As filed with the Securities and Exchange Commission on April 27, 2000
1933 Act File No. 2-98409
1940 Act File No. 811-4325
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 27 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27 [X]
FIRST INVESTORS LIFE SERIES FUND
(Exact name of Registrant as specified in charter)
95 Wall Street
New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code): (212) 858-8000
Ms. Concetta Durso
Secretary and Vice President
First Investors Series Fund
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Copy to:
Robert J. Zutz, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 28, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
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FIRST INVESTORS LIFE SERIES FUND
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Prospectus for the First Investors Life Series Fund
Statement of Additional Information for the First Investors
Life Series Fund
Part C of Form N-1A
Signature Page
Exhibits
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[FIRST INVESTORS LOGO]
LIFE SERIES FUND
BLUE CHIP
CASH MANAGEMENT
DISCOVERY
FOCUSED EQUITY
GOVERNMENT
GROWTH
HIGH YIELD
INTERNATIONAL SECURITIES
INVESTMENT GRADE
TARGET MATURITY 2007
TARGET MATURITY 2010
TARGET MATURITY 2015
UTILITIES INCOME
The Securities and Exchange Commission has not approved or disapproved
these securities or 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 28, 2000
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CONTENTS
INTRODUCTION
FUND DESCRIPTIONS
Blue Chip Fund
Cash Management Fund
Discovery Fund
Focused Equity Fund
Government Fund
Growth Fund
High Yield Fund
International Securities Fund
Investment Grade Fund
Target Maturity 2007 Fund
Target Maturity 2010 Fund
Target Maturity 2015 Fund
Utilities Income Fund
FUND MANAGEMENT
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
How do I buy and sell shares?
ACCOUNT POLICIES
What about dividends and capital gain distributions?
What about taxes?
FINANCIAL HIGHLIGHTS
Blue Chip Fund
Cash Management Fund
Discovery Fund
Focused Equity Fund
Government Fund
Growth Fund
High Yield Fund
International Securities Fund
Investment Grade Fund
Target Maturity 2007 Fund
Target Maturity 2010 Fund
Target Maturity 2015 Fund
Utilities Income Fund
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INTRODUCTION
This prospectus describes the First Investors Funds that are used solely as the
underlying investment options for variable annuity contracts or variable life
insurance policies offered by First Investors Life Insurance Company ("FIL").
This means that you cannot purchase shares of the Funds directly, but only
through such a contract or policy offered by FIL. Each individual Fund
description in this prospectus has an "Overview" which provides a brief
explanation of the Fund's objectives, its primary strategies and primary risks
and how it has performed. Each Fund description also contains a "Fund in Detail"
section with more information on the strategies and risks of the Fund.
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BLUE CHIP FUND
OVERVIEW
Objective: The Fund seeks high total investment return consistent
with the preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in the common stocks of large,
well-established companies that are in the Standard and
Poor's 500 Composite Stock Price Index ("S&P 500 Index").
These are defined by the Fund as "Blue Chip" stocks. The
Fund selects stocks that it believes will have earnings
growth in excess of the average company in the S&P 500
Index. While the Fund attempts to diversify its
investments so that its weightings in different industries
are similar to those of the S&P 500 Index, it is not an
index fund and therefore will not necessarily mirror the
S&P 500 Index. The Fund generally stays fully invested in
stocks under all market conditions.
PRIMARY
RISKS: While Blue Chip stocks are regarded as among the most
conservative stocks, like all stocks they fluctuate in
price in response to movements in the overall securities
markets, general economic conditions, and changes in
interest rates or investor sentiment. Fluctuations in the
prices of Blue Chip stocks at times can be substantial.
Accordingly, the value of an investment in the Fund will
go up and down, which means that you could lose money.
An investment in the Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
How has the Blue Chip Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
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The chart below contains the following plot points:
BLUE CHIP
1991 26.17%
1992 6.67%
1993 8.51%
1994 -1.45%
1995 34.00%
1996 21.52%
1997 26.72%
1998 18.66%
1999 25.32%
During the periods shown, the highest quarterly return was 20.03% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -13.16%
(for the quarter ended September 30, 1990). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The following table shows how the average annual total returns for the Blue Chip
Fund's shares compare to those of the S&P 500 Index as of December 31, 1999. The
Fund sells its shares solely to variable annuity and/or variable life insurance
subaccounts at net asset value. The average annual total returns shown for the
Fund's shares do not reflect the fees and charges that an individual would pay
in connection with an investment in a variable annuity contract or variable life
insurance policy. The S&P 500 Index is an unmanaged index consisting of the
stocks of large-sized U.S. and foreign companies. The S&P 500 Index does not
take into account fees and expenses that an investor would incur in holding the
securities in the S&P 500 Index. If it did so, the returns would be lower than
those shown.
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Inception
1 Year* 5 Years* (3/8/90)
Blue Chip Fund 25.32% 25.13% 16.38%
S&P 500 Index 21.04% 28.51% 18.93%
* The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Blue Chip Fund's objective, principal investment strategies,
and principal risks?
OBJECTIVE: The Fund seeks high total investment return consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of large, well-established companies that are in the S&P
500 Index. These are defined by the Fund as "Blue Chip" stocks. The S&P 500
Index consists of both U.S. and foreign corporations.
The Fund uses fundamental research to select stocks of companies with strong
balance sheets, relatively consistent records of achievement, and potential
earnings growth that is greater than that of the average company in the S&P 500
Index. The Fund attempts to stay broadly diversified and sector neutral relative
to the S&P 500 Index, but it may emphasize certain industry sectors based on
economic and market conditions. The Fund intends to remain relatively fully
invested in stocks under all market conditions rather than attempt to time the
market by maintaining large cash or fixed income securities positions when
market declines are anticipated. The Fund usually will sell a stock when the
reason for holding it is no longer valid, it shows deteriorating fundamentals,
or it falls short of the Fund's expectations. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Blue Chip Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While Blue Chip stocks have historically been the
least risky and most liquid stocks, like all stocks they fluctuate in value.
Fluctuations of Blue Chip stocks can be sudden and substantial. Accordingly, the
value of an investment in the Fund will go up and down, which means that you
could lose money.
OTHER RISKS: While the Fund generally attempts to remain sector neutral relative
to the S&P 500 Index, it is not an index fund. The Fund may hold securities
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other than those in the S&P 500 Index, may hold fewer securities than the Index,
and may have sector or industry allocations different from the Index, each of
which could cause the Fund to underperform the Index.
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CASH MANAGEMENT FUND
OVERVIEW
OBJECTIVE: The Fund seeks to earn a high rate of current income consistent
with the preservation of capital and maintenance of liquidity.
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in high-quality money market instruments that the
Fund determines present minimal credit risk. These instruments
include prime commercial paper, variable and floating rate
corporate notes, and short term U.S. government agency obligations.
The Fund's portfolio is managed to meet regulatory requirements
that permit the Fund to maintain a stable net asset value ("NAV")
of $1.00 per share. These regulatory requirements include stringent
credit quality standards on investments, limits on the maturity of
individual investments and the dollar weighted average maturity of
the entire portfolio, and diversification requirements.
PRIMARY
RISKS: While money market funds are designed to be relatively low risk
investments, they are not entirely free of risk. Like all money
market funds, these are the risks of investing in the Fund:
o The Fund's NAV could decline (below $1.00 per share) if there is
a default by an issuer of one of the Fund's investments, a
credit downgrade of one of the Fund's investments, or an
unexpected change in interest rates.
o The Fund's yield will change daily based upon changes in
interest rates and other market conditions.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF AN INVESTMENT AT $1.00 PER SHARE,
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
How has the Cash Management Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the last ten years. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
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The chart below contains the following plot points:
CASH MANAGEMENT
1990 7.49%
1991 5.71%
1992 3.02%
1993 2.70%
1994 3.77%
1995 5.51%
1996 5.00%
1997 5.08%
1998 5.02%
1999 4.67%
During the periods shown, the highest quarterly return was 2.00% (for the
quarter ended June 30, 1990), and the lowest quarterly return was 0.65% (for the
quarter ended June 30, 1993). The Fund's past performance does not necessarily
indicate how the Fund will perform in the future.
The following table shows the average annual total returns for the Cash
Management Fund's shares as of December 31, 1999. The Fund sells its shares
solely to variable annuity and/or variable life insurance subaccounts at net
asset value. The average annual total returns shown for the Fund's shares do not
reflect the fees and charges that an individual would pay in connection with an
investment in a variable annuity contract or variable life insurance policy.
1 Year* 5 Years* 10 Years*
Cash Management Fund 4.67% 5.06% 4.77%
* The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Cash Management Fund's objective, principal investment strategies,
and principal risks?
OBJECTIVE: The Fund seeks to earn a high rate of current income consistent
with the preservation of capital and maintenance of liquidity.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests primarily in high-quality
money market instruments that are determined by the Fund's Adviser to present
minimal credit risk. Some common types of money market instruments are Treasury
bills and notes, which are securities issued by the U.S. government; commercial
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paper, which are promissory notes issued by large companies or financial firms;
banker's acceptances, which are credit instruments guaranteed by a bank;
negotiable certificates of deposit, which are issued by banks in large
denominations; and floating rate notes. The interest rate of a floating rate
instrument is generally based on a known lending rate, such as a bank's prime
rate, and may reset whenever the underlying rate is adjusted, or at specific
intervals.
The Fund's portfolio is managed to meet regulatory requirements that permit the
Fund to maintain a stable NAV of $1.00 per share. These include requirements
relating to the credit quality, maturity, and diversification of the Fund's
investments. For example, to be an eligible investment for the Fund, a security
must have a remaining maturity of 397 calendar days or less. The security must
be rated in one of the two highest credit ratings categories for short-term
securities by at least two nationally recognized statistical rating
organizations (or by one, if only one rating service has rated the security), or
if unrated, be determined by the Fund's Adviser to be of quality equivalent to
those in the two highest credit ratings categories. The Fund must also maintain
a dollar-weighted average portfolio maturity of 90 days or less.
In buying and selling securities, the Fund will consider ratings assigned by
ratings services as well as its own credit analysis. The Fund considers, among
other things, the issuer's earnings and cash flow generating capabilities, the
security's yield and relative value, and the outlook for interest rates and the
economy. In the case of instruments with demand features or credit enhancements,
the Fund considers the financial strength of the party providing the demand
feature or credit enhancement, including any ratings assigned to such party.
Information on the Fund's recent holdings can be found in the most recent annual
report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Cash Management Fund:
INTEREST RATE RISK: Like the values of other debt instruments, the market values
of money market instruments are affected by changes in interest rates. When
interest rates rise, the market values of money market instruments decline, and
when interest rates decline, the market values of money market instruments
increase. The price volatility of money market instruments also depends on their
maturities and durations. Generally, the shorter the maturity and duration of a
money market instrument, the lesser its sensitivity to interest rates.
Interest rate risk also includes the risk that in a declining interest rate
environment the Fund will have to invest the proceeds of maturing investments in
lower-yielding investments. The yields received by the Fund on some of its
investments will also decline as interest rates decline. For example, the Fund
invests in floating rate bonds and notes. When interest rates decline, the
yields paid on these securities may decline.
CREDIT RISK: A money market instrument's credit quality depends upon the
issuer's ability to pay interest on the security and, ultimately, to repay the
principal. The lower the rating by one of the independent bond-rating agencies
(for example, Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group), the greater the chance (in the rating agency's opinion) the security's
issuer will default, or fail to meet its repayment obligations. Direct U.S.
Treasury obligations (securities backed by the U.S. government) carry the
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highest credit ratings. All things being equal, money market instruments with
greater credit risk offer higher yields.
11
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DISCOVERY FUND
OVERVIEW
Objective: The Fund seeks long-term growth of capital, without regard to
dividend or interest income.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in common stocks of companies with small
market capitalizations ("small-cap stocks") which have the
potential for substantial long-term growth. The Fund looks for
companies that are in the early stages of their development, have a
new product or service, are in a position to benefit from some
change in the economy, have new management, or are experiencing
some other "special situation" which makes their stocks
undervalued. Because these companies tend to be smaller, their
growth potential is often greater. While the Fund primarily invests
in U.S. companies, it may invest in stocks of foreign companies.
PRIMARY
RISKS: While the potential long-term rewards of investing in small-cap
stocks are substantial, there are also substantial risks. Small-cap
stocks carry more risk because they are often in the early stages
of development, dependent on a small number of products or
services, lack substantial financial resources, and have less
predictable earnings. Small-cap stocks also tend to be less liquid,
and experience sharper price fluctuations than stocks of companies
with large capitalizations. These fluctuations can be substantial.
Stocks of foreign companies carry additional risks including
currency fluctuations, political instability, government
regulation, unfavorable political or legal developments,
differences in financial reporting standards, and less stringent
regulation of foreign securities markets. Accordingly, the value of
an investment in the Fund will go up and down, which means that you
could lose money.
An investment in the Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
How has the Discovery Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Discovery Fund's shares
from year to year over the last ten years. The bar chart does not reflect fees
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and expenses that may be deducted by the variable annuity contract or variable
life insurance policy through which you invest. If they were included, the
returns would be less than those shown.
The chart below contains the following plot points:
DISCOVERY
1990 -5.47%
1991 51.73%
1992 15.74%
1993 22.20%
1994 -2.53%
1995 25.23%
1996 12.48%
1997 16.84%
1998 3.05%
1999 27.97%
During the periods shown, the highest quarterly return was 26.55% (for the
quarter ended December 31, 1998), and lowest quarterly return was -22.34% (for
the quarter ended September 30, 1998). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The following table shows how the average annual total returns for Discovery
Fund's shares compare to those of the Russell 2000 Index as of December 31,
1999. The Fund sells its shares solely to variable annuity and/or variable life
insurance subaccounts at net asset value. The average annual total returns shown
for the Fund's shares do not reflect the fees and charges that an individual
would pay in connection with an investment in a variable annuity contract or
variable life insurance policy. The Russell 2000 Index is an unmanaged index
generally representative of the U.S. market for small-cap stocks. The Russell
2000 Index does not take into account fees and expenses that an investor would
incur in holding the securities in the Russell 2000 Index. If it did so, the
returns would be lower than those shown.
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1 Year* 5 Years* 10 Years*
Discovery Fund 27.97% 16.76% 15.67%
Russell 2000 Index 21.35% 16.36% 12.24%
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Discovery Fund's objective, principal investment
strategies, and principal risks?
OBJECTIVE: The Fund seeks long-term growth of capital, without regard to
dividend or interest income.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of small-cap companies. The Fund defines small-cap
stocks as those with market capitalizations which fall within the range of those
of companies in the Standard and Poor's 600 Small-Cap Index ("S&P 600 Small-Cap
Index"). (As of December 31, 1999, the market capitalizations of companies in
the S&P 600 Small-Cap Index was between $28 million and $4.1 billion. The market
capitalizations of companies in the S&P 600 Small-Cap Index will change with
market conditions.) The Fund looks for companies that are in the early stages of
their development, have a new product or service, are in a position to benefit
from some change in the economy, have new management, or are experiencing some
other "special situation" which makes their stocks undervalued. Because these
companies tend to be smaller, their growth potential is often greater. While the
Fund primarily invests in U.S. companies, it may invest in stocks of foreign
companies. The Fund's investments in foreign companies are generally limited to
stocks that are dollar-denominated and traded in the U.S.
In selecting stocks, the Fund relies on fundamental research. It considers,
among other things, earnings growth potential, revenue growth potential, cash
flow and tangible book value. The Fund attempts to stay broadly diversified but
it may emphasize certain industry sectors based on economic and market
conditions. The Fund usually will sell a stock when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Discovery Fund:
MARKET RISK: Because this Fund invests in stocks, an investment in the Fund is
subject to stock market risk. Stock prices in general may decline over short or
even extended periods not only because of company-specific developments but also
due to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets and periods when stock prices generally
go down, referred to as "bear" markets. The market risk associated with
small-cap stocks is greater than that associated with larger-cap stocks because
small-cap stocks tend to experience sharper price fluctuations than larger-cap
stocks, particularly during bear markets.
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Small-cap companies are generally dependent on a small number of products or
services, their earnings are less predictable, and their share prices more
volatile. These companies are also more likely to have limited markets or
financial resources, and may depend on a small, inexperienced management group.
LIQUIDITY RISK: Stocks of small-cap companies often are not as broadly traded as
those of larger-cap companies and are often subject to wider price fluctuations.
As a result, at times it may be difficult for the Fund to sell these securities
at a reasonable price.
FOREIGN ISSUERS RISK: Foreign investments involve additional risks, including
currency fluctuations, political instability, government regulation, unfavorable
political or legal developments, differences in financial reporting standards,
and less stringent regulation of foreign securities markets.
OTHER RISKS: While the Fund generally attempts to invest in small-cap stocks
with market capitalizations which fall within the range of those of companies in
the S&P 600 Small-Cap Index, it is not an index fund. The Fund may hold
securities other than those in the S&P 600 Small-Cap Index, may hold fewer
securities than the Index, and may have sector or industry allocations different
from the Index, each of which could cause the Fund to underperform the Index.
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FOCUSED EQUITY FUND
OVERVIEW
OBJECTIVE: The Fund seeks capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: The Fund seeks to achieve its objective by focusing its investments
in the common stocks of approximately 20 to 30 U.S. companies.
Generally, not more than 12% of the Fund's total assets will be
invested in the securities of a single issuer. The Fund uses an
event-driven approach in selecting investments. In making
investment decisions, the Fund looks for companies that appear to
be undervalued because they are undergoing corporate or other
events that appear likely to result in significant growth in the
companies' valuations. The Fund seeks to identify companies with
proven management, superior cash flow and outstanding franchise
values. The Fund usually will sell a stock when it shows
deteriorating fundamentals, reaches its target value, constitutes
12% or more of the total portfolio, or when the Fund identifies
better investment opportunities.
Primary
Risks: While there are substantial potential long-term rewards of
investing in a concentrated portfolio of securities that are
considered undervalued, there are also substantial risks. First,
the value of the portfolio will fluctuate with movements in the
overall securities markets, general economic conditions, and
changes in interest rates or investor sentiment. Second, because
the Fund is non-diversified and concentrates its investments in the
stocks of a small number of issuers, the Fund's performance may be
substantially impacted by the change in value of a single holding.
Third, there is a risk that the event that led the Fund to make an
investment may occur later than anticipated or not at all. This may
disappoint the market and cause a decline in the value of the
investment. Accordingly, the value of an investment in the Fund
will go up and down, which means that you could lose money.
An investment in the Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
What about performance?
Because the Fund commenced operations on November 8, 1999, as of the date of
this prospectus it did not have a full year of performance information
available.
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THE FUND IN DETAIL
What are the Focused Equity Fund's objective, principal investment
strategies, and principal risks?
OBJECTIVE: The Fund seeks capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund seeks to achieve its objective by
focusing its investments in the common stocks of approximately 20 to 30 U.S.
companies. The Fund is a non-diversified investment company. The Fund will
usually concentrate 80% of its portfolio in its top 15 holdings. It will
frequently have more than 10% of its assets in the securities of a single
issuer. Although the Fund is not required to limit the amount of any investment
in the securities of any one issuer, it generally will not invest more than 12%
of its total assets in the securities of a single issuer. The Fund's strategy is
to remain relatively fully invested, but at times the Fund may have cash
positions of 10% or more if the Fund cannot identify qualified investment
opportunities or it has a negative or "bearish" view of the stock market.
However, under normal market conditions, at least 65% of the Fund's total assets
will be invested in equity securities (including not only common stocks, but
preferred stocks and securities convertible into common and preferred stocks).
The Fund uses an event-driven approach in selecting investments. The Fund looks
for companies that appear to be undervalued because they are undergoing some
corporate or other event that the Fund believes can result in significant growth
in the companies' valuations. Examples of these events include: announced
mergers, acquisitions and divestitures; financial restructurings; management
reorganizations; stock buy-back programs; or industry transformations that can
affect competitiveness. The Fund then identifies companies with proven
management teams which maintain significant financial interest in the companies,
superior cash flows in excess of internal growth requirements and outstanding
franchise values. The Fund generally invests with a time horizon of two-to-five
years and seeks investments which offer the potential of appreciating at least
50% within the first two years of the investment.
The Fund actively monitors the companies in its portfolio through regular
meetings and teleconference calls with senior management and personal visits.
The Fund also actively monitors the industries and competitors of the companies
within its portfolio and regularly determines whether the original investment
thesis still holds true. The Fund usually will sell a stock when it shows
deteriorating fundamentals, reaches its target value, constitutes more than 12%
of the total portfolio, or when the Fund identifies better investment
opportunities.
The Fund may purchase and sell futures contracts and options on futures
contracts for hedging purposes. The Fund anticipates engaging in such
transactions relatively infrequently and over relatively short periods of time.
Any hedging strategy that the Fund may decide to employ will generally be
effected by buying puts on the overall market or an index, such as puts on the
Standard & Poor's 500 Composite Stock Price Index.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
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PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Focused Equity Fund:
MARKET RISK: Because the Fund primarily invests in stocks, it is subject to
market risk. Stock prices in general may decline over short or even extended
periods not only due to company specific developments but also due to an
economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets. Fluctuations in the prices of
stocks can be sudden and substantial. Accordingly, the value of your investment
in the Fund will go up and down, which means that you could lose money.
NON-DIVERSIFICATION RISK: The Fund is a non-diversified investment company and,
as such, its assets may be invested in a limited number of issuers. This means
that the Fund's performance may be substantially impacted by the change in value
of even a single holding. The price of a share of the Fund can therefore be
expected to fluctuate more than a comparable diversified fund. Moreover, the
Fund's share price may decline even when the overall market is increasing. An
investment in the Fund therefore may entail greater risks than an investment in
a diversified investment company.
EVENT-DRIVEN STYLE RISK: The event-driven investment approach used by the Fund
carries the additional risk that the event anticipated may occur later than
expected or not at all or may not have the desired effect on the market price of
the security.
FUTURES AND OPTIONS RISKS: The Fund could suffer a loss if it fails to hedge its
portfolio prior to a market decline. Moreover, if the Fund engages in hedging
transactions using futures or options, the Fund could nevertheless suffer a loss
if the hedging is based upon an inaccurate prediction of movements in the
direction of the securities and interest rate markets or the hedging instrument
does not accurately reflect the Fund's portfolio. The Fund may experience
adverse consequences that leave it in a worse position than if such strategies
were not used. As a result, the Fund may not achieve its investment objective.
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<PAGE>
GOVERNMENT FUND
OVERVIEW
OBJECTIVE: The Fund seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in obligations issued or guaranteed as
to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities. The majority of the Fund's
investments consist of mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association, Federal
National Mortgage Association, and Federal Home Loan Mortgage
Corporation. Mortgage-backed securities represent interests in
"pools" of mortgage loans. Because the mortgage-backed securities
purchased by the Fund are generally guaranteed as to the timely
payment of principal and interest to investors in the pools, the
Fund's primary strategies revolve around managing interest rate
risk, prepayment risk, and extension risk. The Fund attempts to
manage these risks by adjusting the duration of its portfolio and
the average coupon rate of its mortgage-backed securities holdings.
PRIMARY
RISKS: While mortgage-backed securities are guaranteed in varying degrees
as to payment of principal and interest, this guarantee does not
apply in any way to the market prices of these securities or the
Fund's share price, both of which will fluctuate. There are three
main risks of investing in the Fund: interest rate risk, prepayment
risk, and extension risk. When interest rates rise, the
mortgage-backed securities held by the Fund tend to decline in
price, and when interest rates fall, they tend to increase in
price. This is interest rate risk. When interest rates fall,
homeowners also tend to refinance their mortgages. When this
occurs, the Fund loses the benefit of higher yielding mortgages and
must reinvest in lower interest rate mortgages. This is prepayment
risk. Extension risk is the flip side of prepayment risk. Rising
interest rates can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This will
increase both the Fund's sensitivity to rising interest rates and
its potential for price declines. The Fund may, at times, engage in
short-term trading, which could produce higher brokerage costs and
taxable distributions and may result in a lower total return for
the Fund. Accordingly, the value of an investment in the Fund as
well as the dividends you receive will go up and down, which means
that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
19
<PAGE>
How has the Government Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Government Fund's shares
from year to year over the life of the Fund. The bar chart does not reflect fees
and expenses that may be deducted by the variable annuity contract or variable
life insurance policy through which you invest. If they were included, the
returns would be less than those shown.
The chart below contains the following plot points:
GOVERNMENT
1993 6.35%
1994 -4.10%
1995 15.63%
1996 3.59%
1997 8.61%
1998 7.54%
1999 1.05%
During the periods shown, the highest quarterly return was 5.50% (for the
quarter ended June 30, 1995), and the lowest quarterly return was -3.21% (for
the quarter ended March 31, 1994). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
20
<PAGE>
The following table shows how the average annual total returns for Government
Fund's shares compare to those of the Salomon Brothers Mortgage Index ("Mortgage
Index") and the Salomon Brothers Government Index ("Government Index") as of
December 31, 1999. The Fund sells its shares solely to variable annuity and/or
variable life insurance subaccounts at net asset value. The average annual total
returns shown for the Fund's shares do not reflect the fees and charges that an
individual would pay in connection with an investment in a variable annuity
contract or variable life insurance policy. The Mortgage Index is a market
capitalization-weighted index that consists of all agency pass-throughs and
Federal Housing Administration ("FHA") and Government National Mortgage
Association project notes. The Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S. Treasury
and U.S. Government sponsored agencies. The Indexes do not take into account
fees and expenses that an investor would incur in holding the securities in the
Indexes. If they did so, the returns would be lower than those shown.
Inception
1 Year* 5 Years* (1/7/92)
Government Fund 1.05% 7.17% 5.92%
Mortgage Index 1.83% 7.93% 6.68%**
Government Index (2.23)% 7.49% 6.65%**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 12/31/91 to 12/31/99.
THE FUND IN DETAIL
What are the Government Fund's objective, principal investment
strategies, and principal risks?
OBJECTIVE: The Fund seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in obligations issued or guaranteed as to payment of principal and
interest by the U.S. Government, its agencies or instrumentalities. The majority
of the Fund's investments consist of mortgage-backed securities. Mortgage-backed
securities represent interests in pools of mortgages. The principal and interest
from the underlying mortgages are passed through to investors in the pools. Some
pools are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some pools are supported by the right of the issuer to
borrow from the U.S. Treasury under certain circumstances, such as Federal
National Mortgage Association bonds (called "Fannie Maes"). Other pools are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations (called "Freddie Macs"). The Fund
also invests in U.S. Treasury securities and securities issued by U.S. agencies,
such as the Tennessee Valley Authority.
The Fund's primary investment strategies revolve around managing interest rate
risk, prepayment risk, and extension risk. Interest rate risk is managed by
adjusting the duration of the securities owned by the Fund. Duration is a
measurement of a bond's sensitivity to changes in interest rates that takes into
consideration not only the maturity of the bond but also the time value of money
21
<PAGE>
that will be received from the bond over its life. The Fund will generally
adjust duration by buying or selling U.S. Treasury securities. For example, if
the Fund believes that interest rates are likely to rise, it will generally
attempt to reduce its duration by purchasing U.S. Treasury securities with
shorter maturities or selling U.S. Treasury securities with longer maturities.
Prepayment risk and extension risk are managed by adjusting the composition of
the Fund's holdings. For example, if interest rates appear likely to decline,
the Fund may attempt to reduce prepayment risk by buying mortgage-backed
securities with lower coupons. Conversely, if interest rates appear likely to
increase, the Fund may reduce extension risk by purchasing mortgage-backed
securities with higher coupons.
The Fund uses a "top-down" approach in making investment decisions based on
interest rate, economic and market conditions. In selecting investments, the
Fund considers coupon and yield, relative value and weighted average maturity of
the pool. The Fund will usually sell an investment when there are changes in the
interest rate environment that are adverse to the investment or if it fails to
meet the expectations of the portfolio manager. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Government Fund:
INTEREST RATE RISK: All of the securities held by the Fund are subject to
interest rate risk. In general, the market prices of bonds rise when interest
rates fall, and fall when interest rates rise. Short-term interest rates and
long-term interest rates do not necessarily move in the same direction or in the
same amounts. Bonds with longer maturities tend to be more sensitive to interest
rate changes than those with shorter maturities.
PREPAYMENT RISK: Because the Fund invests primarily in mortgage-backed
securities, it is subject to prepayment risk. When interest rates decline,
homeowners tend to refinance their mortgages. When this occurs, investors in
pools suffer a higher rate of prepayment. As a result, investors in pools not
only lose the benefit of the higher yielding underlying mortgages that are being
prepaid but they must reinvest the proceeds at lower interest rates. This could
cause a decrease in the Fund's income and share price.
EXTENSION RISK: Extension risk is the flip side of prepayment risk. Rising
interest rates can cause the Fund's average maturity to lengthen unexpectedly
due to a drop in mortgage prepayments. This will increase both the Fund's
sensitivity to rising interest rates and its potential for price declines.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. There is some credit risk associated with the
Fund's investments; however, it is perceived to be minimal. Most of the
securities owned by the Fund are backed by the full faith and credit of the U.S.
Government, the ability to borrow from the U.S. Treasury, or the perceived moral
obligation of the U.S. Government.
22
<PAGE>
FREQUENT TRADING RISK: The Fund may, at times, engage in short-term trading,
which could produce higher brokerage costs and taxable distributions and may
result in a lower total return for the Fund.
23
<PAGE>
GROWTH FUND
OVERVIEW
OBJECTIVE: The Fund seeks long-term capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: Under normal circumstances, the Fund will remain fully invested in
equity securities, with most of its holdings in U.S. common stocks.
The Fund seeks to invest in seasoned companies with proven track
records and above-average earnings growth. The Fund invests
predominantly in larger companies, but will also attempt to enhance
its return by investing in mid-sized and smaller companies that the
Fund's investment subadviser believes have attractive growth
potential.
PRIMARY
RISKS: Like all stocks, growth stocks fluctuate in price in response to
movements in the overall securities markets, general economic
conditions, changes in interest rates, company-specific
developments and other factors. Mid-cap stocks tend to experience
sharper price fluctuations than stocks of large-cap companies. To
the extent that the Fund decides to invest in small-cap companies,
the risk of price fluctuations is even greater. Fluctuations in the
prices of the stocks held by the Fund at times can be substantial.
Accordingly, the value of an investment in the Fund will go up and
down, which means that you could lose money.
An investment in the Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
How has the Growth Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Growth Fund's shares for
each of the last ten calendar years. The bar chart does not reflect fees and
expenses that may be deducted by the variable annuity contract or variable life
insurance policy through which you invest. If they were included, the returns
would be less than those shown.
24
<PAGE>
GROWTH
The chart below contains the following plot points:
1990 -2.99%
1991 34.68%
1992 9.78%
1993 6.00%
1994 -2.87%
1995 25.12%
1996 24.45%
1997 29.28%
1998 27.35%
1999 26.47%
During the periods shown, the highest quarterly return was 23.98% (for the
quarter ended December 31, 1998), and the lowest quarterly return was -15.45%
(for the quarter ended September 30, 1990). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The following table shows how the average annual total returns for the Fund's
shares compare to those of the S&P 500 Index as of December 31, 1999. The Fund
sells its shares solely to variable annuity and/or variable life insurance
subaccounts at net asset value. The average annual total returns shown for the
Fund's shares do not reflect the fees and charges that an individual would pay
in connection with an investment in a variable annuity contract or variable life
insurance policy. The S&P 500 Index is an unmanaged index consisting of the
stocks of large-sized U.S. and foreign companies. The S&P 500 Index does not
take into account fees and expenses that an investor would incur in holding the
securities in the S&P 500 Index. If it did so, the returns would be lower than
those shown.
25
<PAGE>
1 Year* 5 Years* 10 Years*
Growth Fund 26.47% 26.52% 16.95%
S&P 500 Index 21.04% 28.51% 18.19%
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Growth Fund's objectives, principal investment
strategies, and principal risks?
OBJECTIVES: The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: Under normal circumstances, the Fund will
remain fully invested in equity securities, with most of its holdings in U.S.
common stocks. The Fund will also invest in foreign companies whose stocks are
denominated in U.S. dollars and listed and traded on a U.S. securities exchange,
either directly or through Depository Receipts. The Fund favors stocks of
seasoned companies with proven records and above-average earnings growth, and
stocks of companies with outstanding growth records and potential. The Fund
invests predominantly in larger companies, but will also attempt to enhance its
return by investing in mid-sized and smaller companies that the investment
subadviser believes have attractive growth potential. The Fund will typically
invest in most major sectors of the economy and therefore the Fund's investments
will be widely diversified by company and industry. The Fund may invest up to
25% of its assets in certain industry sectors based on economic and market
conditions.
The Fund uses fundamental research and analysis to identify prospective
investments. The Fund looks to identify industry leaders and those companies
which are leaders in industry niches. Research is focused on companies with a
proven record of sales and earnings growth, profitability, and cash flow
generation. Security selection is based on any one or more of the following
characteristics: (1) accelerating earnings growth and the possibility of
positive earnings surprises; (2) strong possibility of price to earnings
multiple expansion (or increases in other similar valuation measures); (3)
hidden or unappreciated value; or (4) improving company and/or industry outlook.
Every company in the portfolio is monitored to ensure its fundamental
attractiveness. A stock may be sold if (1) its downside risk equals or exceeds
its upside potential; (2) it suffers from a decreasing trend of earnings growth
or suffers an earnings disappointment; (3) it experiences excessive valuations;
or (4) there is a deteriorating company and/or industry outlook.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Growth Fund:
26
<PAGE>
MARKET RISK: Because the Fund invests in stocks, an investment in the Fund is
subject to stock market risk. Stock prices in general may decline over short or
even extended periods not only because of company-specific developments but also
due to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets and periods when stock prices generally
go down, referred to as "bear" markets.
The market risk associated with mid-cap and small-cap stocks is generally
greater than that associated with large-cap stocks because mid-cap and small-cap
stocks tend to experience sharper price fluctuations than large-cap stocks,
particularly during bear markets. Their earnings tend to be less predictable
than those of larger, more established companies. The prices of these stocks can
also be influenced by the anticipation of future products and services which, if
delayed, could cause the prices to drop. Fluctuation in prices of stocks can be
sudden and substantial. Accordingly, the value of an investment in the Fund will
go up and down, which means that you could lose money.
LIQUIDITY RISK: The risk that certain securities may be difficult or impossible
to sell at the same time and the price that the seller would like. For example,
stocks of small-cap companies often are not as broadly traded as those of
larger-cap companies and are often subject to wider price fluctuations. As a
result, at times it may be difficult for the Fund to sell these securities at a
reasonable price.
27
<PAGE>
HIGH YIELD FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks high current income and secondarily seeks
capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in a diversified portfolio of
high-yield, below-investment grade corporate bonds (commonly known
as "junk bonds"). These bonds provide a higher level of income than
investment grade bonds because they have a higher risk of default.
The Fund seeks to reduce the risk of a default by selecting bonds
through careful credit research and analysis. The Fund seeks to
reduce the impact of a potential default by diversifying its
investments among bonds of many different companies and industries.
While the Fund invests primarily in domestic companies, it also
invests in securities of issuers domiciled in foreign countries.
These securities will generally be dollar-denominated and traded in
the U.S. The Fund seeks to achieve capital appreciation by
investing in high-yield bonds with stable to improving credit
conditions.
PRIMARY
RISKS: There are four primary risks of investing in the Fund. First, the
value of the Fund's shares could decline as a result of a
deterioration of the financial condition of an issuer of bonds
owned by the Fund or as a result of a default by the issuer. This
is known as credit risk. High-yield bonds carry higher credit risks
than investment grade bonds because the companies that issue them
are not as strong financially as companies with investment grade
credit ratings. High-yield bonds issued by foreign companies are
subject to additional risks including currency fluctuations,
political instability, government regulation, unfavorable political
or legal developments, differences in financial reporting standards
and less stringent regulation of foreign markets. Second, the value
of the Fund's shares could decline if the entire high-yield bond
market were to decline, even if none of the Fund's bond holdings
were at risk of a default. The high-yield market can experience
sharp declines at times as the result of a deterioration in the
overall economy, declines in the stock market, a change of investor
tolerance for risk, or other factors. Third, high-yield bonds tend
to be less liquid than other bonds, which means that they are more
difficult to sell. Fourth, while high-yield bonds are generally
less interest rate sensitive than higher-quality bonds, their
values generally will decline when interest rates rise.
Fluctuations in the prices of high-yield bonds can be substantial.
Accordingly, the value of an investment in the Fund will go up and
down, which means that you could lose money.
28
<PAGE>
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
How has the High Yield Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the High Yield Fund's shares
for each of the last ten calendar years. The bar chart does not reflect fees and
expenses that may be deducted by the variable annuity contract or variable life
insurance policy through which you invest. If they were included, the returns
would be less than those shown.
The chart below contains the following plot points:
HIGH YIELD
1990 -5.77%
1991 33.96%
1992 13.15%
1993 18.16%
1994 -1.56%
1995 19.82%
1996 12.56%
1997 12.47%
1998 3.15%
1999 4.95%
During the periods shown, the highest quarterly return was 11.16% (for the
quarter ended March 31, 1991), and the lowest quarterly return was -8.11% (for
the quarter ended September 30, 1990). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
29
<PAGE>
The following table shows how the average annual total returns for the High
Yield Fund's shares compare to those of the Credit Suisse First Boston High
Yield Index ("High Yield Index") as of December 31, 1999. The Fund sells its
shares solely to variable annuity and/or variable life insurance subaccounts at
net asset value. The average annual total returns shown for the Fund's shares do
not reflect the fees and charges that an individual would pay in connection with
an investment in a variable annuity contract or variable life insurance policy.
The High Yield Index is designed to measure the performance of the high yield
bond market. The High Yield Index does not take into account fees and expenses
that an investor would incur in holding the securities in the Index. If it did
so, the returns would be lower than those shown.
1 Year* 5 Years* 10 Years*
High Yield Fund 4.95% 10.43% 10.42%
High Yield Index 2.26% 8.86% 10.95%
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the High Yield Fund's objectives, principal investment
strategies, and principal risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily seeks
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in a diversified portfolio of high-yield, below-investment grade
corporate bonds commonly known as "junk bonds" (those rated below Baa by Moody's
Investors Service, Inc. or below BBB by Standard & Poor's Ratings Group).
High-yield bonds generally provide higher income than investment grade bonds to
compensate investors for their higher risk of default (i.e., failure to make
required interest or principal payments). High-yield bond issuers include small
or relatively new companies lacking the history or capital to merit investment
grade status, former Blue Chip companies downgraded because of financial
problems, companies using debt rather than equity to fund capital investment or
spending programs, companies electing to borrow heavily to finance or avoid a
takeover or buyout, and firms with heavy debt loads. The Fund's portfolio may
include zero coupon bonds and pay in kind bonds. While the Fund invests
primarily in domestic companies, it also invests in securities of issuers
domiciled in foreign countries. These securities will generally be
dollar-denominated and traded in the U.S. The Fund seeks to reduce the risk of a
default by selecting bonds through careful credit research and analysis. The
Fund seeks to reduce the impact of a potential default by diversifying its
investments among bonds of many different companies and industries.
To achieve its secondary objective of capital appreciation, the Fund attempts to
invest in bonds that have stable to improving credit quality that could
appreciate in value because of a credit rating upgrade or an improvement in the
outlook for a particular company, industry or the economy as a whole.
Although the Fund will consider ratings assigned by ratings agencies in
selecting high-yield bonds, it relies principally on its own research and
30
<PAGE>
investment analysis. The Fund considers a variety of factors, including the
issuer's managerial strength, anticipated cash flow, debt maturity schedules,
borrowing requirements, interest or dividend coverage, asset coverage and
earnings prospects. The Fund will usually sell a bond when it shows
deteriorating fundamentals or falls short of the portfolio manager's
expectations. Information on the Fund's recent strategies and holdings can be
found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the High Yield Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High-yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds.
While credit ratings may be available to assist in evaluating an issuer's credit
quality, they may not accurately predict an issuer's ability to make timely
payments of principal and interest.
MARKET RISK: The entire junk bond market can experience sharp price swings due
to a variety of factors, including changes in economic forecasts, stock market
volatility, large sustained sales of junk bonds by major investors, high-profile
defaults, or changes in the market's psychology. This degree of volatility in
the high-yield market is usually associated more with stocks than bonds. The
prices of high-yield bonds held by the Fund could therefore decline, regardless
of the financial condition of the issuers of such bonds. Markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when prices generally go down, referred to as "bear" markets.
LIQUIDITY RISK: High-yield bonds tend to be less liquid than higher quality
bonds, meaning that it may be difficult to sell high-yield bonds at a reasonable
price, particularly if there is a deterioration in the economy or in the
financial prospects of their issuers. As a result, the prices of high-yield
bonds may be subject to wide price fluctuations due to liquidity concerns.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
and when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
FOREIGN ISSUERS RISK: Foreign investments involve additional risks, including
currency fluctuations, political instability, government regulation, unfavorable
political or legal developments, differences in financial reporting standards,
and less stringent regulation of foreign securities markets.
31
<PAGE>
INTERNATIONAL SECURITIES FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks long-term capital growth and secondarily a
reasonable level of current income.
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in a diversified portfolio of common stocks (and
other equity securities) of companies which are located throughout
the world, including the United States. The Fund primarily invests
in large or medium capitalization stocks which are traded in larger
and more established markets throughout the world. The Fund also
invests opportunistically in smaller capitalization stocks and
stocks of smaller, less-developed or emerging markets. The Fund
generally does not attempt to hedge its foreign securities
investments against currency rate fluctuations. To a limited
extent, the Fund uses stock index futures contracts and options
thereon as temporary substitutes for purchases of foreign stocks
and to adjust country weightings.
PRIMARY
RISKS: All stocks fluctuate in price in response to movements in the
overall securities markets, general economic conditions, and
changes in interest rates or investor sentiment. The risks of
investing in a stock fund that invests in foreign stocks are
accentuated because investments in foreign stocks, particularly
emerging markets, can decline in value because of declines in the
values of local currencies, irrespective of how well the companies
that issue such stocks are doing; there is less supervision and
regulation of foreign securities markets; foreign securities
markets are generally less liquid than U.S. markets; there may be
less financial information available on certain foreign companies;
and there may be political instability in some countries in which
the Fund may invest. Fluctuations in the prices of foreign stocks
can be especially sudden and substantial. Stocks with smaller
market capitalizations tend to experience sharper price
fluctuations. Using stock index futures and options thereon as
temporary substitutes for foreign stocks carries similar risks as
direct ownership of all of the stocks in the index. Accordingly,
the value of an investment in the Fund will go up and down, which
means that you could lose money.
An investment in the Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
How has the International Securities Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
32
<PAGE>
The bar chart shows changes in the performance of the International Securities
Fund's shares from year to year over the life of the Fund. The bar chart does
not reflect fees and expenses that may be deducted by the variable annuity
contract or variable life insurance policy through which you invest. If they
were included, the returns would be less than those shown.
The chart below contains the following plot points:
International Securities
1991 15.24%
1992 -1.13%
1993 22.17%
1994 -1.29%
1995 18.70%
1996 15.23%
1997 9.09%
1998 18.18%
1999 31.46%
During the periods shown, the highest quarterly return was 19.51% (for the
quarter ended December 31, 1999), and the lowest quarterly return was -14.92%
(for the quarter ended September 30, 1998). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The following table shows how the average annual total returns for the
International Securities Fund's shares compare to those of the Morgan Stanley
Capital International All Country World Free Index ("MSCI All Country Index") as
of December 31, 1999. The Fund sells its shares solely to variable annuity
and/or variable life insurance subaccounts at net asset value. The average
annual total returns shown for the Fund's shares do not reflect the fees and
charges that an individual would pay in connection with an investment in a
variable annuity contract or variable life insurance policy. The MSCI All
Country Index is designed to measure the performance of stock markets in the
United States, Europe, Canada, Australia, New Zealand and the developed and
33
<PAGE>
emerging markets of Eastern Europe, Latin America, Asia and the Far East. The
index consists of approximately 60% of the aggregate market value of the covered
stock exchanges and is calculated to exclude companies and share classes which
cannot be freely purchased by foreigners. The MSCI All Country Index does not
take into account fees and expenses that an investor would incur in holding the
securities in the index. If it did so, the returns would be lower than those
shown.
Inception
1 Year* 5 Years* (4/16/90)
International Securities
Fund 31.46% 18.31% 13.09%
MSCI All Country Index 26.82% 19.18% 14.07%**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 4/30/90 to 12/31/99.
THE FUND IN DETAIL
What are the International Securities Fund's objectives, principal investment
strategies, and principal risks?
OBJECTIVES: The Fund primarily seeks long-term capital growth and secondarily a
reasonable level of current income.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests in a diversified portfolio of
common stocks of companies which are located throughout the world, including the
United States ("U.S."). Under normal market conditions, the Fund attempts to
maintain broad country diversification. The Fund has a fundamental policy (which
may only be changed by shareholder vote) to invest no more than 35% of its total
assets in securities of U.S. companies, obligations of the U.S. government, its
agencies and instrumentalities, and cash or cash equivalents denominated in U.S.
dollars. The foreign stocks that the Fund purchases are typically denominated in
foreign currencies. The Fund generally does not hedge against fluctuations in
the value of foreign currencies.
