Zweig
Series Trust
[WORLD LOGO]
Zweig Foreign Equity Fund
November 3, 1997
PROSPECTUS
Zweig Foreign Equity Fund (the "fund") is a new series of Zweig Series Trust
(the "Trust"), an open-end, diversified management investment company. The fund
seeks to increase the value of your investment over the long-term (capital
appreciation) by investing primarily in foreign stocks, consistent with
preserving capital and reducing portfolio exposure to market risk.
The Zweig approach is based on the belief that successful investing requires
skill both in making money during bull markets and in limiting losses during
major market declines. We designed Zweig Foreign Equity Fund for investors who
seek to balance the need for long-term capital appreciation with the need to
limit the risks associated with investing in foreign stocks.
This prospectus will help you learn more about the fund. Please read it
carefully before you invest, and keep it for future reference.
Call your financial advisor or write us at 900 Third Avenue, New York, NY
10022-4728, or call 1-800-272-2700 for more information.
Shares of the fund are not deposits or obligations of, or guaranteed, endorsed
or insured by, any entity or person, including the U.S. Government and the
Federal Deposit Insurance Corporation.
Our Statement of Additional Information (SAI) dated November 3, 1997, as may be
amended from time to time, includes more information about the fund's policies
and procedures. It has been filed with the Securities and Exchange Commission
and is incorporated by reference into this Prospectus. You can obtain a free
copy by calling 1-800-272-2700.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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SOME THINGS YOU SHOULD KNOW ABOUT ZWEIG FOREIGN EQUITY FUND
The fund is designed for investors who intend to invest for the long term, not
for investors who intend to liquidate their investment after a short period of
time.
There are risks associated with investing in the fund, including the volatility
of investing in stocks and the risks associated with investing in foreign
markets. See "Risk Factors" below.
The fund offers four classes of shares. Before purchasing, you should determine
which class is right for you. More information about the classes of shares
appears under the heading "Choosing Among Classes When Purchasing Shares".
The fund is a new series of Zweig Series Trust (the "Trust"). The other Series
of the Trust are: Zweig Strategy Fund, Zweig Appreciation Fund, Zweig Managed
Assets, Zweig Growth & Income Fund, Zweig Government Fund, and Zweig Cash Fund.
You may obtain a copy of the Trust's prospectus by calling 1-800-272-2700.
Zweig/Glaser Advisers is the investment manager of the fund. Zweig Securities
Corp. is the principal distributor of the fund's shares.
FEE TABLE
Mutual fund investors bear two types of expenses: transaction expenses and
operating expenses. You pay transaction expenses when you buy shares in the
fund. The fund as a whole pays operating expenses, which reduce the fund's
annual return to you.
<TABLE>
<CAPTION>
CLASS CLASS CLASS CLASS
SHAREHOLDER TRANSACTION EXPENSES A B C I
----- ----- ----- -----
<S> <C> <C> <C> <C>
Maximum Initial Sales Charge on purchases
(as % of Offering Price)..................................................... 5.50% None None None
Maximum Contingent Deferred Sales Charge (CDSC)................................ None* 5.00%** 1.25%*** None
</TABLE>
- ---------------
* 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.
** The maximum CDSC is imposed on Class B Shares redeemed in the first year;
thereafter, the CDSC declines (See "Class B Shares").
*** The CDSC on Class C Shares applies only if redemption occurs in the first
year.
EXAMPLES -- The table below is designed to assist you in understanding the
various costs and expenses you will bear. Because the fund has not yet commenced
operations, the amount for "Other Expenses" is based on estimated expenses for
the first year. Federal regulations require the examples to assume a 5% annual
return, but actual annual returns may vary.
<TABLE>
<CAPTION>
EXAMPLE: You would pay
the following expenses
on a $1,000 investment
assuming (a) 5% annual
ANNUAL FUND return and (b)
OPERATING EXPENSES redemption at the end
(As % of average net assets) of each time period:
Total Fund
Management 12b-1 Other Operating 1 3
ZWEIG FOREIGN EQUITY FUND Fees Fees (1) Expenses Expenses (2) Year Years
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES............................. 1.00% 0.30% 0.50% 1.80% 72 109
CLASS B SHARES............................. 1.00% 1.00% 0.50% 2.50% 75 108
CLASS C SHARES............................. 1.00% 1.00% 0.50% 2.50% 38 78
CLASS I SHARES............................. 1.00% -- 0.50% 1.50% 15 47
<CAPTION>
EXAMPLE: You would pay
the following expenses
on a $1,000 investment
assuming (a) 5% annual
return and (b) no
redemption:
- -------------------------------------------------------------------
1 3
ZWEIG FOREIGN EQUITY FUND Year Years
- -------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES............................. 72 109
CLASS B SHARES............................. 25 78
CLASS C SHARES............................. 25 78
CLASS I SHARES............................. 15 47
</TABLE>
(1) The 12b-1 Fees include a 0.25% Service Fee, which is paid to financial
services firms, including 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 firms to
investors in the fund, 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 fund'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.
(2) The Manager has voluntarily undertaken to limit the expenses of the fund
(exclusive of taxes, interest, brokerage commissions, 12b-1 fees and
extraordinary expenses) until April 30, 1998 to 1.50% of its average net
assets effective upon its commencement of operations. The Manager reserves
the right to discontinue this policy at any time after April 30, 1998. The
Total Fund Operating Expenses listed in the table do not reflect this
limitation on expenses.
OUR INVESTMENT STYLE
Dr. Martin E. Zweig is the President of the Trust and Chairman of its
investment manager. He has created and refined a risk-averse style of money
management over a 26-year career providing investment advisory and portfolio
management services (the Zweig approach).
The Zweig approach is based on the belief that successful investing requires
skill both in making money during bull markets and in limiting losses during
major market declines. We designed Zweig Foreign Equity Fund for investors who
seek to balance the need for long-term capital appreciation with the need to
limit the risks associated with investing in foreign stocks.
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While we can offer no assurances that the Zweig approach will meet its
investment objectives, our long-term goal -- measured over bull and bear
markets -- is to achieve superior returns with less risk and volatility. We seek
to achieve this goal by participating solidly during rising markets and
protecting the bulk of those gains during major market declines. We define major
market declines as declines in the major index of a foreign country of at least
20%.
Unlike most other mutual funds and stock market indexes, our risk-averse fund
will NOT remain fully invested throughout bull and bear markets.
Thus, it is unlikely that the fund will keep pace with all-equity benchmarks
like major foreign stock indices or the average international equity fund (which
typically has 90% or more of its assets invested in stocks) during bull markets.
We view leaving some profits "on the table" DURING BULL MARKETS as a price we're
willing to pay in exchange for our loss limitation strategies.
Conversely, we do not expect these all-equity benchmarks to keep pace with the
loss limitation of the fund during major market declines. That doesn't mean
we'll be able to offer loss limitation during each phase of a decline. While we
do our best to reduce risk, WE CANNOT ELIMINATE RISK.
In summary, while our goal is the same as many other mutual funds -- to
generate superior long-term returns for our shareholders -- the path we take is
quite different.
Dr. Zweig and his associates rely on fundamental and technical data to measure
the risk and reward characteristics of each country's stock market. These
indicators are constantly monitored and continuously refined. There are three
main groups of indicators: monetary indicators (e.g. the trend of interest
rates, central bank policy, commodity prices and industrial production),
sentiment indicators (e.g. mutual funds' cash-to-assets ratio, put-call ratios,
and investment adviser sentiment) and momentum indicators (e.g. new highs and
lows, advance-decline ratios and long- and short-term market trends).
As the indicators point to increasing levels of market risk, Dr. Zweig directs
the portfolio manager to reduce gradually the fund's exposure to stocks by
selling securities and buying money market instruments, or by selling stock
index futures. As long as the indicators continue to show high levels of risk in
the securities markets, the fund will continue to maintain its exposure to
market risk at lower-than-normal levels. As the indicators point to decreasing
levels of market risk, the portfolio manager increases the market exposure of
the fund. Index futures, options or short sales may be used to adjust the fund's
exposure to market risk, but not for the purpose of leverage (see Risk Factors).
The Zweig approach is NOT an all-in or all-out "market-timing" approach that
attempts to predict market tops and bottoms. Instead, it is a gradual and
disciplined approach that reacts to changes in risk levels as determined by our
indicators. Typically, our investment models will not reallocate more than 10%
of the fund's assets at any one time. The goal is to remain in gear with the
major trends of the foreign market.
Under normal conditions the fund will have at least 65% of its assets invested
in foreign equity securities. For temporary defensive purposes, the percentage
could fall below 65% if the portfolio manager deemed that to be an appropriate
response to our indicators. See "How We Select Countries and Foreign Stocks,"
below.
