As filed with the Securities and Exchange Commission on January 13, 2000
1933 Act File No. 2-38309
1940 Act File No. 811-2107
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
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Post-Effective Amendment No. [ ]
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(Check appropriate box or boxes.)
FIRST INVESTORS FUND FOR INCOME, INC.
(Exact name of Registrant as Specified in Charter)
95 Wall Street
New York, New York 10005
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 858-8000
Ms. Concetta Durso
Secretary and Vice President
First Investors Fund For Income, Inc.
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Copy to:
Robert J. Zutz, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
Approximate Date of Proposed Public Offering: as soon as practicable after this
Registration Statement becomes effective under the Securities Act of 1933.
No filing fee is required because of reliance on Section 24(f) of the Investment
Company Act of 1940, as amended.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT AS MAY BE NECESSARY TO
DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a) UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, MAY DETERMINE.
FIRST INVESTORS FUND FOR INCOME, INC.
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
Letter to Shareholders
Notice of Special Meeting
Form of Proxy
Part A - Prospectus/Proxy Statement
Part B -- Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
FIRST INVESTORS FUND FOR INCOME, INC.
FORM N-14 CROSS REFERENCE SHEET
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
- ----------- -----------------
1. Beginning of Registration Statement Cover Page
and Outside Front Cover Page of
Prospectus
2. Beginning and Outside Back Cover Page Table of Contents
of Prospectus
3. Synopsis Information and Risk Factors Synopsis; Principal Risks
4. Information About the Transaction Synopsis; Plan of Reorganization
5. Information About the Registrant Synopsis; Principal Risks; Plan of
Reorganization; Information About
the Funds
6. Information About the Company Being Synopsis; Principal Risks; Plan of
Acquired Reorganization; Information About
the Funds
7. Voting Information Voting Information
8. Interest of Certain Persons and Experts Not Applicable
9. Additional Information Required for Not Applicable
Re-offering by Persons Deemed to be
Underwriters
Part B Item No. Statement of Additional
and Caption Information Caption
- ----------- -------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information About the Investment Strategies and Risks;
Registrant Investment Policies; Investment
Restrictions; Management;
Underwriter; General Information
13. Additional Information About the Investment Strategies and Risks;
Company Being Acquired Investment Policies; Investment
Restrictions; Management;
Underwriter; General Information
14. Financial Statements Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
January 14, 2000
Dear Executive Investors Trust--High Yield Fund Shareholder:
After careful consideration, the Board of Trustees of the Executive
Investors Trust--High Yield Fund ("Executive High Yield Fund") approved a plan
to reorganize the Executive High Yield Fund into the First Investors Fund For
Income, Inc. ("Fund For Income"). The reorganization is subject to the approval
of the Executive High Yield Fund's shareholders. A shareholders' meeting has
been scheduled for February 25, 2000 at which Executive High Yield Fund
shareholders of record on January 7, 2000 will be eligible to vote either in
person or by proxy. Enclosed, you will find a notice of the meeting, a proxy
card, a proxy statement, a Fund For Income prospectus and a postage-paid return
envelope.
YOUR BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE TO APPROVE THE
REORGANIZATION. NO MATTER HOW LARGE OR SMALL YOUR INVESTMENT, YOUR VOTE IS
IMPORTANT, SO PLEASE REVIEW THE PROXY STATEMENT CAREFULLY. TO CAST YOUR VOTE,
SIMPLY MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
POSTAGE-PAID ENVELOPE TODAY. IF YOU OWN YOUR SHARES JOINTLY, BOTH OWNERS MUST
SIGN THE CARD. REMEMBER, IT CAN BE EXPENSIVE FOR THE FUND - AND ULTIMATELY FOR
YOU AS A SHAREHOLDER - TO REMAIL PROXIES IF NOT ENOUGH RESPONSES ARE RECEIVED TO
CONDUCT THE MEETING.
While we encourage you to read the enclosed materials carefully, we will
attempt to address some possible questions in this letter.
WHAT IS THE FUND FOR INCOME? The Fund For Income is a fund which is
substantially similar to the Executive High Yield Fund. It has the same
investment objectives, follows similar investment policies and strategies, and
has the same portfolio manager (effective January 1, 2000) as the Executive High
Yield Fund. However, the Fund For Income is a larger and older fund.
WHAT IS THE EFFECT ON FUND EXPENSES? Executive High Yield Fund
shareholders should benefit from a reduction in fund expenses following the
reorganization (taking into account scheduled elimination of fee waivers). The
Board determined that the reorganization would be in the best interests of the
Funds and their shareholders based upon, among other factors, the likelihood
that it would reduce expense ratios for all shareholders over the long term.
WILL THERE BE ANY TAX CONSEQUENCES? The reorganization will be done on a
tax free basis to both the Funds and the shareholders. You will receive Fund For
Income shares that have exactly the same total value as your Executive High
Yield Fund shares without owing any taxes as the result of the reorganization.
If you have any questions about the proposal, please feel free to contact
your registered representative, or call us at 1-800-423-4026.
As always, we appreciate your confidence and look forward to serving you
for many years to come.
Sincerely,
/s/ Glen O. Head
----------------
Glenn O. Head
President
Enclosures
EXECUTIVE INVESTORS TRUST
HIGH YIELD FUND
95 Wall Street, New York, New York 10005
212-858-8000
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of the
Executive Investors Trust, High Yield Fund portfolio ("Executive High Yield
Fund") will be held on February 25, 2000, at 10:00 a.m., Eastern time, at the
offices of Executive High Yield Fund, 95 Wall Street, New York, New York 10005
(the "Meeting"), and at any adjournment of the Meeting, if the Meeting is
adjourned for any reason. The Meeting will be held for the purpose of
considering and voting on the following matters:
(1) To approve an Agreement and Plan of Reorganization and Termination
under which the First Investors Fund For Income, Inc. ("Fund For Income") would
acquire all of the assets of Executive High Yield Fund in exchange solely for
shares of Fund For Income and the assumption by Fund For Income of all of
Executive High Yield Fund's liabilities, followed by the distribution of those
shares to the shareholders of Executive High Yield Fund and the termination of
Executive High Yield Fund, all as described in the accompanying Prospectus/Proxy
Statement; and
(2) To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
Shareholders of record at the close of business on January 7, 2000 are
entitled to notice of and to vote at the Meeting.
By Order of the Board of Trustees,
CONCETTA DURSO
Secretary
New York, New York
January 14, 2000
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE MEETING, PLEASE MARK, DATE, SIGN AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. IN ORDER
TO AVOID THE ADDITIONAL EXPENSE TO THE EXECUTIVE HIGH YIELD FUND OF FURTHER
SOLICITATION, WE ASK YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF FURTHER SOLICITATIONS
RETURN THE PROXY TO
Proxy Department
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
PROXY
EXECUTIVE INVESTORS TRUST-HIGH YIELD FUND
Please detach before mailing
- --------------------------------------------------------------------------------
EXECUTIVE INVESTORS TRUST - HIGH YIELD FUND Special Meeting
of Shareholders, February 25, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoint(s) as proxies Concetta Durso and Tammie Lee
each with power of substitution and hereby authorize(s) each of them to
represent and to vote all the shares shown below, held of record by the
undersigned on January 7, 2000, at the Special Meeting of Shareholders of the
Executive Investors Trust - High Yield Fund to be held on February 25, 2000, or
any adjournment thereof, with discretionary power to vote upon such other
business as may properly come before the meeting.
The undersigned hereby acknowledge(s) receipt of the Proxy Statement
prepared on behalf of the Board of Trustees. Please date and sign this proxy and
return it in the enclosed postage-paid envelop. Your Board of Trustees
recommends that you vote FOR the proposal in the Proxy Statement. Please
indicate your vote by an "X" in the appropriate box below. If you simply sign
this proxy without marking any box, this proxy shall be deemed to grant
authority to vote FOR the proposal.
1. To approve an Agreement and Plan of Reorganization and Termination between
Executive Investors Trust - High Yield Fund ("Executive High Yield") and
First Investors Fund For Income, Inc. ("Fund For Income") and the
transactions contemplated thereby, including (a) the transfer of
substantially all of the assets of Executive High Yield to Fund For Income in
exchange for Class A shares of Fund For Income, (b) the pro rata distribution
of such shares to the shareholders of Executive High Yield, and (c) complete
liquidation of Executive High Yield.
FOR / / AGAINST / / ABSTAIN / /
--------------------------------------------------
Signature Date
--------------------------------------------------
Additional Signature if held jointly Date
FIRST INVESTORS FUND FOR INCOME, INC.
95 Wall Street
New York, New York 10005
1-800-423-4026
PROSPECTUS/PROXY STATEMENT
January 14, 2000
This Prospectus/Proxy Statement ("Prospectus/Proxy") is being furnished
to shareholders of the High Yield Fund portfolio of the Executive Investors
Trust ("Executive High Yield Fund") in connection with the solicitation of
proxies by its Board of Trustees ("Board") for use at a special meeting of its
shareholders ("Meeting") to be held at the office of Executive High Yield Fund,
95 Wall Street, New York, New York on February 25, 2000, at 10:00 a.m., Eastern
time, and at any adjournment of the Meeting, if the Meeting is adjourned for any
reason.
As more fully described in this Prospectus/Proxy, the primary purpose
of the Meeting is to consider a proposed reorganization (the "Reorganization")
involving Executive High Yield Fund and First Investors Fund For Income, Inc.
("Fund For Income") (each a "Fund" and together the "Funds") and vote on an
Agreement and Plan of Reorganization and Termination by and between Executive
High Yield Fund and Fund For Income (the "Agreement"). Pursuant to the
Agreement, Fund For Income would acquire all of the assets of Executive High
Yield Fund in exchange for Class A shares of Fund For Income and the assumption
by Fund For Income of all of the liabilities of Executive High Yield Fund. Those
shares of Fund For Income would then be distributed to the shareholders of
Executive High Yield Fund, so that each shareholder of Executive High Yield Fund
would receive a number of full and fractional Class A shares of Fund For Income
having an aggregate value that, on the effective date of the Reorganization, is
equal to the aggregate net asset value of the shareholder's shares of Executive
High Yield Fund. As soon as practicable following the distribution of shares,
Executive High Yield Fund will be terminated.
Like Executive High Yield Fund, Fund For Income is an open-end
diversified management investment company. Also like Executive High Yield Fund,
the investment objective of Fund For Income is to primarily seek high current
income and secondarily to seek capital appreciation.
This Prospectus/Proxy sets forth concisely information about the
Reorganization, the Agreement and the Funds, and it should be retained for
future reference. Statements of Additional Information ("SAI"), dated January
14, 2000, relating to Fund For Income and Executive Investors Trust have been
filed with the Securities and Exchange Commission ("SEC") and are incorporated
herein by reference. Additional information about the Funds' investments is
available in the Funds' annual and semi-annual reports to shareholders. The
Shareholder Manual relating to the Funds provides more detailed information
about the purchase, redemption and sale of Fund shares.
You can get free copies of reports, the SAIs and the Shareholder
Manual, request other information and discuss your questions about the Funds by
contacting the Funds at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy Fund documents (including proxy materials,
reports, Shareholder Manuals and SAIs) at the Public Reference Room of the SEC
in Washington, D.C. You can also obtain copies of Fund documents after paying a
duplicating fee (i) by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102 or (ii) by electronic request at publicinfo@sec.gov.
You can obtain information on the operation of the Public Reference Room,
including information about duplicating fee charges, by calling (202) 942-8090.
Text-only versions of Fund documents can be viewed online or downloaded from the
EDGAR database on the SEC's Internet website at http://www.sec.gov.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THE FUND FOR INCOME SHARES OR DETERMINED WHETHER THIS PROSPECTUS/PROXY STATEMENT
IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
2
Table of Contents
Page
I. Synopsis..............................................................4
II. Principal Risks.......................................................4
III. Plan of Reorganization................................................5
IV. Voting Information....................................................9
V. Information About the Funds..........................................10
VI. Other Information....................................................23
VII. Financial Highlights.................................................25
Appendix A: Agreement and Plan of Reorganization and Termination.............A-1
Appendix B: Narrative review of Fund For Income's performance
(as of September 30, 1999).........................................B-1
3
I. SYNOPSIS
Pursuant to the Agreement, Fund For Income will acquire the assets of
Executive High Yield Fund in exchange for Class A shares of Fund For Income and
the assumption by Fund For Income of Executive High Yield Fund's liabilities.
Executive High Yield Fund will distribute the shares of Fund For Income to its
shareholders, and Executive High Yield Fund will be liquidated. Shareholders of
Executive High Yield Fund will receive corresponding Class A shares of Fund For
Income.
The Reorganization is designed to be a tax-free reorganization under
the Internal Revenue Code of 1986, as amended ("Code"). This means that (1)
neither Executive High Yield Fund nor its shareholders will recognize gain or
loss with respect to the Reorganization, and (2) Fund For Income and
shareholders of Executive High Yield Fund, respectively, will have carryover
basis and holding periods with respect to the assets and shares, respectively,
that each will receive pursuant to the Reorganization.
Executive High Yield Fund and Fund For Income are substantially
similar. They share a common Board of Directors/Trustees and have the same
investment objectives. The primary service providers to the Funds, though
different legal entities, are essentially identical, including the Funds'
investment adviser and underwriter. These entities share the same offices and
staff, and the same research and support services. At the present time, the two
Funds follow identical investment management styles. The Funds also have similar
procedures with respect to purchase and redemption of shares, and exchange
rights.
Each Fund's investment objective is to seek primarily high current
income and secondarily capital appreciation. Each Fund invests primarily in high
yield, below-investment grade corporate bonds (commonly referred to as "high
yield bonds" or "junk bonds"). Each Fund diversifies its investments among bonds
of many different companies and industries. While each Fund invests primarily in
domestic companies, each Fund may invest in securities of issuers domiciled in
foreign countries.
II. PRINCIPAL RISKS
The principal risks of investing in the Fund For Income and Executive
High Yield Fund are identical. First, the value of each Fund's shares could
decline as a result of a deterioration of the financial condition of an issuer
of bonds owned by the Fund or as a result of a default by the issuer. This is
known as credit risk. High yield bonds carry higher credit risks than investment
grade bonds because the companies that issue them are not as strong financially
as companies with investment grade credit ratings. High yield bonds issued by
foreign companies are subject to additional risks including currency
fluctuations, political instability, government regulation, unfavorable
political or legal developments, differences in financial reporting standards
and less stringent regulation for foreign securities markets. Second, the value
of each Fund's shares could decline if the entire high yield bond market were to
decline, even if none of a Fund's bond holdings were at risk of a default. The
4
high yield market can experience sharp declines at times as the result of a
deterioration in the overall economy, declines in the stock market, a change of
investor tolerance for risk, or other factors. Third, high yield bonds tend to
be less liquid than other bonds, which means that they are more difficult to
sell. Fourth, while high yield bonds are generally less interest rate sensitive
than higher quality bonds, their values generally will decline when interest
rates rise. Fluctuations in the prices of high yield bonds can be substantial.
Accordingly, the value of your investment in the Fund will go up and down, which
means that you could lose money.
III. PLAN OF REORGANIZATION
Pursuant to the Agreement, Fund For Income will acquire the assets of
Executive High Yield Fund in exchange for Class A shares of beneficial interest
in Fund For Income and the assumption by Fund For Income of Executive High Yield
Fund's liabilities. Executive High Yield Fund will distribute the shares of Fund
For Income to its shareholders, and Executive High Yield Fund will be
liquidated. The exchange of Executive High Yield Fund assets for Fund For Income
shares will be at their respective net asset values, determined in the manner
used by each Fund to value its assets and its share price. Thus, each Executive
High Yield Fund shareholder will receive pro rata the number of full and
fractional Fund For Income Class A shares having an aggregate value equal to the
value of his or her Executive High Yield Fund shares.
As a condition of the Reorganization, the Funds will receive an opinion
of its counsel, Kirkpatrick & Lockhart LLP, to the effect that the
Reorganization will constitute a tax-free reorganization within the meaning of
section 368(a)(1)(C) of the Code. This means that (1) no gain or loss will be
recognized to either Fund on the transfer of Executive High Yield Fund's assets
to the Fund For Income, (2) Fund For Income's basis and holding period for those
assets will be the same as Executive High Yield Fund's basis and holding period
immediately prior to the reorganization, (3) no gain or loss will be recognized
to Executive High Yield Fund shareholders on their receipt of Fund For Income
shares, and (4) Executive High Yield Fund shareholders' basis and holding
periods for Fund For Income shares will be the same as the basis for their
Executive High Yield Fund shares immediately prior to the reorganization.
Shareholders of the Funds should consult their tax advisers regarding
the effect, if any, of the Reorganization in light of their individual
circumstances. Because the foregoing discussion only relates to federal income
tax consequences of the Reorganization, those shareholders also should consult
their tax advisers about state and local tax consequences, if any, of the
Reorganization.
The Reorganization will occur as of the close of business on March 14,
2000, or at a later date when the conditions to the closing are satisfied
("Closing Date").
The assets of Executive High Yield Fund to be acquired by Fund For
Income include all cash, cash equivalents, securities, receivables, claims and
rights of action, rights to register shares under applicable securities laws,
books and records, deferred and prepaid expenses shown as assets on Executive
High Yield Fund's books and all other property owned by Executive High Yield
5
Fund. Fund For Income will assume from Executive High Yield Fund all
liabilities, debts, obligations and duties of Executive High Yield Fund of
whatever kind or nature; provided, however, that Executive High Yield Fund will
use its best efforts to discharge all of its known debts, liabilities,
obligations and duties before the Closing Date. Fund For Income will deliver its
shares to Executive High Yield Fund, which will distribute the shares to
Executive High Yield Fund's shareholders. The shares will be distributed by
opening accounts on the books of Fund For Income in the names of Executive High
Yield Fund shareholders and by transferring to those accounts the shares
previously credited to the account of Executive High Yield Fund on those books.
Fractional shares in Fund For Income will be rounded to the third decimal place.
The value of Executive High Yield Fund's net assets to be acquired by
Fund For Income and the net asset value ("NAV") per share of the shares of Fund
For Income to be exchanged for those assets will be determined as of the close
of regular trading on the New York Stock Exchange on the Closing Date
("Valuation Time"), using the valuation procedures described in each Fund's
then-current Prospectus and Statement of Additional Information. Executive High
Yield Fund's net value shall be the value of its assets to be acquired by Fund
For Income, less the amount of Executive High Yield Fund's liabilities, as of
the Valuation Time.
The Class A shares of Fund For Income to be received by Executive High
Yield Fund shareholders are identical to Executive High Yield Fund shares,
except for sales charges and Rule 12b-1 plans. Fund For Income Class A shares
have a higher maximum initial sales charge but a lower maximum Rule 12b-1 fee,
which is adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended ("1940 Act"). Class B shares of Fund For Income are sold at
NAV, without any initial sales load, but are subject to a contingent deferred
sales charge ("CDSC") if they are redeemed within certain designated time
periods.
As indicated above, the investment objectives and policies of the two
Funds are the same. Based on its review of the investment portfolios of each
Fund, each Fund's investment adviser believes that all of the assets held by
Executive High Yield Fund will be consistent with the investment policies of
Fund For Income and thus can be transferred to and held by Fund For Income if
the proposed Reorganization is approved.
On or before the Closing Date, Executive High Yield Fund will declare
as a distribution substantially all of its net investment income and realized
net capital gain, if any, and distribute that amount plus any previously
declared but unpaid dividends, in order to continue to maintain its tax status
as a regulated investment company.
Executive High Yield Fund and Fund For Income have each agreed to share
Reorganization expenses, in proportion to the total net assets of each Fund
because, in the opinion of their respective Boards, the reasonable expectation
of the cost savings and added efficiency to a unified fund will in the long term
accrue as a benefit to the shareholders of both Funds. All such expenses to be
assumed by the Funds are customary and appropriate to the transaction in
question, and it is anticipated that these fees shall be reasonable in amount
and not out of the ordinary. Such expenses include the fees and disbursements of
attorneys, printing, proxy solicitation, registration fees, any state stock
transfer stamps and taxes required in connection with the transfer of portfolio
6
securities from Executive High Yield Fund to Fund For Income, and the transfer
of shares of Fund For Income to Executive High Yield Fund, and the expenses of
liquidation.
At a meeting of the Board of the Funds held on October 21, 1999, the
Board, including its directors/trustees who are not "interested persons" as that
term is defined in the 1940 Act ("Independent Directors"), considered the merits
of the proposed Reorganization and voted to approve the Agreement (which is
substantially summarized herein), and the distribution to Executive High Yield
Fund shareholders of this Prospectus/Proxy seeking approval of the Agreement.
(This summary of the Agreement, and any other discussion of the Agreement
contained herein, is subject to the terms and conditions of the actual
Agreement, attached hereto as Appendix A.) The Board, including the Independent
Directors, found the proposed Reorganization to be in the best interests of each
respective Fund's shareholders and determined that the combination of the assets
of Executive High Yield Fund and Fund For Income would best serve the
shareholders of both Funds. The combination should result in a reduction of
certain expenses, lower overall expense ratios (assuming any fee waivers and/or
expense assumptions for Executive High Yield Fund are discontinued, as is
currently planned) and, thus, a reduction in the per share expenses applicable
to shareholders, including those of Executive High Yield Fund.
The Board of Trustees of Executive High Yield Fund has scheduled a
Special Meeting of its shareholders which will be held at the office of
Executive High Yield Fund, 95 Wall Street, New York, New York on February 25,
2000 at 10:00 a.m., Eastern time, or any adjournment thereof, to consider and
approve or disapprove the Agreement.
In approving the Agreement, the Boards of the Funds considered, among
other factors, the objectives and policies of each Fund, the assets and
liabilities of each Fund, the operations of the business and management of the
two Funds, the prospects of each Fund individually and combined, and the
fairness to the respective shareholders of each Fund as a result of the exchange
of shares being done on a net asset value basis. The Boards have determined that
participation in the transaction is in the best interests of the Funds and the
interests of existing shareholders of the Funds will not be diluted as a result
of the transaction. In connection with their approval of the proposed
Reorganization, and in making the necessary determination prior to such
approval, the Boards of the Funds reviewed all pertinent information and
discussed all relevant issues. In approving the proposed Reorganization, the
Boards of the Funds specifically considered the following factors:
A. COMMONALITY OF INVESTMENT OBJECTIVES AND POLICIES
The Funds have identical investment objectives and identical management
styles. Each Fund seeks high current income and secondarily capital
appreciation. Each Fund seeks to achieve its respective investment objectives by
primarily investing in a diversified portfolio of high yield, below investment
grade corporate bonds. In selecting investments, both Funds attempt to invest in
bonds that have stable to improving credit quality and potential for capital
appreciation because of a credit rating upgrade or an improvement in the outlook
for a particular company, industry or the economy as a whole.
7
B. GREATER PORTFOLIO DIVERSIFICATION
The Reorganization should result in a combined Fund holding a slightly
larger number of individual portfolio investments. This should result in
somewhat greater diversification and potentially better investment performance
over a broader range of market conditions.
C. REDUCED EXPENSE RATIO
The Reorganization should result in a lower expense ratio not only for
the current shareholders of the Executive High Yield Fund (assuming any fee
waivers and/or expense assumptions for Executive High Yield Fund are
discontinued, as is currently planned), but for all shareholders of the combined
Fund, for three reasons. First, shareholders of Executive High Yield Fund will
be subject to lower 12b-1 as a result of the Reorganization. Second, the
combined Fund will have a larger asset base over which to spread other fees and
expenses than the Funds standing alone. Third, the combination of the Funds will
eliminate duplicative legal and auditor's fees, printing costs and certain
registration fees.
D. TAX CONSIDERATIONS
The consummation of the proposed Reorganization is contingent upon
receipt of an opinion of counsel that no gain or loss for federal income tax
purposes will be recognized as a result of the proposed transaction. In
contrast, if the Executive High Yield Fund were to liquidate and shareholders
were to receive the net asset value of their shares in liquidating
distributions, gain or loss would be recognized for Federal income tax purposes.
E. CONTINUITY OF SALES REPRESENTATIVE SERVICES
The Reorganization should not result in any change which would prevent
existing sales representatives for substantially all Executive High Yield Fund
shareholders from continuing to service the shareholders following the
Reorganization.
F. SHAREHOLDER SERVICES
The First Investors group of mutual funds and the Executive Investors
group of mutual funds currently provide the same range of services to their
shareholders. With the consolidation of the operations of the Funds, the Board
anticipates that the services provided to shareholders may be done more
efficiently.
The consummation of the Reorganization is subject to a number of
conditions set forth in the Agreement, some of which may be waived by either
Fund. In addition, the Agreement may be amended in any mutually agreeable
manner, except that no amendment may be made subsequent to the Meeting that has
a material adverse effect on the interests of the shareholders of the Funds.
8
III. VOTING INFORMATION
Proxy materials will be mailed to shareholders of Executive High Yield
Fund beginning on or about January 14, 2000. Holders of record of shares of
beneficial interest ("Shares") of Executive High Yield Fund at the close of
business on January 7, 2000 (the "Record Date") will be entitled to one vote per
Share on all business of the Meeting on which they are entitled to vote and any
adjournment or adjournments thereof. On the Record Date, there were outstanding
and entitled to vote 2,177,119.775 Shares of Executive High Yield Fund. This
solicitation of proxies is made by the Board of Executive High Yield Fund on
behalf of the Fund.
The holders of a majority of the Executive High Yield Fund's Shares
outstanding on the Record Date, represented in person or by proxy, must be
present to form a quorum for the transaction of business at the Meeting. In the
event that a quorum is present at the Meeting but sufficient votes to approve
the proposed Reorganization are not received, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies. Any such adjournments will require the affirmative vote of a
majority of those Fund Shares represented at the Meeting in person or by proxy.
If a quorum is present, the persons named as proxies will vote those proxies
that they are entitled to vote FOR any such proposal in favor of an adjournment
and will vote those proxies required to be voted AGAINST any such proposal
against such adjournment.
Abstentions and broker non-votes will be counted as Shares present for
determining whether a quorum is present, but will not be counted for or against
any adjournment. Accordingly, abstentions and broker non-votes effectively will
be a vote against adjournment. Broker non-votes are Shares held by a broker or
nominee as to which instructions have not been received from the beneficial
owners or persons entitled to vote, and the broker or nominee does not have
discretionary voting power. Abstentions and broker non-votes will not be
counted, however, as votes cast for purposes of determining whether sufficient
votes have been received to approve the proposed Reorganization.
All valid proxies received prior to the Meeting, or any adjournments
thereof, will be voted at the Meeting. All proxies will be voted in accordance
with the instructions of the shareholder. If no instruction is specified the
proxies will be voted FOR the matters set forth in the accompanying Notice of
Special Meeting of Shareholders and the persons named as proxies will use their
best judgment in connection with the transaction of such other business as may
properly come before the Meeting or any adjournments thereof. A shareholder who
executes a proxy retains the right to revoke it at any time insofar as it has
not been exercised. A proxy may be revoked by the subsequent execution and
submission of a revised proxy, by written notice of revocation to the secretary
of the Fund, or by voting in person at the Meeting.
The following persons are known to Executive High Yield Fund to own of
record or beneficially more than 5% of its shares as of December 27, 1999:
9
Shareholder % of Shares
- ----------- -----------
First Clearing Corporation owned of record
10700 Wheat First Drive 6.99%
Glen Allen, V 23060
First Clearing Corporation would have owned of record 0.27% of the
combined Fund, if the Funds had been combined on that date.
The trustees and officers of Executive High Yield Fund, as a group, own
less than 1% of the shares of that Fund, and the directors and officers of Fund
For Income, as a group, own less than 1% of either Class A or Class B shares of
that Fund.
VOTE REQUIRED
The favorable vote of the holders of a majority of the Shares of the
Executive High Yield Fund present at the Meeting in person or by proxy is
required to approve the proposed Reorganization.
RECOMMENDATION OF THE TRUSTEES
The Board of Trustees of Executive High Yield Fund have concluded that
the proposed Reorganization may benefit the Fund and its shareholders. Thus, the
Trustees recommend voting FOR the proposed Reorganization.
OTHER MATTERS
The Board of Trustees is not aware of any matters to be presented for
action at the Meeting other than those set forth in this Prospectus/Proxy. If
any other business should come before the Meeting, the persons named in the
accompanying proxy will vote thereon in accordance with their best judgment.
METHOD AND EXPENSE OF SOLICITATION
The cost of preparing, assembling and mailing the proxy materials will
be borne by the Funds in proportion to the total net assets of each Fund
determined as of the Closing Date. In addition to the solicitation of proxies by
the use of the mails, the Executive High Yield Fund may, if necessary to obtain
the requisite representation of shareholders, solicit proxies by telephone,
telegraph and personal interview by employees of First Investors Corporation or
Executive Investors Corporation and any of their affiliates, or through
securities dealers. While there is no current intent to do so, the Trustees have
authorized the officers of the Executive High Yield Fund to retain the services
of a proxy soliciting firm if the officers determine that it is appropriate to
do so. The cost of soliciting proxies, including reimbursement to dealers and
10
others who forward proxy material to their clients, will be borne by the Funds
in proportion to the total net assets of each Fund determined as of the Closing
Date.
IV. INFORMATION ABOUT THE FUNDS
OVERVIEW OF THE FUNDS
WHAT ARE THE INVESTMENT OBJECTIVES, PRIMARY INVESTMENT STRATEGIES
AND RISKS OF THE FUNDS?
The investment objectives, primary investment strategies and risks of
both Funds are the same. Each Fund primarily seeks high current income and
secondarily seeks capital appreciation.
Each Fund primarily invests in a diversified portfolio of high-yield,
below-investment grade corporate bonds (commonly known as "junk bonds"). These
bonds provide a higher level of income than investment grade bonds because they
have a higher risk of default. The Funds seek to reduce the risk of a default by
selecting bonds through careful credit research and analysis. The Funds seek to
reduce the impact of a default by diversifying its investments among bonds of
many different companies and industries. While the Funds invest primarily in
domestic companies, they also invest in securities of issuers domiciled in
foreign countries. These securities will generally be dollar-denominated and
traded in the U.S. The Funds seek to achieve capital appreciation by investing
in high yield bonds with stable to improving credit conditions.
There are four primary risks of investing in the Funds. First, the
value of each Fund's shares could decline as a result of a deterioration of the
financial condition of an issuer of bonds owned by a Fund or as a result of a
default by the issuer. This is known as credit risk. High yield bonds carry
higher credit risks than investment grade bonds because the companies that issue
them are not as strong financially as companies with investment grade credit
ratings. High yield bonds issued by foreign companies are subject to additional
risks including currency fluctuations, political instability, government
regulation, unfavorable political or legal developments, differences in
financial reporting standards and less stringent regulation of foreign
securities markets. Second, the value of each Fund's shares could decline if the
entire high yield bond market were to decline, even if none of a Fund's bond
holdings were at risk of a default. The high yield market can experience sharp
declines at times as the result of a deterioration in the overall economy,
declines in the stock market, a change of investor tolerance for risk, or other
factors. Third, high yield bonds tend to be less liquid than other bonds, which
means that they are more difficult to sell. Fourth, while high yield bonds are
generally less interest rate sensitive than higher quality bonds, their values
generally will decline when interest rates rise. Fluctuations in the prices of
high yield bonds can be substantial. Accordingly, the value of your investment
in a Fund will go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUNDS IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
12
HOW HAVE THE FUNDS PERFORMED?
FUND FOR INCOME
The bar chart and table below show you how the Fund For Income's
performance has varied from year to year and in comparison with a broad-based
index. This information gives you some indication of the risks of investing in
the Fund.
The Fund has two classes of shares, Class A shares and Class B shares.
The bar chart shows changes in the performance of the Fund's Class A shares for
each of the last ten calendar years. The performance of Class B shares differs
from the performance of Class A shares shown in the bar chart only to the extent
that it does not have the same expenses. The bar chart does not reflect sales
charges that you may pay upon purchase or redemption of Fund shares. If they
were included, the returns would be less than those shown.
[BAR CHART]
During the periods shown, the highest quarterly return was 14.74% (for
the quarter ended March 31, 1991) and the lowest quarterly return was -8.75%
(for the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for
Class A shares and Class B shares compare to those of the Credit Suisse First
Boston High Yield Index ("High Yield Index") as of December 31, 1999. This table
assumes that the maximum sales charge or CDSC was paid. The High Yield Index is
designed to measure the performance of the high yield bond market. The High
Yield Index does not take into account fees and expenses that an investor would
incur in holding the securities in the Index. If it did so, the returns would be
lower than those shown.
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
-------- -------- --------- --------------
Class A Shares -3.16% 8.69% 9.52% N/A
Class B Shares -1.54% N/A N/A 9.03%
High Yield Index 2.26% 8.86% 10.95% 8.86%**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 1/1/95 to 12/31/99.
Executive High Yield Fund
The bar chart and table below show you how the Executive High Yield
Fund's performance has varied from year to year and in comparison with a
broad-based index. This information gives you some indication of the risks of
investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares for
each of the last ten calendar years. The bar chart does not reflect sales
charges that you may pay upon purchase or redemption of Fund shares. If they
were included, the returns would be less than those shown.
[BAR CHART]
During the periods shown, the highest quarterly return was 12.03% (for
the quarter ended March 31, 1991), and the lowest quarterly return was -9.09%%
(for the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the
Fund's shares compare to those of the High Yield Index as of December 31, 1999.
This table assumes that the maximum sales charge was paid. The High Yield Index
13
is designed to measure the performance of the high-yield bond market. The High
Yield Index does not take into account fees and expenses that an investor would
incur in holding the securities in the Index. If it did so, the returns would be
lower than those shown.
1 Year* 5 Years* 10 Years*
------- -------- ---------
Executive High Yield Fund 1.09% 9.10% 9.26%
High Yield Index 2.26% 8.86% 10.95%
*The annual returns are based upon calendar years.
WHAT ARE THE FEES, EXPENSES AND CAPITALIZATION OF THE FUNDS?
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Funds. The shareholder fees are the same for the Fund For
Income and the surviving fund after the Reorganization ("Combined Fund"). THERE
WILL BE NO SHAREHOLDER FEES CHARGED IN CONNECTION WITH THE REORGANIZATION. In
addition, Executive High Yield Fund shareholders who become shareholders of the
combined Fund as a result of the Reorganization and who subsequently decide to
purchase additional shares of Fund For Income will be charged the same sales
charge (if lower) that they would have paid under the Executive High Yield Fund
sales charge schedule. For additional information, see the subsection labeled
"What are the sales charges and expenses for shares?"
Class A Class B
Shares Shares
------- -------
Shareholder fees - Fund For Income
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)............. 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)...................... None* 4%**
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
SHAREHOLDER FEES - EXECUTIVE HIGH YIELD FUND
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)............. 4.75%
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)...................... None*
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of the Fund's shares that are purchased without a sales charge.
14
Class A Class B
Shares Shares
------- -------
SHAREHOLDER FEES - FUND FOR INCOME PRO FORMA
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)................. 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)........................... None* 4%**
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
The following table shows the current fees and expenses a shareholder may
pay with respect to Fund For Income and Executive High Yield Fund, and PRO FORMA
fees and expenses for the Fund For Income after giving effect to the
Reorganization.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Distribution Total
and Service Annual Fund Fee Net
Management (12b-1) Other Operating Waiver( 1), Expenses
Fees(1) Fees(2) Expenses(3) Expenses(3) (2) (1), (2),(3)
-------- -------- ----------- ------------ ------------ -------------
Fund For Income 0.74% 0.30% 0.25% 1.29% 0.00% 1.29%
Class A Shares 0.74% 1.00% 0.25% 1.99% 0.00% 1.99%
Class B Shares
Executive High Yield Fund 1.00% 0.50% 0.26% 1.76% 0.60% 1.16%
Fund For Income
pro forma
Class A Shares 0.74% 0.30% 0.25% 1.29% 0.00% 1.29%
Class B Shares 0.74% 1.00% 0.25% 1.99% 0.00% 1.99%
(1) For the fiscal year ended December 31, 1999, the Adviser waived Management
Fees in excess of 0.50% for the Executive High Yield Fund. The Adviser has
contractually agreed with the Executive High Yield Fund to waive Management Fees
in excess of 0.50% until April 30, 2000.
(2) For the fiscal year ended December 31, 1999, the Adviser waive 12b-1 Fees in
excess of 0.40% for the Executive High Yield Fund. The Adviser has contractually
agreed to waive 12b-1 Fees in excess of .040% until April 30, 2000. Because each
Fund pays Rule 12b-1 fees, long-term shareholders could pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
(3) Each Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual Fund
Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in Executive
High Yield Fund with the cost of investing in Fund For Income and the cost of
investing in the Combined Fund assuming the Reorganization has been completed.
The example assumes that (1) you invest $10,000 in the specified Fund for the
time periods indicated; (2) your investment has a 5% return each year; and (3)
the Fund's operating expenses remain the same, except for year one which is net
15
of any fees waived and/or expenses assumed. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
IF YOU REDEEM YOUR SHARES:
FUND FOR INCOME
Class A shares $748 $1,008 $1,288 $2,084
Class B shares $602 $924 $1,273 $2,136*
EXECUTIVE HIGH YIELD FUND $588 $947 $1,330 $2,402
FUND FOR INCOME PRO FORMA
Class A shares $748 $1,008 $1,288 $2,084
Class B shares $602 $924 $1,273 $2,136*
IF YOU DO NOT REDEEM YOUR SHARES:
FUND FOR INCOME
Class A shares $748 $1,008 $1,288 $2,084
Class B shares $202 $624 $1,073 $2,136*
EXECUTIVE HIGH YIELD FUND $588 $947 $1,330 $2,402
Fund For Income pro forma
Class A shares $748 $1,008 $1,288 $2,084
Class B shares $202 $624 $1,073 $2,136*
*Assumes conversion to Class A shares eight years after purchase.
CAPITALIZATION
The following table shows the capitalization of Fund For Income and
Executive High Yield Fund as of December 27, 1999, and on a pro forma combined
basis (unaudited) as of December 27, 1999 after giving effect to the
Reorganization:
Class A Executive Fund For Class B Executive Fund For
Fund For High Yield Income Fund For High Yield Income
Income Fund (Pro Forma) Income Fund (Pro Forma)
-------- ---------- -------------- ------------ ---------- ------------
Net Assets................... $388,252,696 $15,863,098 $404,115,794 $14,754,325 N/A $14,754,325
Net Asset Value Per Share.... $3.93 $7.21 $3.93 $3.92 N/A $3.92
Shares Outstanding........... 98,725,095 2,201,584 102,758,772 3,765,777 N/A 3,765,777
16
THE FUNDS IN DETAIL
WHAT ARE THE FUNDS' OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RISKS?
OBJECTIVES: Each Fund primarily seeks high current income and secondarily seeks
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: Each Fund primarily invests in a diversified
portfolio of high-yield, below-investment grade corporate bonds commonly known
as "junk bonds" (those rated below Baa by Moody's Investors Service, Inc. or
below BBB by Standard & Poor's Ratings Group). High yield bonds generally
provide higher income than investment grade bonds to compensate investors for
their higher risk of default (i.e., failure to make required interest or
principal payments). High-yield bond issuers include small or relatively new
companies lacking the history or capital to merit investment grade status,
former Blue Chip companies downgraded because of financial problems, companies
using debt rather than equity to fund capital investment or spending programs,
companies electing to borrow heavily to finance or avoid a takeover or buyout,
and firms with heavy debt loads. Each Fund's portfolio may include zero coupon
bonds and pay in kind bonds. While each Fund invests primarily in domestic
companies, it also invests in securities of issuers domiciled in foreign
countries. These securities will generally be dollar-denominated and traded in
the U.S. Each Fund seeks to reduce the risk of a default by selecting bonds
through careful credit research and analysis. Each Fund seeks to reduce the
impact of a potential default by diversifying its investments among bonds of
many different companies and industries. Each Fund attempts to invest in bonds
that have stable to improving credit quality and potential for capital
appreciation because of a credit rating upgrade or an improvement in the outlook
for a particular company, industry or the economy as a whole.
Although each Fund will consider ratings assigned by ratings agencies
in selecting high yield bonds, they rely principally on their own research and
investment analysis. Each Fund considers a variety of factors, including the
issuer's managerial strength, anticipated cash flow, debt maturity schedules,
borrowing requirements, interest or dividend coverage, asset coverage and
earnings prospects. The Funds will usually sell a bond when it shows
deteriorating fundamentals or falls short of the portfolio manager's
expectations.
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of owning the Funds:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
17
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds.
While credit ratings may be available to assist in evaluating an issuer's credit
quality, they may not accurately predict an issuer's ability to make timely
payments of principal and interest.
MARKET RISK: The entire junk bond market can experience sharp price swings due
to a variety of factors, including changes in economic forecasts, stock market
volatility, large sustained sales of junk bonds by major investors, high-profile
defaults, or changes in the market's psychology. This degree of volatility in
the high yield market is usually associated more with stocks than bonds. The
prices of high yield bonds held by the Fund could therefore decline, regardless
of the financial condition of the issuers of such bonds. Markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when prices generally go down, referred to as "bear" markets.
LIQUIDITY RISK: High yield bonds tend to be less liquid than higher quality
bonds, meaning that it may be difficult to sell high yield bonds at a reasonable
price, particularly if there is a deterioration in the economy or in the
financial prospects of their issuers. As a result, the prices of high yield
bonds may be subject to wide price fluctuations due to liquidity concerns.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
and when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
FOREIGN ISSUERS: Foreign investments involve additional risks, including
currency fluctuations, political instability, government regulation, unfavorable
political or legal developments, differences in financial reporting standards
and less stringent regulations of foreign securities markets.
FUND MANAGEMENT
First Investors Management Company, Inc. ("FIMCO") is the investment
adviser to the Fund For Income. Its address is 95 Wall Street, New York, NY
10005. It currently serves as investment adviser to 52 mutual funds or series of
funds with total net assets of over $5 billion. FIMCO supervises all aspects of
the Fund For Income's operations and determines the Fund's portfolio
transactions. For the fiscal year ended September 30, 1999, FIMCO received
advisory fees of 0.74% of the Fund For Income's average daily net assets.
Executive Investors Management Company, Inc. ("EIMCO") is the
investment adviser to the Executive High Yield Fund. EIMCO's address is the same
as FIMCO's address. EIMCO currently is investment adviser to three mutual funds
or series of funds with total net assets of approximately $40 million. EIMCO
supervises all aspects of the Executive High Yield Fund's operations and
determines the Fund's portfolio transactions. For the fiscal year ended December
31, 1999, EIMCO received advisory fees of 0.50% of the Executive High Yield
18
Fund's average daily net assets, net of waiver.
FIMCO and EIMCO share the same management, staff, offices and research
and support services. They are both wholly owned subsidiaries of First Investors
Consolidated Corporation.
Following the Reorganization, the management fee for the Combined Fund
is expected to be 0.74% of the Fund's average daily net assets. FIMCO will have
the responsibility of managing the Fund's combined assets following the
Reorganization. In addition, the directors and officers of Fund For Income, its
distributor, administrator and other service providers will serve the Combined
Fund in their current capacities.
Nancy Jones serves as Portfolio Manager of the Fund For Income and
since January 1, 2000 has served as Portfolio Manager of the Executive High
Yield Fund. Ms. Jones also serves as Portfolio Manager of certain other First
Investors Funds. Ms. Jones joined FIMCO in 1983 as a Director of Research in the
High Yield Department. Prior to January 1, 2000, George V. Ganter served as
Portfolio Manager of the Executive High Yield Fund. Mr. Ganter also serves as
Portfolio Manager of another First Investors Fund. Mr. Ganter joined FIMCO in
1985 as a Senior Investment Analyst. It is expected that Ms. Jones will serve as
portfolio manager of the Combined Fund following the Reorganization.
BUYING AND SELLING SHARES
HOW AND WHEN DO THE FUNDS PRICE THEIR SHARES?
The share price (which is called "net asset value" or "NAV" per share)
for the Funds is calculated once each day as of 4:00 p.m., Eastern time, on each
day the New York Stock Exchange ("NYSE") is open for regular trading. The NYSE
is closed on most national holidays and Good Friday. In the event that the NYSE
closes early, the share price will be determined as of the time of the closing.
To calculate the NAV, each Fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. The prices or NAVs of Class A shares and Class
B shares will generally differ because they have different expenses.
In valuing its assets, the Funds use the market value of securities for
which market quotations or last sale prices are readily available. If there are
no readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of the Funds.
HOW DO I BUY SHARES?
In connection with the Reorganization, Executive High Yield Fund
19
shareholders will receive Class A shares of Fund For Income. With respect to
purchases of Fund shares separate and apart from the Reorganization, you may buy
shares of the Fund For Income or the Executive High Yield Fund through a First
Investors registered representative or through a registered representative of an
authorized broker-dealer ("Representative"). Investments in the Funds may be
made in any amount.
If we receive your order in our Woodbridge, N.J. offices prior to the
close of regular trading on the NYSE, your transaction will be priced at that
day's NAV. If you place your order with your Representative prior to the close
of regular trading on the NYSE, your transaction will also be priced at that
day's NAV provided that your Representative transmits the order to our
Woodbridge, N.J. offices by 5:00 p.m., Eastern time. Orders placed after the
close of regular trading on the NYSE will be priced at the next business day's
NAV. The procedures for processing transactions are explained in more detail in
our Shareholder Manual which is available upon request.
You can arrange to make systematic investments electronically from your
bank account or through payroll deduction. All the various ways you can buy
shares are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
Each Fund reserves the right to refuse any order to buy shares if a
Fund determines that doing so would be in the best interests of the Fund and its
shareholders.
WHAT ARE THE SALES CHARGES AND EXPENSES FOR SHARES?
Class A shares of Fund For Income and shares of Executive High Yield
Fund are sold at the public offering price which includes a front-end sales
load. The sales charge declines with the size of your purchase, as illustrated
below. There will be no shareholder fees charged in connection with the
Reorganization.
Fund For Income Class A Shares
Your investment Sales Charge as a percentage of
offering price net amount invested
Less than $25,000 6.25% 6.67%
$25,000-$49,999 5.75 6.10
$50,000-$99,999 5.50 5.82
$100,000-$249,999 4.50 4.71
$250,000-$499,999 3.50 3.63
$500,000-$999,999 2.50 2.56
$1,000,000 or more 0* 0*
20
EXECUTIVE HIGH YIELD FUND SHARES
Your investment Sales Charge as a percentage of
-------------------------------
offering price net amount invested
Less than $100,000 4.75% 4.99%
$100,000-$249,999 3.90 4.06
$250,000-$499,999 2.90 2.99
$500,000-$999,999 2.40 2.46
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more, you will not pay a front-end sales charge.
However, if you make such an investment and then sell your shares within 24
months of purchase, you will pay a CDSC of 1.00%.
Following the Reorganization, Executive High Yield Fund shareholders
who receive Fund For Income shares will be entitled to purchase additional
shares of the Fund For Income at the same sales charge (if lower) that they
would have paid under the Executive High Yield Fund sales charge schedule. This
right applies only to purchases of additional shares of the Fund For Income and
will expire if the Fund For Income shares are completely liquidated, exchanged,
or transferred to another owner.
Each Fund has adopted a plan pursuant to Rule 12b-1 that allows the
Fund to pay distribution fees for the sale and distribution of its shares. Each
Fund pays Rule 12b-1 fees for the marketing of fund shares and for services
provided to shareholders. The Executive High Yield Fund's plan provides for
payments at annual rates (based on average daily net assets) of up to 0.50%. No
more than 0.25% of these payments may be for service fees. The Fund For Income's
plan provides for payments at annual rates (based on average daily net assets)
of up to 0.30% on Class A shares. No more than 0.25% of these payments may be
for service fees. These fees are paid monthly in arrears. Because these fees are
paid out of each Fund's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
FOR ACTUAL PAST EXPENSES OF EXECUTIVE HIGH YIELD FUND SHARES AND FUND
FOR INCOME CLASS A AND CLASS B SHARES, SEE THE SECTION ENTITLED "WHAT ARE THE
FEES, EXPENSES AND CAPITALIZATION OF THE FUNDS?" IN THIS PROSPECTUS/PROXY
STATEMENT.
HOW DO I SELL SHARES?
You may redeem your Fund shares on any day a Fund is open for business
by:
o Contacting your Representative who will place a redemption order
for you;
o Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, N.J.
07095-1198;
21
o Telephoning the Special Services Department of ADM at
1-800-342-6221 (if you have elected to have telephone privileges);
or
o Instructing us to make an electronic transfer to a predesignated
bank (if you have completed an application authorizing such
transfers).
Your redemption request will be processed at the price next computed
after we receive the request. For all requests, have your account number
available.
Payment of redemption proceeds generally will be made within 7 days. If
you are redeeming shares which you recently purchased by check, payment may be
delayed to verify that your check has cleared. This may take up to 15 days from
the date of your purchase. You may not redeem shares by telephone or Electronic
Fund Transfer unless you have owned the shares for at least 15 days.
If your account falls below the minimum account balance for any reason
other than market fluctuation, each Fund reserves the right to redeem your
account without your consent or to impose a low balance account fee of $15
annually on 60 days prior notice. Each Fund may also redeem your account or
impose a low balance account fee if you have established your account under a
systematic investment program and discontinue the program before you meet the
minimum account balance. You may avoid redemption or imposition of a fee by
purchasing additional Fund shares during this 60-day period to bring your
account balance to the required minimum. If you own Fund For Income Class B
shares, you will not be charged a CDSC on a low balance redemption.
Each Fund reserves the right to make in-kind redemptions. This means
that it could respond to a redemption request by distributing shares of the
Fund's underlying investments rather than distributing cash.
CAN I EXCHANGE MY SHARES FOR THE SHARES OF OTHER FUNDS?
You may exchange shares of Fund For Income for shares of other First
Investors Funds without paying any additional sales charge. You can only
exchange within the same class of shares (i.e., Class A to Class A). You may
exchange shares of Executive High Yield Fund for shares of other Executive
Investors Funds without paying any additional sales charge. You may also
exchange shares of Executive High Yield Fund for Class A shares of the First
Investors Funds without paying any additional sales charge; provided that, you
held your shares for at least one year from their date of purchase or acquired
your shares through an exchange from Class A shares of a First Investors Fund.
Consult your Representative or call ADM at 1-800-423-4026 for details.
Each Fund reserves the right to reject any exchange request that
appears to be part of a market timing strategy based upon the holding period of
22
the initial investment, the amount of the investment being exchanged, the funds
involved, and the background of the shareholder or dealer involved. Each Fund is
designed for long-term investment purposes. It is not intended to provide a
vehicle for short-term market timing.
ACCOUNT POLICIES
WHAT ABOUT DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS?
Each Fund will declare daily and pay on a monthly basis dividends from
net investment income. Any net realized capital gains will be declared and
distributed on an annual basis, usually after the end of each Fund's fiscal
year. Each Fund may make an additional distribution in any year if necessary to
avoid a federal excise tax on certain undistributed income and capital gain.
Dividends and other distributions paid on Class A shares of Fund For
Income and shares of Executive High Yield Fund are calculated at the same time
and in the same manner. Dividends on Class B shares of Fund For Income are
expected to be lower than those for its Class A shares because of the higher
distribution fees borne by the Class B shares. Dividends on each class also
might be affected differently by the allocation of other class-specific
expenses. In order to be eligible to receive a dividend or other distribution,
you must own Fund shares as of the close of business on the record date of the
distribution.
You may choose to reinvest all dividends and other distributions at NAV
in additional shares of the same class of a Fund or certain other First
Investors Funds, or receive all dividends and other distributions in cash. If
you do not select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of that Fund. If you do
not cash a distribution check and do not notify ADM to issue a new check within
12 months, the distribution may be reinvested in that Fund. If any
correspondence sent by a Fund is returned as "undeliverable," dividends and
other distributions automatically will be reinvested in that Fund. No interest
will be paid to you while a distribution remains uninvested.
A dividend or other distribution paid on a class of shares will only be
paid in additional shares of the distributing class if the total amount of the
distribution is under $5 or the Fund has received notice of your death (until
written alternate payment instructions and other necessary documents are
provided by your legal representative).
WHAT ABOUT TAXES?
Any dividends or capital gain distributions paid by a Fund are taxable
to you unless you hold your shares in an individual retirement account, 403(b)
account, 401(k) account, or other tax-deferred account. Dividends (including
distributions of net short-term capital gains) are taxable to you as ordinary
income. Capital gain distributions (essentially, distributions of net long-term
capital gains) by a Fund are taxed to you as long-term capital gains, regardless
of how long you owned your Fund shares. You are taxed in the same manner whether
you receive your dividends and capital gain distributions in cash or reinvest
them in additional Fund shares. Your sale or exchange of Fund shares will be
23
considered a taxable event for you. Depending on the purchase price and the
sales price of the shares you sell or exchange, you may have a gain or a loss on
the transaction. You are responsible for any tax liabilities generated by your
transactions.
HOW DO I OBTAIN A COMPLETE EXPLANATION OF ALL ACCOUNT PRIVILEGES AND POLICIES?
Each Fund offers a full range of special privileges, including special
investment programs for group retirement plans, systematic investment programs,
automatic payroll investment programs, telephone privileges, check writing
privileges, and expedited redemptions by wire order or Automated Clearing House
transfer. The full range of privileges, and related policies, are described in a
special Shareholder Manual, which you may obtain on request. For more
information on the full range of services available, please contact us directly
at 1-800-423-4026.
VI. OTHER INFORMATION
Each Fund is subject to the information requirements of the Securities
and Exchange Act of 1934 and the Investment Company Act of 1940, and in
accordance with those requirements, files reports and other information with the
SEC. These reports, proxy material and other information can be inspected and
copied at the Public Reference Room maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, and the Northeast Regional Office of the SEC,
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
A narrative review of the Fund For Income's performance, as well as a
graphical and tabular summary of performance, for the period ended September 30,
1999 are attached hereto as Appendix B. Similar information for the Executive
High Yield Fund for the period ended December 31, 1998 is incorporated by
reference from the Fund's Annual Report to shareholders, electronically filed
with the SEC on March 2, 1999, and is available upon request from the Funds
without charge.
24
V. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Funds' financial performance for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
tables represent the rate that an investor would have earned (or lost) on an
investment in each Fund (assuming reinvestment of all dividends and
distributions). The information has been audited by Tait, Weller & Baker, whose
report, along with the Funds' financial statements, are included in the SAI,
which is available upon request.
FUND FOR INCOME
-----------------------------------------------------------------------------------------
PER SHARE DATA
-----------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions from
Net Asset Net Net Realized Net
Value at Invest- and Unrealized Total from Invest- Net Total
Beginning ment Gain (Loss) on Investment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- ----------------------------------------------------------------------------------------------------------------------
CLASS A
1994(d) $4.17 $.37 $(.35) $.02 $.38 $-- $.38
1995(d) 3.81 .38 .30 .68 .36 -- .36
1996(d) 4.13 .39 .14 .53 .37 -- .37
1997(d) 4.29 .38 .14 .52 .38 -- .38
1998(a) 4.43 .29 (.26) .03 .29 -- .29
1999(e) 4.17 .40 (.27) .13 .38 -- .38
CLASS B
1995(b) $3.81 $.31 $.33 $.64 $.32 $-- $.32
1996(d) 4.13 .38 .12 .50 .35 -- .35
1997(d) 4.28 .34 .15 .49 .35 -- .35
1998(a) 4.42 .26 (.26) -- .26 -- .26
1999(e) 4.16 .37 (.27) .10 .36 -- .36
* Calculated without sales charges
+ Annualized
++ Net of expenses waived or assumed
(a) For the period January 1, 1998 to September 30, 1998
(b) For the period January 12, 1995 (date class B shares first offered) to
December 31, 1995
(d) For the calendar year ended December 31
(e) For the fiscal year ended September 30
25
- -------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Assets Before Expenses
Net Assets++ Waived or Assumed
-------------------------- --------------------------
Net Net
Net Asset Invest- Invest-
Value at Total Net Assets ment ment Portfolio
End of Return* End of Period Expenses Income Expenses Income Turnover Rate
Period (%) (in millions) (%) (%) (%) (%) (%)
- -------------------------------------------------------------------------------------------------------------------------
$3.81 .58 $401 1.22 9.34 N/A N/A 39
4.13 18.54 425 1.18 9.53 N/A N/A 33
4.29 13.40 432 1.16 9.27 N/A N/A 30
4.43 12.62 439 1.15 8.63 N/A N/A 45
4.17 .49 410 1.27+ 8.68+ N/A N/A 28
3.92 3.13 389 1.29 9.71 N/A N/A 28
$4.13 17.46 $ 2 1.92+ 8.78+ N/A N/A 33
4.28 12.51 3 1.86 8.57 N/A N/A 30
4.42 11.95 6 1.85 7.93 N/A N/A 45
4.16 (.06) 9 1.97+ 7.98+ N/A N/A 28
3.90 2.29 14 1.99 9.01 N/A N/A 28
26
Executive High Yield Fund
- --------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------------
Less Distributions
Income from Investment Operations from
-------------------------------------- -----------------------
Net Asset Net Net Realized Net
Value Invest- and Unrealized Total from Invest- Net Total
Beginning ment Gain (Loss)on Investment ment Realized Distri-
of Period Income Investments Operations Income Gain butions
- --------------------------------------------------------------------------------------------------------------------
1994....................... $7.89 $.70 $(.87) $(.17) $.74 $-- $.74
1995....................... 6.98 .70 .58 1.28 .67 -- .67
1996....................... 7.59 .72 .28 1.00 .70 -- .70
1997....................... 7.89 .68 .23 .91 .70 -- .70
1998....................... 8.10 .67 (.60) .07 .68 -- .68
1999**..................... 7.49 .35 (.21) .14 .35 -- .35
(a) Annualized
* Calculated without sales charges
** For the period January 1, 1999 to June 30, 1999
+ Net of expenses waived or assumed
27
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Assets Before Expenses
Net Assets+ Waived or Assumed
---------------------- -------------------------
Net Asset
Value Total Net Assets Net Net Portfolio
End Return* End of Period Expenses Investment Expenses Investment Turnover
of Period (%) (in millions) (%) Income (%) (%) Income (%) Rate (%)
- ------------------------------------------------------------------------------------------------------------------------------------
$6.98 (2.32) $15 1.33 9.45 1.88 8.90 53
7.59 19.08 16 1.35 9.52 1.90 8.97 69
7.89 13.69 17 1.22 9.38 1.82 8.78 27
8.10 12.03 19 1.22 8.68 1.82 8.08 49
7.49 .86 19 1.25 8.54 1.83 7.96 41
7.28 1.86 18 1.14(a) 9.14(a) 1.74(a) 8.54(a) .26
28
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of January 7, 2000, between EXECUTIVE INVESTORS TRUST, a Massachusetts
business trust ("Trust"), on behalf of High Yield Fund, a segregated portfolio
of assets ("series") thereof ("Target"), and FIRST INVESTORS FUND FOR INCOME,
INC., a Maryland corporation ("Acquiring Fund"). (Target and Acquiring Fund are
sometimes referred to herein individually as a "Fund" and collectively as the
"Funds," and Trust and Acquiring Fund are sometimes referred to herein
individually as an "Investment Company" and collectively as the "Investment
Companies.") All agreements, representations, actions, and obligations described
herein made or to be taken or undertaken by Target are made and shall be taken
or undertaken by Trust on behalf of Target.
