<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1998
Registration No. 2-57473
811-2923
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 31 X
-
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 31 X
-
----------
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
(Exact name of Registrant as specified in charter)
95 Wall Street
New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
212-858-8000
(Registrant's Telephone Number, Including Area Code)
Ms. Concetta Durso
Secretary and Vice President
First Investors Insured Tax Exempt Fund, Inc.
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement
It is proposed that this filing will become effective on April 30, 1998 pursuant
to paragraph (b) of Rule 485.
<PAGE>
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
CROSS-REFERENCE SHEET
N-1A Item No. Location
- ------------ --------
PART A: PROSPECTUS
1. Cover Page................................ Cover Page
2. Synopsis.................................. Fee Table
3. Condensed Financial Information........... Financial Highlights
4. General Description of Registrant......... Investment Objectives
and Policies; General
Information
5. Management of the Fund.................... Management
5A. Management's Discussion of
Fund Performance......................... Performance Information
6. Capital Stock and Other Securities........ Description of Shares;
Dividends and Other
Distributions; Taxes;
Determination of Net
Asset Value
7. Purchase of Securities Being Offered...... Alternative Purchase
Plan; How to Buy Shares
8. Redemption or Repurchase.................. How to Exchange Shares;
How to Redeem Shares;
Telephone Transactions
9. Pending Legal Proceedings................. Not Applicable
PART B. STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page................................ Cover Page
11. Table of Contents......................... Table of Contents
12. General Information and History........... General Information
13. Investment Objectives and Policies........ Investment Policies;
Investment
Restrictions; Risk
Factors; Insurance
14. Management of the Fund.................... Directors or Trustees
and Officers
15. Control Persons and Principal
Holders of Securities....................
16. Investment Advisory and Other Services.... Management
17. Brokerage Allocation...................... Allocation of Portfolio
Brokerage
18. Capital Stock and Other Securities........ Determination of Net
Asset Value
19. Purchase, Redemption and Pricing
of Securities Being Offered.............. Reduced Sales Charges,
Additional Exchange and
Redemption Information
and Other Services;
Determination of Net
Asset Value
20. Tax Status................................ Taxes
<PAGE>
21. Underwriters.............................. Underwriter
22. Performance Data.......................... Performance Information
23. Financial Statements...................... Financial Statements;
Report of Independent
Accountants
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item so numbered, in Part C hereof.
<PAGE>
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
FIRST INVESTORS INSURED INTERMEDIATE
TAX EXEMPT FUND
A series of First Investors Series Fund
95 Wall Street, New York, New York 10005/1-800-423-4026
This is a Prospectus for FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
("INSURED TAX EXEMPT FUND") AND FIRST INVESTORS INSURED INTERMEDIATE TAX EXEMPT
FUND ("INSURED INTERMEDIATE FUND"). INSURED INTERMEDIATE FUND is a separate
series of First Investors Series Fund ("Series Fund"). INSURED TAX EXEMPT FUND
and Series Fund are each an open-end diversified management investment company
(collectively, "Tax Exempt Funds"). INSURED TAX EXEMPT FUND and INSURED
INTERMEDIATE FUND are sometimes referred to herein singularly as "Fund" and
collectively as "Funds." Each Fund sells two classes of shares. Investors may
select Class A or Class B shares, each with a public offering price that
reflects different sales charges and expense levels. See "Alternative Purchase
Plans."
The investment objective of each Fund is to seek to provide a high level of
interest income which is exempt from Federal income tax and is not an item of
tax preference for purposes of the Federal alternative minimum tax ("Tax
Preference Item"). Each Fund invests primarily in tax-exempt obligations issued
by or on behalf of states, territories and possessions of the United States and
the District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from Federal income tax and
is not a Tax Preference Item. There can be no assurance that the objective of
either Fund will be realized.
THE FUNDS' MUNICIPAL BONDS ARE INSURED AS TO TIMELY PAYMENT OF PRINCIPAL
AND INTEREST THROUGH THE ISSUER OR UNDER INSURANCE POLICIES WRITTEN BY
INDEPENDENT INSURANCE COMPANIES. INSURANCE DOES NOT PROTECT AGAINST
FLUCTUATIONS IN THE BONDS' MARKET VALUE OR THE NET ASSET VALUE PER SHARE OF EACH
FUND. FOR MORE INFORMATION REGARDING THE FUNDS' INSURANCE COVERAGE, SEE
"INSURANCE" ON PAGE 10.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing and should be retained for
future reference. First Investors Management Company, Inc. ("FIMCO" or
"Adviser") serves as investment adviser to the Funds and First Investors
Corporation ("FIC" or "Underwriter") serves as distributor of the Funds' shares.
A Statement of Additional Information ("SAI"), dated April 30, 1998 (which is
incorporated by reference herein), has been filed with the Securities and
Exchange Commission. The SAI is available at no charge upon request to the
Funds at the address or telephone number indicated above.
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured or protected by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other government agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 30, 1998
<PAGE>
FEE TABLE
The following table is intended to assist investors in understanding the
expenses associated with investing in each class of shares of a Fund
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
------- -------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................ 6.25% None
Deferred Sales Load
(as a percentage of the lower of original purchase price or None* 4% in the first year;
redemption proceeds).......................................... declining to 0% after
the sixth year
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Insured Insured
Intermediate Fund Tax Exempt Fund
------------------ -------------------
Class A Class B Class A Class B
Shares+ Shares Shares Shares
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Management Fees (1)......................................... 0.40% 0.40%+ 0.70% 0.70%
12b-1 Fees(2)............................................... - 0 - 1.00 0.28+ 1.00
Other Expenses (3).......................................... 0.10 0.10+ 0.15 0.15
Total Fund Operating Expenses (4)........................... 0.50 1.50+ 1.13+ 1.85
</TABLE>
_____________________________
* 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.
See "How to Buy Shares."
+ Net of waiver and/or reimbursement.
(1) For the fiscal year ended December 31, 1997, the Adviser waived Management
Fees for INSURED INTERMEDIATE FUND in excess of 0.40%. Absent the waiver,
such fees would have been 0.60%. The Adviser will waive Management Fees
for INSURED INTERMEDIATE FUND in excess of 0.40% for a minimum period
ending December 31, 1998.
(2) The Underwriter has agreed through December 31, 1998 to cap its right to
claim Class A 12b-1 Fees at the annual rates listed above for the Funds.
Each Fund's Class A Distribution Plan provides for 12b-1 Fees in the total
amount of up to 0.30% on an annual basis.
(3) For the fiscal year ended December 31, 1997, the Adviser reimbursed INSURED
INTERMEDIATE FUND for certain Other Expenses. Absent such reimbursement,
Other Expenses would have been 0.31% for each class of shares. The Adviser
will reimburse each class of that Fund for Other Expenses in excess of
0.10% for a minimum period ending December 31, 1998.
(4) If certain fees and expenses had not been waived or reimbursed, Total Fund
Operating Expenses would have been 1.21% for Class A shares and 1.91% for
Class B shares of INSURED INTERMEDIATE FUND and 1.15% for Class A shares of
INSURED TAX EXEMPT FUND. 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 Fund Operating Expenses.
2
<PAGE>
For more complete descriptions of the various costs and expenses, see
"Investment Objectives and Policies-Insurance," "Alternative Purchase Plans,"
"Management," "Distribution Plans," "How to Buy Shares" and "How to Redeem
Shares." Due to the imposition of Rule 12b-1 fees, it is possible that long-
term shareholders of a Fund may pay more in total sales charges than the
economic equivalent of the maximum front-end sales charge permitted by the rules
of the National Association of Securities Dealers, Inc. The Fee Table does not
reflect the costs incurred by those shareholders of INSURED TAX EXEMPT FUND who
purchase their shares through First Investors Contractual Plans.
The Example below is based on Class A and Class B expense data for each
Fund's fiscal year ended December 31, 1997, except that certain Operating
Expenses have been restated, as noted above.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Insured Intermediate Fund
Class A..................... $67 $78 $ 89 $121
Class B..................... 55 77 102 152*
Insured Tax Exempt Fund
Class A..................... 73 96 121 191
Class B..................... 59 88 120 198*
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) no redemption at the end of each time period:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Insured Intermediate Fund
Class A..................... $67 $78 $ 89 $121
Class B..................... 15 47 82 152*
Insured Tax Exempt Fund
Class A..................... 73 96 121 191
Class B..................... 19 58 100 198*
</TABLE>
* Assumes conversion to Class A shares eight years after purchase.
THE EXPENSES IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION BY THE
FUNDS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES IN FUTURE YEARS MAY BE
GREATER OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables set forth the per share operating performance data for a
share outstanding, total return, ratios to average net assets and other
supplemental data for each year indicated. Additional performance information
is contained in the Funds' Annual Reports which may be obtained without charge
by contacting the applicable Fund at 1-800-423-4026. The tables have been
derived from financial statements which have been examined by Tait, Weller &
Baker, independent certified public accountants, whose reports thereon appear in
the SAI. This information should be read in conjunction with the Financial
Statements and Notes thereto, which also appear in the SAI, available at no
charge upon request to the Funds.
INSURED TAX EXEMPT FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A
-------------------------------------------------------------------
Year Ended December 31 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
- --------------
Net Asset Value, Beginning of Year........................... $10.14 $10.37 $ 9.42 $10.56 $10.32 $10.22
------ ------ ------ ------ ------ ------
Income from Investment Operations
Net investment income...................................... .50 .51 .52 .56 .60 .65
Net realized and unrealized gain (loss) on .31 (.23) .96 (1.15) .40 .15
investments............................................. ------ ------ ------ ------ ------ ------
.81 .28 1.48 (.59) 1.00 .80
Total from Investment Operations...................... ------ ------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income...................................... .50 .51 .53 .55 .61 .65
Net realized gains......................................... -- -- -- -- .15 .05
------ ------ ------ ------ ------ ------
Total Distributions................................... .50 .51 .53 .55 .76 .70
------ ------ ------ ------ ------ ------
Net Asset Value, End of Year.................................. $10.45 $10.14 $10.37 $ 9.42 $10.56 $10.32
====== ====== ====== ====== ====== ======
Total Return (%) +........................................... 8.27 2.81 16.01 (5.61) 9.88 8.05
- ------------
Ratios/supplemental Data
- ------------------------
Net Assets, End of Year (in millions)......................... $1,192 $1,253 $1,373 $1,302 $1,507 $1,363
Ratio to Average Net Assets: (%)..............................
Expenses.................................................... 1.14 1.14 1.14 1.18 1.15 1.16
Net Investment Income....................................... 4.93 5.06 5.25 5.64 5.69 6.32
Portfolio Turnover Rate (%)................................... 13 21 37 57 58 52
</TABLE>
* For the period 1/12/95 (date shares first offered) to 12/31/95
+ Calculated without sales charge
(a) Annualized
4
<PAGE>
<TABLE>
<CAPTION>
----------------------------------- ------------------------------
Class A Class B
- ------------------------------------ ------------------------------
1991 1990 1989 1988 1997 1996 1995*
- ------------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
$9.92 $10.03 $ 9.91 $ 9.64 $10.13 $10.37 $ 9.48
- ------ ------ ------ ------ ------ ------ ------
.69 .70 .71 .72 .43 .44 .44
.30 (.11) .12 .27 .32 (.24) .89
- ------ ------ ------ ------ ------ ------ ------
.99 .59 .83 .99 .75 .20 1.33
- ------ ------ ------ ------ ------ ------ ------
.69 .70 .71 .72 .43 .44 .44
-- -- -- -- -- -- --
- ------ ------ ------ ------ ------ ------ ------
.69 .70 .71 .72 .43 .44 .44
- ------ ------ ------ ------ ------ ------ ------
$10.22 $ 9.92 $10.03 $ 9.91 $10.45 $10.13 $10.37
====== ====== ====== ====== ====== ====== ======
10.26 6.13 8.64 10.61 7.62 2.03 14.27
$1,208 $1,132 $1,079 $ 971 $ 3 $ 3 $ 2
1.13 1.14 1.01 1.04 1.85 1.83 1.88(a)
6.82 7.03 7.16 7.33 4.22 4.37 4.45(a)
34 28 26 43 13 21 37
</TABLE>
5
<PAGE>
INSURED INTERMEDIATE FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Class A
--------------------------------------------------
11/22/93*
to
Year Ended December 31 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Data
- --------------
Net Asset Value, Beginning of Period...... $ 5.79 $ 5.85 $ 5.43 $ 5.79 $ 5.79
------ ------ ------ ------ ---------
Income from Investment Operations
- ---------------------------------
Net investment income................... .29 .29 .30 .24 --
Net realized and unrealized gain
(loss) on investments................. .14 (.06) .42 (.36) --
------ ------ ------ ------ ---------
Total from Investment
Operations....................... .43 .23 .72 (.12) --
------ ------ ------ ------ ---------
Less Distributions from
- -----------------------
Net investment income................... .29 .29 .30 .24 --
Net realized gain....................... -- -- -- -- --
------ ------ ------ ------ ---------
Total Distributions............... .29 .29 .30 .24 --
------ ------ ------ ------ ---------
Net Asset Value, End of Period............. $ 5.93 $ 5.79 $ 5.85 $ 5.43 $ 5.79
====== ====== ====== ====== =========
Ratios/Supplemental Data
- ------------------------
Total Return** (%)......................... 7.68 4.07 13.50 (2.05) .00
Net Assets, End of Period (in thousands)... $7,344 $7,415 $7,017 $5,688 $ 1,615
Ratio to Average Net Assets++
- -----------------------------
Expenses (%)............................. .53 .49 .35 .14 --
Net investment income (%)................ 5.02 5.05 5.32 4.52 .54+
Ratio to Average Net Assets Before
Expenses Waived or Assumed
- --------------------------
Expenses (%)............................. 1.21 1.24 1.22 .96 1.78+
Net investment income (%)................ 4.34 4.30 4.45 3.70 (1.24)+
Portfolio Turnover Rate (%)............... 91 82 47 210 0
</TABLE>
* Commencement of operations of Class A shares or date Class B shares
first offered
** Calculated without sales charges
+ Annualized
++ Net of expenses waived or assumed
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------
Class B
- --------------------------------------------------------
11/12/95*
to
1997 1996 1995
- --------------------------------------------------------
<S> <C> <C>
$ 5.80 $5.85 $5.45
- ------ ----- -----
.23 .23 .25
.13 (.05) .41
- ------ ----- -----
.36 .18 .66
- ------ ----- -----
.23 .23 .26
-- -- --
- ------ ----- -----
.23 .23 .26
- ------ ----- -----
$ 5.93 $5.80 $5.85
====== ===== =====
6.39 3.17 12.27
$808 $ 613 $ 378
1.53 1.49 1.35+
4.02 4.05 4.32+
1.91 1.94 2.22+
3.64 3.60 3.45+
91 82 47
</TABLE>
7
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INSURED TAX EXEMPT FUND
The investment objective of INSURED TAX EXEMPT FUND is to provide a high
level of interest income which is exempt from Federal income tax and is not a
Tax Preference Item. The Fund seeks to achieve its objective by investing at
least 80% of its total assets in municipal bonds issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest on which is exempt from Federal income tax and is not a Tax Preference
Item. The Fund also may invest up to 20% of its total assets in certificates of
participation, municipal notes, municipal commercial paper and variable rate
demand instruments. See "Municipal Instruments," below.
INSURED INTERMEDIATE FUND
The investment objective of INSURED INTERMEDIATE FUND is to provide a high
level of interest income which is exempt from Federal income tax and is not a
Tax Preference Item. The Fund seeks to achieve its objective by investing at
least 80% of its total assets in Municipal Instruments, as defined below, which
are issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities, the interest on which is exempt from Federal income tax
and is not a Tax Preference Item. See "Municipal Instruments," below.
GENERAL POLICIES
The Funds differ in the maturities of the securities in their portfolios and,
accordingly, in their degree of risk and level of income. Generally, bonds with
longer maturities are likely to exhibit greater fluctuations in market value and
have the potential for higher levels of income than bonds with shorter
maturities. In order to reduce the effect of bond price declines on a Fund's
net asset value during periods of rising interest rates, each Fund may invest in
shorter maturity securities. Conversely, during periods of falling interest
rates, each Fund may invest in longer maturity securities. There is no limit on
the maturity of any individual security in any Fund's portfolio. See "Debt
Securities," below.
INSURED INTERMEDIATE FUND is designed for investors seeking a higher level of
income than is generally available on short-term tax-exempt bonds and money
market securities and who are willing to accept a greater degree of fluctuation
in principal. It is expected that, under normal market conditions, the Fund
will maintain a dollar-weighted average maturity of between three and ten years.
INSURED TAX EXEMPT FUND is designed for investors seeking a higher level of
income than is generally available on short-term and intermediate tax-exempt
bonds and who are willing to accept a potentially high degree of fluctuation in
principal. The Fund generally invests in bonds with maturities of over fifteen
years.
As used in this Prospectus and in the SAI, "Municipal Instruments" include
the following: (1) municipal bonds; (2) private activity bonds or industrial
development bonds; (3) certificates of
8
<PAGE>
participation ("COPs"); (4) municipal notes; (5) municipal commercial paper; and
(6) variable rate demand instruments ("VRDIs").
Each Fund may make loans of portfolio securities and invest in zero coupon
municipal securities. Each Fund may invest up to 25% of its net assets in
securities on a "when-issued" basis, which involves an arrangement whereby
delivery of, and payment for, the instruments occur up to 45 days after the
agreement to purchase the instruments is made by a Fund. Each Fund also may
invest up to 20% of its assets, on a temporary basis, in high quality fixed
income obligations, the interest on which is subject to Federal and state or
local income taxes. Each Fund also may invest up to 10% of its total assets in
municipal obligations on which the rate of interest varies inversely with
interest rates on other municipal obligations or an index (commonly referred to
as inverse floaters). INSURED INTERMEDIATE FUND also may acquire detachable
call options relating to municipal bonds and invest in repurchase agreements.
Each Fund may borrow money for temporary or emergency purposes in amounts not
exceeding 5% of its total assets. See "Description of Certain Securities, Other
Investment Policies and Risk Factors," below, and the SAI for more information
regarding these securities.
Although each Fund generally invests in municipal bonds rated Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard &
Poor's Ratings Group ("S&P"), each Fund may invest up to 5% of its net assets in
lower rated municipal bonds or in unrated municipal bonds deemed to be of
comparable quality by the Adviser. See "Debt Securities," below. However, in
each instance such municipal bonds will be covered by the insurance feature and
thus are considered to be of higher quality than lower rated municipal bonds
without an insurance feature. See "Insurance" for a discussion of the insurance
feature. The Adviser will carefully evaluate on a case-by-case basis whether to
dispose of or retain a municipal bond which has been downgraded in rating
subsequent to its purchase by a Fund. A description of municipal bond ratings
is contained in Appendix A to the SAI.
Each Fund may invest more than 25% of its total assets in a particular
segment of the municipal bond market, such as hospital revenue bonds, housing
agency bonds, industrial development bonds, airport bonds and university
dormitory bonds, during periods when one or more of these segments offer higher
yields and/or profit potential. This possible concentration of the assets of a
Fund may result in the Fund being invested in securities which are related in
such a way that economic, business, political developments, or other changes
which would affect one security would probably likewise affect the other
securities within that particular segment of the bond market. Such
concentration of a Fund's investments could increase market risks, but risk of
non-payment of interest when due, or default on the payment of principal, is
covered by the insurance feature.
Each Fund's net asset value fluctuates based mainly upon changes in the value
of its portfolio securities. Each Fund's investment objective and certain
investment policies set forth in the SAI that are designated fundamental
policies may not be changed without shareholder approval. There can be no
assurance that either Fund will achieve its investment objective.
9
<PAGE>
DESCRIPTION OF CERTAIN SECURITIES, OTHER INVESTMENT POLICIES AND RISK FACTORS
GENERAL MARKET RISK
In addition to the risks associated with particular types of securities,
which are discussed below, the Funds are subject to general market risks. The
Funds invest primarily in Municipal Instruments. The market risks associated
with Municipal Instruments include the possibility that the value of those
instruments held by the Funds will fluctuate with movements in interest rates
and changes in the perceived creditworthiness of the issuers of those
instruments. Municipal Instruments are likely to decline in value in times of
rising interest rates and to rise in value in times of falling interest rates.
In general, the longer the maturity of a Municipal Instrument, the more
pronounced is the effect of a change in interest rates on the value of the
instrument. An additional risk exists that new federal, state and local laws,
or changes in existing laws, may adversely affect the tax-exempt status of
interest on a Fund's portfolio securities or of the exempt-interest dividends
paid by a Fund, extend the time for payment of principal or interest or
otherwise constrain enforcement of such obligations. Furthermore, because the
Funds may concentrate investments in a particular industry, a Fund's yield and
net asset value per share can be affected by political and economic developments
that would affect a particular industry.
TYPES OF SECURITIES AND THEIR RISKS
DEBT SECURITIES. The market value of debt securities is influenced
significantly 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 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. 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 of loss of principal and income than higher-rated debt
securities. See Appendix A to the SAI for a description of municipal bond
ratings.
INSURANCE. All municipal bonds in each Fund's portfolio will be insured as
to their scheduled payment of principal and interest at the time of purchase
either (1) under a Mutual Fund Insurance Policy purchased by the Tax Exempt
Funds from an independent insurance company; (2) under an insurance policy
obtained subsequent to a municipal bond's original issue or (3) under an
insurance policy obtained by the issuer or underwriter of such municipal bond at
the time of original issuance. An insured municipal bond in the portfolio of a
Fund typically will be covered by only one of the three policies. All three
types of insurance policies insure the scheduled payment of all principal and
interest on the Funds' municipal bonds as they fall due. The insurance does not
guarantee the market value or yield of the insured municipal bonds or the net
asset value or yield of the shares of a Fund. Investors should note that while
all municipal bonds in which the Funds will invest will be insured, INSURED TAX
EXEMPT FUND and INSURED
10
<PAGE>
INTERMEDIATE FUND each may invest up to 20% and 35%, respectively, of its total
assets in portfolio securities not covered by the insurance feature. Each Tax
Exempt Fund has purchased a Mutual Fund Insurance Policy from AMBAC Assurance
Corporation ("AMBAC"), a Wisconsin stock insurance company with its principal
executive offices in New York City. Under certain circumstances, each Tax Exempt
Fund may obtain such insurance from an insurer other than AMBAC, provided such
insurer is rated in the top rating category by S&P, Moody's, Fitch IBCA, Inc. or
any other nationally recognized statistical rating organization. Because these
insurance premiums are paid by each Fund, a Fund's yield is reduced by this
expense. See "Insurance" in the SAI for a detailed discussion of the insurance
feature.
INVERSE FLOATERS. Each Fund may invest in derivative securities on which the
rate of interest varies inversely with interest rates on similar securities or
the value of an index. For example, an inverse floating rate security may pay
interest at a rate that increases as a specified interest rate index decreases
but decreases as that index increases. The secondary market for inverse
floaters may be limited. The market value of such securities generally is more
volatile than that of a fixed rate obligation and, like most debt obligations,
will vary inversely with changes in interest rates. The interest rates on
inverse floaters may be significantly reduced, even to zero, if interest rates
rise. Each Fund may invest up to 10% of its net assets in inverse floaters.