INVESTMENT OBJECTIVE
ZWEIG FOREIGN EQUITY FUND seeks to increase the value of your investment over
the long-term (capital appreciation) by investing primarily in foreign stocks
consistent with preserving capital and reducing portfolio exposure to market
risk.
Please read the "Risk Factors" and "How We Select Countries and Foreign
Stocks" sections of this prospectus for more detailed information about the
investment practices of the fund. The SAI has further details. As with any
mutual fund, there is no assurance that the fund's objectives will be achieved.
DR. MARTIN E. ZWEIG
Dr. Martin E. Zweig is President or Chairman of investment advisory firms that
presently manage over $6.5 billion of assets. This $6.5 billion includes
approximately $1.3 billion in publicly traded closed-end investment companies
and $2.6 billion in open-end mutual funds, as well as other accounts.
Dr. Zweig has been a regular panelist on PBS television's WALL $TREET WEEK
WITH LOUIS RUKEYSER for 24 years and, in 1992, was inducted into 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,
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THE ABCS OF MARKET FORECASTING and WINNING WITH NEW IRAS.
Dr. Zweig and his associates determine the asset allocation strategy for the
fund. Dr. Zweig does not select the individual securities to implement the
strategy. The portfolio manager selects the specific securities for the fund.
THE PORTFOLIO MANAGER
Carlton Neel will be the portfolio manager of the fund. Mr. Neel has been the
portfolio manager for Zweig Managed Assets and Zweig Government Fund since July
5, 1995. He is a First Vice President of the Trust. He received a dual B.A. in
Economics and Political Science from Brown University. Prior to joining the
Zweig Companies, he was a Vice President with J.P. Morgan & Co., Inc.
HOW WE SELECT COUNTRIES AND FOREIGN STOCKS
At the present time, we can invest in 22 countries using proprietary models to
determine the fund's level of exposure to each country. If each country's model
called for the fund to be fully invested in that country, the assets would be
allocated as follows: Europe-64%, Asia/Pacific-27%, North America-6%, Africa-3%.
The level of stocks and money market instruments, as well as the total level
of investment in any particular country, will vary over time depending on the
level of risk the model determines. As a model points to increasing levels of
market risk in a particular country, we will reduce our exposure to that country
by selling stocks, by hedging market exposure with foreign stock index futures
or options or by selling short. The fund will not invest more than 15% of its
assets in any one country.
We plan to develop models for additional countries, which could result in
changes to the above geographic allocations. The geographic allocations could
also change given changes in various countries' market capitalization or
economic growth.
Stocks represent an ownership interest in a company. They include common
stocks, fixed rate preferred stocks, bonds convertible into equity securities,
warrants, rights, depository receipts and other equity securities.
In selecting stocks, our models rank industry groups when available. From the
higher ranked industry groups, we select stocks by evaluating and ranking them
based on technical and fundamental factors. Additionally, we may invest in
investment vehicles or groups of foreign stocks that, in the aggregate, are
expected to perform similarly to a particular major foreign stock market index
or foreign stock industry group, and in investment companies that invest in the
securities of a particular country.
OTHER 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 2% to 10% of the position size) to simulate a much
larger invested position. Transaction costs normally will be lower than
purchasing or selling the underlying securities. The 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".)
OTHER INVESTMENT COMPANIES. From time to time the fund may invest in another
investment company. A direct investment 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 normally also involve an investment manager and
service providers (e.g., custodians) over which the fund 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 fund will invest in another investment company only if the portfolio manager
believes that the fund's investment objective will be furthered by doing so. No
more than 10% of the fund's assets will be invested in other investment
companies. No more than 5% will be invested in any one investment company.
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DEPOSITORY RECEIPTS are typically issued by foreign banks or trust companies,
although they may also be issued by U.S. banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a U.S.
corporation. Depository receipts may be issued pursuant to a sponsored program,
where an issuer has made arrangements to have its securities traded in the form
of depository receipts, or in unsponsored programs, where the issuer may not be
directly involved in the creation of the program.
MONEY MARKET INSTRUMENTS are short-term, high quality debt securities that
present minimal risk of loss. We use these securities to reduce fluctuations in
the fund's net asset value -- and often refer to them as "cash" or "cash
equivalents". Money market securities include: short-term U.S. Government or
other foreign 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. Money market
instruments may be purchased in any country or currency, including the United
States.
REPURCHASE AGREEMENTS are arrangements by which the 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 the fund might otherwise hold. Delays in
payment or losses may result if the other party to the agreement defaults or
becomes bankrupt. The fund's repurchase agreements must be fully backed by
collateral that is marked to market, or priced, each day.
OTHER INVESTMENT POLICIES
PORTFOLIO TURNOVER RATE. We do not usually consider the length of time the
fund has held a stock when making investment decisions. As a result of the Zweig
style of money management, the 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.) The fund estimates that portfolio turnover generally will not
exceed 250%. Portfolio turnover may result in realization of taxable capital
gains, and generally involves some expense, including brokerage costs. (The SAI
contains a detailed explanation of certain relevant tax considerations.) The
portfolio manager considers the cost of making portfolio adjustments when
deciding whether to implement a strategy by selling stocks and investing the
proceeds in money market securities, or by using futures or options to reduce
exposure to market risk.
LENDING SECURITIES. The 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 on its obligation to return the loaned
security. The fund 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. The fund may make temporary borrowings from banks to cover
redemptions. Interest and other costs of borrowing may cause the net asset value
of the fund's shares to decrease.
RISK FACTORS
International stock fund investing offers rewards that are potentially
superior to the rewards of U.S. stock investing. While the U.S. economy is the
largest and most fully developed in the world, foreign countries have further to
go. Thus, proponents of international investing argue, international stocks
offer more potential growth. There is a trade-off for this growth,
however -- greater volatility. The lack of political and economic stability in
certain foreign countries increases the risk of severe losses. Foreign
currencies have been known to suffer sharp declines in value, and certain
foreign companies and industries have lost a substantial amount of their value.
The following chart illustrates the declines suffered by various categories of
mutual funds investing in foreign securities during the last two U.S. bear
markets -- in 1987 and in 1990. It shows that even the diversification and
professional management inherent in a foreign mutual fund has not insulated
investors from the last two domestic bear markets.
FOREIGN/GLOBAL 7/16/90-
EQUITY FUND STYLES 8/25/87-12/4/87 10/11/90
- -------------------------- --------------- ---------------
Large-cap growth -26.9% -16.3%
Large-cap value -25.1% -15.4%
Mid-cap growth -27.3% -17.0%
Mid-cap value -16.9% -14.0%
Small-cap growth N/A -20.4%
Small-cap value N/A -16.6%
SOURCE: STRATEGIC INSIGHT. RETURNS DO NOT INCLUDE SALES CHARGES. THE PERFORMANCE
DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS.
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It is important to recognize that, once you've incurred a significant loss, it
can take many months (and sometimes years) to break even.
It is impossible to predict the timing and extent of bear markets or
corrections, but it should be noted that periods of unusually high returns and
low volatility have historically increased the risk of stock investing for
subsequent periods.
Successful investors recognize the risks associated with investing in stocks
and stock mutual funds. It is important that you try and understand your
"financial personality". What is your tolerance for loss? How patient will you
be during the break-even period? What is your financial staying power?
It is also important to note that the impact of a bear market depends not only
upon the extent of the decline, but also WHEN in your investing lifecycle it
happens. For many people, the closer they are to retirement -- or the deeper
they are into retirement -- the harder it is to calmly view a bear market as a
temporary decline.
The prices of individual stocks, as well as 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. Individual stocks also are affected by
results of the issuer's operations and factors peculiar to its industry and
country. In international investing, political conditions also can affect
markets and individual stocks.
Like most foreign equity funds, Zweig Foreign Equity Fund uses diversification
to minimize the effect of a loss in any one investment. By investing across
countries and industry groups, we attempt to increase returns while lowering
risk.
Unlike most foreign funds, the Zweig Foreign Equity Fund will not remain fully
invested throughout bull and bear markets. The fund manages exposure to market
risk by gradually selling securities and buying money market instruments, or by
selling stock index futures. While the fund manages exposure to risk, WE CANNOT
ELIMINATE RISK.
The Zweig Foreign Equity Fund is designed for those investors who want to
balance their need for growth with their need to limit risk. However, there can
be no assurances that we will meet our investment objective.
