As filed with the Securities and Exchange Commission on April 14, 1997
Registration No. 33-10648
811-4927
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 18 X
-
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 18 X
-
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EXECUTIVE INVESTORS TRUST
(Exact name of Registrant as specified in charter)
Ms. Concetta Durso
Secretary and Vice President
Executive Investors Trust
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement
It is proposed that this filing will become effective on April 30, 1997 pursuant
to paragraph (b) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
previously elected to register an indefinite number of shares of beneficial
interest, no par value, under the Securities Act of 1933. Registrant filed a
Rule 24f-2 Notice for its fiscal year ending December 31, 1996 on February 27,
1997.
<PAGE>
EXECUTIVE INVESTORS TRUST
CROSS-REFERENCE SHEET
N-1A Item No. Location
- ------------- --------
PART A: PROSPECTUS
1. Cover Page....................................... Cover Page
2. Synopsis......................................... Fee Table
3. Condensed Financial Information.................. Financial Highlights
4. General Description of Registrant................ Investment Objectives
and Policies; General
Information
5. Management of the Fund........................... Management
5A. Management's Discussion of
Fund Performance............................ Performance Information
6. Capital Stock and Other Securities............... Description of Shares;
Dividends and Other
Distributions; Taxes;
Determination of Net
Asset Value
7. Purchase of Securities Being Offered............. How to Buy Shares
8. Redemption or Repurchase......................... How to Exchange Shares;
How to Redeem Shares;
Telephone Transactions
9. Pending Legal Proceedings........................ Not Applicable
PART B: STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page....................................... Cover Page
11. Table of Contents................................ Table of Contents
12. General Information and History.................. General Information
13. Investment Objectives and Policies............... Investment Policies;
Investment Restrictions;
Hedging Strategies
14. Management of the Fund........................... Trustees and Officers
15. Control Persons and Principal
Holders of Securities........................ Not Applicable
16. Investment Advisory and Other Services........... Management
17. Brokerage Allocation............................. Allocation of Portfolio
Brokerage
18. Capital Stock and Other Securities............... Determination of Net
Asset Value
19. Purchase, Redemption and Pricing
of Securities Being Offered.................. Reduced Sales Charges,
Additional Exchange and
Redemption Information
and Other Services;
Determination of Net
Asset Value
20. Tax Status....................................... Taxes
21. Underwriters..................................... Underwriter
22. Performance Data................................. Performance Information
23. Financial Statements............................. Financial Statements;
Report of Independent
Accountants
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item so numbered, in Part C hereof.
<PAGE>
EXECUTIVE INVESTORS TRUST
BLUE CHIP FUND
HIGH YIELD FUND
INSURED TAX EXEMPT FUND
95 Wall Street, New York, New York 10005/1-800-423-4026
This is a Prospectus for Executive Investors Trust ("Trust"), an open-end
diversified management investment company. The Trust offers three separate
diversified investment series, each of which has different investment objectives
and policies: EXECUTIVE INVESTORS BLUE CHIP FUND, EXECUTIVE INVESTORS HIGH YIELD
FUND and EXECUTIVE INVESTORS INSURED TAX EXEMPT FUND (individually, "Fund," and
collectively, "Funds"). There can be no assurance that any Fund will achieve its
investment objective. Each Fund has designated its issued and outstanding shares
as Class A shares.
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, primarily in equity
securities of "Blue Chip" companies that the Fund's investment adviser believes
have potential earnings growth that is greater than the average company included
in the Standard & Poor's 500 Composite Stock Price Index.
HIGH YIELD FUND primarily seeks high current income and secondarily seeks
capital appreciation. The Fund seeks its objectives by investing, under normal
market conditions, at least 65% of its total assets in high risk, high yield
securities. INVESTMENTS IN HIGH YIELD, HIGH RISK SECURITIES, COMMONLY REFERRED
TO AS "JUNK BONDS," ENTAIL RISKS THAT ARE DIFFERENT AND MORE PRONOUNCED THAN
THOSE INVOLVED IN HIGHER RATED SECURITIES. SEE "HIGH YIELD SECURITIES-RISK
FACTORS."
INSURED TAX EXEMPT FUND seeks to provide a high level of interest income
which is exempt from Federal income tax and is not an item of tax preference for
purposes of the Federal alternative minimum tax ("Tax Preference Item"). The
Fund seeks to achieve its objective by investing at least 80% of its total
assets in municipal bonds issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest on which is
exempt from Federal income tax and is not a Tax Preference Item. THE FUND'S
MUNICIPAL BONDS ARE INSURED AS TO TIMELY PAYMENT OF PRINCIPAL AND INTEREST
THROUGH THE ISSUER OR UNDER INSURANCE POLICIES WRITTEN BY INDEPENDENT INSURANCE
COMPANIES. INSURANCE DOES NOT PROTECT AGAINST FLUCTUATIONS IN THE BONDS' MARKET
VALUE OR THE FUND'S NET ASSET VALUE PER SHARE. FOR MORE INFORMATION REGARDING
THE FUND'S INSURANCE COVERAGE, SEE "INSURANCE" ON PAGE 13.
This Prospectus sets forth concisely the information about the Funds that
a prospective investor should know before investing and should be retained for
future reference. Executive Investors Management Company, Inc. ("EIMCO" or
"Adviser") serves as investment adviser to the Funds and Executive Investors
Corporation ("EIC" or "Underwriter") serves as distributor of the Funds' shares.
A Statement of Additional Information ("SAI"), dated April 30, 1997 (which is
incorporated by reference herein), has been filed with the Securities and
Exchange Commission. The SAI is available at no charge upon request to the Trust
at the address or telephone number indicated above.
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured or protected by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other government agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 30, 1997
<PAGE>
FEE TABLE
The following table is intended to assist investors in understanding the
expenses associated with investing in each Fund.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......................... 4.75%
Deferred Sales Load
(as a percentage of the lower of original purchase
price or redemption proceeds)................................ -0-*
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
TOTAL FUND
MANAGEMENT 12B-1 OTHER OPERATING
FEES(1)+ FEES(2)+ EXPENSES(3) EXPENSES(4)+
--------- -------- ----------- ------------
BLUE CHIP FUND........... 0.25% 0.40% 0.10%+ 0.75%
HIGH YIELD FUND.......... 0.50 0.40 0.32 1.22
INSURED TAX EXEMPT FUND.. 0.25 0.40 0.10+ 0.75
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* A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of shares that are purchased without a sales charge. See "How
to Buy Shares."
+ Net of waiver and/or reimbursement.
(1) For the fiscal year ended December 31, 1996, the Adviser waived Management
Fees in excess of 0.25% for BLUE CHIP FUND and INSURED TAX EXEMPT FUND and
0.50% for HIGH YIELD FUND. Absent the waiver, such fees would have been
1.00% for each Fund. The Adviser will continue to waive such fees for a
minimum period ending December 31, 1997.
(2) The Underwriter has agreed through December 31, 1997 to cap its right to
claim 12b-1 Fees at the annual rates listed above for the Funds. The
Trust's Class A Distribution Plan provides for a 12b-1 Fee in the total
amount of up to 0.50% on an annual basis.
(3) For the fiscal year ended December 31, 1996, the Adviser reimbursed BLUE
CHIP FUND and INSURED TAX EXEMPT FUND for certain Other Expenses. Absent
such waiver, Other Expenses would have been 0.78% for BLUE CHIP FUND and
0.21% for INSURED TAX EXEMPT FUND. The Adviser will reimburse Other
Expenses for BLUE CHIP FUND and INSURED TAX EXEMPT FUND in excess of 0.10%
for a minimum period ending December 31, 1997.
(4) If certain fees and expenses had not been waived or reimbursed, Total Fund
Operating Expenses would have been as follows: BLUE CHIP FUND - 2.28%;
HIGH YIELD FUND - 1.82%; and INSURED TAX EXEMPT FUND - 1.71%. Each Fund
has an expense offset arrangement that may reduce the Fund's custodian fee
based on the amount of cash maintained by the Fund with its custodian. Any
such fee reductions are not reflected under Total Fund Operating Expenses.
For a more complete description of the various costs and expenses, see
"Investment Objectives and Policies--Insurance," "How to Buy Shares," "How to
Redeem Shares," "Management" and "Distribution Plan." Due to the imposition of
Rule 12b-1 fees, it is possible that long-term
2
<PAGE>
shareholders of a Fund may pay more in total sales charges than the economic
equivalent of the maximum front-end sales charge permitted by the rules of the
National Association of Securities Dealers, Inc.
The Example below is based on expense data for each Fund's fiscal year
ended December 31, 1996, except that certain Operating Expenses have been
restated, as noted above.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
1 YEAR 3 YEAR 5 YEARS 10 YEARS
------ ------ ------- --------
BLUE CHIP FUND............... $55 $70 $87 $136
HIGH YIELD FUND.............. 59 84 111 188
INSURED TAX EXEMPT FUND...... 55 70 87 136
THE EXPENSES IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION BY
THE FUNDS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES IN FUTURE YEARS MAY BE
GREATER OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data
for a share outstanding, total return, ratios to average net assets and other
supplemental data for each period indicated. The table has been derived from
financial statements which have been examined by Tait, Weller & Baker,
independent certified public accountants, whose report thereon appears in the
SAI. This information should be read in conjunction with the Financial
Statements and Notes thereto, which also appear in the SAI, available at no
charge upon request to the Fund.
<TABLE>
<CAPTION>
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PER SHARE DATA
-------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
INCOME FROM INVESTMENT OPERATIONS FROM
--------------------------------- ------------------
NET REALIZED
NET ASSET AND
--------- UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM NET NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BLUE CHIP FUND
5/17/90* to 12/31/90 .. $ 11.43 $ .16 $ (.52) $ (.36) $ .16 $ -- $ .16
1991 .................. 10.91 .31 2.68 2.99 .30 .11 .41
1992 .................. 13.49 .25 .30 .55 .26 -- .26
1993 .................. 13.78 .23 .88 1.11 .23 .59 .82
1994 .................. 14.07 .24 (.41) (.17) .22 .93 1.15
1995 .................. 12.75 .30 4.30 4.60 .29 .74 1.03
1996 .................. 16.32 .22 3.13 3.35 .24 1.07 1.31
HIGH YIELD FUND
3/24/87* to 12/31/87 .. 9.60 .73 (1.12) (.39) .74 -- .74
1988 .................. 8.47 1.22 .52 1.74 1.20 -- 1.20
1989 .................. 9.01 1.18 (1.25) (.07) 1.20 -- 1.20
1990 .................. 7.74 .95 (1.84) (.89) .96 -- .96
1991 .................. 5.89 .82 1.17 1.99 .78 -- .78
1992 .................. 7.10 .80 .29 1.09 .76 -- .76
1993 .................. 7.43 .72 .50 1.22 .76 -- .76
1994 .................. 7.89 .70 (.87) (.17) .74 -- .74
1995 .................. 6.98 .70 .58 1.28 .67 -- .67
1996 .................. 7.59 .72 .28 1.00 .70 -- .70
INSURED TAX EXEMPT FUND
7/26/90* to 12/31/90 . 11.43 .22 .20 .42 .14 -- .14
1991 .................. 11.71 .78 .72 1.50 .78 .04 .82
1992 .................. 12.39 .74 .59 1.33 .72 .17 .89
1993 .................. 12.83 .71 1.27 1.98 .72 .32 1.04
1994 .................. 13.77 .68 (1.23) (.55) .69 -- .69
1995 .................. 12.53 .72 1.80 2.52 .73 .28 1.01
1996 .................. 14.04 .66 (.10) .56 .67 .11 .78
</TABLE>
(a) Annualized
* Commencement of operations
** Calculated without sales charges
+ Some or all expenses have been waived or assumed from commencement of
operations through December 31, 1996.
++ Average commission rate (per share of security) as required by amended
disclosure requirements effective for fiscal years beginning on or after
September 1, 1995.
4
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
ASSETS BEFORE
RATIO TO AVERAGE EXPENSES WAIVED OR
NET ASSETS + ASSUMED
---------------- ------------------
NET ASSET NET ASSETS NET
VALUE END OF INVESTMENT NET
--------- TOTAL PERIOD INCOME INVESTMENT PORTFOLIO AVERAGE
END RETURN ** (IN EXPENSES (%) EXPENSES INCOME TURNOVER COMMISSION
OF PERIOD (%) THOUSANDS) (%) (%) RATE (%) RATE++
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.91 (6.02)(a) $ 313 -- 2.74(a) 4.67(a) (1.93)(a) 21 $N/A
13.49 27.65 677 .03 2.58 3.72 (1.11) 31 N/A
13.78 4.13 786 .41 1.95 2.55 (.19) 50 N/A
14.07 8.13 956 .50 1.63 2.30 (.17) 47 N/A
12.75 (1.21) 1,041 .50 1.82 2.54 (.22) 89 N/A
16.32 36.30 1,427 .50 1.99 2.20 .29 33 N/A
18.36 20.62 2,160 .75 1.33 2.28 (.20) 50 .0689
8.47 (5.55)(a) 1,156 -- 7.06(a) 1.78(a) 5.27(a) 27 N/A
9.01 21.31 9,205 -- 13.63 2.14 11.49 56 N/A
7.74 (1.11) 20,335 -- 13.61 1.82 11.79 36 N/A
5.89 (12.51) 11,683 .31 13.71 1.94 12.08 44 N/A
7.10 35.38 11,071 .95 12.22 2.17 11.00 40 N/A
7.43 16.89 10,491 1.29 10.72 2.10 9.90 83 N/A
7.89 17.04 14,231 1.34 9.49 1.95 8.88 89 N/A
6.98 (2.32) 15,142 1.33 9.45 1.88 8.90 53 N/A
7.59 19.08 15,672 1.35 9.52 1.90 8.97 69 N/A
7.89 13.69 16,773 1.22 9.38 1.82 8.78 27 N/A
11.71 8.00(a) 653 .09(a) 4.41(a) 1.70(a) 2.79(a) 0 N/A
12.39 13.20 4,369 .12 6.23 2.41 3.94 112 N/A
12.83 11.03 5,875 .47 5.88 1.89 4.47 131 N/A
13.77 15.74 9,447 .50 5.29 1.68 4.11 97 N/A
12.53 (3.95) 10,363 .50 5.39 1.80 4.09 215 N/A
14.04 20.53 13,342 .50 5.35 1.74 4.11 147 N/A
13.82 4.11 15,408 .75 4.85 1.71 3.89 116 N/A
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
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 equity securities of "Blue Chip" companies, including common and
preferred stocks and securities convertible into common stock, that the Adviser
believes have potential earnings growth that is greater than the average company
included in the Standard & Poor's 500 Composite Stock Price Index ("S&P 500").
The Fund also may invest up to 35% of its total assets in the equity securities
of non-Blue Chip companies that the Adviser believes have significant potential
for growth of capital or future income consistent with the preservation of
capital. When market conditions warrant, or when the Adviser believes it is
necessary to achieve the Fund's objective, the Fund may invest up to 25% of its
total assets in fixed income securities.
The Fund defines Blue Chip companies as those companies that are included in the
S&P 500. S&P 500 companies tend to be the companies with larger capitalizations
and histories of payment of dividends. Blue Chip companies are considered to be
of relatively high quality and generally exhibit superior fundamental
characteristics, which may include: potential for consistent earnings growth, a
history of profitability and payment of dividends, leadership position in their
industries and markets, proprietary products or services, experienced
management, high return on equity and a strong balance sheet. Blue Chip
companies usually exhibit less investment risk and share price volatility than
smaller, less established companies. Examples of Blue Chip companies are
Microsoft Corp., General Electric Co., Pepsico Inc. and Bristol-Myers Squibb Co.
The 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 total assets may be invested in corporate debt securities rated below Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Ratings Group ("S&P"). The Fund may borrow money for temporary or emergency
purposes in amounts not exceeding 5% of its total assets. The Fund may also
invest up to 10% of its net assets in American Depository Receipts ("ADRs"),
enter into repurchase agreements and make loans of portfolio securities. See
"Description of Certain Securities, Other Investment Policies and Risk Factors"
and the SAI for additional information concerning these securities.
HIGH YIELD FUND
HIGH YIELD FUND primarily seeks high current income and secondarily seeks
capital appreciation by investing, under normal market conditions, at least 65%
of its total assets in high risk, high yield securities, commonly referred to as
"junk bonds" ("High Yield Securities"). 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
6
<PAGE>
S&P, or are unrated and 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. The Fund actively seeks to achieve its secondary objective
of capital appreciation to the extent consistent with its primary objective. See
"High Yield Securities--Risk Factors" and "Deep Discount Securities."
The Fund may invest up to 5% of its total assets in debt securities issued
by foreign governments and companies located outside the United States and
denominated in U.S. or foreign currency. The Fund also may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets,
make loans of portfolio securities, invest in restricted securities and zero
coupon and pay-in-kind securities. See the SAI for more information concerning
these securities.
The Fund may invest up to 35% of its total assets in the following
instruments: common and preferred stocks, other than those considered to be High
Yield Securities; debt obligations of all types (including bonds, debentures and
notes) rated 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.
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 high grade debt
securities (rated A or better by nationally recognized statistical rating
organizations) or U.S. Government Obligations.
The medium- to lower-rated and unrated securities deemed to be of
comparable quality by the Adviser in which the Fund invests tend to offer higher
yields than higher-rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not be as
strong as that of other issuers. Debt obligations rated lower than A by Moody's
or S&P tend to have speculative characteristics or are speculative, and
generally involve more risk of loss of principal and income than higher-rated
securities. Also, their yields and market values tend to fluctuate more than
higher quality securities. The greater risks and fluctuations in yield and value
occur because investors generally perceive issuers of lower-rated and unrated
securities deemed to be of comparable quality by the Adviser to be less
creditworthy. These risks cannot be eliminated, but may be reduced by
diversifying holdings to minimize the portfolio impact of any single investment.
In addition, fluctuations in market value do not affect the cash income from the
securities, but are reflected in the computation of the Fund's net asset value.
When interest rates rise, the net asset value of the Fund tends to decrease.
When interest rates decline, the net asset value of the Fund tends to increase.
Variable or floating rate debt obligations in which the Fund may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
7
<PAGE>
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 basis 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--Risk Factors" and
Appendix A for a description of corporate bond ratings.
The dollar weighted average of credit ratings of all bonds held by the
Fund during the fiscal year ended December 31, 1996, computed on a monthly
basis, is set forth below. This information reflects the average composition of
the Fund's assets during the 1996 fiscal year and is not necessarily
representative of the Fund as of the end of its 1996 fiscal year, the current
fiscal year or at any other time in the future.
COMPARABLE QUALITY
OF UNRATED SECURITIES
RATED BY MOODY'S TO BONDS RATED BY MOODY'S
---------------- -------------------------
Baa 0.46% 0%
Ba 14.40 0.14
B 71.44 0.77
Caa 2.33 0
Ca 0 2.07
--- ----
TOTAL 88.63% 2.98%
INSURED TAX EXEMPT FUND
INSURED TAX EXEMPT FUND seeks to provide a high level of interest income
which is exempt from Federal income tax and is not a Tax Preference Item. The
Fund seeks to achieve its objective by investing at least 80% of its total
assets in municipal bonds issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest on which is
exempt from Federal income tax and is not a Tax Preference Item. The Fund also
may invest up to 20% of it total assets in certificates of participation
("COPs"), municipal notes, municipal commercial paper and variable rate demand
instruments ("VRDIs"). See "Municipal Instruments."
8
<PAGE>
The Fund may make loans of portfolio securities and invest in zero coupon
municipal securities. The Fund may invest up to 25% of its net assets in
securities on a "when-issued" basis, which involves an arrangement whereby
delivery of, and payment for, the instruments occur up to 45 days after the
agreement to purchase the instruments is made by the Fund. The Fund also may
invest up to 20% of its assets, on a temporary basis, in high quality fixed
income obligations, the interest on which is subject to Federal and state or
local income taxes. The Fund also may invest up to 10% of its total assets in
municipal obligations on which the rate of interest varies inversely with
interest rates on other municipal obligations or an index (commonly referred to
as inverse floaters) and may acquire detachable call options relating to
municipal bonds. The Fund may borrow money for temporary or emergency purposes
in amounts not exceeding 5% of its total assets. See "Description of Certain
Securities, Other Investment Policies and Risk Factors," below, and the SAI for
more information regarding these securities.
Although the Fund generally invests in municipal bonds rated Baa or higher
by Moody's or BBB or higher by S&P, the Fund may invest up to 5% of its net
assets in lower rated municipal bonds or in unrated municipal bonds deemed to be
of comparable quality by the Adviser. See "Debt Securities--Risk Factors."
However, in each instance such municipal bonds will be covered by the insurance
feature and thus are considered to be of higher quality than lower rated
municipal bonds without an insurance feature. See "Insurance" for a discussion
of the insurance feature. The Adviser will carefully evaluate on a case-by-case
basis whether to dispose of or retain a municipal bond which has been downgraded
in rating subsequent to its purchase by the Fund. A description of municipal
bond ratings is contained in Appendix A.
For temporary defensive purposes, the Fund may invest up to 20% of its
assets in high quality fixed income obligations or money market funds, the
interest on which is subject to Federal income taxes. Investments in money
market funds involve an additional management fee imposed by the money market
fund.
The Fund may invest more than 25% of its total assets in a particular
segment of the municipal bond market, such as hospital revenue bonds, housing
agency bonds, industrial development bonds, airport bonds and university
dormitory bonds, during periods when one or more of these segments offer higher
yields and/or profit potential. This possible concentration of the assets of the
Fund may result in the Fund being invested in securities which are related in
such a way that economic, business, political developments, or other changes
which would affect one security would probably likewise affect the other
securities within that particular segment of the bond market. Such concentration
of the Fund's investments could increase market risks, but risk of non-payment
of interest when due, or default in the payment of principal, are covered by the
insurance feature.
GENERAL. Each Fund's net asset value fluctuates based mainly upon changes
in the value of its portfolio securities. Each Fund's investment objective and
certain investment policies set forth in the SAI that are designated fundamental
policies may not be changed without shareholder approval. There can be no
assurance that any Fund will achieve its investment objective.
9
<PAGE>
DESCRIPTION OF CERTAIN SECURITIES, OTHER INVESTMENT POLICIES AND RISK FACTORS
GENERAL MARKET RISK
In addition to the risks associated with particular types of securities,
which are discussed below, the Funds are subject to general market risks. The
Funds invest primarily in common stocks and bonds. The market risks associated
with stock include the possibility that the entire market for common stocks
could suffer a decline in price over a short or even extended period. This could
affect the net asset value of your Fund shares. The U.S. stock market tends to
be cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline. The market risks associated with bonds include
the possibility that the value of corporate, government and other bonds held by
the Funds will fluctuate with movements in interest rates and changes in the
perceived creditworthiness of the issuers of those securities. Bonds are likely
to decline in value in times of rising interest rates and to rise in value in
times of falling interest rates. In general, the longer the maturity of a bond,
the more pronounced is the effect of a change in interest rates on the value of
the security. With respect to INSURED TAX EXEMPT FUND, an additional risk exists
that new federal, state and local laws, or changes in existing laws, may
adversely affect the tax-exempt status of interest on the INSURED TAX EXEMPT
FUND'S portfolio securities or of the exempt-interest dividends paid by the
Fund, extend the time for payment of principal or interest or otherwise
constrain enforcement of such obligations. Accordingly, the Funds generally will
be appropriate investments only with respect to that portion of your assets that
is available for longer-term investments.
TYPES OF SECURITIES AND THEIR RISKS
AMERICAN DEPOSITORY RECEIPTS. BLUE CHIP 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
of the ADRs. ADRs are considered to be foreign securities by each of the Fund.
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. See
the SAI for more information on convertible securities.
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DEBT SECURITIES--RISK FACTORS. 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. 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 securities. See Appendix A for a description of corporate and
municipal 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
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 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--Risk Factors."
HIGH YIELD SECURITIES--RISK FACTORS. High Yield Securities are subject to
certain risks that may not be present with investments in higher grade
securities.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. Debt obligations rated
lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds,"
are speculative and generally 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 strong 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.
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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 should 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. Although the
Adviser considers ratings of recognized rating services such as Moody's and S&P,
the Adviser primarily relies on its own credit analysis, which includes a study
of existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. 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 A for a description of corporate bond ratings.
LIQUIDITY AND VALUATION. Lower-rated bonds are typically traded among
a smaller number of broker-dealers than in a broad secondary market. Purchasers
of High Yield Securities tend to be institutions, rather than individuals, which
is a factor that further limits the secondary market. To the extent that no
established retail secondary market exists, many High Yield Securities
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may not be as liquid as higher-grade bonds. A less active and thinner market for
High Yield Securities than that available for higher quality securities may
result in more volatile valuations of a Fund's holdings and more difficulty in
executing trades at favorable prices during unsettled market conditions.
The ability of 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 the Trust'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.
LEGISLATION. Provisions of the Revenue Reconciliation Act of 1989
limit a corporate issuer's deduction for a portion of the original issue
discount on "high yield discount" obligations (including certain pay-in-kind
securities). This limitation could have a materially adverse impact on the
market for certain High Yield Securities. From time to time, legislators and
regulators have proposed other legislation that would limit the use of high
yield debt securities in leveraged buyouts, mergers and acquisitions. It is not
certain whether such proposals, which also could adversely affect High Yield
Securities, will be enacted into law.