The Investment Companies desire to effect a reorganization described in
section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code"),
and intend this Agreement to be, and adopt is as, a "plan of reorganization"
within the meaning of the regulations under the Code ("Regulations"). The
reorganization will involve the transfer to Acquiring Fund of Target's assets in
exchange solely for shares of beneficial interest ("shares") in Acquiring Fund
and the assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of those shares PRO RATA to the holders of shares in
Target ("Target Shares") in exchange therefor, all on the terms and conditions
set forth herein. The foregoing transactions are referred to herein collectively
as the "Reorganization."
Acquiring Fund's shares are divided into two classes, designated Class A
and Class B shares; only Acquiring Fund's Class A shares ("Acquiring Fund
Shares") are involved in the Reorganization. Target has only a single class of
shares, which are similar to the Acquiring Fund shares.
In consideration of the mutual promises contained herein, the parties
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund.
Acquiring Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and fractional
(rounded to the third decimal place) Acquiring Fund Shares determined by
dividing the net value of Target (computed as set forth in paragraph 2.1)
attributable to the Target Shares by the net asset value ("NAV") of an
Acquiring Fund Share (computed as set forth in paragraph 2.2), and
(b) to assume all of Target's liabilities described in paragraph 1.3
("Liabilities"). Such transactions shall take place at the Closing (as
defined in paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement.
Notwithstanding the foregoing, Target agrees to use its best efforts to
discharge all its known Liabilities before the Effective Time.
1.4. At or immediately before the Effective Time, Target shall declare and
pay to its shareholders a dividend and/or other distribution in an amount large
enough so that it will have distributed substantially all (and in any event not
less than 90%) of its investment company taxable income (computed without regard
to any deduction for dividends paid) and substantially all of its realized net
capital gain, if any, for its current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall distribute the Acquiring Fund Shares received by it
pursuant to paragraph 1.1 to its shareholders of record, determined as of the
Effective Time (each a "Shareholder" and collectively "Shareholders"), in
constructive exchange for their Target Shares. Such distribution shall be
accomplished by Acquiring Fund's transfer agent's opening accounts on Acquiring
Fund's share transfer books in the Shareholders' names and transferring such
Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with
the respective PRO RATA number of full and fractional (rounded to the third
decimal place) Acquiring Fund Shares due that Shareholder. All outstanding
Target Shares, including any represented by certificates, shall simultaneously
be canceled on Target's share transfer books. Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares issued in connection with
the Reorganization.
1.6. As soon as reasonably practicable after distribution of the Acquiring
Fund Shares pursuant to paragraph 1.5, but in all events within twelve months
after the Effective Time, Target shall be terminated as a series of Trust and
any further actions shall be taken in connection therewith as required by
applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable on issuance of Acquiring Fund Shares in a
name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
-2-
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of the close of regular trading on the New York
Stock Exchange ("NYSE") on the date of the Closing ("Valuation Time"), using the
valuation procedures set forth in Target's then-current prospectuses and
statement of additional information (collectively "P/SAI") less (b) the amount
of the Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV per share of each class of
Acquiring Fund Shares shall be computed as of the Valuation Time, using the
valuation procedures set forth in Acquiring Fund's then-current P/SAI.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Executive Investors Management Company, Inc. ("EIMCO")
and First Investors Management Company, Inc. ("FIMCO"), respectively.
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at Acquiring Fund's principal
office on or about March 14, 2000, or at such other place and/or on such other
date as to which the parties may agree. All acts taking place at the Closing
shall be deemed to take place simultaneously as of the close of business on the
date thereof or at such other time as to which the parties may agree ("Effective
Time"). If, immediately before the Valuation Time, (a) the NYSE is closed to
trading or trading thereon is restricted or (b) trading or the reporting of
trading on the NYSE or elsewhere is disrupted, so that accurate appraisal of the
net value of Target and the NAV of an Acquiring Fund Share is impracticable, the
Effective Time shall be postponed until the first business day after the day
when such trading shall have been fully resumed and such reporting shall have
been restored.
3.2. Trust's fund accounting and pricing agent shall deliver at the
Closing a certificate of an authorized officer verifying that the information
(including adjusted basis and holding period, by lot) concerning the Assets,
including all portfolio securities, transferred by Target to Acquiring Fund, as
reflected on Acquiring Fund's books immediately following the Closing, does or
will conform to such information on Target's books immediately before the
Closing. Trust's custodian shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Assets held by the custodian will be
transferred to Acquiring Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3. Trust shall deliver to Acquiring Fund at the Closing a list of the
names and addresses of the Shareholders and the number of outstanding Target
Shares owned by each Shareholder, all as of the Effective Time, certified by the
Secretary or Assistant Secretary of Trust. Acquiring Fund's transfer agent shall
deliver at the Closing a certificate as to the opening on Acquiring Fund's share
transfer books of accounts in the Shareholders' names. Acquiring Fund shall
issue and deliver a confirmation to Trust evidencing the Acquiring Fund Shares
-3-
to be credited to Target at the Effective Time or provide evidence satisfactory
to Trust that such Acquiring Fund Shares have been credited to Target's account
on Acquiring Fund's books. At the Closing, each party shall deliver to the other
such bills of sale, checks, assignments, stock certificates, receipts, or other
documents as the other party or its counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
4.1.1. Trust is a trust operating under a written declaration of
trust, the beneficial interest in which is divided into transferable
shares ("Business Trust"), that is duly organized and validly existing
under the laws of the Commonwealth of Massachusetts; and a copy of its
Amended and Restated Declaration of Trust ("Target Declaration") is on
file with the Secretary of the Commonwealth of Massachusetts;
4.1.2. Trust is duly registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"),
and such registration will be in full force and effect at the Effective
Time;
4.1.3. Target is a duly established and designated series of Trust;
4.1.4. At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;
4.1.5. Target's current P/SAI conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended ("1933
Act"), and the 1940 Act and the rules and regulations thereunder and do
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
4.1.6. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Massachusetts law or any provision of
the Target Declaration or Trust's By-Laws or of any agreement, instrument,
lease, or other undertaking to which Target is a party or by which it is
bound or result in the acceleration of any obligation, or the imposition
of any penalty, under any agreement, judgment, or decree to which Target
is a party or by which it is bound, except as previously disclosed in
writing to and accepted by Acquiring Fund;
-4-
4.1.7. Except as otherwise disclosed in writing to and accepted by
Acquiring Fund, all material contracts and other commitments of or
applicable to Target (other than this Agreement and investment contracts,
including options, futures, and forward contracts) will be terminated, or
provision for discharge of any liabilities of Target thereunder will be
made, at or prior to the Effective Time, without either Fund's incurring
any liability or penalty with respect thereto and without diminishing or
releasing any rights Target may have had with respect to actions taken or
omitted or to be taken by any other party thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by
Acquiring Fund, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or (to
Target's knowledge) threatened against Trust with respect to Target or any
of its properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition or the
conduct of its business; Target knows of no facts that might form the
basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement
have been duly authorized as of the date hereof by all necessary action on
the part of Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders, this Agreement constitutes a valid and legally
binding obligation of Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934, as amended ("1934 Act"), or the 1940 Act for the execution or
performance of this Agreement by Trust, except for (a) the filing with the
Securities and Exchange Commission ("SEC") of a registration statement by
Acquiring Fund on Form N-14 relating to the Acquiring Fund Shares issuable
hereunder, and any supplement or amendment thereto ("Registration
Statement"), including therein a prospectus/proxy statement ("Proxy
Statement"), and (b) such consents, approvals, authorizations, and filings
as have been made or received or as may be required subsequent to the
Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
-5-
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by Acquiring Fund for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary
course of its business and are associated with the Assets; and there are
no Liabilities other than liabilities disclosed or provided for in Trust's
financial statements referred to in paragraph 4.1.18 and liabilities
incurred by Target in the ordinary course of its business subsequent to
December 31, 1998, or otherwise previously disclosed to Acquiring Fund,
none of which has been materially adverse to the business, assets, or
results of Target's operations;
4.1.14. Target is a "fund" as defined in section 851(g)(2) of the
Code; it qualified for treatment as a regulated investment company under
Subchapter M of the Code ("RIC") for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings
and profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
times through the Effective Time in a manner that ensures compliance with
the foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock and securities of any one issuer, and not more than 50% of
the value of such assets is invested in the stock and securities of five
or fewer issuers;
4.1.17. Target's federal income tax returns, and all applicable state
and local tax returns, for all taxable years to and including the taxable
year ended December 31, 1998, have been timely filed and all taxes payable
pursuant to such returns have been timely paid; and
4.1.18. The financial statements of Trust for the year ended December
31, 1998, to be delivered to Acquiring Fund, fairly represent the
financial position of Target as of that date and the results of its
operations and changes in its net assets for the year then ended.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. Acquiring Fund is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland;
and a copy of its Articles of Incorporation ("Acquiring Articles") is on
file with the Secretary of the State of Maryland;
-6-
4.2.2. Acquiring Fund is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.2.4. The Acquiring Fund Shares to be issued and delivered to Target
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued
and outstanding shares of Acquiring Fund, fully paid and non-assessable;
4.2.5. Acquiring Fund's current P/SAI conform in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading;
4.2.6. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Maryland law or any
provision of the Acquiring Articles or Acquiring Fund's By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Acquiring Fund is a party or
by which it is bound, except as previously disclosed in writing to and
accepted by Trust;
4.2.7. Except as otherwise disclosed in writing to and accepted by
Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to
Acquiring Fund's knowledge) threatened against Acquiring Fund or any of
its properties or assets that, if adversely determined, would materially
and adversely affect Acquiring Fund's financial condition or the conduct
of its business; Acquiring Fund knows of no facts that might form the
basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.2.8. The execution, delivery, and performance of this Agreement
have been duly authorized as of the date hereof by all necessary action on
the part of Acquiring Fund's board of directors (together with Trust's
board of trustees, the "Boards"), which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and this Agreement
constitutes a valid and legally binding obligation of Acquiring Fund,
-7-
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights
and by general principles of equity;
4.2.9. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by Acquiring Fund, except
for (a) the filing with the SEC of the Registration Statement and a
post-effective amendment to Acquiring Fund's registration statement on
Form N1-A and (b) such consents, approvals, authorizations, and filings as
have been made or received or as may be required subsequent to the
Effective Time;
4.2.10. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by Trust for use therein;
4.2.11. Acquiring Fund is a "fund" as defined in section 851(g)(2) of
the Code; it qualified for treatment as a RIC for each past taxable year
since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year;
Acquiring Fund intends to continue to meet all such requirements for the
next taxable year; and it has no earnings and profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code did not
apply to it;
4.2.12. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, except to the extent it is
required by the 1940 Act to redeem any of its shares presented for
redemption at NAV in the ordinary course of that business;
4.2.13. Following the Reorganization, Acquiring Fund (a) will
continue Target's "historic business" (within the meaning of section
1.368-1(d)(2) of the Regulations), (b) use a significant portion of
Target's "historic business assets" (within the meaning of section
1.368-1(d)(3) of the Regulations) in a business, (c) has no plan or
intention to sell or otherwise dispose of any of the Assets, except for
dispositions made in the ordinary course of that business and dispositions
necessary to maintain its status as a RIC, and (d) expects to retain
substantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
-8-
4.2.14. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or a business trust or any
"fund" thereof (within the meaning of section 851(g)(2) of the Code)
following the Reorganization;
4.2.15. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock and
securities of any one issuer and (b) not more than 50% of the value of
such assets will be invested in the stock and securities of five or fewer
issuers;
4.2.16. Acquiring Fund does not directly or indirectly own, nor at
the Effective Time will it directly or indirectly own, nor has it directly
or indirectly owned at any time during the past five years, any shares of
Target;
4.2.17. Acquiring Fund's federal income tax returns, and all
applicable state and local tax returns, for all taxable years to and
including the taxable year ended December 31, 1998, have been timely filed
and all taxes payable pursuant to such returns have been timely paid;
4.2.18. The financial statements of Acquiring Fund for the fiscal
year ended September 30, 1999, to be delivered to Trust, fairly represent
the financial position of Acquiring Fund as of that date and the results
of its operations and changes in its net assets for the year then ended;
and
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares received by
each Shareholder will be approximately equal to the fair market value of
its Target Shares constructively surrendered in exchange therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of
their Target Shares before the Reorganization to any person related
(within the meaning of section 1.368-1(e)(3) of the Regulations) to either
Fund or (ii) any portion of the Acquiring Fund Shares to be received by
them in the Reorganization to any person related (as so defined) to
Acquiring Fund, (b) does not anticipate dispositions of those Acquiring
Fund Shares at the time of or soon after the Reorganization to exceed the
usual rate and frequency of dispositions of shares of Target as a series
of an open-end investment company, (c) expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be DE MINIMIS, and (d) does not
anticipate that there will be extraordinary redemptions of Acquiring Fund
Shares immediately following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any, incurred
in connection with the Reorganization;
-9-
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto (in addition to the assets and liabilities
Acquiring Fund then held or was subject to), plus any liabilities and
expenses of the parties incurred in connection with the Reorganization;
4.3.5. The fair market value of the Assets on a going concern basis
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
its Reorganization expenses and to make redemptions and distributions
immediately before the Reorganization (except (a) redemptions not made as
part of the Reorganization and (b) distributions made to conform to its
policy of distributing all or substantially all of its income and gains to
avoid the obligation to pay federal income tax and/or the excise tax under
section 4982 of the Code) will be included as assets held thereby
immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who is an
employee of or service provider to Target will be separate consideration
for, or allocable to, any of the Target Shares held by such Shareholder;
none of the Acquiring Fund Shares received by any such Shareholder will be
separate consideration for, or allocable to, any employment agreement;
investment advisory agreement, or other service agreement; and the
consideration paid to any such Shareholder will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services;
4.3.9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" within the meaning of section 304(c)
of the Code of Acquiring Fund; and
4.3.10. Neither Fund will be reimbursed for any expenses incurred by
it or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1
C.B. 187) ("Reorganization Expenses").
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that:
-10-
(a) such ordinary course will include declaring and paying customary
dividends and other distributions and such changes in operations as are
contemplated by each Fund's normal business activities and
(b) each Fund will retain exclusive control of the composition of its
portfolio until the Closing; provided that (1) Target shall not dispose of
more than an insignificant portion of its historic business assets during
such period without Acquiring Fund's prior consent and (2) if Target's
shareholders' approve this Agreement (and the transactions contemplated
hereby), then between the date of such approval and the Closing, the
Investment Companies shall coordinate the Funds' respective portfolios so
that the transfer of the Assets to Acquiring Fund will not cause it to
fail to be in compliance with all of its investment policies and
restrictions immediately after the Closing.
5.2. Target covenants to call a shareholders' meeting to consider and act
on this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist Acquiring Fund in obtaining such
information as Acquiring Fund reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that its books and records (including all books and
records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to Acquiring Fund at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. Acquiring Fund covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
-11-
6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all its obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by the Boards and shall have been approved by
Target's shareholders in accordance with the Target Declaration and applicable
law.
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Investment Company to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on the assets or properties of either Fund, provided that either
Investment Company may for itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. Trust shall have received an opinion of Kirkpatrick & Lockhart LLP
("Counsel") substantially to the effect that:
6.4.1. Acquiring Fund is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland
with power under the Acquiring Articles to own all its properties and
assets and, to the knowledge of Counsel, to carry on its business as
presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by Acquiring Fund and (b) assuming due authorization, execution,
and delivery of this Agreement by Trust on behalf of Target, is a valid
and legally binding obligation of Acquiring Fund, enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium,
and similar laws relating to or affecting creditors' rights and by general
principles of equity;
-12-
6.4.3. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable;
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate the Acquiring Articles or Acquiring Fund's By-Laws or any
provision of any agreement (known to Counsel, without any independent
inquiry or investigation) to which Acquiring Fund is a party or by which
it is bound or (to the knowledge of Counsel, without any independent
inquiry or investigation) result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, judgment, or decree to
which Acquiring Fund is a party or by which it is bound, except as set
forth in such opinion or as previously disclosed in writing to and
accepted by Trust;
6.4.5. To the knowledge of Counsel (without any independent inquiry
or investigation), no consent, approval, authorization, or order of any
court or governmental authority is required for the consummation by
Acquiring Fund of the transactions contemplated herein, except such as
have been obtained under the 1933 Act, the 1934 Act, and the 1940 Act and
such as may be required under state securities laws;
6.4.6. Acquiring Fund is registered with the SEC as an investment
company, and to the knowledge of Counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of Counsel (without any independent inquiry
or investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to Acquiring Fund or any of its properties or assets and (b)
Acquiring Fund is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially and adversely affects its business, except as set forth in such
opinion or as otherwise disclosed in writing to and accepted by Trust.
In rendering such opinion, Counsel may (1) rely, as to matters governed by the
laws of the State of Maryland, on an opinion of competent Maryland counsel, (2)
make assumptions regarding the authenticity, genuineness, and/or conformity of
documents and copies thereof without independent verification thereof, (3) limit
such opinion to applicable federal and state law, and (4) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
6.5. Acquiring Fund shall have received an opinion of Counsel
substantially to the effect that:
6.5.1. Target is a duly established series of Trust, a Business Trust
duly organized and validly existing under the laws of the Commonwealth of
-13-
Massachusetts with power under the Target Declaration to own all its
properties and assets and, to the knowledge of Counsel, to carry on its
business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by Trust on behalf of Target and (b) assuming due authorization,
execution, and delivery of this Agreement by Acquiring Fund, is a valid
and legally binding obligation of Trust with respect to Target,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights
and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate the Target Declaration or Trust's By-Laws or any provision of any
agreement (known to Counsel, without any independent inquiry or
investigation) to which Trust (with respect to Target) is a party or by
which it is bound or (to the knowledge of Counsel, without any independent
inquiry or investigation) result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, judgment, or decree to
which Trust (with respect to Target) is a party or by which it is bound,
except as set forth in such opinion or as previously disclosed in writing
to and accepted by Acquiring Fund;
6.5.4. To the knowledge of Counsel (without any independent inquiry
or investigation), no consent, approval, authorization, or order of any
court or governmental authority is required for the consummation by Trust
on behalf of Target of the transactions contemplated herein, except such
as have been obtained under the 1933 Act, the 1934 Act, and the 1940 Act
and such as may be required under state securities laws;
6.5.5. Trust is registered with the SEC as an investment company, and
to the knowledge of Counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.5.6. To the knowledge of Counsel (without any independent inquiry
or investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to Trust (with respect to Target) or any of its properties
or assets attributable or allocable to Target and (b) Trust (with respect
to Target) is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that materially and
adversely affects Target's business, except as set forth in such opinion
or as otherwise disclosed in writing to and accepted by Acquiring Fund.
In rendering such opinion, Counsel may (1) rely, as to matters governed by the
laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (2) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (3) limit such opinion to applicable federal
and state law, and (4) define the word "knowledge" and related terms to mean the
knowledge of attorneys then with such firm who have devoted substantive
attention to matters directly related to this Agreement and the Reorganization.
-14-
6.6. Each Investment Company shall have received an opinion of Counsel,
addressed to and in form and substance satisfactory to it, as to the federal
income tax consequences mentioned below ("Tax Opinion"). In rendering the Tax
Opinion, Counsel may rely as to factual matters, exclusively and without
independent verification, on the representations made in this Agreement which
Counsel may treat as representations made to it, or in separate letters
addressed to Counsel and the certificates delivered pursuant to paragraph 3.4.
The Tax Opinion shall be substantially to the effect that, based on the facts
and assumptions stated therein and conditioned on consummation of the
Reorganization in accordance with this Agreement, for federal income tax
purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares PRO RATA to
the Shareholders constructively in exchange for the Shareholders' Target
Shares, will qualify as a reorganization within the meaning of section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
6.6.2. Target will recognize no gain or loss on the transfer to
Acquiring Fund of the Assets in exchange solely for Acquiring Fund Shares
and Acquiring Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in constructive exchange
for their Target Shares;
6.6.3. Acquiring Fund will recognize no gain or loss on its receipt
of the Assets in exchange solely for Acquiring Fund Shares and its
assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's aggregate basis for the Acquiring Fund Shares
to be received by it in the Reorganization will be the same as the
aggregate basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares, and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding subparagraphs 6.6.2 and 6.6.4, the Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any asset as to which any unrealized gain or loss is
required to be recognized for federal income tax purposes at the end of a
taxable year (or on the termination or transfer thereof) under a mark-to-market
system of accounting.
-15-
At any time before the Closing, either Investment Company may waive any of
the foregoing conditions (except that set forth in paragraph 6.1) if, in the
judgment of its Board, such waiver will not have a material adverse effect on
its Fund's shareholders' interests.
7. FINDERS FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, all the Reorganization Expenses
will be borne by the Funds in proportion to their respective total net assets as
of the close of business on the last business day prior to the Closing.
8. ENTIRE AGREEMENT; NO SURVIVAL
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before December 31, 2000; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the directors, trustees, or
officers of either Investment Company, to the other Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as may
be mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
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11. MISCELLANEOUS
11.1.This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2.Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The parties acknowledge that Trust is a Business Trust. Notice is
hereby given that this instrument is executed on behalf of Trust's trustees
solely in their capacities as trustees, and not individually, and that Trust's
obligations under this instrument are not binding on or enforceable against any
of its trustees, officers, or shareholders but are only binding on and
enforceable against Target's assets and property. Acquiring Fund agrees that, in
asserting any rights or claims under this Agreement, it shall look only to
Target's assets and property in settlement of such rights or claims and not to
such trustees or shareholders.
11.4.This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officers as of the day and year first
written above.
ATTEST: EXECUTIVE INVESTORS TRUST,
on behalf of its series,
High Yield Fund
/s/ C. Durso By: /s/ Glenn O. Head
- ------------------------- ---------------------------
Concetta Durso, Secretary Glenn O. Head, President
ATTEST: FIRST INVESTORS FUND FOR INCOME, INC.
/s/ C. Durso By: /s/ Glenn O. Head
- ------------------------- ---------------------------
Concetta Durso, Secretary Glenn O. Head, President
-17-
APPENDIX B
PORTFOLIO MANAGER'S LETTER
FIRST INVESTORS FUND FOR INCOME, INC.
Dear Investor:
We are pleased to present the annual report for the First Investors Fund For
Income for the fiscal year ending September 30, 1999. During the period, the
Fund's return on a net asset value basis was 3.1% on Class A shares and 2.3% on
Class B shares, compared to a return of 4.8% for the Lipper high yield bond fund
group. During the period, the Fund declared dividends from net investment income
of 38.4 cents per share on Class A shares and 36 cents per share on Class B
shares.
The primary factors that drove the Fund's performance during the fiscal
year were the rising interest rate environment and the credit quality of the
bonds in the portfolio. The reporting period began with the resolution of
several system-wide financial difficulties. Financial markets struggled to put
the difficulties of the summer -- the Asian economic crisis, Russian
devaluation, and the near-collapse of the giant hedge fund Long-Term Capital
Management -- behind them. Investors around the world shunned risk and sought
safety. Corporate bonds in general became "cheap," and lower-rated, high yield
bonds suffered the most. The Federal Reserve, looking to prevent a credit
crunch, provided liquidity to the monetary system by lowering interest rates
three times in an eight-week period. Investors became more comfortable -- though
still selective -- with risk, and the high yield market rebounded sharply in
November, posting one of its best months ever.
In the early part of 1999, investors continued to shun riskier bonds. Investor
confidence returned in March, and the high yield market surged. Risk was
rewarded, not only for lower-quality issues, but also for bonds with longer
durations and those issued in emerging markets. For the quarter, lower-rated
issues tended to outperform higher-rated issues and overall, the high-yield
market outperformed other domestic fixed income markets.
By the middle of 1999,the domestic economy continued to be strong and the market
began to brace for possible tightening by the Fed to stave off inflation. Yields
rose in May as interest rate concerns were priced into the market. New issuance
- -- which had been building slowly through the year -- declined somewhat in June.
On June 25, 1999, the Fed, as expected, raised interest rates 25 basis points.
Demand for high yield bonds abated, as evidenced by heavy mutual fund outflows
in May, and smaller outflows in June.
The latter part of the reporting period was difficult for the high-yield market,
and it was the weakest performing sector in the bond market. The Fed raised
rates a second time in August, and economic uncertainty prompted concerns
regarding the need for further rate increases. Demand within the high-yield
market fell, liquidity decreased and new issuance slowed. In this guarded
environment, higher-rated issues tended to outperform lower-rated issues.
A number of factors aided the Fund's performance during the reporting period. In
general, the Fund's holdings of higher-rated bonds helped to enhance returns.
Also, a number of positions in the telecommunications sector performed well, in
large part because of merger and acquisition activity. The Fund's performance
was negatively impacted by poor performance in several sectors, including health
care, which was hurt due to the enactment of various reimbursement-related
legislation. Two of the Fund's holdings, Genesis Health Ventures, Inc. and
Integrated Health Services, were particularly hard hit. In addition, holdings in
the textile/apparel industry negatively impacted performance.
Going forward, we will likely see a continuation of current market conditions.
We look forward to stabilization in the high yield market early in 2000, as Y2K
concerns pass and the economic picture becomes clearer. The Fund will continue
to focus on credit quality and seek value in the high yield market.
Thank you for placing your trust in First Investors. As always, we appreciate
the opportunity to serve your investment needs.
Sincerely,
/s/ Nancy W. Jones
- ------------------
Nancy W. Jones
Vice President and Portfolio Manager
October 29, 1999
CUMULATIVE PERFORMANCE INFORMATION
FIRST INVESTORS FUND FOR INCOME, INC.
Comparison of change in value of $10,000 investment in the First Investors Fund
For Income, Inc. (Class A shares) and the CS First Boston High Yield Index.
$1,000
[GRAPH OMITTED]
THE GRAPH COMPARES A $10,000 INVESTMENT IN THE FIRST INVESTORS FUND FOR INCOME,
INC. (CLASS A SHARES) BEGINNING 1/1/90 WITH A THEORETICAL INVESTMENT IN THE CS
FIRST BOSTON HIGH YIELD INDEX. THE CS FIRST BOSTON HIGH YIELD INDEX IS DESIGNED
TO MEASURE THE PERFORMANCE OF THE HIGH YIELD BOND MARKET. THE INDEX CONSISTS OF
1,631 DIFFERENT ISSUES, 1,403 OF WHICH ARE CASH PAY, 176 ARE ZERO-COUPON, 11 ARE
STEP BONDS, 18 ARE PAY-IN-KIND BONDS AND THE REMAINING 23 ARE IN DEFAULT. THE
BONDS INCLUDED IN THE INDEX HAVE AN AVERAGE LIFE OF 7.9 YEARS, AN AVERAGE
MATURITY OF 7.9 YEARS, AN AVERAGE DURATION OF 4.8 YEARS AND AN AVERAGE COUPON OF
10.1%. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN THIS INDEX. IN ADDITION, THE
INDEX DOES NOT TAKE INTO ACCOUNT FEES AND EXPENSES. FOR PURPOSES OF THE GRAPH
AND THE ACCOMPANYING TABLE, UNLESS OTHERWISE INDICATED, IT HAS BEEN ASSUMED THAT
THE MAXIMUM SALES CHARGE WAS DEDUCTED FROM THE INITIAL $10,000 INVESTMENT IN THE
FUND AND ALL DIVIDENDS AND DISTRIBUTIONS WERE REINVESTED. CLASS B SHARES
PERFORMANCE MAY BE GREATER THAN OR LESS THAN THAT SHOWN IN THE LINE GRAPH ABOVE
FOR CLASS A SHARES BASED ON DIFFERENCES IN SALES LOADS AND FEES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT CLASSES.
* AVERAGE ANNUAL TOTAL RETURN FIGURES (FOR THE YEAR ENDED 9/30/99) INCLUDE THE
REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS. "N.A.V. ONLY" RETURNS ARE
CALCULATED WITHOUT SALES CHARGES. THE CLASS A "S.E.C. STANDARDIZED" RETURNS
SHOWN ARE BASED ON THE MAXIMUM SALES CHARGE OF 6.25% (PRIOR TO 7/1/93, THE
MAXIMUM SALES CHARGE WAS 6.9%). THE CLASS B "S.E.C. STANDARDIZED" RETURNS ARE
ADJUSTED FOR THE APPLICABLE DEFERRED SALES CHARGE (MAXIMUM OF 4% IN THE FIRST
YEAR). RESULTS REPRESENT PAST PERFORMANCE AND DO NOT INDICATE FUTURE RESULTS.
INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL
COST. THE UNUSUALLY HIGH CURRENT YIELDS OFFERED REFLECT THE SUBSTANTIAL RISKS
ASSOCIATED WITH INVESTMENTS IN HIGH YIELD BONDS. THE ISSUERS OF THE BONDS PAY
HIGHER INTEREST RATES BECAUSE THEY HAVE A GREATER LIKELIHOOD OF FINANCIAL
DIFFICULTY, WHICH COULD RESULT IN THEIR INABILITY TO REPAY THE BONDS FULLY WHEN
DUE. PRICES OF HIGH YIELD BONDS ARE ALSO SUBJECT TO GREATER FLUCTUATIONS. CS
FIRST BOSTON HIGH YIELD INDEX FIGURES FROM CS FIRST BOSTON CORPORATION AND ALL
OTHER FIGURES FROM FIRST INVESTORS MANAGEMENT COMPANY, INC.
EXECUTIVE INVESTORS TRUST
BLUE CHIP FUND
HIGH YIELD FUND
INSURED TAX EXEMPT FUND
95 Wall Street
New York, New York 10005 1-800-423-4026
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 14, 2000
This is a Statement of Additional Information ("SAI") for Executive
Investors Trust ("Trust"), an open-end diversified management investment
company. The Trust offers three separate series, each of which has different
investment objectives and policies: BLUE CHIP FUND, HIGH YIELD FUND and INSURED
TAX EXEMPT FUND (each a "Fund").
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectus/Proxy Statement dated January 14, 2000 which may be obtained
free of cost from the Trust at the address or telephone number noted above.
Information regarding the purchase, redemption, sale and exchange of your Fund
shares is contained in the Shareholder Manual, a separate section of the SAI
that is a distinct document and may also be obtained free of charge by
contacting your Fund at the address or telephone number noted above.
TABLE OF CONTENTS
PAGE
Investment Strategies and Risks..............................................2
Investment Policies..........................................................5
Futures and Options Strategies..............................................16
Portfolio Turnover..........................................................22
Investment Restrictions.....................................................22
Trustees And Officers.......................................................27
Management..................................................................29
Underwriter.................................................................30
Distribution Plans..........................................................31
Determination of Net Asset Value............................................32
Allocation of Portfolio Brokerage...........................................33
Purchase, Redemption and Exchange of Shares.................................35
Taxes.......................................................................35
Performance Information.....................................................38
General Information.........................................................42
Appendix A .................................................................45
Appendix B .................................................................46
Appendix C .................................................................47
Financial Statements........................................................53
Pro Forma Financial Statements and Schedules................................74
Shareholder Manual: A Guide to your First Investors Mutual Fund Account.....78
INVESTMENT STRATEGIES AND RISKS
BLUE CHIP FUND
The Fund seeks its objective by investing, under normal market conditions,
at least 65% of its total assets in common stocks of "Blue Chip" companies that
the Fund's investment adviser, Executive Investors Management Company, Inc.
("EIMCO" or "Adviser"), believes have potential earnings growth that is greater
than the average company included in the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500"). The Fund also may invest up to 35% of its total assets
in the equity securities of non-Blue Chip companies that the Adviser believes
have significant potential for growth of capital or future income consistent
with the preservation of capital. When market conditions warrant, or when the
Adviser believes it is necessary to achieve the Fund's objective, the Fund may
invest up to 25% of its total assets in fixed-income securities. It is the
Fund's policy to remain relatively fully invested in equity securities under all
market conditions rather than to attempt to time the market by maintaining large
cash or fixed-income securities positions when market declines are anticipated.
The Fund is appropriate for investors who are comfortable with a fully invested
stock portfolio.
The Fund defines Blue Chip companies as those companies that are included
in the S&P 500. Blue Chip companies are considered to be of relatively high
quality and generally exhibit superior fundamental characteristics, which may
include: potential for consistent earnings growth, a history of profitability
and payment of dividends, leadership position in their industries and markets,
proprietary products or services, experienced management, high return on equity
and a strong balance sheet. Blue Chip companies usually exhibit less investment
risk and share price volatility than smaller, less established companies.
Examples of Blue Chip companies are Microsoft Corp., General Electric Co.,
Pepsico Inc. and Bristol-Myers Squibb Co.
The Fund primarily invests in stocks of growth companies. These are
companies which are expected to increase their earnings faster than the overall
market. If earnings expectations are not met, the prices of these stocks may
decline substantially even if earnings do increase. Investments in growth
companies may lack the dividend yield that can cushion stock prices in market
downturns.
The fixed-income securities in which the Fund may invest include money
market instruments (including prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), U.S. Government
Obligations (including mortgage-backed securities) and corporate debt
securities. However, no more than 5% of the Fund's net assets may be invested in
corporate debt securities rated below Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P") (commonly referred
to as "high yield bonds" or "junk bonds"). The Fund may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets.
The Fund may also invest up to 10% of its total assets in ADRs, enter into
repurchase agreements and make loans of portfolio securities.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
HIGH YIELD FUND
The Fund primarily seeks high current income and secondarily seeks capital
appreciation by investing, under normal market conditions, at least 65% of its
total assets in high risk, high yield securities, commonly referred to as "junk
bonds" ("High Yield Securities"). High Yield Securities include the following
instruments: fixed, variable or floating rate debt obligations (including bonds,
debentures and notes) which are rated below Baa by Moody's or below BBB by S&P,
or are unrated and deemed to be of comparable quality by the Fund's Adviser;
preferred stocks and dividend-paying common stocks that have yields comparable
to those of high yielding debt securities; any of the foregoing securities of
2
companies that are financially troubled, in default or undergoing bankruptcy or
reorganization ("Deep Discount Securities"); and any securities convertible into
any of the foregoing. See "High Yield Securities" and "Deep Discount
Securities," below.
The Fund may invest in debt securities issued by foreign governments and
companies and in foreign currencies for the purpose of purchasing such
securities. However, the Fund may not invest more than 5% of its total assets in
debt securities issued by foreign governments and companies that are denominated
in foreign currencies. The Fund may invest up to 5% of its total assets in debt
securities of issuers located in emerging market countries. The Fund also may
borrow money for temporary or emergency purposes in amounts not exceeding 5% of
its total assets, invest up to 10% of its net assets in securities issued on a
when-issued or delayed delivery basis, invest up to 15% of its net assets in
restricted securities (which may not be publicly marketable), and invest in zero
coupon and pay-in-kind securities. In addition, the Fund may make loans of
portfolio securities.
The Fund may invest up to 35% of its total assets in the following
instruments: common and preferred stocks, other than those considered to be High
Yield Securities; debt obligations of all types (including bonds, debentures and
notes) rated BBB or better by Moody's or S&P; securities issued by the U.S.
Government or its agencies or instrumentalities ("U.S. Government Obligations");
warrants and money market instruments consisting of prime commercial paper,
certificates of deposit of domestic branches of U.S.
banks, bankers' acceptances and repurchase agreements.
In any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents, including bank certificates
of deposit, bankers' acceptances, U.S. Government Obligations and commercial
paper issued by domestic corporations.
The medium- to lower-rated, and certain of the unrated, securities in
which the Fund invests tend to offer higher yields than higher-rated securities
with the same maturities because the historical financial condition of the
issuers of such securities may not be as strong as that of other issuers. Debt
obligations rated lower than A by Moody's or S&P have speculative
characteristics or are speculative, and generally involve more risk of loss of
principal and income than higher-rated securities. Also, their yields and market
values tend to fluctuate more than those of higher quality securities. The
greater risks and fluctuations in yield and value occur because investors
generally perceive issuers of lower-rated and unrated securities to be less
creditworthy. These risks cannot be eliminated, but may be reduced by
diversifying holdings to minimize the portfolio impact of any single investment.
In addition, fluctuations in market value do not affect the cash income from the
securities, but are reflected in the computation of the Fund's net asset value.
When interest rates rise, the net asset value of the Fund tends to decrease.
When interest rates decline, the net asset value of the Fund tends to increase.
Variable or floating rate debt obligations in which the Fund may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
investor. This reduces the effect of changing market conditions on the
security's underlying market value.
A High Yield Security may itself be convertible into or exchangeable for
equity securities, or may carry with it the right to acquire equity securities
evidenced by warrants attached to the security or acquired as part of a unit
with the security. Although the Fund invests primarily in High Yield Securities,
securities received upon conversion or exercise of warrants and securities
remaining upon the break-up of units or detachment of warrants may be retained
to permit orderly disposition, to establish a long-term holding period for
Federal income tax purposes, or to seek capital appreciation.
3
Because of the greater number of investment considerations involved in
investing in High Yield Securities, the achievement of the Fund's investment
objectives depends more on the Adviser's research abilities than would be the
case if the Fund were investing primarily in securities in the higher rated
categories. Because medium- to lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities, investors
should consider carefully the relative risks associated with investments in
securities that carry medium to lower ratings or are unrated. See "Types of
Securities and Their Risks-High Yield Securities" and Appendix A for a
description of corporate bond ratings.
The Fund seeks to achieve its secondary objective to the extent consistent
with its primary objective. There can be no assurance that the Fund will be able
to achieve its investment objectives. The Fund's net asset value fluctuates
based mainly upon changes in the value of its portfolio securities.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INSURED TAX EXEMPT FUND
The Fund seeks to achieve its objective by investing at least 80% of its
total assets in municipal bonds issued by or on behalf of various states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the interest
on which is exempt from Federal income tax and is not a Tax Preference Item.
While the Fund does not intend to buy any instruments whose interest income is
subject to Federal income tax or is a Tax Preference Item, up to 20% of the
Fund's net assets may be invested in securities, the interest of which is
subject to Federal income tax, including the AMT. The Fund also may invest up to
20% of its total assets in certificates of participation, municipal notes,
municipal commercial paper and variable rate demand instruments (collectively
with municipal bonds, "Municipal Instruments"). The Fund generally invests in
bonds with maturities of over fifteen years. See "Municipal Instruments," below.
While the Fund diversifies its assets among municipal issuers in different
states, municipalities and territories, from time to time it may invest more
than 25% of its total assets in a particular segment of the municipal bond
market, such as hospital revenue bonds, housing agency bonds, airport bonds or
electric utility bonds. Such a possible concentration of the assets of the Fund
could result in the Fund being invested in securities which are related in such
a way that economic, business, political or other developments which would
affect one security would probably likewise affect the other securities within
that particular segment of the bond market.
The Fund may make loans of portfolio securities and invest in zero coupon
municipal securities. The Fund may invest up to 25% of its net assets in
securities on a "when issued" basis, which involves an arrangement whereby
delivery of, and payment for, the instruments occur up to 45 days after the
agreement to purchase the instruments is made by a Fund. The Fund also may
invest up to 20% of its assets, on a temporary basis, in high quality fixed
income obligations, the interest on which is subject to Federal and state or
local income taxes. In addition, the Fund may invest up to 10% of its total
assets in municipal obligations on which the rate of interest varies inversely
with interest rates on other municipal obligations or an index (commonly
referred to as inverse floaters). The Fund may borrow money for temporary or
emergency purposes in amounts not exceeding 5% of its total assets. See
"Investment Policies," below.
Although the Fund generally invests in municipal bonds rated Baa or higher
by Moody's or BBB or higher by S&P, the Fund may invest up to 5% of its net
assets in lower rated municipal bonds or in unrated municipal bonds deemed to be
of comparable quality by the Adviser. See "Debt Securities," below. However, in
each instance such municipal bonds will be covered by the insurance feature and
4
thus are considered to be of higher quality than lower rated municipal bonds
without an insurance feature. See "Insurance" for a discussion of the insurance
feature. The Adviser will carefully evaluate on a case-by-case basis whether to
dispose of or retain a municipal bond which has been downgraded in rating
subsequent to its purchase by a Fund. A description of municipal bond ratings is
contained in Appendix A.
There can be no assurances that future national, regional or state-wide
economic developments will not adversely affect the market value of Municipal
Securities held by the Fund or the ability of particular obligors to make timely
payments of debt service on (or lease payments relating to) those obligations.
There is also the risk that some or all of the interest income that the Fund
receives might become taxable or be determined to be taxable by the Internal
Revenue Service, applicable state tax authorities, or a judicial body. See the
discussion on "Taxes." In addition, there can be no assurances that future court
decisions or legislative actions will not affect the ability of the issuer of a
Municipal Security to repay its obligations.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INVESTMENT POLICIES
AMERICAN DEPOSITORY RECEIPTS. American Depository Receipts ("ADRs") may be
purchased through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the underlying security and a
depository, whereas a depository may establish an unsponsored facility without
participation by the issuer of the depository security. Holders of unsponsored
depository receipts generally bear all the costs of such facilities and the
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through voting rights to the holders of such receipts of the
deposited securities. ADRs are not necessarily denominated in the same currency
as the underlying securities to which they may be connected. Generally, ADRs in
registered form are designed for use in the U.S. securities market and ADRs in
bearer form are designed for use outside the United States.
BANKERS' ACCEPTANCES. Each Fund may invest in bankers' acceptances. Bankers'
acceptances are short-term credit instruments used to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
BOND MARKET CONCENTRATION. INSURED TAX EXEMPT FUND may invest more than 25%
of its total assets in a particular segment of the bond market, such as hospital
revenue bonds, housing agency bonds, industrial development bonds, airport bonds
and university dormitory bonds. Such concentration may occur in periods when one
or more of these segments offer higher yields and/or profit potential. The Fund
has no fixed policy as to concentrating its investments in a particular segment
of the bond market, because bonds are selected for investment based on appraisal
of their individual value and income. This possible concentration of the assets
of the Fund may result in the Fund being invested in securities which are
related in such a way that economic, business, political developments or other
changes which would affect one security would probably likewise affect the other
securities within that particular segment of the bond market. Such concentration
of the Fund's investments could increase market risks, but risk of non-payment
of interest when due, or default of principal, are covered by the insurance
obtained by the Fund.
5
CERTIFICATES OF DEPOSIT. Each Fund may invest in bank certificates of
deposit ("CDs"). The Federal Deposit Insurance Corporation is an agency of the
U.S. Government which insures the deposits of certain banks and savings and loan
associations up to $100,000 per deposit. The interest on such deposits may not
be insured if this limit is exceeded. Current Federal regulations also permit
such institutions to issue insured negotiable CDs in amounts of $100,000 or
more, without regard to the interest rate ceilings on other deposits. To remain
fully insured, these investments currently must be limited to $100,000 per
insured bank or savings and loan association.
COMMERCIAL PAPER. Each Fund may invest in commercial paper. Commercial paper
is a promissory note issued by a corporation to finance short-term needs, which
may either be unsecured or backed by a letter of credit. Commercial Paper
includes notes, drafts or similar instruments payable on demand or having a
maturity at the time of issuance not exceeding nine months, exclusive of days of
grace or any renewal thereof. Each Fund's investments in commercial paper are
limited to obligations rated Prime-l by Moody's or A-l by S&P. See Appendix A to
the SAI for a description of commercial paper ratings.
CONVERTIBLE SECURITIES. BLUE CHIP FUND and HIGH YIELD FUND may invest in
convertible securities. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than the
issuer's common stock, although the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security. The Adviser will decide to invest based
upon a fundamental analysis of the long-term attractiveness of the issuer and
the underlying common stock, the evaluation of the relative attractiveness of
the current price of the underlying common stock and the judgment of the value
of the convertible security relative to the common stock at current prices.
DETACHABLE CALL OPTIONS. INSURED TAX EXEMPT FUND may invest in detachable
call options. Detachable call options are sold by issuers of municipal bonds
separately from the municipal bonds to which the call options relate and permit
the purchasers of the call options to acquire the municipal bonds at the call
prices and call dates. In the event that interest rates drop, the purchaser
could exercise the call option to acquire municipal bonds that yield
above-market rates. During the coming year, the Fund expects to acquire
detachable call options relating to municipal bonds that it already owns or will
acquire in the immediate future and thereby, in effect, make such municipal
bonds non-callable so long as the Fund continues to hold the detachable call
option. The Fund will consider detachable call options to be illiquid securities
and they will be treated as such for purposes of certain investment limitation
calculations.
FOREIGN GOVERNMENT OBLIGATIONS. HIGH YIELD FUND may invest in foreign
government obligations, which generally consist of obligations supported by
national, state or provincial governments or similar political subdivisions.
Investments in foreign government debt obligations involve special risks. The
issuer of the debt may be unable or unwilling to pay interest or repay principal
when due in accordance with the terms of such debt, and the Fund may have
limited legal resources in the event of default. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance.
FOREIGN SECURITIES--RISK FACTORS. HIGH YIELD FUND may sell a security
denominated in a foreign currency and retain the proceeds in that foreign
currency to use at a future date (to purchase other securities denominated in
that currency) or the Fund may buy foreign currency outright to purchase
securities denominated in that foreign currency at a future date. Investing in
foreign securities involves more risk than investing in securities of U.S.
companies. Because HIGH YIELD FUND currently does not intend to hedge its
foreign investments against the risk of foreign currency fluctuations, changes
in the value of these currencies can significantly affect the Fund's share
price. In addition, the Fund will be affected by changes in exchange control
regulations and fluctuations in the relative rates of exchange between the
currencies of different nations, as well as by economic and political
developments. Other risks involved in foreign securities include the following:
6
there may be less publicly available information about foreign companies
comparable to the reports and ratings that are published about companies in the
United States; foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies; some foreign stock markets
have substantially less volume than U.S. markets, and securities of some foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies; there may be less government supervision and regulation of foreign
stock exchanges, brokers and listed companies than exist in the United States;
and there may be the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments which could affect
assets of the HIGH YIELD FUND held in foreign countries.
HIGH YIELD SECURITIES. High Yield Securities are subject to certain
risks that may not be present with investments in higher grade debt
securities.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. Debt obligations rated
lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds,"
are speculative and generally involved a higher risk or loss of principal and
income than higher-rated debt securities. The prices of High Yield Securities
tend to be less sensitive to interest rate changes than higher-rated
investments, but may be more sensitive to adverse economic changes or individual
corporate developments. Periods of economic uncertainty and changes generally
result in increased volatility in the market prices and yields of High Yield
Securities and thus in the Fund's net asset value. A significant economic
downturn or a substantial period of rising interest rates could severely affect
the market for High Yield Securities. In these circumstances, highly leveraged
companies might have greater difficulty in making principal and interest
payments, meeting projected business goals and obtaining additional financing.
Thus, there could be higher incidence of default. This would affect the value of
such securities and thus the Fund's net asset value. Further, if the issuer of a
security owned by the Fund defaults, it might incur additional expenses to seek
recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercised either provision in a declining interest rate market, the fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if the Fund experience unexpected net redemptions in a
rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Fund expenses could be allocated and in a reduced rate of return for the
Fund. While it is impossible to protect entirely against this risk,
diversification of the Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities helps to minimize the impact of a decrease in
value of a particular security or group of securities in the Fund's portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below investment
grade bonds expanded rapidly in recent years and its growth paralleled a long
economic expansion. In the past, the prices of many lower-rated debt securities
declined substantially, reflecting an expectation that many issuers of such
securities might experience financial difficulties. As a result, the yields on
lower-rated debt securities rose dramatically. However, such higher yields did
not reflect the value of the income streams that holders of such securities
expected, but rather the risk that holders of such securities could lose a
substantial portion of their value as a result of the issuers' financial
restructuring or default. There can be no assurance that such declines in the
below investment grade market will not reoccur. The market for below investment
grade bonds generally is thinner and less active than that for higher quality
bonds, which may limit the Fund's ability to sell such securities at fair value
in response to changes in the economy or the financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower rated securities,
especially in a thinly traded market.
7
CREDIT RATINGS. The credit ratings issued by credit rating services
may not fully reflect the true risks of an investment. For example, credit
ratings typically evaluate the safety of principal and interest payments, not
market value risk, of High Yield Securities. Also, credit rating agencies may
fail to change on a timely basis a credit rating to reflect changes in economic
or company conditions that affect a security's market value. The Fund may invest
in securities rated as low as D by S&P or C by Moody's or, if unrated, deemed to
be of comparable quality by the Adviser. Debt obligations with these ratings
either have defaulted or are in great danger of defaulting and are considered to
be highly speculative. The Adviser continually monitors the investments in the
Fund's portfolio and carefully evaluates whether to dispose of or retain High
Yield Securities whose credit ratings have changed. See Appendix A for a
description of corporate bond ratings.
LIQUIDITY AND VALUATION. Lower-rated bonds are typically traded
among a smaller number of broker-dealers than in a broad secondary market.
Purchasers of High Yield Securities tend to be institutions, rather than
individuals, which is a factor that further limits the second market. To the
extent that no established retail secondary market exists, many High Yield
Securities may not be as liquid as higher-grade bonds. A less active and thinner
market for High Yield Securities than that available for higher quality
securities may result in more volatile valuations of a Fund's holdings and more
difficulty in executing trades at favorable prices during unsettled market
conditions.
The ability of the Fund to value or sell High Yield Securities will
be adversely affected to the extent that such securities are thinly traded or
illiquid. During such periods, there may be less reliable objective information
available and thus the responsibility of the Trust's Board of Trustees ("Board")
to value High Yield Securities become more difficult, with judgment playing a
greater role. Further, adverse publicity about the economy or a particular
issuer may adversely affect the public's perception of the value, and thus
liquidity, of a High Yield Security, whether or not such perceptions are based
on a fundamental analysis.
INSURANCE. The municipal bonds in INSURED TAX EXEMPT FUND'S portfolio will
be insured as to their scheduled payments of principal and interest at the time
of purchase either (1) under a Mutual Fund Insurance Policy written by an
independent insurance company; (2) under an insurance policy obtained subsequent
to a municipal bond's original issue (a "Secondary Market Insurance Policy"); or
(3) under an insurance policy obtained by the issuer or underwriter of such
municipal bond at the time of original issuance (a "New Issue Insurance
Policy"). An insured municipal bond in the Fund's portfolio typically will be
covered by only one of the three policies. For instance, if a municipal bond is
already covered by a New Issue Insurance Policy or a Secondary Market Insurance
Policy, then that security will not be additionally insured under the Mutual
Fund Insurance Policy.
The Trust has purchased a Mutual Fund Insurance Policy ("Policy") from AMBAC
Assurance Corporation ("AMBAC"), a Wisconsin stock insurance company, with its
principal executive offices in New York City. The Policy guarantees the payment
of principal and interest on municipal bonds purchased by the Fund which are
eligible for insurance under the Policy. Municipal bonds are eligible for
insurance if they are approved by AMBAC prior to their purchase by the Fund.
AMBAC furnished the Fund with an approved list of municipal bonds at the time
the Policy was issued and subsequently provides amended and modified lists of
this type at periodic intervals. AMBAC may withdraw particular securities from
the approved list and may limit the aggregate amount of each issue or category
of municipal bonds therein, in each case by notice to the Fund prior to the
entry by the Fund of an order to purchase a specific amount of a particular
security otherwise eligible for insurance under the Policy. The approved list
merely identifies issuers whose issues may be eligible for insurance and does
not constitute approval of, or a commitment by, AMBAC to insure such securities.
In determining eligibility for insurance, AMBAC has applied its own standards
which correspond generally to the standard it normally uses in establishing the
insurability of new issues of municipal bonds and which are not necessarily the
criteria which would be used in regard to the purchase of municipal bonds by the
Fund. The Policy does not insure: (1) obligations of, or securities guaranteed
8
by, the United States of America or any agency or instrumentality thereof; (2)
municipal bonds which were insured as to payment of principal and interest at
the time of their issuance; (3) municipal bonds purchased by the Fund at a time
when they were ineligible for insurance; (4) municipal bonds which are insured
by insurers other than AMBAC; and (5) municipal bonds which are no longer owned
by the Fund. AMBAC has reserved the right at any time, upon 90 days' prior
written notice to the Fund, to refuse to insure any additional municipal bonds
purchased by the Fund, on or after the effective date of such notice. If AMBAC
so notifies the Fund, the Fund will attempt to replace AMBAC with another
insurer. If another insurer cannot be found to replace AMBAC, the Fund may ask
its shareholders to approve continuation of its business without insurance.
In the event of nonpayment of interest or principal when due, in respect of
an insured municipal bond, AMBAC is obligated under the Policy to make such
payment not later than 30 days after it has been notified by the Fund that such
nonpayment has occurred (but not earlier than the date such payment is due).
AMBAC, as regards insurance payments it may make, will succeed to the rights of
the Fund. Under the Policy, a payment of principal on an insured municipal bond
is due for payment when the stated maturity date has been reached, which does
not include any earlier due date by reason of redemption, acceleration or other
advancement of maturity or extension or delay in payment by reason of
governmental action.
The Policy does not guarantee the market value or yield of the insured
municipal bonds or the net asset value or yield of the Fund's shares. The Policy
will be effective only as to insured municipal bonds owned by the Fund. In the
event of a sale by the Fund of a municipal bond insured under the Policy, the
insurance terminates as to such municipal bond on the date of sale. If an
insured municipal bond in default is sold by the Fund, AMBAC is liable only for
those payments of interest and principal which are then due and owing and, after
making such payments, AMBAC will have no further obligations to the Fund in
respect of such municipal bond. It is the intention of the Fund, however, to
retain any insured securities which are in default or in significant risk of
default and to place a value on the defaulted securities equal to the value of
similar insured securities which are not in default. While a defaulted bond is
held by the Fund, the Fund continues to pay the insurance premium thereon but
also collects interest payments from the insurer and retains the right to
collect the full amount of principal from the insurer when the municipal bond
comes due. See "Determination of Net Asset Value" for a more complete
description of the Fund's method of valuing securities in default and securities
which have a significant risk of default.
The Trust may purchase a Secondary Market Insurance Policy from an
independent insurance company rated in the top rating category by Standard &
Poor's Ratings Group ("S&P"), Moody's Investors Service ("Moody's"), Fitch IBCA,
Inc. ("Fitch") or any other nationally recognized rating organization which
insures a particular bond for the remainder of its term at a premium rate fixed
at the time such bond is purchased by the Fund. It is expected that these
premiums will range from 1% to 5% of par value. Such insurance coverage will be
noncancellable and will continue in force so long as such bond so insured is
outstanding. The Fund may also purchase municipal bonds which are already
insured under a Secondary Market Insurance Policy. A Secondary Market Insurance
Policy could enable the Fund to sell a municipal bond to a third party as an
AAA/Aaa rated insured municipal bond at a market price higher than what
otherwise might be obtainable if the security were sold without the insurance
coverage. (Such rating is not automatic, however, and must specifically be
requested for each bond.) Any difference between the excess of a bond's market
value as an AAA/Aaa rated bond over its market value without such rating and the
single premium payment would inure to the Fund in determining the net capital
gain or loss realized by the Fund upon the sale of the bond.
In addition to the contract of insurance relating to the Fund, there is a
contract of insurance between AMBAC and First Investors Multi-State Insured Tax
Free Fund, between AMBAC and First Investors Series Fund, between AMBAC and
First Investors New York Insured Tax Free Fund, Inc. and between AMBAC and First
9
Investors Insured Tax Exempt Fund, Inc. Otherwise, neither AMBAC or any
affiliate thereof, has any material business relationship, direct or indirect,
with the Funds.
AMBAC is a Wisconsin-domiciled stock insurance corporation regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin and licensed
to do business in 50 states, the District of Columbia, the Territory of Guam and
the Commonwealth of Puerto Rico, with admitted assets of $3,732,000,000
(unaudited) and statutory capital of approximately $2,207,000,000 (unaudited) as
of September 30, 1999. Statutory capital consists of AMBAC's policyholders'
surplus and statutory contingency reserve. S&P, Moody's and Fitch have each
assigned a triple-A financial strength rating to AMBAC.
AMBAC has obtained a private letter ruling from the Internal Revenue Service
("IRS") to the effect that the insuring of an obligation by AMBAC will not
affect the treatment for Federal income tax purposes of interest on such
obligation and that insurance proceeds representing maturing interest paid by
AMBAC under policy provisions substantially identical to those contained in its
municipal bond insurance policy shall be treated for Federal income tax purposes
in the same manner as if such payments were made by the issuer of the municipal
bonds. Investors should understand that a private letter ruling may not be cited
as precedent by persons other than the taxpayer to whom it is addressed;
nevertheless, those rulings may be viewed as generally indicative of the
Internal Revenue Service's views on the proper interpretation of the Code and
the regulations thereunder.
AMBAC makes no representation regarding the municipal bonds included in the
investment portfolio of the Fund or the advisability of investing in such
municipal bonds and makes no representation regarding, nor has it participated
in the preparation of, the Prospectus and this SAI.
The information relating to AMBAC contained above has been furnished by
AMBAC. No representation is made herein as to the accuracy or adequacy of such
information, or as to the existence of any adverse changes in such information,
subsequent to the date hereof.
INVERSE FLOATERS. INSURED TAX EXEMPT FUND may invest in derivative
securities on which the rate of interest varies inversely with interest rates on
similar securities or the value of an index. For example, an inverse floating
rate security may pay interest at a rate that increases as a specified interest
rate index decreases but decreases as that index increases. The secondary market
for inverse floaters may be limited. The market value of such securities
generally is more volatile than that of a fixed rate obligation and, like most
debt obligations, will vary inversely with changes in interest rates. The
interest rates on inverse floaters may be significantly reduced, even to zero,
if interest rates rise. The Fund may invest up to 10% of its net assets in
inverse floaters.
LOANS OF PORTFOLIO SECURITIES. Each Fund may loan securities to qualified
broker-dealers or other institutional investors provided: the borrower pledges
to the Fund and agrees to maintain at all times with the Fund collateral equal
to not less than 100% of the value of the securities loaned (plus accrued
interest or dividend, if any); the loan is terminable at will by the Fund; the
Fund pays only reasonable custodian fees in connection with the loan; and the
Adviser monitors the creditworthiness of the borrower throughout the life of the
loan. Such loans may be terminated by the Fund at any time and the Fund may vote
the proxies if a material event affecting the investment is to occur. The market
risk applicable to any security loaned remains a risk of the Fund. The borrower
must add to the collateral whenever the market value of the securities rises
above the level of such collateral. The Fund could incur a loss if the borrower
should fail financially at a time when the value of the loaned securities is
greater than the collateral. BLUE CHIP FUND and INSURED TAX EXEMPT FUND may make
loans not in excess of 10% of each Fund's total assets. HIGH YIELD FUND may make
loans, together with illiquid securities, not in excess of 15% of its net
assets.