The Fund invests primarily in stocks of companies which are considered large to
medium in size (as measured by market capitalization). The Fund may also invest
in smaller companies when management views them as attractive alternatives to
the stocks of larger or more established companies. The Fund will make direct
investments in foreign issuers by purchasing securities traded in a foreign
market, as well as indirect investments through purchases of Depository
Receipts, such as American Depository Receipts and Global Depository Receipts.
The Fund invests primarily in stocks which trade in larger and more established
markets, but also may invest (to a lesser degree) in smaller, less-developed or
emerging markets where management believes there is significant opportunity for
growth of capital. The status of markets as "smaller," "less-developed" or
"emerging" may change over time as a result of developments in national or
regional economies and capital markets. Within emerging markets, the Fund seeks
to participate in the more established markets which management believes provide
sufficient liquidity.
34
<PAGE>
The Fund also uses stock index futures contracts and options thereon as
temporary substitutes for purchases of foreign stocks. This practice can afford
a hedge against not participating in an advance in a country at a time when the
Fund is not fully invested in the country. Stock index futures contracts and
options thereon are also used to maintain desired country exposures. The Fund
will not invest more than 5% of its assets in stock index futures or options
thereon.
The Fund uses fundamental research and analysis to identify prospective
investments. Security selection is based on any one or more of the following
characteristics: (1) accelerating earnings growth or the possibility of positive
earnings surprises; (2) strong possibility of price-to-earnings multiple
expansion (or increases in other similar valuation measures); (3) hidden or
unappreciated value; or (4) improving local market and/or industry outlook.
Once the best purchase candidates for the Fund are identified, the portfolio
construction process begins. In this phase, many factors are considered in
creating a total portfolio of securities for the Fund, including: (1) regional
and country weightings; (2) currency exposure; (3) industry and sector
allocation; and (4) exposure to a number of other factors, such as interest
rates or company size.
Every company in the portfolio is monitored to ensure its fundamental
attractiveness. A stock may be sold if: (1) its downside risk equals or exceeds
its upside potential; (2) it suffers from a decreasing trend of earnings growth
or suffers an earnings disappointment; (3) it experiences excessive valuations;
or (4) there is a deteriorating local market and/or industry outlook.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the International Securities Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles, with periods when prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets.
While the Fund's strategy of being globally diversified may help to reduce the
volatility or variability of the Fund's returns relative to another global fund
which invests in fewer stocks or whose investments are focused in fewer
countries or industry sectors, this strategy may not prevent a loss to the Fund
if stock markets worldwide were to decline at the same time, or if a particular
country where the Fund is significantly invested experiences a significant
decline. Fluctuations of stock prices can be sudden and substantial.
Accordingly, the value of an investment in the Fund will go up and down, which
means that you could lose money.
FOREIGN SECURITIES RISK: Investments in foreign securities or foreign markets
involve special risks and considerations. Some of these factors are also present
when investing in the United States but are heightened issues when investing in
35
<PAGE>
non-U.S. markets and especially emerging markets. For example, such risks and
considerations may include political and economic instability, nationalization,
confiscatory taxation, differing accounting and financial reporting standards,
the inability to obtain reliable financial information regarding a company's
balance sheet and operations. In addition, international investors may
experience higher commission rates on foreign portfolio transactions, potential
adverse changes in tax and exchange control regulations, and the potential for
restrictions on the flow of international capital. Many foreign countries impose
withholding taxes on income from investments in such countries, which a
portfolio may not recover. Also, fluctuations in the exchange rates between the
US dollar and foreign currencies may have a negative impact on investments
denominated in foreign currencies, for example, by eroding or reversing gains or
widening losses from those investments. Using stock index futures and options
thereon as temporary substitutes for foreign stocks carries similar risks as
direct ownership of all of the stocks in the index.
LIQUIDITY RISK: Liquidity risk is the risk that certain securities may be
difficult or impossible to sell at the time and the price that the seller would
like. In such a situation, the seller may have to lower the price, sell other
securities instead, or forego an investment opportunity, any of which could have
a negative effect on fund management or performance.
SMALL-CAP AND MID-CAP RISK: The market risk associated with small-to mid-cap
stocks is greater than that associated with larger-cap stocks because small-to
mid-cap stocks tend to experience sharper price fluctuations than larger-cap
stocks, particularly during bear markets. Small-to mid-cap companies are
generally dependent on a smaller number of products or services, their earnings
are less predictable, and their share prices more volatile. These companies are
also more likely to have limited markets or financial resources, or to depend on
a small, inexperienced management group.
36
<PAGE>
INVESTMENT GRADE FUND
OVERVIEW
OBJECTIVE: The Fund seeks to generate a maximum level of income consistent
with investment in investment grade debt securities.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in corporate bonds of U.S. companies
that are rated in one of the four highest ratings categories by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Ratings Group ("S&P"). Such bonds are generally called "investment
grade bonds." Investment grade bonds offer higher yields than
Treasury securities of comparable maturities to compensate
investors for the risk of default. While the Fund primarily invests
in investment grade bonds, it may also invest to a limited extent
in high yield, below investment grade bonds (commonly called "high
yield bonds" or "junk bonds"). The Fund's investments will
generally be in bonds of U.S. companies, but may include bonds of
foreign companies. The Fund's investments in foreign companies are
generally limited to bonds that are dollar-denominated and traded
in the U.S. (commonly called "Yankee bonds").
The Fund selects bonds primarily on the basis of its own research
and investment analysis. The Fund also takes economic and interest
rate outlooks into consideration when selecting investments.
PRIMARY
RISKS: There are two main risks of investing in the Fund: credit risk and
interest rate risk. The Fund's share price will decline if one or
more of its bond holdings is downgraded in rating, or one or more
issuers suffers a default, or there is a concern about credit
downgrades or defaults in general as a result of a deterioration in
the economy as a whole. The Fund's share price will also decline as
interest rates rise. Like all bonds, investment grade bonds tend to
rise in price when interest rates decline, and decline in price
when interest rates rise. High yield bonds are subject to greater
credit risk but slightly less interest rate risk than investment
grade bonds. High yield bonds are also subject to greater market
fluctuations. Accordingly, the value of an investment in the Fund
will go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
How has the Investment Grade Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
37
<PAGE>
The bar chart shows changes in the performance of the Investment Grade Fund's
shares from year to year over the life of the Fund. The bar chart does not
reflect fees and expenses that may be deducted by the variable annuity contract
or variable life insurance policy through which you invest. If they were
included, the returns would be less than those shown.
The chart below contains the following plot points:
INVESTMENT GRADE
1993 10.93%
1994 -3.53%
1995 19.69%
1996 2.84%
1997 9.81%
1998 9.15%
1999 -2.53%
During the periods shown, the highest quarterly return was 6.50% (for the
quarter ended June 30, 1995), and the lowest quarterly return was -3.57% (for
the quarter ended March 31, 1994). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The following table shows how the average annual total returns for the
Investment Grade Fund's shares compare to those of the Lehman Brothers Corporate
Bond Index ("Corporate Bond Index") as of December 31, 1999. The Fund sells its
shares solely to variable annuity and/or variable life insurance subaccounts at
net asset value. The average annual total returns shown for the Fund's shares do
not reflect the fees and charges that an individual would pay in connection with
an investment in a variable annuity contract or variable life insurance policy.
The Corporate Bond Index includes all publicly issued, fixed rate,
nonconvertible investment grade dollar-denominated, corporate debt which have at
least one year to maturity and an outstanding par value of at least $100
million. The Corporate Bond Index does not take into account fees and expenses
that an investor would incur in holding the securities in the Corporate Bond
Index. If it did so, the returns would be lower than those shown.
38
<PAGE>
Inception
1 Year* 5 Years* (1/7/92)
Investment Grade Fund (2.53)% 7.54% 6.65%
Corporate Bond Index (1.96)% 8.18% 7.14%**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 12/31/91 to 12/31/99.
THE FUND IN DETAIL
What are the Investment Grade Fund's objective, principal investment
strategies, and principal risks?
OBJECTIVE: The Fund seeks to generate a maximum level of income consistent
with investment in investment grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in corporate bonds of companies that are rated investment grade by
Moody's or S&P ("investment grade bonds"). These are bonds that are rated among
the four highest ratings categories by Moody's or S&P. Investment grade bonds
generally offer higher yields than Treasury securities of comparable maturities
to compensate investors for the risk of default. While the Fund primarily
invests in investment grade bonds, it may invest up to 10% of its total assets
in high yield, below investment grade bonds. The Fund's investments will
generally be in bonds of U.S. companies, but may include bonds of foreign
companies. The Fund's investments in foreign companies are generally limited to
Yankee bonds. The Fund's investments in Yankee bonds are limited to 10% of its
total assets.
Although the Fund may diversify among the four investment grade ratings, it may
emphasize bonds with higher ratings at times when the economy appears to be
weakening and bonds with lower ratings when the economy appears to be improving.
The Fund adjusts the average weighted maturity of the bonds in its portfolio
based on its interest rate outlook. If it believes that interest rates are
likely to fall, it will attempt to buy bonds with longer maturities or sell
bonds with shorter maturities. By contrast, if it believes interest rates are
likely to rise, it will attempt to buy bonds with shorter maturities or sell
bonds with longer maturities. The Fund also attempts to stay broadly
diversified, but it may emphasize certain industry sectors based on the outlook
for interest rates, economic forecasts, and market conditions. The Fund may buy
or sell Treasury securities instead of investment grade corporate bonds to
adjust the Fund's average weighted maturity.
Although the Fund will consider ratings assigned by ratings services in
selecting investments, it relies principally on its own research and investment
analysis. The Fund considers, among other things, the issuer's earnings and cash
flow generating capabilities, asset quality, debt levels, and management
strength. The Fund will not necessarily sell an investment if its rating is
reduced. The Fund usually will sell a bond when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
39
<PAGE>
PRINCIPAL RISKs: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Investment Grade Fund:
CREDIT RISk: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds,
but BBB-rated bonds may have speculative characteristics as well. While credit
ratings may be available to assist in evaluating an issuer's credit quality,
they may not accurately predict an issuer's ability to make timely payment of
principal and interest.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
and when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
LIQUIDITY RISK: High yield bonds tend to be less liquid than higher quality
bonds, meaning that it may be difficult to sell high yield bonds at reasonable
prices, particularly if there is a deterioration in the economy or in the
financial prospects of their issuers. As a result, the prices of high yield
bonds may be subject to wide price fluctuations due to liquidity concerns.
FOREIGN ISSUERS RISK: Foreign investments involve additional risks, including
currency fluctuations, political instability, government regulation, unfavorable
political or legal developments, differences in financial reporting standards,
and less stringent regulation of foreign securities markets.
40
<PAGE>
TARGET MATURITY 2007 FUND
OVERVIEW
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's maturity,
consistent with preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in non-callable zero coupon bonds issued
or guaranteed by the U.S. government, its agencies or
instrumentalities, that mature on or around the maturity date of
the Fund. The Fund will mature and terminate at the end of the year
2007. The Fund generally follows a buy and hold strategy, but may
sell an investment when the Fund identifies an opportunity to
increase its yield or it needs cash to meet redemptions.
PRIMARY
RISKS: If an investment in the Fund is sold prior to the Fund's maturity,
there is substantial interest rate risk. Like other bonds, zero
coupon bonds are sensitive to changes in interest rates. When
interest rates rise, they tend to decline in price, and when
interest rates fall, they tend to increase in price. Zero coupon
bonds are more interest rate sensitive than other bonds because
zero coupon bonds pay no interest to their holders until their
maturities. This means that the market prices of zero coupon bonds
will fluctuate far more than those of bonds that pay interest
periodically. Accordingly, the value of an investment in the Fund
will go up and down, which means that you could lose money if you
liquidate your investment in the Fund prior to the Fund's maturity.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
How has the Target Maturity 2007 Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
41
<PAGE>
The chart below contains the following plot points:
TARGET 2007
1996 -2.16%
1997 13.38%
1998 14.97%
1999 -9.39%
During the periods shown, the highest quarterly return was 9.99% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -7.84%
(for the quarter ended March 31, 1996). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The following table shows how the average annual total returns for the Target
Maturity 2007 Fund's shares compare to those of the Salomon Brothers Government
Index ("SB Government Index") as of December 31, 1999. The Fund sells its shares
solely to a variable annuity subaccount at net asset value. The average annual
total returns shown for the Fund's shares do not reflect the fees and charges
that an individual would pay in connection with an investment in a variable
annuity contract. The SB Government Index is a market capitalization-weighted
index that consists of debt issued by the U.S. Treasury and U.S. Government
sponsored agencies. The SB Government Index does not take into account fees and
expenses that an investor would incur in holding the securities in the SB
Government Index. If it did so, the returns would be lower than those shown.
42
<PAGE>
Inception
1 Year* (4/26/95)
Target Maturity 2007 Fund (9.39)% 7.72%
SB Government Index (2.23)% 6.67%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/95 to 12/31/99.
THE FUND IN DETAIL
What are the Target Maturity 2007 Fund's objective, principal investment
strategies, and principal risks?
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's maturity,
consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in zero coupon securities. The vast majority of the Fund's investments
consists of non-callable, zero coupon bonds issued or guaranteed by the U.S.
government, its agencies or instrumentalities that mature on or around the
maturity date of the Fund (December 31, 2007). Zero coupon securities are debt
obligations that do not entitle holders to any periodic payments of interest
prior to maturity and therefore are issued and traded at discounts from their
face values. Zero coupon securities may be created by separating the interest
and principal components of securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, or issued by private
corporate issuers. The discounts from face values at which zero coupon
securities are purchased varies depending on the time remaining until maturity,
prevailing interest rates, and the liquidity of the security. Because the
discounts from face values are known at the time of investment, investors
intending to hold zero coupon securities until maturity know the value of their
investment return at the time of investment, assuming full payment is made by
the issuer upon maturity.
The Fund seeks zero coupon bonds that will mature on or about the Fund's
maturity date. As the Fund's zero coupon bonds mature, the proceeds will be
invested in short-term U.S. government securities. The Fund generally follows a
buy and hold strategy consistent with attempting to provide a predictable
compounded investment return for investors who hold their Fund shares until the
Fund's maturity. On the Fund's maturity date, the Fund's assets will be
converted to cash and distributed, or reinvested in another Fund of Life Series
Fund, at your choice.
Although the Fund generally follows a buy and hold strategy, the Fund may sell
an investment when the Fund identifies an opportunity to increase its yield or
it needs cash to meet redemptions. Information on the Fund's recent strategies
and holdings can be found in the most recent annual report (see back cover).
43
<PAGE>
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Target Maturity 2007 Fund:
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
and when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities paying interest periodically and, accordingly, will
fluctuate far more in response to changes in interest rates than those of
non-zero coupon securities having similar maturities and yields. As a result,
the net asset value of shares of the Fund may fluctuate over a greater range
than shares of other funds that invest in securities that have similar
maturities and yields but that make current distributions of interest.
44
<PAGE>
TARGET MATURITY 2010 FUND
OVERVIEW
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's maturity,
consistent with preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in non-callable zero coupon bonds that
mature on or around the maturity date of the Fund and are issued or
guaranteed by the U.S. government, its agencies and
instrumentalities. The Fund will mature and terminate at the end of
the year 2010. The Fund generally follows a buy and hold strategy,
but may sell an investment when the Fund identifies an opportunity
to increase its yield or to meet redemptions.
PRIMARY
RISKS: If an investment in the Fund is sold prior to the Fund's maturity,
there is substantial interest rate risk. Like other bonds, zero
coupon bonds are sensitive to changes in interest rates. When
interest rates rise, they tend to decline in price, and when
interest rates fall, they tend to increase in price. Zero coupon
bonds are more interest rate sensitive than other bonds because
zero coupon bonds pay no interest to their holders until their
maturities. This means that the market prices of zero coupon bonds
will fluctuate far more than those of bonds that pay interest
periodically. Accordingly, the value of an investment in the Fund
will go up and down, which means that you could lose money if you
liquidate your investment in the Fund prior to the Fund's maturity.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
How has the Target Maturity 2010 Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect fees and expenses
that may be deducted by the variable annuity contract or variable life insurance
policy through which you invest. If they were included, the returns would be
less than those shown.
45
<PAGE>
The chart below contains the following plot points:
TARGET 2010
1997 15.86%
1998 14.36%
1999 -11.73%
During the periods shown, the highest quarterly return was 10.25% (for the
quarter ended September 30, 1998), and the lowest quarterly return was -5.02%
(for the quarter ended March 31, 1999). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The following table shows how the average annual total returns for the Target
Maturity 2010 Fund's shares compare to those of the Salomon Brothers Government
Index ("SB Government Index") as of December 31, 1999. The Fund sells its shares
solely to a variable annuity subaccount at net asset value. The average annual
total returns shown for the Fund's shares do not reflect the fees and charges
that an individual would pay in connection with an investment in a variable
annuity contract. The SB Government Index is a market capitalization-weighted
index that consists of debt issued by the U.S. Treasury and U.S. Government
sponsored agencies. The SB Government Index does not take into account fees and
expenses that an investor would incur in holding the securities in the SB
Government Index. If it did so, the returns would be lower than those shown.
46
<PAGE>
Inception
1 Year* (4/30/96)
Target Maturity 2010 Fund (11.73)% 7.53%
SB Government Index (2.23)% 6.21%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/96 to 12/31/99.
THE FUND IN DETAIL
What are the Target Maturity 2010 Fund's objective, principal investment
strategies, and principal risks?
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's maturity,
consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in zero coupon securities. The vast majority of the Fund's investments
consists of non-callable, zero coupon bonds that mature on or around the
maturity date of the Fund and are direct obligations of the U.S. Treasury. Zero
coupon securities are debt obligations that do not entitle holders to any
periodic payments of interest prior to maturity and therefore are issued and
traded at discounts from their face values. Zero coupon securities may be
created by separating the interest and principal components of securities issued
or guaranteed by the U.S. government or one of its agencies or
instrumentalities, or issued by private corporate issuers. The discounts from
face values at which zero coupon securities are purchased varies depending on
the time remaining until maturity, prevailing interest rates, and the liquidity
of the security. Because the discounts from face values are known at the time of
investment, investors intending to hold zero coupon securities until maturity
know the value of their investment return at the time of investment, assuming
full payment is made by the issuer upon maturity.
The Fund seeks zero coupon bonds that will mature on or about the Fund's
maturity date. As the Fund's zero coupon bonds mature, the proceeds will be
invested in short term U.S. government securities. The Fund generally follows a
buy and hold strategy consistent with attempting to provide a predictable
compounded investment return for investors who hold their Fund shares until the
Fund's maturity. On the Fund's maturity date, the Fund's assets will be
converted to cash and distributed, or reinvested in another Fund of Life Series
Fund, at your choice.
Although the Fund generally follows a buy and hold strategy, the Fund may sell
an investment when the Fund identifies an opportunity to increase its yield or
it needs cash to meet redemptions. Information on the Fund's recent strategies
and holdings can be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Target Maturity 2010 Fund:
47
<PAGE>
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
and when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities paying interest periodically and, accordingly, will
fluctuate far more in response to changes in interest rates than those of
non-zero coupon securities having similar maturities and yields. As a result,
the net asset value of shares of the Fund may fluctuate over a greater range
than shares of other funds that invest in securities that have similar
maturities and yields but that make current distributions of interest.
48
<PAGE>
TARGET MATURITY 2015 FUND
OVERVIEW
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's maturity,
consistent with the preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in non-callable zero coupon bonds that
mature on or around the maturity date of the Fund and are issued or
guaranteed by the U.S. government, its agencies and
instrumentalities. The Fund will mature and terminate at the end of
the year 2015. The Fund generally follows a buy and hold strategy,
but may sell an investment when the Fund identifies an opportunity
to increase its yield or to meet redemptions.
PRIMARY
RISKS: If an investment in the Fund is sold prior to the Fund's maturity,
there is substantial interest rate risk. Like other bonds, zero
coupon bonds are sensitive to changes in interest rates. When
interest rates rise, they tend to decline in price, and when
interest rates fall, they tend to increase in price. Zero coupon
bonds are more interest rate sensitive than other bonds because
zero coupon bonds pay no interest to their holders until their
maturities. This means that the market prices of zero coupon bonds
will fluctuate far more than those of bonds that pay interest
periodically. Accordingly, the value of an investment in the Fund
will go up and down, which means that you could lose money if you
liquidate your investment in the Fund prior to the Fund's maturity.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
What about performance?
Because the Fund commenced operations on November 8, 1999, as of the date of
this prospectus, it did not have a full year of performance information
available.
THE FUND IN DETAIL
What are the Target Maturity 2015 Fund's objective, principal investment
strategies, and principal risks?
OBJECTIVE: The Fund seeks a predictable compounded investment return for
investors who hold their Fund shares until the Fund's maturity,
consistent with the preservation of capital.
49
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in zero coupon securities. The vast majority of the Fund's investments
consists of non-callable, zero coupon bonds that mature on or around the
maturity date of the Fund and are direct obligations of the U.S. Treasury. Zero
coupon securities are debt obligations that do not entitle holders to any
periodic payments of interest prior to maturity and therefore are issued and
traded at discounts from their face values. Zero coupon securities may be
created by separating the interest and principal components of securities issued
or guaranteed by the U.S. government or one of its agencies or
instrumentalities, or issued by private corporate issuers. The discounts from
face values at which zero coupon securities are purchased vary depending on the
times remaining until maturities, prevailing interest rates, and the liquidity
of the securities. Because the discounts from face values are known at the time
of investment, investors intending to hold zero coupon securities until maturity
know the value of their investment return at the time of investment, assuming
full payment is made by the issuer upon maturity.
The Fund seeks zero coupon bonds that will mature on or about the Fund's
maturity date. As the Fund's zero coupon bonds mature, the proceeds will be
invested in short term U.S. government securities. The Fund generally follows a
buy and hold strategy consistent with attempting to provide a predictable
compounded investment return for investors who hold their Fund shares until the
Fund's maturity. On the Fund's maturity date, the Fund's assets will be
converted to cash and distributed, or reinvested in another Fund of Life Series
Fund, at your choice.
Although the Fund generally follows a buy and hold strategy, the Fund may sell
an investment when the Fund identifies an opportunity to increase its yield or
it needs cash to meet redemptions. Information on the Fund's recent strategies
and holdings can be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Target Maturity 2015 Fund:
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
and when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities paying interest periodically and, accordingly, will
fluctuate far more in response to changes in interest rates than those of
non-zero coupon securities having similar maturities and yields. As a result,
the net asset value of shares of the Fund may fluctuate over a greater range
than shares of other funds that invest in securities that have similar
maturities and yields but that make current distributions of interest.
50
<PAGE>
UTILITIES INCOME FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks high current income and secondarily
long-term capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: The Fund concentrates its investments in stocks of public utilities
companies ("utilities stocks"). The Fund attempts to diversify
across all sectors of the utilities industry (i.e., electric, gas,
telecommunications and water), but from time to time it will
emphasize one or more sectors based on the outlook for the various
sectors. While the Fund primarily invests in U.S. companies, it may
invest in stocks of foreign utilities companies.
PRIMARY
RISKS: While utilities stocks tend to be regarded as less volatile than
other stocks, like all stocks they fluctuate in value in response
to movements in the overall securities markets, general economic
conditions, and changes in interest rates or investor sentiment.
Because the Fund concentrates its investments in public utilities
stocks, the value of its shares will be particularly affected by
events that impact on the utilities industry, such as changes in
public utilities regulation, changes in weather, and changes in
interest rates. Stocks of foreign utilities companies carry
additional risks including currency fluctuations, political
instability, government regulation, unfavorable political or legal
developments, differences in financial reporting standards and less
stringent regulation of foreign securities markets. An investment
in the Fund could decline in value even if the market as a whole
does well. Accordingly, the value of an investment in the Fund will
go up and down, which means that you could lose money.
An investment in the Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
How has the Utilities Income Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Utilities Income Fund's
shares from year to year over the life of the Fund. The bar chart does not
reflect fees and expenses that may be deducted by the variable annuity contract
or variable life insurance policy through which you invest. If they were
included, the returns would be less than those shown.
51
<PAGE>
The chart below contains the following plot points:
UTILITIES INCOME
1994 -7.24%
1995 30.26%
1996 9.57%
1997 25.07%
1998 12.58%
1999 17.41%
During the periods shown, the highest quarterly return was 12.86% (for the
quarter ended December 31, 1999), and the lowest quarterly return was -6.74%
(for the quarter ended March 31, 1994). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The following table shows how the average annual total returns for the Utilities
Income Fund's shares compare to those of the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500 Index") and the Standard and Poor's Utilities Index
("S&P Utilities Index") as of December 31, 1999. The Fund sells its shares
solely to variable annuity and/or variable life insurance subaccounts at net
asset value. The average annual total returns shown for the Fund's shares do not
reflect the fees and charges that an individual would pay in connection with an
investment in a variable annuity contract or variable life insurance policy. The
S&P 500 Index is an unmanaged index consisting of the stocks of large-sized U.S.
and foreign companies. The S&P Utilities Index is a capitalization-weighted
index of 41 stocks designed to measure the performance of the utilities sector
of the S&P 500 Index. The Indexes do not take into account fees and expenses
that an investor would incur in holding the securities in the Indexes. If they
did so, the returns would be lower than those shown.
52
<PAGE>
Inception
1 Year* 5 Years* (11/15/93)
Utilities Income
Fund 17.41% 18.73% 13.52%
S&P 500 Index 21.04% 28.51% 23.16%
S&P Utilities Index (8.89)% 13.84% 9.67%
*The annual returns are based upon calendar years.
THE FUND IN DETAIL
What are the Utilities Income Fund's objectives, principal investment
strategies, and principal risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily
long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in stocks (including not only common stocks, but also preferred stocks)
and securities convertible into stocks of companies in the utilities industry.
These are securities of companies which are primarily engaged in owning or
operating facilities used to provide electricity, gas, water or
telecommunications (including telephone, telegraph and satellite, but not public
broadcasting or cable television). While the Fund primarily invests in U.S.
companies, it may invest in stocks of foreign utilities companies. The Fund's
investments in foreign utilities companies are generally limited to stocks that
are dollar-denominated and traded in the U.S.
While the Fund attempts to diversify across all utilities sectors, it may
emphasize a particular sector based on that sector's yield, price to earnings
ratio, economic trends, and the regulatory environment. The Fund uses a
"top-down" approach to selecting investments. This means that it first decides
on how much of its assets to allocate to each sector of the utilities market and
then identifies potential investments for each sector through fundamental
research and analysis.
In selecting securities, the Fund will consider a stock's dividend potential,
its price to earnings ratio, the company's management, the company's ratio of
international to domestic earnings, the company's future strategies, and
external factors such as demographics and mergers and acquisitions prospects.
The Fund typically sells a security when its issuer shows deteriorating
fundamentals, it falls short of the manager's expectations or there is a change
in economic trends. Information on the Fund's recent strategies and holdings can
be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of investing in the Utilities Income Fund:
MARKET RISK: Because this Fund invests in stocks, it is subject to stock market
risk. Stock prices in general may decline over short or even extended periods
not only because of company-specific developments, but also due to an economic
53
<PAGE>
downturn, a change in interest rates, or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While utilities stocks have long been thought of
as being less volatile than other stocks, like all stocks they fluctuate in
value. As the utilities industry has begun to deregulate and earnings have
become less predictable, utilities stocks have begun to have price fluctuations
which are more like other stocks.
INDUSTRY CONCENTRATION RISK: Because the Fund concentrates its investments in
public utilities companies, the value of its shares will be especially affected
by events that are peculiar to or have a greater impact on the utilities
industry. Utilities companies, especially electric and gas and other
energy-related utilities companies, have historically been subject to the risk
of increases in fuel and other operating costs, changes in national or regional
weather patterns, changes in interest rates, changes in applicable laws and
regulations, and costs and operating constraints associated with compliance with
environmental regulations. Utilities stocks therefore may decline in value even
if the overall market is doing well.
SECTOR CONCENTRATION RISK: Because the Fund may concentrate its portfolio in one
sector of the utilities industry, its share value could decline if one sector of
the utilities industry does poorly even if the industry does well as a whole.
DEREGULATION/COMPETITION RISK: Regulatory changes in the United States have
increasingly allowed utilities companies to provide services and products
outside their traditional geographical areas and lines of business, creating
competitors and new areas of competition. As a result, certain utilities
companies earn more than their traditional, regulated rates of return, while
others are forced to defend their core business from competition and are less
profitable. Some utilities companies may not be able to recover the costs of
facilities built or acquired prior to the date of deregulation. This is known as
the "stranded assets" problem.
INTEREST RATE RISK: Utilities stocks tend to be more interest rate sensitive
than other stocks. As interest rates increase, utilities stocks tend to decline
in value.
FOREIGN ISSUERS RISK: Stock of foreign utilities companies carry additional
risks, including currency fluctuations, political instability, government
regulation, unfavorable political or legal developments, differences in
financial reporting standards, and less stringent regulation of foreign
securities markets.
54
<PAGE>
FUND MANAGEMENT
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
each of the Funds in the Life Series Fund. Its address is 95 Wall Street, New
York, NY 10005. It currently is investment adviser to 48 mutual funds or series
of funds with total net assets of over $5 billion. Except as noted below, FIMCO
supervises all aspects of each Fund's operations and determines each Fund's
portfolio transactions. For the fiscal year ended December 31, 1999, FIMCO
received advisory fees as follows: 0.75% of average daily net assets for Blue
Chip Fund; 0.60% of average daily net assets, net of waiver, for Cash Management
Fund; 0.75% of average daily net assets for Discovery Fund; 0.75% of average
daily net assets for Focused Equity Fund; 0.60% of average daily net assets, net
of waiver, for Government Fund; 0.75% of average daily net assets for Growth
Fund; 0.75% of average daily net assets for High Yield Fund; 0.75% of average
daily net assets for International Securities Fund; 0.60% of average daily net
assets, net of waiver, for Investment Grade Fund; 0.60% of average daily net
assets, net of waiver, for Target Maturity 2007 Fund; 0.60% of average daily net
assets, net of waiver, for Target Maturity 2010 Fund; 0.60% of average daily net
assets, net of waiver, for Target Maturity 2015 Fund; and 0.60% of average daily
net assets, net of waiver, for Utilities Income Fund. The gross advisory fees
(fees before any applicable waivers) are set forth in the Separate Account
prospectus which is attached to this prospectus.
Dennis T. Fitzpatrick serves as Co-Portfolio Manager of the Blue Chip Fund. Mr.
Fitzpatrick also serves as Co-Portfolio Manager to certain other First Investors
Funds. Mr. Fitzpatrick has been a member of FIMCO's investment management team
since 1995. During 1995, Mr. Fitzpatrick was a Regional Surety Manager at United
States Fidelity & Guaranty Co. From 1988 to 1995, he was Northeast Surety
Manager at American International Group.
Andrew Wedeck serves as Co-Portfolio Manager of the Blue Chip Fund. Mr. Wedeck
also serves as Co-Portfolio Manager to certain other First Investors Funds. From
April 1999 to November 1999, Mr. Wedeck was a Research Analyst at Cramer
Rosenthal McGlynn. From April 1998 to March 1999, Mr. Wedeck was a personal
money management consultant for family members. From 1995 to March 1998, Mr.
Wedeck was an Equity Analyst at Stechler & Company.
Clark D. Wagner serves as Portfolio Manager of Government Fund, Target Maturity
2007 Fund, Target Maturity 2010 Fund, and Target Maturity 2015 Fund, and
Co-Portfolio Manager of Investment Grade Fund. Mr. Wagner also serves as
Portfolio Manager of certain other First Investors Funds. Mr. Wagner has been
Chief Investment Officer of FIMCO since 1992.
Patricia D. Poitra, Director of Equities, serves as Co-Portfolio Manager of the
Discovery Fund. Ms. Poitra also serves as Portfolio Manager of certain other
First Investors Funds. Ms. Poitra joined FIMCO in 1985 as a Senior Equity
Analyst.
David A. Hanover serves as Co-Portfolio Manager of the Discovery Fund. Mr.
Hanover also serves as Co-Portfolio Manager of another First Investors Fund.
From 1997 to August 1998, Mr. Hanover was a Portfolio Manager and Analyst at
Heritage Investors Management Corporation. From 1994 to 1996, Mr. Hanover was
Co-Portfolio Manager and Analyst at Psagot Mutual Funds and in 1993 he was an
International Equity Investments Summer Associate at Howard Hughes Medical
Institute.
55
<PAGE>
George V. Ganter serves as Co-Portfolio Manager of the Investment Grade Fund.
Mr. Ganter also serves as Co-Portfolio Manager to another First Investors Fund.
Mr. Ganter joined FIMCO in 1985 as a Senior Investment Analyst.
Nancy W. Jones serves as Portfolio Manager of the High Yield Fund. Ms. Jones
also serves as Portfolio Manager of certain other First Investors Funds. Ms.
Jones joined FIMCO in 1983 as Director of Research in the High Yield Department.
Matthew S. Wright serves as Portfolio Manager of the Utilities Income Fund. Mr.
Wright also serves as Portfolio Manager of certain other First Investors Funds.
Mr. Wright joined FIMCO in February 1996 as an Equity Analyst. From May 1995 to
January 1996, Mr. Wright was an Analyst at Fuji Bank. From June 1994 to April
1995, he was Market Editor of Bloomberg Magazine and from September 1991 to June
1994, he was Editor/Reporter for Bloomberg Business News.
FIMCO and Life Series Fund have retained Wellington Management Company, LLP
("WMC") as investment subadviser to the Growth Fund and the International
Securities Fund. WMC has discretionary trading authority over all of the assets
of the Growth Fund and the International Securities Fund, subject to continuing
oversight and supervision by FIMCO and the Board of Directors. WMC is located at
75 State Street, Boston, MA 02109. WMC is a professional investment counseling
firm which provides investment services to investment companies, employee
benefit plans, endowment funds, foundations and other institutions and
individuals. As of December 31, 1999, WMC held investment management authority
with respect to $235.5 billion of assets. Of that amount, WMC acted as
investment adviser or subadviser to approximately 60 investment companies or
series of such companies, with net assets of approximately $170 billion. The
Growth Fund is managed by WMC's Growth Investment Team, a group of equity
portfolio managers and senior investment professionals. The International
Securities Fund is managed by Trond Skramstad, Senior Vice President of WMC and
Chairman of the firm's Global Equity Strategy Group. Mr. Skramstad joined WMC in
1993.
FIMCO and the Focused Equity Fund have retained Arnhold and S. Bleichroeder,
Inc. ("ASB") as the Fund's investment subadviser. ASB has discretionary trading
authority over all of the Focused Equity Fund's assets, subject to continuing
oversight and supervision by FIMCO and the Board of Directors. ASB is located at
1345 Avenue of the Americas, New York, NY 10105. ASB and its affiliates
currently provide investment advisory services to investment companies,
institutions and private clients. As of December 31, 1999, ASB and its
affiliates held investment management authority with respect to approximately $7
billion of domestic and international assets. The Focused Equity Fund is managed
by Colin G. Morris, Senior Vice President of ASB, who has been responsible for
the management of various ASB clients since January 1993. Prior to joining ASB
in 1992, Mr. Morris was a partner at Mabon Securities, with responsibility over
arbitrage investments from 1988 to 1992.
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
The share price (which is called "net asset value" or "NAV" per share) for each
Fund is calculated once each day as of 4 p.m., Eastern Time ("E.T."), on each
56
<PAGE>
day the New York Stock Exchange ("NYSE") is open for regular trading. The NYSE
is closed on most national holidays and Good Friday. In the event that the NYSE
closes early, the share price will be determined as of the time of the closing.
To calculate the NAV, each Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding.
In valuing its assets, each Fund other than Cash Management Fund uses the market
value of securities for which market quotations or last sale prices are readily
available. If there are no readily available quotations or last sale prices for
an investment or the available quotations are considered to be unreliable, the
securities will be valued at their fair value as determined in good faith
pursuant to procedures adopted by the Board of Directors of the Funds. The Cash
Management Fund values its assets using the amortized cost method which is
intended to permit the Fund to maintain a stable $1.00 per share. Because the
International Securities Fund invests in securities that are primarily listed on
foreign exchanges that trade on days when the Fund is not open, the NAV of the
Fund's shares may change on days on which you are not able to purchase or redeem
the Fund's shares.
How do I buy and sell shares?
Investments in each of the Funds may only be made through purchases of variable
annuity contracts or variable life insurance policies offered by FIL. Purchase
payments for variable annuity contracts, less applicable charges or expenses,
are paid into specified unit investment trusts, Separate Account C or Separate
Account D. Variable life insurance policy premiums, less certain expenses, are
paid into a unit investment trust, Separate Account B. The Separate Accounts
pool these proceeds to purchase shares of a Fund designated by purchases of the
variable annuity contracts or variable life insurance policies.
For information about how to buy or sell the variable annuity contracts and
variable life insurance policies, see the Separate Account prospectus which is
attached to this prospectus. It will describe not only the process for buying
and selling contracts and policies but also the fees and charges involved. This
prospectus is not valid unless a Separate Account prospectus is attached hereto.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
The Separate Accounts which own the shares of the Funds' will receive all
dividends and distributions. As described in the attached Separate Account
prospectus, all dividends and distributions are then reinvested by the
appropriate Separate Account in additional shares of the Fund.
Except for Cash Management Fund, to the extent that they have net investment
income, each Fund will declare and pay, on an annual basis, dividends from net
investment income. To the extent that the Cash Management Fund has net
investment income, the Fund will declare daily and pay monthly dividends from
net investment income. Each Fund will declare and distribute any net realized
57
<PAGE>
capital gains, on an annual basis, usually after the end of each Fund's fiscal
year. Each Fund may make an additional distribution in any year if necessary to
avoid a Federal excise tax on certain undistributed income and capital gain.
What about taxes?
You will not be subject to taxes as the result of purchases or sales of Fund
shares by the Separate Account, or Fund dividends, or distributions to the
Separate Accounts. There are tax consequences associated with investing in the
variable annuity contracts and variable life insurance policies. These are
discussed on the attached Separate Account prospectus.
58
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of each Fund for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in each Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by Tait, Weller & Baker, whose report, along with
the Funds' financial statements, are included in the SAI, which is available
upon request.
59
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------
<CAPTION>
Less Distributions
Income from Investment Operations from
----------------------------------- ----------------------
Net Realized
and
Net Asset Unrealized
Value Net Gain (Loss) Total from Net Net Total
Year Ended Beginning Investment on Investment Investment Realized Distri-
December 31 of Period Income Investments Operations Income Gains butions
- ---------------------------------------------------------------------------------------------------------------
BLUE CHIP
- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 . . . . . . $13.75 $.26 $4.11 $4.37 $.19 $95 $ 1.14
1996 . . . . . . 16.98 .22 3.31 3.53 .25 .49 .74
1997 . . . . . . 19.77 .19 4.88 5.07 .22 .91 1.13
1998 . . . . . . 23.71 .17 4.05 4.22 .19 1.49 1.68
1999 . . . . . . 26.25 .12 6.38 6.50 .18 .43 .61
CASH MANAGEMENT
- ---------------
1995 . . . . . . $1.00 $.054 $-- $.054 $.054 $-- $ .054
1996 . . . . . . 1.00 .049 -- .049 .049 -- .049
1997 . . . . . . 1.00 .050 -- .050 .050 -- .050
1998 . . . . . . 1.00 .049 -- .049 .049 -- .049
1999 . . . . . . 1.00 .046 -- .046 .046 -- .046
DISCOVERY
- ---------
1995 . . . . . . $19.86 $.11 $4.62 $4.73 $.06 $1.26 $1.32
1996 . . . . . . 23.27 .13 2.66 2.79 .11 .89 1.00
1997 . . . . . . 25.06 .08 3.93 4.01 .14 1.16 1.30
1998 . . . . . . 27.77 .09 .79 .88 .08 1.83 1.91
1999 . . . . . . 26.74 (.06) 7.47 7.41 .09 .10 .19
FOCUSED EQUITY
- --------------
11/08/99* to
12/31/99 . . . . $10.00 $(.01) $.26 $.25 $__ $__ $__
</TABLE>
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through December 31, 1999.
++ The effect of fees and charges incurred at the separate account level are not
reflected in these performance figures.
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<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio to Average Net Assets
Ratio to Average Before Expenses Waived or
Net Assets + Assumed
----------------------- ---------------------------
Net Asset Net Net
Value Total Net Assets Investment Investment Portfolio
End of Return ++ End of Period Expenses Income (%) Income Turnover
Period (%) (in millions) (%) Expenses (%) (%) Rate (%)
- -------------- -------------- ----------------- -------------- ------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$16.98 34.00 $67 .86 1.91 N/A N/A 26
19.77 21.52 100 .84 1.39 N/A N/A 45
23.71 26.72 154 .81 .99 N/A N/A 63
26.25 18.66 205 .82 .79 N/A N/A 91
32.14 25.32 275 .81 .45 N/A N/A 91
$1.00 5.51 $4 .60 5.36 1.10 4.86 N/A
1.00 5.00 4 .60 4.89 1.11 4.38 N/A
1.00 5.08 5 .70 4.97 1.06 4.61 N/A
1.00 5.02 7 .70 4.89 .99 4.60 N/A
1.00 4.67 10 .70 4.61 .91 4.40 N/A
$23.27 25.23 $51 .87 .63 N/A N/A 78
25.06 12.48 71 .85 .63 N/A N/A 98
27.77 16.84 100 .82 .34 N/A N/A 85
26.74 3.05 114 .83 .36 N/A N/A 121
33.96 27.97 148 .83 (.24) N/A N/A 109
$10.25 2.50 $2 1.59(a) (1.39)(a) N/A N/A 12
</TABLE>
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<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------------------------------------------------------
<CAPTION>
Income from Investment Operations Less Distributions from
------------------------------------ ---------------------------
Net Realized
and Total from Net
Net Asset Net Unrealized Investment Invest- Net Total
Value Invest Gain (Loss Operations ment Realized Distri-
Beginning of ment on Income Gains butions
Year Ended December 31 Period Income Investments
- --------------------------- --------------- ------------ ---------------- ---------------- ------------ -------------- -------------
GOVERNMENT
<S> <C> <C> <C> <C> <C> <C> <C>
1995 . . . . . . . . . . $9.70 $.66 $.78 $1.44 $.62 $__ $.62
1996 . . . . . . . . . 10.52 .68 (.33) .35 .68 -- .68
1997 . . . . . . . . . . 10.19 .72 .11 .83 .69 -- .69
1998 . . . . . . . . . . 10.33 .66** .08 .74 .66 -- .66
1999 . . . . . . . . . . 10.41 .61 (.51) .10 .59 -- .59
GROWTH
1995 . . . . . . . . . . $16.73 $.18 $3.94 $4.12 $.09 $.29 $.38
1996 . . . . . . . . . . 20.47 .18 4.68 4.86 .18 .59 .77
1997 . . . . . . . . . . 24.56 .15 6.57 6.72 .18 1.86 2.04
1998 . . . . . . . . . . 29.24 .10 7.69 7.79 .15 1.10 1.25
1999 . . . . . . . . . . 35.78 .05 8.97 9.02 .10 1.64 1.74
HIGH YIELD
1995 . . . . . . . . . . $10.58 $1.00 $.95 $1.95 $.96 $__ $.96
1996 . . . . . . . . . . 11.57 1.02 .35 1.37 1.01 -- 1.01
1997 . . . . . . . . . . 11.93 .98 .41 1.39 1.02 -- 1.02
1998 . . . . . . . . . . 12.30 1.00 (.62) .38 .98 -- .98
1999. . . . . . . . . . . 11.70 1.09 (.56) .53 1.02 .02 1.04
</TABLE>
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through December 31, 1999
++ The effect of fees and charges incurred at the separate account level are not
reflected in these performance figures.
