -- CLASS A SHARES
<TABLE>
<S> <C> <C>
1 YEAR 5 YEAR FROM INCEPTION ON 12/29/89
25.1% 14.1% 11.2%
</TABLE>
CLASS C SHARES -- ZWEIG STRATEGY FUND ALSO OFFERS CLASS C SHARES. THE
PERFORMANCE OF CLASS C SHARES WILL BE GREATER OR LESS THAN CLASS A SHARES
DEPENDING ON SALES CHARGES, FEES AND THE LENGTH OF TIME THE SHARES ARE HELD.
- ----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN -- CLASS C SHARES
<TABLE>
<S> <C>
1 YEAR FROM INCEPTION ON 2/4/92
24.3% 11.1%
</TABLE>
Zweig Strategy Fund solidly participated in the stock market gains of 1995. The
Class A and Class C Shares were up 25.1% and 24.3%, respectively. We achieved
our returns while taking considerably less risk than the average fund. Our
average cash position during the year was 37%.
We entered 1995 cautiously with an invested exposure of 30%, but we became more
heavily invested along the way as the results of our research became more
positive. Our stock selection process, which focuses on identifying companies
with above-average earnings growth and below-average valuations, made a strong
contribution to the fund's return. Overweightings in the technology and banking
stocks, two of the top-performing sectors, proved beneficial. The fourth quarter
saw a sharp rotation away from technology stocks, but the favorable value
characteristics cushioned our results, although we still lagged the Standard &
Poor's 500 Index during the quarter.
ZWEIG MANAGED ASSETS
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN ZWEIG MANAGED ASSETS
CLASS A SHARES AND CLASS C SHARES, THE STANDARD & POOR'S 500 INDEX AND THE
CONSUMER PRICE INDEX FOR THE PERIOD ENDED DECEMBER 31, 1995.
<TABLE>
<CAPTION>
ZWEIG MANAGED ZWEIG MANAGED
MEASUREMENT PERIOD ASSETS CLASS ASSETS CLASS CONSUMER
(FISCAL YEAR COVERED) A C PRICE INDEX S&P 500 INDEX
<S> <C> <C> <C> <C>
2/8/93 9450.00 10000.00 10000.00 10000.00
12/31/93 10582.00 11009.00 10252.00 10675.00
12/31/94 10272.00 10606.00 10526.00 10813.00
12/31/94 11942.23 12244.00 10764.00 14872.00
12/31/94 00000.00 00000.00 00000.00 00000.00
</TABLE>
- ----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN -- CLASS A SHARES
<TABLE>
<S> <C>
1 YEAR FROM INCEPTION ON 2/8/93
16.3% 8.4%
</TABLE>
- ----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN -- CLASS C SHARES
<TABLE>
<S> <C>
1 YEAR FROM INCEPTION ON 2/8/93
15.4% 7.7%
</TABLE>
Foreign stock markets were laggards in 1995, however, U.S. stocks and bonds
posted banner years, which helped propel the Fund to returns of 16.3% and 15.4%
for the Class A and Class C Shares, respectively. Zweig Managed Assets
participated solidly in the gains of foreign and domestic stocks and bonds
during 1995, capturing nearly 95% of the 17.4% return of the Lipper Global
Flexible Fund Average.
Throughout 1995, central banks in Europe responded to weaker economic conditions
by lowering key short-term interest rates. Expectations of continued central
bank measures, combined with low inflation, helped bond markets across Europe
rally to new highs late in 1995. After declining more than 25% in the first six
months of 1995, Japanese stocks recovered, ending December above where they had
begun the year. We concentrated our investments in Japanese bonds as interest
rates fell during the early part of the year, and then moved into Japanese
stocks as the market rallied.
22
<PAGE> 23
ZWEIG APPRECIATION FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN ZWEIG APPRECIATION FUND
CLASS A SHARES, THE VALUE LINE GEOMETRIC INDEX AND THE CONSUMER PRICE INDEX FOR
THE PERIOD ENDED DECEMBER 31, 1995.
<TABLE>
<CAPTION>
ZWEIG VALUE LINE
MEASUREMENT PERIOD APPRECIATION GEOMETRIC CONSUMER
(FISCAL YEAR COVERED) FUND INDEX PRICE INDEX
<S> <C> <C> <C>
1990 9450 10000 10000
1991 10025 10457 10088
1992 10980.83 11260.10 10388
1993 12589.66 12549.38 10673
1994 12360 12047 10958
1995 15326.40 14673.25 11206
</TABLE>
- ----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN -- CLASS A SHARES
<TABLE>
<S> <C>
1 YEAR FROM INCEPTION ON 10/7/91
24.0% 12.1%
</TABLE>
CLASS C SHARES -- ZWEIG APPRECIATION FUND ALSO OFFERS CLASS C SHARES. THE
PERFORMANCE OF CLASS C SHARES WILL BE GREATER OR LESS THAN CLASS A SHARES
DEPENDING ON SALES CHARGES, FEES AND THE LENGTH OF TIME THE SHARES ARE HELD.
- ----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN -- CLASS C SHARES
<TABLE>
<S> <C>
1 YEAR FROM INCEPTION ON 2/4/92
23.2% 9.8%
</TABLE>
We've delivered on our goal of generating attractive returns during this
unusually kind phase in the market. Zweig Appreciation Fund Class A and C Shares
were up 24.0% and 23.2%, respectively, in 1995. These returns surpassed the
21.8% earned by the Value Line Geometric Index. The average small-company stock
fund, meanwhile, was up 31.5%.
We also delivered on our goal of controlling risk. Our average cash position
during the year was 35%. Thus, we captured 75% of the gains of our peers with a
market exposure of only 65% -- a superior risk-adjusted return. Beyond holding
cash, we also kept risk low through prudent industry diversification. We
participated in the gains of the technology sector, although the amount invested
in this sector never exceeded 20%. The Fund's risk control is evidenced in a
number of ways, from its much broader diversification among stocks and sectors,
to the substantially lower price-to-earnings ratios of its stocks.
ZWEIG GOVERNMENT FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN ZWEIG GOVERNMENT FUND
CLASS A SHARES, THE LEHMAN COMPOSITE GOVERNMENT BOND INDEX AND THE CONSUMER
PRICE INDEX FOR THE PERIOD ENDED DECEMBER 31, 1995.
<TABLE>
<CAPTION>
LEHMAN
ZWEIG COMPOSITE
MEASUREMENT PERIOD GOVERNMENT GOVERNMENT CONSUMER
(FISCAL YEAR COVERED) FUND INDEX PRICE INDEX
<S> <C> <C> <C>
1984 9525 10000 10000
1986 10960 11792 10253
1987 12080 13598 10375
1988 11860 13896 10834
1989 12462 14874 11311
1990 14073 16991 11836
1991 14966 18475 12576
1992 17157 21307 12951
1993 17932 22847 13335
1994 19487 25282 13701
1995 18936 24427 14067
1996 21556 28906 14385
</TABLE>
- ----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN -- CLASS A SHARES
<TABLE>
<S> <C> <C>
1 YEAR 5 YEAR FROM INCEPTION ON 3/25/85
13.8% 7.8% 7.9%
</TABLE>
CLASS C SHARES -- ZWEIG GOVERNMENT FUND SERIES ALSO OFFERS CLASS C SHARES. THE
PERFORMANCE OF CLASS C SHARES WILL BE GREATER OR LESS THAN CLASS A SHARES
DEPENDING ON SALES CHARGES, FEES AND THE LENGTH OF TIME THE SHARES ARE HELD.
- ----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN -- CLASS C SHARES
<TABLE>
<S> <C>
1 YEAR FROM INCEPTION ON 2/4/92
13.3% 6.4%
</TABLE>
What a difference a year makes! In stark contrast to a dismal 1994, 1995 was a
banner year for bonds. In 1994, the Lehman Brothers Bond Index fell 3.4%, its
worst annual performance in over a decade. But 1995 more than made up for it, as
the Index rallied 18.3% for the year.
Since the Federal Reserve embarked on a series of six interest rate hikes
commencing in February 1994, and was still tightening in early 1995, we elected
to maintain a low exposure to interest rate fluctuations. However, the economy
cooled rapidly, and bonds began to rally to new highs. Beginning in the second
quarter, we gradually increased the Fund's duration to 5.4 years, where it
remained at year-end. Zweig Government Fund captured nearly 80% of the gains of
the average government bond fund last year, with an average duration for 1995 of
4.1 years, which was lower than that of the average fund.
23
<PAGE> 24
APPLICATION (DO NOT USE FOR ZWEIG RETIREMENT PLANS OR FOR
CLASS I SHARES)
FOR APPLICATION ASSISTANCE CALL 1-800-272-2700.
................................................................................
Zweig
Mutual Funds
<TABLE>
<S> <C>
MAIL ALL FORMS AND CHECKS BY COURIER TO:
TO:
The Zweig Mutual Funds The Zweig Mutual Funds
c/o State Street Bank and c/o State Street Bank and
Trust Company Trust Company
P.O. Box 8505 2 Heritage Drive, 3rd
Boston, MA 02266-8505 Floor
North Quincy, MA 02171
</TABLE>
IF YOUR ACCOUNT IS ALREADY ESTABLISHED
ENTER THE ACCOUNT NUMBER HERE:
------------------------------------------
1. ACCOUNT NAME (Check only one box)
/ / INDIVIDUAL OR JOINT OWNERS*
-------------------------------------------------------------------
Your Name (first, middle, last)
-------------------------------------------------------------------
Joint Owner Name (first, middle, last)
-------------------------------------------------------------------
Social Security Number (to be used for tax reporting)
/ / GIFT TO MINOR A minor is the beneficial owner of the account with an adult
Custodian managing the account until the minor becomes of age, as specified
in the Uniform Gifts/Transfers to Minors Act (UGMA/UTMA). The Custodian's
signature is required for all transactions.
-------------------------------------------------------------------
Custodian Name (first, middle, last)
-------------------------------------------------------------------
Minor Name (first, middle, last)
-------------------------------------------------------------------
Minor Social Security Number Minor State of Residence
/ / TRUST Account is established in accordance with provisions of a trust
agreement. The Trustee's or designated agent's signature is required for all
transactions.
---------------------------------------------------------------
Trust Title Date of Trust Agreement
---------------------------------------------------------------
Trustee Name Trust Tax ID Number
---------------------------------------------------------------
Additional Trustee Name
/ / CORPORATION OR OTHER ENTITY
---------------------------------------------------------------
Name
---------------------------------------------------------------
Tax ID Number Type of entity
---------------------------------------------------------------
Officer or Partner authorized to act on the account
2. ADDRESS AND CITIZENSHIP
- -------------------------------------------------------------------
Street or P.O. Box
- -------------------------------------------------------------------
City State Zip Code
- -------------------------------------------------------------------
Daytime Phone
- -------------------------------------------------------------------
Evening Phone
Citizenship: / / U.S. Citizen
/ / Resident Alien
/ / Non-Resident Alien:
-----------------------------------------
Country
- -------------------------------------------------------------------
Name of Employer
- -------------------------------------------------------------------
Address
* Joint tenancy with right of survivorship unless you reside in a community
property state or prefer otherwise. NOTE: Both signatures will be required for
changes to an account with joint ownership.
3. INVESTMENT INFORMATION
Minimum initial investment for each fund: $1,000; $250 for IRA and other
Retirement Plans, pension and profit sharing plans, custodial accounts under the
Uniform Gifts to Minors Act, trust and estate or qualifying group plans. There
is no minimum amount for subsequent investments.
A. Fund Name:
--------------------------------------------------------------
/ / Class A / / Class B / / Class C
Investment Amount: $
----------------------------------------------------
B. Fund Name:
--------------------------------------------------------------
/ / Class A / / Class B / / Class C
Investment Amount: $
----------------------------------------------------
C. Fund Name:
--------------------------------------------------------------
/ / Class A / / Class B / / Class C
Investment Amount: $
----------------------------------------------------
4. INVESTMENT SOURCE
/ / BY CHECK Please make check payable to State Street
Bank and Trust Company or to a Zweig Fund. No other
check will be accepted. $
------------------------------------------------
/ / BY WIRE Call 1-800-628-0441 for instructions. $
--------------------------
Account No.
--------------------------------------------------------------
5. DISTRIBUTION OPTION
See Prospectus for details. If box is not checked, all
distributions will be reinvested. (Check only one box)
/ / All dividends and capital gains reinvested
/ / Income dividends in cash, capital gains reinvested
/ / All dividends and capital gains paid in cash
/ / Income dividends reinvested, capital gains in cash
6. SHAREHOLDER PRIVILEGES
TELEPHONE EXCHANGE You may use the telephone to make
exchanges among any series in the Trust with the same
registration. Unless the box below is checked, the telephone
service WILL be established. In the event of a fraudulent
telephone redemption, the investor will bear the risk of
loss. See Prospectus. (Exchanges are processed only in the
same class of shares). The minimum exchange is $1,000 if
establishing a new account.
/ / I do NOT want to make exchanges by telephone.
SYSTEMATIC EXCHANGES You can automatically exchange $100 or
more on the same day each month or quarter from one fund
account to any other fund accounts on or about the 15th of
the month.
/ / I/We authorize Zweig Series Trust to exchange $
--------------------------
from to
------------------------------ ------------------------------
Fund Name Fund Name
/ / Class A / / Class B / / Class C
beginning with the month of
-----------------------------------
on a / / monthly / / quarterly basis.
<PAGE> 25
TELEPHONE/EXPEDITED REDEMPTION You may redeem shares by telephone. Proceeds will
be sent by check to the address of record. If the redemption is by wire ($1,000
minimum for wire redemption), please provide us with bank account information
below or attach a voided check to establish this service. Unless the box is
checked the telephone service WILL be established.
[ ] I do NOT want to redeem my shares by telephone or wire.
