Document ID: SEC-2006-0122-0047
Agency: sec
Document Type: Notice
Title: The Zweig Total Return Fund, Inc., et al.; Notice of Application
Posted Date: 2008-10-24T04:00Z

[Federal Register: October 24, 2008 (Volume 73, Number 207)]
[Notices]               
[Page 63523-63527]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24oc08-130]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28441, 812-13497]

 
The Zweig Total Return Fund, Inc., et al.; Notice of Application

October 20, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 19(b) of 
the Act and rule 19b-1 under the Act.

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SUMMARY OF APPLICATION: Applicants request an Order to permit certain 
closed-end investment companies to make periodic distributions of long-
term capital gains with respect to their outstanding common stock as 
frequently as twelve times each year, and as frequently as 
distributions are specified by or in accordance with the terms of any 
outstanding preferred stock that such investment company may issue.

Applicants:  The Zweig Total Return Fund, Inc. (``ZTR''), The Zweig 
Fund, Inc. (``ZF'') and Phoenix/Zweig Advisers LLC (the ``Adviser'').

Filing Dates:  February 14, 2008 and July 30, 2008.

Hearing or Notification of Hearing:  An Order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on November 14, 2008, 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 reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants, c/o George R. Aylward, 
President, Phoenix/Zweig Advisors LLC, 900 Third Avenue, New York, NY 
10022.

FOR FURTHER INFORMATION CONTACT: Wendy Friedlander, Senior Counsel, at 
(202) 551-6837, or James M. Curtis, Branch Chief, at (202) 551-6825 
(Division of Investment Management, Office of Chief Counsel).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549-1520 (telephone: (202) 551-5850).

Applicants' Representations

    1. Each of ZTR and ZF is a diversified closed-end management 
investment company registered under the Act and

[[Page 63524]]

organized as a Maryland corporation.\1\ The common stock issued by ZTR 
and ZF are listed on the New York Stock Exchange. The investment 
objective of ZTR is total return consisting of capital appreciation and 
current income. The investment objective of ZF is capital appreciation 
primarily through investment in equity securities.
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    \1\ Applicants request that any Order issued granting the relief 
requested in the application also apply to any closed-end investment 
company that in the future: (a) Is advised by the Adviser (including 
any successor in interest) or any entity controlling, controlled by, 
or under common control (within the meaning of section 2(a)(9) of 
the Act) with the Adviser; and (b) complies with the terms and 
conditions of the requested Order. A successor in interest is 
limited to entities that result from a reorganization into another 
jurisdiction or a change in the type of business organization.
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    2. The Adviser is a Delaware corporation and is registered as an 
investment adviser under the Investment Advisers Act of 1940. The 
Adviser currently has no investment advisory clients other than ZTR and 
ZF.
    3. Applicants represent that ZTR and ZF have each adopted fixed 
distribution plans to make periodic, level distributions equal to 10% 
per annum of their common stock's net asset value (``NAV''). ZTR 
currently makes quarterly distributions and ZF currently makes monthly 
distributions on their respective common stock. Applicants represent 
that currently the capital gains distributions are funded by capital 
loss carryovers available to each of ZTR and ZF but state that such 
carryovers may not be available in the future.
    4. Applicants represent that on December 12, 2007, the Boards of 
Directors of ZTR and ZF (each, a ``Board''), including a majority of 
the directors who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act (the ``Independent Directors''), of ZTR and ZF each 
approved and adopted their respective distribution policy and plan 
(``Plan''). Applicants represent that the purpose of each Plan is to 
continue to make regular distributions that are not dependent on the 
timing or amount of investment income earned or capital gains realized 
by ZTR or ZF. Applicants further represent that the Board of ZTR and ZF 
each:
    (a) Determined that it is in the best interests of the respective 
fund and its stockholders to adopt the Plan;
    (b) Requested and evaluated, and the Adviser furnished, such 
information as may be reasonably necessary to make an informed 
determination of whether each Plan should be adopted and implemented;
    (c) Determined that adoption and implementation of the Plan are 
consistent with the respective fund's investment objective(s) and 
policies and in the best interests of the respective fund and its 
stockholders, after considering information provided pursuant to 
representation 4(b) above, including, without limitation, with respect 
to each Plan: (i) The purpose(s) of the Plan as stated in this 
application; (ii) any potential or actual conflict of interest that the 
Adviser, any affiliated person of the Adviser, or any other affiliated 
person of the respective fund may have relating to the adoption or 
implementation of the Plan; (iii) whether the rate of distribution 
under the Plan will exceed the respective fund's expected total return 
(in relation to the NAV); and (iv) any reasonably foreseeable material 
effect of the Plan on the respective fund's long-term total return (in 
relation to market price and the NAV of its common stock); and
    (d) Approved the respective fund's adoption of compliance policies 
and procedures in accordance with rule 38a-1 under the Act to be 
effective upon the issuance of the requested Order (``Compliance 
Policies and Procedures'') that:
    (i) Are reasonably designed to ensure that all notices required to 
be sent to the respective fund's common stockholders pursuant to 
section 19(a) of the Act, rule 19a-1 thereunder and condition IV below 
(each, a ``Notice'') include the disclosure required by rule 19a-1 and 
by condition II.A below, and that all other communications by the fund 
or its agents, described in condition III.A below, about the 
distributions under its Plan include the disclosure required by 
condition III.A below; and
    (ii) Require the respective fund to keep records that demonstrate 
its compliance with all of the conditions of the Order and that are 
necessary for the fund to form the basis for, or demonstrate the 
calculation of, the amounts disclosed in its Notices.
    5. Applicants represent that at the December 12, 2007 meeting, the 
Boards of each of ZTR and ZF, including a majority of its Independent 
Directors, also adopted policies and procedures under rule 38a-1 under 
the Act that are reasonably designed to ensure that all Notices comply 
with Condition II below, and that all other written communications by 
the funds or their agents regarding distributions under the Plans 
include the disclosure required by Condition III below. Applicants 
state that the Boards of ZTR and ZF also adopted policies and 
procedures at that meeting that require the respective fund to keep 
records that demonstrate each respective fund's compliance with all of 
the conditions of the requested Order and that are necessary for each 
respective fund to form the basis for, or demonstrate the calculation 
of, the amounts disclosed in its Notices.
    6. Applicants represent that the Boards of ZTR and ZF have recorded 
the basis for their approval of the Plans, including their 
consideration of the factors listed in representation 4(c) above, in 
its meeting minutes, which will be made and preserved for a period of 
not less than six years from the date of such meeting, the first two 
years in an easily accessible place, or such longer period as may 
otherwise be required by law.