10
MORTGAGE-BACKED SECURITIES. BLUE CHIP FUND may invest in mortgage-backed
securities, including those representing an undivided ownership interest in a
pool of mortgage loans. Each of the certificates described below is
characterized by monthly payments to the security holder, reflecting the monthly
payments made by the mortgagees of the underlying mortgage loans. The payments
to the security holders (such as the Fund), like the payments on the underlying
loans, represent both principal and interest. Although the underlying mortgage
loans are for specified periods of time, such as twenty to thirty years, the
borrowers can, and typically do, repay them sooner. Thus, the security holders
frequently receive prepayments of principal, in addition to the principal which
is part of the regular monthly payments. A borrower is more likely to prepay a
mortgage which bears a relatively high rate of interest. Thus, in times of
declining interest rates, some higher yielding mortgages might be repaid
resulting in larger cash payments to the Fund, and the Fund will be forced to
accept lower interest rates when that cash is used to purchase additional
securities.
RISKS OF MORTGAGE-BACKED SECURITIES. Investments in mortgage-backed
securities entail market, prepayment and extension risk. Fixed-rate
mortgage-backed securities are priced to reflect, among other things, current
and perceived interest rate conditions. As conditions change, market values will
fluctuate. In addition, the mortgages underlying mortgage-backed securities
generally may be prepaid in whole or in part at the option of the individual
buyer. Prepayment generally increases when interest rates decline. Prepayments
of the underlying mortgages can affect the yield to maturity on mortgage-backed
securities and, if interest rates decline, the prepayment may only be invested
at the then prevailing lower interest rate. As a result, mortgage-backed
securities may have less potential for capital appreciation during periods of
declining interest rates as compared with other U.S. Government securities with
comparable stated maturities. Conversely, rising interest rates may cause
prepayment rates to occur at a slower than expected rate. This may effectively
lengthen the life of a security, which is known as extension risk. Longer term
securities generally fluctuate more widely in response to changes in interest
rates than shorter term securities. Changes in market conditions, particularly
during periods of rapid or unanticipated changes in market interest rates, may
result in volatility and reduced liquidity of the market value of certain
mortgage-backed securities.
GNMA CERTIFICATES. Government National Mortgage Association ("GNMA")
certificates ("GNMA Certificates") are mortgage-backed securities, which
evidence an undivided interest in a pool of mortgage loans. GNMA Certificates
differ from bonds in that principal is paid back monthly by the borrower over
the term of the loan rather than returned in a lump sum at maturity. GNMA
Certificates that the Fund purchases are the "modified pass-through" type.
"Modified pass-through" GNMA Certificates entitle the holder to receive a share
of all interest and principal payments paid and owed on the mortgage pool net of
fees paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee
the timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers'
Home Administration ("FMHA"), or guaranteed by the Department of Veteran Affairs
("VA"). The GNMA guarantee is backed by the full faith and credit of the U.S.
Government. GNMA also is empowered to borrow without limitation from the U.S.
Treasury if necessary to make any payments required under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before maturity of the mortgages in the pool. The Fund normally
will not distribute principal payments (whether regular or prepaid) to its
shareholders. Rather, it will invest such payments in additional
mortgage-related securities of the types described above. Interest received by
the Fund will, however, be distributed to shareholders. Foreclosures impose no
11
risk to principal investment because of the GNMA guarantee. As prepayment rates
of the individual mortgage pools vary widely, it is not possible to predict
accurately the average life of a particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest
on GNMA Certificates is lower than the interest rate paid on the VA-guaranteed
or FHA-insured mortgages underlying the Certificates by the amount of the fees
paid to GNMA and the issuer. The coupon rate by itself, however, does not
indicate the yield which will be earned on GNMA Certificates. First,
Certificates may trade in the secondary market at a premium or discount. Second,
interest is earned monthly, rather than semi-annually as with traditional bonds;
monthly compounding raises the effective yield earned. Finally, the actual yield
of a GNMA Certificate is influenced by the prepayment experience of the mortgage
pool underlying it. For example, if the higher-yielding mortgages from the pool
are prepaid, the yield on the remaining pool will be reduced.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation ("FHLMC")
issues two types of mortgage pass-through securities, mortgage participation
certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble
GNMA Certificates in that each PC represents a pro rata share of all interest
and principal payments made and owed on the underlying pool.
FNMA SECURITIES. The Federal National Mortgage Association ("FNMA")
issues guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents
a pro rata share of all interest and principal payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest on FNMA Certificates
and the full return of principal.
Risk of foreclosure of the underlying mortgages is greater with FHLMC
and FNMA securities because, unlike GNMA Certificates, FHLMC and FNMA securities
are not guaranteed by the full faith and credit of the U.S.
Government.
MUNICIPAL INSTRUMENTS-INSURED TAX EXEMPT FUND. As used in this SAI,
"Municipal Instruments" include the following: (1) municipal bonds; (2) private
activity bonds or industrial development bonds, (3) certificates of
participation ("COPS"), (4) municipal commercial paper; (5) municipal notes; and
(6) variable rate demand instruments (`VRDIs"). Generally, the value of
Municipal Instruments varies inversely with changes in interest rates.
MUNICIPAL BONDS. Municipal bonds are debt obligations that generally are
issued to obtain funds for various public purposes and have a time to maturity,
at issuance, of more than one year. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith and credit for the
payment of principal and interest. Revenue bonds generally are payable only from
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special tax or other specific revenue source.
There are variations in the security of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors. The yields on municipal bonds depend on, among other things, general
money market conditions, condition of the municipal bond market, size of a
particular offering, the maturity of the obligation and rating of the issuer.
Generally, the value of municipal bonds varies inversely to changes in interest
rates. See Appendix B for a description of municipal bond ratings.
PRIVATE ACTIVITY BONDS OR INDUSTRIAL DEVELOPMENT BONDS. Certain types of
revenue bonds, referred to as private activity bonds ("PABs") or industrial
development bonds ("IDBs"), are issued by or on behalf of public authorities to
obtain funds to provide for various privately operated facilities, such as
airports or mass transportation facilities. Most PABs and IDBs are pure revenue
bonds and are not backed by the taxing power of the issuing agency or authority.
12
See "Taxes" for a discussion of special tax consequences to "substantial users,"
or persons related thereto, of facilities financed by PABs or IDBs.
CERTIFICATES OF PARTICIPATION. COPs provide participation interests in
lease revenues and each certificate represents a proportionate interest in or
right to the lease-purchase payment made under municipal lease obligations or
installment sales contracts. In certain states, COPs constitute a majority of
new municipal financing issues. The possibility that a municipality will not
appropriate funds for lease payments is a risk of investing in COPS, although
this risk is mitigated by the fact that each COP will be covered by the
insurance feature.
The Board has established guidelines for determining the liquidity of
COPs in the Fund's portfolio and, subject to its review, has delegated that
responsibility to the Adviser. Under these guidelines, the Adviser will consider
(1) the frequency of trades and quotes for the security, (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers, (3) the willingness of dealers to undertake to make a market
in the security, (4) the nature of the marketplace, namely, the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer, (5) the coverage of the obligation by new issue insurance, (6) the
likelihood that the marketability of the obligation will be maintained through
the time the security is held by the Fund, and (7) for unrated COPs, the COPs'
credit status analyzed by the Adviser according to the factors reviewed by
rating agencies.
MUNICIPAL COMMERCIAL PAPER. Issues of municipal commercial paper which the
Fund may purchase are rated P-1 by Moody's or A-1 by S&P or have insurance
through the issuer or an independent insurance company and include unsecured,
short-term, negotiable promissory notes. Municipal commercial paper is issued
usually to meet temporary capital needs of the issuer or to serve as a source of
temporary construction financing. These obligations are paid from general
revenues of the issuer or are refinanced with long-term debt. A description of
commercial paper ratings is contained in Appendix A.
MUNICIPAL NOTES. Municipal notes which the Fund may purchase will be
principally tax anticipation notes, bond anticipation notes, revenue
anticipation notes and project notes. The obligations are sold by an issuer
prior to the occurrence of another revenue producing event to bridge a financial
gap for such issuer. Municipal notes are usually general obligations of the
issuing municipality. Project notes are issued by housing agencies, but are
guaranteed by the U.S. Department of Housing and Urban Development and are
secured by the full faith and credit of the United States. Such municipal notes
must be rated MIG-1 by Moody's or SP-1 by S&P or have insurance through the
issuer or an independent insurance company. A description of municipal note
ratings is contained in Appendix B.
VARIABLE RATE DEMAND INSTRUMENTS. VRDIs are Municipal Instruments, the
interest on which is adjusted periodically, which allow the holder to demand
payment of all unpaid principal plus accrued interest from the issuer. A VRDI
that the Fund may purchase will be selected if it meets criteria established and
designed by the Board to minimize risk to the Fund. In addition, a VRDI must be
rated MIG-1 by Moody's or SP-1 by S&P or insured by the issuer or an independent
insurance company. There is a recognized after-market for VRDIs.
PREFERRED STOCK. Each Fund may invest in preferred stock. A preferred stock
is a blend of the characteristics of a bond and common stock. It can offer the
higher yield of a bond and has priority over common stock in equity ownership,
but does not have the seniority of a bond and, unlike common stock, its
participation in the issuer's growth may be limited. Preferred stock has
preference over common stock in the receipt of dividends and in any residual
assets after payment to creditors should the issuer be dissolved. Although the
dividend is set at a fixed annual rate, in some circumstances it can be changed
or omitted by the issuer.
13
REPURCHASE AGREEMENTS. A repurchase agreement essentially is a short-term
collateralized loan. The lender (a Fund) agrees to purchase a security from a
borrower (typically a broker-dealer) at a specified price. The borrower
simultaneously agrees to repurchase that same security at a higher price on a
future date (which typically is the next business day). The difference between
the purchase price and the repurchase price effectively constitutes the payment
of interest. In a standard repurchase agreement, the securities which serve as
collateral are transferred to a Fund's custodian bank. In a "tri-party"
repurchase agreement, these securities would be held by a different bank for the
benefit of the Fund as buyer and the broker-dealer as seller. In a "quad-party"
repurchase agreement, the Fund's custodian bank also is made a party to the
agreement. Each Fund may enter into repurchase agreements with banks which are
members of the Federal Reserve System or securities dealers who are members of a
national securities exchange or are market makers in government securities. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will a Fund invest in repurchase agreements with more
than one year in time to maturity. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of one year
from the effective date of the repurchase agreement. Each Fund will always
receive, as collateral, securities whose market value, including accrued
interest, which will at all times be at least equal to 100% of the dollar amount
invested by the Fund in each agreement, and the Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of the custodian. If the seller defaults, a Fund might incur a loss if
the value of the collateral securing the repurchase agreement declines, and
might incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy or similar proceedings are commenced with respect to the
seller of the security, realization upon the collateral by a Fund may be delayed
or limited. No Fund may enter into a repurchase agreement with more than seven
days to maturity if, as a result, more than 15% of such Fund's net assets would
be invested in such repurchase agreements and other illiquid investments.
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS. No Fund will purchase or
otherwise acquire any security if, as a result, more than 15% of its net assets
(taken at current value) would be invested in securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. This policy includes foreign issuers' unlisted
securities with a limited trading market and repurchase agreements maturing in
more than seven days. This policy does not include restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended ("1933 Act"), which the Board or the Adviser has determined under
Board-approved guidelines are liquid.
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
14
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at reasonable prices.
Over-the-counter ("OTC") options and their underlying collateral are also
considered illiquid investments. INSURED TAX EXEMPT FUND may not invest in
options. While BLUE CHIP FUND and HIGH YIELD FUND have no intention of investing
in options in the coming year, if any such Fund did, the assets used as cover
for OTC options written by the Fund would not be considered illiquid unless the
OTC options are sold to qualified dealers who agree that the Fund may repurchase
any OTC option it writes at a maximum price to be calculated by a formula set
forth in the option agreement. The cover for an OTC option written subject to
this procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option
WARRANTS. HIGH YIELD FUND AND BLUE CHIP FUND may each purchase warrants,
which are instruments that permit the Fund to acquire, by subscription, the
capital stock of a corporation at a set price, regardless of the market price
for such stock. Warrants may be either perpetual or of limited duration. There
is greater risk that warrants might drop in value at a faster rate than the
underlying stock. HIGH YIELD FUND'S investments in warrants is limited to 5% of
its total assets, of which no more than 2% may not be listed on the New York or
American Stock Exchange.
WHEN-ISSUED SECURITIES. HIGH YIELD FUND and INSURED TAX EXEMPT FUND may each
invest up to 10% and 25%, respectively, of its net assets in securities issued
on a when-issued or delayed delivery basis at the time the purchase is made. A
Fund generally would not pay for such securities or start earning interest on
them until they are issued or received. However, when a Fund purchases debt
obligations on a when-issued basis, it assumes the risks of ownership, including
the risk of price fluctuation, at the time of purchase, not at the time of
receipt. Failure of the issuer to deliver a security purchased by a Fund on a
when-issued basis may result in that Fund's incurring a loss or missing an
opportunity to make an alternative investment. When a Fund enters into a
commitment to purchase securities on a when-issued basis, it establishes a
separate account on its books and records or with its custodian consisting of
cash or liquid high-grade debt securities equal to the amount of that Fund's
commitment, which are valued at their fair market value. If on any day the
market value of this segregated account falls below the value of a Fund's
commitment, that Fund will be required to deposit additional cash or qualified
securities into the account until equal to the value of that Fund's commitment.
When the securities to be purchased are issued, the Fund will pay for the
securities from available cash, the sale of securities in the segregated
account, sales of other securities and, if necessary, from sale of the
when-issued securities themselves although this is not ordinarily expected.
Securities purchased on a when-issued basis are subject to the risk that yields
available in the market, when delivery takes place, may be higher than the rate
to be received on the securities a Fund is committed to purchase. Sale of
securities in the segregated account or sale of the when-issued securities may
cause the realization of a capital gain or loss.
ZERO COUPON AND PAY-IN-KIND SECURITIES. Zero coupon securities are debt
obligations that do not entitle the holder to any periodic payment of interest
prior to maturity or a specified date when the securities begin paying current
interest. They are issued and traded at a discount from their face amount or par
value, which discount varies depending on the time remaining until cash payments
15
begin, prevailing interest rates, liquidity of the security and the perceived
credit quality of the issuer. Pay-in-kind securities are those that pay interest
through the issuance of additional securities. The market prices of zero coupon
and pay-in-kind securities generally are more volatile than the prices of
securities that pay interest periodically and in cash and are likely to respond
to changes in interest rates to a greater degree than do other types of debt
securities having similar maturities and credit quality. Original issue discount
earned each year on zero coupon securities (including zero coupon Municipal
Securities) and the "interest" on pay-in-kind securities must be accounted for
by a Fund that holds the securities for purposes of determining the amount it
must distribute that year to continue to qualify for tax treatment as a
regulated investment company and, for HIGH YIELD FUND, to avoid certain excise
tax on undistributed income. Thus, a Fund may be required to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. See "Taxes". These distributions must be made from a Fund's cash
assets or, if necessary, from the proceeds of sales of portfolio securities.
HIGH YIELD FUND and INSURED TAX EXEMPT FUND will not be able to purchase
additional income-producing securities with cash used to make such
distributions, and their current income ultimately could be reduced as a result.
FUTURES AND OPTIONS STRATEGIES
Although they do not intend to engage in such strategies in the coming year,
BLUE CHIP FUND has the legal authority to engage in certain options strategies,
and HIGH YIELD FUND AND INSURED TAX EXEMPT FUND have the legal authority to
engage in certain futures strategies, to hedge their portfolios and in other
circumstances permitted by the Commodities Futures Trading Commission ("CFTC").
In addition, INSURED TAX EXEMPT FUND may engage in certain options strategies to
enhance income. To hedge their portfolios, BLUE CHIP FUND may buy
exchange-traded put and call options on stock indices and enter into closing
transactions with respect to such options, and HIGH YIELD FUND may buy and sell
interest rate futures contracts traded on a board of trade. INSURED TAX EXEMPT
FUND may sell covered listed put and call options and buy call and put on its
portfolio securities and may enter into closing transactions with respect to
such options. The Fund also may buy and sell financial futures contracts and buy
and sell call and put options thereon traded on a U.S. exchange or board of
trade and enter into closing transactions with respect to such options.
Certain special characteristics of, and risks associated with, using these
instruments and strategies are discussed below. Use of these instruments is
subject to the applicable regulations of the Securities and Exchange Commission
("SEC"), the several options and futures exchanges upon which options and
futures contracts are traded and the CFTC. The discussion of these strategies
does not imply that the Funds will use them to hedge against risks or for any
other purpose.
Participation in the options or futures markets involves investment risks
and transaction costs to which a Fund would not be subject absent the use of
these strategies. If the Adviser's prediction of movements in the direction of
the securities and interest rate markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. The Fund might not employ any of the strategies
described below, and there can be no assurance that any strategy will succeed.
The use of these strategies involve certain special risks, including (1)
dependence on the Adviser's ability to predict correctly movements in the
direction of interest rates and securities prices, (2) imperfect correlation
between the price of options, futures contracts and options thereon and
movements in the prices of the securities being hedged, (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities and, (4) the possible absence of a liquid secondary market
for any particular instrument at any time.
COVER FOR HEDGING AND OPTION INCOME STRATEGIES. No Fund will use leverage in
its hedging and option income strategies. Each Fund will not enter into a
hedging or option income strategy that exposes the Fund to an obligation to
another party unless it owns either (1) an offsetting ("covered") position in
securities or other options or futures contracts or (2) cash and/or liquid
16
assets with a value sufficient at all times to cover its potential obligations.
Each Fund will comply with guidelines established by the SEC with respect to
coverage of hedging and option income strategies by mutual funds and, if
required, will set aside cash and/or liquid assets in a segregated account with
its custodian in the prescribed amount. Securities or other options or futures
positions used for cover and assets held in a segregated account cannot be sold
or closed out while the hedging or option income strategy is outstanding unless
they are replaced with similar assets. As a result, there is a possibility that
the use of cover or segregation involving a large percentage of a Fund's assets
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
OPTIONS STRATEGIES. INSURED TAX EXEMPT FUND may purchase call options on
securities that the Adviser intends to include in its portfolio in order to fix
the cost of a future purchase. Call options also may be used as a means of
participating in an anticipated price increase of a security. In the event of a
decline in the price of the underlying security, use of this strategy would
serve to limit the Fund's potential loss to the option premium paid; conversely,
if the market price of the underlying security increases above the exercise
price and the Fund either sells or exercises the option, any profit eventually
realized will be reduced by the premium. INSURED TAX EXEMPT FUND may purchase
put options in order to hedge against a decline in the market value of
securities held in its portfolio. The put option enables the Fund to sell the
underlying security at the predetermined exercise price; thus the potential for
loss to the Fund below the exercise price is limited to the option premium paid.
If the market price of the underlying security is higher than the exercise price
of the put option, any profit the Fund realizes on the sale of the security will
be reduced by the premium paid for the put option less any amount for which the
put option may be sold.
INSURED TAX EXEMPT FUND may write covered call options on securities to
increase income in the form of premiums received from the purchasers of the
options. Because it can be expected that a call option will be exercised if the
market value of the underlying security increases to a level greater than the
exercise price, the Fund will write covered call options on securities generally
when the Adviser believes that the premium received by the Fund, plus
anticipated appreciation in the market price of the underlying security up to
the exercise price of the option, will be greater than the total appreciation in
the price of the security. The strategy may be used to provide limited
protection against a decrease in the market price of the security in an amount
equal to the premium received for writing the call option less any transaction
costs. Thus, if the market price of the underlying security held by the Fund
declines, the amount of such decline will be offset wholly or in part by the
amount of the premium received by the Fund. If, however, there is an increase in
the market price of the underlying security and the option is exercised, the
Fund will be obligated to sell the security at less than its market value. The
Fund gives up the ability to sell the portfolio securities used to cover the
call option while the call option is outstanding. Such securities may also be
considered illiquid in the case of OTC options written by the Fund, to the
extent described under "Investment Policies--Restricted Securities and Illiquid
Investments" and therefore subject to the Fund's limitation on investments in
illiquid securities. In addition, the Fund could lose the ability to participate
in an increase in the value of such securities above the exercise price of the
call option because such an increase would likely be offset by an increase in
the cost of closing out the call option (or could be negated if the buyer chose
to exercise the call option at an exercise price below the securities' current
market value).
INSURED TAX EXEMPT FUND may write put options. A put option gives the
purchaser of the option the right to sell, and the writer (seller) the
obligation to buy, the underlying security at the exercise price during the
option period. So long as the obligation of the writer continues, the writer may
be assigned an exercise notice by the broker-dealer through which such option
was sold, requiring it to make payment of the exercise price against delivery of
the underlying security. The operation of put options in other respects,
including their related risks and rewards, is substantially identical to that of
call options. The Fund may write covered put options in circumstances when the
Adviser believes that the market price of the securities will not decline below
17
the exercise price less the premiums received. If the put option is not
exercised, the Fund will realize income in the amount of the premium received.
This technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security would decline below the exercise price less the premiums
received, in which case the Fund would expect to suffer a loss.
BLUE CHIP FUND may purchase U.S. exchange-traded put and call options on
stock indices in much the same manner as the more traditional equity and debt
options discussed above, except that stock index options may serve as a hedge
against overall fluctuations in the securities markets (or a market sector)
rather than anticipated increases or decreases in the value of a particular
security. A stock index assigns relative values to the stock included in the
index and fluctuates with changes in such values. Stock index options operate in
the same way as the more traditional equity options, except that settlements of
stock index options are effected with cash payments and do not involve delivery
of securities. Thus, upon settlement of a stock index option, the purchaser will
realize, and the writer will pay, an amount based on the difference between the
exercise price and the closing price of the stock index. The effectiveness of
hedging techniques using stock index options will depend on the extent to which
price movements in the stock index selected correlate with price movements of
the securities in which a Fund invests.
Currently, many options on equity securities are exchange-traded, whereas
options on debt securities are primarily traded on the OTC market.
Exchange-traded options in the U.S. are issued by a clearing organization
affiliated with the exchange on which the option is listed which, in effect,
guarantees completion of every exchange-traded option transaction. In contrast,
OTC options are contracts between a Fund and the opposite party with no clearing
organization guarantee. Thus, when a Fund purchases an OTC option, it relies on
the dealer from which it has purchased the OTC option to make or take delivery
of the securities underlying the option. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as the loss of the
expected benefit of the transaction.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. BLUE CHIP FUND and
INSURED TAX EXEMPT FUND may effectively terminate their right or obligation
under an option by entering into a closing transaction. If either Fund wishes to
terminate its obligation to sell securities under a put or call option it has
written, the Fund may purchase a put or call option of the same series (that is,
an option identical in its terms to the call option previously written); this is
known as a closing purchase transaction. Conversely, in order to terminate its
right to purchase or sell specified securities under a call or put option it has
purchased, a Fund may write an option of the same series as the option held;
this is known as a closing sale transaction. Closing transactions essentially
permit a Fund to realize profits or limit losses on its options positions prior
to the exercise or expiration of the option. Whether a profit or loss is
realized from a closing transaction depends on the price movement of the
underlying index or security and the market value of the option.
The value of an option position will reflect, among other things, the
current market price of the underlying security or stock index, the time
remaining until expiration, the relationship of the exercise price to the market
price, the historical price volatility of the underlying security or stock index
and general market conditions. For this reason, the successful use of options
depends upon the Adviser's ability to forecast the direction of price
fluctuations in the underlying securities market or, in the case of stock index
options, fluctuations in the market sector represented by the index selected.
Options normally have expiration dates of up to nine months. Unless an
option purchased by a Fund is exercised or unless a closing transaction is
effected with respect to that position, a loss will be realized in the amount of
the premium paid and any transaction costs.
18
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. The ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market. Although BLUE CHIP FUND and INSURED TAX EXEMPT
FUND intend to purchase or write only those exchange-traded options for which
there appears to be a liquid secondary market, there is no assurance that a
liquid secondary market will exist for any particular option at any particular
time. Closing transactions may be effected with respect to options traded in the
OTC markets (currently the primary markets for options on debt securities) only
by negotiating directly with the other party to the option contract or in a
secondary market for the option if such market exists. Although a Fund will
enter into OTC options only with dealers that agree to enter into, and that are
expected to be capable of entering into, closing transactions with a Fund, there
is no assurance that the Fund will be able to liquidate an OTC option at a
favorable price at any time prior to expiration. In the event of insolvency of
the opposite party, a Fund may be unable to liquidate an OTC option.
Accordingly, it may not be possible to effect closing transactions with respect
to certain options, with the result that a Fund would have to exercise those
options that it has purchased in order to realize any profit. With respect to
options written by a Fund, the inability to enter into a closing transaction may
result in material losses to the Fund. For example, because a Fund must maintain
a covered position with respect to any call option it writes, that Fund may not
sell the underlying assets used to cover an option during the period it is
obligated under the option. This requirement may impair the Fund's ability to
sell a portfolio security or make an investment at a time when such a sale or
investment might be advantageous.
Stock index options are settled exclusively in cash. If BLUE CHIP FUND
purchases an option on a stock index, the option is settled based on the closing
value of the index on the exercise date. Thus, a holder of a stock index option
who exercises it before the closing index value for that day is available runs
the risk that the level of the underlying index may subsequently change. For
example, in the case of a call option, if such a change causes the closing index
value to fall below the exercise price of the option on the index, the
exercising holder will be required to pay the difference between the closing
index value and the exercise price of the option.
A Fund's activities in the options markets may result in a higher portfolio
turnover rate and additional brokerage costs; however, a Fund also may save on
commissions by using options as a hedge rather than buying or selling individual
securities in anticipation or as a result of market movements.
FUTURES STRATEGIES. HIGH YIELD FUND and INSURED TAX EXEMPT FUND may engage
in futures strategies to attempt to reduce the overall investment risk that
would normally be expected to be associated with ownership of the securities in
which they invest.
HIGH YIELD FUND and INSURED TAX EXEMPT FUND may use interest rate futures
contracts and, for INSURED TAX EXEMPT FUND, options thereon, to hedge the debt
portion of their portfolios against changes in the general level of interest
rates. A Fund may purchase an interest rate futures contract when it intends to
purchase debt securities but has not yet done so. This strategy may minimize the
effect of all or part of an increase in the market price of those securities
because a rise in the price of the securities prior to their purchase may either
be offset by an increase in the value of the futures contract purchased by a
Fund or avoided by taking delivery of the debt securities under the futures
contract. Conversely, a fall in the market price of the underlying debt
securities may result in a corresponding decrease in the value of the futures
position. A Fund may sell an interest rate futures contract in order to continue
to receive the income from a debt security, while endeavoring to avoid part or
all of the decline in the market value of that security that would accompany an
increase in interest rates.
INSURED TAX EXEMPT FUND may purchase a call option on a financial futures
contract to hedge against a market advance in debt securities that the Fund
plans to acquire at a future date. The Fund also may write covered call options
19
on financial futures contracts as a partial hedge against a decline in the price
of debt securities held in the Fund's portfolio or purchase put options on
financial futures contracts in order to hedge against a decline in the value of
debt securities held in the Fund's portfolio.
HIGH YIELD FUND and INSURED TAX EXEMPT FUND will use futures contracts and,
for INSURED TAX EXEMPT FUND, options thereon solely in bona fide hedging
transactions or under other circumstances permitted by the CFTC and INSURED TAX
EXEMPT FUND will not enter into such investments for which the aggregate initial
margin and premiums exceed 5% of that Fund's total assets. This does not limit
that Fund's assets at risk to 5%. The Fund has represented the foregoing to the
CFTC.
FUTURES GUIDELINES. To the extent that a Fund enters into futures contracts
or options thereon other than for bona fide hedging purposes (as defined by the
CFTC), (1) the aggregate initial margin and premiums required to establish these
positions (excluding the in-the-money amount for options that are in-the-money
at the time of purchase) will not exceed 5% of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and losses on any
contracts into which the Fund has entered. This policy does not limit a Fund's
assets at risk to 5%. The value of all futures sold will not exceed the total
market value of a Fund's portfolio. In addition, each Fund may not purchase
interest rate futures contracts if immediately thereafter more than 30% of its
total assets would be so invested.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid upon
entering into futures contracts. Instead, upon entering into a futures contract,
HIGH YIELD FUND and INSURED TAX EXEMPT FUND are required to deposit with their
custodian in a segregated account in the name of the futures broker through
which the transaction is effected an amount of cash, U.S. Government securities
or other liquid, high-grade debt instruments generally equal to 3%-5% of the
contract value. This amount is known as "initial margin." When writing a put or
call option on a futures contract, margin also must be deposited in accordance
with applicable exchange rules. Initial margin on futures contracts is in the
nature of a performance bond or good-faith deposit that is returned to a Fund
upon termination of the transaction, assuming all obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, a
Fund may be required by an exchange to increase the level of its initial margin
payment. Additionally, initial margin requirements may be increased generally in
the future by regulatory action. Subsequent payments, called "variation margin,"
to and from the broker, are made on a daily basis as the value of the futures
position varies, a process known as "marking to market." Variation margin does
not involve borrowing to finance the futures transactions, but rather represents
a daily settlement of a Fund's obligation to or from a clearing organization.
INSURED TAX EXEMPT FUND is also obligated to make initial and variation margin
payments when it writes options on futures contracts.
Holders and writers of futures positions and options thereon can enter into
offsetting closing transactions, similar to closing transactions on options on
securities, by selling or purchasing, respectively, a futures position or
options position with the same terms as the position or option held or written.
Positions in futures contracts and options thereon may be closed only on an
exchange or board of trade providing a secondary market for such futures or
options.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for a Fund to close a position
and, in the event of adverse price movements such Fund would have to make daily
20
cash payments of variation margin (except in the case of purchased options).
However, in the event futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the 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, there is no guarantee that the price of the securities will, in fact,
correlate with the price movements in the contracts and thus provide an offset
to losses on the contracts.
Successful use by HIGH YIELD FUND and INSURED TAX EXEMPT FUND of futures
contracts and, for INSURED TAX EXEMPT FUND, related options, will depend upon
the Adviser's ability to predict movements in the direction of the overall
securities and interest rate markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current price level of the
underlying instrument but to the anticipated levels at some point in the future.
There is, in addition, the risk that the movements in the price of the futures
contract or related option will not correlate with the movements in prices of
the securities being hedged. In addition, if a Fund has insufficient cash, it
may have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect the rising market. Consequently, a Fund may need to sell assets at a
time when such sales are disadvantageous to that Fund. If the price of the
futures contract or related option moves more than the price of the underlying
securities, a Fund will experience either a loss or a gain on the futures
contract or related option, that may or may not be completely offset by
movements in the price of the securities that are the subject of the hedge.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between price movements in the futures or related
option position and the securities being hedged, movements in the prices of
futures contracts and related options may not correlate perfectly with movements
in the prices of the hedged securities because of price distortions in the
futures market. As a result, a correct forecast of general market trends may not
result in successful hedging through the use of futures contracts and related
options over the short term.
Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts or
related options. Although HIGH YIELD FUND and INSURED TAX EXEMPT FUND intend to
purchase or sell futures and, for INSURED TAX EXEMPT FUND, related options, only
on exchanges or boards of trade where there appears to be a liquid secondary
market, there is no assurance that such a market will exist for any particular
contract or option at any particular time. In such event, it may not be possible
to close a futures or option position and, in the event of adverse price
movements, a Fund would continue to be required to make variation margin
payments.
Like options on securities, options on futures contracts have a limited
life. The ability to establish and close out options on futures will be subject
to the development and maintenance of liquid secondary markets on the relevant
exchanges or boards of trade. There can be no certainty that liquid secondary
markets for all options on futures contracts will develop.
Purchasers of options on futures contracts pay a premium in cash at the time
of purchase. This amount and the transaction costs are all that is at risk.
Sellers of options on a futures contract, however, must post initial margin and
are subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
INSURED TAX EXEMPT FUND purchases an option is the premium paid for the option
and the transaction costs, there may be circumstances when the purchase of an
option on a futures contract would result in a loss to the Fund when the use of
a futures contract would not, such as when there is no movement in the level of
the underlying stock index or the value of the securities being hedged.
21
HIGH YIELD FUND and INSURED TAX EXEMPT FUND'S activities in the futures and,
for INSURED TAX EXEMPT FUND, related options, markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions; however, a Fund also may save on commissions by using
futures and related options as a hedge rather than buying or selling individual
securities in anticipation or as a result of market movements.
PORTFOLIO TURNOVER
Although each Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Adviser, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in a Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to transaction costs and may result in a
greater number of taxable transactions. See "Allocation of Portfolio Brokerage."
For the fiscal year ended December 31, 1998, the portfolio turnover rate for
BLUE CHIP FUND, HIGH YIELD FUND and INSURED TAX EXEMPT FUND was 96%, 41% and
172%, respectively. For the six-month period ended June 30, 1999, the portfolio
turnover rate for BLUE CHIP FUND, HIGH YIELD FUND and INSURED TAX EXEMPT FUND
was 52%, 26% and 77%, respectively.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
respective Fund and, unless identified as non-fundamental policies, may not be
changed without the affirmative vote of a majority of the outstanding voting
securities of that Fund, voting separately from any other Fund of the Trust. As
provided in the Investment Company Act of 1940, as amended ("1940 Act"), a "vote
of a majority of the outstanding voting securities of the Fund" means the
affirmative vote of the lesser of (1) more than 50% of the outstanding shares of
the Fund or (2) 67% or more of the shares of the Fund present at a meeting, if
more than 50% of the outstanding shares are represented at the meeting in person
or by proxy. Except with respect to borrowing, changes in values of a particular
Fund's assets will not cause a violation of the following investment
restrictions so long as percentage restrictions are observed by that Fund at the
time it purchases any security.
BLUE CHIP FUND. BLUE CHIP FUND will not:
(1) Make short sales of securities to maintain a short position.
(2) Issue senior securities, borrow money or pledge its assets except that
the Fund may borrow from a bank for temporary or emergency purposes in amounts
not exceeding 5% (taken at the lower of cost or current value) of its total
assets (not including the amount borrowed) and pledge its assets to secure such
borrowings.
(3) Make loans, except loans of portfolio securities (limited to 10% of the
Fund's total assets).
(4) Invest more than 25% of the Fund's total assets (taken at current value)
in the obligations of one or more issuers having their principal business
activities in the same industry.
(5) With respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
22
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(6) Pledge, mortgage or hypothecate any of its assets except that the Fund
may pledge its assets to secure borrowings made in accordance with paragraph (2)
above, provided the Fund maintains asset coverage of at least 300% for pledged
assets.
(7) Buy or sell commodities or commodity contracts or real estate or
interests in real estate limited partnerships, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate.
(8) Act as an underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain Federal securities laws.
(9) Make investments for the purpose of exercising control or management.
(10) Purchase any securities on margin.
(11) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of the Trust, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer, director or Trustee of the Trust or of the Adviser owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such officers,
directors or Trustees who own more than 1/2 of 1% own in the aggregate more than
5% of the outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be changed
without prior shareholder approval. These investment restrictions provide that
the Fund will not:
(1) Write, purchase or sell options (puts, calls or combinations thereof),
except that the Fund may purchase put and call options on U.S. exchange-traded
options on stock indices (and may enter into closing sale transactions with
respect to such options) provided that the premiums paid for such options do not
exceed 5% of the Fund's total assets.
(2) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Trustees, or the
Fund's investment adviser acting pursuant to authority delegated by the
Trustees, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, or any other applicable rule, and therefore that such securities are
not subject to the foregoing limitation.
23
HIGH YIELD FUND. HIGH YIELD FUND will not:
(1) Borrow money, except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets.
(2) Engage in "short sales" in excess of 10% of the Fund's total assets.
(3) Pledge, mortgage or hypothecate any of its assets, except that the Fund
may pledge its assets to secure borrowings made in accordance with paragraphs
(1) and (2) above and for margin to secure its obligations under interest rate
futures contracts, provided the Fund maintains asset coverage of at least 300%
for pledged assets.
(4) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the Trust's Board may, on the request of
broker-dealers or other institutional investors which they deem qualified,
authorize the Fund to loan securities to cover the borrower's short position;
provided, however, the borrower pledges to the Fund and agrees to maintain at
all times with the Fund cash collateral equal to not less than 100% of the value
of the securities loaned, the loan is terminable at will by the Fund, the Fund
receives interest on the loan as well as any distributions upon the securities
loaned, the Fund retains voting rights associated with the securities, the Fund
pays only reasonable custodian fees in connection with the loan, and the Adviser
monitors the creditworthiness of the borrower throughout the life of the loan;
provided further, that such loans will not be made if the value of all
repurchase agreements with more than seven days to maturity, and other illiquid
assets is greater than an amount equal to 15% of the Fund's net assets.
(5) With respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(6) Purchase the securities of an issuer if such purchase, at the time
thereof, would cause more than 5% of the value of the Fund's total assets to be
invested in securities of issuers which, including predecessors, have a record
of less than three years' continuous operation.
(7) Underwrite securities issued by other persons except to the extent that,
in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws.
(8) Purchase or sell real estate or commodities or commodity contracts.
However, the Fund may purchase interests in real estate investment trusts whose
securities are registered under the 1940 Act and are readily marketable and may
invest in interest rate futures contracts and options thereon (provided the
margin required does not violate the investment restrictions pertaining to
pledged assets).
(9) Invest in companies for the purpose of exercising control or management.
(10) Invest in securities of other investment companies, except in
connection with a merger of another investment company.
(11) Purchase any securities on margin (however, the Fund's engaging in
"hedging transactions" and the margins required thereon shall not be considered
a violation of this provision).
24
(12) Purchase or retain securities of any issuer if any officer and director
or trustee of the Trust or the Adviser owns beneficially more than 1/2 of 1% of
the securities of such issuer or if all such officers and directors or trustees
together own more than 5% of the securities of such issuer.
(13) Invest more than 25% of the Fund's total assets (taken at current
value) in the obligations of one or more issuers having their principal business
activities in the same industry.
(14) Invest more than 5% of the value of its net assets in warrants, with no
more than 2% in warrants not listed on either the New York or American Stock
Exchanges.
(15) Purchase or sell portfolio securities from or to the Adviser or any
trustee or officer thereof or of the Trust, as principals.
(16) Invest more than 15% of the value of its total assets, at the time of
purchase, in deep discount securities of companies that are financially
troubled, in default or in bankruptcy or reorganization.
(17) Issue senior securities.
(18) Invest any of its assets in interests in oil, gas or other mineral
exploration or development programs, or in puts, calls, straddles or any
combination thereof.
(19) Invest more than 10% of its net assets in when-issued securities at the
time such purchase is made.
The following investment restriction is not fundamental and may be changed
without shareholder approval:
(1) The Fund will not purchase any security if, as a result, more than 15%
of its net assets would be invested in illiquid securities, including repurchase
agreements not entitling the holder to payment of principal and interest within
seven days and any securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily available market.
The Trustees, or the Fund's investment adviser acting pursuant to authority
delegated by the Trustees, may determine that a readily available market exists
for securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933, as amended, or any other applicable rule, and therefore that such
securities are not subject to the foregoing limitation.
INSURED TAX EXEMPT FUND. INSURED TAX EXEMPT FUND will not:
(1) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 5% of the value of the Fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 5% limitation. This
policy shall not prohibit deposits of assets to provide margin or guarantee
positions in connection with transactions in options, futures contracts, swaps,
forward contracts, and other derivative instruments or the segregation of assets
in connection with such transactions.
(2) Issue senior securities.
(3) Make loans, except loans of portfolio securities (limited to 10% of the
Fund's total assets), provided such loans are at all times secured by cash or
equivalent collateral of no less than 100% by marking to market daily.
25
(4) With respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer. With respect to pre-refunded bonds, the Adviser considers an escrow
account to be the issuer of such bonds when the escrow account consists solely
of U.S. Government obligations fully substituted for the obligation of the
issuing municipality.
(5) Invest in any municipal bonds unless they will be insured municipal
bonds or unless they are already insured under an insurance policy obtained by
the issuer or underwriter thereof.
(6) Invest more than 25% of the Fund's total assets (taken at current value)
in the obligations of one or more issuers having their principal business
activities in the same industry.
(7) Buy or sell real estate or interests in real estate limited
partnerships, although it may purchase and sell securities which are secured by
real estate or interests therein.
(8) Underwrite any issue of securities, although the Fund may purchase
municipal bonds directly from the issuer thereof for investment in accordance
with the Fund's investment objective, policy and limitations.
(9) Make investments for the purpose of exercising control or management.
(10) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of the Trust, as principals.
(11) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer, director or Trustee of the Trust or of the Adviser owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such officers,
directors or Trustees who own more than 1/2 of 1% own in the aggregate more than
5% of the outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be changed
without shareholder approval. These investment restrictions provide that the
Fund will not:
(1) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Trustees, or the
Fund's investment adviser acting pursuant to authority delegated by the
Trustees, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, or any other applicable rule, and therefore that such securities are
not subject to the foregoing limitation.
(2) Purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this restriction shall not prevent the Fund from
purchasing or selling options, futures contracts, caps, floors and other
derivative instruments, engaging in swap transactions or investing in securities
or other instruments backed by physical commodities).
(3) Enter into futures contracts or options on futures contracts other than
for bona fide hedging purposes (as defined by the CFTC) if the aggregate initial
margin and premiums required to establish these positions (excluding the amount
by which options are "in-the-money" at the time of purchase) may not exceed 5%
of the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any contracts the Fund has entered
into.
26
(4) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (1) above,
provided the Fund maintains asset coverage of at least 300% for pledged assets;
provided, however, this limitation will not prohibit escrow, collateral or
margin arrangements in connection with the Fund's use of options, futures
contracts or options on futures contracts.
(5) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
transactions in options, futures contracts, swaps, forward contracts, and other
derivative instruments shall not be deemed to constitute purchasing securities
on margin.
TRUSTEES AND OFFICERS
The following table lists the Trustees and executive officers of the Trust,
their age, business address and principal occupations during the past five
years. Unless otherwise noted, an individual's business address is 95 Wall
Street, New York, New York 10005.
JAMES J. COY (85). Emeritus Trustee, 90 Buell Lane, East Hampton, NY 11937.
Retired; formerly Senior Vice President, James Talcott, Inc. (financial
institution).
GLENN O. HEAD*+ (74), President and Trustee. Chairman of the Board and
Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Asset
Management Company, Inc. ("FIAMCO"), First Investors Corporation ("FIC"),
Executive Investors Corporation ("EIC") and First Investors Consolidated
Corporation ("FICC").
KATHRYN S. HEAD*+ (44), Trustee, 581 Main Street, Woodbridge, NJ 07095.
President and Director, FICC, ADM and FIMCO; Vice President and Director, FIC
and EIC; President EIMCO; Chairman, President and Director, First Financial
Savings Bank, S.L.A.
LARRY R. LAVOIE* (52), Trustee. Assistant Secretary, ADM, EIC, EIMCO, FIAMCO,
FICC and FIMCO; President, FIAMCO; Secretary and General Counsel, FIC.
REX R. REED** (77), Trustee, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN** (78), Trustee, 695 Charolais Circle, Edwards, CO
81632-1136. Retired; formerly President, Belvac International Industries,
Ltd. and President, Central Dental Supply.
NANCY SCHAENEN** (68), Trustee, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
JAMES M. SRYGLEY** (67), Trustee, 39 Hampton Road, Chatham, NJ 07928.
Principal, Hampton Properties, Inc. (property investment company).
JOHN T. SULLIVAN* (67), Trustee and Chairman of the Board; Director, FIMCO, FIC,
FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH** (70), Trustee, 217 Upland Downs Road, Manchester Center,
VT 05255. Retired; formerly financial and planning executive with American
Telephone & Telegraph Company.
27
JOSEPH I. BENEDEK (42), Treasurer and Principal Accounting Officer, 581 Main
Street, Woodbridge, NJ 07095. Treasurer, FIMCO, EIMCO and FIAMCO.
CONCETTA DURSO (64), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
CLARK D. WAGNER (40), Vice President, INSURED TAX EXEMPT FUND. Vice President,
First Investors Series Fund, First Investors Insured Tax Exempt Fund, Inc.,
First Investors Multi-State Insured Tax Free Fund, First Investors New York
Insured Tax Free Fund, Inc., Executive Investors Trust and First Investors
Government Fund, Inc.; Chief Investment Officer, FIMCO.
NANCY W. JONES (55), Vice President, HIGH YIELD FUND. Vice President, First
Investors Asset Management Company, Inc. and First Investors Series Fund;
Portfolio Manager, FIMCO.
DENNIS FITZPATRICK (41), Vice President, BLUE CHIP FUND. Vice President,
First Investors Series Fund II, Inc. and First Investors Series Fund.;
Portfolio Manager, FIMCO.
* These Trustees may be deemed to be "interested persons," as defined in
the 1940 Act.
** These Trustees are members of the Board's Audit Committee.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
The Trustees and officers, as a group, owned less than 1% of shares of any
Fund.
All of the officers and Trustees, except for Mr. Wagner, Ms. Jones and Mr.
Fitzpatrick, hold identical or similar positions with 14 other registered
investment companies in the First Investors Family of Funds. Mr. Head is also an
officer and/or Director of First Investors Asset Management Company, Inc., First
Investors Credit Funding Corporation, First Investors Leverage Corporation,
First Investors Realty Company, Inc., First Investors Resources, Inc., N.A.K.
Realty Corporation, Real Property Development Corporation, Route 33 Realty
Corporation, First Investors Life Insurance Company, First Financial Savings
Bank, S.L.A., First Investors Credit Corporation and School Financial Management
Services, Inc. Ms. Head is also an officer and/or Director of First Investors
Life Insurance Company, First Investors Credit Corporation, School Financial
Management Services, Inc., First Investors Credit Funding Corporation, N.A.K.
Realty Corporation, Real Property Development Corporation, First Investors
Leverage Corporation and Route 33 Realty Corporation.
28
The following table lists compensation paid to the Trustees of the Trust for
the fiscal year ended December 31, 1999.
TOTAL
COMPENSATION
FROM FIRST
AGGREGATE INVESTORS FAMILY
COMPENSATION OF FUNDS PAID TO
TRUSTEE FROM TRUST* TRUSTEE+
------- ----------- -----------------
James J. Coy** $-0- $-0-
Glenn O. Head $-0- $-0-
Kathryn S. Head $-0- $-0-
Larry R. Lavoie $-0- $-0-
Rex R. Reed $180 $42,950
Herbert Rubinstein $180 $42,950
James M. Srygley $180 $42,950
John T. Sullivan $-0- $-0-
Robert F. Wentworth $180 $42,950
Nancy Schaenen $180 $42,950
* Compensation to officers and interested Trustees of the Trust is paid by
the Adviser.
** On March 27, 1997, Mr. Coy resigned as a Trustee of the Trust. Mr. Coy
currently serves as an Emeritus Trustee. Mr. Coy is paid by the Adviser.
+ The First Investors Family of Funds consists of 15 separate registered
investment companies. The total compensation shown in this column is for the
twelve month period ended December 31, 1999.
MANAGEMENT
Investment advisory services to each Fund are provided by Executive
Investors Management Company, Inc. pursuant to an Investment Advisory Agreement
("Advisory Agreement") dated June 13, 1994. The Advisory Agreement was approved
by the Board of the Trust, including a majority of the Trustees who are not
parties to the Funds' Advisory Agreement or "interested persons" (as defined in
the 1940 Act) of any such party ("Independent Trustees"), in person at a meeting
called for such purpose and by a majority of the public shareholders of each
Fund. The Board of Trustees is responsible for overseeing the management of the
Funds.
Pursuant to the Advisory Agreement, EIMCO shall supervise and manage each
Fund's investments, determine each Fund's portfolio transactions and supervise
all aspects of each Fund's operations, subject to review by the Trust's
Trustees. The Advisory Agreement also provides that EIMCO shall provide the Fund
with certain executive, administrative and clerical personnel, office facilities
and supplies, conduct the business and details of the operation of the Trust and
each Fund and assume certain expenses thereof, other than obligations or
liabilities of the Fund. The Advisory Agreement may be terminated at any time,
with respect to a Fund, without penalty by the Trust's Trustees or by a majority
of the outstanding voting securities of such Fund, or by EIMCO, in each instance
on not less than 60 days' written notice, and shall automatically terminate in
the event of its assignment (as defined in the 1940 Act). The Advisory Agreement
also provides that it will continue in effect, with respect to a Fund, for a
period of over two years only if such continuance is approved annually either by
the Trust's Trustees or by a majority of the outstanding voting securities of
such Fund, and, in either case, by a vote of a majority of the Trust's
Independent Trustees voting in person at a meeting called for the purpose of
voting on such approval.
29
Under the Advisory Agreement, each Fund pays the Adviser an annual fee, paid
monthly, according to the following schedules:
Annual
Average Daily Net Assets Rate
- ------------------------ ----
Up to $200 million................................................... 1.00%
In excess of $200 million up to $500 million......................... 0.75
In excess of $500 million up to $750 million......................... 0.72
In excess of $750 million up to $1.0 billion......................... 0.69
Over $1.0 billion.................................................... 0.66
For the fiscal years ended December 31, 1997, 1998 and 1999, BLUE CHIP
FUND'S advisory fees were $29,330, $43,487 and $50,904, respectively. Of such
amounts, the Adviser voluntarily waived $21,997, $25,229 and $25,452,
respectively. For the fiscal years ended December 31, 1997, 1998 and 1999,
INSURED TAX EXEMPT FUND'S advisory fees were $156,479, $167,864 and $167,999,
respectively. Of such amounts, the Adviser voluntarily waived $117,359, $120,222
and $117,599, respectively. For the fiscal years ended December 31, 1997, 1998
and 1999, HIGH YIELD FUND'S advisory fees were $180,560, $195,205 and $177,366,
respectively. Of such amounts, the Adviser voluntarily waived $90,280, $97,603
and $88,683, respectively. For the fiscal year ended December 31, 1998, the
Adviser voluntarily assumed expenses for BLUE CHIP Fund and INSURED TAX EXEMPT
FUND in the amounts of $10,161 and $21,698, respectively. For the fiscal year
ended December 31, 1999, the Adviser voluntarily assumed expenses for BLUE CHIP
FUND and INSURED TAX EXEMPT FUND in the amounts of $12,821 and $22,985,
respectively.
The Adviser has an Investment Committee composed of Dennis T.
Fitzpatrick, George V. Ganter, Michael Deneka, David Hanover, Glenn O. Head,
Kathryn S. Head, Nancy W. Jones, Michael O'Keefe, Patricia D. Poitra, Clark
D. Wagner and Matthew Wright. The Committee usually meets weekly to discuss
the composition of the portfolio of each Fund and to review additions to and
deletions from the portfolios.
Each Fund bears all expenses of its operations other than those incurred by
the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.
First Investors Consolidated Corporation ("FICC") owns all of the
outstanding stock of the Adviser, Executive Investors Corporation, and the
Funds' transfer agent. Mr. Glenn O. Head controls FICC and, therefore,
controls the Adviser.
UNDERWRITER
The Trust has entered into an Underwriting Agreement ("Underwriting
Agreement") with Executive Investors Corporation ("Underwriter" or "EIC") which
requires the Underwriter to use its best efforts to sell shares of the Funds.
The Underwriting Agreement was approved by the Trust's Board, including a
majority of the Independent Trustees. The Underwriting Agreement provides that
it will continue in effect from year to year, with respect to a Fund, only so
long as such continuance is specifically approved at least annually by the
Trust's Board or by a vote of a majority of the outstanding voting securities of
such Fund, and in either case by the vote of a majority of the Trust's
Independent Trustees, voting in person at a meeting called for the purpose of
voting on such approval. The Underwriting Agreement will terminate automatically
in the event of its assignment.
30
For the fiscal year ended December 31, 1997, BLUE CHIP FUND paid EIC
underwriting commissions of $3,324. For the same period, EIC reallowed an
additional $10,933 to unaffiliated dealers and $2,518 to FIC. For the fiscal
year ended December 31, 1998, BLUE CHIP FUND paid EIC underwriting commissions
of $4,954. For the same period, EIC reallowed an additional $27,753 to
unaffiliated dealers and $4,526 to FIC. For the fiscal year ended December 31,
1999, BLUE CHIP FUND paid EIC underwriting commissions of $1,843. For the same
period, EIC reallowed an additional $6,729 to unaffiliated dealers and $1,496 to
FIC.
For the fiscal year ended December 31, 1997, HIGH YIELD FUND paid EIC
underwriting commissions of $17,493. For the same period, EIC reallowed an
additional $122,540 to unaffiliated dealers and $5,239 to FIC. For the fiscal
year ended December 31, 1998, HIGH YIELD FUND paid EIC underwriting commissions
of $14,639. For the same period, EIC reallowed an additional $108,983 to
unaffiliated dealers and $5,172 to FIC. For the fiscal year ended December 31,
1999, HIGH YIELD FUND paid EIC underwriting commissions of $6,782. For the same
period, EIC reallowed an additional $42,369 to unaffiliated dealers and $2,361
to FIC.
For the fiscal year ended December 31, 1997, INSURED TAX EXEMPT FUND paid
EIC underwriting commissions of $6,680. For the same period, EIC reallowed an
additional $28,463 to unaffiliated dealers and $5,596 to FIC. For the fiscal
year ended December 31, 1998, INSURED TAX EXEMPT FUND paid EIC underwriting
commissions of $9,625. For the same period, EIC reallowed an additional $76,513
to unaffiliated dealers and $1,494 to FIC. For the fiscal year ended December
31, 1999, INSURED TAX EXEMPT FUND paid EIC underwriting commissions of $6,072.
For the same period, EIC reallowed an additional $31,856 to unaffiliated dealers
and $6,388 to FIC.
DISTRIBUTION PLANS
As stated in the Prospectus/Proxy Statement, pursuant to an Amended and
Restated Class A Distribution Plan adopted by the Trust pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), each Fund is authorized to compensate the
Underwriter for certain expenses incurred in the distribution of that Fund's
shares and the servicing or maintenance of existing Fund shareholder accounts.
Each Class A Plan is a compensation plan.
In adopting the Plan for the Funds, the Trust's Board considered all
relevant information and determined that there is a reasonable likelihood that
the Plan will benefit each Fund and its shareholders. The Trust's Board believes
that the amounts spent pursuant to the Plan have assisted each Fund in providing
ongoing servicing to shareholders, in competing with other providers of
financial services and in promoting sales, thereby increasing the net assets of
that Fund.
The Plan was approved by the Trust's Board, including a majority of the
Independent Trustees, and by a majority of the outstanding voting securities of
each Fund. The Plan will continue in effect, with respect to a Fund, from year
to year as long as its continuance is approved annually by either the Board or
by a vote of a majority of the outstanding voting securities of that Fund. In
either case, to continue, the Plan must be approved by the vote of a majority of
the Independent Trustees of the Trust. The Board reviews quarterly and annually
a written report provided by the Treasurer of the amounts expended under the
Plan and the purposes for which such expenditures were made. While the Plan is
in effect, the selection and nomination of the Trust's Independent Trustees will
be committed to the discretion of such Independent Trustees then in office. The
Plan can be terminated, with respect to a Fund, at any time by a vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of that Fund.
For the fiscal year ended December 31, 1999, BLUE CHIP FUND paid $20,362 in
fees pursuant to the Plan. For the same period, the Underwriter waived an
additional $5,090 in fees pursuant to the Plan. For the fiscal year ended
December 31, 1999, HIGH YIELD FUND paid $70,946 in fees pursuant to the Plan.
31
For the same period, the Underwriter waived an additional $17,737 in fees
pursuant to the Plan. For the fiscal year ended December 31, 1999, INSURED TAX
EXEMPT FUND paid $67,199 in fees pursuant to the Plan. For the same period, the
Underwriter waived an additional $16,800 in fees pursuant to the Plan. For the
fiscal year ended December 31, 1999, the Underwriter incurred the following
Plan-related expenses with respect to each Fund:
COMPENSATION TO COMPENSATION TO COMPENSATION TO
FUND UNDERWRITER DEALERS SALES PERSONNEL
- ---- ----------- ------- ---------------
BLUE CHIP FUND $9,249 $0 $11,113
HIGH YIELD FUND $31,829 $0 $39,117
INSURED TAX EXEMPT FUND $27,737 $0 $39,462
DEALER CONCESSIONS. With respect to shares of each Fund, the Fund will reallow a
portion of the sales load to the dealers selling the shares as shown in the
following table:
SALES CHARGES AS % OF
--------------------- CONCESSION TO
OFFERING NET AMOUNT DEALERS AS % OF
AMOUNT OF INVESTMENT PRICE INVESTED OFFERING PRICE
- -------------------- ----- -------- --------------
Less than $100,000.................. 4.75% 4.99 4.27%
$100,000 but under $250,000......... 3.90 4.06 3.51
$250,000 but under $500,000......... 2.90 2.99 2.61
$500,000 but under $1,000,000....... 2.40 2.46 2.16
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange or the
Nasdaq Stock Market is valued at its last sale price on the exchange or market
where the security is principally traded, and lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices. Securities traded in the OTC market (including securities listed on
exchanges whose primary market is believed to be OTC) are valued at the mean
between the last bid and asked prices prior to the time when assets are valued
based upon quotes furnished by market makers for such securities. However, a
Fund may determine the value of debt securities based upon prices furnished by
an outside pricing service. The pricing services are provided to the BLUE CHIP
FUND and HIGH YIELD FUND by Interactive Data Corporation and to the INSURED TAX
EXEMPT FUND by Muller Data Corporation. The pricing services use quotations
obtained from investment dealers or brokers for the particular securities being
evaluated, information with respect to market transactions in comparable
securities and consider security type, rating, market condition, yield data and
other available information in determining value. Short-term debt securities
that mature in 60 days or less are valued at amortized cost. Securities for
which market quotations are not readily available are valued on at fair value as
determined in good faith by or under the supervision of the Trust's officers in
a manner specifically authorized by the Board of the Trust.
With respect to the HIGH YIELD FUND and INSURED TAX EXEMPT FUND,
"when-issued securities" are reflected in the assets of the Fund as of the date
the securities are purchased. Such investments are valued thereafter at the mean
between the most recent bid and asked prices obtained from recognized dealers in
such securities or by the pricing services. With respect to HIGH YIELD FUND,
quotations of foreign securities in foreign currencies are converted into U.S.
dollar equivalents using the foreign exchange equivalents in effect.
INSURED TAX EXEMPT FUND may retain any insured municipal bond which is in
default in the payment of principal or interest until the default has been
cured, or the principal and interest outstanding are paid by an insurer or the
issuer of any letter of credit or other guarantee supporting such municipal
32
bond. In such case, it is the Fund's policy to value the defaulted bond daily
based upon the value of a comparable bond which is insured and not in default.
