[Federal Register Volume 59, Number 72 (Thursday, April 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9018]
[[Page Unknown]]
[Federal Register: April 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20208; 812-8838]
Zweig Series Trust, et al.; Notice of Application
April 8, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``1940 Act'').
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APPLICANTS: Zweig Series Trust (the ``Trust''), Zweig/Glaser Advisers
(the ``Adviser'') and Zweig Securities Corp. (the ``Distributor'').
RELEVANT 1040 ACT SECTIONS: Exemption requested pursuant to section
6(c) of the 1940 Act from sections 18(f), 18(g), and 18(i) thereof.
SUMMARY OF APPLICATION: Applicants seek an order, on behalf of the
Trust and all investment companies for which the Adviser in the future
becomes investment adviser and the Distributor in the future becomes
principal underwriter, amending a prior order (the ``Prior Order'')
that permitted the establishment of a dual class and contingent
deferred sales charge (``CDSC'') arrangement. Investment Company Act
Release Nos. 18460 (Dec. 31, 1991) (notice) and 18502 (Jan. 28, 1992)
(order). The requested amended order will modify the multi-class
arrangement allowed by the Prior Order to, among other things, allow
the Trust to issue a third class of shares for one of its series (the
``Multi-Class Plan''). Except with respect to the imposition of the
CDSC, the requested amended order will supersede the Prior Order in its
entirety.
FILING DATES: The application was filed on February 16, 1994, and an
amended and restated application was filed on April 7, 1994. By letter
dated April 8, 1994, counsel for the Applicants agreed to file another
amendment during the notice period to make certain further revisions
that are reflected herein.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on April 29, 1994,
and should be accompanied by proof of service on Applicants, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reasons
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants, 5 Hanover Square, New York, New York 10004.
FOR FURTHER INFORMATION CONTACT: H.R. Hallock, Jr., Special Counsel, at
(202) 272-3030, or Barry D. Miller, Senior Special Counsel, at (202)
272-3018 (Division of Investment Management, Office of Investment
Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Trust is a registered open-end management investment company
organized in series form. The Trust currently has six series: Money
Market Series, Government Securities Series, Priority Selection List
Series, Zweig Strategy Fund, Zweig Appreciation Fund and Zweig Managed
Assets (collectively and individually, the ``Series''). The Trust has
from time to time created new Series and may do so in the future. The
Adviser serves as the investment manager of the Trust. The Distributor
acts as the principal distributor of shares of beneficial interest of
the Trust (``Shares''). Pursuant to the Prior Order, the Trust
presently offers two classes of Shares: Class A shares and Class B
Shares.
2. A new series of the Trust, Zweig Cash Fund (``New Cash Fund'')
is being created to become the successor by merger to Money Market
Series, a series of the Trust, and Zweig Cash Fund Inc. (``Cash
Fund''), an affiliated money market fund with the same investment
adviser and distributor as the Trust. In connection with that merger,
the Trust proposes to create a new class of Shares (the ``Class M
Shares''), which will be exchanged for the assets of Cash Fund and then
distributed to Cash Fund shareholders in complete liquidation of such
Fund. In addition, Money Market Series will transfer its assets to New
Cash Fund in exchange for Class A and Class B shares of New Cash Fund.
3. Class A Shares of five Series of the Trust are sold with a
sliding scale initial sales charge. Class A Shares of Money Market
Series are sold without an initial sales charge, and Class A Shares of
New Cash Fund will also be sold without an initial sales charge. As
provided in a plan adopted pursuant to rule 12b-1 under the 1940 Act
(the ``Rule 12b-1 Plan''), the Class A Shares of each Series pays the
Distributor distribution fees of .05% and service fees of .25% of
average daily net assets per annum.
4. The Class B Shares of the Trust are sold without the imposition
of an initial sales charge, but they are subject to a CDSC of 1.25% of
the net asset value of shares redeemed within one year of purchase. No
CDSC is imposed on Class B Shares redeemed thereafter. Under the rule
12b-1 Plan, the Distributor is paid a distribution fee of .75% per
annual of average daily net assets of Class B Shares of four Series,
.50% for one Series, and .05% for Money Market Series. In each case,
the Distributor also is paid a service fee of .25%. New Cash Fund will
have the same pricing structure as Money Market Series, and the Class B
Shares will pay an annual distribution and service fee of .05% and
.25%, respectively, of average daily net assets (the same as paid by
the Class A Shares).