INSURANCE-INSURED TAX EXEMPT FUND. All municipal bonds in the INSURED TAX
EXEMPT FUND's portfolio will be insured as to their scheduled payment of
principal and interest at the time of purchase either (1) under a Mutual Fund
Insurance Policy purchased by the Trust, on behalf of the Fund, from an
independent insurance company; (2) under an insurance policy obtained subsequent
to a municipal bond's original issue or (3) under an insurance policy obtained
by the issuer or underwriter of such municipal bond at the time of original
issuance. An insured municipal bond in the Fund's portfolio typically will be
covered by only one of the three policies. All three types of insurance policies
insure the scheduled payment of all principal and interest on the Fund's
municipal bonds as they fall due. The insurance does not guarantee the market
value or yield of the insured municipal bonds or the net asset value or yield of
the shares of the Fund. Investors should note that while all municipal bonds in
which the Fund will invest will be insured, the Fund may invest up to 20% of its
total assets in portfolio securities not covered by the insurance feature. The
Trust has purchased a Mutual Fund Insurance Policy from AMBAC Indemnity
Corporation ("AMBAC"), a Wisconsin stock insurance company with its principal
executive offices in New York City. Under certain circumstances, the Trust may
obtain such insurance from an insurer other than AMBAC, provided such insurer is
rated in the top rating category by S&P, Moody's, Fitch Investors Service, Inc.
or any recognized statistical rating organization. Because these insurance
premiums are paid by the Fund, its yield is reduced by this expense. See
"Insurance" in the SAI for a detailed discussion of the insurance feature.
INVERSE FLOATERS. INSURED TAX EXEMPT FUND may invest in derivative
securities on which the rate of interest varies inversely with interest rates on
similar securities or the value of an index. For example, an inverse floating
rate security may pay interest at a rate that increases as a specified interest
rate index decreases but decreases as that index increases. The secondary market
for inverse floaters may be limited. The market value of such securities
generally is more volatile than that of a fixed rate obligation and, like most
debt obligations, will vary inversely with changes in
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interest rates. The interest rates on inverse floaters may be significantly
reduced, even to zero, if interest rates rise. INSURED TAX EXEMPT FUND may
invest up to 10% of its net assets in inverse floaters.
MONEY MARKET INSTRUMENTS. Investments in commercial paper are limited to
obligations rated Prime-1 by Moody's or A-1 by S&P. Commercial paper includes
notes, drafts, or similar instruments payable on demand or having a maturity at
the time of issuance not exceeding nine months, exclusive of days of grace or
any renewal thereof. Investments in certificates of deposit will be made only
with domestic institutions with assets in excess of $500 million. See the SAI
for more information regarding money market instruments and Appendix A to the
SAI for a description of commercial paper ratings.
MUNICIPAL INSTRUMENTS-INSURED TAX EXEMPT FUND. As used in this Prospectus
and in the SAI, "Municipal Instruments" include the following: (1) municipal
bonds; (2) private activity bonds or industrial development bonds, (3) COPs, (4)
municipal commercial paper; (5) municipal notes; and (6) VRDIs. Generally, the
value of Municipal Instruments varies inversely with changes in interest rates.
MUNICIPAL BONDS. Municipal bonds are debt obligations that generally
are issued to obtain funds for various public purposes and have a time to
maturity, at issuance, of more than one year. The two principal classifications
of municipal bonds are "general obligation" and "revenue" bonds. General
obligation bonds are secured by the issuer's pledge of its full faith and credit
for the payment of principal and interest. Revenue bonds generally are payable
only from revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special tax or other specific revenue
source. There are variations in the security of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors. The yields on municipal bonds depend on, among other things, general
money market conditions, condition of the municipal bond market, size of a
particular offering, the maturity of the obligation and rating of the issuer.
Generally, the value of municipal bonds varies inversely to changes in interest
rates. See Appendix A for a description of municipal bond ratings.
PRIVATE ACTIVITY BONDS OR INDUSTRIAL DEVELOPMENT BONDS. Certain types
of revenue bonds, referred to as private activity bonds ("PABs") or industrial
development bonds ("IDBs"), are issued by or on behalf of public authorities to
obtain funds to provide for various privately operated facilities, such as
airports or mass transportation facilities. Most PABs and IDBs are pure revenue
bonds and are not backed by the taxing power of the issuing agency or authority.
See "Taxes" in the SAI for a discussion of special tax consequences to
"substantial users," or persons related thereto, of facilities financed by PABs
or IDBs.
CERTIFICATES OF PARTICIPATION. COPs provide participation interests
in lease revenues and each certificate represents a proportionate interest in or
right to the lease-purchase payment made under municipal lease obligations or
installment sales contracts. In certain states, COPs constitute a majority of
new municipal financing issues. The possibility that a municipality will not
appropriate funds for lease payments is a risk of investing in COPs, although
this risk is mitigated by the fact that each COP will be covered by the
insurance feature. See "Certificates of Participation" in the SAI for further
information on COPs.
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MUNICIPAL COMMERCIAL PAPER. Issues of municipal commercial paper
which the Fund may purchase are rated P-1 by Moody's or A-1 by S&P or have
insurance through the issuer or an independent insurance company and include
unsecured, short-term, negotiable promissory notes. Municipal commercial paper
is issued usually to meet temporary capital needs of the issuer or to serve as a
source of temporary construction financing. These obligations are paid from
general revenues of the issuer or are refinanced with long-term debt. A
description of commercial paper ratings is contained in Appendix A to the SAI.
MUNICIPAL NOTES. Municipal notes which the Fund may purchase will be
principally tax anticipation notes, bond anticipation notes, revenue
anticipation notes and project notes. The obligations are sold by an issuer
prior to the occurrence of another revenue producing event to bridge a financial
gap for such issuer. Municipal notes are usually general obligations of the
issuing municipality. Project notes are issued by housing agencies, but are
guaranteed by the U.S. Department of Housing and Urban Development and are
secured by the full faith and credit of the United States. Such municipal notes
must be rated MIG-1 by Moody's or SP-1 by S&P or have insurance through the
issuer or an independent insurance company. A description of municipal note
ratings is contained in Appendix B to the SAI.
VARIABLE RATE DEMAND INSTRUMENTS. VRDIs are Municipal Instruments,
the interest on which is adjusted periodically, and which allow the holder to
demand payment of all unpaid principal plus accrued interest from the issuer. A
VRDI that the Fund may purchase will be selected if it meets criteria
established and designed by the Trust's Board of Trustees to minimize risk to
the Fund. In addition, a VRDI must be rated MIG-1 by Moody's or SP-1 by S&P or
insured by the issuer or an independent insurance company. There is a recognized
after-market for VRDIs.
PREFERRED STOCK. 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. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. Each Fund's risk is limited
primarily to the ability of the seller to repurchase the securities at the
agreed-upon price upon the delivery date. See the SAI for more information
regarding repurchase agreements.
RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest up to 15% of its
net assets in illiquid securities, including (1) securities that are illiquid
due to the absence of a readily available market or due to legal or contractual
restrictions on resale, and (2) repurchase agreements maturing in more than
seven days. However, illiquid securities for purposes of this limitation do not
include securities eligible for resale under Rule 144A under the Securities Act
of 1933, as amended, which the Board of Trustees or the Adviser has determined
are liquid under Board-approved guidelines. See the SAI for more information
regarding restricted and illiquid securities.
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TAXABLE SECURITIES. INSURED TAX EXEMPT FUND may invest up to 20% of its
assets, on a temporary basis, in high quality fixed income obligations, the
interest on which is subject to Federal and state or local income taxes. The
Fund may, for example, invest the proceeds from the sale of portfolio securities
in taxable obligations pending the investment or reinvestment thereof in
Municipal Instruments. The Fund may invest in highly liquid taxable obligations
in order to avoid the necessity of liquidating portfolio investments to meet
redemptions by Fund investors. The Fund's temporary investments in taxable
securities may consist of: (1) U.S. Government Obligations; (2) other debt
securities rated within the highest grade of S&P or Moody's; (3) commercial
paper rated in the highest grade by either of such rating services; (4)
certificates of deposit and letters of credit; and (5) money market funds.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
ZERO COUPON AND PAY-IN-KIND SECURITIES. Zero coupon securities are debt
obligations that do not entitle the holder to any periodic payment of interest
prior to maturity or a specified date when the securities begin paying current
interest. They are issued and traded at a discount from their face amount or par
value, which discount varies depending on the time remaining until cash payments
begin, prevailing interest rates, liquidity of the security and the perceived
credit quality of the issuer. Pay-in-kind securities are those that pay interest
through the issuance of additional securities. The market prices of zero coupon
and pay-in-kind securities generally are more volatile than the prices of
securities that pay interest periodically and in cash and are likely to respond
to changes in interest rates to a greater degree than do other types of debt
securities having similar maturities and credit quality. Original issue discount
earned on zero coupon securities and the "interest" on pay-in-kind securities
must be included in a Fund's income. Thus, to continue to qualify for tax
treatment as a regulated investment company and to avoid a certain excise tax on
undistributed income, 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" in the SAI. These distributions must be made from a Fund's cash assets
or, if necessary, from the proceeds of sales of portfolio securities. HIGH YIELD
FUND and INSURED TAX EXEMPT FUND will not be able to purchase additional
income-producing securities with cash used to make such distributions, and their
current income ultimately could be reduced as a result.
OTHER INVESTMENT POLICIES - PORTFOLIO TURNOVER
The INSURED TAX EXEMPT FUND routinely took advantage of trading
opportunities created by pricing inefficiencies in the municipal bond market.
This resulted in a portfolio turnover rate of 116% for the fiscal year ending
December 31, 1996. A high rate of portfolio turnover generally leads to greater
transaction costs and may result in a greater number of taxable transactions.
See "Allocation of Portfolio Brokerage" in the SAI. See the SAI for the other
Funds' portfolio turnover rate and for more information on portfolio turnover.
HOW TO BUY SHARES
You may buy shares of a Fund through a First Investors registered
representative ("FIC Representative") or through a registered representative
("Dealer Representative") of an unaffiliated broker-dealer ("Dealer") which is
authorized to sell shares of a Fund. Your FIC Representative or
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Dealer Representative (each, a "Representative") may help you complete and
submit an application to open an account with a Fund. Certain accounts may
require additional documentation. Applications accompanied by checks drawn on
U.S. banks made payable to "FIC" and received in FIC's Woodbridge offices by the
close of regular trading on the New York Stock Exchange ("NYSE"), generally 4:00
P.M. (New York City time), will be processed and shares will be purchased at the
public offering price determined at the close of regular trading on the NYSE on
that day. Orders received by Representatives before the close of regular trading
on the NYSE and received by FIC at their Woodbridge offices before the close of
its business day, generally 5:00 P.M. (New York City time), will be executed at
the public offering price determined at the close of regular trading on the NYSE
on that day. It is the responsibility of Representatives to promptly transmit
orders they receive to FIC. The "public offering price" is the net asset value
plus the applicable sales charge. For a discussion of pricing practices when
FIC's Woodbridge offices are unable to open for business due to an emergency,
see the SAI. Each Fund reserves the right to reject any application or order for
its shares for any reason and to suspend the offering of its shares.
INITIAL INVESTMENT IN A FUND. You may open a Fund account with as little
as $1,000. This account minimum is waived if you open an account for a
particular class of shares through a full exchange of shares of the same class
of another "Eligible Fund," as defined below. Accounts opened through an
exchange of shares from First Investors Cash Management Fund, Inc. or First
Investors Tax-Exempt Money Market Fund, Inc. (collectively, "Money Market
Funds") may be subject to an initial sales charge. You may open a Fund account
with $250 for individual retirement accounts ("IRAs") or, at the Fund's
discretion, a lesser amount for Simplified Employee Pension Plans ("SEPs"),
salary reduction SEPs ("SARSEPs"), SIMPLE-IRAs and qualified or other retirement
plans. Automatic investment plans allow you to open an account with as little as
$50, provided you invest at least $600 a year.
See "Systematic Investing."
ADDITIONAL PURCHASES. After you make your first investment in a Fund, you
may purchase additional shares of a Fund by mailing a check made payable to FIC,
directly to First Investors Corporation, 581 Main Street, Woodbridge, NJ
07095-1198, Attn: Dept. CP. Include your account number on the face of the
check. There is no minimum on additional purchases of Fund shares.
ELIGIBLE FUNDS. With respect to certain shareholder privileges noted in
this Prospectus and the SAI, each fund in the First Investors family of funds,
except as noted below, is an "Eligible Fund" (collectively, "Eligible Funds").
First Investors Special Bond Fund, Inc., First Investors Life Series Fund and
First Investors U.S. Government Plus Fund are not Eligible Funds. The Money
Market Funds, unless otherwise noted, are not Eligible Funds.
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Shareholders of the Funds may participate in the shareholder privileges
noted in this Prospectus and the SAI, including the exchange or cross-investment
of Fund shares for Class A Shares of an Eligible Fund at net asset value,
PROVIDED the Fund shares either have been (a) acquired through an exchange from
an Eligible Fund which imposes a maximum sales charge of 6.25% or (b) held for
at least one year from their date of purchase. However, the Funds are Eligible
Funds with respect to these shareholder privileges if (a) the transaction is
between any of the Funds or the Money Market Funds or (b) Class A shares of an
Eligible Fund are being exchanged or cross-invested for shares of the Funds.
SYSTEMATIC INVESTING. Shareholders who have an account with a U.S. bank,
or other financial institution that is an Automated Clearing House member, may
arrange for automatic investments in a Fund on a systematic basis through First
Investors Money Line and through automatic payroll investments. You may also
elect to invest in shares of a Fund at net asset value all the cash
distributions or Systematic Withdrawal Plan payments from shares of an existing
account in another Eligible Fund. If you wish to participate in any of these
systematic investment plans, please call Shareholder Services at 1-800-423-4026
or see the SAI.
FUND/SERV PURCHASES. If there is a Dealer of record on your Fund account,
the Fund is authorized to execute electronic purchase orders received directly
from this Dealer. Electronic purchase orders may be processed through the
services of the National Securities Clearing Corp. ("NSCC") "Fund/SERV" system.
Purchase orders received by a Dealer before the close of regular trading on the
NYSE and received by FIC at its Woodbridge offices in accordance with NSCC rules
and procedures will be executed at the net asset value, plus any applicable
sales charge, determined at the close of regular trading on the NYSE on that
day. It is the responsibility of the Dealer to transmit purchase orders to FIC
promptly and accurately. FIC will not be liable for any change in the purchase
price due to the failure of FIC to receive such purchase orders. Any such
disputes must be settled between you and the Dealer.
Shares of each Fund are sold at the public offering price, which will vary
with the size of the purchase, as shown in the following table:
SALES CHARGE AS % OF CONCESSION TO
OFFERING NET AMOUNT DEALERS AS % OF
AMOUNT OF INVESTMENT PRICE INVESTED OFFERING PRICE
- -------------------- -------- ---------- ---------------
Less than $100,000................. 4.75% 4.99% 4.27%
$100,000 but under $250,000........ 3.90 4.06 3.51
$250,000 but under $500,000........ 2.90 2.99 2.61
$500,000 but under $1,000,000...... 2.40 2.46 2.16
There is no sales charge on transactions of $1 million or more.
Additionally, there is no sales charge on purchases that qualify for the
Cumulative Purchase Privilege if they total at least $1 million or on purchases
made pursuant to a letter of intent in the minimum amount of $1 million. The
Underwriter will pay from its own resources a sales commission to FIC
Representatives and a concession equal to 0.90% of the amount invested to
Dealers on such purchases. If shares are redeemed within 24 months of purchase,
a contingent deferred sales charge ("CDSC") of 1.00% will be deducted from the
redemption proceeds. The CDSC will not be imposed on (1) the redemption of
shares acquired through the reinvestment of dividends or other distributions, or
(2) any increase in the net asset value of redeemed shares above their initial
purchase price (in other words, the CDSC will be imposed on the lower of net
asset value or purchase price). In determining whether a CDSC is payable on any
redemption, it will be assumed that the redemption is made first of any shares
acquired as dividends or distributions, and next of shares that have been held
for a sufficient period of time such that the CDSC no longer is applicable to
such shares. This will result in your paying the lowest possible CDSC.
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CUMULATIVE PURCHASE PRIVILEGE AND LETTER OF INTENT. You may purchase
shares of a Fund at a reduced sales charge through the Cumulative Purchase
Privilege or by executing a Letter of Intent. For more information, see the SAI,
call your Representative or call Shareholder Services at 1-800-423-4026.
WAIVERS OF SALES CHARGES. Sales charges do not apply to: (1) any purchase
by an officer, trustee, director or employee (who has completed the introductory
employment period) of the Trust, the Underwriter, the Adviser, or their
affiliates, by a Representative, or by the spouse, or by the children and
grandchildren under the age of 21 of any such person; (2) any purchase by a
former officer, trustee, director or employee of the Trust, the Underwriter, the
Adviser, or their affiliates, or by a former FIC Representative; provided they
had acted as such for at least five years and had retired or otherwise
terminated the relationship in good standing; (3) any reinvestment of the loan
repayments by a participant in a loan program of any First Investors sponsored
qualified retirement plan; (4) a purchase with proceeds from the liquidation of
a First Investors Life Variable Annuity Fund A contract or a First Investors
Life Variable Annuity Fund C contract during the one-year period preceding the
maturity date of the contract; (5) any purchase by a participant in a Group
Qualified Plan account, as defined under "Retirement Plans," if the purchase is
made with the proceeds from a redemption of shares of a fund in another fund
group on which either an initial sales charge or a CDSC has been paid; and (6)
any purchase in an IRA account if the purchase is made with the proceeds of a
distribution from a First Investors Fund under a Group Qualified Plan, as
defined under "Retirement Plans." With respect to items (5) and (6) above, if
shares are redeemed within 24 months of purchase, a CDSC of 1.00% will be
deducted from the redemption proceeds.
RETIREMENT PLANS. You may invest in shares of a Fund through an IRA, SEP,
SARSEP, SIMPLE-IRA or any other retirement plan. Participant-directed plans,
such as 401(k) plans, profit sharing and money purchase plans and 403(b) plans,
that are subject to Title I of ERISA (each, a "Group Qualified Plan") are
entitled to a reduced sales charge provided the number of employees eligible to
participate is 99 or less. The sales charge as a percentage of the offering
price and net amount invested is 3.00% and 3.09%, respectively, and the
concession to Dealers as a percentage of the offering price is 2.55%.
There is no sales charge on purchases through a Group Qualified Plan with
100 or more eligible employees. A CDSC of 1.00% will be deducted from the
redemption proceeds of such accounts for redemptions made within 24 months of
purchase. The CDSC will be applied in the same manner as the CDSC with respect
to purchases of $1 million or more. The Underwriter will pay from its own
resources a sales commission to FIC Representatives and a concession equal to
0.90% of the amount invested to Dealers on such purchases. These sales charges
will be available regardless of whether the account is registered with the
Transfer Agent in the name of the individual participant or the sponsoring
employer or plan trustee. A Group Qualified Plan account will be subject to the
lower of the sales charge for Group Qualified Plans or the sales charge for the
purchase of Fund shares.
GENERAL. The Underwriter may at times agree to reallow to Dealers up to an
additional 0.25% of the dollar amount of shares of the Funds and/or certain
other First Investors Funds sold by such Dealers during a specific period of
time. From time to time, the Underwriter also will pay, through additional
reallowances or other sources, a bonus or other compensation to Dealers that
employ a Dealer Representative who sells a minimum dollar amount of the shares
of the Funds and/or certain other First Investors Funds during a specific period
of time. Such bonus or other compensation may
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take the form of reimbursement of certain seminar expenses, co-operative
advertising, or payment for travel expenses, including lodging incurred in
connection with trips taken by qualifying Dealer Representatives to the
Underwriter's principal office in New York City. FIC Representatives generally
are more highly compensated for sales of First Investors mutual funds than for
sales of other mutual funds.
HOW TO EXCHANGE SHARES
Should your investment needs change, you may exchange, at net asset value,
shares of a Fund for shares of any Eligible Fund, including the Money Market
Funds. In addition, shares of a Fund may be exchanged at net asset value for
units of any single payment plan ("plan") sponsored by the Underwriter.
Exchanges can only be made into accounts registered to identical owners. If your
exchange is into a new account, it must meet the minimum investment and other
requirements of the fund or plan into which the exchange is being made.
Additionally, the fund or plan must be available for sale in the state where you
reside. Before exchanging Fund shares for shares of another fund or plan, you
should read the Prospectus of the fund or plan into which the exchange is to be
made. You may obtain Prospectuses and information with respect to which funds or
plans qualify for the exchange privilege free of charge by calling Shareholder
Services at 1-800-423-4026. Exchange requests received in "good order," as
defined below, by the Transfer Agent before the close of regular trading on the
NYSE will be processed at the net asset value determined as of the close of
regular trading on the NYSE on that day; exchange requests received after that
time will be processed on the following trading day.
EXCHANGES BY MAIL. To exchange shares by mail, you should mail requests to
Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ
07095-1198. Shares will be exchanged after the request is received in "good
order" by the Transfer Agent. "Good order" means that an exchange request must
include: (1) the names of the funds, account number(s), the dollar amount,
number of shares or percentage of the account you wish to exchange; (2) share
certificates, if issued; (3) the signature of all registered owners exactly as
the account is registered; and (4) signature guarantees, if required (see "How
to Redeem Shares-Signature Guarantees"). If the request is not in good order or
information is missing, the Transfer Agent will seek additional information from
you and process the exchange on the day it receives such information. Certain
account registrations may require additional legal documentation in order to
exchange. To review these requirements, please call Shareholder Services at
1-800-423-4026.
EXCHANGES BY TELEPHONE. See "Telephone Transactions."
ADDITIONAL EXCHANGE INFORMATION. Exchanges should be made for investment
purposes only. A pattern of frequent exchanges may be contrary to the best
interests of a Fund's other shareholders. Accordingly, each Fund has the right,
at its sole discretion, to limit the amount of an exchange, reject any exchange,
or, upon 60 days' notice, materially modify or discontinue the exchange
privilege. Each Fund will consider all relevant factors in determining whether a
particular frequency of exchanges is contrary to the best interests of the Fund
and its other shareholders. Any such restriction will be made by a Fund on a
prospective basis only, upon notice to the shareholder not later than ten days
following such shareholder's most recent exchange.
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HOW TO REDEEM SHARES
You may redeem your Fund shares at the next determined net asset value,
less any applicable CDSC, on any day the NYSE is open, directly through the
Transfer Agent. Your Representative may help you with this transaction. Shares
in a non-retirement account may be redeemed by mail or telephone. Shares in a
retirement account may only be redeemed by mail. Certain account registrations
may require additional legal documentation in order to redeem. Redemption
requests received in "good order" by the Transfer Agent before the close of
regular trading on the NYSE, will be processed at the net asset value, less any
applicable CDSC, determined as of the close of regular trading on the NYSE on
that day. Payment of redemption proceeds generally will be made within seven
days. If the shares being redeemed were recently purchased by check, payment may
be delayed to verify that the check has been honored, normally not more than
fifteen days. For a discussion of pricing practices when FIC's Woodbridge
offices are unable to open due to an emergency, see the SAI.
REDEMPTIONS BY MAIL. Written redemption requests should be mailed to
Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ
07095-1198. For your redemption request to be in good order, you must include:
(1) the name of the Fund; (2) your account number; (3) the dollar amount, number
of shares or percentage of the account you want redeemed; (4) share
certificates, if issued; (5) the original signatures of all registered owners
exactly as the account is registered; and (6) signature guarantees, if required.
If your redemption request is not in good order or information is missing, the
Transfer Agent will seek additional information and process the redemption on
the day it receives such information. To review these requirements, please call
Shareholder Services at 1-800-423-4026.
SIGNATURE GUARANTEES. In order to protect you, the Funds and their agents,
each Fund reserves the right to require signature guarantees in order to process
certain exchange or redemption requests. See the SAI or call Shareholder
Services at 1-800-423-4026 for instances when signature guarantees are required.
REDEMPTIONS BY TELEPHONE. See "Telephone Transactions."
ELECTRONIC FUND TRANSFER. Shareholders who have established Electronic
Fund Transfer may have redemption proceeds electronically transferred to a
predesignated bank account. Each Fund has the right, at its sole discretion, to
limit or terminate your ability to exercise the electronic fund transfer
privilege at any time. For additional information, see the SAI. Applications to
establish Electronic Fund Transfer are available from your FIC Representative or
by calling Shareholder Services at 1-800-423-4026.
FUND/SERV REDEMPTIONS. If there is a Dealer of record on your Fund
account, the Fund is authorized to execute electronic redemption requests
received directly from this Dealer. Electronic requests may be processed through
the services of the NSCC "Fund/SERV" system. Redemption requests received by a
Dealer before the close of regular trading on the NYSE and received by FIC at
its Woodbridge offices in accordance with NSCC rules and procedures will be
executed at the net asset value, less any applicable sales charge, determined at
the close of regular trading on the NYSE
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on that day. It is the responsibility of the Dealer to transmit redemption
requests to FIC promptly and accurately. FIC will not be liable for any change
in the redemption price due to the failure of FIC to receive such redemption
requests. Any such disputes must be settled between you and the Dealer.
SYSTEMATIC WITHDRAWAL PLAN. If you own noncertificated shares, you may set
up a plan for redemptions to be made automatically at regular intervals. See the
SAI for more information on the Systematic Withdrawal Plan or call Shareholder
Services at 1-800-423-4026.
REINVESTMENT AFTER REDEMPTION. If you redeem shares in your Fund account,
you can reinvest within six months from the date of redemption all or any part
of the proceeds in shares of the same Fund or Class A shares of any other
Eligible Fund, including the Money Market Funds, at net asset value, on the date
the Transfer Agent receives your purchase request. For more information on the
reinvestment privilege, please see the SAI or call Shareholder Services at
1-800-423-4026.
REPURCHASE THROUGH UNDERWRITER. You may redeem Fund shares through a
Dealer. In this event, the Underwriter, acting as agent for each Fund, will
offer to repurchase or accept an offer to sell such shares at a price equal to
the net asset value next determined after the making of such offer, less any
applicable CDSC. The Dealer may charge you an added commission for handling any
redemption transaction.
REDEMPTION OF LOW BALANCE ACCOUNTS. Because each Fund incurs certain fixed
costs in maintaining shareholder accounts, each Fund may redeem without your
consent, on at least 60 days' prior written notice (which may appear on your
account statement), any Fund account of shares which has a net asset value of
less than $500. To avoid such redemption, you may, during such 60-day period,
purchase additional Fund shares so as to increase your account balance to the
required minimum. A Fund will not redeem accounts that fall below $500 solely as
a result of a reduction in net asset value. Accounts established under a
Systematic Investment Plan that have been discontinued prior to meeting the
$1,000 minimum are subject to this policy.