In selecting a comparable bond, the Fund will consider security type, rating,
market condition and yield.
The Board may suspend the determination of a Fund's net asset value for the
whole or any part of any period (1) during which trading on the New York Stock
Exchange ("NYSE") is restricted as determined by the SEC or the NYSE is closed
for other than weekend and holiday closings, (2) during which an emergency, as
defined by rules of the SEC in respect to the United States market, exists as a
result of which disposal by a Fund of securities owned by it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (3)
for such other period as the SEC has by order permitted.
EMERGENCY PRICING PROCEDURES. In the event that the Funds must halt
operations during any day that they would normally be required to price under
Rule 22c-1 under the 1940 Act due to an emergency ("Emergency Closed Day"), the
Funds will apply the following procedures:
1. The Funds will make every reasonable effort to segregate orders
received on the Emergency Closed Day and give them the price that they would
have received but for the closing. The Emergency Closed Day price will be
calculated as soon as practicable after operations have resumed and will be
applied equally to sales, redemptions and repurchases that were in fact received
in the mail or otherwise on the Emergency Closed Day.
2. For purposes of paragraph 1, an order will be deemed to have been
received by the Funds on an Emergency Closed Day, even if neither the Funds nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:
(a) In the case of a mail order the order will be considered
received by a Fund when the postal service has delivered it to FIC's Woodbridge
offices prior to the close of regular trading on the NYSE; and
(b) In the case of a wire order, including a Fund/SERV order, the
order will be considered received when it is received in good form by a FIC
branch office or an authorized dealer prior to the close of regular trading on
the NYSE.
3. If the Funds are unable to segregate orders received on the Emergency
Closed Day from those received on the next day the Funds are open for business,
the Funds may give all orders the next price calculated after operations resume.
4. Notwithstanding the foregoing, on business days in which the NYSE is
not open for regular trading, the Funds may determine not to price their
portfolio securities if such prices would lead to a distortion of the NAV, for
the Funds and their shareholders.
ALLOCATION OF PORTFOLIO BROKERAGE
The Adviser may purchase or sell portfolio securities on behalf of the Fund
in agency or principal transactions. In agency transactions, the Fund generally
pays brokerage commissions. In principal transactions, the Fund generally does
not pay commissions, however the price paid for the security may include an
undisclosed dealer commission or "mark-up" or selling concessions. The Adviser
normally purchases fixed-income securities on a net basis from primary market
makers acting as principals for the securities. The Adviser may purchase certain
money market instruments directly from an issuer without paying commissions or
discounts. The Adviser may also purchase securities traded in the OTC market. As
a general practice, OTC securities are usually purchased from market makers
33
without paying commissions, although the price of the security usually will
include undisclosed compensation. However, when it is advantageous to the Fund
the Adviser may utilize a broker to purchase OTC securities and pay a
commission.
In purchasing and selling portfolio securities on behalf of the Fund, the
Adviser will seek to obtain best execution. The Fund may pay more than the
lowest available commission in return for brokerage and research services.
Additionally, upon instruction by the Board, the Adviser may use dealer
concessions available in fixed-priced underwritings to pay for research and
other services. Research and other services may include information as to the
availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to securities, reports and analysis
concerning issuers and their creditworthiness, and Lipper's Directors'
Analytical Data concerning Fund performance and fees. The Adviser generally uses
the research and other services to service all the funds in the First Investors
Family of Funds, rather than the particular Funds whose commissions may pay for
research or other services. In other words, a Fund's brokerage may be used to
pay for a research service that is used in managing another Fund within the
First Investor Fund Family. The Lipper's Directors' Analytical Data is used by
the Adviser and the Fund Board to analyze a fund's performance relative to other
comparable funds.
In selecting the broker-dealers to execute the Fund's portfolio
transactions, the Adviser may consider such factors as the price of the
security, the rate of the commission, the size and difficulty of the order, the
trading characteristics of the security involved, the difficulty in executing
the order, the research and other services provided, the expertise, reputation
and reliability of the broker-dealer, access to new offerings, and other factors
bearing upon the quality of the execution. The Adviser does not place portfolio
orders with an affiliated broker, or allocate brokerage commission business to
any broker-dealer for distributing fund shares. Moreover, no broker-dealer
affiliated with the Adviser participates in commissions generated by portfolio
orders placed on behalf of the Fund.
The Adviser may combine transaction orders placed on behalf of a Fund, other
funds in the First Investors Group of Funds and First Investors Life Insurance
Company, affiliates of the Funds, for the purpose of negotiating brokerage
commissions or obtaining a more favorable transaction price; and where
appropriate, securities purchased or sold may be allocated in accordance with
written procedures approved by the Board. The Trust's Board has authorized and
directed the Adviser to use dealer concessions available in fixed-price
underwritings of municipal bonds to pay for research services which are
beneficial in the management of INSURED TAX EXEMPT FUND'S portfolio.
For the fiscal year ended December 31, 1997, BLUE CHIP FUND paid $4,661 in
brokerage commissions. Of that amount $2,648 was paid to brokers who furnished
research services on portfolio transactions in the amount of $1,981,834. For the
fiscal year ended December 31, 1997, HIGH YIELD FUND paid $72 in brokerage
commissions., all of which was paid to brokers who furnished research services
on portfolio transactions in the amount of $18,214. For the fiscal year ended
December 31, 1997, INSURED TAX EXEMPT Fund did not pay brokerage commissions.
For the fiscal year ended December 31, 1998, BLUE CHIP FUND paid $9,840 in
brokerage commissions. Of that amount $594 was paid to brokers who furnished
research services on portfolio transactions in the amount of $598,897. For the
fiscal year ended December 31, 1998, HIGH YIELD FUND and INSURED TAX EXEMPT FUND
did not pay brokerage commissions.
For the fiscal year ended December 31, 1999, BLUE CHIP FUND paid $8,881 in
brokerage commissions. Of that amount $240 was paid to brokers who furnished
research services on portfolio transactions in the amount of $206,968. For the
fiscal year ended December 31, 1999, HIGH YIELD FUND paid $132 in brokerage
commissions. INSURED TAX EXEMPT FUND did not pay brokerage commissions.
34
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Information regarding the purchase, redemption and exchange of Fund shares
is contained in the Shareholder Manual, a separate section of the SAI that is a
distinct document and may be obtained free of charge by contacting your Fund.
REDEMPTIONS-IN KIND. If the Board should determine that it would be
detrimental to the best interests of the remaining shareholders of a Fund 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. If shares are redeemed in kind, the redeeming shareholder will likely
incur brokerage costs in converting the assets into cash. The method of valuing
portfolio securities for this purpose is described under "Determination of Net
Asset Value."
TAXES
GENERAL
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended (the
"Code"), a Fund - each Fund being treated as a separate corporation for these
purposes - must distribute to its shareholders for each taxable year at least
90% of the sum of its investment company taxable income (consisting generally of
net investment income, net short-term capital gain and, for HIGH YIELD Fund, net
gains from certain foreign currency transactions) plus, in the case of INSURED
TAX EXEMPT FUND, its net interest income excludable from gross income under
section 103(a) of the Code ("Distribution Requirement"), and must meet several
additional requirements. For each Fund these requirements include the following:
(1) the Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or, for HIGH YIELD FUND, foreign
currencies, or other income (including gains from options or futures contracts)
derived with respect to its business of investing in securities or, for HIGH
YIELD FUND, those currencies ("Income Requirement"); (2) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and other securities, with those other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of any one issuer.
Dividends and other distributions declared by a Fund in October, November or
December of any year and payable to shareholders of record on a date in any of
those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
reported, or in the case of exempt-interest dividends (see below) paid to
shareholders of INSURED TAX EXEMPT FUND, will be taxed to shareholders for the
year in which that December 31 falls.
A portion of the dividends from BLUE CHIP FUND's investment company taxable
income may be eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the aggregate dividends
received by the Fund from U.S. corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the Federal alternative minimum tax. No
dividends paid by INSURED TAX EXEMPT FUND or HIGH YIELD FUND are expected to be
eligible for this deduction.
35
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary (taxable) income for that year and capital gain net income
for the one-year period ending on October 31 of that year, plus certain other
amounts.
Interest and dividends received by HIGH YIELD FUND, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries that would reduce the yield and/or total return on its securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors. Gains
from the disposition of foreign currencies (except certain gains that may be
excluded by future regulations) will qualify as permissible income under the
Income Requirement.
HIGH YIELD FUND and INSURED TAX EXEMPT FUND may acquire zero coupon or other
securities issued with original issue discount. As a holder of those securities,
each such Fund must account for the portion of the original issue discount that
accrues on the securities during the taxable year, even if the Fund receives no
corresponding payment on them during the year. Similarly, HIGH YIELD FUND must
include in its gross income securities it receives as "interest" on pay-in-kind
securities. Because each Fund annually must distribute substantially all of its
investment company taxable income and net tax-exempt interest, including any
original issue discount and other non-cash income, to satisfy the Distribution
Requirement and HIGH YIELD FUND must do so to avoid imposition of the Excise
Tax, a Fund may be required in a particular year to distribute as a dividend an
amount that is greater than the total amount of cash it actually receives. Those
distributions will be made from a Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. Each Fund may realize capital gains
or losses from those sales, which would increase or decrease its investment
company taxable income and/or net capital gain.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the amount, character and timing of recognition of the gains
and losses a Fund will realize in connection therewith. Gains from options and
futures derived by a Fund with respect to its business of investing in
securities will qualify as permissible income under the Income Requirement.
If a Fund has an "appreciated financial position" - generally, an interest
(including an interest through an option, futures or short sale) with respect to
any stock, debt instrument (other than "straight debt") or partnership interest
the fair market value of which exceeds its adjusted basis-and enters into a
"constructive sale" of the same or substantially similar property, the Fund will
be treated as having made an actual sale thereof, with the result that gain will
be recognized at that time. A constructive sale generally consists of a short
sale, an offsetting notional principal contract or futures contract entered into
by a Fund or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale.
INSURED TAX EXEMPT FUND
Dividends paid by INSURED TAX EXEMPT FUND will qualify as exempt-interest
dividends as defined in the Prospectus, and thus will be excludable from gross
income for Federal income tax purposes by its shareholders, if the Fund
satisfies the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of securities the
36
interest on which is excludable from gross income under section 103(a); the Fund
intends to continue to satisfy this requirement. The aggregate dividends
excludable from the Fund's shareholders' gross income may not exceed its net
tax-exempt income. Shareholders' treatment of dividends from the Fund under
state and local income tax laws may differ from the treatment thereof under the
Code. Investors should consult their tax advisers concerning this matter.
If shares of INSURED TAX EXEMPT FUND are sold at a loss after being held for
six months or less, the loss will be disallowed to the extent of any
exempt-interest dividends received on those shares, and any portion of the loss
not disallowed will be treated as described above.
Tax-exempt interest attributable to certain private activity bonds ("PABs")
(including, to the extent INSURED TAX EXEMPT FUND receives interest on those
bonds, a proportionate part of the exempt-interest dividends it pays) is a Tax
Preference Item. Exempt-interest dividends received by a corporate shareholder
also may be indirectly subject to the Federal alternative minimum tax without
regard to whether the Fund's tax-exempt interest was attributable to those
bonds. Entities or other persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by PABs or industrial development
bonds ("IDBs") should consult their tax advisers before purchasing shares of the
Fund because, for users of certain of these facilities, the interest on those
bonds is not exempt from Federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of PABs or IDBs.
Up to 85% of social security and certain railroad retirement benefits may be
included in taxable income for recipients whose modified adjusted gross income
(which includes income from tax-exempt sources such as INSURED TAX EXEMPT FUND)
plus 50% of their benefits exceeds certain base amounts. Exempt-interest
dividends from the Fund still are tax-exempt to the extent described in the
Prospectus; they are only included in the calculation of whether a recipient's
income exceeds the established amounts.
INSURED TAX EXEMPT FUND may invest in municipal bonds that are purchased,
generally not on their original issue, with market discount (that is, at a price
less than the principal amount of the bond or, in the case of a bond that was
issued with original issue discount, a price less than the amount of the issue
price plus accrued original issue discount) ("municipal market discount bonds").
Gain on the disposition of a municipal market discount bond (other than a bond
with a fixed maturity date within one year from its issuance), generally is
treated as ordinary (taxable) income, rather than capital gain, to the extent of
the bond's accrued market discount at the time of disposition. Market discount
on such a bond generally is accrued ratably, on a daily basis, over the period
from the acquisition date to the date of maturity. In lieu of treating the
disposition gain as above, the Fund may elect to include market discount in its
gross income currently, for each taxable year to which it is attributable.
If INSURED TAX EXEMPT FUND invests in any instruments that generate taxable
income under the circumstances described in the Prospectus, distributions of the
interest earned thereon will be taxable to the Fund's shareholders as ordinary
income to the extent of its earnings and profits. Moreover, if the Fund realizes
capital gain as a result of market transactions, any distributions of that gain
will be taxable to its shareholders. There also may be collateral Federal income
tax consequences regarding the receipt of exempt-interest dividends by
shareholders such as S corporations, financial institutions and property and
casualty insurance companies. A shareholder falling into any such category
should consult its tax adviser concerning its investment in shares of the Fund.
37
PERFORMANCE INFORMATION
A Fund may advertise its performance in various ways.
Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)^(1/n)]-1
The "total return" uses the same factors, but does not average the rate of
return on an annual basis. Total return is determined as follows:
(ERV-P)/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the value
of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, each Fund will deduct the maximum sales
charge of 4.75% (as a percentage of the offering price) from the initial $1,000
payment. All dividends and other distributions are assumed to have been
reinvested at net asset value on the initial investment ("P").
Return information may be useful to investors in reviewing a Fund's
performance. However, certain factors should be taken into account before using
this information as a basis for comparison with alternative investments. No
adjustment is made for taxes payable on distributions. Return will fluctuate
over time and return for any given past period is not an indication or
representation by a Fund of future rates of return on its shares. At times, the
Adviser may reduce its compensation or assume expenses of a Fund in order to
reduce the Fund's expenses. Any such waiver or reimbursement would increase the
Fund's return during the period of the waiver or reimbursement.
Average annual return and total return computed at the public offering price
for the periods ended December 31, 1999 are set forth in the tables below:
AVERAGE ANNUAL TOTAL RETURN:*
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND**
BLUE CHIP FUND 19.64% 24.01% N/A 15.58%
HIGH YIELD FUND 1.09% 9.10% 9.26% N/A
INSURED TAX EXEMPT FUND -6.61% 6.79% N/A 7.69%
TOTAL RETURN:*
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND**
BLUE CHIP FUND 19.64% 193.26% N/A 303.32%
HIGH YIELD FUND 1.09 54.54 142.44 N/A
INSURED TAX EXEMPT FUND -6.61 38.91 N/A 101.17
- ------------------
* All return figures reflect the current maximum sales charge of 4.75% and
dividends reinvested at net asset value. Prior to October 28, 1988, the
maximum sales charge for HIGH YIELD FUND was 4.00% and its dividends were
reinvested at the public offering price (net asset value plus applicable
sales charge). Certain expenses of the Funds have been waived or
reimbursed from commencement of operations through December 31, 1999.
Accordingly, return figures are higher than they would have been had such
expenses not been waived or reimbursed.
38
** The inception dates for the Funds are as follows: BLUE CHIP FUND - May 17,
1990; HIGH YIELD FUND - March 24, 1987; and INSURED TAX EXEMPT FUND - July
26, 1990.
Average annual total return and total return may also be based on investment
at reduced sales charge levels or at net asset value. Any quotation of return
not reflecting the maximum sales charge will be greater than if the maximum
sales charge were used. Average annual return and total return computed at net
asset value for the periods ended December 31, 1999 is set forth in the tables
below:
AVERAGE ANNUAL TOTAL RETURN:*
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND**
BLUE CHIP FUND 25.62% 25.23% N/A 16.16%
HIGH YIELD FUND 6.09% 10.17% 9.80% N/A
INSURED TAX EXEMPT FUND -1.92% 7.83% N/A 8.24%
TOTAL RETURN:*
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND**
BLUE CHIP FUND 25.62% 207.97% N/A 323.45%
HIGH YIELD FUND 6.09% 62.28% 154.65% N/A
INSURED TAX EXEMPT FUND -1.92% 45.79% N/A 111.19%
- -----------------
* Certain expenses of the Funds have been waived or reimbursed from
commencement of operations through December 31, 1999. Accordingly, return
figures are higher than they would have been had such expenses not been
waived or reimbursed.
** The inception dates for the Funds are as follows: BLUE CHIP FUND - May 17,
1990; HIGH YIELD FUND - March 24, 1987; and INSURED TAX EXEMPT FUND - July
26, 1990.
Yield for HIGH YIELD FUND and INSURED TAX EXEMPT FUND is presented for a
specified thirty-day period ("base period"). Yield is based on the amount
determined by (i) calculating the aggregate amount of dividends and interest
earned by a Fund during the base period less expenses accrued for that period
(net of reimbursement), and (ii) dividing that amount by the product of (A) the
average daily number of shares of that Fund outstanding during the base period
and entitled to receive dividends and (B) the per share maximum public offering
price of that Fund on the last day of the base period. The result is annualized
by compounding on a semi-annual basis to determine a Fund's yield. For this
calculation, interest earned on debt obligations held by a Fund is generally
calculated using the yield to maturity (or first expected call date) of such
obligations based on their market values (or, in the case of receivables-backed
securities such as GNMA Certificates, based on cost). Dividends on equity
securities are accrued daily at their estimated stated dividend rates.
INSURED TAX-EXEMPT FUND's tax-equivalent yield during the base period may be
presented in one or more stated tax brackets. Tax-equivalent yield is calculated
by adjusting the Fund's tax-exempt yield by a factor designed to show the
approximate yield that a taxable investment would have to earn to produce an
after-tax yield equal to the Fund's tax-exempt yield.
39
To calculate a taxable bond yield which is equivalent to a tax-exempt bond
yield (for Federal tax purposes), shareholders may use the following formula:
TAX FREE YIELD
----------------- = Taxable Equivalent Yield
1 - Your Tax Bracket
For the 30 days ended December 31, 1999, the yield and tax-equivalent yield
(assuming a Federal tax rate of 28%) for INSURED TAX EXEMPT FUND was 4.46% and
6.19%, respectively. The maximum Federal tax rate for this period was 39.6%. For
the 30 days ended December 31, 1999, the yield for HIGH YIELD FUND was 9.05%.
Some of the Funds' expenses were waived or reimbursed during this period.
Accordingly, yields are higher than they would have been had such expenses not
been waived or reimbursed.
The distribution rate for HIGH YIELD FUND and INSURED TAX EXEMPT FUND is
presented for a twelve-month period. It is calculated by adding the dividends
for the last twelve months and dividing the sum by a Fund's offering price per
share at the end of that period. The distribution rate is also calculated by
using a Fund's net asset value. Distribution rate calculations do not include
capital gain distributions, if any, paid. The distribution rate for the
twelve-month period ended December 31, 1999 for shares of HIGH YIELD FUND and
INSURED TAX EXEMPT FUND calculated using the offering price was 9.24% and 4.56%,
respectively. The distribution rate for the same period for shares of HIGH YIELD
FUND and INSURED TAX EXEMPT FUND calculated using the net asset value was 9.70%
and 4.79%, respectively. During this period certain expenses of the Funds were
waived or reimbursed. Accordingly, the distribution rates are higher than they
would have been had such expenses not been waived or reimbursed.
Each Fund may include in advertisements and sales literature, information,
examples and statistics to illustrate the effect of compounding income at a
fixed rate of return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and capital gain
distributions in additional shares. These examples may also include hypothetical
returns comparing taxable versus tax-deferred growth which would pertain to an
IRA, section 403(b)(7) Custodial Account or other qualified retirement program.
The examples used will be for illustrative purposes only and are not
representations by the Funds of past or future yield or return. Examples of
typical graphs and charts depicting such historical performances, compounding
and hypothetical returns are included in Appendix C.
From time to time, in reports and promotional literature, the Funds may
compare their performance to, or cite the historical performance of, Overnight
Government repurchase agreements, U.S. Treasury bills, notes and bonds,
certificates of deposit, and six-month money market certificates or indices of
broad groups of unmanaged securities considered to be representative of, or
similar to, a Fund's portfolio holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized
independent service that monitors and ranks the performance of regulated
investment companies. The Lipper performance analysis includes the
reinvestment of capital gain distributions and income dividends but does not
take sales charges into consideration. The method of calculating total
return data on indices utilizes actual dividends on ex-dividend dates
accumulated for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of
Morningstar, Inc. Morningstar proprietary ratings reflect historical
risk-adjusted performance and are subject to change every month. Funds with
at least three years of performance history are assigned ratings from one
star (lowest) to five stars (highest). Morningstar ratings are calculated
from the Fund's three-, five-, and ten-year average annual returns (when
available) and a risk factor that reflects fund performance relative to
40
three-month Treasury bill monthly returns. Fund's returns are adjusted for
fees and sales loads. Ten percent of the funds in an investment category
receive five stars, 22.5% receive four stars, 35% receive three stars, 22.5%
receive two stars, and the bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly publication which
tracks principal return, total return and yield on the Salomon Brothers
Broad Investment-Grade Bond Index and the components of the Index.
Telerate Systems, Inc., a computer system to which the Adviser subscribes
which daily tracks the rates on money market instruments, public
corporate debt obligations and public obligations of the U.S. Treasury
and agencies of the U.S. Government.
THE WALL STREET JOURNAL, a daily newspaper publication which lists the
yields and current market values on money market instruments, public
corporate debt obligations, public obligations of the U.S. Treasury and
agencies of the U.S. Government as well as common stocks, preferred stocks,
convertible preferred stocks, options and commodities; in addition to
indices prepared by the research departments of such financial organizations
as Lehman Bros., Merrill Lynch, Pierce, Fenner and Smith, Inc., First
Boston, Salomon Brothers, Morgan Stanley, Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette, Value Line, Datastream International, James Capel, S.G.
Warburg Securities, County Natwest and UBS UK Limited, including information
provided by the Federal Reserve Board, Moody's, and the Federal Reserve
Bank.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal, coupon
and total return on over 100 different taxable bond indices which Merrill
Lynch tracks. They also list the par weighted characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication which
tracks principal, coupon and total return on the Lehman Govt./Corp. Index
and Lehman Aggregate Bond Index, as well as all the components of these
Indices.
Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average of 30 stocks are unmanaged lists of common stocks
frequently used as general measures of stock market performance. Their
performance figures reflect changes of market prices and quarterly
reinvestment of all distributions but are not adjusted for commissions or
other costs.
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics,
is a commonly used measure of inflation. The Index shows changes in the cost
of selected consumer goods and does not represent a return on an investment
vehicle.
Credit Suisse First Boston High Yield Index is designed to measure the
performance of the high yield bond market.
Lehman Brothers Aggregate Index is an unmanaged index which generally covers
the U.S. investment grade fixed rate bond market, including government and
corporate securities, agency mortgage pass-through securities, and
asset-backed securities.
Lehman Brothers Corporate Bond Index includes all publicly issued, fixed
rate, non-convertible investment grade dollar-denominated, corporate debt
which have at least one year to maturity and an outstanding par value of at
least $100 million.
The NYSE composite of component indices--unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the
NYSE.
41
Morgan Stanley All Country World Free Index is designed to measure the
performance of stock markets in the United States, Europe, Canada,
Australia, New Zealand and the developed and emerging markets of Eastern
Europe, Latin America, Asia and the Far East. The index consists of
approximately 60% of the aggregate market value of the covered stock
exchanges and is calculated to exclude companies and share classes which
cannot be freely purchased by foreigners.
Morgan Stanley World Index is designed to measure the performance of stock
markets in the United States, Europe, Canada, Australia, New Zealand and the
Far East. The index consists of approximately 60% of the aggregate market
value of the covered stock exchanges.
Reuters, a wire service that frequently reports on global business.
Russell 2000 Index, prepared by the Frank Russell Company, consists of U.S.
publicly traded stocks of domestic companies that rank from 1000 to 3000 by
market capitalization.
Russell 2500 Index, prepared by the Frank Russell Company, consists of U.S.
publicly traded stocks of domestic companies that rank from 500 to 3000 by
market capitalization.
Salomon Brothers Government Index is a market capitalization-weighted index
that consists of debt issued by the U.S. Treasury and U.S.
Government sponsored agencies.
Salomon Brothers Mortgage Index is a market capitalization-weighted index
that consists of all agency pass-throughs and FHA and GNMA project notes.
Standard & Poor's 400 Mid-Cap Index is an unmanaged capitalization-weighted
index that is generally representative of the U.S. market for medium cap
stocks.
Standard & Poor's Small-Cap 600 Index is a capitalization-weighted index
that measures the performance of selected U.S. stocks with a small market
capitalization.
Standard & Poor's Utilities Index is an unmanaged capitalization weighted
index comprising common stock in approximately 41 electric, natural gas
distributors and pipelines, and telephone companies. The Index assumes the
reinvestment of dividends.
From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
GENERAL INFORMATION
ORGANIZATION. The Trust is a Massachusetts business trust organized on
October 28, 1986. The Trust is authorized to issue an unlimited number of shares
of beneficial interest, no par value, in such separate and distinct series and
classes of shares as the Board shall from time to time establish. The shares of
beneficial interest of the Trust are presently divided into three separate and
distinct series, each having one class, designated Class A shares. The Trust
does not hold annual shareholder meetings. If requested to do so by the holders
of at least 10% of the Trust's outstanding shares, the Trust's Board will call a
special meeting of shareholders for any purpose, including the removal of
Trustees. Each share of each fund has equal voting rights. Each share of a Fund
is entitled to participate equally in dividends and other distributions and the
proceeds of any liquidation.
42
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund.
AUDITS AND REPORTS. The accounts of each Fund are audited twice a year by
Tait, Weller & Baker, independent certified public accountants, 8 Penn Center
Plaza, Philadelphia, PA, 19103. Shareholders of each Fund receive semi-annual
and annual reports, including audited financial statements, and a list of
securities owned.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., Washington, D.C. 20036 serves as counsel to the Funds.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of EIMCO and EIC, acts as transfer agent
for the Funds and as redemption agent for regular redemptions. The fees charged
to each Fund by the Transfer Agent are $5.00 to open an account; $3.00 for each
certificate issued; $.75 per account per month; $10.00 for each legal transfer
of shares; $.45 per account per dividend declared; $5.00 for each exchange of
shares into a Fund; $5.00 for each partial withdrawal or complete liquidation;
$4.00 for each shareholder services call; $20.00 for each item of
correspondence; and $1.00 per account per report required by any governmental
authority. Additional fees charged to the Funds by the Transfer Agent are
assumed by the Underwriter. The Transfer Agent reserves the right to change the
fees on prior notice to the Funds. Upon request from shareholders, the Transfer
Agent will provide an account history. For account histories covering the most
recent three year period, there is no charge. The Transfer Agent charges a $5.00
administrative fee for each account history covering the period 1983 through
1994 and $10.00 per year for each account history covering the period 1974
through 1982. Account histories prior to 1974 will not be provided. If any
communication from the Transfer Agent to a shareholder is returned from the U.S.
Postal Service marked as "Undeliverable" two consecutive times, the Transfer
Agent will cease sending any further materials to the shareholder until the
Transfer Agent is provided with a correct address. Efforts to locate a
shareholder will be conducted in accordance with SEC rules and regulations prior
to escheatment of funds to the appropriate state treasury. The Transfer Agent
may deduct the costs of its efforts to locate a shareholder from the
shareholder's account. These costs may include a percentage of the account if a
search company charges such a fee in exchange for its location services. The
Transfer Agent is not responsible for any fees that states and/or their
representatives may charge for processing the return of funds to investors whose
funds have been escheated. The Transfer Agent's telephone number is
1-800-423-4026.
5% SHAREHOLDERS. As of December 31, 1999, the following owned of record or
beneficially 5% or more of the outstanding shares of each of the Funds listed
below:
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
BLUE CHIP FUND 5.3% First Financial C/F IRA
Robert E. Nunnally Jr.
3361 Lakeland Dr. SW
Roanoke, VA 24018
BLUE CHIP FUND 5.2% Ruth B. Schott
4451 3RD ST Lane, NW
Hickory, NC 28601
BLUE CHIP FUND 15.9% First Clearing Corporation
10700 Wheat First Drive
Glen Allen, V 23060
43
HIGH YIELD FUND 7.0% First Clearing Corporation
10700 Wheat First Drive
Glen Allen, V 23060
INSURED TAX EXEMPT FUND 5.8% First Clearing Corporation
10700 Wheat First Drive
Glen Allen, V 23060
SHAREHOLDER LIABILITY. The Trust is organized as an entity known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable for the
obligations of the Trust. The Declaration of Trust however, contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the Trust or the Trustees. The
Declaration of Trust provides for indemnification out of the property of the
Trust of any shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. Thus, the risk
of a shareholder's incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would be unable to meet
its obligations. The Adviser believes that, in view of the above, the risk of
personal liability to shareholders is immaterial and extremely remote. The
Declaration of Trust further provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office. The
Trust may have an obligation to indemnify Trustees and officers with respect to
litigation.
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to Section
17(j) of the 1940 Act and Rule 17j-1 thereunder, the Trust and the Adviser have
adopted Codes of Ethics restricting personal securities trading by portfolio
managers and other access persons of the Funds. Among other things, such
persons, except the Trustees: (a) must have all non-exempt trades pre-cleared;
(b) are restricted from short-term trading; (c) must provide duplicate
statements and transactions confirmations to a compliance officer; and (d) are
prohibited from purchasing securities of initial public offerings.
44
APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
Standard & Poor's Ratings Group ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. Ratings are graded into several categories, ranging from
"A-1" for the highest quality obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
Moody's Investors Service, Inc. ("Moody's") short-term debt ratings are
opinions of the ability of issuers to repay punctually senior debt obligations
which have an original maturity not exceeding one year. Obligations relying upon
support mechanisms such as letters-of-credit and bonds of indemnity are excluded
unless explicitly rated.
PRIME-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
45
APPENDIX B
DESCRIPTION OF MUNICIPAL NOTE RATINGS
STANDARD & POOR'S RATINGS GROUP
S&P's note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
- Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the difference between short-term credit risk and long-term risk.
MIG-1. Loans bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
B-1
APPENDIX C
[The following tables are represented as graphs in the printed document.]
The following graphs and chart illustrate hypothetical returns:
INCREASE RETURNS
This graph shows over a period of time even a small increase in returns can make
a significant difference. This assumes a hypothetical investment of $10,000.
Years 10% 8% 6% 4%
----- ------- ------ ------ ------
5 16,453 14,898 13,489 12,210
10 27,070 22,196 18,194 14,908
15 44,539 33,069 24,541 18,203
20 73,281 49,268 33,102 22,226
25 120,569 73,402 44,650 27,138
INCREASE INVESTMENT
This graph shows the more you invest on a regular basis over time, the more you
can accumulate. this assumes monthly installment with a constant hypothetical
return rate of 8%.
Years $100 $250 $500 $1,000
----- ------ ------- ------- -------
5 7,348 18,369 36,738 73,476
10 18,295 43,736 91,473 182,946
15 34,604 86,509 173,019 346,038
20 58,902 147,255 294,510 589,020
25 95,103 237,757 475,513 951,026
C-1
[The following table is represented as a graph in the printed document.]
This chart illustrates the time value of money based upon the following
assumptions:
If you invested $2,000 each year for 20 years, starting at 25, assuming a 9%
investment return, you would accumulate $573,443 by the time you reach age 65.
However, had you invested the same $2,000 each year for 20 years, at that rate,
but waited until age 35, you would accumulate only $242,228 - a difference of
$331,215.
25 years old .............. 573,443
35 years old .............. 242,228
45 years old .............. 103,320
For each of the above graphs and chart it should be noted that systematic
investment plans do not assume a profit or protect against loss in declining
markets. Investors should consider their financial ability to continue purchases
through periods of both high and low price levels. Figures are hypothetical and
for illustrative purposes only and do not represent any actual investment or
performance. The value of a shareholder's investment and return may vary.
C-2
[The following table is represented as a chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1996.
1928 .................. 300.00
1929 .................. 248.48
1930 .................. 164.58
1931 .................. 77.90
1932 .................. 59.93
1933 .................. 99.90
1934 .................. 104.04
1935 .................. 144.13
1936 .................. 179.90
1937 .................. 120.85
1938 .................. 154.76
1939 .................. 150.24
1940 .................. 131.13
1941 .................. 110.96
1942 .................. 119.40
1943 .................. 136.20
1944 .................. 152.32
1945 .................. 192.91
1946 .................. 177.20
1947 .................. 181.16
1948 .................. 177.30
1949 .................. 200.10
1950 .................. 235.40
1951 .................. 269.22
1952 .................. 291.89
1953 .................. 280.89
1954 .................. 404.38
1955 .................. 488.39
1956 .................. 499.46
1957 .................. 435.68
1958 .................. 583.64
1959 .................. 679.35
1960 .................. 615.88
1961 .................. 731.13
1962 .................. 652.10
1963 .................. 762.94
1964 .................. 874.12
1965 .................. 969.25
1966 .................. 785.68
1967 .................. 905.10
1968 .................. 943.75
1969 .................. 800.35
1970 .................. 838.91
1971 .................. 890.19
1972 .................. 1,020.01
1973 .................. 850.85
1974 .................. 616.24
1975 .................. 858.71
1976 .................. 1,004.65
1977 .................. 831.17
1978 .................. 805.01
1979 .................. 838.74
1980 .................. 963.98
1981 .................. 875.00
1982 .................. 1,046.55
1983 .................. 1,258.64
1984 .................. 1,211.56
1985 .................. 1,546.67
1986 .................. 1,895.95
1987 .................. 1,938.80
1988 .................. 2,168.60
1989 .................. 2,753.20
1990 .................. 2,633.66
1991 .................. 3,168.83
1992 .................. 3,301.11
1993 .................. 3,754.09
1994 .................. 3,834.44
1995 .................. 5,000.00
1996 .................. 6,000.00
The performance of the Dow Jones Industrial Average is not indicative of
the performance of any particular investment. It does not take into account fees
and expenses associated with purchasing mutual fund shares. Individuals cannot
invest directly in any index. Please note that past performance does not
guarantee future results.
C-3
[The following table is represented as a chart in the printed document.]
The following chart shows that inflation is constantly eroding the value of your
money.
THE EFFECTS OF INFLATION OVER TIME
1966 ....................... 96.61836
1967 ....................... 93.80423
1968 ....................... 89.59334
1969 ....................... 84.36285
1970 ....................... 79.88906
1971 ....................... 77.33694
1972 ....................... 74.79395
1973 ....................... 68.80768
1974 ....................... 61.27131
1975 ....................... 57.31647
1976 ....................... 54.63915
1977 ....................... 51.20820
1978 ....................... 46.98000
1979 ....................... 41.46514
1980 ....................... 36.85790
1981 ....................... 33.84564
1982 ....................... 32.60659
1983 ....................... 31.41290
1984 ....................... 30.23378
1985 ....................... 29.12696
1986 ....................... 28.81005
1987 ....................... 27.59583
1988 ....................... 26.43279
1989 ....................... 25.27035
1990 ....................... 23.81748
1991 ....................... 23.10134
1992 ....................... 22.45028
1993 ....................... 21.86006
1994 ....................... 21.28536
1995 ....................... 20.76620
1996 ....................... 20.16135
1996 ....................... 100.00
1997 ....................... 103.00
1998 ....................... 106.00
1999 ....................... 109.00
2000 ....................... 113.00
2001 ....................... 116.00
2002 ....................... 119.00
2003 ....................... 123.00
2004 ....................... 127.00
2005 ....................... 130.00
2006 ....................... 134.00
2007 ....................... 138.00
2008 ....................... 143.00
2009 ....................... 147.00
2010 ....................... 151.00
2011 ....................... 156.00
2012 ....................... 160.00
2013 ....................... 165.00
2014 ....................... 170.00
2015 ....................... 175.00
2016 ....................... 181.00
2017 ....................... 186.00
2018 ....................... 192.00
2019 ....................... 197.00
2020 ....................... 203.00
2021 ....................... 209.00
2022 ....................... 216.00
2023 ....................... 222.00
2024 ....................... 229.00
2025 ....................... 236.00
2026 ....................... 243.00
Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and service as in 1996 ($100 vs. $20).* Projecting inflation at 3%, goods
and services costing $100 today will cost $243 in the year 2026.
* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.
C-4
[The following tables are represented as graphs in the printed document.]
This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.
1926 through 1996*
Total Number of Percentage of
Number of Positive Positive
Rolling Period Periods Periods Periods
-------------- ------- ------- -------
1-Year 71 51 72%
5-Year 67 60 90%
10-Year 62 60 97%
15-Year 57 57 100%
20-Year 52 52 100%
The following chart shows the compounded annual return of large company stocks
compared to U.S. Treasury Bills and inflation over the most recent 15 year
period. **
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 16.79
The following chart illustrates for the period shown that long-term corporate
bonds have outpaced U.S. Treasury Bills and inflation.
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 13.66
* Source: Used with permission. (c)1997 Ibbotson Associates, Inc. All rights
reserved. [Certain provisions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.]
** Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, returns of U.S. Treasury bills historically have
not outpaced inflation by as great a margin as stocks.
C-5
The accompanying table illustrates that if you are in the 36% tax bracket, a
tax-free yield of 3% is actually equivalent to a taxable investment earning
4.69%.
Your Taxable Equivalent Yield
Your Federal Tax Bracket
---------------------------------------------
28.0% 31.0% 36.0% 39.6%
your tax-free yield
3.00% 4.17% 4.35% 4.69% 4.97%
3.50% 4.86% 5.07% 5.47% 5.79%
4.00% 5.56% 5.80% 6.25% 6.62%
4.50% 6.25% 6.52% 7.03% 7.45%
5.00% 6.94% 7.25% 7.81% 8.25%
5.50% 7.64% 7.97% 8.59% 9.11%
This information is general in nature and should not be construed as tax advice.
Please consult a tax or financial adviser as to how this information affects
your particular circumstances.
C-6
[The following table is represented as a graph in the printed document.]
The following graph illustrates how income has affected the gains from stock
investments since 1965.
S&P 500 Dividends Reinvested S&P 500 Principal Only
12/31/64 10,000 10,000
12/31/65 11,269 10,906
12/31/66 10,115 9,478
12/31/67 12,550 11,383
12/31/68 13,948 12,255
12/31/69 12,795 10,863
12/31/70 13,299 10,873
12/31/71 15,200 12,046
12/31/72 18,088 13,929
12/31/73 15,431 11,510
12/31/74 11,346 8,090
12/31/75 15,570 10,642
12/31/76 19,296 12,680
12/31/77 17,915 11,221
12/31/78 19,092 11,340
12/31/79 22,645 12,736
12/31/80 30,004 16,019
12/31/81 28,528 14,460
12/31/82 34,674 16,595
12/31/83 42,496 19,461
12/31/84 45,161 19,733
12/31/85 59,489 24,930
12/31/86 70,594 28,575
12/31/87 74,301 29,154
12/31/88 86,641 32,769
12/31/89 114,093 41,699
12/31/90 110,549 38,964
12/31/91 144,230 49,214
12/31/92 155,218 51,411
12/31/93 170,863 55,039
12/31/94 173,120 54,191
12/31/95 238,175 72,676
12/31/96 292,863 87,403
11/30/97 383,977 112,732
Source: First Investors Management Company, Inc. Standard & Poor's is a
registered trademark. The S&P 500 is an unmanaged index comprising 500 common
stocks spread across a variety of industries. The total returns represented
above compare the impact of reinvestment of dividends and illustrates past
performance of the index. The performance of any index is not indicative of the
performance of a particular investment and does not take into account the
effects of inflation or the fees and expenses associated with purchasing mutual
fund shares. Individuals cannot invest directly in any index. Mutual fund shares
will fluctuate in value, therefore, the value of your original investment and
your return may vary. Moreover, past performance is no guarantee of future
results.
C-7
FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
Registrant incorporates by reference the financial statements and report of
independent auditors contained in the Semi-Annual Report to shareholders for the
six-month period ended June 30, 1999 electronically filed with the Securities
and Exchange Commission on September 1, 1999 (Accession Number:
0001047469-99-034371).
48
PR0 FORMA FINANCIAL STATEMENTS AND SCHEDULES
Statement of Assets and Liabilities
September 30, 1999
- --------------------------------------------------------
FIRST INVESTORS FIRST INVESTORS EXECUTIVE INVESTORS PRO FORMA
FUND FOR INCOME HIGH YIELD FUND HIGH YIELD FUND COMBINING
(Audited) (Audited) (Unaudited) (Unaudited)
- ----------------------------------------------------------------------- --------------- ---------------- ---------
Assets
Investment in securities:
At identified cost $426,411,258 $199,573,548 $17,611,680 $643,596,486
=============== =============== =============== ==============
At value $394,773,251 $182,028,680 $16,100,372 $592,902,303
Cash 713,409 669,533 169,692 1,552,634
Receivables:
Shares sold 404,889 98,548 3,923 507,360
Investment securities sold 3,498,750 1,323,472 - 4,822,222
Dividends and interest 10,192,642 4,593,127 447,516 15,233,285
Other assets 168,816 59,061 4,966 232,843
--------------- --------------- --------------- --------------
Total Assets 409,751,757 188,772,421 16,726,469 615,250,647
--------------- --------------- --------------- --------------
Liabilities
Payables:
Investment securities purchased 3,473,743 2,486,455 - 5,960,198
Shares redeemed 427,408 334,579 1,199 763,186
Dividends payable 3,186,098 1,411,020 134,605 4,731,723
Accrued advisory fee 247,598 115,353 8,109 371,060
Accrued expenses 114,266 72,675 14,763 201,704
--------------- --------------- --------------- --------------
Total Liabilities 7,449,113 4,420,082 158,676 12,027,871
--------------- --------------- --------------- --------------
Net Assets $402,302,644 $184,352,339 $16,567,793 $603,222,776
=============== =============== =============== ==============
Net Assets Consist of:
Capital paid in $428,450,233 $209,949,960 $19,472,300 $657,872,493
Undistributed net investment income 6,665,116 1,812,407 282,145 8,759,668
Accumulated net realized loss on investments (1,174,698) (9,865,160) (1,675,344) (12,715,202)
Net unrealized depreciation in value of investment (31,638,007) (17,544,868) (1,511,308) (50,694,183)
--------------- --------------- --------------- --------------
Total $402,302,644 $184,352,339 $16,567,793 $603,222,776
=============== =============== =============== ==============
Net Assets:
Class A $388,542,169 $175,508,661 $16,567,793 $580,618,623
Class B $13,760,475 $8,843,678 N/A $22,604,153
Shares outstanding:
Class A 99,181,982 35,929,149 2,335,774 148,212,756
Class B 3,524,789 1,814,132 N/A 5,790,124
Net asset value and redemption price per share -
Class A $3.92 $4.88 $7.09 $3.92
==== ==== ==== ====
Maximum offering price per share -
Class A* $4.18 $5.21 $7.44 $4.18
==== ==== ==== ====
Net asset value and offering price per share -
Class B $3.90 $4.87 N/A $3.90
==== ==== ====
*Net asset value/.9375 for First Investors Fund For Income and First Investors
High Yield Fund and Net asset value/.9525 for Executive Investors High Yield
Fund. On purchases of $25,000 or more in First Investors Fund For Income or
First Investors High Yield Fund or $100,000 or more in Executive Investors High
Yield Fund, the sales charge is reduced.
See Notes to Pro Forma Combining Financial Statements
48-A
Statement of Operations
FIRST INVESTORS FIRST INVESTORS EXECUTIVE INVESTORS PRO FORMA
FUND FOR INCOME HIGH YIELD FUND HIGH YIELD FUND COMBINING
10/1/98 to 9/30/99 10/1/98 to 9/30/99 10/1/98 to 9/30/99 PRO FORMA 10/1/98 to 9/30/99
(Audited) (Audited) (Unaudited) ADJUSTMENTS (Unaudited)
--------------- --------------- -------------------------------------------------
Investment Income
Income:
Interest $42,852,042 $20,046,554 $1,940,807 $64,839,403
Dividends 3,579,328 1,256,891 167,412 5,003,631
--------------- --------------- --------------- --------------
Total income 46,431,370 21,303,445 2,108,219 69,843,034
--------------- --------------- --------------- --------------
Expenses:
Advisory fee 3,121,524 1,994,143 183,927 ($651,890) 4,647,704
Distribution plan expenses - Class A 1,234,576 571,559 91,964 (36,798) 1,861,301
Distribution plan expenses - Class B 116,392 94,087 N/A 210,479
Shareholder servicing costs 819,655 495,183 24,602 (6,761) 1,332,679
Reports and notices to shareholders 75,794 40,852 4,069 120,715
Professional fees 69,015 48,897 15,800 (20,000) 113,712
Custodian fees and expenses 48,066 35,347 7,094 (2,960) 87,547
Other expenses 29,844 21,979 328 (7,660) 44,491
--------------- --------------- --------------- -------------- --------------
Total expenses 5,514,866 3,302,047 327,784 (726,069) 8,418,628
Less: Expenses waived or assumed - (495,021) (110,356) 608,960 3,583
Custodian fees paid indirectly (6,835) (9,542) - (16,377)
--------------- --------------- --------------- -------------- --------------
Net expenses 5,508,031 2,797,484 217,428 (117,109) 8,405,834
--------------- --------------- --------------- -------------- --------------
Net investment income 40,923,339 18,505,961 1,890,791 117,109 61,437,200
--------------- --------------- --------------- -------------- --------------
Realized and Unrealized Gain (Loss)
on Investments:
Net realized loss on investments (807,500) (85,213) (201,412) (1,094,125)
Net unrealized depreciation of investment (26,750,866) (12,659,742) (920,045) 40,330,653)
--------------- --------------- ---------------- --------------
Net loss on investments (27,558,366) (12,744,955) (1,121,457) (41,424,778)
--------------- --------------- --------------- --------------
Net Increase in Net Assets Resulting
from Operartions $13,364,973 $5,761,006 $769,334 $117,109 $20,012,422
=============== =============== =============== ============== ==============
See Notes to Pro Forma Combining Financial Statements
49
Notes to Pro Forma Combining Financial Statements
September 30, 1999
Note 1 - Basis of Pro Forma Presentation
The pro forma financial statements and the accompanying pro forma portfolio of
investments give effect to the proposed reorganizations involving First
Investors Fund For Income, Inc., First Investors High Yield Fund, Inc. and
Executive Investors High Yield Fund and the consummation of the transactions
contemplated therein to be accounted for as a tax-free reorganization of
investment companies. The reorganizations would be accomplished by (i) an
exchange of Class A and Class B shares of First Investors Fund For Income, Inc.
for the net assets of First Investors High Yield Fund, Inc. and the distribution
of First Investors Fund For Income, Inc. Class A and Class B shares to First
Investors High Yield Fund, Inc. shareholders; and (ii) an exchange of Class A
shares of First Investors Fund For Income, Inc. for the net assets of Executive
Investors High Yield Fund and the distribution of First Investors Fund For
Income, Inc. Class A shares to Executive Investors High Yield Fund shareholders.
If the reorganizations were to have taken place at September 30, 1999, First
Investors High Yield Fund, Inc. would have received 44,801,564 Class A shares
and 2,265,335 of Class B shares and Executive Investors High Yield Fund would
have received 4,229,210 of Class A shares.
Note 2 - The Pro Forma Adjustments
The pro forma adjustments to these pro forma financial statements are comprised
of the expected savings when the three funds become one. The reorganizations
should result in a lower expense ratio not only for the current shareholders of
the Executive Investors High Yield Fund (assuming any fee waivers and/or expense
assumptions for Executive Investors High Yield Fund are discontinued, as is
currently planned), but for all shareholders for four reasons. First, the
combined Fund will have the opportunity to achieve a breakpoint in management
fees which High Yield Fund, Executive Investors High Yield Fund and Fund For
Income would not achieve as separate funds. Currently, the High Yield Fund and
the Executive Investors High Yield Fund do not have enough assets to reach their
first breakpoint. Fund For Income has already achieved its first breakpoint.
Assuming no significant loss of assets, the reorganization should result in Fund
For Income having assets of approximately $600 million, which will allow it to
reach the second breakpoint. Second, the combined Fund will have a larger asset
base over which to spread the other fees and expenses than the Funds standing
alone. Third, the combination of the Funds will eliminate duplicative legal and
auditor's fees, custodian fees, printing costs and certain registration fees.
Fourth, shareholders of Executive Investors High Yield Fund will be subject to
lower 12b-1 fees as a result of the reorganization.
Note 3 - Portfolio Holdings
The Funds will not be required to sell any portfolio holdings as a result of
this reorganization.
Note 4 - Other Information
These statements reflect two reorganizations involving three funds (Fund For
Income, High Yield Fund, and Executive Investors High Yield Fund). Neither
reorganization is dependent upon the other.
A Guide to Your
First Investors
Mutual Fund Account
as of January 11, 2000
INTRODUCTION
Investing in mutual funds doesn't have to be complicated. Your registered
representative is available to answer your questions and help you process your
transactions. First Investors offers personalized service and a wide variety of
mutual funds. In the event you wish to process a transaction directly, the
material provided in this easy-to-follow guide tells you how to contact us and
explains our policies and procedures. Please note that there are special rules
for money market funds.
Please read this manual completely to gain a better understanding of how shares
are bought, sold, exchanged, and transferred. In addition, the manual provides
you with a description of the services we offer to simplify investing. The
services, privileges and fees referenced in this manual are subject to change.
You should call our Shareholder Services Department at 1 (800) 423-4026 before
initiating any transaction.
This manual must be preceded or accompanied by a First Investors mutual fund
prospectus. For more complete information on any First Investors Fund, including
charges and expenses, refer to the prospectus. Read the prospectus carefully
before you invest or send money.
Principal Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
1-212-858-8000
Transfer Agent
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
TABLE OF CONTENTS
HOW TO BUY SHARES
To Open an Account................1
To Open a Retirement Account........2
Minimum Initial Investment..........2
Additional Investments..............2
Acceptable Forms of Payment.........2
Share Classes.......................2
Share Class Specification...........3
Class A Shares......................3
Class B Shares......................5
How to Pay..........................6
HOW TO SELL SHARES
Written Redemptions.................9
Telephone Redemptions...............9
Electronic Funds Transfer...........9
Systematic Withdrawal Plans.........10
Expedited Wire Redemptions..........10
HOW TO EXCHANGE SHARES
Exchange Methods....................11
Exchange Conditions.................12
Exchanging Funds with
Automatic Investments or
Systematic Withdrawals..............12
WHEN AND HOW
FUND SHARES ARE PRICED..............13
HOW PURCHASE,
REDEMPTION AND
EXCHANGE ORDERS ARE
PROCESSED AND PRICED.................13
SPECIAL RULES FOR MONEY
MARKET FUNDS ........................14
RIGHT TO REJECT PURCHASE
OR EXCHANGE ORDERS...................15
SIGNATURE GUARANTEE
POLICY .............................15
TELEPHONE SERVICES
Telephone Exchanges
and Redemptions......................16
Shareholder Services.................17
OTHER SERVICES.......................18
ACCOUNT STATEMENTS
Transaction Confirmation Statements..20
Master Account Statements 20
Annual and Semi-Annual Reports.......20
DIVIDENDS AND DISTRIBUTIONS
Dividends and Distributions..........21
Buying a Dividend....................21
TAX FORMS ..........................22
THE OUTLOOK..........................22
HOW TO BUY SHARES
First Investors offers a wide variety of mutual funds to meet your financial
needs ("FI Funds"). Your registered representative will review your financial
objectives and risk tolerance, explain our product line and services, and help
you select the right investments. Call our Shareholder Services Department at 1
(800) 423-4026 or visit us on-line at www.firstinvestors.com for more
information.
TO OPEN AN ACCOUNT
Before investing, you must establish an account with your broker-dealer. At
First Investors Corporation ("FI") you do this by completing and signing a
Master Account Agreement ("MAA"). Some types of accounts require additional
paperwork.* After you determine the fund(s) you want to purchase, deliver your
completed MAA and your check, made payable to First Investors Corporation, to
your registered representative. New client accounts must be established through
your registered representative.
NON-RETIREMENT
ACCOUNTS
We offer a variety of different "non-retirement" accounts, which is the term we
use to describe all accounts other than retirement accounts.
INDIVIDUAL ACCOUNTS. These accounts may be opened by any adult individual.
Telephone privileges are automatically available, unless they are declined.
JOINT ACCOUNTS. For any account with two or more owners, all owners must
sign requests to process transactions. Telephone privileges allow any one of
the owners to process transactions independently.
GIFTS AND TRANSFERS TO MINORS. Custodial accounts for a minor may be established
under your state's Uniform Gifts/Transfers to Minors Act. Custodial accounts are
registered under the minor's social security number.
TRUSTS. A trust account may be opened only if you have a valid written trust
document.
TRANSFER ON DEATH (TOD). TOD registrations, available on all FI Funds in all
states, allow individual and joint account owners to name one or more
beneficiaries. The ownership of the account passes to the named beneficiaries in
the event of the death of all account owners.
* ADDITIONAL PAPERWORK REQUIRED FOR CERTAIN ACCOUNTS.
TYPE OF ACCOUNT ADDITIONAL DOCUMENTS REQUIRED
Corporations First Investors Certificate of Authority
Partnership
& Trusts
Transfer On Death First Investors TOD Registration Request Form
(TOD)
Estates Original or Certified Copy of Death Certificate
Certified Copy of Letters Testamentary/Administration
First Investors Executor's Certification & Indemnification Form
Conservatorships Certified copy of court document appointing Conservator/
& Guardianships Guardian
RETIREMENT ACCOUNTS
We offer the following types of retirement plans for individuals and employers:
INDIVIDUAL RETIREMENT ACCOUNTS including Roth, Traditional, and Rollover IRAs.
SIMPLE IRAS for employers.
SEP-IRAS (SIMPLIFIED EMPLOYEE PENSION PLANS) for small business owners or people
with income from self-employment. SARSEP-IRAs are available as trustee to
trustee transfers.
403(B)(7) accounts for employees of eligible tax-exempt organizations such as
schools, hospitals and charitable organizations.
401(K) plans for employers.
MONEY PURCHASE PENSION
& PROFIT SHARING plans for sole proprietors and partnerships.
Currently, there are no annual service fees chargeable to a participant in
connection with an IRA, SEP-IRA, SARSEP-IRA or SIMPLE-IRA. Each Fund currently
pays the annual $10.00 custodian fee for each IRA account maintained with such
Fund. This policy may be changed at any time by a Fund on 45 days' written
notice to the holder of any IRA, SEP-IRA, SARSEP-IRA or SIMPLE-IRA. First
Financial Savings has reserved the right to waive its fees at any time or to
change the fees on 45 days' prior written notice to the holder of any IRA.
(First Financial Savings Bank will change its name to First Investors Federal
Savings Bank.)
For more information about these plans call your registered representative or
our Shareholder Services Department at
1 (800) 423-4026.
MINIMUM INITIAL
INVESTMENT
Your initial investment in a non-retirement fund account may be as little as
$1,000. The minimum is waived if you use one of our Automatic Investment
Programs (see How to Pay) or if you open a Fund account through a full exchange
from another FI Fund. You can open a First Investors Traditional IRA or Roth IRA
with as little as $500. Other retirement accounts may have lower initial
investment requirements at the Fund's discretion.
ADDITIONAL INVESTMENTS
Once you have established an account, you can add to it through your
registered representative or by sending us a check directly. There is no
minimum requirement on additional purchases into existing fund accounts.
Remember to include your FI Fund account number on your check made payable to
First Investors Corporation.
Mail checks to:
FIRST INVESTORS CORPORATION
ATTN: DEPT. CP
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198
ACCEPTABLE FORMS OF PAYMENT The following forms of payment are acceptable:
- -checks made payable to First Investors Corporation.
- -Money Line and Automatic Payroll Investment electronic funds transfers.
- -Federal Funds wire transfers.
For your protection, never give your registered representative cash or a check
made payable to your registered representative.
We DO NOT accept:
- -Third party checks.
- -Traveler's checks.
- -Checks drawn on non-US banks.
- -Money orders.
- -Cash.
SHARE CLASSES
All FI Funds are available in Class A and Class B shares. Direct purchases into
Class B share money market accounts are not accepted. Class B money market fund
shares may only be acquired through an exchange from another Class B share
account or through Class B share dividend cross-reinvestment.
Each class of shares has its own cost structure. As a result, different classes
of shares in the same fund generally have different prices. Class A shares have
a front-end sales charge. Class B shares may have a contingent deferred sales
charge ("CDSC"). While both classes have a Rule 12b-1 fee, the fee on Class B
shares is generally higher. The principal advantages of Class A shares are that
they have lower overall expenses, the availability of quantity discounts on
sales charges, and certain account privileges that are not offered on Class B
shares. The principal advantage of Class B shares is that all your money is put
to work from the outset. Your registered representative can help you decide
which class of shares is best for you.
SHARE CLASS SPECIFICATION
It's very important to specify which class of shares you wish to purchase when
you open a new account. All First Investors account applications have a place to
designate your selection. If you do not specify which class of shares you want
to purchase, Class A shares will automatically be purchased.
CLASS A SHARES
When you buy Class A shares, you pay the offering price - the net asset value of
the fund plus a front-end sales charge. The front-end sales charge declines with
larger investments.
CLASS A SALES CHARGES
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
up to $24,999 6.25% 6.67%
$25,000 - $49,999 5.75% 6.10%
$50,000 - $99,999 5.50% 5.82%
$100,000 - $249,999 4.50% 4.71%
$250,000 - $499,999 3.50% 3.63%
$500,000 - $999,999 2.50% 2.56%
$1,000,000 or more 0%* 0%*
* If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Generally, you should consider purchasing Class A shares if you plan to
invest $250,000 or more either initially or over time.
SALES CHARGE WAIVERS
& REDUCTIONS ON CLASS A SHARES:
If you qualify for one of the sales charge reductions or waivers, it is very
important to let us know at the time you place your order. Include a written
statement with your check explaining which privilege applies. If you do not
include this statement we cannot guarantee that you will receive the reduction
or waiver.
CLASS A SHARES MAY BE PURCHASED WITHOUT A SALES CHARGE: 1: By an officer,
trustee, director, or employee of the Fund, the Fund's adviser or subadviser,
First Investors Corporation, or any affiliates of First Investors Corporation,
or by his/her spouse, child (under age 21) or grandchild (under age 21).
2: By a former officer, trustee, director, or employee of the Fund, First
Investors Corporation, or their affiliates or by his/her spouse, child (under
age 21) or child under UTMA/UGMA provided the person worked for the company for
at least 5 years and retired or terminated employment in good standing.
3: By a FI registered representative or an authorized dealer, or by his/her
spouse, child (under age 21) or grandchild (under age 21).