In addition to increasing or decreasing the proportion of the fund's
investment in money market instruments, the portfolio manager may buy or sell
futures contracts and options to increase or reduce market exposure. He also may
sell short and enter into currency exchange contracts. These strategies allow us
to increase or decrease the fund's exposure to changes in stock prices or
currency exchange rates. Used cautiously, they may be effective tools that lend
greater stability to fund assets. They may also help to reduce the cost of
administering the portfolio, and allow us to buy and sell relatively large
positions without distorting prices. We use these techniques to adjust the risk
and return characteristics of the fund. We do not use these practices to
leverage the fund. There may also be times when we decide to acquire or maintain
a futures position rather than sell or buy the underlying portfolio because the
index futures, in our judgment, reflect a price, and therefore value, which is
more attractive than the stocks comprising the index. If our judgment is right,
this should result in smaller losses or bigger gains than would otherwise be the
case. Conversely, if we are wrong, losses could be increased or gains reduced.
If we misjudge market conditions or employ a strategy that does not correlate
well with the fund's primary investments, use of these techniques may result in
a loss, regardless of our 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 accept
the potential risks inherent in their use before investing.
FOREIGN STOCKS involve risks such as 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 nationalization
of issuers or expropriation of their assets, which would adversely affect the
fund's ability to liquidate its investment. Brokerage commissions, custodial
services, and other costs relating to investment in foreign countries are
generally more expensive than in the United States. Clearance and settlement
procedures on foreign markets are different and problems with settling security
transactions could result in temporary periods when assets of the fund are
uninvested and no return is earned on such amounts.
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The fund has developed a currency model for each country that provides a
disciplined approach to managing currency risk. When the model indicates a
strong likelihood that the foreign currency is going to increase in value
against the U.S. dollar, we will not hedge our exposure to the foreign currency.
Otherwise, we will hedge our entire position using currency exchange contracts.
In those countries where there is no mechanism to hedge against currency
fluctuations, we will only invest in such countries when our models are bullish
on both the equity market and the foreign currency. Some of the indicators in
the currency model include the relative trend of real and nominal short-term
interest rates, the movement of the trade-weighted foreign currency, and the
momentum of the foreign currency against the U.S. dollar.
DEPOSITORY RECEIPTS may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. In addition, the
issuers of the securities underlying unsponsored depository receipts are not
obligated to disclose material information in the U.S. and, therefore, there may
be less information available regarding such issuers and there may not be a
correlation between such information and the market value of the depository
receipts. Depository receipts also involve the risks of other investments in
foreign stocks, as discussed above.
FUTURES CONTRACTS AND OPTIONS. The fund may use futures contracts and options
to manage its exposure to changing stock prices or to alter its asset mix. The
fund may use any type of future or option related to its investments. These
include: foreign stock index 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.
The fund will not purchase puts if more than 10% of its assets would be
invested in premiums on puts. The fund will write calls only if they are covered
throughout the life of the call. The fund will write puts only if: (a) the
aggregate value of the obligations underlying the puts does not exceed 50% of
the fund's assets, and (b) the puts are fully secured by cash or liquid
securities in a segregated account with the fund's custodian. 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 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. The fund may be unable to close out, or sell, its
futures or options positions at all times.
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, the fund 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. We may also engage in cross-hedging by using
forward contracts in a currency different from that in which the hedged security
is denominated or quoted.
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. Some price spread on currency exchange (to cover
service charges) will be incurred when the fund converts assets from one
currency to another.
SELLING SHORT. The fund sells a security, group of securities, future or
currency short when we believe their price will decline. We may sell a stock
index future short to offset a potential decline in a group of stocks a fund
owns. We may make such a short sale if we believe reducing portfolio exposure to
changing securities prices can be accomplished better through this method than
if the securities themselves were sold. This is intended to be another way of
managing the fund's
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exposure to changing stock prices or to alter its asset mix. To sell a security
short, the fund must borrow the security. The fund's obligation to replace the
security borrowed and sold short will be fully collateralized at all times by
the proceeds from the short sale retained by the broker and by cash or liquid
securities deposited in a segregated account with the fund's custodian. The 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.
Selling securities short involves potential risks greater that the value of the
security sold short since the price could appreciate (causing a loss) in an
amount greater than the value of the security. Also, there is a risk that the
market could cause losses simultaneously in securities a fund owns and in other
securities sold short.
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 THE FUND'S NET ASSETS MAY BE INVESTED IN ILLIQUID SECURITIES.
CHOOSING AMONG CLASSES WHEN PURCHASING SHARES
The fund offers investors four classes of shares which are described below.
All except Class I Shares bear sales charges in different forms and amounts and
all bear different levels of expenses (see Fee Table). 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 expenses than Class A 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 distributor.
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. The CDSC is imposed on the lesser
of the current market value or 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 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 Fund
(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
fund or any other Zweig Mutual Fund, then the CDSC will not be waived; (d) from
certain retirement plans; (e) under the systematic withdrawal program if the
amount being withdrawn per month is no more than 1% of the value of the account
at the time the program was established; and (f) effected pursuant to the fund's
right to liquidate a shareholder's account if it is less than the then effective
minimum account size.
The Distributor has sold, and expects to sell in the future, the right to
receive all or substantially all of the
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12b-1 distribution fees on Class B Shares together with the related CDSC in the
event the Shares are redeemed prior to conversion to Class A Shares. The holder
of the right to receive such payments, in its sole discretion, may elect to
establish its own waiver criteria, which may differ from those set forth above.
CLASS A SHARES. Class A Shares 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.
QUANTITY DISCOUNTS ON CLASS A SHARES. When you invest in Class A Shares, 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 VALUE OF DEALER'S
THE SHARES THE SHARES SALES
AMOUNT INVESTED PURCHASED PURCHASED CONCESSION
- -------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
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 )
- --------------------------------------------------------------------------------------
</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.
DEALER'S
COMMISSION
AMOUNT PURCHASED (AS % OF PURCHASE)
- ----------------------------------------- ------------------
$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%
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 above, or
agrees to receive such commissions ratably over an 18 month period.
Class A Shares of the fund are made available to 401(k) participants in the
Merrill Lynch Daily K Plan (the "Plan") at NAV without an initial sales charge
if the Plan has at least $3 million in assets or 500 or more eligible employees.
Class B Shares of the fund are made available to Plan participants at NAV
without a CDSC if the Plan has less than $3 million in assets or fewer than 500
eligible employees. On such sales, the distributor doesn't make the dealer
payment described under Class B Shares. For further information see "Retirement
Plans" in the fund's SAI.
Class A Shares also may be purchased at net asset value by any officer,
trustee, director or 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 registered 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
pro-
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<PAGE>
ceeds 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 of the fund and any other Zweig Mutual Fund you
already own 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 fund and any other Zweig Mutual
Fund 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. A Letter of Intention can be amended during the 13-month
period by filing an amended Letter with the same expiration date as the
original.
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. After the end of the period, a price adjustment based upon
the actual amount invested will be made (by redeeming escrowed shares if the
purchase is not completed or by investing the difference in sales charges if the
total purchases under the Letter qualify for a lower sales charge).
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:
THE CDSC
YEAR SINCE PURCHASE WAS MADE IS EQUAL TO
- ------------------------------------------------ -----------
Year One........................................ 5%
Year Two........................................ 4%
Year Three...................................... 3%
Year Four....................................... 3%
Year Five....................................... 2%
Year Six........................................ 1%
Year Seven...................................... None*
- ---------------
* 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 to Class A
Shares of the fund at respective net asset values on the 10th business day of
the month following the anniversary date. At the time of conversion, Class B
Shares of the fund acquired through reinvestment of distributions will convert
to the corresponding Class A Shares of the fund pro-rata with Class B Shares of
the 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. Class C Shares are sold without an initial sales charge. For
sales of Class C Shares, dealers will receive from the distributor up to 1% of
the purchase amount in a manner agreed in advance. If you 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.
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<PAGE>
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. With respect to certain retirement
plans the distributor may not make dealer payments as described above.
HOW TO INVEST IN THE FUND
INITIAL OFFERING PERIOD
Shares of the fund are being offered during a period scheduled to end on
November 21, 1997 (the "Closing Date"). Securities dealers may obtain
non-binding indications of interest prior to actually confirming any orders. The
fund will commence investment operations and the continuous offering of its
shares on the first business day after the Closing Date. Orders to purchase
shares of the fund received during the Initial Offering Period will be held
uninvested until the close of business on November 21, 1997.
You can buy shares through your investment professional, directly from the
fund's transfer agent, or automatically through a regular investment plan.
MINIMUM
MINIMUM INITIAL MINIMUM
INITIAL IRA SUBSEQUENT
CLASS INVESTMENT INVESTMENT* INVESTMENT
- ---------------------- ---------- ----------- ----------
A, B and C............ $ 1,000 $ 250 None
I..................... $1,000,000 $1,000,000 None
- ---------------
* or other retirement accounts, pension and profit sharing plans, custodial
accounts under the Uniform Gift to Minors Act, trusts and estates or
qualifying group plans.