WIRE INSTRUCTIONS:
- -----------------------------------------------------
Name of Bank
-------------------------------------------------------------------
ABA Number (Federal Routing Number)
-------------------------------------------------------------------
Bank Account Number
-------------------------------------------------------------------
Name(s) on Bank Account
In the event of a fraudulent telephone redemption, the investor will bear the
risk of loss, since the Trust and its agents disclaim liability for acting upon
telephone instructions reasonably believed to be authentic. Reasonable
procedures are employed to confirm that instructions given by telephone are
genuine, such as requiring a form of personal identification from the caller,
providing written confirmation of these transactions and recording telephone
instructions.
SYSTEMATIC CASH WITHDRAWAL PROGRAM You may receive a check monthly or quarterly
(minimum $25). There must be a minimum of $5,000 in the selected Series to
initiate this plan. Under this plan dividends and distributions must be
reinvested regardless of the option chosen in Section 5, and all shares must be
on deposit with State Street Bank and Trust Company, not in certificate form.
(Shares redeemed may be subject to a CDSC.) The amount you state will be
redeemed or exchanged on or about the 20th of the month.
[ ] I/We authorize Zweig Series Trust to withdraw $
- ------------
from
-------------------------------- [ ] Class A [ ] Class B
Fund Name [ ] Class C
beginning with the month of
-----------------------------------
on a [ ] monthly [ ] quarterly basis.
Please complete "Bank Information" below if you wish to have your withdrawal
wired to your bank.
If you wish to have your check mailed to an address other than the address
named in Section 2, complete the next section and sign where indicated.
------------------------------------------------------------------
Name (first, middle, last)
------------------------------------------------------------------
Address
------------------------------------------------------------------
City State Zip Code
------------------------------------------------------------------
Signature Signature
AUTOMATIC INVESTMENT PLAN You can automatically move $100 or more (no minimum
for IRA and other plans as described in Section 3) from your bank account [
] Savings [ ] Checking into any of your fund accounts on any day of the month.
Please attach a voided check or deposit slip from your bank account. If your
investment is by wire please provide bank information below.
[ ] I authorize Zweig to make regular investments of $
- ------------
into my account in
-----------------------------------------------
Fund Name
[ ] Class A [ ] Class B [ ] Class C
beginning with the month of
------------------------------------
on the
-------------- day (choose any day from the 1st to the 31st) of each [
] month [ ] quarter
BANK INFORMATION:
Note: Your bank must be a member of the Automated Clearing House (ACH). Please
call your bank if you are unsure.
- -------------------------------------------------------------------
Name of Bank
- -------------------------------------------------------------------
ACH Routing Number*
*this nine-digit number used to identify your bank to the ACH can be found in
the lower left-hand corner of your bank check. If your account is with a savings
bank or credit union, you must contact the institution to obtain its ACH routing
number.
- -------------------------------------------------------------------
Name(s) on Bank Account
- -------------------------------------------------------------------
Bank Account Number
Check one:
[ ] Checking Account (You must attach a voided check for the above referenced
account.)
[ ] Savings Account (Please obtain proper ACH routing information from your
bank.)
Passbook savings and money market mutual fund accounts are NOT eligible.
ACTIVATION OF AUTOMATIC INVESTMENT PLAN The Zweig Automatic Investment Plan
normally becomes active 15 business days after we receive your application. Your
investment may be credited for purchase in Zweig Mutual Funds up to three
business days after the date you selected on the application. Establishment of
the Automatic Investment Plan may be delayed if proper information is not
provided.
ZWEIG SAVINGS PLAN The Trust will send you an invoice each month or quarter in
order to make regular investments into the Trust. The minimum amount is $100
($25 for retirement plans). You are under no obligation to make these payments.
[ ] YES, I want to join the Savings Plan and make regular
investments of $
------------ into my account.
Please send me an invoice each [ ] month [ ] quarter.
7. LETTER OF INTENTION
You may qualify for a reduced sales charge by electing this item. I agree to the
Letter of Intention provisions outlined in the prospectus, and intend to invest
over a 13-month period beginning
- ------------- , 19
- ---- (purchase date not more than 90 days prior to this Letter):
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
8. DEALERS AND ADVISERS ONLY
If certification below is executed, duplicate statements will be sent to the
address indicated below. Please be sure to enter the correct Financial
Professional Number and Branch Number.
- -------------------------------------------------------------------
Financial Professional's Name Financial Professional's Number
- -------------------------------------------------------------------
Dealer/Adviser's Name Telephone
- -------------------------------------------------------------------
Dealer/Adviser's Address Branch Number
9. YOUR ACCEPTANCE
ALL REGISTRANTS MUST SIGN. UNTIL A PROPERLY COMPLETED SIGNED APPLICATION HAS
BEEN RECEIVED BY STATE STREET BANK AND TRUST COMPANY, NO REDEMPTIONS OR
EXCHANGES FROM THE ACCOUNT WILL BE PROCESSED.
I (we) have full right, authority, and legal capacity and am (are) of legal
age in state of residence to purchase shares of the designated Series. I (we)
affirm that I (we) have received the current prospectus of the designated Series
and agree to its terms.
I (we) agree that State Street Bank and Trust Company, Zweig Series Trust,
Zweig Securities Corp., or their officers or employees, will not be liable for
any loss, expense or cost for acting upon any instructions or inquiries believed
to be genuine.
I (we) acknowledge that unless I (we) have elected not to have telephone
privileges in Section 6 above, the account will be subject to the telephone
exchange and redemption privileges described in the current prospectus and agree
that the Trust, the Distributor and Transfer Agent will not be liable for any
loss in acting on written or telephone instructions reasonably believed by them
to be authentic.
Under penalties of perjury, each undersigned certifies that the social
security or taxpayer identification number given above is correct and that I
(we) am (are) not subject to backup withholding because I (we) have not been
notified that I (we) am (are) subject to backup withholding or that the IRS has
notified me (us) that I (we) am (are) no longer subject. Sign below exactly as
the account is to be registered (corporations, etc., indicate titles):
- -------------------------------------------------------------------
Individual or Custodian Name Date
- -------------------------------------------------------------------
Joint Registrant, if any
- -------------------------------------------------------------------
Officer, Partner, Trustee, etc. Date Title
- -------------------------------------------------------------------
Officer, Partner, Trustee, etc. Date Title
IMPORTANT:
No investment can be redeemed from an account within 15 days following purchase
if an investor purchases shares with a check which has not cleared. This
limitation does not apply to investments made by wire transfer. The Internal
Revenue Service requires that all taxpayers provide their Taxpayer
Identification Number (Social Security Number) in the space provided in Section
1 of the Application and certify to its correctness. Failure by non-exempt
taxpayers to furnish State Street Bank with their correct Taxpayer
Identification Number WILL result in withholding 31% of all taxable dividends
paid to the account and/or withholding on certain other payments to the account
(this is referred to as "backup withholding").
CONFIRMATION OF ACCOUNT ESTABLISHMENT--Within a few days after the Application
is received by State Street Bank and Trust Company, a confirmation statement(s)
showing the account number(s), amount received, shares purchased and price paid
per share should be received by the registered shareholder for each Series
selected.
SUBSEQUENT PAYMENTS--A new application need not be submitted with additional
payments to an existing account if a current Application is on file with State
Street Bank and Trust Company. Subsequent purchases should be identified by
account number and account registration. This can be accomplished by using the
payment stub attached to the statement which you will receive shortly after
making an investment.
FOR APPLICATION ASSISTANCE OR RETIREMENT PLAN INFORMATION CALL 1-800-272-2700.
<PAGE> 26
ZWEIG SERIES TRUST
5 Hanover Square, New York, N.Y. 10004
STATEMENT OF ADDITIONAL INFORMATION
ZWEIG SERIES TRUST (the "Trust" ), a Delaware business trust, is a
professionally managed, open-end, diversified, investment company which offers
investors the opportunity to invest in six Series. Each Series has distinct
investment objectives and policies, and a shareholder's interest is limited to
the Series and to the Class in which he or she owns shares. The six Series
are: Zweig Strategy Fund; Zweig Appreciation Fund; Zweig Growth & Income Fund,
Zweig Managed Assets; Zweig Government Fund; and Zweig Cash Fund (each a
"Series").
The Trust has a distribution system that allows each Series to offer
investors the option of purchasing shares either subject to a front-end sales
charge coupled with a Rule 12b-1 Distribution Plan and service fee (except that
Zweig Cash Fund is offered without a sales charge) ( "Class A Shares" );
subject to a declining contingent deferred sales charge ( "CDSC" ), a Rule
12b-1 Distribution Plan and a service fee ( "Class B Shares" ); or subject to a
one year CDSC, a Rule 12b-1 Distribution Plan and a service fee ( "Class C
Shares" ). In addition, Class I Shares, which are not subject to a front-end
sales charge, CDSC, Rule 12b-1 Distribution Plan or service fee, are currently
available for purchase only from Zweig Securities Corp. to tax-exempt
retirement plans of Zweig Securities Corp. and its affiliates and certain
institutional investors.Zweig Cash Fund also issues a fifth class of shares
(Class M Shares), which is described in a separate Statement of Additional
Information. The Trust's distribution system is described more fully in the
Prospectus under the headings "Choosing Among Classes When Purchasing Shares",
"How to Invest in the Zweig Mutual Funds" and "How to Redeem Your Shares".
The Trust is designed for long-term investors, including those who
wish to use shares of one or more Series as a funding vehicle for tax-deferred
retirement plans (including tax-qualified retirement plans and Individual
Retirement Account (IRA) plans), and not for investors who intend to liquidate
their investments after a short period of time.
Zweig/Glaser Advisers (the "Manager" ), manages the investments of
each Series and Zweig Securities Corp. (the "Distributor" ), an affiliate of
the Manager, is the principal distributor of the Trust's shares.
This Statement of Additional Information, which should be kept for
future reference, is not a prospectus. It should be read in conjunction with
the Prospectus of the Trust (the "Prospectus" ), dated November 1, 1996, which
can be obtained without cost by contacting your financial consultant or by
calling or writing the Trust at the telephone number and address printed on
this cover page. This Statement of Additional Information is intended to
provide you with further information about the Trust.
Zweig Series Trust
(Toll Free 1-800-272-2700)
November 1, 1996
1
<PAGE> 27
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PURCHASE AND REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
REINSTATEMENT PRIVILEGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
EXCHANGE PRIVILEGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INVOLUNTARY REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
RETIREMENT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
NET ASSET VALUE AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
TRUSTEES AND OFFICERS OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
INVESTMENT MANAGEMENT AND OTHER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Custodian, Fund Accounting Agent, Transfer Agent and Dividend Paying Agent . . . . . . . . . . . . . . . . . . . 20
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
YIELD AND PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
APPENDIX I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
2
<PAGE> 28
INVESTMENT OBJECTIVES AND POLICIES
The Trust's investment objectives and policies and permitted
investments are described briefly in the Prospectus under the headings
"Investment Objectives of the Zweig Mutual Funds", "Portfolio Securities",
"Stock Selection and Bond Duration" and "Risk Factors and Managing Exposure to
Market Risk". There can be no assurance that a Series' investment objectives
will be achieved. Set forth below is additional information with respect to the
investment objectives and policies of certain Series and a description of
certain financial instruments and techniques utilized by certain Series.
Repurchase Agreements (All Series)
Repurchase agreements involve purchases of securities by a Series.
In such a transaction, at the time the Series purchases the security, it
simultaneously agrees to resell and redeliver the security to the seller who
also simultaneously agrees to buy back the security at a fixed price and time.
This assumes a predetermined yield for the Series during its holding period,
since the resale price is always greater than the purchase price and reflects
an agreed-upon market rate. Such transactions afford an opportunity for the
Series to invest temporarily available cash. Repurchase agreements may be
considered loans to the seller collateralized by the underlying securities.
The risk to the Series is limited to the ability of the seller to pay the
agreed-upon sum on the repurchase date; in the event of default, the repurchase
agreement provides that the Series is entitled to sell the underlying
collateral. If the value of the collateral declines after the agreement is
entered into, however, and if the seller defaults under a repurchase agreement
when the value of the underlying collateral is less than the repurchase price,
the Series could incur a loss of both principal and interest. The manager
monitors the value of the collateral at the time the transaction is entered
into and at all times subsequent during the term of the repurchase agreement in
an effort to determine that the value of the collateral always equals or
exceeds the agreed-upon repurchase price to be paid to the Series. If the
seller were to be subject to a Federal bankruptcy proceeding, the ability of
the Series to liquidate the collateral could be delayed or impaired because of
certain provisions of the bankruptcy laws.
Options (All Series except Zweig Cash Fund)
When a Series writes an option, an amount equal to the premium
received by the Series is recorded as an asset and as an offsetting liability.
The amount of the liability is "marked-to-market" daily to reflect the current
market value of the option, which is the last sale price on the principal
exchange on which such option is traded or, in the absence of a sale, the mean
between the latest bid and offering prices. If an option written by Series
expires, or a Series enters into a closing purchase transaction, such Series
will realize a gain (or, in the latter case, a loss, if the cost of a closing
transaction exceeds the premium received) and the liability related to such
option will be extinguished.
The premium paid by a Series for the purchase of a put option (its
cost) is recorded initially as an investment, the value of which is
subsequently adjusted to the current market value of the option. If the
current market value of a put option exceeds its premium, the excess represents
unrealized appreciation; conversely, if the premium exceeds the current market
value, the excess represents unrealized depreciation. The current market value
of an option purchased by a Series equals the option's last sale price on the
principal exchange on which it is traded or, in the absence of a sale, the mean
between the latest bid and offering prices.