Additional information concerning how to redeem shares of a Fund is
available upon request to your Representative or Shareholder Services at
1-800-423-4026.
TELEPHONE TRANSACTIONS
Unless you specifically decline to have telephone privileges, you, or any
person who we reasonably believe is authorized to act on your behalf, may redeem
or exchange noncertificated shares of a Fund by calling the Special Services
Department at 1-800-342-6221 weekdays (except holidays) between 9:00 A.M. and
5:00 P.M. (New York City time). Certain accounts, however, are required to
complete additional documents in order to activate telephone privileges.
Exchange or redemption requests received before the close of regular trading on
the NYSE will be processed at the net asset value, less any applicable CDSC,
determined as of the close of business on that day. For more information on
telephone privileges, please call Shareholder Services at 1-800-423-4026 or see
the SAI.
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TELEPHONE EXCHANGES. Exchange requests may be made by telephone (for
shares held on deposit only). Telephone exchanges to Money Market Funds are not
available if your address of record has changed within 60 days prior to the
exchange request.
TELEPHONE REDEMPTIONS. The telephone redemption privilege may be used
provided: (1) the redemption proceeds are being mailed to the address of record
or to a predesignated bank account; (2) your address of record has not changed
within the past 60 days; (3) the shares to be redeemed have not been issued in
certificate form; (4) each redemption does not exceed $50,000; and (5) the
proceeds of the redemption, together with all redemptions made from the account
during the prior 30-day period, do not exceed $100,000. TELEPHONE REDEMPTION
INSTRUCTIONS WILL BE ACCEPTED FROM ANY ONE OWNER OR AUTHORIZED INDIVIDUAL.
ADDITIONAL INFORMATION. The Trust, the Adviser, the Underwriter and their
officers, trustees, directors and employees will not be liable for any loss,
damage, cost or expense arising out of any instruction (or any interpretation of
such instruction) received by telephone or which they reasonably believe to be
authentic. This policy places the entire risk of loss for unauthorized or
fraudulent transactions on the shareholder, except that if the above-referenced
parties do not follow reasonable procedures, some or all of them may be liable
for any such losses. For more information on telephone transactions see the SAI.
The Funds have the right, at their sole discretion, upon 60 days' notice, to
materially modify or discontinue the telephone exchange and redemption
privilege. During times of drastic economic or market changes, telephone
exchanges or redemptions may be difficult to implement. If you experience
difficulty in making a telephone exchange or redemption, your exchange or
redemption request may be made by regular or express mail, and it will be
implemented at the next determined net asset value, less any applicable CDSC,
following receipt by the Transfer Agent.
MANAGEMENT
BOARD OF TRUSTEES. The Trust's Board of Trustees, as part of its overall
management responsibility, oversees various organizations responsible for that
Fund's day-to-day management.
ADVISER. Executive Investors Management Company, Inc. supervises and
manages each Fund's investments, determines each Fund's portfolio transactions
and supervises all aspects of each Fund's operations. The Adviser is a Delaware
corporation located at 95 Wall Street, New York, NY 10005. First Investors
Consolidated Corporation ("FICC") owns all of the voting common stock of the
Adviser and all of the outstanding stock of EIC and the Transfer Agent. Mr.
Glenn O. Head controls FICC and, therefore, controls the Adviser.
As compensation for its services, the Adviser receives an annual fee from
each of the Funds, which is payable monthly. For the fiscal year ended December
31, 1996, the advisory fees were 0.25% of average daily net assets, net of
waiver, for each of BLUE CHIP FUND and INSURED TAX EXEMPT FUND and 0.50% of
average daily net assets, net of waiver, for HIGH YIELD FUND.
PORTFOLIO MANAGERS. Since February 1997, the BLUE CHIP FUND has been
co-managed by Patricia D. Poitra, Director of Equities, and Dennis T.
Fitzpatrick. From October 1994 to February 1997, Ms. Poitra had primary
responsibility for the day-to-day management of the BLUE CHIP FUND. Ms. Poitra
and Mr. Fitzpatrick also co-manage the Blue Chip Fund of First Investors Life
Series
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Fund and the Blue Chip Fund of First Investors Series Fund. Ms. Poitra
also is responsible for the management of the Special Situations Fund and the
equity portion of the Total Return Fund, series of First Investors Series Fund.
Ms. Poitra also is responsible for the management of the Discovery Fund of First
Investors Life Series Fund and the U.S.A. Mid-Cap Opportunity Fund of First
Investors Series Fund II, Inc. Ms. Poitra joined FIMCO in 1985 as a Senior
Equity Analyst. Mr. Fitzpatrick joined FIMCO in October 1995 as a Large Cap
Analyst. From July 1995 to October 1995, Mr. Fitzpatrick was a Regional Surety
Manager at United States Fidelity & Guaranty Co. and from 1988 to 1995 he was
Northeast Surety Manager at American International Group.
George V. Ganter has been Portfolio Manager for HIGH YIELD FUND since
1989. Mr. Ganter joined FIMCO in 1985 as an Analyst. He has been Portfolio
Manager for First Investors Special Bond Fund, Inc. since 1986 and Portfolio
Manager for the High Yield Fund of First Investors Life Series Fund and First
Investors High Yield Fund, Inc. since 1989.
Clark D. Wagner has been Portfolio Manager of INSURED TAX EXEMPT FUND
since he joined FIMCO in 1991. Mr. Wagner is also Portfolio Manager for all of
the First Investors municipal bond funds. Mr. Wagner is also Portfolio Manager
for Government Fund, Target Maturity 2007 Fund and Target Maturity 2010 Fund of
First Investors Life Series Fund and First Investors Government Fund, Inc. Mr.
Wagner is also responsible for the day-to-day management of the U.S. Government
and mortgage-backed securities portion of Total Return Fund of First Investors
Series Fund. Mr. Wagner has been Chief Investment Officer of FIMCO since 1992.
BROKERAGE. Each Fund may allocate brokerage commissions, if any, to
broker-dealers in consideration of Fund share distribution, but only when
execution and price are comparable to that offered by other broker-dealers.
Brokerage may be directed to brokers who provide research. See the SAI for more
information on allocation of portfolio brokerage.
UNDERWRITER. The Trust has entered into an Underwriting Agreement with
Executive Investors Corporation, 95 Wall Street, New York, NY 10005, as
Underwriter. The Underwriter receives all sales charges in connection with the
sale of each Fund's shares and may receive other payments under a plan of
distribution. See "Distribution Plan."
DISTRIBUTION PLAN
Pursuant to an Amended and Restated Class A Distribution Plan (the
"Plan"), each Fund is authorized to compensate the Underwriter for certain
expenses incurred in the distribution of that Fund's shares ("distribution
fees") and the servicing or maintenance of existing Fund shareholder accounts
("service fees"). Pursuant to the Plan, distribution fees are paid for
activities relating to the distribution of Fund shares, including costs of
printing and dissemination of sales material or literature, prospectuses and
reports used in connection with the sale of Fund shares. Service fees are paid
for the ongoing maintenance and servicing of existing shareholder accounts,
including payments to Representatives who provide shareholder liaison services
to their customers who are holders of that Fund, provided they meet certain
criteria.
Pursuant to the Plan, each Fund is authorized to pay the Underwriter a
distribution fee at the annual rate of 0.25% of that Fund's average daily net
assets and a service fee of 0.25% of that Fund's average daily net assets.
Payments made to the Underwriter under the Plan will represent
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compensation for distribution and service activities, not reimbursement for
specific expenses incurred. Each Fund will not carry over any fees under the
Plan to the next fiscal year. See "Distribution Plan" in the SAI for a full
discussion of the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of each Fund is determined as of the close
of regular trading on the NYSE (generally 4:00 P.M., New York City time) on each
day the NYSE is open for trading, and at such other times as the Trust's Board
of Trustees deems necessary, by dividing the market value of the securities held
by such Fund, plus any cash and other assets, less all liabilities, by the
number of shares of the applicable class outstanding. If there is no available
market value, securities will be valued at their fair value as determined in
good faith pursuant to procedures adopted by the Trust's Board of Trustees. The
NYSE currently observes the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are generally declared daily by
INSURED TAX EXEMPT FUND and HIGH YIELD FUND and quarterly by BLUE CHIP FUND.
Unless you direct the Transfer Agent otherwise, (a) dividends declared by HIGH
YIELD FUND and INSURED TAX EXEMPT FUND are paid in additional shares of the
distributing Fund at the net asset value generally determined as of the close of
business on the first business day of the following month, and (b), dividends
declared by BLUE CHIP FUND are paid in additional shares of that Fund at the net
asset value generally determined as of the close of business on the business day
immediately following the record date of the dividend. If you redeem all of your
shares of HIGH YIELD FUND or INSURED TAX EXEMPT FUND any time during a month,
you are paid all dividends declared through the day prior to the date of the
redemption, together with the proceeds of your redemption. Net investment income
includes interest and dividends, earned discount and other income earned on
portfolio securities less expenses.
Each Fund also distributes with its regular dividend at the end of each
year substantially all of (a) its net capital gain (the excess of net long-term
capital gain over net short-term capital loss) and net short-term capital gain,
if any, after deducting any available capital loss carryovers, and (b) for HIGH
YIELD FUND, any net realized gains from foreign currency transactions. Unless
you direct the Transfer Agent otherwise, these distributions are paid in
additional shares of the distributing Fund at the net asset value generally
determined as of the close of business on the business day immediately following
the record date of the distribution. A Fund may make an additional distribution
if necessary to avoid a Federal excise tax on certain undistributed income and
capital gain.
In order to be eligible to receive a dividend or other distribution, you
must own Fund shares as of the close of business on the record date of the
distribution. You may elect to receive dividends and/or other distributions in
cash by notifying the Transfer Agent by telephone or in writing prior to the
record date of any such distribution. If you elect this form of payment, the
payment date generally is two weeks following the record date of any such
distribution. Your election remains in effect until you revoke it by notifying
the Transfer Agent.
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You may elect to invest the entire amount of any cash distribution in
shares of any other Fund or in Class A shares of any Eligible Fund, including
the Money Market Funds, by notifying the Transfer Agent. See "How to Buy
Shares--Cross-Investment of Cash Distributions." The investment will be made at
the net asset value per Class A share of the other fund, generally determined as
of the close of business, on the business day immediately following the record
date of any such distribution.
A dividend or other distribution paid by a Fund will be paid in additional
Fund shares and not in cash if any of the following events occur: (1) the total
amount of the distribution is under $5, (2) the Fund has received notice of your
death on an individual account (until written alternate payment instructions and
other necessary documents are provided by your legal representative), or (3) a
distribution check is returned to the Transfer Agent, marked as being
undeliverable, by the U.S. Postal Service after two consecutive mailings.
TAXES
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended ("Code"),
so that it will be relieved of Federal income tax on that part of its investment
company taxable income (consisting generally of net investment income, net
short-term capital gain and, for HIGH YIELD FUND, net gains from certain foreign
currency transactions) and net capital gain that is distributed to its
shareholders. In addition, INSURED TAX EXEMPT FUND intends to continue to
qualify to pay "exempt-interest dividends," which requires, among other things,
that at the close of each calendar quarter at least 50% of the value of its
total assets must consist of Municipal Instruments.
Dividends from a Fund's investment company taxable income are taxable to
you as ordinary income, to the extent of the Fund's earnings and profits,
whether paid in cash or in additional Fund shares. Distributions by INSURED TAX
EXEMPT FUND of the excess of interest income from Municipal Instruments over
certain amounts disallowed as deductions, which are designated by it as
"exempt-interest dividends," generally may be excluded by you from your gross
income. Distributions of a Fund's net capital gain, when designated as such, are
taxable to you as long-term capital gain, whether paid in cash or in additional
Fund shares, regardless of the length of time you have owned your shares. If you
purchase shares shortly before the record date for a dividend or other
distribution, you will pay full price for the shares and receive some portion of
the price back as a taxable distribution. You will receive an annual statement
following the end of each calendar year describing the tax status of
distributions paid by your Fund during that year.
Each Fund is required to withhold 31% of all taxable dividends, capital
gain distributions and redemption proceeds payable to you (if you are an
individual or certain other non-corporate shareholder) if a Fund is not
furnished with your correct taxpayer identification number, and the same
percentage of such dividends and distributions in certain other circumstances.
Your redemption of Fund shares will result in a taxable gain or loss to
you, depending on whether the redemption proceeds are more or less than your
adjusted basis for the redeemed shares (which normally includes any initial
sales charge paid). An exchange of Fund shares for shares of any other Fund or
for Class A shares of any Eligible Fund generally will have similar tax
consequences. However, special tax rules apply if you (1) dispose of Fund shares
through a
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redemption or exchange within 90 days of your purchase and (2) subsequently
acquire shares of the same Fund, any other Fund or Class A shares of an Eligible
Fund without paying a sales charge due to the reinvestment privilege or exchange
privilege. In these cases, any gain on your disposition of the original shares
will be increased, or loss decreased, by the amount of the sales charge you paid
when the shares were acquired, and that amount will increase the basis of the
Eligible Fund's shares you subsequently acquired. In addition, if you purchase
Fund shares within 30 days before or after redeeming other shares of that Fund
(regardless of class) at a loss, all or a portion of the loss will not be
deductible and will increase the basis of the newly purchased shares.
Interest on indebtedness incurred or continued to purchase or carry shares
of INSURED TAX EXEMPT FUND will not be deductible for Federal income tax
purposes to the extent that Fund's distributions consist of exempt-interest
dividends. INSURED TAX EXEMPT FUND does do not intend to invest in PABs or IDBs
the interest on which is treated as a Tax Preference Item.
Proposals have been, and in the future may be, introduced before Congress
for the purpose of restricting or eliminating the Federal income tax exemption
for interest on Municipal Instruments. If such a proposal were enacted, the
availability of Municipal Instruments for investment by INSURED TAX EXEMPT FUND
and the value of its portfolio securities would be affected. In that event, the
Fund would reevaluate its investment objective and policies.
The foregoing is only a summary of some of the important Federal income
tax considerations generally affecting each Fund and its shareholders; see the
SAI for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. For example, INSURED TAX
EXEMPT FUND's distributions may be wholly or partly taxable under state and/or
local laws. You therefore are urged to consult your own tax adviser.
PERFORMANCE INFORMATION
For purposes of advertising, each Fund's performance may be calculated
based on average annual total return and total return. Each of these figures
reflects past performance and does not necessarily indicate future results.
Average annual total return shows the average annual percentage change in an
assumed $1,000 investment. It reflects the hypothetical annually compounded
return that would have produced the same total return if a Fund's performance
had been constant over the entire period. Because average annual total return
tends to smooth out variations in a Fund's return, you should recognize that it
is not the same as actual year-by-year results. Average annual total return
includes the effect of paying the maximum sales charge and payment of dividends
and other distributions in additional shares. One, five and ten year periods
will be shown unless the class has been in existence for a shorter period. Total
return is computed using the same calculations as average annual total return.
However, the rate expressed is the percentage change from the initial $1,000
invested to the value of the investment at the end of the stated period. Total
return calculations assume reinvestment of dividends and other distributions.
HIGH YIELD FUND and INSURED TAX EXEMPT FUND also may advertise their
yield. Yield reflects investment income net of expenses over a 30-day (or
one-month) period on a Fund share, expressed as an annualized percentage of the
maximum offering price per share at the end of the period. Yield computations
differ from other accounting methods and therefore may differ from dividends
actually paid or reported net income. Each Fund may also advertise its "actual
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distribution rate" for each class of shares. This is computed in the same manner
as yield except that actual income dividends declared per share during the
period in question are substituted for net investment income per share. In
addition, each Fund calculates its "actual distribution rate" based upon net
asset value for dissemination to existing shareholders.
INSURED TAX EXEMPT FUND also may advertise its tax-equivalent yield.
Tax-equivalent yields show the taxable yields an investor would have to earn to
equal the Fund's tax-free yields. The tax-equivalent yield is calculated
similarly to the yield, except that the yield is increased using a stated income
tax rate to demonstrate the taxable yield necessary to produce an after-tax
yield equivalent to the Fund's tax-free yield.
Each of the above performance calculations may be based on investment at
reduced sales charge levels or at net asset value. Any quotation of performance
figures not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Additional performance information is contained
in the Trust's Annual Report which may be obtained without charge by contacting
the Trust at 1-800-423-4026.
GENERAL INFORMATION
ORGANIZATION. The Trust is a Massachusetts business trust organized on
October 28, 1986. The Trust is authorized to issue an unlimited number of shares
of beneficial interest, no par value, in such separate and distinct series and
classes of shares as the Board of Trustees shall from time to time establish.
The shares of beneficial interest of the Trust are presently divided into three
separate and distinct series, each having one class, designated Class A shares.
The Trust does not hold annual shareholder meetings. If requested to do so by
the holders of at least 10% of the Trust's outstanding shares, the Trust's Board
of Trustees will call a special meeting of shareholders for any purpose,
including the removal of Trustees. Each share of each Fund has equal voting
rights. Each share of a Fund is entitled to participate equally in dividends and
other distributions and the proceeds of any liquidation.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of EIMCO and EIC, acts as transfer and
dividend disbursing agent for each Fund and as redemption agent for regular
redemptions. The Transfer Agent's telephone number is 1-800-423-4026.
SHARE CERTIFICATES. The Funds do not issue certificates for shares
purchased under any retirement account. The Funds, however, will issue share
certificates at the shareholder's request. Ownership of shares of each Fund is
recorded on a stock register by the Transfer Agent and shareholders have the
same rights of ownership with respect to such shares as if certificates had been
issued.
CONFIRMATIONS AND STATEMENTS. You will receive confirmations of purchases
and redemptions of shares of a Fund. Generally, confirmation statements will be
sent to you following a transaction in the account, including payment of a
dividend or capital gain distribution in additional
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shares or cash. However, systematic investments made through First Investors
Money Line or automatic payroll deductions will only be confirmed in your
monthly or quarterly statement, showing all transactions occurring during the
period.
SHAREHOLDER INQUIRIES. Shareholder inquiries can be made by calling
Shareholder Services at 1-800-423-4026.
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. It is the Trust's practice
to mail only one copy of its annual and semi-annual reports to any address at
which more than one shareholder with the same last name has indicated that mail
is to be delivered. Additional copies of the reports will be mailed if requested
in writing or by telephone by any shareholder.
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APPENDIX A
DESCRIPTION OF CORPORATE AND MUNICIPAL BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
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.
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The "BB" rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
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.
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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.
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.
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TABLE OF CONTENTS
================================================================================
Fee Table................................................................ 2
Financial Highlights..................................................... 4
Investment Objectives and Policies....................................... 6
How to Buy Shares........................................................ 16
How to Exchange Shares................................................... 20
How to Redeem Shares..................................................... 21
Telephone Transactions................................................... 22
Management............................................................... 23
Distribution Plan........................................................ 24
Determination of Net Asset Value......................................... 25
Dividends and Other Distributions........................................ 25
Taxes.................................................................... 26
Performance Information.................................................. 27
General Information...................................................... 28
Appendix A............................................................... 30
INVESTMENT ADVISER CUSTODIAN
Executive Investors The Bank of New York
Management Company, Inc. 48 Wall Street
95 Wall Street New York, NY 10286
New York, NY 10005
TRANSFER AGENT
UNDERWRITER Administrative Data
Executive Investors Management Corp.
Corporation 581 Main Street
95 Wall Street Woodbridge, NJ 07095-1198
New York, NY 10005
AUDITORS
LEGAL COUNSEL Tait, Weller & Baker
Kirkpatrick & Lockhart LLP Two Penn Center Plaza
1800 Massachusetts Avenue, N.W. Philadelphia, PA 19102-1707
Washington, D.C. 20036
This Prospectus is intended to constitute an offer by the Trust only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this Prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this Prospectus relating to any
other Fund. No dealer, salesman or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information, and if given or
made, such information and representation must not be relied upon as having been
authorized by the Trust, Executive Investors Corporation, or any affiliate
thereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the shares offered hereby in any state to any person
to whom it is unlawful to make such offer in such state.
<PAGE>
EXECUTIVE INVESTORS TRUST
BLUE CHIP FUND
HIGH YIELD FUND
INSURED TAX EXEMPT FUND
95 Wall Street
New York, New York 10005 1-800-423-4026
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 30, 1997
This is a Statement of Additional Information ("SAI") for Executive
Investors Trust ("Trust"), an open-end diversified management investment
company. The Trust offers three separate series, each of which has different
investment objectives and policies: BLUE CHIP FUND, HIGH YIELD FUND and INSURED
TAX EXEMPT FUND (singularly, "Fund" and collectively, "Funds"). The investment
objective of each Fund is as follows:
BLUE CHIP FUND seeks to provide investors with high total investment
return consistent with the preservation of capital.
HIGH YIELD FUND primarily seeks high current income and secondarily
seeks capital appreciation.
INSURED TAX EXEMPT FUND seeks to provide a high level of interest
income which is exempt from Federal income taxes and is not an item of tax
preference for purposes of the Federal alternative minimum tax ("Tax Preference
Item"). Such income may be subject to state and local taxes.
There can be no assurance that any Fund will achieve its investment
objective.
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectus dated April 30, 1997 which may be obtained free of cost from
the Trust at the address or telephone number noted above.
TABLE OF CONTENTS PAGE
Investment Policies....................................................... 2
Hedging and Option Income Strategies...................................... 9
Investment Restrictions................................................... 14
Trustees and Officers..................................................... 20
Management ............................................................... 22
Underwriter............................................................... 23
Distribution Plan......................................................... 24
Determination of Net Asset Value.......................................... 25
Allocation of Portfolio Brokerage......................................... 25
Reduced Sales Charges, Additional Exchange and
Redemption Information and Other Services.............................. 27
Taxes..................................................................... 32
Performance Information................................................... 35
General Information....................................................... 39
Appendix A................................................................ 40
Appendix B................................................................ 41
Appendix C................................................................ 42
Financial Statements...................................................... 48
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INVESTMENT POLICIES
BANKERS' ACCEPTANCES. Each Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
BOND MARKET CONCENTRATION. INSURED TAX EXEMPT FUND may invest more than
25% of its total assets in a particular segment of the bond market, such as
hospital revenue bonds, housing agency bonds, industrial development bonds,
airport bonds and university dormitory bonds. Such concentration may occur in
periods when one or more of these segments offer higher yields and/or profit
potential. The Fund has no fixed policy as to concentrating its investments in a
particular segment of the bond market, because bonds are selected for investment
based on appraisal of their individual value and income. This possible
concentration of the assets of the Fund may result in the Fund being invested in
securities which are related in such a way that economic, business, political
developments or other changes which would affect one security would probably
likewise affect the other securities within that particular segment of the bond
market. Such concentration of the Fund's investments could increase market
risks, but risk of non-payment of interest when due, or default of principal,
are covered by the insurance obtained by the Fund.
CERTIFICATES OF DEPOSIT. Each Fund may invest in bank certificates of
deposit ("CDs") subject to the restrictions set forth in the Prospectus. The
Federal Deposit Insurance Corporation is an agency of the U.S. Government which
insures the deposits of certain banks and savings and loan associations up to
$100,000 per deposit. The interest on such deposits may not be insured if this
limit is exceeded. Current Federal regulations also permit such institutions to
issue insured negotiable CDs in amounts of $100,000 or more, without regard to
the interest rate ceilings on other deposits. To remain fully insured, these
investments currently must be limited to $100,000 per insured bank or savings
and loan association.
CERTIFICATES OF PARTICIPATION. The Trust's Board of Trustees has
established guidelines for determining the liquidity of the certificates of
participation ("COPs") in the Funds' portfolios and, subject to its review, has
delegated that responsibility to the Adviser. Pursuant to these guidelines, the
Adviser will consider (1) the frequency of trades and quotes for the security,
(2) the number of dealers willing to purchase or sell the security and the
number of other potential buyers, (3) the willingness of dealers to undertake to
make a market in the security, (4) the nature of the marketplace, namely, the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer, (5) the coverage of the obligation by new issue
insurance, (6) the likelihood that the marketability of the obligation will be
maintained through the time the security is held by the Fund, and (7) for
unrated COPs, the COPs' credit status analyzed by the Adviser according to the
factors reviewed by rating agencies.
CONVERTIBLE SECURITIES. BLUE CHIP FUND and HIGH YIELD FUND may invest
in convertible securities. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than the
issuer's common stock, although the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security. The Funds' investment adviser, Executive
Investors Management Company, Inc. ("Adviser" or "EIMCO"), will decide to invest
based upon a fundamental analysis of the long-term attractiveness of the issuer
and the underlying common stock, the evaluation of the relative attractiveness
of the current price of the underlying common stock and the judgment of the
value of the convertible security relative to the common stock at current
prices.
DETACHABLE CALL OPTIONS. INSURED TAX EXEMPT FUND may invest in
detachable call options. Detachable call options are sold by issuers of
municipal bonds separately from the municipal bonds to which the call options
relate and permit the purchasers of the call options to acquire the
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municipal bonds at the call prices and call dates. In the event that interest
rates drop, the purchaser could exercise the call option to acquire municipal
bonds that yield above-market rates. During the coming year, the Fund expects to
acquire detachable call options relating to municipal bonds that it already owns
or will acquire in the immediate future and thereby, in effect, make such
municipal bonds non-callable so long as the Fund continues to hold the
detachable call option. The Fund will consider detachable call options to be
illiquid securities and they will be treated as such for purposes of certain
investment limitation calculations.
FOREIGN GOVERNMENT OBLIGATIONS. HIGH YIELD FUND may invest in foreign
government obligations, which generally consist of obligations supported by
national, state or provincial governments or similar political subdivisions.