Purchases of the fund 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. We reserve the right to
change or waive minimums or to reject any order.
HOW TO BUY SHARES THROUGH YOUR INVESTMENT PROFESSIONAL
(Bullet) To open your account, contact your investment professional.
If you invest through an investment professional, the 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. The fund may be unable to provide
account information or other services for shares held in the name of, or
controlled by, an investment dealer.
HOW TO BUY SHARES THROUGH THE TRANSFER AGENT
(Bullet) Complete the attached application or send a letter specifying the
name of the fund and the class of shares you wish to buy. If you
do not specify a class, your purchase will be automatically
invested in Class A Shares.
(Bullet) Enclose a check made payable to State Street Bank and Trust
Company or to Zweig Foreign Equity Fund. (We will not accept third
party checks, i.e. any checks which are not payable to
11
<PAGE>
the order of State Street Bank and Trust Company or Zweig Foreign
Equity Fund.)
(Bullet) Mail to State Street Bank and Trust Company:
By regular mail: By courier or overnight mail:
P.O. Box 8505 2 Heritage Drive
Boston, MA 02266-8505 Third Floor
Att: Zweig Mutual Funds Quincy, MA 02171
Att: Zweig Mutual Funds
(Bullet) For wire instructions (Federal funds) please call 1-800-628-0441.
(Bullet) Automatic investment plan purchases. Move money from your bank
account or via payroll deduction into the fund on any day of each
month or quarter. Please refer to the application form in this
prospectus or call 1-800-272-2700 for assistance.
HOW TO SELL YOUR FUND SHARES.
You can sell your shares on any day the New York Stock Exchange (NYSE) is
open. The price you receive will be the net asset value less any applicable
contingent deferred sales charge. The net asset value you will receive is
calculated as of the close of regular trading on the NYSE on the day your sell
order is received at the transfer agent. Proceeds of your sale will generally be
mailed to you within seven days after your request is received. If shares are
bought with an uncertified check and sold within 15 days after purchase, the
proceeds may not be paid until 15 days after the purchase. If the fund has
evidence of cleared funds, money may be released earlier.
SELLING YOUR SHARES THROUGH YOUR INVESTMENT PROFESSIONAL
(Bullet) Contact your investment professional if you bought your shares at
your brokerage firm. If you sell your shares through your
investment professional, the price you will receive will be the
price of shares as of the close of regular trading on the NYSE on
the day the order is transmitted to the transfer agent by your
brokerage firm.
SELLING YOUR SHARES BY MAIL THROUGH THE TRANSFER AGENT
(Bullet) Send a letter to sell your shares to: State Street Bank and Trust
Company
By regular mail: By courier or overnight mail:
P.O. Box 8505 2 Heritage Drive
Boston, MA 02266-8505 Third Floor
Att: Zweig Mutual Funds Quincy, MA 02171
Att: Zweig Mutual Funds
(Bullet) Enclose your stock certificates.
(Bullet) Remember to sign both the stock certificates and the letter
exactly as the stock certificates are registered.
(Bullet) Sales over $10,000 require a signature guarantee of the registered
owners or your legal representative. 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 assistance.
(Bullet) Corporate and Fiduciary shareholders selling shares must include
the appropriate documentation establishing the authority of the
person seeking to act on behalf of the account.
SELLING YOUR SHARES BY TELEPHONE THROUGH THE TRANSFER AGENT
You may sell your shares by telephone (unless your address of record has been
changed within the preceding 15 days).
(Bullet) Call 1-800-272-2700 if your account is registered for telephone
redemption privileges and your shares are held at the transfer agent
without certificates.
Proceeds will be mailed to the address on the account. If you 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. Any change in wire
redemption directions requires a signature guarantee from an appropriate
guarantor. In order to sell shares on the day you place the order, the transfer
agent must receive your instructions to sell before the close of regular trading
on the NYSE.
The maximum amount that may be redeemed for joint accounts by telephone is
$25,000. Neither the fund, the distributor, nor the transfer agent will be
liable for any loss in acting on telephone instructions reasonably believed to
be authentic, and the investor will bear the risk of loss in the event of a
fraudulent telephone redemption, provided that the fund and/or its transfer
agent has established and employed procedures reasonably designed to confirm
that instructions given by phone are genuine. Such procedures would include
requiring a form of personal identification from the caller and recording
telephone instructions. For identification purposes, the fund's transfer agent
may require such information as it deems necessary before accepting redemption
instructions. Without
12
<PAGE>
such reasonable procedures, the fund may otherwise be liable for any losses due
to unauthorized or fraudulent 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. Redemptions also 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. If you have made a partial or complete redemption of
shares, you 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. You may exercise this
privilege only once a year.
SYSTEMATIC CASH WITHDRAWAL PROGRAMS. If your account has $5,000 or more, you
may set up a program to receive a specific amount in 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.
EXCHANGE PRIVILEGE
You can exchange shares of the 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 professional or, if the shares are registered in your
name, through the transfer agent. You may exchange shares through the transfer
agent by mail or by telephone, or you may instruct the transfer agent to make
systemic exchanges of fund shares on the 15th day of each month or quarter (see
the application form in this Prospectus).
Each exchange is a sale of shares of the 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.
NET ASSET VALUE
The fund determines the net asset value of each class of its shares on each
day that the NYSE is open. Net asset values are calculated as of the close of
regular trading on the NYSE.
We value portfolio securities at market value when quotations are readily
available. We value securities for which market quotations are not readily
available at fair value as determined using procedures determined by the Board
of Trustees. We value foreign forward currency contracts using forward currency
exchange rates supplied by a quotation service. We value short-term obligations
having a remaining maturity of 60 days or less at amortized cost (which
approximates market value).
DISTRIBUTIONS AND TAXES
Dividends from net investment income and distributions from net realized
capital gains will be paid at least annually.
Distributions are declared separately for each class of shares of the fund.
Distributions will be reinvested at
13
<PAGE>
net asset value unless you elect to receive distributions in cash. Shareholders
who have elected to receive distributions in cash but whose accounts had two
consecutive mailings returned as "undeliverable", will automatically have their
future distributions reinvested at net asset value.
Because Class B and Class C Shares have higher 12b-1 fees, dividends on Class
A Shares will be higher than dividends on Class B and Class C Shares. Because
Class I Shares have no 12b-1 fees, dividends on Class I Shares will be higher
than dividends on Class A Shares.
The fund intends to qualify as a regulated investment company for federal
income tax purposes so long as, in management's view, such qualification is in
the shareholders' interest. We intend to distribute all of the fund's net
investment income and net capital gains so as to be relieved of federal taxes.
Distributions of net investment income and short-term capital gains are taxed as
dividends. Long-term capital gain distributions are taxed as long-term capital
gains. Pursuant to the Taxpayer Relief Act of 1997, long-term capital gains
(defined as gains realized upon the sale of assets held more than 18 months) are
subject to a maximum tax rate of 20% (10% for individuals in the 15% tax
bracket). Gains realized upon the sale of assets held more than 12 months but
not more than 18 months (formerly considered long-term gains) are now considered
medium-term gains subject to a maximum tax rate of 28% (15% for individuals in
the 15% tax bracket). 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.
To the extent attributable to fluctuations in foreign currency exchange rates,
gains or losses arising from (i) acquiring or incurring debt denominated in
foreign currencies, (ii) accruing receivables or payables denominated in foreign
currency prior to receipt or payment, and (iii) disposing of certain options,
futures or forward contracts, will be treated as ordinary income or loss rather
than capital gain or loss.
You should receive by January 31 of each year, a statement showing the tax
status of your distributions for the prior year and the proceeds of your
redemptions (including exchanges), if any. 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. To assist you in
determining your tax basis, please keep your year-end account statements with
your other tax records.
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
investment in the fund on your particular tax situation, and any state and local
tax consequences.
THE DISTRIBUTOR
Zweig Securities Corp. serves as principal distributor of shares of the fund.
At any given time, the distributor may incur expenses in distributing shares of
the fund that are in excess of the total payments made by the fund 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 fund. Although there is no legal
obligation for the fund 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, the difference could be viewed as profit to the
distributor for that year. Accordingly, the fund's Class A, B, and C Rule 12b-1
Plans are classified as compensation plans.
A service fee equal to 0.25% may be paid to financial services firms,
including NASD member firms that have signed agreements for continuous personal
service by such firms to investors in the fund. NASD member firms may also be
paid a portion of the asset-based sales charges on Class C Shares, 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%
commencing one year after purchase for the Class C Shares.
