As filed with the Securities and Exchange Commission on December 3, 1999
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. _____ [ ]
Post-Effective Amendment No. _____ [ ]
(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 ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFFECTIVE IN ACCORDANCE WITH RULE 488 OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID RULE 488, MAY DETERMINE.
<PAGE>
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
<PAGE>
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 Statement 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.
<PAGE>
January __, 2000
Dear First Investors High Yield Fund, Inc. Shareholder:
After careful consideration, the Board of Directors of the First Investors
High Yield Fund, Inc. ("High Yield Fund") approved a plan to reorganize the High
Yield Fund into the First Investors Fund For Income, Inc. ("Fund For Income").
The reorganization is subject to the approval of the High Yield Fund's
shareholders. A shareholders' meeting has been scheduled for February 25, 2000
at which High Yield Fund shareholders of record on ____ 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 for your use.
YOUR BOARD OF DIRECTORS 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 High Yield Fund. It is advised by the same
investment adviser, has the same investment objectives, and follows similar
investment policies and strategies as the High Yield Fund. However, the Fund For
Income is a larger and older fund and has had slightly better performance.
WHAT IS THE EFFECT ON FUND EXPENSES? High Yield Fund shareholders should
benefit from a reduction in fund expenses following the reorganization. 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
<PAGE>
January __, 2000
Page 2
Income shares that have exactly the same value as your High Yield 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,
Glenn O. Head
President
Enclosures
TL/rtw
<PAGE>
FIRST INVESTORS HIGH YIELD FUND, INC.
95 Wall Street, New York, New York 10005
212-858-8000
-----------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
-----------
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of the First
Investors High Yield Fund, Inc. ("High Yield Fund") will be held on or about
February 25, 2000, at 10:00 a.m., Eastern time, at the offices of 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 High Yield Fund in exchange solely for shares of
Fund For Income and the assumption by Fund For Income of all of High Yield
Fund's liabilities, followed by the distribution of those shares to the
shareholders of High Yield Fund and the termination of 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 December __, 1999 are
entitled to notice of and to vote at the Meeting.
By Order of the Board of Directors,
CONCETTA DURSO
Secretary
New York, New York
___________ __, 1999
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 HIGH YIELD FUND OF FURTHER SOLICITATION,
WE ASK YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
<PAGE>
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
FIRST INVESTORS HIGH YIELD FUND, INC.
Please detach before mailing
- - - - - -- - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FIRST INVESTORS HIGH YIELD FUND, INC.
Special Meeting of Shareholders, February 25, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
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 _________ ___, 2000, at the Special Meeting of Shareholders of
the First Investors High Yield Fund, Inc., 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 Directors. Please date and sign this proxy
and return it in the enclosed postage-paid envelop. Your Board of Directors
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
First Investors High Yield Fund, Inc. ("High Yield Fund") and First Investors
Fund For Income, Inc. ("Fund For Income") and the transactions contemplated
thereby, including (a) the transfer of substantially all the assets of High
Yield Fund to Fund For Income in exchange for Class A and Class B shares of
Fund For Income, the distribution of such shares to High Yield Fund to the
corresponding Class A and Class B shareholders of High Yield Fund in complete
liquidation of High Yield Fund, (b) the cancellation of the outstanding
shares of High Yield Fund, and (c) the dissolution of the High Yield Fund.
FOR / / AGAINST / / ABSTAIN / /
----------------------------------------------
Signature Date
----------------------------------------------
Additional Signature if held jointly Date
<PAGE>
FIRST INVESTORS FUND FOR INCOME, INC.
95 WALL STREET
NEW YORK, NEW YORK 10005
1-800-423-4026
PROSPECTUS/PROXY STATEMENT
JANUARY __, 2000
This Prospectus/Proxy Statement ("Prospectus/Proxy") is being furnished to
shareholders of the First Investors High Yield Fund, Inc. ("High Yield Fund") in
connection with the solicitation of proxies by its Board of Directors ("Board")
for use at a special meeting of its shareholders ("Meeting") to be held at the
office of 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 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 High Yield Fund and Fund
For Income (the "Agreement"). Pursuant to the Agreement, Fund For Income would
acquire all of the assets of High Yield Fund in exchange for shares of Fund For
Income and the assumption by Fund For Income of all of the liabilities of High
Yield Fund. Those shares of Fund For Income would then be distributed to the
shareholders of High Yield Fund, so that each shareholder of High Yield Fund
would receive a number of full and fractional 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 High Yield Fund.
As soon as practicable following the distribution of shares, High Yield Fund
will be terminated.
Like High Yield Fund, Fund For Income is an open-end diversified
management investment company. Also like 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. A Statement of Additional Information ("SAI"), dated January
__, 2000, relating to Fund For Income and High Yield Fund has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated herein by
reference. Additional information about the Funds' investments is available in
<PAGE>
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 SAI 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 information about the Funds for a fee (including
proxy materials, the Funds' reports, Shareholder Manual and SAI) at the Public
Reference Room of the SEC in Washington, D.C. You can also send your request and
a duplicating fee to the Public Reference Room of the SEC, Washington, DC
20549-6009. You can obtain information on the operation of the Public Reference
Room by calling 1-800-SEC-0330. Text-only versions of Fund documents can be
viewed online or downloaded from 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
<PAGE>
TABLE OF CONTENTS
PAGE
I. Synopsis...........................................................
II. Principal Risks....................................................
III. Plan of Reorganization.............................................
IV. Voting Information.................................................
V. Information About the Funds........................................
VI. Other Information..................................................
VII. Financial Highlights...............................................
Appendix A: Agreement and Plan of Reorganization and Termination...... A-1
3
<PAGE>
I. SYNOPSIS
Pursuant to the Agreement, Fund For Income will acquire the assets of High
Yield Fund in exchange for shares in Fund For Income and the assumption by Fund
For Income of High Yield Fund's liabilities. High Yield Fund will distribute the
shares of Fund For Income to its shareholders, and High Yield Fund will be
liquidated. Shareholders of High Yield Fund Class A and Class B shares will
receive corresponding Class A and Class B 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
High Yield Fund nor its shareholders will recognize gain or loss with respect to
the Reorganization, and (2) Fund For Income and shareholders of 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.
High Yield Fund and Fund For Income are substantially similar. They share
a common Board of Directors, have the same investment adviser, same underwriter,
same transfer agent, same classes of shares, same sales charge structures, and
same investment objectives. Each Fund invests primarily in high yield,
below-investment grade corporate bonds (commonly referred to as "high yield
bonds" or "junk bonds"). At the present time, the two Funds generally follow
similar investment management styles. The Funds also have identical procedures
with respect to distribution, 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 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. Although both Funds may invest in common stocks
and emerging market debt, only High Yield Fund currently pursues a strategy of
investing in common stocks and emerging market debt.
II. PRINCIPAL RISKS
The principal risks of investing in the Fund For Income and High Yield
Fund are substantially the same. 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 political
instability, government regulation and differences in financial reporting
standards. Second, the value of each Fund's shares could decline if the entire
high yield bond market were to decline, even if none of the 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
4
<PAGE>
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.
Because the High Yield Fund pursues a strategy of investing a small
percentage of its assets in common stocks and emerging market debt, its shares
may be more volatile and its yield may be less than that of other high yield
bond funds, such as Fund For Income, which do not invest in common stocks and
emerging market debt. While Fund For Income has the ability to invest in common
stocks and emerging market debt, it currently does not invest significantly in
these types of securities and does not intend to make significant investments in
such securities following the Reorganization.
III. PLAN OF REORGANIZATION
Pursuant to the Agreement, Fund For Income will acquire the assets of High
Yield Fund in exchange for shares of beneficial interest in Fund For Income and
the assumption by Fund For Income of High Yield Fund's liabilities. High Yield
Fund will distribute the shares of Fund For Income to its shareholders, and High
Yield Fund will be liquidated. The exchange of 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
High Yield Fund shareholder will receive PRO RATA the number of full and
fractional Fund For Income shares having an aggregate value equal to the value
of his or her 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 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 High Yield Fund's basis and holding period immediately prior to the
reorganization, (3) no gain or loss will be recognized to High Yield Fund
shareholders on their receipt of Fund For Income shares, and (4) High Yield Fund
shareholders' basis and holding periods for Fund For Income shares will be the
same as the basis for their 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").