An option position may be closed out only on an exchange which
provides a secondary market for an option of the same series. Although a
Series generally will purchase or write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at any
particular time, and for some options no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing transactions
in particular options, with the result that the Series would have to exercise
its options in order to realize any profit and would incur transaction costs on
the sale of underlying securities pursuant to the exercise of put options. If
a Series, as a covered call option writer, is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (a) there may be insufficient interest in trading
certain options; (b) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (c) trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options or underlying securities; (d) unusual or unforeseen circumstances
may interrupt normal operations on an exchange; (e) the facilities of an
exchange or the Options Clearing Corporation (the "OCC" ) may not at all times
be adequate to handle current trading volume; or (f) one or more exchanges
might, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by the OCC as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
In addition, there is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times, render certain
of the facilities of the OCC inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
3
<PAGE> 29
The amount of the premiums which a Series may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing
activities.
In the event of a shortage of the underlying securities deliverable
on exercise of a listed option, the OCC has the authority to permit other,
generally comparable securities to be delivered in fulfillment of option
exercise obligations. If the OCC exercises its discretionary authority to
allow such other securities to be delivered, it may also adjust the exercise
prices of the affected options by setting different prices at which otherwise
ineligible securities may be delivered. As an alternative to permitting such
substitute deliveries, the OCC may impose special exercise settlement
procedures.
Futures Contracts (All Series except Zweig Cash Fund)
Upon entering into a futures contract, a Series will initially be
required to deposit with the custodian an amount of initial margin of cash or
U.S. Treasury bills equal to approximately 1 1/2% of the contract amount. The
nature of initial margin in futures transactions is different from that of
margin in securities transactions in that futures contract initial margin does
not involve the borrowing of funds by customers to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Series upon termination of the
futures contract, assuming all contractual obligations have been satisfied. In
addition to initial margin, the Series is required to deposit cash, liquid debt
obligations, liquid equity securities or cash equivalents in an amount equal to
the notional value of all long futures contracts, less the initial margin
amount, in a segregated account with the custodian to ensure that the use of
such futures contracts is not leveraged. If the value of the securities placed
in the segregated account declines, additional securities, cash or cash
equivalents must be placed in the segregated account so that the value of the
account will at least equal the amount of the Series' commitments with respect
to such futures contracts.
Subsequent payments, called maintenance margin, to and from the
broker, will be made on a daily basis as the price of the underlying security
fluctuates, making the long and short positions in the futures contract more or
less valuable, a process known as marking to the market. For example, when
the Series has purchased a futures contract and the price of the underlying
security has risen, that position will have increased in value and the Series
will receive from the broker a maintenance margin payment equal to that
increase in value. Conversely, when the Series has purchased a futures
contract and the price of the underlying security has declined, the position
would be less valuable and the Series would be required to make a maintenance
margin payment to the broker. At any time prior to expiration of the futures
contract, the Series may elect to close the position by taking an opposite
position which will operate to terminate the Series' position in the futures
contract. A final determination of maintenance margin is then made, additional
cash is required to be paid by or released to the Series, and the Series
realizes a loss or a gain.
While futures contracts based on securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally, the futures contract is terminated by entering into an
offsetting transaction. An offsetting transaction for a futures contract sale
is effected by the Series entering into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument with the
same delivery date. If the price in the sale exceeds the price in the
offsetting purchase, the Series immediately is paid the difference and thus
realizes a gain. If the offsetting purchase price exceeds the sales price, the
Series pays the difference and realizes a loss. Similarly, the closing out of
a futures contract purchase is effected by the Series entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
Series realizes a gain, and if the purchase price exceeds the offsetting price,
the Series realizes a loss.
There are several risks in connection with the use of futures
contracts as a hedging device. One risk arises due to the imperfect
correlation between movements in the price of the futures contracts and
movements in the price of the subject of the hedge. The price of the futures
contract may move more than or less than the price of the securities or
currency being hedged.
If the price of the futures contracts moves less than the price of
the securities or currency hedged, the hedge will not be fully effective, but,
if the price of the securities or currency being hedged has moved in an
unfavorable direction, the Series would be in a better position than if it had
not hedged at all. If the price of the securities or currency being hedged has
moved in a favorable direction, this advantage will be partially offset by the
movement in the price of the futures contract. If the price of the futures
contract moves more than the price of the security or currency, the Series will
experience either a loss or gain on the futures which will not be completely
offset by movements in the prices of the securities or currency which is the
subject of the hedge.
To compensate for the imperfect correlation of such movements in
price, the Series may buy or sell futures contracts in a greater dollar amount
than the dollar amount of the securities or currency being hedged if the
historical volatility of the prices of such securities or currency has been
greater than the historical volatility of the futures contracts. Conversely,
the Series may buy or sell fewer futures contracts if the historical volatility
of the price of the securities or currency being hedged is less than the
historical volatility of the futures contracts.
It is also possible that, where a Series has sold futures to hedge
its portfolio against a decline in the market, the market may advance and the
value of securities held in the Series' portfolio may decline. If this
occurred, the Series would lose money on the futures contracts and also
experience a decline in value in its portfolio securities.
4
<PAGE> 30
However, while this could occur for a very brief period or to a very small
degree, over time the value of a diversified portfolio will tend to move in the
same direction as the futures contracts.
Where futures are purchased to hedge against a possible increase in
the cost of securities before a Series is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Series then concludes not to invest in the relevant securities
at that time because of concern as to possible further market decline or for
other reasons, the Series will realize a loss on the futures contract that is
not offset by a reduction in the price of securities purchased.
Another risk arises because the market prices of futures contracts
may be affected by certain factors. First, all participants in the futures
market are subject to initial margin and maintenance margin requirements.
Rather than meeting maintenance margin requirements, investors may close
futures contracts through offsetting transactions which could distort the
normal relationship between the debt securities and futures markets. Second,
from the point of view of speculators, the margin requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
also cause temporary price distortions.
Due to the possibility of price distortion in the futures market and
because of the imperfect correlation between movements in securities and
movements in the prices of futures contracts, a correct forecast of interest
rate trends by the Manager may still not result in a successful hedging
transaction over a very short period of time.
The hours of trading for futures contracts may not conform to the
hours during which the underlying securities are traded. To the extent that
the futures contracts markets close after the markets for the underlying
securities, significant price movements can take place in the futures contracts
markets that cannot be reflected in the markets of the underlying securities.
Positions in futures contracts may be closed out only on an exchange
or board of trade which provides a secondary market for such futures. Although
the Trust intends to purchase or sell futures only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange or board of trade will
exist for any particular contract or at any particular time. In such event, it
may not be possible to close a futures position and, in the event of adverse
price movements, the Series would continue to be required to make daily cash
payments of maintenance margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold until
the futures contracts can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee
that the price of the securities will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
Successful use of futures contracts by the Trust is also subject to
the Manager's ability to correctly predict movements in the direction of
interest rates and other factors affecting markets for securities. For
example, if a Series has hedged against the possibility of an increase in
interest rates which would adversely affect securities held in its portfolio
and prices of such securities increase instead, the Series will lose part or
all of the benefit of the increased value of its securities which it has hedged
because it will have offsetting losses in its futures positions. In addition,
in such situations, if the Series has insufficient cash, it may have to sell
securities to meet maintenance margin requirements. Such sales of securities
may be, but will not necessarily be, at increased prices which reflect the
rising market. The Series may have to sell securities at a time when it may be
disadvantageous to do so.
Investment Companies (All Series except Zweig Cash Fund)
Investments by the Trust in investment companies will be effected by
independent investment managers, and the Trust will have no control over the
investment management, custodial arrangements or operations of any investments
made by such investment managers. Some of the funds in which a Series may
invest could also incur more risks than would be the case for direct
investments. For example, they may engage in investment practices that entail
greater risks or invest in companies whose securities and other investments are
more volatile. In addition, the funds in which a Series of the Trust invests
may or may not have the same fundamental investment limitations as those of the
Series itself. While a potential benefit of investing in closed-end investment
companies would be to realize value from a decrease in the discount from net
asset value at which some closed-end funds trade, there is also the potential
that such discount could grow, rather than decrease.
By investing in investment companies indirectly through the Trust, a
shareholder of the investing Series will bear not only a proportionate share of
the expenses of that Series (including operating costs and investment advisory
and administrative fees) but also, indirectly, similar expenses of the
investment companies in which the Series invests. A shareholder may also
indirectly bear expenses paid by investment companies in which the Series
invest related to the distribution of such investment companies' shares. Some
of the open-end investment companies in which the Series may invest may limit
the ability of shareholders (including a Series of the Trust) to redeem their
shares.
Zweig Cash Fund may not invest in securities of investment
companies, except as they may be acquired as part of a merger, consolidation or
acquisition of assets. The other Zweig Mutual Funds may not invest in
investment companies except by purchase in the open market involving only
customary brokers' commissions, in
5
<PAGE> 31
connection with a merger, consolidation, reorganization, or acquisition of
assets, or as otherwise permitted by applicable law. Current law prohibits any
Series from (i) owning more than 3% of the voting securities of any one
investment company; (ii) investing more than 5% of its assets in the securities
of any one investment company; or (iii) investing more than 10% of its assets
in securities issued by investment companies. Any Series is also prohibited
from owning more than 10% of the voting securities of a registered closed-end
investment company. If the investment securities of another investment company
were the only investment securities held by a Series, these restrictions would
not apply to that Series. All Series may also invest in other investment
companies to facilitate the implementation of a master-feeder structure.
Zweig Government Fund
Zweig Government Fund seeks a high total return from current income
and capital appreciation consistent with preservation of capital over the long
term by investing primarily in U.S. Government and agency securities, including
Government National Mortgage Association ("GNMA") mortgage-backed certificates,
and repurchase agreements collateralized by such securities.
It is the Series' policy that at least 65% of its total assets will
be invested in U.S. Government securities (including GNMA certificates), except
during times when the Manager believes that adoption of a temporary defensive
position is desirable. For temporary defensive purposes, the Series may hold
cash or invest in money market instruments without limit.
The Series may write covered call options and secured put options,
and purchase put options on U.S. Government securities which are traded on an
exchange or over-the-counter. The Series also may purchase and sell interest
rate futures contracts and purchase and write put and call options on such
futures contracts as a means of hedging against changes in interest rates.
Options on Government Securities
(i) On Treasury Bonds and Notes. Because the trading
interest in Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges will not continue indefinitely to introduce new
expirations with respect to such options to replace expiring options on
particular issues. The expirations introduced at the commencement of options
trading on a particular issue will be allowed to run, with the possible
addition of a limited number of new expirations, as the original expirations
expire. Options trading on each issue of bonds or notes will thus be phased
out as new options are listed on more recent issues, and a full range of
expirations will not ordinarily be available on the exchange for every issue on
which options are traded.
(ii) On Treasury Bills. Because the deliverable Treasury
bill changes from week to week, writers of Treasury bill calls cannot provide
in advance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Series holds a long position
in Treasury bills with a principal amount corresponding to the contract size of
the option, it may be hedged from a risk standpoint. In addition, the Series
will maintain Treasury bills, maturing no later than those which would be
deliverable in the event of exercise of a call option it has written, in a
segregated account with its custodian so that it will be treated as being
covered for margin purposes.
(iii) On GNMA Certificates. Options on GNMA certificates are
not currently traded on any national securities exchange, although the
Securities and Exchange Commission (the "Commission" ) has approved such
options for trading on the Chicago Board Options Exchange. Since the remaining
principal balance of GNMA certificates declines each month as mortgage payments
are made, the Series as a writer of a GNMA call may find that the GNMA
certificates it holds no longer have a sufficient remaining principal balance
to satisfy its delivery obligation in the event of exercise of the call option
it has written. Should this occur, additional GNMA certificates from the same
pool (if obtainable), or replacement GNMA certificates, will have to be
purchased in the cash market to meet delivery obligations. The Series will
either replace GNMA certificates representing cover for call options it has
written, or maintain in a segregated account with its custodian cash or U.S.
Government securities or other appropriate high grade debt obligations having
an aggregate value equal to the market value of the GNMA certificates
underlying the call options it has written.
The hours of trading for options on U.S. Government securities may
not conform to the hours during which the underlying securities are traded. To
the extent that the options markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the options markets.
Options are traded on exchanges on only a limited number of U.S.
Government securities and exchange regulations limit the maximum number of
options which may be written or purchased by a single investor or a group of
investors acting in concert. The Trust and other clients advised by the
Manager may be deemed to constitute a group for these purposes. In light of
these limits, the Trust's Board of Trustees (the "Board of Trustees" or the
"Board" ) may determine at any time to restrict or terminate the public
offering of the Series' shares (including through exchanges from the other
Series).
Exchange markets in options on U.S. Government securities are a
relatively new and untested concept and it is impossible to predict the amount
of trading interest that may exist in such options. There can be no assurance
that viable exchange markets will develop or continue.
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Futures Contracts on Government Securities
Currently futures contracts can be purchased and sold with respect
to U.S. Treasury bonds, U.S. Treasury notes and GNMA certificates on the
Chicago Board of Trade, and with respect to U.S. Treasury bills on the
International Monetary Market at the Chicago Mercantile Exchange.
Options on Futures Contracts
Currently, options can be purchased or sold with respect to futures
contracts on U.S. Treasury bonds on the Chicago Board of Trade.
The Series is required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those applicable to interest rate
futures contracts described above, and, in addition, net option premiums are
included as initial margin deposits. As with options on debt securities, the
writer of an option on a futures contract may terminate his position by selling
or purchasing an option of the same series. The ability to establish and close
out positions on such options is subject to the existence of a liquid secondary
market. The Series will not purchase options on futures contracts on any
exchange unless and until, in the Manager's opinion, the market for such
options is sufficiently liquid that the risks in connection with options on
futures contracts are not greater than the risks in connection with futures
contracts.