Applicants' Legal Analysis

    1. Section 19(b) provides that registered investment companies may 
not, in contravention of such rules, regulations, or orders as the 
Commission may prescribe, distribute long-term capital gains more often 
than once every twelve months. Rule 19b-1 permits a registered 
investment company with respect to any one taxable year, to make one 
capital gain dividend, as defined in section 852(b)(3)(C) of the 
Internal Revenue Code of 1986 (the ``Code''), plus a supplemental 
distribution made pursuant to section 855 of the Code not exceeding 10% 
of the total amount distributed for the year, plus one additional long-
term capital gains distribution to avoid the excise tax under section 
4982 of the Code.
    2. Section 6(c) provides that the Commission may, by order upon 
application, conditionally or unconditionally exempt any person, 
security, or transaction, or any class or classes of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    3. Applicants assert that section 19(b) and rule 19b-1 may prevent 
the operation of a Plan and effectively force fixed regular periodic 
distributions to be funded with returns of capital (to the extent net 
investment income and realized short-term capital gains are 
insufficient), even though net realized long-term capital gains 
otherwise would be available. Applicants state that the long-term 
capital gains in excess of the fixed regular periodic distributions 
permitted by the rule then must either be (1) added as an ``extra'' on 
one of the permitted capital gains distributions, thus exceeding the 
total annual amount called for by the Plan, or (2) retained by the 
affected fund, with such fund