62
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets + Assumed
-------------------- ----------------------
Net Assets Net Net
Net Asset End of Invest- Invest-
Value Total Period ment ment Portfolio
End of Return ++ (in Expenses Income Expenses Income Turnover
Period (%) millions) (%) (%) (%) (%) Rate (%)
- -------------- ------------ ------------ ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.52 15.63 $10 .40 6.79 .93 6.26 198
10.19 3.59 9 .60 6.75 .94 6.41 199
10.33 8.61 9 .60 6.95 .92 6.63 134
10.41 7.54 11 .70 6.59 .87 6.42 107
9.92 1.05 11 .76 6.07 .91 5.92 69
$20.47 25.12 $51 .88 1.11 N/A N/A 64
24.56 24.45 79 .85 .92 N/A N/A 49
29.24 29.28 128 .82 .64 N/A N/A 27
35.78 27.35 187 .82 .34 N/A N/A 26
43.06 26.47 262 .81 .14 N/A N/A 38
$11.57 19.82 $42 .87 9.86 N/A N/A 57
11.93 12.56 49 .85 9.43 N/A N/A 34
12.30 12.47 60 .83 8.88 N/A N/A 40
11.70 3.15 65 .83 8.93 N/A N/A 42
11.19 4.95 68 .82 9.83 N/A N/A 33
</TABLE>
63
<PAGE>
<TABLE>
- ---------------------------- -------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------------
<CAPTION>
Less Distributions
Income from Investment Operations from
---------------------------------- ----------------------
Net Realized
and
Unrealized
Net Asset Net Gain (Loss) Total from Net
Value Investment on Investment Investment Net Total
Year Ended Beginning Income Investments Operations Income Realized Distri-
December 31 of Period Gains butions
- ---------------------------- ------------ ------------- --------------- ------------- -------------- ---------- ----------
INTERNATIONAL SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C>
1995 . . . . . . . . . . . $13.51 $.19 $2.25 $2.44 $.12 $.25 $.37
1996 . . . . . . . . . . 15.58 .18 2.12 2.30 .19 .50 .69
1997 . . . . . . . . . . . 17.19 .18 1.26 1.44 .20 1.52 1.72
1998 . . . . . . . . . . . 16.91 .12 2.87 2.99 .16 .86 1.02
1999 . . . . . . . . . . . 18.88 .15 5.74 5.89 .12 .03 .15
INVESTMENT GRADE
1995 . . . . . . . . . . . $10.31 $.67 $1.28 $1.95 $.53 $__ $.53
1996 . . . . . . . . . . . 11.73 .72 (.42) .30 .67 -- .67
1997 . . . . . . . . . . . 11.36 .74 .31 1.05 .74 -- .74
1998 . . . . . . . . . . . 11.67 .68** .33 1.01 .71 -- .71
1999 . . . . . . . . . . . 11.97 .69 (.98) (.29) .70 .01 .71
TARGET MATURITY 2007
4/26/95* to 12/31/95 . . $10.00 $ .26 $ 2.00 $2.26 $-- $-- $--
1996 . . . . . . . . . . . 12.26 .56 (.83) (.27) .23 .05 .28
1997 . . . . . . . . . . . 11.71 .59 .90 1.49 .57 -- .57
1998 . . . . . . . . . . . 12.63 .61 1.20 1.81 .61 -- .61
1999. . . . . . . . . . . 13.83 .66 (1.93) (1.27) .62 __ .62
TARGET MATURITY 2010
4/30/96* to 12/31/96 . . . $10.00 $ .26 $ .90 $1.16 $-- $-- --
1997 . . . . . . . . . . . 11.16 .45 1.29 1.74 .20 -- .20
1998 . . . . . . . . . . . 12.70 .51 1.25 1.76 .48 .01 .49
1999 . . . . . . . . . . . 13.97 .65 (2.26) (1.61) .51 __ .51
TARGET MATURITY 2015
11/08/99* to 12/31/99 . . $10.00 $ .04 $ (.53) $(.49) $-- $-- --
UTILITIES INCOME
1995 . . . . . . . . . . . $9.19 $.28 $2.46 $2.74 $.19 $__ $.19
1996 . . . . . . . . . . . 11.74 .32 .78 1.10 .27 -- .27
1997 . . . . . . . . . . . 12.57 .37 2.64 3.01 .36 .27 .63
1998 . . . . . . . . . . . 14.95 .32 1.46 1.78 .35 .55 .90
1999 . . . . . . . . . . . 15.83 .31 2.25 2.56 .33 .51 .84
</TABLE>
(a) Annualized.
* Commencement of operations.
** Based on average shares outstanding during the year.
+ Some or all expenses have been waived or assumed by the investment adviser
from commencement of operations through December 31, 1999.
++ The effect of fees and charges incurred at the separate account level are not
reflected in these performance figures.
64
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets + Assumed
---------------- --------------------
Net Assets Net
Net Asset End of Invest- Invest
Value Total Period ment ment Portfolio
End of Return ++ (in Expenses Income Expenses Income Turnover
Period (%) millions) (%) (%) (%) (%) Rate (%)
- -------------- ------------ ------------- ------------ ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$15.58 18.70 $41 1.02 1.42 N/A N/A 45
17.19 15.23 58 1.12 1.25 N/A N/A 67
16.91 9.09 74 1.13 1.15 N/A N/A 71
18.88 18.18 92 1.15 .75 N/A N/A 109
24.62 31.46 127 .98 .76 N/A N/A 118
$11.73 19.69 $16 .51 6.80 .91 6.40 26
11.36 2.84 16 .60 6.47 .88 6.19 19
11.67 9.81 17 .60 6.54 .87 6.27 41
11.97 9.15 22 .68 5.97 .84 5.81 60
10.97 (2.53) 21 .68 6.12 .83 5.97 27
$12.26 22.60 $10 .04(a) 6.25(a) .87(a) 5.42(a) 28
11.71 (2.16) 15 .60 6.05 .82 5.83 13
12.63 13.38 20 .60 5.91 .82 5.69 1
13.83 14.97 26 .67 5.18 .83 5.02 1
11.94 (9.39) 25 .69 5.47 .84 5.32 2
$11.16 11.60 $2 .60(a) 6.05(a) .98(a) 5.67(a) 0
12.70 15.86 5 .60 5.88 .87 5.61 13
13.97 14.36 9 .67 4.90 .82 4.75 0
11.85 (11.73) 9 .71 5.48 .86 5.33 9
$9.51 (4.90) $ 1 1.38(a) 4.24(a) 1.64(a) 3.98(a) 0
$11.74 30.26 $15 .41 4.23 .91 3.73 17
12.57 9.57 24 .60 3.48 .86 3.22 45
14.95 25.07 34 .67 3.12 .85 2.94 64
15.83 12.58 50 .73 2.61 .85 2.49 105
17.55 17.41 70 .65 2.12 .80 1.97 53
</TABLE>
65
<PAGE>
[First Investors Logo]
LIFE SERIES FUND
BLUE CHIP
CASH MANAGEMENT
DISCOVERY
FOCUSED EQUITY
GOVERNMENT
GROWTH
HIGH YIELD
INTERNATIONAL SECURITIES
INVESTMENT GRADE
TARGET MATURITY 2007
TARGET MATURITY 2010
TARGET MATURITY 2015
UTILITIES INCOME
For investors who want more information about the Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about each Fund's investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected each Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is incorporated by reference into this
prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Funds by contacting the Funds at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198 Telephone: 1-800-423-4026
You can review and copy Fund documents (including reports and SAIs) at the
Public Reference Room of the SEC in Washington, D.C. You can also obtain copies
of Fund documents after paying a duplicating fee (i) by writing to the Public
Reference Section of the SEC, Washington, D.C. 20549-0102 or (ii) by electronic
request at [email protected]. You can obtain information on the operation of
the Public Reference Room, including information about duplicating fee charges,
by calling (202) 942-8090. Text-only versions of Fund documents can be viewed
online or downloaded from the EDGAR database on the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No.: First
Investors Life Series Fund 811-4325)
<PAGE>
FIRST INVESTORS LIFE SERIES FUND
95 WALL STREET (800) 342-7963
NEW YORK, NEW YORK 10005
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 28, 2000
This is a Statement of Additional Information ("SAI") for First Investors
Life Series Fund ("Life Series Fund") an open-end, management investment company
consisting of thirteen separate investment portfolios (each, a "Fund," and
collectively, the "Funds"). The objective(s) of each Fund are set forth in the
prospectus for Life Series Fund. There can be no assurance that any Fund will
achieve its investment objective(s). Investments in the Funds are made through
purchases of the Level Premium Variable Life Insurance Policies ("Policies") or
the Individual Variable Annuity Contracts ("Contracts") offered by First
Investors Life Insurance Company ("First Investors Life"). Policy premiums, net
of certain expenses, are paid into a unit investment trust, First Investors Life
Insurance Company Separate Account B ("Separate Account B"). Purchase payments
for the Contracts, net of certain expenses, are paid into either of two unit
investment trusts, First Investors Life Variable Annuity Fund C ("Separate
Account C") and First Investors Life Variable Annuity Fund D ("Separate Account
D"). Separate Account B, Separate Account C and Separate Account D (the
"Separate Accounts") pool these proceeds to purchase shares of the Funds
designated by purchasers of the Policies or Contracts. TARGET MATURITY 2007
FUND, TARGET MATURITY 2010 FUND and TARGET MATURITY 2015 FUND are only offered
to Contractowners of Separate Account C and Separate Account D.
This SAI is not a prospectus. It should be read in connection with the
prospectus for Life Series Fund dated April 28, 2000, which may be obtained free
of cost from the Funds at the address or telephone number noted above.
TABLE OF CONTENTS
PAGE
Investment Strategies and Risks............................................ 2
Investment Policies........................................................ 13
Portfolio Turnover......................................................... 26
Futures and Options Strategies............................................. 26
Investment Restrictions.................................................... 35
Trustees and Officers...................................................... 36
Management................................................................. 38
Determination of Net Asset Value........................................... 41
Allocation of Portfolio Brokerage.......................................... 42
Taxes...................................................................... 44
Performance Information.................................................... 47
General Information........................................................ 52
Appendix A................................................................. 54
Appendix B................................................................. 55
Appendix C................................................................. 56
Appendix D................................................................. 59
Financial Statements....................................................... 65
<PAGE>
INVESTMENT STRATEGIES AND RISKS
BLUE CHIP FUND
BLUE CHIP FUND seeks to provide investors with high total investment
return consistent with the preservation of capital. The Fund seeks to achieve
its objective by investing, under normal market conditions, at least 65% of its
total assets in common stocks of "Blue Chip" companies, that First Investors
Management Company, Inc. ("FIMCO" or "Adviser") believes have potential earnings
growth that is greater than the average company in the Standard & Poor's 500
Composite Stock Index ("S&P 500"). The Fund also may invest up to 35% of its
total assets in the equity securities of non-Blue Chip companies that the
Adviser believes have significant potential for growth of capital or future
income consistent with the preservation of capital. When market conditions
warrant, or when the Adviser believes it is necessary to achieve the Fund's
objective, the Fund may invest up to 25% of its total assets in fixed income
securities. It is the Fund's policy to remain relatively fully invested in
equity securities under all market conditions rather than to attempt to time the
market by maintaining large cash or fixed-income securities positions when
market declines are anticipated. The Fund is appropriate for investors who are
comfortable with a fully invested stock portfolio.
The Fund defines Blue Chip companies as those companies that are included
in the S&P 500. Blue Chip companies are considered to be of relatively high
quality and generally exhibit superior fundamental characteristics, which may
include: potential for consistent earnings growth, a history of profitability
and payment of dividends, leadership position in their industries and markets,
proprietary products or services, experienced management, high return on equity
and a strong balance sheet. Blue Chip companies usually exhibit less investment
risk and share price volatility than smaller, less established companies.
The Fund primarily invests in stocks of growth companies. These are
companies which are expected to increase their earnings faster than the overall
market. If earnings expectations are not met, the prices of these stocks may
decline substantially even if earnings do increase. Investments in growth
companies may lack the dividend yield that can cushion stock prices in market
downturns.
The fixed-income securities in which the Fund may invest include money
market instruments (including prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), obligations issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations") (including mortgage-backed
securities) and corporate debt securities. However, no more than 5% of the
Fund's net assets may be invested in corporate debt securities rated below Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
("S&P"). The Fund may borrow money for temporary or emergency purposes in
amounts not exceeding 5% of its total assets. The Fund may also enter into
repurchase agreements and make loans of portfolio securities. See "Investment
Policies" for additional information concerning these securities.
The Fund may invest in securities of foreign companies directly or through
American Depository Receipts ("ADRs") or Global Depository Receipts ("GDRs").
The Fund may invest without limitation in sponsored ADRs. It may not invest more
than 10% of its total assets in direct foreign securities, unsponsored ADRs and
GDRs. Foreign securities, ADRs and GDRs involve additional risks, including
currency fluctuations, political instability, government regulation, unfavorable
political or legal developments, differences in financial reporting standards,
and less stringent regulation of foreign securities markets. See "Foreign
Securities" and "American Depository Receipts and Global Depository Receipts,"
below.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
CASH MANAGEMENT FUND
CASH MANAGEMENT FUND seeks to earn a high rate of current income
consistent with the preservation of capital and maintenance of liquidity. The
Fund generally can invest only in securities that mature or are deemed to mature
2
<PAGE>
within 397 days from the date of purchase. In addition, the Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less. In managing the
Fund's investment portfolio, the Adviser may employ various professional money
management techniques in order to respond to changing economic and money market
conditions and to shifts in fiscal and monetary policy. These techniques include
varying the composition and the average-weighted maturity of the Fund's
portfolio based upon the Adviser's assessment of the relative values of various
money market instruments and future interest rate patterns. The Adviser also may
seek to improve the Fund's yield by purchasing or selling securities to take
advantage of yield disparities among money market instruments that regularly
occur in the money market.
The Fund invests primarily in (1) high quality marketable securities
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities, (2) bank certificates of deposit, bankers'
acceptances, time deposits and other short-term obligations issued by banks and
(3) prime commercial paper and high quality, U.S. dollar-denominated short-term
corporate bonds and notes. The U.S. Government securities in which the Fund may
invest include a variety of U.S. Treasury securities that differ in their
interest rates, maturities and dates of issue. Securities issued or guaranteed
by agencies or instrumentalities of the U.S. Government may be supported by the
full faith and credit of the United States or by the right of the issuer to
borrow from the U.S. Treasury. The Fund may invest in domestic bank certificates
of deposit (insured up to $100,000) and bankers' acceptances (not insured)
issued by domestic banks and savings institutions which are insured by the
Federal Deposit Insurance Corporation ("FDIC") and that have total assets
exceeding $500 million. The Fund also may invest in certificates of deposit
issued by London branches of domestic or foreign banks ("Eurodollar CDs"). The
Fund may invest in time deposits and other short-term obligations, including
uninsured, direct obligations bearing fixed, floating or variable interest
rates, issued by domestic banks, foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic and foreign branches of foreign
banks. The Fund also may invest in repurchase agreements with banks that are
members of the Federal Reserve System or securities dealers that are members of
a national securities exchange or are market makers in U.S. Government
securities, and, in either case, only where the debt instrument subject to the
repurchase agreement is a U.S. Treasury or agency obligation. Repurchase
agreements maturing in over 7 days are deemed illiquid securities, and can
constitute no more than 10% of the Fund's net assets.
The Fund also may purchase high quality, U.S. dollar denominated
short-term bonds and notes, including variable rate and master demand notes
issued by domestic and foreign corporations (including banks). The Fund may
invest in floating and variable rate demand notes and bonds that permit the
Fund, as the holder, to demand payment of principal at any time, or at specified
intervals not exceeding 397 days, in each case upon not more than 30 days'
notice. The Fund may borrow money for temporary or emergency purposes in amounts
not exceeding 5% of its total assets. When market conditions warrant, the Fund
may purchase short-term, high quality fixed and variable rate instruments issued
by state and municipal governments and by public authorities. See "Investment
Policies" for additional information concerning these securities.
The Fund may purchase only obligations that (1) the Adviser determines
present minimal credit risks based on procedures adopted by the Life Series
Fund's Board of Trustees (the "Board"), and (2) are either (a) rated in one of
the top two rating categories by any two nationally recognized statistical
rating organizations ("NRSROs") (or one, if only one rated the security) or (b)
unrated securities that the Adviser determines are of comparable quality.
Securities qualify as being in the top rating category ("First Tier Securities")
if at least two NRSROs (or one, if only one rated the security) have given it
the highest rating, or unrated securities that the Adviser determines are of
comparable quality. The Fund's purchases of commercial paper are limited to
First Tier Securities. The Fund may not invest more than 5% of its total assets
in securities rated in the second highest rating category ("Second Tier
Securities"). Investments in Second Tier Securities of any one issuer are
limited to the greater of 1% of the Fund's total assets or $1 million. The Fund
generally may invest no more than 5% of its total assets in the securities of a
single issuer (other than securities issued by the U.S. Government, its agencies
or instrumentalities).
In periods of declining interest rates, the Fund's yield will tend to be
somewhat higher than prevailing market rates, and in periods of rising interest
rates the opposite will be true. Also, when interest rates are falling, net cash
inflows from the continuous sale of the Fund's shares likely will be invested in
portfolio instruments producing lower yields than the balance of the Fund's
portfolio, thereby reducing the Fund's yield. In periods of rising interest
rates, the opposite may be true.
3
<PAGE>
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
DISCOVERY FUND
DISCOVERY FUND seeks long-term capital appreciation, without regard to
dividend or interest income. The Fund seeks to achieve its objective by
investing, under normal market conditions, in the common stock of companies with
small market capitalization that the Adviser considers to be undervalued or less
well known in the current marketplace and to have potential for capital growth.
The Fund seeks to invest in the common stock of companies that the Adviser
believes are undervalued in the current market in relation to fundamental
economic values such as earnings, sales, cash flow and tangible book value; that
are early in their corporate development (I.E., before they become widely
recognized and well known and while their reputations and track records are
still emerging); or that offer the possibility of greater earnings because of
revitalized management, new products or structural changes in the economy. Such
companies primarily are those with small market capitalizations (often known as
"small-cap"). The Fund defines small-cap stocks as those with market
capitalizations which fall within the range of those companies in the S&P 600
Small-Cap Index. The market capitalizations of companies in the S&P 600
Small-Cap Index will change with market conditions. The Adviser believes that,
over time, these securities are more likely to appreciate in price than
securities whose market prices have already reached their perceived economic
value. In addition, the Fund intends to diversify its holdings among as many
companies and industries as the Adviser deems appropriate.
Companies that are early in their corporate development may be dependent
on relatively few products or services, may lack adequate capital reserves, may
be dependent on one or two management individuals and may have less of a track
record or historical pattern of performance. In addition, there may be less
information available as to the issuers and their securities may not be well
known to the general public and may not yet have wide institutional ownership.
Securities of these companies may have more potential for growth but also
greater risk than that normally associated with larger, older or better-known
companies.
Investments in securities of companies with small market capitalizations
are generally considered to offer greater opportunity for appreciation and to
involve greater risk of depreciation than securities of companies with larger
market capitalization. These include the equity securities of companies which
represent new or changing industries and those which, in the opinion of the
Adviser, represent special situations, the potential future value of which has
not been fully recognized. Growth securities of companies with small market
capitalizations which, in the opinion of the Adviser, represent a special
situation bear the risk that the special situation will not develop as favorably
as expected, or the situation may deteriorate. For example, a merger with
favorable implications may be blocked, an industrial development may not enjoy
anticipated market acceptance or a bankruptcy may not be as profitably resolved
as had been expected. Because the securities of most companies with small market
capitalizations are not as broadly traded as those of companies with larger
market capitalizations, these securities are often subject to wider and more
abrupt fluctuations in market price. In the past, there have been prolonged
periods when these securities have substantially underperformed or outperformed
the securities of larger capitalization companies. In addition, smaller
capitalization companies generally have fewer assets available to cushion an
unforeseen adverse occurrence and thus such an occurrence may have a
disproportionately negative impact on these companies.
The majority of the Fund's investments are expected to be securities
listed on the New York Stock Exchange ("NYSE") or other national securities
exchanges, or securities that have an established over-the-counter ("OTC")
market, although the depth and liquidity of the OTC market may vary from time to
time and from security to security.
The Fund may invest in securities of foreign companies directly or through
ADRs or GDRs. The Fund may invest without limitation in sponsored ADRs. It may
not invest more than 10% of its total assets in direct foreign securities,
unsponsored ADRs and GDRs. Foreign securities, ADRs and GDRs involve additional
risks, including currency fluctuations, political instability, government
regulation, unfavorable political or legal developments, differences in
4
<PAGE>
financial reporting standards, and less stringent regulation of foreign
securities markets. See "Foreign Securities" and "American Depository Receipts
and Global Depository Receipts," below.
The Fund may borrow money for temporary or emergency purposes in amounts
not exceeding 5% of its total assets. The Fund also may enter into repurchase
agreements and make loans of portfolio securities. For temporary defensive
purposes, the Fund may invest all of its assets in U.S. Government Obligations,
prime commercial paper, certificates of deposit and bankers' acceptances. See
"Investment Policies" for more information regarding these securities.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
FOCUSED EQUITY FUND
FOCUSED EQUITY FUND seeks its objective of capital appreciation by
investing primarily in the equity securities of approximately 20 to 30 U.S.
companies. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in equity securities, including common stocks, preferred
stocks, convertible securities and warrants.
The Fund invests in the stocks of companies it believes to be undervalued
in the current market. The Fund generally seeks to buy stocks of companies that
are involved in corporate or other events such as mergers, acquisitions,
divestitures, financial restructurings, management reorganizations, stock
buy-back programs and industry changes. In addition, the Fund looks for
companies with proven management with a financial interest in the company under
consideration, strong cash flows in excess of internal growth requirements,
established franchises and the potential for at least 50% appreciation within
two years. An investment in a company based on the occurrence of a corporate
event is subject to the risk that the corporate event will not develop as
favorably as expected or that the situation may deteriorate. For example, a
merger with favorable implications may be blocked or an industrial development
may not enjoy anticipated market acceptance. The Fund invests with a two-to-five
year time horizon. It will generally sell a security even before this horizon
expires if it reaches its target valuation, if the company's franchise value
deteriorates to a point where it no longer generates superior cash flows, if an
investment position reaches more than 12% of the Fund's total portfolio value
through appreciation or if better investment opportunities are identified.
The majority of the Fund's investments are expected to be securities
listed on the NYSE or other national securities exchanges, or securities that
have an established OTC market, although the depth and liquidity of the OTC
market may vary from time to time and from security to security.
The Fund may invest in the securities of foreign companies when they are
linked to the U.S. companies it has identified as having investment potential;
for example, it may invest in securities of foreign issuers that are involved in
mergers with U.S. companies that are held in the Fund's portfolio. Such foreign
investments usually will be in the form of ADRs or GDRs. See "Foreign
Securities" and "American Depository Receipts and Global Depository Receipts,"
below.
When market conditions warrant, or when the Fund's Subadviser, Arnhold and
S. Bleichroeder, Inc. ("ASB" or "Subadviser") believes it is necessary to
achieve the Fund's objective, the Fund may invest in fixed-income securities.
The fixed-income securities in which the Fund may invest include money market
instruments (including prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), U.S. Government
Obligations (including mortgage-backed securities) and corporate debt
securities. In addition, the Fund may invest in debt securities rated below Baa
by Moody's or BBB by S&P (including debt securities that have been downgraded),
or in unrated debt securities that are of comparable quality as determined by
the Subadviser. Securities rated lower than BBB by S&P or Baa by Moody's,
commonly referred to as "junk bonds" or "high yield securities," are speculative
and generally involve a higher risk of loss of principal and income than
higher-rated securities. See "Debt Securities," "High Yield Securities," and
Appendix C for a description of debt security ratings.
5
<PAGE>
Although the Fund may borrow money, it has no present intention of
borrowing other than for temporary or emergency purposes in amounts not
exceeding 5% of its total assets. The Fund may make loans of portfolio
securities, enter into repurchase agreements and invest in zero coupon
securities and securities issued on a "when-issued" or delayed delivery basis.
In any period of market weakness or of uncertain market or economic conditions,
the Fund may establish a temporary defensive position to preserve capital by
having all or part of its assets invested in short-term fixed-income securities
or retained in cash or cash equivalents.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
GOVERNMENT FUND
GOVERNMENT FUND seeks to achieve a significant level of current income
that is consistent with security and liquidity of principal by investing, under
normal market conditions, at least 65% of its assets in U.S. Government
Obligations (including mortgage-backed securities). The Fund has no fixed policy
with respect to the duration of U.S. Government Obligations it purchases.
Securities issued or guaranteed as to principal and interest (but not market
value) by the U.S. Government include a variety of Treasury securities, which
differ only in their interest rates, maturities and times of issuance. Although
the payment of interest and principal on a portfolio security may be guaranteed
by the U.S. Government or one of its agencies or instrumentalities, shares of
the Fund are not insured or guaranteed by the U.S. Government or any agency or
instrumentality. The net asset value of shares of the Fund generally will
fluctuate in response to interest rate levels. When interest rates rise, prices
of fixed income securities generally decline; when interest rates decline,
prices of fixed income securities generally rise. See "U.S. Government
Obligations" and "Debt Securities."
The Fund may invest in mortgage-backed securities, including Government
National Mortgage Association ("GNMA") certificates, Federal National Mortgage
Association ("FNMA") certificates and Federal Home Loan Mortgage Corporation
("FHLMC") certificates. The Fund also may invest in securities issued or
guaranteed by other U.S. Government agencies or instrumentalities, including:
the Federal Farm Credit System (which may not borrow from the U.S. Treasury and
the securities of which are not guaranteed by the U.S. Government); the Federal
Home Loan Bank (which may borrow from the U.S. Treasury to meet its obligations
but the securities of which are not guaranteed by the U.S. Government); the
Tennessee Valley Authority and the U.S. Postal Service (each of which may borrow
from the U.S. Treasury to meet it obligations); and the Farmers Home
Administration and the Export-Import Bank (the securities of which are backed by
the full faith and credit of the United States). The Fund may invest in
collateralized mortgage obligations ("CMOs") and stripped mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies,
authorities or instrumentalities. See "Mortgage-Backed Securities."
The Fund may invest up to 35% of its assets in securities other than U.S.
Government Obligations and mortgage-backed securities. These may include: prime
commercial paper, certificates of deposit of domestic branches of U.S. banks,
bankers' acceptances, repurchase agreements (applicable to U.S. Government
Obligations), insured certificates of deposit and certificates representing
accrual on U.S. Treasury securities. The Fund also may make loans of portfolio
securities and invest in zero coupon securities. The Fund may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets
and may invest up to 25% of its net assets in securities issued on when-issued
or delayed delivery basis. See "Investment Policies" for a further discussion of
these securities.
For temporary defensive purposes, the Fund may invest all of its assets in
cash, cash equivalents and money market instruments, including bank certificates
of deposit, bankers' acceptances and commercial paper issued by domestic
corporations, short-term fixed income securities or U.S. Government Obligations.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
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GROWTH FUND
The investment objective of GROWTH FUND is long-term capital appreciation.
Current income through the receipt of interest or dividends from investments
will merely be incidental to the Fund's efforts in pursuing its goal. It is the
policy of the Fund to invest, under normal market conditions, primarily in
common stocks and it is anticipated that the Fund will usually be so invested.
It also may invest to a limited degree in convertible securities and preferred
stocks. At least 75% of the value of the Fund's total assets (excluding
securities held for defensive purposes) shall be invested in securities of
companies in industries in which the Adviser, or the Fund's investment
subadviser, Wellington Management Company, LLP ("Subadviser" or "WMC"), believes
opportunities for capital growth exist. The Fund does not intend to concentrate
its investments in a particular industry, but it may invest up to 25% of the
value of its assets in a particular industry. The Fund may invest up to 5% of
its total assets in common stocks issued by foreign companies that are
denominated in U.S. currency; provided, however, that the Fund may invest
without limit in U.S. dollar denominated foreign securities listed on the NYSE.
The Fund may also invest in ADRs and GDRs, purchase securities on a when-issued
or delayed delivery basis and make loans of portfolio securities. The Fund may
borrow money for temporary or emergency purposes in amounts not exceeding 5% of
its total assets and may invest up to 5% of its net assets in securities issued
on a when-issued or delayed delivery basis. For temporary defensive purposes,
the Fund may invest all of its assets in U.S. Government Obligations, investment
grade bonds, prime commercial paper, certificates of deposit, bankers'
acceptances, repurchase agreements and participation interests.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
HIGH YIELD FUND
HIGH YIELD FUND primarily seeks high current income and secondarily seeks
growth of capital. The Fund actively seeks to achieve its secondary objective to
the extent consistent with its primary objective. The Fund seeks to achieve its
objectives by investing, under normal market conditions, at least 65% of its
total assets in high risk, high yield securities, commonly referred to as "junk
bonds" ("High Yield Securities").
High Yield Securities include the following instruments: fixed, variable
or floating rate debt obligations (including bonds, debentures and notes) which
are rated below Baa by Moody's or below BBB by S&P, or, if unrated, are deemed
to be of comparable quality by the Adviser; preferred stocks and dividend-paying
common stocks that have yields comparable to those of high yielding debt
securities; any of the foregoing securities of companies that are financially
troubled, in default or undergoing bankruptcy or reorganization ("Deep Discount
Securities"); and any securities convertible into any of the foregoing. See
"High Yield Securities" and "Deep Discount Securities."
The Fund may invest in debt securities issued by foreign governments and
companies and in foreign currencies for the purpose of purchasing such
securities. However, the Fund may not invest more than 5% of its total assets in
debt securities issued by foreign governments and companies that are denominated
in foreign currencies. The Fund may borrow money for temporary or emergency
purposes in amounts not exceeding 5% of its total assets, make loans of
portfolio securities, enter into repurchase agreements and invest in zero coupon
and pay-in-kind securities. The Fund may also invest up to 5% of its net assets
in securities issued on a when-issued or delayed delivery basis. See "Investment
Policies" for more information concerning these securities.
The Fund may invest up to 35% of its total assets in securities other than
High Yield Securities including: dividend-paying common stocks; securities
convertible into, or exchangeable for, common stock; debt obligations of all
types (including bonds, debentures and notes) rated A or better by Moody's or
S&P; U.S. Government Obligations; warrants; and money market instruments
consisting of prime commercial paper, certificates of deposit of domestic
branches of U.S. banks, bankers' acceptances and repurchase agreements. The
Adviser continually monitors the investments in the Fund's portfolio and
carefully calculates on a case-by-case basis whether to dispose of or retain a
debt obligation that has been downgraded.
In any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in investment grade debt
7
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securities or retained in cash or cash equivalents, including bank certificates
of deposit, bankers' acceptances, U.S. Government Obligations and commercial
paper issued by domestic corporations.
The lower-rated, and unrated securities in which the Fund invests tend to
offer higher yields than higher-rated securities with the same maturities
because the financial condition of the issuers of such securities may not be as
strong as that of other issuers. Debt obligations rated lower than Baa or BBB by
Moody's or S&P, respectively, are speculative and generally involve more risk of
loss of principal and income than higher-rated securities. Also, their yields
and market value tend to fluctuate more than higher quality securities. The
greater risks and fluctuations in yield and value occur because investors
generally perceive issuers of lower-rated and unrated securities to be less
creditworthy. These risks cannot be eliminated, but may be reduced by
diversifying holdings to minimize the portfolio impact of any single investment.
In addition, fluctuations in market value does not affect the cash income from
the securities, but are reflected in the Fund's net asset value. When interest
rates rise, the net asset value of the Fund tends to decrease. When interest
rates decline, the net asset value of the Fund tends to increase.
Variable or floating rate debt obligations in which the Fund may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
investor. This reduces the effect of changing market conditions on the
security's underlying market value.
A High Yield Security may itself be convertible into or exchangeable for
equity securities, or may carry with it the right to acquire equity securities
evidenced by warrants attached to the security or acquired as part of a unit
with the security. Although the Fund invests primarily in High Yield Securities,
securities received upon conversion or exercise of warrants and securities
remaining upon the break-up of units or detachment of warrants may be retained
to permit orderly disposition, to establish a long-term holding period for
Federal income tax purposes or to seek capital appreciation.
Because of the greater number of investment considerations involved in
investing in High Yield Securities, the achievement of the Fund's investment
objectives depends more on the Adviser's research abilities than would be the
case if the Fund were investing primarily in securities in the higher rated
categories. Because medium- to lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities, investors
should consider carefully the relative risks associated with investments in
securities that carry medium to lower ratings or, if unrated, deemed to be of
comparable quality by the Adviser. See "High Yield Securities" and Appendix C
for a description of corporate bond ratings.
The Fund seeks to achieve its secondary objective to the extent consistent
with its primary objective. There can be no assurance that the Fund will be able
to achieve its investment objectives. The Fund's net asset value fluctuates
based mainly upon changes in the value of its portfolio securities.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INTERNATIONAL SECURITIES FUND
INTERNATIONAL SECURITIES Fund primarily seeks long-term capital growth and
secondarily seeks to earn a reasonable level of current income. The Fund may
invest in all types of securities issued by companies and government
instrumentalities of any nation approved by the Board, subject only to industry
concentration and issuer diversification restrictions described below and in the
SAI. This investment flexibility permits the Fund to react to rapidly changing
economic conditions among countries which cause the relative attractiveness of
investments within national markets to be subject to frequent reappraisal. It is
a fundamental policy of the Fund that no more than 35% of its total assets will
be invested in securities issued by U.S. companies and U.S. Government
Obligations or cash and cash equivalents denominated in U.S. currency. In
addition, the Fund presently does not intend to invest more than 35% of its
total assets in any one particular country. Further, except for temporary
defensive purposes, the Fund's assets will be invested in securities of at least
three different countries outside the United States. See "Foreign Securities".
For defensive purposes, the Fund may temporarily invest in securities issued by
8
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U.S. companies and the U.S. Government and its agencies and instrumentalities,
or cash equivalents denominated in U.S. currency, without limitation as to
amount.
The Fund may purchase securities traded on any foreign stock exchange. The
Fund may also purchase ADRs and GDRs. See "American Depository Receipts and
Global Depository Receipts." The Fund also may invest up to 25% of its total
assets in unlisted securities of foreign issuers; provided, however, that no
more than 15% of the value of its net assets may be invested in unlisted
securities with a limited trading market and other illiquid investments. The
investment standards for the selection of unlisted securities are the same as
those used in the purchase of securities traded on a stock exchange. The Fund
may also purchase stock index futures contracts and options thereon to maintain
a desired percentage of the Fund invested in stocks in the event of a large cash
flow into the Fund, or to generate additional income from cash held by the Fund.
Stock index futures and options thereon may also be used to adjust country
exposure. When the Fund purchases a stock index futures contract on foreign
stocks, a corresponding foreign currency forward or foreign currency futures
contract is executed to provide the same currency exposure that would result
from directly owning the underlying foreign stocks. Failure to obtain such
currency exposure would constitute a hedge back into U.S. dollars with respect
to such index futures positions. The value of the Fund's futures positions shall
not exceed 5% of the total assets in the Fund's portfolio.
The Fund may invest in warrants, which may or may not be listed on a
recognized U. S. or foreign exchange. The Fund also may enter into repurchase
agreements, invest up to 5% of its net assets in securities issued on a
when-issued or delayed delivery basis and make loans of portfolio securities.
The Fund also may borrow money for temporary or emergency purposes in amounts
not exceeding 5% of its total assets. In addition, the Fund can engage in
hedging and options strategies.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INVESTMENT GRADE FUND
INVESTMENT GRADE FUND seeks to generate a maximum level of income
consistent with investment in investment grade debt securities. The Fund seeks
to achieve its objective by investing, under normal market conditions, at least
65% of its total assets in debt securities of U.S. issuers that are rated in the
four highest rating categories by Moody's or S&P, or in unrated securities that
are deemed to be of comparable quality by the Adviser ("investment grade
securities"). The Fund may invest up to 35% of its total assets in U.S.
Government Obligations (including mortgage-backed securities), dividend-paying
common and preferred stocks, obligations convertible into common stocks,
repurchase agreements, debt securities rated below investment grade and money
market instruments. The Fund may invest up to 10% of its net assets in corporate
or government debt securities of foreign issuers which are U.S. dollar
denominated and traded in U.S. markets ("Yankee Bonds"). The Fund may also
borrow money for temporary or emergency purposes in amounts not exceeding 5% of
its total assets. The Fund may invest in securities issued on a when-issued or
delayed delivery basis, make loans of portfolio securities, and invest in zero
coupon or pay-in-kind securities. See "Investment Policies" for additional
information concerning these securities. For temporary defensive purposes, the
Fund may invest all of its assets in money market instruments, short-term fixed
income securities or U.S. Government Obligations.
Although up to 100% of the Fund's total assets can be invested in debt
securities rated at least Baa by Moody's or at least BBB by S&P, or unrated debt
securities deemed to be of comparable quality by the Adviser, no more than 10%
of the Fund's net assets may be invested in debt securities rated lower than Baa
by Moody's or BBB by S&P (commonly referred to as "high yield bonds" or "junk
bonds") (including securities that have been downgraded) or, if unrated, deemed
to be of comparable quality by the Adviser, or in any equity securities of any
issuer if a majority of the debt securities of such issuer are rated lower than
Baa by Moody's or BBB by S&P. Securities rated BBB or Baa by S&P or Moody's,
respectively, are considered to be speculative with respect to the issuer's
ability to make principal and interest payments. The Adviser continually
monitors the investments in the Fund's portfolio and carefully evaluates on a
case-by-case basis whether to dispose of or retain a debt security which has
been downgraded to a rating lower than investment grade. See "Debt Securities"
and Appendix C for a description of corporate bond ratings.
9
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Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
TARGET MATURITY 2007 FUND
TARGET MATURITY 2010 FUND
TARGET MATURITY 2015 FUND
TARGET MATURITY 2007 FUND seeks to provide a predictable compounded
investment return for investors who hold their Fund shares until the Fund's
maturity, consistent with preservation of capital.
TARGET MATURITY 2010 FUND seeks to provide a predictable compounded
investment return for investors who hold their Fund shares until the Fund's
maturity, consistent with the preservation of capital.
TARGET MATURITY 2015 FUND seeks to provide a predictable compounded
investment return for investors who hold their Fund shares until the Fund's
maturity, consistent with the preservation of capital.
Each Fund seeks its objective by investing, under normal market
conditions, at least 65% of its total assets in zero coupon securities that are
issued, or created by third parties using securities issued by the U.S.
Government and its agencies and instrumentalities. With respect to TARGET
MATURITY 2007 FUND, these investments will mature no later than December 31,
2007, with respect to TARGET MATURITY 2010 FUND, these investments will mature
no later than December 31, 2010, and with respect to TARGET MATURITY 2015 FUND,
these investments will mature no later than December 31, 2015 (such dates being
herein collectively referred to as the "Maturity Date"). On its Maturity Date, a
Fund's assets will be converted to cash and the cash will be distributed or
reinvested in another Fund at the investor's choice.
Each Fund seeks to provide investors with a positive total return at the
Maturity Date which, together with the reinvestment of all dividends and other
distributions, exceeds their original investment in a Fund by a relatively
predictable amount. While the risk of fluctuation in the values of zero coupon
securities is greater when the period to maturity is longer, that risk tends to
diminish as the Maturity Date approaches. Although an investor can redeem shares
at the current net asset value at any time, any investor who redeems his or her
shares prior to the Maturity Date is likely to achieve a different investment
result than the return that was predicted on the date the investment was made,
and may even suffer a significant loss.
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. This discount varies depending on
the time remaining until maturity, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. When held to maturity,
the entire return of a zero coupon security, which consists of the accretion of
the discount, comes from the difference between its issue price and its maturity
value. This difference is known at the time of purchase, so investors holding
zero coupon securities until maturity know the amount of their investment return
at the time of their investment. The market values are subject to greater market
fluctuations from changing interest rates prior to maturity than the values of
debt obligations of comparable maturities that bear interest currently. See
"Zero Coupon Securities-Risk Factors."
A portion of the total realized return from conventional interest-paying
bonds comes from the reinvestment of periodic interest. Since the rate to be
earned on these reinvestments may be higher or lower than the rate quoted on the
interest-paying bonds at the time of the original purchase, the total return of
interest-paying bonds is uncertain even for investors holding the security to
its maturity. This uncertainty is commonly referred to as reinvestment risk and
can have a significant impact on total realized investment return. With zero
coupon securities, however, there are no cash distributions to reinvest, so
investors bear no reinvestment risk if they hold the zero coupon securities to
maturity.
Each Fund primarily will purchase three types of zero coupon securities.
(1) U.S. Treasury STRIPS (Separately Traded Registered Interest and Principal
Securities), which are created when the coupon payments and the principal
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payment are stripped from an outstanding Treasury security by the Federal
Reserve Bank. Bonds issued by the Resolution Funding Corporation (REFCORP) can
also be stripped in this fashion. (2) STRIPS which are created when a dealer
deposits a Treasury security or a Federal agency security with a custodian for
safekeeping and then sells the coupon payments and principal payment that will
be generated by this security. Bonds issued by the Financing Corporation (FICO)
can be stripped in this fashion. (3) Zero coupon securities of a federal agency
and instrumentality either issued directly by an agency in the form of a zero
coupon bond or created by stripping an outstanding security issued thereby.
Each Fund may invest up to 35% of its total assets in the following
instruments: interest- bearing obligations issued by the U.S. Government and its
agencies and instrumentalities (see "U.S. Government Obligations"), including,
for Target Maturity 2007 Fund, zero coupon securities maturing beyond 2007, for
Target Maturity 2010 Fund, zero coupon securities maturing beyond 2010, and for
Target Maturity 2015 Fund, zero coupon securities maturing beyond 2015;
corporate debt securities, including corporate zero coupon securities;
repurchase agreements; and money market instruments consisting of prime
commercial paper, certificates of deposit of domestic branches of U.S. banks and
bankers' acceptances. Each Fund may only invest in debt securities rated A or
better by Moody's or S&P or in unrated securities that are deemed to be of
comparable quality by the Adviser. Debt obligations rated A or better by Moody's
or S&P comprise what are known as high-grade bonds and are regarded as having a
strong capacity to repay principal and make interest payments. Each Fund may
also invest in restricted and illiquid securities, make loans of portfolio
securities and invest up to 5% of its net assets in securities issued on a
when-issued or delayed delivery basis. See "Investment Policies" for more
information regarding these types of investments.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
UTILITIES INCOME FUND
The primary investment objective of UTILITIES INCOME FUND is to seek high
current income. Long-term capital appreciation is a secondary objective. The
Fund seeks its objectives by investing, under normal market conditions, at least
65% of its total assets in equity and debt securities issued by companies
primarily engaged in the public utilities industry. Equity securities in which
the Fund may invest include common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks, and warrants to purchase
common or preferred stocks. The portion of the Fund's assets invested in equity
securities and in debt securities will vary from time to time due to changes in
interest rates and economic and other factors.
The Fund defines utilities companies as those that are primarily engaged
in the ownership or operation of facilities used to provide electricity, gas,
water or telecommunications (including telephone, telegraph and satellite, but
not companies engaged in public broadcasting or cable television). For these
purposes, "primarily engaged" means that (1) more than 50% of the company's
assets are devoted to the ownership or operation of one or more facilities as
described above, or (2) more than 50% of the company's operating revenues are
derived from the business or combination of any of the businesses described
above. It should be noted that based on this definition, the Fund may invest in
companies which are also involved to a significant degree in non-public
utilities activities.
Utilities stocks generally offer dividend yields that exceed those of
industrial companies and their prices tend to be less volatile than stocks of
industrial companies. However, utilities stocks can still be affected by the
risks of the stock of industrial companies. Because the Fund concentrates its
investments in public utilities companies, the value of its shares will be
especially affected by factors peculiar to the utilities industry, and may
fluctuate more widely than the value of shares of a fund that invests in a
broader range of industries. See "Utilities Industries."
The Fund may invest up to 35% of its total assets in the following
instruments: debt securities and common and preferred stocks of non-utilities
companies; U.S. Government Obligations (including mortgage-backed securities);
cash; and money market instruments consisting of prime commercial paper,
bankers' acceptances, certificates of deposit and repurchase agreements. The
Fund may make loans of portfolio securities and invest up to 5% of its net
assets in securities issued on a when-issued or delayed delivery basis. The Fund
may borrow money for temporary or emergency purposes in amounts not exceeding 5%
of its net assets. The Fund also may invest in zero coupon and pay-in-kind
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securities. In addition, in any period of market weakness or of uncertain market
or economic conditions, the Fund may establish a temporary defensive position to
preserve capital by having all of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents.
The Fund may not invest more than 5% of its total assets in debt
securities rated below Baa by Moody's or BBB by S&P (so called "junk bonds").
See "Debt Securities," below, and Appendix C for a description of corporate bond
ratings. See "High Yield Securities."
The Fund may invest in securities of foreign companies directly or through
ADRs or GDRs. The Fund may invest without limitation in sponsored ADRs. It may
not invest more than 10% of its total assets in direct foreign securities,
unsponsored ADRs and GDRs. Foreign securities, ADRs and GDRs involve additional
risks, including currency fluctuations, political instability, government
regulation, unfavorable political or legal developments, differences in
financial reporting standards, and less stringent regulation of foreign
securities markets. See "Foreign Securities" and "American Depository Receipts
and Global Depository Receipts," below.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INVESTMENT POLICIES
AMERICAN DEPOSITORY RECEIPTS AND GLOBAL DEPOSITORY RECEIPTS. BLUE CHIP
FUND, INTERNATIONAL SECURITIES FUND, GROWTH FUND, UTILITIES INCOME FUND,
DISCOVERY FUND and FOCUSED EQUITY FUND may invest in sponsored and unsponsored
ADRs. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers, and other
forms of depository receipts for securities of foreign issuers. Generally, ADRs,
in registered form, are denominated in U.S. dollars and are designed for use in
the U.S. securities markets. Thus, these securities are not denominated in the
same currency as the securities into which they may be converted. In addition,
the issuers of the securities underlying unsponsored ADRs are not obligated to
disclose material information in the United States and, therefore, there may be
less information available regarding such issuers and there may not be a
correlation between such information and the market value to the ADRs. ADRs may
be purchased through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the underlying security and a
depository, whereas a depository may establish an unsponsored facility without
participation by the issuer of the depository security. Holders of unsponsored
depository receipts generally bear all the costs of such facilities and the
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through voting rights to the holders of such receipts of the
deposited securities. ADRs are not necessarily denominated in the same currency
as the underlying securities to which they may be connected. Generally, ADRs in
registered form are designed for use in the U.S. securities market and ADRs in
bearer form are designed for use outside the United States.