Compared to the purchase or sale of futures contracts, the purchase
of options on futures contracts involves less potential risk to the Series
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the use of an
option on a futures contract would result in a loss to the Series when the use
of a futures contract would not, such as when there is no movement in the
prices of debt securities. Writing an option on a futures contract involves
risks similar to those arising in the sale of futures contracts, as described
above.
In purchasing and selling futures contracts and in purchasing
options on futures contracts, the Series will comply with rules and
interpretations of the Commodity Futures Trading Commission ( "CFTC" ) under
which it is exempted from regulation as a commodity pool operator. The CFTC
regulations which exempt the Series from regulation as a commodity pool
operator require, among other things, (i) that futures and related options be
used solely for bona fide hedging purposes, as defined in CFTC regulations or,
alternatively, with respect to each long futures or options position, the
Series will ensure that the underlying commodity value of such contract does
not exceed the sum of segregated cash or money market instruments, margin
deposits on such contracts, cash proceeds from investments due in 30 days and
accrued profits on such contracts held by the commodity broker, and (ii) that
the Series not enter into futures and related options for which the aggregate
initial margin and premiums exceed 5% of the fair market value of the Series'
total assets. There is no other limitation on the percentage of the Series'
assets that may be invested in futures and related options. The Internal
Revenue Code's requirements for qualification as a regulated investment company
may limit the extent to which the Series can engage in futures transactions.
Zweig Cash Fund
Zweig Cash Fund may invest in U.S. Treasury issues, such as bills,
certificates of indebtedness, notes and bonds, and issues of U.S. Government
agencies and instrumentalities which are established under the authority of an
act of Congress, such as the Government National Mortgage Association,
Tennessee Valley Authority, Bank for Cooperatives, Farmers Home Administration,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks,
Export-Import Bank of the U.S., Federal Housing Administration ( "FHA" ),
Federal Home Loan Mortgage Corporation, U.S. Postal Service, Federal Financial
Bank, Federal National Mortgage Association and Student Loan Marketing
Association. Some of these securities, such as Federal Housing Administration
debenture obligations, are supported by the full faith and credit of the U.S.
Treasury; others, such as obligations of Federal Home Loan Banks, are supported
by the right of the issuer to borrow from the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. The
Series will not invest in obligations of the International Bank for
Reconstruction and Development (the "World Bank" ), the Asian Development
Bank, or the Inter-American Development Bank, or in FHA or VA pooled mortgages.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental policies
of each Series (other than Zweig Cash Fund, the investment restrictions of
which are set forth separately below), which cannot be changed with respect to
a Series without the approval of the holders of a majority of the outstanding
voting securities of that Series as defined in the Investment Company Act of
1940, as amended (the "1940 Act" ) as the lesser of: (1) 67% or more of a
Series' voting securities present at a meeting of shareholders, if the holders
of more than 50% of a Series'
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outstanding voting securities are present in person or by proxy, or (2) more
than 50% of a Series' outstanding voting securities. However, these policies
may be modified by the Trustees, in their discretion, without shareholder
approval, to the extent necessary to facilitate the implementation of a
master-feeder structure for any or all of the Series (i.e., a structure under
which a particular Series acts as a feeder and invests all of its assets in a
single pooled master fund with substantially the same investment objectives and
policies). Unless otherwise indicated, all percentage limitations apply to each
Series on an individual basis, and apply only at the time an investment is
made; a later increase or decrease in percentage resulting from changes in
values or net assets will not be deemed to be an investment that is contrary to
these restrictions. Pursuant to such restrictions and policies, except as
stated above with respect to a master-feeder structure, no Series may:
1. Purchase the securities of issuers conducting their principal
business activities in the same industry if immediately after such purchase the
value of its investments in such industry would be 25% or more of the value of
the total assets of the Series (there is no such limitation with respect to
obligations of the U.S. Government, its agencies and instrumentalities or with
respect to investments in other investment companies complying with such
policy);
2. With respect to 75% of a Series' assets, purchase the securities
of any one issuer, if immediately after such purchase (i) more than 5% of the
value of the total assets of any Series would be invested in such issuer or
(ii) the Series would own more than 10% of the outstanding voting securities of
such issuer (such limitations do not apply to securities issued by the U.S.
Government, its agencies or instrumentalities or with respect to investments in
other investment companies complying with such policy);
3. Invest in real estate or real estate mortgage loans, interests in
oil, gas and/or mineral exploration or development programs, provided that this
limitation shall not prohibit the purchase of securities issued by companies,
that invest in real estate or interests therein, including real estate
investment trusts;
4. Make loans, except that this restriction shall not prohibit the
purchase and holding of a portion of an issue of publicly distributed debt
securities, the lending of portfolio securities (if the aggregate value of the
loaned securities does not at any time exceed one-third of the total assets of
the Series), or the entry into repurchase agreements;
5. Issue "senior securities," except as permitted under the
Investment Company Act of 1940;
6. Act as an underwriter, except that a Series may technically be
deemed an underwriter under the Securities Act of 1933, as amended (the "1933
Act" ), in a registration under such Act necessary to resell certain restricted
securities;
7. Invest in commodities or commodity contracts, except as described
in the Prospectus or purchase or sell physical commodities unless acquired as a
result of ownership of securities, provided that this limitation shall not
prevent a Series from purchasing and selling options and futures contracts; and
8. Zweig Strategy Fund, Zweig Appreciation Fund, Zweig Growth &
Income Fund, and Zweig Government Fund may not borrow amounts in excess of 20%
of its total assets taken at cost or at market value, whichever is lower, and
then only from banks as a temporary measure for extraordinary or emergency
purposes. If such borrowings exceed 5% of the Series' total assets, the Series
will make no further investments until such borrowing is repaid. It is the
current intention of the Series not to borrow money in excess of 5% of their
assets. Each such Series may pledge up to 10% of its total assets as security
for such borrowing. For purposes of these restrictions, the deposit of initial
or maintenance margin in connection with futures contracts will not be deemed
to be a pledge of such Series' assets. Zweig Managed Assets may not borrow
money, unless from a bank, for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 1/3 of the value of the
total assets of Zweig Managed Assets less liabilities (other than borrowings).
Any borrowings that come to exceed 1/3 of the value of Zweig Managed Assets'
total assets by reason of a decline in net assets will be reduced within three
days to the extent necessary to comply with the 1/3 limitations. Zweig Managed
Assets does not intend to purchase any security while borrowings representing
more than 5% of its total assets are outstanding. This 5% limitation is not a
fundamental policy of Zweig Managed Assets.
Non-Fundamental Restrictions
The investment restrictions set forth below are other investment
policies of each Series (except Zweig Cash Fund) that are non-fundamental that
can be changed by the Board of Trustees without a shareholder vote. Pursuant
to such restrictions and policies, no Series may:
9. Borrow money, except from banks for temporary purposes in an
amount up to 10% of the value of the Series' total assets. The Series may only
pledge its assets in an amount up to 10% of the value of its total assets, and
then only to secure such borrowings. The Series will borrow money only to
accommodate requests for the redemption of shares to effect an orderly
liquidation of portfolio securities or to clear securities transactions and not
for leveraging purposes; accordingly, it is anticipated that any such borrowing
will be repaid before additional investments are made. The Series currently
does not intend to borrow money to an extent exceeding 5% of its total assets.
10. Purchase securities of any other investment company, except (i)
by purchase in the open market involving only customary brokers' commissions,
(ii) in connection with a merger, consolidation, reorganization or acquisition
of assets, or (iii) as otherwise permitted by applicable law;
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11. Make investments in securities for the purpose of exercising
control over or management of the issuer;
12. Participate on a joint or a joint and several basis in any
trading account in securities. (The bunching of orders of two or more Series,
or one or more Series and of other accounts under the investment management of
the Manager or its affiliates, for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading account);
13. Purchase securities on margin, except for such short-term
credits as are necessary for the clearance of transactions and initial and
variation margin payments in connection with transactions in futures contracts
and options contracts;
14. Invest in securities of an issuer which, together with any
predecessor, has been in continuous operation for less than three years if, as
a result, more than 5% of the total assets of the Series would then be invested
in such securities;
15. Sell securities short, except as described in the Prospectus and
in accordance with the following:
When a Series makes a short sale, the proceeds it receives will be
retained by the broker until the Series replaces the borrowed security. The
Series may, but will not necessarily, receive interest on such proceeds. In
order to deliver the security to the buyer, the Series must arrange through a
broker to borrow the security and, in so doing, the Series will become
obligated to replace the security borrowed at its market price at the time of
replacement, whatever that price may be. The Series may have to pay a premium
to borrow the security. The Series must pay to the broker any dividends or
interest payable on the security until the Series replaces the security;
A Series' obligation to replace the security borrowed in connection
with a short sale will be secured by the proceeds for the short sale retained
by the broker. In addition, a Series will be required to deposit cash, or
liquid securities as collateral in a segregated account with a custodian in an
amount such that the value of the proceeds and the collateral deposit is at all
times equal to at least 100% of the current market value of the securities
sold short. The Series will receive the interest and/or dividends accruing on
any liquid securities held as collateral in the segregated account with the
custodian. The proceeds and the collateral deposit do not necessarily limit
the Series' potential loss on a short sale, which may exceed the entire amount
of the proceeds and collateral deposit.
If the price of the security sold short increases between the time
of the short sale and the time the Series replaces the borrowed security, the
Series will incur a loss, and if the price declines during this period, the
Series will realize a short-term capital gain. Any realized short-term capital
gain will be decreased, and any incurred loss increased, by the amount of
transaction costs and any premium, dividend or interest which the Series may
have to pay in connection with such short sale;
16. Purchase the securities of an issuer if, to the Manager's
knowledge, one or more of the trustees or officers of the Trust or the officers
of the Manager individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer and together such trustees and officers
owning more than 1/2 of 1% own beneficially more than 5% of such securities;
17. Purchase securities which are not readily marketable, such as
certain securities which are subject to legal or contractual restrictions on
resale or securities which are otherwise illiquid including non-marketable
securities and repurchase agreements having more than seven days remaining to
maturity, if, as a result, more than 15% of the Series' net assets would
consist of such securities;
18. Invest more than 5% of its net assets in warrants valued at the
lower of cost or market (other than those that have been acquired in units or
attached to other securities). Included within that amount, no more than 2% of
a Series' net assets may be invested in warrants not traded on the NYSE or
American Stock Exchange. Zweig Government Fund and Zweig Cash Fund may not
invest in warrants; and
19. A Series may lend its portfolio securities to a limited extent.
Such loans entitle the Series to cash collateral, and the extra cash thus
obtained may be invested in short-term, interest-bearing securities. The
Series may make such loans only to brokers or dealers who are members of the
New York Stock Exchange ( NYSE ), or who have net capital, under the rules and
regulations applicable to such broker or dealer, of at least $10,000,000. Such
loans will not be made against less than 100% cash collateral, and the borrower
will be required to maintain the collateral at 100% of the market value
(marked-to-market daily) of the securities on loan. Loans will be made only
if: (1) the Series retains the right to obtain any dividend, interest or other
distribution benefits on the securities and any increase in their market value;
and (2) the Series is able to terminate the loan at any time (such right of
termination will be exercised, among other things, to obtain the return of the
securities on loan for the purpose of voting on any matters considered material
by the Series' management). It is the current intention of each Series not to
engage in such activities to an extent in excess of 5% of the value of the
Series' total assets.
Restrictions Applicable to Zweig Cash Fund
Zweig Cash Fund concentrates its investments in U.S. Government
securities and issues of U.S. Government agencies and instrumentalities as set
forth in its investment objective and has adopted certain restrictions and
fundamental policies which cannot be changed without approval by the holders of
a majority of the outstanding voting securities of Zweig Cash Fund as defined
in the 1940 Act as the lesser of: (1) 67% or more of the Fund's voting
securities present at a meeting of shareholders, if the holders of more than
50% of the Fund's outstanding
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voting securities are present in person or by proxy, or (2) more than 50% of
the Fund's voting securities. However, these policies may also be modified by
the Trustees, in their discretion, without shareholder approval, to the extent
necessary to facilitate the implementation of a master-feeder structure for
Zweig Cash Fund. Pursuant to such restrictions and policies, except as stated
above with respect to a master-feeder structure, Zweig Cash Fund may not:
- Purchase common stocks, preferred stocks, warrants, other equity
securities, state bonds, municipal bonds, industrial revenue bonds or corporate
bonds or debentures;
- Borrow money, except from banks for temporary purposes in an amount up to
10% of the value of its total assets. Zweig Cash Fund may only pledge its
assets in an amount up to 10% of the value of its total assets, and then only
to secure such borrowings. Zweig Cash Fund will borrow money only to
accommodate requests to redeem shares to effect an orderly liquidation of
portfolio securities or to clear securities transactions and not for leveraging
purposes; accordingly, it is anticipated that any such borrowing will be repaid
before additional investments are made. Zweig Cash Fund currently does not
intend to borrow money to an extent exceeding 5% of its total assets. Zweig
Cash Fund may not issue any securities which would be deemed to be senior
securities in contravention of the 1940 Act;
- With respect to 75% of the value of the Zweig Cash Fund's total assets,
invest more than 5% of the value of its total assets in the securities of any
one issuer, except securities issued or guaranteed as to the payment of
principal and interest by the U.S. Government, its agencies or
instrumentalities;
- Sell securities short;
- Write or purchase put or call options;
- Underwrite the securities of other issuers;
- Purchase or sell real estate, real estate investment trust securities,
commodities or oil and gas interests;
- Make loans to others, except that engaging in permissible activities
specified in the Prospectus under the heading "Risk Factors and Managing
Exposure to Market Risk" and in this Statement of Additional Information under
the headings "Investment Objectives and Policies" and "Investment Restrictions"
shall not be viewed as loans for this purpose;
- Invest more than an aggregate of 10% of Zweig Cash Fund's net assets (taken
at current value) in repurchase agreements maturing in more than seven days and
other illiquid investments (such as non-negotiable certificates of deposit,
non-negotiable time deposits or other non-marketable securities);
- Invest in companies for the purpose of exercising control; or
- Invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation or acquisition of assets.