5
<PAGE>
The assets of 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 High Yield Fund's
books and all other property owned by High Yield Fund. Fund For Income will
assume from High Yield Fund all liabilities, debts, obligations and duties of
High Yield Fund of whatever kind or nature; provided, however, that 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 High Yield Fund, which will distribute the shares to High Yield Fund's
shareholders. The shares will be distributed by opening accounts on the books of
Fund For Income in the names of High Yield Fund shareholders and by transferring
to those accounts the shares previously credited to the account of High Yield
Fund on those books. Fractional shares in Fund For Income will be rounded to the
third decimal place.
The value of 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. High Yield Fund's net value
shall be the value of its assets to be acquired by Fund For Income, less the
amount of High Yield Fund's liabilities, as of the Valuation Time.
Each Fund offers two classes of shares, designated Class A and Class B
shares. Class A shares are sold at the public offering price, which includes a
front-end sales load. Class B shares 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. Each class of shares of Fund
For Income is identical to the corresponding class of shares of High Yield Fund.
This means that Class A shareholders of each Fund have identical rights and
Class B shareholders of each Fund have identical rights. Shareholders of High
Yield Fund Class A and Class B shares will receive corresponding Class A and
Class B shares of Fund For Income.
As indicated above, the investment objectives and policies of the two
Funds are substantially similar. Based on its review of the investment
portfolios of each Fund, the Funds' investment adviser believes that all of the
assets held by 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. However, it is the current intention of
the portfolio manager of the High Yield Fund to sell a substantial portion of
the common stock and emerging market debt securities held by the High Yield Fund
prior to the Reorganization. The intention of the High Yield Fund to dispose of
assets prior to the Reorganization could result in selling securities at a
disadvantageous time and could result High Yield Fund's realizing losses that
would not otherwise have been realized. It could also result in the recognition
of gains that would not otherwise have been realized by the High Yield Fund, the
net proceeds of which would be included in a distribution to High Yield Fund
shareholders prior to the Reorganization.
On or before the Closing Date, 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
6
<PAGE>
but unpaid dividends, in order to continue to maintain its tax status as a
regulated investment company.
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 Board of Directors, 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
securities from High Yield Fund to Fund For Income, and the transfer of shares
of Fund For Income to 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 who are not "interested persons" as that term is
defined in the Investment Company Act of 1940, as amended ("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 High Yield Fund shareholders of this Prospectus/Proxy
seeking approval of the Reorganization. (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 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 and, thus, a
reduction in the per share expenses applicable to shareholders, including those
of High Yield Fund.
The Board of Directors of High Yield Fund has scheduled a Special Meeting
of its shareholders which will be held at the office of 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 Board of Directors 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 Board of Directors has
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 Board of Directors of the Funds reviewed all pertinent information
and discussed all relevant issues. In approving the proposed Reorganization, the
Board of Directors of the Funds specifically considered the following factors:
7
<PAGE>
A. COMMONALITY OF INVESTMENT OBJECTIVES AND POLICIES
The Funds have identical investment objectives and substantially similar
management styles. Both Funds seek high current income and secondarily capital
appreciation. Both Funds seek to achieve their 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.
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 High Yield Fund, but for all shareholders of the
combined Fund, for three reasons. First, the combined Fund will have the
opportunity to achieve a breakpoint in management fees which High Yield Fund and
Fund For Income would not achieve as separate funds. Currently, the High Yield
Fund does not have enough assets to reach its 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, wholly apart from the potential of achieving breakpoints, 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
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. PERFORMANCE
Fund For Income is older and has a longer track record than High Yield
Fund. Moreover, Fund For Income has a slightly better long-term performance than
High Yield Fund.
8
<PAGE>
F. CONTINUITY OF SALES REPRESENTATIVE SERVICES
The Reorganization should not result in any change which would prevent
existing sales representatives for High Yield Fund shareholders from continuing
to service the shareholders following the Reorganization.
G. SHAREHOLDER SERVICES
As a member of the First Investors group of mutual funds, Fund For Income
has available the same range of services currently provided to High Yield Fund
shareholders. In addition, with the consolidation of the operations of the
Funds, the Board of Directors 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.
IV. VOTING INFORMATION
Proxy materials will be mailed to shareholders of High Yield Fund
beginning on or about January __, 2000. Holders of record of shares of
beneficial interest ("Shares") of High Yield Fund at the close of business on
________ __, 1999 (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 ____________ Shares of High Yield Fund. This solicitation
of proxies is made by the Board of High Yield Fund on behalf of the Fund.
The holders of one-third of the 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
9
<PAGE>
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 directors and officers of High Yield Fund and Fund For Income,
respectively, as a group, own less than 1% of either Class A or Class B shares
of either Fund.
VOTE REQUIRED
All shares of all classes shall vote together as a single class. The
favorable vote of the holders of a majority of the Shares of the High Yield Fund
present at the Meeting in person or by proxy is required to approve the proposed
Reorganization.
RECOMMENDATION OF THE DIRECTORS
The Board of Directors have concluded that the proposed Reorganization may
benefit the Funds and their shareholders. Thus, the Directors recommend voting
FOR the proposed Reorganization.
OTHER MATTERS
The Board 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 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 and any of its
affiliates, or through securities dealers. While there is no current intent to
do so, the Directors have authorized the officers of the 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
10
<PAGE>
to dealers and others who forward proxy material to their clients, will be borne
by the Funds in proportion to the total net assets of each Fund.
V. INFORMATION ABOUT THE FUNDS
OVERVIEW OF THE FUNDS
WHAT ARE THE INVESTMENT OBJECTIVES, PRIMARY
INVESTMENT STRATEGIES AND RISKS OF THE FUND
FOR INCOME?
The Fund For Income primarily seeks high current income and secondarily
seeks capital appreciation.
The Fund For Income 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 Fund seeks to reduce the
risk of a default by selecting bonds through careful credit research and
analysis. The Fund seeks to reduce the impact of a default by diversifying its
investments among bonds of many different companies and industries. While the
Fund invests primarily in domestic companies, it also can invest in securities
of issuers domiciled in foreign countries. These securities will generally be
dollar-denominated and traded in the U.S. The Fund seeks 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 Fund For Income. First,
the value of the 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 political instability, government regulation and differences in
financial reporting standards. Second, the value of the Fund's shares could
decline if the entire high yield bond market were to decline, even if none of
the 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 the Fund will go up and down, which means that
you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
11
<PAGE>
WHAT ARE THE INVESTMENT OBJECTIVES, PRIMARY
INVESTMENT STRATEGIES AND RISKS OF THE HIGH
YIELD FUND?
The High Yield Fund has the same investment objectives, primary investment
strategies, and primary risks as the Fund For Income with the following
exception. The High Yield Fund currently invests a relatively small part of its
assets in emerging market debt securities and common stocks. While the Fund For
Income has the ability to invest in such securities, it does not currently do
so, and does not currently intend to do so in the future, to any material
degree. As a result, the High Yield Fund's shares may be slightly more volatile
and its yield slightly lower than those of the Fund For Income. Thus, except as
to its strategy of investing in emerging market debt and common stocks, the
objectives, strategies and risks of the High Yield Fund are the same as
summarized above for the Fund For Income.
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 For Income 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.
[UPDATE]
12
<PAGE>
The chart below contains the following plot points:
1989 -8.05%
1990 -17.23%
1991 42.84%
1992 16.70%
1993 18.06%
1994 .58%
1995 18.54%
1996 13.40%
1997 12.62%
1998 3.3%
During the periods shown, the highest quarterly return was _____% (for the
quarter ended ______, ____) and the lowest quarterly return was _____% (for the
quarter ended _______, ____). 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
Class B Shares
High Yield Index
*The annual returns are based upon calendar years.
13
<PAGE>
HIGH YIELD FUND
The bar chart and table below show you how the 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 High Yield 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.
[UPDATE]
The chart below contains the following plot points:
1989 -8.07%
1990 -17.25%
1991 35.8%
1992 18.94%
1993 16.95%
1994 .39%
1995 18.43%
1996 13.35%
1997 11.84%
1998 2.83%
During the periods shown, the highest quarterly return was _____% (for the
quarter ended _____, ____) and the lowest quarterly return was _____% (for the
quarter ended ______, ____). 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 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.
14
<PAGE>
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
Class A Shares
Class B Shares
High Yield Index
*The annual returns are based upon calendar years.
WHAT ARE THE FEES, EXPENSES AND CAPITALIZATION OF THE FUNDS?
The following 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, High Yield and the surviving fund after the Reorganization ("Combined
Fund"). THERE WILL BE NO SHAREHOLDER FEES CHARGED IN CONNECTION WITH THE
REORGANIZATION.