THE MANAGER AND MANAGEMENT FEE
The investments of the fund 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.
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<PAGE>
The manager's fee is based on the average daily net assets of the fund at the
annual rate of 1.00%. The rate is constant and does not diminish with an
increase in the net assets of the fund. The management fee is higher than that
paid by most funds, but is comparable to the fees paid by mutual funds with
similar investment policies.
In addition to managing the fund's investments, Zweig/Glaser Advisers also:
makes recommendations with respect to the fund's 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 fund. All other expenses incurred in the operation of the fund, a
detailed list of which appears in the SAI, are borne by the fund.
BROKERAGE TRANSACTIONS. To buy and sell securities for the fund, Zweig/Glaser
Advisers may use its broker/dealer affiliates or other firms that sell shares of
the fund, provided they have the execution capability and that their commission
rates are comparable to those of other unaffiliated broker/dealers.
ORGANIZATION OF THE FUND
The Trust was established as a Massachusetts business trust on September 24,
1984, and reorganized as a Delaware business trust on April 30, 1996. 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, an open-end, diversified, management investment company, has an
unlimited number of shares of beneficial interest which, without shareholder
approval, may be divided by the Trustees into an unlimited number of funds and
classes. 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 the fund will fluctuate 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 our skill in managing the fund's
portfolio, the period of time you hold your investment, 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.
Advertisements for the fund may include:
Maximum NAV decline since the fund's inception, or for shorter periods.
Total return for the most recent one-, five- and ten-year periods, and
since the inception of a class of shares through the most recent calendar
quarter. 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 the
fund's share price. We calculate yield according to accounting methods that
are standardized for all stock and bond mutual funds. We express yield 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.
YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE.
We also may include in advertising or marketing materials data from financial
and other publications and reference surveys that deal with industry or
investment statistics. The SAI lists the principal industry publications.
15
<PAGE>
TABLE OF CONTENTS
About the Fund
Fee Table
Our Investment Style
Investment Objective
Dr. Martin E. Zweig
The Portfolio Manager
How We Select Countries and Foreign Stocks
Other Securities
Other Investment Policies
Risk Factors
About Your Account
Choosing Among Classes When Purchasing Shares
How to Invest in the Fund
How To Sell Your Shares
Exchange Privilege
Net Asset Value
Distributions and Taxes
Other Information
The Distributor
The Manager and the Management Fee
Organization of the Fund
Performance Information
Investment Manager
Zweig/Glaser Advisers
900 Third Avenue
New York, New York 10022-4728
Principal Distributor
Zweig Securities Corp.
900 Third Avenue
New York, New York 10022-4728
Custodian
The Bank of New York
48 Wall Street
New York, New York 10286
Transfer Agent and Dividend Paying Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Counsel
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Independent Accountants
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
No dealer, salesperson or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus, and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Trust, the Investment Manager or the
Distributor. This Prospectus does not constitute an offering in any state in
which such offering may not lawfully be made.
Zweig
Series Trust
[WORLD LOGO]
Zweig Foreign Equity Fund
November 3, 1997
PROSPECTUS
<PAGE>
<TABLE>
<S> <C>
Zweig APPLICATION (DO NOT USE FOR ZWEIG RETIREMENT PLANS OR FOR CLASS I SHARES)
Foreign Equity FOR APPLICATION ASSISTANCE CALL 1-800-272-2700.
Fund ............................................................................................
</TABLE>
MAIL ALL FORMS AND CHECKS TO: BY COURIER TO:
Zweig Mutual Funds 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 Floor
Boston, MA 02266-8505 Quincy, MA 02171
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: $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.
ZWEIG FOREIGN EQUITY FUND
[ ] 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 Zweig Foreign Equity 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>
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 fund 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 Zweig Foreign Equity Fund
[ ] Class A [ ] Class B [ ] 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 your fund account 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 Zweig Foreign Equity Fund
[ ] 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 Foreign Equity Fund 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 Zweig Foreign Equity Fund. 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 h month h 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 Zweig Foreign Equity Fund. I
(we) affirm that I (we) have received the current prospectus of the Zweig
Foreign Equity 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.
<PAGE>
ZWEIG FOREIGN EQUITY FUND
A Series of
ZWEIG SERIES TRUST
900 Third Avenue, New York, N.Y. 10022-4728
STATEMENT OF ADDITIONAL INFORMATION
Zweig Foreign Equity Fund (the "Fund"), is a diversified, open-end
management investment company organized as a new series of Zweig Series Trust, a
Delaware business trust (the "Trust"). The Fund seeks to increase the value of
your investment over the long-term (capital appreciation) by investing primarily
in foreign stocks, consistent with preserving capital and reducing portfolio
exposure to market risk.
The other Series of the Trust are: Zweig Strategy Fund, Zweig
Appreciation Fund, Zweig Growth & Income Fund, Zweig Managed Assets, Zweig
Government Fund and Zweig Cash Fund. For a copy of the Statement of Additional
Information dated May 1, 1997 for these other Series' call or write the Trust at
the telephone number and address printed on this cover page.
The Fund has a distribution system that allows it 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 ("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. by tax-exempt retirement
plans of Zweig Securities Corp. and its affiliates and certain institutional
investors. The Fund's distribution system is described more fully in the
Prospectus under the headings "Choosing Among Classes When Purchasing Shares",
"How to Invest in the Fund" and "How to Redeem Your Shares".
The Fund is designed for long-term investors, including those who wish to
use shares of the Fund or another Series of the Trust 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 the Fund
and Zweig Securities Corp. (the "Distributor" ), an affiliate of the Manager, is
the principal distributor of the Fund'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 Fund (the "Prospectus" ), dated November 3, 1997, which can be
obtained without cost by contacting your financial professional 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 Fund.
Zweig Series Trust
(Toll Free 1-800-272-2700)
November 3, 1997
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND POLICIES........................... 3
INVESTMENT RESTRICTIONS..................................... 7
PURCHASE AND REDEMPTION OF SHARES........................... 9
REINSTATEMENT PRIVILEGE .................................... 9
EXCHANGE PRIVILEGE ......................................... 10
INVOLUNTARY REDEMPTIONS..................................... 10
RETIREMENT PLANS............................................ 10
NET ASSET VALUE AND TAXES................................... 10
TRUSTEES AND OFFICERS OF THE TRUST.......................... 12
INVESTMENT MANAGEMENT AND OTHER SERVICES.................... 15
Manager .............................................. 15
Distributor........................................... 15
Distribution Plans.................................... 16
Custodian, Fund Accounting Agent, Transfer
Agent and Dividend Paying Agent.................... 17
Independent Accountants............................... 17
Counsel............................................... 17
PORTFOLIO TRANSACTIONS AND BROKERAGE........................ 17
YIELD AND PERFORMANCE INFORMATION........................... 18
REGISTRATION STATEMENT...................................... 19
2
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective and policies and permitted investments
are described in the prospectus under the headings "Investment Objective", "How
We Select Countries and Stocks", and "Risk Factors". The investment restrictions
that are fundamental policies (see "Investment Restrictions" on page 7) can be
changed only by vote of a majority of the outstanding shares of the Fund. A
majority for the purpose of changing a fundamental policy 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. If the Fund should change its investment objective, we will notify
shareholders 30 days prior to making the change. As stated in the Prospectus, a
shareholder's voting rights are based on the shareholder's total dollar interest
in a Series and are thus allocated in proportion to the value of each
shareholder's investment.
There can be no assurance that the Fund's investment objective will be
achieved. Set forth below is additional information with respect to the
investment objective and policies of the Fund and a description of certain
financial instruments and techniques utilized by the Fund. The Board of
Trustees, which has the primary responsibility for the overall management of the
Fund, has determined that, while there are certain risks inherent in some of
these, including futures, options, currency exchange contracts and short sales,
the Manager 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.
Foreign Securities
The Fund may invest in securities of foreign issuers, including equities
and non-U.S. dollar-denominated money market securities, and sponsored and
unsponsored ADRs, ADSs, EDRs, EDSs, GDRs, and GDSs. Shareholders should consider
carefully the substantial risks involved in investing in securities issued by
companies and governments of foreign nations, which are in addition to the usual
risks inherent in domestic investments.