5. Under the Multi-Class Plan, the Trust will continue to offer
Class A and B Shares on the same terms as are presently offered, and
New Cash Fund will also offer Class M Shares. Class M Shares will be
sold without a front-end sales charge or CDSC but subject to a Rule
12b-1 Plan that requires the Class M Shares of New Cash Fund to pay up
to .15% per annum of average daily net assets to securities dealers,
financial institutions and other industry professionals for
distribution, promotion and administration of and/or servicing
investors in Class M Shares, and for payment by the Class M Shares for
prospectuses, reports and promotional material in an amount not to
exceed $100,000 per year. The Rule 12b-1 Plan for Class M Shares of New
Cash Fund will be identical to the Rule 12b-1 Plan presently in effect
for shares of Cash Fund.
6. Although there are no present plans for offering other classes
of shares of the Trust (including Class M Shares of the other Series of
the Trust), the terms of which may differ from the classes of shares
described herein and in the application, the Trust may choose to do so
in the future. Any such new classes, however, would comply with all of
the conditions set forth below. The sum of any initial sales charge,
asset-based sales charge, and CDSC for the existing or any new classes
will not exceed the maximum sales charge provided for in Article III,
Section 26 of the Rules of Fair Practice of the National Association of
Securities Dealers.
7. Under the Multi-Class Plan, each share of a Series will
represent an equal pro rata interest in a Series, regardless of class,
and will be identical in all respects except for: (1) The amount and
type of fees permitted by Rule 12b-1 Plans and the terms of service
agreements, if applicable; (2) voting rights on matters concerning Rule
12b-1 Plans; (3) exchange privileges; (4) any expenses which the Board
of Trustees determines should be allocated or charged on a class basis
(``Differential Expenses''), which are limited to (a) transfer agency
fees as identified by the transfer agent as attributable to a specific
class, (b) printing and postage expenses related to preparing and
distributing class specific material such as shareholder reports,
prospectuses and proxies to current shareholders, (c) Blue Sky and
Commission registration fees incurred by a class of Shares, (d) the
expenses of administrative personnel and services as required to
support the shareholders of a specific class, if any, (e) litigation or
other legal expenses relating solely to a specific class of Shares, (f)
trustees' fees incurred as a result of issues relating to one class of
Shares and (g) other expenses that are subsequently identified and
determined to be properly allocated to one class of shares which shall
be approved by the Commission pursuant to an amended order; and (5) the
designation of such classes.
8. Under the Multi-Class Plan, all expenses incurred by each Series
will be allocated among the various classes of shares based upon the
net assets of the Series attributable to each class, except that shares
of a particular class will bear the Differential Expenses incurred by
such class. In addition, shares of a particular class will bear
expenses assessed to that class as a result of a rule 12b-1 plan
providing for a distribution fee or a service fee. Consequently, the
net income of, and the dividends payable with respect to, each
particular class would generally differ from the net income of, and the
dividends payable with respect to, the other classes of shares of each
Series. Therefore, the net asset value per share of the classes will
differ at times. Expenses of each Series allocated to a class of shares
will be borne on a pro rata basis by each outstanding share of that
class.
9. Class 9 Shares of a Series will be exchangeable only for Class A
Shares of the other Series, Class B Shares will be exchangeable only
for Class B Shares of the other Series and Class M Shares of New Cash
Fund will have no exchange feature since no other Series currently
offers Class M Shares. The applicable exchange privileges will be in
compliance with rule 11a-3 under the 1940 Act and will be set forth in
each Series' prospectus.