MUNICIPAL INSTRUMENTS
MUNICIPAL BONDS. Municipal bonds are debt obligations that generally are
issued to obtain funds for various public purposes and have a time to maturity,
at issuance, of more than one year. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. General
obligation bonds are secured by the issuer's pledge of its full faith and credit
for the payment of principal and interest. Revenue bonds generally are payable
only from revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special tax or other specific revenue
source. There are variations in the security of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors. The yields on municipal bonds depend on, among other things, general
money market conditions, condition of the municipal bond market, size of a
particular offering, the maturity of the obligation and rating of the issuer.
Generally, the value of municipal bonds varies inversely to changes in interest
rates. See Appendix A to the SAI for a description of municipal bond ratings.
PRIVATE ACTIVITY BONDS OR INDUSTRIAL DEVELOPMENT BONDS. Certain types of
revenue bonds, referred to as private activity bonds ("PABs") or industrial
development bonds ("IDBs"), are issued by or on behalf of public authorities to
obtain funds to provide for various privately operated facilities, such as
airports or mass transportation facilities. Most PABs and IDBs are pure revenue
bonds and are not backed by the taxing power of the issuing agency or authority.
See "Taxes" in the SAI for a discussion of special tax consequences to
"substantial users," or persons related thereto, of facilities financed by PABs
or IDBs.
CERTIFICATES OF PARTICIPATION. COPs provide participation interests in lease
revenues and each certificate represents a proportionate interest in or right to
the lease-purchase payment made under municipal lease obligations or installment
sales contracts. In certain states, COPs constitute a majority of new municipal
financing issues. The possibility that a municipality will
11
<PAGE>
not appropriate funds for lease payments is a risk of investing in COPs,
although this risk is mitigated by the fact that each COP will be covered by the
insurance feature. See "Certificates of Participation" in the SAI for further
information on COPs.
MUNICIPAL COMMERCIAL PAPER. Issues of municipal commercial paper which a
Fund may purchase are rated P-1 by Moody's or A-1 by S&P or have insurance
through the issuer or an independent insurance company and include unsecured,
short-term, negotiable promissory notes. Municipal commercial paper is issued
usually to meet temporary capital needs of the issuer or to serve as a source of
temporary construction financing. These obligations are paid from general
revenues of the issuer or are refinanced with long-term debt. A description of
commercial paper ratings is contained in Appendix C to the SAI.
MUNICIPAL NOTES. Municipal notes which a Fund may purchase will be
principally tax anticipation notes, bond anticipation notes, revenue
anticipation notes and project notes. The obligations are sold by an issuer
prior to the occurrence of another revenue producing event to bridge a financial
gap for such issuer. Municipal notes are usually general obligations of the
issuing municipality. Project notes are issued by housing agencies, but are
guaranteed by the U.S. Department of Housing and Urban Development and are
secured by the full faith and credit of the United States. Such municipal notes
must be rated MIG-1 by Moody's or SP-1 by S&P or have insurance through the
issuer or an independent insurance company. A description of municipal note
ratings is contained in Appendix B to the SAI.
VARIABLE RATE DEMAND INSTRUMENTS. VRDIs are Municipal Instruments, the
interest on which is adjusted periodically, and which allow the holder to demand
payment of all unpaid principal plus accrued interest from the issuer. A VRDI
that a Fund may purchase will be selected if it meets criteria established and
designed by the applicable Tax Exempt Fund's Board of Directors or Trustees
(each, a "Board") to minimize risk to that Fund. In addition, a VRDI must be
rated MIG-1 by Moody's or SP-1 by S&P or insured by the issuer or an independent
insurance company. There is a recognized after-market for VRDIs.
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS. Each Fund may invest up to
15% of its net assets in illiquid investments, including (1) securities that are
illiquid due to the absence of a readily available market or due to legal or
contractual restrictions on resale and (2) repurchase agreements maturing in
more than seven days. However, illiquid investments for purposes of this
limitation do not include restricted securities eligible for resale under Rule
144A under the Securities Act of 1933, as amended ("Rule 144A Securities"),
which the applicable Tax Exempt Fund's Board or the Adviser has determined are
liquid under Board-approved guidelines. In addition, there is a risk of
increasing illiquidity during times when qualified institutional buyers are
uninterested in purchasing Rule 144A Securities. See the SAI for more
information regarding restricted securities and illiquid investments, including
the risks involved in their use.
TAXABLE SECURITIES. Each Fund may invest up to 20% of its assets, on a
temporary basis, in high quality fixed income obligations, the interest on which
is subject to Federal and state or local income taxes. A Fund may, for example,
invest the proceeds from the sale of portfolio securities in taxable obligations
pending the investment or reinvestment thereof in Municipal Instruments. A Fund
may invest in highly liquid taxable obligations in order to avoid the necessity
of liquidating portfolio investments to meet redemptions by Fund investors.
Each Fund's temporary
12
<PAGE>
investments in taxable securities may consist of: (1) obligations of the U.S.
Government, its agencies or instrumentalities; (2) other debt securities rated
within the highest grade of S&P or Moody's; (3) commercial paper rated in the
highest grade by either of such rating services; and (4) certificates of deposit
and letters of credit. Certificates of deposit are negotiable certificates
issued against funds deposited in a commercial bank or a savings and loan
association for a definite period of time and earning a specified return.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed as to principal
and interest by the U.S. Government include (1) U.S. Treasury obligations which
differ only in their interest rates, maturities and times of issuance as
follows: U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), 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.
ALTERNATIVE PURCHASE PLANS
Each Fund has two classes of shares, Class A and Class B, which represent
interests in the same portfolio of securities and have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that each class (i) is subject to a different sales charge and bears its
separate distribution and certain other class expenses; (ii) has exclusive
voting rights with respect to matters affecting only that class; and (iii) has
different exchange privileges.
CLASS A SHARES. Class A shares are sold with an initial sales charge of up
to 6.25% of the amount invested with discounts available for volume purchases.
Class A shares pay a 12b-1 fee at the annual rate of 0.30% of each Fund's
average daily net assets attributable to Class A shares, of which no more than
0.25% may be paid as a service fee and the balance thereof paid as an asset-
based sales charge. The initial sales charge is waived for certain purchases
and a contingent deferred sales charge ("CDSC") may be imposed on such
purchases. See "How to Buy Shares."
CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are generally subject to a CDSC which declines in steps from 4% to 0% during a
six-year period and bear a higher 12b-1 fee than Class A shares. Class B shares
pay a 12b-1 fee at the annual rate of 1.00% of each Fund's average daily net
assets attributable to Class B shares, of which no more than 0.25% may be paid
as a service fee and the balance thereof paid as an asset-based sales charge.
Class B shares automatically convert into Class A shares after eight years. See
"How to Buy Shares."
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES. In deciding which
alternative is most suitable, an investor should consider several factors, as
discussed below. Regardless of whether an investor purchases Class A or Class B
shares, your Representative, as defined under "How to Buy Shares," receives
compensation for selling shares of a Fund, which may differ for each class.
13
<PAGE>
The principal advantages of purchasing Class A shares are the lower overall
expenses, the availability of quantity discounts on volume purchases and certain
account privileges which are not offered to Class B shareholders. If an
investor plans to make a substantial investment, the sales charge on Class A
shares may either be lower due to the reduced sales charges available on volume
purchases of Class A shares or waived for certain eligible purchasers. Because
of the reduced sales charge available on quantity purchases of Class A shares,
it is recommended that investments of $250,000 or more be made in Class A
shares. Investments in excess of $1,000,000 will only be accepted as purchases
of Class A shares. Distributions paid by each Fund with respect to Class A
shares will also generally be greater than those paid with respect to Class B
shares because expenses attributable to Class A shares will generally be lower.
The principal advantage of purchasing Class B shares is that, since no
initial sales charge is paid, all of an investor's money is put to work from the
outset. Furthermore, although any investment in a Fund should only be viewed as
a long-term investment, if a redemption must be made soon after purchase, an
investor will pay a lower sales charge than if Class A shares had been
purchased. Conversely, because Class B shares are subject to a higher asset-
based sales charge, long-term Class B shareholders may pay more in asset-based
sales charges than the economic equivalent of the maximum sales charge on Class
A shares. The automatic conversion of Class B shares into Class A shares after
eight years is designed to reduce the probability of this occurring.
HOW TO BUY SHARES
You may buy shares of a Fund through a First Investors registered
representative ("FIC Representative") or through a registered representative
("Dealer Representative") of an unaffiliated broker-dealer ("Dealer") which is
authorized to sell shares of a Fund. Your FIC Representative or Dealer
Representative (each, a "Representative") may help you complete and submit an
application to open an account with a Fund. Certain accounts may require
additional documentation.
With respect to certain shareholder privileges noted in this Prospectus and
the SAI, each fund in the First Investors family of funds, except as noted
below, is an "Eligible Fund" (collectively, "Eligible Funds"). First Investors
Special Bond Fund, Inc., First Investors Life Series Fund and First Investors
U.S. Government Plus Fund are not Eligible Funds. First Investors Cash
Management Fund, Inc. and First Investors Tax-Exempt Money Market Fund, Inc.
(the "Money Market Funds"), unless otherwise noted, are not Eligible Funds. The
funds of Executive Investors Trust are Eligible Funds provided the shares of any
such fund either have been (a) acquired through an exchange from an Eligible
Fund which imposes a maximum sales charge of 6.25%, or (b) held for at least one
year from their date of purchase.
CHOICE OF CLASS OF SHARES. When you open a Fund account you must specify
which class of shares you wish to purchase. If you do not specify which class
of shares you wish to purchase, your order will be processed according to
procedures established by FIC. For more information, see the SAI.
MINIMUM INVESTMENT. You may open a Fund account with as little as $1,000.
This account minimum is waived if you open an account for a particular class of
shares through a full
14
<PAGE>
exchange of shares of the same class of another Eligible Fund. Class A share
accounts opened through an exchange of shares from the Money Market Funds may be
subject to an initial sales charge. Automatic investment plans allow you to open
an account with as little as $50, provided you invest at least $600 a year. See
"Systematic Investing."
PROCESSING AND PRICING OF SHARE PURCHASES. Purchases by written application
will be processed as follows: Applications accompanied by checks drawn on U.S.
banks made payable to "FIC" and received in FIC's Woodbridge offices by the
close of regular trading on the NYSE, generally 4:00 P.M. (New York City time),
will be processed and shares will be purchased at the public offering price
determined at the close of regular trading on the NYSE on that day. Money
orders, starter checks and third-party checks will not be accepted.
Purchases via telephone or wire will be processed as follows: Orders
received by Representatives before the close of regular trading on the NYSE and
received by FIC at their Woodbridge offices before the close of its business
day, generally 5:00 P.M. (New York City time), will be executed at the public
offering price determined as of the close of regular trading on the NYSE on that
day. It is the responsibility of Representatives to promptly transmit orders
they receive. The "public offering price" is the net asset value plus the
applicable sales charge for Class A shares and the net asset value for Class B
shares. For a discussion of pricing practices in the event that the Funds must
halt operations due to an emergency, see the SAI. Each Fund reserves the right
to reject any application or order for its shares for any reason and to suspend
the offering of its shares.
Purchases through the National Securities Clearing Corp. ("NSCC") "Fund/SERV"
system will be processed as follows: Orders received by a Dealer before the
close of regular trading on the NYSE and received by FIC at its Woodbridge
offices in accordance with NSCC rules and procedures will be executed at the net
asset value, plus any applicable sales charge, determined as of the close of
regular trading on the NYSE on that day. It is the responsibility of the Dealer
to transmit purchase orders to FIC promptly and accurately. FIC will not be
liable for any change in the purchase price due to the failure of FIC to receive
such purchase orders. Any such disputes must be settled between you and the
Dealer.
CLASS A SHARES. Class A shares of each Fund are sold at the public offering
price, which will vary with the size of the purchase, as shown in the following
table:
<TABLE>
<CAPTION>
Sales Charge as % of
----------------------- Concession to
Offering Net Amount Dealers as % of
Amount of Investment Price Invested Offering Price
- -------------------- --------- ----------- ----------------
<S> <C> <C> <C>
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
</TABLE>
There is no sales charge on transactions of $1 million or more, purchases
that qualify for the Cumulative Purchase Privilege if they total at least $1
million or purchases made pursuant to a
15
<PAGE>
Letter of Intent in the minimum amount of $1 million. The Underwriter will pay
from its own resources a sales commission to FIC Representatives and a
concession equal to 0.90% of the amount invested to Dealers on such purchases.
If shares are redeemed within 24 months of purchase a CDSC of 1.00% will be
deducted from the redemption proceeds. The CDSC will be applied in the same
manner as the CDSC on Class B shares. See "Class B Shares." The CDSC will be
waived for any purchase of $1 million or more on which the Dealer agrees to
receive its concession in installments paid over a 24-month period.
CUMULATIVE PURCHASE PRIVILEGE AND LETTERS OF INTENT. You may purchase Class
A shares of a Fund at a reduced sales charge through the Cumulative Purchase
Privilege or by executing a Letter of Intent. For more information, see the
SAI, call your Representative or call Shareholder Services at 1-800-423-4026.
WAIVERS OF CLASS A SALES CHARGES. Sales charges on Class A shares do not
apply to: (1) any purchase by an officer, trustee, director or employee (who has
completed the introductory employment period) of the Tax Exempt Funds, the
Underwriter, the Adviser, or their affiliates, by a Representative, or by the
spouse, or by the children and grandchildren under the age of 21 of any such
person; (2) any purchase by a former officer, trustee, director or employee of
the Tax Exempt Funds, the Underwriter, the Adviser, or their affiliates, or by a
former FIC Representative, provided they had acted as such for at least five
years and had retired or otherwise terminated the relationship in good standing;
(3) any reinvestment of dividends or other distributions in Class A shares of
any Eligible Fund; (4) any reinvestment of Systematic Withdrawal Payment Plan
payments in Class A shares of any Eligible Fund; (5) any reinvestment of the
loan repayments by a participant in a loan program of any First Investors
sponsored qualified retirement plan; (6) a purchase with proceeds from the
liquidation of a First Investors Life Variable Annuity Fund A contract, First
Investors Life Variable Annuity Fund C contract or First Investors Life Variable
Annuity Fund D contract during the one-year period preceding the maturity date
of the contract; and (7) any purchase made during the period November 15, 1998
to February 15, 1999 with the proceeds from a redemption made after November 14,
1998 from the 1st Fund of First Investors U.S. Government Plus Fund.
Additionally, policyholders of participating life insurance policies issued
by First Investors Life Insurance Company, an affiliate of the Adviser and
Underwriter, may elect to invest dividends earned on such policies in Class A
shares of a Fund at net asset value, provided the annual dividend is at least
$50 and the policyholder has an existing account with the Fund.
Holders of certain unit trusts ("Unitholders") who have elected to invest the
entire amount of cash distributions from either principal, interest income or
capital gains or any combination thereof ("Unit Distributions") from the
following trusts may invest such Unit Distributions in Class A shares of a Fund
at a reduced sales charge. Unitholders of various series of New York Insured
Municipals-Income Trust sponsored by Van Kampen Merritt Inc. (the "New York
Trust"); Unitholders of various series of the Multistate Tax Exempt Trust
sponsored by Advest Inc.; and Unitholders of various series of the Municipal
Insured National Trust, J.C. Bradford & Co. as agent, may purchase Class A
shares of a Fund with Unit Distributions at an offering price which is the net
asset value per share plus a sales charge of 1.5%. Unitholders of various
series of tax-exempt trusts, other than the New York Trust, sponsored by Van
Kampen Merritt Inc. may purchase Class A shares of a Fund with Unit
Distributions at an offering price which is the net
16
<PAGE>
asset value per share plus a sales charge of 1.0%. Unitholders may invest in
Class A shares of a Fund, other than through the reinvestment of Unit
Distributions. Unitholders will be charged the Fund's regular offering price on
such purchases. Each Fund's initial minimum investment requirement is waived for
purchases of Class A shares with Unit Distributions. Shares of a Fund purchased
by Unitholders may be exchanged for Class A shares of any Eligible Fund subject
to the terms and conditions set forth under "How to Exchange Shares."
CLASS B SHARES. The public offering price of Class B shares of each Fund is
the next determined net asset value, with no initial sales charge imposed. A
CDSC, however, is imposed upon most redemptions of Class B shares at the rates
set forth below:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Year Since Purchase as a Percentage of Dollars Invested
Payment Made or Redemption Proceeds
------------------- -----------------------------------
<S> <C>
First............................ 4%
Second........................... 4
Third............................ 3
Fourth........................... 3
Fifth............................ 2
Sixth............................ 1
Seventh and thereafter........... 0
</TABLE>
The CDSC will not be imposed on (1) the redemption of Class B shares acquired
as dividends or other distributions, or (2) any increase in the net asset value
of redeemed shares above their initial purchase price (in other words, the CDSC
will be imposed on the lower of net asset value or purchase price). In
determining whether a CDSC is payable on any redemption, it will be assumed that
the redemption is made first of any Class B shares acquired as dividends or
other distributions, second of Class B shares that have been held for a
sufficient period of time such that the CDSC no longer is applicable to such
shares and finally of Class B shares held longest during the period of time that
a CDSC is applicable to such shares. This will result in you paying the lowest
possible CDSC.
As an example, assume an investor purchased 100 shares of Class B shares at
$10 per share for a total cost of $1,000 and in the second year after purchase,
the net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares as dividends. If at such time the
investor makes his or her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to a CDSC charge because redemptions are first made
of shares acquired through dividend reinvestment. With respect to the remaining
40 shares, the charge is applied only to the original cost of $10 per share and
not to the increase in net asset value of $2 per share. Therefore, $400 of the
$600 redemption proceeds will be charged at a rate of 4.00% (the applicable rate
in the second year after purchase).
For purposes of determining the CDSC on Class B shares, all purchases made
during a calendar month will be deemed to have been made on the first business
day of that month at the average cost of all purchases made during that month.
The holding period of Class B shares acquired through an exchange with another
Eligible Fund will be calculated from the first business day of the month that
the Class B shares were initially acquired in the other Eligible
17
<PAGE>
Fund. The amount of any CDSC will be paid to FIC. The CDSC imposed on the
purchase of Class B shares will be waived under certain circumstances. See
"Waivers of CDSC on Class B Shares" in the SAI.
CONVERSION OF CLASS B SHARES. A shareholder's Class B shares will
automatically convert to Class A shares approximately eight years after the date
of purchase, together with a pro rata portion of all Class B shares representing
dividends and other distributions paid in additional Class B shares. The Class
B shares so converted will no longer be subject to the higher expenses borne by
Class B shares. The conversion will be effected at the relative net asset
values per share of the two classes on the first business day of the month
following the month in which the eighth anniversary of the purchase of the Class
B shares occurs. If a shareholder effects one or more exchanges between Class B
shares of the Eligible Funds during the eight-year period, the holding period
for the shares so exchanged will commence upon the date of the purchase of the
original shares. Because the per share net asset value of the Class A shares may
be higher than that of the Class B shares at the time of conversion, a
shareholder may receive fewer Class A shares than the number of Class B shares
converted. See "Determination of Net Asset Value."
ADDITIONAL PURCHASES. After you make your first investment in a Fund, you
may purchase additional shares of a Fund by mailing a check made payable to FIC,
directly to First Investors Corporation, 581 Main Street, Woodbridge, NJ 07095-
1198, Attn: Dept. CP. Include your account number on the face of the check.
There is no minimum on additional purchases of Fund shares.
SYSTEMATIC INVESTING. Shareholders who have an account with a U.S. bank, or
other financial institution that is an Automated Clearing House member, may
arrange for automatic investments in a Fund on a systematic basis through First
Investors Money Line. Systematic investments may also be made through automatic
payroll investments. You may also elect to reinvest systematically in Class A
or Class B shares of a Fund at net asset value the cash distributions or
Systematic Withdrawal Plan payments from the same class of shares of an existing
account in another Eligible Fund, including the Money Market Funds. If you wish
to participate in any of these systematic investment plans, please call
Shareholder Services at 1-800-423-4026 or see the SAI.
TRANSFER OF SHARES. Shareholders may transfer the ownership of their shares
in a Fund account to another party. Because the Funds do not offer their shares
other than through a broker or dealer, if the party to whom the shares are to be
transferred does not have a broker or dealer of record and does not wish to
complete the paperwork necessary to become a client of First Investors, the
Funds reserve the right to liquidate the shares and forward the proceeds to the
new accountholder rather than to make the transfer. For more information on how
to transfer your Fund shares, call your Representative or call Shareholder
Services at 1-800-423-4026.
GENERAL. The Underwriter may at times agree to reallow to Dealers up to an
additional 0.25% of the dollar amount of shares of the Funds and/or certain
other First Investors Funds sold by such Dealers during a specific period of
time. From time to time, the Underwriter also will pay, through additional
reallowances or other sources, a bonus or other compensation to Dealers that
employ a Dealer Representative who sells a minimum dollar amount of the shares
of the Funds and/or certain other First Investors Funds during a specific period
of time. FIC
18
<PAGE>
Representatives generally are more highly compensated for sales of First
Investors mutual funds than for sales of other mutual funds.
HOW TO EXCHANGE SHARES
Should your investment needs change, you may exchange, at net asset value,
shares of a Fund for shares of any Eligible Fund, including the Money Market
Funds. SHARES OF A PARTICULAR CLASS MAY BE EXCHANGED ONLY FOR SHARES OF THE
SAME CLASS OF ANOTHER FUND. Exchanges can only be made into accounts registered
to identical owners. If your exchange is into a new account, it must meet the
minimum investment and other requirements of the fund into which the exchange is
being made. Additionally, the fund must be available for sale in the state where
you reside. Before exchanging Fund shares for shares of another fund, you
should read the Prospectus of the fund into which the exchange is to be made.
You may obtain Prospectuses and information with respect to which funds qualify
for the exchange privilege free of charge by calling Shareholder Services at 1-
800-423-4026. Exchange requests received in "good order," as defined below, by
the Transfer Agent before the close of regular trading on the NYSE will be
processed at the net asset value determined as of the close of regular trading
on the NYSE on that day; exchange requests received after that time will be
processed on the following trading day.
EXCHANGES BY MAIL. To exchange shares by mail, you should mail requests to
Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ 07095-
1198. Shares will be exchanged after the request is received in "good order" by
the Transfer Agent. "Good order" means that an exchange request must include:
(1) the names of the funds, account number(s), the dollar amount, number of
shares or percentage of the account you wish to exchange; (2) share
certificates, if issued; (3) the signature of all registered owners exactly as
the account is registered; and (4) signature guarantees, if required (see "How
to Redeem SharesSignature Guarantees"). If the request is not in good order or
information is missing, the Transfer Agent will seek additional information from
you and process the exchange on the day it receives such information. Certain
account registrations may require additional legal documentation in order to
exchange. To review these requirements, please call Shareholder Services at 1-
800-423-4026.
EXCHANGES BY TELEPHONE. See "Telephone Transactions," below.
ADDITIONAL EXCHANGE INFORMATION. Exchanges should be made for investment
purposes only. A pattern of frequent exchanges may be contrary to the best
interests of a Fund's other shareholders. Accordingly, each Fund has the right,
at its sole discretion, to limit the amount of an exchange, reject any exchange,
or, upon 60 days' notice, materially modify or discontinue the exchange
privilege. Each Fund will consider all relevant factors in determining whether
a particular frequency of exchanges is contrary to the best interests of the
Fund and/or a class of the Fund and its other shareholders. Any such
restriction will be made by a Fund on a prospective basis only, upon notice to
the shareholder not later than ten days following such shareholder's most recent
exchange.