Class A Class B
SHARES SHARES
SHAREHOLDER FEES
(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 holding period for Class B
shareholders of High Yield Fund will be tacked on following the Reorganization
for purposes of measuring the 8 year conversion period of Class B shares to
Class A shares of the Combined Fund.
The following table shows the current fees and expenses incurred for the fiscal
year ended September 30, 1999 with respect to Fund For Income and High Yield
Fund, and PRO FORMA fees and expenses for the Combined Fund after giving effect
to the Reorganization.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL
AND SERVICE ANNUAL FUND
MANAGEMENT (12B-1) OTHER OPERATING FEE NET
FEES FEES (1) EXPENSES(2) EXPENSES(2) WAIVER EXPENSES
<S> <C> <C> <C> <C> <C> <C>
Fund For Income
Class A Shares
Class B Shares.
15
<PAGE>
High Yield Fund
Class A Shares
Class B Shares
Combined Fund
Class A Shares
Class B Shares
</TABLE>
(1) 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.
(2) 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.
EXAMPLE
This example is intended to help you to compare the costs of investing in 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. 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 $ $ $ $
Class B shares *
HIGH YIELD FUND
Class A shares
Class B shares
COMBINED FUND
Class A shares
Class B shares
IF YOU DO NOT REDEEM YOUR SHARES:
FUND FOR INCOME
Class A shares $ $ $ $
Class B shares *
HIGH YIELD FUND
Class A shares
Class B shares
16
<PAGE>
COMBINED FUND
Class A shares
Class B shares
*Assumes conversion to Class A shares eight years after purchase.
CAPITALIZATION
The following table shows the capitalization of each Fund as of ________, 2000,
and on a PRO FORMA combined basis (unaudited) as of _____________, 2000, giving
effect to the Reorganization:
COMBINED FUND
FUND FOR HIGH YIELD FUND (PRO FORMA)
INCOME
Net Assets.................. $ $ $
Net Asset Value Per Share... $ $ $
Shares Outstanding..........
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, each Fund 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
17
<PAGE>
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.
High Yield Fund will also invest, opportunistically, in common stocks of
domestic and foreign companies that are deemed to offer attractive potential for
appreciation as well as bonds of issuers in emerging or developing countries.
High Yield Fund's investments in common stocks will not exceed 10% of its total
assets. (Income-producing preferred stocks, convertible securities, or equity
securities that are acquired as part of a unit with a fixed-income security are
not considered common stocks for purposes of this limitation.)
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.
PRINCIAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. 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
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. Because
18
<PAGE>
High Yield Fund may decide to invest a portion of its assets in common stocks,
its shares may be more volatile than those of other high yield bond funds which
do not invest in common stocks and its yield may be less than other high yield
funds.
LIQUIDITY: 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,
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
political instability, government regulation, and differences in financial
reporting standards.
ALTERNATIVE STRATEGIES: At times the Funds may judge that market, economic or
political conditions make pursuing each Fund's investment strategies
inconsistent with the best interests of its shareholders. The Funds then may
temporarily use alternative strategies that are mainly designed to limit a
Fund's losses.
FUND MANAGEMENT
First Investors Management Company, Inc. ("FIMCO") is the investment
adviser to the Funds. Its address is 95 Wall Street, New York, NY 10005. It
currently serves as investment adviser to 53 mutual funds or series of funds
with total net assets of approximately $5 billion. FIMCO supervises all aspects
of the Fund's operations and determines the Fund's portfolio transactions. For
the fiscal year ended September 30, 1999, FIMCO received advisory fees of ____%
of the Fund For Income's average daily net assets and _____% of the High Yield
Fund's daily net assets. Following the Reorganization, the management fee for
the Combined Fund is expected to be ____% of the Fund's average daily net
assets. FIMCO will maintain 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
continue to serve the 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 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 High Yield Fund. Mr. Ganter also serves as Portfolio Manager of
certain other First Investors Funds. Mr. Ganter joined FIMCO in 1985 as a Senior
Investment Analyst. It is anticipated that Ms. Jones will serve as Portfolio
Manager of the Combined Fund following the Reorganization.
19
<PAGE>
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. 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 Directors of the Funds.
HOW DO I BUY SHARES?
In connection with the Reorganization, High Yield Fund shareholders will
receive corresponding shares of the 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 and 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 in correct
form, as described in the Shareholder Manual, 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, NJ office 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.
The Funds reserve 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.
20
<PAGE>
WHAT ARE THE SALES CHARGES AND EXPENSES FOR SHARES?
Each Fund has two classes of shares, Class A and Class B. While each
class invests in the same portfolio of securities, the classes have separate
sales charge and expense structures. Because of the different expense
structures, each class of shares generally will have different NAVs and
dividends.
The principal advantages of Class A shares are the lower overall
expenses, the availability of quantity discounts on volume purchases and certain
account privileges that are available only on Class A shares. The principal
advantage of Class B shares is that all of your money is put to work from the
outset.
Class A shares of each 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.
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*
*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%.
Class B shares are sold at net asset value, without any initial sales
charge. However, you may pay a CDSC when you sell your shares. The CDSC declines
the longer you hold your shares, as illustrated below. Class B shares convert to
Class A shares after eight years.
21
<PAGE>
Class B Shares
YEAR OF REDEMPTION CDSC as a Percentage of
Purchase Price OR NAV AT
YEAR OF REDEMPTION REDEMPTION
------------------ ----------
Within the 1st or 2nd year...... 4%
Within the 3rd or 4th year...... 3
In the 5th year................. 2
In the 6th year................. 1
Within the 7th year and 8th year 0
There is no CDSC on Class B shares which are acquired through
reinvestment of dividends or distributions. The CDSC is imposed on the lower of
the original purchase price or the net asset value of the shares being sold. For
purposes of determining the CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month at the average cost
of all purchases made during that month.
To keep your CDSC as low as possible, each time you place a request to
sell shares, we will first sell any shares in your account that carry no CDSC.
If there is an insufficient number of these shares to meet your request in full,
we will then sell those shares that have the lowest CDSC.
Sales charges and CDSCs may be reduced or waived under certain
circumstances and for certain groups. Consult your Representative or call us
directly at 1-800-423-4026 for details.
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 class
of shares pays Rule 12b-1 fees for the marketing of fund shares and for services
provided to shareholders. The plans provide for payments at annual rates (based
on average daily net assets) of up to .30% on Class A shares and 1.00% on Class
B shares. No more than .25% of these payments maybe 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, the higher fees for Class B shares will increase
the cost of your investment and over time may cost you more than paying the
initial sales charge for Class A shares.
FOR ACTUAL PAST EXPENSES OF CLASS A AND CLASS B SHARES, SEE THE SECTION ENTITLED
"WHAT ARE THE FEES, EXPENSES AND CAPITALIZATION OF THE FUNDS?" IN THIS
PROSPECTUS/PROXY.
Because of the lower overall expenses on Class A shares, we recommend
Class A shares for purchases in excess of $250,000. If you are investing in
excess of $1,000,000, we will only sell Class A shares to you. For purchases
below $250,000, the class that is best for you generally depends upon the amount
you invest, your time horizon, and your preference for paying the sales charge
initially or later. If you fail to tell us what Class of shares you want, we
will purchase Class A shares for you.
22
<PAGE>
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, NJ
07095-1198;
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 in good order, as described in the Shareholder
Manual. 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 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 FIRST INVESTORS
FUNDS?
You may exchange shares of the Funds 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). Consult your Representative
or call ADM at 1-800-423-4026 for details.
23
<PAGE>
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 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 both classes of a Fund's shares
are calculated at the same time and in the same manner. Dividends on Class B
shares of each Fund 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. 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
24
<PAGE>
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
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. 20459, at prescribed rates.
The Annual Report to shareholders of each Fund for the period ended
September 30, 1999 is included with this Prospectus/Proxy.