4: When Class A share fund distributions are reinvested in Class A shares.
5: When Class A share Systematic Withdrawal Plan payments are reinvested in
Class A shares (except for certain payments from money market accounts which may
be subject to a sales charge).
6: When qualified retirement plan loan repayments are reinvested in Class A
shares.
7: With the liquidation proceeds from a First Investors Life Variable Annuity
Fund A, C, or D contracts or First Investors Single Premium Retirement Annuity
contract within one year of the contract's maturity date.
8: When dividends (at least $50 a year) from a First Investors Life Insurance
Company policy are invested into an EXISTING account.
9: When a group qualified plan (401(k) plans, money purchase pension plans,
profit sharing plans and 403(b) plans that are subject to Title I of ERISA) is
reinvesting redemption proceeds from another fund on which a sales charge or
CDSC was paid.
10: With distribution proceeds from a First Investors group qualified plan
account into an IRA.
11: By participant directed group qualified plans with 100 or more eligible
employees or $1,000,000 or more in assets.
12: In amounts of $1 million or more.
13: By individuals under a Letter of Intent or Cumulative Purchase Privilege of
$1 million or more.
FOR ITEMS 9 THROUGH 13 ABOVE: A CDSC OF 1.00% WILL BE DEDUCTED IF SHARES ARE
REDEEMED WITHIN 2 YEARS OF PURCHASE.
SALES CHARGES ON CLASS A SHARES MAY BE REDUCED FOR:
1: Participant directed group qualified retirement plans with 99 or fewer
eligible employees. The initial sales charge is reduced to 3.00% of the offering
price.
2: Certain unit trust holders ("unitholders") who elect to invest the entire
amount of principal, interest, and/or capital gains distributions from their
unit investment trusts in Class A shares. Unitholders of various series of New
York Insured Municipals-Income Trust sponsored by Van Kampen Merrit, Inc.,
unitholders of various series of the Multistate Tax Exempt Trust sponsored by
Advest Inc., and unitholders of various series of the Insured Municipal Insured
National Trust, J.C. Bradford & Co. as agent, may buy Class A shares of a FI
Fund with unit trust distributions at the net asset value plus a sales charge of
1.5%. Unitholders of various tax-exempt trusts, other than the New York Trust,
sponsored by Van Kampen Merritt Inc. may buy Class A shares of a FI Fund at the
net asset value plus a sales charge of 1.0%.
Unitholders may make additional purchases, other than those made by unit trust
distributions, at the Fund's regular offering price.
+ CUMULATIVE PURCHASE PRIVILEGE
The Cumulative Purchase Privilege lets you add the value of all your existing FI
Fund accounts (Class A and Class B shares) to the amount of your next Class A
share investment to reach sales charge discount breakpoints. The Cumulative
Purchase Privilege lets you add the values of all of your existing FI Fund
accounts (except for amounts that have been invested directly in Cash Management
or Tax Exempt Money Market accounts on which no sales charge was previously
imposed) to the amount of your next Class A share investment in determining
whether you are entitled to a sales charge discount. While sales charge
discounts are available only on Class A shares, we will also include any Class B
shares you may own in determining whether you have achieved a discount level.
For example, if the combined current value of your existing FI Fund accounts is
$25,000 (measured by offering price), your next purchase will be eligible for a
sales charge discount at the $25,000 level. Cumulative Purchase discounts are
applied to purchases as indicated in the first column of the Class A Sales
Charge table.
All your accounts registered with the same social security number will be linked
together under the Cumulative Purchase Privilege. Your spouse's accounts and
custodial accounts held for minor children residing at your home
can also be linked to your accounts upon request.
- -Conservator accounts are linked to the social security number of the ward,
not the conservator.
- -Sole proprietorship accounts are linked to personal/family accounts only if the
account is registered with a social security number, not an employer
identification number ("EIN").
- -Testamentary trusts and living trusts may be linked to other accounts
registered under the same trust EIN, but not to the personal accounts of the
trustee(s).
-Estate accounts may only be linked to other accounts registered under the same
EIN of the estate or social security number of the decedent.
-Church and religious organizations may link accounts to others registered with
the same EIN but not to the personal accounts of any member.
+ LETTER OF INTENT
A Letter of Intent ("LOI") lets you purchase Class A shares at a discounted
sales charge level even though you do not yet have sufficient investments to
qualify for that discount level. An LOI is a commitment by you to invest a
specified dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay. Under an LOI, you can reduce the initial
sales charge on Class A share purchases based on the total amount you agree to
invest in both Class A and Class B shares during the 13 month period. Purchases
made 90 days before the date of the LOI may be included, in which case the 13
month period begins on the date of the first purchase. Your LOI can be amended
in two ways. First, you may file an amended LOI to raise or lower the LOI amount
during the 13 month period. Second, your LOI will be automatically amended if
you invest more than your LOI amount during the 13 month period and qualify for
an additional sales charge reduction. Amounts invested in the Cash Management or
Tax Exempt Money Market Funds are not counted toward an LOI.
By purchasing under an LOI, you acknowledge and agree to the following:
- -You authorize First Investors to reserve 5% of your total intended investment
in shares held in escrow in your name until the LOI is completed.
- -First Investors is authorized to sell any or all of the escrow shares to
satisfy any additional sales charges owed in the event you do not fulfill the
LOI.
- -Although you may exchange all your shares, you may not sell the reserve shares
held in escrow until you fulfill the LOI or pay the higher sales charge.
CLASS B SHARES
Class B shares are sold without an initial sales charge, putting all your money
to work for you immediately. If you redeem Class B shares within 6 years of
purchase, a CDSC will be imposed. The CDSC declines from 4% to 0% over a 6-year
period, as shown in the chart below. Class B share money market fund shares are
not sold directly. They can only be acquired through an exchange from another
Class B fund account or through cross reinvestment of dividends from another
Class B share account. Class B shares, and the dividend and distribution shares
they earn, automatically convert to Class A shares after 8 years, reducing
future annual expenses.
Generally, you should consider purchasing Class B shares if you intend to invest
less than $250,000 and you would rather pay higher ongoing expenses than an
initial sales charge.
CLASS B SALES CHARGES
THE CDSC DECLINES OVER TIME AS SHOWN IN THE TABLE BELOW:
YEAR 1 2 3 4 5 6 7+
CDSC 4% 4% 3% 3% 2% 1% 0%
If shares redeemed are subject to a CDSC, the CDSC will be based on the lesser
of the original purchase price or redemption price. There is no CDSC on shares
acquired through dividend and capital gains reinvestment. We call these "free
shares."
Anytime you sell shares, your shares will be redeemed in the following manner to
ensure that you pay the lowest possible CDSC:
First-Class B shares representing dividends and capital gains that are not
subject to a CDSC.
Second-Class B shares held more than six years which are not subject to a CDSC.
Third-Class B shares held longest which will result in the lowest CDSC.
For purposes of calculating the CDSC, all purchases made during the calendar
month are deemed to have been made on the first business day of the month at the
average cost of the shares purchased during that period.
SALES CHARGE WAIVERS ON
CLASS B SHARES:
The CDSC on Class B shares does not apply to:
1: Appreciation on redeemed shares above their original purchase price and
shares acquired through dividend or capital gains distributions.
2: Redemptions due to the death or disability (as defined in Section 72(m)(7) of
the Internal Revenue Code) of an account owner. Redemptions following the death
or disability of one joint owner of a joint account are not deemed to be as the
result of death or disability.
3: Distributions from employee benefit plans due to plan termination.
4: Redemptions to remove an excess contribution from an IRA or qualified
retirement plan.
5: Distributions upon reaching required minimum age 70 1/2 provided you have
held the shares for at least three years.
6: Annual redemptions of up to 8% of your account's value redeemed by a
Systematic Withdrawal Plan. Free shares not subject to a CDSC will be redeemed
first and will count towards the 8% limit.
7: Shares redeemed from advisory accounts managed by or held by the Fund's
investment advisor or any of its affiliates.
8: Tax-free returns of excess contributions from employee benefit plans.
9: Redemptions of non-retirement shares purchased with proceeds from the sale of
shares of another fund group between April 29, 1996 and June 30, 1996 that did
not pay a sales charge (other than money market fund accounts or retirement plan
accounts).
10: Redemptions by the Fund when the account falls below the minimum.
11: Redemptions to pay account fees.
Include a written statement with your redemption request explaining which
exemption applies. If you do not include this statement we cannot guarantee that
you will receive the waiver.
HOW TO PAY
You can invest using one or more of the following options:
+ CHECK:
You can buy shares by writing a check payable to First Investors Corporation. If
you are opening a new fund account, your check must meet the fund minimum. When
making purchases to an existing account, remember to include your fund account
number on your check.
AUTOMATIC INVESTMENTS:
We offer several automatic investment
programs to simplify investing.
+ MONEY LINE:
With our Money Line program, you can invest in a FI fund account with as little
as $50 a month or $600 each year by transferring funds electronically from your
bank account. You can invest up to $50,000 a month through Money Line.
Money Line allows you to select the payment amount and frequency that is best
for you. You can make automatic investments bi-weekly, semi-monthly, monthly,
quarterly, semi-annually, or annually.
The date you select as your Money Line investment date is the date on which
shares will be purchased. THE PROCEEDS MUST BE AVAILABLE IN YOUR BANK ACCOUNT
TWO BUSINESS DAYS PRIOR TO THE INVESTMENT DATE.
HOW TO APPLY:
1: Complete the Electronic Funds Transfer ("EFT") section of the application to
provide complete bank information and authorize EFT fund share purchases. Attach
a voided check or account statement. A signature guarantee of all shareholders
and bank account owners is required. PLEASE ALLOW AT LEAST 10 BUSINESS DAYS FOR
INITIAL PROCESSING.
2: Complete the Money Line section of the application to specify the amount,
frequency and date of the investment.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
HOW TO CHANGE:
Provided you have telephone privileges, you may call Shareholder Services at 1
(800) 423-4026 to:
- -Increase the payment up to $999.99 provided bank and fund account
registrations are the same.
- -Decrease the payment.
- -Discontinue the service.
To change investment amounts, reallocate or cancel Money Line, you must notify
us at least 3 business days prior to the investment date.
You must send a signature guaranteed written request to Administrative Data
Management Corp. to:
- -Increase the payment to $1,000 or more.
- -Change bank information (a new Money Line Application and voided check or
account statement is required).
A medallion signature guarantee (see Signature Guarantee Policy) is required to
increase a Money Line payment to $25,000 or more. Changing banks or bank account
numbers requires 10 days notice. Money Line service will be suspended upon
notification that all account owners are deceased.
+ AUTOMATIC PAYROLL
INVESTMENT:
With our Automatic Payroll Investment service ("API") you can systematically
purchase shares by salary reduction. To participate, your employer must offer
direct deposit and permit you to electronically transfer a portion of your
salary. Contact your company payroll department to authorize the salary
reductions. If not available, you may consider our Money Line program.
Shares purchased through API are purchased on the day the electronic transfer is
received by the Fund.
HOW TO APPLY:
1: Complete an API Application. If you are receiving a government payment and
wish to participate in the API Program you must also complete the government's
Direct Deposit Sign-up Form. Call Shareholder Services at 1 (800) 423-4026 for
more information.
2: Complete an API Authorization Form.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
+ WIRE TRANSFERS:
You may purchase shares via a Federal Funds wire transfer from your bank account
into your EXISTING First Investors account. Federal Fund wire transfer proceeds
are not subject to a holding period and are available to you immediately upon
receipt, as long as we have been notified properly.
Shares will be purchased on the day we receive your wire transfer provided that
we have received adequate instructions and you have previously notified us that
the wire is on the way (by calling 1 (800) 423-4026). Your notification must
include the Federal Funds wire transfer confirmation number, the amount of the
wire, and the fund account number to receive same day credit. There are special
rules for money market fund accounts.
To wire Federal Funds to an existing First Investors account (other than money
markets), instruct your bank to wire your investment to:
FIRST FINANCIAL SAVINGS BANK, S.L.A.
ABA # 221272604
ACCOUNT # 0306142
YOUR NAME
YOUR FIRST INVESTORS FUND ACCOUNT #
(First Financial Savings Bank will change its name to First Investors Federal
Savings Bank.)
+ DISTRIBUTION
CROSS-INVESTMENT:
You can invest the dividends and capital gains from one fund account, excluding
the money market funds, into another fund account in the same class of shares.
The shares will be purchased at the net asset value on the day after the record
date of the distribution.
- -You must invest at least $50 a month or $600 a year into a NEW fund account.
- -A signature guarantee is required if the ownership on both accounts is not
identical.
You may establish a Distribution Cross-Investment service by contacting your
registered representative or calling Shareholder Services at 1 (800) 423-4026.
+ SYSTEMATIC WITHDRAWAL PLAN PAYMENT INVESTMENTS: You can invest Systematic
Withdrawal Plan payments (see How to Sell Shares) from one fund account in
shares of another fund account in the same class of shares. -Payments are
invested without a sales charge. -A signature guarantee is required if the
ownership on both accounts is not
identical.
- -Both accounts must be in the same class of shares. -You must invest at least
$600 a year if into a new fund account. -You can invest on a monthly, quarterly,
semi-annual, or annual basis. Redemptions are suspended upon notification that
all account owners are deceased. Service will recommence upon receipt of written
alternative payment instructions and other required documents from the
decedent's legal representative.
HOW TO SELL SHARES
You can sell your shares on any day the New York Stock Exchange ("NYSE") is open
for regular trading. In the mutual fund industry, a sale is referred to as a
"redemption." Payment of redemption proceeds generally will be made within seven
days. If the shares being redeemed were recently purchased by check or
electronic funds transfer, payment may be delayed to verify that the check or
electronic funds transfer has been honored, which may take up to 15 days from
the date of purchase. Shareholders may not redeem shares by telephone or
electronic funds transfer unless the shares have been owned for at least 15
days.
Redemptions of shares are not subject to the 15 day verification period if the
shares were purchased via:
- -Automatic Payroll Investment.
- -FIC registered representative payroll checks.
- -First Investors Life Insurance Company checks.
- -Federal funds wire payments.
For trusts, estates, attorneys-in-fact, corporations, partnerships, and other
entities, additional documents are required to redeem shares. Call
Shareholder Services at
1 (800) 423-4026 for more information.
WRITTEN REDEMPTIONS
You can write a letter of instruction or contact your registered
representative for a liquidation request form. A written liquidation request
in
good order must include:
1: The name of the fund;
2: Your account number;
3: The dollar amount, number of shares or percentage of the account you want to
redeem;
4: Share certificates (if they were issued to you);
5: Original signatures of all owners exactly as your account is registered; and
6: Signature guarantees, if required (see Signature Guarantee Policy).
If we are being asked to redeem a retirement account and transfer the proceeds
to another financial institution, we will also require a Letter of Acceptance
from the successor custodian before we effect the redemption.
For your protection, the Fund reserves the right to require additional
supporting legal documentation.
Written redemption requests should be mailed to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
If your redemption request is not in good order or information is missing, the
Transfer Agent will seek additional information and process the redemption on
the day it receives such information.
TELEPHONE REDEMPTIONS
You, or any person we believe is authorized to act on your behalf, may redeem
non-retirement shares which have been owned for at least 15 days by calling our
Special Services Department at 1 (800) 342-6221 from 9:00 a.m. to 4:00 p.m., ET,
provided:
- -Telephone privileges are available for your account registration and you
have not declined telephone privileges (see Telephone Privileges);
- -You do not hold share certificates (issued shares);
- -The redemption check is made payable to the registered owner(s) or
pre-designated bank;
- -The redemption check is mailed to your address of record or predesignated
bank account;
- -Your address of record has not changed within the past 60 days;
- -The redemption amount is $50,000 or less; AND
- -The redemption amount, combined with the amount of all telephone redemptions
made within the previous 30 days does not exceed
$100,000. Telephone redemption orders received between 4:00-5:00p.m. will be
processed on the following business day.
ELECTRONIC FUNDS TRANSFER
The Electronic Funds Transfer ("EFT") service allows you to redeem shares and
electronically transfer proceeds to your bank account.
YOU MUST ENROLL IN THE ELECTRONIC FUNDS TRANSFER SERVICE AND PROVIDE COMPLETE
BANK ACCOUNT INFORMATION BEFORE USING THE PRIVILEGE. Signature guarantees of all
shareholders and all bank account owners are required. Please allow at least 10
business days for initial processing. We will send any proceeds during the
processing period to your address of record. Call your registered representative
or Shareholder Services at 1 (800) 423-4026 for an application. You may call
Shareholder Services or send written instructions to Administrative Data
Management Corp. to request an EFT redemption of shares which have been held at
least 15 days. Each EFT redemption:
1: Must be electronically transferred to your pre-designated bank account;
2: Must be at least $500;
3: Cannot exceed $50,000; and
4: Cannot exceed $100,000 when added to the total amount of all EFT redemptions
made within the previous 30 days.
If your redemption does not qualify for an EFT redemption, your redemption
proceeds will be mailed to your address of record.
The Electronic Funds Transfer service may also be used to purchase shares (see
Money Line) and transfer systematic withdrawal payments (see Systematic
Withdrawal Plans) and dividend distributions (see Other Services) to your bank
account.
SYSTEMATIC WITHDRAWAL PLANS
Our Systematic Withdrawal Plan allows you to redeem a specific dollar amount,
number of shares, or percentage from your account on a regular basis. Your
payments can be mailed to you or a pre-authorized payee by check, transferred to
your bank account electronically (if you have enrolled in the EFT service) or
invested in shares of another FI fund in the same class of shares through our
Systematic Withdrawal Plan Payment investment service (see How to Buy Shares).
You can receive payments on a monthly, quarterly, semi-annual, or annual basis.
Your account must have a value of at least $5,000 in non-certificated shares
("unissued shares"). The $5,000 minimum account balance is waived for required
minimum distributions from retirement plan accounts, payments to First Investors
Life Insurance Company, and systematic investments into another eligible fund
account. The minimum Systematic Withdrawal Plan payment is $25 (waived for
Required Minimum Distributions on retirement accounts or FIL premium payments).
Once you establish the Systematic Withdrawal Plan, you should not make
additional investments into this account (except money market funds). Buying
shares during the same period as you are selling shares is not advantageous to
you because of sales charges.
If you own Class B shares, you may establish a Systematic Withdrawal Plan and
redeem up to 8% of the value of your account annually without a CDSC.
If you own Class B shares of a retirement account and you are receiving your
Required Minimum Distribution through a Systematic Withdrawal Plan, up to 8% of
the value of your account may be redeemed annually without a CDSC. However, if
your Required Minimum Distribution exceeds the 8% limit, the applicable CDSC
will be charged if the additional shares were held less than 3 years and you
have not reached age 701/2.
To establish a Systematic Withdrawal Plan, complete the appropriate section of
the account application or contact your registered representative or call
Shareholder Services at
1 (800) 423-4026.
EXPEDITED WIRE
REDEMPTIONS
(MONEY MARKET FUNDS ONLY)
Enroll in our Expedited Redemption service to wire proceeds from your FI money
market account to your bank account. Call Shareholder Services at 1 (800)
423-4026 for an application or to discuss specific requirements.
Requests for redemptions by wire out of money market funds must be received in
writing or by phone prior to 12:00 p.m., ET on a day the NYSE is open for
trading. These days are referred to as "Trading Days" in this manual. Wire
Redemption orders received after 12:00 p.m., ET but before the close of regular
trading on the NYSE, or received on a day that the Federal Reserve system is
closed will be processed on the following business day.
- -Each wire under $5,000 is subject to a $15 fee.
- -Two wires of $5,000 or more are permitted without charge each month. Each
additional wire is $15.00.
- -Wires must be directed to your pre-designated bank account.
HOW TO EXCHANGE SHARES
The exchange privilege gives you the flexibility to change investments as your
goals change without incurring a sales charge. Since an exchange of
non-retirement fund shares is a redemption and a purchase, it creates a gain or
loss which is reportable for tax purposes. You should consult your tax advisor
before requesting an exchange. Read the prospectus of the FI Fund you are
purchasing carefully. Review the differences in objectives, policies, risk,
privileges and restrictions.
EXCHANGE METHODS
METHOD STEPS TO FOLLOW
Through Your
Registered Representative Call your registered representative.
By Phone Call Special Services from 9:00 a.m. to 5:00 p.m., ET
1(800) 342-6221 Orders received after the close of the NYSE, usually
4:00 p.m., ET, are processed the following business day.
1. You must have telephone privileges.
(see Telephone Transactions.)
2. Certificate shares cannot be exchanged by phone.
3. For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional documents
are required and must be on file.
By Mail to:
ADM
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198 1. Send us written instructions signed by all
account owners exactly as the account is registered.
2. Include the name and account number of your fund.
3. Indicate either the dollar amount, number of shares or
percent of the source account you want to exchange.
4. Specify the existing account number or the name of the
new Fund you want to exchange into.
5. Include any outstanding share certificates for shares you
want to exchange. A signature guarantee is required.
6. For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional
documents are required. Call Shareholder
Services at 1(800) 423-4026.
EXCHANGE CONDITIONS
1: You may only exchange shares within the same class.
2: Exchanges can only be made into identically owned accounts.
3: Partial exchanges into a new fund account must meet the new fund's minimum
initial investment.
4: The fund you are exchanging into must be eligible for sale in your state.
5: If your request does not clearly indicate the amount to be exchanged or the
accounts involved, no shares will be exchanged.
6: Amounts exchanged from a non-money market fund to a money market fund may be
exchanged back along with the dividends earned on that amount at net asset
value. Dividends earned from money market fund shares will be subject to a sales
charge.
7: If you are exchanging from a money market fund to a fund with a sales charge,
there will be a sales charge on any shares that were not previously subject to a
sales charge. Dividends earned on money market shares that were purchased by an
exchange from a fund with a sales charge, may be exchanged back at net asset
value. Your request must be in writing and include a statement acknowledging
that a sales charge will be paid.
8: If you exchange Class B shares of a fund for shares of a Class B money market
fund, the CDSC will not be imposed but the CDSC and the holding period used to
calculate the CDSC will carry over to the acquired shares.
9: FI Funds reserve the right to reject any exchange order which in the opinion
of the Fund is part of a market timing strategy. In the event that an exchange
is rejected, neither the redemption nor the purchase side of the exchange will
be processed.
10: If your exchange request is not in good order or information is missing, the
Transfer Agent will seek additional information and process the exchange on the
day it receives such information.
EXCHANGING FUNDS WITH AUTOMATIC INVESTMENTS OR SYSTEMATIC WITHDRAWALS
Let us know if you want to continue automatic investments into the original fund
or the fund you are exchanging into ("receiving fund") or if you want to change
the amount or allocation. Also inform us if you wish to continue, terminate, or
change a preauthorized systematic withdrawal. Without specific instructions, we
will amend account privileges as outlined below:
EXCHANGE EXCHANGE EXCHANGE A
ALL SHARES TO ALL SHARES TO PORTION OF
ONE FUND MULTIPLE SHARES TO ONE OR
FUNDS MULTIPLE
FUNDS
MONEY LINE ML moves to ML stays with ML stays with
(ML) Receiving Fund Original Fund Original Fund
AUTOMATIC PAYROLL API moves to API Stays with API stays with
INVESTMENT (API) Receiving Fund Original Fund Original Fund
SYSTEMATIC SWP moves to SWP SWP stays
WITHDRAWALS Receiving Fund Canceled with Original Fund
(SWP)
WHEN AND HOW FUND SHARES ARE PRICED
Each FI Fund prices its shares each day that the NYSE is open for trading. The
share price is calculated as of the close of trading on the NYSE (generally 4:00
p.m., ET).
Each Fund calculates the net asset value of each class of its shares separately
by taking the total value of class assets, subtracting class expenses, and
dividing the difference by the total number of shares in the class. The price
that you will pay for a share is the NAV plus any applicable front-end sales
charge. You receive the NAV price if you redeem or exchange your shares, less
any applicable CDSC.
Fund prices are on our website (www.firstinvestors.com) the next day. The prices
for our larger funds are also reported in many newspapers, including The Wall
Street Journal and The New York Times. Special pricing procedures are employed
during emergencies. For a description of these procedures you can request, free
of charge, a copy of a Statement of Additional Information.
HOW PURCHASE,
REDEMPTION AND
EXCHANGE ORDERS
ARE PROCESSED AND PRICED
The processing and price for a purchase, redemption or exchange depends upon how
your order is placed. As indicated below, in certain instances, special rules
apply to money market transactions. Special rules also apply for emergency
conditions. These are described in the Statement of Additional Information.
+ PURCHASES:
Purchases that are made by written application or order are processed when they
are received in "good order" by our Woodbridge, NJ office. To be in good order,
all required paperwork must be completed and payment received. If your order is
received prior to the close of trading on the NYSE, it will receive that day's
price (except in the case of money market funds which are discussed in the
section below called Special Rules for Money Market Funds). This procedure
applies whether your purchase order is given to your registered representative
or mailed directly by you to our Woodbridge, NJ office.
As described previously in "How to Buy Shares," certain types of purchases can
only be placed by written application. For example, purchases in connection with
the opening of retirement accounts may only be made by written application.
Furthermore, rollovers of retirement accounts will be processed only when we
have received both written application and the proceeds of the rollover. Thus,
for example, if it takes 30 days for another fund group to send us the proceeds
of a retirement account, your purchase of First Investors funds will not occur
until we receive the proceeds.
Some types of purchases may be phoned or electronically transmitted to us via
Fund/SERV by your broker-dealer. If you give your order to a registered
representative before the close
of trading on the NYSE and the order is phoned to our Woodbridge, NJ office
prior to 5:00 p.m., ET, your shares will be purchased at that day's price
(except in the case of money market funds which are discussed in the section
below called Special Rules for Money Market Funds). If you are buying a First
Investors Fund through a broker-dealer other than First Investors, other
requirements may apply. Consult with your broker-dealer about its requirements.
Payment is due within three business days of placing an order by phone or
electronic means or the trade may be cancelled. (In such event, you will be
liable for any loss resulting from the cancellation.) To avoid cancellation of
your orders, you may arrange to open a money market account and use it to pay
for subsequent purchases.
Purchases made pursuant to our Automatic Investment Programs are processed as
follows:
- -Money Line purchases are processed on the date you select on your
application.
- -Automatic Payroll Investment Service purchases are processed on the date that
we receive funds from your employer.
+ REDEMPTIONS:
As described previously in "How To Sell Shares," certain redemption orders may
only be made by written instructions or application. Unless you have declined
Telephone Privileges, most non-retirement account redemptions can be made by
phone by you or your registered representative.
Written redemption orders will be processed when received in good order in our
Woodbridge, NJ office. Phone redemption orders will be processed when received
in good order in our Woodbridge, NJ office prior to 4:00 p.m., ET.
If your redemption order is received prior to the close of trading on the NYSE,
you will receive that day's price. If you redeem through a broker-dealer other
than First Investors, other requirements may apply. Consult with your
broker-dealer about its requirements.
+ EXCHANGES:
Unless you have declined telephone privileges, you or your representative may
exchange shares by phone. Exchanges can also be made by written instructions.
Exchange orders are processed when we receive them in good order in our
Woodbridge, NJ office.
Exchange orders received in good order prior to the close of trading on the NYSE
will be processed at that day's prices.
+ ORDERS PLACED VIA FIRST INVESTORS REGISTERED REPRESENTATIVES: All orders
placed through a First Investors registered representative must be reviewed and
approved by a principal officer of the branch office before being mailed or
transmitted to the Woodbridge, NJ office.
+ ORDERS PLACED VIA DEALERS:
It is the responsibility of the Dealer to forward or transmit orders to the Fund
promptly and accurately. A fund will not be liable for any change in the price
per share due to the failure of the Dealer to place or pay for the order in a
timely fashion. Any such disputes must be settled between you and the Dealer.
SPECIAL RULES FOR MONEY MARKET FUNDS
Money market fund shares will not be purchased until the Fund receives Federal
Funds for the purchase. Federal Funds for a purchase will generally not be
received until the morning of the next Trading Day following the Trading Day on
which your purchase check or other form of payment is received in our
Woodbridge, NJ office. If a check is received in our Woodbridge, NJ office after
the close of regular trading on the NYSE, the Federal Funds for the purchase
will generally not be received until the morning of the second following Trading
Day.
If we receive a wire transfer for a purchase prior to 12:00 p.m., ET and you
have previously notified us that the wire is on the way (by calling 1 (800)
423-4026) the funds for the purchase will be deemed to have been received on
that same day. Your notification must include the Federal Funds wire transfer
confirmation number, the amount of the wire, and the money market fund account
number to receive same day credit. If we fail to receive such advance
notification, the funds for your purchase will not be deemed to have been
received until the morning of the next Trading Day following receipt of the
Federal Wire and your account information.
To wire funds to an existing First Investors money market account, instruct your
bank to wire your investment, as applicable, to:
CASH MANAGEMENT FUND
BANK OF NEW YORK
ABA #021000018
FI CASH MGMT. ACCOUNT 8900005696
FOR FURTHER CREDIT TO: YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
TAX-EXEMPT MONEY MARKET FUND
BANK OF NEW YORK
ABA #021000018
FI TAX EXEMPT ACCOUNT 8900023198
FOR FURTHER CREDIT TO: YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
Requests for redemptions by wire out of the money market funds must be received
in writing or by phone prior to 12:00 p.m., ET, on a Trading Day, to be
processed the same day. Wire redemption requests received after 12:00 p.m., ET,
but before the close of regular trading on the NYSE, will be processed the
following Trading Day.
There is no sales charge on Class A share money market fund purchases. However,
anytime you make a redemption from a Class A share money market account and
subsequently invest the proceeds in another eligible Class A share fund, the
purchase will incur a sales charge unless one has already been paid.
RIGHT TO REJECT
PURCHASE OR
EXCHANGE ORDERS
A fund reserves the right to reject or restrict any specific purchase or
exchange request if the fund determines that doing so is in the best interest of
the fund and its shareholders. Investments in a fund are designed for long-term
purposes and are not intended to provide a vehicle for short-term market timing.
The funds also reserve the right to reject any exchange that in the funds'
opinion is part of a market timing strategy. In the event that a fund rejects an
exchange request, neither the redemption nor the purchase side of the exchange
will be processed.
SIGNATURE
GUARANTEE POLICY
A signature guarantee protects you from the risk of a fraudulent signature and
is generally required for non-standard and large dollar transactions. A
signature guarantee may be obtained from eligible guarantor institutions
including banks, savings associations, credit unions and brokerage firms which
are members of the Securities Transfer Agents Medallion Program ("STAMP"), the
New York Stock Exchange Medallion Signature Program ("MSP"), or the Stock
Exchanges Medallion Program ("SEMP"). Please note that a notary public stamp or
seal is not acceptable.
+ SIGNATURE GUARANTEES
ARE REQUIRED:
1: For redemptions over $50,000.
2: For redemption checks made payable to any person(s) other than the registered
shareholder(s) or any entity other than a major financial institution for the
benefit of the registered shareholder(s).
3: For redemption checks mailed to an address other than the address of record,
pre-authorized bank account, or a major financial institution on your behalf.
4: For redemptions when the address of record has changed within 60 days of the
request.
5: When a stock certificate is mailed to an address other than the address of
record or the dealer on the account.
6: When shares are transferred to a new registration.
7: When certificated (issued) shares are redeemed or exchanged.
8: To establish any EFT service.
9: For requests to change the address of record to a P.O. box or a "c/o" street
address.
10: If multiple account owners of one account give inconsistent instructions.
11: When a transaction requires additional legal documentation.
12: When the authority of a representative of a corporation, partnership, trust,
or other entity has not been satisfactorily established.
13: When an address is updated on an account which has been coded "Do Not Mail"
because mail has been returned as undeliverable.
14: Any other instance whereby a fund or its transfer agent deems it
necessary as a matter of prudence.
TELEPHONE
SERVICES
TELEPHONE EXCHANGES AND REDEMPTIONS
1 (800) 342-6221
You automatically receive telephone privileges when you open a First Investors
individual, joint, or custodial account unless you decline the option on your
account application or send the Fund written instructions. For trusts, estates,
attorneys-in-fact, corporations, partnerships, and other entities, telephone
privileges are not automatically granted. You must complete additional
documentation. Call Shareholder Services at 1 (800) 423-4026 for assistance.
Telephone privileges allow you to exchange or redeem eligible shares and
authorize other transactions with a simple phone call. Your registered
representative may also use telephone privileges to execute your transactions.
+ SECURITY MEASURES:
For your protection, the following security measures are taken:
1: Telephone requests are recorded to verify accuracy.
2: Some or all of the following information is obtained:
- -Account number.
- -Address.
- -Social security number.
- -Other information as deemed necessary.
3: A written confirmation of each transaction is mailed to you.
We will not be liable for following instructions if we reasonably believe the
instructions are genuine based on our verification procedures.
+ ELIGIBILITY:
NON-RETIREMENT ACCOUNTS:
You can exchange or redeem shares of any non-retirement account by phone. Shares
must be uncertificated and owned for 15 days for telephone redemption. See "How
To Sell Shares" for additional information.
Telephone exchanges and redemptions are not available on guardianship and
conservatorship accounts.
RETIREMENT ACCOUNTS:
You can exchange shares of any eligible FI fund of any participant directed FI
prototype IRA, 403(b) or 401(k) Simplifier Plan. You may also exchange shares
from an individually registered non-retirement account to an IRA account
registered to the same owner (provided an IRA application is on file). Telephone
exchanges are permitted on 401(k) Flexible plans, money purchase pension plans
and profit sharing plans if a First Investors Qualified Retirement Plan
Application is on file with the fund. Contact your registered representative or
call Shareholder Services at 1 (800) 423-4026 to obtain a Qualified Retirement
Plan Application. Telephone redemptions are not permitted on First Investors
retirement accounts.
During times of drastic economic or market changes, telephone redemptions or
exchanges may be difficult to implement. If you experience difficulty in making
a telephone exchange or redemption, you may send us a written request by regular
or express mail. The written request will be processed at the next determined
net asset value, less any applicable CDSC, when received in good order in our
Woodbridge, N.J. office.
SHAREHOLDER SERVICES
1 (800) 423-4026
PROVIDED YOU HAVE NOT DECLINED TELEPHONE PRIVILEGES, CALL US TO UPDATE OR
CORRECT:
- -Your address or phone number. For security purposes, the Fund will not
honor telephone requests to change an address to a P.O. Box or "c/o" street
address.
- -Your birth date (important for retirement distributions).
- -Your distribution option to reinvest or pay in cash or initiate cross
reinvestment of dividends (non-retirement accounts only).
- -The amount of your Money Line up to $999.99 per payment provided bank and fund
account registrations are the same.
- -The allocation of your Money Line or Automatic Payroll Investment payment.
- -The amount of your Systematic Withdrawal payment on non-retirement accounts.
TO REQUEST:
- -A history of your account (the fee can be debited from your non-retirement
account).
- -A share certificate to be mailed to your address of record (non-retirement
accounts only).
- -Cancellation of your Systematic Withdrawal Plan (non-retirement accounts
only).
- -Money market fund draft checks (non-retirement accounts only). Additional
written documentation may be required for certain registrations.
- -A stop payment on a dividend, redemption or money market draft check.
- -Reactivation of your Money Line (provided an application and voided check is
on file).
- -Suspension (up to six months) or cancellation of Money Line.
- -A duplicate copy of a statement or tax form.
- -Cancellation of cross-reinvestment of dividends.
OTHER SERVICES
+ REINSTATEMENT PRIVILEGE:
If you sell some or all of your Class A or Class B shares, you may be entitled
to invest all or a portion of the proceeds in the same class of shares of a FI
fund within six months of the redemption without a sales charge.
If you invest proceeds into a new fund account, you must meet the fund's minimum
initial investment requirement.
If you invest all the proceeds from a Class B share redemption, you will be
credited, in additional shares, for the full amount of the CDSC. If you invest a
portion of a Class B share redemption, you will be credited with a pro-rated
percentage of the CDSC.
The reinstatement privilege does not apply to automated purchases, automated
redemptions, or reinstatements in Class B shares of less than $1,000.
Please notify us if you qualify for this privilege. For more information, call
Shareholder Services at 1 (800) 423-4026.
+ CERTIFICATE SHARES:
Every time you make a purchase of Class A shares, we will credit shares to your
fund account. We do not issue share certificates unless you specifically request
them. Certificates are not issued on any Class B shares, Class A money market
shares, or any shares in retirement accounts.
Having us credit shares on your behalf eliminates the expense of replacing lost,
stolen, or destroyed certificates. If a certificate is lost, stolen, or damaged,
you may be charged a replacement fee of the greater of 2% of the current value
of the certificated shares or $25.
In addition, certificated shares cannot be redeemed, exchanged, or transferred
until they are returned with your transaction request. The share certificate
must be properly endorsed and signature guaranteed.
+ MONEY MARKET FUND DRAFT CHECKS:
Free draft check writing privileges are available when you open a First
Investors Cash Management Fund or a First Investors Tax Exempt Money Market Fund
account. Checks may be written for a minimum of $500. Draft checks are not
available for Class B share accounts, retirement accounts, guardianships and
conservatorships. Complete the Money Market Fund Check Redemption section of the
account application to apply for draft checks. To order additional checks, call
Shareholder Services at 1 (800) 423-4026.
Additional documentation is required to establish check writing privileges
for trusts, corporations, partnerships and other entities. Call Shareholder
Services at 1 (800) 423-4026 for further information.
FEE TABLE:
Call Shareholder Services at 1 (800) 423-4026 or send your request to FIC,
Attn: Correspondence Dept., 581 Main Street, Woodbridge, NJ 07095-1198 to
request a copy of the following records:
.
ACCOUNT HISTORY STATEMENTS:
1974 - 1982* $10 per year fee
1983 - present $5 total fee for all years
Current & Two Prior Years Free
*ACCOUNT HISTORIES ARE NOT AVAILABLE PRIOR TO 1974
CANCELLED CHECKS:
There is a $10 fee for a copy of a cancelled dividend, liquidation, or
investment check requested. There is a $15 fee for a copy of a cancelled money
market draft check.
DUPLICATE TAX FORMS:
Current Year Free
Prior Year(s) $7.50 per tax form per year
+ RETURN MAIL:
If mail is returned to the fund marked undeliverable by the U.S. Postal Service
after two consecutive mailings, and the fund is unable to obtain a current
shareholder address, the account status will be changed to "Do Not Mail" to
discontinue future mailings and prevent unauthorized persons from obtaining
account information.
You can remove the "Do Not Mail" status on your account by submitting written
instructions including your current address signed by all shareholders with a
signature guarantee (see Signature Guarantee Policy). Additional requirements
may apply for certain accounts. Call Shareholder Services at 1 (800) 423-4026
for more information.
Returned dividend checks and other distributions will be reinvested in the fund
when an account's status has been changed to "Do Not Mail." No interest will be
paid on outstanding checks prior to reinvestment. All future dividends and other
distributions will be reinvested in additional shares until new instructions are
provided. If you cannot be located within a period of time mandated by your
state of residence your fund shares may be escheated to your state (in other
words turned over) in accordance with state laws governing abandoned property.
Prior to turning over assets to your state, the fund will seek to obtain a
current shareholder address in accordance with Securities and Exchange
Commission rules. A search company may be employed to locate a current address.
The fund may deduct the costs associated with the search from your account.
+ TRANSFERRING SHARES:
A transfer is a change of share ownership from one customer to another. Unlike
an exchange, transfers occur within the same fund. You can transfer your shares
at any time. Partial transfers must meet the minimum initial investment
requirement of the fund.
To transfer shares, submit a letter of instruction including:
- -Your account number.
- -Dollar amount, percentage, or number of shares to be transferred.
- -Existing account number receiving the shares (if any).
- -The name(S), registration, and taxpayer identification number of the
customer receiving the shares.
- -The signature of each account owner requesting the transfer with signature
guarantee(S).
If First Investors is your broker-dealer, we will request that the transferee
complete a Master Account Agreement to establish a brokerage account with First
Investors Corporation and validate his or her social security number to avoid
back-up withholding. If the transferee declines to complete a MAA, all
transactions in the account must be on an unsolicited basis and the account will
be so coded.
Depending upon your account registration, additional documentation may be
required to transfer shares. Transfers due to the death of a shareholder require
additional documentation. Please call our Shareholder Services Department at 1
(800) 423-4026 for specific transfer requirements before initiating a request.
A transfer is a change of ownership and may trigger a taxable event. You should
consult your tax advisor before initiating a transfer.
ACCOUNT STATEMENTS
TRANSACTION
CONFIRMATION STATEMENTS
You will receive a confirmation statement immediately after most transactions.
These include:
- -dealer purchases.
- -check investments.
- -Federal Funds wire purchases.
- -redemptions.
- -exchanges.
- -transfers.
- -systematic withdrawals.
Money Line and Automatic Payroll Investment purchases are not confirmed for each
transaction. They will appear on your next regularly scheduled monthly or
quarterly statement (see Dividend Payment Schedule under "Dividends and
Distributions").
A separate confirmation statement is generated for each fund account you own. It
provides:
- -Your fund account number.
- -The date of the transaction.
- -A description of the transaction (PURCHASE, REDEMPTION, ETC.).
- -The number of shares bought or sold for the transaction.
- -The dollar amount of the transaction.
- -The dollar amount of the dividend payment (IF APPLICABLE).
- -The total share balance in the account.
- -The dollar amount of any dividends or capital gains paid.
- -The number of shares held by you, held for you (INCLUDING ESCROW SHARES), and
the total number of shares you own.
The confirmation statement also may provide a perforated Investment Stub with
your preprinted name, registration, and fund account number for future
investments.
MASTER ACCOUNT
STATEMENTS
If First Investors Corporation is your broker, you will receive a Master Account
Statement for all your identically owned First Investors fund accounts on at
least a quarterly basis. The Master Account Statement will also include a recap
of any First Investors Life Insurance accounts you may own. Joint accounts
registered under your taxpayer identification number will appear on a separate
Master Account Statement but may be mailed in the same envelope upon request.
The Master Account Statement provides the following information for each First
Investors fund you own:
- -fund name.
- -fund's current market value.
- -total distributions paid year-to-date.
- -total number of shares owned.
ANNUAL AND
SEMI-ANNUAL REPORTS
You will also receive an Annual and a Semi-Annual Report. These financial
reports show the assets, liabilities, revenues, expenses, and earnings of the
fund as well as a detailed accounting of all portfolio holdings. You will
receive one report per household.
DIVIDENDS AND
DISTRIBUTIONS
DIVIDENDS AND
DISTRIBUTIONS
For funds that declare daily dividends, except money market funds, you start
earning dividends on the day your purchase is made. For FI money market fund
purchases, including Money Line and API purchases, you start earning dividends
on the day Federal Funds are credited to your fund account. For exchanges into
the money market funds, you start earning dividends on the day following the
Trading Day on which an exchange is processed. No dividends are earned on
exchanges out of the money market funds on the Trading Day on which an exchange
is processed. The funds declare dividends from net investment income and
distribute the accrued earnings to shareholders as noted below:
DIVIDEND PAYMENT SCHEDULE
MONTHLY: QUARTERLY: ANNUALLY (IF ANY):
Cash Management Fund Blue Chip Fund Focused Equity Fund
Fund for Income Growth & Income Fund Global Fund
Government Fund Total Return Fund Mid-Cap Opportunity Fund
Insured Intermediate Tax-Exempt Utilities Income Fund Special Situations Fund
Insured Tax Exempt Fund
Investment Grade Fund
Multi-State Insured Tax Free Fund
New York Insured Tax Free Fund
Tax-Exempt Money Market Fund
Capital gains distributions, if any, are paid annually, usually near the end of
the fund's fiscal year. On occasion, more than one capital gains distribution
may be paid during one year.
Dividend and capital gains distributions are automatically reinvested to
purchase additional fund shares unless otherwise instructed. Dividend payments
of less than $5.00 are automatically reinvested to purchase additional fund
shares.
BUYING A DIVIDEND
If you buy shares shortly before the record date of the dividend, the entire
dividend you receive may be taxable even though a part of the distribution is
actually a return of your purchase price. This is called "buying a dividend."
There is no advantage to buying a dividend because a fund's net asset value per
share is reduced by the amount of the dividend.
TAX FORMS
TAX FORM DESCRIPTION MAILED BY
1099-DIV Consolidated report lists all taxable dividend and capital gains January 31
distributions for all of the shareholder's accounts. Also includes
foreign taxes paid and any federal income tax withheld due to
backup withholding.
1099-B Lists proceeds from all redemptions including systematic January 31
withdrawals and exchanges. A separate form is issued for each fund
account. Includes amount of federal income tax withheld due to backup
withholding.
1099-R Lists taxable distributions from a retirement account. A separate January 31
form is issued for each fund account. Includes federal income
tax withheld due to IRS withholding requirements.
5498 Provided to shareholders who made an annual IRA May 31
contribution or rollover purchase. Also provides the account's
fair market value as of the last business day of the previous year.
A separate form is issued for each fund account.
1042-S Provided to non-resident alien shareholders to report the amount March 15
of fund dividends paid and the amount of federal taxes withheld.
A separate form is issued for each fund account.
Cost Basis Uses the "average cost-single category" method to show the cost January 31
Statement basis of any shares sold or exchanged. Information is provided to
assist shareholders in calculating capital gains or losses.
A separate statement, included with Form 1099-B, is issued for each
fund account. This statement is not reported to the IRS and does
not include money market funds or retirement accounts.
Tax Savings Consolidated report lists all amounts not subject to federal, January 31
Report for state and local income tax for all the shareholder's accounts.
Non-Taxable Also includes any amounts subject to alternative minimum tax.
Income
Tax Savings Provides the percentage of income paid by each fund that may January 31
Summary be exempt from state income tax.
THE OUTLOOK
Today's strategies for tomorrow's goals are brought into focus in the Outlook,
the quarterly newsletter for clients of First Investors Corporation. This
informative tool discusses the products and services we offer to help you take
advantage of current market conditions and tax law changes. The OUTLOOK'S
straight forward approach and timely articles make it a valuable resource. As
always, your registered representative is available to provide you with
additional information and assistance. Material contained in this publication
should not be considered legal, financial, or other professional advice.
(This page Intentionally Left Blank)
Principal Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
1-212-858-8000
Transfer Agent
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
FIRST INVESTORS GOVERNMENT FUND, INC.
FIRST INVESTORS INVESTMENT GRADE FUND
A SERIES OF FIRST INVESTORS SERIES FUND
FIRST INVESTORS FUND FOR INCOME, INC.
FIRST INVESTORS HIGH YIELD FUND, INC.
95 Wall Street
New York, New York 10005
1-800-423-4026
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 14, 2000
This is a Statement of Additional Information ("SAI") for FIRST INVESTORS
GOVERNMENT FUND, INC. ("GOVERNMENT FUND"), FIRST INVESTORS INVESTMENT GRADE FUND
("INVESTMENT GRADE FUND"), A SERIES OF FIRST INVESTORS SERIES FUND ("SERIES
FUND"), FIRST INVESTORS FUND FOR INCOME, INC. ("FUND FOR INCOME"), and FIRST
INVESTORS HIGH YIELD FUND, INC. ("HIGH YIELD FUND"). Each fund is an open-end
diversified management investment company. Series Fund offers five separate
series, one of which INVESTMENT GRADE FUND, is described in this SAI, while HIGH
YIELD FUND, FUND FOR INCOME and GOVERNMENT FUND each offers one series.
GOVERNMENT FUND, INVESTMENT GRADE FUND, FUND FOR INCOME, AND HIGH YIELD FUND are
referred to herein collectively as "Funds."
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus/Proxy Statement related to Fund For Income and High Yield Fund dated
January 14, 2000, which may be obtained free of cost from the Funds at the
address or telephone number noted above. Information regarding the purchase,
redemption, sale and exchange of your Fund shares is contained in the
Shareholder Manual, a separate section of the SAI that is a distinct document
and may also be obtained free of charge by contacting your Fund at the address
or telephone number noted above.
TABLE OF CONTENTS
-----------------
PAGE
----
Investment Strategies and Risks............................. 1
Investment Policies......................................... 4
Futures and Options Strategies............................. 11
Investment Restrictions..................................... 14
Portfolio Turnover.......................................... 19
Directors/Trustees and Officers............................. 20
Management.................................................. 22
Underwriter................................................. 24
Distribution Plans.......................................... 24
Determination of Net Asset Value............................ 26
Allocation of Portfolio Brokerage........................... 27
Purchase, Redemption and Exchange of Shares................. 28
Taxes....................................................... 28
Performance Information..................................... 31
General Information......................................... 37
Appendix A.................................................. 40
Appendix B.................................................. 43
Appendix C.................................................. 44
Financial Statements........................................ 51
Pro Forma Financial Statements and Schedules................ 52
Shareholder Manual: A Guide to your First Investors
Mutual Fund Account........................................ 56
INVESTMENT STRATEGIES AND RISKS
GOVERNMENT FUND
GOVERNMENT FUND seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal by investing, under
normal market conditions, at least 80% of its assets in U.S. Government
Obligations (including mortgage-backed securities). The Fund has no fixed policy
with respect to the duration of U.S. Government Obligations it purchases.
Securities issued or guaranteed as to payment of principal and interest (but not
market value) by the U.S. Government include a variety of Treasury securities,
which differ only in their interest rates, maturities and times of issuance.
Although the payment of interest and principal on a portfolio security may be
guaranteed by the U.S. Government or one of its agencies or instrumentalities,
shares of GOVERNMENT FUND are not insured or guaranteed by the U.S. Government
or any agency or instrumentality. The net asset value of shares of the Fund
generally will fluctuate in response to interest rate levels. When interest
rates rise, prices of fixed income securities generally decline; when interest
rates decline, prices of fixed income securities generally rise. See "U.S.
Government Obligations" and "Debt Securities," below.
GOVERNMENT FUND may invest in mortgage-backed securities, including
Government National Mortgage Association ("GNMA") certificates, Federal National
Mortgage Association ("FNMA") certificates and Federal Home Loan Mortgage
Corporation ("FHLMC") certificates. The Fund also may invest in securities
issued or guaranteed by other U.S. Government agencies or instrumentalities,
including: the Federal Farm Credit System (obligations supported only by the
credit of the issuer, but do not give the issuer the right to borrow from the
U.S. Treasury, and are not guaranteed by the U.S. Government); the Federal Home
Loan Bank (obligations supported by the right of the issuer to borrow from the
U.S. Treasury to meet its obligations but are not guaranteed by the U.S.
Government); the Tennessee Valley Authority and the U.S. Postal Service (the
obligations of each supported by the right of the issuer to borrow from the U.S.
Treasury to meet it obligations); and the Farmers Home Administration and the
Export-Import Bank (obligations backed by the full faith and credit of the
United States). The Fund may invest in collateralized mortgage obligations
("CMOs") and stripped mortgage-backed securities issued or guaranteed by the
U.S. Government, its agencies, authorities or instrumentalities. See
"Mortgage-Backed Securities," below.
The Fund may, from time to time or for temporary defensive purposes,
invest up to 20% of its assets in prime commercial paper, certificates of
deposit of domestic branches of U.S. banks, bankers' acceptances, repurchase
agreements (applicable to U.S. Government Obligations), participation interests,
insured certificates of deposit and certificates representing accrual on U.S.
Treasury securities. The Fund also may purchase securities on a when-issued
basis and make loans of portfolio securities. The Fund may borrow money on a
temporary or emergency basis in amounts not exceeding 5% of its total assets.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INVESTMENT GRADE FUND
INVESTMENT GRADE FUND seeks to generate a maximum level of income
consistent with investment in investment grade debt securities. The Fund seeks
to achieve its objective by investing, under normal market conditions, at least
65% of its total assets in debt securities of U.S. issuers that are rated in the
four highest rating categories by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"), or in unrated securities that are
deemed to be of comparable quality ("investment grade securities") by the Fund's
Investment Adviser, First Investors Management Company, Inc. ("FIMCO" or
1
"Adviser"). The Fund may invest up to 35% of its total assets in U.S. Government
Obligations (including mortgage-backed securities), dividend-paying common and
preferred stocks, obligations convertible into common stocks, repurchase
agreements, debt securities rated below investment grade and money market
instruments. The Fund may invest up to 5% of its net assets in corporate or
government debt securities of foreign issuers which are U.S. dollar denominated
and traded in U.S. markets. The Fund also may borrow money for temporary or
emergency purposes in amounts not exceeding 5% of its total assets. The Fund may
make loans of portfolios securities and invest up to 5% of its net assets in
securities issued on a when-issued or delayed delivery basis. The Fund may
invest up to 5% of its net assets in zero coupon or pay-in-kind securities.
Although up to 100% of the Fund's total assets can be invested in debt
securities rated at least Baa by Moody's or at least BBB by S&P, or unrated debt
securities deemed to be of comparable quality by the Adviser, no more than 5% of
the Fund's net assets may be invested in debt securities rated lower than Baa by
Moody's or BBB by S&P (commonly referred to as "high yield bonds" or "junk
bonds") (including securities that have been downgraded), or if unrated, deemed
to be of comparable quality by the Adviser, or in any equity securities of any
issuer if a majority of the debt securities of such issuer are rated lower than
Baa by Moody's or BBB by S&P. The Adviser continually monitors the investments
in the Fund's portfolio and carefully evaluates on a case-by-case basis whether
to dispose of or retain a debt security which has been downgraded to a rating
lower than investment grade. However, if downgrading results in the Fund holding
more than 5% of its net assets in securities rated lower than Baa by Moody's or
BBB by S&P, the Adviser will sell sufficient securities to stay within this
limit. See "Debt Securities" and Appendix A for a description of corporate bond
ratings.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
HIGH YIELD FUND AND FUND FOR INCOME
The HIGH YIELD FUND primarily seeks high current income and secondarily
seeks capital appreciation by investing, under normal market conditions, at
least 65% of its total assets in high risk, high yield securities, commonly
referred to as "junk bonds" ("High Yield Securities"). Similarly, the FUND FOR
INCOME primarily seeks to earn a high level of current income and, to the extent
possible, in view of that objective, secondarily seeks growth of capital by
emphasizing, under normal market conditions, investments in High Yield
Securities.
High Yield Securities include the following instruments: fixed, variable
or floating rate debt obligations (including bonds, debentures and notes) which
are rated below Baa by Moody's or below BBB by S&P, or are unrated and deemed to
be of comparable quality by the Fund's Adviser; preferred stocks and
dividend-paying common stocks that have yields comparable to those of high
yielding debt securities; any of the foregoing securities of companies that are
financially troubled, in default or undergoing bankruptcy or reorganization
("Deep Discount Securities"); and any securities convertible into any of the
foregoing. See "High Yield Securities" and "Deep Discount Securities," below.
Each Fund may invest in debt securities issued by foreign governments and
companies and in foreign currencies for the purpose of purchasing such
securities. However, a Fund may not invest more than 5% of its total assets in
debt securities issued by foreign governments and companies that are denominated
in foreign currencies. Each Fund may invest up to 5% of its total assets in debt
securities of issuers located in emerging market countries. Each Fund also may
borrow money for temporary or emergency purposes in amounts not exceeding 5% of
its total assets, invest up to 10% of its net assets in securities issued on a
when-issued or delayed delivery basis, invest up to 15% of its net assets in
restricted securities (which may not be publicly marketable), and invest in zero
coupon and pay-in-kind securities. In addition, HIGH YIELD FUND may make loans
of portfolio securities.
2
HIGH YIELD FUND may invest up to 35% of its total assets, and FUND FOR
INCOME may invest without limitation, in the following instruments: common and
preferred stocks, other than those considered to be High Yield Securities; debt
obligations of all types (including bonds, debentures and notes) rated A or
better by Moody's or S&P; securities issued by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Obligations"); warrants and
money market instruments consisting of prime commercial paper, certificates of
deposit of domestic branches of U.S. banks, bankers' acceptances and repurchase
agreements.
In any period of market weakness or of uncertain market or economic
conditions, each Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents, including bank certificates
of deposit, bankers' acceptances, U.S. Government Obligations and commercial
paper issued by domestic corporations.
The medium- to lower-rated, and certain of the unrated, securities in
which each Fund invests tend to offer higher yields than higher-rated securities
with the same maturities because the historical financial condition of the
issuers of such securities may not be as strong as that of other issuers. Debt
obligations rated lower than A by Moody's or S&P have speculative
characteristics or are speculative, and generally involve more risk of loss of
principal and income than higher-rated securities. Also, their yields and market
values tend to fluctuate more than those of higher quality securities. The
greater risks and fluctuations in yield and value occur because investors
generally perceive issuers of lower-rated and unrated securities to be less
creditworthy. These risks cannot be eliminated, but may be reduced by
diversifying holdings to minimize the portfolio impact of any single investment.
In addition, fluctuations in market value do not affect the cash income from the
securities, but are reflected in the computation of a Fund's net asset value.
When interest rates rise, the net asset value of the Funds tends to decrease.
When interest rates decline, the net asset value of the Funds tends to increase.
Variable or floating rate debt obligations in which the Funds may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
investor. This reduces the effect of changing market conditions on the
security's underlying market value.
A High Yield Security may itself be convertible into or exchangeable for
equity securities, or may carry with it the right to acquire equity securities
evidenced by warrants attached to the security or acquired as part of a unit
with the security. Although each Fund invests primarily in High Yield
Securities, securities received upon conversion or exercise of warrants and
securities remaining upon the break-up of units or detachment of warrants may be
retained to permit orderly disposition, to establish a long-term holding period
for Federal income tax purposes, or to seek capital appreciation.
Because of the greater number of investment considerations involved in
investing in High Yield Securities, the achievement of either Fund's investment
objectives depends more on the Adviser's research abilities than would be the
case if a Fund were investing primarily in securities in the higher rated
categories. Because medium- to lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities, investors
should consider carefully the relative risks associated with investments in
securities that carry medium to lower ratings or are unrated. See "Types of
Securities and Their Risks-High Yield Securities" and Appendix A for a
description of corporate bond ratings.
Each Fund seeks to achieve its secondary objective to the extent
consistent with its primary objective. There can be no assurance that either
3
Fund will be able to achieve its investment objectives. Each Fund's net asset
value fluctuates based mainly upon changes in the value of its portfolio
securities.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INVESTMENT POLICIES
BANKERS' ACCEPTANCES. Each Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
CERTIFICATES OF ACCRUAL ON U.S. TREASURY SECURITIES. GOVERNMENT FUND may
purchase certificates, not issued by the U.S. Treasury, which evidence ownership
of future interest, principal or interest and principal payments on obligations
issued by the U.S. Treasury. The actual U.S. Treasury securities will be held by
a custodian on behalf of the certificate holder. These certificates are
purchased with original issue discount and are subject to greater fluctuations
in market value, based upon changes in market interest rates, than
income-producing securities.