19
<PAGE>
HOW TO REDEEM SHARES
You may redeem your Fund shares at the next determined net asset value, less
any applicable CDSC, on any day the NYSE is open, directly through the Transfer
Agent. Your Representative may help you with this transaction. Shares may be
redeemed by mail or telephone. Certain account registrations may require
additional legal documentation in order to redeem. Redemption requests received
in "good order" by the Transfer Agent before the close of regular trading on the
NYSE, will be processed at the net asset value, less any applicable CDSC,
determined as of the close of regular trading on the NYSE on that day. Payment
of redemption proceeds generally will be made within seven days. If the shares
being redeemed were recently purchased by check, payment may be delayed to
verify that the check has been honored, which may take up to fifteen days from
date of purchase. Shareholders may not redeem shares by telephone or Electronic
Fund Transfer unless the shares being redeemed have been owned for at least 15
days. Redemption checks returned to the Transfer Agent, marked as being
undeliverable, by the U.S. Postal Service after two consecutive mailings will be
held by the Transfer Agent in a non-interest bearing account until the Transfer
Agent is either provided with a current address and any required supporting
documentation or is required to escheat the funds to the appropriate state
treasury. For a discussion of pricing practices in the event that the Funds
must halt operations due to an emergency, see the SAI.
REDEMPTIONS BY MAIL. Written redemption requests should be mailed to
Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ 07095-
1198. For your redemption request to be in good order, you 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 redeemed; (4) share certificates,
if issued; (5) the original signatures of all registered owners exactly as the
account is registered; and (6) signature guarantees, if required. If your
redemption request is not in good order or information is missing, the Transfer
Agent will seek additional information and process the redemption on the day it
receives such information. To review these requirements, please call
Shareholder Services at 1-800-423-4026.
SIGNATURE GUARANTEES. In order to protect you, the Funds and their agents,
each Fund reserves the right to require signature guarantees in order to process
certain exchange or redemption requests. See the SAI or call Shareholder
Services at 1-800-423-4026 for instances when signature guarantees are required.
REDEMPTIONS BY TELEPHONE. See "Telephone Transactions," below.
ELECTRONIC FUND TRANSFER. Shareholders who have established Electronic Fund
Transfer may have redemption proceeds electronically transferred to a
predesignated bank account. Each Fund has the right, at its sole discretion, to
limit or terminate your ability to exercise the electronic fund transfer
privilege at any time. For additional information, see the SAI. Applications
to establish Electronic Fund Transfer are available from your FIC Representative
or by calling Shareholder Services at 1-800-423-4026.
FUND/SERV REDEMPTIONS. If there is a Dealer of record on your Fund account,
the Fund is authorized to execute electronic redemption requests received
directly from this Dealer. Electronic requests may be processed through the
services of the NSCC "Fund/SERV" system.
20
<PAGE>
Redemption requests received by a Dealer before the close of regular trading on
the NYSE and received by FIC at its Woodbridge offices in accordance with NSCC
rules and procedures will be executed at the net asset value, less any
applicable sales charge, determined at the close of regular trading on the NYSE
on that day. It is the responsibility of the Dealer to transmit redemption
requests to FIC promptly and accurately. FIC will not be liable for any change
in the redemption price due to the failure of FIC to receive such redemption
requests. Any such disputes must be settled between you and the Dealer.
SYSTEMATIC WITHDRAWAL PLAN. If you own noncertificated shares, you may set
up a plan for redemptions to be made automatically at regular intervals. See
the SAI for more information on the Systematic Withdrawal Plan or call
Shareholder Services at 1-800-423-4026.
REINVESTMENT AFTER REDEMPTION. If you redeem Class A or Class B shares in
your Fund account, you can reinvest within six months from the date of
redemption all or any part of the proceeds in shares of the same class of the
same Fund or any other Eligible Fund, including the Money Market Funds, at net
asset value, on the date the Transfer Agent receives your purchase request. For
more information on the reinvestment privilege, see the SAI or call Shareholder
Services at 1-800-423-4026.
REPURCHASE THROUGH UNDERWRITER. You may redeem Fund shares through a Dealer.
In this event, the Underwriter, acting as agent for each Fund, will offer to
repurchase or accept an offer to sell such shares at a price equal to the net
asset value next determined after the making of such offer, less any applicable
CDSC. The Dealer may charge you a fee for handling any redemption transaction.
REDEMPTION OF LOW BALANCE ACCOUNTS. Because each Fund incurs certain fixed
costs in maintaining shareholder accounts, each Fund may redeem without your
consent, on at least 60 days' prior written notice (which may appear on your
account statement), any Fund account of Class A or Class B shares which has a
net asset value of less than $500. To avoid such redemption, you may, during
such 60-day period, purchase additional Fund shares of the same class so as to
increase your account balance to the required minimum. There will be no CDSC
imposed on such redemptions of Class B shares. A Fund will not redeem accounts
that fall below $500 solely as a result of a reduction in net asset value.
Accounts established under a Systematic Investment Plan that have been
discontinued prior to meeting the $1,000 minimum are subject to this policy.
Additional information concerning how to redeem shares of a Fund is available
upon request to your Representative or Shareholder Services at 1-800-423-4026.
TELEPHONE TRANSACTIONS
Unless you specifically decline to have telephone privileges, you, or any
person who we reasonably believe is authorized to act on your behalf, may redeem
or exchange noncertificated shares of a Fund by calling the Special Services
Department at 1-800-342-6221 weekdays (except holidays) between 9:00 A.M. and
5:00 P.M. (New York City time). Certain accounts, however, are required to
complete additional documents in order to activate telephone privileges.
Exchange or redemption requests received before the close of regular trading on
the NYSE will be processed at
21
<PAGE>
the net asset value, less any applicable CDSC, determined as of the close of
business on that day. Exchange or redemption requests received after the close
of regular trading on the NYSE will be processed the following business day. For
more information on telephone privileges, please call Shareholder Services at 1-
800-423-4026 or see the SAI.
TELEPHONE EXCHANGES. Exchange requests may be made by telephone (provided no
certificate has been issued for the shares).
TELEPHONE REDEMPTIONS. The telephone redemption privilege may be used to
redeem shares provided: (1) the redemption proceeds are being mailed to the
address of record or to a predesignated bank account; (2) your address of record
has not changed within the past 60 days; (3) the shares to be redeemed have not
been issued in certificate form; (4) each redemption does not exceed $50,000;
(5) the proceeds of the redemption, together with all redemptions made from the
account during the prior 30-day period, do not exceed $100,000; and (6) the
shares being redeemed have been owned for at least fifteen days. TELEPHONE
REDEMPTION INSTRUCTIONS WILL BE ACCEPTED FROM ANY ONE OWNER OR AUTHORIZED
INDIVIDUAL.
ADDITIONAL INFORMATION. The Tax Exempt Funds, the Adviser, the Underwriter
and their officers, trustees, directors and employees will not be liable for any
loss, damage, cost or expense arising out of any instruction (or any
interpretation of such instruction) received by telephone which they reasonably
believe to be authentic. This policy places the entire risk of loss for
unauthorized or fraudulent transactions on the shareholder, except that if the
above-referenced parties do not follow reasonable procedures, some or all of
them may be liable for any such losses. For more information on telephone
transactions see the SAI. The Tax Exempt Funds have the right, at their sole
discretion, upon 60 days' notice, to materially modify or discontinue the
telephone exchange and redemption privilege. During times of drastic economic
or market changes, telephone exchanges or redemptions may be difficult to
implement. If you experience difficulty in making a telephone exchange or
redemption, your exchange or redemption request may be made by regular or
overnight mail, and it will be implemented at the next determined net asset
value, less any applicable CDSC, following receipt by the Transfer Agent.
MANAGEMENT
BOARD OF DIRECTORS OR TRUSTEES. Each Tax Exempt Fund's Board, as part of its
overall management responsibility, oversees various organizations responsible
for the applicable Fund's day-to-day management.
ADVISER. First Investors Management Company, Inc. supervises and manages
each Fund's investments, determines each Fund's portfolio transactions and
supervises all aspects of each Fund's operations. The Adviser is a New York
corporation located at 95 Wall Street, New York, NY 10005. The Adviser
presently acts as investment adviser to 14 mutual funds. First Investors
Consolidated Corporation ("FICC") owns all of the voting common stock of the
Adviser and all of the outstanding stock of FIC and the Transfer Agent. Mr.
Glenn O. Head controls FICC and, therefore, controls the Adviser.
As compensation for its services, the Adviser receives an annual fee from
each of the Funds, which is payable monthly. For the fiscal year ended December
31, 1997, the advisory fees for
22
<PAGE>
INSURED TAX EXEMPT FUND were 0.70% of its average daily net assets. For the same
period, INSURED INTERMEDIATE FUND's advisory fees, net of waiver, were 0.39%.
PORTFOLIO MANAGERS. Clark D. Wagner has been Portfolio Manager of the Tax
Exempt Funds since he joined FIMCO in 1991. On January 1, 1998, Mr. W. Richard
Yu joined Mr. Wagner as co-manager of INSURED IMMEDIATE FUND. Mr. Wagner is
also Portfolio Manager of certain other First Investors funds. Mr. Wagner has
been Chief Investment Officer of FIMCO since 1992. Mr. Yu joined FIMCO in June
1994 as a trader for all of the First Investors municipal bond funds. Prior to
joining FIMCO, Mr. Yu was an assistant in the municipal bond fund group at
Alliance Capital Management from August 1993 to June 1994 and a qualify control
analyst for the data team at Capital Market Decisions Inc. from August 1992 to
August 1993.
BROKERAGE. Each Fund may allocate brokerage commissions, if any, to broker-
dealers in consideration of Fund share distribution, but only when execution and
price are comparable to that offered by other broker-dealers. Brokerage may be
directed to brokers who provide research. See the SAI for more information on
allocation of portfolio brokerage.
UNDERWRITER. Each Tax Exempt Fund has entered into an Underwriting Agreement
with First Investors Corporation, 95 Wall Street, New York, NY 10005, as
Underwriter. The Underwriter receives all sales charges in connection with the
sale of each Fund's Class A shares and all CDSCs in connection with each Fund's
Class B shares and may receive other payments under a plan of distribution. See
"How to Buy Shares" and "Distribution Plans."
DISTRIBUTION PLANS
Pursuant to separate distribution plans pertaining to each Fund's Class A and
Class B shares ("Class A Plan" or "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
("distribution fees") and the servicing or maintenance of existing Fund
shareholder accounts ("service fees"). Pursuant to the Plans, distribution fees
are paid for activities relating to the distribution of Fund shares, including
costs of printing and dissemination of sales material or literature,
prospectuses and reports used in connection with the sale of Fund shares.
Service fees are paid for the ongoing maintenance and servicing of existing
shareholder accounts, including payments to Representatives who provide
shareholder liaison services to their customers who are holders of that Fund,
provided they meet certain criteria.
Pursuant to INSURED TAX EXEMPT FUND'S Class A Plan, the Fund's Board of
Directors, in its sole discretion, may periodically allocate the portion of
distribution fees and services fees that may be spent, provided the aggregate of
such fees paid by the Fund may not exceed an annual rate of 0.30% of its average
daily net assets attributable to Class A shares in any one fiscal year. Of that
amount, no more than 0.25% of the Fund's average daily net assets attributable
to Class A shares may be paid as service fees. Payments made to the Underwriter
will be for reimbursement of specific expenses incurred in connection with
distribution and service activities.
Pursuant to INSURED INTERMEDIATE FUND's Class A Plan, the Fund is authorized
to pay the Underwriter a distribution fee at the annual rate of 0.05% of the
Fund's average daily net assets attributable to Class A shares and a service fee
of 0.25% of the Fund's average daily net assets
23
<PAGE>
attributable to Class A shares. Payments made to the Underwriter will represent
compensation for distribution and service activities, not reimbursement for
specific expenses incurred.
Pursuant to each Class B Plan, each Fund is authorized to pay the Underwriter
a distribution fee at the annual rate of 0.75% of that Fund's average daily net
assets attributable to Class B shares and a service fee of 0.25% of the Fund's
average daily net assets attributable to Class B shares. Payments made to the
Underwriter under each Class B Plan will represent compensation for distribution
and service activities, not reimbursement for specific expenses incurred.
Although Class B shares are sold without an initial sales charge, the
Underwriter pays from its own resources a sales commission to FIC
Representatives and a concession equal to 3.5% of the amount invested to Dealers
who sell Class B shares. In addition, the Underwriter will make quarterly
payments of service fees to Representatives commencing after the thirteenth
month following the initial sale of Class B shares. The Underwriter will make
such payments at an annual rate of up to 0.25% of the average net asset value of
Class B shares which are attributable to shareholders for whom the
Representatives are designated as dealer of record.
Each Fund may suspend or modify payments under the Plans at any time, and
payments are subject to the continuation of each Plan, the terms of any dealer
agreements between Dealers and the Underwriter and any applicable limits imposed
by the National Association of Securities Dealers, Inc. Each Fund will not
carry over any fees under the Plans to the next fiscal year. See "Distribution
Plans" in the SAI for a full discussion of the various Plans.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund's shares fluctuates and is determined
separately for each class of shares. The net asset value of shares of a given
class of each Fund is determined as of the close of regular trading on the NYSE
(generally 4:00 P.M., New York City time) on each day the NYSE is open for
trading, and at such other times as the applicable Tax Exempt Fund's Board deems
necessary, by dividing the market value of the securities held by such Fund,
plus any cash and other assets, less all liabilities attributable to that class,
by the number of shares of the applicable class outstanding. If there is no
available market value, securities will be valued at their fair value as
determined in good faith pursuant to procedures adopted by the applicable Tax
Exempt Fund's Board. Expenses (other than 12b-1 fees and certain other class
expenses) are allocated daily to each class of shares based upon the relative
proportion of net assets of each class. The per share net asset value of the
Class B shares will generally be lower than that of the Class A shares because
of the higher expenses borne by the Class B shares. The NYSE currently observes
the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are generally declared daily and paid
monthly by each Fund. Unless you direct the Transfer Agent otherwise, dividends
declared on a class of shares are paid in additional shares of the same class of
the distributing Fund at the net asset
24
<PAGE>
value generally determined as of the close of business on the first business day
of the following month. If you redeem all of your shares of a Fund at any time
during a month, you are paid all dividends declared through the day prior to the
date of the redemption, together with the proceeds of your redemption, less any
applicable CDSC. Net investment income includes interest, earned discount and
other income earned on portfolio securities less expenses.
Each Fund also distributes with its regular dividend at the end of each year
substantially all of its net capital gain (the excess of net long-term capital
gain over net short-term capital loss) and net short-term capital gain, if any,
after deducting any available capital loss carryovers. Unless you direct the
Transfer Agent otherwise, these distributions are paid in additional shares of
the class with respect to which they are declared at the net asset value
generally determined as of the close of business on the business day immediately
following the record date of the distribution. A Fund may make an additional
distribution in any year if necessary to avoid a Federal excise tax on certain
undistributed ordinary (taxable) 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 a 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.
In order to be eligible to receive a dividend or other distribution, you must
own Fund shares as of the close of business on the record date of the
distribution. You may elect to receive dividends and/or other distributions in
cash by notifying the Transfer Agent by telephone or in writing prior to the
record date of the distribution. If you elect this form of payment, the payment
date generally is two weeks following the record date of the distribution. Your
election remains in effect until you revoke it by notifying the Transfer Agent.
You may elect to invest the entire amount of any cash distribution on Class A
or Class B shares of a Fund in the same class of shares of any Eligible Fund,
including the Money Market Funds, by notifying the Transfer Agent. See the SAI
or call Shareholder Services at 1-800-423-4026 for more information. The
investment will be made at the net asset value per share of the other fund,
generally determined as of the close of business on the business day immediately
following the record date of the distribution.
A dividend or other distribution paid on a class of shares of a Fund will be
paid in additional shares of that class and not in cash if either of the
following events occurs: (1) the total amount of the distribution is under $5
or (2) the Fund has received notice of your death on an individual account
(until written alternate payment instructions and other necessary documents are
provided by your legal representative). Dividend or distribution checks
returned to the Transfer Agent marked as being undeliverable by the U.S. Postal
Service after two consecutive mailings will be held by the Transfer Agent in a
non-interest bearing account until the Transfer Agent is either provided with a
current address and any required supporting documentation or is required to
escheat the funds to the appropriate state treasury. Any subsequent dividend or
distribution check returned in the same manner will be treated as a request by
you to change your dividend or distribution option to reinvest. The proceeds
will be reinvested in additional shares of the distributing class at net asset
value until the Fund receives new instructions.
25
<PAGE>
TAXES
Each Fund has qualified and intends to continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), so that it will be relieved of Federal income tax on that part of
its investment company taxable income (consisting generally of taxable net
investment income and net short-term capital gain) and net capital gain that it
distributes to its shareholders. In addition, each Fund intends to continue to
qualify to pay "exempt-interest dividends" (as defined below), which requires,
among other things, that at the close of each calendar quarter at least 50% of
the value of its total assets must consist of Municipal Instruments.
Distributions by a Fund of the excess of interest income from Municipal
Instruments over certain amounts disallowed as deductions, which are designated
by the Fund as "exempt-interest dividends," generally may be excluded by you
from gross income. Distributions by a Fund of interest income from taxable
obligations and net short-term capital gain, if any, are taxable to you as
ordinary income, to the extent of the Fund's earnings and profits, whether paid
in cash or in additional Fund shares. Distributions of a Fund's net capital
gain, when designated as such, are taxable to you as long-term capital gain,
whether paid in cash or in additional Fund shares, regardless of the length of
time you have owned your shares.
If you purchase your shares shortly before the record date for a taxable
dividend or capital gain distribution, you will pay full price for the shares
and receive some portion of the price back as a taxable distribution. Following
the end of each calendar year you will receive a statement from the Fund in
which you hold shares describing the tax status of distributions paid by the
Fund for that year. The information regarding capital gain distributions
designates the portions thereof subject to the different maximum rates of tax
applicable to individuals' net capital gain.
Interest on indebtedness incurred or continued to purchase or carry shares of
a Fund will not be deductible for Federal income tax purposes to the extent the
Fund's distributions consist of exempt-interest dividends. Each Fund does not
intend to invest in PABs or IDBs the interest on which is treated as a Tax
Preference Item.
Proposals have been and, in the future, may be introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Instruments. If such a proposal were enacted, the
availability of Municipal Instruments for investment by each Fund and the value
of its portfolio securities would be affected. In that event, each Fund would
reevaluate its investment objective and policies.
Each Fund is required to withhold 31% of all taxable dividends, capital gain
distributions and redemption proceeds payable to you (if you are an individual
or certain other non-corporate shareholder) if the Fund is not furnished with
your correct taxpayer identification number, and the same percentage of such
dividends and distributions in certain other circumstances.
Your redemption of Fund shares will result in a taxable gain or loss to you,
depending on whether the redemption proceeds are more or less than your adjusted
basis for the redeemed shares (which normally includes any initial sales charge
paid on Class A shares). An exchange of Fund shares for shares of any Eligible
Fund generally will have similar tax consequences.
26
<PAGE>
However, special tax rules apply when a shareholder (1) disposes of Class A
shares through a redemption or exchange within 90 days of purchase and (2)
subsequently acquires Class A shares of an Eligible Fund without paying a sales
charge due to the reinvestment privilege or exchange privilege. In these cases,
any gain on the disposition of the original Class A shares will be increased, or
loss decreased, by the amount of the sales charge paid when the shares were
acquired, and that amount will increase the basis of the Eligible Fund's shares
subsequently acquired. In addition, if you purchase Fund shares within 30 days
before or after redeeming other shares of that Fund (regardless of class) at a
loss, all or a portion of the loss will not be deductible and will increase the
basis of the newly purchased shares. No gain or loss will be recognized to a
shareholder as a result of a conversion of Class B shares to Class A shares.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting each Fund and its shareholders; see the SAI
for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor; for example, a Fund's
distributions may be wholly or partly taxable under state and/or local laws. You
therefore are urged to consult your own tax adviser.
PERFORMANCE INFORMATION
For purposes of advertising, each Fund's performance may be calculated for
each class of its shares based on average annual total return and total return.
Each of these figures reflects past performance and does not necessarily
indicate future results. Average annual total return shows the average annual
percentage change in an assumed $1,000 investment. It reflects the hypothetical
annually compounded return that would have produced the same total return if a
Fund's performance had been constant over the entire period. Because average
annual total return tends to smooth out variations in a Fund's return, you
should recognize that it is not the same as actual year-by-year results.
Average annual total return includes the effect of paying the maximum sales
charge (in the case of Class A shares) or the deduction of any applicable CDSC
(in the case of Class B shares) and payment of dividends and other distributions
in additional shares. One, five and ten year periods will be shown unless the
class has been in existence for a shorter period. Total return is computed
using the same calculations as average annual total return. However, the rate
expressed is the percentage change from the initial $1,000 invested to the value
of the investment at the end of the stated period. Total return calculations
assume reinvestment of dividends and other distributions.
Each Fund also may advertise its yield for each class of shares. Yield
reflects investment income net of expenses over a 30-day (or one-month) period
on a Fund share, expressed as an annualized percentage of the maximum offering
price per share for Class A shares and the net asset value per share for Class B
shares at the end of the period. Yield computations differ from other
accounting methods and therefore may differ from dividends actually paid or
reported net income.
Tax-equivalent yields show the taxable yields an investor would have to earn
to equal a Fund's tax-free yields. The tax-equivalent yield is calculated
similarly to the yield, except that the yield is increased using a stated income
tax rate to demonstrate the taxable yield necessary to produce an after-tax
yield equivalent to a Fund's tax-free yield. Each Fund may also advertise its
"actual distribution rate" for each class of shares. This is computed in the
same manner as yield
27
<PAGE>
except that actual income dividends declared per share during the period in
question are substituted for net investment income per share. In addition, each
Fund calculates its "actual distribution rate" based upon net asset value for
dissemination to existing shareholders.
Each of the above performance calculations may be based on investment at
reduced sales charge levels or at net asset value. Any quotation of performance
figures not reflecting the maximum sales charge or CDSC will be greater than if
the maximum sales charge or CDSC were used. Each class of shares of a Fund has
different expenses which will affect its performance.
GENERAL INFORMATION
ORGANIZATION. INSURED TAX EXEMPT FUND was incorporated in the State of
Maryland on September 28, 1976. Series Fund is a Massachusetts business trust
organized on September 23, 1988. Each Fund is authorized to issue shares of
beneficial interest or common stock, as applicable, in such separate and
distinct series and classes of shares as that Tax Exempt Fund's Board shall from
time to time establish. The shares of common stock of INSURED TAX EXEMPT FUND
presently comprise one series and the shares of beneficial interest of Series
Fund are presently divided into five separate and distinct series. Each Tax
Exempt Fund presently has 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 Tax Exempt Funds do not hold annual shareholder meetings. If
requested to do so by the holders of at least 10% of a Tax Exempt Fund's
outstanding shares, that Tax Exempt Fund's Board will call a special meeting of
shareholders for any purpose, including the removal of Directors or Trustees.
Each share of each Fund has equal voting rights except as noted.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer and
dividend disbursing agent for each Fund and as redemption agent for regular
redemptions. The Transfer Agent's telephone number is 1-800-423-4026.
SHARE CERTIFICATES. The Funds do not issue certificates for Class B shares,
The Funds, however, will issue share certificates for Class A shares at the
shareholder's request. Ownership of shares of each Fund is recorded on a stock
register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.