25
<PAGE>
VII. 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.
NEED TO UPDATE
FUND FOR INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------
10/1/98- 1/1/98- 1/1/97- 1/1/96- 1/1/95
9/30/99 9/30/98 12/31/97 12/31/96 12/31/95
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value at Beginning of Period $4.43 $4.29 $4.13 $3.81
----- ----- ----- -----
Income from Investment Operations
Net investment income...................... .29 .38 .39 .38
Net realized and unrealized gain (loss)
on investments ............................ (.26) .14 .14 .30
----- --- --- ---
Total from Investment Operations .03 .52 .53 .68
---- ---- --- ---
Less Distributions from
Net Investment Income ............................ .29 .38 .37 .36
Net Realized Gain................................. -- -- -- --
--- --- --- ---
Total distributions.......................... .29 .38 .37 .36
--- --- --- ---
Net Asset Value at End of Period..................... $4.17 $4.43 $4.29 $4.13
===== ===== ===== =====
TOTAL RETURN (%)+.................................... .49 12.62 13.40 18.54
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (in millions) $410 $439 $432 $425
Ratio to Average Net Assets: (%)
Expenses.......................................... 1.27(a) 1.15 1.16 1.18
Net investment income............................. 8.68(a) 8.63 9.27 9.53
Portfolio Turnover Rate (%).......................... 28 45 30 33
+Calculated without sales charge.
*Date Class B shares first offered.
(a)Annualized.
</TABLE>
26
<PAGE>
- ---------------------------------------------------
CLASS B
- ---------------------------------------------------
10/1/98 - 1/1/98 - 1/1/97 - 1/1/96 -
9/30/99 9/30/98 12/31/97 12/31/96
- ---------------------------------------------------
$4.42 $4.28 $4.13
----- ----- -----
.26 .34 .38
(.26) .15 .12
------ ------ -------
-- .49 .50
.26 .35 .35
------- ------- -------
-- -- --
.26 .35 .35
------- ------- -------
$4.16 $4.42 $4.28
===== ===== =====
(.06) 11.95 12.51
$9 $6 $3
1.97(a) 1.85 1.86
7.98(a) 7.93 8.57
28 45 30
27
<PAGE>
HIGH YIELD FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------
10/1/98- 1/1/98- 1/1/97- 1/1/96- 1/1/95-
9/30/99 9/30/99 12/31/97 12/31/97 12/31/95
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value at
Beginning of Period.................... $5.53 $5.40 $5.22 $4.84
----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. .35 .46 .47 .47
Net realized and unrealized gain (loss)
on investments........................ (.34) .15 .20 .39
------- ------- ------- -------
Total from Investment
Operations........................ .01 .61 .67 .86
----- ------ ------- -------
Less Distributions from:
Net Investment Income.................. .34 .48 .49 .48
------ ------ ------- -------
Net Realized Gain ..................... -- -- -- --
Total Distributions.................... .34 .48 .49 .48
--- --- --- ---
Net Asset Value at
End of Period......................... $5.20 $5.53 $5.40 $5.22
===== ===== ===== =====
TOTAL RETURN (%) +......................... .08 11.84 13.35 18.43
- ----------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period $194 $209 $202 $187
(in millions) . . .
Ratio to Average Net Assets: (%)
Expenses............................... 1.36(a) 1.29 1.37 1.45
Net investment income.................. 8.36(a) 8.17 8.99 9.22
Ratio to Average Net Assets
Before Expenses Waived (%)
Expenses............................... 1.59(a) 1.48 1.52 1.55
Net investment income.................. 8.13(a) 7.98 8.84 9.12
Portfolio Turnover Rate (%)................. 20 46 29 42
+Calculated without sales charge.
*Date Class B shares first offered.
(a)Annualized.
</TABLE>
28
<PAGE>
- -------------------------------------------
CLASS B
- -------------------------------------------
- --------------------------------------------
10/1/98 - 1/1/98 - 1/1/97 - 1/1/96 -
9/30/99 9/30/98 12/31/97 12/31/96
- --------------------------------------------
$5.53 $5.40 $5.23
----- ----- -----
.32 .43 .44
(.34) .14 .18
------ --- -------
(.02) .57 .62
------- ------ -------
.32 .44 .45
------ ------ -------
-- -- --
.32 .44 .45
--- --- ---
$5.19 $5.53 $5.40
===== ===== =====
(.59) 11.11 12.41
$9 $7 $4
2.06(a) 1.99 2.07
7.66(a) 7.47 8.28
2.29(a) 2.18 2.22
7.43(a) 7.28 8.13
20 46 29
29
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of _______ __, 1999, between FIRST INVESTORS HIGH YIELD FUND, INC., a
Maryland corporation ("Target"), and FIRST INVESTORS FUND FOR INCOME, INC., a
Maryland corporation ("Acquiring Fund"). (Acquiring Fund and Target are
sometimes referred to herein individually as a "Fund" and collectively as the
"Funds.")
The Funds 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 it 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 of
beneficial interest 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."
The Target Shares are divided into two classes, designated Class A and
Class B shares ("Class A Target Shares" and "Class B Target Shares,"
respectively). Acquiring Fund's shares are also divided into two classes
("Acquiring Fund Shares"), designated Class A and Class B shares ("Class A
Acquiring Fund Shares" and "Class B Acquiring Fund Shares," respectively). Each
class of Acquiring Fund Shares is similar to the corresponding class of Target
Shares (I.E., the Funds' Class A Shares correspond to each other and the Funds'
Class B Shares correspond to each other).
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) (i) Class A Acquiring Fund Shares, determined
by dividing the net value of Target (computed as set forth in paragraph
2.1) ("Target Value") attributable to the Class A Target Shares by the net
asset value ("NAV") of a Class A Acquiring Fund Share (computed as set
forth in paragraph 2.2), and (ii) Class B Acquiring Fund Shares,
determined by dividing the Target Value attributable to the Class B Target
Shares by the NAV of a Class B Acquiring Fund Share (as so computed), 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
<PAGE>
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 by class (I.E., the
account for a Shareholder of Class A Target Shares shall be credited with the
respective PRO RATA number of Class A Acquiring Fund Shares due that
Shareholder, and the account for a Shareholder of Class B Target Shares shall be
credited with the respective PRO RATA number of Class B 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 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. 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 prospectus and statement
2
<PAGE>
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 of an Acquiring Fund Share
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 First Investors Management Company, Inc. ("FIMCO").
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
February __, 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. Target'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. Target'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. Target 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 Target. 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 Target evidencing the Acquiring Fund
Shares to be credited to Target at the Effective Time or provide evidence
satisfactory to Target 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 Fund 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.
3
<PAGE>
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
4.1.1.Target 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 ("Target Articles") is on file with the
Secretary of the State of Maryland;
4.1.2.Target 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.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;
4.1.4.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;
4.1.5.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, Maryland law or any provision of the
Target Articles or 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;
4.1.6.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;
4.1.7.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 Target that, if adversely
determined, would materially and adversely affect its 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
<PAGE>
4.1.8.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 Target's board of directors, 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;
4.1.9. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.10. 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 Target, 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;
4.1.11. 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 Acquiring Fund for use therein;
4.1.12. 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
Target's financial statements referred to in paragraph 4.1.17 and
liabilities incurred by Target in the ordinary course of its business
subsequent to _________, 1999, or otherwise previously disclosed to
Acquiring Fund, none of which has been materially adverse to the business,
assets, or results of Target's operations;
4.1.13. Target 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;
4.1.14. 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;
5
<PAGE>
4.1.15. 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;
4.1.16. 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 September 30, 1998 [PLEASE CONFIRM THAT SUCH RETURN HAS
BEEN FILED], have been timely filed and all taxes payable pursuant to such
returns have been timely paid; and
4.1.17. The financial statements of Target for the year ended
September 30, 1999 [PLEASE CONFIRM DATE], 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;
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 Target;
4.2.7. Except as otherwise disclosed in writing to and accepted by
Target, 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 that, if
6
<PAGE>
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 Target's
board of directors, 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,
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 Target for use therein;
4.2.11. Acquiring Fund 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 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 net asset
value 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
7
<PAGE>
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;
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 September 30, 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 year
ended September 30, 1999, to be delivered to Target, 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 aggregate fair market value of the Acquiring Fund Shares,
when received by the Shareholders, will be approximately equal to the
aggregate fair market value of their 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 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;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
8
<PAGE>
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
(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
9
<PAGE>
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 Funds shall coordinate their
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.
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 Articles and applicable law.
10
<PAGE>
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 Fund 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. The Reorganization shall be contingent upon, among other things,
issuance by the SEC of an Order pursuant to Section 26(b) of the 1940 Act
approving the substitution of shares of Acquiring Fund for shares of Target for
investments under the First Investors Periodic Payment Plans for Investment in
First Investors High Yield Fund, Inc. This contingency, however, may be waived
by the Funds' Boards.
6.5. Target shall have received an opinion of Kirkpatrick & Lockhart LLP
("Counsel") substantially to the effect that:
6.5.1. 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;
6.5.2. 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 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;
6.5.3. 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;
6.5.4. 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 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 Target;
11
<PAGE>
6.5.5. 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;
6.5.6. 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
6.5.7. 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 Target.