Although the Fund intends to invest only in nations that the Manager
considers to have relatively stable and friendly governments, there is the
possibility of expropriation, nationalization, repatriation or confiscatory
taxation, taxation of income earned in a foreign country and other foreign
taxes, foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), default in foreign government
securities, political or social instability or diplomatic developments which
could affect investments in securities of issuers in those nations. In addition,
in many countries there is less publicly available information about issuers
than is available for U.S. companies. For example, ownership of unsponsored ADRs
may not entitle the owner to financial or other reports from the issuer to which
it might otherwise be entitled as the owner of a sponsored ADR. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign stock markets have different clearance and settlement
procedures and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Further, the inability to dispose of portfolio securities due to
settlement problems could result either in losses because of subsequent declines
in the value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. Fixed
commissions on some foreign securities exchanges are generally higher than
negotiated commissions on U.S. exchanges, although the Manager will endeavor to
achieve the most favorable net results on the Fund's portfolio transactions. It
may be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. The
Manager seeks to mitigate the risks to the Fund associated with the foregoing
considerations through diversification and continuous professional management.
3
Repurchase Agreements
Repurchase agreements involve purchases of securities by the Fund. In such
a transaction, at the time the Fund 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 Fund 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 Fund to
invest temporarily available cash. Repurchase agreements may be considered loans
to the seller collateralized by the underlying securities. The risk to the Fund
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 Fund 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 Fund 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 Fund. If the seller were to default or be subject to a bankruptcy
proceeding, the ability of the Fund to liquidate the collateral could be delayed
or impaired because of certain provisions of the bankruptcy laws.
Options
The Fund may write, sell and purchase put and call options listed on one or
more U.S. or foreign securities exchanges, including options on market indices.
When the Fund writes an option, an amount equal to the premium received by
the Fund is recorded as an asset and as an offsetting liability. The amount of
the liability is "marked-to-market" daily to reflect the current market value of
the option, which is the last sale price on the principal exchange on which such
option is traded or, in the absence of a sale, the mean between the latest bid
and offering prices. If an option written by the Fund expires, or the Fund
enters into a closing purchase transaction, the Fund will realize a gain (or, in
the latter case, a loss, if the cost of a closing transaction exceeds the
premium received) and the liability related to such option will be extinguished.
The premium paid by the Fund for the purchase of a put option (its cost) is
recorded initially as an investment, the value of which is subsequently adjusted
to the current market value of the option. If the current market value of a put
option exceeds its premium, the excess represents unrealized appreciation;
conversely, if the premium exceeds the current market value, the excess
represents unrealized depreciation. The current market value of an option
purchased by the Fund equals the option's last sale price on the principal
exchange on which it is traded or, in the absence of a sale, the mean between
the latest bid and offering prices.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Fund generally
will purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that the Fund would have to exercise its options in order to realize
any profit and would incur transaction costs on the sale of underlying
securities pursuant to the exercise of put options. If the Fund, as a covered
call option writer, is unable to effect a closing purchase transaction in a
secondary 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.
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In addition, there is no assurance that higher-than-anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of the OCC inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders.
The amount of the premiums which the Fund may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing activities.
In the event of a shortage of the underlying securities deliverable on
exercise of a listed option, the OCC has the authority to permit other,
generally comparable securities to be delivered in fulfillment of option
exercise obligations. If the OCC exercises its discretionary authority to allow
such other securities to be delivered, it may also adjust the exercise prices of
the affected options by setting different prices at which otherwise ineligible
securities may be delivered. As an alternative to permitting such substitute
deliveries, the OCC may impose special exercise settlement procedures.
An option on a securities index is similar to an option on a security
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the chosen index is greater than (in the case of a call option) or less than (in
the case of a put option) the exercise price of the option.
Futures Contracts
Upon entering into a futures contract, the Fund will initially be required
to deposit with the custodian an amount of initial margin using cash or U.S.
Treasury bills. 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
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. In addition to initial margin, the Fund is
required to deposit cash, liquid debt obligations, liquid equity securities or
cash equivalents in an amount equal to the notional value of all long futures
contracts, less the initial margin amount, in a segregated account with the
custodian to ensure that the use of such futures contracts is not leveraged. If
the value of the securities placed in the segregated account declines,
additional securities, cash or cash equivalents must be placed in the segregated
account so that the value of the account will at least equal the amount of the
Fund's commitments with respect to such futures contracts.
Subsequent payments, called maintenance margin, to and from the broker,
will be made on a daily basis as the price of the underlying security
fluctuates, making the long and short positions in the futures contract more or
less valuable, a process known as marking to the market. For example, when the
Fund has purchased a futures contract and the price of the underlying security
has risen, that position will have increased in value and the Fund will receive
from the broker a maintenance margin payment equal to that increase in value.
Conversely, when the Fund has purchased a futures contract and the price of the
underlying security has declined, the position would be less valuable and the
Fund would be required to make a maintenance margin payment to the broker. At
any time prior to expiration of the futures contract, the Fund may elect to
close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
While futures contracts based on securities 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 Fund entering into a futures contract purchase for the same aggregate
amount of the specific type of financial instrument with the same delivery date.
If the price in the sale exceeds the price in the offsetting purchase, the Fund
immediately is paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sales price, the Fund pays the difference and
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the Fund entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund realizes a gain, and if the
purchase price exceeds the offsetting price, the Fund realizes a loss.
There are several risks in connection with the use of futures contracts as
a hedging device. One risk arises due to the imperfect correlation between
movements in the price of the futures contracts and movements in the price of
the subject of the hedge. The price of the futures contract may move more than
or less than the price of the securities 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 Fund 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 Fund will experience either
a loss or gain on the futures which will not be completely offset by movements
in the prices of the securities or currency which is the subject of the hedge.
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To compensate for the imperfect correlation of such movements in price, the
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of the securities 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 Fund 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 the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of securities held in the Fund's portfolio may decline. If this occurred, the
Fund would lose money on the futures contracts and also experience a decline in
value in its portfolio securities. However, while this could occur for a very
brief period or to a very small degree, over time the value of a diversified
portfolio will tend to move in the same direction as the futures contracts.
Where futures are purchased to hedge against a possible increase in the cost
of securities before the Fund is able to invest its cash (or cash equivalents)
in an orderly fashion, it is possible that the market may decline instead; if
the Fund then concludes not to invest in the relevant securities at that time
because of concern as to possible further market decline or for other reasons,
the Fund will realize a loss on the futures contract that is not offset by a
reduction in the price of securities purchased.
Another risk arises because the market prices of futures contracts may be
affected by certain factors. First, all participants in the futures market are
subject to initial margin and maintenance margin requirements. Rather than
meeting maintenance margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal relationship
between the 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
Fund intends to purchase or sell futures only on exchanges or boards of trade
where there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
maintenance margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contracts can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will, in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
Successful use of futures contracts by the Fund 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 the
Fund 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 Fund 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 Fund 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 Fund
may have to sell securities at a time when it may be disadvantageous to do so.
Investment Companies
Investments by the Fund in investment companies will be effected by
independent investment managers, and the Fund will have no control over the
investment management, custodial arrangements or operations of any investments
made by such investment managers. Some of the funds in which the Fund may invest
could also incur more risks than would be the case for direct investments. For
example, they may engage in investment practices that entail greater risks or
invest in companies whose securities and other investments are more volatile. In
addition, the funds in which the Fund invests may or may not have the same
fundamental investment limitations as those of the Fund itself. While a
potential benefit of investing in closed-end investment companies would be to
realize value from a decrease in the discount from net asset value at which some
closed-end funds trade, there is also the potential that such discount could
grow, rather than decrease.
By investing in investment companies indirectly through the Fund, a
shareholder of the Fund will bear not only a proportionate share of the expenses
of the Fund (including operating costs and investment advisory and
administrative fees) but also, indirectly, similar expenses of the investment
companies in which the Fund invests.
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A shareholder may also indirectly bear expenses paid by investment companies in
which the Fund invests related to the distribution of such investment companies'
shares. Some of the open-end investment companies in which the Fund may invest
may limit the ability of shareholders (including the Fund) to redeem their
shares. Current law prohibits the Fund 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. The
Fund 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 the Fund,
these restrictions would not apply to the Fund. The Fund may also invest in
other investment companies to facilitate the implementation of a master-feeder
structure.
Options on Futures Contracts
The Fund 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
Fund 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 Fund 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 Fund when the use of a futures
contract would not. 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 Fund 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
Fund 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 Fund 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 Fund not enter into futures and related
options for which the aggregate initial margin and premiums exceed 5% of the
fair market value of the Fund's total assets. There is no other limitation on
the percentage of the Fund's 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 Fund can engage
in futures transactions.