CONFIRMATIONS AND STATEMENTS. You will receive confirmations of purchases
and redemptions of shares of a Fund. Generally, confirmation statements will be
sent to you following a transaction in the account, including payment of a
dividend or capital gain distribution in additional shares or cash. However,
systematic investments made through First Investors Money Line or automatic
payroll deductions will only be confirmed in your monthly or quarterly
statement, showing all transactions occurring during the period.
SHAREHOLDER INQUIRIES. Shareholder inquiries can be made by calling
Shareholder Services at 1-800-423-4026.
28
<PAGE>
ANNUAL AND SEMI-ANNUAL REPORTS AND PROSPECTUSES TO SHAREHOLDERS. It is each
Fund's practice to mail only one copy of its annual and semi-annual reports to
any address at which more than one shareholder with the same last name has
indicated that mail is to be delivered. Additional copies of the reports will
be mailed if requested in writing or by telephone by any shareholder. In
addition, if the SEC adopts a currently pending proposed rule, it is the Funds'
intention to mail only one copy of its Prospectus to any address at which more
than one shareholder with the same last name has indicated that mail is to be
delivered. Additional copies of the Prospectus will be mailed if requested in
writing or by telephone by any shareholder.
YEAR 2000. Like other mutual funds, the Funds could be adversely affected if
the computer and other information processing systems used by the Adviser,
Transfer Agent and other service providers are not properly programmed to
process date-related information on and after January 1, 2000. Such systems
typically have been programmed to use a two-digit number to represent the year
for any date. As a result, computer systems could incorrectly misidentify "00"
as 1900, rather than 2000, and make mistakes when performing operations. The
Adviser and Transfer Agent are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Funds' other service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Funds. Nor can the
Funds estimate the extent of any impact.
29
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- -------------------------------------------------------------------------------------------
<S> <C>
Fee Table............................................................................ 2
Financial Highlights................................................................. 4
Investment Objective and Policies.................................................... 8
Alternative Purchase Plans........................................................... 13
How to Buy Shares.................................................................... 14
How to Exchange Shares............................................................... 19
How to Redeem Shares................................................................. 20
Telephone Transactions............................................................... 21
Management........................................................................... 22
Distribution Plans................................................................... 23
Determination of Net Asset Value..................................................... 24
Dividends and Other Distributions.................................................... 24
Taxes................................................................................ 26
Performance Information.............................................................. 27
General Information.................................................................. 28
</TABLE>
ADVISER CUSTODIAN
First Investors Management The Bank of New York
Company, Inc. 48 Wall Street
95 Wall Street New York, NY 10286
New York, NY 10005
TRANSFER AGENT
UNDERWRITER Administrative Data
First Investors Corporation Management Corp.
95 Wall Street 581 Main Street
New York, NY 10005 Woodbridge, NJ 07095-1198
LEGAL COUNSEL AUDITORS
Kirkpatrick & Lockhart LLP Tait, Weller & Baker
1800 Massachusetts Avenue, N.W. 8 Penn Center Plaza
Washington, D.C. 20036 Philadelphia, PA 19103
This Prospectus is intended to constitute an offer by each Tax Exempt Fund only
of the securities of which it is the issuer and is not intended to constitute an
offer by either Fund of the securities of the other Fund whose securities are
also offered by this Prospectus. Neither Fund intends to make any representation
as to the accuracy or completeness of the disclosure in this Prospectus relating
to the other Fund. No dealer, salesman or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus or the Statement of Additional Information, and if
given or made, such information and representation must not be relied upon as
having been authorized by either Tax Exempt Fund, First Investors Corporation,
or any affiliate thereof. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any of the shares offered hereby in any
state to any person to whom it is unlawful to make such offer in such state.
L2766.doc
30
<PAGE>
First Investors
Insured Tax Exempt
Fund, Inc.
- ---------------------------
First Investors
Insured Intermediate
Tax Exempt Fund
A Series of
First Investors Series Fund
- ---------------------------
Prospectus
- ----------------------------
April 30, 1998
First Investors Logo
Logo is described as follows: the arabic numeral one separated into seven
vertical segments followed by the words "First Investors."
Verticle line from top to bottom in center of page about 1/2 inch in thickness
The following language appears to the left of the above language in the printed
piece:
The words "BULK RATE U.S. POSTAGE PAID PERMIT NO. 7379" in a box to the right of
a circle containing the words "MAILED FROM ZIP CODE 11201" appears on the
righthand side.
The following language appears on the lefthand side:
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
FIRST INVESTORS INSURED INTERMEDIATE TAX EXEMPT FUND
a Series of First Investors Series Fund
95 WALL STREET
NEW YORK, NY 10005
First Investors Logo (as described above)
A MEMBER OF THE
FIRST INVESTORS
FINANCIAL NETWORK
FIITE01
<PAGE>
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
FIRST INVESTORS INSURED INTERMEDIATE
TAX EXEMPT FUND, A SERIES OF
FIRST INVESTORS SERIES FUND
95 Wall Street 1-800-423-4026
New York, New York 10005
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 30, 1998
This is a Statement of Additional Information ("SAI") for FIRST INVESTORS
INSURED TAX EXEMPT FUND, INC. ("INSURED TAX EXEMPT FUND") and FIRST INVESTORS
INSURED INTERMEDIATE TAX EXEMPT FUND ("INSURED INTERMEDIATE FUND"). INSURED
INTERMEDIATE FUND is a separate series of FIRST INVESTORS SERIES FUND ("SERIES
FUND"). INSURED TAX EXEMPT FUND and SERIES FUND are each an open-end
diversified management investment company (collectively, "Tax Exempt Funds").
INSURED TAX EXEMPT FUND and INSURED INTERMEDIATE FUND are sometimes referred to
herein singularly as "Fund" and collectively as "Funds." The investment
objective of each Fund is to seek to provide a high level of interest income
which is exempt from Federal income tax and is not an item of tax preference for
purposes of the Federal alternative minimum tax ("Tax Preference Item"). There
can be no assurance that the objective of any Fund will be realized.
This SAI is not a prospectus. It should be read in conjunction with the Tax
Exempt Funds' Prospectus dated April 30, 1998, which may be obtained free of
cost from the Tax Exempt Funds at the address or telephone number noted above.
TABLE OF CONTENTS
-----------------
Page
----
Investment Policies.............................. 2
Hedging and Option Income Strategies............. 6
Insurance........................................ 12
Investment Restrictions.......................... 14
Directors or Trustees and Officers............... 18
Management....................................... 20
Underwriter...................................... 21
Distribution Plans............................... 22
Determination of Net Asset Value................. 23
Allocation of Portfolio Brokerage................ 24
Reduced Sales Charges, Additional Exchange and
Redemption Information and Other Services...... 24
Taxes............................................ 30
Performance Information.......................... 32
General Information.............................. 36
Appendix A....................................... 38
Appendix B....................................... 41
Appendix C....................................... 42
Appendix D....................................... 43
Financial Statements............................. 49
<PAGE>
INVESTMENT POLICIES
BOND MARKET CONCENTRATION. Each Fund may invest more than 25% of its total
-------------------------
assets in a particular segment of the municipal bond market, such as hospital
revenue bonds, housing agency bonds, industrial development bonds, utility bonds
and university bonds, during periods when one or more of these segments offer
higher yields and/or profit potential. As of December 31, 1997, INSURED
INTERMEDIATE FUND had 44% of its assets in general obligation bonds.
Certificates of Participation. The applicable Tax Free Fund's Board of
-----------------------------
Directors or Trustees (each, a "Board") has established guidelines for
determining the liquidity of the certificates of participation ("COPs") in the
applicable Tax Free Fund's portfolio and, subject to review by that Tax Free
Fund's Board, has delegated that responsibility to the Adviser. Pursuant to
these guidelines, the Adviser will consider (1) the frequency of trades and
quotes for the security, (2) the number of dealers willing to purchase or sell
the security and the number of other potential buyers, (3) the willingness of
dealers to undertake to make a market in the security, (4) the nature of the
marketplace, namely, the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer, (5) the coverage of the
obligation by new issue insurance, (6) the likelihood that the marketability of
the obligation will be maintained through the time the security is held by a
Fund, and (7) for unrated COPs, the COPs' credit status analyzed by the Funds'
investment adviser, First Investors Management Company, Inc. ("FIMCO" or
"Adviser"), according to the factors reviewed by rating agencies.
DETACHABLE CALL OPTIONS. Detachable call options are sold by issuers of
-----------------------
municipal bonds separately from the municipal bonds to which the call options
relate and permit the purchasers of the call options to acquire the municipal
bonds at the call prices and call dates. In the event that interest rates drop,
the purchaser could exercise the call option to acquire municipal bonds that
yield above-market rates. INSURED INTERMEDIATE FUND may acquire detachable call
options relating to municipal bonds that the Fund already owns or will acquire
in the immediate future and thereby, in effect, make such municipal bonds non-
callable so long as the Fund continues to hold the detachable call option.
INSURED INTERMEDIATE FUND will consider detachable call options to be illiquid
securities and they will be treated as such for purposes of certain investment
limitation calculations.
High Yield Securities. Although each Fund may invest up to 5% of its net
---------------------
assets in municipal bonds rated lower than Baa by Moody's Investors Service,
Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P"), each Fund
currently does not intend to purchase such municipal bonds. However,
occasionally a Fund may hold in its portfolio a municipal bond that has had its
rating downgraded. In each instance, such bonds will be covered by the
insurance feature and thus considered to be of higher quality than high yield
securities without an insurance feature. See "Insurance" for a detailed
discussion of the insurance feature. 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 securities ("High Yield Securities"). High Yield Securities are subject
to certain risks that may not be present with investments in high grade
securities. The prices of High Yield Securities tend to be less sensitive to
interest rate changes than higher-rated investments, but may be more sensitive
to adverse economic changes. A strong economic downturn or a substantial period
of rising interest rates could severely affect the market for High Yield
Securities.
Municipal obligations that are high yield securities rated below investment
grade ("Municipal High Yield Securities") are deemed by Moody's and S&P to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal and may involve major risk exposure to adverse conditions.
"Municipal High Yield Securities," unless otherwise noted, include
2
<PAGE>
unrated securities deemed to be rated below investment grade by the Adviser.
Ratings of Municipal High Yield Securities represent the rating agencies'
opinions regarding their quality, are not a guarantee of quality and may be
reduced after a Fund has acquired the security. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than the rating
indicates.
Municipal High Yield Securities generally offer a higher current yield than
higher grade issues. However, Municipal High Yield Securities involve higher
risks, in that they are especially subject to adverse changes in the general
economic conditions, in economic conditions of an issuer's geographic area and
in the industries or activities in which the issuer is engaged. Municipal High
Yield Securities are also especially sensitive to changes in the financial
condition of the issuer and to price fluctuations in response to changes in
interest rates. Accordingly, the yield on lower rated Municipal High Yield
Securities will fluctuate over time. During periods of economic downturn or
rising interest rates, municipal issuers may experience financial stress which
could adversely affect their ability to make payments of principal and interest
and increase the possibility of default.
In addition, Municipal High Yield Securities are frequently traded only in
markets where the number of potential purchasers and sellers, if any, is
limited. This factor may limit a Fund's ability to acquire such securities and
to sell such securities at their fair value in response to changes in the
economy or the financial markets, especially for unrated Municipal High Yield
Securities. Although unrated Municipal High Yield Securities are not necessarily
of lower quality than rated Municipal High Yield Securities, the market for
rated Municipal High Yield Securities generally is broader than that for unrated
Municipal High Yield Securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values and
liquidity of Municipal High Yield Securities, especially in a thinly traded
market.
Loans of Portfolio Securities. Each Fund may loan securities to qualified
-----------------------------
broker-dealers or other institutional investors provided: the borrower pledges
to a Fund and agrees to maintain at all times with that Fund cash 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 a Fund, that
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 a Fund at any time and that 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 a Fund. The
borrower must add to the collateral whenever the market value of the securities
rises above the level of such collateral. A 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. The primary objective of such
loaning function is to supplement a Fund's income through investment of the cash
collateral in short-term interest bearing obligations. INSURED INTERMEDIATE
FUND has a non-fundamental policy that the aggregate value of portfolio
securities it can lend will not exceed 10% of its net assets and INSURED TAX
EXEMPT FUND may not make such loans in excess of 10% of its total assets.
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 the Fund's custodian bank. In a "tri-party"
repurchase agreement, these securities would be held by a
3
<PAGE>
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. INSURED INTERMEDIATE 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 the 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. The 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, the 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 the Fund may be delayed or limited. INSURED
INTERMEDIATE FUND may not 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. Neither Fund will purchase or
----------------------------------------------
otherwise acquire any security if, as a result, more than 15% of its net assets
(taken at current value) would be invested in securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. This policy includes detachable call options 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 each Tax Exempt
Fund's Board or the Adviser has determined under Board-approved guidelines are
liquid.
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions
were to develop, a Fund might obtain a less favorable price than prevailed when
it decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
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.
4
<PAGE>
Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities that
might develop as a result of Rule 144A could provide both readily ascertainable
values for restricted securities and the ability to liquidate an investment in
order to satisfy share redemption orders. An insufficient number of qualified
institutional buyers interested in purchasing Rule 144A-eligible securities held
by a Fund, however, could affect adversely the marketability of such portfolio
securities and a Fund might be unable to dispose of such securities promptly or
at reasonable prices.
Over-the-counter ("OTC") options and their underlying collateral are also
considered illiquid investments. While the Funds have no intention of investing
in options in the coming year, if any such Fund did, the assets used as cover
for OTC options written by the Fund would not be considered illiquid unless the
OTC options are sold to qualified dealers who agree that the Fund may repurchase
any OTC option it writes at a maximum price to be calculated by a formula set
forth in the option agreement. The cover for an OTC option written subject to
this procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed as to principal
---------------------------
and interest by the U.S. Government include (1) U.S. Treasury obligations which
differ only in their interest rates, maturities and times of issuance as
follows: U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years), and U.S. Treasury bonds (generally
maturities of greater than ten years); 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.
WHEN-ISSUED SECURITIES. Each Fund may invest up to 25% of its net assets in
----------------------
securities issued on a when-issued or delayed delivery basis, which involves an
arrangement whereby delivery of, and payment for, the instruments occur up to 45
days after the agreement to purchase the instruments is made by a Fund. The
purchase price to be paid by a Fund and the interest rate on the instruments to
be purchased are both selected when the Fund agrees to purchase the securities
on a "when-issued" basis. 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 or with its custodian consisting of
cash, U.S. Government securities or other 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 equal to the
value of the Fund's commitment. When the securities to be purchased are issued,
a Fund will pay for the securities from available cash, the sale of securities
in the segregated account, sales of other securities and, if necessary, from
sale of the when-issued securities themselves although this is not ordinarily
expected. Securities purchased on a when-issued basis are subject to the risk
that yields available in the market, when delivery takes place, may be higher
than the rate to be received on the
5
<PAGE>
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 Securities. Each Fund may invest in zero coupon municipal
----------------------
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.
Original issue discount earned each year on zero coupon 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. See "Taxes." 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. These distributions must be made from a Fund's cash
assets or, if necessary, from the proceeds of sales of portfolio securities. A
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. The market prices of zero coupon 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.
PORTFOLIO TURNOVER. Although each Fund generally will not invest for short-
------------------
term trading purposes, portfolio securities may be sold without regard to the
length of time they have been held when, in the opinion of the Adviser,
investment considerations warrant such action. Portfolio turnover rate is
calculated by dividing (1) the lesser of purchases or sales of portfolio
securities for the fiscal year by (2) the monthly average of the value of
portfolio securities owned during the fiscal year. A 100% turnover rate would
occur if all the securities in a Fund's portfolio, with the exception of
securities whose maturities at the time of acquisition were one year or less,
were sold and either repurchased or replaced within one year. A high rate of
portfolio turnover (100% or more) generally leads to transaction costs and may
result in a greater number of taxable transactions. See "Allocation of
Portfolio Brokerage." For the fiscal years ended December 31, 1996 and 1997,
INSURED TAX EXEMPT FUND's portfolio turnover rate was 21% and 13%, respectively.
For the fiscal years ended December 31, 1996 and 1997, INSURED INTERMEDIATE
FUND'S portfolio turnover rate was 82% and 91%, respectively.
HEDGING AND OPTION INCOME STRATEGIES
The Adviser may engage in certain options and futures strategies to hedge
each Fund's portfolio, in other circumstances permitted by the Commodities
Futures Trading Commission ("CFTC") and engage in certain options strategies to
enhance income. The instruments described below are sometimes referred to
collectively as "Hedging Instruments." Certain special characteristics of and
risks associated with using Hedging Instruments are discussed below. In
addition to the non-fundamental investment guidelines (described below) adopted
by each Tax Exempt Fund's Board to govern each Fund's investments in Hedging
Instruments, use of these instruments is subject to the applicable regulations
of the Securities and Exchange Commission ("SEC"), the several options and
futures exchanges upon which options and futures contracts are traded and the
CFTC.
Participation in the options or futures markets involves investment risks
and transaction costs to which a Fund would not be subject absent the use of
these strategies. If the Adviser's prediction of movements in the direction of
the securities and interest rate markets are inaccurate, the adverse
consequences to a Fund may leave the Fund in a worse position than if such
strategies
6
<PAGE>
were not used. A Fund might not employ any of the strategies described below,
and there can be no assurance that any strategy will succeed. The use of these
strategies involve certain special risks, including (1) dependence on the
Adviser's ability to predict correctly movements in the direction of interest
rates and securities prices, (2) imperfect correlation between the price of
options, futures contracts and options thereon and movements in the prices of
the securities being hedged, (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities and
(4) the possible absence of a liquid secondary market for any particular
instrument at any time.
Although each Fund may engage in the strategies listed below, INSURED
INTERMEDIATE FUND does not intend to do so in the coming year and INSURED TAX
EXEMPT FUND will only engage in transactions involving futures contracts and
options thereon.
Cover for Hedging and Option Income Strategies. No Fund will use leverage
----------------------------------------------
in its hedging and option income strategies. No Fund will enter into a hedging
or option income strategy that exposes the Fund to an obligation to another
party unless it owns either (1) an offsetting ("covered") position in securities
or other options or futures contracts or (2) cash and/or other liquid assets
with a value sufficient at all times to cover its potential obligations. Each
Fund will comply with guidelines established by the SEC with respect to coverage
of hedging and option income strategies by mutual funds and, if required, will
set aside cash and/or liquid assets in a segregated account with its custodian
in the prescribed amount. Securities or other options or futures positions used
for cover and assets held in a segregated account cannot be sold or closed out
while the hedging or option income strategy is outstanding unless they are
replaced with similar assets. As a result, there is a possibility that the use
of cover or segregation involving a large percentage of a Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
Options Strategies. Each Fund may purchase call options on securities that
------------------
the Adviser intends to include in its portfolio in order to fix the cost of a
future purchase. Call options also may be used as a means of participating in
an anticipated price increase of a security. In the event of a decline in the
price of the underlying security, use of this strategy would serve to limit the
Fund's potential loss to the option premium paid; conversely, if the market
price of the underlying security increases above the exercise price and a Fund
either sells or exercises the option, any profit eventually realized will be
reduced by the premium. Each Fund may purchase put options in order to hedge
against a decline in the market value of securities held in its portfolio. The
put option enables a Fund to sell the underlying security at the predetermined
exercise price; thus the potential for loss to the Fund below the exercise price
is limited to the option premium paid. If the market price of the underlying
security is higher than the exercise price of the put option, any profit the
Fund realizes on the sale of the security will be reduced by the premium paid
for the put option less any amount for which the put option may be sold.
Each Fund may write covered call options on securities to increase income
in the form of premiums received from the purchasers of the options. Because it
can be expected that a call option will be exercised if the market value of the
underlying security increases to a level greater than the exercise price, a Fund
will write covered call options on securities generally when the Adviser
believes that the premium received by the Fund, plus anticipated appreciation in
the market price of the underlying security up to the exercise price of the
option, will be greater than the total appreciation in the price of the
security. The strategy may be used to provide limited protection against a
decrease in the market price of the security in an amount equal to the premium
received for writing the call option less any transaction costs. Thus, if the
market price of the underlying security held by a Fund declines, the amount of
such decline will be offset wholly or in part by the amount of the premium
received by the Fund. If, however, there is an increase in the market price
7
<PAGE>
of the underlying security and the option is exercised, the Fund will be
obligated to sell the security at less than its market value. A Fund gives up
the ability to sell the portfolio securities used to cover the call option while
the call option is outstanding. Such securities may also be considered illiquid
in the case of OTC options written by a Fund, to the extent described under
"Investment Policies--Restricted Securities and Illiquid Investments" and
therefore subject to each Fund's limitation on investments in illiquid
securities. In addition, a Fund could lose the ability to participate in an
increase in the value of such securities above the exercise price of the call
option because such an increase would likely be offset by an increase in the
cost of closing out the call option (or could be negated if the buyer chose to
exercise the call option at an exercise price below the securities' current
market value).
Each Fund may write put options. A put option gives the purchaser of the
option the right to sell, and the writer (seller) the obligation to buy, the
underlying security at the exercise price during the option period. So long as
the obligation of the writer continues, the writer may be assigned an exercise
notice by the broker-dealer through which such option was sold, requiring it to
make payment of the exercise price against delivery of the underlying security.
The operation of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options. A Fund may
write covered put options in circumstances when the Adviser believes that the
market price of the securities will not decline below the exercise price less
the premiums received. If the put option is not exercised, a Fund will realize
income in the amount of the premium received. This technique could be used to
enhance current return during periods of market uncertainty. The risk in such a
transaction would be that the market price of the underlying security would
decline below the exercise price less the premiums received, in which case the
Fund would expect to suffer a loss.
Currently, options on debt securities are primarily traded on the OTC
market. OTC options are contracts between a Fund and the opposite party with no
clearing organization guarantee. Thus, when a Fund purchases an OTC option, it
relies on the dealer from which it has purchased the OTC option to make or take
delivery of the securities underlying the option. Failure by the dealer to do
so would result in the loss of the premium paid by the Fund as well as the loss
of the expected benefit of the transaction.
Options Guidelines. In view of the risks involved in using options, each
------------------
Tax Exempt Fund's Board has adopted the following non-fundamental investment
guidelines to govern a Fund's use of options that may be modified by each Board
without shareholder vote: (1) options will be purchased or written only when
the Adviser believes that there exists a liquid secondary market in such
options; and (2) a Fund may purchase a put or call option if the value of the
option's premium, when aggregated with the premiums on all other options held by
such Fund, exceeds 5% of that Fund's total assets. This does not limit a Fund's
assets at risk to 5%.
Special Characteristics and Risks of Options Trading. Each Fund may
----------------------------------------------------
effectively terminate its right or obligation under an option by entering into a
closing transaction. If a Fund wishes to terminate its obligation to sell
securities under a put or call option it has written, the Fund may purchase a
put or call option of the same series (that is, an option identical in its terms
to the put or call option previously written); this is known as a closing
purchase transaction. Conversely, in order to terminate its right to purchase
or sell specified securities under a call or put option it has purchased, a Fund
may write an option of the same series as the option held; this is known as a
closing sale transaction. Closing transactions essentially permit a Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. Whether a profit or loss is realized from a
closing transaction depends on the price movement of the underlying security and
the market value of the option.
8
<PAGE>
The value of an option position will reflect, among other things, the
current market price of the underlying security, the time remaining until
expiration, the relationship of the exercise price to the market price, the
historical price volatility of the underlying security and general market
conditions. For this reason, the successful use of options depends upon the
Adviser's ability to forecast the direction of price fluctuations in the
underlying securities.