Investments in foreign government debt obligations involve special risks. The
issuer of the debt may be unable or unwilling to pay interest or repay principal
when due in accordance with the terms of such debt, and the Fund may have
limited legal resources in the event of default. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance.
FOREIGN SECURITIES--RISK FACTORS. HIGH YIELD FUND may sell a security
denominated in a foreign currency and retain the proceeds in that foreign
currency to use at a future date (to purchase other securities denominated in
that currency) or the Fund may buy foreign currency outright to purchase
securities denominated in that foreign currency at a future date. Investing in
foreign securities involves more risk than investing in securities of U.S.
companies. Because HIGH YIELD FUND does not intend to hedge its foreign
investments against the risk of foreign currency fluctuations, changes in the
value of these currencies can significantly affect the Fund's share price. In
addition, the Fund will be affected by changes in exchange control regulations
and fluctuations in the relative rates of exchange between the currencies of
different nations, as well as by economic and political developments. Other
risks involved in foreign securities include the following: there may be less
publicly available information about foreign companies comparable to the reports
and ratings that are published about companies in the United States; foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards and requirements comparable to those applicable to
U.S. companies; some foreign stock markets have substantially less volume than
U.S. markets, and securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies; there may be less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than exist in the United States; and there may be the
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments which could affect assets of the HIGH
YIELD FUND held in foreign countries.
INSURANCE. The municipal bonds in INSURED TAX EXEMPT FUND'S portfolio
will be insured as to their scheduled payments of principal and interest at the
time of purchase either (1) under a Mutual Fund Insurance Policy written by an
independent insurance company; (2) under an insurance policy obtained subsequent
to a municipal bond's original issue (a "Secondary Market Insurance Policy"); or
(3) under an insurance policy obtained by the issuer or underwriter of such
municipal bond at the time of original issuance (a "New Issue Insurance
Policy"). An insured municipal bond in the Fund's portfolio typically will be
covered by only one of the three policies. For instance, if a municipal bond is
already covered by a New Issue Insurance Policy or a Secondary Market Insurance
Policy, then that security will not be additionally insured under the Mutual
Fund Insurance Policy.
The Trust has purchased a Mutual Fund Insurance Policy ("Policy") from
AMBAC Indemnity Corporation ("AMBAC Indemnity"), a Wisconsin stock insurance
company, with its principal executive offices in New York City. The Policy
guarantees the payment of principal and interest on municipal bonds purchased by
the Fund which are eligible for insurance under the Policy. Municipal bonds are
eligible for insurance if they are approved by AMBAC Indemnity prior to their
purchase by the Fund. AMBAC Indemnity furnished the Fund with an approved list
of municipal bonds at the time the Policy was issued and subsequently provides
amended and modified lists of this type at periodic intervals. AMBAC Indemnity
may withdraw particular securities from the approved list and may limit the
aggregate amount of each issue or category of municipal bonds therein, in each
case by notice to the Fund prior to the entry by the Fund of an order to
purchase a specific amount of a particular security otherwise eligible for
insurance under the Policy. The approved list merely identifies issuers whose
issues may be eligible for insurance and does not constitute approval of, or a
commitment by, AMBAC
3
<PAGE>
Indemnity to insure such securities. In determining eligibility for insurance,
AMBAC Indemnity has applied its own standards which correspond generally to the
standard it normally uses in establishing the insurability of new issues of
municipal bonds and which are not necessarily the criteria which would be used
in regard to the purchase of municipal bonds by the Fund. The Policy does not
insure: (1) obligations of, or securities guaranteed by, the United States of
America or any agency or instrumentality thereof; (2) municipal bonds which were
insured as to payment of principal and interest at the time of their issuance;
(3) municipal bonds purchased by the Fund at a time when they were ineligible
for insurance; (4) municipal bonds which are insured by insurers other than
AMBAC Indemnity; and (5) municipal bonds which are no longer owned by the Fund.
AMBAC Indemnity has reserved the right at any time, upon 90 days' prior written
notice to the Fund, to refuse to insure any additional municipal bonds purchased
by the Fund, on or after the effective date of such notice. If AMBAC Indemnity
so notifies the Fund, the Fund will attempt to replace AMBAC Indemnity with
another insurer. If another insurer cannot be found to replace AMBAC Indemnity,
the Fund will ask its shareholders to approve continuation of its business
without insurance.
In the event of nonpayment of interest or principal when due, in
respect of an insured municipal bond, AMBAC Indemnity is obligated under the
Policy to make such payment not later than 30 days after it has been notified by
the Fund that such nonpayment has occurred (but not earlier than the date such
payment is due). AMBAC Indemnity, as regards insurance payments it may make,
will succeed to the rights of the Fund. Under the Policy, a payment of principal
on an insured municipal bond is due for payment when the stated maturity date
has been reached, which does not include any earlier due date by reason of
redemption, acceleration or other advancement of maturity or extension or delay
in payment by reason of governmental action.
The Policy does not guarantee the market value or yield of the insured
municipal bonds or the net asset value or yield of the Fund's shares. The Policy
will be effective only as to insured municipal bonds owned by the Fund. In the
event of a sale by the Fund of a municipal bond insured under the Policy, the
insurance terminates as to such municipal bond on the date of sale. If an
insured municipal bond in default is sold by the Fund, AMBAC Indemnity is liable
only for those payments of interest and principal which are then due and owing
and, after making such payments, AMBAC Indemnity will have no further
obligations to the Fund in respect of such municipal bond. It is the intention
of the Fund, however, to retain any insured securities which are in default or
in significant risk of default and to place a value on the defaulted securities
equal to the value of similar insured securities which are not in default. While
a defaulted bond is held by the Fund, the Fund continues to pay the insurance
premium thereon but also collects interest payments from the insurer and retains
the right to collect the full amount of principal from the insurer when the
municipal bond comes due. See "Determination of Net Asset Value" for a more
complete description of the Fund's method of valuing securities in default and
securities which have a significant risk of default.
The Trust may purchase a Secondary Market Insurance Policy from an
independent insurance company rated in the top rating category by S&P, Moody's,
Fitch Investors Service, Inc. or any other nationally recognized rating
organization which insures a particular bond for the remainder of its term at a
premium rate fixed at the time such bond is purchased by the Fund. It is
expected that these premiums will range from 1% to 5% of par value. Such
insurance coverage will be noncancellable and will continue in force so long as
such bond so insured is outstanding. The Fund may also purchase municipal bonds
which are already insured under a Secondary Market Insurance Policy. A Secondary
Market Insurance Policy could enable the Fund to sell a municipal bond to a
third party as an AAA/Aaa rated insured municipal bond at a market price higher
than what otherwise might be obtainable if the security were sold without the
insurance coverage. (Such rating is not automatic, however, and must
specifically be requested for each bond.) Any difference between the excess of a
bond's market value as an AAA/Aaa rated bond over its market value without such
rating and the single premium payment would inure to the Fund in determining the
net capital gain or loss realized by the Fund upon the sale of the bond.
In addition to the contract of insurance relating to the Fund, there is
a contract of insurance between AMBAC Indemnity and First Investors Multi-State
Insured Tax Free Fund, between AMBAC Indemnity and First Investors Series Fund,
between AMBAC Indemnity and First Investors New York Insured Tax Free Fund, Inc.
and between AMBAC Indemnity and First Investors Insured Tax Exempt
4
<PAGE>
Fund, Inc. Otherwise, neither AMBAC Indemnity nor its parent AMBAC Inc., or any
affiliate thereof, has any material business relationship, direct or indirect,
with the Funds.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in 50 states, the District of Columbia,
the Territory of Guam and the Commonwealth of Puerto Rico, with admitted assets
of approximately $2,585,000,000 (unaudited) and statutory capital of
approximately $1,467,000,000. (unaudited) as of December 31, 1996. Statutory
capital consists of AMBAC Indemnity's policyholders' surplus and statutory
contingency reserve. AMBAC Indemnity is a wholly owned subsidiary of AMBAC Inc.,
a 100% publicly-held company. Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., Moody's Investors Service and Fitch Investors
Service L.P. have each assigned a triple-A claims-paying ability rating to AMBAC
Indemnity.
AMBAC Indemnity has obtained a ruling from the Internal Revenue Service
to the effect that the insuring of an obligation by AMBAC Indemnity will not
affect the treatment for Federal income tax purposes of interest on such
obligation and that insurance proceeds representing maturing interest paid by
AMBAC Indemnity under policy provisions substantially identical to those
contained in its municipal bond insurance policy shall be treated for Federal
income tax purposes in the same manner as if such payments were made by the
issuer of the municipal bonds.
AMBAC Indemnity makes no representation regarding the municipal bonds
included in the investment portfolio of the Fund or the advisability of
investing in such municipal bonds and makes no representation regarding, nor has
it participated in the preparation of, the Prospectus and this SAI.
The information relating to AMBAC Indemnity contained above has been
furnished by AMBAC Indemnity. No representation is made herein as to the
accuracy or adequacy of such information, or as to the existence of any adverse
changes in such information, subsequent to the date hereof.
LOANS OF PORTFOLIO SECURITIES. Each Fund may loan securities to
qualified broker-dealers or other institutional investors provided: the borrower
pledges to the Fund and agrees to maintain at all times with the Fund collateral
equal to not less than 100% of the value of the securities loaned (plus accrued
interest or dividend, if any); the loan is terminable at will by the Fund; the
Fund pays only reasonable custodian fees in connection with the loan; and the
Adviser monitors the creditworthiness of the borrower throughout the life of the
loan. Such loans may be terminated by the Fund at any time and the Fund may vote
the proxies if a material event affecting the investment is to occur. The market
risk applicable to any security loaned remains a risk of the Fund. The borrower
must add to the collateral whenever the market value of the securities rises
above the level of such collateral. The Fund could incur a loss if the borrower
should fail financially at a time when the value of the loaned securities is
greater than the collateral. BLUE CHIP FUND and INSURED TAX EXEMPT FUND may make
loans not in excess of 10% of each Fund's total assets. HIGH YIELD FUND may make
loans, together with illiquid securities, not in excess of 15% of its net
assets.
MORTGAGE-BACKED SECURITIES. BLUE CHIP FUND may invest in
mortgage-backed securities, including those representing an undivided ownership
interest in a pool of mortgage loans. Each of the certificates described below
is characterized by monthly payments to the security holder, reflecting the
monthly payments made by the mortgagees of the underlying mortgage loans. The
payments to the security holders (such as the Fund), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as twenty to thirty
years, the borrowers can, and typically do, repay them sooner. Thus, the
security holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest.
Thus, in times of declining interest rates, some higher yielding mortgages might
be repaid resulting in larger cash payments to the Fund, and the Fund will be
forced to accept lower interest rates when that cash is used to purchase
additional securities.
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
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<PAGE>
interest rates fall, prepayments often rise, which should decrease the average
maturity of the mortgage-backed security.
GNMA CERTIFICATES. Government National Mortgage Association ("GNMA")
certificates ("GNMA Certificates") are mortgage-backed securities, which
evidence an undivided interest in a pool of mortgage loans. GNMA Certificates
differ from bonds in that principal is paid back monthly by the borrower over
the term of the loan rather than returned in a lump sum at maturity. GNMA
Certificates that the Fund purchases are the "modified pass-through" type.
"Modified pass-through" GNMA Certificates entitle the holder to receive a share
of all interest and principal payments paid and owed on the mortgage pool net of
fees paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee
the timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers'
Home Administration ("FMHA"), or guaranteed by the Department of Veteran Affairs
("VA"). The GNMA guarantee is backed by the full faith and credit of the U.S.
Government. GNMA also is empowered to borrow without limitation from the U.S.
Treasury if necessary to make any payments required under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before maturity of the mortgages in the pool. The Fund normally
will not distribute principal payments (whether regular or prepaid) to its
shareholders. Rather, it will invest such payments in additional
mortgage-related securities of the types described above. Interest received by
the Fund will, however, be distributed to shareholders. Foreclosures impose no
risk to principal investment because of the GNMA guarantee. As prepayment rates
of the individual mortgage pools vary widely, it is not possible to predict
accurately the average life of a particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest
on GNMA Certificates is lower than the interest rate paid on the VA-guaranteed
or FHA-insured mortgages underlying the Certificates by the amount of the fees
paid to GNMA and the issuer. The coupon rate by itself, however, does not
indicate the yield which will be earned on GNMA Certificates. First,
Certificates may trade in the secondary market at a premium or discount. Second,
interest is earned monthly, rather than semi-annually as with traditional bonds;
monthly compounding raises the effective yield earned. Finally, the actual yield
of a GNMA Certificate is influenced by the prepayment experience of the mortgage
pool underlying it. For example, if the higher-yielding mortgages from the pool
are prepaid, the yield on the remaining pool will be reduced.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation ("FHLMC")
issues two types of mortgage pass-through securities, mortgage participation
certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble
GNMA Certificates in that each PC represents a pro rata share of all interest
and principal payments made and owed on the underlying pool.
FNMA SECURITIES. The Federal National Mortgage Association ("FNMA")
issues guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents
a pro rata share of all interest and principal payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest on FNMA Certificates
and the full return of principal.
Risk of foreclosure of the underlying mortgages is greater with FHLMC
and FNMA securities because, unlike GNMA Certificates, FHLMC and FNMA securities
are not guaranteed by the full faith and credit of the U.S.
Government.
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
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on a future date (which typically is the next business day). The difference
between the purchase price and the repurchase price effectively constitutes the
payment of interest. In a standard repurchase agreement, the securities which
serve as collateral are transferred to a Fund's custodian bank. In a "tri-party"
repurchase agreement, these securities would be held by a different bank for the
benefit of the Fund as buyer and the broker-dealer as seller. In a "quad-party"
repurchase agreement, the Fund's custodian bank also is made a party to the
agreement. Each Fund may enter into repurchase agreements with banks which are
members of the Federal Reserve System or securities dealers who are members of a
national securities exchange or are market makers in government securities. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will a Fund invest in repurchase agreements with more
than one year in time to maturity. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of one year
from the effective date of the repurchase agreement. Each Fund will always
receive, as collateral, securities whose market value, including accrued
interest, which will at all times be at least equal to 100% of the dollar amount
invested by the Fund in each agreement, and the Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of the custodian. If the seller defaults, a Fund might incur a loss if
the value of the collateral securing the repurchase agreement declines, and
might incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy or similar proceedings are commenced with respect to the
seller of the security, realization upon the collateral by a Fund may be delayed
or limited. No Fund may enter into a repurchase agreement with more than seven
days to maturity if, as a result, more than 15% of such Fund's net assets would
be invested in such repurchase agreements and other illiquid investments.
RESTRICTED AND ILLIQUID SECURITIES. No Fund will purchase or otherwise
acquire any security if, as a result, more than 15% of its net assets (taken at
current value) would be invested in securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale. This policy includes foreign issuers' unlisted securities with a
limited trading market, repurchase agreements maturing in more than seven days
and detachable call options. This policy does not include restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended ("1933 Act"), which the Board of Trustees or the Adviser has determined
under Board-approved guidelines are liquid.
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
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
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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.
SHORT SALES. Although it does not intend to do so in the foreseeable
future, HIGH YIELD FUND may borrow securities for cash sale to others. This type
of transaction is commonly known as a "short sale." The Fund will engage in
short sales for hedging purposes only. The Fund only may make short sales
"against the box," which occurs when the Fund enters into a short sale with a
security identical to one it already owns or has the immediate or unconditional
right, at no cost, to obtain the identical security. The Fund's investments in
short sales is limited to 10% of its total assets.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed as to
principal and interest by the U.S. Government include (1) U.S. Treasury
obligations which differ only in their interest rates, maturities and times of
issuance as follows: U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years), and (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities that are backed by
the full faith and credit of the United States, such as securities issued by the
Federal Housing Administration, Government National Mortgage Association, the
Department of Housing and Urban Development, the Export-Import Bank, the General
Services Administration and the Maritime Administration and certain securities
issued by the Farmers Home Administration and the Small Business Administration.
The range of maturities of U.S. Government Obligations is usually three months
to thirty years.
WARRANTS. HIGH YIELD 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 greater risk
that warrants might drop in value at a faster rate than the underlying stock.
The Fund's investments in warrants is limited to 5% of its total assets, of
which no more than 2% may not be listed on the New York or American Stock
Exchange.
WHEN-ISSUED SECURITIES. HIGH YIELD FUND and INSURED TAX EXEMPT FUND may
each invest up to 10% and 25%, respectively, of its net assets in securities
issued on a when-issued or delayed delivery basis at the time the purchase is
made. A Fund generally would not pay for such securities or start earning
interest on them until they are issued or received. However, when a Fund
purchases debt obligations on a when-issued basis, it assumes the risks of
ownership, including the risk of price fluctuation, at the time of purchase, not
at the time of receipt. Failure of the issuer to deliver a security purchased by
a Fund on a when-issued basis may result in that Fund's incurring a loss or
missing an opportunity to make an alternative investment. When a Fund enters
into a commitment to purchase securities on a when-issued basis, it establishes
a separate account with its custodian consisting of cash or liquid high-grade
debt securities equal to the amount of that Fund's commitment, which are valued
at their fair market value. If on any day the market value of this segregated
account falls below the value of a Fund's commitment, that Fund will be required
to deposit additional cash or qualified securities into the account until equal
to the value of that Fund's commitment. When the securities to be purchased are
issued, the Fund will pay for the securities from available cash, the sale of
securities in the segregated account, sales of other securities and, if
necessary, from sale of the when-issued securities themselves although this is
not ordinarily expected. Securities purchased on a when-issued basis are subject
to the risk that yields available in the market, when delivery takes place, may
be higher than the rate to be received on the securities a Fund is committed to
purchase. Sale of securities in the segregated account or sale of the
when-issued securities may cause the realization of a capital gain or loss.
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 Adviser, investment considerations warrant such action. Portfolio turnover
rate is calculated by dividing (1) the lesser of purchases or sales of portfolio
securities for the fiscal year by (2) the monthly average of the value of
portfolio securities owned during the fiscal year. A 100% turnover rate would
occur if all the securities in a Fund's portfolio, with the exception of
securities whose maturities at the time of acquisition were one year or less,
were sold and either
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repurchased or replaced within one year. A high rate of portfolio turnover
generally leads to transaction costs and may result in a greater number of
taxable transactions. See "Allocation of Portfolio Brokerage."
For the fiscal years ended December 31, 1995 and 1996, BLUE CHIP FUND's
portfolio turnover rate was 33% and 50%, respectively, and HIGH YIELD FUND's
portfolio turnover rate was 69% and 27%, respectively. For the fiscal years
ended December 31, 1995 and 1996, the portfolio turnover rate for INSURED TAX
EXEMPT FUND was 147% and 116%, respectively.
HEDGING AND OPTION INCOME STRATEGIES
The Adviser may engage in certain options and futures strategies to
hedge the Fund's portfolios, in other circumstances permitted by the Commodities
Futures Trading Commission ("CFTC") and, for INSURED TAX EXEMPT FUND, engage in
certain options strategies to enhance income. The instruments described below
are sometimes referred to collectively as "Hedging Instruments." Certain special
characteristics of and risks associated with using Hedging Instruments are
discussed below. In addition to the non-fundamental investment guidelines
(described below) adopted by the Board of Trustees to govern each Fund's
investments in Hedging Instruments, use of these instruments is subject to the
applicable regulations of the Securities and Exchange Commission ("SEC"), the
several options and futures exchanges upon which options and futures contracts
are traded, the CFTC and various state regulatory authorities. In addition, a
Fund's ability to use Hedging Instruments will be limited by tax considerations.
See "Taxes."
Participation in the options or futures markets involves investment
risks and transaction costs to which a Fund would not be subject absent the use
of these strategies. If the Adviser's prediction of movements in the direction
of the securities and interest rate markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. The Fund might not employ any of the strategies
described below, and there can be no assurance that any strategy will succeed.
The use of these strategies involve certain special risks, including (1)
dependence on the Adviser's ability to predict correctly movements in the
direction of interest rates and securities prices, (2) imperfect correlation
between the price of options, futures contracts and options thereon and
movements in the prices of the securities being hedged, (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities, (4) the possible absence of a liquid secondary market for
any particular instrument at any time, and (5) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences.
BLUE CHIP FUND. Although it does not intend to engage in these
strategies in the coming year, BLUE CHIP FUND may attempt to hedge against
changes in market conditions by buying U.S. exchange-traded put and call options
on stock indices and enter into closing transactions with respect to such
options.
HIGH YIELD FUND. Although it does not intend to engage in these
strategies in the coming year, HIGH YIELD FUND may buy and sell interest rate
futures contracts traded on a board of trade as a hedge against adverse changes
in interest rates.
INSURED TAX EXEMPT FUND. Although it does not intend to engage in these
strategies in the coming year, INSURED TAX EXEMPT FUND may sell covered listed
put and call options and buy call and put options on its portfolio securities
and may enter into closing transactions with respect to such options. The Fund
also may buy and sell financial futures contracts and buy and sell call and put
options thereon traded on a U.S. exchange or board of trade and enter into
closing transactions with respect to such options.
COVER FOR HEDGING AND OPTION INCOME STRATEGIES. No Fund will use
leverage in its hedging and option income strategies. Each Fund will not enter
into a hedging or option income strategy that exposes the Fund to an obligation
to another party unless it owns either (1) an offsetting ("covered") position in
securities or other options or futures contracts or (2) cash and/or liquid
assets with a value sufficient at all times to cover its potential obligations.
Each Fund will comply with guidelines established by the SEC with respect to
coverage of hedging and option income strategies by
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mutual funds and, if required, will set aside cash and/or liquid assets in a
segregated account with its custodian in the prescribed amount. Securities or
other options or futures positions used for cover and assets held in a
segregated account cannot be sold or closed out while the hedging or option
income strategy is outstanding unless they are replaced with similar assets. As
a result, there is a possibility that the use of cover or segregation involving
a large percentage of a Fund's assets could impede portfolio management or the
Fund's ability to meet redemption requests or other current obligations.
OPTIONS STRATEGIES. INSURED TAX EXEMPT FUND may purchase call options
on securities that the Adviser intends to include in its portfolio in order to
fix the cost of a future purchase. Call options also may be used as a means of
participating in an anticipated price increase of a security. In the event of a
decline in the price of the underlying security, use of this strategy would
serve to limit the Fund's potential loss to the option premium paid; conversely,
if the market price of the underlying security increases above the exercise
price and the Fund either sells or exercises the option, any profit eventually
realized will be reduced by the premium. INSURED TAX EXEMPT FUND may purchase
put options in order to hedge against a decline in the market value of
securities held in its portfolio. The put option enables the Fund to sell the
underlying security at the predetermined exercise price; thus the potential for
loss to the Fund below the exercise price is limited to the option premium paid.
If the market price of the underlying security is higher than the exercise price
of the put option, any profit the Fund realizes on the sale of the security will
be reduced by the premium paid for the put option less any amount for which the
put option may be sold.
INSURED TAX EXEMPT FUND may write covered call options on securities to
increase income in the form of premiums received from the purchasers of the
options. Because it can be expected that a call option will be exercised if the
market value of the underlying security increases to a level greater than the
exercise price, the Fund will write covered call options on securities generally
when the Adviser believes that the premium received by the Fund, plus
anticipated appreciation in the market price of the underlying security up to
the exercise price of the option, will be greater than the total appreciation in
the price of the security. The strategy may be used to provide limited
protection against a decrease in the market price of the security in an amount
equal to the premium received for writing the call option less any transaction
costs. Thus, if the market price of the underlying security held by the Fund
declines, the amount of such decline will be offset wholly or in part by the
amount of the premium received by the Fund. If, however, there is an increase in
the market price of the underlying security and the option is exercised, the
Fund will be obligated to sell the security at less than its market value. The
Fund gives up the ability to sell the portfolio securities used to cover the
call option while the call option is outstanding. Such securities may also be
considered illiquid in the case of over-the-counter ("OTC") options written by
the Fund, to the extent described under "Investment Policies--Restricted and
Illiquid Securities" and therefore subject to the Fund's limitation on
investments in illiquid securities. In addition, the Fund could lose the ability
to participate in an increase in the value of such securities above the exercise
price of the call option because such an increase would likely be offset by an
increase in the cost of closing out the call option (or could be negated if the
buyer chose to exercise the call option at an exercise price below the
securities' current market value).
INSURED TAX EXEMPT FUND may write put options. A put option gives the
purchaser of the option the right to sell, and the writer (seller) the
obligation to buy, the underlying security at the exercise price during the
option period. So long as the obligation of the writer continues, the writer may
be assigned an exercise notice by the broker-dealer through which such option
was sold, requiring it to make payment of the exercise price against delivery of
the underlying security. The operation of put options in other respects,
including their related risks and rewards, is substantially identical to that of
call options. The Fund may write covered put options in circumstances when the
Adviser believes that the market price of the securities will not decline below
the exercise price less the premiums received. If the put option is not
exercised, the Fund will realize income in the amount of the premium received.
This technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security would decline below the exercise price less the premiums
received, in which case the Fund would expect to suffer a loss.
BLUE CHIP FUND may purchase U.S. exchange-traded put and call options
on stock indices in much the same manner as the more traditional equity and debt
options discussed above, except that
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stock index options may serve as a hedge against overall fluctuations in the
securities markets (or a market sector) rather than anticipated increases or
decreases in the value of a particular security. A stock index assigns relative
values to the stock included in the index and fluctuates with changes in such
values. Stock index options operate in the same way as the more traditional
equity options, except that settlements of stock index options are effected with
cash payments and do not involve delivery of securities. Thus, upon settlement
of a stock index option, the purchaser will realize, and the writer will pay, an
amount based on the difference between the exercise price and the closing price
of the stock index. The effectiveness of hedging techniques using stock index
options will depend on the extent to which price movements in the stock index
selected correlate with price movements of the securities in which a Fund
invests.
Currently, many options on equity securities are exchange-traded,
whereas options on debt securities are primarily traded on the OTC market.