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.
6.6. Acquiring Fund shall have received an opinion of Counsel
substantially to the effect that:
6.6.1. Target is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland with power under
the Target Articles to own all its properties and assets and, to the
knowledge of Counsel, to carry on its business as presently conducted;
6.6.2. This Agreement (a) has been duly authorized, executed, and
delivered by Target and (b) assuming due authorization, execution, and
delivery of this Agreement by Acquiring Fund, is 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;
6.6.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate the Target Articles or By-Laws or any provision of any agreement
(known to Counsel, without any independent inquiry or investigation) to
which 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 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;
6.6.4. 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 Target
12
<PAGE>
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;
6.6.5. Target 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
6.6.6. 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 Target or any of its properties or assets and (b) 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 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.
6.7. Each Fund 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, for federal income tax purposes:
6.7.1. 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 constitute 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;
6.7.2. 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;
6.7.3. 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;
6.7.4. 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;
13
<PAGE>
6.7.5. 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
6.7.6. 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.
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 Fund 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 February __, 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 its directors or officers,
to the other Fund.
14
<PAGE>
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.
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. 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 Fund 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: FIRST INVESTORS HIGH YIELD FUND, INC.
By:
- ------------------------- --------------------------------
ATTEST: FIRST INVESTORS FUND FOR INCOME, INC.
By:
- ------------------------- --------------------------------
<PAGE>
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 __, 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. ("INCOME FUND"), 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, INCOME FUND and GOVERNMENT FUND each offers one series. GOVERNMENT
FUND, INVESTMENT GRADE FUND, INCOME FUND, 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 Income Fund and High Yield Fund dated
January __, 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.................................................
Investment Policies.............................................................
Futures and Options Strategies.................................................
Investment Restrictions.........................................................
Portfolio Turnover..............................................................
Directors/Trustees and Officers.................................................
Management......................................................................
Underwriter.....................................................................
Distribution Plans..............................................................
Determination of Net Asset Value................................................
Allocation of Portfolio Brokerage...............................................
Purchase, Redemption and Exchange of Shares.....................................
Taxes...........................................................................
Performance Information.........................................................
General Information.............................................................
Financial Statements............................................................
Pro Forma Financial Statements and Schedules....................................
Appendix A......................................................................
Appendix B......................................................................
Appendix C......................................................................
Shareholder Manual: A Guide to your First Investors Mutual Fund Account........
<PAGE>
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
"Adviser"). The Fund may invest up to 35% of its total assets in U.S. Government
1
<PAGE>
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 INCOME FUND
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 INCOME
FUND 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
<PAGE>
HIGH YIELD FUND may invest up to 35% of its total assets, and INCOME FUND
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
<PAGE>
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, INCOME FUND 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
<PAGE>
DEEP DISCOUNT SECURITIES. HIGH YIELD FUND AND INCOME FUND 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
INCOME 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 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 INCOME 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. 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, INCOME FUND 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
<PAGE>
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
6
<PAGE>
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 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
WARRANTS. HIGH YIELD FUND, INCOME FUND 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. INVESTMENT GRADE FUND AND
GOVERNMENT FUND may each 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.
11
<PAGE>
exchange or board of trade, and may also enter into closing transactions with
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
12
<PAGE>
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 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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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.
INCOME 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 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
<PAGE>
(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
<PAGE>
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 __%, respectively,
INCOME FUND'S portfolio turnover rate was 28% and __%, respectively, GOVERNMENT
FUND'S portfolio turnover rate was 62% and __%, and INVESTMENT GRADE'S portfolio
turnover rate was 49% and __%.
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, Income Fund, 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*+ (43), 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 07982.
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 and EIMCO.
CONCETTA DURSO (64), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
20
<PAGE>
NANCY W. JONES (55), Vice President, INCOME FUND. Vice President, First
Investors Asset Management Company, Inc. and First Investors Series Fund;
Portfolio Manager, FIMCO.
GEORGE V. GANTER (47), Vice President, HIGH YIELD FUND. Vice President, First
Investors Asset Management Company, Inc., First Investors Special Bond Fund,
Inc., and Executive Investors Trust; Portfolio Manager, FIMCO.
CLARK D. WAGNER (40), Vice President. 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.
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE AGGREGATE
COMPENSATION AGGREGATE COMPENSATION COMPENSATION TOTAL COMPENSATION
FROM COMPENSATION FROM FROM FROM FIRST INVESTORS
HIGH YIELD FROM GOVERNMENT INVESTMENT FAMILY OF FUNDS PAID
DIRECTOR FUND* INCOME FUND* FUND* GRADE FUND* TO DIRECTOR++
<S> <C> <C> <C> <C>
James J. Coy** $0 $0 $0 $0 $0
Roger L. $0 $0 $0 $0 $0
Grayson***
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 $0 $0 $0 $0 $0
Herbert $0 $0 $0 $0 $0
Rubinstein
James M. Srygley $0 $0 $0 $0 $
John T. Sullivan $0 $0 $0 $0 $0
Robert F. $0 $0 $0 $0 $0
Wentworth
Nancy Schaenen $0 $0 $0 $0 $0
</TABLE>
21
<PAGE>
- -------------
* Compensation to officers and interested Directors of the Funds is paid by
the Adviser.
** On March 27, 1997, Mr. Coy resigned as a Director of the Funds. Mr. Coy
currently serves as an emeritus Director.
***On August 20, 1998, Mr. Grayson resigned as a Director of the Funds.
+ On September 17, 1998, Mr. Lavoie was elected by the Board of Directors to
serve as Director.
++ The First Investors Family of Funds consist of 15 separate registered
investment companies.
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
INCOME FUND
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
22
<PAGE>
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 $_________,
respectively, in advisory fees. For the same periods, the Adviser voluntarily
waived $400,000, $375,000 and $________, respectively, in advisory fees. For the
fiscal years ended December 31, 1997 and September 30, 1998 and 1999, INCOME
FUND paid the Adviser $3,217,285, $2,448,268 and $__________, 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
$___________, respectively, in advisory fees. For these same time periods, the
Adviser voluntarily waived $532,208, $436,686 and $__________, 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
$_________, respectively, in advisory fees. For the same periods, the Adviser
voluntarily waived $47,250, $56,680 and $________, respectively, in advisory
fees. In addition, for the same periods the Adviser voluntarily assumed expenses
in the amount of $105,581, $58,718 and $____________, 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.
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.
23
<PAGE>
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 $_________, respectively. For the same periods, FIC
reallowed an additional $133,969, $60,089 and $_______, 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 INCOME
FUND of $472,941, $503,910 and $__________, respectively. For the same periods,
FIC reallowed an additional $60,576, $102,233 and $___________, 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 $___________, respectively. For the
same periods, FIC reallowed an additional $8,095, $8,072 and $__________,
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 $__________. For the
same periods, FIC reallowed an additional $1, $6,498 and $_______, respectively,
to unaffiliated dealers.
DISTRIBUTION PLANS
Pursuant to a separate plan of distribution for each class of shares
adopted by each Fund under Rule 12b-1 under the 1940 Act ("Class A Plan" and
"Class B Plan" and, collectively, "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.
24
<PAGE>
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
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, INCOME
FUND, GOVERNMENT FUND AND INVESTMENT GRADE FUND paid $_______, $_______,
$_______ and $_______, 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 $ $ $
INCOME FUND
GOVERNMENT FUND
INVESTMENT GRADE FUND
For the fiscal year ended September 30, 1999, HIGH YIELD FUND, INCOME
FUND, GOVERNMENT FUND AND INVESTMENT GRADE FUND paid $______, $______, $______
and $______, 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 $ $ $
INCOME FUND
GOVERNMENT FUND
INVESTMENT GRADE FUND
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
<PAGE>
SALES CHARGES AS % OF CONCESSION TO
OFFERING NET AMOUNT DEALERS AS % OF
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
<PAGE>
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
<PAGE>
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, INCOME FUND 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, INCOME FUND 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 $____
in brokerage commissions, all of which was paid to brokers who furnished
research services on portfolio transactions in the amount of $_______. For the
fiscal year ended September 30, 1999, INCOME FUND paid $_____ in brokerage
commissions of which $_____ was paid to brokers who furnished research services
on portfolio transactions in the amount of $_______. 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
<PAGE>
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, INCOME FUND 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
<PAGE>
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
<PAGE>
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
<PAGE>
AVERAGE ANNUAL TOTAL RETURN(1,2)
HIGH YIELD FUND INCOME FUND
--------------- -----------
Class A Class B Class A Class B
SHARES SHARES(3) SHARES SHARES(3)
------ ------ ------ ------
One Year
Five Years
Ten Years
Life of Fund
GOVERNMENT FUND INVESTMENT GRADE FUND
--------------- ----------------------
Class A Class B Class A Class B
SHARES SHARES(3) SHARES SHARES(3)
------ ------ ------ ------
One Year
Five Years
Ten Years
Life of Fund
TOTAL RETURN(1,2)
HIGH YIELD FUND INCOME FUND
--------------- -----------
Class A Class B Class A Class B
SHARES SHARES(3) SHARES SHARES(3)
------ ------ ------ ------
One Year
Five Years
Ten Years
Life of Fund
GOVERNMENT FUND INVESTMENT GRADE FUND
--------------- ---------------------
Class A Class B Class A Class B
SHARES SHARES(3) SHARES SHARES(3)
------ ------ ------ ------
One Year
Five Years
Ten Years
Life of Fund
- -------------------------
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 INCOME FUND. 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.