New financial products and risk management techniques continue to be developed
and the Fund may use these new investments and techniques to the extent
consistent with its investment objective and policies.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental policies of the
Fund , which cannot be changed without the approval of the holders of a majority
of the outstanding voting securities of the Fund as defined in the Investment
Company Act of 1940, as amended (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 voting securities are
present in person or by proxy, or (2) more than 50% of the Fund's 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 the Fund (i.e., a
structure under which the Fund 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
the Fund 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, the Fund may not:
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 Fund (there is no such limitation with respect to obligations of
the U.S. Government, its agencies and instrumentalities);
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2. With respect to 75% of the Fund's 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 the Fund would be invested in such issuer or (ii) the Fund
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);
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
Fund), 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 the Fund 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 the
Fund from purchasing and selling options and futures contracts; and
8. 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 Fund's total assets, the Fund will make no further investments
until such borrowing is repaid. It is the current intention of the Fund not to
borrow money in excess of 5% of its assets. The Fund 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 the Fund's assets.
Non-Fundamental Restrictions The investment restrictions set forth below
are other investment policies of the Fund that are non-fundamental that can be
changed by the Board of Trustees without a shareholder vote. Pursuant to such
restrictions and policies, the Fund may not:
9. Borrow money, except from banks for temporary purposes in an amount up
to 10% of the value of the Fund's total assets. The 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. The Fund 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 Fund 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;
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 of Zweig
Series Trust, or one or more Series of Zweig Series Trust 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. Sell securities short, except as described in the Prospectus and in
accordance with the following: When the Fund makes a short sale, the proceeds
will be retained by the broker until the Fund replaces the borrowed security.
The Fund may, but will not necessarily, receive interest on such proceeds. In
order to deliver the security to the buyer, the Fund must arrange through a
broker to borrow the security and, in so doing, the Fund will become obligated
to replace the security borrowed at its market price at the time of replacement,
whatever that price may be. The Fund may have to pay a premium to borrow the
security. The Fund must pay to the broker any dividends or interest payable on
the security until the Fund replaces the security.
The Fund's obligation to replace the security borrowed in connection with a
short sale will be secured by the proceeds from the short sale retained by the
broker. In addition, the Fund 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 from the short sale and the collateral
deposit is at all times equal to at least 100% of the current market value of
the securities sold short. The Fund 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
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do not necessarily limit the Fund's 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 Fund replaces the borrowed security, the Fund
will incur a loss, and if the price declines during this period, the Fund 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 Fund may have to pay in
connection with such short sale;
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;
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 Fund's net assets would consist of such
securities;
Invest more than 2% 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); and
The Fund may lend its portfolio securities to a limited extent. Such
loans entitle the Fund to cash collateral, and the extra cash thus obtained may
be invested in short-term, interest-bearing securities. The Fund 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 Fund 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 Fund 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 Fund's management).
It is the current intention of the Fund not to engage in such activities to an
extent in excess of 5% of the value of the Fund's total assets.
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 Fund" and
"How to Redeem Your Shares", which describe the methods of purchase and
redemption of Fund shares.
If you invest through an investment dealer or agent, that firm may have
its own service features, transaction charges and fees. This SAI and the
accompanying 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 differs for
selling shares of different classes of the Fund.
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 Fund and
credited to such account.
If the Board of Trustees should determine that it is advisable in the
interest of the remaining shareholders of the Fund or Class to make payment
wholly or partly in cash, the Fund may pay redemption proceeds in whole or in
part by a distribution in kind of securities from the portfolio of the Fund, 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 Fund 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 Fund 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 in the Fund with other
Series' of the Trust by telephone.
The minimum value of any class of shares that may be exchanged into another
Series in which shares are not already held is $1,000 and no exchange out of
another 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.
Class A Shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if: (i)
the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on the
date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement,
the Plan has $3 million or more in assets invested in broker/dealer funds not
advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM") that are
made available pursuant to a Service Agreement between Merrill Lynch and the
fund's principal underwriter or distributor and in funds advised or managed by
MLAM (collectively, the "Applicable Investments"); (ii) the Plan is recordkept
on a daily valuation basis by an independent recordkeeper whose services are
provided through a contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets, excluding money market
funds, invested in Applicable Investments; or (iii) the Plan has 500 or more
eligible employees, as determined by Merrill Lynch plan conversion manager, on
the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement. Alternatively, Class B Shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (I) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B Shares of the Fund convert to Class A Shares once the Plan has reached
$5 million invested in Applicable Investments, or after the normal holding
period of seven years from the initial date of purchase.
NET ASSET VALUE AND TAXES
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 the Fund, are entitled to receive their share of the net assets
of the Fund. Shareholders have no preemptive rights. The Trust's fiscal year
ends on December 31.
We subtract the non-class specific liabilities of the 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.
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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. 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).
Tax Status
The Fund 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, the Fund intends to qualify as a regulated investment
company under the Code. Since the Fund 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 the Fund 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 net short-term
capital gains are taxable to shareholders as ordinary income. Distributions from
net long-term capital gains that are properly designated as such 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. Any
loss realized by a shareholder upon the disposition of Fund shares held for six
months or less will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain during such six-month
period.
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
Fund, as well as on the proceeds of redemptions of the Fund, if the Fund is not
provided with the shareholder's correct taxpayer identification number and
certification that the shareholder is not subject to such backup withholding, or
if the Internal Revenue Service notifies the Fund 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 Fund 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 the Fund
will be as follows: Gain or loss from a closing transaction with respect to
options written by the Fund, 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 the Fund 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 the Fund
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 Fund's 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.
11
<PAGE>
The Fund 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 Fund 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 the Fund's 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 Fund, 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. Dividends and interest received by
the Fund on foreign securities as well as capital gains realized upon the sale
of such securities, may give rise to withholding and other taxes imposed by
foreign countries. Tax conventions between certain countries and the U.S. may
reduce or eliminate taxes. Foreign taxes paid by the Fund will reduce its
dividends. If more than 50% of the value of the Fund's total assets at the end
of each quarter of any fiscal year consists of stock or other securities of
foreign corporations, the Fund may elect to treat certain foreign taxes paid by
it, including withholding taxes, as paid by its shareholders. If the Fund makes
this election, the amount of foreign taxes paid by the Fund will be included in
the shareholders' pro rata share of the Fund (in addition to taxable
distributions actually received by them), and the shareholders would be entitled
(a) to credit their share of such taxes against their U.S. federal income taxes
(subject to generally applicable limitations), or (b) if they itemize their
deductions, to deduct their share of such taxes form their gross income. If the
Fund purchases the stock of "passive foreign investment companies" ("PFICs"),
the Fund will be subject to tax under one of three regimes. Under the default
regime, gain on the sale of PFIC stock and certain "excess distributions" are
treated as ordinary income and subject to an interest charge. If the PFIC
provides certain information and the Fund makes an election, the Fund may elect
to include its pro rata share of the PFIC's capital gains and ordinary income
currently even if not distributed. In taxable years beginning after December 31,
1997, the Fund may mark to market its PFIC shares if it is eligible to do so and
elects to do so; any resulting gain will be ordinary income and losses will be
ordinary losses to the extent of prior ordinary income.
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>
James Balog Trustee Retired; Director and Member of the Audit, Investment, Stock
2205 N. Southwinds Blvd. Option and Compensation Committees of Transatlantic Holdings,
Vero Beach, FL 32963 (68) Inc.(reinsurance); Director and Member of the Executive Committee
of Elan, Plc (pharmaceuticals); Director and Member of the
Executive and Investment & Credit Committees of Great West Life
and Annuity Insurance Company; and Member of the Technical
Advisory Board of Galen Partners (health care). Former Director,
Chairman of the Audit Committee and Member of the Executive
Committee of A.L. Pharma, Inc. (health care); Chairman of 1838
Investment Advisors, L.P. and Chairman of Lambert Brussels Capital
Corporation (investments).
Claire B. Benenson Trustee Consultant on Financial Conferences, The New School for Social
870 U.N. Plaza Research and Director of The Burnham Fund Inc. Former Director of
New York, NY 10017 Financial Conferences and Chairman, Department of Business and
(78) Financial Affairs, The New School for Social Research, President
of the Money Marketeers of New York University, Trustee of Simms
Global Fund and Director of Zweig Cash Fund, Inc.
12
<PAGE>
S. Leland Dill Trustee Retired; Director of Coutts & Co. Trust Holdings Limited, Coutts &
5070 North Ocean Dr. Co. Group, Coutts & Co. (USA) (private banking), Trustee of BT
Singer Island, FL 33404 Portfolios and BT Investment Funds. Former partner of Peat
(66) 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
900 Third Avenue Chief Executive Distributor; President of Euclid Advisors, L.L.C.; Director of The
New York, NY 10022 Officer and Trustee Zweig Fund, Inc. Former Director of Zweig Cash Fund Inc.