Exchange-traded options in the U.S. are issued by a clearing organization
affiliated with the exchange on which the option is listed which, in effect,
guarantees completion of every exchange-traded option transaction. In contrast,
OTC options are contracts between a Fund and the opposite party with no clearing
organization guarantee. Thus, when a Fund purchases an OTC option, it relies on
the dealer from which it has purchased the OTC option to make or take delivery
of the securities underlying the option. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as the loss of the
expected benefit of the transaction.
OPTIONS GUIDELINES. In view of the risks involved in using options, the
Board of Trustees has adopted non-fundamental investment guidelines to govern
the use of options by BLUE CHIP FUND and INSURED TAX EXEMPT FUND that may be
modified by the Board without shareholder vote: (1) options will be purchased or
written only when the Adviser believes that there exists a liquid secondary
market in such options; and (2) no Fund may purchase a put or call option if the
value of the option's premium, when aggregated with the premiums on all other
options held by such Fund, exceeds 5% of that Fund's total assets. This does not
limit a Fund's assets at risk to 5%.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. BLUE CHIP FUND
and INSURED TAX EXEMPT FUND may effectively terminate their right or obligation
under an option by entering into a closing transaction. If either Fund wishes to
terminate its obligation to sell securities under a put or call option it has
written, the Fund may purchase a put or call option of the same series (that is,
an option identical in its terms to the call option previously written); this is
known as a closing purchase transaction. Conversely, in order to terminate its
right to purchase or sell specified securities under a call or put option it has
purchased, a Fund may write an option of the same series as the option held;
this is known as a closing sale transaction. Closing transactions essentially
permit a Fund to realize profits or limit losses on its options positions prior
to the exercise or expiration of the option. Whether a profit or loss is
realized from a closing transaction depends on the price movement of the
underlying index or security and the market value of the option.
The value of an option position will reflect, among other things, the
current market price of the underlying security or stock index, the time
remaining until expiration, the relationship of the exercise price to the market
price, the historical price volatility of the underlying security or stock index
and general market conditions. For this reason, the successful use of options
depends upon the Adviser's ability to forecast the direction of price
fluctuations in the underlying securities market or, in the case of stock index
options, fluctuations in the market sector represented by the index selected.
Options normally have expiration dates of up to nine months. Unless an
option purchased by a Fund is exercised or unless a closing transaction is
effected with respect to that position, a loss will be realized in the amount of
the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. The ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market. Although BLUE CHIP FUND and INSURED TAX EXEMPT
FUND intend to purchase or write only those exchange-traded options for which
there appears to be a liquid secondary market, there is no assurance that a
liquid secondary market will exist for any particular option at any particular
time. Closing transactions may be effected with respect to
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options traded in the OTC markets (currently the primary markets for options on
debt securities) only by negotiating directly with the other party to the option
contract or in a secondary market for the option if such market exists. Although
a Fund will enter into OTC options only with dealers that agree to enter into,
and that are expected to be capable of entering into, closing transactions with
a Fund, there is no assurance that the Fund will be able to liquidate an OTC
option at a favorable price at any time prior to expiration. In the event of
insolvency of the opposite party, a Fund may be unable to liquidate an OTC
option. Accordingly, it may not be possible to effect closing transactions with
respect to certain options, with the result that a Fund would have to exercise
those options that it has purchased in order to realize any profit. With respect
to options written by a Fund, the inability to enter into a closing transaction
may result in material losses to the Fund. For example, because a Fund must
maintain a covered position with respect to any call option it writes, that Fund
may not sell the underlying assets used to cover an option during the period it
is obligated under the option. This requirement may impair the Fund's ability to
sell a portfolio security or make an investment at a time when such a sale or
investment might be advantageous.
Stock index options are settled exclusively in cash. If BLUE CHIP FUND
purchases an option on a stock index, the option is settled based on the closing
value of the index on the exercise date. Thus, a holder of a stock index option
who exercises it before the closing index value for that day is available runs
the risk that the level of the underlying index may subsequently change. For
example, in the case of a call option, if such a change causes the closing index
value to fall below the exercise price of the option on the index, the
exercising holder will be required to pay the difference between the closing
index value and the exercise price of the option.
A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, a Fund also may
save on commissions by using options as a hedge rather than buying or selling
individual securities in anticipation or as a result of market movements.
FUTURES STRATEGIES. HIGH YIELD FUND and INSURED TAX EXEMPT FUND may
engage in futures strategies to attempt to reduce the overall investment risk
that would normally be expected to be associated with ownership of the
securities in which they invest.
HIGH YIELD FUND and INSURED TAX EXEMPT FUND may use interest rate
futures contracts and, for INSURED TAX EXEMPT FUND, options thereon, to hedge
the debt portion of their portfolios against changes in the general level of
interest rates. A Fund may purchase an interest rate futures contract when it
intends to purchase debt securities but has not yet done so. This strategy may
minimize the effect of all or part of an increase in the market price of those
securities because a rise in the price of the securities prior to their purchase
may either be offset by an increase in the value of the futures contract
purchased by a Fund or avoided by taking delivery of the debt securities under
the futures contract. Conversely, a fall in the market price of the underlying
debt securities may result in a corresponding decrease in the value of the
futures position. A Fund may sell an interest rate futures contract in order to
continue to receive the income from a debt security, while endeavoring to avoid
part or all of the decline in the market value of that security that would
accompany an increase in interest rates.
INSURED TAX EXEMPT FUND may purchase a call option on a financial
futures contract to hedge against a market advance in debt securities that the
Fund plans to acquire at a future date. The Fund also may write covered call
options on financial futures contracts as a partial hedge against a decline in
the price of debt securities held in the Fund's portfolio or purchase put
options on financial futures contracts in order to hedge against a decline in
the value of debt securities held in the Fund's portfolio.
HIGH YIELD FUND and INSURED TAX EXEMPT FUND will use futures contracts
and, for INSURED TAX EXEMPT FUND, options thereon solely in bona fide hedging
transactions or under other circumstances permitted by the CFTC and INSURED TAX
EXEMPT FUND will not enter into such investments for which the aggregate initial
margin and premiums exceed 5% of that Fund's total assets. This does not limit
that Fund's assets at risk to 5%. The Fund has represented the foregoing to the
CFTC.
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FUTURES GUIDELINES. In view of the risks involved in using futures
strategies described below, the Board of Trustees has adopted non-fundamental
investment guidelines to govern the use of such investments by HIGH YIELD FUND
and INSURED TAX EXEMPT FUND that may be modified by the Board without
shareholder vote. In the event a Fund enters into futures contracts or, for
INSURED TAX EXEMPT FUND, options thereon other than for bona fide hedging
purposes (as defined by the CFTC), (1) the aggregate initial margin and premiums
required to establish these positions will not exceed 5% of HIGH YIELD FUND'S
assets, and (2) the aggregate margin deposits on all outstanding futures
contracts positions held by INSURED TAX EXEMPT FUND and premiums paid on
outstanding options and futures contracts, after taking into account unrealized
profits and losses, will not 5% of INSURED TAX EXEMPT FUND'S total assets, or
enter into any futures contracts or related options if the aggregate amount of
INSURED TAX EXEMPT FUND's commitments under outstanding futures contracts
positions and related options written by INSURED TAX EXEMPT FUND would exceed
the market value of INSURED TAX EXEMPT FUND's total assets. This does not limit
a Fund's assets at risk to 5%. The value of all futures sold will not exceed the
total market value of a Fund's portfolio. In addition, each Fund may not
purchase interest rate futures contracts if immediately thereafter more than 30%
of its total assets would be so invested.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid
upon entering into futures contracts. Instead, upon entering into a futures
contract, HIGH YIELD FUND and INSURED TAX EXEMPT FUND are required to deposit
with their custodian in a segregated account in the name of the futures broker
through which the transaction is effected an amount of cash, U.S. Government
securities or other liquid, high-grade debt instruments generally equal to 3%-5%
of the contract value. This amount is known as "initial margin." When writing a
put or call option on a futures contract, margin also must be deposited in
accordance with applicable exchange rules. Initial margin on futures contracts
is in the nature of a performance bond or good-faith deposit that is returned to
a Fund upon termination of the transaction, assuming all obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, a
Fund may be required by an exchange to increase the level of its initial margin
payment. Additionally, initial margin requirements may be increased generally in
the future by regulatory action. Subsequent payments, called "variation margin,"
to and from the broker, are made on a daily basis as the value of the futures
position varies, a process known as "marking to market." Variation margin does
not involve borrowing to finance the futures transactions, but rather represents
a daily settlement of a Fund's obligation to or from a clearing organization.
INSURED TAX EXEMPT FUND is also obligated to make initial and variation margin
payments when it writes options on futures contracts.
Holders and writers of futures positions and options thereon can enter
into offsetting closing transactions, similar to closing transactions on options
on securities, by selling or purchasing, respectively, a futures position or
options position with the same terms as the position or option held or written.
Positions in futures contracts and options thereon may be closed only on an
exchange or board of trade providing a secondary market for such futures or
options.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or related option may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidation of
unfavorable positions. In such event, it may not be possible for a Fund to close
a position and, in the event of adverse price movements such Fund would have to
make daily cash payments of variation margin (except in the case of purchased
options). However, in the event futures contracts have been used to hedge
portfolio securities, such securities will not be sold until the contracts can
be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
Successful use by HIGH YIELD FUND and INSURED TAX EXEMPT FUND of
futures contracts and, for INSURED TAX EXEMPT FUND, related options, will depend
upon the Adviser's ability to predict
13
<PAGE>
movements in the direction of the overall securities and interest rate markets,
which requires different skills and techniques than predicting changes in the
prices of individual securities. Moreover, futures contracts relate not to the
current price level of the underlying instrument but to the anticipated levels
at some point in the future. There is, in addition, the risk that the movements
in the price of the futures contract or related option will not correlate with
the movements in prices of the securities being hedged. In addition, if a Fund
has insufficient cash, it may have to sell assets from its portfolio to meet
daily variation margin requirements. Any such sale of assets may or may not be
made at prices that reflect the rising market. Consequently, a Fund may need to
sell assets at a time when such sales are disadvantageous to that Fund. If the
price of the futures contract or related option moves more than the price of the
underlying securities, a Fund will experience either a loss or a gain on the
futures contract or related option, that may or may not be completely offset by
movements in the price of the securities that are the subject of the hedge.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures or
related option position and the securities being hedged, movements in the prices
of futures contracts and related options may not correlate perfectly with
movements in the prices of the hedged securities because of price distortions in
the futures market. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures contracts and
related options over the short term.
Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts or
related options. Although HIGH YIELD FUND and INSURED TAX EXEMPT FUND intend to
purchase or sell futures and, for INSURED TAX EXEMPT FUND, related options, only
on exchanges or boards of trade where there appears to be a liquid secondary
market, there is no assurance that such a market will exist for any particular
contract or option at any particular time. In such event, it may not be possible
to close a futures or option position and, in the event of adverse price
movements, a Fund would continue to be required to make variation margin
payments.
Like options on securities, options on futures contracts have a limited
life. The ability to establish and close out options on futures will be subject
to the development and maintenance of liquid secondary markets on the relevant
exchanges or boards of trade. There can be no certainty that liquid secondary
markets for all options on futures contracts will develop.
Purchasers of options on futures contracts pay a premium in cash at the
time of purchase. This amount and the transaction costs are all that is at risk.
Sellers of options on a futures contract, however, must post initial margin and
are subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
INSURED TAX EXEMPT FUND purchases an option is the premium paid for the option
and the transaction costs, there may be circumstances when the purchase of an
option on a futures contract would result in a loss to the Fund when the use of
a futures contract would not, such as when there is no movement in the level of
the underlying stock index or the value of the securities being hedged.
HIGH YIELD FUND and INSURED TAX EXEMPT FUND'S activities in the futures
and, for INSURED TAX EXEMPT Fund, related options, markets may result in a
higher portfolio turnover rate and additional transaction costs in the form of
added brokerage commissions; however, a Fund also may save on commissions by
using futures and related options as a hedge rather than buying or selling
individual securities in anticipation or as a result of market movements.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
respective Fund and, unless identified as non-fundamental policies, may not be
changed without the affirmative vote of a majority of the outstanding voting
securities of that Fund, voting separately from any other Fund of the Trust. As
provided in the Investment Company Act of 1940, as amended ("1940 Act"), a "vote
of a majority of the outstanding voting securities of the Fund" means the
affirmative vote of the lesser of (1) more than 50% of the outstanding shares of
the Fund or (2) 67% or more of the shares of the Fund
14
<PAGE>
present at a meeting, if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy. Except with respect to borrowing, changes
in values of a particular Fund's assets will not cause a violation of the
following investment restrictions so long as percentage restrictions are
observed by that Fund at the time it purchases any security.
BLUE CHIP FUND. BLUE CHIP FUND will not:
(1) Make short sales of securities to maintain a short position.
(2) Issue senior securities, borrow money or pledge its assets except
that the Fund may borrow from a bank for temporary or emergency purposes in
amounts not exceeding 5% (taken at the lower of cost or current value) of its
total assets (not including the amount borrowed) and pledge its assets to secure
such borrowings.
(3) Make loans, except loans of portfolio securities (limited to 10% of
the Fund's total assets).
(4) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result 25% or more of the
Fund's total assets (taken at current value) would be invested in a single
industry.
(5) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(6) Pledge, mortgage or hypothecate any of its assets except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (2) above, provided the Fund maintains asset coverage of at least 300%
for pledged assets.
(7) Buy or sell commodities or commodity contracts or real estate or
interests in real estate limited partnerships, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate.
(8) Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain Federal securities laws.
(9) Make investments for the purpose of exercising control or
management.
(10) Purchase any securities on margin.
(11) Purchase or sell portfolio securities from or to the Adviser or
any director, officer or Trustee thereof or of the Trust, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer, director or Trustee of the Trust or of the Adviser owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such officers,
directors or Trustees who own more than 1/2 of 1% own in the aggregate more than
5% of the outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be
changed without prior shareholder approval. These investment restrictions
provide that the Fund will not:
(1) Purchase any security if as a result the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) less than three years old.
(2) Invest in securities of other registered investment companies,
except by purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 5% of its total assets would
be invested in such securities, or except as part of a merger,
15
<PAGE>
consolidation or other acquisition. The Fund may incur duplicate fees to the
extent that it invests in other investment companies.
(3) Purchase oil, gas or other mineral interests. However, the Fund may
purchase and sell the securities of companies engaged in the exploration,
development, production, refining, transporting and marketing of oil, gas or
minerals.
(4) Write, purchase or sell options (puts, calls or combinations
thereof), except that the Fund may purchase put and call options on U.S.
exchange-traded options on stock indices (and may enter into closing sale
transactions with respect to such options) provided that the premiums paid for
such options do not exceed 5% of the Fund's total assets.
(5) Purchase warrants if as a result the Fund would then have more than
5% of its total assets, valued at the lower of cost or market, invested in
warrants (of which no more than 2% may be warrants not listed on the New York or
American Stock Exchange).
(6) Purchase any security if, as a result, more than 15% of its net
assets would be invested in illiquid securities, including repurchase agreements
not entitling the holder to payment of principal and interest within seven days
and any securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available market. The
Trustees, or the Fund's investment adviser acting pursuant to authority
delegated by the Trustees, may determine that a readily available market exists
for securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933, as amended, or any other applicable rule, and therefore that such
securities are not subject to the foregoing limitation.
The Trust, on behalf of the Fund, has filed the following undertakings
to comply with requirements of certain states in which shares of the Fund are
sold, which may be changed without shareholder approval:
(1) Notwithstanding fundamental investment restriction (6) above, the
Fund will not pledge, mortgage or hypothecate more than one-third of its total
assets to secure such borrowings.
(2) Notwithstanding fundamental investment restriction (7) above, the
Fund will not invest in real estate limited partnership interests or in
interests in real estate investment trusts that are not readily marketable.
(3) Notwithstanding non-fundamental investment restriction (3) above,
the Fund will not purchase oil, gas or other mineral leases.
HIGH YIELD FUND. HIGH YIELD FUND will not:
(1) Borrow money, except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets.
(2) Engage in "short sales" in excess of 10% of the Fund's total
assets.
(3) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraphs (1) and (2) above and for margin to secure its obligations under
interest rate futures contracts, provided the Fund maintains asset coverage of
at least 300% for pledged assets.
(4) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the Trust's Board of Trustees may, on the
request of broker-dealers or other institutional investors which they deem
qualified, authorize the Fund to loan securities to cover the borrower's short
position; provided, however, the borrower pledges to the Fund and agrees to
maintain at all times with the Fund cash collateral equal to not less than 100%
of the value of the securities loaned, the loan is terminable at will by the
Fund, the Fund receives interest on the loan as well as any distributions upon
the securities loaned, the Fund retains voting rights associated with the
securities,
16
<PAGE>
the Fund pays only reasonable custodian fees in connection with the loan, and
the Adviser monitors the creditworthiness of the borrower throughout the life of
the loan; provided further, that such loans will not be made if the value of all
repurchase agreements with more than seven days to maturity, and other illiquid
assets is greater than an amount equal to 15% of the Fund's net assets.
(5) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(6) Purchase the securities of an issuer if such purchase, at the time
thereof, would cause more than 5% of the value of the Fund's total assets to be
invested in securities of issuers which, including predecessors, have a record
of less than three years' continuous operation.
(7) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws.
(8) Purchase or sell real estate or commodities or commodity contracts.
However, the Fund may purchase interests in real estate investment trusts whose
securities are registered under the 1940 Act and are readily marketable and may
invest in interest rate futures contracts and options thereon (provided the
margin required does not violate the investment restrictions pertaining to
pledged assets).
(9) Invest in companies for the purpose of exercising control or
management.
(10) Invest in securities of other investment companies, except in
connection with a merger of another investment company.
(11) Purchase any securities on margin (however, the Fund's engaging in
"hedging transactions" and the margins required thereon shall not be considered
a violation of this provision).
(12) Purchase or retain securities of any issuer if any officer and
director or trustee of the Trust or the Adviser owns beneficially more than 1/2
of 1% of the securities of such issuer or if all such officers and directors or
trustees together own more than 5% of the securities of such issuer.
(13) Invest 25% or more of the value of its total assets in a
particular industry at any one time.
(14) Invest more than 5% of the value of its net assets in warrants,
with no more than 2% in warrants not listed on either the New York or American
Stock Exchanges.
(15) Purchase or sell portfolio securities from or to the Adviser or
any trustee or officer thereof or of the Trust, as principals.
(16) Invest more than 15% of the value of its total assets, at the time
of purchase, in deep discount securities of companies that are financially
troubled, in default or in bankruptcy or reorganization.
(17) Issue senior securities.
(18) Invest any of its assets in interests in oil, gas or other mineral
exploration or development programs, or in puts, calls, straddles or any
combination thereof.
(19) Invest more than 10% of its net assets in when-issued securities
at the time such purchase is made.
17
<PAGE>
The following investment restrictions are not fundamental and may be
changed without shareholder approval:
(1) Notwithstanding fundamental investment restriction (8) above, the
Fund will not invest in real estate limited partnership interests or in
interests in real estate investment trusts that are not readily marketable.
(2) The Fund will not purchase any security if, as a result, more than
15% of its net assets would be invested in illiquid securities, including
repurchase agreements not entitling the holder to payment of principal and
interest within seven days and any securities that are illiquid by virtue of
legal or contractual restrictions on resale or the absence of a readily
available market. The Trustees, or the Fund's investment adviser acting pursuant
to authority delegated by the Trustees, may determine that a readily available
market exists for securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended, or any other applicable rule, and therefore
that such securities are not subject to the foregoing limitation.
INSURED TAX EXEMPT FUND. INSURED TAX EXEMPT FUND will not:
(1) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 5% of the value of the Fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 5% limitation. This
policy shall not prohibit deposits of assets to provide margin or guarantee
positions in connection with transactions in options, futures contracts, swaps,
forward contracts, and other derivative instruments or the segregation of assets
in connection with such transactions.
(2) Issue senior securities.
(3) Make loans, except loans of portfolio securities (limited to 10% of
the Fund's total assets), provided such loans are at all times secured by cash
or equivalent collateral of no less than 100% by marking to market daily.
(4) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer. With respect to pre-refunded bonds, the Adviser considers an escrow
account to be the issuer of such bonds when the escrow account consists solely
of U.S. Government obligations fully substituted for the obligation of the
issuing municipality.
(5) Invest in any municipal bonds unless they will be insured municipal
bonds or unless they are already insured under an insurance policy obtained by
the issuer or underwriter thereof.
(6) Buy or sell real estate or interests in real estate limited
partnerships, although it may purchase and sell securities which are secured by
real estate or interests therein.
(7) Underwrite any issue of securities, although the Fund may purchase
municipal bonds directly from the issuer thereof for investment in accordance
with the Fund's investment objective, policy and limitations.
(8) Make investments for the purpose of exercising control or
management.
(9) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of the Trust, as principals.
(10) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer, director or Trustee of the Trust or of the Adviser owns more
than 1/2 of 1% of the outstanding securities
18
<PAGE>
of such issuer, and such officers, directors or Trustees who own more than 1/2
of 1% own in the aggregate more than 5% of the outstanding securities of such
issuer.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. These investment restrictions provide that
the Fund will not:
(1) Purchase any security if, as a result, more than 15% of its net
assets would be invested in illiquid securities, including repurchase agreements
not entitling the holder to payment of principal and interest within seven days
and any securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available market. The
Trustees, or the Fund's investment adviser acting pursuant to authority
delegated by the Trustees, may determine that a readily available market exists
for securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933, as amended, or any other applicable rule, and therefore that such
securities are not subject to the foregoing limitation.
(2) Purchase or sell physical commodities unless acquired as a result
of ownership of securities (but this restriction shall not prevent the Fund from
purchasing or selling options, futures contracts, caps, floors and other
derivative instruments, engaging in swap transactions or investing in securities
or other instruments backed by physical commodities).
(3) Enter into futures contracts or options on futures contracts if
immediately thereafter the aggregate margin deposits on all outstanding futures
contracts positions held by the Fund and premiums paid on outstanding options on
futures contracts, after taking into account unrealized profits and losses,
would exceed 5% of the market value of the total assets of the Fund, or enter
into any futures contracts or options on futures contracts if the aggregate
amount of the Fund's commitments under outstanding futures contracts positions
and options on future contracts written by the Fund would exceed the market
value of the total assets of the Fund.
(4) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (1) above,
provided the Fund maintains asset coverage of at least 300% for pledged assets;
provided, however, this limitation will not prohibit escrow, collateral or
margin arrangements in connection with the Fund's use of options, futures
contracts or options on futures contracts.
(5) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
transactions in options, futures contracts, swaps, forward contracts, and other
derivative instruments shall not be deemed to constitute purchasing securities
on margin.
(6) Sell securities short, unless it owns or has the right to obtain
securities, without additional consideration, equivalent in kind and amount to
the securities sold short, and provided that transactions in options, futures
contracts, swaps, forward contracts, and other derivative instruments are not
deemed to constitute selling securities short.
The Trust, on behalf of the Fund, has filed the following undertakings
to comply with requirements of certain states in which shares of the Fund are
sold, which may be changed without shareholder approval:
(1) Notwithstanding fundamental investment restriction (6) above, the
Fund will not invest in real estate limited partnership interests or in
interests in real estate investment trusts that are not readily marketable.
(2) Purchase any security if as a result the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) less than three years old.
(3) Invest in securities of other investment companies, except in the
case of money market funds offered without selling commissions, or in the event
of merger with another investment company.
19
<PAGE>
(4) Invest in oil, gas or other mineral leases or development programs.
(5) Invest in puts, calls, straddles, spreads or any combination
thereof if as a result the Fund would have more than 5% of its total assets in
such investments.
TRUSTEES AND OFFICERS
The following table lists the Trustees and executive officers of the
Trust, their age, business address and principal occupations during the past
five years. Unless otherwise noted, an individual's business address is 95 Wall
Street, New York, New York 10005.
GLENN O. HEAD*+ (71), President and Trustee. Chairman of the Board and Director,
Administrative Data Management Corp. ("ADM"), FIMCO, Executive Investors
Management Company, Inc. ("EIMCO"), First Investors Corporation ("FIC"),
Executive Investors Corporation ("EIC") and First Investors Consolidated
Corporation ("FICC").
ROGER L. GRAYSON* (40), Trustee, FIC and FICC; President and Director, First
Investors Resources, Inc.; Commodities Portfolio Manager.
KATHRYN S. HEAD*+ (41), Trustee, 581 Main Street, Woodbridge, NJ 07095.
President, FICC, EIMCO, ADM and FIMCO; Vice President, Chief Financial Officer
and Trustee, FIC and EIC; President and Trustee, First Financial Savings Bank,
S.L.A.
REX R. REED (75), Trustee, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN (75), Trustee, 145 Elm Drive, Roslyn, NY 11576. Retired;
formerly President, Belvac International Industries, Ltd. and President, Central
Dental Supply.
NANCY SCHAENEN (65), Trustee, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
JAMES M. SRYGLEY (64), Trustee, 33 Hampton Road, Chatham, NJ 07982. Principal,
Hampton Properties, Inc. (property investment company).
JOHN T. SULLIVAN* (65), Trustee and Chairman of the Board; Director, FIMCO, FIC,
FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH (67), Trustee, RR1, Box 2554, Upland Downs Road, Manchester
Center, VT 05255. Retired; formerly financial and planning executive with
American Telephone & Telegraph Company.
JOSEPH I. BENEDEK (39), Treasurer, 581 Main Street, Woodbridge, NJ 07095.
Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller and Treasurer, FICC.
CONCETTA DURSO (62), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
CLARK D. WAGNER (38), Vice President. Vice President, First Investors Series
Fund, First Investors Insured Tax Exempt Fund, Inc., First Investors Multi-State
Insured Tax Free Fund, First Investors New York Insured Tax Free Fund, Inc. and
First Investors Government Fund, Inc.