CERTIFICATES OF DEPOSIT. Each Fund may invest in bank certificates of
deposit ("CDs"). The Federal Deposit Insurance Corporation is an agency of the
U.S. Government which insures the deposits of certain banks and savings and loan
associations up to $100,000 per deposit. The interest on such deposits may not
be insured if this limit is exceeded. Current Federal regulations also permit
such institutions to issue insured negotiable CDs in amounts of $100,000 or
more, without regard to the interest rate ceilings on other deposits. To remain
fully insured, these investments currently must be limited to $100,000 per
insured bank or savings and loan association.
CONVERTIBLE SECURITIES. HIGH YIELD FUND, FUND FOR INCOME AND INVESTMENT
GRADE FUND may invest in convertible securities. The convertible securities in
which the Funds may invest will be rated no higher nor lower by Moody's or by
S&P than the bonds in which each Fund may invest. While no securities investment
is without some risk, investments in convertible securities generally entail
less risk than the issuer's common stock, although the extent to which such risk
is reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security. The Adviser will
decide to invest based upon a fundamental analysis of the long-term
attractiveness of the issuer and the underlying common stock, the evaluation of
the relative attractiveness of the current price of the underlying common stock
and the judgment of the value of the convertible security relative to the common
stock at current prices.
DEBT SECURITIES. Each Fund may invest in debt securities. The market value
of debt securities is influenced primarily by changes in the level of interest
rates. Generally, as interest rates rise, the market value of debt securities
decreases. Conversely, as interest rates fall, the market value of debt
securities increases. Factors which could result in a rise in interest rates,
and a decrease in the market value of debt securities, include an increase in
inflation or inflation expectations, an increase in the rate of U.S. economic
growth, an expansion in the Federal budget deficit or an increase in the price
of commodities such as oil. In addition, the market value of debt securities is
influenced by perceptions of the credit risks associated with such securities.
Credit risk is the risk that adverse changes in economic conditions can affect
an issuer's ability to pay principal and interest. See Appendix A for a
description of corporate bond ratings.
4
DEEP DISCOUNT SECURITIES. HIGH YIELD FUND AND FUND FOR INCOME may each
invest up to 15% of its total assets in securities of companies that are
financially troubled, in default or undergoing bankruptcy or reorganization.
Such securities are usually available at a deep discount from the face value of
the instrument. A Fund will invest in Deep Discount Securities when the Adviser
believes that there exist factors that are likely to restore the company to a
healthy financial condition. Such factors include a restructuring of debt,
management changes, existence of adequate assets or other unusual circumstances.
Debt instruments purchased at deep discounts may pay very high effective yields.
In addition, if the financial condition of the issuer improves, the underlying
value of the security may increase, resulting in a capital gain. If the company
defaults on its obligations or remains in default, or if the plan of
reorganization is insufficient for debtholders, the Deep Discount Securities may
stop paying interest and lose value or become worthless. The Adviser will
attempt to balance the benefits of investing in Deep Discount Securities with
their risks. While a diversified portfolio may reduce the overall impact of a
Deep Discount Security that is in default or loses its value, the risk cannot be
eliminated. See "High Yield Securities," below.
FOREIGN GOVERNMENT OBLIGATIONS. INVESTMENT GRADE FUND, HIGH YIELD FUND AND
FUND FOR INCOME may invest in foreign government obligations, which generally
consist of obligations supported by national, state or provincial governments or
similar political subdivisions. Investments in foreign government debt
obligations involve special risks. The issuer of the debt may be unable or
unwilling to pay interest or repay principal when due in accordance with the
terms of such debt, and a Fund may have limited legal resources in the event of
default. Political conditions, especially a sovereign entity's willingness to
meet the terms of its debt obligations, are of considerable significance.
FOREIGN SECURITIES-RISK FACTORS. INVESTMENT GRADE FUND, HIGH YIELD FUND
AND FUND FOR INCOME may sell a security denominated in a foreign currency and
retain the proceeds in that foreign currency to use at a future date (to
purchase other securities denominated in that currency) or the Fund may buy
foreign currency outright to purchase securities denominated in that foreign
currency at a future date. Investing in foreign securities involves more risk
than investing in securities of U.S. companies. Each Fund currently does not
intend to hedge its foreign investments against the risk of foreign currency
fluctuations. Accordingly, changes in the value of foreign currencies can
significantly affect a Fund's share price, irrespective of developments relating
to the issuers of securities held by the Funds. In addition, a Fund will be
affected by changes in exchange control regulations and fluctuations in the
relative rates of exchange between the currencies of different nations, as well
as by economic and political developments. Other risks involved in foreign
securities include the following: there may be less publicly available
information about foreign companies comparable to the reports and ratings that
are published about companies in the United States; foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies;
some foreign stock markets have substantially less volume than U.S. markets, and
securities of some foreign companies are less liquid and more volatile than
securities of comparable U.S. companies; there may be less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies than exist in the United States; and there may be the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments which could affect assets of a Fund held in foreign
countries.
HIGH YIELD SECURITIES. HIGH YIELD FUND, FUND FOR INCOME AND INVESTMENT
GRADE FUND may invest in High Yield Securities. High Yield Securities are
subject to greater risks than those that are present with investments in higher
grade debt securities, as discussed below.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. Debt obligations rated
lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds,"
are speculative and generally involve a higher risk or loss of principal and
income than higher-rated debt securities. The prices of High Yield Securities
tend to be less sensitive to interest rate changes than higher-rated
5
investments, but may be more sensitive to adverse economic changes or individual
corporate developments. Periods of economic uncertainty and changes generally
result in increased volatility in the market prices and yields of High Yield
Securities and thus in a Fund's net asset value. A significant economic downturn
or a substantial period of rising interest rates could severely affect the
market for High Yield Securities. In these circumstances, highly leveraged
companies might have greater difficulty in making principal and interest
payments, meeting projected business goals, and obtaining additional financing.
Thus, there could be a higher incidence of default. This would affect the value
of such securities and thus a Fund's net asset value. Further, if the issuer of
a security owned by a Fund defaults, that Fund might incur additional expenses
to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, a Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a Fund experiences unexpected net redemptions in a
rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Fund expenses could be allocated and in a reduced rate of return for that
Fund. While it is impossible to protect entirely against this risk,
diversification of a Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities helps to minimize the impact of a decrease in
value of a particular security or group of securities in a Fund's portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below investment
grade bonds expanded rapidly in recent years and its growth paralleled a long
economic expansion. At times in the past, the prices of many lower-rated debt
securities have declined substantially, reflecting an expectation that many
issuers of such securities might experience financial difficulties. As a result,
the yields on lower-rated debt securities rose dramatically. However, such
higher yields did not reflect the value of the income streams that holders of
such securities expected, but rather the risk that holders of such securities
could lose a substantial portion of their value as a result of the issuers'
financial restructuring or default. There can be no assurance that such declines
in the below investment grade market will not reoccur. The market for below
investment grade bonds generally is thinner and less active than that for higher
quality bonds, which may limit a Fund's ability to sell such securities at
reasonable prices in response to changes in the economy or the financial
markets. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the values and liquidity of lower rated
securities, especially in a thinly traded market.
CREDIT RATINGS. The credit ratings issued by credit rating services
may not fully reflect the true risks of an investment. For example, credit
ratings typically evaluate the safety of principal and interest payments, not
market value risk, of High Yield Securities. Also, credit rating agencies may
fail to change on a timely basis a credit rating to reflect changes in economic
or company conditions that affect a security's market value. Each Fund which is
permitted to invest in High Yield Securities may invest in securities rated as
low as D by S&P or C by Moody's or, if unrated, deemed to be of comparable
quality by the Adviser. Debt obligations with these ratings either have
defaulted or are in great danger of defaulting and are considered to be highly
speculative. See "Deep Discount Securities." The Adviser continually monitors
the investments in a Fund's portfolio and carefully evaluates whether to dispose
of or retain High Yield Securities whose credit ratings have changed. See
Appendix A for a description of corporate bond ratings.
LIQUIDITY AND VALUATION. Lower-rated bonds are typically traded among
a smaller number of broker-dealers than in a broad secondary market. Purchasers
of High Yield Securities tend to be institutions, rather than individuals, which
is a factor that further limits the secondary market. To the extent that no
established retail secondary market exists, many High Yield Securities may not
be as liquid as higher-grade bonds. A less active and thinner market for High
6
Yield Securities than that available for higher quality securities may result in
more volatile valuations of a Fund's holdings and more difficulty in executing
trades at favorable prices during unsettled market conditions.
The ability of a Fund to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. During such periods, there may be less reliable objective information
available and thus the responsibility of each Fund's Board of Directors to value
High Yield Securities becomes more difficult, with judgment playing a greater
role. Further, adverse publicity about the economy or a particular issuer may
adversely affect the public's perception of the value, and thus liquidity, of a
High Yield Security, whether or not such perceptions are based on a fundamental
analysis.
MONEY MARKET INSTRUMENTS. Each Fund may invest in money market
instruments. Investments in commercial paper are limited to obligations rated
Prime-l by Moody's or A-l by S&P. Commercial paper includes notes, drafts, or
similar instruments payable on demand or having a maturity at the time of
issuance not exceeding nine months, exclusive of days of grace or any renewal
thereof. Investments in certificates of deposit will be made only with domestic
institutions with assets in excess of $500 million. See Appendix A for a
description of commercial paper ratings.
PREFERRED STOCK. Each Fund may invest in preferred stock. A preferred
stock is a security which has a blend of the characteristics of a bond and
common stock. It can offer the higher yield of a bond and has priority over
common stock in equity ownership, but does not have the seniority of a bond and,
unlike common stock, its participation in the issuer's growth may be limited.
Preferred stock has preference over common stock in the receipt of dividends and
in any residual assets after payment to creditors should the issuer be
dissolved. Although the dividend is set at a fixed annual rate, in some
circumstances it can be changed or omitted by the issuer.
LOANS OF PORTFOLIO SECURITIES. While they have no present intention of
doing so in the coming year, HIGH YIELD FUND, INVESTMENT GRADE FUND AND
GOVERNMENT FUND may loan securities to qualified broker-dealers or other
institutional investors provided: the borrower pledges to the Fund and agrees to
maintain at all times with the Fund collateral equal to not less than 100% of
the value of the securities loaned (plus accrued interest or dividend, if any);
the loan is terminable at will by the Fund; the Fund pays only reasonable
custodian fees in connection with the loan; and the Adviser monitors the
creditworthiness of the borrower throughout the life of the loan. Such loans may
be terminated by the Fund at any time and the Fund may vote the proxies if a
material event affecting the investment is to occur. The market risk applicable
to any security loaned remains a risk of the Fund. The borrower must add to the
collateral whenever the market value of the securities rises above the level of
such collateral. The Fund could incur a loss if the borrower should fail
financially at a time when the value of the loaned securities is greater than
the collateral.
MORTGAGE-BACKED SECURITIES. GOVERNMENT FUND AND INVESTMENT GRADE FUND may
invest in mortgage-backed securities, including those representing an undivided
ownership interest in a pool of mortgage loans. Each of the certificates
described below is characterized by monthly payments to the security holder,
reflecting the monthly payments made by the mortgagees of the underlying
mortgage loans. The payments to the security holders (such as the Fund), like
the payments on the underlying loans, generally represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, such as twenty to thirty years, the borrowers can, and typically do, repay
them sooner. Thus, the security holders frequently receive prepayments of
principal, in addition to the principal which is part of the regular monthly
payments. A borrower is more likely to prepay a mortgage which bears a
relatively high rate of interest. Thus, in times of declining interest rates,
some higher yielding mortgages might be repaid resulting in larger cash payments
to the Fund, and the Fund will be forced to accept lower interest rates when
that cash is used to purchase additional securities.
7
Interest rate fluctuations may significantly alter the average maturity of
mortgage-backed securities by changing the rates at which homeowners refinance
mortgages. When interest rates rise, prepayments often drop, which should
increase the average maturity of the mortgage-backed security. Conversely, when
interest rates fall, prepayments often rise, which should decrease the average
maturity of the mortgage-backed security.
GNMA CERTIFICATES. GNMA Certificates are mortgage-backed securities,
which evidence an undivided interest in a pool of mortgage loans. In the case of
GNMA Certificates, principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA Certificates
that the Fund purchases are the "modified pass-through" type. "Modified
pass-through" GNMA Certificates entitle the holder to receive a share of all
interest and principal payments paid and owed on the mortgage pool net of fees
paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee
the timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers'
Home Administration ("FMHA"), or guaranteed by the Department of Veteran Affairs
("VA"). The GNMA guarantee is backed by the full faith and credit of the U.S.
Government. GNMA also is empowered to borrow without limitation from the U.S.
Treasury if necessary to make any payments required under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before maturity of the mortgages in the pool. The Fund normally
will not distribute principal payments (whether regular or prepaid) to its
shareholders. Rather, it will invest such payments in additional mortgage-backed
securities of the types described above. Interest received by the Fund will,
however, be distributed to shareholders. Foreclosures impose no risk to
principal investment because of the GNMA guarantee. As prepayment rates of the
individual mortgage pools vary widely, it is not possible to predict accurately
the average life of a particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of
interest on GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the Certificates by the amount
of the fees paid to GNMA and the issuer. The coupon rate by itself, however,
does not indicate the yield which will be earned on GNMA Certificates. First,
Certificates may trade in the secondary market at a premium or discount. Second,
interest is earned monthly, rather than semi-annually as with traditional bonds;
monthly compounding raises the effective yield earned. Finally, the actual yield
of a GNMA Certificate is influenced by the prepayment experience of the mortgage
pool underlying it. For example, if the higher-yielding mortgages from the pool
are prepaid, the yield on the remaining pool will be reduced.
FHLMC SECURITIES. FHLMC issues two types of mortgage pass-through
securities, mortgage participation certificates ("PCs") and guaranteed mortgage
certificates ("GMCs"). PCs resemble GNMA Certificates in that each PC represents
a pro rata share of all interest and principal payments made and owed on the
underlying pool.
FNMA SECURITIES. FNMA issues guaranteed mortgage pass-through
certificates ("FNMA Certificates"). FNMA Certificates resemble GNMA Certificates
in that each FNMA Certificate represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. FNMA guarantees timely
payment of interest on FNMA Certificates and the full return of principal.
8
Risk of foreclosure of the underlying mortgages is greater with FHLMC
and FNMA securities because, unlike GNMA Certificates, FHLMC and FNMA securities
are not guaranteed by the full faith and credit of the U.S.
Government.
PARTICIPATION INTERESTS. Participation interests which may be held by
GOVERNMENT FUND are pro rata interests in securities held either by banks which
are members of the Federal Reserve System or securities dealers who are members
of a national securities exchange or are market makers in government securities,
which are represented by an agreement in writing between the Fund and the entity
in whose name the security is issued, rather than possession by the Fund. The
Fund will purchase participation interests only in securities otherwise
permitted to be purchased by the Fund, and only when they are evidenced by
deposit, safekeeping receipts, or book-entry transfer, indicating the creation
of a security interest in favor of the Fund in the underlying security. However,
the issuer of the participation interests to the Fund will agree in writing,
among other things: to promptly remit all payments of principal, interest and
premium, if any, to the Fund once received by the issuer; to repurchase the
participation interest upon seven days' notice; and to otherwise service the
investment physically held by the issuer, a portion of which has been sold to
the Fund.
REPURCHASE AGREEMENTS. While each Fund has no present intention of doing
so in the coming year, it may invest in repurchase agreements. A repurchase
agreement essentially is a short-term collateralized loan. The lender (a Fund)
agrees to purchase a security from a borrower (typically a broker-dealer) at a
specified price. The borrower simultaneously agrees to repurchase that same
security at a higher price on a future date (which typically is the next
business day). The difference between the purchase price and the repurchase
price effectively constitutes the payment of interest. In a standard repurchase
agreement, the securities which serve as collateral are transferred to a Fund's
custodian bank. In a "tri-party" repurchase agreement, these securities would be
held by a different bank for the benefit of the Fund as buyer and the
broker-dealer as seller. In a "quad-party" repurchase agreement, the Fund's
custodian bank also is made a party to the agreement. Each Fund may enter into
repurchase agreements with banks which are members of the Federal Reserve System
or securities dealers who are members of a national securities exchange or are
market makers in government securities. The period of these repurchase
agreements will usually be short, from overnight to one week, and at no time
will a Fund invest in repurchase agreements with more than one year in time to
maturity. The securities which are subject to repurchase agreements, however,
may have maturity dates in excess of one year from the effective date of the
repurchase agreement. Each Fund will always receive, as collateral, securities
whose market value, including accrued interest, which will at all times be at
least equal to 100% of the dollar amount invested by the Fund in each agreement,
and the Fund will make payment for such securities only upon physical delivery
or evidence of book entry transfer to the account of the custodian. If the
seller defaults, a Fund might incur a loss if the value of the collateral
securing the repurchase agreement declines, and might incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy or
similar proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Neither
Fund will enter into a repurchase agreement with more than seven days to
maturity if, as a result, more than 15% of the Fund's net assets would be
invested in such repurchase agreements and other illiquid investments.
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS. None of the Funds may
purchase or otherwise acquire any security if, as a result, more than 15% of its
net assets (taken at current value) would be invested in securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. This policy includes foreign issuers'
unlisted securities with a limited trading market and repurchase agreements
maturing in more than seven days. This policy does not include restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended ("1933 Act"), which the Board of Directors or Trustees, as
applicable (hereinafter "Directors" or "Board"), or the Adviser has determined
under Board-approved guidelines are liquid.
9
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at reasonable prices.
SEPARATED OR DIVIDED U.S. TREASURY SECURITIES. GOVERNMENT FUND may invest
in separated or divided U.S. Treasury securities. These instruments represent a
single interest, or principal, payment on a U.S. Treasury bond which has been
separated from all the other interest payments as well as the bond itself. When
the Fund purchases such an instrument, it purchases the right to receive a
single payment of a set sum at a known date in the future. The interest rate on
such an instrument is determined by the price the Fund pays for the instrument
when it purchases the instrument at a discount under what the instrument
entitles the Fund to receive when the instrument matures. The amount of the
discount the Fund will receive will depend upon the length of time to maturity
of the separated U.S. Treasury security and prevailing market interest rates
when the separated U.S. Treasury security is purchased. Separated U.S. Treasury
securities can be considered a zero coupon investment because no payment is made
to the Fund until maturity. The market values of these securities are much more
susceptible to change in market interest rates than income-producing securities.
These securities are purchased with original issue discount and such discount is
includable as gross income to a Fund shareholder over the life of the security.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in U.S. Government
Obligations. U.S. Government Obligations include: (1) U.S. Treasury obligations
(which differ only in their interest rates, maturities and times of issuance),
and (2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are backed by the full faith and credit of the United
States (such as securities issued by the Federal Housing Administration,
Government National Mortgage Association, the Department of Housing and Urban
Development, the Export-Import Bank, the General Services Administration and the
Maritime Administration and certain securities issued by the Farmers Home
Administration and the Small Business Administration). The range of maturities
of U.S. Government Obligations is usually three months to thirty years.
10
WARRANTS. HIGH YIELD FUND, FUND FOR INCOME AND INVESTMENT GRADE FUND may
purchase warrants, which are instruments that permit a Fund to acquire, by
subscription, the capital stock of a corporation at a set price, regardless of
the market price for such stock. Warrants may be either perpetual or of limited
duration. There is greater risk that warrants might drop in value at a faster
rate than the underlying stock.
WHEN-ISSUED SECURITIES. Each Fund many invest in securities issued on a
when-issued or delayed delivery basis at the time the purchase is made. A Fund
generally would not pay for such securities or start earning interest on them
until they are issued or received. However, when a Fund purchases debt
obligations on a when-issued basis, it assumes the risks of ownership, including
the risk of price fluctuation, at the time of purchase, not at the time of
receipt. Failure of the issuer to deliver a security purchased by a Fund on a
when-issued basis may result in such Fund incurring a loss or missing an
opportunity to make an alternative investment. When a Fund enters into a
commitment to purchase securities on a when-issued basis, it establishes a
separate account on its books and records or with its custodian consisting of
cash or liquid high-grade debt securities equal to the amount of the Fund's
commitment, which are valued at their fair market value. If on any day the
market value of this segregated account falls below the value of the Fund's
commitment, the Fund will be required to deposit additional cash or qualified
securities into the account until the value of the account is equal to the value
of the Fund's commitment. When the securities to be purchased are issued, the
Fund will pay for the securities from available cash, the sale of securities in
the segregated account, sales of other securities and, if necessary, from the
sale of the when-issued securities themselves although this is not ordinarily
expected. Securities purchased on a when-issued basis are subject to the risk
that yields available in the market, when delivery takes place, may be higher
than the rate to be received on the securities a Fund is committed to purchase.
Sale of securities in the segregated account or sale of the when-issued
securities may cause the realization of a capital gain or loss.
ZERO COUPON AND PAY-IN-KIND SECURITIES. Each Fund may invest in zero
coupon and pay-in-kind securities. Zero coupon securities are debt obligations
that do not entitle the holder to any periodic payment of interest prior to
maturity or a specified date when the securities begin paying current interest.
They are issued and traded at a discount from their face amount or par value,
which discount varies depending on the time remaining until cash payments begin,
prevailing interest rates, liquidity of the security and the perceived credit
quality of the issuer. Pay-in-kind securities are those that pay interest
through the issuance of additional securities. The market prices of zero coupon
and pay-in-kind securities generally are more volatile than the prices of
securities that pay interest periodically and in cash and are likely to respond
to changes in interest rates to a greater degree than do other types of debt
securities having similar maturities and credit quality. Original issue discount
earned each year on zero coupon securities and the "interest" on pay-in-kind
securities must be accounted for by the Fund that holds the securities for
purposes of determining the amount it must distribute that year to continue to
qualify for tax treatment as a regulated investment company. Thus, a Fund may be
required to distribute as a dividend an amount that is greater than the total
amount of cash it actually receives. See "Taxes." These distributions must be
made from a Fund's cash assets or, if necessary, from the proceeds of sales of
portfolio securities. Each Fund will not be able to purchase additional
income-producing securities with cash used to make such distributions, and its
current income ultimately could be reduced as a result.
FUTURES AND OPTIONS STRATEGIES
Although they do not intend to engage in such strategies in the coming
year, HIGH YIELD FUND may engage in certain futures strategies to hedge its
investment portfolio and INVESTMENT GRADE FUND may buy and sell interest rate
futures contracts and buy and sell call and put options thereon traded on a U.S.
exchange or board of trade, and may also enter into closing transactions with
11
respect to such options to terminate an existing position. Certain special
characteristics of and risks associated with using hedging instruments are
discussed below. In addition to the investment guidelines adopted by the Funds'
Directors to govern its investments in hedging instruments, use of these
instruments is subject to the applicable regulations of the Securities and
Exchange Commission ("SEC"), the Commodities Futures Trading Commission ("CFTC")
and the several futures exchanges upon which futures contracts are traded.
Participation in the futures markets involves investment risks and
transaction costs to which the Fund would not be subject absent the use of these
strategies. If the Adviser's prediction of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategies were not
used. The Fund might not employ any of the strategies described below, and there
can be no assurance that any strategy will succeed. The use of these strategies
involve certain special risks, including (1) dependence on the Adviser's ability
to predict correctly movements in the direction of interest rates and securities
prices; (2) imperfect correlation between the price of futures contracts and
movements in the prices of the securities being hedged; (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities; and (4) the possible absence of a liquid secondary market
for any particular instrument at any time.
COVER FOR HEDGING STRATEGIES. In the event that the Funds engage in
hedging, they will not use leverage in their hedging strategies. In the case of
each transaction entered into as a hedge, the Funds will hold securities or
futures positions whose values are expected to offset ("cover") its obligations
thereunder. The Funds will not enter into a hedging strategy that exposes the
Funds to an obligation to another party unless it owns either (1) an offsetting
("covered") position in securities or futures contracts, or (2) cash and liquid
securities with a value sufficient at all times to cover its potential
obligations. The Funds will comply with guidelines established by the SEC with
respect to coverage of hedging strategies by mutual funds and, if required, will
set aside cash and liquid securities in a segregated account with its custodian
in the prescribed amount. Securities or futures positions used for cover and
assets held in a segregated account cannot be sold or closed out while the
hedging strategy is outstanding unless they are replaced with similar assets. As
a result, there is a possibility that the use of cover or segregation involving
a large percentage of each Fund's assets could impede portfolio management and
decrease a Fund's liquidity.
FUTURES GUIDELINES. In view of the risks involved in using futures
strategies described above, each Fund's Board may adopt non-fundamental
investment guidelines to govern the Fund's use of such investments that may be
modified by the Board without shareholder vote. In the event that the Fund
enters into futures contracts or options thereon other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish these positions (excluding the in-the-money
amount for options that are in-the-money at the time of purchase) will not
exceed 5% of the liquidation value of the Fund's portfolio, after taking into
account unrealized profits and losses on any contracts into which the Fund was
entered. This policy does not limit the Fund's assets at risk to 5%.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid
upon entering into futures contracts. Instead, upon entering into a futures
contract, the Fund is required to deposit with its custodian in a segregated
account in the name of the futures broker through which the transaction is
effected an amount of cash, U.S. Government securities or other liquid,
high-grade debt instruments generally equal to 10% or less of the contract
value. This amount is known as "initial margin." Initial margin on futures
contracts is in the nature of a performance bond or good-faith deposit that is
returned to the Fund upon termination of the transaction, assuming all
obligations have been satisfied. Under certain circumstances, such as periods of
high volatility, the Fund may be required by an exchange to increase the level
of its initial margin payment. Additionally, initial margin requirements may be
12
increased generally in the future by regulatory action. Subsequent payments,
called "variation margin," to and from the broker, are made on a daily basis as
the value of the futures position varies, a process known as "marking to
market." Variation margin does not involve borrowing to finance the futures
transactions, but rather represents a daily settlement of the Fund's obligation
to or from a clearing organization. The Fund is also obligated to make initial
and variation margin payments when it writes options on futures contracts.
Holders and writers of futures positions can enter into offsetting closing
transactions, similar to closing transactions on options on securities, by
selling or purchasing, respectively, a futures position with the same terms as
the position held or written. Positions in futures contracts thereon may be
closed only on an exchange or board of trade providing a secondary market for
such futures or options.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract may vary either up or down
from the previous day's settlement price. Once the daily limit has been reached
in a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movements during a particular trading
day and therefore does not limit potential losses because prices could move to
the daily limit for several consecutive trading days with little or no trading
and thereby prevent prompt liquidation of unfavorable positions. In such event,
it may not be possible for the Fund to close a position and, in the event of
adverse price movements the Fund would have to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the 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, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
Successful use by the Fund of futures contracts will depend upon the
Adviser's ability to predict movements in the direction of the overall interest
rate markets, which requires different skills and techniques than predicting
changes in the prices of individual securities. Moreover, futures contracts
relate not to the current price level of the underlying instrument but to the
anticipated levels at some point in the future. There is, in addition, the risk
that the movements in the price of the futures contract will not correlate with
the movements in prices of the securities being hedged. In addition, if the Fund
has insufficient cash, it may have to sell assets from its portfolio to meet
daily variation margin requirements. Any such sale of assets may or may not be
made at prices that reflect the rising market. Consequently, the Fund may need
to sell assets at a time when such sales are disadvantageous to the Fund. If the
price of the futures contract moves more than the price of the underlying
securities, the Fund will experience either a loss or a gain on the futures
contract that may or may not be completely offset by movements in the price of
the securities that are the subject of the hedge.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between price movements in the futures position and
the securities being hedged, movements in the prices of futures contracts may
not correlate perfectly with movements in the prices of the hedged securities
because of price distortions in the futures market. As a result, a correct
forecast of general market trends may not result in successful hedging through
the use of futures contracts over the short term.
Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts.
Although the Fund intends to purchase or sell futures only on exchanges or
boards of trade where there appears to be a liquid secondary market, there is no
assurance that such a market will exist for any particular contract 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 variation margin payments.
Each Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
13
brokerage commissions; however, each Fund also may save on commissions by using
futures as a hedge rather than buying or selling individual securities in
anticipation or as a result of market movements.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
respective Fund and, unless identified as non-fundamental policies, may not be
changed without the affirmative vote of a majority of the outstanding voting
securities of that Fund. As provided in the Investment Company Act of 1940, as
amended ("1940 Act"), a "vote of a majority of the outstanding voting securities
of the Fund" means the affirmative vote of the lesser of (1) more than 50% of
the outstanding shares of the Fund or (2) 67% or more of the shares present at a
meeting, if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. Except with respect to borrowing, changes in
values of a particular Fund's assets will not cause a violation of the following
investment restrictions so long as percentage restrictions are observed by such
Fund at the time it purchases any security.
GOVERNMENT FUND will not:
- ---------------
(1) Borrow money, except as a temporary or emergency measure in an amount
not to exceed 5% of the value of its assets.
(2) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with paragraph (1) above, provided the Fund
maintains asset coverage of at least 300% for pledged assets.
(3) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the Fund's Board of Directors may, on the
request of broker-dealers or other institutional investors which they deem
qualified, authorize the Fund to loan securities to cover the borrower's short
position; provided, however, the borrower pledges to the Fund and agrees to
maintain at all times with the Fund cash collateral equal to not less than 100%
of the value of the securities loaned, the loan is terminable at will by the
Fund, the Fund receives interest on the loan as well as any distributions upon
the securities loaned, the Fund retains voting rights associated with the
securities, the Fund pays only reasonable custodian fees in connection with the
loan, and the Adviser monitors the creditworthiness of the borrower throughout
the life of the loan; provided further, that such loans will not be made if the
value of all loans, repurchase agreements with more then seven days to maturity,
and other illiquid assets is greater than an amount equal to 15% of the Fund's
net assets.
(4) Purchase, with respect to only 75% of the Fund's assets, the
securities of any issuer (other than U.S. Government Obligations (as defined in
the Prospectus)) if, as a result thereof, (a) more than 5% of the Fund's total
assets (taken at current value) would be invested in the securities of such
issuer, or (b) the Fund would hold more than 10% of any class of securities
(including any class of voting securities) of such issuer (for this purpose, all
debt obligations of an issuer maturing in less than one year are treated as a
single class of securities).
(5) Purchase the securities of an issuer if such purchase, at the time
thereof, would cause more than 5% of the value of the Fund's total assets to be
invested in securities of issuers which, including predecessors, have a record
of less than three years' continuous operation.
(6) Concentrate its investments in any particular industry.
(7) Purchase securities on margin; except that the Fund may obtain such
credits as may be necessary for the clearance of purchases and sales of
14
securities. (The deposit or payment by the Fund of initial or variation margin
in connection with interest rate futures contracts or related options
transactions is not considered the purchase of a security on margin.)
(8) Write put or call options; except that the Fund may write options with
respect to U.S. Government Obligations (as defined in the Prospectus) and
interest rate futures contracts. Notwithstanding the foregoing, a
non-fundamental investment restriction, adopted by the Fund's Board of
Directors, prohibits the Fund from engaging in any option transactions.
(9) Make short sales of securities.
(10) Issue senior securities.
(11) Purchase the securities of other investment trusts, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.
(12) Underwrite securities issued by other persons except to the extent
that, in connection with this disposition of its portfolio investments, it may
be deemed to be an underwriter under federal securities laws.
(13) Buy or sell real estate, (unless acquired as a result of ownership of
securities) or interests in oil, gas or mineral exploration; provided, however,
the Fund may invest in securities secured by real estate or interests in real
estate.
(14) Purchase or sell commodities or commodity contracts, except that the
Fund may purchase and sell interest rate futures contracts and related options.
The Fund has adopted the following non-fundamental investment restriction,
which may be changed without shareholder approval. This restriction provides
that the Fund will not:
Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Directors, or the
Fund's investment adviser acting pursuant to authority delegated by the
Directors, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the 1933 Act, or any other
applicable rule, and therefore that such securities are not subject to the
foregoing limitation.
INVESTMENT GRADE FUND will not:
- ---------------------
(1) Make short sales of securities "against the box" in excess of 10% of
the Fund's total assets.
(2) Issue senior securities, as defined in the 1940 Act, or borrow money,
except that the Fund may borrow money from a bank for temporary or emergency
purposes in amounts not exceeding 5% (taken at the lower of cost or current
value) of its total assets (not including the amount borrowed).
(3) Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result: (1) as to 75% of the Fund's
total assets (taken at current value), more than 5% of such assets would then be
invested in securities of a single issuer, or (2) 25% or more of the Fund's
total assets (taken at current value) would be invested in a single industry.
15
(4) Purchase more than 10% of the outstanding voting securities of any one
issuer or more than 10% of any class of securities of one issuer (all debt and
all preferred stock of an issuer are each considered a single class for this
purpose).
(5) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (2) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(6) Concentrate its investments in any particular industry.
(7) Purchase or sell commodities or commodity contracts or real estate or
interests in real estate, although it may purchase and sell securities which are
secured by real estate, securities of companies which invest or deal in real
estate and interests in real estate investment trusts. However, this restriction
will not preclude bona fide hedging transactions, including the purchase and
sale of futures contracts and related options.
(8) Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
(9) Make investments for the purpose of exercising control or management.
(10) Purchase any securities on margin (although the Fund may obtain such
short-term credit as may be necessary for the purchases and sales of its
portfolio securities).
(11) Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objective and policies, (b) through
the lending of its portfolio securities, or (c) to the extent a repurchase
agreement is deemed a loan.
(12) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of Series Fund, as principals.
(13) Invest in any securities of any issuer if, to the knowledge of Series
Fund, any officer, director or Trustee of Series Fund or of the Adviser owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, directors or Trustees who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such issuer.
The following investment restriction is not fundamental and may be changed
without shareholder approval. The investment restriction provides that the Fund
will not:
Invest more than 15% of its assets in repurchase agreements maturing in
more than seven days or in other illiquid securities, including securities that
are illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions as to resale. Securities that have legal or contractual
restrictions as to resale but have a readily available market are not deemed
illiquid for purposes of this limitation; the Adviser will monitor the liquidity
of such restricted securities under the supervision of the Board of Trustees.
HIGH YIELD FUND will not:
- ---------------
(1) Borrow money, except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets.
(2) Engage in "short sales" in excess of 10% of the Fund's total assets.
16
(3) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraphs (1) and (2) above and for margin to secure its obligations under
interest rate futures contracts, provided the Fund maintains asset coverage of
at least 300% for pledged assets.
(4) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the Board of Directors may, on the request of
broker-dealers or other institutional investors which they deem qualified,
authorize the Fund to loan securities to cover the borrower's short position;
provided, however, the borrower pledges to the Fund and agrees to maintain at
all times with the Fund cash collateral equal to not less than 100% of the value
of the securities loaned, the loan is terminable at will by the Fund, the Fund
receives interest on the loan as well as any distributions upon the securities
loaned, the Fund retains voting rights associated with the securities, the Fund
pays only reasonable custodian fees in connection with the loan, and the Adviser
monitors the creditworthiness of the borrower throughout the life of the loan;
provided further, that such loans will not be made if the value of all
repurchase agreements with more than seven days to maturity, and other illiquid
assets is greater than an amount equal to 15% of the Fund's net assets.
(5) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(6) Purchase the securities of an issuer if such purchase, at the time
thereof, would cause more than 5% value of the Fund's total assets to be
invested in securities of issuers which, including predecessors, have a record
of less than three years' continuous operation.
(7) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under Federal securities laws.
(8) Purchase or sell real estate or commodities or commodity contracts.
However, the Fund may purchase interests in real estate investment trusts whose
securities are registered under the Act and are readily marketable and may
invest in interest rate futures contracts and options thereon (provided the
margin required does not violate the investment restrictions pertaining to
pledging assets).
(9) Invest in companies for the purpose of exercising control or
management.
(10) Invest in securities of other investment companies, except in
connection with a merger of another investment company.
(11) Purchase any securities on margin (however, the Fund's engaging in
"hedging transactions" and the margins required thereon shall not be considered
a violation of this provision).
(12) Purchase or retain securities of any issuer if any officer or
Director of the Fund or the Adviser owns beneficially more than 1/2 of 1% of the
securities of such issuer or if all such officers and Directors together own
more than 5% of the securities of such issuer.
(13) Invest 25% or more of the value of its total assets in a particular
industry at any one time.
(14) Invest more than 5% of the value of its net assets in warrants, with
no more than 2% in warrants not listed on either the New York or American Stock
Exchange.
17
(15) Purchase or sell portfolio securities from or to the Adviser or any
Director or officer thereof or of the Fund, as principals.
(16) Invest more than 15% of the value of its total assets, at the time of
purchase, in deep discount securities of companies that are financially
troubled, in default or in bankruptcy or reorganization.
(17) Issue senior securities.
(18) Invest any of its assets in interests in oil, gas or other mineral
exploration or development programs, or in puts, calls, straddles or any
combination thereof.
(19) Invest more than 10% of its net assets in when-issued securities at
the time such purchase is made.
The Fund has adopted the following non-fundamental investment restriction
which may be changed without shareholder approval. This investment restriction
provides that the Fund will not:
Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Directors, or the
Fund's investment adviser acting pursuant to authority delegated by the
Directors, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the 1933 Act, or any other
applicable rule, and therefore that such securities are not subject to the
foregoing limitation.
FUND FOR INCOME will not:
- ---------------
(1) Borrow money except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets taken at
cost or value, whichever is the lesser.
(2) Make loans to other persons except that the Board of Directors may, on
the request of broker-dealers or other institutional investors that it deems
qualified, authorize the Fund to lend securities for the purpose of covering
short positions of the borrower, but only when the borrower pledges cash
collateral to the Fund and agrees to maintain such collateral so that it amounts
at all times to at least 100% of the value of the securities. Such security
loans will not be made if as a result the aggregate of such loans exceeds 10% of
the value of the Fund's total assets. The Fund may terminate such loans at any
time and vote the proxies if a material event affecting the investment is about
to occur. The market risk applicable to any security loaned remains a risk of
the Fund. The borrower must add to collateral whenever the market value of the
securities rises above the level of such collateral. The primary objective of
such loaning function is to supplement the Fund's income through investment of
the cash collateral in short-term interest-bearing obligations. The purchase of
a portion of an issue of publicly distributed debt securities is not considered
the making of a loan.
(3) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(4) Invest more than 5% of the value of its total assets in securities of
issuers, including the operations of predecessors, that have been in business
for less than three years.
(5) Invest 25% or more of the value of its total assets in a particular
industry at one time.
18
(6) Underwrite securities of other issuers, except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under Federal securities laws.
(7) Purchase or sell real estate or commodities or commodity contracts.
However, the Fund may purchase interests in real estate investment trusts whose
securities are registered under the 1933 Act and are readily marketable.
(8) Invest in companies for the purpose of exercising control or
management.
(9) Invest in securities of other investment companies, except in
connection with a merger of another investment company.
(10) Purchase any securities on margin or sell any securities short.
(11) Purchase or retain securities of any issuer if any officer or
Director of the Fund or the Adviser owns beneficially more than 1/2 of 1% of the
securities of such issuer and together own more than 5% of the securities of
such issuer.
(12) Purchase or sell portfolio securities from or to the Adviser or any
Director or officer thereof or of the Fund, as principals.
(13) Issue senior securities.
The Fund has adopted the following non-fundamental investment
restrictions, which may be changed without shareholder approval. These
investment restrictions provide that the Fund will not:
(1) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Directors, or the
Fund's investment adviser acting pursuant to authority delegated by the
Directors, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the 1933 Act, or any other
applicable rule, and therefore that such securities are not subject to the
foregoing limitation.
(2) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
fundamental investment restriction (1) above, provided the Fund maintains asset
coverage of at least 300% for all such borrowings.
PORTFOLIO TURNOVER
Although each Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Adviser, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in a Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
19
turnover (100% or more) generally leads to high transaction costs and may result
in a greater number of taxable transactions. See "Allocation of Portfolio
Brokerage." For the fiscal years ended September 30, 1998 and September 30,
1999, HIGH YIELD FUND'S portfolio turnover rate was 20% and 30%, respectively,
FUND FOR INCOME'S portfolio turnover rate was 28% and 28%, respectively,
GOVERNMENT FUND'S portfolio turnover rate was 62% and 99%, and INVESTMENT
GRADE'S portfolio turnover rate was 49% and 18%.
DIRECTORS/TRUSTEES AND OFFICERS
Each Fund's Board of Directors, as part of its overall management
responsibility, oversees various organizations responsible for that Fund's
day-to-day management. The following table lists the Directors and executive
officers of Government Fund, Investment Grade Fund, Fund For Income, and/or High
Yield Fund, their age, business address and principal occupations during the
past five years. Unless otherwise noted, an individual's business address is 95
Wall Street, New York, New York 10005.
GLENN O. HEAD*+ (74), President and Director. Chairman of the Board and
Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Asset Management
Company, Inc. ("FIAMCO"), First Investors Corporation ("FIC"), Executive
Investors Corporation ("EIC") and First Investors Consolidated Corporation
("FICC").
JAMES J. COY (85), Emeritus Director, 90 Buell Lane, East Hampton, NY 11937.
Retired; formerly Senior Vice President, James Talcott, Inc. (financial
institution).
KATHRYN S. HEAD*+ (44), Director, 581 Main Street, Woodbridge, NJ 07095.
President and Director, FICC, ADM and FIMCO; Vice President and Director, FIC
and EIC; President EIMCO; Chairman, President and Director, First Financial
Savings Bank, S.L.A.
LARRY R. LAVOIE* (52) Director. Assistant Secretary, ADM, EIC, EIMCO, FIAMCO,
FICC, and FIMCO; President, FIAMCO; Secretary and General Counsel, FIC.
REX R. REED** (77), Director, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN** (78), Director, 695 Charolais Circle, Edwards, CO
81632-1136. Retired; formerly President, Belvac International Industries, Ltd.
and President, Central Dental Supply.
NANCY SCHAENEN** (68), Director, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
JAMES M. SRYGLEY** (67), Director, 39 Hampton Road, Chatham, NJ 07928.
Principal, Hampton Properties, Inc. (property investment company).
JOHN T. SULLIVAN* (67), Director and Chairman of the Board; Director, FIMCO,
FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH** (70), Director, 217 Upland Downs Road, Manchester Center,
VT 05255. Retired; formerly financial and planning executive with American
Telephone & Telegraph Company.
JOSEPH I. BENEDEK (42), Treasurer and Principal Accounting Officer, 581 Main
Street, Woodbridge, NJ 07095. Treasurer, FIMCO, EIMCO and FIAMCO.
CONCETTA DURSO (64), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
20
NANCY W. JONES (55), Vice President, FUND FOR INCOME and HIGH YIELD FUND. Vice
President, First Investors Asset Management Company, Inc., Executive Investors
Trust, First Investors Series Fund, and First Investors Special Bond Fund, Inc.;
Portfolio Manager, FIMCO.
GEORGE V. GANTER (47), Vice President, INVESTMENT GRADE FUND. Vice President,
First Investors Asset Management Company, Inc.; Portfolio Manager, FIMCO.
CLARK D. WAGNER (40), Vice President, GOVERNMENT FUND and INVESTMENT GRADE FUND.
Vice President, First Investors Multi-State Insured Tax Free Fund, Executive
Investors Trust, First Investors Series Fund, First Investors New York Insured
Tax Free Fund, Inc. and First Investors Government Fund, Inc.; Chief Investment
Officer, FIMCO.
* These Directors may be deemed to be "interested persons," as defined in
the 1940 Act.
** These Directors are members of the Board's Audit Committee.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
The Directors and officers, as a group, owned less than 1% of either Class
A or Class B shares of each Fund.
All of the officers and Directors, except for Ms. Jones, Mr. Ganter and
Mr. Wagner, hold identical or similar positions with the other registered
investment companies in the First Investors Family of Funds. Mr. Head is also an
officer and/or Director of First Investors Asset Management Company, Inc., First
Investors Credit Funding Corporation, First Investors Leverage Corporation,
First Investors Realty Company, Inc., First Investors Resources, Inc., N.A.K.
Realty Corporation, Real Property Development Corporation, Route 33 Realty
Corporation, First Investors Life Insurance Company, First Financial Savings
Bank, S.L.A., First Investors Credit Corporation and School Financial Management
Services, Inc. Ms. Head is also an officer and/or Director of First Investors
Life Insurance Company, First Investors Credit Corporation, School Financial
Management Services, Inc., First Investors Credit Funding Corporation, N.A.K.
Realty Corporation, Real Property Development Corporation, First Investors
Leverage Corporation and Route 33 Realty Corporation.
The following table lists compensation paid to the Directors of each Fund
for the fiscal year ended September 30, 1999.
TOTAL
AGGREGATE AGGREGATE AGGREGATE AGGREGATE COMPENSATION
COMPENSATION COMPENSATION COMPENSATION COMPENSATION FROM FIRST
DIRECTOR FROM FROM FROM FROM INVESTORS
- -------- HIGH FUND FOR GOVERNMENT INVESTMENT FAMILY OF
YIELD INCOME** FUND** GRADE FUNDS PAID
FUND** FUND** TO DIRECTOR+
------------ ------------ ------------ ------------ ------------
James J. Coy* $0 $0 $0 $0 $0
Glenn O. Head $0 $0 $0 $0 $0
Kathryn S. Head $0 $0 $0 $0 $0
Larry R. Lavoie $0 $0 $0 $0 $0
Rex R. Reed $1,800 $2,400 $1,800 $1,200 $41, 695
Herbert Rubinstein $1,800 $2,400 $1,800 $1,200 $41, 695
James M. Srygley $1,800 $2,400 $1,800 $1,200 $41, 695
John T. Sullivan $0 $0 $0 $0 $0
Robert F. Wentworth $1,800 $2,400 $1,800 $1,200 $41, 695
Nancy Schaenen $1,800 $2,400 $1,800 $1,200 $41, 695
21
- -------------
* On March 27, 1997, Mr. Coy resigned as a Director of the Funds. Mr. Coy
currently serves as an emeritus Director.
** Compensation to officers, interested Directors of the Funds and the
emeritus Director is paid by the Adviser.
+ The First Investors Family of Funds consist of 15 separate registered
investment companies. The total compensation shown in this column is for the
twelve month period ended September 30, 1999.
MANAGEMENT
Investment advisory services to each Fund are provided by First Investors
Management Company, Inc. pursuant to separate Investment Advisory Agreements
(each, an "Advisory Agreement") dated June 13, 1994. Each Advisory Agreement was
approved by the Board of the applicable Fund, including a majority of the
Directors who are not parties to such Fund's Advisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such party ("Independent
Directors"), in person at a meeting called for such purpose and by a majority of
the public shareholders of the applicable Fund.
Pursuant to each Advisory Agreement, FIMCO shall supervise and manage each
Fund's investments, determine each Fund's portfolio transactions and supervise
all aspects of each Fund's operations, subject to review by the applicable
Fund's Directors. Each Advisory Agreement also provides that FIMCO shall provide
the applicable Fund with certain executive, administrative and clerical
personnel, office facilities and supplies, conduct the business and details of
the operation of such Fund and assume certain expenses thereof, other than
obligations or liabilities of such Fund. Each Advisory Agreement may be
terminated at any time without penalty by the applicable Fund's Directors or by
a majority of the outstanding voting securities of such Fund, or by FIMCO, in
each instance on not less than 60 days' written notice, and shall automatically
terminate in the event of its assignment (as defined in the 1940 Act). Each
Advisory Agreement also provides that it will continue in effect, with respect
to the applicable Fund, for a period of over two years only if such continuance
is approved annually either by such Fund's Directors or by a majority of the
outstanding voting securities of such Fund, and, in either case, by a vote of a
majority of such Fund's Independent Directors voting in person at a meeting
called for the purpose of voting on such approval.
Under each Advisory Agreement, the applicable Fund is obligated to pay the
Adviser an annual fee, paid monthly, according to the following schedules:
HIGH YIELD FUND
Annual
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
Up to $200 million.................................................... 1.00%
In excess of $200 million up to $500 million.......................... 0.75
In excess of $500 million up to $750 million.......................... 0.72
In excess of $750 million up to $1.0 billion.......................... 0.69
Over $1.0 billion..................................................... 0.66
22
FUND FOR INCOME
Annual
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
Up to $250 million.................................................... 0.75%
In excess of $250 million up to $500 million.......................... 0.72
In excess of $500 million up to $750 million.......................... 0.69
Over $750 million..................................................... 0.66
GOVERNMENT FUND
Annual
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
Up to $200 million................................................... 1.00%
In excess of $200 million up to $500 million......................... 0.75
In excess of $500 million up to $750 million......................... 0.72
In excess of $750 million up to $1.0 billion......................... 0.69
Over $1.0 billion.................................................... 0.66
INVESTMENT GRADE FUND
Annual
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
Up to $300 million................................................. 0.75%
In excess of $300 million up to $500 million....................... 0.72
In excess of $500 million up to $750 million....................... 0.69
Over $750 million.................................................. 0.66
For the fiscal years ended December 31, 1997 and September 30, 1998 and
1999, HIGH YIELD FUND paid the Adviser $1,674,251, $1,212,262 and $1,499,122,
respectively, in advisory fees. For the same periods, the Adviser voluntarily
waived $400,000, $375,000 and $495,021, respectively, in advisory fees. For the
fiscal years ended December 31, 1997 and September 30, 1998 and 1999, FUND FOR
INCOME paid the Adviser $3,217,285, $2,448,268 and $3,121,524, respectively, in
advisory fees. For the fiscal years ended December 31, 1997 and September 30,
1998 and 1999, GOVERNMENT FUND paid the Adviser $1,241,821, $810,988 and
$951,583, respectively, in advisory fees. For these same time periods, the
Adviser voluntarily waived $532,208, $436,686 and $600,530, respectively, in
advisory fees. For the fiscal years ended December 31, 1997 and September 30,
1998 and 1999, INVESTMENT GRADE paid the Adviser $307,123, $226,719 and
$338,731, respectively, in advisory fees. For the same periods, the Adviser
voluntarily waived $47,250, $56,680 and $84,683, respectively, in advisory fees.
In addition, for the same periods the Adviser voluntarily assumed expenses in
the amount of $105,581, $58,718 and $72,220, respectively.
Each Fund bears all expenses of its operations other than those assumed by
the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.
The Adviser has an Investment Committee composed of Dennis T. Fitzpatrick,
George V. Ganter, Michael Deneka, David Hanover, Glenn O. Head, Kathryn S. Head,
Nancy W. Jones, Michael O'Keefe, Patricia D. Poitra, Clark D. Wagner, and
Matthew Wright. The Committee usually meets weekly to discuss the composition of
the portfolio of each Fund and to review additions to and deletions from the
portfolios.
23
First Investors Consolidated Corporation ("FICC") owns all of the voting
common stock of the Adviser and all of the outstanding stock of First
Investors Corporation and the Funds' transfer agent. Mr. Glenn O. Head
controls FICC and, therefore, controls the Adviser.
UNDERWRITER
Each Fund has entered into an Underwriting Agreement ("Underwriting
Agreement") with First Investors Corporation ("Underwriter" or "FIC") which
requires the Underwriter to use its best efforts to sell shares of the Funds.
Each Underwriting Agreement was approved by the applicable Fund's Board,
including a majority of the Independent Directors. Each Underwriting Agreement
provides that it will continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the applicable Fund's
Board or by a vote of a majority of the outstanding voting securities of such
Fund, and in either case by the vote of a majority of such Fund's Independent
Directors, voting in person at a meeting called for the purpose of voting on
such approval. Each Underwriting Agreement will terminate automatically in the
event of its assignment.
For the fiscal years ended December 31, 1997 and September 30, 1998 and
1999, FIC received underwriting commissions with respect to HIGH YIELD FUND of
$466,862, $383,388 and $279,503, respectively. For the same periods, FIC
reallowed an additional $133,969, $60,089 and $54,481, respectively, to
unaffiliated dealers. For the fiscal years ended December 31, 1997 and September
30, 1998 and 1999, FIC received underwriting commissions with respect to FUND
FOR INCOME of $472,941, $503,910 and $750,061, respectively. For the same
periods, FIC reallowed an additional $60,576, $102,233 and $137,914,
respectively, to unaffiliated dealers. For the fiscal years ended December 31,
1997 and September 30, 1998 and 1999, FIC received underwriting commissions with
respect to GOVERNMENT FUND of $176,381, $127,799 and $177,774, respectively. For
the same periods, FIC reallowed an additional $8,095, $8,072 and $4,677,
respectively, to unaffiliated dealers. For the fiscal years ended December 31,
1997 and September 30, 1998 and 1999, FIC received underwriting commissions with
respect to INVESTMENT GRADE FUND of $223,846, $229,010 and $371,329. For the
same periods, FIC reallowed an additional $1, $6,498 and $13,926, respectively,
to unaffiliated dealers.
DISTRIBUTION PLANS
Each Fund has adopted a separate plan of distribution for each class of
its shares pursuant to Rule 12b-1 under the 1940 Act ("Class A Plan" and "Class
B Plan" and, collectively, "Plans"). Under the Plans, each Fund may reimburse or
compensate, as applicable, the Underwriter for certain expenses incurred in the
distribution of that Fund's shares and the servicing or maintenance of existing
Fund shareholder accounts. Each Class B Plan is a compensation plan. Each Class
A Plan is a reimbursement plan, except for Investment Grade Fund Class A Plan
which is a compensation plan.
Each Plan was approved by the applicable Fund's Board, including a
majority of the Independent Directors, and by a majority of the outstanding
voting securities of the relevant class of such Fund. Each Plan will continue in
effect from year to year as long as its continuance is approved annually be
either the applicable Fund's Board or by a vote of a majority of the outstanding
voting securities of the relevant class of shares of such Fund. In either case,
to continue, each Plan must be approved by the vote of a majority of the
Independent Directors of the applicable Fund. Each Fund's Board reviews
quarterly and annually a written report provided by the Treasurer of the amounts
expended under the applicable Plan and the purposes for which such expenditures
were made. While each Plan is in effect, the selection and nomination of the
applicable Fund's Independent Directors will be committed to the discretion of
such Independent Directors then in office.
Each Plan can be terminated at any time by a vote of a majority of the
applicable Fund's Independent Directors or by a vote of a majority of the
24
outstanding voting securities of the relevant class of shares of such Fund. Any
change to any Plan that would materially increase the costs to that class of
shares of a Fund may not be instituted without the approval of the outstanding
voting securities of that class of shares of such Fund as well as any class of
shares that converts into that class. Such changes also require approval by a
majority of the applicable Fund's Independent Directors.
In adopting each Plan, the Board of each Fund considered all relevant
information and determined that there is a reasonable likelihood that each Plan
will benefit each Fund and their class of shareholders. The Boards believe that
amounts spent pursuant to each Plan have assisted each Fund in providing ongoing
servicing to shareholders, in competing with other providers of financial
services and in promoting sales, thereby increasing the net assets of each Fund.
In reporting amounts expended under the Plans to the Directors, in the
event that the expenses are not related solely to one class, FIMCO will allocate
expenses attributable to the sale of each class of a Fund's shares to such class
based on the ratio of sales of such class to the sales of both classes of
shares. The fees paid by one class of a Fund's shares will not be used to
subsidize the sale of any other class of the Fund's shares.
For the fiscal year ended September 30, 1999, HIGH YIELD FUND, FUND FOR
INCOME, GOVERNMENT FUND AND INVESTMENT GRADE FUND paid $571,559, $1,234,576,
$400,309 and $149,689, respectively, pursuant to their respective Class A Plan.
For the same period, the Underwriter incurred the following Class A Plan-related
expenses with respect to each Fund:
COMPENSATION TO COMPENSATION TO COMPENSATION TO
FUND UNDERWRITER DEALERS SALES PERSONNEL
- ---- ----------- ------- ---------------
HIGH YIELD FUND $474,253 $2,152 $92,665
FUND FOR INCOME $829,266 $3,952 $395,787
GOVERNMENT FUND $234,108 $61 $164,564
INVESTMENT GRADE FUND $92,861 $504 $55,652
For the fiscal year ended September 30, 1999, HIGH YIELD FUND, FUND FOR
INCOME, GOVERNMENT FUND AND INVESTMENT GRADE FUND paid $94,087, $116,392,
$30,974 and $65,580, respectively, pursuant to their respective Class B Plan.
For the same period, the Underwriter incurred the following Class B Plan-related
expenses with respect to each Fund:
COMPENSATION TO COMPENSATION TO COMPENSATION TO
FUND UNDERWRITER DEALERS SALES PERSONNEL
- ---- ----------- ------- ---------------
HIGH YIELD FUND $85,346 $2,944 $5,319
FUND FOR INCOME $79,071 $34,618 $1,999
GOVERNMENT FUND $26,947 $22 $3,858
INVESTMENT GRADE FUND $61,251 $771 $3,184
DEALER CONCESSIONS. With respect to Class A shares of each Fund, the Fund
will reallow a portion of the sales load to the dealers selling the shares as
shown in the following table:
25
SALES CHARGES AS % OF CONCESSION TO
OFFERING NET AMOUNT DEALERS AS
AMOUNT OF INVESTMENT PRICE INVESTED OFFERING PRICE
- -------------------- ----- -------- --------------
Less than $25,000.............. 6.25% 6.67% 5.13%
$25,000 but under $50,000...... 5.75 6.10 4.72
$50,000 but under $100,000..... 5.50 5.82 4.51
$100,000 but under $250,000.... 4.50 4.71 3.69
$250,000 but under $500,000.... 3.50 3.63 2.87
$500,000 but under $1,000,000.. 2.50 2.56 2.05
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange or
the Nasdaq Stock Market is valued at its last sale price on the exchange or
market where the security is principally traded, and lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices. Securities traded in the over-the-counter ("OTC") market
(including securities listed on exchanges whose primary market is believed to be
OTC) are valued at the mean between the last bid and asked prices based upon
quotes furnished by market makers for such securities. Securities may also be
priced by pricing services. Pricing services use quotations obtained from
investment dealers or brokers for the particular securities being evaluated,
information with respect to market transactions in comparable securities and
other available information in determining value. Short-term debt securities
that mature in 60 days or less are valued at amortized cost. Securities for
which market quotations are not readily available and other assets are valued on
a consistent basis at fair value as determined in good faith by or under the
supervision of the applicable Fund's officers in a manner specifically
authorized by the applicable Fund's Board of Directors.
"When-issued securities" are reflected in the assets of a Fund as of the
date the securities are purchased. Such investments are valued thereafter at the
mean between the most recent bid and asked prices obtained from recognized
dealers in such securities or by the pricing services. For valuation purposes,
quotations of foreign securities in foreign currencies are converted into U.S.
dollar equivalents using the foreign exchange equivalents in effect.
Each Fund's Board may suspend the determination of a Fund's net asset
value per share for the whole or any part of any period (1) during which trading
on the New York Stock Exchange ("NYSE") is restricted as determined by the SEC
or the NYSE is closed for other than weekend and holiday closings, (2) during
which an emergency, as defined by rules of the SEC in respect to the U.S.
market, exists as a result of which disposal by a Fund of securities owned by it
is not reasonably practicable for the Fund fairly to determine the value of its
net assets, or (3) for such other period as the SEC has by order permitted.
