As filed with the Securities and Exchange Commission on April 28, 1998
Registration No. 33-10648
811-4927
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 20 _X_
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 20 _X_
----------
EXECUTIVE INVESTORS TRUST
(Exact name of Registrant as specified in charter)
95 Wall Street
New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
212-858-8000
(Registrant's Telephone Number, Including Area Code)
Ms. Concetta Durso
Secretary and Vice President
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, 1998 pursuant
to paragraph (b) of Rule 485.
<PAGE>
EXECUTIVE INVESTORS TRUST
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------- --------
PART A: PROSPECTUS
<S> <C>
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
</TABLE>
<PAGE>
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. It is the Fund's
policy to remain relatively fully invested in equity securities under all market
conditions rather than to attempt to time the market by maintaining large cash
or fixed-income securities positions when market declines are anticipated. The
Fund is appropriate for investors who are comfortable with a fully invested
stock portfolio.
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 "Types of Securities and Their
Risks-High Yield Securities."
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 16.
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, 1998 (which is
incorporated by reference herein), has been filed with the Securities and
Exchange Commission. The SAI is available at no charge upon request to the 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, 1998
<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)
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees(1)+ Fees(2)+ Expenses(3) Expenses(4)+
-------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Blue Chip Fund........................... 0.50% 0.40% 0.10%+ 1.00%
High Yield Fund.......................... 0.50 0.40 0.32 1.22
Insured Tax Exempt Fund.................. 0.30 0.40 0.10+ 0.80
</TABLE>
- ----------
* 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) Management Fees have been restated for High Yield Fund and Insured Tax
Exempt Fund to reflect current fees. For the fiscal year ended December 31,
1997, 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 Management Fees for a minimum period ending December 31,
1998 in excess of 0.50% for Blue Chip Fund and High Yield Fund and in
excess of 0.30% for Insured Tax Exempt Fund.
(2) The Underwriter has agreed through December 31, 1998 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, 1997, the Adviser reimbursed Blue
Chip Fund and Insured Tax Exempt Fund for certain Other Expenses. Absent
such waiver, Other Expenses would have been 0.53% 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, 1998.
(4) If certain fees and expenses had not been waived or reimbursed, Total Fund
Operating Expenses would have been as follows: Blue Chip Fund - 2.03%; 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.
2
<PAGE>
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 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, 1997, except that certain Operating Expenses have been
restated, as noted above.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
1 Year 3 Year 5 Years 10 Years
------ ------ ------- --------
Blue Chip Fund........................ $57 $78 $100 $164
High Yield Fund....................... 59 84 111 188
Insured Tax Exempt Fund............... 55 72 90 142
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. 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. The table has been derived from
financial statements which have been audited 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.
4
<PAGE>
[This Page Intentionally Left Blank]
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
---------------------------------------------------------------------------------
Less Distributions
Income from Investment Operations from
----------------------------------- ------------------
Net Realized
Net Asset and
Value Net Unrealized Total from Net
--------- Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gain butions
- ----------------------------------------------------------------------------------------------------------------------------
<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
1997 ................................. 18.36 .19 4.68 4.87 .19 1.36 1.55
HIGH YIELD FUND
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
1997 ................................. 7.89 .68 .23 .91 .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
1997 ................................. 13.82 .67 .71 1.38 .67 .12 .79
</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, 1997.
++ Average commission rate (per share of security) as required by amended
disclosure requirements effective in 1996.
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets + Assumed
---------------------- ---------------------
Net Assets Net Net
Net Asset End of Invest- Invest- Average
Value Total Period ment ment Portfolio Commi
End Return** (in Expenses Income Expenses Income Turnover -sion
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 $ --
13.49 27.65 677 .03 2.58 3.72 (1.11) 31 --
13.78 4.13 786 .41 1.95 2.55 (.19) 50 --
14.07 8.13 956 .50 1.63 2.30 (.17) 47 --
12.75 (1.21) 1,041 .50 1.82 2.54 (.22) 89 --
16.32 36.30 1,427 .50 1.99 2.20 .29 33 --
18.36 20.62 2,160 .75 1.33 2.28 (.20) 50 .0689
21.68 26.58 3,727 .75 .92 2.03 (.36) 163 .0651
$ 9.01 21.31 $ 9,205 -- 13.63 2.14 11.49 56 $ --
7.74 (1.11) 20,335 -- 13.61 1.82 11.79 36 --
5.89 (12.51) 11,683 .31 13.71 1.94 12.08 44 --
7.10 35.38 11,071 .95 12.22 2.17 11.00 40 --
7.43 16.89 10,491 1.29 10.72 2.10 9.90 83 --
7.89 17.04 14,231 1.34 9.49 1.95 8.88 89 --
6.98 (2.32) 15,142 1.33 9.45 1.88 8.90 53 --
7.59 19.08 15,672 1.35 9.52 1.90 8.97 69 --
7.89 13.69 16,773 1.22 9.38 1.82 8.78 27 --
8.10 12.03 19,234 1.22 8.68 1.82 8.08 49 --
$ 11.71 8.00(a) $ 653 .09(a) 4.41(a) 1.70(a) 2.79(a) 0 $ --
12.39 13.20 4,369 .12 6.23 2.41 3.94 112 --
12.83 11.03 5,875 .47 5.88 1.89 4.47 131 --
13.77 15.74 9,447 .50 5.29 1.68 4.11 97 --
12.53 (3.95) 10,363 .50 5.39 1.80 4.09 215 --
14.04 20.53 13,342 .50 5.35 1.74 4.11 147 --
13.82 4.11 15,408 .75 4.85 1.71 3.89 116 --
14.41 10.30 16,193 .75 4.80 1.71 3.84 126 --
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Average Average Average
Monthly Monthly Number Amount of
Amount Amount of Debt of Shares Debt Per
of Debt Outstanding Outstanding Share
Outstanding at During the During the During the
End of Period Period Period Period
- -----------------------------------------------------------------------------------------------------------------
INSURED TAX EXEMPT FUND
<S> <C> <C> <C> <C>
7/26/90* to 12/31/90 .............. $ 239,223 $ 39,871 52,282 $ 0.76
1991 ............................... -- 32,701 200,690 0.16
1992 ............................... -- -- 410,953 --
1993 ............................... -- 18,126 582,792 0.03
1994 ............................... -- -- 771,907 --
1995 ............................... -- 73,200 879,202 0.08
1996 ............................... -- 4,009 1,081,638 --
1997 .............................. -- 5,188 1,118,164 --
</TABLE>
*Commencement of operations
8
<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. It is the Fund's policy to remain
relatively fully invested in equity securities under all market conditions
rather than to attempt to time the market by maintaining large cash or
fixed-income securities positions when market declines are anticipated. The Fund
is appropriate for investors who are comfortable with a fully invested stock
portfolio.
The Fund defines Blue Chip companies as those companies that are included
in the S&P 500. Blue Chip companies are considered to be of relatively high
quality and generally exhibit superior fundamental characteristics, which may
include: potential for consistent earnings growth, a history of profitability
and payment of dividends, leadership position in their industries and markets,
proprietary products or services, experienced management, high return on equity
and a strong balance sheet. Blue Chip companies usually exhibit less investment
risk and share price volatility than smaller, less established companies.
Examples of Blue Chip companies are Microsoft Corp., General Electric Co.,
Pepsico Inc. and Bristol-Myers Squibb Co.
The fixed-income securities in which the Fund may invest include money
market instruments (including prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), obligations issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations") (including mortgage-backed
securities) and corporate debt securities. However, no more than 5% of the
Fund's net assets may be invested in corporate debt securities rated below Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
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 total 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
9
<PAGE>
Yield Securities include the following instruments: fixed, variable or floating
rate debt obligations (including bonds, debentures and notes) which are rated
below Baa by Moody's or below BBB by S&P, or are unrated and deemed to be of
comparable quality by the Adviser; preferred stocks and dividend-paying common
stocks that have yields comparable to those of high yielding debt securities;
any of the foregoing securities of companies that are financially troubled, in
default or undergoing bankruptcy or reorganization ("Deep Discount Securities");
and any securities convertible into any of the foregoing. See "High Yield
Securities" and "Deep Discount Securities," below.
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,
invest up to 10% of its net assets in securities issued on a when-issued or
delayed delivery basis, make loans of portfolio securities, invest in restricted
securities (which may not be publicly marketable) and invest in zero coupon and
pay-in-kind 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; securities issued by the U.S.
Government or its agencies or instrumentalities ("U.S. Government Obligations");
warrants and money market instruments consisting of prime commercial paper,
certificates of deposit of domestic branches of U.S. banks, bankers' acceptances
and repurchase agreements.
In any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents, including bank certificates
of deposit, bankers' acceptances, U.S. Government Obligations and commercial
paper issued by domestic corporations. See the SAI for more information
concerning these securities.
The medium- to lower-rated, and certain of the unrated, securities in which
the Fund invests tend to offer higher yields than higher-rated securities with
the same maturities because the historical financial condition of the issuers of
such securities may not be as strong as that of other issuers. Debt obligations
rated lower than A by Moody's or S&P 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 value tend to
fluctuate more than higher quality securities. The greater risks and
fluctuations in yield and value occur because investors generally perceive
issuers of lower-rated and unrated securities to be less creditworthy. These
risks cannot be eliminated, but may be reduced by diversifying holdings to
minimize the portfolio impact of any single investment. In addition,
fluctuations in market value 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, its net asset value 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
10
<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 period for
Federal income tax purposes or to seek capital appreciation.
Because of the greater number of investment considerations involved in
investing in High Yield Securities, the achievement of the Fund's investment
objectives depends more on the Adviser's research abilities than would be the
case if the Fund were investing primarily in securities in the higher rated
categories. Because medium-to lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities, investors
should consider carefully the relative risks associated with investments in
securities that carry medium to lower ratings or are unrated. See "Types of
Securities and Their Risks-High Yield Securities" 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, 1997, computed on a monthly basis, is
set forth below. This information reflects the average composition of the Fund's
assets during the 1997 fiscal year and is not necessarily representative of the
Fund as of the end of its 1997 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 ....................... 0.59% 0.75%
Ba......................... 11.01 0.00
B.......................... 73.02 5.06
Caa........................ 1.88 3.61
Ca......................... 0.00 0.03
Total............... 94.22% 9.45%
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."
11
<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 issued on a when-issued or delayed delivery basis, which involves an
arrangement whereby delivery of, and payment for, the instruments occur up to 45
days after the agreement to purchase the instruments is made by 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." 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 that 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 tax. 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 that are related in
such a way that economic, business, political developments, or other changes
that 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.
12
<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. See the SAI for more information on ADRs.
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.
13
<PAGE>
Debt Securities. The market value of debt securities is influenced
primarily by changes in the level of interest rates. Generally, as interest
rates rise, the market value of debt securities decreases. Conversely, as
interest rates fall, the market value of debt securities increases. Factors
which could result in a rise in interest rates, and a decrease in the market
value of debt securities, include an increase in inflation or inflation
expectations, an increase in the rate of U.S. economic growth, an expansion in
the Federal budget deficit or an increase in the price of commodities such as
oil. In addition, the market value of debt securities is influenced by
perceptions of the credit risks associated with such securities. Credit risk is
the risk that adverse changes in economic conditions can affect an issuer's
ability to pay principal and interest. 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."
High Yield Securities. High Yield Securities are subject to certain risks
that may not be present with investments in higher grade debt securities.
Effect of Interest Rate and Economic Changes. Debt obligations rated lower
than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds," are
speculative and generally involve a higher risk or loss of principal and income
than higher-rated debt securities. The prices of High Yield Securities tend to
be less sensitive to interest rate changes than higher-rated 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.