GEORGE V. GANTER (44), Vice President. Vice President, First Investors Asset
Management Company, Inc., First Investors High Yield, Inc., and First Investors
Special Bond Fund; Portfolio Manager, FIMCO.
20
<PAGE>
PATRICIA D. POITRA (42), Vice President. Vice President, First Investors U.S.
Government Plus Fund, First Investors Series Fund II, Inc. and First Investors
Series Fund; Director of Equities, FIMCO.
- ----------
* These Trustees may be deemed to be "interested persons," as defined in the
1940 Act.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
All of the officers and Trustees, except for Ms. Poitra and Messrs.
Ganter and Wagner, hold identical or similar positions with 14 other registered
investment companies in the First Investors Family of Funds. Mr. Head is also an
officer and/or Director of First Investors Asset Management Company, Inc., First
Investors Credit Funding Corporation, First Investors Leverage Corporation,
First Investors Realty Company, Inc., First Investors Resources, Inc., N.A.K.
Realty Corporation, Real Property Development Corporation, Route 33 Realty
Corporation, First Investors Life Insurance Company, First Financial Savings
Bank, S.L.A., First Investors Credit Corporation, School Financial Management
Services, Inc. and Specialty Insurance Group, 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, Route 33 Realty Corporation
and Specialty Insurance Group, Inc.
21
<PAGE>
The following table lists compensation paid to the Trustees of the
Trust for the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
RETIREMENT ESTIMATED FROM FIRST INVESTORS
AGGREGATE BENEFITS ACCRUED ANNUAL FAMILY
COMPENSATION AS PART OF BENEFITS UPON OF FUNDS PAID
TRUSTEE** FROM FUND* FUND EXPENSES RETIREMENT TO TRUSTEES*
<S> <C> <C> <C> <C>
James J. Coy*** $600 $-0- $-0- $37,200
Roger L. Grayson -0- -0- -0- -0-
Glenn O. Head -0- -0- -0- -0-
Kathryn S. Head -0- -0- -0- -0-
Rex R. Reed 600 -0- -0- 37,200
Herbert Rubinstein 600 -0- -0- 37,200
James M. Srygley 550 -0- -0- 34,100
John T. Sullivan -0- -0- -0- -0-
Robert F. Wentworth 600 -0- -0- 37,200
</TABLE>
* Compensation to officers and interested Trustees of the Trust is paid by
the Adviser. In addition, compensation to non-interested Trustees of the
Trust is currently voluntarily paid by the Adviser.
** Nancy Schaenen was not a Trustee in 1996.
*** On March 27, 1997 Mr. Coy resigned as a Trustee of the Trust. Mr. Coy did
not resign due to a disagreement with the Trust's management on any matter
relating to the Funds' operations, policies or practices. Mr. Coy
currently serves as an emeritus Trustee.
MANAGEMENT
Investment advisory services to each Fund are provided by Executive
Investors Management Company, Inc. pursuant to an Investment Advisory Agreement
("Advisory Agreement") dated June 13, 1994. The Advisory Agreement was approved
by the Board of Trustees of the Trust, including a majority of the Trustees who
are not parties to the Funds' Advisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such party ("Independent Trustees"), in person
at a meeting called for such purpose and by a majority of the public
shareholders of each Fund.
Pursuant to the Advisory Agreement, EIMCO shall supervise and manage
each Fund's investments, determine each Fund's portfolio transactions and
supervise all aspects of each Fund's operations, subject to review by the
Trust's Trustees. The Advisory Agreement also provides that EIMCO shall provide
the Fund with certain executive, administrative and clerical personnel, office
facilities and supplies, conduct the business and details of the operation of
the Trust and each Fund and assume certain expenses thereof, other than
obligations or liabilities of the Fund. The Advisory Agreement may be terminated
at any time, with respect to a Fund, without penalty by the Trust's Trustees or
by a majority of the outstanding voting securities of such Fund, or by EIMCO, in
each instance on not less than 60 days' written notice, and shall automatically
terminate in the event of its assignment (as defined in the 1940 Act). The
Advisory Agreement also provides that it will continue in effect, with respect
to a Fund, for a period of over two years only if such continuance is approved
annually either by the Trust's Trustees or by a majority of the outstanding
voting securities of such Fund, and, in either case, by a vote of a majority of
the Trust's Independent Trustees voting in person at a meeting called for the
purpose of voting on such approval.
Under the Advisory Agreement, each Fund pays the Adviser an annual fee,
paid monthly, according to the following schedules:
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Annual
Average Daily Net Assets Rate
Up to $200 million.................................................... 1.00%
In excess of $200 million up to $500 million.......................... 0.75
In excess of $500 million up to $750 million.......................... 0.72
In excess of $750 million up to $1.0 billion.......................... 0.69
Over $1.0 billion..................................................... 0.66
For the fiscal years ended December 31, 1994, 1995 and 1996, BLUE CHIP
FUND'S advisory fees were $9,661, $12,118 and $17,351, respectively. Of such
amounts, the Adviser voluntarily waived $9,661, $12,118 and $13,013,
respectively. For the fiscal years ended December 31, 1994, 1995 and 1996,
INSURED TAX EXEMPT FUND'S advisory fees were $98,612, $119,019 and $148,917,
respectively. Of such amounts, the Adviser voluntarily waived $98,612, $119,019
and $111,688, respectively. For the fiscal years ended December 31, 1994, 1995
and 1996, HIGH YIELD FUND'S advisory fees were $150,442, $154,785 and $161,441,
respectively. Of such amounts, the Adviser voluntarily waived $82,743, $85,132
and $80,721, respectively. For the fiscal year ended December 31, 1996, the
Adviser voluntarily reimbursed BLUE CHIP FUND and INSURED TAX EXEMPT FUND an
additional $9,462 and $12,877, respectively.
The Adviser has an Investment Committee composed of George V. Ganter,
Margaret Haggerty, Glenn O. Head, Nancy W. Jones, Patricia D. Poitra, Michael
O'Keefe, Clark D. Wagner and Richard Guinnessey. The Committee usually meets
weekly to discuss the composition of the portfolio of each Fund and to review
additions to and deletions from the portfolios.
Each Fund bears all expenses of its operations other than those incurred
by the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.
UNDERWRITER
The Trust has entered into an Underwriting Agreement ("Underwriting
Agreement") with Executive Investors Corporation ("Underwriter" or "EIC") which
requires the Underwriter to use its best efforts to sell shares of the Funds.
Pursuant to the Underwriting Agreement, the Underwriter shall bear all fees and
expenses incident to the registration and qualification of the Funds' shares. In
addition, the Underwriter shall bear all expenses of sales material or
literature, including prospectuses and proxy materials, to the extent such
materials are used in connection with the sale of the Funds' shares, unless the
Funds have agreed to bear such costs pursuant to a plan of distribution. See
"Distribution Plan." The Underwriting Agreement was approved by the Trust's
Board of Trustees, including a majority of the Independent Trustees. The
Underwriting Agreement provides that it will continue in effect from year to
year, with respect to a Fund, only so long as such continuance is specifically
approved at least annually by the Trust's Board of Trustees or by a vote of a
majority of the outstanding voting securities of such Fund, and in either case
by the vote of a majority of the Trust's Independent Trustees, voting in person
at a meeting called for the purpose of voting on such approval. The Underwriting
Agreement will terminate automatically in the event of its assignment.
For the fiscal year ended December 31, 1994, BLUE CHIP FUND paid EIC
underwriting commissions of $1,120. For the same period, EIC reallowed an
additional $395 to unaffiliated dealers and $1,120 to FIC. For the fiscal year
ended December 31, 1995, BLUE CHIP FUND paid EIC underwriting commissions of
$574. For the same period, EIC reallowed an additional $3,084 to unaffiliated
dealers and $3,084 to FIC. For the fiscal year ended December 31, 1996, BLUE
CHIP FUND paid EIC underwriting commissions of $907. For the same period, EIC
reallowed an additional $171 to unaffiliated dealers and $306 to FIC.
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For the fiscal year ended December 31, 1994, HIGH YIELD FUND paid EIC
underwriting commissions of $20,237. For the same period, EIC reallowed an
additional $122,072 to unaffiliated dealers and $20,237 to FIC. For the fiscal
year ended December 31, 1995, HIGH YIELD FUND paid EIC underwriting commissions
of $7,037. For the same period, EIC reallowed an additional $49,621 to
unaffiliated dealers and $4,349 to FIC. For the fiscal year ended December 31,
1996, HIGH YIELD FUND paid EIC underwriting commissions of $9,472. For the same
period, EIC reallowed an additional $44,575 to unaffiliated dealers and $5,446
to FIC.
For the fiscal year ended December 31, 1994, INSURED TAX EXEMPT FUND
paid EIC underwriting commissions of $9,975. For the same period, EIC reallowed
an additional $70,565 to unaffiliated dealers and $9,975 to FIC. For the fiscal
year ended December 31, 1995, INSURED TAX EXEMPT FUND paid EIC underwriting
commissions of $9,502. For the same period, EIC reallowed an additional $59,787
to unaffiliated dealers and $3,812 to FIC. For the fiscal year ended December
31, 1996, INSURED TAX EXEMPT FUND paid EIC underwriting commissions of $11,622.
For the same period, EIC reallowed an additional $62,323 to unaffiliated dealers
and $2,911 to FIC.
DISTRIBUTION PLANS
As stated in the Funds' Prospectus, pursuant to an Amended and Restated
Class A Distribution Plan adopted by the Trust pursuant to Rule 12b-1 under the
1940 Act (the "Plan"), each Fund is authorized to compensate the Underwriter for
certain expenses incurred in the distribution of that Fund's shares and the
servicing or maintenance of existing Fund shareholder accounts.
In adopting the Plan for the Funds, the Trust's Board of Trustees
considered all relevant information and determined that there is a reasonable
likelihood that the Plan will benefit each Fund and its shareholders. The
Trust's Board believes that the amounts spent pursuant to the Plan have assisted
each Fund in providing ongoing servicing to shareholders, in competing with
other providers of financial services and in promoting sales, thereby increasing
the net assets of that Fund.
The Plan was approved by the Trust's Board of Trustees, including a
majority of the Independent Trustees, and by a majority of the outstanding
voting securities of each Fund. The Plan will continue in effect, with respect
to a Fund, from year to year as long as its continuance is approved annually by
either the Board of Trustees or by a vote of a majority of the outstanding
voting securities of that Fund. In either case, to continue, the Plan must be
approved by the vote of a majority of the Independent Trustees of the Trust. The
Board reviews quarterly and annually a written report provided by the Treasurer
of the amounts expended under the Plan and the purposes for which such
expenditures were made. While the Plan is in effect, the selection and
nomination of the Trust's Independent Trustees will be committed to the
discretion of such Independent Trustees then in office. The Plan can be
terminated, with respect to a Fund, at any time by a vote of a majority of the
Independent Trustees or by a vote of a majority of the outstanding voting
securities of that Fund.
For the fiscal year ended December 31, 1996, BLUE CHIP FUND paid $6,940
in fees pursuant to the Plan. For the same period, the Underwriter waived an
additional $1,735 in fees pursuant to the Plan. For the fiscal year ended
December 31, 1996, HIGH YIELD FUND paid $64,577 in fees pursuant to the Plan.
For the same period, the Underwriter waived an additional $16,144 in fees
pursuant to the Plan. For the fiscal year ended December 31, 1996, INSURED TAX
EXEMPT FUND paid $59,567 in fees pursuant to the Plan. For the same period, the
Underwriter waived an additional $14,892 in fees pursuant to the Plan. For the
fiscal year ended December 31, 1996, the Underwriter incurred the following
Plan-related expenses with respect to each Fund:
COMPENSATION TO COMPENSATION TO COMPENSATION TO
FUND UNDERWRITER DEALERS SALES PERSONNEL
- ---- --------------- --------------- ---------------
BLUE CHIP FUND -0- $ 3,453 $ 3,487
HIGH YIELD FUND -0- 31,987 32,590
INSURED TAX EXEMPT FUND -0- 29,517 30,050
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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, the
security is valued at the mean between the closing bid and asked prices. Each
security traded in the over-the-counter ("OTC") market, securities listed on
exchanges whose primary market is believed to be OTC, is valued at the mean
between the last bid and asked prices based upon quotes furnished by a market
maker for such securities. In the absence of market quotations, a Fund will
determine the value of bonds based upon quotes furnished by market makers, if
available, or in accordance with the procedures described herein. In that
connection, the Board of Trustees has determined that a Fund may use outside
pricing services. These services are provided to the HIGH YIELD FUND by
Interactive Data Corporation and to the INSURED TAX EXEMPT FUND by Muller Data
Corporation. The pricing services use quotations obtained from investment
dealers or brokers for the particular securities being evaluated, information
with respect to market transactions in comparable securities and consider
security type, rating, market condition, yield data and other available
information in determining value. Short-term debt securities that mature in 60
days or less are valued at amortized cost if their original term to maturity
from the date of purchase was 60 days or less, or by amortizing their value on
the 61st day prior to maturity if their term to maturity from the date of
purchase exceeded 60 days, unless the Board of Trustees determines that such
valuation does not represent fair value. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the supervision of the Trust's officers in a manner specifically
authorized by the Board of Trustees of the Trust.
With respect to the HIGH YIELD FUND and INSURED TAX EXEMPT FUND,
"when-issued securities" are reflected in the assets of the Fund as of the date
the securities are purchased. Such investments are valued thereafter at the mean
between the most recent bid and asked prices obtained from recognized dealers in
such securities. With respect to HIGH YIELD FUND, quotations of foreign
securities in foreign currencies are converted into U.S. dollar equivalents
using the foreign exchange equivalents in effect.
INSURED TAX EXEMPT FUND intends not to dispose of municipal bonds which
are in significant risk of, or are in, default in the payment of principal or
interest, until the default has been cured or the principal and interest
outstanding are paid by an insurer or the issuer of any letter of credit or
other guarantee supporting such municipal bond. In its evaluation of municipal
bonds for portfolio valuation purposes, the Board of Trustees will consider the
value of insurance or any other type of guarantee supporting payments of
principal and interest. This will be accomplished by comparing the value of the
municipal bonds which are in significant risk of, or are in, default with other
municipal bonds of similar maturity, interest rate and type which are not in
default. This results in the Board of Trustees ascribing a good faith value to
the insurance or guarantee on any municipal bond which is in, or is in
significant risk of, default equal to the difference between the insured or
guaranteed security's market value and the then-prevailing market rate for
other, similar non-defaulting municipal bonds.
The Board of Trustees may suspend the determination of a Fund's net
asset value for the whole or any part of any period (1) during which trading on
the New York Stock Exchange ("NYSE") is restricted as determined by the SEC or
the NYSE is closed for other than weekend and holiday closings, (2) during which
an emergency, as defined by rules of the SEC in respect to the United States
market, exists as a result of which disposal by a Fund of securities owned by it
is not reasonably practicable for the Fund fairly to determine the value of its
net assets, or (3) for such other period as the SEC has by order permitted.
ALLOCATION OF PORTFOLIO BROKERAGE
Purchases and sales of portfolio securities by HIGH YIELD FUND and
INSURED TAX EXEMPT FUND may be principal transactions. In principal
transactions, portfolio securities are normally purchased directly from the
issuer or from an underwriter or market maker for the securities. There will
usually be no brokerage commission paid by the Funds for such purchases.
Purchases from
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underwriters will include the underwriter's commission or concession and
purchases from dealers serving as market makers will include the spread between
the bid and asked price. Certain money market instruments may be purchased by
the Funds directly from an issuer, in which no commission or discounts are paid.
The Funds may purchase fixed income securities on a "net" basis with dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a profit to the dealer.
BLUE CHIP FUND may deal in securities which are not listed on a
national securities exchange or the Nasdaq Stock Market but are traded in the
OTC market. The Fund also may purchase listed securities through the "third
market." When transactions are executed in the OTC market, the Fund seeks to
deal with the primary market makers, but when advantageous they utilize the
services of brokers.
In effecting portfolio transactions for the Funds, the Adviser seeks
best execution of trades either (1) at the most favorable and competitive rate
of commission charged by any broker or member of an exchange, or (2) with
respect to agency transactions, at a higher rate of commission if reasonable in
relation to brokerage and research services provided to the Funds or the
Adviser, by such member or broker. In addition, upon the instruction of the
Board of Trustees, the Adviser may use dealer concessions available in
fixed-price underwritings to pay for research services. Such services may
include, but are not limited to, any one or more of the following: information
as to the availability of securities for purchase or sale and statistical or
factual information or opinions pertaining to investments. The Adviser may use
research and services provided to it by brokers in servicing all the Funds;
however, not all such services may be used by the Adviser in connection with a
Fund. No portfolio orders are placed with an affiliated broker, nor does any
affiliated broker participate in these commissions.
The Adviser may combine transaction orders placed on behalf of a Fund,
other funds in the First Investors Group of Funds and First Investors Life
Insurance Company, affiliates of the Funds, for the purpose of negotiating
brokerage commissions or obtaining a more favorable transaction price; and where
appropriate, securities purchased or sold may be allocated in accordance with
written procedures approved by the Board of Trustees. The Trust's Board of
Trustees has authorized and directed the Adviser to use dealer concessions
available in fixed-price underwritings of municipal bonds to pay for research
services which are beneficial in the management of INSURED TAX EXEMPT FUND'S
portfolio.
For the fiscal year ended December 31, 1994, BLUE CHIP FUND paid $2,388
in brokerage commissions, none of which was paid to brokers who furnished
research services on portfolio transactions. For the fiscal year ended December
31, 1994, HIGH YIELD FUND paid $507 in brokerage commissions, all of which was
paid to brokers who furnished research services on portfolio transactions in the
amount of $15,211.
For the fiscal year ended December 31, 1995, BLUE CHIP FUND paid $1,041
in brokerage commissions. Of that amount $565 was paid to brokers who furnished
research services on portfolio transactions in the amount of $380,234. For the
fiscal year ended December 31, 1995, HIGH YIELD FUND did not pay brokerage
commissions..
For the fiscal year ended December 31, 1996, BLUE CHIP FUND paid $2,457
in brokerage commissions. Of that amount $1,018 was paid to brokers who
furnished research services on portfolio transactions in the amount of $671,833.
For the fiscal year ended December 31, 1996, HIGH YIELD FUND paid $310 in
brokerage commissions., all of which was paid to brokers who furnished research
services on portfolio transactions in the amount of $90,361. For the fiscal
years ended December 31, 1994, 1995 and 1996, INSURED TAX EXEMPT FUND did not
pay brokerage commissions.
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REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND
REDEMPTION INFORMATION AND OTHER SERVICES
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are applicable to purchases made at one time of
shares of any one or more of the Funds or of any one or more of the Eligible
Funds, as defined in the Prospectus, by "any person," which term shall include
an individual, or an individual's spouse and children under the age of 21, or a
trustee or other fiduciary of a single trust, estate or fiduciary account
(including a pension, profit-sharing or other employee benefit trust created
pursuant to a plan qualified under section 401 of the Internal Revenue Code of
1986, as amended (the "Code")), although more than one beneficiary is involved;
provided, however, that the term "any person" shall not include a group of
individuals whose funds are combined, directly or indirectly, for the purchase
of redeemable securities of a registered investment company, nor shall it
include a trustee, agent, custodian or other representative of such a group of
individuals.
Ownership of Class A and Class B shares of any Eligible Fund, except as
noted below, qualify for a reduced sales charge on the purchase of Fund shares.
Shares of the Funds or Class A shares of the Eligible Funds purchased at net
asset value, Class A shares of the Money Market Funds, or shares owned under a
Contractual Plan are not eligible for the purchase of Class A shares of a Fund
at a reduced sales charge through a Letter of Intent or the Cumulative Purchase
Privilege.
LETTER OF INTENT. Any of the eligible persons described above may,
within 90 days of their investment, sign a statement of intent ("Letter of
Intent") in the form provided by the Underwriter, covering purchases of shares
of any one or more of the Funds and of Class A shares of the other Eligible
Funds to be made within a period of thirteen months, provided said shares are
currently being offered to the general public and only in those states where
such shares may be legally sold, and thereby become eligible for the reduced
sales charge applicable to the total amount purchased. A Letter of Intent filed
within 90 days of the date of investment is considered retroactive to the date
of investment for determination of the thirteen-month period. The Letter of
Intent is not a binding obligation on either the investor or the Fund. During
the term of a Letter of Intent, Administrative Data Management Corp. ("Transfer
Agent") will hold shares representing 5% of each purchase in escrow, which
shares will be released upon completion of the intended investment.
Purchases of shares made under a Letter of Intent are made at the sales
charge applicable to the purchase of the aggregate amount of shares covered by
the Letter of Intent as if they were purchased in a single transaction. The
applicable quantity discount will be based on the sum of the then current public
offering price (i.e., net asset value plus applicable sales charge) of all
shares of the Funds and Class A shares of the Eligible Funds, including the net
asset value of all Class B shares of the Eligible Funds and the Money Market
Funds, currently owned, together with the aggregate offering price of purchases
to be made under the Letter of Intent. If all such shares are not so purchased,
a price adjustment is made, depending upon the actual amount invested within
such period, by the redemption of sufficient shares held in escrow in the name
of the investor (or by the investor paying the commission differential). A
Letter of Intent can be amended (1) during the thirteen-month period if the
purchaser files an amended Letter of Intent with the same expiration date as the
original Letter of Intent, or (2) automatically after the end of the period, if
total purchases credited to the Letter of Intent qualify for an additional
reduction in the sales charge. The Letter of Intent privilege may be modified or
terminated at any time by the Underwriter.
CUMULATIVE PURCHASE PRIVILEGE. Upon written notice to FIC, shares of a
Fund are also available at a quantity discount on new purchases if the then
current public offering price (i.e., net asset value plus applicable sales
charge) of all shares of the Funds and Class A shares of the Eligible Funds,
plus the net asset value of all Class B shares of the Eligible Funds, including
Class B shares of the Money Market Funds, previously purchased and then owned,
plus the value of shares being purchased at the current public offering price,
amount to $100,000 or more. Such quantity discounts may be modified or
terminated at any time by the Underwriter.
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SYSTEMATIC INVESTING
FIRST INVESTORS MONEY LINE. This service allows you to invest in a Fund
through automatic deductions from your bank checking account. Scheduled
investments in the minimum amount of $50 may be made on a bi-weekly,
semi-monthly, monthly, quarterly, semi-annual or annual basis. The maximum
amount which may be invested through First Investors Money Line is $10,000 a
month. Shares of the Fund are purchased at the public offering price determined
at the close of business on the day your designated bank account is debited. You
may change the amount or discontinue this service at any time by calling
Shareholder Services or writing to Administrative Data Management Corp., 581
Main Street, Woodbridge, NJ 07095-1198, Attn: Control Dept. It takes between
three and five business days to process any changes you request be made to your
Money Line service. Money Line application forms are available from your
Representative or by calling Shareholder Services at 1-800-423-4026.
AUTOMATIC PAYROLL INVESTMENT. You also may arrange for automatic
investments in the minimum amount of $50 into a Fund on a systematic basis
through salary deductions, provided your employer has direct deposit
capabilities. Shares of the Fund are purchased at the public offering price
determined as of the close of business on the day the electronic fund transfer
is received by the Fund. You may change the amount or discontinue the service by
contacting your employer. An application is available from your Representative
or by calling Shareholder Services at 1-800-423-4026. Arrangements must also be
made with your employer's payroll department.
CROSS-INVESTMENT OF CASH DISTRIBUTIONS. You may elect to invest in
shares of a Fund at net asset value all the cash distributions from any other
Fund or Class A shares of an Eligible Fund. The investment will be made at the
net asset value per share of the Fund, generally determined as of the close of
business, on the business day immediately following the record date of any such
distribution. You may also elect to invest cash distributions of a Fund's shares
into shares of any other Fund or Class A shares of an Eligible Fund, including
the Money Market Funds. If your distributions are to be invested in a new
account, you must invest a minimum of $50 per month. See "Dividends and Other
Distributions" in the Prospectus. To arrange for cross-investing, call
Shareholder Services at 1-800-423-4026.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own noncertificated shares
may establish a Systematic Withdrawal Plan ("Withdrawal Plan"). If you have a
Fund account with a value of at least $5,000, you may elect to receive monthly,
quarterly, semi-annual or annual checks for any designated amount (minimum $25).
The $5,000 minimum account balance is currently being waived for required
minimum distributions on retirement plan accounts and for Systematic Plan
payments which are made into certain affiliated entities (see (i) and (ii) in
the following sentence). You may have the payments sent directly to you or
persons you designate. Regardless of the amount of your Fund account, you may
also elect to the have the Systematic Plan payments automatically (i) invested
at net asset value in Class A shares of any other Eligible Fund, including the
Money Market Funds, or (ii) paid to First Investors Life Insurance Company for
the purchase of a life insurance policy or a variable annuity. If your
Systematic Plan payments are to be invested in a new Eligible Fund account, you
must invest a minimum of $600 per year. Dividends and other distributions, if
any, are reinvested in additional shares of the Fund. Shareholders may add
shares to the Withdrawal Plan or terminate the Withdrawal Plan at any time.
Withdrawal Plan payments will be suspended when a distributing Fund has received
notice of a shareholder's death on an individual account. Payments may
recommence upon receipt of written alternate payment instructions and other
necessary documents from the deceased's legal representative. Withdrawal
payments will also be suspended when a payment check is returned to the Transfer
Agent marked as undeliverable by the U.S. Postal Service after two consecutive
mailings.
The withdrawal payments derived from the redemption of sufficient
shares in the account to meet designated payments in excess of dividends and
other distributions may deplete or possibly extinguish the initial investment,
particularly in the event of a market decline, and may result in a capital gain
or loss depending on the shareholder's cost. Purchases of additional shares of a
Fund concurrent with withdrawals are ordinarily disadvantageous to shareholders
because of tax liabilities and sales charges. To establish a Withdrawal Plan,
call Shareholder Services at 1-800-423-4026.