(57)
Donald B. Romans Trustee President of Romans & Company (private investors and financial
233 East Wacker Dr. consultants); Director of the Burnham Fund Inc. Former Consultant
Chicago, IL 60601 to and Executive Vice President and Chief Financial Officer of
(66) 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., Zweig
(55) Advisors Inc., Zweig-DiMenna International Managers, Inc., and
Zweig Securities Advisory Service, Inc.; Consultant to (former
Co-Chairman of Research of) Avatar Investors Associates Corp.;
Managing Director of the Managing General Partner of Zweig-DiMenna
Partners, L.P. and Zweig-DiMenna Special Opportunities, L.P.;
President and Director of Gotham Advisors, Inc. and Chairman of
Euclid Advisors, L.L.C.; Member of the Undergraduate Executive
Board of the Wharton School, University of Pennsylvania. Former
President of Zweig Cash Fund Inc. and General Partner of Zweig
Katzen Investors, L.P.
David Katzen Senior Vice President Senior Vice President of the Manager; Vice President of Zweig
900 Third Avenue Advisors Inc. and Executive Vice President of Euclid Advisors,
New York, NY 10022 Inc. Former Director of Quantitative Research at Avatar
(39) Investors Associates Corp.; Director of Equity Research for
Zweig Total Return Advisors, Inc.; Research Director of Zweig
Advisors Inc. and Vice President of the Zweig Fund, Inc. and ZZK
Management, Inc.
Barry Mandinach First Vice President Executive Vice President of the Distributor and Senior Vice
900 Third Avenue President of the Manager.
New York, NY 10022
(41)
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
(29)
13
<PAGE>
Alfred J. Ratcliffe First Vice President, First Vice President of the Manager. Former Vice President of The
900 Third Avenue Treasurer, Principal Bank of New York.
New York, NY 10022 Accounting Officer
(50) and Assistant Secretary
Charles I. Leone First Vice President First Vice President and Chief Financial Officer of the Manager and
900 Third Avenue and Assistant Secretary First Vice President, Chief Financial Officer and Assistant
New York, NY 10022 Secretary of the Distributor. Former Assistant Treasurer of Zweig
(36) Cash Fund Inc.
Annemarie Gilly Vice President First Vice President of the Manager and the Distributor. Former
900 Third Avenue Vice President of Concord Financial Group and Executive Vice
New York, NY 10022 President and Chief Operating Officer of The Gabelli Equity Trust,
(46) Inc.
Jeffrey Lazar Vice President Vice President and Treasurer of The Zweig Fund, Inc. and The Zweig
900 Third Avenue Total Return Fund, Inc.; Vice President, Treasurer and Secretary of
New York, NY 10022 Zweig Advisors Inc. and Zweig Total Return Advisors, Inc.
(38)
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 Securities,
(52) Inc. and Assistant Secretary of Gotham Advisors, Inc., Zweig Total
Return Advisors, Inc. and Zweig Advisors Inc. Former Secretary of
Zweig Cash Fund Inc.
Tom Disbrow Assistant Vice Assistant Vice President of the Manager
900 Third Avenue President and
New York, NY 10022 Assistant Treasurer
(31)
Beth Abraham Assistant Vice Assistant Vice President of the Manager. Former self-employed
900 Third Avenue President consultant to the mutual fund industry.
New York, NY 10022
(41)
Rhonda Lee Berzner Assistant Vice Senior Research Analyst for the Manager.
900 Third Avenue President
New York, NY 10022
(32)
</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:
14
<PAGE>
Aggregate Compensation from the
Name of Person, Position Trust
James Balog, Trustee** $ 8,500
Claire B. Benenson, Trustee 17,000
S. Leland Dill, Trustee 17,000
Eugene J. Glaser, Chairman, Chief 0
Executive Officer and Trustee
Donald B. Romans, Trustee 17,000
**Effective May 1, 1997.
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. 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, 1996, the fees and expenses of
disinterested trustees, as a group, were $69,749. As of July 7, 1997, except for
Dr. Zweig, Eugene J. Glaser and David Katzen, 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. A shareholders'
meeting may be called by the Trustees or by the President of the Trust, or shall
be called promptly by the Trustees upon the written request of shareholders of
the Trust holding at least ten percent (10%) of the outstanding shares entitled
to vote. Except as set forth above, the trustees shall continue to hold office
and may appoint their successors.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Manager
The Fund and the Manager entered into a management agreement, dated
October 9, 1997 (the "Management Agreement" ), pursuant to which the Manager
reviews the portfolio of securities and investments of Fund and advises and
assists the Fund with respect to the selection, acquisition, holding or disposal
of securities. In addition to managing the investments, the Manager also makes
recommendations with respect to other aspects and affairs of the Fund. 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 without additional compensation from the Trust. All other expenses
incurred in the operation of the Fund are borne by the Fund, 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 Fund's registration statement with the
appropriate regulatory authorities and the production and filing of the Fund's
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.
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 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
15
<PAGE>
obligations under the Management Agreement. The Management Agreement permits the
Manager to render services to others and to engage in other activities.
The Fund pays the Manager for its services pursuant to the Management
Agreement a monthly fee at the annual rate of 1.00% of the average daily net
assets of the Fund.
Until April 30, 1998 the fee of the Fund will be reduced, or the Manager
will reimburse the Fund (up to the amount of its fee), by an amount necessary to
prevent the total expenses of the Fund (excluding taxes, interest, brokerage
commissions or transaction costs, certain distribution fees, certain custodial
expenses and extraordinary expenses) from exceeding 1.5% of the Fund's average
net assets.
The Manager may draw upon the resources of the Distributor and its
qualified affiliates in rendering its services to the Fund. The Distributor or
its affiliates may provide the Manager (without charge to the Fund) with
investment information and recommendations that may serve as the principal basis
for investment decisions with respect to the Fund or 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 26, 1997.
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 result in payments that currently
amount to 15 basis points.
Distribution Plans
The Trust has adopted a distribution plan for each class of shares of each
Series, including the Fund, except Class I Shares (i.e., a plan for the Class A
and C Shares and a plan for the Class B 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 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, Zweig Growth & Income Fund and Zweig Foreign Equity Fund; 0.50% per
annum for Zweig Government Fund and 0.05% per annum for Zweig Cash Fund.
The CDSC will be waived under certain circumstances described in the
Prospectus. In addition, the CDSC will be waived on redemptions of shares by
employee benefit plans for the benefit of employees of the Distributor and its
affiliates.
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 the Fund or
any Class of the Fund, 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).
16
<PAGE>
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 Fund and its shareholders from
the growth in assets due to sales of shares to the public pursuant to the Plans.
Increases in the Fund's net assets from sales pursuant to its Plan may benefit
shareholders by reducing per share expenses, permitting increased investment
flexibility and diversification of the Fund's assets, and facilitating economies
of scale (e.g., block purchases) in the Fund's 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
B Shares was approved by the Board of Trustees, including a majority of the
Qualified Trustees, at a meeting held on June 26, 1997. Prior to approving the
continuance of the Plans, 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 Plans, 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 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 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 Fund shareholders. Shareholders may
request in writing that the transfer agent issue to them certificates
representing their ownership of Fund 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.
17
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
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 Fund as a result of its usual and customary brokerage
commissions which the Distributor or its affiliates may receive for acting as
broker to the Fund 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 Fund
which the Distributor may receive. 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 Fund. Information so received will
enable the Manager to supplement its own 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 Fund; 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 Fund. No principal transactions are effected with Zweig Securities Corp. or
any of its affiliated companies.
The Fund 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 Fund, 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 Fund.
There are no fixed limitations regarding the Fund'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 the Fund for the fiscal year by (B) the monthly average of the
value of portfolio securities owned by the Fund during the fiscal year.
The options activities of the Fund may affect its turnover rate, the amount
of brokerage commissions paid by the Fund 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 Fund's portfolio turnover. Securities satisfying the basic
policies and objectives of the 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 the Fund may cause the Fund 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 Fund's control, holding a protective put might cause the
Fund to sell the underlying securities for reasons which would not exist in the
absence of the put. The Fund 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.
YIELD AND PERFORMANCE INFORMATION
The Fund will include performance data for Class A, Class B and Class C
Shares of the Fund in its advertisements, sales literature and other information
distributed to the public that includes performance data of the Fund. Such
performance information will be based on investment yields or total returns for
the Fund.
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Yield. Yield may not be the same as the distribution rate or the income
reported in the Fund's financial statements. We compute yield by taking the
interest and dividend income the Fund earns in a 30-day period, net of expenses,
and dividing that amount by the average number of shares entitled to receive
dividends. 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.
Average Annual Total Return. 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.
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 Fund 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.
The investment results of the Class A, Class B and Class C Shares of the
Fund 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 the Fund's expenses, realized or unrealized investment gains and
losses, and the results of the Fund's 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; Financial
Planning; Financial World; Forbes; Fortune; Fundscope, 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.
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