Applicants' Legal Conclusions
1. Applicants seek an exemption from sections 18(g), 18(f)(1), and
18(i) of the 1940 Act to the extent the Multi-Class Plan may result in
a senior security, as defined by section 18(g) of the 1940 Act, the
issuance and sale of which would be prohibited by section 18(f)(1) of
the 1940 Act, and to the extent the allocation of voting rights under
the Multi-Class Plan may violate the provisions of section 18(i) of the
1940 Act. Applicants believe that the Multi-Class Plan does not raise
any of the legislative concerns that section 18 of the 1940 Act was
designed to ameliorate. The proposal does not involve borrowing and
does not affect the Trust's existing assets or reserves. In addition,
the proposed arrangement will not increase the speculative character of
the Shares of the Trust since all such Shares will participate pro rata
in all of the Trust's income and expenses with the exception of the
differing Rule 12b-1 fees and Differential Expenses.
2. Applicants also believe that the Multi-Class Plan will both
facilitate the distribution of Shares by the Trust and provide
investors with a broader choice as to the method of purchasing Shares.
Additionally, if the Trust is able to maintain and expand its number of
shareholders through the Multi-Class Plan, it shareholders would
benefit to the extent the Trust's pro rata operating expenses per share
would be decreased.
Conditions of Relief
If the requested relief is granted, Applicants agree to the
following conditions:
1. Each class of shares will represent interests in the same
portfolio of investment of a Series and be identical in all respects,
except as set forth below. The only differences among the various
classes of shares of the same Series will relate solely to: (a) The
designation of each class of shares of a Series; (b) expenses assessed
to a class as a result of a rule 12b-1 plan providing for a
distribution fee or a service fee; (c) different Differential Expenses
for each class of shares, which are limited to: (i) Transfer agency
fees as identified by the transfer agent as being attributable to a
specific class; (ii) printing and postage expenses related to preparing
and distributing materials such as shareholders reports, prospectuses
and proxies to current shareholders; (iii) Blue Sky registration fees
incurred by a class of shares; (iv) Commission registration fees
incurred by a class of shares; (v) the expenses of administrative
personnel and services as required to support the shareholders of a
specific class; (vi) litigation or other legal expenses relating solely
to one class of shares; and (vii) Trustees' fees incurred as a result
of issues relating to one class of shares; (d) the related voting
rights as to matters exclusively affecting one class of shares (e.g.,
the adoption, amendment or termination of a Rule 12b-1 Plan) in
accordance with the procedures set forth in rule 12b-1; and (e)
different exchange privileges. Any additional incremental expenses not
specifically identified above that are subsequently identified and
determined to be properly allocated to one class of shares shall not be
so allocated until approved by the Commission.
2. The Trustees of the Trust, including a majority of the
independent Trustees, will approve the Multi-Class Plan prior to its
implementation by a particular Series. The minutes of the meetings of
the Trustees of the Trust regarding the deliberations of the Trustees
with respect to the approvals necessary to implement the Multi-Class
Plan will reflect in detail the reasons for determining that the
proposed Multi-Class Plan is in the best interests of the Series and
its respective shareholders.
3. The initial determination of the Differential Expenses that will
be allocated to a particular class and any subsequent changes thereto
will be reviewed and approved by a vote of Trustees, including a
majority of the independent Trustees. Any person authorized to direct
the allocation and disposition of monies paid or payable by the Trust
to meet the Differential Expenses shall provide to the Trustees, and
the Board shall review, at least quarterly, a written report of the
amounts so expended and the purpose for which the expenditures were
made.
4. On an ongoing basis, the Trustees, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor each
Series for the existence of any material conflicts among the interests
of the various classes of shares. The Trustees, including a majority of
the independent Trustees, will take such action as is reasonably
necessary to eliminate any conflicts that may develop. The Adviser and
the Distributor will be responsible for reporting any potential or
existing conflicts to the Trustees. If a conflict arises, the Adviser
and the Distributor at their own costs will remedy the conflict up to
and including establishing a new registered management investment
company.
5. The Trustees will receive quarterly and annual statements
concerning distribution and shareholder servicing expenditures
complying with paragraph (b)(3)(ii) of rule 12b-1, as it may be amended
from time to time. In the statements, only expenditures properly
attributable to the sale or servicing of one class of shares will be
used to support any distribution or servicing fee charged to
shareholders of that class of shares. Expenditures not related to the
sale or servicing of a specific class of shares will not be presented
to the Trustees to justify any fees charged to that class of shares.
The statements, including the allocations upon which they are based,
will be subject to the review and approval of the independent Trustees
in the exercise of their fiduciary duties.