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ELECTRONIC FUND TRANSFER. Shareholders may establish Electronic Fund
Transfers ("EFT") between Fund accounts and a predesignated bank account by
completing an application and having all shareholders' signatures guaranteed. If
the bank account registration is not identical to the Fund account, a signature
guarantee of the bank account holder is required for Money Line purchases.
Shareholders may choose EFT privileges for Money Line purchases or redemptions
or both. The minimum EFT amount is $500 and the maximum is $50,000. The total
EFT redemptions during a 30 day period may not exceed $100,000. Each Fund has
the right, at its sole discretion, to limit or terminate your ability to
exercise the EFT privileges at any time. Fund shares will be purchased on the
day the Fund receives the funds, which is normally two days after the EFT is
initiated. The EFT normally will be initiated on the next bank business day
after the redemption request is received and will ordinarily be received by the
predesignated bank account within two days after transmission. However, once the
funds are transmitted, the time of receipt and the availability of the funds are
not within the Funds' control. No dividends are paid on the proceeds of redeemed
shares awaiting EFT.
SIGNATURE GUARANTEES. The words "Signature Guaranteed" must appear in
direct association with the signature of the guarantor. Members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange
Medallion Signature Program), SEMP (Stock Exchanges Medallion Program) and FIC
are eligible signature guarantors. A notary public is not an acceptable
guarantor. Although each Fund reserves the right to require signature guarantees
at any other time, signature guarantees are required whenever: (1) the amount of
the redemption is over $50,000, (2) an exchange in the amount over $50,000 is
made into the Money Market Funds, (3) a redemption check is to be made payable
to someone other than the registered accountholder, other than major financial
institutions, as determined solely by the Fund and its agent, on behalf of the
shareholder, (4) a redemption check is to be mailed to an address other than the
address of record, preauthorized bank account, or to a major financial
institution for the benefit of a shareholder, (5) an account registration is
being transferred to another owner, (6) a transaction requires additional legal
documentation; (7) the redemption request is for certificated shares; (8) your
address of record has changed within 60 days prior to a redemption request; (9)
multiple owners have a dispute or give inconsistent instructions; (10) the
authority of a representative of a corporation, partnership, association or
other entity has not been established to the satisfaction of a Fund or its
agents; and (11) you elect EFT privileges. ERISA Title I 403(b) Plans and 401(k)
Plans are exempt from the signature guarantee requirement except for exchanges
or redemption in amounts greater than $50,000.
REINVESTMENT AFTER REDEMPTION. If you redeem shares in your Fund
account, you can reinvest within six months from the date of redemption all or
any part of the proceeds in shares of the same Fund, any other Fund or Class A
shares of any other Eligible Fund (including the Money Market Funds), at net
asset value, on the date the Transfer Agent receives your purchase request. If
your reinvestment is into a new account, other than the Money Market Funds, it
must meet the minimum investment and other requirements of the fund into which
the reinvestment is being made. If you reinvest into a new Money Market Fund
account within one year from the date of redemption, the minimum investment is
$500. To take advantage of this option, send your reinvestment check along with
a written request to the Transfer Agent within six months from the date of your
redemption. Include your account number and a statement that you are taking
advantage of the "Reinvestment Privilege."
TELEPHONE TRANSACTIONS. Fund shares not held in certificate form may be
exchanged or redeemed by telephone provided you have not declined telephone
privileges. Telephone exchanges are available between non-retirement accounts.
Telephone exchanges are also available between participant directed 401(k)
accounts where First Financial Savings (as defined below) acts as Custodian, IRA
accounts or 403(b) accounts of the same class of shares registered in the same
name. Telephone exchanges are also available from an individually registered
non-retirement account to an IRA account of the same class of shares in the same
name (provided an IRA application is on file). Telephone exchanges are not
available for exchanges of Fund shares for plan units.
As stated in the Funds' Prospectus, the Trust, the Adviser, the
Underwriter and their officers, directors, trustees and employees will not be
liable for any loss, damage, cost or expense arising out of any instruction (or
any interpretation of such instruction) received by telephone which they
reasonably
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believe to be authentic. In acting upon telephone instructions, these parties
use procedures which are reasonably designed to ensure that such instructions
are genuine, such as (1) obtaining some or all of the following information:
account number, address, social security number and such other information as
may be deemed necessary; (2) recording all telephone instructions; and (3)
sending written confirmation of each transaction to the shareholder's address of
record.
CANCELLED CHECKS. Copies of cancelled purchase, liquidation or dividend
checks will be provided to shareholders upon request. Shareholders will be
charged $10.00 per check.
EMERGENCY PRICING PROCEDURES. In the event that the Funds must halt
operations during any day that they would normally be required to price under
Rule 22c-1 under the Investment Company of 1940 due to an emergency ("Emergency
Closed Day"), the Funds will apply the following procedures:
1. The Funds will make every reasonable effort to segregate orders
received on the Emergency Closed Day and give them the price that they would
have received but for the closing. The Emergency Closed Day price will be
calculated as soon as practicable after operations have resumed and will be
applied equally to sales, redemptions and repurchases that were in fact received
in the mail or otherwise on the Emergency Closed Day.
2. For purposes of paragraph 1, an order will be deemed to have been
received by the Funds on an Emergency Closed Day, even if neither the Funds nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:
(a) In the case of a mail order, the order will be considered
received by a Fund when the postal service has delivered it to FIC's Woodbridge
offices prior to the close of regular trading on the NYSE, or such other time as
may be prescribed in the Funds' Prospectus; and
(b) In the case of a wire order, including a Fund/SERV order, the
order will be considered received when it is received in good form by a FIC
branch office or an authorized dealer prior to the close of regular trading on
the NYSE, or such other time as may be prescribed in the Funds' 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.
PROFIT-SHARING/MONEY PURCHASE PENSION/401(K) PLANS. FIC offers
prototype Profit-Sharing, Money Purchase Pension and 401(k) Retirement Plans
("Retirement Plans"), approved by the IRS for corporations, sole proprietorships
and partnerships. Custodial Agreements can be utilized for such Retirement Plans
that provide that First Financial Savings Bank, S.L.A. ("First Financial
Savings"), an affiliate of FIC, will furnish all required custodial services.
FIC offers additional versions of prototype qualified retirement plans
for eligible employers, including 401(k), money purchase and profit-sharing
plans.
Currently, there are no annual service fees chargeable to participants
in connection with a Retirement Plan account. Each Fund currently pays the
annual $10.00 custodian fee for each Retirement Plan account, if applicable,
maintained with such Fund. This policy may be changed at any time by a Fund on
45 days' written notice. First Financial Savings has reserved the right to waive
its fees at any time or to change the fees on 45 days' prior written notice.
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The Retirement Plan documents contain further specific information
about the Retirement Plans and may be obtained from your Representative. Prior
to establishing a Retirement Plan, you are advised to consult with your legal
and tax advisers.
INDIVIDUAL RETIREMENT ACCOUNTS. A qualified individual may purchase
shares of a Fund through an IRA or, as an employee of a qualified employer,
through a simplified employee pension-IRA ("SEP-IRA") or a salary reduction
simplified employee pension-IRA ("SARSEP-IRA") furnished by FIC. Under the
related Custodial Agreements, First Financial Savings acts as custodian of each
of these retirement plans.
Effective January 1, 1997, legislation enables certain eligible
employees to establish a Savings Incentive Match Plan for Employees of Small
Employers ("SIMPLE-IRAs"). FIC intends to offer a prototype SIMPLE-IRA plan for
eligible employers. First Financial Savings will act as Custodian for the
SIMPLE-IRA plan.
The Funds offer IRA accounts with specific provisions tailored to meet
the needs of certain groups of investors. The custodian fees are disclosed in
the IRA documents provided to investors in such accounts.
A taxpayer generally may make an annual individual IRA contribution no
greater than the lesser of (a) 100% of his or her compensation or (b) $2,000 (or
$4,000 when also contributing to a spousal IRA). However, contributions are
deductible only under certain conditions. The requirements as to SEP-IRAs,
SARSEP-IRAs and SIMPLE-IRAs are described in IRS Forms 5305-SEP, 5305A-SEP and
5305-SIMPLE, respectively, which are provided to employers. Employers are
required to provide copies of these forms to their eligible employees. A
disclosure statement setting forth complete details of the IRA should be given
to each participant before the contribution is invested.
Currently, there are no annual service fees chargeable to a participant
in connection with an IRA, SEP-IRA or SARSEP-IRA. Each Fund currently pays the
annual $10.00 custodian fee for each IRA account maintained with such Fund. This
policy may be changed at any time by a Fund on 45 days' written notice to the
holder of any IRA, SEP-IRA or SARSEP-IRA. First Financial Savings has reserved
the right to waive its fees at any time or to change the fees on 45 days' prior
written notice to the holder of any IRA.
An application and other documents necessary to establish an IRA,
SEP-IRA or SARSEP-IRA, are available from your Representative. SIMPLE-IRA
applications will also be available. Prior to establishing an IRA, SEP-IRA,
SARSEP-IRA or SIMPLE-IRA, you are advised to consult with your legal and tax
advisers.
RETIREMENT BENEFIT PLANS FOR EMPLOYEES OF ELIGIBLE ORGANIZATIONS. FIC
makes available model custodial accounts under Section 403(b)(7) of the Code
("Custodial Accounts") to provide retirement benefits for employees of certain
eligible public educational institutions and other eligible non-profit
charitable, religious and humane organizations. The Custodial Accounts are
designed to permit contributions (up to a "maximum exclusion allowance") by
employees through salary reduction. First Financial Savings acts as custodian of
these accounts.
Contributions may be made to a Custodial Account under the Optional
Retirement Program for Employees of Texas Institutions of Higher Education
("ORP"), either by salary reduction agreement or otherwise, in accordance with
the terms and conditions of the ORP, and under the Texas Deferred Compensation
Plan Program for eligible state employees by salary reduction agreement. In
addition, contributions may also be made to other deferred compensation plans
maintained by state or local governments, or their agencies, commonly referred
to as Section 457 plans.
Currently, there are no annual service fees chargeable to participants
in connection with a Custodial Account. Each Fund currently pays the annual
$10.00 custodian fee for each Custodial Account maintained with such Fund. This
policy may be changed at any time by a Fund on 45 days'
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written notice to a Custodial Account participant. First Financial Savings has
reserved the right to waive its fees at any time or to change the fees on 45
days' prior written notice to a Custodial Account participant.
An application and other documents necessary to establish a Custodial
Account are available from your Representative. Persons desiring to create a
Custodial Account are advised to confer with their legal and tax advisers
concerning the specifics of this type of retirement benefit plan.
Mandatory income tax withholding, at the applicable rate may be
required on "eligible rollover" distributions made from any of the foregoing
retirement plans (other than IRAs, including SEP-IRAs, SARSEP-IRAs and
SIMPLE-IRAs). If the recipient elects to directly transfer an eligible rollover
distribution to an "eligible retirement plan" that permits acceptance of such
distributions, no withholding will apply. For distributions that are not
"eligible rollover" distributions, the recipient can elect, in writing, not to
require any withholding. This election must be submitted immediately before, or
must accompany, the distribution request. The amount, if any, of any such
optional withholding depends on the amount and type of the distribution.
Appropriate election forms are available from the Custodian or Shareholder
Services. Other types of withholding nonetheless may apply.
DISTRIBUTION FEES. A participant/shareholder's account under any of the
foregoing retirement plans (including IRAs) may be charged a distribution fee
(at the time of withdrawal) of $7.00 for a single distribution of the entire
account and $1.00 for each periodic distribution therefrom.
TAXES
Each Fund is treated as a separate corporation for Federal income tax
purposes. In order to continue to qualify for treatment as a regulated
investment company ("RIC") under the Code, a Fund 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 HIGH YIELD FUND, net gains from certain foreign currency
transactions) plus its net interest income excludable from gross income under
section 103(a) of the Code ("Distribution Requirement") and must meet several
additional requirements. For each Fund these requirements include the following:
(1) the Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options or futures contracts) derived with respect
to its business of investing in securities or those currencies ("Income
Requirement"); (2) the Fund must derive less than 30% of its gross income each
taxable year from the sale or other disposition of securities, or any of the
following, that were held for less than three months -- options or futures
contracts (other than those on foreign currencies), or foreign currencies (or
options or futures contracts thereon), that are not directly related to the
Fund's principal business of investing in securities (or options and futures
with respect thereto) ("Short-Short Limitation"); (3) 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 (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of any one issuer.
Dividends and other distributions declared by a Fund in October,
November or December of any year and payable to shareholders of record on a date
in any of those months are deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will be
reported to shareholders of INSURED TAX EXEMPT FUND and taxed to shareholders of
HIGH YIELD FUND and BLUE CHIP FUND for the year in which that December 31 falls.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
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A portion of the dividends from BLUE CHIP FUND'S investment company
taxable income may be eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the aggregate dividends
received by the Fund from U.S. corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the Federal alternative minimum tax. No
dividends paid by INSURED TAX EXEMPT FUND or HIGH YIELD FUND are expected to be
eligible for this deduction.
If shares of a Fund are sold at a loss after being held for six months
or less, the loss (to the extent, in the case of INSURED TAX EXEMPT FUND, it is
not disallowed) will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Dividends and interest received by HIGH YIELD FUND may be subject to
income, withholding or other taxes imposed by foreign countries that would
reduce the yield 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.
For HIGH YIELD FUND, gains from the disposition of foreign currencies
(except certain gains that may be excluded by future regulations) will qualify
as permissible income under the Income Requirement. However, income from the
Fund's disposition of foreign currencies that are not directly related to its
principal business of investing in securities (or options and futures with
respect to securities) will be subject to the Short-Short Limitation if they are
held for less than three months.
HIGH YIELD FUND and INSURED TAX EXEMPT FUND may acquire zero coupon
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 it
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 and
avoid imposition of the Excise Tax, either 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. In addition, any such gains may be realized on the disposition of
securities held for less than three months. Because of the Short-Short
Limitation, any such gains would reduce a Fund's ability to sell other
securities, or certain options or futures contracts or foreign currency
positions, held for less than three months that it might wish to sell in the
ordinary course of its portfolio management.
The use of hedging strategies, such as selling (writing) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains and
losses a Fund realizes in connection therewith. Gains from options or futures
contracts derived by a Fund with respect to its business of investing in
securities will qualify as permissible income under the Income Requirement.
However, income from a Fund's disposition of options and futures contracts will
be subject to the Short-Short Limitation if they are held for less than three
months.
If a Fund satisfies certain requirements, then any increase in value of
a position that is part of a "designated hedge" will be offset by any decrease
in value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Fund intends that, when it engages in hedging strategies, it will qualify for
this treatment, but at the present time it is not clear whether this treatment
will be available for all of the Funds' hedging transactions. To the extent this
treatment is not available, a Fund may be forced to defer the closing out of
certain options or futures contracts
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beyond the time when it otherwise would be advantageous to do so, in order for
the Fund to continue to qualify as a RIC.
Dividends paid by INSURED TAX EXEMPT FUND will qualify as
exempt-interest dividends as defined in the Prospectus, and thus will be
excludable from gross income for Federal income tax purposes by its
shareholders, if the Fund satisfies the additional requirement that, at the
close of each quarter of its taxable year, at least 50% of the value of its
total assets consists of securities the interest on which is excludable from
gross income under section 103(a); the Fund intends to continue to satisfy this
requirement. The aggregate dividends excludable from the Fund shareholder's
gross income may not exceed the Fund's net tax-exempt income. The shareholders'
treatment of dividends from the Fund under state and local income tax laws may
differ from the treatment thereof under the Code. Investors should consult their
tax advisers concerning this matter.
If shares of INSURED TAX EXEMPT FUND are sold at a loss after being
held for six months or less, the loss will be disallowed to the extent of any
exempt-interest dividends received on those shares, and the portion of the loss
that is not disallowed, if any, will be treated as long-term, instead of
short-term, capital loss to the extent of any capital gain distributions
received on those shares.
Tax-exempt interest attributable to certain private activity bonds
("PABs") (including, in the case of INSURED TAX EXEMPT FUND receiving interest
on such bonds, a proportionate part of the exempt-interest dividends paid by
that Fund) is Tax Preference Item. Exempt-interest dividends received by a
corporate shareholder also may be indirectly subject to the alternative minimum
tax without regard to whether the Fund's tax-exempt interest was attributable to
such bonds. Entities or other persons who are "substantial users" (or persons
related to "substantial users") of facilities financed by PABs or industrial
development bonds ("IDBs") should consult their tax advisers before purchasing
shares of the Fund because, for users of certain of these facilities, the
interest on such bonds is not exempt from Federal income tax. For these
purposes, the term "substantial user" is defined generally to include a
"non-exempt person" who regularly uses in trade or business a part of a facility
financed from the proceeds of PABs or IDBs.
Up to 85% of social security and certain railroad retirement benefits
may be included in taxable income for recipients whose modified adjusted gross
income (which includes income from tax-exempt sources such as INSURED TAX EXEMPT
FUND) plus 50% of their benefits exceeds certain base amounts. Exempt-interest
dividends from the Fund still are tax-exempt to the extent described in the
Prospectus; they are only included in the calculation of whether a recipient's
income exceeds the established amounts.
INSURED TAX EXEMPT FUND may invest in municipal bonds that are
purchased, generally not on their original issue, with market discount (that is,
at a price less than the principal amount of the bond or, in the case of a bond
that was issued with original issue discount, a price less than the amount of
the issue price plus accrued original issue discount) ("municipal market
discount bonds"). Gain on the disposition of a municipal market discount bond
purchased by the Fund after April 30, 1993 (other than a bond with a fixed
maturity date within one year from its issuance), generally is treated as
ordinary (taxable) income, rather than capital gain, to the extent of the bond's
accrued market discount at the time of disposition. Market discount on such a
bond generally is accrued ratably, on a daily basis, over the period from the
acquisition date to the date of maturity. In lieu of treating the disposition
gain as above, the Fund may elect to include market discount in its gross income
currently, for each taxable year to which it is attributable.
If INSURED TAX EXEMPT FUND invests in any instruments that generate
taxable income, distributions of the interest earned thereon will be taxable to
the Fund's shareholders as ordinary income to the extent of its earnings and
profits. Moreover, if the Fund realizes capital gain as a result of market
transactions, any distributions of such gain will be taxable to its
shareholders. There also may be collateral Federal income tax consequences
regarding the receipt of exempt-interest dividends by shareholders such as S
corporations, financial institutions and property and casualty insurance
companies. A shareholder falling into any such category should consult its tax
adviser concerning its investment in shares of the Fund.
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PERFORMANCE INFORMATION
A Fund may advertise its performance in various ways.
Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)caret(1/n)]-1
The "total return" uses the same factors, but does not average the rate
of return on an annual basis. Total return is determined as follows:
(ERV-P)/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, each Fund will deduct the maximum sales
charge of 4.75% (as a percentage of the offering price) from the initial $1,000
payment. All dividends and other distributions are assumed to have been
reinvested at net asset value on the initial investment ("P").
Return information may be useful to investors in reviewing a Fund's
performance. However, certain factors should be taken into account before using
this information as a basis for comparison with alternative investments. No
adjustment is made for taxes payable on distributions. Return will fluctuate
over time and return for any given past period is not an indication or
representation by a Fund of future rates of return on its shares. At times, the
Adviser may reduce its compensation or assume expenses of a Fund in order to
reduce the Fund's expenses. Any such waiver or reimbursement would increase the
Fund's return during the period of the waiver or reimbursement.
Average annual return and total return computed at the public offering
price for the periods ended December 31, 1996 are set forth in the tables below:
AVERAGE ANNUAL TOTAL RETURN:*
ONE YEAR FIVE YEARS LIFE OF FUND**
BLUE CHIP FUND 14.92% 11.74% 12.26%
HIGH YIELD FUND 8.28 11.32 9.00
INSURED TAX EXEMPT FUND (.84) 8.02 8.90
TOTAL RETURN:*
ONE YEAR FIVE YEARS LIFE OF FUND**
BLUE CHIP FUND 14.92% 74.21% 115.30%
HIGH YIELD FUND 8.28 70.93 132.26
INSURED TAX EXEMPT FUND (.84) 47.05 73.14
- -----------------
* All return figures reflect the current maximum sales charge of 4.75% and
dividends reinvested at net asset value. Prior to October 28, 1988, the
maximum sales charge for HIGH YIELD FUND was 4.00% and its dividends were
reinvested at the public offering price (net asset value plus applicable
sales charge). Certain expenses of the Funds have been waived or
reimbursed from commencement of operations through December 31, 1996.
Accordingly, return figures are higher than they would have been had such
expenses not been waived or reimbursed.
** The inception dates for the Funds are as follows: BLUE CHIP FUND - May 17,
1990; HIGH YIELD FUND - March 24, 1987; and INSURED TAX EXEMPT FUND - July
26, 1990.
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Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual return and total return computed
at net asset value for the periods ended December 31, 1996 is set forth in the
tables below:
AVERAGE ANNUAL TOTAL RETURN:*
ONE YEAR FIVE YEARS LIFE OF FUND**
BLUE CHIP FUND 20.62% 20.00% 13.08%
HIGH YIELD FUND 13.69 12.39 9.55
INSURED TAX EXEMPT FUND 4.11 9.07 9.73
TOTAL RETURN:*
ONE YEAR FIVE YEARS LIFE OF FUND**
BLUE CHIP FUND 20.62% 82.86% 126.04%
HIGH YIELD FUND 13.69 79.35 143.89
INSURED TAX EXEMPT FUND 4.11 54.38 81.76
- -----------------
* All return figures reflect the current maximum sales charge of 4.75% and
dividends reinvested at net asset value. Prior to October 28, 1988, the
maximum sales charge for HIGH YIELD FUND was 4.00% and its dividends were
reinvested at the public offering price (net asset value plus applicable
sales charge). Certain expenses of the Funds have been waived or
reimbursed from commencement of operations through December 31, 1996.
Accordingly, return figures are higher than they would have been had such
expenses not been waived or reimbursed.
** The inception dates for the Funds are as follows: BLUE CHIP FUND - May 17,
1990; HIGH YIELD FUND - March 24, 1987; and INSURED TAX EXEMPT FUND - July
26, 1990.
Yield for HIGH YIELD FUND and INSURED TAX EXEMPT FUND is presented for
a specified thirty-day period ("base period"). Yield is based on the amount
determined by (i) calculating the aggregate amount of dividends and interest
earned by a Fund during the base period less expenses accrued for that period
(net of reimbursement), and (ii) dividing that amount by the product of (A) the
average daily number of shares of that Fund outstanding during the base period
and entitled to receive dividends and (B) the per share maximum public offering
price of that Fund on the last day of the base period. The result is annualized
by compounding on a semi-annual basis to determine a Fund's yield. For this
calculation, interest earned on debt obligations held by a Fund is generally
calculated using the yield to maturity (or first expected call date) of such
obligations based on their market values (or, in the case of receivables-backed
securities such as GNMA Certificates, based on cost). Dividends on equity
securities are accrued daily at their estimated stated dividend rates.
INSURED TAX-EXEMPT FUND's tax-equivalent yield during the base period
may be presented in one or more stated tax brackets. Tax-equivalent yield is
calculated by adjusting the Fund's tax-exempt yield by a factor designed to show
the approximate yield that a taxable investment would have to earn to produce an
after-tax yield equal to the Fund's tax-exempt yield.
To calculate a taxable bond yield which is equivalent to a tax-exempt
bond yield (for Federal tax purposes), shareholders may use the following
formula:
Tax Free Yield
-------------- = Taxable Equivalent Yield
1 - Your Tax Bracket
For the 30 days ended December 31, 1996, the yield and tax-equivalent
yield (assuming a Federal tax rate of 28%) for INSURED TAX EXEMPT FUND was 4.55%
and 6.32%, respectively. The maximum Federal tax rate for this period was 39.6%.
For the 30 days ended December 31, 1996, the yield for HIGH YIELD FUND was
7.60%. Some of the Funds' expenses were waived or reimbursed
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during this period. Accordingly, yields are higher than they would have been had
such expenses not been waived or reimbursed.
The distribution rate for HIGH YIELD FUND and INSURED TAX EXEMPT FUND
is presented for a twelve-month period. It is calculated by adding the dividends
for the last twelve months and dividing the sum by a Fund's offering price per
share at the end of that period. The distribution rate is also calculated by
using a Fund's net asset value. Distribution rate calculations do not include
capital gain distributions, if any, paid. The distribution rate for the
twelve-month period ended December 31, 1996 for shares of HIGH YIELD FUND and
INSURED TAX EXEMPT FUND calculated using the offering price was 8.41% and 4.58%,
respectively. The distribution rate for the same period for shares of HIGH YIELD
FUND and INSURED TAX EXEMPT FUND calculated using the net asset value was 8.82%
and 4.81%, respectively. During this period certain expenses of the Funds were
waived or reimbursed. Accordingly, the distribution rates are higher than they
would have been had such expenses not been waived or reimbursed.
Each Fund may include in advertisements and sales literature,
information, examples and statistics to illustrate the effect of compounding
income at a fixed rate of return to demonstrate the growth of an investment over
a stated period of time resulting from the payment of dividends and capital gain
distributions in additional shares. These examples may also include hypothetical
returns comparing taxable versus tax-deferred growth which would pertain to an
IRA, section 403(b)(7) Custodial Account or other qualified retirement program.
The examples used will be for illustrative purposes only and are not
representations by the Funds of past or future yield or return. Examples of
typical graphs and charts depicting such historical performances, compounding
and hypothetical returns are included in Appendix C.