32
<PAGE>
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:
AVERAGE ANNUAL TOTAL RETURN(1)
HIGH YIELD FUND INCOME FUND
--------------- -----------
Class A Class B Class A Class B
SHARES SHARES(2) SHARES SHARES(2)
------ ------ ------ ------
One Year
Five Years
Ten Years
Life of Fund
GOVERNMENT FUND INVESTMENT GRADE FUND
--------------- ---------------------
Class A Class B Class A Class B
SHARES SHARES(2) SHARES SHARES(2)
------ ------ ------ ------
One Year
Five Years
Ten Years
Life of Fund
TOTAL RETURN(11)
HIGH YIELD FUND(2) INCOME FUND
--------------- -----------
Class A Class B Class A Class B
SHARES SHARES(2) SHARES SHARES(2)
------ ------ ------ ------
One Year
Five Years
Ten Years
Life of Fund
GOVERNMENT FUND(3) INVESTMENT GRADE FUND
--------------- ---------------------
Class A Class B Class A Class B
SHARES SHARES(2) SHARES SHARES(2)
------ ------ ------ ------
One Year
Five Years
Ten Years
Life of Fund
33
<PAGE>
- --------------
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.
2 The commencement date for the offering of Class B shares is January 12, 1995.
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 ____% and ____%, respectively. For the 30
days ended September 30, 1999, the yield for Class A and Class B shares of
INCOME FUND was ____% and ____%, respectively. For the 30 days ended September
30, 1999, the yield for Class A shares and Class B shares of GOVERNMENT FUND was
____% and ____%, respectively. For the 30 days ended September 30, 1999, the
yield for Class A and Class B shares of INVESTMENT GRADE FUND was _____% and
____%, 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, INCOME FUND, GOVERNMENT FUND AND
INVESTMENT GRADE FUND calculated using the offering price was ____%, ____%,
____% and ____%, respectively. The distribution rate for the same period for
Class A shares of the Funds calculated using net asset value was ____%, ____%,
____% and ____%, respectively. The distribution rate for the same period for
Class B shares of HIGH YIELD FUND, INCOME FUND, GOVERNMENT FUND AND INVESTMENT
GRADE FUND calculated using net asset value was _____%, ____%, ____% and ____%,
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.
34
<PAGE>
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,
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.
35
<PAGE>
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.
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.
Moody's Stock Index, an unmanaged index of utility stock performance.
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 2000 tracks the return on these
stocks based on price appreciation or depreciation and does not include
dividends and income or changes in market values caused by other kinds of
corporate changes.
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 Russell 2500 tracks the return on these
stocks based on price appreciation or depreciation and does not include
dividends and income or changes in market values caused by other kinds of
corporate changes.
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 Midcap 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
36
<PAGE>
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 Smallcap 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 40 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
HIGH YIELD FUND and INCOME FUND 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. INCOME FUND'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.
37
<PAGE>
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
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% AND 25% SHAREHOLDERS. As of __________, 1999, [UPDATE FOR EACH FUND]
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.
38
<PAGE>
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
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
<PAGE>
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 _________, 1999 (Accession
Number: ________________).
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 _________, 1999 (Accession
Number: ___________________).
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 _________, 1999 (Accession
Number: ________________________-).
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 _________, 1999 (Accession
Number: __________________).
40
<PAGE>
PRO FORMA FINANCIAL STATEMENTS AND SCHEDULES
- --------------------------------------------
41
<PAGE>
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.
42
<PAGE>
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.
43
<PAGE>
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.
44
<PAGE>
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.
45
<PAGE>
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
46
<PAGE>
[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.
47
<PAGE>
[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.
48
<PAGE>
[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.
49
<PAGE>
[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.
50
<PAGE>
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.
51
<PAGE>
[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.
52
<PAGE>
FIRST INVESTORS LOGO
Shareholder Manual
A Guide to Your
First Investors
Mutual Fund Account
as of March 8, 1999
53
<PAGE>
INTRODUCTION
Investing in mutual funds doesn't have to be complicated. In addition to a wide
variety of mutual funds, First Investors offers personalized service. Your
registered representative is available to answer your questions and help you
process your transactions. 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
Transfer Agent
Administrative Data
Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
54
<PAGE>
TABLE OF CONTENTS
HOW TO BUY SHARES
To Open An Account ......................................................... 5
To Open a Retirement Account ............................................... 6
Minimum Initial Investment ................................................. 6
Additional Investments ..................................................... 6
Acceptable Forms of Payment ................................................ 6
Share Classes .............................................................. 6
Share Class Specification .................................................. 7
Class A Shares ............................................................. 7
Sales Charge Waivers & REductions on Class A Shares ........................ 7
Class B Shares ............................................................. 9
How To Pay ................................................................. 10
Wire Transfers ............................................................. 11
Distribution Cross-Investment .............................................. 12
HOW TO SELL SHARES
REDEMPTION OPTIONS ......................................................... 13
Written Redemptions ........................................................ 13
Telephone Redemptions ...................................................... 13
Electronic Funds Transfer .................................................. 13
Systematic Withdrawal Plans ................................................ 14
Expedited Wire Redemptions ................................................. 14
HOW TO EXCHANGE SHARES
Exchange Methods ........................................................... 15
Exchange Conditions ........................................................ 16
Exchanging Funds With.
Automatic Investments or
Systematic Withdrawals ..................................................... 16
WHEN AND HOW ARE FUND SHARES PRICED? ....................................... 17
HOW ARE PURCHASE, REDEMPTION, AND EXCHANGE ORDERS PROCESSED AND PRICED? .... 17
Purchases .................................................................. 17
Redemptions ................................................................ 18
Exchanges .................................................................. 18
Orders Placed Via First Investors Registered Representatives ............... 18
Special Rules for Money Market Funds ....................................... 19
SPECIAL RULES FOR MONEY MARKET ACCOUNTS .................................... 18
RIGHT TO REJECT PURCHASE OR EXCHANGE ORDERS ................................ 19
SIGNATURE GUARANTEE ARE REQUIRED............................................ 19
TELEPHONE SERVICES TELEPHONE EXCHANGES AND REDEMPTIONS ..................... 20
Security MEasures .......................................................... 20
Eligibility ................................................................ 20
NON-RETIREMENT ACCOUNTS .................................................... 20
RETIREMENT ACCOUNTS ........................................................ 20
Shareholder Services ....................................................... 21
OTHER SERVICES ............................................................. 22
Reinvestment Privilege ..................................................... 22
Certificate Shares ......................................................... 22
Money Market Fund Draft Checks ............................................. 22
Return Mail ................................................................ 23
Transferring Shares ........................................................ 23
ACCOUNT STATEMENTS
Transaction Confirmation Statements ........................................ 24
Master Account Statements .................................................. 24
Annual and Semi-Annual Reports ............................................. 24
DIVIDENDS AND DISTRIBUTIONS
Dividends and Distributions ................................................ 25
Buying a Dividend .......................................................... 25
TAX FORMS .................................................................. 26
55
<PAGE>
HOW TO BUY SHARES
First Investors offers a wide variety of mutual funds to meet your financial
needs ("FI Funds"). Your First Investors 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 for the number of the First Investors
office near you or visit us on-line at www.firstinvestors.com
o 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"). 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. You need to tell us
how you want your shares registered when you open a new Fund account. Please
keep the following information in mind:
- -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 automatically passes to the named
beneficiaries in the event of the death of all account owners.