Options normally have expiration dates of up to nine months. Unless an
option purchased by a Fund is exercised or unless a closing transaction is
effected with respect to that position, a loss will be realized in the amount of
the premium paid and any transaction costs.
Closing transactions may be effected with respect to options traded in the
OTC markets (currently the primary markets for options on debt securities) only
by negotiating directly with the other party to the option contract or in a
secondary market for the option if such market exists. Although a Fund will
enter into OTC options only with dealers that agree to enter into, and that are
expected to be capable of entering into, closing transactions with a Fund, there
is no assurance that the Fund will be able to liquidate an OTC option at a
favorable price at any time prior to expiration. In the event of insolvency of
the opposite party, a Fund may be unable to liquidate an OTC option.
Accordingly, it may not be possible to effect closing transactions with respect
to certain options, with the result that a Fund would have to exercise those
options that it has purchased in order to realize any profit. With respect to
options written by a Fund, the inability to enter into a closing transaction may
result in material losses to the Fund. For example, because a Fund must
maintain a covered position with respect to any call option it writes, the Fund
may not sell the underlying assets used to cover an option during the period it
is obligated under the option. This requirement may impair a Fund's ability to
sell a portfolio security or make an investment at a time when such a sale or
investment might be advantageous.
A Fund's activities in the options markets may result in a higher portfolio
turnover rate and additional brokerage costs; however, a Fund also may save on
commissions by using options as a hedge rather than buying or selling individual
securities in anticipation or as a result of market movements.
Futures Strategies. Each Fund may engage in futures strategies to attempt
------------------
to reduce the overall investment risk that would normally be expected to be
associated with ownership of the securities in which it invests.
Each Fund may use financial futures contracts and options thereon to hedge
the debt portion of its portfolio against changes in the general level of
interest rates. A Fund may purchase a financial futures contract when it
intends to purchase debt securities but has not yet done so. This strategy may
minimize the effect of all or part of an increase in the market price of those
securities because a rise in the price of the securities prior to their purchase
may either be offset by an increase in the value of the futures contract
purchased by the Fund or avoided by taking delivery of the debt securities under
the futures contract. Conversely, a fall in the market price of the underlying
debt securities may result in a corresponding decrease in the value of the
futures position. A Fund may sell a financial futures contract in order to
continue to receive the income from a debt security, while endeavoring to avoid
part or all of the decline in the market value of that security that would
accompany an increase in interest rates.
Each Fund may purchase a call option on a financial futures contract to
hedge against a market advance in debt securities that the Fund plans to acquire
at a future date. A Fund also may write covered call options on financial
futures contracts as a partial hedge against a decline in the
9
<PAGE>
price of debt securities held in the Fund's portfolio or purchase put options on
financial futures contracts in order to hedge against a decline in the value of
debt securities held in the Fund's portfolio.
Each Fund will use futures contracts and options thereon solely in bona
fide hedging transactions or under other circumstances permitted by the CFTC.
Futures Guidelines. In view of the risks involved in using futures
------------------
strategies described below, each Tax Exempt Fund's Board has adopted non-
fundamental investment guidelines to govern the use of such investments by the
Fund that may be modified by each Board without shareholder vote. In the event
a Fund enters into futures contracts or options thereon other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate margin deposits on all
outstanding futures contracts positions held by a Fund and premiums paid on
outstanding options and futures contracts, after taking into account unrealized
profits and losses, will not exceed 5% of a Fund's total assets, or enter into
any futures contracts or options on futures contracts if the aggregate amount of
a Fund's commitments under outstanding futures contracts positions and options
on futures contracts written by a Fund would exceed the market value of the
total assets of a Fund. This does not limit a Fund's assets at risk to 5%. The
value of all futures sold will not exceed the total market value of a Fund's
portfolio. In addition, each Fund may not purchase financial futures contracts
if immediately thereafter more than 30% of its total assets would be so
invested.
Special Characteristics and Risks of Futures Trading. No price is paid
----------------------------------------------------
upon entering into futures contracts. Instead, upon entering into a futures
contract, a 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 3%-5% of the contract value. This
amount is known as "initial margin." When writing a put or call option on a
futures contract, margin also must be deposited in accordance with applicable
exchange rules. Initial margin on futures contracts is in the nature of a
performance bond or good-faith deposit that is returned to a Fund upon
termination of the transaction, assuming all obligations have been satisfied.
Under certain circumstances, such as periods of high volatility, a Fund may be
required by an exchange to increase the level of its initial margin payment.
Additionally, initial margin requirements may be increased generally in the
future by regulatory action. Subsequent payments, called "variation margin," to
and from the broker, are made on a daily basis as the value of the futures
position varies, a process known as "marking to market." Variation margin does
not involve borrowing to finance the futures transactions, but rather represents
a daily settlement of a Fund's obligation to or from a clearing organization.
Each Fund is also obligated to make initial and variation margin payments when
it writes options on futures contracts.
Holders and writers of futures positions and options thereon can enter into
offsetting closing transactions, similar to closing transactions on options on
securities, by selling or purchasing, respectively, a futures position or
options position with the same terms as the position or option held or written.
Positions in futures contracts and options thereon may be closed only on an
exchange or board of trade providing a secondary market for such futures or
options.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent
10
<PAGE>
prompt liquidation of unfavorable positions. In such event, it may not be
possible for a Fund to close a position and, in the event of adverse price
movements the Fund would have to make daily cash payments of variation margin
(except in the case of purchased options). However, in the event futures
contracts have been used to hedge portfolio securities, such securities will not
be sold until the contracts can be terminated. In such circumstances, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract. However, there is no guarantee that the
price of the securities will, in fact, correlate with the price movements in the
contracts and thus provide an offset to losses on the contracts.
Successful use by a Fund of futures contracts and related options will
depend upon the Adviser's ability to predict movements in the direction of the
overall securities and interest rate markets, which requires different skills
and techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current price level of the
underlying instrument but to the anticipated levels at some point in the future.
There is, in addition, the risk that the movements in the price of the futures
contract or related option will not correlate with the movements in prices of
the securities being hedged. In addition, if a Fund has insufficient cash, it
may have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect the rising market. Consequently, a Fund may need to sell assets at a
time when such sales are disadvantageous to the Fund. If the price of the
futures contract or related option moves more than the price of the underlying
securities, a Fund will experience either a loss or a gain on the futures
contract or related option, that may or may not be completely offset by
movements in the price of the securities that are the subject of the hedge.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between price movements in the futures or related
option position and the securities being hedged, movements in the prices of
futures contracts and related options may not correlate perfectly with movements
in the prices of the hedged securities because of price distortions in the
futures market. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures contracts and
related options over the short term.
Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts or
related options. Although each Fund intends to purchase or sell futures and
related options only on exchanges or boards of trade where there appears to be a
liquid secondary market, there is no assurance that such a market will exist for
any particular contract or option at any particular time. In such event, it may
not be possible to close a futures or option position and, in the event of
adverse price movements, a Fund would continue to be required to make variation
margin payments.
Like options on securities, options on futures contracts have a limited
life. The ability to establish and close out options on futures will be subject
to the development and maintenance of liquid secondary markets on the relevant
exchanges or boards of trade. There can be no certainty that liquid secondary
markets for all options on futures contracts will develop.
Purchasers of options on futures contracts pay a premium in cash at the
time of purchase. This amount and the transaction costs are all that is at risk.
Sellers of options on a futures contract, however, must post initial margin and
are subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
a Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not.
11
<PAGE>
Each Fund's activities in the futures and related options markets may
result in a higher portfolio turnover rate and additional transaction costs in
the form of added brokerage commissions; however, the Fund also may save on
commissions by using futures and related options as a hedge rather than buying
or selling individual securities or currencies in anticipation or as a result of
market movements.
INSURANCE
The municipal bonds in each Fund's portfolio will be insured as to
their scheduled payments of principal and interest at the time of purchase
either (1) under a Mutual Fund Insurance Policy written by an independent
insurance company; (2) under an insurance policy obtained subsequent to a
municipal bond's original issue (a "Secondary Market Insurance Policy"); or (3)
under an insurance policy obtained by the issuer or underwriter of such
municipal bond at the time of original issuance (a "New Issue Insurance
Policy"). An insured municipal bond in a Fund's portfolio typically will be
covered by only one of the three policies. For instance, if a municipal bond is
already covered by a New Issue Insurance Policy or a Secondary Market Insurance
Policy, then that security will not be additionally insured under the Mutual
Fund Insurance Policy.
Each Tax Free Fund has purchased a Mutual Fund Insurance Policy
("Policy") from AMBAC Assurance Corporation ("AMBAC"), a Wisconsin stock
insurance company, with its principal executive offices in New York City. The
Policy guarantees the payment of principal and interest on municipal bonds
purchased by a Fund which are eligible for insurance under the Policy. Municipal
bonds are eligible for insurance if they are approved by AMBAC prior to their
purchase by a Fund. AMBAC furnished each Fund with an approved list of
municipal bonds at the time the Policy was issued and subsequently provides
amended and modified lists of this type at periodic intervals. AMBAC may
withdraw particular securities from the approved list and may limit the
aggregate amount of each issue or category of municipal bonds therein, in each
case by notice to a Fund prior to the entry by the Fund of an order to purchase
a specific amount of a particular security otherwise eligible for insurance
under the Policy. The approved list merely identifies issuers whose issues may
be eligible for insurance and does not constitute approval of, or a commitment
by, AMBAC to insure such securities. In determining eligibility for insurance,
AMBAC has applied its own standards which correspond generally to the standard
it normally uses in establishing the insurability of new issues of municipal
bonds and which are not necessarily the criteria which would be used in regard
to the purchase of municipal bonds by a Fund. The Policy does not insure: (1)
obligations of, or securities guaranteed by, the United States of America or any
agency or instrumentality thereof; (2) municipal bonds which were insured as to
payment of principal and interest at the time of their issuance; (3) municipal
bonds purchased by a Fund at a time when they were ineligible for insurance; (4)
municipal bonds which are insured by insurers other than AMBAC; and (5)
municipal bonds which are no longer owned by a Fund. AMBAC has reserved the
right at any time, upon 90 days' prior written notice to a Fund, to refuse to
insure any additional municipal bonds purchased by a Fund, on or after the
effective date of such notice. If AMBAC so notifies a Fund, the Fund will
attempt to replace AMBAC with another insurer. If another insurer cannot be
found to replace AMBAC, the Fund will ask its shareholders to approve
continuation of its business without insurance.
In the event of nonpayment of interest or principal when due, in
respect of an insured municipal bond, AMBAC is obligated under the Policy to
make such payment not later than 30 days after it has been notified by a Fund
that such nonpayment has occurred (but not earlier than the date such payment is
due). AMBAC, as regards insurance payments it may make, will succeed to the
rights of a Fund. Under the Policy, a payment of principal on an insured
municipal bond is due for payment when the stated maturity date has been
reached, which does not include any earlier due
12
<PAGE>
date by reason of redemption, acceleration or other advancement of maturity or
extension or delay in payment by reason of governmental action.
The Policy does not guarantee the market value or yield of the insured
municipal bonds or the net asset value or yield of a Fund's shares. The Policy
will be effective only as to insured municipal bonds owned by a Fund. In the
event of a sale by a Fund of a municipal bond insured under the Policy, the
insurance terminates as to such municipal bond on the date of sale. If an
insured municipal bond in default is sold by a Fund, AMBAC is liable only for
those payments of interest and principal which are then due and owing and, after
making such payments, AMBAC will have no further obligations to a Fund in
respect of such municipal bond. It is the intention of each Fund, however, to
retain any insured securities which are in default or in significant risk of
default and to place a value on the defaulted securities equal to the value of
similar insured securities which are not in default. While a defaulted bond is
held by a Fund, the Fund continues to pay the insurance premium thereon but also
collects interest payments from the insurer and retains the right to collect the
full amount of principal from the insurer when the municipal bond comes due.
See "Determination of Net Asset Value" for a more complete description of the
Funds' method of valuing securities in default and securities which have a
significant risk of default.
Each Tax Free Fund may purchase a Secondary Market Insurance Policy
from an independent insurance company rated in the top rating category by S&P,
Moody's, Fitch IBCA, Inc. ("Fitch") or any other nationally recognized rating
organization which insures a particular bond for the remainder of its term at a
premium rate fixed at the time such bond is purchased by a Fund. It is expected
that these premiums will range from 1% to 5% of par value. Such insurance
coverage will be noncancellable and will continue in force so long as such bond
so insured is outstanding. Each Fund may also purchase municipal bonds which
are already insured under a Secondary Market Insurance Policy. A Secondary
Market Insurance Policy could enable a Fund to sell a municipal bond to a third
party as an AAA/Aaa rated insured municipal bond at a market price higher than
what otherwise might be obtainable if the security were sold without the
insurance coverage. (Such rating is not automatic, however, and must
specifically be requested for each bond.) Any difference between the excess of a
bond's market value as an AAA/Aaa rated bond over its market value without such
rating and the single premium payment would inure to a Fund in determining the
net capital gain or loss realized by a Fund upon the sale of the bond.
In addition to the contract of insurance relating to each Tax Exempt
Fund, there is a contract of insurance between AMBAC and Executive Investors
Trust, between AMBAC and First Investors Multi-State Insured Tax Fund and
between AMBAC and First Investors New York Insured Tax Free Fund, Inc.
Otherwise, neither AMBAC nor any affiliate thereof, has any material business
relationship, direct or indirect, with the Funds.
AMBAC is a Wisconsin-domiciled stock insurance corporation regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin and licensed
to do business in 50 states, the District of Columbia, the Territory of Guam and
the Commonwealth of Puerto Rico, with admitted assets of approximately
$2,879000,000 (unaudited) and statutory capital of approximately $1,656,000,000.
(unaudited) as of December 31, 1997. Statutory capital consists of AMBAC's
policyholders' surplus and statutory contingency reserve. S&P, Moody's and
Fitch have each assigned a triple-A claims-paying ability rating to AMBAC.
AMBAC has obtained a ruling from the Internal Revenue Service to the effect
that the insuring of an obligation by AMBAC will not affect the treatment for
Federal income tax purposes of interest on such obligation and that insurance
proceeds representing maturing interest paid by AMBAC under policy provisions
substantially identical to those contained in its municipal bond
13
<PAGE>
insurance policy shall be treated for Federal income tax purposes in the same
manner as if such payments were made by the issuer of the municipal bonds.
AMBAC makes no representation regarding the municipal bonds included in the
investment portfolio of each Fund or the advisability of investing in such
municipal bonds and makes no representation regarding, nor has it participated
in the preparation of, the Prospectus and this SAI.
The information relating to AMBAC contained above has been furnished by
AMBAC. No representation is made herein as to the accuracy or adequacy of such
information, or as to the existence of any adverse changes in such information,
subsequent to the date hereof.
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 of the Fund
present at a meeting, if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy. Except with respect to borrowing, changes
in values of a 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.
INSURED INTERMEDIATE FUND. INSURED INTERMEDIATE FUND will not:
- --------------------------
(1) Issue senior securities.
(2) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result, with respect to
75% of the Fund's total assets more than 5% of such assets would then be
invested in securities of a single issuer.
(3) With respect to 75% of its total assets, 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).
(4) Buy or sell real estate or interests in oil, gas or mineral
exploration, or senior securities (as defined in the 1940 Act); provided,
however, the Fund may invest in Municipal Instruments secured by real estate or
interests in real estate.
(5) 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.
(6) Make loans, except loans of portfolio securities and repurchase
agreements.
(7) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceeds 5% of the value of the Fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 5% limitation. This
policy shall not prohibit deposits of assets to provide margin or guarantee
positions in connection with transactions in options, futures
14
<PAGE>
contracts, swaps, forward contracts, and other derivative instruments or the
segregation of assets in connection with such transactions.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. The Fund will not:
(1) Invest more than 15% of its net 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.
(2) Invest more than 5% of its total assets in securities of companies
(including predecessors) which have been in operation for less than three years.
(3) Invest in securities of other registered investment companies,
except by purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 5% of its total assets would
be invested in such securities, or except as part of a merger, consolidation or
other acquisition.
(4) Make investments for the purpose of exercising control or
management.
(5) Purchase or sell portfolio securities from or to the Adviser or
any trustee, director or officer thereof or of Series Fund, as principals.
(6) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer, trustee or director of Series Fund or of the Adviser owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees or directors who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such issuer.
(7) Purchase or sell physical commodities unless acquired as a result
of ownership of securities (but this restriction shall not prevent the Fund from
purchasing or selling options, futures contracts, caps, floors and other
derivative instruments, engaging in swap transactions or investing in securities
or other instruments backed by physical commodities).
(8) Enter into futures contracts or options on futures contracts if
immediately thereafter the aggregate margin deposits on all outstanding futures
contracts positions held by the Fund and premiums paid on outstanding options on
futures contracts, after taking into account unrealized profits and losses,
would exceed 5% of the market value of the total assets of the Fund, or enter
into any futures contracts or options on futures contracts if the aggregate
amount of the Fund's commitments under outstanding futures contracts positions
and options on future contracts written by the Fund would exceed the market
value of the total assets of the Fund.
(9) Pledge assets, except that the Fund may pledge its assets to
secure borrowings made in accordance with fundamental investment restriction (7)
above, provided the Fund maintains asset coverage of at least 300% for pledged
assets; provided, however, this limitation will not prohibit escrow, collateral
or margin arrangements in connection with the Fund's use of options, futures
contracts or options on futures contracts.
(10) Purchase securities on margin, except that the Fund may obtain
such short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
transactions in options, futures contracts, swaps, forward
15
<PAGE>
contracts, and other derivative instruments shall not be deemed to constitute
purchasing securities on margin.
(11) Sell securities short, unless it owns or has the right to obtain
securities, without additional consideration, equivalent in kind and amount to
the securities sold short, and provided that transactions in options, futures
contracts, swaps, forward contracts, and other derivative instruments are not
deemed to constitute selling securities short.
Insured Tax Exempt Fund. INSURED TAX EXEMPT FUND will not:
-----------------------
(1) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 5% of the value of the Fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 5% limitation. This
policy shall not prohibit deposits of assets to provide margin or guarantee
positions in connection with transactions in options, futures contracts, swaps,
forward contracts, and other derivative instruments or the segregation of assets
in connection with such transactions.
(2) Make loans (the purchase of a portion of an issue of publicly
distributed debt securities is not considered the making of a loan). In
addition, the Insured Tax Exempt Fund's Board of Directors may on the request of
broker-dealers or other institutional investors, which 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 exceed 10% of the value of
the Fund's gross assets.
(3) Invest more than 5% of the value of its gross assets, at the time
of purchase, in securities of any one issuer (except obligations of the U.S.
Government).
(4) Purchase securities in an amount to exceed 5% of its gross assets,
of unseasoned issuers, including their predecessors, which have been in
operation less than three years.
(5) Invest in any municipal bonds unless they will be insured
municipal bonds or unless they are already insured under an insurance policy
obtained by the issuer or underwriter thereof.
(6) Issue senior securities.
(7) Invest in securities of other investment companies, except in the
case of money market funds offered without selling commissions, or in the event
of merger with another investment company.
(8) Underwrite any issue of securities, although the Fund may purchase
municipal bonds directly from the issuer thereof for investment in accordance
with the Fund's investment objective, policy and limitations.
(9) Purchase or sell real estate, but this shall not prevent the Fund
from investing in municipal bonds or other obligations secured by real estate or
interests therein.
(10) Invest in oil, gas or other mineral exploration or development
programs.
16
<PAGE>
(11) Purchase or retain the securities of any issuer, if, to the
Fund's knowledge, those officers and directors of the Adviser, who individually
own beneficially more than 1/2 of 1% of the outstanding securities of such
issuer together own beneficially more than 5% of such outstanding securities.
(12) Purchase securities which would not enable the Fund to qualify as
a regulated investment company qualified to pay exempt-interest dividends under
the Internal Revenue Code of 1986, as amended.
The Fund has adopted the following non-fundamental investment
restrictions which may be changed without shareholder approval. These
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 Securities
Act of 1933, as amended, or any other applicable rule, and therefore that such
securities are not subject to the foregoing limitation.
(2) Purchase or sell physical commodities unless acquired as a result
of ownership of securities (but this restriction shall not prevent the Fund from
purchasing or selling options, futures contracts, caps, floors and other
derivative instruments, engaging in swap transactions or investing in securities
or other instruments backed by physical commodities).
(3) Enter into futures contracts or options on futures contracts if
immediately thereafter the aggregate margin deposits on all outstanding futures
contracts positions held by the Fund and premiums paid on outstanding options on
futures contracts, after taking into account unrealized profits and losses,
would exceed 5% of the market value of the total assets of the Fund, or enter
into any futures contracts or options on futures contracts if the aggregate
amount of the Fund's commitments under outstanding futures contracts positions
and options on future contracts written by the Fund would exceed the market
value of the total assets of the Fund.
(4) Pledge assets, except that the Fund may pledge its assets to
secure borrowings made in accordance with fundamental investment restriction (1)
above, provided the Fund maintains asset coverage of at least 300% for pledged
assets; provided, however, this limitation will not prohibit escrow, collateral
or margin arrangements in connection with the Fund's use of options, futures
contracts or options on futures contracts.
(5) Purchase securities on margin, except that the Fund may obtain
such short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
transactions in options, futures contracts, swaps, forward contracts, and other
derivative instruments shall not be deemed to constitute purchasing securities
on margin.
(6) Sell securities short, unless it owns or has the right to obtain
securities, without additional consideration, equivalent in kind and amount to
the securities sold short, and provided that transactions in options, futures
contracts, swaps, forward contracts, and other derivative instruments are not
deemed to constitute selling securities short.
17
<PAGE>
(7) Invest in real estate limited partnership interests or in
interests in real estate investment trusts that are not readily marketable.
DIRECTORS OR TRUSTEES AND OFFICERS
The following table lists the Directors or Trustees and executive officers of
the Tax Exempt Funds, 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*+ (72), President and Director or Trustee. Chairman of the Board
and Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Corporation
("FIC"), Executive Investors Corporation ("EIC") and First Investors
Consolidated Corporation ("FICC").
JAMES J. COY (84), Emeritus Director or Trustee, 90 Buell Lane, East Hampton, NY
11937. Retired; formerly Senior Vice President, James Talcott, Inc. (financial
institution).
ROGER L. GRAYSON* (41), Director or Trustee, FIC and FICC; President and
Director, First Investors Resources, Inc.; Commodities Portfolio Manager.
KATHRYN S. HEAD*+ (42), Director or Trustee, 581 Main Street, Woodbridge, NJ
07095. President and Director, FICC, ADM and FIMCO; Vice President and
Director, FIC and EIC; President EIMCO; Chairman, President and Director, First
Financial Savings Bank, S.L.A.
REX R. REED (76), Director or Trustee, 259 Governors Drive, Kiawah Island, SC
29455. Retired; formerly Senior Vice President, American Telephone & Telegraph
Company.
HERBERT RUBINSTEIN (76), Director or Trustee, 695 Charolais Circle, Edwards, CO
81632-1136. Retired; formerly President, Belvac International Industries, Ltd.
and President, Central Dental Supply.
NANCY SCHAENEN (66), Director or Trustee, 56 Midwood Terrace, Madison, NJ 07940.
Trustee, Drew University and DePauw University.
JAMES M. SRYGLEY (65), Director or Trustee, 33 Hampton Road, Chatham, NJ 07982.