The foregoing percentage restrictions apply at the time an
investment is made; a later increase or decrease in percentage may result from
changes in values or Zweig Cash Fund's net assets but will not be deemed to
result in an investment which is contrary to these restrictions.
PURCHASE AND REDEMPTION OF SHARES
Reference is made to the materials in the Prospectus under the
headings "Choosing Among Classes When Purchasing Shares", "How to Invest in
the Zweig Mutual Funds" and "How to Redeem Your Shares", which describe the
methods of purchase and redemption of Trust shares.
No stock certificates will be issued unless specifically requested
in writing by an investor. Instead, an account will be established for each
investor and all shares purchased or received, including those obtained through
reinvestment of distributions, will be registered on the books of the Trust and
credited to such account.
If the Board of Trustees should determine that it is advisable in
the interest of the remaining shareholders of a Series or Class to make payment
wholly or partly in cash, the Series may pay redemption proceeds in whole or in
part by a distribution in kind of securities from the portfolio of a Series, in
lieu of cash, in conformity with the applicable rules of the Commission. If
shares are redeemed in kind, the redeeming shareholder might incur brokerage
costs in converting the assets into cash. Where the Trust makes a redemption
in kind, such redemption will be made in readily marketable securities whose
value is easily ascertainable. The method of valuing portfolio securities for
this purpose is as described under Net Asset Value and Taxes. The Trust has,
however, elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which it is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net assets during any 90-day period for any one
shareholder.
REINSTATEMENT PRIVILEGE
Reinvestment of redemption proceeds under the reinstatement
privilege described in the prospectus will be made at the net asset value next
determined after receipt of the reinstatement order.
If the shareholder has realized a gain on the redemption, the
transaction is taxable and reinvestment will not alter any capital gains tax
payable. If there has been a loss on the redemption, some or all of the loss
may not be allowed as a tax deduction depending on the amount reinvested.
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For purposes of determining the amount of CDSC payable on any
subsequent redemptions, the purchase payment made through exercise of the
reinvestment privilege will be deemed to have been made at the time of the
initial purchase (rather than at the time the reinvestment was effected).
EXCHANGE PRIVILEGE
Participating securities dealers who have signed a Selling Agreement
with the Distributor may exchange their clients' shares by telephone.
The minimum value of any class of shares that may be exchanged into
a Series in which shares are not already held is $1,000 and no exchange out of
a Series (other than by a complete exchange of all the shares of that Series)
may be made if it would reduce the shareholder's interest in that Series to
less than $1,000.
The Trust reserves the right at any time to modify or terminate the
exchange privilege with respect to one or more Series or classes of shares, if
the Board of Trustees determines that continuing the privilege may be
detrimental to shareholders.
INVOLUNTARY REDEMPTIONS
As with voluntary redemptions, an involuntary redemption may result
in the payment of a tax by the shareholder. (See "Distributions and Taxes" in
the Prospectus.)
RETIREMENT PLANS
Shares may be purchased in connection with all types of tax-deferred
retirement plans. Shares of one or more Series may be purchased in a single
application establishing a single plan account.
The minimum initial investment in connection with tax-deferred
retirement plans is $250 and the minimum may be waived on payments made
directly to the Transfer Agent. There is no minimum for additional purchase
payments for tax-deferred retirement plans.
NET ASSET VALUE AND TAXES
For all Series except Zweig Cash Fund, the net asset value per share
of each class of shares is determined as of the close of regular trading on the
NYSE, on each day that the NYSE is open. The NYSE is closed on the following
holidays (or the weekdays on which these holidays are celebrated when they fall
on a weekend): New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
Shares are entitled to dividends as declared by the Board and, on
liquidation of a Series, are entitled to receive their share of the net assets
of the Series. Shareholders have no preemptive rights. The Trust's fiscal
year ends on December 31.
Stocks, futures and options are valued at the closing prices
reported on recognized securities exchanges or if no sale was reported, and for
unlisted securities, at the mean between the last-reported bid and asked
prices. Bonds and other fixed-income securities are valued at prices obtained
from an established bond-pricing service when such prices are available.
Forward foreign currency contracts are valued using forward currency exchange
rates supplied by a quotation service. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the direction of the Board of Trustees. Short-term obligations
having a remaining maturity of 60 days or less are valued at amortized cost
(which approximates market value). Zweig Cash Fund values all short-term
investments using the amortized cost method pursuant to Rule 2a-7 under the
Investment Company Act of 1940.
Zweig Cash Fund. The net asset value per share of each class of
shares is determined at 2:00 p.m. New York time and as of the close of regular
trading on the NYSE, on each day the NYSE is open. The Board of Trustees of
the Trust (the Board or Board of Trustees ) has determined that it is in the
best interests of Zweig Cash Fund and its shareholders to seek to maintain a
stable net asset value per share, and that the appropriate method for valuing
portfolio securities is the amortized cost method, provided that such method
continues to fairly reflect the market-based net asset value per share. The
Board shall continuously review this method of valuation and make changes that
may be necessary to assure that Zweig Cash Fund's instruments are valued at
their fair value as determined by the Board in good faith.
The Board has determined that Zweig Cash Fund will comply with the
conditions of Rule 2a-7 under the Act regarding the amortized cost method of
valuing portfolio securities. Under Rule 2a-7, the Board is obligated, as a
particular responsibility within the overall duty of care owed to the Series'
shareholders, to establish procedures reasonably designed, taking into account
current market conditions and the Series' investment objectives, to stabilize
the net asset value per share of the Series for purposes of distribution and
redemption, at $1.00 per share. These procedures include periodically
monitoring, as the Board deems appropriate, at such intervals as are reasonable
in light of current market conditions, the relationship between the net asset
value per share based upon the amortized cost method of valuation and the net
asset value per share based upon available indications of market value. The
Board will consider what steps should be taken, if any, in the event of a
difference of more than 1/2 of 1% between the amortized cost value and the
market value per share. The Board will take such steps as it considers
appropriate (e.g., redemption in kind, selling portfolio instruments prior to
maturity to realize capital gains
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or losses, shortening the average portfolio maturity, withholding dividends, or
utilizing a net asset value per share determined by using market quotations) to
minimize any material dilution or other unfair results that might arise from
differences between the net asset value per share based upon the amortized cost
method of valuation and the net asset value per share based upon market value.
Rule 2a-7 requires that a dollar-weighted average portfolio maturity of not
more than 90 days, appropriate to the objective of maintaining a stable net
asset value of $1.00 per share, be maintained, and precludes the purchase of
any instrument with a remaining time to maturity of more than 397 calendar
days. However, the underlying securities used as collateral for repurchase
agreements are not subject to these restrictions, because a repurchase
agreement is deemed to have a maturity equal to the period remaining until the
date on which the repurchase of the underlying securities is deemed to occur.
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, Zweig Cash Fund will invest
its available cash in a manner that will reduce such average maturity to 90
days or less as soon as reasonably practicable. Rule 2a-7 also requires Zweig
Cash Fund to limit its investments to instruments that the Board determines
present minimal credit risks and that have been given one of the two highest
rating categories by nationally recognized statistical rating organizations,
or, in the case of instruments that are not so rated, are of comparable quality
as determined under procedures established by the Board.
It is the normal practice of Zweig Cash Fund to hold portfolio
securities to maturity and realize their par values, unless a prior sale or
other disposition thereof is mandated by redemption requirements or other
extraordinary circumstances. A debt security held to maturity is redeemable by
its issuer at its principal amount plus accrued interest. Under the amortized
cost method of valuation traditionally employed by institutions for valuation
of money market instruments, neither the amount of daily income nor the net
asset value is affected by any unrealized appreciation or depreciation of the
portfolio. In periods of declining interest rates, the indicated daily yield
on shares of Zweig Cash Fund (computed by dividing the annualized daily income
on the Series' portfolio by the net asset value computed as above) may tend to
be higher than a similar computation made by utilizing a method of valuation
based upon market prices and estimates. Zweig Cash Fund may, to a limited
extent, engage in short-term trading to attempt to take advantage of short-term
market variations, or may dispose of a portfolio security prior to its maturity
if the Manager believes such disposition advisable, or necessary to generate
cash to satisfy redemptions. In such cases, Zweig Cash Fund may realize a
gain or loss.
Tax Status
Each Series of the Trust will be treated as a separate corporation
for purposes of the Internal Revenue Code of 1986, as amended (the Code )
(except for purposes of the definitional requirements for regulated investment
companies under Code Section 851(a)). By paying dividends representing its
investment company taxable income within the time periods specified in the Code
and by meeting certain other requirements, each Series intends to qualify as a
regulated investment company under the Code. Since each Series will distribute
annually its investment company taxable income, net capital gains, and capital
gain net income, it will not be subject to income or excise taxes otherwise
applicable to undistributed income of a regulated investment company. If a
Series were to fail to distribute all its income and gains, it would be subject
to income tax and, in certain circumstances, a 4% excise tax.
Taxation of Shareholders
Dividends from net investment income and distributions from
short-term capital gains are taxable to shareholders as ordinary income.
Distributions from net capital gains that are properly designated as capital
gains dividends are taxable to shareholders as long-term capital gains
regardless of the length of time the shares in respect of which such
distributions are received have been held.
Dividends from Zweig Cash Fund and the Zweig Government Fund are not
expected to qualify for the 70% dividends received deduction available to
corporate shareholders. Distributions by other Series out of their dividend
income from domestic corporations may qualify in whole or in part for the
deduction if the distributing Series does not sell the stock in respect of
which it received such dividends before satisfying a 46-day holding period
requirement (91 days for certain preferred stock), and the shareholder holds
his Trust shares in the distributing Series for at least 46 days. For this
purpose, the distributing Series holding period in such stock may be reduced
for periods during which the Series reduces its risk of loss from holding the
stock (e.g., by entering into option contracts).
Investors who purchase shares shortly before the record date for a
distribution will pay a share price that includes the value of the anticipated
distribution and will be taxed on the distribution when it is received even
though with respect to them the distribution represents in effect a return of a
portion of their purchase price. Any loss realized on a sale or exchange of
shares will be disallowed if the shares disposed of are replaced within a
period of 61 days beginning 30 days before the shares are sold or exchanged.
If disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
Individuals and certain other non-exempt payees will be subject to a
31% backup Federal withholding tax on dividends and other distributions from
the Series, as well as on the proceeds of redemptions of Series other than
Zweig Cash Fund, if the affected Series is not provided with the shareholder's
correct taxpayer identification
12
<PAGE> 38
number and certification that the shareholder is not subject to such backup
withholding, or if the Internal Revenue Service notifies such Series that the
shareholder has failed to report proper interest or dividends. For most
individuals, the taxpayer identification number is the taxpayer's social
security number.
Tax Treatment of Certain Transactions
In general, and as explained more fully below, if the Trust enters
into combinations of investment positions by virtue of which its risk of loss
from holding an investment position is reduced on account of one (or more)
other positions (i) losses realized on one position may be deferred to the
extent of any unrecognized gain on another position and (ii) long-term capital
gains or short-term capital losses may be recharacterized, respectively, as
short-term gains and long-term losses. Investments in foreign currency
denominated instruments or securities may generate, in whole or in part,
ordinary income or loss. The Federal income tax treatment of gains and losses
realized from transactions involving options on stock or securities entered
into by a Series will be as follows: Gain or loss from a closing transaction
with respect to options written by a Series, or gain from the lapse of any such
option, will be treated as short-term capital gain or loss. Gain or loss from
the sale of put and call options that a Series purchases, and loss attributable
to the lapse of such options, will be treated as capital gain or loss. The
capital gain or loss will be long- or short-term depending on whether or not
the affected option has been held for more than one year. For this purpose, an
unexercised option will be deemed to have been sold on the date it expired. It
should be noted, however, that if a put is acquired at a time when the
underlying stock or security has been held for not more than one year, or if
shares of the underlying stock or security are acquired while such put is held,
any gain on the subsequent exercise, sale or expiration of the put will
generally be short-term gain.
Any regulated futures contract or listed non-equity option held by a
Series at the close of its taxable year will be treated as sold for its fair
market value on the last business day of such taxable year. Sixty percent of
any gain or loss with respect to such deemed sales, as well as the gain or loss
from the termination during the taxable year of the Series' obligation (or
rights) with respect to such contracts by offsetting, by taking or making
delivery, by exercise or being exercised, by assignment or being assigned, by
lapse, or otherwise, will be treated as long-term capital gain or loss and the
remaining forty percent will be treated as short term capital gain or loss. A
Series may make certain elections that modify the above tax treatment with
respect to regulated futures contracts or listed non-equity options that are
part of a mixed straddle, as defined by the Code.
The Trust may invest in certain investments that may cause it to
realize income prior to the receipt of cash distributions, including securities
bearing original issue discount. The level of such investments is not expected
to affect a Series' ability to distribute adequate income to qualify as a
regulated investment company.
Treasury Regulations pursuant to Section 1092 provide for the
coordination of the wash sale rules and the short sale rules with the straddle
rules. Generally, the wash sale rules prevent the recognition of loss where a
position is sold at a loss and a substantially identical position is acquired
within a prescribed period. The short sale rules generally prevent the use of
short sales to convert short-term capital gain to long-term capital gain and
long-term capital loss to short-term capital loss.
In addition to the Federal income tax consequences described above
relating to an investment in the Trust, there may be other Federal, state,
local or foreign tax considerations that depend upon the circumstances of each
particular investor. Prospective shareholders are therefore urged to consult
their tax advisers with respect to the effects of this investment on their
specific situations.