[[Page 63525]]

paying taxes on the amount retained. Applicants believe that their 
stockholders should benefit from the continued investment of assets 
that might otherwise be distributed as a return of capital in order to 
fund the regular periodic distributions under the Plan.
    4. Applicants believe that the stockholders in each of the funds 
include income-sensitive investors who desire steady distributions. 
Applicants believe that funds with Plans may attract new investors and 
support the market price of the fund's common stock. In addition, 
Applicants believe that, without a Plan, there may be an increase in 
the amount of any discount from NAV at which a fund's common stock may 
trade.
    5. Applicants state that one of the concerns leading to the 
enactment of section 19(b) and adoption of rule 19b-1 was that 
stockholders might be unable to distinguish between frequent 
distributions of capital gain and dividends from investment income. 
Applicants state that, pursuant to its respective Plan, each fund will 
provide stockholders with adequate disclosure to clearly inform 
stockholders of the nature of each distribution they receive.
    6. Applicants assert that one of the goals of rule 19b-1 was to 
reduce the possible inappropriate pressure on portfolio managers to 
realize capital gains on a frequent basis and/or at times when 
investment objective considerations would militate against doing so. 
However, when applied to Plans like those of the ZTR and ZF, applicants 
assert that rule 19b-1 actually may create an inappropriate influence 
on portfolio management decisions by imposing pressure to limit the 
realization of long-term capital gains to an annual total that is a 
fraction of a fund's net investment income. Applicants assert that rule 
19b-1 also may create pressure to ensure that realized capital gains 
are short-term rather than long-term because the distribution of short-
term capital gains is not subject to the limitations of the rule. 
Applicants seek an Order to minimize these anomalous effects by 
enabling the funds to realize long-term capital gains as investment 
considerations warrant and without fear of violating rule 19b-1.
    7. Applicants assert that another concern that led to the enactment 
of section 19(b) of the Act and the adoption of rule 19b-1 was that 
frequent capital gain distributions could facilitate improper fund 
sales practices, including, in particular, the practice of urging an 
investor to purchase shares of a fund on the basis of an upcoming 
capital gains dividend (``selling the dividend''), where the dividend 
results in an immediate corresponding reduction in net asset value and 
is in effect a taxable return of the investor's capital. Applicants 
submit that this concern does not apply to closed-end investment 
companies, such as ZTR and ZF, which do not continuously distribute 
shares.
    Applicants state that, in order to counteract any potential 
``selling of the dividend'' issue in connection with a public offering 
of the funds' common stock, any such public offering will be made in 
accordance with Condition VI below. Applicants state that, in the case 
of a rights offering, the offering will be made in accordance with 
Condition VI.A below. Applicants argue that, under those circumstances, 
the abuse of selling the dividend would not occur.
    8. Applicants argue that there is no public policy reason why 
investors, with full disclosure of the nature of distributions, 
including disclosure that such distributions may be, or include, 
returns of capital, should not have the opportunity to invest in a 
closed-end fund with a Plan independent of the fund's net investment 
income and net capital gain, with the fund returning capital only to 
the extent that net investment income and net capital gain for the year 
plus previously undistributed related earnings and profit from prior 
years are insufficient to meet the annual fixed distribution 
requirement.

Applicants' Conditions

    Applicants agree that, with respect to each fund seeking to rely on 
the Order, the Order will be subject to the following conditions:

I. Compliance Review and Reporting

    The fund's chief compliance officer will: (a) Report to the fund 
Board, no less frequently than once every three months or at the next 
regularly scheduled quarterly board meeting, whether (i) the fund and 
the fund adviser have complied with the conditions to the requested 
Order and (ii) a Material Compliance Matter, as defined in rule 38a-
1(e)(2), has occurred with respect to compliance with such conditions; 
and (b) review the adequacy of the policies and procedures adopted by 
the fund no less frequently than annually.