14
<PAGE>
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 may not
be as liquid as higher-grade bonds. A less active and thinner market for High
Yield Securities than that
15
<PAGE>
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.
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 Assurance
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 IBCA, 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 interest rates. The
interest rates on inverse floaters may be significantly reduced, even to zero,
if interest rates rise. The Fund may invest up to 10% of its net assets in
inverse floaters.
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
16
<PAGE>
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.
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.
17
<PAGE>
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, 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 Securities and Illiquid Investments. Each Fund may invest up to
15% of its net assets in illiquid investments, including (1) securities that are
illiquid due to the absence of a readily available market or due to legal or
contractual restrictions on resale and (2) repurchase agreements maturing in
more than seven days. However, illiquid investments for purposes of this
limitation do not include restricted securities eligible for resale under Rule
144A under the Securities Act of 1933, as amended ("Rule 144A Securities"),
which the Board of Trustees or the Adviser has determined are liquid under
Board-approved guidelines. In addition, there is a risk of increasing
illiquidity during times when qualified institutional buyers are uninterested in
purchasing Rule 144A Securities. See the SAI for more information regarding
restricted securities and illiquid investments, including the risks involved in
their use.
Taxable Securities. 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
18
<PAGE>
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.
When-Issued Securities. High Yield Fund and Insured Tax Exempt Fund each
may 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. Under such an arrangement, delivery of, and payment for, a security occurs
up to 60 days after the agreement to purchase the security is made by a Fund.
The purchase price to be paid by a Fund and the interest rate on the instruments
to be purchased are both selected when a Fund agrees to purchase the securities
"when-issued." When a Fund purchases securities 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 a Fund
incurring a loss or missing an opportunity to make an alternative investment.
Each Fund is permitted to sell when-issued securities prior to issuance of such
securities, but will not purchase such securities with that purpose intended.
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. For a further
discussion of when-issued securities, see "When-Issued Securities" in the SAI.
Zero Coupon and Pay-In-Kind Securities. Zero coupon securities are debt
obligations that do not entitle the holder to any periodic payment of interest
prior to maturity or a specified date when the securities begin paying current
interest. They are issued and traded at a discount from their face amount or par
value, which discount varies depending on the time remaining until cash payments
begin, prevailing interest rates, liquidity of the security and the perceived
credit quality of the issuer. Pay-in-kind securities are those that pay interest
through the issuance of additional securities. The market prices of zero coupon
and pay-in-kind securities generally are more volatile than the prices of
securities that pay interest periodically and in cash and are likely to respond
to changes in interest rates to a greater degree than do other types of debt
securities having similar maturities and credit quality. Original issue discount
earned each year on zero coupon securities (including zero coupon Municipal
Securities) and the "interest" on pay-in-kind securities must be accounted for
by a Fund that holds the securities for purposes of determining the amount it
must distribute that year to continue to qualify for tax treatment as a
regulated investment company and, for High Yield Fund, to avoid certain excise
tax on undistributed income. Thus, a Fund may be required to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. See "Taxes" 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.
19
<PAGE>
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 126% for the fiscal year ending
December 31, 1997. The Blue Chip Fund made adjustments to its portfolio in order
to bring holdings more in line with S&P 500 weightings. The adjustments, due to
the recent strength in the equity market, were more frequent than usual,
resulting in a portfolio turnover rate of 163% for the fiscal year ending
December 31, 1997. A high rate of portfolio turnover (100% or more) 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 High Yield Fund's 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 Dealer
Representative (each, a "Representative") may help you complete and submit an
application to open an account with a Fund. Certain accounts may require
additional documentation.
With respect to certain shareholder privileges noted in this Prospectus and
the SAI, each fund in the First Investors family of funds, except as noted
below, is an "Eligible Fund" (collectively, "Eligible Funds"). First Investors
Special Bond Fund, Inc., First Investors Life Series Fund and First Investors
U.S. Government Plus Fund are not Eligible Funds. First Investors Cash
Management Fund, Inc. and First Investors Tax-Exempt Money Market Fund, Inc.
(the "Money Market Funds"), unless otherwise noted, are not Eligible Funds.
Shares 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 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.
Minimum Investment. You may open a Fund account with as little as $1,000.
This account minimum is waived if you open an account through a full exchange of
shares of another Eligible Fund. Accounts opened through an exchange of shares
from the Money Market Funds may be subject to an initial sales charge. You may
open a Fund account with $500 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."
20
<PAGE>
Processing and Pricing of Share Purchases. Purchases by written application
will be processed as follows: Applications accompanied by checks drawn on U.S.
banks made payable to "FIC" and received in FIC's Woodbridge offices by the
close of regular trading on the NYSE, generally 4:00 P.M. (New York City time),
will be processed and shares will be purchased at the public offering price
determined at the close of regular trading on the NYSE on that day. Money
orders, starter checks and third-party checks will not be accepted.
Purchases via telephone or wire will be processed as follows: Orders
received by Representatives before the close of regular trading on the NYSE and
received by FIC at their Woodbridge offices before the close of its business
day, generally 5:00 P.M. (New York City time), will be executed at the public
offering price determined as of the close of regular trading on the NYSE on that
day. It is the responsibility of Representatives to promptly transmit orders
they receive. The "public offering price" is the net asset value plus the
applicable sales charge. For a discussion of pricing practices in the event that
the Funds must halt operations due to an emergency, see the SAI. Each Fund
reserves the right to reject any application or order for its shares for any
reason and to suspend the offering of its shares.
Purchases through the National Securities Clearing Corp. ("NSCC")
"Fund/SERV" system will be processed as follows: Orders received by a Dealer
before the close of regular trading on the NYSE and received by FIC at its
Woodbridge offices in accordance with NSCC rules and procedures will be executed
at the net asset value, plus any applicable sales charge, determined as of the
close of regular trading on the NYSE on that day. It is the responsibility of
the Dealer to transmit purchase orders to FIC promptly and accurately. FIC will
not be liable for any change in the purchase price due to the failure of FIC to
receive such purchase orders. Any such disputes must be settled between you and
the Dealer.
Shares of each Fund are sold at the public offering price, which will vary
with the size of the purchase, as shown in the following table:
<TABLE>
<CAPTION>
Sales Charge as % of
-------------------------- Concession to
Offering Net Amount Dealers as % of
Amount of Investment Price Invested Offering Price
- -------------------- -------- ---------- --------------
<S> <C> <C> <C>
Less than $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
</TABLE>
There is no sales charge on transactions of $1 million or more, purchases
that qualify for the Cumulative Purchase Privilege if they total at least $1
million or purchases made pursuant to a 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
21
<PAGE>
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. The CDSC will
be waived for any purchase of $1 million or more on which the Dealer agrees to
receive its concession in installments paid over a 24-month period.
Cumulative Purchase Privilege and Letters of Intent. You may purchase
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 purchase by an FIC
Representative, or by the spouse, children, grandchildren, parent or grandparent
of any such person; (4) any reinvestment of dividends or other distributions in
Class A shares of any Eligible Fund; (5) any reinvestment of the loan repayments
by a participant in a loan program of any First Investors sponsored qualified
retirement plan; (6) a purchase with proceeds from the liquidation of a First
Investors Life Variable Annuity Fund A contract, First Investors Life Variable
Annuity Fund C contract or First Investors Life Variable Annuity Fund D contract
during the one-year period preceding the maturity date of the contract; (7) any
purchase made during the period November 15, 1998 to February 28, 1999 with the
proceeds from a redemption made after February 14, 1998 from the 1st Fund of
First Investors U.S. Government Plus Fund; (8) 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 (9) 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 respects to items (8) and (9)
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 a traditional,
Roth or Education 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 participant-directed 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
22
<PAGE>
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.
Additional Purchases. After you make your first investment in a Fund, you
may purchase additional shares of a Fund by mailing a check made payable to FIC,
directly to First Investors Corporation, 581 Main Street, Woodbridge, NJ
07095-1198, Attn: Dept. CP. Include your account number on the face of the
check. There is no minimum on additional purchases of Fund shares.
Systematic Investing. Shareholders who have an account with a U.S. bank, or
other financial institution that is an Automated Clearing House member, may
arrange for automatic investments in a Fund on a systematic basis through First
Investors Money Line. Systematic investments may also be made through automatic
payroll investments. The systematic investment privilege is not available for
the purchase of Fund shares in an Education IRA account. You may also elect to
reinvest systematically in shares of a Fund at net asset value the cash
distributions or Systematic Withdrawal Plan payments from Class A shares of an
existing account in another Eligible Fund, including the Money Market Funds. If
you wish to participate in any of these systematic investment plans, please call
Shareholder Services at 1-800-423-4026 or see the SAI.
Transfer of Shares. Shareholders may transfer the ownership of their shares
in a Fund account to another party. Because the Funds do not offer their shares
other than through a broker or dealer, if the party to whom the shares are to be
transferred does not have a broker or dealer of record and does not wish to
complete the paperwork necessary to become a client of First Investors, the
Funds reserve the right to liquidate the shares and forward the proceeds to the
new accountholder rather than to make the transfer. For more information on how
to transfer your Fund shares, call your Representative or call Shareholder
Services at 1-800-423-4026.
General. The Underwriter may at times agree to reallow to Dealers up to an
additional 0.25% of the dollar amount of shares of the Funds and/or certain
other First Investors Funds sold by such Dealers during a specific period of
time. From time to time, the Underwriter also will pay, through additional
reallowances or other sources, a bonus or other compensation to Dealers that
employ a Dealer Representative who sells a minimum dollar amount of the shares
of the Funds and/or certain other First Investors Funds during a specific period
of time. FIC 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. Exchanges can only be made into accounts registered to identical owners.
If your exchange is into a new account, it must meet the minimum investment and
other requirements of the fund into which the exchange is being made.
Additionally, the fund must be available for sale in the state where you reside.
Before exchanging
23
<PAGE>
Fund shares for shares of another fund, you should read the Prospectus of the
fund into which the exchange is to be made. You may obtain Prospectuses and
information with respect to which funds qualify for the exchange privilege free
of charge by calling Shareholder Services at 1-800-423-4026. Exchange requests
received in "good order," as defined below, by the Transfer Agent before the
close of regular trading on the NYSE will be processed at the net asset value
determined as of the close of regular trading on the NYSE on that day; exchange
requests received after that time will be processed on the following trading
day.
Exchanges By Mail. To exchange shares by mail, you should mail requests to
Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ
07095-1198. Shares will be exchanged after the request is received in "good
order" by the Transfer Agent. "Good order" means that an exchange request must
include: (1) the names of the funds, account number(s), the dollar amount,
number of shares or percentage of the account you wish to exchange; (2) share
certificates, if issued; (3) the signature of all registered owners exactly as
the account is registered; and (4) signature guarantees, if required (see "How
to Redeem 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," below.
Additional Exchange Information. Exchanges should be made for investment
purposes only. A pattern of frequent exchanges may be contrary to the best
interests of a Fund's other shareholders. Accordingly, each Fund has the right,
at its sole discretion, to limit the amount of an exchange, reject any exchange,
or, upon 60 days' notice, materially modify or discontinue the exchange
privilege. Each Fund will consider all relevant factors in determining whether a
particular frequency of exchanges is contrary to the best interests of the Fund
and 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.
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, which may take up to
fifteen days from date of purchase. Shareholders may not redeem shares by
telephone or Electronic Fund Transfer unless the shares being redeemed have been
owned for at least 15 days. Redemption checks returned to the Transfer Agent,
marked as being undeliverable, by the U.S. Postal Service after two consecutive
24
<PAGE>
mailings will be held by the Transfer Agent in a non-interest bearing account
until the Transfer Agent is either provided with a current address and any
required supporting documentation or is required to escheat the funds to the
appropriate state treasury. For a discussion of pricing practices in the event
that the Funds must halt operations due to an emergency, see the SAI.