- -DIVIDENDS AND CAPITAL GAINS. Fund distributions will be automatically
reinvested in your account unless you request otherwise.
_______________________________________________________________________________
SOME REGISTRATIONS REQUIRE ADDITIONAL PAPERWORK.
_______________________________________________________________________________
TYPE OF ACCOUNT ADDITIONAL DOCUMENTS REQUIRED
Corporations
Partnership
& Trusts First Investors Certificate of Authority
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 Copy of court document appointing Conservator/Guardian
& Guardianships
_______________________________________________________________________________
56
<PAGE>
oTO OPEN A RETIREMENT ACCOUNT
Fund shares may be purchased for your retirement account by completing the MAA
and the appropriate retirement plan application. First Investors offers
retirement plans for both individuals and employers as follows:
INDIVIDUAL RETIREMENT ACCOUNTS
including Roth, Traditional, and Rollover IRAs.
SIMPLE IRAS offered by employers.
SEP-IRAS (SIMPLIFIED EMPLOYEE PENSION PLANS) for small business owners or people
with income from self-employment, including SARSEP IRAs.
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.
For more information about these plans call your registered representative or
our Shareholder Services Department at 1 (800) 423-4026.
oMINIMUM INITIAL INVESTMENT
You can open a non-retirement account with a check made payable to First
Investors Corporation for as little as $1,000. The minimum is waived if you open
an account through one of our Automatic Investment Programs (see "How to Pay")
or through a full exchange from another FI Fund. You can open a First Investors
Traditional IRA or Roth IRA with as little as $500 (except for the Cash
Management Fund which requires a $1,000 investment). Other retirement accounts
may have lower initial investment requirements at the Fund's discretion.
oADDITIONAL 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
oACCEPTABLE FORMS OF PAYMENT
The following forms of payment are acceptable:
- -checks made payable to First Investors Corporation
- -Money Line 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
oSHARE 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
57
<PAGE>
of shares in the same fund generally have different prices. Class A shares have
a front-end sales charge. Class B shares 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.
oSHARE 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 preference. If you do not specify which class of shares you want
to purchase, Class A shares will automatically be purchased.
oCLASS 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 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%
Investments of $1 million or more will only be made in Class A shares at the
Fund's net asset value.
Generally, you should consider purchasing Class A shares if you plan to invest
$250,000 or more either initially or over time.
_______________________________________________________________________________
_______________________________________________________________________________
oSALES 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.
2: By a former officer, trustee, director, or employee of the Fund,
First Investors Corporation, or their affiliates provided the person worked for
the company for at least 5 years and retired or terminated employment in good
standing.
58
<PAGE>
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 fund distributions are reinvested in Class A shares.
5: When Systematic Withdrawal Plan payments are reinvested in Class A shares.
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 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. For example, if the combined value of your existing FI Fund
accounts is $25,000, 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. In addition, your spouse's
accounts and custodial accounts held for minor children residing at your home
can also be linked to your accounts upon request.
59
<PAGE>
- -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 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 up to 90
days before the date of the LOI may be included.
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.
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.
oCLASS 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. 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%
________________________________________________________________
60
<PAGE>
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.
2: Redemptions due to death or disability (as defined in section 72(m)(7) of the
Internal Revenue Code) requested within one year of death. Additional
documentation is required.
3: Distributions from employee benefit plans due to termination or plan
transfer.
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.
oHOW 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 INVESTMENT PROGRAMS:
We offer several automatic investment programs to simplify
investing.
- -MONEY LINE:
With our Money Line program, you can open an account with as little as $50 a
month or $600 each year in a FI Fund account by transferring funds
electronically from your bank account. You can invest up to $10,000 a month
through Money Line.
61
<PAGE>
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. 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., ATTN: CONTROL DEPT., 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.
- -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 medallion signature guarantee (see Signature Guarantee Policy) is required to
increase a Money Line payment to $2,500 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 bought at the offering price on the day the
electronic transfer is received by the Fund.
HOW TO APPLY:
1: Complete an API Application.
2: Complete an API Authorization Form.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP., ATTN: CONTROL DEPT., 581 MAIN STREET,
WOODBRIDGE, NJ 07095-1198.
oWire 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.
YOU MUST CALL US AT 1 (800) 423-4026 TO ADVISE US OF AN INCOMING FEDERAL FUNDS
WIRE and provide us with the federal funds wire transfer confirmation number,
the amount of the wire, and the fund account number to receive same day credit.
62
<PAGE>
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#
oDISTRIBUTION 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 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.
oSYSTEMATIC 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.
- -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 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 is open for
regular trading. In the mutual fund industry, a sale is referred to as a
"redemption." Redemption proceeds are generally mailed within three days. If the
shares being redeemed were purchased by check, payment may be delayed to verify
that the check 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
63
<PAGE>
oREDEMPTION OPTIONS
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 First Investors 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;
6: Signature guarantees, if required (see Signature Guarantee Policy).
Written redemption requests should be mailed to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198
TELEPHONE REDEMPTIONS
You, or any person we believe is authorized to act on your behalf, may redeem
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 5:00 p.m., EST,
provided:
- -Telephone privileges are available for your account registration (see Telephone
Privileges);
- -You have 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;
- -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.
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 are 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;
4: Cannot exceed $100,000 when added to the total amount of all EFT
redemptions made within the previous 30 days.
64
<PAGE>
If your redemption does not qualify for an EFT redemption, you may request to
have the redemption proceeds mailed to you.
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 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. 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 70-1/2.
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.
oEXPEDITED 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.
- -Each wire under $5,000 is subject to a $10 fee.
- -Six wires of $5,000 or more are permitted without charge each month. Each
additional wire is $10.00.
- -Wires must be directed to your pre-authorized bank account.
65
<PAGE>
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 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.
<TABLE>
<CAPTION>
______________________________________________________________________________
EXCHANGE METHODS
_______________________________________________________________________________
METHOD STEPS TO FOLLOW
<S> <C>
Through Your FI
Registered Representative Call your registered representative.
___________________________________________________________________________________
By Phone Call Special Services from 9:00 a.m. to 5:00 p.m., EST
(800) 342-6221 Orders received after the close of the New York Stock
Exchange, usually 4:00 p.m., est, 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.
____________________________________________________________________________________
By Mail to: 1.Send us written instructions signed by all account
ADM exactly as the account is registered.
owners 2. Include your fund account number.
ATTN: EXCHANGE DEPT. 3. Indicate either the dollar amount, number of shares
581 MAIN STREET or percent of the account you want to exchange.
WOODBRIDGE, NJ 07095-119 4. Specify the existing account number or the name of
the new Fund you are exchanging into.
5. Include any outstanding share certificates for the
shares you want to exchange.
6. For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional documents
are required. Call Shareholder Services at 1 (800)
423-4026.
____________________________________________________________________________________
</TABLE>
66
<PAGE>
oEXCHANGE 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 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. Your request must be in writing and include a statement
acknowledging that a sales charge will be paid. If you exchange Class B shares
of a fund for shares of a Class B money market fund, the CDSC will not be
imposed and the holding period used to calculate the CDSC will carry over to the
acquired shares.
8: 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.
oEXCHANGING 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 into both. 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)
________________________________________________________________________________
67
<PAGE>
WHEN AND HOW ARE FUND SHARES PRICED?
Each FI Fund prices its shares each day that the New York Stock Exchange
("NYSE") is open for trading. The share price is calculated as of the close of
trading on the NYSE (generally 4:00 p.m., EST) except for shares of the money
market funds which are priced as of 12:00 noon. These days are referred to as
"Trading Days" in this Manual.
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 ARE PURCHASE, REDEMPTION, AND EXCHANGE ORDERS PROCESSED AND PRICED?
The processing and price for a purchase, redemption or exchange depends upon how
your order is placed. As indicated below, special rules apply to money market
transactions.
oPURCHASES
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 the money market funds which are discussed below).
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 by
your broker/dealer. If you give your order to a First Investors registered
68
<PAGE>
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., EST, your shares will be
purchased at that day's price (except money market funds which are discussed
below). 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 dates you select on your application.
- -Automatic Payroll Investment Service purchases are processed on the dates that
we receive funds from your employer.
oREDEMPTIONS
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 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 our Woodbridge, NJ office.
If your redemption order is received prior to the close of trading on the NYSE,
you will receive that day's price (except in the case of money market funds
which are discussed below). If you are redeeming through a broker-dealer other
than First Investors, other requirements may apply. Consult with your
broker-dealer about its requirements.
oEXCHANGES
Exchanges can generally be made by written instructions or, unless you have
declined Telephone Privileges, by phone by you or your registered
representative. Exchange orders are processed when we receive them in good order
in our Woodbridge, NJ office.