EMERGENCY PRICING PROCEDURES. In the event that the Funds must halt
operations during any day that they would normally be required to price under
Rule 22c-1 under the 1940 Act due to an emergency ("Emergency Closed Day"), the
Funds will apply the following procedures:
1. The Funds will make every reasonable effort to segregate orders
received on the Emergency Closed Day and give them the price that they would
have received but for the closing. The Emergency Closed Day price will be
calculated as soon as practicable after operations have resumed and will be
applied equally to sales, redemptions and repurchases that were in fact received
in the mail or otherwise on the Emergency Closed Day.
26
2. For purposes of paragraph 1, an order will be deemed to have been
received by the Funds on an Emergency Closed Day, even if neither the Funds nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:
(a) In the case of a mail order the order will be considered received
by a Fund when the postal service has delivered it to FIC's Woodbridge offices
prior to the close of regular trading on the NYSE; and
(b) In the case of a wire order, including a Fund/SERV order, the
order will be considered received when it is received in good form by a FIC
branch office or an authorized dealer prior to the close of regular trading on
the NYSE.
3. If the Funds are unable to segregate orders received on the Emergency
Closed Day from those received on the next day the Funds are open for business,
the Funds may give all orders the next price calculated after operations resume.
4. Notwithstanding the foregoing, on business days in which the NYSE is
not open for regular trading, the Funds may determine not to price their
portfolio securities if such prices would lead to a distortion of the NAV, for
the Funds and their shareholders.
ALLOCATION OF PORTFOLIO BROKERAGE
The Adviser may purchase or sell portfolio securities on behalf of the
Fund in agency or principal transactions. In agency transactions, the Fund
generally pays brokerage commissions. In principal transactions, the Fund
generally does not pay commissions, however the price paid for the security may
include an undisclosed dealer commission or "mark-up" or selling concessions.
The Adviser normally purchases fixed-income securities on a net basis from
primary market makers acting as principals for the securities. The Adviser may
purchase certain money market instruments directly from an issuer without paying
commissions or discounts. The Adviser may also purchase securities traded in the
OTC market. As a general practice, OTC securities are usually purchased from
market makers without paying commissions, although the price of the security
usually will include undisclosed compensation. However, when it is advantageous
to the Fund the Adviser may utilize a broker to purchase OTC securities and pay
a commission.
In purchasing and selling portfolio securities on behalf of the Fund, the
Adviser will seek to obtain best execution. The Fund may pay more than the
lowest available commission in return for brokerage and research services.
Additionally, upon instruction by the Board, the Adviser may use dealer
concessions available in fixed-priced underwritings to pay for research and
other services. Research and other services may include information as to the
availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to securities, reports and analysis
concerning issuers and their creditworthiness, and Lipper's Directors'
Analytical Data concerning Fund performance and fees. The Adviser generally uses
the research and other services to service all the funds in the First Investors
Family of Funds, rather than the particular Funds whose commissions may pay for
research or other services. In other words, a Fund's brokerage may be used to
pay for a research service that is used in managing another Fund within the
First Investor Fund Family. The Lipper's Directors' Analytical Data is used by
the Adviser and the Fund Board to analyze a fund's performance relative to other
comparable funds.
In selecting the broker-dealers to execute the Fund's portfolio
transactions, the Adviser may consider such factors as the price of the
security, the rate of the commission, the size and difficulty of the order, the
trading characteristics of the security involved, the difficulty in executing
the order, the research and other services provided, the expertise, reputation
27
and reliability of the broker-dealer, access to new offerings, and other factors
bearing upon the quality of the execution. The Adviser does not place portfolio
orders with an affiliated broker, or allocate brokerage commission business to
any broker-dealer for distributing fund shares. Moreover, no broker-dealer
affiliated with the Adviser participates in commissions generated by portfolio
orders placed on behalf of the Fund.
The Adviser may combine transaction orders placed on behalf of a Fund and
any other Fund in the First Investors Group of Funds, any fund of Executive
Investors Trust and First Investors Life Insurance Company, affiliates of the
Funds, for the purpose of negotiating brokerage commissions or obtaining a more
favorable transaction price; and where appropriate, securities purchased or sold
may be allocated in accordance with written procedures approved by each Fund's
Board of Directors.
For the fiscal year ended December 31, 1997, HIGH YIELD FUND paid $2,359
in brokerage commissions, all of which was paid to brokers who furnished
research services on portfolio transactions in the amount of $385,732. For the
fiscal year ended December 31, 1997, FUND FOR INCOME paid $1,200 in brokerage
commissions, all of which was paid to brokers who furnished research services on
portfolio transactions in the amount of $538,470. For the fiscal year ended
December 31, 1997, GOVERNMENT FUND did not pay any brokerage commissions. For
the fiscal year ended December 31, 1997, INVESTMENT GRADE FUND did not pay any
brokerage commissions.
For the fiscal year ended September 30, 1998, HIGH YIELD FUND paid $1,071
in brokerage commissions, all of which was paid to brokers who furnished
research services on portfolio transactions in the amount of $100,312. For the
fiscal year ended September 30, 1998, FUND FOR INCOME paid $4,005 in brokerage
commissions of which $2,723 was paid to brokers who furnished research services
on portfolio transactions in the amount of $463,349. For the fiscal year ended
September 30, 1998, GOVERNMENT FUND did not pay any brokerage commissions. For
the fiscal year ended September 30, 1998, INVESTMENT GRADE FUND did not pay any
brokerage commissions.
For the fiscal year ended September 30, 1999, HIGH YIELD FUND paid $2,567
in brokerage commissions $767 of which was paid to brokers who furnished
research services on portfolio transactions in the amount of $296,180. For the
fiscal year ended September 30, 1999, FUND FOR INCOME paid $218 in brokerage
commissions, all of which was paid to brokers who furnished research services on
portfolio transactions in the amount of $64,486. For the fiscal year ended
September 30, 1999, GOVERNMENT FUND did not pay any brokerage commissions. For
the fiscal year ended September 30, 1999, INVESTMENT GRADE FUND did not pay any
brokerage commissions.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Information regarding the purchase, redemption and exchange of Fund shares
is contained in the Shareholder Manual, a separate section of the SAI that is a
distinct document and may be obtained free of charge by contacting your Fund.
REDEMPTIONS-IN-KIND. If each Fund's Board should determine that it would
be detrimental to the best interests of the remaining shareholders of a Fund 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. If shares are redeemed in kind, the redeeming shareholder will likely
incur brokerage costs in converting the assets into cash. The method of valuing
portfolio securities for this purpose is described under "Determination of Net
Asset Value."
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended (the
"Code"), a Fund must distribute to its shareholders for each taxable year at
28
least 90% of its investment company taxable income (consisting generally of net
investment income, net short-term capital gain and net gains from certain
foreign currency transactions) ("Distribution Requirement") and must meet
several additional requirements. For each Fund these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including, for HIGH YIELD FUND gains from futures
contracts and, for INVESTMENT GRADE FUND, gains from options and futures
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with those other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (3) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer. If a Fund failed to qualify as a RIC for any
taxable year, it would be taxed on the full amount of its taxable income for
that year without being able to deduct the distributions it makes to its
shareholders and the shareholders would treat all those distributions, including
distributions of net capital gain (the excess of net long-term capital gain over
net short-term capital loss), as dividends (that is, ordinary income) to the
extent of the Fund's earnings and profits.
Dividends and other distributions declared by a Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions are taxed to
shareholders for the year in which that December 31 falls.
A portion of the dividends from a Fund's investment company taxable income
may be eligible for the dividends-received deduction allowed to corporations.
The eligible portion may not exceed the aggregate dividends received by the Fund
from U.S. corporations. However, dividends received by a corporate shareholder
and deducted by it pursuant to the dividends-received deduction are subject
indirectly to the Federal alternative minimum tax. Although each Fund is
authorized to hold equity securities, it is expected that any dividend income
received by a Fund will be minimal; accordingly, very little, if any, of the
distributions made by the Funds will be eligible for the dividends-received
deduction.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Dividends and interest received by a Fund, and gains realized by a Fund,
may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield and/or total return
on its securities. Tax conventions between certain countries and the United
States may reduce or eliminate these taxes, however, and many foreign countries
do not impose taxes on capital gains in respect of investments by foreign
investors.
HIGH YIELD FUND, FUND FOR INCOME AND INVESTMENT GRADE FUND may each invest
in the stock of "passive foreign investment companies" ("PFICs"). A PFIC is a
foreign corporation - other than a "controlled foreign corporation" (i.e., a
foreign corporation in which, on any day during its taxable year, more than 50%
29
of the total voting power of all voting stock therein or the total value of all
stock therein is owned, directly, indirectly, or constructively, by "U.S.
shareholders," defined as U.S. persons that individually own, directly,
indirectly, or constructively, at least 10% of that voting power) as to which
the Fund is a U.S. shareholder ( effective after October 31, 1999) - that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, if
the Fund holds stock of a PFIC, it will be subject to Federal income tax on a
portion of any "excess distribution" received on the stock or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders.
If these Funds invest in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF") then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) - which
probably would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax - even if those earnings and
gain were not distributed to the Fund by the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Effective for its taxable year beginning November 1, 1999, these Funds may
elect to "mark-to-market" its stock in any PFICs. "Marking-to-market," in this
context, means including in ordinary income each taxable year the excess, if
any, of the fair market value of the PFIC's stock over the Fund's adjusted basis
in that stock as of the end of that year. Pursuant to the election, the Fund
also will be allowed to deduct (as an ordinary, not capital, loss) the excess,
if any, of its adjusted basis in PFIC stock over the fair market value thereof
as of the taxable year-end, but only to the extent of any net mark-to-market
gains with respect to that stock included by the Fund for prior taxable years.
The Fund's adjusted basis in each PFIC's stock with respect to which it makes
this election will be adjusted to reflect the amounts of income included and
deductions taken under the election. Regulations proposed in 1992 would provide
a similar election with respect to the stock of certain PFICs.
Each Fund may acquire zero coupon or other securities issued with original
issue discount. As a holder of those securities, each Fund must include in its
income the portion of the original issue discount that accrues on the securities
during the taxable year, even if the Fund receives no corresponding payment on
them during the year. Similarly, each Fund must include in its gross income
securities it receives as "interest" on pay-in-kind securities. Because each
Fund annually must distribute substantially all of its investment company
taxable income, including any original issue discount and other non-cash income,
to satisfy the Distribution Requirement and avoid imposition of the Excise Tax,
a Fund may be required in a particular year to distribute as a dividend an
amount that is greater than the total amount of cash it actually receives. Those
distributions will be made from a Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. A Fund may realize capital gains or
losses from those sales, which would increase or decrease its investment company
taxable income and/or net capital gain.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the amount, character and timing of recognition of the gains
and losses HIGH YIELD FUND AND INVESTMENT GRADE FUND will realize in connection
therewith. Gains from options and futures contracts derived by a Fund with
respect to its business of investing in securities or foreign currencies and
gains from each Fund's disposition of foreign currencies (except certain gains
therefrom that may be excluded by future regulations) will qualify as
permissible income under the Income Requirement.
If a Fund has an "appreciated financial position" - generally, an interest
(including an interest through an option, futures contract or short sale) with
30
respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted basis -
and enters into a "constructive sale" of the same or substantially similar
property, the Fund will be treated as having made an actual sale thereof, with
the result that gain will be recognized at that time. A constructive sale
generally consists of a short sale, an offsetting notional principal contract or
futures contract entered into by a Fund or a related person with respect to the
same or substantially similar property. In addition, if the appreciated
financial position is itself a short sale or such a contract, acquisition of the
underlying property or substantially similar property will be deemed a
constructive sale.
PERFORMANCE INFORMATION
A Fund may advertise its top holdings from time to time. A Fund may also
advertise performance in various ways.
Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)^(1/n)]-1
The "total return" uses the same factors, but does not average the rate of
return on an annual basis. Total return is determined as follows:
(ERV-P)/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, each Fund will deduct the maximum sales
charge of 6.25% (as a percentage of the offering price) from the initial $1,000
payment and, for Class B shares, the applicable CDSC imposed on a redemption of
Class B shares held for the period is deducted. All dividends and other
distributions are assumed to have been reinvested at net asset value on the
initial investment ("P").
Return information may be useful to investors in reviewing a Fund's
performance. However, certain factors should be taken into account before using
this information as a basis for comparison with alternative investments. No
adjustment is made for taxes payable on distributions. Return information will
fluctuate over time and return information for any given past period will not be
an indication or representation of future rates of return. At times, the Adviser
may reduce its compensation or assume expenses of a Fund in order to reduce the
Fund's expenses. Any such waiver or reimbursement would increase the Fund's
return during the period of the waiver or reimbursement.
Average annual return and total return computed at the public offering
price (maximum sales charge for Class A shares and applicable CDSC for Class B
shares) for the period ended September 30, 1999 are set forth in the tables
below:
31
AVERAGE ANNUAL TOTAL RETURN1,2
HIGH YIELD FUND FUND FOR INCOME
--------------- ---------------
Class A Class B Class A Class B
SHARES SHARES SHARES SHARES
------ ------ ------ ------
One Year -3.93% -2.11% -3.36% -1.71%
Five Years 7.60% N/A 8.13% N/A
Ten Years 7.77% N/A 8.29% N/A
Life of Fund3 N/A 8.44% N/A 8.87%
GOVERNMENT FUND INVESTMENT GRADE FUND
--------------- ---------------------
Class A Class B Class A Class B
SHARES SHARES SHARES SHARES
------ ------ ------ ------
One Year -5.81% -4.24% -8.31% -6.78%
Five Years 5.22% N/A 5.81% N/A
Ten Years 6.09% N/A N/A N/A
Life of Fund3 N/A 5.82% 6.58% 6.42%
TOTAL RETURN1,2
HIGH YIELD FUND FUND FOR INCOME
--------------- ---------------
Class A Class B Class A Class B
SHARES SHARES SHARES SHARES
------ ------ ------ ------
One Year -3.93% -2.11% -3.36% -1.71%
Five Years 44.20% N/A 47.82% N/A
Ten Years 111.37% N/A 121.82% N/A
Life of Fund3 N/A 46.52% N/A 49.28%
GOVERNMENT FUND INVESTMENT GRADE FUND
--------------- ---------------------
Class A Class B Class A Class B
SHARES SHARES SHARES SHARES
------ ------ ------ ------
One Year -5.81% -4.24% -8.31% -6.78%
Five Years 28.96% N/A 32.63% N/A
Ten Years 80.62% N/A N/A N/A
Life of Fund3 N/A 30.59% 73.25% 34.11%
- ----------------
1 All Class A total return figures assume the maximum front-end sales charge of
6.25% and dividends reinvested at net asset value. All Class B total return
figures assume the maximum applicable CDSC. Prior to July 1, 1993, the maximum
front-end sales charge was 6.90%. Prior to December 29, 1989, the maximum
front-end sales charge was 7.25% for HIGH YIELD FUND AND GOVERNMENT FUND, and
8.50% for FUND FOR INCOME. Prior to December 18, 1990, HIGH YIELD FUND'S
dividends were paid in additional shares at the public offering price.
2 Certain expenses of the Funds have been waived from commencement of operations
through September 30, 1999. Accordingly, return figures are higher than they
would have been had such expenses not been waived.
3 The commencement date for the offering of Class B shares is January 12, 1995.
The inception dates for Class A shares of the funds are as follows: GOVERNMENT
FUND - August 6, 1984; INVESTMENT GRADE FUND - February 19, 1991; FUND FOR
INCOME - January 1, 1971; and HIGH YIELD FUND - August 12, 1986.
Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual total return and total return
computed at net asset value for the period ended September 30, 1999 are set
forth in the tables below:
32
AVERAGE ANNUAL TOTAL RETURN1
HIGH YIELD FUND FUND FOR INCOME
--------------- ---------------
Class A Class B Class A Class B
SHARES SHARES SHARES SHARES
------ ------ ------ ------
One Year 2.54% 1.89% 3.13% 2.29%
Five Years 8.99% N/A 9.54% N/A
Ten Years 8.46% N/A 9.00% N/A
Life of Fund2 N/A 8.75% N/A 9.18%
GOVERNMENT FUND INVESTMENT GRADE FUND
--------------- ---------------------
Class A Class B Class A Class B
SHARES SHARES SHARES SHARES
------ ------ ------ ------
One Year 0.50% -0.25% -2.22% -2.90%
Five Years 6.58% N/A 7.20% N/A
Ten Years 6.78% N/A N/A N/A
Life of Fund2 N/A 6.17% 6.76% 7.38%
TOTAL RETURN1
HIGH YIELD FUND FUND FOR INCOME
--------------- ---------------
Class A Class B Class A Class B
SHARES SHARES SHARES SHARES
------- ------ ------ -------
One Year 2.54% 1.89% 3.13% 2.29%
Five Years 53.78% N/A 7.73% N/A
Ten Years 125.29% N/A 136.76% N/A
Life of Fund2 N/A 48.52% N/A 51.28%
GOVERNMENT FUND INVESTMENT GRADE FUND
--------------- ---------------------
Class A Class B Class A Class B
SHARES SHARES SHARES SHARES
------ ------ ------ ------
One Year 0.50% -0.25% -2.22% -2.90%
Five Years 37.53% N/A 41.55% N/A
Ten Years 92.69% N/A N/A N/A
Life of Fund2 N/A 32.59% 84.80% 36.11%
- ---------------
1 Certain expenses of the Funds have been waived from commencement of operations
through September 30, 1999. Accordingly, return figures are higher than they
would have been had such expenses not been waived.
33
2 The commencement date for the offering of Class B shares is January 12, 1995.
The inception dates for Class A shares of the funds are as follows: GOVERNMENT
FUND - August 6, 1984; INVESTMENT GRADE FUND - February 19, 1991; FUND FOR
INCOME - January 1, 1971; and HIGH YIELD FUND - August 12, 1986.
Yield is presented for a specified thirty-day period ("base period").
Yield is based on the amount determined by (i) calculating the aggregate amount
of dividends and interest earned by a Fund during the base period less expenses
accrued for that period (net of reimbursement), and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B) the per share
maximum public offering price for Class A shares or the net asset value for
Class B shares of the Fund on the last day of the base period. The result is
annualized by compounding on a semi-annual basis to determine the Fund's yield.
For this calculation, interest earned on debt obligations held by the Fund is
generally calculated using the yield to maturity (or first expected call date)
of such obligations based on their market values (or, in the case of
receivables-backed securities such as GNMA Certificates, based on cost).
Dividends on equity securities are accrued daily at their estimated stated
dividend rates.
For the 30 days ended September 30, 1999, the yield for Class A shares and
Class B shares of HIGH YIELD FUND was 9.16% and 9.07%, respectively. For the 30
days ended September 30, 1999, the yield for Class A and Class B shares of FUND
FOR INCOME was 8.99% and 8.89%, respectively. For the 30 days ended September
30, 1999, the yield for Class A shares and Class B shares of GOVERNMENT FUND was
5.78% and 5.41%, respectively. For the 30 days ended September 30, 1999, the
yield for Class A and Class B shares of INVESTMENT GRADE FUND was 5.70% and
5.37%, respectively. During this period certain expenses of the Funds were
waived. Accordingly, yield is higher than it would have been if such expenses
had not been waived.
The distribution rate for each Fund is presented for a twelve-month
period. It is calculated by adding the dividends for the last twelve months and
dividing the sum by a Fund's offering price per share at the end of that period.
The distribution rate is also calculated by using a Fund's net asset value.
Distribution rate calculations do not include capital gain distributions, if
any, paid. The distribution rate for the twelve-month period ended September 30,
1999 for Class A shares of HIGH YIELD FUND, FUND FOR INCOME, GOVERNMENT FUND AND
INVESTMENT GRADE FUND calculated using the offering price was 8.76%, 9.19%,
5.26% and 5.59%, respectively. The distribution rate for the same period for
Class A shares of the Funds calculated using net asset value was 9.36%, 9.80%,
5.61% and 5.96%, respectively. The distribution rate for the same period for
Class B shares of HIGH YIELD FUND, FUND FOR INCOME, GOVERNMENT FUND AND
INVESTMENT GRADE Fund calculated using net asset value was 8.71%, 9.23%, 4.84%
and 5.22%, respectively. During this period certain expenses of the Funds were
waived. Accordingly, the distribution rates are higher than they would have been
had such expenses not been waived.
Each Fund may include in advertisements and sales literature, information,
examples and statistics to illustrate the effect of compounding income at a
fixed rate of return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and capital gain
distributions in additional shares. These examples may also include hypothetical
returns comparing taxable versus tax-deferred growth which would pertain to an
IRA, section 403(b)(7) Custodial Account or other qualified retirement program.
The examples used will be for illustrative purposes only and are not
representations by the Fund of past or future yield or return. Examples of
typical graphs and charts depicting such historical performance, compounding and
hypothetical returns are included in Appendix C.
From time to time, in reports and promotional literature, each Fund may
compare its performance to, or cite the historical performance of, Overnight
Government repurchase agreements, U.S. Treasury bills, notes and bonds,
34
certificates of deposit, and six-month money market certificates or indices of
broad groups of unmanaged securities considered to be representative of, or
similar to, that Fund's portfolio holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized
independent service that monitors and ranks the performance of regulated
investment companies. The Lipper performance analysis includes the
reinvestment of capital gain distributions and income dividends but does
not take sales charges into consideration. The method of calculating total
return data on indices utilizes actual dividends on ex-dividend dates
accumulated for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of
Morningstar, Inc. Morningstar proprietary ratings reflect historical
risk-adjusted performance and are subject to change every month. Funds
with at least three years of performance history are assigned ratings from
one star (lowest) to five stars (highest). Morningstar ratings are
calculated from the funds' three-, five-, and ten-year average annual
returns (when available) and a risk factor that reflects fund performance
relative to three-month Treasury bill monthly returns. Fund's returns are
adjusted for fees and sales loads. Ten percent of the funds in an
investment category receive five stars, 22.5% receive four stars, 35%
receive three stars, 22.5% receive two stars, and the bottom 10% receive
one star.
Salomon Brothers Inc., "Market Performance," a monthly publication which
tracks principal return, total return and yield on the Salomon Brothers
Broad Investment-Grade Bond Index and the components of the Index.
Telerate Systems, Inc., a computer system to which the Adviser subscribes
which daily tracks the rates on money market instruments, public corporate
debt obligations and public obligations of the U.S. Treasury and agencies
of the U.S. Government.
THE WALL STREET JOURNAL, a daily newspaper publication which lists the
yields and current market values on money market instruments, public
corporate debt obligations, public obligations of the U.S. Treasury and
agencies of the U.S. Government as well as common stocks, preferred
stocks, convertible preferred stocks, options and commodities; in addition
to indices prepared by the research departments of such financial
organizations as Lehman Bros., Merrill Lynch, Pierce, Fenner and Smith,
Inc., Credit Suisse First Boston, Salomon Smith Barney, Morgan Stanley
Dean Witter & Co., Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette,
Value Line, Datastream International, HBSC James Capel, Warburg Dillion
Read, County Natwest and UBS UK Limited, including information provided by
the Federal Reserve Board, Moody's, and the Federal Reserve Bank.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal,
coupon and total return on over 100 different taxable bond indices which
Merrill Lynch tracks. They also list the par weighted characteristics of
each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication
which tracks principal, coupon and total return on the Lehman Govt./Corp.
Index and Lehman Aggregate Bond Index, as well as all the components of
these Indices.
Reuters, a wire service that frequently reports on global business.
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics,
is a commonly used measure of inflation. The Index shows changes in the
cost of selected consumer goods and does not represent a return on an
investment vehicle.
35
The Credit Suisse First Boston High Yield Index is designed to measure the
performance of the high yield bond market.
The Lehman Brothers Aggregate Index is an unmanaged index which generally
covers the U.S. investment grade fixed rate bond market, including
government and corporate securities, agency mortgage pass-through
securities, and asset-backed securities.
The Lehman Brothers Corporate Bond Index includes all publicly issued,
fixed rate, nonconvertible investment grade dollar-denominated, corporate
debt which have at least one year to maturity and an outstanding par value
of at least $100 million.
The Morgan Stanley All Country World Free Index is designed to measure the
performance of stock markets in the United States, Europe, Canada,
Australia, New Zealand and the developed and emerging markets of Eastern
Europe, Latin America, Asia and the Far East. The index consists of
approximately 60% of the aggregate market value of the covered stock
exchanges and is calculated to exclude companies and share classes which
cannot be freely purchased by foreigners.
The Morgan Stanley World Index is designed to measure the performance of
stock markets in the United States, Europe, Canada, Australia, New Zealand
and the Far East. The index consists of approximately 60% of the aggregate
market value of the covered stock exchanges.
The NYSE composite of component indices--unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the
NYSE.
The Russell 2000 Index, prepared by the Frank Russell Company, consists of
U.S. publicly traded stocks of domestic companies that rank from 1000 to
3000 by market capitalization.
The Russell 2500 Index, prepared by the Frank Russell Company, consists of
U.S. publicly traded stocks of domestic companies that rank from 500 to
3000 by market capitalization.
The Salomon Brothers Government Index is a market capitalization-weighted
index that consists of debt issued by the U.S. Treasury and U.S.
Government sponsored agencies.
The Salomon Brothers Mortgage Index is a market capitalization-weighted
index that consists of all agency pass-throughs and FHA and GNMA project
notes.
The Standard & Poor's 400 Mid-Cap Index is an unmanaged
capitalization-weighted index that is generally representative of the U.S.
market for medium cap stocks.
The Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average of 30 stocks are unmanaged lists of common stocks
frequently used as general measures of stock market performance. Their
performance figures reflect changes of market prices and quarterly
reinvestment of all distributions but are not adjusted for commissions or
other costs.
The Standard & Poor's Small-Cap 600 Index is a capitalization-weighted
index that measures the performance of selected U.S. stocks with a small
market capitalization.
The Standard & Poor's Utilities Index is an unmanaged capitalization
weighted index comprising common stock in approximately 41 electric,
natural gas distributors and pipelines, and telephone companies. The Index
assumes the reinvestment of dividends.
From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
36
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
GENERAL INFORMATION
HIGH YIELD FUND and FUND FOR INCOME were incorporated in the state of
Maryland on November 14, 1984 and August 20, 1970, respectively. HIGH YIELD
FUND'S authorized capital stock consists of 500 million shares of common stock,
all of one series, with a par value per share of $0.01. FUND FOR INCOME'S
authorized capital stock consists of 1 billion shares of common stock, all of
one series, with a par value per share of $1.00. Each Fund is authorized to
issue shares of common stock in such separate and distinct series and classes of
series as the particular Fund's Board of Directors shall from time to time
establish. The shares of common stock of each Fund are presently divided into
two classes, designated Class A shares and Class B shares. Each class of a Fund
represents interests in the same assets of that Fund. The Funds do not hold
annual shareholder meetings. If requested to do so by the holders of at least
10% of a Fund's outstanding shares, such Fund's Board of Directors will call a
special meeting of shareholders for any purpose, including the removal of
Directors. Each share of each Fund has equal voting rights except as noted
above.
GOVERNMENT FUND was incorporated in the state of Maryland on September 21,
1983. GOVERNMENT FUND'S authorized capital stock consists of 1 billion shares of
common stock, all of one series, with a par value per share of $.01. The Fund is
authorized to issue shares of common stock in such separate and distinct series
and classes of shares as the particular Fund's Board of Directors shall from
time to time establish. The shares of common stock of the Fund are presently
divided into two classes, designated Class A shares and Class B shares. Each
class of the Fund represents interests in the same assets of that Fund. The Fund
does not hold annual shareholder meetings. If requested to do so by the holders
of at least 10% of the Fund's outstanding shares, the Fund's Board of Directors
will call a special meeting of shareholders for any purpose, including the
removal of Directors. Each share of the Fund has equal voting rights except as
noted above.
SERIES FUND is a Massachusetts business trust organized on September 23,
1988. SERIES FUND is authorized to issue an unlimited number of shares of
beneficial interest, no par value, in such separate and distinct series and
classes of shares as the Board of Trustees shall from time to time establish.
The shares of beneficial interest of SERIES FUND are presently divided into five
separate and distinct series, each having two classes, designated Class A shares
and Class B shares. SERIES FUND does not hold annual shareholder meetings. If
requested to do so by the holders of at least 10% of SERIES FUND'S outstanding
shares, SERIES FUND'S Board of Trustees will call a special meeting of
shareholders for any purpose, including the removal of Trustees. Each share of
each Fund has equal voting rights except as noted above.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund.
AUDITS AND REPORTS. The accounts of each Fund are audited twice a year by
Tait, Weller & Baker, independent certified public accountants, 8 Penn Center
Plaza, Philadelphia, PA, 19103. Shareholders of each Fund receive semi-annual
and annual reports, including audited financial statements, and a list of
securities owned.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., Washington, D.C. 20036 serves as counsel to the Funds.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent
for the Funds and as redemption agent for regular redemptions. The fees charged
37
to each Fund by the Transfer Agent are $5.00 to open an account; $3.00 for each
certificate issued; $.75 per account per month; $10.00 for each legal transfer
of shares; $.45 per account per dividend declared; $5.00 for each exchange of
shares into a Fund; $5.00 for each partial withdrawal or complete liquidation;
$1.00 for each Systematic Withdrawal Plan check; $4.00 for each shareholder
services call; $20.00 for each item of correspondence; and $1.00 per account per
report required by any governmental authority. Additional fees charged to the
Funds by the Transfer Agent are assumed by the Underwriter. The Transfer Agent
reserves the right to change the fees on prior notice to the Funds. Upon request
from shareholders, the Transfer Agent will provide an account history. For
account histories covering the most recent three year period, there is no
charge. The Transfer Agent charges a $5.00 administrative fee for each account
history covering the period 1983 through 1994 and $10.00 per year for each
account history covering the period 1974 through 1982. Account histories prior
to 1974 will not be provided. If any communication from the Transfer Agent to a
shareholder is returned from the U.S. Postal Service marked as "Undeliverable"
two consecutive times, the Transfer Agent will cease sending any further
materials to the shareholder until the Transfer Agent is provided with a correct
address. Efforts to locate a shareholder will be conducted in accordance with
SEC rules and regulations prior to escheatment of funds to the appropriate state
treasury. The Transfer Agent may deduct the costs of its efforts to locate a
shareholder from the shareholder's account. These costs may include a percentage
of the account if a search company charges such a fee in exchange for its
location services. The Transfer Agent is not responsible for any fees that
states and/or their representatives may charge for processing the return of
funds to investors whose funds have been escheated. The Transfer Agent's
telephone number is 1-800-423-4026.
5% SHAREHOLDERS. As of December 31, 1999, The Bank of New York, 48 Wall
Street, New York, NY 10286, Custodian of First Investors Periodic Payment Plans
for Investment In First Investors High Yield Fund, Inc., owned of record 7.8% of
the outstanding Class A shares of HIGH YIELD FUND for beneficial owners of such
Plans and as Custodian of First Investors Single Payment and Periodic Payment
Plans for Investment in First Investors Fund For Income, Inc. owned 22.2% of the
outstanding Class A shares of INCOME FUND for beneficial owners of such Plans.
As of December 31, 1999, The Bank of New York, 48 Wall Street, New York, NY
10286, Custodian First Investors Single Payment and Periodic Payment Plans for
Investment in First Investors Government Fund, Inc., owned of record 18.6% of
the outstanding Class A shares of GOVERNMENT FUND for beneficial owners of such
Plans.
SHAREHOLDER LIABILITY. SERIES FUND, INVESTMENT GRADE FUND is organized as
an entity known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of INVESTMENT GRADE FUND. The Declaration
of Trust however, contains an express disclaimer of shareholder liability for
acts or obligations of INVESTMENT GRADE FUND and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Fund or the Trustees. The Fund's Declaration of Trust provides
for indemnification out of the property of the Fund of any shareholder held
personally liable for the obligations of INVESTMENT GRADE FUND. The Declaration
of Trust also provides that the Fund shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Fund and
satisfy any judgment thereon. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations. The Adviser
believes that, in view of the above, the risk of personal liability to
shareholders is immaterial and extremely remote. The Declaration of Trust
further provides that the Trustees will not be liable for errors of judgment or
mistakes of fact or law, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office. INVESTMENT GRADE FUND may have
an obligation to indemnify Trustees and officers with respect to litigation.
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, the Funds, the Adviser
38
and the Distributor have adopted Codes of Ethics restricting personal securities
trading by portfolio managers and other access persons of the Funds. Among other
things, such persons, except the Directors: (a) must have all non-exempt trades
pre-cleared; (b) are restricted from short-term trading; (c) must provide
duplicate statements and transactions confirmations to a compliance officer; and
(d) are prohibited from purchasing securities of initial public offerings. The
Codes are on public file, and are available from the SEC.
39
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
40
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
AAA Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
BAA Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
41
BA Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
CAA Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
CA Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
42
APPENDIX B
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. Ratings are
graded into several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
PRIME-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
B-1
APPENDIX C
[The following tables are represented as graphs in the printed document.]
The following graphs and chart illustrate hypothetical returns:
INCREASE RETURNS
This graph shows over a period of time even a small increase in returns can make
a significant difference. This assumes a hypothetical investment of $10,000.
Years 10% 8% 6% 4%
----- ------- ------ ------ ------
5 16,453 14,898 13,489 12,210
10 27,070 22,196 18,194 14,908
15 44,539 33,069 24,541 18,203
20 73,281 49,268 33,102 22,226
25 120,569 73,402 44,650 27,138
INCREASE INVESTMENT
This graph shows the more you invest on a regular basis over time, the more you
can accumulate. this assumes monthly installment with a constant hypothetical
return rate of 8%.
Years $100 $250 $500 $1,000
----- ------ ------- ------- -------
5 7,348 18,369 36,738 73,476
10 18,295 43,736 91,473 182,946
15 34,604 86,509 173,019 346,038
20 58,902 147,255 294,510 589,020
25 95,103 237,757 475,513 951,026
C-1
[The following table is represented as a graph in the printed document.]
This chart illustrates the time value of money based upon the following
assumptions:
If you invested $2,000 each year for 20 years, starting at 25, assuming a 9%
investment return, you would accumulate $573,443 by the time you reach age 65.
However, had you invested the same $2,000 each year for 20 years, at that rate,
but waited until age 35, you would accumulate only $242,228 - a difference of
$331,215.
25 years old .............. 573,443
35 years old .............. 242,228
45 years old .............. 103,320
For each of the above graphs and chart it should be noted that systematic
investment plans do not assume a profit or protect against loss in declining
markets. Investors should consider their financial ability to continue purchases
through periods of both high and low price levels. Figures are hypothetical and
for illustrative purposes only and do not represent any actual investment or
performance. The value of a shareholder's investment and return may vary.
C-2
[The following table is represented as a chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1996.
1928 .................. 300.00
1929 .................. 248.48
1930 .................. 164.58
1931 .................. 77.90
1932 .................. 59.93
1933 .................. 99.90
1934 .................. 104.04
1935 .................. 144.13
1936 .................. 179.90
1937 .................. 120.85
1938 .................. 154.76
1939 .................. 150.24
1940 .................. 131.13
1941 .................. 110.96
1942 .................. 119.40
1943 .................. 136.20
1944 .................. 152.32
1945 .................. 192.91
1946 .................. 177.20
1947 .................. 181.16
1948 .................. 177.30
1949 .................. 200.10
1950 .................. 235.40
1951 .................. 269.22
1952 .................. 291.89
1953 .................. 280.89
1954 .................. 404.38
1955 .................. 488.39
1956 .................. 499.46
1957 .................. 435.68
1958 .................. 583.64
1959 .................. 679.35
1960 .................. 615.88
1961 .................. 731.13
1962 .................. 652.10
1963 .................. 762.94
1964 .................. 874.12
1965 .................. 969.25
1966 .................. 785.68
1967 .................. 905.10
1968 .................. 943.75
1969 .................. 800.35
1970 .................. 838.91
1971 .................. 890.19
1972 .................. 1,020.01
1973 .................. 850.85
1974 .................. 616.24
1975 .................. 858.71
1976 .................. 1,004.65
1977 .................. 831.17
1978 .................. 805.01
1979 .................. 838.74
1980 .................. 963.98
1981 .................. 875.00
1982 .................. 1,046.55
1983 .................. 1,258.64
1984 .................. 1,211.56
1985 .................. 1,546.67
1986 .................. 1,895.95
1987 .................. 1,938.80
1988 .................. 2,168.60
1989 .................. 2,753.20
1990 .................. 2,633.66
1991 .................. 3,168.83
1992 .................. 3,301.11
1993 .................. 3,754.09
1994 .................. 3,834.44
1995 .................. 5,000.00
1996 .................. 6,000.00
The performance of the Dow Jones Industrial Average is not indicative of
the performance of any particular investment. It does not take into account fees
and expenses associated with purchasing mutual fund shares. Individuals cannot
invest directly in any index. Please note that past performance does not
guarantee future results.
C-3
[The following table is represented as a chart in the printed document.]
The following chart shows that inflation is constantly eroding the value of your
money.
THE EFFECTS OF INFLATION OVER TIME
1966 ....................... 96.61836
1967 ....................... 93.80423
1968 ....................... 89.59334
1969 ....................... 84.36285
1970 ....................... 79.88906
1971 ....................... 77.33694
1972 ....................... 74.79395
1973 ....................... 68.80768
1974 ....................... 61.27131
1975 ....................... 57.31647
1976 ....................... 54.63915
1977 ....................... 51.20820
1978 ....................... 46.98000
1979 ....................... 41.46514
1980 ....................... 36.85790
1981 ....................... 33.84564
1982 ....................... 32.60659
1983 ....................... 31.41290
1984 ....................... 30.23378
1985 ....................... 29.12696
1986 ....................... 28.81005
1987 ....................... 27.59583
1988 ....................... 26.43279
1989 ....................... 25.27035
1990 ....................... 23.81748
1991 ....................... 23.10134
1992 ....................... 22.45028
1993 ....................... 21.86006
1994 ....................... 21.28536
1995 ....................... 20.76620
1996 ....................... 20.16135
1996 ....................... 100.00
1997 ....................... 103.00
1998 ....................... 106.00
1999 ....................... 109.00
2000 ....................... 113.00
2001 ....................... 116.00
2002 ....................... 119.00
2003 ....................... 123.00
2004 ....................... 127.00
2005 ....................... 130.00
2006 ....................... 134.00
2007 ....................... 138.00
2008 ....................... 143.00
2009 ....................... 147.00
2010 ....................... 151.00
2011 ....................... 156.00
2012 ....................... 160.00
2013 ....................... 165.00
2014 ....................... 170.00
2015 ....................... 175.00
2016 ....................... 181.00
2017 ....................... 186.00
2018 ....................... 192.00
2019 ....................... 197.00
2020 ....................... 203.00
2021 ....................... 209.00
2022 ....................... 216.00
2023 ....................... 222.00
2024 ....................... 229.00
2025 ....................... 236.00
2026 ....................... 243.00
Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and service as in 1996 ($100 vs. $20).* Projecting inflation at 3%, goods
and services costing $100 today will cost $243 in the year 2026.
* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.
C-4
[The following tables are represented as graphs in the printed document.]
This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.
1926 through 1996*
Total Number of Percentage of
Number of Positive Positive
Rolling Period Periods Periods Periods
-------------- ------- ------- -------
1-Year 71 51 72%
5-Year 67 60 90%
10-Year 62 60 97%
15-Year 57 57 100%
20-Year 52 52 100%
The following chart shows the compounded annual return of large company stocks
compared to U.S. Treasury Bills and inflation over the most recent 15 year
period. **
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 16.79
The following chart illustrates for the period shown that long-term corporate
bonds have outpaced U.S. Treasury Bills and inflation.
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 13.66
* Source: Used with permission. (c)1997 Ibbotson Associates, Inc. All rights
reserved. [Certain provisions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.]
** Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, returns of U.S. Treasury bills historically have
not outpaced inflation by as great a margin as stocks.
C-5
The accompanying table illustrates that if you are in the 36% tax bracket, a
tax-free yield of 3% is actually equivalent to a taxable investment earning
4.69%.
Your Taxable Equivalent Yield
Your Federal Tax Bracket
---------------------------------------------
28.0% 31.0% 36.0% 39.6%
your tax-free yield
3.00% 4.17% 4.35% 4.69% 4.97%
3.50% 4.86% 5.07% 5.47% 5.79%
4.00% 5.56% 5.80% 6.25% 6.62%
4.50% 6.25% 6.52% 7.03% 7.45%
5.00% 6.94% 7.25% 7.81% 8.25%
5.50% 7.64% 7.97% 8.59% 9.11%
This information is general in nature and should not be construed as tax advice.
Please consult a tax or financial adviser as to how this information affects
your particular circumstances.
C-6
[The following table is represented as a graph in the printed document.]
The following graph illustrates how income has affected the gains from stock
investments since 1965.
S&P 500 Dividends Reinvested S&P 500 Principal Only
12/31/64 10,000 10,000
12/31/65 11,269 10,906
12/31/66 10,115 9,478
12/31/67 12,550 11,383
12/31/68 13,948 12,255
12/31/69 12,795 10,863
12/31/70 13,299 10,873
12/31/71 15,200 12,046
12/31/72 18,088 13,929
12/31/73 15,431 11,510
12/31/74 11,346 8,090
12/31/75 15,570 10,642
12/31/76 19,296 12,680
12/31/77 17,915 11,221
12/31/78 19,092 11,340
12/31/79 22,645 12,736
12/31/80 30,004 16,019
12/31/81 28,528 14,460
12/31/82 34,674 16,595
12/31/83 42,496 19,461
12/31/84 45,161 19,733
12/31/85 59,489 24,930
12/31/86 70,594 28,575
12/31/87 74,301 29,154
12/31/88 86,641 32,769
12/31/89 114,093 41,699
12/31/90 110,549 38,964
12/31/91 144,230 49,214
12/31/92 155,218 51,411
12/31/93 170,863 55,039
12/31/94 173,120 54,191
12/31/95 238,175 72,676
12/31/96 292,863 87,403
11/30/97 383,977 112,732
Source: First Investors Management Company, Inc. Standard & Poor's is a
registered trademark. The S&P 500 is an unmanaged index comprising 500 common
stocks spread across a variety of industries. The total returns represented
above compare the impact of reinvestment of dividends and illustrates past
performance of the index. The performance of any index is not indicative of the
performance of a particular investment and does not take into account the
effects of inflation or the fees and expenses associated with purchasing mutual
fund shares. Individuals cannot invest directly in any index. Mutual fund shares
will fluctuate in value, therefore, the value of your original investment and
your return may vary. Moreover, past performance is no guarantee of future
results.
C-7
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
First Investors Fund For Income, Inc. (2-38309) incorporates by reference the
financial statements and report of independent auditors contained in the Annual
Report to shareholders for the fiscal year ended September 30, 1999
electronically filed with the Commission on December 6, 1999 (Accession Number:
0000912057-99-008417).
First Investors High Yield Fund, Inc. (33-4935) incorporates by reference the
financial statements and report of independent auditors contained in the Annual
Report to shareholders for the fiscal year ended September 30, 1999
electronically filed with the Commission on December 6, 1999 (Accession Number:
0000912057-99-008417).
First Investors Government Fund, Inc. (2-89287) incorporates by reference the
financial statements and report of independent auditors contained in the Annual
Report to shareholders for the fiscal year ended September 30, 1999
electronically filed with the Commission on December 6, 1999 (Accession Number:
0000912057-99-008417).
First Investors Series Fund, Investment Grade Fund. (33-25623) incorporates by
reference the financial statements and report of independent auditors contained
in the Annual Report to shareholders for the fiscal year ended September 30,
1999 electronically filed with the Commission on December 6, 1999 (Accession
Number: 0000912057-99-008417).
44
PRO FORMA FINANCIAL STATEMENTS AND SCHEDULES
- --------------------------------------------
Statement of Assets and Liabilities
September 30, 1999
- --------------------------------------------------------
FIRST INVESTORS FIRST INVESTORS EXECUTIVE INVESTORS PRO FORMA
FUND FOR INCOME HIGH YIELD FUND HIGH YIELD FUND COMBINING
(Audited) (Audited) (Unaudited) (Unaudited)
- ----------------------------------------------------------------------- --------------- ---------------- ---------
Assets
Investment in securities:
At identified cost $426,411,258 $199,573,548 $17,611,680 $643,596,486
=============== =============== =============== ==============
At value $394,773,251 $182,028,680 $16,100,372 $592,902,303
Cash 713,409 669,533 169,692 1,552,634
Receivables:
Shares sold 404,889 98,548 3,923 507,360
Investment securities sold 3,498,750 1,323,472 - 4,822,222
Dividends and interest 10,192,642 4,593,127 447,516 15,233,285
Other assets 168,816 59,061 4,966 232,843
--------------- --------------- --------------- --------------
Total Assets 409,751,757 188,772,421 16,726,469 615,250,647
--------------- --------------- --------------- --------------
Liabilities
Payables:
Investment securities purchased 3,473,743 2,486,455 - 5,960,198
Shares redeemed 427,408 334,579 1,199 763,186
Dividends payable 3,186,098 1,411,020 134,605 4,731,723
Accrued advisory fee 247,598 115,353 8,109 371,060
Accrued expenses 114,266 72,675 14,763 201,704
--------------- --------------- --------------- --------------
Total Liabilities 7,449,113 4,420,082 158,676 12,027,871
--------------- --------------- --------------- --------------
Net Assets $402,302,644 $184,352,339 $16,567,793 $603,222,776
=============== =============== =============== ==============
Net Assets Consist of:
Capital paid in $428,450,233 $209,949,960 $19,472,300 $657,872,493
Undistributed net investment income 6,665,116 1,812,407 282,145 8,759,668
Accumulated net realized loss on investments (1,174,698) (9,865,160) (1,675,344) (12,715,202)
Net unrealized depreciation in value of investment (31,638,007) (17,544,868) (1,511,308) (50,694,183)
--------------- --------------- --------------- --------------
Total $402,302,644 $184,352,339 $16,567,793 $603,222,776
=============== =============== =============== ==============
Net Assets:
Class A $388,542,169 $175,508,661 $16,567,793 $580,618,623
Class B $13,760,475 $8,843,678 N/A $22,604,153
Shares outstanding:
Class A 99,181,982 35,929,149 2,335,774 148,212,756
Class B 3,524,789 1,814,132 N/A 5,790,124
Net asset value and redemption price per share -
Class A $3.92 $4.88 $7.09 $3.92
==== ==== ==== ====
Maximum offering price per share -
Class A* $4.18 $5.21 $7.44 $4.18
==== ==== ==== ====
Net asset value and offering price per share -
Class B $3.90 $4.87 N/A $3.90
==== ==== ====
*Net asset value/.9375 for First Investors Fund For Income and First Investors
High Yield Fund and Net asset value/.9525 for Executive Investors High Yield
Fund. On purchases of $25,000 or more in First Investors Fund For Income or
First Investors High Yield Fund or $100,000 or more in Executive Investors High
Yield Fund, the sales charge is reduced.
See Notes to Pro Forma Combining Financial Statements
48-A
Statement of Operations
FIRST INVESTORS FIRST INVESTORS EXECUTIVE INVESTORS PRO FORMA
FUND FOR INCOME HIGH YIELD FUND HIGH YIELD FUND COMBINING
10/1/98 to 9/30/99 10/1/98 to 9/30/99 10/1/98 to 9/30/99 PRO FORMA 10/1/98 to 9/30/99
(Audited) (Audited) (Unaudited) ADJUSTMENTS (Unaudited)
--------------- --------------- -------------------------------------------------
Investment Income
Income:
Interest $42,852,042 $20,046,554 $1,940,807 $64,839,403
Dividends 3,579,328 1,256,891 167,412 5,003,631
--------------- --------------- --------------- --------------
Total income 46,431,370 21,303,445 2,108,219 69,843,034
--------------- --------------- --------------- --------------
Expenses:
Advisory fee 3,121,524 1,994,143 183,927 ($651,890) 4,647,704
Distribution plan expenses - Class A 1,234,576 571,559 91,964 (36,798) 1,861,301
Distribution plan expenses - Class B 116,392 94,087 N/A 210,479
Shareholder servicing costs 819,655 495,183 24,602 (6,761) 1,332,679
Reports and notices to shareholders 75,794 40,852 4,069 120,715
Professional fees 69,015 48,897 15,800 (20,000) 113,712
Custodian fees and expenses 48,066 35,347 7,094 (2,960) 87,547
Other expenses 29,844 21,979 328 (7,660) 44,491
--------------- --------------- --------------- -------------- --------------
Total expenses 5,514,866 3,302,047 327,784 (726,069) 8,418,628
Less: Expenses waived or assumed - (495,021) (110,356) 608,960 3,583
Custodian fees paid indirectly (6,835) (9,542) - (16,377)
--------------- --------------- --------------- -------------- --------------
Net expenses 5,508,031 2,797,484 217,428 (117,109) 8,405,834
--------------- --------------- --------------- -------------- --------------
Net investment income 40,923,339 18,505,961 1,890,791 117,109 61,437,200
--------------- --------------- --------------- -------------- --------------
Realized and Unrealized Gain (Loss)
on Investments:
Net realized loss on investments (807,500) (85,213) (201,412) (1,094,125)
Net unrealized depreciation of investment (26,750,866) (12,659,742) (920,045) 40,330,653)
--------------- --------------- ---------------- --------------
Net loss on investments (27,558,366) (12,744,955) (1,121,457) (41,424,778)
--------------- --------------- --------------- --------------
Net Increase in Net Assets Resulting
from Operartions $13,364,973 $5,761,006 $769,334 $117,109 $20,012,422
=============== =============== =============== ============== ==============
See Notes to Pro Forma Combining Financial Statements
45
Notes to Pro Forma Combining Financial Statements
September 30, 1999
Note 1 - Basis of Pro Forma Presentation
The pro forma financial statements and the accompanying pro forma portfolio of
investments give effect to the proposed reorganizations involving First
Investors Fund For Income, Inc., First Investors High Yield Fund, Inc. and
Executive Investors High Yield Fund and the consummation of the transactions
contemplated therein to be accounted for as a tax-free reorganization of
investment companies. The reorganizations would be accomplished by (i) an
exchange of Class A and Class B shares of First Investors Fund For Income, Inc.
for the net assets of First Investors High Yield Fund, Inc. and the distribution
of First Investors Fund For Income, Inc. Class A and Class B shares to First
Investors High Yield Fund, Inc. shareholders; and (ii) an exchange of Class A
shares of First Investors Fund For Income, Inc. for the net assets of Executive
Investors High Yield Fund and the distribution of First Investors Fund For
Income, Inc. Class A shares to Executive Investors High Yield Fund shareholders.
If the reorganizations were to have taken place at September 30, 1999, First
Investors High Yield Fund, Inc. would have received 44,801,564 Class A shares
and 2,265,335 of Class B shares and Executive Investors High Yield Fund would
have received 4,229,210 of Class A shares.
Note 2 - The Pro Forma Adjustments
The pro forma adjustments to these pro forma financial statements are comprised
of the expected savings when the three funds become one. The reorganizations
should result in a lower expense ratio not only for the current shareholders of
the Executive Investors High Yield Fund (assuming any fee waivers and/or expense
assumptions for Executive Investors High Yield Fund are discontinued, as is
currently planned), but for all shareholders for four reasons. First, the
combined Fund will have the opportunity to achieve a breakpoint in management
fees which High Yield Fund, Executive Investors High Yield Fund and Fund For
Income would not achieve as separate funds. Currently, the High Yield Fund and
the Executive Investors High Yield Fund do not have enough assets to reach their
first breakpoint. Fund For Income has already achieved its first breakpoint.
Assuming no significant loss of assets, the reorganization should result in Fund
For Income having assets of approximately $600 million, which will allow it to
reach the second breakpoint. Second, the combined Fund will have a larger asset
base over which to spread the other fees and expenses than the Funds standing
alone. Third, the combination of the Funds will eliminate duplicative legal and
auditor's fees, custodian fees, printing costs and certain registration fees.
Fourth, shareholders of Executive Investors High Yield Fund will be subject to
lower 12b-1 fees as a result of the reorganization.
Note 3 - Portfolio Holdings
The Funds will not be required to sell any portfolio holdings as a result of
this reorganization.
Note 4 - Other Information
These statements reflect two reorganizations involving three funds (Fund For
Income, High Yield Fund, and Executive Investors High Yield Fund). Neither
reorganization is dependent upon the other.
A Guide to Your
First Investors
Mutual Fund Account
as of January 11, 2000
INTRODUCTION
Investing in mutual funds doesn't have to be complicated. Your registered
representative is available to answer your questions and help you process your
transactions. First Investors offers personalized service and a wide variety of
mutual funds. In the event you wish to process a transaction directly, the
material provided in this easy-to-follow guide tells you how to contact us and
explains our policies and procedures. Please note that there are special rules
for money market funds.
Please read this manual completely to gain a better understanding of how shares
are bought, sold, exchanged, and transferred. In addition, the manual provides
you with a description of the services we offer to simplify investing. The
services, privileges and fees referenced in this manual are subject to change.
You should call our Shareholder Services Department at 1 (800) 423-4026 before
initiating any transaction.
This manual must be preceded or accompanied by a First Investors mutual fund
prospectus. For more complete information on any First Investors Fund, including
charges and expenses, refer to the prospectus. Read the prospectus carefully
before you invest or send money.
Principal Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
1-212-858-8000
Transfer Agent
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
TABLE OF CONTENTS
HOW TO BUY SHARES
To Open an Account................1
To Open a Retirement Account........2
Minimum Initial Investment..........2
Additional Investments..............2
Acceptable Forms of Payment.........2
Share Classes.......................2
Share Class Specification...........3
Class A Shares......................3
Class B Shares......................5
How to Pay..........................6
HOW TO SELL SHARES
Written Redemptions.................9
Telephone Redemptions...............9
Electronic Funds Transfer...........9
Systematic Withdrawal Plans.........10
Expedited Wire Redemptions..........10
HOW TO EXCHANGE SHARES
Exchange Methods....................11
Exchange Conditions.................12
Exchanging Funds with
Automatic Investments or
Systematic Withdrawals..............12
WHEN AND HOW
FUND SHARES ARE PRICED..............13
HOW PURCHASE,
REDEMPTION AND
EXCHANGE ORDERS ARE
PROCESSED AND PRICED.................13
SPECIAL RULES FOR MONEY
MARKET FUNDS ........................14
RIGHT TO REJECT PURCHASE
OR EXCHANGE ORDERS...................15
SIGNATURE GUARANTEE
POLICY .............................15
TELEPHONE SERVICES
Telephone Exchanges
and Redemptions......................16
Shareholder Services.................17
OTHER SERVICES.......................18
ACCOUNT STATEMENTS
Transaction Confirmation Statements..20
Master Account Statements 20
Annual and Semi-Annual Reports.......20
DIVIDENDS AND DISTRIBUTIONS
Dividends and Distributions..........21
Buying a Dividend....................21
TAX FORMS ..........................22
THE OUTLOOK..........................22
HOW TO BUY SHARES
First Investors offers a wide variety of mutual funds to meet your financial
needs ("FI Funds"). Your registered representative will review your financial
objectives and risk tolerance, explain our product line and services, and help
you select the right investments. Call our Shareholder Services Department at 1
(800) 423-4026 or visit us on-line at www.firstinvestors.com for more
information.
TO OPEN AN ACCOUNT
Before investing, you must establish an account with your broker-dealer. At
First Investors Corporation ("FI") you do this by completing and signing a
Master Account Agreement ("MAA"). Some types of accounts require additional
paperwork.* After you determine the fund(s) you want to purchase, deliver your
completed MAA and your check, made payable to First Investors Corporation, to
your registered representative. New client accounts must be established through
your registered representative.
NON-RETIREMENT
ACCOUNTS
We offer a variety of different "non-retirement" accounts, which is the term we
use to describe all accounts other than retirement accounts.
INDIVIDUAL ACCOUNTS. These accounts may be opened by any adult individual.
Telephone privileges are automatically available, unless they are declined.
JOINT ACCOUNTS. For any account with two or more owners, all owners must
sign requests to process transactions. Telephone privileges allow any one of
the owners to process transactions independently.
GIFTS AND TRANSFERS TO MINORS. Custodial accounts for a minor may be established
under your state's Uniform Gifts/Transfers to Minors Act. Custodial accounts are
registered under the minor's social security number.
TRUSTS. A trust account may be opened only if you have a valid written trust
document.
TRANSFER ON DEATH (TOD). TOD registrations, available on all FI Funds in all
states, allow individual and joint account owners to name one or more
beneficiaries. The ownership of the account passes to the named beneficiaries in
the event of the death of all account owners.
* ADDITIONAL PAPERWORK REQUIRED FOR CERTAIN ACCOUNTS.
TYPE OF ACCOUNT ADDITIONAL DOCUMENTS REQUIRED
Corporations First Investors Certificate of Authority
Partnership
& Trusts
Transfer On Death First Investors TOD Registration Request Form
(TOD)
Estates Original or Certified Copy of Death Certificate
Certified Copy of Letters Testamentary/Administration
First Investors Executor's Certification & Indemnification Form
Conservatorships Certified copy of court document appointing Conservator/
& Guardianships Guardian
RETIREMENT ACCOUNTS
We offer the following types of retirement plans for individuals and employers:
INDIVIDUAL RETIREMENT ACCOUNTS including Roth, Traditional, and Rollover IRAs.
SIMPLE IRAS for employers.
SEP-IRAS (SIMPLIFIED EMPLOYEE PENSION PLANS) for small business owners or people
with income from self-employment. SARSEP-IRAs are available as trustee to
trustee transfers.
403(B)(7) accounts for employees of eligible tax-exempt organizations such as
schools, hospitals and charitable organizations.
401(K) plans for employers.
MONEY PURCHASE PENSION
& PROFIT SHARING plans for sole proprietors and partnerships.
Currently, there are no annual service fees chargeable to a participant in
connection with an IRA, SEP-IRA, SARSEP-IRA or SIMPLE-IRA. Each Fund currently
pays the annual $10.00 custodian fee for each IRA account maintained with such
Fund. This policy may be changed at any time by a Fund on 45 days' written
notice to the holder of any IRA, SEP-IRA, SARSEP-IRA or SIMPLE-IRA. First
Financial Savings has reserved the right to waive its fees at any time or to
change the fees on 45 days' prior written notice to the holder of any IRA.
(First Financial Savings Bank will change its name to First Investors Federal
Savings Bank.)
For more information about these plans call your registered representative or
our Shareholder Services Department at
1 (800) 423-4026.
MINIMUM INITIAL
INVESTMENT
Your initial investment in a non-retirement fund account may be as little as
$1,000. The minimum is waived if you use one of our Automatic Investment
Programs (see How to Pay) or if you open a Fund account through a full exchange
from another FI Fund. You can open a First Investors Traditional IRA or Roth IRA
with as little as $500. Other retirement accounts may have lower initial
investment requirements at the Fund's discretion.