INTERNATIONAL SECURITIES FUND, GROWTH FUND, BLUE CHIP FUND, DISCOVERY
FUND, UTILITIES INCOME FUND and FOCUSED EQUITY FUND may also invest in sponsored
and unsponsored GDRs. GDRs are issued globally and evidence a similar ownership
arrangement. Generally, GDRs are designed for trading in non-U.S. securities
markets. GDRs are considered to be foreign securities by these Funds.
BANKERS' ACCEPTANCES. Each Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
CERTIFICATES OF ACCRUAL ON U.S. TREASURY SECURITIES. GOVERNMENT FUND may
purchase certificates, not issued by the U.S. Treasury, which evidence ownership
of future interest, principal or interest and principal payments on obligations
issued by the U.S. Treasury. The actual U.S. Treasury securities will be held by
a custodian on behalf of the certificate holder. These certificates are
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purchased with original issue discount and are subject to greater fluctuations
in market value, based upon changes in market interest rates, than
income-producing securities.
CERTIFICATES OF DEPOSIT. Each Fund may invest in bank certificates of
deposit. The FDIC is an agency of the U.S. Government which insures the deposits
of certain banks and savings and loan associations up to $100,000 per deposit.
The interest on such deposits may not be insured if this limit is exceeded.
Current Federal regulations also permit such institutions to issue insured
negotiable CDs in amounts of $100,000 or more, without regard to the interest
rate ceilings on other deposits. To remain fully insured, these investments
currently must be limited to $100,000 per insured bank or savings and loan
association.
COMMERCIAL PAPER. Commercial paper is a promissory note issued by a
corporation to finance short-term credit needs which may either be unsecured or
backed by a letter of credit. Commercial paper includes notes, drafts or similar
instruments payable on demand or having a maturity at the time of issuance not
exceeding nine months, exclusive of days of grace or any renewal thereof. See
Appendix A for a description of commercial paper ratings.
CONVERTIBLE SECURITIES. Each Fund, other than CASH MANAGEMENT FUND, TARGET
MATURITY 2007 FUND, TARGET MATURITY 2010 FUND and TARGET MATURITY 2015 FUND, may
invest in convertible securities. A convertible security is a bond, debenture,
note, preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issuer within
a particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock because they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. While
no securities investment is without some risk, investments in convertible
securities generally entail less risk than the issuer's common stock, although
the extent to which such risk is reduced depends in large measure upon the
degree to which the convertible security sells above its value as a fixed income
security. The Adviser or, for GROWTH FUND and INTERNATIONAL SECURITIES FUND, the
Subadviser will decide to invest based upon a fundamental analysis of the
long-term attractiveness of the issuer and the underlying common stock, the
evaluation of the relative attractiveness of the current price of the underlying
common stock and the judgment of the value of the convertible security relative
to the common stock at current prices.
DEBT SECURITIES. BLUE CHIP FUND, FOCUSED EQUITY FUND, GOVERNMENT FUND,
GROWTH FUND, HIGH YIELD FUND, INVESTMENT GRADE FUND, TARGET MATURITY 2007 FUND,
TARGET MATURITY 2010 FUND, TARGET MATURITY 2015 FUND, and UTILITIES INCOME FUND
may invest in debt securities. The market value of debt securities is influenced
primarily by changes in the level of interest rates. Generally, as interest
rates rise, the market value of debt securities decreases. Conversely, as
interest rates fall, the market value of debt securities increases. Factors
which could result in a rise in interest rates, and a decrease in the market
value of debt securities, include an increase in inflation or inflation
expectations, an increase in the rate of U.S. economic growth, an expansion in
the Federal budget deficit or an increase in the price of commodities such as
oil. In addition, the market value of debt securities is influenced by
perceptions of the credit risks associated with such securities. Credit risk is
the risk that adverse changes in economic conditions can affect an issuer's
ability to pay principal and interest. Sale of debt securities prior to maturity
may result in a loss and the inability to replace the sold securities with debt
securities with a similar yield. 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 "High Yield Securities" and Appendix C for a
description of corporate bond ratings.
DEEP DISCOUNT SECURITIES. HIGH YIELD FUND may invest up to 15% of its
total assets in securities of companies that are financially troubled, in
default or undergoing bankruptcy or reorganization. Such securities are usually
available at a deep discount from the face value of the instrument. The Fund
will invest in Deep Discount Securities when the Adviser believes that there
exist factors that are likely to restore the company to a healthy financial
condition. Such factors include a restructuring of debt, management changes,
existence of adequate assets or other unusual circumstances. Debt instruments
purchased at deep discounts may pay very high effective yields. In addition, if
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the financial condition of the issuer improves, the underlying value of the
security may increase, resulting in a capital gain. If the company defaults on
its obligations or remains in default, or if the plan of reorganization is
insufficient for debtholders, the Deep Discount Securities may stop paying
interest and lose value or become worthless. The Adviser will attempt to balance
the benefits of investing in Deep Discount Securities with their risks. While a
diversified portfolio may reduce the overall impact of a Deep Discount Security
that is in default or loses its value, the risk cannot be eliminated. See "High
Yield Securities," below. High Yield Securities are subject to certain risks
that may not be present with investments in higher grade debt securities.
EURODOLLAR CERTIFICATES OF DEPOSIT. CASH MANAGEMENT FUND may invest in
Eurodollar CDs, which are issued by London branches of domestic or foreign
banks. Such securities involve risks that differ from certificates of deposit
issued by domestic branches of U.S. banks. These risks include future political
and economic developments, the possible imposition of United Kingdom withholding
taxes on interest income payable on the securities, the possible establishment
of exchange controls, the possible seizure or nationalization of foreign
deposits or the adoption of other foreign governmental restrictions that might
adversely affect the payment of principal and interest on such securities.
FOREIGN GOVERNMENT OBLIGATIONS. HIGH YIELD FUND AND INVESTMENT GRADE FUND
may invest in foreign government obligations, which generally consist of
obligations supported by national, state or provincial governments or similar
political subdivisions. Investments in foreign government debt obligations
involve special risks. The issuer of the debt may be unable or unwilling to pay
interest or repay principal when due in accordance with the terms of such debt,
and the Fund may have limited legal resources in the event of default. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance.
FOREIGN SECURITIES. INTERNATIONAL SECURITIES FUND, HIGH YIELD FUND,
DISCOVERY FUND, BLUE CHIP FUND, UTILITIES INCOME FUND and FOCUSED EQUITY FUND
may sell a security denominated in a foreign currency and retain the proceeds in
that foreign currency to use at a future date (to purchase other securities
denominated in that currency), or these Funds may buy foreign currency outright
to purchase securities denominated in that foreign currency at a future date.
These Funds currently do not intend to hedge their foreign investments against
the risk of foreign currency fluctuations. Changes in the value of foreign
currencies can therefore significantly affect a Fund's share price. GROWTH FUND
AND INVESTMENT GRADE FUND may invest in securities issued by foreign companies
that are denominated in U.S. currency.
Investing in foreign securities involves more risk than investing in
securities of U.S. companies. A Fund can be affected by changes in exchange
control regulations, as well as by economic and political developments. There
may be less publicly available information about foreign companies than
comparable U.S. companies; foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards that are
comparable to those applied to U.S. companies; some foreign trading markets have
substantially less volume than U.S. markets, and securities of some foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies; there may be less government supervision and regulation of foreign
stock exchanges, brokers and listed companies than exist in the United States;
and there may be the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments which could affect
assets of a Fund held in foreign countries.
Investments in emerging markets by INTERNATIONAL SECURITIES FUND,
DISCOVERY FUND and FOCUSED EQUITY FUND may include investments in countries
whose economies or securities markets are not yet highly developed. Special
considerations associated with these emerging market investments (in addition to
the considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, a limited number of potential buyers for such
securities and delays and disruptions in securities settlement procedures.
HIGH YIELD SECURITIES. BLUE CHIP FUND, FOCUSED EQUITY FUND, HIGH YIELD
FUND and INVESTMENT GRADE FUND and UTILITIES INCOME FUND may invest in High
Yield Securities. High Yield Securities are subject to certain risks that may
not be present with investments in higher grade securities.
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EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. High Yield Securities 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. The prices of High Yield Securities tend to
be less sensitive to interest rate changes than higher-rated investments, but
may be more sensitive to adverse economic changes or individual corporate
developments. Periods of economic uncertainty and changes generally result in
increased volatility in the market prices and yields of High Yield Securities
and thus in a Fund's net asset value. A significant economic downturn or a
substantial period of rising interest rates could severely affect the market for
High Yield Securities. In these circumstances, highly leveraged companies might
have greater difficulty in making principal and interest payments, meeting
projected business goals, and obtaining additional financing. Thus, there could
be a higher incidence of default. This would affect the value of such securities
and thus a Fund's net asset value. Further, if the issuer of a security owned by
a Fund defaults, that Fund might incur additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, a Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a Fund experiences unexpected net redemptions in a
rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Fund expenses could be allocated and in a reduced rate of return for that
Fund. While it is impossible to protect entirely against this risk,
diversification of a Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities helps to minimize the impact of a decrease in
value of a particular security or group of securities in a Fund's portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below investment grade
bonds expanded rapidly in recent years and its growth paralleled a long economic
expansion. In the past, the prices of many lower-rated debt securities declined
substantially, reflecting an expectation that many issuers of such securities
might experience financial difficulties. As a result, the yields on lower-rated
debt securities rose dramatically. However, such higher yields did not reflect
the value of the income streams that holders of such securities expected, but
rather the risk that holders of such securities could lose a substantial portion
of their value as a result of the issuers' financial restructuring or default.
There can be no assurance that such declines in the below investment grade
market will not reoccur. The market for below investment grade bonds generally
is thinner and less active than that for higher quality bonds, which may limit a
Fund's ability to sell such securities at fair value in response to changes in
the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.
CREDIT RATINGS. The credit ratings issued by credit rating services may
not fully reflect the true risks of an investment. For example, credit ratings
typically evaluate the safety of principal and interest payments, not market
value risk, of High Yield Securities. Also, credit rating agencies may fail to
change on a timely basis a credit rating to reflect changes in economic or
company conditions that affect a security's market value. HIGH YIELD FUND may
invest in securities rated as low as D by S&P or C by Moody's or, if unrated,
deemed to be of comparable quality by the Adviser. Debt obligations with these
ratings either have defaulted or are in great danger of defaulting and are
considered to be highly speculative. See "Deep Discount Securities." The Adviser
continually monitors the investments in a Fund's portfolio and carefully
evaluates whether to dispose of or retain High Yield Securities whose credit
ratings have changed. See Appendix C for a description of corporate bond
ratings.
LIQUIDITY AND VALUATION. Lower-rated bonds are typically traded among a
smaller number of broker-dealers than in a broad secondary market. Purchasers of
High Yield Securities tend to be institutions, rather than individuals, which is
a factor that further limits the secondary market. To the extent that no
established retail secondary market exists, many High Yield Securities may not
be as liquid as higher-grade bonds. A less active and thinner market for High
Yield Securities than that available for higher quality securities may result in
more volatile valuations of a Fund's holdings and more difficulty in executing
trades at favorable prices during unsettled market conditions.
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The ability of a Fund to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. During such periods, there may be less reliable objective information
available and thus the responsibility of Life Series Fund's Board of Trustees to
value High Yield Securities becomes more difficult, with judgment playing a
greater role. Further, adverse publicity about the economy or a particular
issuer may adversely affect the public's perception of the value, and thus
liquidity, of a High Yield Security, whether or not such perceptions are based
on a fundamental analysis.
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 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; a Fund pays only
reasonable custodian fees in connection with the loan; and the Adviser or the
Subadviser monitors the creditworthiness of the borrower throughout the life of
the loan. Such loans may be terminated by a Fund at any time and a 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. Each Fund may make loans, together with illiquid
securities, not in excess of 10% of its total assets.
MORTGAGE-BACKED SECURITIES. BLUE CHIP FUND, FOCUSED EQUITY FUND,
GOVERNMENT FUND, HIGH YIELD FUND, INVESTMENT GRADE FUND and UTILITIES INCOME
FUND may invest in mortgage-backed securities, including those representing an
undivided ownership interest in a pool of mortgage loans. Mortgage loans made by
banks, savings and loan institutions and other lenders are often assembled into
pools, the interests in which are issued and guaranteed by an agency or
instrumentality of the U.S. Government, though not necessarily by the U.S.
Government itself. Interests in such pools are referred to herein as
"mortgage-backed securities." The market value of these securities will
fluctuate as interest rates and market conditions change. In addition,
prepayment of principal by the mortgagees, which often occurs with
mortgage-backed securities when interest rates decline, can significantly change
the realized yield of these securities.
Each of the certificates described below is characterized by monthly
payments to the security holder, reflecting the monthly payments made by the
mortgagees of the underlying mortgage loans. The payments to the security
holders (such as the Fund), like the payments on the underlying loans, represent
both principal and interest. Although the underlying mortgage loans are for
specified periods of time, such as twenty to thirty years, the borrowers can,
and typically do, repay them sooner. Thus, the security holders frequently
receive prepayments of principal, in addition to the principal which is part of
the regular monthly payments. A borrower is more likely to prepay a mortgage
which bears a relatively high rate of interest. Thus, in times of declining
interest rates, some higher yielding mortgages might be repaid, resulting in
larger cash payments to a Fund, and a Fund will be forced to accept lower
interest rates when that cash is used to purchase additional securities.
Interest rate fluctuations may significantly alter the average maturity of
mortgage-backed securities, due to the level of refinancing by homeowners. When
interest rates rise, prepayments often drop, which should increase the average
maturity of the mortgage-backed security. Conversely, when interest rates fall,
prepayments often rise, which should decrease the average maturity of the
mortgage-backed security.
GNMA CERTIFICATES. GNMA certificates ("GNMA Certificates") are
mortgage-backed securities, which evidence an undivided interest in a pool of
mortgage loans. GNMA Certificates differ from bonds in that principal is paid
back monthly by the borrower over the term of the loan rather than returned in a
lump sum at maturity. GNMA Certificates that the Fund purchases are the
"modified pass-through" type. "Modified pass-through" GNMA Certificates entitle
the holder to receive a share of all interest and principal payments paid and
owed on the mortgage pool net of fees paid to the "issuer" and GNMA, regardless
of whether or not the mortgagor actually makes the payment.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers'
Home Administration ("FMHA"), or guaranteed by the Department of Veteran Affairs
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("VA"). The GNMA guarantee is backed by the full faith and credit of the U.S.
Government. GNMA also is empowered to borrow without limitation from the U.S.
Treasury if necessary to make any payments required under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before maturity of the mortgages in the pool. The Fund normally
will not distribute principal payments (whether regular or prepaid) to its
shareholders. Rather, it will invest such payments in additional mortgage-backed
securities of the types described above. Interest received by the Fund will,
however, be distributed to shareholders. Foreclosures impose no risk to
principal investment because of the GNMA guarantee. As prepayment rates of the
individual mortgage pools vary widely, it is not possible to predict accurately
the average life of a particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest on
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates by the amount of the fees paid
to GNMA and the issuer. The coupon rate by itself, however, does not indicate
the yield which will be earned on GNMA Certificates. First, Certificates may
trade in the secondary market at a premium or discount. Second, interest is
earned monthly, rather than semi-annually as with traditional bonds; monthly
compounding raises the effective yield earned. Finally, the actual yield of a
GNMA Certificate is influenced by the prepayment experience of the mortgage pool
underlying it. For example, if the higher-yielding mortgages from the pool are
prepaid, the yield on the remaining pool will be reduced.
FHLMC SECURITIES. FHLMC issues two types of mortgage pass-through
securities, mortgage participation certificates ("PCs") and guaranteed mortgage
certificates ("GMCs"). PCs resemble GNMA Certificates in that each PC represents
a pro rata share of all interest and principal payments made and owed on the
underlying pool.
FNMA SECURITIES. FNMA issues guaranteed mortgage pass-through certificates
("FNMA Certificates"). FNMA Certificates resemble GNMA Certificates in that each
FNMA Certificate represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely payment of
interest on FNMA Certificates and the full return of principal.
GNMA certificates are backed as to the timely payment of principal and
interest by the full faith and credit of the U.S. Government. Payments of
principal and interest on FNMA certificates are guaranteed only by FNMA itself,
not by the full faith and credit of the U.S. Government. FHLMC certificates
represent mortgages for which FHLMC has guaranteed the timely payment of
principal and interest but, like a FNMA certificate, they are not guaranteed by
the full faith and credit of the U.S. Government. Risk of foreclosure of the
underlying mortgages is greater with FHLMC and FNMA securities because, unlike
GNMA Certificates, FHLMC and FNMA securities are not guaranteed by the full
faith and credit of the U.S. Government.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
SECURITIES. CMOs are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by GNMA
certificates or other government mortgage-backed securities (such collateral
collectively hereinafter referred to as "Mortgage Assets"). Multiclass
pass-through securities are interests in trusts that are comprised of Mortgage
Assets. Unless the context indicates otherwise, references herein to CMOs
include multiclass pass-through securities. Payments of principal of, and
interest on, the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or to make scheduled distributions on
the multiclass pass-through securities. CMOs in which Government Fund may invest
are issued or guaranteed by U.S. Government agencies or instrumentalities, such
as FNMA and FHLMC.
STRIPPED MORTGAGE-BACKED SECURITIES. GOVERNMENT FUND, TARGET MATURITY 2007
FUND, TARGET MATURITY 2010 FUND and TARGET MATURITY 2015 FUND may invest in
stripped mortgage-backed securities ("SMBS"), which are derivative multiclass
mortgage securities. SMBS are usually structured with two classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage assets. A common type of SMBS will have one class receiving most of the
interest and the remainder of the principal. In the most extreme case, one class
will receive all of the interest while the other class will receive all of the
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principal. If the underlying Mortgage Assets experience greater than anticipated
prepayments of principal, the Fund may fail to fully recoup its initial
investment in these securities. The market value of the class consisting
primarily or entirely of principal payments generally is unusually volatile in
response to changes in interest rates.
RISKS OF MORTGAGE-BACKED SECURITIES. Investments in mortgage-backed
securities entail market, prepayment and extension risk. Fixed-rate
mortgage-backed securities are priced to reflect, among other things, current
and perceived interest rate conditions. As conditions change, market values will
fluctuate. In addition, the mortgages underlying mortgage-backed securities
generally may be prepaid in whole or in part at the option of the individual
buyer. Prepayment generally increases when interest rates decline. Prepayments
of the underlying mortgages can affect the yield to maturity on mortgage-backed
securities and, if interest rates decline, the prepayment may only be invested
at the then prevailing lower interest rate. As a result, mortgage-backed
securities may have less potential for capital appreciation during periods of
declining interest rates as compared with other U.S. Government securities with
comparable stated maturities. Conversely, rising interest rates may cause
prepayment rates to occur at a slower than expected rate. This may effectively
lengthen the life of a security, which is known as extension risk. Longer term
securities generally fluctuate more widely in response to changes in interest
rates than shorter term securities. Changes in market conditions, particularly
during periods of rapid or unanticipated changes in market interest rates, may
result in volatility and reduced liquidity of the market value of certain
mortgage-backed securities.
PARTICIPATION INTERESTS. Participation interests which may be held by
GOVERNMENT FUND are pro rata interests in securities held either by banks which
are members of the Federal Reserve System or securities dealers who are members
of a national securities exchange or are market makers in government securities,
which are represented by an agreement in writing between the Fund and the entity
in whose name the security is issued, rather than possession by the Fund. The
Fund will purchase participation interests only in securities otherwise
permitted to be purchased by the Fund, and only when they are evidenced by
deposit, safekeeping receipts, or book-entry transfer, indicating the creation
of a security interest in favor of the Fund in the underlying security. However,
the issuer of the participation interests to the Fund will agree in writing,
among other things: to promptly remit all payments of principal, interest and
premium, if any, to the Fund once received by the issuer; to repurchase the
participation interest upon seven days' notice; and to otherwise service the
investment physically held by the issuer, a portion of which has been sold to
the Fund.
PREFERRED STOCK. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and, unlike common stock, its participation in the issuer's growth may be
limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
REPURCHASE AGREEMENTS. A repurchase agreement essentially is a short-term
collateralized loan. The lender (a Fund) agrees to purchase a security from a
borrower (typically a broker-dealer) at a specified price. The borrower
simultaneously agrees to repurchase that same security at a higher price on a
future date (which typically is the next business day). The difference between
the purchase price and the repurchase price effectively constitutes the payment
of interest. In a standard repurchase agreement, the securities which serve as
collateral are transferred to a Fund's custodian bank. In a "tri-party"
repurchase agreement, these securities would be held by a different bank for the
benefit of the Fund as buyer and the broker-dealer as seller. In a "quad-party"
repurchase agreement, the Fund's custodian bank also is made a party to the
agreement. Each Fund may enter into repurchase agreements with banks which are
members of the Federal Reserve System or securities dealers who are members of a
national securities exchange or are market makers in government securities.
GOVERNMENT FUND may enter into repurchase agreements only where the debt
instrument subject to the agreement is a U.S. Government Obligation. The period
of these repurchase agreements will usually be short, from overnight to one
week, and at no time will a Fund invest in repurchase agreements with more than
one year in time to maturity. The securities which are subject to repurchase
agreements, however, may have maturity dates in excess of one year from the
effective date of the repurchase agreement. Each Fund will always receive, as
collateral, securities whose market value, including accrued interest, which
will at all times be at least equal to 100% of the dollar amount invested by the
Fund in each agreement, and the Fund will make payment for such securities only
upon physical delivery or evidence of book entry transfer to the account of the
custodian. If the seller defaults, a Fund might incur a loss if the value of the
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collateral securing the repurchase agreement declines, and might incur
disposition costs in connection with liquidating the collateral. In addition, if
bankruptcy or similar proceedings are commenced with respect to the seller of
the security, realization upon the collateral by a Fund may be delayed or
limited.
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS. No Fund, other than CASH
MANAGEMENT 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. CASH MANAGEMENT
FUND may invest up to 10% of its net assets in illiquid securities. This policy
includes foreign issuers' unlisted securities with a limited trading market and
repurchase agreements maturing in more than seven days. This policy does not
include restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended ("1933 Act"), which the Board or the
Adviser or a Fund Subadviser has determined under Board-approved guidelines are
liquid.
Under current guidelines of the staff of the Securities and Exchange
Commission ("SEC"), interest-only and principal-only classes of fixed-rate
mortgage-backed securities in which GOVERNMENT FUND may invest are considered
illiquid. However, such securities issued by the U.S. Government or one of its
agencies or instrumentalities will not be considered illiquid if the Adviser has
determined that they are liquid pursuant to guidelines established by the Board.
GOVERNMENT FUND, TARGET MATURITY 2007 FUND, TARGET MATURITY 2010 FUND and TARGET
MATURITY 2015 FUND may not be able to sell illiquid securities when the Adviser
considers it desirable to do so or may have to sell such securities at a price
lower than could be obtained if they were more liquid. Also the sale of illiquid
securities may require more time and may result in higher dealer discounts and
other selling expenses than does the sale of securities that are not illiquid.
Illiquid securities may be more difficult to value due to the unavailability of
reliable market quotations for such securities, and investment in illiquid
securities may have an adverse impact on these Fund's net asset value.
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at reasonable prices.
OTC options and their underlying collateral are also considered illiquid
investments. FOCUSED EQUITY FUND AND INTERNATIONAL SECURITIES FUND may invest in
OTC options. If either of those Funds did so, the assets used as cover for OTC
options written by the Fund would not be considered illiquid unless the OTC
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options were sold to qualified dealers who agreed that the Fund may repurchase
any OTC option it wrote 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 exceeded the intrinsic value of the option.
STRIPPED U.S. TREASURY SECURITIES. GOVERNMENT FUND, TARGET MATURITY 2007
FUND, TARGET MATURITY 2010 FUND and TARGET MATURITY 2015 FUND may invest in
separated or divided U.S. Treasury securities. These instruments represent a
single interest, or principal, payment on a U.S. Treasury bond which has been
separated from all the other interest payments as well as the bond itself. When
a Fund purchases such an instrument, it purchases the right to receive a single
payment of a set sum at a known date in the future. The interest rate on such an
instrument is determined by the price a Fund pays for the instrument when it
purchases the instrument at a discount under what the instrument entitles a Fund
to receive when the instrument matures. The amount of the discount a Fund will
receive will depend upon the length of time to maturity of the separated U.S.
Treasury security and prevailing market interest rates when the separated U.S.
Treasury security is purchased. Separated U.S. Treasury securities can be
considered a zero coupon investment because no payment is made to a Fund until
maturity. The market values of these securities are much more susceptible to
change in market interest rates than income-producing securities. These
securities are purchased with original issue discount and such discount is
includable as gross income to a Fund shareholder over the life of the security.
TIME DEPOSITS. CASH MANAGEMENT FUND may invest in time deposits. Time
deposits are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. For the most part, time
deposits that may be held by the Fund would not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the FDIC.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in U.S. Government
Obligations. U.S. Government Obligations include (1) U.S. Treasury obligations
(which differ only in their interest rates, maturities and times of issuance),
and (2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are backed by the full faith and credit of the United
States (such as securities issued by the Federal Housing Administration,
Government National Mortgage Association, the Department of Housing and Urban
Development, the Export-Import Bank, the General Services Administration and the
Maritime Administration and certain securities issued by the Farmers Home
Administration and the Small Business Administration). The range of maturities
of U.S. Government Obligations is usually three months to thirty years.
UTILITIES INDUSTRIES. Many utilities companies, especially electric and
gas and other energy-related utilities companies, have historically been subject
to the risk of increases in fund and other operating costs, changes in interest
rates on borrowing for capital improvement programs, changes in applicable laws
and regulations, and costs and operating constraints associated with compliance
with environmental regulations.
In recent years, regulatory changes in the United States have increasingly
allowed utilities companies to provide services and products outside their
traditional geographical areas and line of business, creating new areas of
competition with the utilities industries. This trend towards deregulation and
the emergence of new entrants have caused non-regulated providers of utilities
services to become a significant part of the utilities industries. The Adviser
believes that the emergence of competition and deregulation will result in
certain utilities companies being able to earn more than their traditional
regulated rates of return, while others may be forced to defend their core
business from increased competition and may be less profitable.
Certain utilities, especially gas and telephone utilities, have in recent
years been affected by increased competition, which could adversely affect the
profitability of such utilities companies. In addition, expansion by companies
engaged in telephone communication services of their non-regulated activities
into other businesses (such as cellular telephone services, data processing
equipment retailing, computer services and financial services) has provided the
opportunity for increases in earnings and dividends at faster rates than have
been allowed in traditional regulated businesses. However, technological
innovations and other structural changes also could adversely affect the
profitability of such companies. Although the Adviser seeks to take advantage of
favorable investment opportunities that may arise from these structural changes
there can be no assurance that the Fund will benefit from any such changes.
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Foreign utilities companies may be more heavily regulated than U.S.
utilities companies, which may result in increased costs or otherwise adversely
affect the operations of such companies. The securities of foreign utilities
companies also have lower dividend yields than U.S. utilities companies. The
Fund's investments in foreign issuers may include recently privatized
enterprises, in which the Fund's participation may be limited or otherwise
affected by local law. There can be no assurance that governments with
privatization programs will continue such programs or that privatization will
succeed in such countries.
Because securities issued by utilities companies are particularly
sensitive to movement in interest rates, the equity securities of such companies
are more affected by movements in interest rates than are the equity securities
of other companies.
Each of these risks could adversely affect the ability and inclination of
public utilities companies to declare or pay dividends and the ability of
holders of common stock, such as UTILITIES INCOME FUND, to realize any value
from the assets of the company upon liquidation or bankruptcy.
VARIABLE RATE AND FLOATING RATE NOTES. CASH MANAGEMENT FUND may invest in
derivative variable rate and floating rate notes. Issuers of such notes include
corporations, banks, broker-dealers and finance companies. Variable rate notes
include master demand notes which are obligations permitting the holder to
invest fluctuating amounts, that may change daily without penalty, pursuant to
direct arrangements between the Fund, as lender, and the borrower. The interest
rates on these notes fluctuate from time to time. The issuer of such obligations
normally has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations.
The interest rate on a floating rate obligation is based on a known
lending rate, such as a bank's prime rate, and is adjusted automatically each
time such rate is adjusted. The interest rate on a variable rate obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there is generally no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the right of the Fund to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies. The Fund will invest in obligations
that are unrated only if the Adviser determines that, at the time of investment,
the obligations are of comparable quality to the other obligations in which the
Fund may invest. The Adviser, on behalf of the Fund, will consider on an ongoing
basis the creditworthiness of the issuers of the floating and variable rate
obligations in the Fund's portfolio.
VARIABLE RATE DEMAND INSTRUMENTS. CASH MANAGEMENT FUND may invest in
variable rate demand instruments ("VRDIs"). VRDIs generally are revenue bonds,
issued primarily by or on behalf of public authorities, and are not backed by
the taxing power of the issuing authority. The interest on VRDIs is adjusted
periodically, and the holder of a VRDI can demand payment of all unpaid
principal plus accrued interest from the issuer on not more than seven calendar
days' notice. An unrated VRDI purchased by the Fund must be backed by a standby
letter of credit of a creditworthy financial institution or a similar obligation
of at least equal quality. The Fund periodically reevaluates the credit risks of
such unrated instruments. There is a recognized after-market for VRDIs. VRDIs
may include instruments where adjustments to interest rates are limited either
by state law or the instruments themselves. As a result, these instruments may
experience greater changes in value than would otherwise be the case. The
maturity of VRDIs is deemed to be the longer of the (a) demand period or (b)
time remaining until the next adjustment to the interest rate thereon,
regardless of the stated maturity on the instrument. Benefits of investing in
VRDIs may include reduced risk of capital depreciation and increased yield when
market interest rates rise. However, owners of such instruments forego the
opportunity for capital appreciation when market interest rates fall.
WARRANTS. FOCUSED EQUITY FUND, HIGH YIELD FUND, INTERNATIONAL SECURITIES
FUND and UTILITIES INCOME FUND may purchase warrants, which are instruments that
permit the Fund to acquire, by subscription, the capital stock of a corporation
at a set price, regardless of the market price for such stock. Warrants may be
either perpetual or of limited duration. There is a greater risk that warrants
might drop in value at a faster rate than the underlying stock. HIGH YIELD FUND
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may invest up to 35% of its total assets in warrants. International Securities
Fund may invest up to 15% of its total assets in warrants. UTILITIES INCOME FUND
may invest up to 65% of its total assets in warrants.
WHEN-ISSUED SECURITIES. FOCUSED EQUITY FUND, GROWTH FUND, HIGH YIELD FUND,
INTERNATIONAL SECURITIES FUND, INVESTMENT GRADE FUND, TARGET MATURITY 2007 FUND,
TARGET MATURITY 2010 FUND, TARGET MATURITY 2015 FUND and UTILITIES INCOME FUND
may each invest up to 5%, and GOVERNMENT FUND may invest up to 25%, of its net
assets in securities issued on a when-issued or delayed delivery 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 and records or with its custodian consisting of
cash or liquid high-grade debt securities equal to the amount of the Fund's
commitment, which are valued at their fair market value. If on any day the
market value of this segregated account falls below the value of a 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 securities a Fund is committed to purchase. Sale of
securities in the segregated account or sale of the when-issued securities may
cause the realization of a capital gain or loss.
ZERO COUPON AND PAY-IN-KIND SECURITIES. Zero coupon securities are debt
obligations that do not entitle the holder to any periodic payment of interest
prior to maturity or a specified date when the securities begin paying current
interest. They are issued and traded at a discount from their face amount or par
value, which discount varies depending on the time remaining until cash payments
begin, prevailing interest rates, liquidity of the security and the perceived
credit quality of the issuer. Pay-in-kind securities are those that pay interest
through the issuance of additional securities. Original issue discount earned
each year on zero coupon securities and the "interest" on pay-in-kind securities
must be accounted for by the Fund that holds the securities for purposes of
determining the amount it must distribute that year to continue to qualify for
tax treatment as a regulated investment company. Thus, a Fund may be required to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. See "Taxes." These distributions must be made from a
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. 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.
ZERO COUPON SECURITIES-RISK FACTORS. Zero coupon securities are debt
securities and thus are subject to the same risk factors as all debt securities.
See "Debt Securities-Risk Factors." The market prices of zero coupon securities,
however, 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. As a result, the net asset value of
shares of the TARGET MATURITY 2007 FUND, TARGET MATURITY 2010 FUND and TARGET
MATURITY 2015 FUND may fluctuate over a greater range than shares of the other
Funds or mutual funds that invest in debt obligations having similar maturities
but that make current distributions of interest.
Zero coupon securities can be sold prior to their due date in the
secondary market at their then prevailing market value, which depends primarily
on the time remaining to maturity, prevailing levels of interest rates and the
perceived credit quality of the issuer. The prevailing market value may be more
or less than the securities' value at the time of purchase. While the objective
of the TARGET MATURITY 2007 FUND, TARGET MATURITY 2010 FUND and TARGET MATURITY
2015 FUND is to seek a predictable compounded investment return for investors
who hold their Fund shares until that Fund's maturity, a Fund cannot assure that
it will be able to achieve a certain level of return due to the possible
necessity of having to sell certain zero coupon securities to pay expenses,
dividends or to meet redemptions at times and at prices that might be
disadvantageous or, alternatively, the need to invest assets received from new
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purchases at prevailing interest rates, which would expose a Fund to
reinvestment risk. In addition, no assurance can be given as to the liquidity of
the market for certain of these securities. Determination as to the liquidity of
such securities will be made in accordance with guidelines established by the
Board. In accordance with such guidelines, the Adviser will monitor each Fund's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information.
PORTFOLIO TURNOVER
Although each Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold from time to time without regard to
the length of time they have been held when, in the opinion of the Fund's
Adviser or Subadviser, 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."
The rate of portfolio turnover for the fiscal year ended December 31, 1998
for the BLUE CHIP FUND, DISCOVERY FUND, GOVERNMENT FUND, GROWTH FUND, HIGH YIELD
FUND, INTERNATIONAL SECURITIES FUND, INVESTMENT GRADE FUND, TARGET MATURITY 2007
FUND, TARGET MATURITY 2010 FUND And UTILITIES INCOME FUND was 91%, 121%, 107%,
26%, 42%, 109%, 60%, 1%, 0%, and 105%, respectively. The rate of portfolio
turnover for the fiscal year ended December 31, 1999 for the BLUE CHIP FUND,
DISCOVERY FUND, GOVERNMENT FUND, GROWTH FUND, HIGH YIELD FUND, INTERNATIONAL
SECURITIES FUND, INVESTMENT GRADE FUND, TARGET MATURITY 2007 FUND, TARGET
MATURITY 2010 FUND, and UTILITIES INCOME FUND was 91%, 109%, 69%, 38%, 33%,
118%, 27%, 2%, 9%, and 53%, respectively. For the period November 8, 1999 to
December 31, 1999, the rate of portfolio turnover for the FOCUSED EQUITY FUND
and TARGET MATURITY 2015 FUND was 12% and 0%.
FUTURES AND OPTIONS STRATEGIES
None of the Funds other than the FOCUSED EQUITY FUND and INTERNATIONAL
SECURITIES FUND currently intends to engage in futures and options trading.
(Accordingly, reference in this section to "a Fund" or "each Fund" refers to the
FOCUSED EQUITY FUND or INTERNATIONAL SECURITIES FUND.) The following discussion
describes all of the futures and options strategies in which a Fund could
legally engage. The FOCUSED EQUITY FUND engages in such strategies relatively
infrequently and over relatively short periods of time. Furthermore, it is
anticipated that any hedging strategy that the FOCUSED EQUITY FUND may decide to
employ will most likely be effected by buying puts on the overall market or an
index, such as puts on the Standard & Poor's 500 Composite Stock Price Index.
INTERNATIONAL SECURITIES FUND has only been authorized to buy futures contracts
on foreign securities exchanges to gain exposure to a foreign securities market
in advance of making purchases of equity securities in that market, to put cash
at work while seeking equity securities to purchase, and to adjust country
weightings by gaining exposure to a country. INTERNATIONAL SECURITIES FUND has
not been authorized to take short positions in futures contracts to hedge
against a decline in a foreign securities market. The FOCUSED EQUITY FUND and
INTERNATIONAL SECURITIES FUND will only engage in strategies that are also
permitted by the Commodities Futures Trading Commission ("CFTC").
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. Use of these instruments is
subject to the applicable regulations of the SEC, the several options and
futures exchanges upon which options and futures contracts are traded and the
CFTC. The discussion of these strategies does not imply that the Fund will use
them to hedge against risks or for any other purpose.
Each Fund may buy and sell put and call options on stock indices in
domestic or foreign securities and foreign currencies that are traded on
national securities exchanges or in the OTC market to enhance income or to hedge
the Fund's portfolio. Each Fund also may write put and covered call options to
generate additional income through the receipt of premiums, purchase put options
in an effort to protect the value of a security that it owns against a decline
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in market value and purchase call options in an effort to protect against an
increase in the price of securities (or currencies) it intends to purchase. Each
Fund also may purchase put and call options to offset previously written put and
call options of the same series. Each Fund also may write put and call options
to offset previously purchased put and call options of the same series. Other
than to offset closing transactions, each Fund will write only covered call
options, including options on futures contracts.
Each Fund may buy and sell financial futures contracts and options thereon
that are traded on a commodities exchange or board of trade for hedging
purposes. These futures contracts and related options may be on stock indices,
financial indices, debt securities or foreign currencies. Each Fund also may
enter into forward currency contracts.
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 a Fund's Subadviser'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 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 a Fund's Subadviser's ability to predict correctly movements in
the direction of interest rates and securities prices, (2) imperfect correlation
between the price of options, futures contracts and options thereon and
movements in the prices of the securities being hedged, (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities, and (4) the possible absence of a liquid secondary market
for any particular instrument at any time.
COVER FOR HEDGING AND OPTION INCOME STRATEGIES. The Funds will not use
leverage in its hedging and option income strategies. The Funds will not enter
into a hedging or option income strategy that exposes a Fund to an obligation to
another party unless it owns either (1) an offsetting ("covered") position in
securities, currencies or other options or futures contracts or (2) cash and/or
liquid assets with a value sufficient at all times to cover its potential
obligations. The Funds will comply with guidelines established by the SEC with
respect to coverage of hedging 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, currencies or other
options or futures positions used for cover and securities 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 a Fund's
ability to meet redemption requests or other current obligations.
OPTIONS STRATEGIES. Each Fund may purchase call options on securities that
a Fund's Subadviser intends to include in a Fund's 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 a Fund's potential loss on the option strategy to the option
premium paid; conversely, if the market price of the underlying security
increases above the exercise price and each 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 a 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 a 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, the
Funds will write covered call options on securities generally when a Fund's
Subadviser believes that the premium received by a 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 a Fund. If, however, there is an increase in the market price of the
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underlying security and the option is exercised, a Fund will be obligated to
sell the security at less than its market value. Each 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, and therefore subject to a Fund's
limitation on investments in illiquid securities. See "Restricted Securities and
Illiquid Investments." In addition, the Funds 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 purchase put and call options and write covered call options
on stock indices in much the same manner as the more traditional equity and debt
options discussed above, except that stock index options may serve as a hedge
against overall fluctuations in the securities markets (or a market sector)
rather than anticipated increases or decreases in the value of a particular
security. A stock index assigns relative values to the stock included in the
index and fluctuates with changes in such values. Stock index options operate in
the same way as the more traditional equity options, except that settlements of
stock index options are effected with cash payments and do not involve delivery
of securities. Thus, upon settlement of a stock index option, the purchaser will
realize, and the writer will pay, an amount based on the difference between the
exercise price and the closing price of the stock index. The effectiveness of
hedging techniques using stock index options will depend on the extent to which
price movements in the stock index selected correlate with price movements of
the securities in which each Fund invests.
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. Each Fund may
write covered put options in circumstances when a Fund's Subadviser 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
a Fund would expect to suffer a loss.
Currently, many options on equity securities and options on currencies are
exchange-traded, whereas options on debt securities are primarily traded on the
OTC market. Although many options on currencies are exchange-traded, the
majority of such options are traded on the OTC market. Exchange-traded options
in the U.S. are issued by a clearing organization affiliated with the exchange
on which the option is listed which, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and the opposite party with no clearing organization guarantee.
Thus, when a Fund purchases an OTC option, it relies on the dealer from which it
has purchased the OTC option to make or take delivery of the securities
underlying the option. Failure by the dealer to do so would result in the loss
of the premium paid by a Fund as well as the loss of the expected benefit of the
transaction.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. A Fund may take positions in
options on foreign currencies in order to hedge against the risk of foreign
exchange rate fluctuations on foreign securities the Fund holds in its portfolio
or intends to purchase. For example, if the Fund enters into a contract to
purchase securities denominated in a foreign currency, it could effectively fix
the maximum U.S. dollar cost of the securities by purchasing call options on
that foreign currency. Similarly, if the Fund held securities denominated in a
foreign currency, and anticipated a decline in the value of that currency
against the U.S. dollar, the Fund could hedge against such a decline by
purchasing a put option on the currency involved. The Fund's ability to
establish and close out positions in such options is subject to the maintenance
of a liquid secondary market. Although the Fund will not purchase or write such
options unless and until, in the Subadviser's opinion, the market for them has
developed sufficiently to ensure that the risks in connection with such options
are not greater than the risks in connection with the underlying currency, there
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time. In addition, options on foreign currencies are
affected by all of those factors that influence foreign exchange rates and
investments generally.
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The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market for the underlying foreign currencies at prices that are less
favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
where rates may be less favorable. The interbank market in foreign currencies is
a global, around-the-clock market. To the extent that the U.S. options markets
are closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying markets
that cannot be reflected in the options markets until they reopen.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. Each Fund may
effectively terminate their right or obligation under an option by entering into
a closing transaction. If a Fund wishes to terminate its obligation to sell
securities or currencies 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 or currencies under a call or put option
it has purchased, a Fund may write an option of the same series, as the option
held; this is known as a closing sale transaction. Closing transactions
essentially permit a Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option. Whether a profit or
loss is realized from a closing transaction depends on the price movement of the
underlying index, security or currency and the market value of the option.
The value of an option position will reflect, among other things, the
current market price of the underlying security, stock index or currency, the
time remaining until expiration, the relationship of the exercise price to the
market price, the historical price volatility of the underlying security, stock
index or currency and general market conditions. For this reason, the successful
use of options depends upon a Fund's Subadviser's ability to forecast the
direction of price fluctuations in the underlying securities or currency markets
or, in the case of stock index options, fluctuations in the market sector
represented by the index selected.
Options normally have expiration dates of up to nine months. Unless an
option purchased by each 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.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. The ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market. Although each Fund intends to purchase or write
only those exchange-traded options for which there appears to be a liquid
secondary market, there is no assurance that a liquid secondary market will
exist for any particular option at any particular time. Closing transactions may
be effected with respect to options traded in the OTC markets (currently the
primary markets for options on debt securities) only by negotiating directly
with the other party to the option contract or in a secondary market for the
option if such market exists. Although each 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 the 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 each 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 each Fund's ability to sell a
portfolio security or make an investment at a time when such a sale or
investment might be advantageous.
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Stock index options are settled exclusively in cash. If a Fund purchases
an option on a stock index, the option is settled based on the closing value of
the index on the exercise date. Thus, a holder of a stock index option who
exercises it before the closing index value for that day is available runs the
risk that the level of the underlying index may subsequently change. For
example, in the case of a call option, if such a change causes the closing index
value to fall below the exercise price of the option on the index, the
exercising holder will be required to pay the difference between the closing
index value and the exercise price of the option.
Each 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. The Funds may
sell foreign currency futures contracts to hedge against possible variations in
the exchange rate of the foreign currency in relation to the U.S. dollar. In
addition, International Securities Funds may sell foreign currency futures
contracts when a Fund's Subadviser anticipates a general weakening of foreign
currency exchange rates that could adversely affect the market value of the
Fund's foreign securities holdings. In this case, the sale of futures contracts
on the underlying currency may reduce the risk to each Fund of a reduction in
market value caused by foreign currency variations and, by so doing, provide an
alternative to the liquidation of securities positions and resulting transaction
costs. When a Fund's Subadviser anticipates a significant foreign exchange rate
increase while intending to invest in a security denominated in that currency,
each Fund may purchase a foreign currency futures contract to hedge against that
increase pending completion of the anticipated transaction. Such a purchase
would serve as a temporary measure to protect a Fund against any rise in the
foreign exchange rate that may add additional costs to acquiring the foreign
security position. Each Fund also may purchase call or put options on foreign
currency futures contracts to obtain a fixed foreign exchange rate at limited
risk. Each Fund may purchase a call option on a foreign currency futures
contract to hedge against a rise in the foreign exchange rate while intending to
invest in a security denominated in that currency. Each Fund may purchase put
options or write call options on foreign currency futures contracts as a partial
hedge against a decline in the foreign exchange rates or the value of its
foreign portfolio securities.