Principal, Hampton Properties, Inc. (property investment company).
JOHN T. SULLIVAN* (66), Director or Trustee and Chairman of the Board; Director,
FIMCO, FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH (68), Director or Trustee, RR1, Box 2554, Upland Downs Road,
Manchester Center, VT 05255. Retired; formerly financial and planning
executive with American Telephone & Telegraph Company.
JOSEPH I. BENEDEK (40), Treasurer and Chief Financial Officer, 581 Main Street,
Woodbridge, NJ 07095. Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller and
Treasurer, FICC.
CONCETTA DURSO (63), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
18
<PAGE>
CLARK D. WAGNER (39), Vice President. Vice President, First Investors Multi-
State Insured Tax Free Fund, Executive Investors Trust, First Investors New York
Insured Tax Free Fund, Inc. and First Investors Government Fund, Inc.; Chief
Investment Officer, FIMCO.
- ---------------------------
* These Directors or Trustees may be deemed to be "interested persons," as
defined in the 1940 Act.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
The Directors or Trustees and officers, as a group, owned less than 1% of
either Class A or Class B shares of either Fund.
All of the officers and Directors or Trustees, except for Mr. Wagner, hold
identical or similar positions with 14 other registered investment companies in
the First Investors Family of Funds. Mr. Head is also an officer and/or
Director of First Investors Asset Management Company, Inc., First Investors
Credit Funding Corporation, First Investors Leverage Corporation, First
Investors Realty Company, Inc., First Investors Resources, Inc., N.A.K. Realty
Corporation, Real Property Development Corporation, Route 33 Realty Corporation,
First Investors Life Insurance Company, First Financial Savings Bank, S.L.A.,
First Investors Credit Corporation and School Financial Management Services,
Inc. Ms. Head is also an officer and/or Director of First Investors Life
Insurance Company, First Investors Credit Corporation, School Financial
Management Services, Inc., First Investors Credit Funding Corporation, N.A.K.
Realty Corporation, Real Property Development Corporation, First Investors
Leverage Corporation and Route 33 Realty Corporation.
The following table lists compensation paid to the Trustees of Series Fund
for the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR RETIREMENT ESTIMATED FROM FIRST
AGGREGATE BENEFITS ACCRUED AS ANNUAL INVESTORS FAMILY
COMPENSATION PART OF FUND BENEFITS UPON OF FUNDS PAID TO
TRUSTEE FROM FUND* EXPENSES RETIREMENT TRUSTEE*
- ------- ------------ --------------------- ------------- ----------------
<S> <C> <C> <C> <C>
James J. Coy** $1,250.00 $-0- $-0- $15,500.00
Roger L. Grayson -0- -0- -0- -0-
Glenn O. Head -0- -0- -0- -0-
Kathryn S. Head -0- -0- -0- -0-
Rex R. Reed 3,000.00 -0- -0- 37,200.00
Herbert Rubinstein 3,000.00 -0- -0- 37,200.00
James M. Srygley 3,000.00 -0- -0- 37,200.00
John T. Sullivan -0- -0- -0- -0-
Robert F. Wentworth 3,000.00 -0- -0- 37,200.00
Nancy Schaenen 2,250.00 -0- -0- 27,900.00
</TABLE>
19
<PAGE>
The following table lists compensation paid to the Directors of INSURED TAX
EXEMPT FUND for the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS ESTIMATED FROM FIRST
AGGREGATE ACCRUED AS PART ANNUAL INVESTORS FAMILY
COMPENSATION OF FUND BENEFITS UPON OF FUNDS PAID TO
DIRECTOR FROM FUND* EXPENSES RETIREMENT DIRECTOR*
- -------- ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C>
James J. Coy** $1,750.00 $-0- $-0- $15,500.00
Roger L. Grayson -0- -0- -0- -0-
Glenn O. Head -0- -0- -0- -0-
Kathryn S. Head -0- -0- -0- -0-
Rex R. Reed 4,200.00 -0- -0- 37,200.00
Herbert Rubinstein 4,200.00 -0- -0- 37,200.00
James M. Srygley 4,200.00 -0- -0- 37,200.00
John T. Sullivan -0- -0- -0- -0-
Robert F. Wentworth 4,200.00 -0- -0- 37,200.00
Nancy Schaenen 3,150.00 -0- -0- 27,900.00
</TABLE>
* Compensation to officers and interested Directors or Trustees of the Tax
Exempt Funds is paid by the Adviser. In addition, prior to December 31, 1997,
compensation to non-interested Directors or Trustees of the Tax Exempt Funds was
voluntarily paid by the Adviser. Commencing January 1, 1998, compensation to
non-interested Directors or Trustees of the Tax Exempt Funds is being paid by
each Tax Exempt Fund.
** On March 27, 1997, Mr. Coy resigned as a Director or Trustee of the Tax
Exempt Funds. Mr. Coy did not resign due to a disagreement on any matters
relating to the Tax Exempt Funds' operations, policies or practices. Mr. Coy
currently serves as an emeritus Director or Trustee.
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 Directors or Trustees of the applicable Tax Exempt
Fund, including a majority of the Directors or Trustees 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 or Trustees"), 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 Tax
Exempt Fund's Directors or Trustees. 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, with respect to a Fund, at any time without penalty by the
applicable Tax Exempt Fund's Directors or Trustees 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 a Fund, for a
period of over two years only if such continuance is approved annually either by
the applicable Tax Exempt Fund's Directors or Trustees or by a majority of the
outstanding voting
20
<PAGE>
securities of such Fund, and, in either case, by a vote of a majority of that
Tax Exempt Fund's Independent Directors or Trustees voting in person at a
meeting called for the purpose of voting on such approval.
Under Series Fund's Advisory Agreement, INSURED INTERMEDIATE FUND pays the
Adviser an annual fee, paid monthly of 0.60% of its average daily net assets.
Under INSURED TAX EXEMPT FUND's Advisory Agreement, it pays the Adviser an
annual fee, paid monthly, according to the following schedule:
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
The Adviser has an Investment Committee composed of George V. Ganter, Glenn
O. Head, Nancy W. Jones, Patricia D. Poitra, Michael O'Keefe, Dennis T.
Fitzpatrick, Jack B. Wolfman, Clark D. Wagner and Richard Guinnessey. 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.
For the fiscal years ended December 31, 1995, 1996 and 1997, INSURED TAX
EXEMPT FUND paid $9,356,534, $8,971,924 and $8,394,852, respectively, in
advisory fees. For the fiscal years ended December 31, 1995, 1996 and 1997
INSURED INTERMEDIATE FUND paid $22,374, $28,735 and $31,756, respectively, in
advisory fees. For the same periods, the Adviser voluntarily waived $15,982,
$15,775 and $16,181, respectively, in advisory fees. For the fiscal year ended
December 31, 1995, 1996, and 1997, the Adviser voluntarily assumed expenses for
INSURED INTERMEDIATE FUND in the amounts of $11,742, $17,521, and $14,764,
respectively.
Each Fund bears all expenses of its operations other than those incurred by
the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.
UNDERWRITER
Each Tax Exempt 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. Pursuant to each Underwriting Agreement, the Underwriter shall bear
all fees and expenses incident to the registration and qualification of the
applicable Fund's shares. In addition, the Underwriter shall bear all expenses
of sales material or literature, including prospectuses and proxy materials, to
the extent such materials are used in connection with the sale of the Fund's
shares, unless a Fund has agreed to bear such costs pursuant to a plan of
distribution. See "Distribution Plans." Each Underwriting Agreement was
approved by the applicable Tax Exempt Fund's Board of Directors or Trustees,
including a majority of the Independent Directors or Trustees. Each
Underwriting Agreement provides that it will continue in effect, with respect to
a Fund, from year to year only so long as such continuance is specifically
approved at least annually by the applicable Tax Exempt Fund's Board of
Directors or Trustees or by a vote of a majority of the outstanding voting
securities of that Fund, and in either
21
<PAGE>
case by the vote of a majority of such Tax Exempt Fund's Disinterested Directors
or Trustees, 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, 1995, 1996 and 1997, FIC received
underwriting commissions with respect to INSURED TAX EXEMPT FUND of $698,289,
$793,591 and $465,427, respectively. For the same periods, FIC reallowed an
additional $87,383, $46,262 and $35,092, respectively, to unaffiliated dealers.
For the fiscal years ended December 31, 1995, 1996 and 1997, FIC received
underwriting commissions with respect to INSURED INTERMEDIATE FUND of $36,160,
$36,336 and $44,019, respectively. For the same periods, FIC reallowed an
additional $10,211, $4,543 and $7,864, respectively, to unaffiliated dealers.
DISTRIBUTION PLANS
As stated in the Funds' Prospectus, pursuant to a separate plan of
distribution for each class of shares adopted by each Tax Exempt Fund pursuant
to 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 Plan was approved by the applicable Tax Exempt Fund's Board of
Directors or Trustees, including a majority of the Independent Directors or
Trustees, and by a majority of the outstanding voting securities of the relevant
class of each Fund. Each Plan will continue in effect, with respect to a Fund,
from year to year as long as its continuance is approved annually by either the
applicable Tax Exempt Fund's Board of Directors or Trustees or by a vote of a
majority of the outstanding voting securities of the relevant class of shares of
that Fund. In either case, to continue, each Plan must be approved by the vote
of a majority of the Independent Directors or Trustees of the applicable Tax
Exempt Fund. Each Tax Exempt 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 Tax
Exempt Fund's Independent Directors or Trustees will be committed to the
discretion of such Independent Directors or Trustees then in office.
Each Plan can be terminated, with respect to a Fund, at any time by a vote
of a majority of the applicable Tax Exempt Fund's Independent Directors or
Trustees or by a vote of a majority of the outstanding voting securities of the
relevant class of shares of that Fund. Any change to each Class B Plan that
would materially increase the costs to that class of shares of a Fund or any
material change to each Class A Plan may not be instituted without the approval
of the outstanding voting securities of the relevant class of shares of that
Fund. Such changes also require approval by a majority of the applicable Tax
Exempt Fund's Independent Directors or Trustees.
In reporting amounts expended under the Plans to the Directors or Trustees,
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 that Fund's shares.
In adopting each Plan, the applicable Tax Exempt Fund's Board 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
22
<PAGE>
providers of financial services and in promoting sales, thereby increasing the
net assets of each Fund.
For the fiscal year ended December 31, 1997, INSURED INTERMEDIATE FUND
accrued $22,096 in 12b-1 fees pursuant to Series Fund's Class A Plan, all of
which was waived by the Underwriter. For the fiscal year ended December 31,
1997, INSURED TAX EXEMPT FUND paid $3,481,392 in 12b-1 fees pursuant to its
Class A Plan. For the fiscal year ended December 31, 1997, the Underwriter
incurred the following Class A Plan-related expenses with respect to INSURED TAX
EXEMPT FUND:
COMPENSATION TO COMPENSATION TO COMPENSATION TO
UNDERWRITER DEALERS SALES PERSONNEL
---------------- ---------------- ----------------
$2,993,368.00 -0- $488,024.00
For the fiscal year ended December 31, 1997, INSURED TAX EXEMPT FUND and
INSURED INTERMEDIATE FUND paid $32,852 and $7,246, respectively, in 12b-1 fees
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
- ---- ----------- ------- ---------------
INSURED TAX EXEMPT FUND $29,943.17 $163.51 $2,745.32
INSURED INTERMEDIATEFUND 7,246.00 -0- -0-
DETERMINATION OF NET ASSET VALUE
The municipal bonds in which each Fund invests are traded primarily in the
over-the-counter markets. Such securities are valued daily at their fair value
on the basis of valuations provided by a pricing service approved by the
applicable Tax Exempt Fund's Board. This service is provided by Muller Data
Corporation. The pricing service considers security type, rating, market
condition and yield data, as well as market quotations and prices provided by
market makers. With respect to each Fund, "when-issued securities" are
reflected in the assets of a Fund as of the date the securities are purchased.
The Funds may retain any insured municipal bond which is in default in the
payment of principal or interest until the default has been cured or the
principal and interest outstanding are paid by an insurer or the issuer of any
letter of credit or other guarantee supporting such municipal bond. In such
case, it is each Fund's policy to value the defaulted bond daily based upon the
value of a comparable bond which is insured and not in default. In selecting a
comparable bond, each Fund will consider security type, rating, market condition
and yield.
Each Tax Exempt Fund's Board may suspend the determination of a Fund's net
asset value for the whole or any part of any period (1) during which trading on
the New York Stock Exchange ("NYSE") is restricted as determined by the
Securities and Exchange Commission ("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.
23
<PAGE>
ALLOCATION OF PORTFOLIO BROKERAGE
Each Fund expects that purchases and sales of portfolio securities
generally will be principal transactions. Portfolio securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There will usually be no brokerage commissions paid by the Fund
for such purchases. Purchases from underwriters will include the underwriter's
commission or concession and purchases from dealers serving as market makers
will include the spread between the bid and asked price.
At times the Adviser may engage in agency transactions and, in effecting
the purchase and sale of portfolio securities for the account of each Fund, will
seek best execution of trades either (1) at the most favorable and competitive
rate of commission charged by any broker or member of an exchange, or (2) at a
higher rate of commission if reasonable in relation to brokerage and research
services provided to the Fund or the Adviser by such member or broker. In
addition, upon the instruction of each Tax Exempt Fund's Board, the Adviser may
use dealer concessions available in fixed-price underwritings to pay for
research services. Such services may include, but are not limited to, any one
or more of the following: information as to the availability of securities for
purchase or sale, statistical or factual information or opinions pertaining to
investments. The Adviser may use research and services provided to it by
brokers in servicing all the funds in the First Investors Group of Funds;
however, not all such services will be used by the Adviser in connection with
the Funds. No portfolio orders are placed with an affiliated broker, nor does
any affiliated broker participate in these commissions.
The Adviser may combine transaction orders placed on behalf of a Fund and
any other fund in the First Investors Group of Funds, any series 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 Tax
Exempt Fund's Board. Each Tax Exempt Fund's Board has authorized and directed
the Adviser to use dealer concessions available in fixed-price underwritings of
municipal bonds to pay for research services which are beneficial in the
management of each Fund's portfolio.
The Tax Exempt Funds did not pay any brokerage commissions for the fiscal
years December 31, 1995, 1996 and 1997. With the approval of INSURED TAX EXEMPT
FUND'S Board of Directors, $65,007 of principal transactions were used to
acquire research and other services which benefited the Fund.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND
REDEMPTION INFORMATION AND OTHER SERVICES
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are applicable to purchases made at one time of Class A
shares of any one or more of the Funds or of any one or more of the Eligible
Funds, as defined in the Prospectus, by "any person," which term shall include
an individual, or an individual's spouse and children under the age of 21, or a
trustee or other fiduciary of a single trust, estate or fiduciary account
(including a pension, profit-sharing or other employee benefit trust created
pursuant to a plan qualified under section 401 of the Internal Revenue Code of
1986, as amended (the "Code"), although more than one beneficiary is involved;
provided, however, that the term "any person" shall not include a group of
24
<PAGE>
individuals whose funds are combined, directly or indirectly, for the purchase
of redeemable securities of a registered investment company, nor shall it
include a trustee, agent, custodian or other representative of such a group of
individuals.
Ownership of Class A and Class B shares of any Eligible Fund, except as noted
below, qualify for a reduced sales charge on the purchase of Class A shares.
Class A shares purchased at net asset value, Class A shares of the Money Market
Funds, or shares owned under a Contractual Plan are not eligible for the
purchase of Class A shares of a Fund at a reduced sales charge through a Letter
of Intent or the Cumulative Purchase Privilege.
Letter of Intent. Any of the eligible persons described above may, within 90
----------------
days of their investment, sign a statement of intent ("Letter of Intent") in the
form provided by the Underwriter, covering purchases of Class A shares of any
one or more of the Funds and of the other Eligible Funds to be made within a
period of thirteen months, provided said shares are currently being offered to
the general public and only in those states where such shares may be legally
sold, and thereby become eligible for the reduced sales charge applicable to the
total amount purchased. A Letter of Intent filed within 90 days of the date of
investment is considered retroactive to the date of investment for determination
of the thirteen-month period. The Letter of Intent is not a binding obligation
on either the investor or the Fund. During the term of a Letter of Intent,
Administrative Data Management Corp. ("Transfer Agent") will hold Class A shares
representing 5% of each purchase in escrow, which shares will be released upon
completion of the intended investment.
Purchases of Class A shares made under a Letter of Intent are made at the
sales charge applicable to the purchase of the aggregate amount of shares
covered by the Letter of Intent as if they were purchased in a single
transaction. The applicable quantity discount will be based on the sum of the
then current public offering price (i.e., net asset value plus applicable sales
----
charge) of all Class A shares and the net asset value of all Class B shares of a
Fund and of the other Eligible Funds, including Class B shares of the Money
Market Funds, currently owned, together with the aggregate offering price of
purchases to be made under the Letter of Intent. If all such shares are not so
purchased, a price adjustment is made, depending upon the actual amount invested
within such period, by the redemption of sufficient Class A shares held in
escrow in the name of the investor (or by the investor paying the commission
differential). A Letter of Intent can be amended (1) during the thirteen-month
period if the purchaser files an amended Letter of Intent with the same
expiration date as the original Letter of Intent, or (2) automatically after the
end of the period, if total purchases credited to the Letter of Intent qualify
for an additional reduction in the sales charge. The Letter of Intent privilege
may be modified or terminated at any time by the Underwriter.
Cumulative Purchase Privilege. Upon written notice to FIC, Class A shares of
-----------------------------
a Fund are also available at a quantity discount on new purchases if the then
current public offering price (i.e., net asset value plus applicable sales
----
charge) of all Class A shares and the net asset value of all Class B shares of a
Fund and of the other Eligible Funds, including Class B shares of the Money
Market Funds, previously purchased and then owned, plus the value of Class A
shares being purchased at the current public offering price, amount to $25,000
or more. Such quantity discounts may be modified or terminated at any time by
the Underwriter.
Purchase of Shares. When you open a Fund account, you must specify which
-------------------
class of shares you wish to purchase. If not, your order will be processed as
follows: (1) if you are opening an account with a new registration with First
Investors your order will not be processed until the Fund receives notification
of which class of shares to purchase; (2) if you have existing First Investors
accounts solely in either Class A shares or Class B shares with the identical
registration, your investment in the Fund will be made in the same class of
shares as your existing account(s); (3) if you are an existing First
25
<PAGE>
Investors shareholder and own a combination of Class A and Class B shares with
an identical registration, your investment in the Fund will be made in Class B
shares; and (4) if you own in the aggregate at least $250,000 in any combination
of classes, your investment will be made in Class A shares.
SYSTEMATIC INVESTING
First Investors Money Line. This service allows you to invest in a Fund
--------------------------
through automatic deductions from your bank checking account, provided you have
Electronic Fund Transfers privileges. See "Electronic Fund Transfers," below.
Scheduled investments in the minimum amount of $50 per month or $600 per year
may be made bi-weekly, semi-monthly, monthly, quarterly, semi-annually or
annually. In order to invest $2,500 or more through First Investors Money Line,
a Medallion signature guarantee is required. See "Signature Guarantees." The
maximum amount which may be invested through First Investors Money Line is
$10,000 a month. Shares of the Fund are purchased at the public offering price
determined at the close of business on the investment date you select provided
the amount of the purchase is available funds in your designated bank account
two business days prior to the investment date selected. You may change the
amount or discontinue this service at any time by calling Shareholder Services
or writing to Administrative Data Management Corp., 581 Main Street, Woodbridge,
NJ 07095-1198, Attn: Control Dept. It takes between three and five business
days to process most changes you request be made to your Money Line service.
Money Line application forms are available from your Representative or by
calling Shareholder Services at 1-800-423-4026.
Automatic Payroll Investment. You also may arrange for automatic investments
----------------------------
in the minimum amount of $50 into a Fund on a systematic basis through salary
deductions, provided your employer has direct deposit capabilities. Shares of
the Fund are purchased at the public offering price determined as of the close
of business on the day the electronic fund transfer is received by the Fund.
You may change the amount or discontinue the service by contacting your
employer. An application is available from your Representative or by calling
Shareholder Services at 1-800-423-4026. Arrangements must also be made with
your employer's payroll department.
Cross-Investment of Cash Distributions. You may elect to invest in Class A or
--------------------------------------
Class B shares of a Fund at net asset value all the cash distributions from the
same class of shares of another Eligible Fund. The investment will be made at
the net asset value per share of the Fund, generally determined as of the close
of business, on the business day immediately following the record date of any
such distribution. You may also elect to invest cash distributions of a Fund's
Class A or Class B shares into the same class of another Eligible Fund,
including the Money Market Funds. The investment will be made at the net asset
value per share of the other fund, generally determined as of the close of
business, on the business day immediately following the record date of any such
distribution. Cash distributions from a Fund's Class B shares may only be
invested into an existing Class B share account. If your distributions are to
be invested in Class A shares in a new account, you must invest a minimum of $50
per month. To arrange for cross-investing, call Shareholder Services at 1-800-
423-4026.
Systematic Withdrawal Plan. Shareholders who own noncertificated Class A or
--------------------------
Class B shares may establish a Systematic Withdrawal Plan ("Withdrawal Plan").
If you have a Fund account with a value of at least $5,000 and you have
dividends and other distributions reinvested, you may elect to receive monthly,
quarterly, semi-annual or annual checks for any designated amount (minimum $25).
You may have the payments sent directly to you or persons you designate.
Additionally, regardless of the amount of your Class A or Class B Fund account,
you may also elect to have the Systematic Plan payments automatically (i)
invested at net asset value in the same class of shares of any other Eligible
Fund, including the Money Market Funds, or (ii) paid to First Investors Life
Insurance Company for the purchase of a life insurance policy or a variable
annuity. If your Systematic
26
<PAGE>
Plan payments are to be invested in a new Class A Eligible Fund account, you
must invest a minimum of $600 per year. Systematic Plan payments from a Class B
account must be invested in an existing Class B Eligible Fund account. Dividends
and other distributions, if any, are reinvested in additional shares of the same
class of the Fund. Shareholders may add shares to the Withdrawal Plan or
terminate the Withdrawal Plan at any time. Withdrawal Plan payments will be
suspended when a distributing Fund has received notice of a shareholder's death
on an individual account. Payments may recommence upon receipt of written
alternate payment instructions and other necessary documents from the deceased's
legal representative. Withdrawal payments will also be suspended when a payment
check is returned to the Transfer Agent marked as undeliverable by the U.S.
Postal Service after two consecutive mailings.
Shareholders who own Class B shares may establish a Withdrawal Plan and elect
to receive up to 8% of the value of their account (calculated as set forth
below) each year without incurring any CDSC. Shares not subject to a CDSC (such
as shares representing reinvestment of distributions) will be redeemed first and
will count toward the 8% limitation. If the shares not subject to a CDSC are
insufficient for this purpose, then shares subject to the lowest CDSC will be
redeemed next until the 8% limit is reached. The 8% figure is calculated on a
pro rata basis at the time of the first payment made pursuant to the Plan and
recalculated thereafter on a pro rata basis at the time of each Plan payment.