13
<PAGE> 39
TRUSTEES AND OFFICERS OF THE TRUST
The trustees and officers of the Trust and their business
affiliations for the past five years are as follows:
<TABLE>
<CAPTION>
Name, Address and Age Position With the Trust Principal Occupation During Past 5 Years
- ----------------------- ----------------------- ----------------------------------------
<S> <C> <C>
CLAIRE B. BENENSON Trustee Consultant on Financial Conferences and Director of The Burnham
870 U.N. Plaza Fund Inc. Former Director of Financial Conferences and
New York, NY 10017 Chairman, Department of Business and Financial Affairs, The New
(77) School for Social Research, Former President of the Money
Marketeers of New York University, Trustee of Simms Global Fund
and Director of Zweig Cash Fund Inc.
RICHARD E. DEEMS Trustee Director and Member of the Executive and Finance Committees and
959 Eighth Avenue Chairman of the Audit Committee of The Hearst Corp.; Publishing
New York, NY 10019 Consultant to the Hearst Magazines Division of The Hearst
(83) Corp.; Director of The Burnham Fund Inc. and Former Director
of Zweig Cash Fund Inc.
S. LELAND DILL Trustee Retired; Director of Coutts & Co. Trust Holdings Limited,
5070 North Ocean Dr. Coutts & Co. Group, Coutts & Co. (USA) (private banking),
Singer Island, FL 33404 Trustee of BT Portfolios and BT Investment Funds. Former
(66) partner of Peat Marwick Mitchell & Co., and Director of Zweig
Cash Fund Inc. and Vintners International Company,
Inc.(winery).
EUGENE J. GLASER* Chairman, President of the Manager and President and Director of the
5 Hanover Square Chief Executive Distributor; Director of The Zweig Fund, Inc. Former Director
New York, NY 10004 Officer and Trustee of Zweig Cash Fund Inc.
(56)
DONALD B. ROMANS Trustee President of Romans & Company (private investors and financial
233 East Wacker Dr. consultants); Director of the Burnham Fund Inc. Former
Chicago, IL 60601 Consultant to and Executive Vice President and Chief Financial
(65) Officer of Bally Manufacturing Corporation, and Director of
Zweig Cash Fund Inc.
MARTIN E. ZWEIG President Chairman of the Manager; Chairman of the Board and President of
900 Third Avenue The Zweig Total Return Fund, Inc. and The Zweig Fund, Inc.;
New York, NY 10022 President and Director of Zweig Total Return Advisors, Inc.,
(54) Zweig Advisors Inc., Zweig-DiMenna International Managers,
Inc., and Zweig Securities Advisory Service, Inc.; Co-Chairman
of Research of Avatar Investors Associates Corp.(until December
31, 1996); Managing Director of the Managing General Partner of
Zweig-DiMenna Partners, L.P. and Zweig-DiMenna Special
Opportunities, L.P.; President and Director of Gotham Advisors,
Inc.and Euclid Advisors, Inc.; Member of the Undergraduate
Executive Board of the Wharton School, University of
Pennsylvania. Former President of Zweig Cash Fund Inc.;
General Partner of Zweig Katzen Investors, L.P.; and Director
of Zweig/Avatar Capital Management, Inc.
</TABLE>
14
<PAGE> 40
<TABLE>
<CAPTION>
Name, Address and Age Position With the Trust Principal Occupation During Past 5 Years
--------------------- ----------------------- ----------------------------------------
<S> <C> <C>
DAVID KATZEN Senior Vice President Senior Vice President of the Manager; Vice President of Zweig
900 Third Avenue Advisors Inc.; Executive Vice President of Euclid Advisors,
New York, NY 10022 Inc.; Director of Quantitative Research at Avatar Investors
(39) Associates Corp. Former Vice President of The Zweig Fund, Inc.
and ZZK Management, Inc.; Director of Equity Research for Zweig
Total Return Advisors, Inc.; and Research Director of Zweig
Advisors Inc.
BARRY MANDINACH First Vice President Executive Vice President of the Distributor and Senior Vice
5 Hanover Square President of the Manager.
New York, NY 10004
(40)
CARLTON NEEL First Vice President First Vice President of the Manager. Former Vice President of
900 Third Avenue J.P. Morgan & Co., Inc.
New York, NY 10022
(28)
ALFRED J. RATCLIFFE First Vice President, First Vice President of the Manager. Former Vice President of
5 Hanover Square Treasurer, Principal The Bank of New York.
New York, NY 10004 Accounting Officer
(49) and Assistant Secretary
CHARLES I. LEONE First Vice President Chief Financial Officer and First Vice President of the Manager
5 Hanover Square and Assistant Secretary and the Distributor. Former Assistant Treasurer of Zweig Cash
New York, NY 10004 Fund Inc.
(35)
ANNEMARIE GILLY Vice President First Vice President of the Manager and the Distributor. Former
5 Hanover Square Vice President of Concord Financial Group and Executive Vice
New York, NY 10004 President and Chief Operating Officer of The Gabelli Equity
(45)
JEFFREY LAZAR Vice President Vice President and Treasurer of The Zweig Fund, Inc. and The
900 Third Avenue Zweig Total Return Fund, Inc.; Vice President, Treasurer and
New York, NY 10022 Secretary of Zweig Advisors Inc. and Zweig Total Return
(37) Advisors, Inc.
BETH ABRAHAM Assistant Vice Assistant Vice President of the Manager. Former self-employed
900 Third Avenue President consultant to the mutual fund industry and Senior Compliance
New York, NY 10022 Examiner in the New York Regional Office of the U.S. Securities
(40)
TOM DISBROW Assistant Vice Assistant Vice President of the Manager
5 Hanover Square President and
New York, NY 10004 Assistant Treasurer
(30)
</TABLE>
15
<PAGE> 41
<TABLE>
<CAPTION>
Name, Address and Age Position With the Trust Principal Occupation During Past 5 Years
--------------------- ----------------------- ----------------------------------------
<S> <C> <C>
RHONDA LEE BERZNER ASSISTANT VICE SENIOR RESEARCH ANALYST FOR ZWEIG/GLASER ADVISERS
900 Third Avenue PRESIDENT
New York, NY 10022
(31)
MARC BALTUCH Secretary First Vice President of the Manager; First Vice President,
900 Third Avenue Director, Chief Compliance Officer and Secretary of the
New York, NY 10022 Distributor.; Director and Vice President of Watermark
(51) Securities, Inc.; Assistant Secretary of Gotham Advisors, Inc.,
Zweig Total Return Advisors, Inc. and Zweig Advisors Inc. Former
Secretary of Zweig Cash Fund Inc.
</TABLE>
* Designates a Trustee who is an interested person of the Trust within the
meaning of the 1940 Act.
Set forth below is a table showing the compensation of the Board of
Trustees:
<TABLE>
<CAPTION>
Aggregate Compensation from the Total Compensation from the
Name of Person, Position Trust Trust Paid to the Trustees
------------------------ ----- -------------------------
<S> <C> <C>
Claire B. Benenson, Trustee $13,250 $13,250
Richard E. Deems, Trustee 13,250 13,250
S. Leland Dill, Trustee 13,250 13,250
Eugene J. Glaser, Chairman, Chief 0 0
Executive Officer and Trustee
Donald B. Romans, Trustee 13,250 13,250
</TABLE>
Those trustees and officers of the Trust who are affiliated with the
Distributor or the Manager are not separately compensated for their services as
trustees or officers of the Trust in-person. The Trust currently pays each of
its disinterested trustees a fee of $5,000 per year, plus $1,500 per meeting
attended ($500 per phone meeting) and reimburses their expenses for attendance
at meetings, all of which is prorated on the basis of the assets of each
Series. In addition, each such trustee receives a fee of $1,000 per year from
each Series. For the fiscal year ended December 31, 1995, the fees and
expenses of disinterested trustees, as a group, were $59,397. As of October 8,
1996, except for Dr. Zweig and Eugene J. Glaser, the trustees and officers of
the Trust, as a group, owned less than 1% of any Class of any Series of the
Trust.
Trustees may be removed from office at any meeting of shareholders by a
vote of two-thirds of the outstanding shares of the Trust. Except as set forth
above, the trustees shall continue to hold office and may appoint their
successors.
16
<PAGE> 42
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 8, 1996, to the Trust's knowledge, except for Dr. Martin
E. Zweig (900 Third Ave., New York, NY 19922) who owns 18.90% and Eugene J.
Glaser (5 Hanover Square, New York, NY 10004) who owns 8.47% of Zweig Cash Fund
Class M Shares; Ouzinkie Native Corp.( Box 89, Ouzinkie, AK 99644) who owns
7.22% of_Zweig Appreciation Fund Class B Shares; Roger Markle (1145 Dominguez
St., Carson, CA 90746) who owns_5.39% and J. Conrad Pierce (429 Tuthill Lane,
Mobile, AL 36608) who owns 5.16% of Zweig Cash Fund Class A Shares; Robert E.
Swindoll (1449 Morson Rd., Jackson, MS 39209) who owns 71.02%, Thelma Kessie,
(13061 Hartsook St., Sherman Oaks, CA 91423) who owns 11.32%, R.M. Tipton-White
(45 Navigation Lane, Savannah, GA 31410) who owns 8.81% and Irene M. Manzi
(73-60 196 St., Fresh Meadows, NY 11366) who owns 8.02% of Zweig Cash Fund
Class B Shares; Estate of Edna Olin (1601 5th Ave., Suite 2100, Seattle, WA
98101) who owns_7.97% and Stanley E. Coleby ( 2432 Briar Creek Circle, Salt
Lake City, UT 84117) who owns 7.95% of Zweig Cash Fund Class C Shares; and Alma
Garville (38 Taylor Rd., Valhalla, NY 10595) who owns 18.92%, Mary G. DeHuszar
(125-B West Oak, Chicago, IL 60610) who owns 9.49%, Frances C. Miller (310
Bethlehem Pike, Erdenheim, PA 19038) who owns 9.39% and Wiley Schatz (P.O. Box
3284, Palerm, AK 99645) who owns 7.58%_of Zweig Government Fund Class B Shares,
no person is the beneficial owner of 5% or more of the outstanding shares of
any Class of any Series of the Trust.
In addition, as of October 8, 1996, to the Trust's knowledge, except for
Merrill Lynch, Pierce, Fenner & Smith Inc. (4800 Deer Lake Dr. East,
Jacksonville, FL 32246) who owns 9.65% of Zweig Appreciation Fund Class B
Shares, 19.35% of Zweig Appreciation Fund Class C Shares, 22.75% of Zweig
Government Fund Class B Shares, 23.30% of Zweig Government Fund Class C Shares,
10.39% of Zweig Managed Assets Class A Shares, 16.24% of Zweig Managed Assets
Class B Shares, 23.19% of Zweig Managed Assets Class C Shares, 13.71% of Zweig
Strategy Fund Class A Shares, 20.93% of Zweig Strategy Fund Class B Shares and
21.20% of Zweig Strategy Fund Class C Shares; Smith Barney Inc. (388 Greenwich
St., New York, NY 10013) who owns 12.07% of Zweig Appreciation Fund Class A
Shares, 5.23% of Zweig Appreciation Fund Class B Shares, 6.93% of Zweig
Appreciation Fund Class C Shares, 15.79% of Zweig Cash Fund Class A Shares,
13.10% of Zweig Cash Fund Class C Shares, 24.77% of Zweig Government Fund Class
A Shares, 9.06% of Zweig Government Fund Class C Shares, 7.76% of Zweig Managed
Assets Class A Shares, 7.53% of Zweig Managed Assets Class B Shares, 5.95% of
Zweig Managed Assets Class C Shares, 8.88% of Zweig Strategy Fund Class A
Shares, 6.73% of Zweig Strategy Fund Class B Shares and 9.58% of Zweig Strategy
Fund Class C Shares; and The Bank of New York (One Wall St., New York, NY
10005) who owns 40.40% of Zweig Cash Fund Class M Shares, no person is the
record owner of 5% or more of the outstanding shares of any Class of any Series
of the Trust.
INVESTMENT MANAGEMENT AND OTHER SERVICES
MANAGER
The Trust and the Manager entered into an amended management agreement,
dated April 29, 1994, which the Board had previously approved on December 14,
1993 (the "Management Agreement" ), pursuant to which the Manager reviews the
portfolio of securities and investments of each Series, and advises and assists
each Series with respect to the selection, acquisition, holding or disposal of
securities and makes recommendations with respect to other aspects and affairs
of each Series. The Manager also furnishes the Trust with certain
administrative services, office space and equipment, and permits its officers
and employees who may be elected trustees or officers of the Trust to serve in
the capacities to which they are elected.
The Management Agreement will continue in effect from year to year if
specifically approved annually by a majority of the Board of Trustees who are
not parties to such contract or interested persons of any such party. The
Management Agreement may be terminated without penalty by either of the parties
on 60 days' written notice and must terminate in the event of its assignment.
The continuance of the Management Agreement was last approved by the Trustees
on June 27, 1996.
The Management Agreement provides that the Manager is liable only for
its acts or omissions caused by its willful misfeasance, bad faith, or gross
negligence in the performance of its duties or reckless disregard of its
obligations under the Management Agreement. The Management Agreement permits
the Manager to render services to others and to engage in other activities.
The Trust pays the Manager for its services pursuant to the Management
Agreement a monthly fee at the annual rate of 0.50% of the average daily net
assets of Zweig Cash Fund, 0.60% of the average daily net assets of Zweig
Government Fund, 0.75% of the average daily net assets of Zweig Strategy Fund
and Zweig Growth & Income Fund, and 1.00% of the average daily net assets of
Zweig Appreciation Fund and Zweig Managed Assets. For the fiscal year ended
December 31, 1995, the management fees paid to the Manager by each Series were
as follows: Zweig Strategy Fund: $6,702,163; Zweig Appreciation Fund:
$4,141,179; Zweig Government Fund: $393,803; Zweig Managed Assets: $6,994,435;
Zweig Cash Fund: $358,589. For the years ended December 31, 1994 and 1993,
the fees paid to the Manager for each Series were as follows: Zweig Strategy
Fund: $5,172,202 and $3,753,277; Zweig Appreciation Fund: $3,612,972 and
$2,928,819; Zweig Government Fund: $460,359 and $474,955; Zweig Managed
Assets: $7,161,203 and $2,744,103; and Zweig Cash Fund: $485,384 and $0.