Each Fund may sell stock index futures contracts in anticipation of a
general market or market sector decline that could adversely affect the market
value of each Fund's portfolio. To the extent that a portion of each Fund's
portfolio correlates with a given stock index, the sale of futures contracts on
that index could reduce the risks associated with a market decline and thus
provide an alternative to the liquidation of securities positions. Each Fund may
purchase a stock index futures contract if a significant market or market sector
advance is anticipated. Such a purchase would serve as a temporary substitute
for the purchase of individual stocks, which stocks may then be purchased in an
orderly fashion. This strategy may minimize the effect of all or part of an
increase in the market price of securities that a Fund intends to purchase. A
rise in the price of the securities should be partially or wholly offset by
gains in the futures position.
Each Fund may purchase call options on stock index futures to hedge
against a market advance in equity securities that each Fund plans to purchase
at a future date. Each Fund may write covered call options on stock index
futures as a partial hedge against a decline in the prices of stocks held in the
Fund's portfolio. Each Fund also may purchase put options on stock index futures
contracts.
Each Fund may use interest rate futures contracts and options thereon to
hedge the debt portion of its portfolio against changes in the general level of
interest rates. Each Fund may purchase an interest rate futures contract when it
intends to purchase debt securities but has not yet done so. This strategy may
minimize the effect of all or part of an increase in the market price of those
securities because a rise in the price of the securities prior to their purchase
may either be offset by an increase in the value of the futures contract
purchased by each 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. Each Fund may sell an interest rate futures contract in
order to continue to receive the income from a debt security, while endeavoring
to avoid part or all of the decline in the market value of that security that
would accompany an increase in interest rates.
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Each Fund may purchase a call option on an interest rate futures contract
to hedge against a market advance in debt securities that each Fund plans to
acquire at a future date. Each Fund also may write covered call options on
interest rate futures contracts as a partial hedge against a decline in the
price of debt securities held in the Fund's portfolio or purchase put options on
interest rate futures contracts in order to hedge against a decline in the value
of debt securities held in the Fund's portfolio.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS. Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on foreign currencies
described above. Further, settlement of a foreign currency futures contract must
occur within the country issuing the underlying currency. Thus, a Fund must
accept or make delivery of the underlying foreign currency in accordance with
any U.S. or foreign restrictions or regulations regarding the maintenance of
foreign banking arrangements by U.S. residents and may be required to pay any
fees, taxes or charges associated with such delivery that are assessed in the
issuing country.
Options on foreign currency futures contracts may involve certain
additional risks. Trading of such options is relatively new. The ability to
establish and close out positions on such options is subject to the maintenance
of a liquid secondary market. To reduce this risk, a Fund will not purchase or
write options on foreign currency futures contracts unless and until, in the
Subadviser's opinion, the market for such options has developed sufficiently
that the risks in connection with such options are not greater than the risks in
connection with transactions in the underlying futures contracts. Compared to
the purchase or sale of foreign currency futures contracts, the purchase of call
or put options thereon involves less potential risk to a Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a foreign currency futures contract would result in a loss, such as
when there is no movement in the price of the underlying currency or futures
contract.
FUTURES GUIDELINES. To the extent that the Funds enter into futures
contracts or options thereon other than for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required to
establish these positions (excluding the in-the-money amount for options that
are in-the-money at the time of purchase) will not exceed 5% of a Fund's
liquidation value, after taking into account unrealized profits and losses on
any contracts into which a Fund has entered. This does not limit a Fund's assets
at risk to 5%. In addition, the value of all futures sold will not exceed the
total market value of a Fund's portfolio.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid
upon entering into futures contracts. Instead, upon entering into a futures
contract, each Fund is required to deposit with its respective 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% or less of the
contract value. This amount is known as "initial margin." When writing a call or
put 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. A
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.
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Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for a Fund to close a position
and, in the event of adverse price movements a 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 respective Fund's Subadviser's ability to predict movements in
the direction of the overall securities, currency 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 or currencies 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 a
Fund. If the price of the futures contract or related option moves more than the
price of the underlying securities or currencies, 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 or currencies
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 or currencies 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 or currencies 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 and related options 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 contracts 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, each Fund would continue
to be required to make variation margin payments.
Like options on securities and currencies, 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 a Fund when the use of a futures contract
would not, such as when there is no movement in the level of the underlying
stock index or the value of the securities or currencies being hedged.
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<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, each 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.
FORWARD CURRENCY CONTRACTS. A Fund may use forward currency contracts to
protect against uncertainty in the level of future exchange rates. The Fund will
not speculate with forward currency contracts or foreign currency exchange
rates.
A Fund may enter into forward currency contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on a security that it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such payment, as the case
may be, by entering into a forward contract for the purchase or sale, for a
fixed amount of U.S. dollars or foreign currency, of the amount of foreign
currency involved in the underlying transaction. The Fund will thereby be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the currency exchange rates during the period between
the date on which the security is purchased or sold, or on which the payment is
declared, and the date of which such payments are made or received.
A Fund also may use forward currency contracts in connection with
portfolio positions to lock in the U.S. dollar value of those positions, to
increase the Fund's exposure to foreign currencies that its Subadviser believes
may rise in value relative to the U.S. dollar or to shift the Fund's exposure to
foreign currency fluctuations from one country to another. This investment
practice generally is referred to as "cross-hedging" when another foreign
currency is used.
The precise matching of the forward currency contract amounts and the
value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. Accordingly,
it may be necessary for the Fund to purchase additional foreign currency on the
spot (I.E., cash) market and bear the expense of such purchase if the market
value of the security is less than the amount of foreign currency the Fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Forward currency contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transactions costs. Unless the
Fund's obligations under a forward contract are covered, the Fund will enter
into a forward contract only if the Fund maintains cash assets in a segregated
account in an amount not less than the value of the Fund's total assets
committed to the consummation of the contract, as marked to market daily.
At or before the maturity date of a forward contract requiring a Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into an offsetting forward currency
contract under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract. There can be no assurance that new forward
contracts or offsets always will be available for the Fund. Forward currency
contracts also involve a risk that the other party to the contract may fail to
deliver currency or pay for currency when due, which could result in substantial
losses to the Fund. The cost to the Fund of engaging in forward currency
contracts varies with factors such as the currencies involved, the length of the
contract period and the market conditions then prevailing. Because forward
currency contracts are usually entered into on a principal basis, no fees or
commissions are involved.
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INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the Life
Series 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 Life Series 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 particular Fund's assets will not cause a
violation of the following investment restrictions so long as percentage
restrictions are observed by that Fund at the time it purchases any security.
The investment restrictions provide that, among other things, a Fund will
not:
(1) Borrow money, except as a temporary or emergency measure in an
amount not to exceed 5% of the value of its total assets.
(2) Pledge assets, except that a Fund may pledge its assets to secure
borrowings made in accordance with paragraph (1) above, provided the Fund
maintains asset coverage of at least 300% for pledged assets; provided, however,
this limitation will not prohibit escrow, collateral or margin arrangements in
connection with the FOCUSED EQUITY FUND and INTERNATIONAL SECURITIES FUND's use
of options, futures contracts or options on futures contracts.
(3) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, Life Series Fund's Board of Trustees may, on the
request of broker-dealers or other unaffiliated institutional investors which
they deem qualified, authorize a Fund to loan securities to cover the borrower's
short position; provided, however, the borrower pledges to the Fund and agrees
to maintain at all times with the Fund cash collateral equal to not less than
100% of the value of the securities loaned, the loan is terminable at will by
the Fund, the Fund receives interest on the loan as well as any distributions
upon the securities loaned, the Fund retains voting rights associated with the
securities, the Fund pays only reasonable custodian fees in connection with the
loan, and the Adviser or Subadviser monitors the creditworthiness of the
borrower throughout the life of the loan; provided further, that such loans will
not be made if the value of all loans is greater than an amount equal to 10% of
the Fund's total assets.
(4) Purchase, with respect to only 75% of a Fund's assets, the
securities of any issuer (other than the U.S. Government) if, as a result
thereof, (a) more than 5% of the Fund's total assets (taken at current value)
would be invested in the securities of such issuer; provided that this
limitation in (4) (a) does not apply to the FOCUSED EQUITY FUND; or (b) the Fund
would hold more than 10% of any class of securities (including any class of
voting securities) of such issuer (for this purpose, all debt obligations of an
issuer maturing in less than one year are treated as a single class of
securities).
(5) Purchase securities on margin (but a Fund may obtain such credits as
may be necessary for the clearance of purchases and sales of securities);
provided, however, that FOCUSED EQUITY FUND and INTERNATIONAL SECURITIES FUND
may make margin deposits in connection with the use of options, futures
contracts and options on futures contracts.
(6) Make short sales of securities.
(7) Buy or sell puts, calls, straddles or spreads, except, as to FOCUSED
EQUITY FUND and INTERNATIONAL SECURITIES FUND, with respect to options on
securities, securities indices and foreign currencies or on futures contracts.
(8) Purchase the securities of other investment companies or investment
trusts, except as they may be acquired as part of a merger, consolidation or
acquisition of assets.
(9) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under Federal securities laws.
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(10) Buy or sell real estate, commodities, or commodity contracts (unless
acquired as a result of ownership of securities) or interests in oil, gas or
mineral explorations; provided, however, a Fund may invest in securities secured
by real estate or interests in real estate, and FOCUSED EQUITY FUND and
INTERNATIONAL SECURITIES FUND may purchase or sell options on securities,
securities indices and foreign currencies, stock index futures, interest rate
futures and foreign currency futures, as well as options on such futures
contracts.
(11) Purchase the securities of an issuer if such purchase, at the time
thereof, would cause more than 5% of the value of a Fund's total assets to be
invested in securities of issuers which, including predecessors, have a record
of less than three years' continuous operation.
(12) Concentrate investments in any particular industry, except that
UTILITIES INCOME FUND may concentrate its investments in securities of companies
in the public utilities industry.
(13) Purchase or retain securities issued by an issuer any of whose
officers, directors or security-holders is an officer or director, or Trustee of
the Trust or of its investment adviser if or so long as the officers, directors
and Trustees of the Trust and of its investment adviser, together, own
beneficially more than 5% of any class of the securities of such issuer.
The following investment restriction is not fundamental and can be changed
without prior shareholder approval:
1. A Fund will not purchase any security if, as a result, more than 15%
(10% for CASH MANAGEMENT FUND) of its net assets would be invested in illiquid
securities, including repurchase agreements not entitling the holder to payment
of principal and interest within seven days and any securities that are illiquid
by virtue of legal or contractual restrictions on resale or the absence of a
readily available market. The Trustees, or the Funds' investment adviser acting
pursuant to authority delegated by the Trustees, may determine that a readily
available market exists for securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, as amended, or any other applicable rule, and
therefore that such securities are not subject to the foregoing limitation.
TRUSTEES AND OFFICERS
The following table lists the Trustees and executive officers of Life
Series Fund, their age, business address and principal occupations during the
past five years. Unless otherwise noted, an individual's business address is 95
Wall Street, New York, New York 10005.
JAMES J. COY (85), Emeritus Trustee, 90 Buell Land, East Hampton, NY 11937.
Retired; formerly Senior Vice President, James Talcott, Inc. (financial
institution).
GLENN O. HEAD*+ (74), President and Trustee. Chairman of the Board and Director,
Administrative Data Management Corp. ("ADM"), FIMCO, Executive Investors
Management Company, Inc. ("EIMCO"), First Investors Asset Management Company,
Inc. ("FIAMCO"), First Investors Corporation ("FIC"), Executive Investors
Corporation ("EIC") and First Investors Consolidated Corporation ("FICC").
KATHRYN S. HEAD*+ (44), Trustee, 581 Main Street, Woodbridge, NJ 07095.
President and Director, FICC, ADM and FIMCO; Vice President and Director, FIC;
President and Director, EIMCO; President and Chief Executive Officer, EIC;
Chairman and Director, First Financial Savings Bank, S.L.A.
LARRY R. LAVOIE* (52), Trustee. Assistant Secretary, ADM, EIC, EIMCO, FIAMCO,
FICC, and FIMCO; President, FIAMCO; Secretary and General Counsel, FIC.
REX R. REED** (78), Trustee, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
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HERBERT RUBINSTEIN** (78), Trustee, 695 Charolais Circle, Edwards, CO
81632-1136. Retired; formerly President, Belvac International Industries, Ltd.
and President, Central Dental Supply.
NANCY SCHAENEN** (68), Trustee, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
JAMES M. SRYGLEY** (67), Trustee, 39 Hampton Road, Chatham, NJ 07982. Principal,
Hampton Properties, Inc. (property investment company).
JOHN T. SULLIVAN* (67), Trustee and Chairman of the Board; Director, FIMCO, FIC,
FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH** (70), Trustee, 217 Upland Downs Road, Manchester Center,
VT 05255. Retired; formerly financial and planning executive with American
Telephone & Telegraph Company.
JOSEPH I. BENEDEK (42), Treasurer and Principal Accounting Officer, 581 Main
Street, Woodbridge, NJ 07095. Treasurer, FIMCO, EIMCO and FIAMCO.
CONCETTA DURSO (64), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
- -------------------
* These Trustees may be deemed to be "interested persons," as defined in the
1940 Act.
** These Trustees are members of the Board's Audit Committee.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
The Trustees and officers, as a group, owned less than 1% of shares of any
Fund.
All of the officers and Trustees 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.
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The following table lists compensation paid to the Trustees of Life Series
Fund for the fiscal year ended December 31, 1999.
TOTAL COMPENSATION
FROM FIRST
INVESTORS FAMILY
AGGREGATE OF FUNDS PAID TO
COMPENSATION TRUSTEE*+
TRUSTEE FROM FUND*
James J. Coy** $-0- $-0-
Glenn O. Head $-0- $-0-
Kathryn S. Head $-0- $-0-
Larry R. Lavoie $-0- $-0-
Rex R. Reed $10,135 $42,950
Herbert Rubinstein $10,135 $42,950
James M. Srygley $10,135 $42,950
John T. Sullivan $-0- $-0-
Robert F. Wentworth $10,135 $42,950
Nancy Schaenen $10,135 $42,950
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* Compensation to officers and interested Trustees of Life Series Fund is paid
by the Adviser.
** On March 27, 1997, Mr. Coy resigned as a Trustee of Life Series Fund.
Mr. Coy currently serves as an Emeritus Trustee. Mr. Coy is paid by the
Adviser.
+ The First Investors Family of Funds consists of 15 separate registered
investment companies.
MANAGEMENT
ADVISER. Investment advisory services to the Funds are provided by First
Investors Management Company, Inc. pursuant to an Investment Advisory Agreement
("Advisory Agreement") dated June 13, 1994. The Advisory Agreement was approved
by the Board of Trustees of Life Series Fund, including a majority of the
Trustees who are not parties to the Advisory Agreement or "interested persons"
(as defined in the 1940 Act) of any such party ("Independent Trustees"), in
person at a meeting called for such purpose and by a majority of the
shareholders of each Fund. The Board of Trustees is responsible for overseeing
the management of the Funds.
Pursuant to the 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 Trustees. The
Advisory Agreement also provides that FIMCO shall provide Life Series Fund and
each Fund with certain executive, administrative and clerical personnel, office
facilities and supplies, conduct the business and details of the operation of
Life Series Fund and each Fund and assume certain expenses thereof, other than
obligations or liabilities of the Funds. The Advisory Agreement may be
terminated at any time without penalty by the Trustees or by a majority of the
outstanding voting securities of the applicable 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). The
Advisory Agreement also provides that it will continue in effect, with respect
to a Fund, for a period of over two years only if such continuance is approved
annually either by the Trustees or by a majority of the outstanding voting
securities of that Fund, and, in either case, by a vote of a majority of the
Independent Trustees voting in person at a meeting called for the purpose of
voting on such approval.
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Under the Advisory Agreement, each Fund 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 Dennis T. Fitzpatrick,
George V. Ganter, Michael Deneka, David Hanover, Glenn O. Head, Kathryn S. Head,
Nancy W. Jones, Michael O'Keefe, Patricia D. Poitra, Clark D. Wagner, and
Matthew Wright. The Committee usually meets weekly to discuss the composition of
the portfolio of each Fund and to review additions to and deletions from the
portfolios.
First Investors Consolidated Corporation ("FICC") owns all of the voting
common stock of the Adviser and all of the outstanding stock of First Investors
Corporation and the Funds' transfer agent. Mr. Glenn O. Head controls FICC and,
therefore, controls the Adviser.
Each Fund bears all expenses of its operations other than those incurred
by the Adviser under the terms of its advisory agreement. 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.
For the fiscal year ended December 31, 1997, BLUE CHIP FUND's advisory
fees were $965,995, CASH MANAGEMENT FUND's advisory fees were $27,384, net of a
waiver of $6,846, DISCOVERY FUND's advisory fees were $640,895, GOVERNMENT
FUND's advisory fees were $54,162, net of a waiver of $13,541, GROWTH FUND's
advisory fees were $777,312, HIGH YIELD FUND's advisory fees were $407,953,
INTERNATIONAL SECURITIES FUND's advisory fees were $512,589, INVESTMENT GRADE
FUND's advisory fees were $98,694, net of a waiver of $24,674, TARGET MATURITY
2007 FUND's advisory fees were $101,588, net of a waiver of $25,397; TARGET
MATURITY 2010 FUND's advisory fees were $21,425, net of a waiver of $5,356 and
UTILITIES INCOME FUND's advisory fees were $162,992, net of a waiver of $40,748.
For the fiscal year ended December 31, 1997, the Adviser voluntarily reimbursed
expenses for CASH MANAGEMENT FUND, GOVERNMENT FUND, INVESTMENT GRADE Fund,
TARGET MATURITY 2007 FUND, TARGET MATURITY 2010 FUND and UTILITIES INCOME FUND
in the amounts of $10,586, $12,100, $15,884, $10,255, $3,617 and $7,919,
respectively.
For the fiscal year ended December 31, 1998, BLUE CHIP FUND's advisory
fees were $1,332,265, CASH MANAGEMENT FUND's advisory fees were $30,973, net of
a waiver of $7,743, DISCOVERY FUND's advisory fees were $775,442, GOVERNMENT
FUND's advisory fees were $60,097, net of a waiver of $15,024, GROWTH FUND's
advisory fees were $1,156,103, HIGH YIELD FUND's advisory fees were $476,199,
INTERNATIONAL SECURITIES FUND's advisory fees were $630,772, INVESTMENT GRADE
FUND's advisory fees were $115,165, net of a waiver of $28,791, TARGET MATURITY
2007 FUND's advisory fees were $138,611, net of a waiver of $34,652; TARGET
MATURITY 2010 FUND's advisory fees were $42,953, net of a waiver of $10,738 and
UTILITIES INCOME FUND's advisory fees were $246,125, net of a waiver of $61,531.
For the fiscal year ended December 31, 1998, the Adviser voluntarily reimbursed
expenses for CASH MANAGEMENT FUND, GOVERNMENT FUND, INVESTMENT GRADE FUND,
TARGET MATURITY 2007 FUND, and TARGET MATURITY 2010 FUND in the amounts of
$7,391, $2,425, $3,625, $5,370, and $1,042 respectively.
For the fiscal year ended December 31, 1999, BLUE CHIP FUND's advisory
fees were $1,730,039, CASH MANAGEMENT FUND's advisory fees were $60,458, net of
a waiver of $12,088, DISCOVERY FUND's advisory fees were $885,388, FOCUSED
EQUITY FUND's advisory fees were $999, GOVERNMENT FUND's advisory fees were
$82,579, net of a waiver of $16,498, GROWTH FUND's advisory fees were
$1,619,176, HIGH YIELD FUND's advisory fees were $498,777, INTERNATIONAL
SECURITIES FUND's advisory fees were $775,668, INVESTMENT GRADE FUND's advisory
fees were $161,188, net of a waiver of $32,231, TARGET MATURITY 2007 FUND's
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advisory fees were $193,782, net of a waiver of $38,707; TARGET MATURITY 2010
FUND's advisory fees were $67,652, net of a waiver of $13,508, TARGET MATURITY
2015 FUND's advisory fees were $660, net of a waiver of $131, and UTILITIES
INCOME FUND's advisory fees were $442,935, net of a waiver of $88,601. For the
fiscal year ended December 31, 1999, the Adviser voluntarily reimbursed expenses
of $4,808 for CASH MANAGEMENT FUND.
SUBADVISERS. Wellington Management Company, LLP has been retained by the
Adviser and Life Series Fund as the investment subadviser to INTERNATIONAL
SECURITIES FUND and GROWTH FUND under a subadvisory agreement dated June 13,
1994. Arnhold and S. Bleichroeder, Inc. has been retained by the Adviser and
Life Series Fund as the investment Subadviser to FOCUSED EQUITY FUND under a
subadvisory agreement dated October 14, 1999. (The subadvisory agreements with
WMC and ASB shall collectively be referred to as the "Subadvisory Agreements".)
The Subadvisory Agreements provide that they will continue, with respect
to a Fund, for a period of more than two years from the date of execution only
so long as such continuance is approved annually by either the Board of Trustees
or a majority of the outstanding voting securities of that Fund and, in either
case, by a vote of a majority of the Independent Trustees voting in person at a
meeting called for the purpose of voting on such approval. The Subadvisory
Agreements provide that they will terminate automatically, with respect to a
Fund, if assigned or upon the termination of the Advisory Agreement, and that it
may be terminated without penalty by the Board of Trustees or a vote of a
majority of the outstanding voting securities of that Fund, upon not more than
60 days' written notice, or by the Adviser or Subadviser on not more than 30
days' written notice. The Subadvisory Agreements provide that WMC and ASB will
not be liable for any error of judgment or for any loss suffered by a Fund or
the Adviser in connection with the matters to which the Subadvisory Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation or from willful misfeasance, bad faith, gross
negligence (with respect to the Subadvisory Agreement with ASB, negligence) or
reckless disregard of duty.
Under the Subadvisory Agreement with WMC, the Adviser will pay to WMC a
fee at an annual rate of 0.400% of the average daily net assets of the
INTERNATIONAL SECURITIES FUND and GROWTH FUND, respectively, up to and including
$50 million; 0.275% of the average daily net assets in excess of $50 million up
to and including $150 million, 0.225% of the average daily net assets in excess
of $150 million up to and including $500 million; and 0.200% of the average
daily net assets in excess of $500 million. This fee is calculated separately
for each Fund. WMC voluntarily has agreed to waive its fees on the first $50
million of the daily net assets of GROWTH FUND to an annual rate of 0.325%. The
Adviser will retain the portion of those fees waived by WMC.
For the fiscal year ended December 31, 1997, WMC received $250,449 for its
services with respect to the INTERNATIONAL SECURITIES FUND and $310,010 for its
services with respect to GROWTH FUND. For the fiscal year ended December 31,
1998, WMC received $293,747 for its services with respect to the INTERNATIONAL
SECURITIES FUND and $449,133 for its services with respect to GROWTH FUND. For
the fiscal year ended December 31, 1999, WMC received $346,843 for its services
with respect to the INTERNATIONAL SECURITIES FUND and $584,804 for its services
with respect to GROWTH FUND.
Under the Subadvisory Agreement with ASB, the Adviser will pay to ASB a
fee at an annual rate of 0.400% of the average daily net assets of the FOCUSED
EQUITY FUND up to and including $100 million; 0.275% of the average daily net
assets in excess of $100 million up to and including $500 million, and 0.200% of
the average daily net assets in excess of $500 million. This fee will be
computed daily and paid monthly. For the fiscal year ended December 31, 1999,
ASB received $532 for its services.
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange or
the Nasdaq Stock Market is valued at its last sale price on the exchange or
market where the security is principally traded, and lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices. Securities traded in the OTC market (including securities listed
on exchanges whose primary market is believed to be OTC) are valued at the mean
between the last bid and asked prices prior to the time when assets are valued
based upon quotes furnished by market makers for such securities. However, a
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Fund may determine the value of debt securities based upon prices furnished by
an outside pricing service. The pricing services use quotations obtained from
investment dealers or brokers for the particular securities being evaluated,
information with respect to market transactions in comparable securities and
consider security type, rating, market condition, yield data and other available
information in determining value. Interactive Data Corporation provides pricing
services for corporate debt securities and foreign equity securities. Short-term
debt securities that mature in 60 days or less are valued at amortized cost.
Securities for which market quotations are not readily available are valued on a
consistent basis at fair value as determined in good faith by or under the
supervision of Life Series Fund's officers in a manner specifically authorized
by the Board of Trustees.
"When-issued securities" are reflected in the assets of a Fund as of the
date the securities are purchased. Such investments are valued thereafter at the
mean between the most recent bid and asked prices obtained from recognized
dealers in such securities or by the pricing service. For valuation purposes,
quotations of foreign securities in foreign currencies are converted into U.S.
dollar equivalents using the foreign exchange equivalents in effect.
The CASH MANAGEMENT FUND values its portfolio securities in accordance
with the amortized cost method of valuation under Rule 2a-7 under the 1940 Act.
To use amortized cost to value its portfolio securities, a Fund must adhere to
certain conditions under that Rule relating to the Fund's investments, some of
which are discussed in the Prospectus. Amortized cost is an approximation of
market value of an instrument, whereby the difference between its acquisition
cost and value at maturity is amortized on a straight-line basis over the
remaining life of the instrument. The effect of changes in the market value of a
security as a result of fluctuating interest rates is not taken into account and
thus the amortized cost method of valuation may result in the value of a
security being higher or lower than its actual market value. In the event that a
large number of redemptions take place at a time when interest rates have
increased, a Fund might have to sell portfolio securities prior to maturity and
at a price that might not be desirable.
The Board of Trustees of Life Series Fund has established procedures for
the purpose of maintaining a constant net asset value of $1.00 per share, which
include a review of the extent of any deviation of net asset value per share,
based on available market quotations, from the $1.00 amortized cost per share.
Should that deviation exceed 1/2 of 1%, the Board of Trustees will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund maintains a dollar weighted average
portfolio maturity of 90 days or less and does not purchase any instrument with
a remaining maturity greater than 13 months, limits portfolio investments,
including repurchase agreements, to those U.S. dollar-denominated instruments
that are of high quality and that the Trustees determine present minimal credit
risks as advised by the Adviser, and complies with certain reporting and
recordkeeping procedures. There is no assurance that a constant net asset value
per share will be maintained. In the event amortized cost ceases to represent
fair value per share, the Board will take appropriate action.
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
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(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.
ALLOCATION OF PORTFOLIO BROKERAGE
The Adviser, WMC or ASB, as applicable, may purchase or sell portfolio
securities on behalf of a Fund in agency or principal transactions with other
dealers or underwriters. In agency transactions, a Fund generally pays brokerage
commissions. In principal transactions, a Fund generally does not pay
commissions, however the price paid for the security may include an undisclosed
dealer commission or "mark-up" or selling concessions. The Adviser, WMC or ASB
normally purchases fixed-income securities on a net basis from primary market
makers acting as principals for the securities. The Adviser, WMC or ASB may
purchase certain money market instruments directly from an issuer without paying
commissions or discounts. The Adviser, WMC or ASB may also purchase securities
traded in the OTC market. As a general practice, OTC securities are usually
purchased from market makers without paying commissions, although the price of
the security usually will include undisclosed compensation. However, when it is
advantageous to a Fund the Adviser, WMC or ASB may utilize a broker to purchase
OTC securities and pay a commission.
In purchasing and selling portfolio securities on behalf of a Fund, the
Adviser, WMC or ASB will seek to obtain best execution. A Fund may pay more than
the lowest available commission in return for brokerage and research services.
Additionally, upon instruction by the Board, the Adviser, WMC or ASB may use
commissions or dealer concessions available in fixed-priced underwritings,
over-the-counter transactions, and/or brokerage to pay for research and other
services. Research and other services may include information as to the
availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to securities, reports and analysis
concerning issuers and their creditworthiness, and Lipper's Directors'
Analytical Data concerning Fund performance and fees. The Adviser may use the
research and other services to service any or all the funds in the First
Investors Family of Funds, rather than the particular Funds whose commissions
may pay for research or other services. In other words, a Fund's brokerage may
be used to pay for a research service that is used in managing another Fund
within the First Investor Fund Family. The Lipper's Directors' Analytical Data
is used by the Adviser or Subadvisers and the Fund's Board to analyze a fund's
performance relative to other comparable funds. The Subadvisers may use research
obtained with commissions to service their other clients.
In selecting the broker-dealers to execute a Fund's portfolio
transactions, the Adviser, WMC or ASB may consider such factors as the price of
the security, the rate of the commission, the size and difficulty of the order,
the trading characteristics of the security involved, the difficulty in
executing the order, the research and other services provided, the expertise,
reputation and reliability of the broker-dealer, access to new offerings, and
other factors bearing upon the quality of the execution. The Adviser and WMC do
not place portfolio orders with an affiliated broker, or allocate brokerage
commission business to any broker-dealer for distributing fund shares. Moreover,
no broker-dealer affiliated with the Adviser or WMC participates in commissions
generated by portfolio orders placed on behalf of a Fund. ASB or an affiliate of
ASB may execute brokerage transactions on behalf of the FOCUSED EQUITY FUND. The
Board has adopted procedures in conformity with Rule 17e-1 under the 1940 Act to
ensure that all brokerage commissions paid to ASB or any affiliate of ASB are
reasonable and fair in the context of the market in which they are operating.
Any such transactions will be effected and related compensation paid only in
accordance with applicable SEC regulations.
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The Adviser and Subadvisers may combine transaction orders placed on
behalf of any of the Funds with the orders of their other advisory clients for
the purpose of negotiating brokerage commissions or obtaining a more favorable
transaction price; and where appropriate, securities purchased or sold may be
allocated in accordance with written procedures approved by the Board of
Trustees. In addition, some securities considered for investment by a Fund may
also be appropriate for other Funds and/or clients served by WMC or ASB. If the
purchase or sale of securities consistent with the investment policies of a Fund
and one or more of these other funds or clients serviced by a Subadviser are
considered at or about the same time, transactions in such securities will be
allocated among the several funds and clients in a manner deemed equitable by
WMC or ASB, as applicable.
Brokerage commissions for the fiscal year ended December 31, 1997 are as
follows: BLUE CHIP FUND paid $194,635 in brokerage commissions. Of that amount,
$108,092 was paid in brokerage commissions to brokers who furnished research
services on portfolio transactions in the amount of $87,860,801. INTERNATIONAL
SECURITIES FUND paid $231,957 in brokerage commissions. Of that amount, $10,203
was paid in brokerage commissions to brokers who furnished research services on
portfolio transactions in the amount of $10,445,470. DISCOVERY FUND paid
$136,562 in brokerage commissions. Of that amount, $60,163 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $23,951,040. GROWTH FUND paid $68,509 in brokerage commissions.
Of that amount, $11,029 was paid in brokerage commissions to brokers who
furnished research services on portfolio transactions in the amount of
$9,446,682. HIGH YIELD FUND paid $158 in brokerage commissions. Of that amount,
$44 was paid in brokerage commissions to brokers who furnished research services
on portfolio transactions in the amount of $10,929. UTILITIES INCOME FUND paid
$68,591 in brokerage commissions. Of that amount, $8,562 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $3,767,423. For the same period, all other Funds of Life Series
Fund did not pay brokerage commissions.
Brokerage commissions for the fiscal year ended December 31, 1998 are as
follows: BLUE CHIP FUND paid $379,563 in brokerage commissions. Of that amount,
$22,481 was paid in brokerage commissions to brokers who furnished research
services on portfolio transactions in the amount of $20,830,218. INTERNATIONAL
SECURITIES FUND paid $392,248 in brokerage commissions. Of that amount, $7,375
was paid in brokerage commissions to brokers who furnished research services on
portfolio transactions in the amount of $7,052,426. DISCOVERY FUND paid $232,266
in brokerage commissions. Of that amount, $13,667 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $5,380,076. GROWTH FUND paid $89,395 in brokerage commissions.
Of that amount, $17,916 was paid in brokerage commissions to brokers who
furnished research services on portfolio transactions in the amount of
$14,375,011. UTILITIES INCOME FUND paid $125,967 in brokerage commissions. Of
that amount, $12,540 was paid in brokerage commissions to brokers who furnished
research services on portfolio transactions in the amount of $9,302,550. For the
same period, all other Funds of Life Series Fund did not pay brokerage
commissions.
Brokerage commissions for the fiscal year ended December 31, 1999 are as
follows: BLUE CHIP FUND paid $395,531 in brokerage commissions. Of that amount,
$11,148 was paid in brokerage commissions to brokers who furnished research
services on portfolio transactions in the amount of $9,599,277 INTERNATIONAL
SECURITIES FUND paid $419,570 in brokerage commissions. Of that amount, $54,011
was paid in brokerage commissions to brokers who furnished research services on
portfolio transactions in the amount of $26,260,400. DISCOVERY FUND paid
$153,263 in brokerage commissions. Of that amount, $14,448 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $5,793,207. GROWTH FUND paid $190,387 in brokerage commissions.
Of that amount, $34,081 was paid in brokerage commissions to brokers who
furnished research services on portfolio transactions in the amount of
$24,906,452. UTILITIES INCOME FUND paid $109,038 in brokerage commissions. Of
that amount, $8,502 was paid in brokerage commissions to brokers who furnished
research services on portfolio transactions in the amount of $5,623,122. FOCUSED
EQUITY FUND paid $1,289 in brokerage commissions; none of which was paid in
brokerage commissions to brokers who furnished research services. For the same
period, all other Funds of Life Series Fund did not pay brokerage commissions.
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TAXES
Shares of the Funds are offered only to the Separate Accounts that fund
the Policies and Contracts. See the applicable Separate Account Prospectus for a
discussion of the special taxation of First Investors Life with respect to those
accounts and of the Policyowners and Contractholders.
To qualify or continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended ("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 its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain and, for INTERNATIONAL SECURITIES FUND,
FOCUSED EQUITY FUND, DISCOVERY FUND and HIGH YIELD FUND (each a "Foreign Fund"),
net gains from certain foreign currency transactions) ("Distribution
Requirement") and must meet several additional requirements. For each Fund these
requirements include the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans and gains from the sale or other disposition of securities
or, for a Foreign Fund, foreign currencies, or other income (including, for
INTERNATIONAL SECURITIES FUND and FOCUSED EQUITY FUND, gains from options,
futures or forward currency contracts) derived with respect to its business of
investing in securities or, for a Foreign Fund, those currencies ("Income
Requirement"); (2) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with those other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
securities; and (3) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer.
By qualifying for treatment as a RIC, a Fund (but not its shareholders)
will be relieved of Federal income tax on the part of its investment company
taxable income and net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) that it distributes to its shareholders.
If any Fund failed to qualify for treatment as a RIC for any taxable year, (1)
it would be taxed at corporate rates on the full amount of its taxable income
for that year without being able to deduct the distributions it makes to its
shareholders, (2) the shareholders would treat all those distributions,
including distributions of net capital gain, as dividends (that is, ordinary
income) to the extent of the Fund's earnings and profits, and (3) most
importantly, each Separate Account invested therein would fail to satisfy the
diversification requirements of section 817(h) of the Code (see below), with the
result that the Contracts and Policies supported by those accounts would no
longer be eligible for tax deferral. In addition, the Fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying for RIC treatment.
Each Fund intends to continue to comply with the diversification
requirements imposed by section 817(h) of the Code and the regulations
thereunder. These requirements, which are in addition to the diversification
requirements imposed on the Fund by the 1940 Act and Subchapter M of the Code
(described above), place certain limitations on the assets of each Separate
Account -- and of each Fund, because section 817(h) and those regulations treat
the assets of a Fund as assets of the related Separate Account -- that may be
invested in securities of a single issuer. Specifically, the regulations provide
that, except as permitted by the "safe harbor" described below, as of the end of
each calendar quarter (or within 30 days thereafter) no more than 55% of a
Fund's total assets may be represented by one investment, no more than 70% by
any two investments, no more than 80% by any three investments and no more than
90% by any four investments. For this purpose, all securities of the same issuer
are considered a single investment, and while each U.S. Government agency and
instrumentality is considered a separate issuer, a particular foreign government
and its agencies, instrumentalities and political subdivisions are considered
the same issuer. Section 817(h) provides, as a safe harbor, that a separate
account will be treated as being adequately diversified if the diversification
requirements under Subchapter M are satisfied and no more than 55% of the value
of the account's total assets are cash and cash items, U.S. Government
securities and securities of other RICs. Failure of a Fund to satisfy the
section 817(h) requirements would result in taxation of First Investors Life and
treatment of the Contractholders and Policyowners other than as described in the
Prospectuses of the Separate Accounts.
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Dividends and interest received by a Foreign Fund, and gains realized by a
Foreign Fund, may be subject to income, withholding or other taxes imposed by
foreign countries that would reduce the yield and/or total return on its
securities. Tax conventions between certain countries and the United States may
reduce or eliminate these foreign taxes, however, and many foreign countries do
not impose taxes on capital gains in respect of investments by foreign
investors.
Each of INTERNATIONAL SECURITIES FUND, FOCUSED EQUITY FUND and DISCOVERY
FUND may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is any foreign corporation (with certain exceptions) that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, if
any Fund holds stock of a PFIC, it will be subject to Federal income tax on a
portion of any "excess distribution" received on the stock or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent it distributes that income to its shareholders.
If INTERNATIONAL SECURITIES FUND, FOCUSED EQUITY FUND or DISCOVERY FUND
invests in a PFIC and elects to treat the PFIC as a "qualified electing fund"
("QEF"), then in lieu of the foregoing tax and interest obligation, the Fund
would be required to include in income each year its PRO RATA share of the QEF's
annual ordinary earnings and net capital gain -- which the Fund probably would
have to distribute to satisfy the Distribution Requirement -- even if the QEF
did not distribute those earnings and gain to the Fund. In most instances it
will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
Each of INTERNATIONAL SECURITIES FUND, FOCUSED EQUITY FUND and DISCOVERY
FUND may elect to "mark-to-market" its stock in any PFICs. "Marking-to-market,"
in this context, means including in ordinary income each taxable year the
excess, if any, of the fair market value of the PFIC's stock over a Fund's
adjusted basis in that stock as of the end of that year. Pursuant to the
election, a Fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included in income by the
Fund for prior taxable years under the election (and under regulations proposed
in 1992 that provided a similar election with respect to the stock of certain
PFICs). A Fund's adjusted basis in each PFIC's stock with respect to which it
makes this election would be adjusted to reflect the amounts of income included
and deductions taken thereunder.
FOCUSED EQUITY FUND, HIGH YIELD FUND, GOVERNMENT FUND, INVESTMENT GRADE
FUND, TARGET MATURITY 2007 FUND, TARGET MATURITY 2010 FUND, TARGET MATURITY 2015
FUND and UTILITIES INCOME FUND may acquire zero coupon or other securities
issued with original issue discount. As a holder of those securities, each such
Fund must include in its income the portion of the original issue discount that
accrues on the securities during the taxable year, even if the Fund receives no
corresponding payment on them during the year. Similarly, each such Fund must
include in its gross income securities it receives as "interest" on pay-in-kind
securities. Because each Fund annually must distribute substantially all of its
investment company taxable income, including any original issue discount and
other non-cash income, to satisfy the Distribution Requirement, a Fund may be
required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those distributions
will be made from a Fund's cash assets or from the proceeds of sales of
portfolio securities, if necessary. A Fund may realize capital gains or losses
from those sales, which would increase or decrease its investment company
taxable income and/or net capital gain.
FOCUSED EQUITY FUND'S and INTERNATIONAL SECURITIES FUND'S use of hedging
strategies, such as writing (selling) and purchasing options and futures
contracts and, with respect to INTERNATIONAL SECURITIES FUND, entering into
forward currency contracts, involves complex rules that will determine for
income tax purposes the amount, character and timing of recognition of the gains
and losses the Fund will realize in connection therewith. Gains from a Foreign
Fund's disposition of foreign currencies (except gains that may be excluded by
future regulations), and in the case of each of FOCUSED EQUITY FUND and
INTERNATIONAL SECURITIES FUND gains from options, futures and forward currency
contracts it derives with respect to its business of investing in securities or
foreign currencies, will be treated as qualifying income under the Income
Requirement.
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If INTERNATIONAL SECURITIES FUND or FOCUSED EQUITY FUND has an
"appreciated financial position" - generally, an interest (including an interest
through an option, futures or forward currency contract or short sale) with
respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted basis -
and enters into a "constructive sale" of the position, 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 or forward currency
contract entered into by a Fund or a related person with respect to the same or
substantially identical property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially identical property will be deemed a
constructive sale. The foregoing will not apply, however, to any transaction
during any taxable year that otherwise would be treated as a constructive sale
by a Fund if the transaction is closed within 30 days after the end of that year
and the Fund holds the appreciated financial position unhedged for 60 days after
that closing (I.E., at no time during that 60-day period is the Fund's risk of
loss regarding that position reduced by reason of certain specified transactions
with respect to substantially identical or related property, such as having an
option to sell, being contractually obligated to sell, making a short sale or
granting an option to buy substantially identical stock or securities).
PERFORMANCE INFORMATION
The CASH MANAGEMENT FUND provides current yield quotations based on its
daily dividends. To the extent it has net investment income, the CASH MANAGEMENT
FUND declares dividends daily and pays dividends monthly from net investment
income.
For purposes of current yield quotations, dividends per share for a
seven-day period are annualized (using a 365-day year basis) and divided by the
CASH MANAGEMENT FUND'S average net asset value per share for the seven-day
period. The current yield quoted will be for a recent seven day period. Current
yields will fluctuate from time to time and are not necessarily representative
of future results. You should remember that yield is a function of the type and
quality of the instruments in the portfolio, portfolio maturity and operating
expenses. Current yield information is useful in reviewing the Fund's
performance but, because current yield will fluctuate, such information may not
provide a basis for comparison with bank deposits or other investments which may
pay a fixed yield for a stated period of time, or other investment companies,
which may use a different method of calculating yield.
In addition to providing current yield quotations, the CASH MANAGEMENT
FUND provides effective yield quotations for a base period return of seven days.
The CASH MANAGEMENT FUND may also advertise yield for periods other than seven
days, such as thirty days or twelve months. In such cases, the formula for
calculating seven-day effective yield will be used, except that the base period
will be thirty days or 365 days rather than seven days. An effective yield
quotation is determined by a formula that requires the compounding of the
unannualized base period return. Compounding is computed by adding 1 to the
annualized base period return, raising the sum to a power equal to 365 divided
by 7 and subtracting 1 from the result.
The following is an example, for purposes of illustration only, of the
current and effective yield calculation for CASH MANAGEMENT FUND for the seven
day period ended December 31, 1999.
Dividends per share from net investment
income (seven calendar days ended December
31, 1999) (Base Period) $.001026800
Annualized (365 day basis)* $.053540284
Average net asset value per share of the
seven calendar days ended December 31,
1999 $1.00
Annualized historical yield per share for
the seven calendar days ended December
31, 1999 5.35%
Effective Yield** 5.48%
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Weighted average life to maturity of the
portfolio on December 31, 1999 was 56 days
- ------------
* This represents the average of annualized net investment income per
share for the seven calendar days ended December 31, 1999.
** Effective Yield = [(Base Period Return+1)365/7] - 1
A Fund may advertise its top holdings from time to time. A Fund may
advertise its performance in various ways.
Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)^(1/n)]-1
The "total return" uses the same factors, but does not average the rate of
return on an annual basis. Total return is determined as follows:
(ERV-P)/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. 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 total return and total return computed at net asset value
for the periods ended December 31, 1999 are set forth in the following tables.
The average annual total return and total return figures do not reflect fees and
expenses that may be deducted by the variable annuity contract or variable life
insurance policy through which an investor may invest. If they were included,
the returns would be less than those shown.
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AVERAGE ANNUAL TOTAL RETURN(1)
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND(2)
BLUE CHIP 25.32% 25.13% N/A 16.38%
DISCOVERY 27.97% 16.76% 15.67% N/A
FOCUSED EQUITY N/A N/A N/A N/A
GOVERNMENT 1.05% 7.17% N/A 5.92%
GROWTH 26.47% 26.52% 16.95% N/A
HIGH YIELD 4.95% 10.43% 10.42% N/A
INTERNATIONAL 31.46% 18.31% N/A 13.09%
INVESTMENT GRADE (2.53%) 7.54% N/A 6.65%
TARGET 2007 (9.39%) N/A N/A 7.72%
TARGET 2010 (11.73%) N/A N/A 7.53%
TARGET 2015 N/A N/A N/A N/A
UTILITIES INCOME 17.41% 18.73% N/A 13.52%
- -----------------------
(1) Certain expenses of the Funds have been waived or reimbursed from
commencement of operations through December 31, 1999. Accordingly, return
figures are higher than they would have been had such expenses not been
waived or reimbursed.
(2) The inception dates for the Funds are as follows: BLUE CHIP - March 8,
1990; DISCOVERY - November 9, 1987; FOCUSED EQUITY - November 8, 1999;
GOVERNMENT - January 7, 1992; GROWTH - November 9, 1987; HIGH YIELD -
November 9, 1987; INTERNATIONAL SECURITIES - April 16, 1990; INVESTMENT
GRADE - January 7, 1992; TARGET 2007 - April 26, 1995; TARGET 2010 - April
30, 1996; TARGET 2015 - November 8, 1999; and UTILITIES INCOME - November
15,1993.