II. Disclosures to Fund Stockholders

    A. Each Notice to the holders of the fund's common stock, in 
addition to the information required by section 19(a) and rule 19a-1:
    1. Will provide, in a tabular or graphical format:
    (a) The amount of the distribution, on a per common share basis, 
together with the amounts of such distribution amount, on a per common 
share basis and as a percentage of such distribution amount, from 
estimated: (A) Net investment income; (B) net realized short-term 
capital gains; (C) net realized long-term capital gains; and (D) return 
of capital or other capital source;
    (b) The fiscal year-to-date cumulative amount of distributions, on 
a per common share basis, together with the amounts of such cumulative 
amount, on a per common share basis and as a percentage of such 
cumulative amount of distributions, from estimated: (A) Net investment 
income; (B) net realized short-term capital gains; (C) net realized 
long-term capital gains; and (D) return of capital or other capital 
source;
    (c) The average annual total return in relation to the change in 
NAV for the 5-year period (or, if the fund's history of operations is 
less than five years, the time period commencing immediately following 
the fund's first public offering) ending on the last day of the month 
prior to the most recent distribution declaration date compared to the 
current fiscal period's annualized distribution rate expressed as a 
percentage of NAV as of the last day of the month prior to the most 
recent distribution declaration date; and
    (d) The cumulative total return in relation to the change in NAV 
from the last completed fiscal year to the last day of the month prior 
to the most recent distribution declaration date compared to the fiscal 
year-to-date cumulative distribution rate expressed as a percentage of 
NAV as of the last day of the month prior to the most recent 
distribution declaration date.
    Such disclosure shall be made in a type size at least as large and 
as prominent as the estimate of the sources of the current 
distribution; and
    2. Will include the following disclosure:
    (a) ``You should not draw any conclusions about the fund's 
investment performance from the amount of this distribution or from the 
terms of the fund's Plan;''
    (b) ``The fund estimates that it has distributed more than its 
income and net realized capital gains; therefore, a portion of your 
distribution may be a return of capital. A return of capital may occur, 
for example, when some or all of the money that you invested in the 
fund is paid back to you. A return of capital distribution does not 
necessarily reflect the fund's investment performance and

[[Page 63526]]

should not be confused with `yield' or `income';'' \2\ and
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    \2\ The disclosure in this Condition II.A.2(b) will be included 
only if the current distribution or the fiscal year-to-date 
cumulative distributions are estimated to include a return of 
capital.
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    (c)''The amounts and sources of distributions reported in this 
Notice are only estimates and are not being provided for tax reporting 
purposes. The actual amounts and sources of the amounts for [accounting 
and] tax reporting purposes will depend upon the fund's investment 
experience during the remainder of its fiscal year and may be subject 
to changes based on tax regulations. The fund will send you a Form 
1099-DIV for the calendar year that will tell you how to report these 
distributions for federal income tax purposes.''
    Such disclosure shall be made in a type size at least as large as 
and as prominent as any other information in the Notice and placed on 
the same page in close proximity to the amount and the sources of the 
distribution.
    B. On the inside front cover of each report to stockholders under 
rule 30e-1 under the Act, the fund will:
    1. Describe the terms of the Plan (including the fixed amount or 
fixed percentage of the distributions and the frequency of the 
distributions);
    2. Include the disclosure required by Condition II.A.2(a) above;
    3. State, if applicable, that the Plan provides that the Board may 
amend or terminate the Plan at any time without prior notice to fund 
stockholders; and
    4. Describe any reasonably foreseeable circumstances that might 
cause the fund to terminate the Plan and any reasonably foreseeable 
consequences of such termination.
    C. Each report provided to stockholders under rule 30e-1 and each 
prospectus filed with the Commission on Form N-2 under the Act, will 
provide the fund's total return in relation to changes in NAV in the 
financial highlights table and in any discussion about the fund's total 
return.

III. Disclosure to Stockholders, Prospective Stockholders and Third 
Parties

    A. The fund will include the information contained in the relevant 
Notice, including the disclosure required by Condition II.A.2 above, in 
any written communication (other than a Form 1099) about the Plan or 
distributions under the Plan by the fund, or agents that the fund has 
authorized to make such communication on the fund's behalf, to any fund 
common stockholder, prospective common stockholder, or third-party 
information provider;
    B. The fund will issue, contemporaneously with the issuance of any 
Notice, a press release containing the information in the Notice and 
will file with the Commission the information contained in such Notice, 
including the disclosure required by Condition II.A.2 above, as an 
exhibit to its next filed Form N-CSR; and
    C. The fund will post prominently a statement on its (or the fund 
adviser's) Web site containing the information in each Notice, 
including the disclosure required by Condition II.A.2 above, and will 
maintain such information on such Web site for at least 24 months.