17
<PAGE> 43
The fee of a Series will be reduced, or the Manager will reimburse the
Series (up to the amount of its fee), by an amount necessary to prevent the
total expenses of the Series (excluding taxes, interest, brokerage commissions
or transaction costs, certain distribution fees, certain custodial expenses and
extraordinary expenses) from exceeding limits applicable to the Series in any
state in which its shares then are qualified for sale. Currently, the most
restrictive expense limitation is 2.5% of the first $30 million of a Series'
net assets, 2% of the next $70 million of a Series' net assets and 1.5% of the
remaining net assets. The expense limitation provision applies separately to
each Series. From time to time, the Manager may make certain commitments which
are more restrictive than any state-imposed limitation. In such a case, the
Manager will reserve the right to discontinue any such commitment. These
expense reimbursements, if any, are estimated, reconciled and paid on a monthly
basis to the Trust.
The Manager has voluntarily undertaken to limit the expenses of Zweig
Cash Fund (exclusive of taxes, interest, brokerage commissions, 12b-1 fees and
extraordinary expenses) until April 30, 1997 to 0.35% of its average daily net
assets. During the years ended December 31, 1995 and 1994, the manager's
reimbursements to Zweig Cash Fund aggregated $94,925 and $161,853,
respectively, under the prior voluntary expense limitations. The Manager
reserves the right to discontinue this policy at any time after April 30, 1997.
In addition, the Manager has voluntarily undertaken to limit the expenses of
Zweig Government Fund (exclusive of taxes, interest, brokerage commissions,
12b-1 fees and extraordinary expenses) until December 31, 1996 to 0.75% of its
average daily net assets effective May 1, 1996. The Manager has also
voluntarily undertaken to limit the expenses of Zweig Growth & Income Fund
(exclusive of taxes, interest, brokerage commissions, 12b-1 fees and
extraordinary expenses) until April 30, 1997 to 1.00% of its average daily net
assets effective upon its commencement of operations. The Manager reserves the
right to discontinue this policy at any time after April 30, 1997.
The Manager may draw upon the resources of the Distributor and its
qualified affiliates in rendering its services to the Trust. The Distributor
or its affiliates may provide the Manager (without charge to the Trust) with
investment information and recommendations that may serve as the principal
basis for investment decisions with respect to certain Series of the Trust.
The Manager has adopted a Code of Ethics (the "Code") that requires all
persons subject to the Code to pre-clear any proposed non-exempt personal
securities transaction. Permission for any proposed transaction will be
granted provided it is determined that such would not negatively impact
activity in client accounts. In the event that a client of Manager's
affiliates also owns such security, or it is proposed that such client purchase
such security, available investments or opportunities for sales will be
allocated in a manner deemed to be equitable by the Manager.
DISTRIBUTOR
Pursuant to its Distribution Agreement with the Trust (the "Distribution
Agreement"), Zweig Securities Corp. acts as distributor of the Trust's shares
and receives, with respect to Class A Shares, a front-end sales commission, as
described in the Prospectus under "Choosing Among Classes When Purchasing
Shares"; and a 1% CDSC which may apply on redemptions within 18 months of
purchases not subject to a sales charge; with respect to Class B Shares, the
Distributor receives a declining CDSC ranging from 5% to 1% of the gross
proceeds of a redemption of shares held for less than six years; and, with
respect to Class C Shares, the Distributor receives a CDSC of 1.25% of the
gross proceeds of a redemption of shares held for less than one year. The
Distributor also is compensated under the Rule 12b-1 distribution plans as
described more fully below. The continuance and amendment of the Distribution
Agreement was last approved by the Trustees on June 27, 1996.
The Distributor may reallow amounts in excess of the sales concessions
listed in the Prospectus, and pay certain costs, to dealers who provide
additional services and special assistance in selling shares of the Trust.
These additional services and special assistance vary significantly from dealer
to dealer, resulting in payments that currently range from 8 to 15 basis
points.
DISTRIBUTION PLANS
The Trust has adopted a distribution plan for each class of shares of
each Series except Class I Shares (i.e., a plan for the Class A and C Shares, a
plan for the Class B Shares, and a plan for the Class M Shares; collectively
the "Plans") in accordance with Rule 12b-1 under the Act, to compensate the
Distributor for the services it provides and for the expenses it bears under
the Distribution Agreement. Each class of shares of each Series (other than
Class M Shares of Zweig Cash Fund and Class I Shares) pays a service fee at a
rate of 0.25% per annum of the average daily net assets of such class of the
Series and a distribution fee based on average daily net assets at the
following rates: for Class A Shares of all Series - 0.05% per annum; for Class
B Shares of all Series - 0.75% per annum; for Class C Shares - 0.75% per annum
for Zweig Appreciation Fund, Zweig Strategy Fund, Zweig Managed Assets and
Zweig Growth & Income Fund, 0.50% per annum for Zweig Government Fund and
0.05% per annum for Zweig Cash Fund.
For the fiscal year ended December 31, 1995, $305,671 in CDSCs was
collected on Class C Shares. The CDSC will be waived under certain
circumstances described in the Prospectus. In addition, the CDSC will be
18
<PAGE> 44
waived on redemptions of shares by employee benefit plans for the benefit of
employees of the Distributor and its affiliates.
The Rule 12b-1 Plan for the Class M Shares issued by Zweig Cash Fund
(the "Class M Plan") provides that the Distributor may enter into Service
Agreements with securities dealers, financial institutions, banks, and other
industry professionals for distribution, promotion and administration of and/or
servicing investors in Class M Shares. Such service organizations are paid
directly or indirectly by Zweig Cash Fund and the Manager. Service payments
under the Class M Plan are paid in equal amounts by Zweig Cash Fund and the
Manager, or Zweig Cash Fund and the Manager reimburse the Distributor equally
for service payments to a service organization, in an amount not exceeding
0.30% per annum of the average daily net asset value of the Class M Shares.
The Class M Plan also provides that Zweig Cash Fund will pay the costs and
expenses connected with the printing and distribution of Zweig Cash Fund's
prospectuses, shareholder reports, and any promotional material for other than
current Fund shareholders, in an amount not to exceed $100,000 per annum.
A report of the amounts expended under the Plans must be made to the
Board of Trustees and reviewed by the Board at least quarterly. In addition,
the Plans provide that they may not be amended to increase materially the costs
which the Trust may bear for distribution pursuant to the Plans without
shareholder approval and that other material amendments to the Plans must be
approved by a majority of the Board, including a majority of the Board who are
neither interested persons of the Trust (as defined in the 1940 Act) nor have
any direct or indirect financial interest in the operation of the Plans (the
"Qualified Trustees"), by vote cast in person at a meeting called for the
purpose of considering such amendments.
The Plans are subject to annual approval by a majority of the Board of
Trustees, including a majority of the Qualified Trustees, by vote cast in
person at a meeting called for the purpose of voting on the Plans. The Plans
are terminable at any time by vote of a majority of the Qualified Trustees or,
with respect to any Class or Series, by vote of a majority of the shares of
such Class or Series. Pursuant to the Plans, any new trustees who are not
interested persons must be nominated by existing trustees who are not
interested persons.
If the Plans are terminated (or not renewed) with respect to one or more
Classes or Series, they may continue in effect with respect to any Class or
Series as to which they have not been terminated (or have not been renewed).
For the fiscal year ended December 31, 1995, the Class A Shares of the
Zweig Strategy Fund, Zweig Appreciation Fund, Zweig Government Fund, Zweig
Managed Assets and Zweig Cash Fund paid a total of $1,466,005, $745,906,
$134,454, $453,720 and $12,009, pursuant to the Trust's distribution plan, in
connection with expenses incurred by the Distributor for compensation to
broker/dealers ($2,312,225), marketing ($1,302,647) and firm overhead
allocation ($40,732).
For the fiscal year ended December 31, 1995, the Class C Shares of the
Zweig Strategy Fund, Zweig Appreciation Fund, Zweig Government Fund, Zweig
Managed Assets and Zweig Cash Fund paid a total of $4,049,535, $1,654,829,
$156,113, $5,482,036 and $15,103, respectively, pursuant to the Trust's
distribution plan, in connection with expenses incurred by the Distributor for
compensation to broker/dealers ($9,882,936), marketing ($3,696,716) and firm
overhead allocation ($108,471).
For the fiscal year ended December 31, 1995, the Class M Shares of the
Zweig Cash Fund and the Distributor each paid $44,714 pursuant to the Trust's
Class M distribution and service plan to service organizations.
Because all amounts paid pursuant to the Plans are paid to the
Distributor, the Distributor and its officers, directors and employees, all may
be deemed to have a direct or indirect financial interest in the operation of
the Plans. None of the Trustees who is not an interested person of the Trust
has a direct or indirect financial interest in the operation of the Plans.
Benefits from the Plans may accrue to the Trust and its shareholders
from the growth in assets due to sales of shares to the public pursuant to the
Plans. Increases in a Series' net assets from sales pursuant to its Plan may
benefit shareholders by reducing per share expenses, permitting increased
investment flexibility and diversification of the Series' assets, and
facilitating economies of scale (e.g., block purchases) in the Series'
securities transactions. Under their terms, the Plans will continue from year
to year, provided that such continuance is approved annually by a vote of the
Trustees in the manner described above.
The continuance of the Plan for Class A and C Shares and the Plan for
Class M Shares and the adoption of a Plan for Class B Shares was approved by
the Board of Trustees, including a majority of the Qualified Trustees, at a
meeting held on June 22, 1995. Prior to approving the continuance of the Plan
and the adoption of the Class B Plan, the Board requested and received from the
Distributor all the information which it deemed necessary to arrive at an
informed determination as to such continuance and adoption of the Plans. In
making its determination to continue the Plan and adopt the Class B Plan, the
Board considered, among other factors: (1) the Trust's experience under the
Plan's and the previous Rule 12b-1 Plan's of the Trust, and whether such
experience indicates that the Plans would operate as anticipated; (2) the
benefits the Trust had obtained under the Plans and would be likely to obtain
under the Plans; (3) what services would be provided under the Plans by the
Distributor to the Trust and its shareholders; and (4) the reasonableness of
the fees to be paid to the Distributor for its services under the Plans. Based
upon their review, the Board, including each of the Qualified Trustees,
determined that the continuance of the Plans and the adoption of the Class B
Plan would be in the best interest of the Trust, and that there was a
reasonable likelihood that the Plans would benefit the Trust and its
shareholders. In the Board's
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<PAGE> 45
quarterly review of the Plans, they will consider their continued
appropriateness and the level of compensation provided therein.
The Board of Trustees has the right to terminate the Rule 12b-1 Plan for
the Class B Shares, and in the event of such termination, no further payments
would be made thereunder. However, in the event the Board of Trustees were to
terminate the Rule 12b-1 Plan for the Class B Shares for any Series, the Trust
may not thereafter adopt a new Rule 12b-1 Plan for a class of that Series
having, in the good faith determination of the Board of Trustees, substantially
similar economic characteristics to the Class B Shares. Termination of the
Rule 12b-1 Plan for the Class B Shares or the Distribution Agreement does not
affect the obligation of the Class B shareholders to pay CDSCs. The
Distributor has sold its right to receive certain payments under the
Distribution Agreement to a financial institution in order to finance the
distribution of the Class B Shares.
The Board of Trustees has also adopted a Rule 18f-3 Multi-Class Share
Plan permitting the issuance of shares in multiple classes.
The Trust has acknowledged that it has obtained its name by consent of
Dr. Martin E. Zweig and agreed that if (i) the Manager should cease to be the
Trust's investment manager or (ii) if Dr. Zweig should no longer be affiliated
with the Manager, the Trust, upon request of Zweig Securities Corp. or Dr.
Zweig, shall submit to the Trustees for their vote a proposal to delete the
word Zweig from its name and cease to use the name Zweig Series Trust or any
component or combination thereof or any name deceptively similar thereto, and
indicate on all letterheads and other promotional material that the Manager is
no longer the Trust's investment manager or Dr. Zweig is no longer affiliated
with the Manager, as the case may be. The Trust has agreed that Dr. Zweig or
Zweig Securities Corp. or any of its successors or assigns may use or permit
the use of the word Zweig, alone or with any other words, for, by or in
connection with any other entity or business, other than the Trust and its
business, whether or not the same directly or indirectly competes or conflicts
with the Trust or its business in any manner.
CUSTODIAN, FUND ACCOUNTING AGENT, TRANSFER AGENT AND DIVIDEND PAYING AGENT
The Bank of New York, 48 Wall Street, New York, New York 10286 serves as
custodian and fund accounting agent, and State Street Bank and Trust Company,
P.O. Box 8505, Boston, Massachusetts 02260-8505, serves as the transfer agent
and dividend paying agent for the Trust.
For the convenience of shareholders, the transfer agent maintains in
book account form the records of shares owned by Trust shareholders.
Shareholders may request in writing that the transfer agent issue to them
certificates representing their ownership of Trust shares.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 1301 Avenue of the Americas, New York, New
York 10019, serves as independent accountants for the Trust. In addition to
reporting annually on the financial statements of the Trust, the Trust's
accountants also review certain filings of the Trust with the Securities and
Exchange Commission.
COUNSEL
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, is
counsel to the Trust. The firm also acts as counsel to the Manager and the
Distributor.