Exchange orders received prior to the close of trading on the NYSE will be
processed at that day's prices (except in the case of exchanges into or out of
money market funds which are discussed below).
oORDERS 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.
oORDERS 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 the order in a timely
fashion. Any such disputes must be settled between you and the Dealer.
69
<PAGE>
oSPECIAL RULES FOR MONEY MARKET FUNDS
A money market fund share purchase will not be made until we receive the funds
for the purchase. The funds for the purchase will not be deemed to have been
received until the morning of the next Trading Day following the Trading Day on
which your purchase check 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 funds for the purchase will not be deemed to have been received
until the morning of the second following Trading Day.
If you make your purchase by wire transfer prior to 12:00 p.m., EST, and you
have previously advised us that the wire is on the way, the funds for the
purchase will be deemed to have been received on that same day. You must call
beforehand and give us your name, account number, the amount of the wire, and a
federal reference number documenting the transfer. 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 ACCOUNT
8900005696 YOUR NAME YOUR FIRST INVESTORS ACCOUNT # TAX-EXEMPT MONEY MARKET FUND
BANK OF NEW YORK ABA #021000018 ACCOUNT 8900023198 YOUR NAME YOUR FIRST
INVESTORS ACCOUNT #
Purchases by Money Line and Automatic Payroll Investment are processed in the
same manner as those in other Funds.
Requests for redemptions or exchanges out of or into our money market funds must
be received in writing or by phone prior to 12:00 p.m., EST, on a Trading Day,
to be processed the same day. Redemption or exchange orders received after 12:00
p.m., EST, but before the close of regular trading on the NYSE, will be
processed on the morning of the following Trading Day.
RIGHT TO REJECT PURCHASE OR EXCHANGE ORDERS
A fund reserves the right to reject or restrict any specific purchase 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 your First Investors
registered representative or 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. The words "Signature Guaranteed" must appear beside the signature of
the guarantor.
- -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 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
(unless the check is mailed to a 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 to the dealer on the account.
6: When shares are transferred to a new registration.
7: When issued shares are redeemed.
8: To establish any EFT service.
70
<PAGE>
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 on an account which was coded "Do Not Mail" to suppress
check and dividend mailings due to a previously unknown address is updated.
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, additional
documents are required. Call Shareholder Services at 1 (800) 423-4026 for
assistance.
Telephone privileges allow you to exchange or redeem shares and authorize other
transactions by calling Special Services at 1 (800) 342-6221 from 9:00 a.m. to
5:00 p.m., EST, on any day the NYSE is open. Your First Investors registered
representative may also use telephone privileges to execute your transactions.
oSECURITY 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.
oELIGIBILITY
NON-RETIREMENT ACCOUNTS:
You can exchange or redeem shares of any non-retirement account by phone. Shares
must be owned for 15 days for telephone redemption. Telephone exchanges and
redemptions are not available on guardianship and conservatorship accounts.
RETIREMENT ACCOUNTS:
You can exchange between shares of any participant directed IRA, 403(b) or
401(k) Simplifier plan where First Financial Savings Bank, S.L.A. is Custodian.
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 First Investors 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.
71
<PAGE>
SHAREHOLDER SERVICES:
1 (800) 423-4026
PROVIDED YOU HAVE NOT DECLINED TELEPHONE PRIVILEGES, CALL US TO UPDATE OR
CORRECT:
- -Your address or phone number.
- -Your birth date (important for retirement distributions).
- -Your distribution option to reinvest or pay in cash (non-retirement accounts
only) or initiate cross reinvestment of dividends.
- -The amount of your Money Line or Automatic Payroll Investment payment.
- -The allocation of your Money Line or Automatic Payroll Investment payment.
- -The amount of your Systematic Withdrawal payment.
TO REQUEST:
- -A duplicate copy of a statement or tax form.
- -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.
- -A stop payment on a dividend, redemption or money market check.
- -Suspension (up to six months) or cancellation of Money Line.
- -Cancellation of your Systematic Withdrawal Plan.
- -Cancellation of cross-reinvestment of dividends.
- -Money market fund draft checks.
72
<PAGE>
OTHER SERVICES
oREINVESTMENT PRIVILEGE
If you sell some or all of your Class A or Class B shares, you may be entitled
to reinvest 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 reinvest proceeds into a new fund account, you must meet the fund's
minimum initial investment requirement.
If you reinvest 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 reinvest
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 reinvestments 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.
oCERTIFICATE SHARES
Every time you make a purchase of Class A shares, we will credit shares to your
fund account. We do not issue shares certificates unless you specifically
request them. Certificates are not issued on any Class B shares or on Class A
money market funds.
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 will 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 or exchanged until they are
returned with your transaction request. The share certificate must be properly
endorsed and signature guaranteed.
oMoney 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 N.J. 07095-1198 to request a
copy of the following records:
ACCOUNT HISTORY STATEMENTS CANCELLED CHECKS
1974 - 1982* $10 per year fee There is a $10 fee for a copy of a
1983 - present $5 total fee for all years cancelled dividend, liquidation, or
Current & investment check requested. There
Two Prior Years Free cancelled money market draft check.
DUPLICATE TAX FORMS
Current Year Free
Prior Year(s) $7.50 per tax form
per year
* ACCOUNT HISTORIES ARE NOT AVAILABLE
PRIOR TO 1974.
73
<PAGE>
oRETURN 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 turned over to your state (in other
words forfeited).
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.
oTRANSFERRING 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.
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).
In addition, 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 an 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 or disability of a
shareholder also 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.
74
<PAGE>
ACCOUNT STATEMENTS
oTRANSACTION CONFIRMATION STATEMENTS
You will receive a confirmation statement immediately after most transactions.
These include:
- -shareorder purchases
- -check investments
- -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 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 provides a perforated Investment Stub with your
preprinted name, registration, and fund account number for future investments.
oMASTER 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 and Executive Investors Trust 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
oANNUAL 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.
75
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
oDIVIDENDS AND DISTRIBUTIONS
For funds that declare daily dividends, you start earning dividends on the day
your purchase is made. For FI money market funds, you start earning dividends on
the day federal funds are credited to your fund account. 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 Global Fund
Fund for Income Growth & Income Fund Special Situations Fund
Government Fund Total Return Fund Mid-Cap Opportunity Fund
Insured Intermediate Tax-Exempt Utilities Income Fund
Insured Tax Exempt Fund
Investment Grade Fund
High Yield 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.
oBUYING 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.
76
<PAGE>
<TABLE>
<CAPTION>
TAX FORMS
TAX FORM DESCRIPTION MAILED BY
<S> <C> <C>
_________________________________________________________________________________________________
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.
_________________________________________________________________________________________________
</TABLE>
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.
77
<PAGE>
Principal Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
Transfer Agent
Administrative Data
Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
78
<PAGE>
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
<PAGE>
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.
<PAGE>
(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 - to be filed
(12) Opinion and Consent of Counsel regarding certain tax matters -
to be filed
(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 - to be filed
(15) Financial statements omitted from Part B - none
(16) Powers of Attorney(1)
<PAGE>
(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.
<PAGE>
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 23rd day of November, 1999.
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 November 23, 1999
- ----------------------------- Officer and Director
Glenn O. Head
/s/ Joseph I. Benedek Principal Financial November 23, 1999
- ----------------------------- and Accounting Officer
Joseph I. Benedek
Kathryn S. Head* Director November 23, 1999
- -----------------------------
Kathryn S. Head
/s/ Larry R. Lavoie Director November 23, 1999
- -----------------------------
Larry R. Lavoie
Herbert Rubinstein* Director November 23, 1999
- -----------------------------
Herbert Rubinstein
Nancy Schaenen* Director November 23, 1999
- -----------------------------
Nancy Schaenen
<PAGE>
James M. Srygley* Director November 23, 1999
- -----------------------------
James M. Srygley
John T. Sullivan* Director November 23, 1999
- -----------------------------
John T. Sullivan
Rex R. Reed* Director November 23, 1999
- -----------------------------
Rex R. Reed
Robert F. Wentworth* Director November 23, 1999
- -----------------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
-------------------
Larry R. Lavoie
Attorney-in-fact
<PAGE>
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 - to be filed
<PAGE>
(12) Opinion and Consent of Counsel regarding certain tax matters -
to be filed
(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 - to be filed
(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.