IV. Delivery of 19(a) Notices to Beneficial Owners

    If a broker, dealer, bank, or other person (``financial 
intermediary'') holds common stock issued by the fund in nominee name, 
or otherwise, on behalf of a beneficial owner, the fund: (a) Will 
request that the financial intermediary, or its agent, forward the 
Notice to all beneficial owners of the fund's shares held through such 
financial intermediary; (b) will provide, in a timely manner, to the 
financial intermediary, or its agent, enough copies of the Notice 
assembled in the form and at the place that the financial intermediary, 
or its agent, reasonably requests to facilitate the financial 
intermediary's sending of the Notice to each beneficial owner of the 
fund's stock; and (c) upon the request of any financial intermediary, 
or its agent, that receives copies of the Notice, will pay the 
financial intermediary, or its agent, the reasonable expenses of 
sending the Notice to such beneficial owners.

V. Additional Board Determinations for Funds Whose Common Stock Trades 
at a Premium

    If:
    A. The fund's common stock has traded on the exchange that it 
primarily trade on at the time in question at an average premium to NAV 
equal to or greater than 10%, as determined on the basis of the average 
of the discount or premium to NAV of the fund's common stock as of the 
close of each trading day over a 12-week rolling period (each such 12-
week rolling period ending on the last trading day of each week); and
    B. The fund's annualized distribution rate for such 12-week rolling 
period, expressed as a percentage of NAV as of the ending date of such 
12-week rolling period, is greater than the fund's average annual total 
return in relation to the change in NAV over the 2-year period ending 
on the last day of such 12-week rolling period; then:
    1. At the earlier of the next regularly scheduled meeting or within 
four months of the last day of such 12-week rolling period, the Board, 
including a majority of the Independent Directors:
    (a) Will request and evaluate, and the fund's adviser will furnish, 
such information as may be reasonably necessary to make an informed 
determination of whether the Plan should be continued or continued 
after amendment;
    (b) Will determine whether continuation, or continuation after 
amendment, of the Plan is consistent with the fund's investment 
objective(s) and policies and in the best interests of the fund and its 
shareholders, after considering the information in Condition V.B.1(a) 
above, including, without limitation:
    (1) Whether the Plan is accomplishing its purpose(s);
    (2) The reasonably foreseeable material effects of the Plan on the 
fund's long-term total return in relation to the market price and NAV 
of the fund's common stock; and
    (3) The fund's current distribution rate, as described in Condition 
V.B above, compared to the fund's average annual total return over the 
2-year period, as described in Condition V.B, or such longer period as 
the board deems appropriate; and
    (c) Based upon that determination, will approve or disapprove the 
continuation, or continuation after amendment, of the Plan.
    (2) The Board will record the information considered by it and the 
basis for its approval or disapproval of the continuation, or 
continuation after amendment, of the Plan in its meeting minutes, which 
must be made and preserved for a period of not less than six years from 
the date of such meeting, the first two years in an easily accessible 
place.

VI. Public Offerings

    The fund will not make a public offering of the fund's common stock 
other than:
    A. A rights offering below net asset value to holders of the fund's 
common stock;
    B. An offering in connection with a dividend reinvestment plan, 
merger, consolidation, acquisition, spin-off or reorganization of the 
fund; or
    C. An offering other than an offering described in Conditions VI.A 
and VI.B above, unless, with respect to such other offering:
    1. The fund's average annual distribution rate for the six months

[[Page 63527]]

ending on the last day of the month ended immediately prior to the most 
recent distribution declaration date,\3\ expressed as a percentage of 
NAV per share as of such date, is no more than 1 percentage point 
greater than the fund's average annual total return for the 5-year 
period ending on such date; \4\ and
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    \3\ If the fund has been in operation fewer than two years, the 
measured period will begin immediately following the fund's first 
public offering.
    \4\ If the fund has been in operation fewer than five years, the 
measured period will begin immediately following the fund's first 
public offering.
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    2. The transmittal letter accompanying any registration statement 
filed with the Commission in connection with such offering discloses 
that the fund has received an Order under section 19(b) to permit it to 
make periodic distributions of long-term capital gains with respect to 
its common stock as frequently as twelve times each year, and as 
frequently as distributions are specified in accordance with the terms 
of any outstanding preferred stock that such fund may issue.

VII. Amendments to Rule 19b-1

    The requested relief will expire on the effective date of any 
amendment to rule 19b-1 that provides relief permitting certain closed-
end investment companies to make periodic distributions of long-term 
capital gains with respect to their outstanding common shares as 
frequently as twelve times each year.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-25361 Filed 10-23-08; 8:45 am]

BILLING CODE 8011-01-P