Redemptions By Mail. Written redemption requests should be mailed to
Administrative Data Management Corp., 581 Main Street, Woodbridge, NJ
07095-1198. For your redemption request to be in good order, you must include:
(1) the name of the Fund; (2) your account number; (3) the dollar amount, number
of shares or percentage of the account you want redeemed; (4) share
certificates, if issued; (5) the original signatures of all registered owners
exactly as the account is registered; and (6) signature guarantees, if required.
If your redemption request is not in good order or information is missing, the
Transfer Agent will seek additional information and process the redemption on
the day it receives such information. To review these requirements, please call
Shareholder Services at 1-800-423-4026.
Signature Guarantees. In order to protect you, the Funds and their agents,
each Fund reserves the right to require signature guarantees in order to process
certain exchange or redemption requests. See the SAI or call Shareholder
Services at 1-800-423-4026 for instances when signature guarantees are required.
Redemptions By Telephone. See "Telephone Transactions," below.
Electronic Fund Transfer. Shareholders who have established Electronic Fund
Transfer may have redemption proceeds electronically transferred to a
predesignated bank account. Each Fund has the right, at its sole discretion, to
limit or terminate your ability to exercise the electronic fund transfer
privilege at any time. For additional information, see the SAI. Applications to
establish Electronic Fund Transfer are available from your FIC Representative or
by calling Shareholder Services at 1-800-423-4026.
Fund/SERV Redemptions. If there is a Dealer of record on your Fund account,
the Fund is authorized to execute electronic redemption requests received
directly from this Dealer. Electronic requests may be processed through the
services of the NSCC "Fund/SERV" system. Redemption requests received by a
Dealer before the close of regular trading on the NYSE and received by FIC at
its Woodbridge offices in accordance with NSCC rules and procedures will be
executed at the net asset value, less any applicable sales charge, determined at
the close of regular trading on the NYSE on that day. It is the responsibility
of the Dealer to transmit redemption requests to FIC promptly and accurately.
FIC will not be liable for any change in the redemption price due to the failure
of FIC to receive such redemption requests. Any such disputes must be settled
between you and the Dealer.
Systematic Withdrawal Plan. If you own noncertificated shares, you may set
up a plan for redemptions to be made automatically at regular intervals. See the
SAI for more information on the Systematic Withdrawal Plan or call Shareholder
Services at 1-800-423-4026.
Reinvestment after Redemption. If you redeem 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
25
<PAGE>
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, see the
SAI or call Shareholder Services at 1-800-423-4026.
Repurchase through Underwriter. You may redeem Fund shares through a
Dealer. In this event, the Underwriter, acting as agent for each Fund, will
offer to repurchase or accept an offer to sell such shares at a price equal to
the net asset value next determined after the making of such offer, less any
applicable CDSC. The Dealer may charge you a fee for handling any redemption
transaction.
Redemption of Low Balance Accounts. Because each Fund incurs certain fixed
costs in maintaining shareholder accounts, each Fund may redeem without your
consent, on at least 60 days' prior written notice (which may appear on your
account statement), any Fund account 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. Exchange or redemption
requests received after the close of regular trading on the NYSE will be
processed the following business day. For more information on telephone
privileges, please call Shareholder Services at 1-800-423-4026 or see the SAI.
Telephone Exchanges. Exchange requests may be made by telephone (provided
no certificate has been issued for the shares).
Telephone Redemptions. The telephone redemption privilege may be used to
redeem shares from a non-retirement account provided: (1) the redemption
proceeds are being mailed to the address of record or to a predesignated bank
account; (2) your address of record has not changed within the past 60 days; (3)
the shares to be redeemed have not been issued in certificate form; (4) each
redemption does not exceed $50,000; (5) the proceeds of the redemption, together
with all redemptions made from the account during the prior 30-day period, do
not exceed $100,000; and (6)
26
<PAGE>
the shares being redeemed have been owned for at least fifteen days. Telephone
redemption instructions will be accepted from any one owner or authorized
individual.
Additional Information. The 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 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 overnight mail, and it will be
implemented at the next determined net asset value, less any applicable CDSC,
following receipt by the Transfer Agent.
MANAGEMENT
Board of 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, 1997, 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 January 1, 1998, the Blue Chip Fund has been
co-managed by Dennis T. Fitzpatrick and Kimberly Speegle. Mr. Fitzpatrick and
Ms. Speegle also co-manage certain other First Investors funds. 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. Ms. Speegle joined FIMCO in August 1997 as an Assistant
Portfolio Manager. From March 1997 to August 1997, Ms. Speegle was an Investment
Analyst at Sale Asset Management and from 1992 to 1995, she was a Portfolio
Manager for the Clark Family.
George V. Ganter has been Portfolio Manager of the High Yield Fund since
1989. Mr. Ganter is also Portfolio Manager of certain other First Investors
funds. Mr. Ganter joined FIMCO in 1985 as a Senior Investment Analyst.
27
<PAGE>
Clark D. Wagner has been Portfolio Manager of the Insured Tax Exempt Fund
since he joined FIMCO in 1991. Mr. Wagner is also Portfolio Manager of certain
other First Investors funds. 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 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 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 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 Board of Trustees. The NYSE currently observes the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
28
<PAGE>
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
Insured Tax Exempt Fund and High Yield Fund are paid in additional shares of the
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
Insured Tax Exempt Fund or High Yield Fund at any time during a month, you are
paid all dividends declared through the day prior to the date of the redemption,
together with the proceeds of your redemption, less any applicable CDSC. Net
investment income includes interest 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, in addition,
(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 in any year if necessary to avoid a Federal excise tax
on certain undistributed taxable 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 the distribution. If you elect this form of payment, the payment
date generally is two weeks following the record date of the distribution. Your
election remains in effect until you revoke it by notifying the Transfer Agent.
You may elect to invest the entire amount of any cash distribution 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 the SAI or call
Shareholder Services at 1-800-423-4026 for more information. The investment will
be made at the net asset value per share of the other fund, generally determined
as of the close of business on the business day immediately following the record
date of the distribution.
A dividend or other distribution paid on a class of shares of a Fund will
be paid in additional shares of that class and not in cash if either of the
following events occurs: (1) the total amount of the distribution is under $5 or
(2) the Fund has received notice of your death on an individual account (until
written alternate payment instructions and other necessary documents are
provided by your legal representative). Dividend or distribution checks returned
to the Transfer Agent marked as being undeliverable by the U.S. Postal Service
after two consecutive mailings will be held by the Transfer Agent in a
non-interest bearing account until the Transfer Agent is either provided
29
<PAGE>
with a current address and any required supporting documentation or is required
to escheat the funds to the appropriate state treasury. Any subsequent dividend
or distribution check returned in the same manner will be treated as a request
by you to change your dividend or distribution option to reinvest. The proceeds
will be reinvested in additional shares at net asset value until the Fund
receives new instructions.
TAXES
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended, so that
it will be relieved of Federal income tax on that part of its investment company
taxable income (consisting generally of taxable net investment income, net
short-term capital gain and, in addition, for High Yield Fund, net gains from
certain foreign currency transactions) and net capital gain that it distributes
to its shareholders. In addition, Insured Tax Exempt Fund intends to continue to
qualify to pay "exempt-interest dividends" (as defined below), which requires,
among other things, that at the close of each calendar quarter at least 50% of
the value of its total assets must consist of Municipal Instruments.
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 taxable
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. The
information regarding capital gain distributions will designate the portions
thereof subject to the different maximum rates of tax applicable to individuals'
net capital gain.
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 redemption or exchange within 90 days of your purchase and (2)
subsequently acquire shares of the same Fund or either other Fund or Class A
shares of an Eligible Fund without paying a sales charge
30
<PAGE>
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 shares you subsequently
acquired. In addition, if you purchase Fund shares within 30 days before or
after redeeming other shares of that Fund 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 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
distribution rate" for each class of shares. This is computed in the same manner
as yield except that
31
<PAGE>
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.
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 shares or cash. However,
systematic investments made through First Investors Money Line or
32
<PAGE>
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 and Prospectuses to Shareholders. It is each
Fund's practice to mail only one copy of its annual and semi-annual reports to
any address at which more than one shareholder with the same last name has
indicated that mail is to be delivered. Additional copies of the reports will be
mailed if requested in writing or by telephone by any shareholder. In addition,
if the SEC adopts a currently pending proposed rule, it is the Funds' intention
to mail only one copy of its Prospectus to any address at which more than one
shareholder with the same last name has indicated that mail is to be delivered.
Additional copies of the Prospectus will be mailed if requested in writing or by
telephone by any shareholder.
Year 2000. Like other mutual funds, the Funds could be adversely affected
if the computer and other information processing systems used by the Adviser,
Transfer Agent and other service providers are not properly programmed to
process date-related information on and after January 1, 2000. Such systems
typically have been programmed to use a two-digit number to represent the year
for any date. As a result, computer systems could incorrectly misidentify "00"
as 1900, rather than 2000, and make mistakes when performing operations. The
Adviser and Transfer Agent are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Funds' other service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Funds. Nor can the
Funds estimate the extent of any impact.
33
<PAGE>
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.
34
<PAGE>
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.
35
<PAGE>
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.
36
<PAGE>
TABLE OF CONTENTS
================================================================================
Fee Table......................................................................2
Financial Highlights...........................................................4
Investment Objectives and Policies.............................................9
How to Buy Shares.............................................................20
How to Exchange Shares........................................................23
How to Redeem Shares..........................................................24
Telephone Transactions........................................................26
Management....................................................................27
Distribution Plan.............................................................28
Determination of Net Asset Value..............................................28
Dividends and Other Distributions.............................................29
Taxes.........................................................................30
Performance Information.......................................................31
General Information...........................................................32
Appendix A....................................................................34
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 8 Penn Center Plaza
1800 Massachusetts Avenue, N.W. Philadelphia, PA 19103
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
- ---------------------------
Prospectus
- ---------------------------
April 30, 1998
Verticle line from top to bottom in center of page about 1/2 inch in thickness
The following language appears to the left of the above language in the printed
piece:
The words "BULK RATE U.S. POSTAGE PAID PERMIT NO. 7379" in a box to the right of
a circle containing the words "MAILED FROM ZIP CODE 11201" appears on the
righthand side.
The following language appears on the lefthand side:
EXECUTIVE INVESTORS TRUST
95 WALL STREET
NEW YORK, NY 10005
EITP001
<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, 1998
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, 1998 which may be obtained free of cost from
the Trust at the address or telephone number noted above.
<PAGE>
TABLE OF CONTENTS
Page
----
Investment Policies......................................................... 3
Hedging And Option Income Strategies........................................ 11
Investment Restrictions..................................................... 17
Trustees And Officers....................................................... 22
Management.................................................................. 24
Underwriter................................................................. 25
Distribution Plans.......................................................... 26
Determination Of Net Asset Value............................................ 27
Allocation Of Portfolio Brokerage........................................... 28
Reduced Sales Charges, Additional Exchange And
Redemption Information And Other Services.............................. 29
Taxes....................................................................... 34
Performance Information..................................................... 37
General Information......................................................... 42
Appendix A.................................................................. 43
Appendix B.................................................................. 44
Appendix C.................................................................. 45
Financial Statements........................................................ 51
2
<PAGE>
INVESTMENT POLICIES
American Depository Receipts. American Depository Receipts ("ADRs") may be
purchased through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the underlying security and a
depository, whereas a depository may establish an unsponsored facility without
participation by the issuer of the depository security. Holders of unsponsored
depository receipts generally bear all the costs of such facilities and the
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through voting rights to the holders of such receipts of the
deposited securities. ADRs are not necessarily denominated in the same currency
as the underlying securities to which they may be connected. Generally, ADRs in
registered form are designed for use in the U.S. securities market and ADRs in
bearer form are designed for use outside the United States.