Therefore, shareholders who have chosen the Plan based on a percentage of the
value of their account of up to 8% will be able to receive Plan payments without
incurring a CDSC. However, shareholders who have chosen a specific dollar
amount (for example, $100 per month) for their periodic Plan payment should be
aware that the amount of that payment not subject to a CDSC may vary over time
depending on the value of their account. For example, if the value of the
account is $15,000 at the time of payment, the shareholder will receive $100
free of the CDSC (8% of $15,000 divided by 12 monthly payments). However, if at
the time of a payment the value of the account has fallen to $14,000, the
shareholder will receive $93.33 free of any CDSC (8% of $14,000 divided by 12
monthly payments) and $6.67 subject to the lowest applicable CDSC. This
privilege may be revised or terminated at any time.
The withdrawal payments derived from the redemption of sufficient shares in
the account to meet designated payments in excess of dividends and other
distributions may deplete or possibly extinguish the initial investment,
particularly in the event of a market decline, and may result in a capital gain
or loss depending on the shareholder's cost. Purchases of additional shares of
a Fund concurrent with withdrawals are ordinarily disadvantageous to
shareholders because of tax liabilities and sales charges. To establish a
Withdrawal Plan, call Shareholder Services at 1-800-423-4026.
Electronic Fund Transfer. Shareholders may apply for the privilege of making
------------------------
Electronic Fund Transfers ("EFT") between Fund accounts and a predesignated bank
account by completing an application and having all shareholders' signatures
guaranteed. If the bank account registration is not identical to the Fund
account, a signature guarantee of every bank account holder who is not an owner
of the Fund account is required. Shareholders may choose EFT privileges for
Money Line purchases, redemptions, dividend distributions and Systematic
Withdrawal Plan payments. The minimum EFT redemption amount is $500 and the
maximum is $50,000. Each Fund has the right, at its sole discretion, to limit
or terminate your ability to exercise the EFT privileges at any time.
Shareholders may not use EFT to redeem shares unless they have been owned for at
least 15 days.
Conversion of Class B Shares. Class B Shares of a Fund will automatically
----------------------------
convert to Class A shares of that Fund, based on the relative net asset values
per share of the two classes, as of the close of business on the first business
day of the month in which the eighth anniversary of the initial purchase of such
Class B shares occurs. For these purposes, the date of initial purchase shall
mean (1) the first business day of the month in which such Class B shares were
issued, or (2) for Class B shares obtained through an exchange or a series of
exchanges, the first business day of the month in which the
27
<PAGE>
original Class B shares were issued. For conversion purposes, Class B shares
purchased through the reinvestment of dividends and other distributions paid in
respect of Class B shares will be held in a separate sub-account. Each time any
Class B shares in the shareholder's regular account (other than those in the
sub-account) convert to Class A shares, a pro rata portion of the Class B
shares in the sub-account also will convert to Class A shares. The portion will
be determined by the ratio that the shareholder's Class B shares converting to
Class A shares bears to the shareholder's total Class B shares not acquired
through dividends and other distributions.
The availability of the conversion feature is subject to the continuing
applicability of a ruling of the Internal Revenue Service ("IRS"), or the
availability of an opinion of counsel, that: (1) the dividends and other
distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Code; and (2) the conversion of shares does
not constitute a taxable event. If the conversion feature ceased to be
available, the Class B shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the Class B shares
beyond eight years from the date of purchase. FIMCO has no reason to believe
that these conditions for the availability of the conversion feature will not
continue to be met.
If either Fund implements any amendments to its Class A Plan that would
increase materially the costs that may be borne under such Plan by Class A
shareholders, a new target class into which Class B shares will convert will be
established, unless a majority of Class B shareholders, voting separately as a
class, approve the proposal.
Waivers of CDSC on Class B Shares. The CDSC imposed on Class B shares does
---------------------------------
not apply to: (a) any redemption by advisory accounts managed by the Adviser or
any of its affiliates or for shares held by the Adviser or any of its
affiliates; (b) any redemption or transfer of ownership of Class B shares
following the death or disability, as defined in Section 72(m)(7) of the Code,
of a shareholder if the Fund is provided with proof of death or disability and
with all documents required by the Transfer Agent within one year after the
death or disability; (c) any redemption of shares purchased during the period
April 29, 1996 through June 30, 1996 with the proceeds from a redemption of
shares of a fund in another fund group for which no sales charge was paid, other
than a money market fund or shares held in a retirement plan account; and (d)
certain redemptions pursuant to a Withdrawal Plan (see "Systematic Withdrawal
Plan"). For more information on what specific documents are required, call
Shareholder Services at 1-800-423-4026.
Signature Guarantees. The words "Signature Guaranteed" must appear in direct
--------------------
association with the signature of the guarantor. Members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange
Medallion Signature Program), SEMP (Stock Exchanges Medallion Program) and FIC
are eligible signature guarantors. A notary public is not an acceptable
guarantor. Although each Fund reserves the right to require signature
guarantees at any other time, signature guarantees are required whenever: (1)
the amount of the redemption is over $50,000, (2) a redemption check is to be
made payable to someone other than the registered accountholder, other than
major financial institutions, as determined solely by the Fund and its agent, on
behalf of the shareholder, (3) a redemption check is to be mailed to an address
other than the address of record, preauthorized bank account, or to a major
financial institution for the benefit of a shareholder, (4) an account
registration is being transferred to another owner, (5) a transaction requires
additional legal documentation; (6) the redemption request is for certificated
shares; (7) your address of record has changed within 60 days prior to a
redemption request; (8) multiple owners have a dispute or give inconsistent
instructions; (9) the authority of a representative of a corporation,
partnership, association or other entity has not been established to the
satisfaction of a Fund or its agents; and (10) you elect EFT privileges.
28
<PAGE>
Reinvestment after Redemption. If you redeem Class A or Class B shares in
-----------------------------
your Fund account, you can reinvest within six months from the date of
redemption all or any part of the proceeds in shares of the same class of the
same Fund or any other Eligible Fund (including the Money Market Funds), at net
asset value, on the date the Transfer Agent receives your purchase request. If
you reinvest the entire proceeds of a redemption of Class B shares for which a
CDSC has been paid, you will be credited for the amount of the CDSC. If you
reinvest less than the entire proceeds, you will be credited with a pro rata
portion of the CDSC. All credits will be paid in Class B shares of the fund
into which the reinvestment is being made. The period you owned the original
Class B shares prior to redemption will be added to the period of time you own
Class B shares acquired through reinvestment for purposes of determining (a) the
applicable CDSC upon a subsequent redemption and (b) the date on which Class B
shares automatically convert to Class A shares. If your reinvestment is into a
new account, other than the Money Market Funds, it must meet the minimum
investment and other requirements of the fund into which the reinvestment is
being made. To take advantage of this option, send your reinvestment check
along with a written request to the Transfer Agent within six months from the
date of your redemption. Include your account number and a statement that you
are taking advantage of the "Reinvestment Privilege."
Telephone Transactions. Fund shares not held in certificate form may be
----------------------
exchanged or redeemed by telephone provided you have not declined telephone
privileges. Telephone exchanges are also available from an individually
registered non-retirement account to an IRA account of the same class of shares
in the same name (provided an IRA application is on file).
As stated in the Funds' Prospectus, the Tax Exempt Funds, the Adviser, the
Underwriter and their officers, directors, trustees and employees will not be
liable for any loss, damage, cost or expense arising out of any instruction (or
any interpretation of such instruction) received by telephone which they
reasonably believe to be authentic. In acting upon telephone instructions,
these parties use procedures which are reasonably designed to ensure that such
instructions are genuine, such as (1) obtaining some or all of the following
information: account number, address, social security number and such other
information as may be deemed necessary; (2) recording all telephone
instructions; and (3) sending written confirmation of each transaction to the
shareholder's address of record.
CANCELLED CHECKS. Copies of cancelled purchase, liquidation or dividend
----------------
checks will be provided to shareholders upon request. Shareholders will be
charged $10.00 per check.
Emergency Pricing Procedures. In the event that the Funds must halt
----------------------------
operations during any day that they would normally be required to price under
Rule 22c-1 under the 1940 Act due to an emergency ("Emergency Closed Day"), the
Funds will apply the following procedures:
1. The Funds will make every reasonable effort to segregate orders received
on the Emergency Closed Day and give them the price that they would have
received but for the closing. The Emergency Closed Day price will be calculated
as soon as practicable after operations have resumed and will be applied equally
to sales, redemptions and repurchases that were in fact received in the mail or
otherwise on the Emergency Closed Day.
2. For purposes of paragraph 1, an order will be deemed to have been received
by the Funds on an Emergency Closed Day, even if neither the Funds nor the
Transfer Agent is able to perform the mechanical processing of pricing on that
day, under the following circumstances:
(a) In the case of a mail order the order will be considered received by a
Fund when the postal service has delivered it to FIC's offices in Woodbridge,
New Jersey prior to the close of regular trading on the NYSE, or at such other
time as may be prescribed in its prospectus; and
29
<PAGE>
(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, or
such other time as may be prescribed in its prospectus.
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 net asset value for
the Funds and their shareholders.
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, a Fund-each Fund being treated as a separate
corporation for these purposes-must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable income
(consisting generally of taxable net investment income and net short-term
capital gain) plus its net interest income excludable from gross income under
section 103(a) of the Code ("Distribution Requirement") and must meet several
additional requirements. For each Fund these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities, or other income
(including gains from options or futures) derived with respect to its business
of investing in securities ("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 (3) at the close of each quarter of
the Fund's taxable year, not more than 25% of the value of its total assets may
be invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer.
Dividends paid by a Fund will qualify as exempt-interest dividends as defined
in the Prospectus, and thus will be excludable from gross income for Federal
income tax purposes by its shareholders, if the Fund satisfies the requirement
that, at the close of each quarter of its taxable year, at least 50% of the
value of its total assets consists of securities the interest on which is
excludable from gross income under section 103(a); each Fund intends to continue
to satisfy this requirement. The aggregate dividends excludable from a Fund's
shareholders' gross income may not exceed its net tax-exempt income.
Shareholders' treatment of dividends from a Fund under state and local income
tax laws may differ from the treatment thereof under the Code. Investors should
consult their tax advisers concerning this matter.
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
reported by shareholders (or taxed to them in the case of taxable distributions)
for the year in which that December 31 falls.
30
<PAGE>
Under the Taxpayer Relief Act of 1997, different maximum tax rates apply to
an individual's net capital gain depending on the individual's holding period
and marginal rate of federal income taxgenerally, 28% for gain recognized on
capital assets held for more than one year but not more than 18 months and 20%
(10% for taxpayers in the 15% marginal tax bracket) for gain recognized on
capital assets held for more than 18 months. Pursuant to an Internal Revenue
Service notice, each Fund may divide each net capital gain distribution into a
28% rate gain distribution and a 20% rate gain distribution (in accordance with
the Fund's holding periods for the securities it sold that generated the
distributed gain) and its shareholders must treat those portions accordingly.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be disallowed to the extent of any exempt-interest dividends
received on those shares, and any portion of the loss that is not disallowed
will be treated as long-term, instead of short-term, capital loss to the extent
of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary (taxable) income for that year and capital gain net income
for the one-year period ending on October 31 of that year, plus certain other
amounts.
Tax-exempt interest attributable to certain private activity bonds ("PABs")
(including, to the extent a Fund receives interest on those bonds, a
proportionate part of the exempt-interest dividends it pays) is a Tax Preference
Item. Exempt-interest dividends received by a corporate shareholder also may be
indirectly subject to the Federal alternative minimum tax without regard to
whether the Fund's tax-exempt interest was attributable to those bonds.
Entities or other persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or industrial development
bonds ("IDBs") should consult their tax advisers before purchasing shares of a
Fund because, for users of certain of these facilities, the interest on those
bonds is not exempt from Federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of PABs or IDBs.
Up to 85% of social security and certain railroad retirement benefits may be
included in taxable income for recipients whose modified adjusted gross income
(which includes income from tax-exempt sources such as a Fund) plus 50% of their
benefits exceeds certain base amounts. Exempt-interest dividends from a Fund
still are tax-exempt to the extent described in the Prospectus; they are only
included in the calculation of whether a recipient's income exceeds the
established amounts.
Each Fund may acquire zero coupon municipal securities issued with original
issue discount. As a holder of those securities, each Fund must account for the
portion of the original issue discount that accrues on the securities during the
taxable year, even if the Fund receives no corresponding payment on them during
the year. Because each Fund annually must distribute substantially all of its
net tax-exempt income and net tax-exempt interest, including any original issue
discount on Municipal Instruments, to satisfy the Distribution Requirement, a
Fund may be required in a particular year to distribute as a dividend an amount
that is greater than the total amount of cash it actually receives. Those
distributions will be made from a Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. Each Fund may realize capital
gains or losses from those sales, which would increase or decrease its
investment company taxable income and/or net capital gain (the excess of net
long-term capital gain over net short-term capital loss).
Each Fund may invest in municipal bonds that are purchased, generally not on
their original issue, with market discount (that is, at a price less than the
principal amount of the bond or, in the
31
<PAGE>
case of a bond that was issued with original issue discount, a price less than
the amount of the issue price plus accrued original issue discount) ("municipal
market discount bonds"). Gain on the disposition of a municipal market discount
bond (other than a bond with a fixed maturity date within one year from its
issuance), generally is treated as ordinary (taxable) income, rather than
capital gain, to the extent of the bond's accrued market discount at the time of
disposition. Market discount on such a bond generally is accrued ratably, on a
daily basis, over the period from the acquisition date to the date of maturity.
In lieu of treating the disposition gain as above, a Fund may elect to include
market discount in its gross income currently, for each taxable year to which it
is attributable.
If a Fund invests in any instruments that generate taxable income under
circumstances described in the Prospectus, distributions of the interest earned
thereon will be taxable to the Fund's shareholders as ordinary income to the
extent of its earnings and profits. Moreover, if a Fund realizes capital gain
as a result of market transactions, any distributions of that gain will be
taxable to its shareholders. There also may be collateral Federal income tax
consequences regarding the receipt of exempt-interest dividends by shareholders
such as S corporations, financial institutions and property and casualty
insurance companies. A shareholder falling into any such category should
consult its tax adviser concerning its investment in shares of a Fund.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the amount, character and timing of recognition of the gains
and losses a Fund will realize in connection therewith. Gains from options and
futures derived by a Fund with respect to its business of investing in
securities will qualify as permissible income under the Income Requirement.
If a Fund has an "appreciated financial position"-generally, an interest
(including an interest through an option or futures contract or short sale) with
respect to any 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 the 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 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:
32
<PAGE>
(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 will fluctuate
over time and return for any given past period is not an indication or
representation by a Fund of future rates of return on its shares. At times, the
Adviser may reduce its compensation or assume expenses of a Fund in order to
reduce the Fund's expenses. Any such waiver or reimbursement would increase the
Fund's return during the period of the waiver or reimbursement.
Average annual return and total return computed at the public offering
price (maximum sales charge for Class A shares and applicable CDSC for Class B
shares) for the periods ended December 31, 1997 are set forth in the tables
below:
AVERAGE ANNUAL TOTAL RETURN/1/
<TABLE>
<CAPTION>
Insured Intermediate Fund/2/ Insured Tax Exempt Fund
---------------------------- -----------------------
Class A Class B Class A Class B
Shares Shares/4/ Shares Shares/4/
------ --------- ------ ---------
<S> <C> <C> <C> <C>
One Year 0.88% 2.39% 1.46% 3.62%
Five Years N/A N/A 4.66 N/A
Ten Years N/A N/A 6.67 N/A
Life of Fund 3 3.83 6.40 N/A 7.06
</TABLE>
TOTAL RETURN/1/
<TABLE>
<CAPTION>
Insured Intermediate Fund/2/ Insured Tax Exempt Fund
------------------------------ ------------------------
Class A Class B Class A Class B
Shares Shares/4/ Shares Shares/4/
------ ------- ------ ---------
<S> <C> <C> <C> <C>
One Year 0.88% 2.39% 1.46% 3.62%
Five Years N/A N/A 25.55 N/A
Ten Years N/A N/A 90.80 N/A
Life of Fund/3/ 16.72 20.23 N/A 22.47
</TABLE>
- -----------------------
1 All return figures reflect the current maximum sales charge of 6.25%. Prior
to July 1, 1993, the maximum sales charge for INSURED TAX EXEMPT FUND was
6.90%. Prior to December 29, 1989, the maximum sales charge for INSURED TAX
EXEMPT FUND was 7.25%. Prior to January 12, 1995, the maximum sales charge
for INSURED INTERMEDIATE FUND was 3.50%.
2 Certain expenses of the INSURED INTERMEDIATE FUND have been waived from
commencement of operations through December 31, 1997. Accordingly, return
figures are higher than they would have been had such expenses not been
waived.
3 INSURED INTERMEDIATE FUND commenced operations on November 22, 1993.
4 The commencement date for the offering of Class B shares is January 12, 1995.
33
<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 periods ended December 31, 1997 are set
forth in the tables below:
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Insured Intermediate Fund/1/ Insured Tax Exempt Fund
----------------------------- ------------------------
Class A Class B Class A Class B
Shares Shares/3/ Shares Shares/3/
------ --------- ------ --------
<S> <C> <C> <C> <C>
One Year 7.68% 6.39% 8.27% 7.62%
Five Years N/A N/A 6.02 N/A
Ten Years N/A N/A 7.25 N/A
Life of Fund/2/ 5.49 7.29 N/A 7.94
</TABLE>
TOTAL RETURN
<TABLE>
<CAPTION>
Insured Intermediate Fund/1/ Insured Tax Exempt Fund
--------------------------- -----------------------
Class A Class B Class A Class B
Shares Shares/3/ Shares Shares/3/
------ --------- ------ ---------
<S> <C> <C> <C> <C>
One Year 7.68% 6.39% 8.27% 7.62%
Five Years N/A N/A 33.95 N/A
Ten Years N/A N/A 101.43 N/A
Life of Fund/2/ 24.58 23.23 N/A 25.46
</TABLE>
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.
Each Fund's tax-equivalent yield during the base period may be presented in
one or more stated tax brackets. Tax-equivalent yield is calculated by
adjusting a Fund's tax-exempt yield by a factor designed to show the approximate
yield that a taxable investment would have to earn to produce an after-tax yield
equal to the Fund's tax-exempt yield.
The yield and tax-equivalent yield for INSURED TAX EXEMPT FUND Class A
shares for the thirty day period ended December 31, 1997 (assuming a Federal tax
rate of 28%) was 3.54% and
- -------------------------------
1 Certain expenses of the INSURED INTERMEDIATE FUND have been waived from
commencement of operations through December 31, 1997. Accordingly, return
figures are higher than they would have been had such expenses not been
waived.
2 INSURED INTERMEDIATE FUND commenced operations on November 22, 1993.
3 The commencement date for the offering of Class B shares is January 12, 1995.
34
<PAGE>
5.55%, respectively. The yield and tax-equivalent yield for INSURED TAX EXEMPT
FUND Class B shares for the same period (assuming a Federal Tax rate of 28%) was
3.08% and 4.81%, respectively. The yield and tax-equivalent yield (assuming the
same tax rate) for INSURED INTERMEDIATE FUND Class A shares for the thirty days
ended December 31, 1997 was 4.00% and 6.25%, respectively. The yield and tax-
equivalent yield for INSURED INTERMEDIATE FUND Class B shares for the same
period (assuming a Federal Tax rate of 28%) was 3.30% and 5.16%, respectively.
The maximum Federal tax rate during this period was 39.6%. During this period,
certain expenses of INSURED INTERMEDIATE FUND have been waived or reimbursed.
Accordingly yield and tax-equivalent yield figures are higher than they would
have been had such expenses not been waived or reimbursed.
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 December 31,
1997 for Class A shares of INSURED INTERMEDIATE FUND and INSURED TAX EXEMPT FUND
calculated using the offering price was 4.61% and 4.52%, respectively. The
distribution rate for the twelve-month period ended December 31, 1997 for Class
A shares of INSURED INTERMEDIATE FUND and INSURED TAX EXEMPT FUND calculated at
net asset value was 4.92% and 4.82%, respectively. The distribution rate for
the twelve-month period ended December 31, 1997 for Class B shares of INSURED
INTERMEDIATE FUND and INSURED TAX EXEMPT FUND calculated using net asset value
was 3.91% and 4.13%, respectively. During this period certain expenses of
INSURED INTERMEDIATE FUND 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. 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 D.
A Fund may include in advertisements and sales literature, information,
examples and statistics that illustrate the effect of taxable versus tax-free
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 gains distributions in additional shares. The examples used will be
for illustrative purposes only and are not representations by any Fund of past
or future yield or return.
From time to time, in reports and promotional literature, a Fund may
compare its performance to, or cite the historical performance of, U.S. Treasury
bills, notes and bonds, 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.
35
<PAGE>
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.
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.
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.
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
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.
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
36
<PAGE>
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. For the fiscal
year ended December 31, 1997, INSURED TAX EXEMPT FUND paid $63,432 in transfer
agent fees and expenses. For the fiscal year ended December 31, 1997, INSURED
INTERMEDIATE FUND paid $7,003 in transfer agent fees and expenses. The Transfer
Agent's telephone number is 1-800-423-4026.
SHAREHOLDER LIABILITY. Series 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 Series Fund. The Declaration of Trust however, contains an
express disclaimer of shareholder liability for acts or obligations of Series
Fund and requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by Series 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 Series Fund. The Declaration of Trust also provides that Series
Fund shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of Series 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 Series 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. Series Fund may have an obligation to indemnify Trustees and
officers with respect to litigation.
5% SHAREHOLDERS. As of April 1, 1998, John W. Roberts, 1316 Indian Mound
---------------
W, Bloomfield Hills, MI 48301, owned of record or beneficially 6.0% of the
outstanding Class A shares of INSURED INTERMEDIATE FUND.
As of April 1, 1998, the following owned of record or beneficially 5% or
more of the outstanding Class B shares of the Fund listed below:
Fund % of Shares Shareholder
- ---- ----------- -----------
INSURED INTERMEDIATE FUND 5.9 Vivien B. Shelanski
241 Kane Street
Brooklyn, NY 11231
37
<PAGE>
5.8 William A. Bloomhall
130 Thompson Drive SE
Cedar Rapids, IA 52403
5.7 Shirley M. Pusko and Ronald E. Pusko
8129 W. 87th Street
Hickory Hills, IL 60457
16.6 Maureen Barron and Earl Barron
1938 Louisquisset Pike
Lincoln, RI 02865
10.8 Harrison W. Snyder
RD 4 Box 313
Huntington, PA 16652
7.9 Wendy Liu Lee
20 Confucius Plaza
New York, NY 10002
INSURED TAX EXEMPT FUND 6.2 Giselle Serio
48 Athens Avenue
South Amboy, NJ 08879-2453
9.1 Daniel Williams Sr.
Eagle Ridge Drive
W. Orange, NJ 07052 USA
Trading by Portfolio Managers and Other Access Persons. Pursuant to
------------------------------------------------------
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, each Tax Exempt Fund
and the Adviser have adopted Codes of Ethics restricting personal securities
trading by portfolio managers and other access persons of the Funds. Among
other things, such persons, except the Directors or Trustees: (a) must have all
non-exempt trades pre-cleared; (b) are restricted from short-term trading; (c)
must provide duplicate statements and transactions confirmations to a compliance
officer; and (d) are prohibited from purchasing securities of initial public
offerings.
APPENDIX A
DESCRIPTION OF MUNICIPAL 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:
38
<PAGE>
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.
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.
39
<PAGE>
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.
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.
40
<PAGE>
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.
APPENDIX B
DESCRIPTION OF MUNICIPAL NOTE RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
S&P's note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
- Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the difference between short-term credit risk and long-term risk.