From time to time, in reports and promotional literature, the Funds may
compare their performance to, or cite the historical performance of, Overnight
Government repurchase agreements, U.S. Treasury bills, notes and bonds,
certificates of deposit, and six-month money market certificates or indices of
broad groups of unmanaged securities considered to be representative of, or
similar to, a Fund's portfolio holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized
independent service that monitors and ranks the performance of
regulated investment companies. The Lipper performance analysis
includes the reinvestment of capital gain distributions and income
dividends but does not take sales charges into consideration. The
method of calculating total return data on indices utilizes actual
dividends on ex-dividend dates accumulated for the quarter and
reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of
Morningstar, Inc. Morningstar proprietary ratings reflect historical
risk-adjusted performance and are subject to change every month. Funds
with at least three years of performance history are assigned ratings
from one star (lowest) to five stars (highest). Morningstar ratings are
calculated from the Fund's three-, five-, and ten-year average annual
returns (when available) and a risk factor that reflects fund
performance relative to 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
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obligations of the U.S. Treasury and agencies of the U.S. Government as
well as common stocks, preferred stocks, convertible preferred stocks,
options and commodities; in addition to indices prepared by the
research departments of such financial organizations as Lehman Bros.,
Merrill Lynch, Pierce, Fenner and Smith, Inc., First Boston, Salomon
Brothers, Morgan Stanley, Goldman, Sachs & Co., Donaldson, Lufkin &
Jenrette, Value Line, Datastream International, James Capel, S.G.
Warburg Securities, County Natwest and UBS UK Limited, including
information provided by the Federal Reserve Board, Moody's, and the
Federal Reserve Bank.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal,
coupon and total return on over 100 different taxable bond indices
which Merrill Lynch tracks. They also list the par weighted
characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication
which tracks principal, coupon and total return on the Lehman
Govt./Corp. Index and Lehman Aggregate Bond Index, as well as all the
components of these Indices.
Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average of 30 stocks are unmanaged lists of common stocks
frequently used as general measures of stock market performance. Their
performance figures reflect changes of market prices and quarterly
reinvestment of all distributions but are not adjusted for commissions
or other costs.
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of inflation. The Index shows
changes in the cost of selected consumer goods and does not represent a
return on an investment vehicle.
The NYSE composite of component indices--unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the
NYSE.
The Russell 2500 Index, prepared by the Frank Russell Company, consists
of U.S. publicly traded stocks of domestic companies that rank from 500
to 3000 by market capitalization. The Russell 2500 tracks the return on
these stocks based on price appreciation or depreciation and does not
include dividends and income or changes in market values caused by
other kinds of corporate changes.
The 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.
Reuters, a wire service that frequently reports on global business.
Standard & Poor's Utilities Index is an unmanaged capitalization
weighted index comprising common stock in approximately 40 electric,
natural gas distributors and pipelines, and telephone companies. The
Index assumes the reinvestment of dividends.
Moody's Stock Index, an unmanaged index of utility stock performance.
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.
38
<PAGE>
GENERAL INFORMATION
AUDITS AND REPORTS. The accounts of each Fund are audited twice a year
by Tait, Weller & Baker, independent certified public accountants, Two Penn
Center Plaza, Philadelphia, PA, 19102-1707. Shareholders of each Fund receive
semi-annual and annual reports, including audited financial statements, and a
list of securities owned.
5% SHAREHOLDERS. As of March 31, 1997, the following beneficially owned
more than 5% of the shares of the BLUE CHIP FUND:
SHAREHOLDER % OF SHARES
----------- -----------
Ruth B. Schott 6.5
4411 3rd Street NW
Hickory, NC 28601
Alice P. Skokos 5.0
130 Laurel Ave
Sea Girt, NJ 08750
Robert E. Nunnally, Jr. 6.7
3361 Lakeland Dr., SW
Roanoke, VA 24018
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent
for the Funds and as redemption agent for regular redemptions. The fees charged
to each Fund by the Transfer Agent are $5.00 to open an account; $3.00 for each
certificate issued; $.75 per account per month; $10.00 for each legal transfer
of shares; $.45 per account per dividend declared; $5.00 for each exchange of
shares into a Fund; $5.00 for each partial withdrawal or complete liquidation;
$1.00 for each Systematic Withdrawal Plan check; $4.00 for each shareholder
services call; $20.00 for each item of correspondence; and $1.00 per account per
report required by any governmental authority. Additional fees charged to the
Funds by the Transfer Agent are assumed by the Underwriter. The Transfer Agent
reserves the right to change the fees on prior notice to the Funds. Upon request
from shareholders, the Transfer Agent will provide an account history. For
account histories covering the most recent three year period, there is no
charge. The Transfer Agent charges a $5.00 administrative fee for each account
history covering the period 1983 through 1994 and $10.00 per year for each
account history covering the period 1974 through 1982. Account histories prior
to 1974 will not be provided. If any communication from the Transfer Agent to a
shareholder is returned from the U.S. Postal Service marked as "Undeliverable"
two consecutive times, the Transfer Agent will cease sending any further
materials to the shareholder until the Transfer Agent is provided with a correct
address. Furthermore, if there is no known address for a shareholder for at
least one year, the Transfer Agent will charge such shareholder's account $40 to
cover the Transfer Agent's expenses in trying to locate the shareholder's
correct address. For the fiscal year ended December 31, 1996, HIGH YIELD FUND,
BLUE CHIP FUND and INSURED TAX EXEMPT FUND paid $17,870, $2,386 and $8,257,
respectively, in transfer agency fees and expenses. The Transfer Agent's
telephone number is 1-800-423-4026.
SHAREHOLDER LIABILITY. The Trust is organized as an entity known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable for the
obligations of the Trust. The Declaration of Trust however, contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the Trust or the Trustees. The
Declaration of Trust provides for indemnification out of the property of the
Trust of any shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment
39
<PAGE>
thereon. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which
the Trust itself would be unable to meet its obligations. The Adviser
believes that, in view of the above, the risk of personal liability to
shareholders is immaterial and extremely remote. The Declaration of
Trust further provides that the Trustees will not be liable for errors
of judgment or mistakes of fact or law, but nothing in the Declaration
of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct
of his office. The Trust may have an obligation to indemnify Trustees
and officers with respect to litigation.
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, the Trust and the
Adviser have adopted Codes of Ethics restricting personal securities trading by
portfolio managers and other access persons of the Funds. Among other things,
such persons, except the Trustees: except the Trustees: (a) must have all
non-exempt trades pre-cleared; (b) are restricted from short-term trading; (c)
must have duplicate statements and transactions confirmations reviewed by a
compliance officer; and (d) are prohibited from purchasing securities of initial
public offerings.
APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
Standard & Poor's Rating Group ("S&P") commercial paper rating is a
current assessment of the likelihood of timely payment of debt considered
short-term in the relevant market. Ratings are graded into several categories,
ranging from "A-1" for the highest quality obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
Moody's Investors Service, Inc. ("Moody's") short-term debt ratings are
opinions of the ability of issuers to repay punctually senior debt obligations
which have an original maturity not exceeding one year. Obligations relying upon
support mechanisms such as letters-of-credit and bonds of indemnity are excluded
unless explicitly rated.
PRIME-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
40
<PAGE>
APPENDIX B
DESCRIPTION OF MUNICIPAL NOTE RATINGS
STANDARD & POOR'S RATINGS GROUP
S&P's note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment.
- Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note).
- Source of Payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the difference between short-term credit risk and long-term risk.
MIG-1. Loans bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
41
<PAGE>
APPENDIX C
[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.
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.
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
<PAGE>
[The following table is represented as graph in the printed document.]
This chart illustrates the time value of money based upon the following
assumptions:
If you invested $2,000 each year for 20 years, starting at 25, assuming a 9%
investment return, you would accumulate $573,443 by the time you reach age 65.
However, had you invested the same $2,000 each year for 20 years, at that rate,
but waited until age 35, you would accumulate only $242,228 - a diference of
$331,215.
25 years old .............. 533,443
35 years old .............. 202,228
45 years old .............. 62,320
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.
<PAGE>
[The following table is represented as chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1995.
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
<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
1995........................ 1.00
1996........................ 1.03
1997........................ 1.06
1998 ....................... 1.09
1999 ....................... 1.13
2000 ....................... 1.16
2001 ....................... 1.19
2002 ....................... 1.23
2003 ....................... 1.27
2004 ....................... 1.30
2005 ....................... 1.34
2006 ....................... 1.38
2007 ....................... 1.43
2008 ....................... 1.47
2009 ....................... 1.51
2010 ....................... 1.56
2011 ....................... 1.60
2012 ....................... 1.65
2013 ....................... 1.70
2014 ....................... 1.75
2015 ....................... 1.81
2016 ....................... 1.86
2017 ....................... 1.92
2018 ....................... 1.97
2019 ....................... 2.03
2020 ....................... 2.09
2021 ....................... 2.16
2022 ....................... 2.22
2023 ....................... 2.29
2024 ....................... 2.36
2025 ....................... 2.43
Inflation erodes your buying power. $100 in 1966, could purchase the same amount
of goods and service as $21 in 1995.* Projecting inflation at 3%, goods and
services costing $100 today will cost $243 in the year 2025.
* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.
<PAGE>
[The following tables are represented as graphs in the printed document.]
This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.
1926 through 1995(1)
Total Number of Percentage of
Number of Positive Positive
Periods Periods Periods
------- ------- -------
1-Year Periods 70 50 71%
5-Year Periods 66 59 89%
10-Year Periods 61 59 97%
15-Year Periods 56 56 100%
20-Year Periods 51 51 100%
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. (2)
Compound Annual Return from 1981 -- 1995(1)
Inflation ..................... 3.93
U.S. Treasury Bills ........... 7.11
Large Company Stocks .......... 14.80
The following chart illustrates for the period shown that long-term corpoate
bonds have outpaced U.S. Treasury Bills and inflation.
Compound Annual Return from 1981 -- 1995(1)
Inflation ..................... 3.93
U.S. Treasury Bills ........... 7.11
Long-Term Corp. bonds ......... 13.46
(1) Sources: Stocks, Bonds, Bill and Inflation 1996 Yearbook, Ibbotson
Associates, Chicago.
(2) Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, reeturns of U.S. Treasury bills historically have
not outpaced inflation by as great a margin as stocks.
The accompanying table illustrates that if you are in the 36% tax bracket, a
tax-free yield of 3% is actually equivalent to a taxable investment earning
4.69%.
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.
<PAGE>
Financial Statements
as of December 31, 1996
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, 1996 electronically filed with the Commission on
March 4, 1997 (Accession Number: 00000912057-97-007731).
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Financial Statements are set forth in Part B, Statement of
Additional Information.
(b) Exhibits:
(1)/2/ Amended and Restated Declaration of Trust
(2)/2/ By-laws
(3) Not Applicable
(4) Shareholders' rights are contained in (a) Articles
III, VIII, X, XI and XII of Registrant's Amended
and Restated Declaration of Trust dated October
28, 1986, as amended September 22, 1994,
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
(5)/2/ Investment Advisory Agreement between Registrant and
Executive Investors Management Company, Inc.
(6)/2/ Underwriting Agreement between Executive Investors
Corporation and the Registrant
(7) Not Applicable
(8)a./2/ Custodian Agreement between Irving Trust Company and
Registrant
b./2/ Supplement to Custodian Agreement between The Bank of New
York and Registrant
(9)/2/ Administration Agreement by and among Administrative
Data Management Corp., Executive Investors Corporation
and Registrant
(10)/1/ Opinion of Counsel
(11)a. Consent of independent accountants
b./2/ Powers of Attorney
(12) Not Applicable
(13)/3/ No undertakings in effect
<PAGE>
(14)a./3/ First Investors Profit Sharing/Money Purchase Pension
Retirement Plan for Sole Proprietorships, Partnerships,
and Corporations
b./4/ First Investors Individual Retirement Account
c./5/ First Investors 403(b) Custodial Account
d./4/ First Investors SEP-IRA and SARSEP-IRA
(15)/2/ Amended and Restated Class A Distribution Plan
(16) Performance Calculations
(17) Financial Data Schedule (filed as Exhibit 27 for electronic
filing purposes)
(18) Not Applicable
- ----------
/1/ Incorporated by reference from Registrant's Rule 24f-2 Notice for its
fiscal year ending December 31, 1996 filed on February 27, 1997.
/2/ Incorporated by reference from Post-Effective Amendment No. 17 to
Registrant's Registration Statement (File No. 33-10648) filed on April 24,
1996.
/3/ Incorporated by reference from Post-Effective Amendment No. 11 to
Registrant's Registration Statement (File No. 33-10648) filed on August
30, 1991.
/4/ Incorporated by reference from Post-Effective Amendment No. 13 to
Registrant's Registration Statement (File No. 33-10648) filed on April 2,
1993.
/5/ Incorporated by reference from Post-Effective Amendment No. 8 to
Registrant's Registration Statement (File No. 33-10648) filed on September
20, 1990.
Item 25. Persons Controlled by or under common control with Registrant
There are no persons controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
Number of
Record Holders as of
Title of Class February 3, 1997
Class A
Executive Investors
High Yield Fund 820
Executive Investors
Blue Chip Fund 138
Executive Investors
Insured Tax Exempt Fund 367
Item 27. Indemnification
Indemnification provisions are contained in:
1. Article XI, Sections 1 and 2 of Registrant's Declaration of Trust
(Exhibit 1 to Part C hereof);
2. Paragraph 7 of the Investment Advisory Agreement by and between
Executive Investors Management Company, Inc. and Registrant (Exhibit 5 to
Part C hereof); and
<PAGE>
3. Paragraph 7 of the Underwriting Agreement by and between
Executive Investors Corporation and Registrant (Exhibit 6 to Part C
hereof).
The general effect of these indemnification provisions 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.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers or persons
controlling the Registrant pursuant to the foregoing, the Registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. See Item 32 herein.
Item 28. Business and Other Connections of Investment Adviser
Affiliations of the officers and directors of the Investment
Adviser are set forth in Part B, Statement of Additional Information, under
"Trustees and Officers."
Item 29. Principal Underwriters
(a) Inapplicable
(b) The following persons are the officers and directors of the
Underwriter:
Position and Office Position and
Name and Principal with Executive Office with
Business Address Investors Corporation Registrant
- ------------------ --------------------- ------------
Glenn O. Head Chairman and Director President
95 Wall Street and Trustee
New York, NY 10005
Marvin M. Hecker President None
95 Wall Street
New York, NY 10005
Joseph I. Benedek Treasurer Treasurer
581 Main Street
Woodbridge, NJ 07095
Kathryn S. Head Vice President, Trustee
581 Main Street Chief Financial
Woodbridge, NJ 07095 Officer and Director
<PAGE>
Carol Lerner Brown Secretary Assistant Secretary
95 Wall Street
New York, NY 10005
Robert J. Murphy Comptroller None
581 Main Street
Woodbridge, NJ 07095
(c) Not applicable
Item 30. Location of Accounts and Records
Physical possession of the books, accounts and records of the
Registrant are held by Executive Investors Management Company, Inc. and its
affiliated companies, Executive Investors Corporation and Administrative Data
Management Corp., at their corporate headquarters, 95 Wall Street, New York, NY
10005 and administrative offices, 581 Main Street, Woodbridge, NJ 07095, except
for those maintained by the Registrant's Custodian, The Bank of New York, 48
Wall Street, New York, NY 10286.
Item 31. Management Services
Inapplicable
Item 32. Undertakings
The Registrant undertakes to carry out all indemnification
provisions of its 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.
The Registrant hereby undertakes to furnish a copy of its latest
annual report to shareholders, upon request and without charge, to each person
to whom a prospectus is delivered.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this Amendment
meets all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this Post-Effective Amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
9th day of April, 1997.
EXECUTIVE INVESTORS TRUST
(Registrant)
By: /s/ Glenn O. Head
----------------
Glenn O. Head
President and Trustee
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Amendment to this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
/s/Glenn O. Head Principal Executive April 9, 1997
- ------------------------- Officer and Trustee
Glenn O. Head
/s/Joseph I. Benedek Principal Financial April 9, 1997
- ------------------------- and Accounting Officer
Joseph I. Benedek
* Trustee April 9, 1997
- -------------------------
Kathryn S. Head
* Trustee April 9, 1997
- -------------------------
Roger L. Grayson
* Trustee April 9, 1997
- -------------------------
Herbert Rubinstein
* Trustee April 9, 1997
- -------------------------
Nancy Schaenen
* Trustee April 9, 1997
- -------------------------
James M. Srygley
* Trustee April 9, 1997
- -------------------------
John T. Sullivan
* Trustee April 9, 1997
- -------------------------
Rex R. Reed
* Trustee April 9, 1997
- -------------------------
Robert F. Wentworth
*By: /s/Larry R. Lavoie
------------------
Larry R. Lavoie
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
99.B11.1 Consent of accountants
99.B11.2 Power of Attorney
99.B16 Performance Calculations
27.01 FDS-Blue Chip Fund
27.02 FDS-High Yield Fund
27.03 FDS-Tax Exempt Fund
Consent of Independent Certified Public Accountants
Executive Investors Trust
95 Wall Street
New York, New York 10005
We consent to the use in Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A (File No. 33-10648) of our report dated
January 31, 1997 relating to the December 31, 1996 financial statements of
Executive Investors Trust, which are included in said Registration Statement.
/s/ Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 10, 1997
Executive Investors Trust
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer and/or
trustee of Executive Investors Trust hereby appoints Larry R. Lavoie or Glenn O.
Head, and each of them, his true and lawful attorney to execute in his name,
place and stead and on his behalf a Registration Statement on Form N-1A for the
registration pursuant to the Securities Act of 1933 and the Investment Company
Act of 1940 of shares of beneficial interest of said Massachusetts business
trust, and any and all amendments to said Registration Statement (including
post-effective amendments), and all instruments necessary or incidental in
connection therewith and to file the same with the Securities and Exchange
Commission. Said attorney shall have full power and authority to do and perform
in the name and on behalf of the undersigned every act whatsoever requisite or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do, the undersigned hereby ratifying and
approving all such acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
3rd day of April, 1997.
/s/ Nancy Schaenen
Nancy Schaenen
Yields for First Investor's Funds are calculated using the following formula:
2(((((a-b) + ((cd)-e))+1)-)-1)
Where:
a = dividends and interest earned during the 30 day period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
e = undeclared earned income.
The following is a list of the information used to calculate the for Executive
Investors Trust as of December 31, 1996.
<TABLE>
<CAPTION>
*Tax
Equivalent
a b c d e Yield Yield
- - - - - ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund $119,851 $10,821 2,112,270 $8.28 $.00 7.60% N/A
Insured Tax Exempt Fund $69,983 $9,381 1,112,654 $14.51 $.00 4.55% 6.32%
</TABLE>
<PAGE>
Distribution yields for Executive Investor's Funds are calculated using the
following formula:
Yield = (a/b)
Where:
a = dividends declared during the last 12 months.
b = Net asset value per share on the last day of the period.
The following is a list of the information used to calculate the distribution
yield for Executive Investors Trust as of December 31, 1996.
Distribution
a b Yield
- - -----
High Yield Fund $.696 $ 7.89 8.82%
Insured Tax Exempt Fund $.665 $13.82 4.81%
<PAGE>
SEC Standardized Total Returns
Average Annual Total Return and Total Return for Executive Investors Funds are
calculated using the following standardized formula:
Average Annual
Total Return = ((ERV / P) ) - 1
Total Return = ((ERV - P) / P)
Where: ERV = Ending redeemable value of a hypothetical $1,000
investment made at the beginning of 1, 5, or 10 year
periods (or fractional period there of.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the standardized
average annual total return and total return for Executive Investors Trust as of
December 31, 1996.
AVE. ANNUAL TOTAL
ERV P N TOTAL RETURN RETURN
--- - - ------------ ------
Blue Chip Fund
--------------
1 year: $ 1,149.20 $ 1,000.00 1.00 14.92% 14.92%
5 years: $ 1,742.10 $ 1,000.00 1.00 11.74% 74.21%
Life of Fund: $ 2,153.00 $ 1,000.00 6.63 12.26% 115.30%
High Yield Fund
---------------
1 year: $ 1,082.80 $ 1,000.00 1.00 8.28% 8.28%
5 years: $ 1,709.30 $ 1,000.00 5.00 11.32% 70.93%
Life of Fund: $ 2,322.60 $ 1,000.00 9.78 9.00% 132.26%
Insured Tax Exempt Fund
- -----------------------
1 year: $ 991.60 $ 1,000.00 1.00 (.84%) (.84%)
5 years: $ 1,470.50 $ 1,000.00 5.00 8.02% 47.05%
Life of Fund: $ 1,731.40 $ 1,000.00 6.46 8.90% 73.14%
<PAGE>
NAV Only Total Returns
Average Annual Total Return and Total Return for Executive Investors Funds are
calculated using the following standardized formula:
Average Annual
Total Return = ((ERV / P) ) - 1
Total Return = ((ERV - P) / P)
Where: ERV = Ending redeemable value of a hypothetical $1,000
investment made at the beginning of 1, 5, or 10
year periods (or fractional period there of.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the average annual
total return and total return for Executive Investors Trust as of December 31,
1996.
AVE. ANNUAL TOTAL
ERV P N TOTAL RETURN RETURN
--- - - ------------ ------
Blue Chip Fund
--------------
1 year: $ 1,206.20 $ 1,000.00 1.00 20.62% 20.62%
5 years: $ 1,828.60 $ 1,000.00 5.00 12.83% 82.86%
Life of Fund: $ 2,260.40 $ 1,000.00 6.63 13.08% 126.04%
High Yield Fund
---------------
1 year: $ 1,136.90 $ 1,000.00 1.00 13.69% 13.69%
5 years: $ 1,793.50 $ 1,000.00 5.00 12.39% 79.35%
Life of Fund: $ 2,438.90 $ 1,000.00 9.78 9.55% 143.89%
Insured Tax Exempt Fund
- -----------------------
1 year: $ 1,041.10 $ 1,000.00 1.00 4.11% 4.11%
5 years: $ 1,543.80 $ 1,000.00 5.00 9.07% 54.38%
Life of Fund: $ 1,817.60 $ 1,000.00 6.46 9.73% 81.76%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000807332
<NAME> EXECUTIVE INVESTORS TRUST
<SERIES>
<NUMBER> 1
<NAME> BLUE CHIP SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1536
<INVESTMENTS-AT-VALUE> 2033
<RECEIVABLES> 3
<ASSETS-OTHER> 134
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2170
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 5
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1661
<SHARES-COMMON-STOCK> 118
<SHARES-COMMON-PRIOR> 87
<ACCUMULATED-NII-CURRENT> (4)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 498
<NET-ASSETS> 2160
<DIVIDEND-INCOME> 30
<INTEREST-INCOME> 6
<OTHER-INCOME> 0
<EXPENSES-NET> (13)
<NET-INVESTMENT-INCOME> 23
<REALIZED-GAINS-CURRENT> 119
<APPREC-INCREASE-CURRENT> 200
<NET-CHANGE-FROM-OPS> 342
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24)
<DISTRIBUTIONS-OF-GAINS> (119)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34
<NUMBER-OF-SHARES-REDEEMED> 11
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> 734
<ACCUMULATED-NII-PRIOR> 3
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (17)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (40)
<AVERAGE-NET-ASSETS> 1735
<PER-SHARE-NAV-BEGIN> 16.32
<PER-SHARE-NII> .220
<PER-SHARE-GAIN-APPREC> 3.130
<PER-SHARE-DIVIDEND> (.240)
<PER-SHARE-DISTRIBUTIONS> (1.069)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.36
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000807332
<NAME> EXECUTIVE INVESTORS TRUST
<SERIES>
<NUMBER> 2
<NAME> HIGH YIELD SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 15348
<INVESTMENTS-AT-VALUE> 16414
<RECEIVABLES> 429
<ASSETS-OTHER> 62
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16905
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47
<TOTAL-LIABILITIES> 47
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20899
<SHARES-COMMON-STOCK> 2125
<SHARES-COMMON-PRIOR> 2064
<ACCUMULATED-NII-CURRENT> 154
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5095)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 816
<NET-ASSETS> 132
<DIVIDEND-INCOME> 64
<INTEREST-INCOME> 1611
<OTHER-INCOME> 31
<EXPENSES-NET> (192)
<NET-INVESTMENT-INCOME> 1514
<REALIZED-GAINS-CURRENT> (140)
<APPREC-INCREASE-CURRENT> 707
<NET-CHANGE-FROM-OPS> 2081
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1455)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 323
<NUMBER-OF-SHARES-REDEEMED> 341
<SHARES-REINVESTED> 80
<NET-CHANGE-IN-ASSETS> 1101
<ACCUMULATED-NII-PRIOR> 95
<ACCUMULATED-GAINS-PRIOR> (4955)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (161)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (294)
<AVERAGE-NET-ASSETS> 16144
<PER-SHARE-NAV-BEGIN> 7.59
<PER-SHARE-NII> .720
<PER-SHARE-GAIN-APPREC> .280
<PER-SHARE-DIVIDEND> (.696)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.89
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000807332
<NAME> EXECUTIVE INVESTORS TRUST
<SERIES>
<NUMBER> 3
<NAME> INSURED TAX EXEMPT SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 14319
<INVESTMENTS-AT-VALUE> 15274
<RECEIVABLES> 268
<ASSETS-OTHER> 58
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15600
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 137
<TOTAL-LIABILITIES> 137
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14452
<SHARES-COMMON-STOCK> 1115
<SHARES-COMMON-PRIOR> 950
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 955
<NET-ASSETS> 15408
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 834
<OTHER-INCOME> 0
<EXPENSES-NET> (112)
<NET-INVESTMENT-INCOME> 722
<REALIZED-GAINS-CURRENT> 120
<APPREC-INCREASE-CURRENT> (216)
<NET-CHANGE-FROM-OPS> 626
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (722)
<DISTRIBUTIONS-OF-GAINS> (120)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 286
<NUMBER-OF-SHARES-REDEEMED> 159
<SHARES-REINVESTED> 38
<NET-CHANGE-IN-ASSETS> 2066
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (149)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (255)
<AVERAGE-NET-ASSETS> 14892
<PER-SHARE-NAV-BEGIN> 14.04
<PER-SHARE-NII> .660
<PER-SHARE-GAIN-APPREC> (.100)
<PER-SHARE-DIVIDEND> (.665)
<PER-SHARE-DISTRIBUTIONS> (.108)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.82
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