Bankers' Acceptances. Each Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
Bond Market Concentration. Insured Tax Exempt Fund may invest more than 25%
of its total assets in a particular segment of the bond market, such as hospital
revenue bonds, housing agency bonds, industrial development bonds, airport bonds
and university dormitory bonds. Such concentration may occur in periods when one
or more of these segments offer higher yields and/or profit potential. The Fund
has no fixed policy as to concentrating its investments in a particular segment
of the bond market, because bonds are selected for investment based on appraisal
of their individual value and income. This possible concentration of the assets
of the Fund may result in the Fund being invested in securities which are
related in such a way that economic, business, political developments or other
changes which would affect one security would probably likewise affect the other
securities within that particular segment of the bond market. Such concentration
of the Fund's investments could increase market risks, but risk of non-payment
of interest when due, or default of principal, are covered by the insurance
obtained by the Fund.
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,
Executive Investors Management Company Inc. ("Adviser" or "EIMCO") 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
3
<PAGE>
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 Adviser will decide to invest based
upon a fundamental analysis of the long-term attractiveness of the issuer and
the underlying common stock, the evaluation of the relative attractiveness of
the current price of the underlying common stock and the judgment of the value
of the convertible security relative to the common stock at current prices.
Detachable Call Options. Insured Tax Exempt Fund may invest in detachable
call options. Detachable call options are sold by issuers of municipal bonds
separately from the municipal bonds to which the call options relate and permit
the purchasers of the call options to acquire the municipal bonds at the call
prices and call dates. In the event that interest rates drop, the purchaser
could exercise the call option to acquire municipal bonds that yield
above-market rates. During the coming year, the Fund expects to acquire
detachable call options relating to municipal bonds that it already owns or will
acquire in the immediate future and thereby, in effect, make such municipal
bonds non-callable so long as the Fund continues to hold the detachable call
option. The Fund will consider detachable call options to be illiquid securities
and they will be treated as such for purposes of certain investment limitation
calculations.
Foreign Government Obligations. High Yield Fund may invest in foreign
government obligations, which generally consist of obligations supported by
national, state or provincial governments or similar political subdivisions.
Investments in foreign government debt obligations involve special risks. The
issuer of the debt may be unable or unwilling to pay interest or repay principal
when due in accordance with the terms of such debt, and the Fund may have
limited legal resources in the event of default. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance.
Foreign Securities--Risk Factors. High Yield Fund may sell a security
denominated in a foreign currency and retain the proceeds in that foreign
currency to use at a future date (to purchase other securities denominated in
that currency) or the Fund may buy foreign currency outright to purchase
securities denominated in that foreign currency at a future date. Investing in
foreign securities involves more risk than investing in securities of U.S.
companies. Because High Yield Fund currently does not intend to hedge its
foreign investments against the risk of foreign currency fluctuations, changes
in the value of these currencies can significantly affect the Fund's share
price. In addition, the Fund will be affected by changes in exchange control
regulations and fluctuations in the relative rates of exchange between the
currencies of different nations, as well as by economic and political
developments. Other risks involved in foreign securities include the following:
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
4
<PAGE>
insurance policy obtained subsequent to a municipal bond's original issue (a
"Secondary Market Insurance Policy"); or (3) under an insurance policy obtained
by the issuer or underwriter of such municipal bond at the time of original
issuance (a "New Issue Insurance Policy"). An insured municipal bond in the
Fund's portfolio typically will be covered by only one of the three policies.
For instance, if a municipal bond is already covered by a New Issue Insurance
Policy or a Secondary Market Insurance Policy, then that security will not be
additionally insured under the Mutual Fund Insurance Policy.
The Trust has purchased a Mutual Fund Insurance Policy ("Policy") from
AMBAC Assurance Corporation ("AMBAC"), a Wisconsin stock insurance company, with
its principal executive offices in New York City. The Policy guarantees the
payment of principal and interest on municipal bonds purchased by the Fund which
are eligible for insurance under the Policy. Municipal bonds are eligible for
insurance if they are approved by AMBAC prior to their purchase by the Fund.
AMBAC furnished the Fund with an approved list of municipal bonds at the time
the Policy was issued and subsequently provides amended and modified lists of
this type at periodic intervals. AMBAC may withdraw particular securities from
the approved list and may limit the aggregate amount of each issue or category
of municipal bonds therein, in each case by notice to the Fund prior to the
entry by the Fund of an order to purchase a specific amount of a particular
security otherwise eligible for insurance under the Policy. The approved list
merely identifies issuers whose issues may be eligible for insurance and does
not constitute approval of, or a commitment by, AMBAC to insure such securities.
In determining eligibility for insurance, AMBAC has applied its own standards
which correspond generally to the standard it normally uses in establishing the
insurability of new issues of municipal bonds and which are not necessarily the
criteria which would be used in regard to the purchase of municipal bonds by the
Fund. The Policy does not insure: (1) obligations of, or securities guaranteed
by, the United States of America or any agency or instrumentality thereof; (2)
municipal bonds which were insured as to payment of principal and interest at
the time of their issuance; (3) municipal bonds purchased by the Fund at a time
when they were ineligible for insurance; (4) municipal bonds which are insured
by insurers other than AMBAC; and (5) municipal bonds which are no longer owned
by the Fund. AMBAC has reserved the right at any time, upon 90 days' prior
written notice to the Fund, to refuse to insure any additional municipal bonds
purchased by the Fund, on or after the effective date of such notice. If AMBAC
so notifies the Fund, the Fund will attempt to replace AMBAC with another
insurer. If another insurer cannot be found to replace AMBAC, the Fund will ask
its shareholders to approve continuation of its business without insurance.
In the event of nonpayment of interest or principal when due, in respect of
an insured municipal bond, AMBAC is obligated under the Policy to make such
payment not later than 30 days after it has been notified by the Fund that such
nonpayment has occurred (but not earlier than the date such payment is due).
AMBAC, as regards insurance payments it may make, will succeed to the rights of
the Fund. Under the Policy, a payment of principal on an insured municipal bond
is due for payment when the stated maturity date has been reached, which does
not include any earlier due date by reason of redemption, acceleration or other
advancement of maturity or extension or delay in payment by reason of
governmental action.
The Policy does not guarantee the market value or yield of the insured
municipal bonds or the net asset value or yield of the Fund's shares. The Policy
will be effective only as to insured municipal bonds owned by the Fund. In the
event of a sale by the Fund of a municipal bond insured under the Policy, the
insurance terminates as to such municipal bond on the date of sale. If an
insured municipal bond in default is sold by the Fund, AMBAC is liable only for
those payments of interest and principal which are then due and owing and, after
making such payments, AMBAC will have no further obligations to the Fund in
respect of such municipal bond. It is the intention of the Fund, however, to
retain any insured securities which are in default or in significant risk of
default and to place a value on the defaulted securities equal to the value of
similar insured securities which are not in default. While a defaulted bond is
held by the Fund, the Fund continues to pay the
5
<PAGE>
insurance premium thereon but also collects interest payments from the insurer
and retains the right to collect the full amount of principal from the insurer
when the municipal bond comes due. See "Determination of Net Asset Value" for a
more complete description of the Fund's method of valuing securities in default
and securities which have a significant risk of default.
The Trust may purchase a Secondary Market Insurance Policy from an
independent insurance company rated in the top rating category by Standard &
Poor's Ratings Group ("S&P"), Moody's Investors Service ("Moody's"), Fitch IBCA,
Inc. ("Fitch") or any other nationally recognized rating organization which
insures a particular bond for the remainder of its term at a premium rate fixed
at the time such bond is purchased by the Fund. It is expected that these
premiums will range from 1% to 5% of par value. Such insurance coverage will be
noncancellable and will continue in force so long as such bond so insured is
outstanding. The Fund may also purchase municipal bonds which are already
insured under a Secondary Market Insurance Policy. A Secondary Market Insurance
Policy could enable the Fund to sell a municipal bond to a third party as an
AAA/Aaa rated insured municipal bond at a market price higher than what
otherwise might be obtainable if the security were sold without the insurance
coverage. (Such rating is not automatic, however, and must specifically be
requested for each bond.) Any difference between the excess of a bond's market
value as an AAA/Aaa rated bond over its market value without such rating and the
single premium payment would inure to the Fund in determining the net capital
gain or loss realized by the Fund upon the sale of the bond.
In addition to the contract of insurance relating to the Fund, there is a
contract of insurance between AMBAC and First Investors Multi-State Insured Tax
Free Fund, between AMBAC and First Investors Series Fund, between AMBAC and
First Investors New York Insured Tax Free Fund, Inc. and between AMBAC and First
Investors Insured Tax Exempt Fund, Inc. Otherwise, neither AMBAC or any
affiliate thereof, has any material business relationship, direct or indirect,
with the Funds.
AMBAC is a Wisconsin-domiciled stock insurance corporation regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin and licensed
to do business in 50 states, the District of Columbia, the Territory of Guam and
the Commonwealth of Puerto Rico, with admitted assets of approximately
$2,879,000,000 (unaudited) and statutory capital of approximately
$1,656,000,000. (unaudited) as of December 31, 1997. Statutory capital consists
of AMBAC's policyholders' surplus and statutory contingency reserve. S&P,
Moody's and Fitch have each assigned a triple-A claims-paying ability rating to
AMBAC.
AMBAC has obtained a ruling from the Internal Revenue Service ("IRS") to
the effect that the insuring of an obligation by AMBAC will not affect the
treatment for Federal income tax purposes of interest on such obligation and
that insurance proceeds representing maturing interest paid by AMBAC under
policy provisions substantially identical to those contained in its municipal
bond insurance policy shall be treated for Federal income tax purposes in the
same manner as if such payments were made by the issuer of the municipal bonds.
AMBAC makes no representation regarding the municipal bonds included in the
investment portfolio of the Fund or the advisability of investing in such
municipal bonds and makes no representation regarding, nor has it participated
in the preparation of, the Prospectus and this SAI.
The information relating to AMBAC contained above has been furnished by
AMBAC. No representation is made herein as to the accuracy or adequacy of such
information, or as to the existence of any adverse changes in such information,
subsequent to the date hereof.
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
6
<PAGE>
(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.
Risks of Mortgage-Backed Securities. Investments in mortgage-backed
securities entail market, prepayment and extension risk. Fixed-rate
mortgage-backed securities are priced to reflect, among other things, current
and perceived interest rate conditions. As conditions change, market values will
fluctuate. In addition, the mortgages underlying mortgage-backed securities
generally may be prepaid in whole or in part at the option of the individual
buyer. Prepayment generally increases when interest rates decline. Prepayments
of the underlying mortgages can affect the yield to maturity on mortgage-backed
securities and, if interest rates decline, the prepayment may only be invested
at the then prevailing lower interest rate. As a result, mortgage-backed
securities may have less potential for capital appreciation during periods of
declining interest rates as compared with other U.S. Government securities with
comparable stated maturities. Conversely, rising interest rates may cause
prepayment rates to occur at a slower than expected rate. This may effectively
lengthen the life of a security, which is known as extension risk. Longer term
securities generally fluctuate more widely in response to changes in interest
rates than shorter term securities. Changes in market conditions, particularly
during periods of rapid or unanticipated changes in market interest rates, may
result in volatility and reduced liquidity of the market value of certain
mortgage-backed securities.