6. Dividends paid by a Series with respect to each class of shares,
to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same
amount, except that each particular class will bear exclusively its own
Differential Expenses and costs and distribution fees associated with
any rule 12b-1 plan relating to a particular class.
7. The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes and the
proper allocation of expenses among the various classes have been
reviewed by an expert, the Independent Examiner. The Independent
Examiner has rendered a report to the Applicants, which has been
provided to the staff of the Commission, stating that the methodology
and procedures are adequate to ensure that the calculations and
allocations will be made in an appropriate manner. On an ongoing basis,
the Independent Examiner, or an appropriate substitute Independent
Examiner, will monitor the manner in which the calculations and
allocations are being made and, based upon this review, will render at
least annually a report to the Trust that the calculations and
allocations are being made properly. The reports of the Independent
Examiner shall be filed as part of the periodic reports filed with the
Commission pursuant to sections 30(a) and 30(b)(1) of the 1940 Act. The
work papers of the Independent Examiner with respect to these reports,
following request by the Trust, which the Trust agrees to make, will be
available for inspection by the Commission's staff upon the written
request for these work papers by a senior member of the Division of
Investment Management or of a Regional Office of the Commission,
limited to the Director, an Associate Director, the Chief Accountant,
the Chief Financial Analyst, an Assistant Director, and any Regional
Administrator or Associate and Assistant Administrators. The initial
report of the Independent Examiner is a ``Report on Policies and
Procedures Placed in Operation,'' and the ongoing reports will be
``Special Purpose'' reports on the ``Reports on Policies and Procedures
Placed in Operation and Tests of Operating Effectiveness'' as defined
and described in Statement of Auditing Standards No. 70 of the American
Institute of Certified Public Accountants (the ``AICPA''), as it may be
amended from time to time, or in similar auditing standards as may be
adopted by the AICPA from time to time.
8. The Applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for calculating the
net asset value and dividends and distributions of the various classes
of shares and the proper allocation of expenses among the classes of
shares and this representation has been concurred with by the
Independent Examiner in an initial report referred to in condition (7)
above and will be concurred with by the Independent Examiner, or an
appropriate substitute Independent Examiner, on an ongoing basis at
least annually in the ongoing reports referred to in condition (7)
above. The Applicants will take immediate corrective action if the
Independent Examiner, or appropriate substitute Independent Examiner,
does not so concur in the ongoing reports.
9. The prospectus of the Trust will include a statement to the
effect that a salesperson and any other person entitled to receive any
compensation for selling or servicing Trust shares may receive
different compensation with respect to one particular class of shares
over another in the Trust.
10. The Distributor will adopt compliance standards as to when
shares of a particular class may appropriately be sold to particular
investors. The Applicants will require all persons selling shares of
the Trust to agree to conform to these standards.
11. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the Trustees of the Trust with
respect to the Multi-Class Plan will be set forth in guidelines that
will be furnished to the Trustees.
12. Each Series will disclose the respective expenses, performance
data, distribution arrangements, services, fees, sales loads, CDSCs and
exchange privileges applicable to each class of shares in every
prospectus, regardless of whether all classes of shares are offered
through each prospectus. Each Series will disclose the respective
expenses and performance data applicable to each class of shares in
every shareholder report. The shareholder reports will contain, in the
statement of assets and liabilities and statement of operations,
information related to the Series as a whole generally and not on a per
class basis. Each Series' per share data, however, will be prepared on
a per class basis with respect to the classes of shares of the Series.
To the extent any advertisement or sales literature describes the
expenses or performance data applicable to any class of shares, it will
disclose the respective expenses and/or performance data applicable to
all classes of shares. The information provided by the Applicants for
publication in any newspaper or similar listing of the Series' net
asset values and public offering prices will present each class of
shares separately.
13. The Applicants acknowledge that the grant of the exemptive
order requested by the application will not imply Commission approval,
authorization or acquiescence in any particular level of payments that
the Trust may make pursuant to any of its Rule 12b-1 Plans in reliance
on the exemptive order.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-9018 Filed 4-13-94; 8:45 am]
BILLING CODE 8010-01-M