TOTAL RETURN(1)
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND(2)
BLUE CHIP 25.32% 206.82% N/A 343.77%
DISCOVERY 27.97% 117.05% 328.81% N/A
FOCUSED EQUITY N/A N/A N/A 2.50%
GOVERNMENT 1.05% 41.37% N/A 58.35%
GROWTH 26.47% 224.22% 378.77% N/A
HIGH YIELD 4.95% 64.22% 169.36% N/A
INTERNATIONAL 31.46% 131.82% N/A 230.29%
INVESTMENT GRADE (2.53%) 43.80% N/A 67.24%
TARGET 2007 (9.39%) N/A N/A 41.69%
TARGET 2010 (11.73%) N/A N/A 30.53%
TARGET 2015 N/A N/A N/A (4.90%)
UTILITIES INCOME 17.41% 135.97% N/A 117.56%
- -----------------------
(1) Certain expenses of the Funds have been waived or reimbursed from
commencement of operations through December 31, 1999. Accordingly, return
figures are higher than they would have been had such expenses not been
waived or reimbursed.
(2) The inception dates for the Funds are as follows: BLUE CHIP - March 8,
1990; DISCOVERY - November 9, 1987; FOCUSED EQUITY - November 8, 1999;
GOVERNMENT - January 7, 1992; GROWTH - November 9, 1987; HIGH YIELD -
November 9, 1987; INTERNATIONAL SECURITIES - April 16, 1990; INVESTMENT
GRADE - January 7, 1992; TARGET 2007 - April 26, 1995; TARGET 2010 - April
30, 1996; TARGET 2015 - November 8, 1999; and UTILITIES INCOME - November
15,1993.
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Each Fund may include in advertisements and sales literature, information,
examples and statistics to illustrate the effect of compounding income at a
fixed rate of return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and capital gain
distributions in additional shares. These examples may also include hypothetical
returns comparing taxable versus tax-deferred growth which would pertain to an
IRA, section 403(b)(7) Custodial Account or other qualified retirement program.
The examples used will be for illustrative purposes only and are not
representations by the Funds of past or future yield or return. Examples of
typical graphs and charts depicting such historical performances, compounding
and hypothetical returns are included in Appendix D.
From time to time, in reports and promotional literature, the Funds may
compare their performance to, or cite the historical performance of, Overnight
Government repurchase agreements, U.S. Treasury bills, notes and bonds,
certificates of deposit, and six-month money market certificates or indices of
broad groups of unmanaged securities considered to be representative of, or
similar to, a Fund's portfolio holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized
independent service that monitors and ranks the performance of regulated
investment companies. The Lipper performance analysis includes the
reinvestment of capital gain distributions and income dividends but does
not take sales charges into consideration. The method of calculating total
return data on indices utilizes actual dividends on ex-dividend dates
accumulated for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of
Morningstar, Inc. Morningstar proprietary ratings reflect historical
risk-adjusted performance and are subject to change every month. Funds
with at least three years of performance history are assigned ratings from
one star (lowest) to five stars (highest). Morningstar ratings are
calculated from the Fund's three-, five-, and ten-year average annual
returns (when available) and a risk factor that reflects fund performance
relative to three-month Treasury bill monthly returns. Fund's returns are
adjusted for fees and sales loads. Ten percent of the funds in an
investment category receive five stars, 22.5% receive four stars, 35%
receive three stars, 22.5% receive two stars, and the bottom 10% receive
one star.
Salomon Brothers Inc., "Market Performance," a monthly publication which
tracks principal return, total return and yield on the Salomon Brothers
Broad Investment-Grade Bond Index and the components of the Index.
Telerate Systems, Inc., a computer system to which the Adviser subscribes
which daily tracks the rates on money market instruments, public corporate
debt obligations and public obligations of the U.S. Treasury and agencies
of the U.S. Government.
THE WALL STREET JOURNAL, a daily newspaper publication which lists the
yields and current market values on money market instruments, public
corporate debt obligations, public obligations of the U.S. Treasury and
agencies of the U.S. Government as well as common stocks, preferred
stocks, convertible preferred stocks, options and commodities; in addition
to indices prepared by the research departments of such financial
organizations as Lehman Bros., Merrill Lynch, Pierce, Fenner and Smith,
Inc., First Boston, Salomon Brothers, Morgan Stanley, Goldman, Sachs &
Co., Donaldson, Lufkin & Jenrette, Value Line, Datastream International,
James Capel, S.G. Warburg Securities, County Natwest and UBS UK Limited,
including information provided by the Federal Reserve Board, Moody's, and
the Federal Reserve Bank.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal,
coupon and total return on over 100 different taxable bond indices which
Merrill Lynch tracks. They also list the par weighted characteristics of
each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication
which tracks principal, coupon and total return on the Lehman Govt./Corp.
Index and Lehman Aggregate Bond Index, as well as all the components of
these Indices.
45
<PAGE>
Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average of 30 stocks are unmanaged lists of common stocks
frequently used as general measures of stock market performance. Their
performance figures reflect changes of market prices and quarterly
reinvestment of all distributions but are not adjusted for commissions or
other costs.
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics,
is a commonly used measure of inflation. The Index shows changes in the
cost of selected consumer goods and does not represent a return on an
investment vehicle.
Credit Suisse First Boston High Yield Index is designed to measure the
performance of the high yield bond market.
Lehman Brothers Aggregate Index is an unmanaged index which generally
covers the U.S. investment grade fixed rate bond market, including
government and corporate securities, agency mortgage pass-through
securities, and asset-backed securities.
Lehman Brothers Corporate Bond Index includes all publicly issued, fixed
rate, non-convertible investment grade dollar-denominated, corporate debt
which have at least one year to maturity and an outstanding par value of
at least $100 million.
The NYSE composite of component indices--unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the
NYSE.
Moody's Stock Index, an unmanaged index of utility stock performance.
Morgan Stanley All Country World Free Index is designed to measure the
performance of stock markets in the United States, Europe, Canada,
Australia, New Zealand and the developed and emerging markets of Eastern
Europe, Latin America, Asia and the Far East. The index consists of
approximately 60% of the aggregate market value of the covered stock
exchanges and is calculated to exclude companies and share classes which
cannot be freely purchased by foreigners.
Morgan Stanley World Index is designed to measure the performance of stock
markets in the United States, Europe, Canada, Australia, New Zealand and
the Far East. The index consists of approximately 60% of the aggregate
market value of the covered stock exchanges.
Reuters, a wire service that frequently reports on global business.
Russell 2000 Index, prepared by the Frank Russell Company, consists of
U.S. publicly traded stocks of domestic companies that rank from 1000 to
3000 by market capitalization. The Russell 2000 tracks the return on these
stocks based on price appreciation or depreciation and does not include
dividends and income or changes in market values caused by other kinds of
corporate changes.
Russell 2500 Index, prepared by the Frank Russell Company, consists of
U.S. publicly traded stocks of domestic companies that rank from 500 to
3000 by market capitalization. The Russell 2500 tracks the return on these
stocks based on price appreciation or depreciation and does not include
dividends and income or changes in market values caused by other kinds of
corporate changes.
Salomon Brothers Government Index is a market capitalization-weighted
index that consists of debt issued by the U.S. Treasury and U.S.
Government sponsored agencies.
Salomon Brothers Mortgage Index is a market capitalization-weighted index
that consists of all agency pass-throughs and FHA and GNMA project notes.
46
<PAGE>
Standard & Poor's 400 Midcap Index is an unmanaged capitalization-weighted
index that is generally representative of the U.S. market for medium cap
stocks.
Standard & Poor's Smallcap 600 Index is a capitalization-weighted index
that measures the performance of selected U.S. stocks with a small market
capitalization.
Standard & Poor's Utilities Index is an unmanaged capitalization weighted
index comprising common stock in approximately 41 electric, natural gas
distributors and pipelines, and telephone companies. The Index assumes the
reinvestment of dividends.
From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
GENERAL INFORMATION
ORGANIZATION. Life Series Fund is a Massachusetts business trust organized
on June 12, 1985. The Board of Trustees of Life Series Fund has authority to
issue an unlimited number of shares of beneficial interest of separate series,
no par value, of Life Series Fund. The shares of beneficial interest of Life
Series Fund are presently divided into thirteen separate and distinct series.
Life Series Fund does not hold annual shareholder meetings. If requested to do
so by the holders of at least 10% of Life Series Fund's outstanding shares, the
Board of Trustees will call a special meeting of shareholders for any purpose,
including the removal of Trustees.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund, except the INTERNATIONAL
SECURITIES FUND. Brown Brothers Harriman & Co., 40 Water Street, Boston, MA
02109, is custodian of the securities and cash of the INTERNATIONAL SECURITIES
FUND and employs foreign sub-custodians to provide custody of the Fund's foreign
assets.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent
for each Fund and as redemption agent for regular redemptions.
AUDITS AND REPORTS. The accounts of the Fund are audited twice a year by
Tait, Weller & Baker, independent certified public accountants, 8 Penn Center
Plaza, Philadelphia, PA, 19103. Shareholders receive semi-annual and annual
reports of the Fund, including audited financial statements, and a list of
securities owned.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue N.W.,
Washington, D.C. 20036 serves as counsel to the Fund.
SHAREHOLDER LIABILITY. Life 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 Life Series Fund. The Declaration of Trust however, contains, an
express disclaimer of shareholder liability for acts or obligations of Life
Series Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by Life Series Fund
or the Trustees. The Declaration of Trust provides for indemnification out of
the property of Life Series Fund of any shareholder held personally liable for
the obligations of Life Series Fund. The Declaration of Trust also provides that
Life Series Fund shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of Life Series Fund and
satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which Life 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
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<PAGE>
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Life Series Fund may have an
obligation to indemnify Trustees and officers with respect to litigation.
5% SHAREHOLDERS. As of March 31, 2000 the following owned of record or
beneficially 5% or more of the outstanding shares of the Fund listed below:
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
CASH MANAGEMENT FUND 7.3% Valerie Pleva
George Washington Rm 1718
23 Lexington Avenue
New York, NY 10010
TARGET MATURITY 2015 FUND 14.2% Anita Kreit
AC Howard Saffran
7002 Kennedy Blvd E
Guttenberg, NJ 07093
7.2% Janet L. Cooke
Philip J. Cooke
103 Seminole Ct
Lawrenceburg, KY 40342
7.3% Judith A. Bartel
393 SW 200th Avenue
Beaverton, OR 97006
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, the Life Series Fund,
the Adviser, and the Underwriter have adopted Codes of Ethics ("Codes"). These
Codes permit portfolio managers and other access persons of the Funds to invest
in securities, including securities that may be owned by the Funds, subject to
certain restrictions.
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APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S
Standard & Poor's ("S&P") commercial paper rating is a current assessment
of the likelihood of timely payment of debt considered short-term in the
relevant market. Ratings are graded into several categories, ranging from "A-1"
for the highest quality obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
Moody's Investors Service, Inc. ("Moody's") short-term debt ratings are
opinions of the ability of issuers to repay punctually senior debt obligations
which have an original maturity not exceeding one year. Obligations relying upon
support mechanisms such as letters-of-credit and bonds of indemnity are excluded
unless explicitly rated.
PRIME-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
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APPENDIX B
DESCRIPTION OF MUNICIPAL NOTE RATINGS
STANDARD & POOR'S
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.
50
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APPENDIX C
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
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
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<PAGE>
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
AAA Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
BAA Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
CAA Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
52
<PAGE>
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.
53
<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. This assumes a hypothetical investment of $10,000.
Years 10% 8% 6% 4%
----- ------- ------ ------ ------
5 16,453 14,898 13,489 12,210
10 27,070 22,196 18,194 14,908
15 44,539 33,069 24,541 18,203
20 73,281 49,268 33,102 22,226
25 120,569 73,402 44,650 27,138
INCREASE INVESTMENT
This graph shows the more you invest on a regular basis over time, the more you
can accumulate. this assumes monthly installment with a constant hypothetical
return rate of 8%.
Years $100 $250 $500 $1,000
----- ------ ------- ------- -------
5 7,348 18,369 36,738 73,476
10 18,295 43,736 91,473 182,946
15 34,604 86,509 173,019 346,038
20 58,902 147,255 294,510 589,020
25 95,103 237,757 475,513 951,026
D-1
<PAGE>
[The following table is represented as a graph in the printed document.]
This chart illustrates the time value of money based upon the following
assumptions:
If you invested $2,000 each year for 20 years, starting at 25, assuming a 9%
investment return, you would accumulate $573,443 by the time you reach age 65.
However, had you invested the same $2,000 each year for 20 years, at that rate,
but waited until age 35, you would accumulate only $242,228 - a difference of
$331,215.
25 years old .............. 573,443
35 years old .............. 242,228
45 years old .............. 103,320
For each of the above graphs and chart it should be noted that systematic
investment plans do not assume a profit or protect against loss in declining
markets. Investors should consider their financial ability to continue purchases
through periods of both high and low price levels. Figures are hypothetical and
for illustrative purposes only and do not represent any actual investment or
performance. The value of a shareholder's investment and return may vary.
D-2
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1996.
1928 .................. 300.00
1929 .................. 248.48
1930 .................. 164.58
1931 .................. 77.90
1932 .................. 59.93
1933 .................. 99.90
1934 .................. 104.04
1935 .................. 144.13
1936 .................. 179.90
1937 .................. 120.85
1938 .................. 154.76
1939 .................. 150.24
1940 .................. 131.13
1941 .................. 110.96
1942 .................. 119.40
1943 .................. 136.20
1944 .................. 152.32
1945 .................. 192.91
1946 .................. 177.20
1947 .................. 181.16
1948 .................. 177.30
1949 .................. 200.10
1950 .................. 235.40
1951 .................. 269.22
1952 .................. 291.89
1953 .................. 280.89
1954 .................. 404.38
1955 .................. 488.39
1956 .................. 499.46
1957 .................. 435.68
1958 .................. 583.64
1959 .................. 679.35
1960 .................. 615.88
1961 .................. 731.13
1962 .................. 652.10
1963 .................. 762.94
1964 .................. 874.12
1965 .................. 969.25
1966 .................. 785.68
1967 .................. 905.10
1968 .................. 943.75
1969 .................. 800.35
1970 .................. 838.91
1971 .................. 890.19
1972 .................. 1,020.01
1973 .................. 850.85
1974 .................. 616.24
1975 .................. 858.71
1976 .................. 1,004.65
1977 .................. 831.17
1978 .................. 805.01
1979 .................. 838.74
1980 .................. 963.98
1981 .................. 875.00
1982 .................. 1,046.55
1983 .................. 1,258.64
1984 .................. 1,211.56
1985 .................. 1,546.67
1986 .................. 1,895.95
1987 .................. 1,938.80
1988 .................. 2,168.60
1989 .................. 2,753.20
1990 .................. 2,633.66
1991 .................. 3,168.83
1992 .................. 3,301.11
1993 .................. 3,754.09
1994 .................. 3,834.44
1995 .................. 5,000.00
1996 .................. 6,000.00
The performance of the Dow Jones Industrial Average is not indicative of
the performance of any particular investment. It does not take into account fees
and expenses associated with purchasing mutual fund shares. Individuals cannot
invest directly in any index. Please note that past performance does not
guarantee future results.
D-3
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart shows that inflation is constantly eroding the value of your
money.
THE EFFECTS OF INFLATION OVER TIME
1966 ....................... 96.61836
1967 ....................... 93.80423
1968 ....................... 89.59334
1969 ....................... 84.36285
1970 ....................... 79.88906
1971 ....................... 77.33694
1972 ....................... 74.79395
1973 ....................... 68.80768
1974 ....................... 61.27131
1975 ....................... 57.31647
1976 ....................... 54.63915
1977 ....................... 51.20820
1978 ....................... 46.98000
1979 ....................... 41.46514
1980 ....................... 36.85790
1981 ....................... 33.84564
1982 ....................... 32.60659
1983 ....................... 31.41290
1984 ....................... 30.23378
1985 ....................... 29.12696
1986 ....................... 28.81005
1987 ....................... 27.59583
1988 ....................... 26.43279
1989 ....................... 25.27035
1990 ....................... 23.81748
1991 ....................... 23.10134
1992 ....................... 22.45028
1993 ....................... 21.86006
1994 ....................... 21.28536
1995 ....................... 20.76620
1996 ....................... 20.16135
1996 ....................... 100.00
1997 ....................... 103.00
1998 ....................... 106.00
1999 ....................... 109.00
2000 ....................... 113.00
2001 ....................... 116.00
2002 ....................... 119.00
2003 ....................... 123.00
2004 ....................... 127.00
2005 ....................... 130.00
2006 ....................... 134.00
2007 ....................... 138.00
2008 ....................... 143.00
2009 ....................... 147.00
2010 ....................... 151.00
2011 ....................... 156.00
2012 ....................... 160.00
2013 ....................... 165.00
2014 ....................... 170.00
2015 ....................... 175.00
2016 ....................... 181.00
2017 ....................... 186.00
2018 ....................... 192.00
2019 ....................... 197.00
2020 ....................... 203.00
2021 ....................... 209.00
2022 ....................... 216.00
2023 ....................... 222.00
2024 ....................... 229.00
2025 ....................... 236.00
2026 ....................... 243.00
Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and service as in 1996 ($100 vs. $20).* Projecting inflation at 3%, goods
and services costing $100 today will cost $243 in the year 2026.
* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.
D-4
<PAGE>
[The following tables are represented as graphs in the printed document.]
This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.
1926 through 1996*
Total Number of Percentage of
Number of Positive Positive
Rolling Period Periods Periods Periods
-------------- ------- ------- -------
1-Year 71 51 72%
5-Year 67 60 90%
10-Year 62 60 97%
15-Year 57 57 100%
20-Year 52 52 100%
The following chart shows the compounded annual return of large company stocks
compared to U.S. Treasury Bills and inflation over the most recent 15 year
period. **
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 16.79
The following chart illustrates for the period shown that long-term corporate
bonds have outpaced U.S. Treasury Bills and inflation.
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 13.66
* Source: Used with permission. (c)1997 Ibbotson Associates, Inc. All rights
reserved. [Certain provisions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.]
** Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, returns of U.S. Treasury bills historically have
not outpaced inflation by as great a margin as stocks.
D-5
<PAGE>
The accompanying table illustrates that if you are in the 36% tax bracket, a
tax-free yield of 3% is actually equivalent to a taxable investment earning
4.69%.
Your Taxable Equivalent Yield
Your Federal Tax Bracket
---------------------------------------------
28.0% 31.0% 36.0% 39.6%
your tax-free yield
3.00% 4.17% 4.35% 4.69% 4.97%
3.50% 4.86% 5.07% 5.47% 5.79%
4.00% 5.56% 5.80% 6.25% 6.62%
4.50% 6.25% 6.52% 7.03% 7.45%
5.00% 6.94% 7.25% 7.81% 8.25%
5.50% 7.64% 7.97% 8.59% 9.11%
This information is general in nature and should not be construed as tax advice.
Please consult a tax or financial adviser as to how this information affects
your particular circumstances.
D-6
<PAGE>
[The following table is represented as a graph in the printed document.]
The following graph illustrates how income has affected the gains from stock
investments since 1965.
S&P 500 Dividends Reinvested S&P 500 Principal Only
12/31/64 10,000 10,000
12/31/65 11,269 10,906
12/31/66 10,115 9,478
12/31/67 12,550 11,383
12/31/68 13,948 12,255
12/31/69 12,795 10,863
12/31/70 13,299 10,873
12/31/71 15,200 12,046
12/31/72 18,088 13,929
12/31/73 15,431 11,510
12/31/74 11,346 8,090
12/31/75 15,570 10,642
12/31/76 19,296 12,680
12/31/77 17,915 11,221
12/31/78 19,092 11,340
12/31/79 22,645 12,736
12/31/80 30,004 16,019
12/31/81 28,528 14,460
12/31/82 34,674 16,595
12/31/83 42,496 19,461
12/31/84 45,161 19,733
12/31/85 59,489 24,930
12/31/86 70,594 28,575
12/31/87 74,301 29,154
12/31/88 86,641 32,769
12/31/89 114,093 41,699
12/31/90 110,549 38,964
12/31/91 144,230 49,214
12/31/92 155,218 51,411
12/31/93 170,863 55,039
12/31/94 173,120 54,191
12/31/95 238,175 72,676
12/31/96 292,863 87,403
11/30/97 383,977 112,732
Source: First Investors Management Company, Inc. Standard & Poor's is a
registered trademark. The S&P 500 is an unmanaged index comprising 500 common
stocks spread across a variety of industries. The total returns represented
above compare the impact of reinvestment of dividends and illustrates past
performance of the index. The performance of any index is not indicative of the
performance of a particular investment and does not take into account the
effects of inflation or the fees and expenses associated with purchasing mutual
fund shares. Individuals cannot invest directly in any index. Mutual fund shares
will fluctuate in value, therefore, the value of your original investment and
your return may vary. Moreover, past performance is no guarantee of future
results.
D-7
<PAGE>
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
Registrant 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, 1999 electronically filed with the Securities and
Exchange Commission on March 6, 2000 (Accession Number: 0000912057-00-009944).
<PAGE>
PART C. OTHER INFORMATION
Item 23. EXHIBITS
(a) Declaration of Trust (2)
(b) By-laws (2)
(c) Shareholders' rights are contained in (a) Articles III, VIII,
X, XI and XII of Registrant's Declaration of Trust dated June
12, 1985, previously filed as Exhibit 99.B1 to Registrant's
Registration Statement and (b) Articles III and V of
Registrant's By-laws, previously filed as Exhibit 99.B2 to
Registrant's Registration Statement.
(d)(i) Investment Advisory Agreement between Registrant and First
Investors Management Company, Inc., including form of Schedule
A relating to Zero Coupon 2007 Series (1)
(d)(ii) Subadvisory Agreement relating to International Securities
Fund and Growth Fund (1)
(d)(iii) Subadvisory Agreement relating to Focused Equity Fund (5)
(e) Underwriting Agreement - none
(f) Bonus, profit sharing or pension plans - none
(g)(i) Custodian Agreement between Registrant and Irving Trust
Company (3)
(ii) Custodian Agreement between Registrant and Brown Brothers
Harriman & Co. relating to International Securities Fund (3)
(iii) Supplement to Custodian Agreement between Registrant and The
Bank of New York (3)
(h)(i) Administration Agreement between Registrant, First Investors
Management Company, Inc., First Investors Corporation and
Administrative Data Management Corp. (3)
(ii) Transfer Agency Agreement - filed herewith
(i) Opinion and Consent of Counsel - filed herewith
(j)(i) Consent of Independent Accountants - filed herewith
(ii) Powers of Attorney (2)
(k) Financial statements omitted from prospectus - none
(l) Initial capital agreements (4)
(m) Distribution Plan - none
(n) Financial Data Schedules - filed herewith
(o) 18f-3 Plan - none
(p)(i) Code of Ethics for First Investors Registered Investment
Companies - filed herewith
(ii) Code of Ethics for First Investors - filed herewith
(iii) Code of Ethics for Wellington Management Company
- filed herewith
(iv) Code of Ethics for Arnhold & S. Bleichroeder, Inc.
- filed herewith
- -----------------------
(1) Incorporated by reference from Post-Effective Amendment No. 15 to
Registrant's Registration Statement (File No. 2-98409) filed on February
15, 1995.
C-1
<PAGE>
(2) Incorporated by reference from Post-Effective Amendment No. 17 to
Registrant's Registration Statement (File No. 2-98409) filed on October
2, 1995.
(3) Incorporated by reference from Post-Effective Amendment No. 18 to
Registrant's Registration Statement (File No. 2-98409) filed on February
14, 1996.
(4) Incorporated by reference from Post-Effective Amendment No. 20 to
Registrant's Registration Statement (File No. 2-98409) filed on October
21, 1996.
(5) To be filed subsequently.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons controlled by or under common control with
the Registrant.
Item 25. INDEMNIFICATION
Article XI, Section 2 of Registrant's Declaration of Trust provides
as follows:
"Section 2.
(a) Subject to the exceptions and limitations contained in Section (b)
below:
(i) every person who is, or has been, a Trustee or officer of the Trust
(a "Covered Person") shall be indemnified by the Trust to the fullest extent
permitted by law against liability and against expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding which he
becomes involved as a party or otherwise by virtue of his being or having been a
Trustee or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal or other, including
appeals), actual or threatened, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) Who shall have been adjudicated by a court or body before which the
proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the Trust; or
(ii) in the event of a settlement, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office,
(A) by the court or other body approving the settlement; or
(B) by at least a majority or those Trustees who are neither
interested persons of the Trust nor are parties to the matter
based upon a review of readily available facts (as opposed to
C-2
<PAGE>
a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full
trial-type inquiry); provided, however, that any Shareholder
may, by appropriate legal proceedings, challenge any such
determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person may now or hereafter
be entitled, shall continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under the
law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 2 may be paid by the Trust from time to time prior
to final disposition thereof upon receipt of an undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the Trust if it
is ultimately determined that he is not entitled to indemnification under this
Section 2; provided, however, that either (a) such Covered Person shall have
provided appropriate security for such undertaking, (b) the Trust is insured
against losses arising out of any such advance payments or (c) either a majority
of the Trustees who are neither interested persons of the Trust nor are parties
to the matter, or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is a reason to believe that such Covered Person
will be found entitled to indemnification under this Section 2."
The general effect of this Indemnification will be to indemnify the
officers and Trustees 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 Trustee 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 Trustee's or officer's office.
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.
Item 26. (a) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
First Investors Management Company, Inc. offers investment management
services and is a registered investment adviser. Affiliations of the officers
and directors of the Investment Adviser are set forth in Part B, Statement of
Additional Information, under "Directors or Trustees and Officers."
C-3
<PAGE>
(b) BUSINESS AND OTHER CONNECTIONS OF SUBADVISERS
(i) Wellington Management Company, LLP ("Wellington Management") is an
investment adviser registered under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). The list required by this Item 26 of officers and
partners of Wellington Management, together with any information as to any
business profession, vocation or employment of a substantial nature engaged in
by such officers and partners during the past two years, is incorporated herein
by reference to Schedules A and D of Form ADV filed by Wellington Management
pursuant to the Advisers Act (SEC File No. 801-159089).
(ii) Arnhold and S. Bleichroeder, Inc. ("ASB") is an investment adviser
registered under the Advisers Act. The list required by this Item 26 of officers
and directors of ASB, together with any information as to any business
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by ASB pursuant to the Advisers Act (SEC
File No. 801-02114).
Item 27. Not applicable.
Item 28. 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 29. MANAGEMENT SERVICES
Not Applicable.
Item 30. UNDERTAKINGS
The Registrant undertakes to carry out all indemnification
provisions of its Declaration of Trust, 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 trustees, 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 trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, 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.
C-4
<PAGE>
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.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
represents that this Post-Effective Amendment No. 27 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 No. 27 to its 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 18th day of
April, 2000.
FIRST INVESTORS LIFE SERIES FUND
By: GLENN O. HEAD*
---------------
Glenn O. Head
President and Trustee
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment No. 27 to this Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
Glenn O. Head* Principal Executive April 18, 2000
- ----------------------------- Officer and Trustee
Glenn O. Head
/s/ Joseph I. Benedek Principal Financial April 18, 2000
- ----------------------------- and Accounting Officer
Joseph I. Benedek
Kathryn S. Head* Trustee April 18, 2000
- -----------------------------
Kathryn S. Head
/s/ Larry R. Lavoie Trustee April 18, 2000
- -----------------------------
Larry R. Lavoie
Herbert Rubinstein* Trustee April 18, 2000
- -----------------------------
Herbert Rubinstein
Nancy Schaenen* Trustee April 18, 2000
- -----------------------------
Nancy Schaenen
James M. Srygley* Trustee April 18, 2000
- -----------------------------
James M. Srygley
John T. Sullivan* Trustee April 18, 2000
- -----------------------------
John T. Sullivan
C-6
<PAGE>
Rex R. Reed* Trustee April 18, 2000
- -----------------------------
Rex R. Reed
Robert F. Wentworth* Trustee April 18, 2000
- -----------------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
-------------------
Larry R. Lavoie
Attorney-in-fact
C-7
<PAGE>
INDEX TO EXHIBITS
Exhibit
NUMBER DESCRIPTION
23(a) Declaration of Trust (2)
23(b) By-laws (2)
23(c) Shareholders' rights are contained in (a) Articles III,
VIII, X, XI and XII of Registrant's Declaration of
Trust dated June 12, 1985, previously filed as Exhibit
99.B1 to Registrant's Registration Statement and (b)
Articles III and V of Registrant's By-laws, previously
filed as Exhibit 99.B2 to Registrant's Registration
Statement.
23(d)(i) Investment Advisory Agreement between Registrant and
First Investors Management Company, Inc., including
form of Schedule A relating to Zero Coupon 2007
Series (1)
23(d)(ii) Subadvisory Agreement relating to International
Securities Fund and Growth Fund (1)
23(d)(iii) Subadvisory Agreement relating to Focused Equity
Fund (5)
23(e) Underwriting Agreement - none
23(f) Bonus or Profit Sharing Contracts -- None
23(g)(i) Custodian Agreement between Registrant and Irving Trust
Company (3)
23(g)(ii) Custodian Agreement between Registrant and Brown
Brothers Harriman & Co. relating to International
Securities Fund (3)
23(g)(iii) Supplement to Custodian Agreement between Registrant
and The Bank of New York (3)
23(h)(i) Administration Agreement between Registrant, First
Investors Management Company, Inc., First Investors
Corporation and Administrative Data Management
Corp. (1)
23(h)(ii) Transfer Agency Agreement - filed herewith
23(i) Opinion and Consent of Counsel - filed herewith
23(j)(i) Consent of independent accountants - filed herewith
23(j)(ii) Powers of Attorney (2)
23(k) Omitted Financial Statements -- None
C-8
<PAGE>
23(l) Initial Capital Agreements (4)
23(m) Distribution Plan - none
23(n) Financial Data Schedules - filed herewith
23(o) Rule 18f-3 Plan - none
23(p)(i) Code of Ethics for First Investors Registered
Investment Companies - filed herewith
23(p)(ii) Code of Ethics for First Investors - filed herewith
23(p)(iii) Code of Ethics for Wellington Management Company
- filed herewith
23(p)(iv) Code of Ethics for Arnhold & S. Bleichroeder, Inc.
- filed herewith
- -----------------------
(1) Incorporated by reference from Post-Effective Amendment No. 15 to
Registrant's Registration Statement (File No. 2-98409) filed on February
15, 1995.
(2) Incorporated by reference from Post-Effective Amendment No. 17 to
Registrant's Registration Statement (File No. 2-98409) filed on October
2, 1995.
(3) Incorporated by reference from Post-Effective Amendment No. 18 to
Registrant's Registration Statement (File No. 2-98409) filed on February
14, 1996.
(4) Incorporated by reference from Post-Effective Amendment No. 20 to
Registrant's Registration Statement (File No. 2-98409) filed on October
21, 1996.
(5) To be filed subsequently.
C-9
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<NAME> FIRST INVESTORS LIFE SERIES FUND
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<NAME> BLUE CHIP FUND
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000770906
<NAME> FIRST INVESTORS LIFE SERIES FUND
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<NUMBER> 04
<NAME> GROWTH FUND
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<S> <C>
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<NAME> FIRST INVESTORS LIFE SERIES FUND
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<TABLE> <S> <C>
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<CIK> 0000770906
<NAME> FIRST INVESTORS LIFE SERIES FUND
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<NAME> FIRST INVESTORS LIFE SERIES FUND
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<AVERAGE-NET-ASSETS> 58863
<PER-SHARE-NAV-BEGIN> 15.83
<PER-SHARE-NII> .310
<PER-SHARE-GAIN-APPREC> 2.250
<PER-SHARE-DIVIDEND> (.330)
<PER-SHARE-DISTRIBUTIONS> (.510)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.55
<EXPENSE-RATIO> .65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000770906
<NAME> FIRST INVESTORS LIFE SERIES FUND
<SERIES>
<NUMBER> 10
<NAME> TARGET MATURITY 2007 FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 25681
<INVESTMENTS-AT-VALUE> 25117
<RECEIVABLES> 5
<ASSETS-OTHER> 125
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25247
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26
<TOTAL-LIABILITIES> 26
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24520
<SHARES-COMMON-STOCK> 2112
<SHARES-COMMON-PRIOR> 1914
<ACCUMULATED-NII-CURRENT> 1412
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (148)
<ACCUM-APPREC-OR-DEPREC> (564)
<NET-ASSETS> 25221
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1587
<OTHER-INCOME> 0
<EXPENSES-NET> (175)
<NET-INVESTMENT-INCOME> 1412
<REALIZED-GAINS-CURRENT> (38)
<APPREC-INCREASE-CURRENT> (3929)
<NET-CHANGE-FROM-OPS> (2555)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1197)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 273
<NUMBER-OF-SHARES-REDEEMED> 171
<SHARES-REINVESTED> 96
<NET-CHANGE-IN-ASSETS> (1252)
<ACCUMULATED-NII-PRIOR> 1197
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (110)
<GROSS-ADVISORY-FEES> (194)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (216)
<AVERAGE-NET-ASSETS> 25775
<PER-SHARE-NAV-BEGIN> 13.83
<PER-SHARE-NII> .660
<PER-SHARE-GAIN-APPREC> (1.930)
<PER-SHARE-DIVIDEND> (.620)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.94
<EXPENSE-RATIO> .69
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000770906
<NAME> FIRST INVESTORS LIFE SERIES FUND
<SERIES>
<NUMBER> 11
<NAME> TARGET MATURITY 2010 FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 8961
<INVESTMENTS-AT-VALUE> 8561
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<TOTAL-ASSETS> 8607
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<PAID-IN-CAPITAL-COMMON> 8595
<SHARES-COMMON-STOCK> 726
<SHARES-COMMON-PRIOR> 646
<ACCUMULATED-NII-CURRENT> 495
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (89)
<ACCUM-APPREC-OR-DEPREC> (400)
<NET-ASSETS> 8601
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 557
<OTHER-INCOME> 0
<EXPENSES-NET> (62)
<NET-INVESTMENT-INCOME> 495
<REALIZED-GAINS-CURRENT> (89)
<APPREC-INCREASE-CURRENT> (1518)
<NET-CHANGE-FROM-OPS> (1112)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (351)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 181
<NUMBER-OF-SHARES-REDEEMED> 129
<SHARES-REINVESTED> 28
<NET-CHANGE-IN-ASSETS> (430)
<ACCUMULATED-NII-PRIOR> 351
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (68)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (78)
<AVERAGE-NET-ASSETS> 8999
<PER-SHARE-NAV-BEGIN> 13.97
<PER-SHARE-NII> .650
<PER-SHARE-GAIN-APPREC> (2.260)
<PER-SHARE-DIVIDEND> (.510)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.85
<EXPENSE-RATIO> .71
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000770906
<NAME> FIRST INVESTORS LIFE SERIES FUND
<SERIES>
<NUMBER> 12
<NAME> TARGET MATURITY 2015 FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> NOV-8-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 651
<INVESTMENTS-AT-VALUE> 619
<RECEIVABLES> 50
<ASSETS-OTHER> 203
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 872
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 1
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 900
<SHARES-COMMON-STOCK> 92
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (32)
<NET-ASSETS> 871
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5
<OTHER-INCOME> 0
<EXPENSES-NET> (1)
<NET-INVESTMENT-INCOME> 4
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (32)
<NET-CHANGE-FROM-OPS> (28)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 92
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 871
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (1)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1)
<AVERAGE-NET-ASSETS> 97
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .040
<PER-SHARE-GAIN-APPREC> (.530)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.51
<EXPENSE-RATIO> 1.59
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000770906
<NAME> FIRST INVESTORS LIFE SERIES FUND
<SERIES>
<NUMBER> 13
<NAME> FOCUSED EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> NOV-8-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 1333
<INVESTMENTS-AT-VALUE> 1424
<RECEIVABLES> 57
<ASSETS-OTHER> 518
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1999
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2
<TOTAL-LIABILITIES> 2
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1936
<SHARES-COMMON-STOCK> 195
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2)
<ACCUMULATED-NET-GAINS> 29
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 91
<NET-ASSETS> 1997
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (2)
<NET-INVESTMENT-INCOME> (2)
<REALIZED-GAINS-CURRENT> 29
<APPREC-INCREASE-CURRENT> 91
<NET-CHANGE-FROM-OPS> 118
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 195
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2055
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (1)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (3)
<AVERAGE-NET-ASSETS> 137
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.010)
<PER-SHARE-GAIN-APPREC> .260
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.25
<EXPENSE-RATIO> 1.84
</TABLE>
TRANSFER AGENT AGREEMENT
------------------------
This Agreement, dated as of the 20th day of May 1999, made by each FIRST
INVESTORS investment company listed on Schedule A, as amended from time to time
("Fund"), and ADMINISTRATIVE DATA MANAGEMENT CORP., a corporation duly organized
and existing under the laws of the State of New York ("ADM").
WITNESSETH THAT:
WHEREAS, ADM represents that it is currently registered and licensed with
the appropriate authorities to provide services as a transfer agent of mutual
funds, and will remain so registered for the duration of the Agreement; and
WHEREAS, the Fund desires to employ ADM to provide transfer agency and
related services under the terms and conditions described in this Agreement and
ADM is willing to provide such services;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto, intending to be legally bound, do hereby
agree as follows:
1. APPOINTMENT. The Fund hereby appoints ADM as its registrar, transfer
agent, dividend disbursing agent, shareholder servicing agent and administrator
of its dividend reinvestment, share accumulation, systematic withdrawal and
automated payment programs (collectively its "Transfer Agent") and ADM accepts
such appointment and agrees to act in such capacity upon the terms set forth in
this Agreement.
2. DEFINITIONS. As used in this Agreement capitalized terms have the
meanings specified below:
A) "Fund" means any of the Funds set forth in Schedule A existing
now or in the future that becomes a party to this Agreement, and;
B) "Shares" means the issued and outstanding shares of beneficial
interest, and any fractions thereof, of the Fund;
C) "Shareholder" means the registered owner of Shares or the beneficial
owner of Shares if the name of the beneficial owner is recorded on
the master security holder files;
D) "Account" means a separate record established on ADM's books for
each Shareholder in the Fund which identifies the legal registration
and number of Shares owned.
<PAGE>
3. RESPONSIBILITIES OF ADM. ADM in its capacity as Transfer Agent will
perform the usual duties and functions of a stock transfer agent for the Fund.
Among other things, it will:
A) maintain stock registry and record thereon the Shares and
fractions thereof of both issued and unissued Shares for each
Shareholder's Account;
B) open, maintain, service and close Accounts of Shareholders;
C) issue, redeem, exchange and transfer Shares in Accounts
established on its books and records;
D) process initial and subsequent payments on each day the Fund is
open for trading;
E) maintain a record of sales of Shares for use by the Fund in
complying with state and federal registration requirements;
F) deliver to the underwriter all payments received by ADM;
G) calculate the amounts of Shares to be issued, the amounts of
commissions owed to dealers, and the amounts to be paid to the
underwriter;
H) answer telephone and written inquiries from Shareholders,
securities brokers and others;
I) calculate the amount of, and reinvest dividends and distributions
declared upon Shares into Shareholder Accounts or, upon
Shareholder election, pay such dividends and distributions in
cash;
J) furnish to Shareholders monthly or quarterly statements,
confirmations of transactions in Shares, prospectuses, and such
other communications as may be requested by the Fund;
K) deduct and pay the Internal Revenue Service and other payees the
required amounts of tax withholdings in accordance with
applicable laws, rules and regulations;
L) mail to Shareholders such tax forms, notices, and other information
relating to purchases, redemptions, dividends and distributions, as
required by applicable laws, rules and regulations;
M) prepare, maintain and file with the Internal Revenue Service and
other appropriate taxing authorities reports relating to purchases,
redemptions, dividends and distributions, as required by applicable
laws, rules and regulations;
-2-
<PAGE>
N) mail annual and semi-annual reports and prospectuses prepared by
or on behalf of the Fund to Shareholders;
O) mail notices of Shareholder meetings, proxies, proxy statements and
other related materials upon request by the Fund;
P) maintain a disaster recovery site for emergency use and a separate
off-site storage facility for backup computer files and data;
Q) maintain all records required to be kept by applicable laws, rules
and regulations relating to the services to be performed under this
Agreement; and,
R) comply with all other laws, rules and regulations that apply to ADM
as the result of the services that it is required to perform under
this Agreement.
4. DUTY OF CARE. ADM shall exercise due care and diligence, act in good
faith, and comply with the terms and conditions contained in the Fund's
prospectuses, statements of additional information, shareholder applications
and all applicable laws, rules and regulations in performing the services
required under this Agreement.
5. LIMITATIONS ON LIABILITY. ADM shall not be liable for any losses,
claims or damages (collectively, "Damages") arising out of or in connection with
ADM's performance or failure to perform its duties under this Agreement except
to the extent that such Damages arise out of its negligence, reckless disregard
of its duties, bad faith or willful misfeasance.
Without limiting the generality of the foregoing, ADM shall not be liable
for:
A) any Damages caused by delays, errors, or loss of data occurring by
reason of circumstances beyond ADM's control, including but not
limited to acts of civil or military authorities, national
emergencies, labor difficulties, acts of God, insurrections, wars,
riots or failures of the mails, transportation providers,
communications providers or power suppliers; or,
B) any taxes, assessments or governmental charges which may be levied
or assessed on any basis whatsoever in connection with the services
performed under this Agreement, except for taxes assessed against
ADM in its corporate capacity based upon its compensation hereunder.
6. INDEMNIFICATION.
A) The Fund shall indemnify and hold ADM harmless against any Damages
or expenses (including reasonable attorneys fees) incurred in any
action, suit or proceeding brought against it by any person other
than the Fund, including a Shareholder, based upon ADM's services
-3-
<PAGE>
for the Fund or its Shareholders, if the Damages sought did not
result from ADM's negligence, reckless disregard for its duties, bad
faith or willful misfeasance.
B) The Transfer Agent shall not pay or settle any claim, demand,
expense or liability to which it may seek indemnity pursuant to
paragraph (A) above an ("Indemnifiable Claim") without the express
written consent of the Fund. The Transfer Agent shall notify the
Fund promptly of receipt of notification of an Indemnifiable Claim.
Unless the Fund notifies the Transfer Agent within 30 days of
receipt of Written Notice of such Indemnifiable Claim that the Fund
does not intend to defend such Indemnifiable Claim, the Fund shall
defend the Transfer Agent for such Indemnifiable Claim. The Fund
shall have the right to defend any Indemnifiable Claim at its own
expense, such defense to be conducted by counsel selected by the
Fund. Further, the Transfer Agent may join the Fund in such defense
at the Transfer Agent's own expense, but to the extent that it shall
so desire the Fund shall direct such defense. If the Fund shall fail
or refuse to defend, pay or settle an Indemnifiable Claim, the
Transfer Agent, at the Fund's expense, consistent with the
limitation concerning attorney's fees expressed in (A) above, may
provide its own defense.
7. DELEGATION OF DUTIES. ADM may from time to time in its sole discretion
delegate some or all of its duties hereunder to any affiliate or entity, which
shall perform such functions as the agent of ADM; provided, however, that the
delegation of any of ADM's duties under this Agreement shall not relieve ADM of
any of its responsibilities or liabilities under this Agreement.
8. INSURANCE. ADM shall maintain insurance of the types and in the amounts
deemed by it to be appropriate for the services that it provides to the Fund. To
the extent that policies of insurance may provide for coverage of claims for
liability or indemnity by the parties set forth in this Agreement, the contracts
of insurance shall take precedence, and no provision of the Agreement shall be
construed to relieve an insurer of any obligation to pay claims to the Fund, ADM
or any other insured party which could otherwise be a covered claim in the
absence of any provision of this Agreement.
9. BOOKS AND RECORDS. The books and records pertaining to the Fund which
are in the possession of the Transfer Agent shall be the property of the Fund
and shall be returned to the Fund or its designee upon request. Such books and
records shall be prepared and maintained as required by applicable laws, rules,
and regulations. The Fund, or its authorized representatives, shall have access
to such books and records at all times during the Transfer Agent's normal
business hours. Upon request of the Fund, copies of any such books and records
shall be provided by the Transfer Agent to the Fund or the Fund's authorized
representative or designee at the Fund's expense.
-4-
<PAGE>
10. RESPONSIBILITIES OF THE FUND. The Fund is responsible for:
A) providing ADM on an ongoing basis with its current prospectuses,
statements of additional information, shareholder manuals, annual
and semi-annual reports, proxy notices and proxy statements;
B) notifying ADM upon declaration of each dividend and distribution of
the date of its declaration, the amount payable per Share, the
record date, the payment date, the reinvestment date, and the price;
C) transferring, or causing the Fund's Custodian or Custodians to
transfer, to ADM by each payment date, the total amount of the
dividend or distribution currently payable in cash; and
D) providing ADM with its net asset value on each day the Fund is open
for business and the prices which are applicable to Shareholders who
are entitled to purchase Shares at reduced offering prices.