GNMA Certificates. Government National Mortgage Association ("GNMA")
certificates ("GNMA Certificates") are mortgage-backed securities, which
evidence an undivided interest in a pool of mortgage loans. GNMA Certificates
differ from bonds in that principal is paid back monthly by the borrower over
the term of the loan rather than returned in a lump sum at maturity. GNMA
Certificates that the Fund purchases are the "modified pass-through" type.
"Modified pass-through" GNMA Certificates entitle the holder to receive a share
of all interest and principal payments paid and owed on the mortgage pool net of
fees paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal
7
<PAGE>
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 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
8
<PAGE>
overnight to one week, and at no time will a Fund invest in repurchase
agreements with more than one year in time to maturity. The securities which are
subject to repurchase agreements, however, may have maturity dates in excess of
one year from the effective date of the repurchase agreement. Each Fund will
always receive, as collateral, securities whose market value, including accrued
interest, which will at all times be at least equal to 100% of the dollar amount
invested by the Fund in each agreement, and the Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of the custodian. If the seller defaults, a Fund might incur a loss if
the value of the collateral securing the repurchase agreement declines, and
might incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy or similar proceedings are commenced with respect to the
seller of the security, realization upon the collateral by a Fund may be delayed
or limited. No Fund may enter into a repurchase agreement with more than seven
days to maturity if, as a result, more than 15% of such Fund's net assets would
be invested in such repurchase agreements and other illiquid investments.
Restricted Securities and Illiquid Investments. No Fund will purchase or
otherwise acquire any security if, as a result, more than 15% of its net assets
(taken at current value) would be invested in securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. This policy includes foreign issuers' unlisted
securities with a limited trading market and repurchase agreements maturing in
more than seven days. This policy does not include restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended ("1933 Act"), which the Board 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 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.
9
<PAGE>
Over-the-counter ("OTC") options and their underlying collateral are also
considered illiquid investments. Insured Tax Exempt Fund may not invest in
options. While Blue Chip Fund and High Yield Fund have no intention of investing
in options in the coming year, if any such Fund did, the assets used as cover
for OTC options written by the Fund would not be considered illiquid unless the
OTC options are sold to qualified dealers who agree that the Fund may repurchase
any OTC option it writes at a maximum price to be calculated by a formula set
forth in the option agreement. The cover for an OTC option written subject to
this procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option
Warrants. High Yield Fund 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 on its books and records or with its custodian consisting of
cash or liquid high-grade debt securities equal to the amount of that Fund's
commitment, which are valued at their fair market value. If on any day the
market value of this segregated account falls below the value of a Fund's
commitment, that Fund will be required to deposit additional cash or qualified
securities into the account until equal to the value of that Fund's commitment.
When the securities to be purchased are issued, the Fund will pay for the
securities from available cash, the sale of securities in the segregated
account, sales of other securities and, if necessary, from sale of the
when-issued securities themselves although this is not ordinarily expected.
Securities purchased on a when-issued basis are subject to the risk that yields
available in the market, when delivery takes place, may be higher than the rate
to be received on the securities a Fund is committed to purchase. Sale of
securities in the segregated account or sale of the when-issued securities may
cause the realization of a capital gain or loss.
Portfolio Turnover. Although each Fund generally will not invest for
short-term trading purposes, portfolio securities may be sold without regard to
the length of time they have been held when, in the opinion of the Adviser,
investment considerations warrant such action. Portfolio turnover rate is
calculated by dividing (1) the lesser of purchases or sales of portfolio
securities for the fiscal year by (2) the monthly average of the value of
portfolio securities owned during the fiscal year. A 100% turnover rate would
occur if all the securities in a Fund's portfolio, with the exception of
securities whose maturities at the time of acquisition were one year or less,
were sold and either repurchased or replaced within one year. A high rate of
portfolio turnover (100% or more) generally leads to transaction costs and may
result in a greater number of taxable transactions. See "Allocation of Portfolio
Brokerage."
For the fiscal years ended December 31, 1996 and 1997, High Yield Fund's
portfolio turnover rate was 27% and 49%, respectively. For the fiscal year ended
December 31, 1996, the portfolio turnover rate for Blue Chip Fund and Insured
Tax Exempt Fund was 50% and 116%, respectively. See the Prospectus for the
portfolio turnover rate for Blue Chip Fund and Insured Tax Exempt Fund for the
fiscal year ended December 31, 1997.
10
<PAGE>
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 and the CFTC.
Participation in the options or futures markets involves investment risks
and transaction costs to which a Fund would not be subject absent the use of
these strategies. If the Adviser's prediction of movements in the direction of
the securities and interest rate markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. The Fund might not employ any of the strategies
described below, and there can be no assurance that any strategy will succeed.
The use of these strategies involve certain special risks, including (1)
dependence on the Adviser's ability to predict correctly movements in the
direction of interest rates and securities prices, (2) imperfect correlation
between the price of options, futures contracts and options thereon and
movements in the prices of the securities being hedged, (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities and, (4) the possible absence of a liquid secondary market
for any particular instrument at any time.
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 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.
11
<PAGE>
Options Strategies. Insured Tax Exempt Fund may purchase call options on
securities that the Adviser intends to include in its portfolio in order to fix
the cost of a future purchase. Call options also may be used as a means of
participating in an anticipated price increase of a security. In the event of a
decline in the price of the underlying security, use of this strategy would
serve to limit the Fund's potential loss to the option premium paid; conversely,
if the market price of the underlying security increases above the exercise
price and the Fund either sells or exercises the option, any profit eventually
realized will be reduced by the premium. Insured Tax Exempt Fund may purchase
put options in order to hedge against a decline in the market value of
securities held in its portfolio. The put option enables the Fund to sell the
underlying security at the predetermined exercise price; thus the potential for
loss to the Fund below the exercise price is limited to the option premium paid.
If the market price of the underlying security is higher than the exercise price
of the put option, any profit the Fund realizes on the sale of the security will
be reduced by the premium paid for the put option less any amount for which the
put option may be sold.
Insured Tax Exempt Fund may write covered call options on securities to
increase income in the form of premiums received from the purchasers of the
options. Because it can be expected that a call option will be exercised if the
market value of the underlying security increases to a level greater than the
exercise price, the Fund will write covered call options on securities generally
when the Adviser believes that the premium received by the Fund, plus
anticipated appreciation in the market price of the underlying security up to
the exercise price of the option, will be greater than the total appreciation in
the price of the security. The strategy may be used to provide limited
protection against a decrease in the market price of the security in an amount
equal to the premium received for writing the call option less any transaction
costs. Thus, if the market price of the underlying security held by the Fund
declines, the amount of such decline will be offset wholly or in part by the
amount of the premium received by the Fund. If, however, there is an increase in
the market price of the underlying security and the option is exercised, the
Fund will be obligated to sell the security at less than its market value. The
Fund gives up the ability to sell the portfolio securities used to cover the
call option while the call option is outstanding. Such securities may also be
considered illiquid in the case of OTC options written by the Fund, to the
extent described under "Investment Policies--Restricted Securities and Illiquid
Investments" and therefore subject to the Fund's limitation on investments in
illiquid securities. In addition, the Fund could lose the ability to participate
in an increase in the value of such securities above the exercise price of the
call option because such an increase would likely be offset by an increase in
the cost of closing out the call option (or could be negated if the buyer chose
to exercise the call option at an exercise price below the securities' current
market value).
Insured Tax Exempt Fund may write put options. A put option gives the
purchaser of the option the right to sell, and the writer (seller) the
obligation to buy, the underlying security at the exercise price during the
option period. So long as the obligation of the writer continues, the writer may
be assigned an exercise notice by the broker-dealer through which such option
was sold, requiring it to make payment of the exercise price against delivery of
the underlying security. The operation of put options in other respects,
including their related risks and rewards, is substantially identical to that of
call options. The Fund may write covered put options in circumstances when the
Adviser believes that the market price of the securities will not decline below
the exercise price less the premiums received. If the put option is not
exercised, the Fund will realize income in the amount of the premium received.
This technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security would decline below the exercise price less the premiums
received, in which case the Fund would expect to suffer a loss.
Blue Chip Fund may purchase U.S. exchange-traded put and call options on
stock indices in much the same manner as the more traditional equity and debt
options discussed above, except that stock index options may serve as a hedge
against overall fluctuations in the securities markets (or a market sector)
rather than anticipated increases or decreases in the value of a particular
security.
12
<PAGE>
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
13
<PAGE>
and Insured Tax Exempt Fund intend to purchase or write only those
exchange-traded options for which there appears to be a liquid secondary market,
there is no assurance that a liquid secondary market will exist for any
particular option at any particular time. Closing transactions may be effected
with respect to options traded in the OTC markets (currently the primary markets
for options on debt securities) only by negotiating directly with the other
party to the option contract or in a secondary market for the option if such
market exists. Although a Fund will enter into OTC options only with dealers
that agree to enter into, and that are expected to be capable of entering into,
closing transactions with a Fund, there is no assurance that the Fund will be
able to liquidate an OTC option at a favorable price at any time prior to
expiration. In the event of insolvency of the opposite party, a Fund may be
unable to liquidate an OTC option. Accordingly, it may not be possible to effect
closing transactions with respect to certain options, with the result that a
Fund would have to exercise those options that it has purchased in order to
realize any profit. With respect to options written by a Fund, the inability to
enter into a closing transaction may result in material losses to the Fund. For
example, because a Fund must maintain a covered position with respect to any
call option it writes, that Fund may not sell the underlying assets used to
cover an option during the period it is obligated under the option. This
requirement may impair the Fund's ability to sell a portfolio security or make
an investment at a time when such a sale or investment might be advantageous.
Stock index options are settled exclusively in cash. If Blue Chip Fund
purchases an option on a stock index, the option is settled based on the closing
value of the index on the exercise date. Thus, a holder of a stock index option
who exercises it before the closing index value for that day is available runs
the risk that the level of the underlying index may subsequently change. For
example, in the case of a call option, if such a change causes the closing index
value to fall below the exercise price of the option on the index, the
exercising holder will be required to pay the difference between the closing
index value and the exercise price of the option.
A Fund's activities in the options markets may result in a higher portfolio
turnover rate and additional brokerage costs; however, a Fund also may save on
commissions by using options as a hedge rather than buying or selling individual
securities in anticipation or as a result of market movements.
Futures Strategies. High Yield Fund and Insured Tax Exempt Fund may engage
in futures strategies to attempt to reduce the overall investment risk that
would normally be expected to be associated with ownership of the securities in
which they invest.
High Yield Fund and Insured Tax Exempt Fund may use interest rate futures
contracts and, for Insured Tax Exempt Fund, options thereon, to hedge the debt
portion of their portfolios against changes in the general level of interest
rates. A Fund may purchase an interest rate futures contract when it intends to
purchase debt securities but has not yet done so. This strategy may minimize the
effect of all or part of an increase in the market price of those securities
because a rise in the price of the securities prior to their purchase may either
be offset by an increase in the value of the futures contract purchased by a
Fund or avoided by taking delivery of the debt securities under the futures
contract. Conversely, a fall in the market price of the underlying debt
securities may result in a corresponding decrease in the value of the futures
position. A Fund may sell an interest rate futures contract in order to continue
to receive the income from a debt security, while endeavoring to avoid part or
all of the decline in the market value of that security that would accompany an
increase in interest rates.
Insured Tax Exempt Fund may purchase a call option on a financial futures
contract to hedge against a market advance in debt securities that the Fund
plans to acquire at a future date. The Fund also may write covered call options
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
14
<PAGE>
financial futures contracts in order to hedge against a decline in the value of
debt securities held in the Fund's portfolio.