ADDITIONAL INVESTMENTS
Once you have established an account, you can add to it through your
registered representative or by sending us a check directly. There is no
minimum requirement on additional purchases into existing fund accounts.
Remember to include your FI Fund account number on your check made payable to
First Investors Corporation.
Mail checks to:
FIRST INVESTORS CORPORATION
ATTN: DEPT. CP
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198
ACCEPTABLE FORMS OF PAYMENT The following forms of payment are acceptable:
- -checks made payable to First Investors Corporation.
- -Money Line and Automatic Payroll Investment electronic funds transfers.
- -Federal Funds wire transfers.
For your protection, never give your registered representative cash or a check
made payable to your registered representative.
We DO NOT accept:
- -Third party checks.
- -Traveler's checks.
- -Checks drawn on non-US banks.
- -Money orders.
- -Cash.
SHARE CLASSES
All FI Funds are available in Class A and Class B shares. Direct purchases into
Class B share money market accounts are not accepted. Class B money market fund
shares may only be acquired through an exchange from another Class B share
account or through Class B share dividend cross-reinvestment.
Each class of shares has its own cost structure. As a result, different classes
of shares in the same fund generally have different prices. Class A shares have
a front-end sales charge. Class B shares may have a contingent deferred sales
charge ("CDSC"). While both classes have a Rule 12b-1 fee, the fee on Class B
shares is generally higher. The principal advantages of Class A shares are that
they have lower overall expenses, the availability of quantity discounts on
sales charges, and certain account privileges that are not offered on Class B
shares. The principal advantage of Class B shares is that all your money is put
to work from the outset. Your registered representative can help you decide
which class of shares is best for you.
SHARE CLASS SPECIFICATION
It's very important to specify which class of shares you wish to purchase when
you open a new account. All First Investors account applications have a place to
designate your selection. If you do not specify which class of shares you want
to purchase, Class A shares will automatically be purchased.
CLASS A SHARES
When you buy Class A shares, you pay the offering price - the net asset value of
the fund plus a front-end sales charge. The front-end sales charge declines with
larger investments.
CLASS A SALES CHARGES
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
up to $24,999 6.25% 6.67%
$25,000 - $49,999 5.75% 6.10%
$50,000 - $99,999 5.50% 5.82%
$100,000 - $249,999 4.50% 4.71%
$250,000 - $499,999 3.50% 3.63%
$500,000 - $999,999 2.50% 2.56%
$1,000,000 or more 0%* 0%*
* If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Generally, you should consider purchasing Class A shares if you plan to
invest $250,000 or more either initially or over time.
SALES CHARGE WAIVERS
& REDUCTIONS ON CLASS A SHARES:
If you qualify for one of the sales charge reductions or waivers, it is very
important to let us know at the time you place your order. Include a written
statement with your check explaining which privilege applies. If you do not
include this statement we cannot guarantee that you will receive the reduction
or waiver.
CLASS A SHARES MAY BE PURCHASED WITHOUT A SALES CHARGE: 1: By an officer,
trustee, director, or employee of the Fund, the Fund's adviser or subadviser,
First Investors Corporation, or any affiliates of First Investors Corporation,
or by his/her spouse, child (under age 21) or grandchild (under age 21).
2: By a former officer, trustee, director, or employee of the Fund, First
Investors Corporation, or their affiliates or by his/her spouse, child (under
age 21) or child under UTMA/UGMA provided the person worked for the company for
at least 5 years and retired or terminated employment in good standing.
3: By a FI registered representative or an authorized dealer, or by his/her
spouse, child (under age 21) or grandchild (under age 21).
4: When Class A share fund distributions are reinvested in Class A shares.
5: When Class A share Systematic Withdrawal Plan payments are reinvested in
Class A shares (except for certain payments from money market accounts which may
be subject to a sales charge).
6: When qualified retirement plan loan repayments are reinvested in Class A
shares.
7: With the liquidation proceeds from a First Investors Life Variable Annuity
Fund A, C, or D contracts or First Investors Single Premium Retirement Annuity
contract within one year of the contract's maturity date.
8: When dividends (at least $50 a year) from a First Investors Life Insurance
Company policy are invested into an EXISTING account.
9: When a group qualified plan (401(k) plans, money purchase pension plans,
profit sharing plans and 403(b) plans that are subject to Title I of ERISA) is
reinvesting redemption proceeds from another fund on which a sales charge or
CDSC was paid.
10: With distribution proceeds from a First Investors group qualified plan
account into an IRA.
11: By participant directed group qualified plans with 100 or more eligible
employees or $1,000,000 or more in assets.
12: In amounts of $1 million or more.
13: By individuals under a Letter of Intent or Cumulative Purchase Privilege of
$1 million or more.
FOR ITEMS 9 THROUGH 13 ABOVE: A CDSC OF 1.00% WILL BE DEDUCTED IF SHARES ARE
REDEEMED WITHIN 2 YEARS OF PURCHASE.
SALES CHARGES ON CLASS A SHARES MAY BE REDUCED FOR:
1: Participant directed group qualified retirement plans with 99 or fewer
eligible employees. The initial sales charge is reduced to 3.00% of the offering
price.
2: Certain unit trust holders ("unitholders") who elect to invest the entire
amount of principal, interest, and/or capital gains distributions from their
unit investment trusts in Class A shares. Unitholders of various series of New
York Insured Municipals-Income Trust sponsored by Van Kampen Merrit, Inc.,
unitholders of various series of the Multistate Tax Exempt Trust sponsored by
Advest Inc., and unitholders of various series of the Insured Municipal Insured
National Trust, J.C. Bradford & Co. as agent, may buy Class A shares of a FI
Fund with unit trust distributions at the net asset value plus a sales charge of
1.5%. Unitholders of various tax-exempt trusts, other than the New York Trust,
sponsored by Van Kampen Merritt Inc. may buy Class A shares of a FI Fund at the
net asset value plus a sales charge of 1.0%.
Unitholders may make additional purchases, other than those made by unit trust
distributions, at the Fund's regular offering price.
+ CUMULATIVE PURCHASE PRIVILEGE
The Cumulative Purchase Privilege lets you add the value of all your existing FI
Fund accounts (Class A and Class B shares) to the amount of your next Class A
share investment to reach sales charge discount breakpoints. The Cumulative
Purchase Privilege lets you add the values of all of your existing FI Fund
accounts (except for amounts that have been invested directly in Cash Management
or Tax Exempt Money Market accounts on which no sales charge was previously
imposed) to the amount of your next Class A share investment in determining
whether you are entitled to a sales charge discount. While sales charge
discounts are available only on Class A shares, we will also include any Class B
shares you may own in determining whether you have achieved a discount level.
For example, if the combined current value of your existing FI Fund accounts is
$25,000 (measured by offering price), your next purchase will be eligible for a
sales charge discount at the $25,000 level. Cumulative Purchase discounts are
applied to purchases as indicated in the first column of the Class A Sales
Charge table.
All your accounts registered with the same social security number will be linked
together under the Cumulative Purchase Privilege. Your spouse's accounts and
custodial accounts held for minor children residing at your home
can also be linked to your accounts upon request.
- -Conservator accounts are linked to the social security number of the ward,
not the conservator.
- -Sole proprietorship accounts are linked to personal/family accounts only if the
account is registered with a social security number, not an employer
identification number ("EIN").
- -Testamentary trusts and living trusts may be linked to other accounts
registered under the same trust EIN, but not to the personal accounts of the
trustee(s).
-Estate accounts may only be linked to other accounts registered under the same
EIN of the estate or social security number of the decedent.
-Church and religious organizations may link accounts to others registered with
the same EIN but not to the personal accounts of any member.
+ LETTER OF INTENT
A Letter of Intent ("LOI") lets you purchase Class A shares at a discounted
sales charge level even though you do not yet have sufficient investments to
qualify for that discount level. An LOI is a commitment by you to invest a
specified dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay. Under an LOI, you can reduce the initial
sales charge on Class A share purchases based on the total amount you agree to
invest in both Class A and Class B shares during the 13 month period. Purchases
made 90 days before the date of the LOI may be included, in which case the 13
month period begins on the date of the first purchase. Your LOI can be amended
in two ways. First, you may file an amended LOI to raise or lower the LOI amount
during the 13 month period. Second, your LOI will be automatically amended if
you invest more than your LOI amount during the 13 month period and qualify for
an additional sales charge reduction. Amounts invested in the Cash Management or
Tax Exempt Money Market Funds are not counted toward an LOI.
By purchasing under an LOI, you acknowledge and agree to the following:
- -You authorize First Investors to reserve 5% of your total intended investment
in shares held in escrow in your name until the LOI is completed.
- -First Investors is authorized to sell any or all of the escrow shares to
satisfy any additional sales charges owed in the event you do not fulfill the
LOI.
- -Although you may exchange all your shares, you may not sell the reserve shares
held in escrow until you fulfill the LOI or pay the higher sales charge.
CLASS B SHARES
Class B shares are sold without an initial sales charge, putting all your money
to work for you immediately. If you redeem Class B shares within 6 years of
purchase, a CDSC will be imposed. The CDSC declines from 4% to 0% over a 6-year
period, as shown in the chart below. Class B share money market fund shares are
not sold directly. They can only be acquired through an exchange from another
Class B fund account or through cross reinvestment of dividends from another
Class B share account. Class B shares, and the dividend and distribution shares
they earn, automatically convert to Class A shares after 8 years, reducing
future annual expenses.
Generally, you should consider purchasing Class B shares if you intend to invest
less than $250,000 and you would rather pay higher ongoing expenses than an
initial sales charge.
CLASS B SALES CHARGES
THE CDSC DECLINES OVER TIME AS SHOWN IN THE TABLE BELOW:
YEAR 1 2 3 4 5 6 7+
CDSC 4% 4% 3% 3% 2% 1% 0%
If shares redeemed are subject to a CDSC, the CDSC will be based on the lesser
of the original purchase price or redemption price. There is no CDSC on shares
acquired through dividend and capital gains reinvestment. We call these "free
shares."
Anytime you sell shares, your shares will be redeemed in the following manner to
ensure that you pay the lowest possible CDSC:
First-Class B shares representing dividends and capital gains that are not
subject to a CDSC.
Second-Class B shares held more than six years which are not subject to a CDSC.
Third-Class B shares held longest which will result in the lowest CDSC.
For purposes of calculating the CDSC, all purchases made during the calendar
month are deemed to have been made on the first business day of the month at the
average cost of the shares purchased during that period.
SALES CHARGE WAIVERS ON
CLASS B SHARES:
The CDSC on Class B shares does not apply to:
1: Appreciation on redeemed shares above their original purchase price and
shares acquired through dividend or capital gains distributions.
2: Redemptions due to the death or disability (as defined in Section 72(m)(7) of
the Internal Revenue Code) of an account owner. Redemptions following the death
or disability of one joint owner of a joint account are not deemed to be as the
result of death or disability.
3: Distributions from employee benefit plans due to plan termination.
4: Redemptions to remove an excess contribution from an IRA or qualified
retirement plan.
5: Distributions upon reaching required minimum age 70 1/2 provided you have
held the shares for at least three years.
6: Annual redemptions of up to 8% of your account's value redeemed by a
Systematic Withdrawal Plan. Free shares not subject to a CDSC will be redeemed
first and will count towards the 8% limit.
7: Shares redeemed from advisory accounts managed by or held by the Fund's
investment advisor or any of its affiliates.
8: Tax-free returns of excess contributions from employee benefit plans.
9: Redemptions of non-retirement shares purchased with proceeds from the sale of
shares of another fund group between April 29, 1996 and June 30, 1996 that did
not pay a sales charge (other than money market fund accounts or retirement plan
accounts).
10: Redemptions by the Fund when the account falls below the minimum.
11: Redemptions to pay account fees.
Include a written statement with your redemption request explaining which
exemption applies. If you do not include this statement we cannot guarantee that
you will receive the waiver.
HOW TO PAY
You can invest using one or more of the following options:
+ CHECK:
You can buy shares by writing a check payable to First Investors Corporation. If
you are opening a new fund account, your check must meet the fund minimum. When
making purchases to an existing account, remember to include your fund account
number on your check.
AUTOMATIC INVESTMENTS:
We offer several automatic investment
programs to simplify investing.
+ MONEY LINE:
With our Money Line program, you can invest in a FI fund account with as little
as $50 a month or $600 each year by transferring funds electronically from your
bank account. You can invest up to $50,000 a month through Money Line.
Money Line allows you to select the payment amount and frequency that is best
for you. You can make automatic investments bi-weekly, semi-monthly, monthly,
quarterly, semi-annually, or annually.
The date you select as your Money Line investment date is the date on which
shares will be purchased. THE PROCEEDS MUST BE AVAILABLE IN YOUR BANK ACCOUNT
TWO BUSINESS DAYS PRIOR TO THE INVESTMENT DATE.
HOW TO APPLY:
1: Complete the Electronic Funds Transfer ("EFT") section of the application to
provide complete bank information and authorize EFT fund share purchases. Attach
a voided check or account statement. A signature guarantee of all shareholders
and bank account owners is required. PLEASE ALLOW AT LEAST 10 BUSINESS DAYS FOR
INITIAL PROCESSING.
2: Complete the Money Line section of the application to specify the amount,
frequency and date of the investment.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
HOW TO CHANGE:
Provided you have telephone privileges, you may call Shareholder Services at 1
(800) 423-4026 to:
- -Increase the payment up to $999.99 provided bank and fund account
registrations are the same.
- -Decrease the payment.
- -Discontinue the service.
To change investment amounts, reallocate or cancel Money Line, you must notify
us at least 3 business days prior to the investment date.
You must send a signature guaranteed written request to Administrative Data
Management Corp. to:
- -Increase the payment to $1,000 or more.
- -Change bank information (a new Money Line Application and voided check or
account statement is required).
A medallion signature guarantee (see Signature Guarantee Policy) is required to
increase a Money Line payment to $25,000 or more. Changing banks or bank account
numbers requires 10 days notice. Money Line service will be suspended upon
notification that all account owners are deceased.
+ AUTOMATIC PAYROLL
INVESTMENT:
With our Automatic Payroll Investment service ("API") you can systematically
purchase shares by salary reduction. To participate, your employer must offer
direct deposit and permit you to electronically transfer a portion of your
salary. Contact your company payroll department to authorize the salary
reductions. If not available, you may consider our Money Line program.
Shares purchased through API are purchased on the day the electronic transfer is
received by the Fund.
HOW TO APPLY:
1: Complete an API Application. If you are receiving a government payment and
wish to participate in the API Program you must also complete the government's
Direct Deposit Sign-up Form. Call Shareholder Services at 1 (800) 423-4026 for
more information.
2: Complete an API Authorization Form.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
+ WIRE TRANSFERS:
You may purchase shares via a Federal Funds wire transfer from your bank account
into your EXISTING First Investors account. Federal Fund wire transfer proceeds
are not subject to a holding period and are available to you immediately upon
receipt, as long as we have been notified properly.
Shares will be purchased on the day we receive your wire transfer provided that
we have received adequate instructions and you have previously notified us that
the wire is on the way (by calling 1 (800) 423-4026). Your notification must
include the Federal Funds wire transfer confirmation number, the amount of the
wire, and the fund account number to receive same day credit. There are special
rules for money market fund accounts.
To wire Federal Funds to an existing First Investors account (other than money
markets), instruct your bank to wire your investment to:
FIRST FINANCIAL SAVINGS BANK, S.L.A.
ABA # 221272604
ACCOUNT # 0306142
YOUR NAME
YOUR FIRST INVESTORS FUND ACCOUNT #
(First Financial Savings Bank will change its name to First Investors Federal
Savings Bank.)
+ DISTRIBUTION
CROSS-INVESTMENT:
You can invest the dividends and capital gains from one fund account, excluding
the money market funds, into another fund account in the same class of shares.
The shares will be purchased at the net asset value on the day after the record
date of the distribution.
- -You must invest at least $50 a month or $600 a year into a NEW fund account.
- -A signature guarantee is required if the ownership on both accounts is not
identical.
You may establish a Distribution Cross-Investment service by contacting your
registered representative or calling Shareholder Services at 1 (800) 423-4026.
+ SYSTEMATIC WITHDRAWAL PLAN PAYMENT INVESTMENTS: You can invest Systematic
Withdrawal Plan payments (see How to Sell Shares) from one fund account in
shares of another fund account in the same class of shares. -Payments are
invested without a sales charge. -A signature guarantee is required if the
ownership on both accounts is not
identical.
- -Both accounts must be in the same class of shares. -You must invest at least
$600 a year if into a new fund account. -You can invest on a monthly, quarterly,
semi-annual, or annual basis. Redemptions are suspended upon notification that
all account owners are deceased. Service will recommence upon receipt of written
alternative payment instructions and other required documents from the
decedent's legal representative.
HOW TO SELL SHARES
You can sell your shares on any day the New York Stock Exchange ("NYSE") is open
for regular trading. In the mutual fund industry, a sale is referred to as a
"redemption." Payment of redemption proceeds generally will be made within seven
days. If the shares being redeemed were recently purchased by check or
electronic funds transfer, payment may be delayed to verify that the check or
electronic funds transfer has been honored, which may take up to 15 days from
the date of purchase. Shareholders may not redeem shares by telephone or
electronic funds transfer unless the shares have been owned for at least 15
days.
Redemptions of shares are not subject to the 15 day verification period if the
shares were purchased via:
- -Automatic Payroll Investment.
- -FIC registered representative payroll checks.
- -First Investors Life Insurance Company checks.
- -Federal funds wire payments.
For trusts, estates, attorneys-in-fact, corporations, partnerships, and other
entities, additional documents are required to redeem shares. Call
Shareholder Services at
1 (800) 423-4026 for more information.
WRITTEN REDEMPTIONS
You can write a letter of instruction or contact your registered
representative for a liquidation request form. A written liquidation request
in
good order must include:
1: The name of the fund;
2: Your account number;
3: The dollar amount, number of shares or percentage of the account you want to
redeem;
4: Share certificates (if they were issued to you);
5: Original signatures of all owners exactly as your account is registered; and
6: Signature guarantees, if required (see Signature Guarantee Policy).
If we are being asked to redeem a retirement account and transfer the proceeds
to another financial institution, we will also require a Letter of Acceptance
from the successor custodian before we effect the redemption.
For your protection, the Fund reserves the right to require additional
supporting legal documentation.
Written redemption requests should be mailed to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
If your redemption request is not in good order or information is missing, the
Transfer Agent will seek additional information and process the redemption on
the day it receives such information.
TELEPHONE REDEMPTIONS
You, or any person we believe is authorized to act on your behalf, may redeem
non-retirement shares which have been owned for at least 15 days by calling our
Special Services Department at 1 (800) 342-6221 from 9:00 a.m. to 4:00 p.m., ET,
provided:
- -Telephone privileges are available for your account registration and you
have not declined telephone privileges (see Telephone Privileges);
- -You do not hold share certificates (issued shares);
- -The redemption check is made payable to the registered owner(s) or
pre-designated bank;
- -The redemption check is mailed to your address of record or predesignated
bank account;
- -Your address of record has not changed within the past 60 days;
- -The redemption amount is $50,000 or less; AND
- -The redemption amount, combined with the amount of all telephone redemptions
made within the previous 30 days does not exceed
$100,000. Telephone redemption orders received between 4:00-5:00p.m. will be
processed on the following business day.
ELECTRONIC FUNDS TRANSFER
The Electronic Funds Transfer ("EFT") service allows you to redeem shares and
electronically transfer proceeds to your bank account.
YOU MUST ENROLL IN THE ELECTRONIC FUNDS TRANSFER SERVICE AND PROVIDE COMPLETE
BANK ACCOUNT INFORMATION BEFORE USING THE PRIVILEGE. Signature guarantees of all
shareholders and all bank account owners are required. Please allow at least 10
business days for initial processing. We will send any proceeds during the
processing period to your address of record. Call your registered representative
or Shareholder Services at 1 (800) 423-4026 for an application. You may call
Shareholder Services or send written instructions to Administrative Data
Management Corp. to request an EFT redemption of shares which have been held at
least 15 days. Each EFT redemption:
1: Must be electronically transferred to your pre-designated bank account;
2: Must be at least $500;
3: Cannot exceed $50,000; and
4: Cannot exceed $100,000 when added to the total amount of all EFT redemptions
made within the previous 30 days.
If your redemption does not qualify for an EFT redemption, your redemption
proceeds will be mailed to your address of record.
The Electronic Funds Transfer service may also be used to purchase shares (see
Money Line) and transfer systematic withdrawal payments (see Systematic
Withdrawal Plans) and dividend distributions (see Other Services) to your bank
account.
SYSTEMATIC WITHDRAWAL PLANS
Our Systematic Withdrawal Plan allows you to redeem a specific dollar amount,
number of shares, or percentage from your account on a regular basis. Your
payments can be mailed to you or a pre-authorized payee by check, transferred to
your bank account electronically (if you have enrolled in the EFT service) or
invested in shares of another FI fund in the same class of shares through our
Systematic Withdrawal Plan Payment investment service (see How to Buy Shares).
You can receive payments on a monthly, quarterly, semi-annual, or annual basis.
Your account must have a value of at least $5,000 in non-certificated shares
("unissued shares"). The $5,000 minimum account balance is waived for required
minimum distributions from retirement plan accounts, payments to First Investors
Life Insurance Company, and systematic investments into another eligible fund
account. The minimum Systematic Withdrawal Plan payment is $25 (waived for
Required Minimum Distributions on retirement accounts or FIL premium payments).
Once you establish the Systematic Withdrawal Plan, you should not make
additional investments into this account (except money market funds). Buying
shares during the same period as you are selling shares is not advantageous to
you because of sales charges.
If you own Class B shares, you may establish a Systematic Withdrawal Plan and
redeem up to 8% of the value of your account annually without a CDSC.
If you own Class B shares of a retirement account and you are receiving your
Required Minimum Distribution through a Systematic Withdrawal Plan, up to 8% of
the value of your account may be redeemed annually without a CDSC. However, if
your Required Minimum Distribution exceeds the 8% limit, the applicable CDSC
will be charged if the additional shares were held less than 3 years and you
have not reached age 701/2.
To establish a Systematic Withdrawal Plan, complete the appropriate section of
the account application or contact your registered representative or call
Shareholder Services at
1 (800) 423-4026.
EXPEDITED WIRE
REDEMPTIONS
(MONEY MARKET FUNDS ONLY)
Enroll in our Expedited Redemption service to wire proceeds from your FI money
market account to your bank account. Call Shareholder Services at 1 (800)
423-4026 for an application or to discuss specific requirements.
Requests for redemptions by wire out of money market funds must be received in
writing or by phone prior to 12:00 p.m., ET on a day the NYSE is open for
trading. These days are referred to as "Trading Days" in this manual. Wire
Redemption orders received after 12:00 p.m., ET but before the close of regular
trading on the NYSE, or received on a day that the Federal Reserve system is
closed will be processed on the following business day.
- -Each wire under $5,000 is subject to a $15 fee.
- -Two wires of $5,000 or more are permitted without charge each month. Each
additional wire is $15.00.
- -Wires must be directed to your pre-designated bank account.
HOW TO EXCHANGE SHARES
The exchange privilege gives you the flexibility to change investments as your
goals change without incurring a sales charge. Since an exchange of
non-retirement fund shares is a redemption and a purchase, it creates a gain or
loss which is reportable for tax purposes. You should consult your tax advisor
before requesting an exchange. Read the prospectus of the FI Fund you are
purchasing carefully. Review the differences in objectives, policies, risk,
privileges and restrictions.
EXCHANGE METHODS
METHOD STEPS TO FOLLOW
Through Your
Registered Representative Call your registered representative.
By Phone Call Special Services from 9:00 a.m. to 5:00 p.m., ET
1(800) 342-6221 Orders received after the close of the NYSE, usually
4:00 p.m., ET, are processed the following business day.
1. You must have telephone privileges.
(see Telephone Transactions.)
2. Certificate shares cannot be exchanged by phone.
3. For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional documents
are required and must be on file.
By Mail to:
ADM
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198 1. Send us written instructions signed by all
account owners exactly as the account is registered.
2. Include the name and account number of your fund.
3. Indicate either the dollar amount, number of shares or
percent of the source account you want to exchange.
4. Specify the existing account number or the name of the
new Fund you want to exchange into.
5. Include any outstanding share certificates for shares you
want to exchange. A signature guarantee is required.
6. For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional
documents are required. Call Shareholder
Services at 1(800) 423-4026.
EXCHANGE CONDITIONS
1: You may only exchange shares within the same class.
2: Exchanges can only be made into identically owned accounts.
3: Partial exchanges into a new fund account must meet the new fund's minimum
initial investment.
4: The fund you are exchanging into must be eligible for sale in your state.
5: If your request does not clearly indicate the amount to be exchanged or the
accounts involved, no shares will be exchanged.
6: Amounts exchanged from a non-money market fund to a money market fund may be
exchanged back along with the dividends earned on that amount at net asset
value. Dividends earned from money market fund shares will be subject to a sales
charge.
7: If you are exchanging from a money market fund to a fund with a sales charge,
there will be a sales charge on any shares that were not previously subject to a
sales charge. Dividends earned on money market shares that were purchased by an
exchange from a fund with a sales charge, may be exchanged back at net asset
value. Your request must be in writing and include a statement acknowledging
that a sales charge will be paid.
8: If you exchange Class B shares of a fund for shares of a Class B money market
fund, the CDSC will not be imposed but the CDSC and the holding period used to
calculate the CDSC will carry over to the acquired shares.
9: FI Funds reserve the right to reject any exchange order which in the opinion
of the Fund is part of a market timing strategy. In the event that an exchange
is rejected, neither the redemption nor the purchase side of the exchange will
be processed.
10: If your exchange request is not in good order or information is missing, the
Transfer Agent will seek additional information and process the exchange on the
day it receives such information.
EXCHANGING FUNDS WITH AUTOMATIC INVESTMENTS OR SYSTEMATIC WITHDRAWALS
Let us know if you want to continue automatic investments into the original fund
or the fund you are exchanging into ("receiving fund") or if you want to change
the amount or allocation. Also inform us if you wish to continue, terminate, or
change a preauthorized systematic withdrawal. Without specific instructions, we
will amend account privileges as outlined below:
EXCHANGE EXCHANGE EXCHANGE A
ALL SHARES TO ALL SHARES TO PORTION OF
ONE FUND MULTIPLE SHARES TO ONE OR
FUNDS MULTIPLE
FUNDS
MONEY LINE ML moves to ML stays with ML stays with
(ML) Receiving Fund Original Fund Original Fund
AUTOMATIC PAYROLL API moves to API Stays with API stays with
INVESTMENT (API) Receiving Fund Original Fund Original Fund
SYSTEMATIC SWP moves to SWP SWP stays
WITHDRAWALS Receiving Fund Canceled with Original Fund
(SWP)
WHEN AND HOW FUND SHARES ARE PRICED
Each FI Fund prices its shares each day that the NYSE is open for trading. The
share price is calculated as of the close of trading on the NYSE (generally 4:00
p.m., ET).
Each Fund calculates the net asset value of each class of its shares separately
by taking the total value of class assets, subtracting class expenses, and
dividing the difference by the total number of shares in the class. The price
that you will pay for a share is the NAV plus any applicable front-end sales
charge. You receive the NAV price if you redeem or exchange your shares, less
any applicable CDSC.
Fund prices are on our website (www.firstinvestors.com) the next day. The prices
for our larger funds are also reported in many newspapers, including The Wall
Street Journal and The New York Times. Special pricing procedures are employed
during emergencies. For a description of these procedures you can request, free
of charge, a copy of a Statement of Additional Information.
HOW PURCHASE,
REDEMPTION AND
EXCHANGE ORDERS
ARE PROCESSED AND PRICED
The processing and price for a purchase, redemption or exchange depends upon how
your order is placed. As indicated below, in certain instances, special rules
apply to money market transactions. Special rules also apply for emergency
conditions. These are described in the Statement of Additional Information.
+ PURCHASES:
Purchases that are made by written application or order are processed when they
are received in "good order" by our Woodbridge, NJ office. To be in good order,
all required paperwork must be completed and payment received. If your order is
received prior to the close of trading on the NYSE, it will receive that day's
price (except in the case of money market funds which are discussed in the
section below called Special Rules for Money Market Funds). This procedure
applies whether your purchase order is given to your registered representative
or mailed directly by you to our Woodbridge, NJ office.
As described previously in "How to Buy Shares," certain types of purchases can
only be placed by written application. For example, purchases in connection with
the opening of retirement accounts may only be made by written application.
Furthermore, rollovers of retirement accounts will be processed only when we
have received both written application and the proceeds of the rollover. Thus,
for example, if it takes 30 days for another fund group to send us the proceeds
of a retirement account, your purchase of First Investors funds will not occur
until we receive the proceeds.
Some types of purchases may be phoned or electronically transmitted to us via
Fund/SERV by your broker-dealer. If you give your order to a registered
representative before the close
of trading on the NYSE and the order is phoned to our Woodbridge, NJ office
prior to 5:00 p.m., ET, your shares will be purchased at that day's price
(except in the case of money market funds which are discussed in the section
below called Special Rules for Money Market Funds). If you are buying a First
Investors Fund through a broker-dealer other than First Investors, other
requirements may apply. Consult with your broker-dealer about its requirements.
Payment is due within three business days of placing an order by phone or
electronic means or the trade may be cancelled. (In such event, you will be
liable for any loss resulting from the cancellation.) To avoid cancellation of
your orders, you may arrange to open a money market account and use it to pay
for subsequent purchases.
Purchases made pursuant to our Automatic Investment Programs are processed as
follows:
- -Money Line purchases are processed on the date you select on your
application.
- -Automatic Payroll Investment Service purchases are processed on the date that
we receive funds from your employer.
+ REDEMPTIONS:
As described previously in "How To Sell Shares," certain redemption orders may
only be made by written instructions or application. Unless you have declined
Telephone Privileges, most non-retirement account redemptions can be made by
phone by you or your registered representative.
Written redemption orders will be processed when received in good order in our
Woodbridge, NJ office. Phone redemption orders will be processed when received
in good order in our Woodbridge, NJ office prior to 4:00 p.m., ET.
If your redemption order is received prior to the close of trading on the NYSE,
you will receive that day's price. If you redeem through a broker-dealer other
than First Investors, other requirements may apply. Consult with your
broker-dealer about its requirements.
+ EXCHANGES:
Unless you have declined telephone privileges, you or your representative may
exchange shares by phone. Exchanges can also be made by written instructions.
Exchange orders are processed when we receive them in good order in our
Woodbridge, NJ office.
Exchange orders received in good order prior to the close of trading on the NYSE
will be processed at that day's prices.
+ ORDERS PLACED VIA FIRST INVESTORS REGISTERED REPRESENTATIVES: All orders
placed through a First Investors registered representative must be reviewed and
approved by a principal officer of the branch office before being mailed or
transmitted to the Woodbridge, NJ office.
+ ORDERS PLACED VIA DEALERS:
It is the responsibility of the Dealer to forward or transmit orders to the Fund
promptly and accurately. A fund will not be liable for any change in the price
per share due to the failure of the Dealer to place or pay for the order in a
timely fashion. Any such disputes must be settled between you and the Dealer.
SPECIAL RULES FOR MONEY MARKET FUNDS
Money market fund shares will not be purchased until the Fund receives Federal
Funds for the purchase. Federal Funds for a purchase will generally not be
received until the morning of the next Trading Day following the Trading Day on
which your purchase check or other form of payment is received in our
Woodbridge, NJ office. If a check is received in our Woodbridge, NJ office after
the close of regular trading on the NYSE, the Federal Funds for the purchase
will generally not be received until the morning of the second following Trading
Day.
If we receive a wire transfer for a purchase prior to 12:00 p.m., ET and you
have previously notified us that the wire is on the way (by calling 1 (800)
423-4026) the funds for the purchase will be deemed to have been received on
that same day. Your notification must include the Federal Funds wire transfer
confirmation number, the amount of the wire, and the money market fund account
number to receive same day credit. If we fail to receive such advance
notification, the funds for your purchase will not be deemed to have been
received until the morning of the next Trading Day following receipt of the
Federal Wire and your account information.
To wire funds to an existing First Investors money market account, instruct your
bank to wire your investment, as applicable, to:
CASH MANAGEMENT FUND
BANK OF NEW YORK
ABA #021000018
FI CASH MGMT. ACCOUNT 8900005696
FOR FURTHER CREDIT TO: YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
TAX-EXEMPT MONEY MARKET FUND
BANK OF NEW YORK
ABA #021000018
FI TAX EXEMPT ACCOUNT 8900023198
FOR FURTHER CREDIT TO: YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
Requests for redemptions by wire out of the money market funds must be received
in writing or by phone prior to 12:00 p.m., ET, on a Trading Day, to be
processed the same day. Wire redemption requests received after 12:00 p.m., ET,
but before the close of regular trading on the NYSE, will be processed the
following Trading Day.
There is no sales charge on Class A share money market fund purchases. However,
anytime you make a redemption from a Class A share money market account and
subsequently invest the proceeds in another eligible Class A share fund, the
purchase will incur a sales charge unless one has already been paid.
RIGHT TO REJECT
PURCHASE OR
EXCHANGE ORDERS
A fund reserves the right to reject or restrict any specific purchase or
exchange request if the fund determines that doing so is in the best interest of
the fund and its shareholders. Investments in a fund are designed for long-term
purposes and are not intended to provide a vehicle for short-term market timing.
The funds also reserve the right to reject any exchange that in the funds'
opinion is part of a market timing strategy. In the event that a fund rejects an
exchange request, neither the redemption nor the purchase side of the exchange
will be processed.
SIGNATURE
GUARANTEE POLICY
A signature guarantee protects you from the risk of a fraudulent signature and
is generally required for non-standard and large dollar transactions. A
signature guarantee may be obtained from eligible guarantor institutions
including banks, savings associations, credit unions and brokerage firms which
are members of the Securities Transfer Agents Medallion Program ("STAMP"), the
New York Stock Exchange Medallion Signature Program ("MSP"), or the Stock
Exchanges Medallion Program ("SEMP"). Please note that a notary public stamp or
seal is not acceptable.
+ SIGNATURE GUARANTEES
ARE REQUIRED:
1: For redemptions over $50,000.
2: For redemption checks made payable to any person(s) other than the registered
shareholder(s) or any entity other than a major financial institution for the
benefit of the registered shareholder(s).
3: For redemption checks mailed to an address other than the address of record,
pre-authorized bank account, or a major financial institution on your behalf.
4: For redemptions when the address of record has changed within 60 days of the
request.
5: When a stock certificate is mailed to an address other than the address of
record or the dealer on the account.
6: When shares are transferred to a new registration.
7: When certificated (issued) shares are redeemed or exchanged.
8: To establish any EFT service.
9: For requests to change the address of record to a P.O. box or a "c/o" street
address.
10: If multiple account owners of one account give inconsistent instructions.
11: When a transaction requires additional legal documentation.
12: When the authority of a representative of a corporation, partnership, trust,
or other entity has not been satisfactorily established.
13: When an address is updated on an account which has been coded "Do Not Mail"
because mail has been returned as undeliverable.
14: Any other instance whereby a fund or its transfer agent deems it
necessary as a matter of prudence.
TELEPHONE
SERVICES
TELEPHONE EXCHANGES AND REDEMPTIONS
1 (800) 342-6221
You automatically receive telephone privileges when you open a First Investors
individual, joint, or custodial account unless you decline the option on your
account application or send the Fund written instructions. For trusts, estates,
attorneys-in-fact, corporations, partnerships, and other entities, telephone
privileges are not automatically granted. You must complete additional
documentation. Call Shareholder Services at 1 (800) 423-4026 for assistance.
Telephone privileges allow you to exchange or redeem eligible shares and
authorize other transactions with a simple phone call. Your registered
representative may also use telephone privileges to execute your transactions.
+ SECURITY MEASURES:
For your protection, the following security measures are taken:
1: Telephone requests are recorded to verify accuracy.
2: Some or all of the following information is obtained:
- -Account number.
- -Address.
- -Social security number.
- -Other information as deemed necessary.
3: A written confirmation of each transaction is mailed to you.
We will not be liable for following instructions if we reasonably believe the
instructions are genuine based on our verification procedures.
+ ELIGIBILITY:
NON-RETIREMENT ACCOUNTS:
You can exchange or redeem shares of any non-retirement account by phone. Shares
must be uncertificated and owned for 15 days for telephone redemption. See "How
To Sell Shares" for additional information.
Telephone exchanges and redemptions are not available on guardianship and
conservatorship accounts.
RETIREMENT ACCOUNTS:
You can exchange shares of any eligible FI fund of any participant directed FI
prototype IRA, 403(b) or 401(k) Simplifier Plan. You may also exchange shares
from an individually registered non-retirement account to an IRA account
registered to the same owner (provided an IRA application is on file). Telephone
exchanges are permitted on 401(k) Flexible plans, money purchase pension plans
and profit sharing plans if a First Investors Qualified Retirement Plan
Application is on file with the fund. Contact your registered representative or
call Shareholder Services at 1 (800) 423-4026 to obtain a Qualified Retirement
Plan Application. Telephone redemptions are not permitted on First Investors
retirement accounts.
During times of drastic economic or market changes, telephone redemptions or
exchanges may be difficult to implement. If you experience difficulty in making
a telephone exchange or redemption, you may send us a written request by regular
or express mail. The written request will be processed at the next determined
net asset value, less any applicable CDSC, when received in good order in our
Woodbridge, N.J. office.
SHAREHOLDER SERVICES
1 (800) 423-4026
PROVIDED YOU HAVE NOT DECLINED TELEPHONE PRIVILEGES, CALL US TO UPDATE OR
CORRECT:
- -Your address or phone number. For security purposes, the Fund will not
honor telephone requests to change an address to a P.O. Box or "c/o" street
address.
- -Your birth date (important for retirement distributions).
- -Your distribution option to reinvest or pay in cash or initiate cross
reinvestment of dividends (non-retirement accounts only).
- -The amount of your Money Line up to $999.99 per payment provided bank and fund
account registrations are the same.
- -The allocation of your Money Line or Automatic Payroll Investment payment.
- -The amount of your Systematic Withdrawal payment on non-retirement accounts.
TO REQUEST:
- -A history of your account (the fee can be debited from your non-retirement
account).
- -A share certificate to be mailed to your address of record (non-retirement
accounts only).
- -Cancellation of your Systematic Withdrawal Plan (non-retirement accounts
only).
- -Money market fund draft checks (non-retirement accounts only). Additional
written documentation may be required for certain registrations.
- -A stop payment on a dividend, redemption or money market draft check.
- -Reactivation of your Money Line (provided an application and voided check is
on file).
- -Suspension (up to six months) or cancellation of Money Line.
- -A duplicate copy of a statement or tax form.
- -Cancellation of cross-reinvestment of dividends.
OTHER SERVICES
+ REINSTATEMENT PRIVILEGE:
If you sell some or all of your Class A or Class B shares, you may be entitled
to invest all or a portion of the proceeds in the same class of shares of a FI
fund within six months of the redemption without a sales charge.
If you invest proceeds into a new fund account, you must meet the fund's minimum
initial investment requirement.
If you invest all the proceeds from a Class B share redemption, you will be
credited, in additional shares, for the full amount of the CDSC. If you invest a
portion of a Class B share redemption, you will be credited with a pro-rated
percentage of the CDSC.
The reinstatement privilege does not apply to automated purchases, automated
redemptions, or reinstatements in Class B shares of less than $1,000.
Please notify us if you qualify for this privilege. For more information, call
Shareholder Services at 1 (800) 423-4026.
+ CERTIFICATE SHARES:
Every time you make a purchase of Class A shares, we will credit shares to your
fund account. We do not issue share certificates unless you specifically request
them. Certificates are not issued on any Class B shares, Class A money market
shares, or any shares in retirement accounts.
Having us credit shares on your behalf eliminates the expense of replacing lost,
stolen, or destroyed certificates. If a certificate is lost, stolen, or damaged,
you may be charged a replacement fee of the greater of 2% of the current value
of the certificated shares or $25.
In addition, certificated shares cannot be redeemed, exchanged, or transferred
until they are returned with your transaction request. The share certificate
must be properly endorsed and signature guaranteed.
+ MONEY MARKET FUND DRAFT CHECKS:
Free draft check writing privileges are available when you open a First
Investors Cash Management Fund or a First Investors Tax Exempt Money Market Fund
account. Checks may be written for a minimum of $500. Draft checks are not
available for Class B share accounts, retirement accounts, guardianships and
conservatorships. Complete the Money Market Fund Check Redemption section of the
account application to apply for draft checks. To order additional checks, call
Shareholder Services at 1 (800) 423-4026.
Additional documentation is required to establish check writing privileges
for trusts, corporations, partnerships and other entities. Call Shareholder
Services at 1 (800) 423-4026 for further information.
FEE TABLE:
Call Shareholder Services at 1 (800) 423-4026 or send your request to FIC,
Attn: Correspondence Dept., 581 Main Street, Woodbridge, NJ 07095-1198 to
request a copy of the following records:
.
ACCOUNT HISTORY STATEMENTS:
1974 - 1982* $10 per year fee
1983 - present $5 total fee for all years
Current & Two Prior Years Free
*ACCOUNT HISTORIES ARE NOT AVAILABLE PRIOR TO 1974
CANCELLED CHECKS:
There is a $10 fee for a copy of a cancelled dividend, liquidation, or
investment check requested. There is a $15 fee for a copy of a cancelled money
market draft check.
DUPLICATE TAX FORMS:
Current Year Free
Prior Year(s) $7.50 per tax form per year
+ RETURN MAIL:
If mail is returned to the fund marked undeliverable by the U.S. Postal Service
after two consecutive mailings, and the fund is unable to obtain a current
shareholder address, the account status will be changed to "Do Not Mail" to
discontinue future mailings and prevent unauthorized persons from obtaining
account information.
You can remove the "Do Not Mail" status on your account by submitting written
instructions including your current address signed by all shareholders with a
signature guarantee (see Signature Guarantee Policy). Additional requirements
may apply for certain accounts. Call Shareholder Services at 1 (800) 423-4026
for more information.
Returned dividend checks and other distributions will be reinvested in the fund
when an account's status has been changed to "Do Not Mail." No interest will be
paid on outstanding checks prior to reinvestment. All future dividends and other
distributions will be reinvested in additional shares until new instructions are
provided. If you cannot be located within a period of time mandated by your
state of residence your fund shares may be escheated to your state (in other
words turned over) in accordance with state laws governing abandoned property.
Prior to turning over assets to your state, the fund will seek to obtain a
current shareholder address in accordance with Securities and Exchange
Commission rules. A search company may be employed to locate a current address.
The fund may deduct the costs associated with the search from your account.
+ TRANSFERRING SHARES:
A transfer is a change of share ownership from one customer to another. Unlike
an exchange, transfers occur within the same fund. You can transfer your shares
at any time. Partial transfers must meet the minimum initial investment
requirement of the fund.
To transfer shares, submit a letter of instruction including:
- -Your account number.
- -Dollar amount, percentage, or number of shares to be transferred.
- -Existing account number receiving the shares (if any).
- -The name(S), registration, and taxpayer identification number of the
customer receiving the shares.
- -The signature of each account owner requesting the transfer with signature
guarantee(S).
If First Investors is your broker-dealer, we will request that the transferee
complete a Master Account Agreement to establish a brokerage account with First
Investors Corporation and validate his or her social security number to avoid
back-up withholding. If the transferee declines to complete a MAA, all
transactions in the account must be on an unsolicited basis and the account will
be so coded.
Depending upon your account registration, additional documentation may be
required to transfer shares. Transfers due to the death of a shareholder require
additional documentation. Please call our Shareholder Services Department at 1
(800) 423-4026 for specific transfer requirements before initiating a request.
A transfer is a change of ownership and may trigger a taxable event. You should
consult your tax advisor before initiating a transfer.
ACCOUNT STATEMENTS
TRANSACTION
CONFIRMATION STATEMENTS
You will receive a confirmation statement immediately after most transactions.
These include:
- -dealer purchases.
- -check investments.
- -Federal Funds wire purchases.
- -redemptions.
- -exchanges.
- -transfers.
- -systematic withdrawals.
Money Line and Automatic Payroll Investment purchases are not confirmed for each
transaction. They will appear on your next regularly scheduled monthly or
quarterly statement (see Dividend Payment Schedule under "Dividends and
Distributions").
A separate confirmation statement is generated for each fund account you own. It
provides:
- -Your fund account number.
- -The date of the transaction.
- -A description of the transaction (PURCHASE, REDEMPTION, ETC.).
- -The number of shares bought or sold for the transaction.
- -The dollar amount of the transaction.
- -The dollar amount of the dividend payment (IF APPLICABLE).
- -The total share balance in the account.
- -The dollar amount of any dividends or capital gains paid.
- -The number of shares held by you, held for you (INCLUDING ESCROW SHARES), and
the total number of shares you own.
The confirmation statement also may provide a perforated Investment Stub with
your preprinted name, registration, and fund account number for future
investments.
MASTER ACCOUNT
STATEMENTS
If First Investors Corporation is your broker, you will receive a Master Account
Statement for all your identically owned First Investors fund accounts on at
least a quarterly basis. The Master Account Statement will also include a recap
of any First Investors Life Insurance accounts you may own. Joint accounts
registered under your taxpayer identification number will appear on a separate
Master Account Statement but may be mailed in the same envelope upon request.
The Master Account Statement provides the following information for each First
Investors fund you own:
- -fund name.
- -fund's current market value.
- -total distributions paid year-to-date.
- -total number of shares owned.
ANNUAL AND
SEMI-ANNUAL REPORTS
You will also receive an Annual and a Semi-Annual Report. These financial
reports show the assets, liabilities, revenues, expenses, and earnings of the
fund as well as a detailed accounting of all portfolio holdings. You will
receive one report per household.
DIVIDENDS AND
DISTRIBUTIONS
DIVIDENDS AND
DISTRIBUTIONS
For funds that declare daily dividends, except money market funds, you start
earning dividends on the day your purchase is made. For FI money market fund
purchases, including Money Line and API purchases, you start earning dividends
on the day Federal Funds are credited to your fund account. For exchanges into
the money market funds, you start earning dividends on the day following the
Trading Day on which an exchange is processed. No dividends are earned on
exchanges out of the money market funds on the Trading Day on which an exchange
is processed. The funds declare dividends from net investment income and
distribute the accrued earnings to shareholders as noted below:
DIVIDEND PAYMENT SCHEDULE
MONTHLY: QUARTERLY: ANNUALLY (IF ANY):
Cash Management Fund Blue Chip Fund Focused Equity Fund
Fund for Income Growth & Income Fund Global Fund
Government Fund Total Return Fund Mid-Cap Opportunity Fund
Insured Intermediate Tax-Exempt Utilities Income Fund Special Situations Fund
Insured Tax Exempt Fund
Investment Grade Fund
Multi-State Insured Tax Free Fund
New York Insured Tax Free Fund
Tax-Exempt Money Market Fund
Capital gains distributions, if any, are paid annually, usually near the end of
the fund's fiscal year. On occasion, more than one capital gains distribution
may be paid during one year.
Dividend and capital gains distributions are automatically reinvested to
purchase additional fund shares unless otherwise instructed. Dividend payments
of less than $5.00 are automatically reinvested to purchase additional fund
shares.
BUYING A DIVIDEND
If you buy shares shortly before the record date of the dividend, the entire
dividend you receive may be taxable even though a part of the distribution is
actually a return of your purchase price. This is called "buying a dividend."
There is no advantage to buying a dividend because a fund's net asset value per
share is reduced by the amount of the dividend.
TAX FORMS
TAX FORM DESCRIPTION MAILED BY
1099-DIV Consolidated report lists all taxable dividend and capital gains January 31
distributions for all of the shareholder's accounts. Also includes
foreign taxes paid and any federal income tax withheld due to
backup withholding.
1099-B Lists proceeds from all redemptions including systematic January 31
withdrawals and exchanges. A separate form is issued for each fund
account. Includes amount of federal income tax withheld due to backup
withholding.
1099-R Lists taxable distributions from a retirement account. A separate January 31
form is issued for each fund account. Includes federal income
tax withheld due to IRS withholding requirements.
5498 Provided to shareholders who made an annual IRA May 31
contribution or rollover purchase. Also provides the account's
fair market value as of the last business day of the previous year.
A separate form is issued for each fund account.
1042-S Provided to non-resident alien shareholders to report the amount March 15
of fund dividends paid and the amount of federal taxes withheld.
A separate form is issued for each fund account.
Cost Basis Uses the "average cost-single category" method to show the cost January 31
Statement basis of any shares sold or exchanged. Information is provided to
assist shareholders in calculating capital gains or losses.
A separate statement, included with Form 1099-B, is issued for each
fund account. This statement is not reported to the IRS and does
not include money market funds or retirement accounts.
Tax Savings Consolidated report lists all amounts not subject to federal, January 31
Report for state and local income tax for all the shareholder's accounts.
Non-Taxable Also includes any amounts subject to alternative minimum tax.
Income
Tax Savings Provides the percentage of income paid by each fund that may January 31
Summary be exempt from state income tax.
THE OUTLOOK
Today's strategies for tomorrow's goals are brought into focus in the Outlook,
the quarterly newsletter for clients of First Investors Corporation. This
informative tool discusses the products and services we offer to help you take
advantage of current market conditions and tax law changes. The OUTLOOK'S
straight forward approach and timely articles make it a valuable resource. As
always, your registered representative is available to provide you with
additional information and assistance. Material contained in this publication
should not be considered legal, financial, or other professional advice.
(This page Intentionally Left Blank)
Principal Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
1-212-858-8000
Transfer Agent
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
PART C. OTHER INFORMATION
Item 15. INDEMNIFICATION
Article X, Section 1 of the By-Laws of Registrant provides as
follows:
Section 1. Every person who is or was an officer or director of the
Corporation (and his heirs, executors and administrators) shall be indemnified
by the Corporation against reasonable costs and expenses incurred by him in
connection with any action, suit or proceeding to which he may be made a party
by reason of his being or having been a director or officer of the Corporation,
except in relation to any action, suit or proceeding in which he has been
adjudged liable because of negligence or misconduct, which shall be deemed to
include willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office. In the absence of an
adjudication which expressly absolves the director or officer of liability to
the Corporation or its stockholders for negligence or misconduct, within the
meaning thereof as used herein, or in the event of a settlement, each director
or officer (and his heirs, executors and administrators) shall be indemnified by
the Corporation against payments made, including reasonable costs and expenses,
provided that such indemnity shall be conditioned upon the prior determination
by a resolution of two-thirds of the Board of Directors who are not involved in
the action, suit or proceeding that the director or officer has no liability by
reason of negligence or misconduct within the meaning thereof as used herein,
and provided further that if a majority of the members of the Board of Directors
of the Corporation are involved in the action, suit or proceeding, such
determination shall have been made by a written opinion of independent counsel.
Amounts paid in settlement shall not exceed costs, fees and expenses which would
have been reasonably incurred if the action, suit or proceeding had been
litigated to a conclusion. Such a determination by the Board of Directors or by
independent counsel, and the payment of amounts by the Corporation on the basis
thereof, shall not prevent a stockholder from challenging such indemnification
by appropriate legal proceedings on the grounds that the person indemnified was
liable to the Corporation or its security holders by reason of negligence or
misconduct within the meaning thereof as used herein. The foregoing rights and
indemnification shall not be exclusive of any other rights to which any officer
or director (or his heirs, executors and administrators) may be entitled to
according to law.
The Registrant's Investment Advisory Agreement provides as follows:
The Manager shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Company or any Series in connection with
the matters to which this Agreement relate except a loss resulting from the
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
partner, employee, or agent of the Manager, who may be or become an officer,
Board member, employee or agent of the Company shall be deemed, when rendering
services to the Company or acting in any business of the Company, to be
rendering such services to or acting solely for the Company and not as an
officer, partner, employee, or agent or one under the control or direction of
the Manager even though paid by it.
The Registrant's Underwriting Agreement provides as follows:
The Underwriter agrees to use its best efforts in effecting the sale
and public distribution of the shares of the Fund through dealers and to perform
its duties in redeeming and repurchasing the shares of the Fund, but nothing
contained in this Agreement shall make the Underwriter or any of its officers
and directors or shareholders liable for any loss sustained by the Fund or any
of its officers, directors, or shareholders, or by any other person on account
of any act done or omitted to be done by the Underwriter under this Agreement
provided that nothing herein contained shall protect the Underwriter against any
liability to the Fund or to any of its shareholders to which the Underwriter
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties as Underwriter or by reason of its
reckless disregard of its obligations or duties as Underwriter under this
Agreement. Nothing in this Agreement shall protect the Underwriter from any
liabilities which they may have under the Securities Act of 1933 or the
Investment Company Act of 1940.
Reference is hereby made to the Maryland Corporations and
Associations Annotated Code, Sections 2-417, 2-418 (1986).
The general effect of this Indemnification will be to indemnify the
officers and directors of the Registrant from costs and expenses arising from
any action, suit or proceeding to which they may be made a party by reason of
their being or having been a director or officer of the Registrant, except where
such action is determined to have arisen out of the willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the director's or officer's office.
Item 16. EXHIBITS
(1)(i) Articles of Restatement 1/
(ii) Articles Supplementary 1/
(2) Amended and Restated By-laws 1/
(3) Voting trust agreement - none.
(4) Agreement and Plan of Reorganization and Termination is
attached hereto as Appendix A to the Prospectus/Proxy
Statement.
(5) Shareholders' rights are contained in (a) Articles FIFTH and
EIGHTH of Registrant's Articles of Restatement dated September
14, 1994, previously filed as Exhibit 99.B1.1 to Registrant's
Registration Statement; (b) Article FOURTH of Registrant's
Articles Supplementary to Articles of Incorporation dated
October 20, 1994, previously filed as Exhibit 99.B1.2 to
Registrant's Registration Statement and (c) Article II of
Registrant's Amended and Restated By-laws, previously filed as
Exhibit 99.B2 to Registrant's Registration Statement.
(6) Investment Advisory Agreement between Registrant and First
Investors Management Company, Inc. 1/
(7) Underwriting Agreement between Registrant and First Investors
Corporation. 1/
(8) Bonus, profit sharing or pension plans - none
(9)(i) Custodian Agreement between Registrant and Irving Trust
Company 1/
(ii) Supplement to Custodian Agreement between Registrant and The
Bank of New York 1/
(10)(i) Amended and Restated Class A Distribution Plan 1/
(ii) Class B Distribution Plan 1/
(11) Opinion and Consent of Counsel regarding the legality of
securities being registered - filed herewith
(12) Opinion and Consent of Counsel regarding certain tax matters -
to be filed subsequently
(13)(i) Administration Agreement between Registrant, First Investors
Management Company, Inc., First Investors Corporation and
Administrative Data Management Corp. 1/
(ii) Schedule A to Administration Agreement 2/
(14) Consent of independent public accountants - filed herewith
(15) Financial statements omitted from Part B - none
(16) Powers of Attorney 1/
(17) Additional exhibits -- none
- -------------------
1 Incorporated by reference from Post-Effective Amendment No. 62 to
Registrant's Registration Statement (File No. 2-38309) filed on April 24,
1996.
2 Incorporated by reference from Post-Effective Amendment No. 64 to
Registrant's Registration Statement (File No. 2-38309) filed on May 15,
1997.
Item 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public re-offering
of the securities registered through the use of the prospectus which is a part
of this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
re-offering prospectus will contain the information called for by the applicable
registration form for re-offering by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 6th day of January, 2000.
FIRST INVESTORS FUND
FOR INCOME, INC.
By:/s/ Glenn O. Head
--------------------
Glenn O. Head
President and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
/s/ Glenn O. Head Principal Executive January 6, 2000
- -----------------------------
Glenn O. Head Officer and Director
/s/ Joseph I. Benedek Principal Financial January 6, 2000
- ----------------------------- and Accounting Officer
Joseph I. Benedek
Kathryn S. Head* Director January 6, 2000
- -----------------------------
Kathryn S. Head
/s/ Larry R. Lavoie Director January 6, 2000
- -----------------------------
Larry R. Lavoie
Herbert Rubinstein* Director January 6, 2000
- -----------------------------
Herbert Rubinstein
Nancy Schaenen* Director January 6, 2000
- -----------------------------
Nancy Schaenen
James M. Srygley* Director January 6, 2000
- -----------------------------
James M. Srygley
John T. Sullivan* Director January 6, 2000
- -----------------------------
John T. Sullivan
Rex R. Reed* Director January 6, 2000
- -----------------------------
Rex R. Reed
Robert F. Wentworth* Director January 6, 2000
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Robert F. Wentworth
*By: /s/ Larry R. Lavoie
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Larry R. Lavoie
Attorney-in-fact
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------ ----------- ----
(1)(i) Articles of Restatement 1/
(ii) Articles Supplementary 1/
(2) Amended and Restated By-laws 1/
(3) Voting trust agreement - none.
(4) Agreement and Plan of Reorganization and Termination is
attached hereto as Appendix A to the Prospectus/Proxy
Statement.
(5) Shareholders' rights are contained in (a) Articles FIFTH and
EIGHTH of Registrant's Articles of Restatement dated September
14, 1994, previously filed as Exhibit 99.B1.1 to Registrant's
Registration Statement; (b) Article FOURTH of Registrant's
Articles Supplementary to Articles of Incorporation dated
October 20, 1994, previously filed as Exhibit 99.B1.2 to
Registrant's Registration Statement and (c) Article II of
Registrant's Amended and Restated By-laws, previously filed as
Exhibit 99.B2 to Registrant's Registration Statement.
(6) Investment Advisory Agreement between Registrant and First
Investors Management Company, Inc. 1/
(7) Underwriting Agreement between Registrant and First Investors
Corporation. 1/
(8) Bonus, profit sharing or pension plans - none
(9)(i) Custodian Agreement between Registrant and Irving Trust
Company 1/
(ii) Supplement to Custodian Agreement between Registrant and The
Bank of New York 1/
(10)(i) Amended and Restated Class A Distribution Plan 1/
(ii) Class B Distribution Plan 1/
(11) Opinion and Consent of Counsel regarding the legality of
securities being registered - filed herewith
(12) Opinion and Consent of Counsel regarding certain tax matters -
to be filed subsequently
(13)(i) Administration Agreement between Registrant, First Investors
Management Company, Inc., First Investors Corporation and
Administrative Data Management Corp. 1/
(ii) Schedule A to Administration Agreement 2/
(14) Consent of independent public accountants - filed herewith
(15) Financial statements omitted from Part B - none
(16) Powers of Attorney 1/
(17) Additional exhibits -- none
1 Incorporated by reference from Post-Effective Amendment No. 62 to
Registrant's Registration Statement (File No. 2-38309) filed on April 24,
1996.
2 Incorporated by reference from Post-Effective Amendment No. 64 to
Registrant's Registration Statement (File No. 2-38309) filed on May 15,
1997.