MIG-1. Loans bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
41
<PAGE>
APPENDIX C
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.
42
<PAGE>
APPENDIX D
[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.
<TABLE>
<CAPTION>
Years 10% 8% 6% 4%
----- ------- ------ ------ ------
<S> <C> <C> <C> <C>
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
</TABLE>
INCREASE INVESTMENT
This graph shows the more you invest on a regular basis over time, the more you
can accumulate.
<TABLE>
<CAPTION>
Years $100 $250 $500 $1,000
----- ------ ------- ------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
[The following table is represented as 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.
<TABLE>
<S> <C>
25 years old .............. 533,443
35 years old .............. 202,228
45 years old .............. 62,320
</TABLE>
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.
<PAGE>
[The following table is represented as chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1996.
<TABLE>
<S> <C>
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
</TABLE>
<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.
<TABLE>
<CAPTION>
THE EFFECTS OF INFLATION OVER TIME
<S> <C>
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 ....................... 20.39000
1995........................ 1.00
1996........................ 1.03
1997........................ 1.06
1998 ....................... 1.09
1999 ....................... 1.13
2000 ....................... 1.16
2001 ....................... 1.19
2002 ....................... 1.23
2003 ....................... 1.27
2004 ....................... 1.30
2005 ....................... 1.34
2006 ....................... 1.38
2007 ....................... 1.43
2008 ....................... 1.47
2009 ....................... 1.51
2010 ....................... 1.56
2011 ....................... 1.60
2012 ....................... 1.65
2013 ....................... 1.70
2014 ....................... 1.75
2015 ....................... 1.81
2016 ....................... 1.86
2017 ....................... 1.92
2018 ....................... 1.97
2019 ....................... 2.03
2020 ....................... 2.09
2021 ....................... 2.16
2022 ....................... 2.22
2023 ....................... 2.29
2024 ....................... 2.36
2025 ....................... 2.43
2026 ....................... 2.43
</TABLE>
Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and services as it could 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.
<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.
<TABLE>
<CAPTION>
1926 through 1996(1)
Total Number of Percentage of
Number of Positive Positive
Periods Periods Periods
------- ------- -------
<S> <C> <C> <C>
1-Year Periods 71 51 72%
5-Year Periods 67 60 90%
10-Year Periods 62 60 97%
15-Year Periods 57 57 100%
20-Year Periods 52 52 100%
</TABLE>
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. (2)
<TABLE>
<CAPTION>
Compound Annual Return from 1982 -- 1996(1)
<S> <C>
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 13.66
</TABLE>
The following chart illustrates for the period shown that long-term corporate
bonds have outpaced U.S. Treasury Bills and inflation.
<TABLE>
<CAPTION>
Compound Annual Return from 1982 -- 1996(1)
<S> <C>
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 16.79
</TABLE>
(1) Used with permission. (C) 1997 Ibbotson Associates Inc. All rights
reserved. [Certain portions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.]
(2) 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.
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%.
<TABLE>
<CAPTION>
Your Taxable Equivalent Yield
Your Federal Tax Bracket
---------------------------------------------
your tax-free yield 31.0% 36.0% 39.6%
------------------- ----- ----- -----
<S> <C> <C> <C>
3.00% 4.35% 4.69% 4.97%
3.50% 5.07% 5.47% 5.79%
4.00% 5.80% 6.25% 6.62%
4.50% 6.52% 7.03% 7.45%
5.00% 7.25% 7.81% 8.25%
5.50% 7.97% 8.59% 9.11%
</TABLE>
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.
<PAGE>
FINANCIAL STATEMENTS
as of December 31, 1997
<PAGE>
FINANCIAL STATEMENTS
as of December 31, 1997
First Investors Insured Tax Exempt Fund, Inc. (2-57473) incorporates by
reference the financial statements and report of independent auditors contained
in the Annual Report to shareholders for the fiscal year ended December 31, 1997
electronically filed with the Commission on February 20, 1998 (Accession Number:
0000928816-98-000048).
First Investors Series 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 December 31, 1997 electronically filed
with the Commission on March 2, 1998 (Accession Number: 0001047489-98-008179).
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Financial Statements are set forth in Part B, Statement of
Additional Information.
(b) Exhibits:
(1)a./1/ Articles of Restatement
b./1/ Articles Supplementary
(2)/1/ Amended and Restated By-laws
(3) Not Applicable
(4) 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.
(5)/1/ Investment Advisory Agreement between Registrant and
First Investors Management Company, Inc.
(6)/1/ Underwriting Agreement between Registrant and First
Investors Corporation.
(7) Not Applicable
(8)a./1/ Custodian Agreement between Registrant and Irving
Trust Company
b./1/ Supplement to Custodian Agreement between Registrant
and The Bank of New York
(9)/1/ Administration Agreement between Registrant, First
Investors Management Company, Inc., First Investors
Corporation and Administrative Data Management Corp.
<PAGE>
(10) Opinion of Counsel
(11)a. Consent of independent accountants
b./1/ Powers of Attorney
(12) Not Applicable
(13) No undertaking in effect
(14) Not applicable
(15)a./1/ Amended and Restated Class A Distribution Plan
b./1/ Class B Distribution Plan
(16) Performance Calculations
(17) Financial Data Schedule (filed as Exhibit 27 for
electronic filing purposes)
(18)/1/ 18f-3 Plan
- ----------------
/1/ Incorporated by reference from Post-Effective Amendment No. 29 to
Registrant's Registration Statement (File No. 2-57473) filed on
April 23, 1996.
Item 25. Persons Controlled by or under common control with Registrant
There are no persons controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
Number of Record
Holders as of
Title of Class February 2, 1998
-------------- ----------------
Class A Shares 43,049
Class B Shares 174
Item 27. 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
<PAGE>
which he may be made a party by reason of his being or having been a director or
officer of the Corporation, except in relation to any action, suit or proceeding
in which he has been adjudged liable because of negligence or misconduct, which
shall be deemed to include willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office. In the
absence of an adjudication which expressly absolves the director or officer of
liability to the Corporation or its stockholders for negligence or misconduct,
within the meaning thereof as used herein, or in the event of a settlement, each
director or officer (and his heirs, executors and administrators) shall be
indemnified by the Corporation against payments made, including reasonable costs
and expenses, provided that such indemnity shall be conditioned upon the prior
determination by a resolution of two-thirds of the Board of Directors who are
not involved in the action, suit or proceeding that the director or officer has
no liability by reason of negligence or misconduct within the meaning thereof as
used herein, and provided further that if a majority of the members of the Board
of Directors of the Corporation are involved in the action, suit or proceeding,
such determination shall have been made by a written opinion of independent
counsel. Amounts paid in settlement shall not exceed costs, fees and expenses
which would have been reasonably incurred if the action, suit or proceeding had
been litigated to a conclusion. Such a determination by the Board of Directors
or by independent counsel, and the payment of amounts by the Corporation on the
basis thereof, shall not prevent a stockholder from challenging such
indemnification by appropriate legal proceedings on the grounds that the person
indemnified was liable to the Corporation or its security holders by reason of
negligence or misconduct within the meaning thereof as used herein. The
foregoing rights and indemnification shall not be exclusive of any other rights
to which any officer or director (or his heirs, executors and administrators)
may be entitled to according to law.
The Registrant's Investment Advisory Agreement provides as follows:
The Manager shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Company or any Series in connection with the
matters to which this Agreement relate except a loss resulting from the willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Any person, even though also an officer, partner, employee, or agent
of the Manager, who may be or become an officer, Board member, employee or agent
of the Company shall be deemed, when rendering services to the Company or acting
in any business of the Company, to be rendering such services to or acting
solely for the Company and not as an officer, partner, employee, or agent or one
under the control or direction of the Manager even though paid by it.
The Registrant's Underwriting Agreement provides as follows:
The Underwriter agrees to use its best efforts in effecting the sale and
public distribution of the shares of the Fund through dealers
<PAGE>
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. See Item 32 herein.
Item 28. Business and Other Connections of Investment Adviser
First Investors Management Company, Inc., the Registrant's Investment
Adviser, also serves as Investment Adviser to:
First Investors Cash Management Fund, Inc.
First Investors Series Fund
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Global Fund, Inc.
First Investors Life Series Fund
First Investors Multi-State Insured Tax Free Fund
First Investors New York Insured Tax Free Fund, Inc.
First Investors Special Bond Fund, Inc.
First Investors Fund For Income, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
<PAGE>
First Investors Series Fund II, Inc.
Affiliations of the officers and directors of the Investment Adviser are
set forth in Part B, Statement of Additional Information, under "Directors and
Officers."
Item 29. Principal Underwriters
(a) First Investors Corporation, Underwriter of the Registrant, is also
underwriter for:
First Investors Cash Management Fund, Inc.
First Investors Series Fund
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Global Fund, Inc.
First Investors Multi-State Insured Tax Free Fund
First Investors New York Insured Tax Free Fund, Inc.
First Investors Fund For Income, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
First Investors Series Fund II, Inc.
First Investors Life Variable Annuity Fund A
First Investors Life Variable Annuity Fund C
First Investors Life Variable Annuity Fund D
First Investors Life Level Premium Variable Life Insurance
(Separate Account B)
(b) The following persons are the officers and directors of the
Underwriter:
Position and Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
- ------------------ --------------------- ------------
Glenn O. Head Chairman President
95 Wall Street and Director and Director
New York, NY 10005
Marvin M. Hecker President None
95 Wall Street
New York, NY 10005
John T. Sullivan Director Chairman of the
95 Wall Street Board of Directors
New York, NY 10005
Roger L. Grayson Director Director
95 Wall Street
New York, NY 10005
<PAGE>
Joseph I. Benedek Treasurer Treasurer
581 Main Street
Woodbridge, NJ 07095
Lawrence A. Fauci Senior Vice President None
95 Wall Street and Director
New York, NY 10005
Kathryn S. Head Vice President Director
581 Main Street and Director
Woodbridge, NJ 07095
Louis Rinaldi Senior Vice None
581 Main Street President
Woodbridge, NJ 07095
Frederick Miller Senior Vice President None
581 Main Street
Woodbridge, NJ 07095
Larry R. Lavoie Secretary and None
95 Wall Street General Counsel
New York, NY 10005
Matthew Smith Vice President None
581 Main Street
Woodbridge, NJ 07095
Jeremiah J. Lyons Director None
56 Weston Avenue
Chatham, NJ 07928
Anne Condon Vice President None
581 Main Street
Woodbridge, NJ 07095
Jane W. Kruzan Director None
232 Adair Street
Decatur, GA 30030
Elizabeth Reilly Vice President None
581 Main Street
Woodbridge, NJ 07095
Robert Flanagan Vice President- None
95 Wall Street Sales Administration
New York, NY 10005
William M. Lipkus Chief Financial Officer None
581 Main Street
Woodbridge, NJ 07095
(c) Not applicable
<PAGE>
Item 30. Location of Accounts and Records
Physical possession of the books, accounts and records of the
Registrant are held by First Investors Management Company, Inc. and its
affiliated companies, First Investors Corporation and Administrative Data
Management Corp., at their corporate headquarters, 95 Wall Street, New York, NY
10005 and administrative offices, 581 Main Street, Woodbridge, NJ 07095, except
for those maintained by the Registrant's Custodian, The Bank of New York, 48
Wall Street, New York, NY 10286.
Item 31. Management Services
Inapplicable
Item 32. Undertakings
The Registrant undertakes to carry out all indemnification provisions
of its Articles of Incorporation, Advisory Agreement and Underwriting Agreement
in accordance with Investment Company Act Release No. 11330 (September 4, 1980)
and successor releases.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions under Item 27 herein, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes to furnish a copy of its latest
annual report to shareholders, upon request and without charge, to each person
to whom a prospectus is delivered.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this Amendment
meets all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this Post-Effective Amendment to
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
15th day of April, 1998.
FIRST INVESTORS INSURED
TAX EXEMPT FUND, INC.
(Registrant)
By: /s/Glenn O. Head
----------------
Glenn O. Head
President and Director
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Amendment to 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 April 15, 1998
- ---------------- Officer and Director
Glenn O. Head
/s/Joseph I. Benedek Principal Financial April 15, 1998
- -------------------- and Accounting Officer
Joseph I. Benedek
* Director April 15, 1998
- --------------------
Kathryn S. Head
* Director April 15, 1998
- --------------------
Roger L. Grayson
* Director April 15, 1998
- --------------------
Herbert Rubinstein
* Director April 15, 1998
- --------------------
Nancy Schaenen
<PAGE>
* Director April 15, 1998
- --------------------
James M. Srygley
* Director April 15, 1998
- --------------------
John T. Sullivan
* Director April 15, 1998
- --------------------
Rex R. Reed
* Director April 15, 1998
- --------------------
Robert F. Wentworth
*By: /s/Larry R. Lavoie
------------------
Larry R. Lavoie
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
99.B10 Opinion of counsel
99.B11 Consent of accountants
99.B16 Performance Calculations
27.001 FDS-Class A Shares
27.002 FDS-Class B Shares
<PAGE>
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Telephone 202-778-9000
April 23, 1998
First Investors Insured Tax Exempt Fund, Inc.
95 Wall Street
New York, NY 10005
Ladies and Gentlemen:
You have requested our opinion, as counsel to First Investors Insured Tax
Exempt Fund, Inc. ("Company"), as to certain matters regarding the issuance of
Shares of the Company. As used in this letter, the term "Shares" means the
Class A and Class B shares of common stock of the Company, during the time that
Post-Effective Amendment No. 31 to the Company's Registration Statement on Form
N-1A ("PEA") is effective and has not been superseded by another post-effective
amendment.
As such counsel, we have examined certified or other copies, believed by us
to be genuine, of the Company's Articles of Incorporation and By-laws and such
resolutions and minutes of the meetings of Company's Board of Directors as we
have deemed relevant to our opinion, as set forth herein. Our opinion is
limited to the laws and facts in existence on the date hereof, and it is further
limited to the laws (other than the conflict of law rules) in the State of
Maryland that in our experience are normally applicable to the issuance of
shares by corporations and to the Securities Act of 1933 ("1933 Act"), the
Investment Company Act of 1940 ("1940 Act") and the regulations of the
Securities and Exchange Commission ("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the
Shares has been duly authorized by the Company and that, when sold in accordance
with the terms contemplated by the PEA, including receipt by the Company of full
payment for the Shares and compliance with the 1933 Act and the 1940 Act, the
Shares will have been validly issued, fully paid and non-assessable.
We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC and to the reference to our
<PAGE>
firm in the prospectus that is being filed as part of the PEA.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Robert J. Zutz
-----------------------
Robert J. Zutz
<PAGE>
Consent of Independent Certified Public Accountants
First Investors Insured Tax Exempt Fund, Inc.
95 Wall Street
New York, New York 10005
We consent to the use in Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A (File No. 2-57473) of our report dated
January 30, 1998 relating to the December 31, 1997 financial statements of First
Investors Insured Tax Exempt Fund, Inc., which are included in said Registration
Statement.
/s/Tait Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 20, 1998
<PAGE>
SEC Standardized Total Returns -- Class A Shares
Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:
Average Annual
Total Return = ((ERV divided by P)/1/n/) - 1
Total Return = ((ERV - P) divided by P
WHERE: ERV = Ending redeemable value of a hypothetical $1,000 investment
made at the beginning of 1, 5, or 10 year periods (or fractional
period thereof.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the standardized
average annual total return and total return for First Investors Insured Tax
Exempt Fund, Inc. (Class A shares) as of December 31, 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
AVE. ANNUAL TOTAL
TOTAL RETURN
ERV P N RETURN
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year: $1,014.60 $1,000.00 1.00 1.46% 1.46%
5 years: $1,255.50 $1,000.00 5.00 4.66% 25.55%
10 years: $1,908.00 $1,000.00 10.00 6.67% 90.80%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NAV Only Total Returns -- Class A Shares
Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:
Average Annual
Total Return = ((ERV divided by P)/1/n/ ) - 1
Total Return = ((ERV - P) divided by P
WHERE: ERV = Ending redeemable value of a hypothetical $1,000 investment
made at the beginning of 1, 5, or 10 year periods (or fractional
period thereof.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the standardized
average annual total return and total return for First Investors Insured Tax
Exempt Fund, Inc. (Class A shares) as of December 31, 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
AVE. ANNUAL TOTAL
TOTAL RETURN
ERV P N RETURN
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year: $1,082.70 $1,000.00 1.00 8.27% 8.27%
5 years: $1,339.50 $1,000.00 5.00 6.02% 33.95%
10 years: $2,014.30 $1,000.00 10.00 7.25% 101.43%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SEC Standardized Total Returns -- Class B Shares
Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:
Average Annual
Total Return = ((ERV divided by P)/1/n/) - 1
Total Return = ((ERV - P) divided by P
WHERE: ERV = Ending redeemable value of a hypothetical $1,000 investment
made at the beginning of 1, 5, or 10 year periods (or fractional
period thereof.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the standardized
average annual total return and total return for First Investors Insured Tax
Exempt Fund, Inc. (Class B shares) as of December 31, 1997.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AVE. ANNUAL TOTAL
TOTAL RETURN
ERV P N RETURN
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year: $1,036.20 $1,000.00 1.00 3.62% 3.62%
Life of fund: $1,224.70 $1,000.00 2.97 7.06% 22.47%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NAV Only Total Returns -- Class B Shares
Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:
Average Annual
Total Return = ((ERV divided by P)/1/n/) - 1
Total Return = ((ERV - P) divided by P
WHERE: ERV = Ending redeemable value of a hypothetical $1,000 investment
made at the beginning of 1, 5, or 10 year periods (or fractional
period thereof.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the standardized
average annual total return and total return for First Investors Insured Tax
Exempt Fund, Inc. (Class B shares) as of December 31, 1997.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AVE. ANNUAL TOTAL TOTAL RETURN
ERV P N RETURN
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year: $1,076.20 $1,000.00 1.00 7.62% 7.62%
Life of fund: $1,254.70 $1,000.00 2.97 7.94% 25.46%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Yields for First Investor's Funds are calculated using the following formula:
2(((((a-b) + ((cd)-e))+1)-)-1)
Where:
a = dividends and interest earned during the 30 day period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
e = undeclared earned income.
The following is a list of the information used to calculate the for First
Investors Insured Tax Exempt Fund, Inc. (Class A shares) as of December 31,
1997.
<TABLE>
<CAPTION>
*Tax
Equivalent
a b c d e Yield Yield
- - - - - ----- ----------
<S> <C> <C> <C> <C> <C> <C>
$4,796,001 $1,079,955 113,929,519 $11.15 $.00 3.54% 5.53%
</TABLE>
*Tax Equivalent Yields are computed assuming a federal tax rate of 28%.
<PAGE>
Yields for First Investor's Funds are calculated using the following formula:
2(((((a-b) + ((cd)-e))+1)-)-1)
Where:
a = dividends and interest earned during the 30 day period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
e = undeclared earned income.
The following is a list of the information used to calculate the for First
Investors Insured Tax Exempt Fund, Inc. (Class B shares) as of December 31,
1997.
<TABLE>
<CAPTION>
*Tax
Equivalent
a b c d e Yield Yield
- - - - - ----- ----------
<S> <C> <C> <C> <C> <C> <C>
$13,849 $5,080 329,003 $10.45 $.00 3.08% 4.81%
</TABLE>
*Tax Equivalent Yields are computed assuming a federal tax rate of 28%.
<PAGE>
$$NOFOLIO
Distribution yields for First Investor's Funds are calculated using the
following formula:
Yield = (a/b)
Where:
a = dividends declared during the last 12 months.
b = Net asset value per share on the last day of the period.
The following is a list of the information used to calculate the distribution
yield for First Investors Insured Tax Exempt Fund, Inc. (Class A shares) as of
December 31, 1997.
<TABLE>
<CAPTION>
Distribution
a b Yield
- - ------
<S> <C> <C>
$.504 $10.45 4.82%
</TABLE>
<PAGE>
Distribution yields for First Investor's Funds are calculated using the
following formula:
Yield = (a/b)
Where:
a = dividends declared during the last 12 months.
b = Maximum offering price per share on the last day of the period.
The following is a list of the information used to calculate the distribution
yield for First Investors Insured Tax Exempt Fund, Inc. (Class A shares) as of
December 31, 1997.
<TABLE>
<CAPTION>
Distribution
a b Yield
- - ------
<S> <C> <C>
$.504 $11.15 4.52%
</TABLE>
<PAGE>
Distribution yields for First Investor's Funds are calculated using the
following formula:
Yield = (a/b)
Where:
a = dividends declared during the last 12 months.
b = Net asset value per share on the last day of the period.
The following is a list of the information used to calculate the distribution
yield for First Investors Insured Tax Exempt Fund, Inc. (Class B shares) as of
December 31, 1997.
<TABLE>
<CAPTION>
Distribution
a b Yield
- - ------
<S> <C> <C>
$.432 $10.45 4.13%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000315177
<NAME> FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1053212
<INVESTMENTS-AT-VALUE> 1175565
<RECEIVABLES> 21777
<ASSETS-OTHER> 1236
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1198578
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3303
<TOTAL-LIABILITIES> 3303
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1077378
<SHARES-COMMON-STOCK> 113997
<SHARES-COMMON-PRIOR> 123579
<ACCUMULATED-NII-CURRENT> 319
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (8121)
<ACCUM-APPREC-OR-DEPREC> 122238
<NET-ASSETS> 1191815
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 72811
<OTHER-INCOME> 0
<EXPENSES-NET> (13667)
<NET-INVESTMENT-INCOME> 59144
<REALIZED-GAINS-CURRENT> 6285
<APPREC-INCREASE-CURRENT> 30422
<NET-CHANGE-FROM-OPS> 95851
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (59425)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2452
<NUMBER-OF-SHARES-REDEEMED> 16510
<SHARES-REINVESTED> 4476
<NET-CHANGE-IN-ASSETS> (60793)
<ACCUMULATED-NII-PRIOR> 601
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14405)
<GROSS-ADVISORY-FEES> (8372)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (13724)
<AVERAGE-NET-ASSETS> 1200480
<PER-SHARE-NAV-BEGIN> 10.14
<PER-SHARE-NII> .500
<PER-SHARE-GAIN-APPREC> .310
<PER-SHARE-DIVIDEND> (.500)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.45
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000315177
<NAME> FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
<SERIES>
<NUMBER> 002
<NAME> CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1053212
<INVESTMENTS-AT-VALUE> 1175565
<RECEIVABLES> 21777
<ASSETS-OTHER> 1236
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1198578
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3303
<TOTAL-LIABILITIES> 3303
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3320
<SHARES-COMMON-STOCK> 331
<SHARES-COMMON-PRIOR> 301
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1)
<ACCUMULATED-NET-GAINS> 25
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 115
<NET-ASSETS> 3460
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 199
<OTHER-INCOME> 0
<EXPENSES-NET> (61)
<NET-INVESTMENT-INCOME> 138
<REALIZED-GAINS-CURRENT> 17
<APPREC-INCREASE-CURRENT> 89
<NET-CHANGE-FROM-OPS> 244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (139)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 77
<NUMBER-OF-SHARES-REDEEMED> 57
<SHARES-REINVESTED> 10
<NET-CHANGE-IN-ASSETS> 414
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 8
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (23)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (61)
<AVERAGE-NET-ASSETS> 3285
<PER-SHARE-NAV-BEGIN> 10.13
<PER-SHARE-NII> .430
<PER-SHARE-GAIN-APPREC> .320
<PER-SHARE-DIVIDEND> (.430)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.45
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