High Yield Fund and Insured Tax Exempt Fund will use futures contracts and,
for Insured Tax Exempt Fund, options thereon solely in bona fide hedging
transactions or under other circumstances permitted by the CFTC and Insured Tax
Exempt Fund will not enter into such investments for which the aggregate initial
margin and premiums exceed 5% of that Fund's total assets. This does not limit
that Fund's assets at risk to 5%. The Fund has represented the foregoing to the
CFTC.
Futures Guidelines. 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
15
<PAGE>
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 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
16
<PAGE>
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 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.
17
<PAGE>
(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, 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.
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.
18
<PAGE>
(3) Pledge, mortgage or hypothecate any of its assets, except that the Fund
may pledge its assets to secure borrowings made in accordance with paragraphs
(1) and (2) above and for margin to secure its obligations under interest rate
futures contracts, provided the Fund maintains asset coverage of at least 300%
for pledged assets.
(4) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the 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, 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.
19
<PAGE>
(15) Purchase or sell portfolio securities from or to the Adviser or any
trustee or officer thereof or of the Trust, as principals.
(16) Invest more than 15% of the value of its total assets, at the time of
purchase, in deep discount securities of companies that are financially
troubled, in default or in bankruptcy or reorganization.
(17) Issue senior securities.
(18) Invest any of its assets in interests in oil, gas or other mineral
exploration or development programs, or in puts, calls, straddles or any
combination thereof.
(19) Invest more than 10% of its net assets in when-issued securities at
the time such purchase is made.
The following investment 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
20
<PAGE>
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 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.
21
<PAGE>
(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.
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*+ (72), 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").
James J. Coy (84), Emeritus Trustee, 90 Buell Lane, East Hampton, NY 11937.
Retired; formerly Senior Vice President, James Talcott, Inc. (financial
institution).
Roger L. Grayson* (41), Trustee, FIC and FICC; President and Director, First
Investors Resources, Inc.; Commodities Portfolio Manager.
Kathryn S. Head*+ (42), Trustee, 581 Main Street, Woodbridge, NJ 07095.
President and Director, FICC, ADM and FIMCO; Vice President and Director, FIC
and EIC; President EIMCO; Chairman, President and Director, First Financial
Savings Bank, S.L.A.
Rex R. Reed (76), Trustee, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
Herbert Rubinstein (76), Trustee, 695 Charolais Circle, Edwards, CO 81632-1136.
Retired; formerly President, Belvac International Industries, Ltd. and
President, Central Dental Supply.
Nancy Schaenen (66), Trustee, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
James M. Srygley (65), Trustee, 33 Hampton Road, Chatham, NJ 07982. Principal,
Hampton Properties, Inc. (property investment company).
John T. Sullivan* (66), Trustee and Chairman of the Board; Director, FIMCO, FIC,
FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
Robert F. Wentworth (68), Trustee, RR1, Box 2554, Upland Downs Road, Manchester
Center, VT 05255. Retired; formerly financial and planning executive with
American Telephone & Telegraph Company.
Joseph I. Benedek (40), Treasurer and Chief Financial Officer, 581 Main Street,
Woodbridge, NJ 07095. Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller and
Treasurer, FICC.
22
<PAGE>
Concetta Durso (63), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
Clark D. Wagner (39), 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 (45), Vice President. Vice President, First Investors Asset
Management Company, Inc., First Investors High Yield, Inc., and First Investors
Special Bond Fund; Portfolio Manager, FIMCO.
Patricia D. Poitra (43), 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.
The Trustees and officers, as a group, owned less than 1% of shares of any
Fund.
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 and School Financial Management
Services, Inc. Ms. Head is also an officer and/or Director of First Investors
Life Insurance Company, First Investors Credit Corporation, School Financial
Management Services, Inc., First Investors Credit Funding Corporation, N.A.K.
Realty Corporation, Real Property Development Corporation, First Investors
Leverage Corporation and Route 33 Realty Corporation.
The following table lists compensation paid to the Trustees of the Trust
for the fiscal year ended December 31, 1997.
23
<PAGE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated From First
Aggregate Accrued as Part Annual Investors Family
Compensation of Fund Benefits Upon of Funds Paid to
Trustee From Fund* Expenses Retirement Trustee*
- ------- ---------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
James J. Coy** $ 250.00 $-0- $-0- $15,500.00
Roger L. Grayson -0- -0- -0- -0-
Glenn O. Head -0- -0- -0- -0-
Kathryn S. Head -0- -0- -0- -0-
Rex R. Reed 600.00 -0- -0- 37,200.00
Herbert Rubinstein 600.00 -0- -0- 37,200.00
James M. Srygley 600.00 -0- -0- 37,200.00
John T. Sullivan -0- -0- -0- -0-
Robert F. Wentworth 600.00 -0- -0- 37,200.00
Nancy Schaenen 450.00 -0- -0- 27,900.00
</TABLE>
- ----------
* Compensation to officers and interested Trustees of the Trust is paid by
the Adviser. In addition, prior to December 31, 1997, compensation to
non-interested Trustees of the Trust was voluntarily paid by the Adviser.
Commencing January 1, 1998, compensation to non-interested Trustees of the
Trust is being paid by the Trust.
** On March 27, 1997, Mr. Coy resigned as a Trustee of the Trust. Mr. Coy did
not resign due to a disagreement on any matters relating to the Trust's
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:
24
<PAGE>
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, 1995, 1996 and 1997, Blue Chip
Fund's advisory fees were $12,118, $17,351 and $29,330, respectively. Of such
amounts, the Adviser voluntarily waived $12,118, $13,013 and $21,997,
respectively. For the fiscal years ended December 31, 1995, 1996 and 1997,
Insured Tax Exempt Fund's advisory fees were $119,019, $148,917 and $156,479,
respectively. Of such amounts, the Adviser voluntarily waived $119,019, $111,688
and $117,359, respectively. For the fiscal years ended December 31, 1995, 1996
and 1997, High Yield Fund's advisory fees were $154,785, $161,441 and $180,560,
respectively. Of such amounts, the Adviser voluntarily waived $85,132, $80,721
and $90,280, respectively. For the fiscal year ended December 31, 1997, the
Adviser voluntarily assumed expenses for Blue Chip Fund and Insured Tax Exempt
Fund in the amounts of $10,454 and $14,160, 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, 1995, Blue Chip Fund paid EIC
underwriting commissions of $574. For the same period, EIC
25
<PAGE>
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. For the fiscal year ended December 31,
1997, Blue Chip Fund paid EIC underwriting commissions of $3,324. For the same
period, EIC reallowed an additional $10,933 to unaffiliated dealers and $2,518
to FIC.
For the fiscal year ended December 31, 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,
1997, High Yield Fund paid EIC underwriting commissions of $17,493. For the same
period, EIC reallowed an additional $122,540 to unaffiliated dealers and $5,239
to FIC.
For the fiscal year ended December 31, 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. For the fiscal year ended December
31, 1997, Insured Tax Exempt Fund paid EIC underwriting commissions of $6,680.
For the same period, EIC reallowed an additional $28,463 to unaffiliated dealers
and $5,596 to FIC.
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, 1997, Blue Chip Fund paid $14,666 in
fees pursuant to the Plan. For the same period, the Underwriter waived an
additional $2,995 in fees pursuant to the Plan. For the fiscal year ended
December 31, 1997, High Yield Fund paid $90,280 in fees pursuant to the Plan.
For the same period, the Underwriter waived an additional $18,092 in fees
pursuant to the Plan. For the fiscal year ended December 31, 1997, Insured Tax
Exempt Fund paid $78,240 in fees pursuant to the Plan. For the same period, the
Underwriter waived an additional $15,659 in
26
<PAGE>
fees pursuant to the Plan. For the fiscal year ended December 31, 1997, 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 $ 6,063.54 $ 8,602.46 -0-
High Yield Fund 40,154.07 50,125.93 -0-
Insured Tax Exempt Fund 32,566.77 45,673.23 -0-
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange or
the Nasdaq Stock Market is valued at its last sale price on the exchange or
market where the security is principally traded, and lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices. Securities traded in the OTC market (including securities listed
on exchanges whose primary market is believed to be OTC) are valued at the mean
between the last bid and asked prices prior to the time when assets are valued
based upon quotes furnished by market makers for such securities. However, a
Fund may determine the value of debt securities based upon prices furnished by
an outside pricing service. The pricing services are provided to the Blue Chip
Fund and High Yield Fund by Interactive Data Corporation and to the Insured Tax
Exempt Fund by Muller Data Corporation. The pricing services use quotations
obtained from investment dealers or brokers for the particular securities being
evaluated, information with respect to market transactions in comparable
securities and consider security type, rating, market condition, yield data and
other available information in determining value. Short-term debt securities
that mature in 60 days or less are valued at amortized cost. Securities for
which market quotations are not readily available are valued on at fair value as
determined in good faith by or under the supervision of the Trust's officers in
a manner specifically authorized by the Board of 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 or by the pricing services. With respect to High Yield Fund,
quotations of foreign securities in foreign currencies are converted into U.S.
dollar equivalents using the foreign exchange equivalents in effect.
Insured Tax Exempt Fund may retain any insured municipal bond which is in
default in the payment of principal or interest until the default has been
cured, or the principal and interest outstanding are paid by an insurer or the
issuer of any letter of credit or other guarantee supporting such municipal
bond. In such case, it is the Fund's policy to value the defaulted bond daily
based upon the value of a comparable bond which is insured and not in default.
In selecting a comparable bond, the Fund will consider security type, rating,
market condition and yield.
The Board 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.
27
<PAGE>
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
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, 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 year ended
December 31, 1996, Insured Tax Exempt Fund did not pay brokerage commissions.
28
<PAGE>
For the fiscal year ended December 31, 1997, Blue Chip Fund paid $4,661 in
brokerage commissions. Of that amount $2,648 was paid to brokers who furnished
research services on portfolio transactions in the amount of $1,981,834. For the
fiscal year ended December 31, 1997, High Yield Fund paid $72 in brokerage
commissions., all of which was paid to brokers who furnished research services
on portfolio transactions in the amount of $18,214. For the fiscal year ended
December 31, 1997, Insured Tax Exempt Fund did not pay brokerage commissions.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND
REDEMPTION INFORMATION AND OTHER SERVICES
Reduced Sales Charges
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.
Class A shares purchased at net asset value, Class A shares of the Money Market
Funds, or shares owned under a Contractual Plan are not eligible for the
purchase of Fund shares 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 Class A shares representing 5% of each purchase in escrow, which
shares will be released upon completion of the intended investment.
Purchases of Class A shares made under a Letter of Intent are made at the
sales charge applicable to the purchase of the aggregate amount of shares
covered by the Letter of Intent as if they were purchased in a single
transaction. The applicable quantity discount will be based on the sum of the
then current public offering price (i.e., net asset value plus applicable sales
charge) of all shares of the Funds and Class A and Class B 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
Class A shares held in escrow in the name of the investor (or by the investor
paying the commission differential). A Letter of Intent can be amended (1)
during the thirteen-month period if the purchaser files an amended Letter of
Intent with the same expiration date as the original Letter of Intent, or (2)
automatically after the end of the period, if total purchases
29
<PAGE>
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 EIC, 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 Class A 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.
Systematic Investing
First Investors Money Line. This service allows you to invest in a Fund
through automatic deductions from your bank checking account, provided you have
Electronic Fund Transfers privileges. See "Electronic Fund Transfers," below.