PORTFOLIO TRANSACTIONS AND BROKERAGE
All Series Other Than Zweig Cash Fund
Officers and Trustees of the Trust and officers of the Manager who are
also officers or directors of the Distributor or its affiliates receive
indirect benefits from the Trust as a result of its usual and customary
brokerage commissions which the Distributor or its affiliates may receive for
acting as broker to the Trust in the purchase and sale of portfolio securities.
The Management Agreement does not provide for a reduction of the advisory fee
by any portion of the brokerage fees generated by portfolio transactions of the
Trust which the Distributor may receive. For the year ended December 31, 1995,
Zweig Strategy Fund, Zweig Appreciation Fund, Zweig Managed Assets and the
Zweig Government Fund paid total brokerage commissions of $1,335,463, $819,613,
$1,980,954 and $0, respectively. The amount paid by Zweig Managed Assets for
the year ended December 31, 1994 and for the period February 8, 1993
(commencement of operations) to December 31, 1993 was $1,232,085 and $423,239,
respectively. For the years ended December 31, 1994 and 1993, respectively,
Zweig Strategy Fund, Zweig Appreciation Fund, and the Zweig Government Fund
paid total brokerage commissions of $525,987, $782,620 and $7,938,
respectively, and $2,341,216, $495,058 and $20,007, respectively.
For the year ended December 31, 1995, the Trust paid Zweig Securities
Corp. $468,501 in brokerage commissions or 11.33% of total brokerage
commissions for the year ended December 31, 1995. For the years ended December
31, 1994 and 1993, $431,060 and $288,556, respectively, was paid to Zweig
Securities Corp. Allocation of transactions, including their frequency, to
various dealers is determined by the Manager in its best judgment and in a
manner deemed fair and reasonable to shareholders. The primary consideration
is prompt and efficient execution of orders in an effective manner at the most
favorable price. Subject to this consideration, dealers who provide
supplemental investment research, statistical or other services to the Manager
may receive orders for transactions by the Trust. Information so received will
enable the Manager to supplement its own
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<PAGE> 46
research and analysis with the views and information of other securities firms.
Such information may be useful and of value to the Manager and its affiliates
in servicing other clients as well as the Trust; in addition, information
obtained by the Manager and its affiliates in servicing other clients may be
useful and of value to the Manager in servicing the Trust. No principal
transactions are effected with Zweig Securities Corp. or any of its affiliated
companies.
The Trust may from time to time allocate brokerage commissions to firms
that furnish research and statistical information to the Manager. The
supplementary research supplied by such firms is useful in varying degrees and
is of indeterminable value. Such research may, among other things, include
advice regarding economic factors and trends, advice as to occasional
transactions in specific securities and similar information relating to
securities. No formula has been established for the allocation of business to
such brokers. Consideration may be given to research provided and payment may
be made of a fee higher than that charged by another broker-dealer which does
not furnish research services or which furnishes research services deemed to be
of lesser value, so long as the criteria of Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") are met. Section 28(e) of
the 1934 Act specifies that a person with investment discretion shall not be
deemed to have acted unlawfully or to have breached a fiduciary duty solely
because such person has caused the account to pay a higher commission than the
lowest available under certain circumstances. To obtain the benefit of Section
28(e), the person so exercising investment discretion must make a good faith
determination that the commissions paid are reasonable in relation to the value
of the brokerage and research services provided viewed in terms of either that
particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion.
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for research services might exceed
commissions that would be payable for execution series alone, nor generally can
the value of research services be measured. Research services furnished might
be useful and of value to the Manager and its affiliates in serving other
clients as well as the Trust, but on the other hand any research service
obtained by the Manager or the Distributor from the placement of portfolio
brokerage of other clients might be useful and of value to the Manager in
carrying out its obligation to the Trust.
There are no fixed limitations regarding the Trust's portfolio turnover
rate. In computing the portfolio turnover rate, all securities, including
options, the maturities or expiration dates of which at the time of acquisition
are one year or less, are excluded. Subject to this exclusion, the turnover
rate is calculated by dividing (A) the lesser of purchases or sales of
portfolio securities of a particular Series for the fiscal year by (B) the
monthly average of the value of portfolio securities owned by the particular
Series during the fiscal year.
The options activities of Zweig Strategy Fund, Zweig Appreciation Fund,
Zweig Growth & Income Fund,Zweig Managed Assets and Zweig Government Fund may
affect their respective turnover rates, the amount of brokerage commissions
paid by each Series and the realization of net short-term capital gains which,
when distributed, are taxed to shareholders (other than retirement plans) at
ordinary income tax rates. There are no fixed limitations regarding the Zweig
Strategy Fund's portfolio turnover. Securities satisfying the basic policies
and objectives of the Zweig Strategy Fund may be disposed of when they are no
longer deemed to be suitable. High portfolio turnover involves correspondingly
greater brokerage commissions, other transaction costs, and a possible increase
in short-term capital gains or losses. See "Net Asset Value and Taxes".
The exercise of calls written by a Series may cause the Series to sell
portfolio securities, thus increasing its turnover rate. The exercise of puts
also may cause a sale of securities and increase turnover; although such
exercise is within the Series' control, holding a protective put might cause
the Series to sell the underlying securities for reasons which would not exist
in the absence of the put. A Series will pay a brokerage commission each time
it buys or sells a security in connection with the exercise of a put or call.
Some commissions may be higher than those which would apply to direct purchases
or sales of portfolio securities.
For the fiscal year ended December 31, 1995, the portfolio turnover
rates for Zweig Strategy Fund, Zweig Appreciation Fund, Zweig Managed Assets
and Zweig Government Fund were 95%, 68%, 239% and 195%, respectively.
Zweig Cash Fund
The Manager places orders for the purchase and sale of securities for
Zweig Cash Fund. All of Zweig Cash Fund's portfolio transactions are principal
transactions with major dealers in money market instruments, on which no
brokerage commission is paid. Purchases from or sales to dealers serving as
market-makers include the spread between the bid and asked prices.
Transactions are allocated to various dealers according to the best judgment of
the Manager and in a manner deemed fair and reasonable to shareholders. The
primary consideration is prompt and effective execution of orders at the most
favorable price. Subject to this consideration, dealers who provide
supplemental investment research, statistical or other services to the Manager
may receive orders for transactions by Zweig Cash Fund.
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<PAGE> 47
YIELD AND PERFORMANCE INFORMATION
Zweig Cash Fund
From time to time, the Trust determines a current yield and effective
yield for each class of shares of Zweig Cash Fund. For a further discussion of
how the Trust calculates yield, see "Performance Information" in the
Prospectus.
The effective yield is an annualized yield based on a compounding of the
unannualized base period return. These yields are each computed in accordance
with a standard method prescribed by the rules of the Commission, by first
determining the net change in account value for a hypothetical account having
a share balance of one share at the beginning of a seven-day period (the
"beginning account value"). The net change in account value equals the value
of additional shares purchased with dividends from the original share and
dividends declared on both the original share and any such additional shares.
The unannualized base period return equals the net change in account value
divided by the beginning account value. Realized gains or losses or changes in
unrealized appreciation or depreciation are not taken into account in
determining the net change in account value.
The yields are then calculated as follows:
Current Yield = Net Change in Account Value X 365
--------------------------- ---
Beginning Account Value 7
Effective Yield = [(1 + Base Period Return) 365/7] - 1
For the seven days ended December 31, 1995, the Zweig Cash Fund's
effective (compounded) and current yields were 5.18% and 5.06%, respectively,
for Class A Shares, 5.18% and 5.06%, respectively, for Class C Shares and 5.45%
and 5.32%, respectively, for Class M Shares.
Yield is a function of portfolio quality and composition, portfolio
maturity and operating expenses. Yields fluctuate and do not necessarily
indicate future results. While yield information may be useful in reviewing
the performance of the Series, it may not provide a basis for comparison with
bank deposits, other fixed rate investments or other investment companies that
may use a different method of calculating yield.
Other Series
The Trust will include performance data for both Class A, Class B and
Class C Shares of each Series in its advertisements, sales literature and other
information distributed to the public that includes performance data of a
Series. Such performance information will be based on investment yields or
total returns for the Series.
YIELD. Yield will be calculated, using a one-month base period,
according to the following formula:
Yield = 2 X [(a-b/cd) + 1]6 - 1
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period.
The annualized yield for the Class A and Class C Shares of Zweig
Government Fund at December 31, 1995 was 4.27% and 4.03%, respectively.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return for a given
period is computed by finding the average annual compounded rate of return over
the period that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1 + T)n = ERV
Where:
P = a hypothetical initial investment in the Series of $1,000
T = average annual total return
n = number of years in period
ERV = ending redeemable value, at the end of the period, of a hypothetical
$1,000 investment in the Series made at the beginning of the period.
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<PAGE> 48
The average annual total return for the Class A and Class C Shares of
each of the Series for the one and five year periods ended December 31, 1995
and for the periods from commencement of operations to December 31, 1995
(including the effect of the maximum sales charge) is as follows:
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Class A Shares Yr Ended Five Yrs Ended Commencement of Operations
-------------- 12/31/95 12/31/95 to 12/31/95
--------------------------------------------------------------
<S> <C> <C> <C>
Zweig Appreciation Fund +17.2% N/A +10.6%*
Zweig Strategy Fund +18.2% +12.8% +10.2%**
Zweig Government Fund +8.4% +6.8% +6.5%***
Zweig Managed Assets +9.9% N/A +6.3%****
</TABLE>
*For the period beginning October 7, 1991
**For the period beginning December 29, 1989
***For the period beginning March 25, 1985
****For the period beginning February 8, 1993
<TABLE>
<CAPTION>
Class C Shares Year Ended Five Years Ended Commencement to
-------------- 12/31/95 12/31/95 12/31/95
--------------------------------------------------------
<S> <C> <C> <C>
Zweig Appreciation Fund +21.7% N/A +9.8%*
Zweig Strategy Fund +22.7% N/A +11.1%*
Zweig Government Fund +11.9% N/A +6.4%*
Zweig Managed Assets +14.0% N/A +7.7%**
</TABLE>
* For the period beginning February 3, 1992 (commencement of offering of
Class C shares).
** For the period beginning February 8, 1993 (commencement of operations).
The investment results of the Class A, Class B and Class C Shares of a
Series will tend to fluctuate over time, so that historical yields, current
distributions and total returns should not be considered representations of
what an investment may earn in any future period. Actual dividends will tend
to reflect changes in market yields, and will also depend upon the level of a
Class' or Series' expenses, realized or unrealized investment gains and losses,
and the results of such Series' investment policies. Thus, at any point in
time, investment yields, current distributions or total returns may be either
higher or lower than past results, and there is no assurance that any
historical performance record will continue.
The Fund also may include in its advertisements data from Age Wave,
Inc.; the American Association of Retired Persons; Barron's; Business Week;
CDA/Wiesenberger Investment Companies Service; Dalbar Surveys; Donoghue's Money
Fund Report; Financial Planning; Financial World; Forbes; Fortune; Hulbert
Financial Digest; Ibbotson Associates; Individual Investor; Investment Advisor;
Investors Business Daily; The Liscio Report; Lipper Analytical Services, Inc.;
Micropal Inc.; Money; Morningstar Mutual Funds; Mutual Fund Forecaster; Mutual
Funds Magazine; The National Center for Education Statistics; The New York
Times; The Philatelic Foundation; Smart Money; USA Today; U.S. News & World
Report; The Wall Street Journal; Worth and other industry publications.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Registration Statement filed with
the Commission under the 1933 Act with respect to the securities offered by the
Prospectus. The Registration Statement, including the exhibits filed
therewith, may be examined at the office of the Commission in Washington, D.C.
Statements contained in this Statement of Additional Information and the
Prospectus as to the contents of any contract or other document are not
complete and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information and the Prospectus form a part, each
such statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements of the Trust for the year ended
December 31, 1995 and the report of the Trust's independent accountants in
connection therewith, are included in the 1995 Annual Report to Shareholders of
the Trust, which is incorporated by reference into this Statement of Additional
Information. The unaudited financial statements of the Trust for the six
months ended June 30, 1996 are included in the June 30, 1996 Semi-Annual Report
to Shareholders of the Trust, which is also incorporated by reference into
this Statement of Additional Information. Copies of the 1995 Annual Report and
the June 30, 1996 Semi-Annual Report are available upon request, without
charge, by calling 1-800-272-2700.
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<PAGE> 49
APPENDIX I
CORPORATE BOND RATINGS
Description of Moody's Corporate Bond Ratings:
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as gilt-edge. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Description of S&P Corporate Bond Ratings:
AAA Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA Bonds rated AA have a strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degrees.
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated categories.
BB, B, CCC Bonds rated BB, B or CCC are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CCC a higher degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Bonds rated BBB or lower by S&P and Bonds rated Baa or less by Moody's
(non-investment grade securities) are considered to be speculative in nature.
Non-investment grade securities will generally be less sensitive to interest
rate changes than investment grade securities (those rated A or higher by S&P
and BBB or higher by Moody's) but will be more sensitive to adverse economic
changes or specific corporate developments. The liquidity risk of
non-investment grade securities will be higher than investment grade securities
and their value will be more difficult to ascertain due to the lack of an
established secondary market. These securities may also be adversely affected
by new laws or proposed new laws on the high yield market (e.g., tax
proposals).
COMMERCIAL PAPER RATINGS
Description of Moody's Commercial Paper Ratings:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and customer acceptance;
(4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet obligations.
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<PAGE> 50
DESCRIPTION OF S&P'S COMMERCIAL PAPER RATINGS:
Commercial paper rated A-1 by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements: long-term senior debt
is rated A or better, the issuer has access to at least two additional channels
of borrowing; and basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position in the industry. The
reliability and quality of management are unquestioned. Relative strength or
weakness of the above factors determines whether the issuer's commercial paper
is rated A-1, A-2 or A-3.
25