11. COMPENSATION. The Fund agrees to pay ADM compensation for its services
and to reimburse it for expenses as set forth in Schedule B attached hereto, or
as shall be set forth in amendments to such schedule approved by the parties to
this Agreement.
12. ADDITIONAL SERVICES AND COMPENSATION. The Fund may with the consent of
ADM decide to employ ADM to perform additional services and special projects
which are not covered by this Agreement, such as proxy solicitation, proxy
tabulation or special research. In such circumstances, the terms and conditions
under which ADM will perform such services and the compensation it will receive
will be set by mutual agreement.
13. HOLIDAYS. Nothing contained in this Agreement is intended to or shall
require ADM in any capacity hereunder to perform any functions or duties on any
holiday or other day of special observances on which the Fund and ADM are
closed. Functions or duties normally scheduled to be performed on such days
shall be performed on, and as of, the next business day on which both the Fund
and ADM are open.
14. COOPERATION WITH ACCOUNTANTS. The Transfer Agent shall cooperate with
the Fund's independent public accountants and shall take all reasonable action
in the performance of its obligations under this Agreement to assure that the
necessary information is made available to such accountants for the expression
of their opinion as such may be required by the Fund from time to time.
15. CONFIDENTIALITY. The Transfer Agent agrees on behalf of itself and its
employees to treat confidentially all records and other information relative to
the Fund and its prior, present or potential Shareholders and relative to the
Fund's investment advisers, sub- advisers or underwriters and their present or
-5-
<PAGE>
potential customers; provided, however that the Transfer Agent may disclose
information in response to a lawful subpoena, request from a governmental
authority, or other legal process or with the consent of the Fund.
16. ENFORCEMENT OF AGREEMENT. Notwithstanding any provision of the law to
the contrary, ADM hereby waives any right to enforce this Agreement against the
individual and separate assets of any Shareholder of the Fund. With respect to
any obligations of the Fund arising out of this Agreement, ADM shall look for
payment or satisfaction of any obligation solely to the assets and property of
the Fund.
17. ASSIGNMENT. This Agreement shall extend to, and shall be binding upon,
the parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by any party without the
written consent of the other. In the case of the Fund, any consent to an
assignment must be approved by the Board of Directors/Trustees of the Fund.
18. TERMINATION. This Agreement may be terminated by any party to this
Agreement on at least sixty (60) days advance written notice. If ADM fails at
any time to maintain the necessary registrations or licenses required to act
lawfully as the Fund's Transfer Agent, the Fund may terminate this Agreement
upon five days written notice. In the event that ADM shall terminate this
Agreement, it shall continue to perform the services required under this
Agreement at the request of the Fund until a replacement is appointed. In such
case, ADM shall be entitled to receive all the payments and reimbursements to
which it is entitled under this Agreement.
19. AMENDMENT. This Agreement may only be amended by a written instrument
approved by both parties.
20. NON-EXCLUSIVITY. The parties understand and agree that ADM may offer
services, including the types of services covered by this Agreement, to other
parties including non-affiliated mutual funds, provided that such activities do
not adversely affect ADM's ability to perform the services to the Fund that are
required by this Agreement.
21. MISCELLANEOUS. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be original, but
such counterparts shall together constitute but one and the same instrument.
This Agreement shall be construed in accordance with the laws of the State of
New York.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
signed by their duly authorized officers and their seals hereunto duly affixed
and attested as of the day and the year first above written.
ATTEST: FIRST INVESTORS FUNDS
/s/ C. Durso BY: /s/ Glenn O. Head
- ------------ -----------------
C. Durso, Secretary Glenn O. Head, President
ATTEST: ADMINISTRATIVE DATA
MANAGEMENT CORP.
/s/ Larry R. Lavoie BY: /s/ Kathryn S. Head
- ------------------- -------------------
Larry R. Lavoie, Assistant Secretary Kathryn S. Head, President
-7-
<PAGE>
TRANSFER AGENT AGREEMENT
SCHEDULE A
CURRENT LIST OF FUNDS
---------------------
Executive Investors Trust
Executive Investors Blue Chip Fund
Executive Investors High Yield Fund
Executive Investors Insured Tax Exempt Fund
First Investors Cash Management Fund, Inc.
First Investors Fund For Income, Inc.
First Investors Global Fund, Inc.
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Insured Tax Exempt Fund, Inc.
First Investors Life Series Fund
Life Blue Chip Fund Life Cash Management Fund Life Discovery Fund Life
Government Fund Life Growth Fund Life High Yield Fund Life International
Securities Fund Life Investment Grade Fund Life Target Maturity 2007 Life
Target Maturity 2010 Life Utilities Income Fund
First Investors Multi-State Insured Tax Free Fund
Arizona Fund, California Fund, Colorado Fund, Connecticut Fund, Florida
Fund, Georgia Fund, Maryland Fund, Massachusetts Fund, Michigan Fund,
Minnesota Fund, Missouri Fund, New Jersey Fund, North Carolina Fund, Ohio
Fund, Oregon Fund, Pennsylvania Fund, Virginia Fund
First Investors New York Insured Tax Free Fund, Inc.
First Investors Series Fund
First Investors Blue Chip Fund
First Investors Insured Intermediate Tax Exempt Fund
First Investors Investment Grade Fund
First Investors Special Situations Fund
First Investors Total Return Fund
First Investors Series Fund II, Inc.
First Investors Focused Equity Fund
First Investors Growth & Income Fund
First Investors Mid-Cap Opportunity Fund
First Investors Utilities Income Fund
First Investors Special Bond Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
1st Fund
2nd Fund
5/20/99
-8-
<PAGE>
TRANSFER AGENT AGREEMENT
SCHEDULE B
COMPENSATION
------------
FEES AND CHARGES:
- ----------------
The Fund shall pay the following fees and charges of Administrative Data
Management Corp. for its services under the Transfer Agent Agreement.
For all Funds except First Investors Cash Management Fund, Inc. and
First Investors Tax-Exempt Money Market Fund, Inc.:
Monthly Account Maintenance $0.75 per account
New Accounts $5.00 for each account
Payments $0.75 for each payment
Liquidations and Withdrawals $5.00 per transaction
Exchanges $5.00 per transaction
Transfers $10.00 per transaction
Certificates Issued $3.00 per certificate issued
Systematic Withdrawal Checks $1.00 per check
Dividend Processing $0.45 per dividend
Reports Requested by Government Agency $1.00 per account
Shareholder Service Calls $4.00 per call
Correspondence $20.00 per item
First Investors Cash Management Fund, Inc. and First Investors
Tax-Exempt Money Market Fund, Inc.:
Monthly Account Maintenance $2.00 per account
Reports Requested by Government Agency $1.00 per account
EXPENSES:
- --------
In addition to the above fees and charges, the Fund shall reimburse
Administrative Data Management Corp. for all out-of-pocket costs including but
not limited to the costs of postage, insurance, forms, envelopes, telephone
lines and other similar items, counsel fees, including fees for the preparation
of the Transfer Agent Agreement and review of the Fund's registration statements
and application forms.
5/20/99
-9-
KIRKPATRICK & LOCKHART LLP 1800 Massachusetts Avenue, NW
Second Floor
Washington, DC 20036-1800
202.778.9000
www.kl.com
April 27, 2000
Robert J. Zutz
202.778.9059
Fax: 202.778.9100
[email protected]
First Investors Life Series Fund
95 Wall Street
New York, New York 10005
Ladies and Gentlemen:
You have requested our opinion, as counsel to First Investors Life Series
Fund (the "Trust"), as to certain matters regarding the issuance of Shares of
the Trust. As used in this letter, the term "Shares" means the shares of
beneficial interest of each series of the Trust, during the time this
Post-Effective Amendment No. 27 to the Trust'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 Trust's Declaration of Trust and by-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees 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 Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by unincorporated voluntary associations 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 present laws and facts, we are of the opinion that the issuance
of the Shares has been duly authorized by the Trust and that, when sold in
accordance with the terms contemplated by the PEA, including receipt by the
Trust 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 note, however, that the Trust is an entity of the type commonly known
as a "Massachusetts business trust." Under Massachusetts law, shareholders
could, under certain circumstances, be held personally liable for the
obligations of the Trust. The Declaration of Trust states that all persons
extending credit to, contracting with or having any claim against the Trust or
the Trustees shall look only to the assets of the Trust for payment under such
credit, contract or claim; and neither the Shareholders nor the Trustees, nor
any of their agents, whether past, present or future, shall be personally liable
therefor. It also requires that every note, bond, contract or other undertaking
<PAGE>
First Investors Life Series Fund
April 27, 2000
Page 2
issued by or on behalf of the Trust or the Trustees relating to the Trust shall
include a recitation limiting the obligation represented thereby to the Trust
and its assets. The Declaration of Trust further provides: (1) for
indemnification from the assets of the Trust for all loss and expense of any
shareholder held personally liable for the obligations of the Trust by virtue of
ownership of shares of the Trust; and (2) for the Trust to assume the defense of
any claim against the shareholder for any act or obligation of the Trust. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust or series would be
unable to meet its obligations.
We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC and to the reference to our firm in the PEA.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By /s/ Robert J. Zutz
----------------------
Robert J. Zutz
Consent of Independent Certified Public Accountants
First Investors Life Series Fund
95 Wall Street
New York, New York 10005
We consent to the use in Post-Effective Amendment No. 27 to the
Registration Statement on Form N-1A (File No. 2-98409) of our report dated
January 31, 2000 relating to the December 31, 1999 financial statements of First
Investors Life Series Fund, which are included in said Registration Statement.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 25, 2000
FIRST INVESTORS REGISTERED INVESTMENT COMPANIES
CODE OF ETHICS
I. INTRODUCTION
In accordance with Section 17(j) of the Investment Company Act of 1940
("Act") and Rule 17j-1 promulgated thereunder, the registered investment
companies advised or underwritten by First Investors (as defined in Article II)
("Funds") have adopted this Code of Ethics to establish procedures reasonably
designed to prevent any access person (as defined in Article II) ("Access
Person") from engaging in any act, practice, or course of business which would
be fraudulent, deceptive or manipulative with respect to the Funds.
Failure to comply with the provisions of this Code in any material respect
is a serious matter and can result in disciplinary action, including monetary
fines, disgorgement of profits, and suspension or termination of the person's
affiliations with the Funds. This Code supersedes any prior code of ethics
adopted by the Funds pursuant to Section 17(j) of the Act and Rule 17j-1
thereunder. The policies and procedures adopted herein are in addition to any
rules, regulations, laws or restrictions to which any person affiliated with the
Funds may be subject by operation of law or by any other agreement to which such
person may a be party. Nothing herein modifies or replaces any such other rule,
regulation, law or restriction.
It should be noted that this Code is primarily intended to deal with the
Disinterested Directors of the Funds (as defined in Article II). Most other
Access Persons who are subject to this Code are employees of investment
advisers, subadvisers, and underwriters of the Funds which must have their own
Codes and their compliance with the Codes of their employers will generally
satisfy requirements of this Code.
II. DEFINITIONS
Whenever the following terms are used in this Code, they shall have the
meanings set forth below, unless the context requires otherwise or such meanings
would be inconsistent with Rule 17j-1.
1. "Access Person" means any director, trustee, officer (or person holding
a similar position in a non-corporate entity) or Advisory Person of any of
the Funds.
2. "Advisory Person" means:
a. any employee of the Funds who, in connection with his or her
regular functions or duties, makes, participates in, or obtains information,
regarding the Purchase or Sale of a Security by the Funds, or whose functions
relate to the making of any recommendations with respect to such Purchase or
Sale; and
<PAGE>
b. any natural person in a control relationship (with "control"
being defined by Section 2(a)(9) of the Act) with the Funds who obtains
information concerning recommendations made to the Funds with regard to the
Purchase or Sale of a Security.
The Investment Compliance Manager will from time to time
create a list setting forth those persons considered to be Advisory Persons.
3. "Beneficial Ownership" has the meaning set forth in Section 16 of the
Securities Exchange Act of 1934 and the rules and regulations thereunder.
An Access Person shall be deemed to have a "Beneficial Ownership" interest
in the accounts of a spouse, minor child and relative residing in the
Access Person's home, as well as accounts of any other person if by reason
of any contract, understanding, relationship, agreement or other
arrangement, the Access Person obtains therefrom benefits substantially
equivalent to those of ownership.
4. "Code" means this Code of Ethics.
5. "Disinterested Director" means a director or trustee, as applicable, of
any of the Funds and any person holding a similar position with a
non-corporate Fund, who is not an interested person of the Funds within
the meaning of Section 2(a)(19) of the Act.
6. "First Investors" means First Investors Corporation, First Investors
Management Company, Inc., First Investors Asset Management Company, Inc.,
Executive Investors Management Company, Inc., Executive Investors
Corporation.
7. "Funds" means all registered investment companies which have First
Investors Management Company, Inc., or any affiliate, as their investment
adviser or principal underwriter unless such Funds are specifically
excluded from this Code pursuant to an addendum hereto.
8. For purposes of this Code, the "Investment Committee" means the
Investment Compliance Manager and Portfolio Managers of the Funds or such
other group of persons may be as designated from time to time by First
Investors.
9. "Investment Compliance Manager" means the person designated from time
to time as being responsible for receiving reports or other notices
pursuant to this Code and performing such other duties as are required by
this Code.
10. "Purchase or Sale" of a security means every contract for sale or
disposition of a security or interest in a security, for value, and
includes the writing of an option to Purchase or Sell a security.
11. "Rule 17j-1" means Rule 17j-1 promulgated under the Act.
2
<PAGE>
12. "Security" has the meaning set forth in Section 2(a)(36) of the Act,
except that it shall not include securities issued by the Government of
the United States, bankers' acceptances, bank certificates of deposit,
commercial paper and shares of registered open-end investment companies.
III. PROHIBITED ACTIVITIES
A. ANTI-FRAUD PROHIBITIONS. Access Persons, in connection with the Purchase
or Sale by them of a Security held or to be acquired by any of the Funds,
are prohibited from:
1. employing a device, scheme or artifice to defraud any of the Funds;
2. making any untrue statement of a material fact to any of the Funds
or omitting to state to any of the Funds a material fact necessary
in order to make the statements made, in light of the circumstances
under which they are made, not misleading;
3. engaging in any act, practice or course of business which operates
or would operate as a fraud or deceit upon any of the Funds; or
4. engaging in any manipulative practice with respect to any of the
Funds.
B. CORPORATE OPPORTUNITIES. All Access Persons are prohibited from taking
personal advantage of any opportunity properly belonging to any of the Funds.
C. CONFIDENTIALITY. Except as required in the normal course of carrying out the
Funds' business responsibilities, Access Persons are prohibited from revealing
to persons outside of First Investors information relating to the Securities
that are being considered for Purchase or Sale by any of the Funds. Access
Persons are prohibited from revealing such information to any Person inside
First Investors whose responsibilities do not require knowledge of such
information.
D. UNDUE INFLUENCE. No Access Person shall cause or attempt to cause any of the
Funds to Purchase, Sell or hold any Security in a manner calculated to create
any personal benefit to the Access Person. An Access Person who participates in
any research or in an investment decision concerning a particular Security must
disclose to the Investment Compliance Manager any personal or beneficial
interest that the Access Person has in that Security, or in the issuer thereof,
where such decision could create a material benefit to the Access Person. The
Investment Compliance Manager shall determine whether or not the Access Person
will be restricted in pursuing the research or recommendation.
3
<PAGE>
IV. EFFECTING TRANSACTIONS
A. LIMITATIONS ON CERTAIN PURCHASES OR SALES OF SECURITIES. Unless a transaction
is exempt under Subsection C below, no Access Person shall Purchase or Sell any
Security in which he or she has (or by reason of such transaction acquires) any
direct or indirect Beneficial Ownership interest if that Access Person knew or,
in the ordinary course of fulfilling his or her official duties for any of the
Funds, should have known at the time of such purchase or sale (or within the
15-day period preceding or after the date of the transaction) that the Security:
1. is being considered for Purchase or Sale by any of the Funds; or
2. is then being Purchased or Sold by any of the Funds or their
investment adviser.
B. CLEARANCE OF TRANSACTIONS. Every Access Person, other than a Disinterested
Director, is required to preclear every transaction in a Security in which he or
she has Beneficial Ownership interest as defined in this Code unless the
transaction is exempt under Subsection C below. Preclearance may be obtained by
submitting to the Investment Compliance Manager a fully executed Preclearance
Form in the form attached hereto as Exhibit B. The Investment Compliance Manager
shall provide the clearance by returning a signed copy of the Preclearance Form
to the Person requesting clearance only if, upon consultation with the
Investment Committee or such other persons as may be necessary, the Investment
Compliance Manager determines that none of the Funds is currently considering
the Purchase or Sale of the Security that is subject to the preclearance, that
none of the Funds has Purchased, Sold, or considered Purchasing or Selling such
Security during the prior 15-day period, and that the transaction is otherwise
consistent with Rule 17j-1. No member of the Investment Committee may
participate in such consultation with the Investment Compliance Manager with
respect to any transaction in which such member has any direct or indirect
personal economic interest.
Although a Disinterested Director is not required to preclear Securities
transactions, he or she may voluntarily preclear transactions. The fact that a
Disinterested Director or any other Access Person of the Funds files a voluntary
request to preclear a Securities transaction shall not be construed as an
admission or any indication that he or she knows or should know that the Funds
have considered or are considering Purchasing or Selling the Security or that
the Access Person has, or by reason of the transaction will acquire, a
Beneficial Ownership interest in the Security.
C. EXEMPTED TRANSACTIONS. The prohibitions of Section A of this Article IV shall
not apply to the following transactions:
1. Purchases or Sales effected in any account over which the Access Person
has no direct or indirect influence or control (for this purpose, an
Access Person is deemed to have direct or indirect influence or control
4
<PAGE>
over the accounts of a spouse, minor children and relatives residing in
the Access Person's home);
2. Purchases or Sales which are non-volitional on the part of the Access
Person;
3. Purchases which are part of an automatic dividend reinvestment plan;
4. Purchases effected upon the exercise of rights issued by an issuer
pro-rata to all holders of a class of Securities, to the extent such
rights were acquired from the issuer, and Sales of rights so acquired;
5. Purchases or Sales which are effected by or on behalf of any Fund or
any private account managed by First Investors;
6. Purchases or Sales involving options on broad based indices; and,
7. Stop, limit or stop limit orders at a level 20% BELOW the market price
of a Security held in a personal investment account, or 20% ABOVE the
market price to cover a short position at the time the orders are placed.
It should be noted that preclearance is not necessary for Purchases or
Sales of shares of registered open-end investment companies (including
such shares of the Funds), Securities issued by the Government of the
United States, bankers' acceptances, bank certificates of deposit, and
commercial paper, since they are excluded from the definition of a
Security in this Code.
V. REPORTING
A. REPORTS BY DISINTERESTED DIRECTORS. A Disinterested Director shall report to
the Investment Compliance Manager those Securities transactions in which the
Disinterested Director has, or by reason of the transactions acquires, any
direct or indirect Beneficial Ownership interest in the Security, if such a
Director at the time of the transaction, knew or, in the ordinary course of
fulfilling his or her official duties as a Director of any of the Funds, should
have known that, during the 15-day period immediately preceding or after the
date of the transaction, such Security was or was going to be Purchased or Sold
by any of the Funds or such Purchase or Sale was or was being considered by any
of the Funds or their investment advisers (including, but not limited to,
transactions regarding which prior clearance has been obtained). No
Disinterested Director shall be required to report Purchases and Sales effected
in any account over which the Disinterested Director has no direct or indirect
influence or control. The fact that a Disinterested Director voluntarily chooses
to report transactions to the Investment Compliance Manager shall not be
construed as an admission or any indication that he or she knows or should know
that the Funds have considered or are considering Purchasing or Selling such
5
<PAGE>
Security or that the Access Person has, or by reason of the transaction will
acquire, a Beneficial Ownership interest in the Security.
B. REPORTS BY ALL OTHER ACCESS PERSONS. Every Access Person other than those who
are reporting pursuant to Section A, above, must report all transactions in any
security in which such Access Person has, or by reason of such transaction
acquires, any direct or indirect Beneficial Ownership in the Security
(including, but not limited to, transactions regarding which prior clearance has
been obtained). No Access Person shall be required to report Purchases and Sales
effected in any account over which the Access Person has no direct or indirect
influence or control.
C. PROCEDURES FOR FILING INFORMATION. Information required to be reported under
Section A or Section B of this Article must be submitted to the Investment
Compliance Manager at 95 Wall Street, Suite 2300, New York, New York 10005, (1)
by requiring that the broker-dealer provide a duplicate confirmation of each
transaction, and (2) by filing a report within 10 days after the end of the
calendar quarter in which the transaction to which the report related was
effected. The report may be submitted by filling out completely the Form
attached as Exhibit C to this Code, or may be submitted by attaching a copy of
the account statements reflecting the transaction to the Form, provided the
following information is included on such statement:
1. The date of the transaction, the title and the number of shares or
bonds;
2. The nature of the transaction (i.e., Purchase, Sale or any other
type of acquisition or disposition);
3. The price at which the transaction was effected and the principal
amount involved; and
4. The name of the broker, dealer, or bank with or through whom the
transaction was effected.
Any such report may contain a statement that the report shall not be
construed as an admission by the Person making such report that he or she
has any direct or indirect Beneficial Ownership in the Security to which
the report relates.
VI. OBLIGATIONS OF INVESTMENT COMPLIANCE MANAGER
The Investment Compliance Manager shall:
1. Furnish a copy of this Code to each Access Person;
2. Annually obtain written confirmation on the Form attached hereto as an
Exhibit from each Access Person that he or she has received, has read and
understood this Code;
6
<PAGE>
3. Notify each Access Person of his or her obligation to comply with the
provisions of and to file reports as required by this Code;
4. Report to the Board of Directors of the Funds the information contained
in any reports filed with the Investment Compliance Manager or any other
Person pursuant to this Code when any such report indicates that an Access
Person engaged in a transaction in material violation of this Code;
5. Provide the Board of Directors with a summary of all violations of this
Code on at least an annual basis;
6. Maintain the records required by Rule 17j-1(d) of the Act; and
7. Maintain any records furnished pursuant to this Code.
VII. VIOLATIONS
Upon being apprised of facts which indicate that a material violation of
this Code may have occurred, the Investment Compliance Manager and General
Counsel shall conduct an investigation, make preliminary findings concerning
whether a violation of the Funds' Code has occurred, and, if they determine a
violation has occurred, make a recommendation with respect to sanctions for the
violation. The Disinterested Directors (who are not involved in the violation)
can then make final determinations and decisions regarding sanctions.
If the Board determines that a violation of this Code has occurred, the
Board may impose such sanctions as it deems appropriate under the circumstances
which may, among other actions, include fines, disgorgement, suspension or
termination of employment. If the Person whose conduct is being considered by
the Board is a Director of any of the Funds, he or she shall not be eligible to
participate in the decision of the Board as to whether a violation has occurred
or to what extent sanctions should be imposed.
VIII. ADDITIONAL INFORMATION
Access Persons who have questions about any of the provisions of this Code
should contact the Investment Compliance Manager or the First Investors Legal
Department.
7
<PAGE>
PRECLEARANCE FORM
-----------------
I, _________________________________ , request preclearance for the security
transaction or transactions set forth below. To my knowledge, the security or
securities listed below have not been purchased or sold by any First Investors
Fund or Private Account within the prior fifteen (15) days and are not currently
being considered for purchase or sale by any Fund or Private Account during the
next 15 days. Furthermore, the transaction and or transactions I am
contemplating do not involve a Purchase and Sale, or a Sale and Purchase, of the
same Security or a Related Security within any sixty (60) day period. I
recognize that I have five (5) days in which to effect the transaction or
transactions contemplated, measured from the time a transaction has been
approved.
Proposed Buy, Sell Quantity
Trade or Exchange, and/or
Date(s) et al. Amount Security Type Issuer Name
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------- ---------------------
Signature of Requester Date
Requester Comments (Include Disclosure of any Potential Conflict of Interest
Here):
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER (OR HIS OR HER DESIGNEE) AUTHORIZATION:*
EQUITIES FIXED INCOME
- -------- ------------
- --------------------------------- --------------------------------
D. Fitzpatrick G. Ganter
- --------------------------------- --------------------------------
P. Poitra N. Jones
- --------------------------------- --------------------------------
D. Hanover C. Wagner
- ---------------------------------
M. Wright
PORTFOLIO MANAGER COMMENTS: ____________________________________________
8
<PAGE>
* Authorization is not required by all Portfolio Managers. Only those Portfolio
Managers consulted by the Investment Compliance Manager need to sign this
Preclearance Form. A Portfolio Manager may designate an analyst to sign this
Preclearance Form in his or her absence.
APPROVED BY INVESTMENT COMPLIANCE MANAGER ________________________________
Signature Date
SEND TO: INVESTMENT COMPLIANCE MANAGER
FIMCO 95 WALL STREET - 23RD FLOOR
NEW YORK, NY 10005
9
<PAGE>
FIRST INVESTORS REGISTERED INVESTMENT COMPANIES
CODE OF ETHICS
ACKNOWLEDGEMENT FORM
I hereby (re) acknowledge receipt of a copy of the First Investors Code of
Ethics and agree that as an "Access Person" I am subject to and will abide by
its provisions and all amendments thereto. I also (re) acknowledge that I have
been informed of and will comply with the reporting provisions contained in the
Code and all amendments thereto.
DATED: __________ , 19__
Signature:_______________________________
Name:____________________________________
Please Print
Department:______________________________
Please send to: Investment Compliance Manager
FIMCO
95 Wall Street - 23rd Floor
New York, NY 10005
Rev. 5/8/97
10
FIRST INVESTORS
CODE OF ETHICS
I. INTRODUCTION AND STATEMENT OF PRINCIPLES
----------------------------------------
First Investors has adopted this code of ethics ("Code of Ethics" or
"Code") in accordance with the requirements of Section 17(j) of the Investment
Company Act of 1940 ("Investment Company Act") and Rule 17j-1 and Section 206 of
the Investment Advisers Act of 1940 ("Investment Advisers Act") to protect the
First Investors family of mutual funds (Funds") and private accounts ("Private
Accounts") from fraudulent or unethical conduct by access persons ("Access
Persons"). This Code does not apply to the disinterested directors of the Funds
or employees of unaffiliated subadvisers of the Funds. The disinterested
directors of the Funds are subject to a separate code of ethics (the "First
Investors Registered Investment Companies Code of Ethics") which takes their
unique status into account. Employees of non-affiliated subadvisers are subject
to the codes of ethics of their own employers. The policies and procedures set
forth herein are in addition to any policies and procedures which may apply to
any Access Person of First Investors by operation of law or contract, such as
the First Investors Insider Trading Policies and Procedures.
As reflected by this Code of Ethics, First Investors expects all Access
Persons of First Investors not only to comply with this Code but also to follow
the highest ethical standards in all business and personal dealings which could
in any way affect the Funds or any Private Accounts that are managed by First
Investors. The guiding principles for all Access Persons, including the
portfolio managers of the Funds or Private Accounts ("Portfolio Managers"),
traders ("Traders"), analysts ("Analysts"), and portfolio accountants
("Portfolio Accounts"), should be to place the interests of the Funds and
Private Accounts first at all times, to avoid placing themselves in any position
in which there is any actual or apparent conflict of interest with the interests
of the Funds or Private Accounts, and to refrain from taking any inappropriate
advantage of their positions of trust and responsibility.
II. DEFINITIONS
-----------
Unless the Investment Company Act, the Investment Advisers Act, or the
rules thereunder otherwise require, whenever the following terms are used in
this Code, they shall have the meanings set forth below.
A. ACCESS PERSON
-------------
1. With respect to any First Investors company which acts as an investment
adviser to any Fund or Private Account, Access Person means any director,
officer, general partner, or advisory person of such investment adviser;
and,
2. With respect to any First Investors company which acts as a principal
underwriter of a Fund, "Access Person" means any director, officer, or
<PAGE>
general partner of such principal underwriter who in the ordinary
course of his or her business makes, participates in or obtains
information regarding the Purchase or Sale of Securities by the Fund or
whose functions or duties as part of the ordinary course of his or her
business relate to the making of any recommendation to the Fund
regarding the Purchase or Sale of Securities.
B. ADVISORY PERSON
---------------
"Advisory Person" means:
1. any employee of First Investors or of any company which controls, is
controlled by, or under common control with, First Investors who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the Purchase or Sale of
a Security by the Funds or Private Accounts, or whose functions relate to
the making of any recommendations with respect to the Purchase or Sale of
a Security by the Funds or Private Accounts; and
2. any natural person in a control relationship (with the term "control"
being defined by Section 2(a)(9) of the Investment Company Act) with
First Investors who obtains information concerning Purchases, Sales, or
recommendations of Securities to the Funds or Private Accounts.
C. BENEFICIAL OWNERSHIP
--------------------
"Beneficial Ownership" means beneficial ownership as defined in Section 16
of the Securities Exchange Act of 1934 and the rules and regulations thereunder,
provided that an Access Person shall be deemed to have "Beneficial Ownership" of
Securities (1) owned by his or her spouse, minor children and relatives residing
in the Access Person's home, (2) Securities over which the Access Person has or
shares investment discretion or control and (3) any other Securities if by
reason of any contract, understanding, relationship, agreement or other
arrangement the Access Person obtains therefrom economic benefits which are
substantially equivalent to those of ownership.
D. DISINTERESTED DIRECTOR
----------------------
"Disinterested director" means a director of any of the Funds and any
person holding a similar position with a noncorporate Fund who is not an
interested person of the Funds within the meaning of Section 2(a)(19) of the
Investment Company Act.
E. FIRST INVESTORS
---------------
"First Investors" means First Investors Corporation, First Investors
Management Company, Inc., First Investors Asset Management Company, Inc.,
2
<PAGE>
Executive Investors Management Company, Inc., Executive Investors
Corporation, and Administrative Data Management Corp.
F. FUNDS
-----
"Funds" means all registered investment companies which have First
Investors as their investment adviser or principal underwriter (including
Executive Investors Trust), unless such Funds are specifically excluded from
this Code pursuant to an addendum hereto.
G. INVESTMENT COMPLIANCE MANAGER
-----------------------------
"Investment Compliance Manager" means the person designated from time to
time as being responsible for receiving reports or other notices pursuant to
this Code, and performing such other duties as are required by this Code.
H. INVESTMENT COMMITTEE
--------------------
For purposes of this Code, the "Investment Committee" means the Investment
Compliance Manager and the Portfolio Managers of the Funds or such other group
of persons as may be designated from time to time by First Investors.
I. PURCHASE OR SALE
----------------
"Purchase or Sale" means every contract for Purchase or Sale or
disposition of a Security or interest in a Security, for value, as well as every
option to Purchase or Sell a Security, whether the option permits the holder to
Purchase or Sell the Security or it must be settled in cash.
J. RELATED SECURITY
----------------
A "Related Security" means a Security which (i) is issued by the same
issuer as another Security or by an issuer that is controlled by, controls or is
under common control with such issuer or (ii) gives the holder any contractual
right with respect to another Security (e.g., options and warrants, rights or
other convertible Securities).
K. SECURITY
--------
"Security" means a Security as defined in Section 2(a)(36) of the
Investment Company Act, except that it does not include Securities issued by the
Government of the United States, bankers' acceptances, bank certificates of
deposit, commercial paper, and shares of registered open-end investment
companies, including the shares of the First Investors Funds.
3
<PAGE>
III. GENERAL PROHIBITIONS
--------------------
A. FRAUDULENT AND MANIPULATIVE CONDUCT
------------------------------------
No Access Person, shall, in connection with the Purchase or Sale, directly
or indirectly, of a Security held or to be acquired by any of the Funds or
Private Accounts managed by First Investors:
1. Employ any device, scheme or artifice to defraud any such Fund or
Private Account;
2. Make to any Fund or Private Account any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they are made,
not misleading;
3. Engage in any act, practice or course of business which operates
or would operate as fraud or deceit upon any Fund or Private Account;
or,
4. Engage in any manipulative practice with respect to any Fund or
Private Account.
B. CORPORATE OPPORTUNITIES
-----------------------
No Access Person shall take personal advantage of any opportunity that
properly belongs to any of the Funds or Private Accounts, provided that an
Access Person shall not be prevented from purchasing a Security or Related
Security which is an eligible investment for any of the Funds if the Access
Person obtains preclearance for the purchase in accordance with the provisions
of this Code after disclosing any actual or potential conflict of interest on
the Preclearance Form used to obtain preclearance.
C. CONFIDENTIALITY
---------------
Except as required in the normal course of carrying out First Investors'
business responsibilities, no Access Person shall reveal confidential
information relating to the investment intentions or activities of the Funds or
Private Accounts to any person outside of First Investors or any person inside
First Investors whose responsibilities do not require knowledge of such
information.
D. UNDUE INFLUENCE AND THE APPEARANCE THEREOF
------------------------------------------
No Access Person shall:
1. Cause or attempt to cause any of the Funds or Private Accounts to
Purchase, Sell or hold any Security in a manner calculated to create
any personal benefit to the Access Person;
4
<PAGE>
2. Accept any option, warrant, right, or other Security from any issuer,
person affiliated or associated with any issuer, underwriter, broker, or
dealer which has offered or sold any Security or Related Security to any
of the Funds or Private Accounts, unless the Access Person has obtained
preclearance from the Investment Compliance Manager after full disclosure
on the Preclearance Form of all material facts, including the nature of
the Security, the relationship of the party granting the Security to the
Funds or Private Accounts, and any other potential conflict of interest;
3. Accept any gift other than a nominal gift (which is defined herein as
having a value less than $100) from any person or entity that does
business with any Fund or Private Account; or
4. Use his or her knowledge of or ability to influence or control the
portfolio transactions of a Fund or Private Account for his or her
personal benefit or the personal benefit of his or her friends or
relatives.
E. DISCLOSURE OF POTENTIAL CONFLICTS OF INTEREST
---------------------------------------------
No Access Person shall fail to disclose to the Investment Compliance
Manager any personal or beneficial interest which he or she has in a Security
when the Access Person plays any part or role in any consideration of any
investment in the Security or any Related Security by a Fund or Private Account.
Thus, for example, an Access Person who has acquired warrants from an issuer in
a private placement would be required to disclose the warrants to the Investment
Compliance Manager before he or she plays any role in a Fund's subsequent
consideration of an investment in any Securities issued by the same issuer of
the warrants or any Related Securities. The Investment Compliance Manager, in
consultation with members of the Investment Committee who have no personal
interest in the transaction, shall determine whether or not the personal or
beneficial interest prevents the Access Person from being involved in
consideration of the Security.
F. SERVICE AS A DIRECTOR OF A PUBLIC COMPANY
-----------------------------------------
No Access Person shall serve on the board of directors of any publicly
traded company, absent prior authorization of the Investment Compliance Manager,
based upon a determination that the board service would be consistent with the
interests of the Funds and Private Accounts. In the rare case in which board
service is authorized, any Access Person serving as a director must be isolated
from those making investment decisions regarding the issuer through "Chinese
Wall" or other procedures.
IV. PERSONAL SECURITIES TRANSACTIONS
--------------------------------
A. RESTRICTIONS ON SECURITIES TRANSACTIONS
---------------------------------------
5
<PAGE>
1. TRANSACTIONS DURING BLACK-OUT PERIODS. Unless a transaction is exempt
under the terms of this Code, no Access Person shall purchase or sell,
directly or indirectly, any Security if that Access Person knew or should
have known at the time of such purchase or sale, that within fifteen (15)
days of his or her transaction, the Security:
(i) Is being considered for purchase or sale by any Fund or
Private Account; or
(ii) Is then being purchased or sold by any Fund or Private
Account.
2. PURCHASES DURING INITIAL PUBLIC OFFERINGS. In the absence of an
exemption under this Code, no Access Person shall purchase any Security
which is being offered as part of an initial public offering of
Securities. This prohibition does not apply to the exercise of rights
issued pro rata to all shareholders, policy holders or depositors of an
issuer. For example, it does not apply to Securities offered by savings
and loan institutions or insurance companies to policy holders or
depositors in connection with conversions from mutual to stock form.
3. PRIVATE PLACEMENTS. In the absence of an exemption under this Code or
preclearance by the Investment Compliance Manager, no Access Person shall
acquire any Security in a private placement. In determining whether to
grant preclearance, the Investment Compliance Manager shall take into
account, among other factors, whether the investment opportunity should be
reserved for any of the Funds or Private Accounts and whether the
opportunity is being offered to the Access Person by virtue of his or her
position with First Investors.
4. PURCHASES OF SECURITIES ISSUED BY BROKER-DEALERS. No Access Person
shall purchase Securities issued by any broker-dealer or parent company of
a broker-dealer (unless the parent derives 15% or less of its revenues
from all broker-dealer subsidiaries). This prohibition does not apply to
purchases of Securities issued by First Investors Consolidated Corporation
and its affiliates in connection with employee stock purchase or incentive
plans, compensation arrangements, or otherwise.
5. SHORT-TERM TRADING. Unless the transactions at issue are exempt under
the terms of this Code, no Access Person shall engage in short-term
trading in Securities. For purposes of this Code, "short-term" trading is
defined as the Purchase and Sale of the same Security or a Related
Security within sixty (60) days. The most recent transaction in a Security
will determine a new holding period. The Purchase or Sale of an option on
a Security shall be considered a Purchase or Sale of not only the option
but also the underlying Security. For example, the purchase of a call
option on a Security shall be considered a purchase not only of the option
but also the underlying Security.
The prohibition on short-term trading shall not prohibit an Access Person
6
<PAGE>
from placing a stop, limit or stop limit order at a level 20% BELOW the market
price of a Security within sixty (60) days of the date he or she purchases the
Security, provided that the stop, limit, or stop limit sell order is precleared
or exempt from preclearance. It should be noted that any subsequent modification
of a stop, limit or stop limit order is a new trade for purposes of the
short-term trading restriction and preclearance requirements.
B. PRECLEARANCE OF SECURITIES TRANSACTIONS
---------------------------------------
Every Access Person is required to obtain preclearance from the Investment
Compliance Manager prior to engaging in any transaction in any Security in which
he or she has, or by reason of the transaction will acquire, any direct or
indirect Beneficial Ownership interest, unless such transaction is exempt from
preclearance under this Code. It should be emphasized that, unless a transaction
is exempt from preclearance under this Code, it must be precleared by the
Investment Compliance Manager even if no Fund or Private Account would normally
purchase the Security at issue. For purposes of the preclearance requirement,
any amendment of an order to Purchase or Sell any Security (e.g., any change of
price, time, or amount) is considered a new order. Furthermore, any change of
the terms of a stop, limit or stop limit order is considered a new transaction
which must be precleared.
Preclearance may be obtained from the Investment Compliance Manager by
completing the Preclearance Form which is attached hereto and submitting it to
the Investment Compliance Manager. The Preclearance Form requires the Access
Person to certify that, among other things, to his or her knowledge, the
Securities listed on the Preclearance Form have not been purchased by any of the
Funds or Private Accounts within the prior fifteen (15) days and have not been
and will not be considered for Purchase or Sale by any of the Funds during the
prior fifteen (15) days and the following fifteen (15) days. The Preclearance
Form also has a comment section which should be used to disclose any potential
conflicts of interest.
The Investment Compliance Manager shall consult with the members of the
Investment Committee, or their designees to determine whether the proposed
transaction by the Access Person would conflict with the interests of any Fund
or Private Account. The Investment Compliance Manager need not consult with all
members of the Investment Committee before approving or disapproving a
transaction. No member of the Investment Committee may participate in such
consultation with the Investment Compliance Manager with respect to any
transaction in which such member has any direct or indirect personal economic
interest. No order shall be placed by the Access Person until the Investment
Compliance Manager (or the General Counsel in his or her absence) signifies his
or her approval by signing the Preclearance Form.
Personal securities transactions by the Investment Compliance Manager must
be approved by the General Counsel or, in his or her absence, Fund Counsel. The
same Preclearance Form and procedures should be used.
7
<PAGE>
C. EXEMPT TRANSACTIONS
-------------------
The following personal Securities transactions are exempt from the
preclearance and other restrictions on personal securities transactions set
forth above:
(a) Purchases or Sales of Securities for any account over which an
Access Person has no direct or indirect influence or control (for this purpose,
an Access Person is deemed to have direct or indirect influence or control over
the accounts of a spouse, a minor child or an adult relative residing in the
Access Person's home);
(b) Purchases or Sales of Securities which are non-volitional on the
part of the Access Person (Purchases and Sales of Securities in a discretionary
trading account owned by an Access Person are deemed to be non-volitional only
if the person having discretion is a non-Access Person and the owner of the
account is not consulted at all prior to the execution of transactions by the
person having discretion);
(c) Purchases of Securities which are part of an automatic
dividend reinvestment plan;
8
<PAGE>
(d) Purchases of Securities effected upon the exercise of rights
issued by an issuer pro-rata to all holders of a class of Securities, to the
extent such rights were acquired from the issuer, and subsequent sales of such
rights or the Securities acquired thereunder;
(e) Purchases or Sales of options on broad-based indices;
(f) Purchases and Sales of shares of stock issued by First
Investors Consolidated Corporation and its affiliates; and,
(g) Purchases and Sales by any Fund or Private Account.
It should be noted that preclearance is not necessary for Purchases or
Sales of shares of registered open-end investment companies (including such
shares of the Funds), securities issued by the Government of the United States,
bankers' acceptances, bank certificates of deposit, and commercial paper, since
they are excluded from the definition of a Security in this Code.
D. QUARTERLY REPORTS OF SECURITIES TRANSACTIONS
--------------------------------------------
On a quarterly basis, every Access Person of First Investors shall submit
a report, in the form attached hereto, to the Investment Compliance Manager
disclosing all transactions in any Securities in which he or she has or, by
reason of the transaction, acquires a direct or indirect Beneficial Ownership
interest. The report must be completed and returned to the Investment Compliance
Manager within ten (10) days of the end of each calendar quarter ("Quarterly
Report").
With respect to each transaction reported, the Quarterly Report shall
include the following trade information:
(i) the date of the transaction, the title and number of
shares or bonds;
(ii) the nature of the transaction (i.e., Purchase, Sale
or any other type of acquisition or disposition);
(iii) the price at which the transaction was effected and
the principal amount involved; and
(iv) the name of the broker-dealer, bank or other entity with
or through whom the transaction was effected.
Notwithstanding the foregoing, the Quarterly Report need not disclose
information about Securities transactions which have already been disclosed on
duplicate confirmation and account statements provided to the Investment
9
<PAGE>
Compliance Manager as long as the Access Person verifies on this report that he
or she has arranged to have duplicate confirmation and account statements sent
to the Investment Compliance Manager for all accounts in which the Access Person
has a direct or indirect Beneficial Ownership interest, he or she incorporates
by reference in the Quarterly Report the information contained in those
statements, and such person verifies that he or she has not engaged in any
Securities transactions which are not set forth in the statements. Moreover,
Quarterly Reports need not disclose information regarding transactions or
holdings of the Funds, since mutual fund shares are excluded from the definition
of a Security under this Code and, in any event, First Investors already
maintains information concerning such transactions and holdings.
No Access Person shall be required to report transactions in Securities
which have been effected for any account over which such Access Person does not
have any direct or indirect influence or control. Furthermore, an Access Person
may disclaim having a Beneficial Ownership interest in a Security disclosed in a
Quarterly Report by including in the report a statement that the report shall
not be construed as an admission that he or she has any direct or indirect
Beneficial Ownership in the Security.
E. OPENING AND MAINTAINING SECURITIES ACCOUNTS
-------------------------------------------
Every Access Person shall provide written notice to and obtain written
permission from the Investment Compliance Manager PRIOR to opening any account
with any broker-dealer or other entity through which Securities transactions may
be effected. If an Access Person has opened a Securities account prior to
becoming affiliated with First Investors, he or she must provide written notice
of and obtain written permission to continue to maintain the account at the time
he or she becomes affiliated with First Investors. An Access Person may also be
required by NASD rules to give written notice to the broker or other party at
which securities accounts are maintained that he or she is employed by or
associated with First Investors.
F. DUPLICATE CONFIRMATIONS AND STATEMENTS
--------------------------------------
All Access Persons shall arrange for duplicate confirmation and account
statements to be sent to the Investment Compliance Manager. This requirement
does not apply to investments in the Funds, since mutual funds are excluded from
the definition of a Security under the Code and, in any event, First Investors
already maintains records concerning such investments.
G. DISCLOSURE OF PERSONAL SECURITIES HOLDINGS
------------------------------------------
All Access Persons shall disclose all personal Securities holdings upon
commencement of employment and thereafter on an annual basis. The ongoing
disclosure requirement is satisfied by providing to the Investment Compliance
Manager duplicate confirmations and account statements if they reveal all
holdings. Otherwise, special disclosure of holdings is necessary. Thus, for
example, a special report would be necessary to disclose certificated Securities
held in a bank safety deposit.
10
<PAGE>
H. ANNUAL CERTIFICATIONS
---------------------
Every Access Person is required to certify on an annual basis that he or
she has read this Code of Ethics and agrees to abide by its requirements.