Scheduled investments in the minimum amount of $50 per month or $600 per year
may be made bi-weekly, semi-monthly, monthly, quarterly, semi-annually or
annually. In order to invest $2,500 or more through First Investors Money Line,
a Medallion signature guarantee is required. See "Signature Guarantees." The
maximum amount which may be invested through First Investors Money Line is
$10,000 a month. Shares of the Fund are purchased at the public offering price
determined at the close of business on the investment date you select provided
the amount of the purchase is available funds in your designated bank account
two business days prior to the investment date selected. You may change the
amount or discontinue this service at any time by calling Shareholder Services
or writing to Administrative Data Management Corp., 581 Main Street, Woodbridge,
NJ 07095-1198, Attn: Control Dept. It takes between three and five business days
to process most changes you request be made to your Money Line service. Money
Line application forms are available from your Representative or by calling
Shareholder Services at 1-800-423-4026.
Automatic Payroll Investment. You also may arrange for automatic
investments in the minimum amount of $50 into a Fund on a systematic basis
through salary deductions, provided your employer has direct deposit
capabilities. Shares of the Fund are purchased at the public offering price
determined as of the close of business on the day the electronic fund transfer
is received by the Fund. You may change the amount or discontinue the service by
contacting your employer. An application is available from your Representative
or by calling Shareholder Services at 1-800-423-4026. Arrangements must also be
made with your employer's payroll department.
Cross-Investment of Cash Distributions. You may elect to invest in 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 any other Fund or Class A shares of an Eligible Fund, including the Money
Market Funds. The investment will be made at the net asset value per share of
the other fund, generally determined as of the close of business, on the
business day immediately following the record date of any such distribution. If
your distributions are to be invested in a new account, you must invest a
minimum of $50 per month. To arrange for cross-investing, call Shareholder
Services at 1-800-423-4026.
Systematic Withdrawal Plan. Shareholders who own noncertificated shares may
establish a Systematic Withdrawal Plan ("Withdrawal Plan"). If you have a Fund
account with a value of at least $5,000 and you have dividends and other
distributions reinvested, you may elect to receive monthly, quarterly,
semi-annual or annual checks for any designated amount (minimum $25). You may
have the payments sent directly to you or persons you designate. The $5,000
minimum account balance is currently being waived for required minimum
distributions on retirement plan accounts. Additionally, regardless of the
amount of your Fund account, you may also elect to have the Systematic
30
<PAGE>
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.
Electronic Fund Transfer. Shareholders may apply for the privilege of
making Electronic Fund Transfers ("EFT") between Fund accounts and a
predesignated bank account by completing an application and having all
shareholders' signatures guaranteed. If the bank account registration is not
identical to the Fund account, a signature guarantee of every bank account
holder who is not an owner of the Fund account is required. Shareholders may
choose EFT privileges for Money Line purchases, redemptions, dividend
distributions and Systematic Withdrawal Plan payments. The minimum EFT
redemption amount is $500 and the maximum is $50,000. Each Fund has the right,
at its sole discretion, to limit or terminate your ability to exercise the EFT
privileges at any time. Shareholders may not use EFT to redeem shares unless
they have been owned for at least 15 days.
Signature Guarantees. The words "Signature Guaranteed" must appear in
direct association with the signature of the guarantor. Members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange
Medallion Signature Program), SEMP (Stock Exchanges Medallion Program) and FIC
are eligible signature guarantors. A notary public is not an acceptable
guarantor. Although each Fund reserves the right to require signature guarantees
at any other time, signature guarantees are required whenever: (1) the amount of
the redemption is over $50,000, (2) a redemption check is to be made payable to
someone other than the registered accountholder, other than major financial
institutions, as determined solely by the Fund and its agent, on behalf of the
shareholder, (3) a redemption check is to be mailed to an address other than the
address of record, preauthorized bank account, or to a major financial
institution for the benefit of a shareholder, (4) an account registration is
being transferred to another owner, (5) a transaction requires additional legal
documentation; (6) the redemption request is for certificated shares; (7) your
address of record has changed within 60 days prior to a redemption request; (8)
multiple owners have a dispute or give inconsistent instructions; (9) the
authority of a representative of a corporation, partnership, association or
other entity has not been established to the satisfaction of a Fund or its
agents; and (10) you elect EFT privileges.
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. If your reinvestment is
into a new account, other than the Money Market Funds, it must meet the minimum
investment and other requirements of the fund into which the reinvestment is
being made. To take advantage of this option, send your reinvestment check along
with a written request to the Transfer Agent within six months
31
<PAGE>
from the date of your redemption. Include your account number and a statement
that you are taking advantage of the "Reinvestment Privilege."
Telephone Transactions. Fund shares not held in certificate form may be
exchanged or redeemed by telephone provided you have not declined telephone
privileges. Telephone exchanges are also available 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).
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
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.
Retirement Plans
Profit-Sharing/Money Purchase Pension/401(k) Plans. FIC offers prototype
401(k) Retirement Plans approved by the IRS for corporations, sole
proprietorships and partnerships and Profit-Sharing and Money Purchase Pension
Plans for owner-only sole proprietorships and owner-only partnerships
("Retirement Plans"). Keogh Plans are available only to sole proprietors or
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,
except for the 401(k) flexible.
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.
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 a traditional, Roth or Education IRA or, as an employee of a
qualified employer, through a simplified employee pension-IRA ("SEP-IRA"), a
salary reduction simplified employee pension-IRA ("SARSEP-IRA") or a Savings
Incentive Match Plan for Employees ("SIMPLE-IRAs") furnished by FIC. Under the
related Custodial Agreements, First Financial Savings acts as custodian of each
of these retirement plans. The custodian fees are disclosed in the IRA
documents.
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
32
<PAGE>
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.
As of January 1, 1997, no new employer-sponsored SARSEP-IRAs may be
established. Newly eligible participants in a SARSEP-IRA established prior to
that date, however, may open a new account. Additionally, participants in an
established SARSEP-IRA may continue to make contributions thereto.
Currently, there are no annual service fees chargeable to a participant in
connection with an IRA, SEP-IRA, SARSEP-IRA or SIMPLE-IRA. Each Fund currently
pays the annual $10.00 custodian fee for each IRA account maintained with such
Fund. This policy may be changed at any time by a Fund on 45 days' written
notice to the holder of any IRA, SEP-IRA, SARSEP-IRA or SIMPLE-IRA. First
Financial Savings has reserved the right to waive its fees at any time or to
change the fees on 45 days' prior written notice to the holder of any IRA.
An application and other documents necessary to establish an IRA, SEP-IRA
or SIMPLE-IRA are available from your Representative. Prior to establishing an
IRA, SEP-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' 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 rate of 20% 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.
33
<PAGE>
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.
Emergency Pricing Procedures. In the event that the Funds must halt
operations during any day that they would normally be required to price under
Rule 22c-1 under the 1940 Act due to an emergency ("Emergency Closed Day"), the
Funds will apply the following procedures:
1. The Funds will make every reasonable effort to segregate orders received
on the Emergency Closed Day and give them the price that they would have
received but for the closing. The Emergency Closed Day price will be calculated
as soon as practicable after operations have resumed and will be applied equally
to sales, redemptions and repurchases that were in fact received in the mail or
otherwise on the Emergency Closed Day.
2. For purposes of paragraph 1, an order will be deemed to have been
received by the Funds on an Emergency Closed Day, even if neither the Funds nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:
(a) In the case of a mail order the order will be considered received
by a Fund when the postal service has delivered it to FIC's offices in
Woodbridge, New Jersey prior to the close of regular trading on the NYSE,
or at such other time as may be prescribed in its prospectus; and
(b) In the case of a wire order, including a Fund/SERV order, the
order will be considered received when it is received in good form by a FIC
branch office or an authorized dealer prior to the close of regular trading
on the NYSE, or such other time as may be prescribed in its prospectus.
3. If the Funds are unable to segregate orders received on the Emergency
Closed Day from those received on the next day the Funds are open for business,
the Funds may give all orders the next price calculated after operations resume.
4. Notwithstanding the foregoing, on business days in which the NYSE is not
open for regular trading, the Funds may determine not to price their portfolio
securities if such prices would lead to a distortion of the net asset value for
the Funds and their shareholders.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, a Fund-each Fund being treated as a separate
corporation for these purposes-must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain and,
for High Yield Fund, net gains from certain foreign currency transactions) plus,
in the case of Insured Tax Exempt Fund, its net interest income excludible from
gross income under section 103(a) of the Code ("Distribution Requirement"), and
must meet several additional requirements. For each Fund these requirements
include the following: (1) the Fund must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or, for High
Yield Fund, foreign currencies, or other income (including gains from options or
futures contracts) derived with respect to its business of investing in
securities or, for High Yield Fund, those currencies ("Income Requirement"); (2)
at the close of each quarter of the Fund's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, U.S.
Government securities, securities of other RICs and other
34
<PAGE>
securities, with those other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
securities; and (3) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer.
Dividends and other distributions declared by a Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
reported, or in the case of exempt-interest dividends (see below) paid to
shareholders of Insured Tax Exempt Fund, will be taxed to shareholders for the
year in which that December 31 falls.
Under the Taxpayer Relief Act of 1997, different maximum tax rates apply to
an individual's net capital gain depending on the individual's holding period
and marginal rate of federal income tax-generally, 28% for gain recognized on
capital assets held for more than one year but not more than 18 months and 20%
(10% for taxpayers in the 15% marginal tax bracket) for gain recognized on
capital assets held for more than 18 months. Pursuant to an Internal Revenue
Service notice, each Fund may divide each net capital gain distribution into a
28% rate gain distribution and a 20% rate gain distribution (in accordance with
the Fund's holding periods for the securities it sold that generated the
distributed gain) and its shareholders must treat those portions accordingly.
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 will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary (taxable) income for that year and capital
gain net income for the one-year period ending on October 31 of that year, plus
certain other amounts.
Interest and dividends received by High Yield Fund, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries that would reduce the yield and/or total return on its securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors. Gains
from the disposition of foreign currencies (except certain gains that may be
excluded by future regulations) will qualify as permissible income under the
Income Requirement.
High Yield Fund and Insured Tax Exempt Fund may acquire zero coupon or
other securities issued with original issue discount. As a holder of those
securities, each such Fund must account for the portion of the original issue
discount that accrues on the securities during the taxable year, even if the
Fund receives no corresponding payment on them during the year. Similarly, High
Yield Fund must include in its gross income securities it receives as "interest"
on pay-in-kind securities. Because each Fund annually must distribute
substantially all of its investment company taxable income and net tax-exempt
interest, including any original issue discount and other non-cash income, to
satisfy the Distribution Requirement and High Yield Fund must do so to avoid
35
<PAGE>
imposition of the Excise Tax, a Fund may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. Those distributions will be made from a Fund's cash assets
or from the proceeds of sales of portfolio securities, if necessary. Each Fund
may realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income and/or net capital gain (the
excess of net long-term capital gain over net short-term capital loss).
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the amount, character and timing of recognition of the gains
and losses a Fund will realize in connection therewith. Gains from options and
futures derived by a Fund with respect to its business of investing in
securities will qualify as permissible income under the Income Requirement.
If a Fund has an "appreciated financial position"-generally, an interest
(including an interest through an option, futures or short sale) with respect to
any stock, debt instrument (other than "straight debt") or partnership interest
the fair market value of which exceeds its adjusted basis-and enters into a
"constructive sale" of the same or substantially similar property, the Fund will
be treated as having made an actual sale thereof, with the result that gain will
be recognized at that time. A constructive sale generally consists of a short
sale, an offsetting notional principal contract or futures contract entered into
by a Fund or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale.
Insured Tax Exempt Fund
Dividends paid by Insured Tax Exempt Fund will qualify as exempt-interest
dividends as defined in the Prospectus, and thus will be excludable from gross
income for Federal income tax purposes by its shareholders, if the Fund
satisfies the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of securities the
interest on which is excludable from gross income under section 103(a); the Fund
intends to continue to satisfy this requirement. The aggregate dividends
excludable from the Fund's shareholders' gross income may not exceed its net
tax-exempt income. Shareholders' treatment of dividends from the Fund under
state and local income tax laws may differ from the treatment thereof under the
Code. Investors should consult their tax advisers concerning this matter.