V. RESPONSIBILITIES OF THE INVESTMENT COMPLIANCE MANAGER
-----------------------------------------------------
The Investment Compliance Manager shall:
1. Identify and maintain a list of all Access Persons;
2. Furnish a copy of this Code of Ethics to each such Access Person;
3. Notify each new Access Person of his or her obligations to comply
with the provisions of this Code of Ethics and conduct an annual
meeting to remind Access Persons of their obligations;
4. Monitor reports, confirmations, and statements relating to
non-exempt Securities transactions for potential violations of this
Code;
5. Report to the Board of Directors of the Funds any violations of this
Code and any sanctions imposed no later than the next regular Board
Meeting; 6. Report to the Board of Directors of the Funds on a periodic
basis, but not less than annually, concerning the adequacy of existing
procedures, any changes or recommended changes since the prior report, and
the general level of compliance by Access Persons with this Code of
Ethics; and
7. Maintain the records required by Rule 17j-1(d).
VI. VIOLATIONS AND REMEDIES
-----------------------
The failure of any Access Person to comply with this Code of Ethics will
be viewed as a very serious matter and may result in a disciplinary action. Upon
discovering or being apprised of facts which indicate that a violation of this
Code of Ethics has or may have occurred, the Investment Compliance Manager shall
conduct a reasonable investigation or inquiry to determine whether such a
violation did occur. If the Investment Compliance Manager determines that a
violation of this Code of Ethics has occurred or appears to have occurred, he or
she shall notify the General Counsel who shall cause a further investigation to
be conducted if he or she determines it to be necessary.
In the event that any investigation or inquiry is commenced by First
Investors concerning any actual or potential violation of this Code of Ethics,
every Access Person shall be required to:
11
<PAGE>
(a) provide full access to First Investors, its agents and attorneys to
any and all records and documents which First Investors considers relevant
to any Securities transactions or other matters subject to this Code of
Ethics;
(b) cooperate with First Investors, or its agents and attorneys, in
investigating any Securities transactions or other matter subject to this
Code of Ethics; and
(c) provide First Investors, its agents and attorneys with an explanation
(in writing if requested) of the facts and circumstances surrounding any
Securities transaction or other matter subject to this Code of Ethics.
If a violation is determined to have occurred, the Investment Compliance
Manager in consultation with the General Counsel, shall impose such sanctions as
they deem appropriate under the circumstances which may include, among other
things, censure, fine, a directive to disgorge profits gained or losses avoided,
a suspension, or termination of employment. In the event that an Access Person
engages in short-term trading prohibited by this Code, the Access Person shall
generally be required to disgorge profits gained regardless of whether the
short-term trading is intentional or inadvertent or the reason for such trading.
ADOPTING ENTITIES
- -----------------
The following entities have adopted this Code of Ethics:
Administrative Data Management Corp.
Executive Investors Corporation
Executive Investors Management Company, Inc.
First Investors Asset Management Company, Inc.
First Investors Corporation
First Investors Management Company, Inc.
12
<PAGE>
PRECLEARANCE FORM
-----------------
I, , request preclearance for the security transaction or transactions set forth
below. To my knowledge, the security or securities listed below have not been
purchased or sold by any First Investors Fund or Private Account within the
prior fifteen (15) days and are not currently being considered for purchase or
sale by any Fund or Private Account during the next 15 days. Furthermore, the
transaction and or transactions I am contemplating do not involve a Purchase and
Sale, or a Sale and Purchase, of the same Security or a Related Security within
any sixty (60) day period. I recognize that I have five (5) days in which to
effect the transaction or transactions contemplated, measured from the time a
transaction has been approved.
Proposed Buy, Sell Quantity
Trade or Exchange, and/or
Date(s) et al. Amount Security Type Issuer Name
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- --------------------- ---------------------
Signature of Requester Date
Requester Comments (Include Disclosure of any Potential Conflict of Interest
Here):
________________________________________________________________________________
PORTFOLIO MANAGER (OR HIS OR HER DESIGNEE) AUTHORIZATION:*
EQUITIES FIXED INCOME
- -------- ------------
- -------------------------------- --------------------------------
D. Fitzpatrick G. Ganter
- --------------------------------- --------------------------------
P. Poitra N. Jones
- --------------------------------- --------------------------------
D. Hanover C. Wagner
- ---------------------------------
M. Wright
PORTFOLIO MANAGER COMMENTS: ____________________________________________
* Authorization is not required by all Portfolio Managers. Only those Portfolio
Managers consulted by the Investment Compliance Manager need to sign this
Preclearance Form. A Portfolio Manager may designate an analyst to sign this
Preclearance Form in his or her absence.
APPROVED BY INVESTMENT COMPLIANCE MANAGER ______________________________________
Signature Date
13
<PAGE>
SEND TO: INVESTMENT COMPLIANCE MANAGER
FIMCO 95 WALL STREET - 23RD FLOOR
NEW YORK, NY 10005
14
<PAGE>
FIRST INVESTORS CODE OF ETHICS
------------------------------
ACKNOWLEDGEMENT FORM
--------------------
I hereby (re) acknowledge receipt of a copy of the First Investors Code of
Ethics and agree that as an "Access Person" I am subject to and will abide by
its provisions and all amendments thereto. I also (re) acknowledge that I have
been informed of and will comply with the reporting provisions contained in the
Code of Ethics and all amendments thereto.
DATED: , 19
------------
Signature:___________________________________
Name:________________________________________
Please Print
Department:__________________________________
Please send to: Investment Compliance Manager
FIMCO
95 Wall Street - 23rd Floor
New York, NY 10005
Rev. 5/8/97
15
Wellington Management Company, llp
Wellington Trust Company, na
Wellington Management International
Wellington International Management Company Pte Ltd.
Code of Ethics
- -------------------- -------------------------------------------------------
Summary Wellington Management Company, llp and its affiliates
have a fiduciary duty to investment company and
investment counseling clients which requires each
employee to act solely for the benefit of clients.
Also, each employee has a duty to act in the best
interest of the firm. In addition to the various laws
and regulations covering the firm's activities, it is
clearly in the firm's best interest as a professional
investment advisory organization to avoid potential
conflicts of interest or even the appearance of such
conflicts with respect to the conduct of the firm's
employees. Wellington Management's personal trading and
conduct must recognize that the firm's clients always
come first, that the firm must avoid any actual or
potential abuse of our positions of trust and
responsibility, and that the firm must never take
inappropriate advantage of its positions. While it is
not possible to anticipate all instances of potential
conflict, the standard is clear.
In light of the firm's professional and legal
responsibilities, we believe it is appropriate to
restate and periodically distribute the firm's Code of
Ethics to all employees. It is Wellington Management's
aim to be as flexible as possible in its internal
procedures, while simultaneously protecting the
organization and its clients from the damage that could
arise from a situation involving a real or apparent
conflict of interest. While it is not possible to
specifically define and prescribe rules regarding all
possible cases in which conflicts might arise, this
Code of Ethics is designed to set forth the policy
regarding employee conduct in those situations in which
conflicts are most likely to develop. If an employee
has any doubt as to the propriety of any activity, he
or she should consult the President or Regulatory
Affairs Department.
The Code reflects the requirements of United States
law, Rule 17j-1 of the Investment Company Act of 1940,
as amended on October 29, 1999, as well as the
recommendations issued by an industry study group in
1994, which were strongly supported by the SEC. The
term "Employee" includes all employees and Partners.
- -------------------- ------------------------------------------------------
Policy on Personal Essentially, this policy requires that all personal
Transactions securities transactions (including acquisitions or
dispositions other than through a purchase or sale) by
all Employees must be cleared prior to execution. The
only exceptions to this policy of prior clearance are
noted below.
- -------------------- -------------------------------------------------------
Definition of The following transactions by Employees are
"Personal Securities considered "personal" under Securities applicable SEC
Transactions" Securities applicable SEC rules and therefore subject
<PAGE>
Code of Ethics
Page 2
- -------------------- -------------------------------------------------------
1
to this statement of policy: Transactions for an
Employee's own account, including IRA's.
2
Transactions for an account in which an Employee has
indirect beneficial ownership, unless the Employee has
no direct or indirect influence or control over the
account. Accounts involving family (including husband,
wife, minor children or other dependent relatives), or
accounts in which an Employee has a beneficial interest
(such as a trust of which the Employee is an income or
principal beneficiary) are included within the meaning
of "indirect beneficial interest".
If an Employee has a substantial measure of influence
or control over an account, but neither the Employee
nor the Employee's family has any direct or indirect
beneficial interest (e.g., a trust for which the
Employee is a trustee but not a direct or indirect
beneficiary), the rules relating to personal securities
transactions are not considered to be directly
applicable. Therefore, prior clearance and subsequent
reporting of such transactions are not required. In all
transactions involving such an account an Employee
should, however, conform to the spirit of these rules
and avoid any activity which might appear to conflict
with the investment company or counseling clients or
with respect to the Employee's position within
Wellington Management. In this regard, please note
"Other Conflicts of Interest", found later in this Code
of Ethics, which does apply to such situations.
- ------------------- -------------------------------------------------------
Preclearance EXCEPT AS SPECIFICALLY EXEMPTED IN THIS SECTION, ALL
Required EMPLOYEES MUST CLEAR PERSONAL SECURITIES TRANSACTIONS
PRIOR TO EXECUTION. This includes bonds, stocks
personal securities transactions prior to execution.
This includes bonds, stocks (including closed end
funds), convertibles, preferreds, options on
securities, warrants, rights, etc. for domestic and
foreign securities, whether publicly traded or
privately placed. The only exceptions to this
requirement are automatic dividend reinvestment and
stock purchase plan acquisitions, broad-based stock
index and U.S. government securities futures and
options on such futures, transactions in open-end
mutual funds, U.S. Government securities, commercial
paper, or non-volitional transactions. Non-volitional
transactions include gifts to an Employee over which
the Employee has no control of the timing or
transactions which result from corporate action
applicable to all similar security holders (such as
splits, tender offers, mergers, stock dividends, etc.).
Please note, however, that most of these transactions
must be reported even though they do not have to be
precleared. See the following section on reporting
obligations.
Clearance for transactions must be obtained by
contacting the Director of Global Equity Trading or
<PAGE>
Code of Ethics
Page 3
- ------------------- ------------------------------------------------------
those personnel designated by him for this purpose.
Requests for clearance and approval for transactions
may be communicated orally or via email. The Trading
Department will maintain a log of all requests for
approval as coded confidential records of the firm.
Private placements (including both securities and
partnership interests) are subject to special clearance
by the Director of Regulatory Affairs, Director of
Enterprise Risk Management or the General Counsel, and
the clearance will remain in effect for a reasonable
period thereafter, not to exceed 90 days.
CLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS FOR
PUBLICLY TRADED SECURITIES WILL BE IN EFFECT FOR ONE
TRADING DAY ONLY. THIS "ONE TRADING DAY" POLICY IS
INTERPRETED AS FOLLOWS:
O IF CLEARANCE IS GRANTED AT A TIME WHEN THE PRINCIPAL
MARKET IN WHICH THE SECURITY TRADES IS OPEN,
CLEARANCE IS EFFECTIVE FOR THE REMAINDER OF THAT
TRADING DAY UNTIL THE OPENING OF THAT MARKET ON THE
FOLLOWING DAY.
O IF CLEARANCE IS GRANTED AT A TIME WHEN THE PRINCIPAL
MARKET IN WHICH THE SECURITY TRADES IS CLOSED,
CLEARANCE IS EFFECTIVE FOR THE NEXT TRADING DAY
UNTIL THE OPENING OF THAT MARKET ON THE FOLLOWING
DAY.
- ------------------- -------------------------------------------------------
Filing of Reports Reports Records of personal securities transactions
by Employees will be maintained. All Employees are
subject to the following reporting requirements:
1
Duplicate Brokerage All Employees must require their securities brokers to
Confirmations send duplicate confirmations of their securities
transactions to the Regulatory Affairs Department.
Brokerage firms are accustomed to providing this
service. Please contact Regulatory Affairs to obtain a
form letter to request this service. Each employee must
return to the Regulatory Affairs Department a completed
form for each brokerage account that is used for
personal securities transactions of the Employee.
Employees should not send the completed forms to their
brokers directly. --- The form must be completed and
returned to the Regulatory Affairs Department prior to
any transactions being placed with the broker. The
Regulatory Affairs Department will process the request
in order to assure delivery of the confirms directly to
the Department and to preserve the confidentiality of
this information. When possible, the transaction
confirmation filing requirement will be satisfied by
electronic filings from securities depositories.
2
Filing of Quarterly SEC rules require that a quarterly record of all
Report of all personal securities transactions submitted by each
"Personal Securities person subject to the Code's requirements and that this
Transactions" record be available for inspection. To comply with
these rules, Transactions" every Employee must file a
quarterly personal securities transaction report within
<PAGE>
Code of Ethics
Page 4
- ------------------- ------------------------------------------------------
10 calendar days after the end of each calendar
quarter. Reports are filed electronically utilizing the
firm's proprietary Personal Securities Transaction
Reporting System (PSTRS) accessible to all Employees
via the Wellington Management Intranet.
At the end of each calendar quarter, Employees will be
notified of the filing requirement. Employees are
responsible for submitting the quarterly report within
the deadline established in the notice.
Transactions during the quarter indicated on brokerage
confirmations or electronic filings are displayed on
the Employee's reporting screen and must be affirmed if
they are accurate. Holdings not acquired through a
broker submitting confirmations must be entered
manually. All Employees are required to submit a
quarterly report, even if there were no reportable
transactions during the quarter.
Employees must also provide information on any new
brokerage account established during the quarter
including the name of the broker, dealer or bank and
the date the account was established.
IMPORTANT NOTE: The quarterly report must include the
required information for all "personal securities
transactions" as defined above, except transactions in
open-end mutual funds, money market securities, U.S.
Government securities, and futures and options on
futures on U.S. government securities. Non-volitional
transactions and those resulting from corporate actions
must also be reported even though preclearance is not
required and the nature of the transaction must be
clearly specified in the report.
3
Certification As part of the quarterly reporting process on PSTRS,
of Compliance Employees are required to confirm their compliance
with the provisions of this Code of Ethics.
4
Filing of Personal Annually, all Employees must file a schedule indicating
Holding Report their personal securities holdings as of December 31 of
each year by the following January 30. SEC Rules
require that this report include the title, number of
shares and principal amount of each security held in an
Employee's personal account, and the name of any
broker, dealer or bank with whom the Employee maintains
an account. "Securities" for purposes of this report
are those which must be reported as indicated in the
prior paragraph. Newly hired Employees are required to
file a holding report within ten (10) days of joining
the firm. Employees may indicate securities held in a
brokerage account by attaching an account statement,
but are not required to do so, since these statements
contain additional information not required by the
holding report.
<PAGE>
Code of Ethics
Page 5
- ------------------- ------------------------------------------------------
5
Review of Reports All reports filed in accordance with this Section
section will be maintained and kept confidential by the
Regulatory Affairs Department. Reports will be reviewed
by the Director of Regulatory Affairs or personnel
designated by her for this purpose.
- ------------------- ------------------------------------------------------
Restrictions on While all personal securities transactions must be
"Personal Securities cleared prior to execution, the following guidelines
Transactions" indicate which transactions will be prohibited,
discouraged, or subject to nearly automatic clearance.
The clearance of personal securities transactions may
also depend upon other circumstances, including the
timing of the proposed transaction relative to
transactions by our investment counseling or investment
company clients; the nature of the securities and the
parties involved in the transaction; and the percentage
of securities involved in the transaction relative to
ownership by clients. The word "clients" refers
collectively to investment company clients and
counseling clients. Employees are expected to Please
note that these restrictions apply in the case be
particularly sensitive to meeting the spirit as well as
the of debt securities to the specific issue and in the
letter of these restrictions. case of common stock, not
only to the common stock, but to any equity-related
security of the same issuer including preferred stock,
options, warrants, and convertible bonds. Also, a gift
or transfer from you (an Employee) to a third party
shall be subject to these restrictions, unless the
donee or transferee represents that he or she has no
present intention of selling the donated security.
1
No Employee may engage in personal transactions
involving any securities which are:
o being bought or sold on behalf of clients until one
trading day after such buying or selling is completed
or canceled. In addition, no Portfolio Manager may
engage in a personal transaction involving any
security for 7 days prior to, and 7 days following, a
transaction in the same security for a client account
managed by that Portfolio Manager without a special
exemption. See "Exemptive Procedures" below.
Portfolio Managers include all designated portfolio
managers and others who have direct authority to make
investment decisions to buy or sell securities, such
as investment team members and analysts involved in
Research Equity portfolios. All Employees who are
considered Portfolio Managers will be so notified by
the Regulatory Affairs Department.
o the subject of a new or changed action
recommendation from a research analyst until 10
business days following the issuance of such
recommendation;
<PAGE>
Code of Ethics
Page 6
- ------------------- ------------------------------------------------------
o the subject of a reiterated but unchanged
recommendation from a research analyst until 2
business days following reissuance of the
recommendation
o actively contemplated for transactions on behalf of
clients, even though no buy or sell orders have been
placed. This restriction applies from the moment
that an Employee has been informed in any fashion
that any Portfolio Manager intends to purchase or
sell a specific security. This is a particularly
sensitive area and one in which each Employee must
exercise caution to avoid actions which, to his or
her knowledge, are in conflict or in competition
with the interests of clients.
2
The Code of Ethics strongly discourages short term
trading by Employees. In addition, no Employee may take
a "short term trading" profit in a security, which
means the sale of a security at a gain (or closing of a
short position at a gain) within 60 days of its
purchase, without a special exemption. See "Exemptive
Procedures". The 60 day prohibition does not apply to
transactions resulting in a loss, nor to futures or
options on futures on broad-based securities indexes or
U.S. government securities.
3
No Employee engaged in equity or bond trading may
engage in personal transactions involving any equity
securities of any company whose primary business is
that of a broker/dealer.
4
Subject to preclearance, Employees may engage in short
sales, options, and margin transactions, but such
transactions are strongly discouraged, particularly due
to the 60 day short term profit-taking prohibition. Any
Employee engaging in such transactions should also
recognize the danger of being "frozen" or subject to a
forced close out because of the general restrictions
which apply to personal transactions as noted above. In
specific case of hardship an exception may be granted
by the Director of Regulatory Affairs or her designee
upon approval of the Ethics Committee with respect to
an otherwise "frozen" transaction.
5
No Employee may engage in personal transactions
involving the purchase of any security on an initial
public offering. This restriction also includes new
issues resulting from spin-offs, municipal securities
and thrift conversions, although in limited cases the
purchase of such securities in an offering may be
approved by the Director of Regulatory Affairs or her
designee upon determining that approval would not
<PAGE>
Code of Ethics
Page 7
- ------------------- ------------------------------------------------------
violate any policy reflected in this Code. This
restriction does not apply to open-end mutual funds, U.
S. government issues or money market investments.
6
EMPLOYEES MAY NOT PURCHASE SECURITIES IN PRIVATE
PLACEMENTS UNLESS APPROVAL OF THE DIRECTOR OF
REGULATORY AFFAIRS, DIRECTOR OF ENTERPRISE RISK
MANAGEMENT OR THE GENERAL COUNSEL HAS BEEN OBTAINED.
This approval will be based upon a determination that
the investment opportunity need not be reserved for
clients, that the Employee is not being offered the
investment opportunity due to his or her employment
with Wellington Management and other relevant factors
on a case-by-case basis. If the Employee has portfolio
management or securities analysis responsibilities and
is granted approval to purchase a private placement, he
or she must disclose the privately placed holding later
if asked to evaluate the issuer of the security. An
independent review of the Employee's analytical work or
decision to purchase the security for a client account
will then be performed by another investment
professional with no personal interest in the
transaction.
Gifts and Other Employees should not seek, accept or offer any gifts or
Sensitive Payments favors of more than minimal value or any preferential
treatment in dealings with any client, broker/dealer,
portfolio company, financial institution or any other
organization with whom the firm transacts business.
Occasional participation in lunches, dinners, cocktail
parties, sporting activities or similar gatherings
conducted for business purposes are not prohibited.
However, for both the Employee's protection and that of
the firm it is extremely important that even the
appearance of a possible conflict of interest be
avoided. Extreme caution is to be exercised in any
instance in which business related travel and lodgings
are paid for other than by Wellington Management, and
prior approval must be obtained from the Regulatory
Affairs Department.
Any question as to the propriety of such situations
should be discussed with the Regulatory Affairs
Department and any incident in which an Employee is
encouraged to violate these provisions should be
reported immediately. An explanation of all
extraordinary travel, lodging and related meals and
entertainment is to be reported in a brief memorandum
to the Director of Regulatory Affairs.
Employees must not participate individually or on
behalf of the firm, a subsidiary, or any client,
directly or indirectly, in any of the following
transactions:
<PAGE>
Code of Ethics
Page 8
- ------------------- ------------------------------------------------------
1
Use of the firm's funds for political purposes.
2
Payment or receipt of bribes, kickbacks, or payment or
receipt of any other amount with an understanding that
part or all of such amount will be refunded or
delivered to a third party in violation of any law
applicable to the transaction.
3
Payments to government officials or employees (other
than disbursements in the ordinary course of business
for such legal purposes as payment of taxes).
4
Payment of compensation or fees in a manner the purpose
of which is to assist the recipient to evade taxes,
federal or state law, or other valid charges or
restrictions applicable to such payment.
5
Use of the funds or assets of the firm or any
subsidiary for any other unlawful or improper purpose.
- ------------------- ------------------------------------------------------
Other Conflicts of Employees should also be aware that areas other than
Interest personal securities transactions or gifts and sensitive
payments may involve conflicts of interest. The
following should be regarded as examples of situations
involving real or potential conflicts rather than a
complete list of situations to avoid.
"Inside Specific reference is made to the firm's policy on the
Information" use of "inside information" which applies to personal
securities transactions as well as to client
transactions.
Use of Information Information acquired in connection with employment by
the organization may not be used in any way which
might be contrary to or in competition with the
interests of clients. Employees are reminded that
certain clients have specifically required their
relationship with us to be treated confidentially.
Disclosure of Information regarding actual or contemplated investment
Information decisions, research priorities or client interests
should not be disclosed to persons outside our
organization and in no way can be used for personal
gain.
Outside All outside relationships such as directorships or
Activities trusteeships of any kind or membership in investment
organizations (e.g., an investment club) must be
cleared by the Director of Regulatory Affairs prior to
the acceptance of such a position. As a general matter,
<PAGE>
Code of Ethics
Page 9
- ------------------- ------------------------------------------------------
directorships in unaffiliated public companies or
companies which may reasonably be expected to become
public companies will not be authorized because of the
potential for conflicts which may impede our freedom to
act in the best interests of clients. Service with
charitable organizations generally will be authorized,
subject to considerations related to time required
during working hours and use of proprietary
information.
Exemptive Procedure The Director of Regulatory Affairs, the Director of
Enterprise Risk Management, the General Counsel or the
Ethics Committee can grant exemptions from the personal
trading restrictions in this Code upon determining that
the transaction for which an exemption is requested
would not result in a conflict of interest or violate
any other policy embodied in this Code. Factors to be
considered may include: the size and holding period of
the Employee's position in the security, the market
capitalization of the issuer, the liquidity of the
security, the reason for the Employee's requested
transaction, the amount and timing of client trading in
the same or a related security, and other relevant
factors.
Any Employee wishing an exemption should submit a
written request to the Director of Regulatory Affairs
setting forth the pertinent facts and reasons why the
employee believes that the exemption should be granted.
Employees are cautioned that exemptions are intended to
be exceptions, and repetitive exemptive applications by
an Employee will not be well received.
Records of the approval of exemptions and the reasons
for granting exemptions will be maintained by the
Regulatory Affairs Department.
- ------------------- ------------------------------------------------------
Compliance with Adherence to the Code of Ethics is considered a basic
The Code of Ethics condition of employment with our organization. The
Ethics Committee monitors compliance with the Code and
reviews violations of the Code to determine what action
or sanctions are appropriate.
Violations of the provisions regarding personal trading
will presumptively be subject to being reversed in the
case of a violative purchase, and to disgorgement of
any profit realized from the position (net of
transaction costs and capital gains taxes payable with
respect to the transaction) by payment of the profit to
any client disadvantaged by the transaction, or to a
charitable organization, as determined by the Ethics
Committee, unless the Employee establishes to the
satisfaction of the Ethics Committee that under the
particular circumstances disgorgement would be an
unreasonable remedy for the violation.
<PAGE>
Code of Ethics
Page 10
- ------------------- ------------------------------------------------------
Violations of the Code of Ethics may also adversely
affect an Employee's career with Wellington Management
with respect to such matters as compensation and
advancement.
Employees must recognize that a serious violation of
the Code of Ethics or related policies may result, at a
minimum, in immediate dismissal. Since many provisions
of the Code of Ethics also reflect provisions of the
U.S. securities laws, Employees should be aware that
violations could also lead to regulatory enforcement
action resulting in suspension or expulsion from the
securities business, fines and penalties, and
imprisonment.
Again, Wellington Management would like to emphasize
the importance of obtaining prior clearance of all
personal securities transactions, avoiding prohibited
transactions, filing all required reports promptly and
avoiding other situations which might involve even an
apparent conflict of interest. Questions regarding
interpretation of this policy or questions related to
specific situations should be directed to the
Regulatory Affairs Department or Ethics Committee.
Revised: March 1, 2000
CODE OF ETHICS
--------------
1. STATEMENT OF GENERAL PRINCIPLES
-------------------------------
This Code of Ethics ("Code") expresses the policy and procedures of
Arnhold and S. Bleichroeder, Inc. ("A&SB") and Arnhold and S. Bleichroeder
Advisers, Inc. ("A&SB Advisers") (collectively, the "Adviser"), First Eagle
Funds, First Eagle SoGen Funds, Inc. and First Eagle Sogen Variable Funds, Inc.
and any other registered investment company for which the Adviser may act as
adviser or subadviser (the "Funds"). The Code is enforced to insure that no one
is taking advantage of his or her position, or even giving the appearance of
placing his or her own interests above those of the Funds. Investment company
personnel must at all levels act as fiduciaries, and as such must place the
interests of the shareholders of the Funds before their own.
Rule 17j-1 under the Investment Company Act of 1940, as amended (the
"Act"), makes it unlawful for certain persons, in connection with the purchase
or sale of securities, to, among other things, engage in any act, practice or
course of business which operates or would operate as a fraud or deceit upon a
registered investment company. In compliance with Rule 17j-1, this Code contains
provisions that are reasonably necessary to eliminate the possibility of any
such conduct.
2. DEFINITIONS
-----------
"Access Person" shall mean any director, trustee, officer, general
partner, or Advisory Person of the Funds or of the Adviser, who in the ordinary
course of his or her business makes, participates in or obtains information
regarding the purchase or sale of securities for the Funds or whose functions or
duties as part of the ordinary course of his or her business relate to the
making of any recommendation to the Funds regarding the purchase or sale of
securities.
"Advisory Person" of the Funds means any employee of the Funds or
the Adviser who, in connection with his regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale of a
security by the Funds, or whose functions relate to the making of any
recommendations with respect to such purchases or sales, and shall include any
natural person in a control relationship with the Funds or the Adviser who
obtains information concerning recommendations made to the Funds with regard to
the purchase or sale of a security.
<PAGE>
The term "beneficial ownership" " shall mean any person who has or
shares, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise, a direct or indirect pecuniary
interest in a Security. "Pecuniary interest" means the opportunity, directly or
indirectly, to profit or share in any profit derived from a transaction in the
Security. "Indirect pecuniary interest" includes, but is not limited to, an
interest in a Security held by members of your immediate family who share your
household, including your spouse, children and stepchildren, parents,
grandparents, brothers and sisters, and in-laws.
"Board" shall mean the board of directors or board of trustees of
the Funds.
"Compliance Officer" shall mean the compliance officer appointed by
the Board of the Funds.
"Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act.
The term "Covered Security" shall mean a security defined in Section
2(a)(36) of the Act and shall include options, but shall not include direct
obligations of the United States, bankers' acceptances, bank certificates of
deposit, commercial paper, other money market instruments including repurchase
agreements, and shares of registered open-end investment companies.
"Disinterested Director" of the Funds shall mean a director or
trustee thereof who is not an "interested person" of the Funds within the
meaning of Section 2(a)(19) of the Act.
"Fund" shall mean the Funds or any other registered investment
company to which the Adviser acts as adviser or subadviser.
"Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, as amended, by or for an issuer of such
securities which, immediately before the registration, was not subject to the
reporting requirements of Section 13 or 15d of the 1934 Act.
"Investment Compliance Committee" shall mean the committee appointed
by the management of A&SB.
"Investment Personnel" of the Funds or the Adviser includes
Portfolio Managers and those persons who provide information and advice to the
Portfolio Managers or who help execute the Portfolio Managers' decisions (E.G.
securities analysts and traders).
<PAGE>
"Portfolio Managers" shall mean those persons who have direct
responsibility and authority to make investment decisions for a Fund.
"Principal Underwriter" shall mean A&SB.
The "purchase or sale of a security" includes, among other things,
the writing of an option to purchase or sell a security.
3. PROHIBITED SECURITIES TRANSACTIONS
----------------------------------
The prohibitions described below will only apply to a transaction in
a Covered Security in which the designated person has, or by reason of such
transaction acquires or disposes, any direct or indirect beneficial ownership in
such Covered Security ("Securities Transaction").
A. BLACKOUT TRADING PERIODS - ACCESS PERSONS
-----------------------------------------
No Access Person shall execute a Securities Transaction on a day
during which the Funds have a pending buy or sell order in that same Covered
Security until that order is executed or withdrawn. Any profits realized on
trades within the proscribed periods are required to be disgorged to a charity
selected by the Adviser.
B. BLACKOUT TRADING PERIODS - PORTFOLIO MANAGERS
---------------------------------------------
No Portfolio Manager shall buy or sell a Covered Security within
seven calendar days before and after the Fund that he or she manages trades in
that Covered Security. Any profits realized on trades within the proscribed
periods are required to be disgorged to a charity selected by the Adviser.
C. BAN ON SHORT-TERM TRADING PROFITS - INVESTMENT PERSONNEL
--------------------------------------------------------
Investment Personnel may not profit in the purchase and sale, or
sale and purchase, of the same (or equivalent) securities within 60 calendar
days. Any profits realized on such short-term trades are required to be
disgorged to a charity selected by the Adviser.
D. BAN ON SECURITIES PURCHASES OF AN INITIAL PUBLIC OFFERING -
INVESTMENT PERSONNEL
- --------------------
Investment Personnel may not acquire any securities in an Initial
Public Offering.
E. SECURITIES OFFERED IN A PRIVATE OFFERING - INVESTMENT PERSONNEL
---------------------------------------------------------------
<PAGE>
Investment Personnel may not acquire any securities in a private
offering without the prior written consent of the Compliance Officer.
Furthermore, should written consent be given, Investment Personnel are required
to disclose such investment when participating in the Fund's subsequent
consideration of an investment in such issuer. In such circumstances, the Fund's
decision to purchase securities of such issuer should be subject to an
independent review by the Investment Compliance Committee.
4. EXEMPTED TRANSACTIONS
---------------------
A. Subject to compliance with preclearance procedures in accordance with
Section 5 below, the prohibitions of Sections 3A, 3B and 3C of this Code shall
not apply to:
(i) Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control, or in any account
of the Access Person which is managed on a discretionary basis by a person
other than such Access Person and with respect to which such Access Person
does not in fact influence or control such transactions.
(ii) Purchases or sales of securities which are not eligible for purchase
or sale by the Funds.
(iii) Purchases or sales which are non-volitional on the part of either
the Access Person or the Funds.
(iv) Purchases which are part of an automatic dividend reinvestment plan.
(v) Purchases effected upon the exercise of rights issued by an issuer PRO
RATA to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
(vi) Any equity securities transaction, or series of related transactions,
involving 500 shares or less or amounting to $10,000 or less, in the
aggregate if i) the Access Person has no prior knowledge of transactions
in such Covered Security by the Funds and (ii) if the issuer has a market
capitalization (outstanding shares multiplied by the current price per
share) greater than $1 billion.
(vii) Any fixed income securities transaction involving $50,000 principal
amount or less if the Access Person has no prior knowledge of transactions
in such securities by the Funds.
<PAGE>
(viii) All other transactions contemplated by an Access Person which
receive the prior approval of the Investment Compliance Committee in
accordance with the preclearance procedures described in Section 5 below.
Purchases or sales of a specific Covered Security may receive the prior
approval of the Investment Compliance Committee because the Committee has
determined that no abuse is involved and that such purchases and sales
would be very unlikely to have any economic impact on the Funds or on the
Fund's ability to purchase or sell such Covered Securities.
B. The prohibition in Section 3A shall not apply to Disinterested
Directors of the Funds, unless a Disinterested Director, at the time of a
transaction, knew or, in the ordinary course of fulfilling his or her official
duties as a Disinterested Director of the Funds, should have known that the
Funds had a pending buy or sell order in that same Covered Security, which order
had not yet been executed or withdrawn.
C. A transaction by Access Persons (other than Investment Personnel)
inadvertently effected during the period proscribed in Section 3A will not be
considered a violation of the Code and disgorgement will not be required so long
as the transaction was effected in accordance with the preclearance procedures
described in Section 5 and without prior knowledge of any Securities Transaction
by the Funds.
D. The prohibition in Section 3C shall not apply to profits earned from a
Securities Transactions in which securities are not the same (or equivalent) to
those owned, shorted or in any way traded by the Funds during the 60 day period;
provided, however, that if the Investment Compliance Committee determines that a
review of the Access Person's reported personal securities transactions
indicates an abusive pattern of short-term trading, the Committee may prohibit
such Access Person from profiting in the purchase and sale, or sale and
purchase, of the same (or equivalent) securities within 60 calendar days whether
or not such Covered Security is the same (or equivalent) to that owned, shorted
or in any way traded by the Funds.
5. PRECLEARANCE
------------
Access Persons (other than Disinterested Directors) must preclear
all Securities Transactions. All requests for preclearance must be submitted to
the Investment Compliance Committee. Such requests shall be made by submitting a
Personal Investment Request Form, in the form annexed hereto as Appendix A. All
approved orders must be executed by the close of business on the day
preclearance is granted. If any order is not timely executed, a request for
preclearance must be resubmitted.
Disinterested Directors need not preclear their personal investments
in securities unless a Disinterested Director knows, or in the course of
fulfilling his or her official duties as a Disinterested Director should know,
that, within the most recent 15 days, any of the Funds have purchased or sold,
<PAGE>
or considered for purchase or sale, such Covered Security or is proposing to
purchase or sell, directly or indirectly, any Covered Security in which the
Disinterested Director has, or by reason of such Securities Transaction would
acquire, any direct or indirect beneficial ownership.
6. REPORTING
---------
A. The Compliance Officer shall periodically identify all Access Persons and
Inform such The Compliance Officer shall periodically identify all Access
Persons and inform such Access Persons of their reporting and compliance
obligations under this Code of Ethics.Access Persons of their reporting and
compliance obligations under this Code of Ethics.
B. Access Persons (other than Disinterested Directors) are required to
direct their broker(s) to supply to the Compliance Officer on a timely basis
duplicate copies of confirmations of ALL personal Securities Transactions and
copies of periodic statements for all securities accounts, whether existing
currently or to be established in the future. A sample letter for this purpose
is attached as Appendix B. The Securities Transaction reports and/or duplicates
should be addressed "Personal and Confidential." Compliance with this Code
requirement will be deemed to satisfy the reporting requirements imposed on
Access Persons under Rule 17j-1.
C. A Disinterested Director shall report to the Compliance Officer, no
later than ten days after the end of the calendar quarter in which the
transaction to which the report relates was effected, the information required
in Appendix C hereto with respect to any Securities Transaction in which such
Disinterested Director has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership in a Covered Security that such
Disinterested Director knew, or in the course of fulfilling his or her official
duties as a director should have known, during the 15-day period immediately
preceding or after the date of the Securities Transaction by the Disinterested
Director, to have been purchased or sold by the Funds or considered for purchase
or sale by the Funds. With respect to those transactions executed through a
broker, a Disinterested Director of the Funds may fulfill this requirement by
directing the broker(s) to transmit to the Legal Compliance Officer a duplicate
of confirmations of such transactions, and copies of the statements of such
brokerage accounts, whether existing currently or to be established in the
future. The transaction reports and/or duplicates should be addressed "Personal
and Confidential" and submitted to the Compliance Officer and may contain a
statement that the report shall not be construed as an admission by the person
making such report that he or she has any direct or indirect beneficial
ownership in the Covered Security to which the report relates. Securities
Transactions effected for any account over which a Disinterested Director does
not have any direct or indirect influence or control, or which is managed on a
discretionary basis by a person other than the Disinterested Director and with
respect to which such Disinterested Director does not in fact influence or
control such transactions, need not be reported.
<PAGE>
D. Whenever a person designated as Investment Personnel recommends that
the Funds purchase or sell a Covered Security, he or she shall disclose to the
person to whom the recommendation is made, as well as to the Compliance Officer,
whether he or she presently owns such Covered Security, or whether he or she is
considering the purchase or sale of such Covered Security.
E. Not later than ten days after a person becomes an Access Person, and
thereafter on an annual basis Access Persons (other than Disinterested
Directors) will disclose all personal securities holdings and all their accounts
with any broker or dealer. On an annual basis Access Persons (other than
Disinterested Directors) will be sent a copy of the list of such Access Person's
securities accounts in which he or she has a beneficial ownership interest to
verify its accuracy and make any necessary additions or deletions. The Access
Person shall immediately notify the Compliance Officer upon establishing any
account with a securities or derivatives broker or dealer.
F. All personal matters discussed with the Compliance Officer, or members
of the Investment Compliance Committee, and all confirmations, account
statements and personal investment reports shall be kept in confidence, but will
be available for inspection by the Boards of the Funds and the Adviser and by
the appropriate regulatory agencies.
7. ANNUAL CERTIFICATION
--------------------
On an annual basis Access Persons will be sent a copy of this Code
for their review. Access Persons will be asked to certify that they have read
and understand this Code and recognize that they are subject hereto. Access
Persons will be further asked to certify annually that they have complied with
the requirements of this Code and that they have disclosed or reported all
personal securities transactions required to be disclosed or reported pursuant
to this Code. A sample of the certification is attached as Appendix D.
8. CONFIDENTIAL STATUS OF THE FUND'S PORTFOLIO
--------------------------------------------
The current portfolio positions of the Funds managed, advised and/or
administered by the Adviser and current portfolio transactions, programs and
analyses must be kept confidential.
If non-public information regarding the Fund's portfolio should
become known to any Access Person, whether in the line of duty or otherwise, he
or she should not reveal it to anyone unless it is properly part of his or her
work to do so.
<PAGE>
9. NON-PUBLIC MATERIAL INFORMATION
-------------------------------
No Access Person may purchase or sell any Covered Security, or be
involved in any way in the purchase or sale of a Covered Security, while in
possession of material non-public information about the Covered Security or its
issuer, regardless of the manner in which such information was obtained. This
prohibition covers transactions for clients, as well as transactions for
personal accounts.
Furthermore, no Access Person possessing material non-public
information may disclose such information to any person other than the
Compliance Officer, except to the extent authorized by the Compliance Officer.
Disclosing non-public material information to others is known as "tipping" and
is prohibited.
Non-public information includes corporate information, such as
undisclosed financial information about a corporation, and market information,
such as a soon-to-be-published article about a corporation. Material information
is information which an investor would consider important in making an
investment decision and which would substantially affect the market price of a
security if disclosed.
10. GIFTS - INVESTMENT PERSONNEL
----------------------------
Investment Personnel shall not receive any gift or other thing of
more than DE MINIMIS value from any person or entity that does business with or
on behalf of the Funds. For purposes of this Code, "more than DE MINIMIS value"
shall mean any gift in excess of a value of $100 per year.
11. SERVICES AS A DIRECTOR IN A PUBLICLY TRADED COMPANY - INVESTMENT
PERSONNEL
--------------------------------------------------------------------
Investment Personnel shall not serve on the boards of directors of
publicly traded companies, absent prior authorization by the Board of the Funds,
based upon a determination that the board service would be consistent with the
interests of the Funds and its shareholders. When such authorization is
provided, the Investment Personnel serving as a director will be isolated from
making investment decisions with respect to the pertinent company through
"Chinese Wall" or other procedures.
12. OUTSIDE EMPLOYMENT
------------------
No Access Person may render investment advice to persons other than
the Adviser's clients, unless the advisory relationship, including the identity
of those involved and any fee arrangements, has been disclosed to and approved
<PAGE>
by the Adviser. All transactions for such outside advisory clients of the Access
Person are subject to the reporting requirements of Section 6 above.
13. COMPLIANCE REVIEW
-----------------
The Compliance Officer shall compare the reported personal
Securities Transactions with completed and contemplated portfolio transactions
of the Funds to determine whether a violation of this Code may have occurred.
The Compliance Officer shall bring any questionable transactions to the
attention of the Investment Compliance Committee. Before making any
determination that a violation has been committed by any person, the Investment
Compliance Committee shall give such person an opportunity to supply additional
information regarding the Securities Transaction in question.
14. SANCTIONS
---------
The Board of the Funds and the Board of Directors of the Adviser
will be informed of Code violations of this Code on a quarterly basis and the
relevant Board may impose such sanctions as they deem appropriate, including
INTER ALIA, a letter of censure or suspension or termination of employment of
the Access Person or a request for disgorgement of any profits received from a
Securities Transaction done in violation of this Code.
15. BOARD REVIEW
------------
The Board of the Funds shall annually receive a copy of the existing
Code, along with a list of recommendations, if any, to change the existing Code
based upon experience, evolving industry practices or developments in applicable
laws or regulations. No less frequently than annually, the Compliance Officer
shall submit to the Board of the Funds a written report that:
(A) Describes any issues arising under this Code or its procedures since
the last report to the Board, including, but not limited to, information about
material violations of this Code or its procedures and sanctions imposed in
response to the material violations; and,
(B) Certifies that the Funds, and the Adviser have adopted procedures
reasonably necessary to prevent Access Persons from violating this Code.
16. RECORDKEEPING
-------------
<PAGE>
The Compliance Officer shall maintain, at the Funds' and theThe
Compliance Officer shall maintain, at the Funds' and the Adviser's principal
place of business, the following record and shall make these records available
to the Securities and Exchange Commission and its representatives:Adviser's
principal place of business, the following record and shall make these records
available to the Securities and Exchange Commission and its representatives:
A. A copy of each Code in effect during the past five years.A. A
copy of each Code in effect during the past five years.
B. A record of any violation and the action taken during the past
five years.
C. A copy of each Access Person's reports.
D. A record of all Access Persons.
E. A copy of the written reports to the Board.
F. A record of the reasons for preapproving Initial Public
Offerings or Private Offerings of Covered Securities.
F.
<PAGE>
Appendix A
This trade approval request is the form used on A&SB's intranet website. All
Securities Transactions should receive preclearance through the intranet site.
TRADE APPROVAL REQUEST
To: Investment Compliance Committee
From: _______________________________
Date: _______________________________
Permission is requested to (BUY)/(SELL) ________________________ shares
of ____________________________________________________________.
The trade is to be executed at (ASB) / (Other Firm: ____________________)
I HAVE NO MATERIAL, NON-PUBLIC INFORMATION REGARDING THE ABOVE REFERENCED
SECURITY. I HAVE CHECKED OUR TRADING DESK TO ENSURE THAT THERE ARE NO
PENDING CUSTOMER ORDERS.
EMPLOYEE SIGNATURE: _____________________________
Note: This form WILL NOT BE APPROVED without the employee first signing. Filling
out this form is the responsibility of the person requesting approval, NOT
the --- person granting approval!
Approved By: _____________________________ Date: __________________
<PAGE>
Appendix B
Date
XYZ Broker Dealer
Re:
Dear Sir/Madam:
Please accept this letter as permission, pursuant to NYSE Rule 407, to allow
___________Please accept this letter as permission, pursuant to NYSE Rule 407,
to allow ___________, an employee of our firm , to maintain an account(s) with
your firm.
In regards to the above, please send duplicate confirmations and statements on
all transactions to the following:
Arnhold and S. Bleichroeder, Inc.
Ms. Tracy L. Saltwick
Senior Vice President
1345 Avenue of the Americas1345 Avenue of the Americas
New York, New York 10105-4300
Thank you for your prompt attention to this matter.
Sincerely,
ARNHOLD AND S. BLEICHROEDER, INC.
By:
<PAGE>
Appendix C
Information required to be reported:
(1)The date of the transaction, the title, the interest rate and maturity date
(if applicable), the number of shares and the principal amount of each
Covered Security involved;
(2)The nature of the transaction (i.e., purchase, sale or any other type of
acquisition or disposition);
(3)The price of the Covered Security at which the transaction was effected;
(4)The name of the broker, dealer or bank with or through which the transaction
was effected; and
(5)The date that the report is submitted by the Access Person.
<PAGE>
Appendix D
Certification
I hereby certify that:
I have received a current copy of the Code of Ethics, and have read and
understand the Code.
I recognize that I am subject to the Code and certify that have complied with
the requirements of the Code.
I have disclosed or reported all my personal securities transactions required to
be disclosed or reported pursuant to this Code.
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Name
Date:________________