If shares of Insured Tax Exempt Fund are sold at a loss after being held
for six months or less, the loss will be disallowed to the extent of any
exempt-interest dividends received on those shares, and any portion of the loss
not disallowed will be treated as described above.
Tax-exempt interest attributable to certain private activity bonds ("PABs")
(including, to the extent Insured Tax Exempt Fund receives interest on those
bonds, a proportionate part of the exempt-interest dividends it pays) is a Tax
Preference Item. Exempt-interest dividends received by a corporate shareholder
also may be indirectly subject to the Federal alternative minimum tax without
regard to whether the Fund's tax-exempt interest was attributable to those
bonds. Entities or other persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by PABs or industrial development
bonds ("IDBs") should consult their tax advisers before purchasing shares of the
Fund because, for users of certain of these facilities, the interest on those
bonds is not exempt from Federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of PABs or IDBs.
Up to 85% of social security and certain railroad retirement benefits may
be included in taxable income for recipients whose modified adjusted gross
income (which includes income from tax-exempt
36
<PAGE>
sources such as Insured Tax Exempt Fund) plus 50% of their benefits exceeds
certain base amounts. Exempt-interest dividends from the Fund still are
tax-exempt to the extent described in the Prospectus; they are only included in
the calculation of whether a recipient's income exceeds the established amounts.
Insured Tax Exempt Fund may invest in municipal bonds that are purchased,
generally not on their original issue, with market discount (that is, at a price
less than the principal amount of the bond or, in the case of a bond that was
issued with original issue discount, a price less than the amount of the issue
price plus accrued original issue discount) ("municipal market discount bonds").
Gain on the disposition of a municipal market discount bond (other than a bond
with a fixed maturity date within one year from its issuance), generally is
treated as ordinary (taxable) income, rather than capital gain, to the extent of
the bond's accrued market discount at the time of disposition. Market discount
on such a bond generally is accrued ratably, on a daily basis, over the period
from the acquisition date to the date of maturity. In lieu of treating the
disposition gain as above, the Fund may elect to include market discount in its
gross income currently, for each taxable year to which it is attributable.
If Insured Tax Exempt Fund invests in any instruments that generate taxable
income under the circumstances described in the Prospectus, distributions of the
interest earned thereon will be taxable to the Fund's shareholders as ordinary
income to the extent of its earnings and profits. Moreover, if the Fund realizes
capital gain as a result of market transactions, any distributions of that gain
will be taxable to its shareholders. There also may be collateral Federal income
tax consequences regarding the receipt of exempt-interest dividends by
shareholders such as S corporations, financial institutions and property and
casualty insurance companies. A shareholder falling into any such category
should consult its tax adviser concerning its investment in shares of the Fund.
PERFORMANCE INFORMATION
A Fund may advertise its performance in various ways.
Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)^(1/n)]-1
The "total return" uses the same factors, but does not average the rate of
return on an annual basis. Total return is determined as follows:
(ERV-P)/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, each Fund will deduct the maximum sales
charge of 4.75% (as a percentage of the offering price) from the initial $1,000
payment. All dividends and other distributions are assumed to have been
reinvested at net asset value on the initial investment ("P").
Return information may be useful to investors in reviewing a Fund's
performance. However, certain factors should be taken into account before using
this information as a basis for comparison with alternative investments. No
adjustment is made for taxes payable on distributions. Return will fluctuate
over time and return for any given past period is not an indication or
representation by a
37
<PAGE>
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, 1997 are set forth in the tables below:
AVERAGE ANNUAL TOTAL RETURN:*
One Year Five Years Ten Years Life of Fund**
-------- ---------- --------- --------------
Blue Chip Fund 20.54% 16.19% N/A 14.04%
High Yield Fund 6.76 10.56 10.55% N/A
Insured Tax Exempt Fund 5.05 7.94 N/A 9.09
TOTAL RETURN:*
One Year Five Years Ten Years Life of Fund**
-------- ---------- --------- --------------
Blue Chip Fund 20.54% 111.72% N/A 172.53%
High Yield Fund 6.76 65.17 172.66% N/A
Insured Tax Exempt Fund 5.05 46.56 N/A 90.99
- ----------
* 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, 1997. 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.
38
<PAGE>
Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual return and total return computed
at net asset value for the periods ended December 31, 1997 is set forth in the
tables below:
AVERAGE ANNUAL TOTAL RETURN:*
One Year Five Years Ten Years Life of Fund**
-------- ---------- --------- --------------
Blue Chip Fund 26.58% 17.33% N/A 14.77%
High Yield Fund 12.03 11.64 11.09% N/A
Insured Tax Exempt Fund 10.30 9.00 N/A 9.80
TOTAL RETURN:*
One Year Five Years Ten Years Life of Fund**
-------- ---------- --------- --------------
Blue Chip Fund 26.58% 122.31% N/A 186.13%
High Yield Fund 12.03 73.38 186.23% N/A
Insured Tax Exempt Fund 10.30 53.87 N/A 100.50
- ----------
* Certain expenses of the Funds have been waived or reimbursed from
commencement of operations through December 31, 1997. Accordingly, return
figures are higher than they would have been had such expenses not been
waived or reimbursed.
** The inception dates for the Funds are as follows: Blue Chip Fund - May 17,
1990; High Yield Fund - March 24, 1987; and Insured Tax Exempt Fund - July
26, 1990.
Yield for High Yield Fund and Insured Tax Exempt Fund is presented for a
specified thirty-day period ("base period"). Yield is based on the amount
determined by (i) calculating the aggregate amount of dividends and interest
earned by a Fund during the base period less expenses accrued for that period
(net of reimbursement), and (ii) dividing that amount by the product of (A) the
average daily number of shares of that Fund outstanding during the base period
and entitled to receive dividends and (B) the per share maximum public offering
price of that Fund on the last day of the base period. The result is annualized
by compounding on a semi-annual basis to determine a Fund's yield. For this
calculation, interest earned on debt obligations held by a Fund is generally
calculated using the yield to maturity (or first expected call date) of such
obligations based on their market values (or, in the case of receivables-backed
securities such as GNMA Certificates, based on cost). Dividends on equity
securities are accrued daily at their estimated stated dividend rates.
Insured Tax-Exempt Fund's tax-equivalent yield during the base period may
be presented in one or more stated tax brackets. Tax-equivalent yield is
calculated by adjusting the Fund's tax-exempt yield by a factor designed to show
the approximate yield that a taxable investment would have to earn to produce an
after-tax yield equal to the Fund's tax-exempt yield.
39
<PAGE>
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, 1997, the yield and tax-equivalent yield
(assuming a Federal tax rate of 28%) for Insured Tax Exempt Fund was 4.29% and
6.70%, respectively. The maximum Federal tax rate for this period was 39.6%. For
the 30 days ended December 31, 1997, the yield for High Yield Fund was 7.30%.
Some of the Funds' expenses were waived or reimbursed during this period.
Accordingly, yields are higher than they would have been had such expenses not
been waived or reimbursed.
The distribution rate for High Yield Fund and Insured Tax Exempt Fund is
presented for a twelve-month period. It is calculated by adding the dividends
for the last twelve months and dividing the sum by a Fund's offering price per
share at the end of that period. The distribution rate is also calculated by
using a Fund's net asset value. Distribution rate calculations do not include
capital gain distributions, if any, paid. The distribution rate for the
twelve-month period ended December 31, 1997 for shares of High Yield Fund and
Insured Tax Exempt Fund calculated using the offering price was 8.20% and 4.44%,
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 8.60%
and 4.66%, 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
40
<PAGE>
that reflects fund performance relative to three-month Treasury bill
monthly returns. Fund's returns are adjusted for fees and sales loads. Ten
percent of the funds in an investment category receive five stars, 22.5%
receive four stars, 35% receive three stars, 22.5% receive two stars, and
the bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly publication which
tracks principal return, total return and yield on the Salomon Brothers
Broad Investment-Grade Bond Index and the components of the Index.
Telerate Systems, Inc., a computer system to which the Adviser subscribes
which daily tracks the rates on money market instruments, public corporate
debt obligations and public obligations of the U.S. Treasury and agencies
of the U.S. Government.
THE WALL STREET JOURNAL, a daily newspaper publication which lists the
yields and current market values on money market instruments, public
corporate debt obligations, public obligations of the U.S. Treasury and
agencies of the U.S. Government as well as common stocks, preferred stocks,
convertible preferred stocks, options and commodities; in addition to
indices prepared by the research departments of such financial
organizations as Lehman Bros., Merrill Lynch, Pierce, Fenner and Smith,
Inc., First Boston, Salomon Brothers, Morgan Stanley, Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette, Value Line, Datastream International, James
Capel, S.G. Warburg Securities, County Natwest and UBS UK Limited,
including information provided by the Federal Reserve Board, Moody's, and
the Federal Reserve Bank.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal,
coupon and total return on over 100 different taxable bond indices which
Merrill Lynch tracks. They also list the par weighted characteristics of
each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication
which tracks principal, coupon and total return on the Lehman Govt./Corp.
Index and Lehman Aggregate Bond Index, as well as all the components of
these Indices.
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
41
<PAGE>
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.
GENERAL INFORMATION
Audits And Reports. The accounts of each Fund are audited twice a year by
Tait, Weller & Baker, independent certified public accountants, 8 Penn Center
Plaza, Philadelphia, PA, 19103. Shareholders of each Fund receive semi-annual
and annual reports, including audited financial statements, and a list of
securities owned.
Transfer Agent. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of EIMCO and EIC, acts as transfer agent
for the Funds and as redemption agent for regular redemptions. The fees charged
to each Fund by the Transfer Agent are $5.00 to open an account; $3.00 for each
certificate issued; $.75 per account per month; $10.00 for each legal transfer
of shares; $.45 per account per dividend declared; $5.00 for each exchange of
shares into a Fund; $5.00 for each partial withdrawal or complete liquidation;
$1.00 for each Systematic Withdrawal Plan check; $4.00 for each shareholder
services call; $20.00 for each item of correspondence; and $1.00 per account per
report required by any governmental authority. Additional fees charged to the
Funds by the Transfer Agent are assumed by the Underwriter. The Transfer Agent
reserves the right to change the fees on prior notice to the Funds. Upon request
from shareholders, the Transfer Agent will provide an account history. For
account histories covering the most recent three year period, there is no
charge. The Transfer Agent charges a $5.00 administrative fee for each account
history covering the period 1983 through 1994 and $10.00 per year for each
account history covering the period 1974 through 1982. Account histories prior
to 1974 will not be provided. If any communication from the Transfer Agent to a
shareholder is returned from the U.S. Postal Service marked as "Undeliverable"
two consecutive times, the Transfer Agent will cease sending any further
materials to the shareholder until the Transfer Agent is provided with a correct
address. Efforts to locate a shareholder will be conducted in accordance with
SEC rules and regulations prior to escheatment of funds to the appropriate state
treasury. The Transfer Agent may deduct the costs of its efforts to locate a
shareholder from the shareholder's account. These costs may include a percentage
of the account if a search company charges such a fee in exchange for its
location services. The Transfer Agent is not responsible for any fees that
states and/or their representatives may charge for processing the return of
funds to investors whose funds have been escheated. For the fiscal year ended
December 31, 1997, High Yield Fund, Blue Chip Fund and Insured Tax Exempt Fund
paid $17,897, $2,949 and $7,616, respectively, in transfer agency fees and
expenses. The Transfer Agent's telephone number is 1-800-423-4026.
42
<PAGE>
Shareholder Liability. The Trust is organized as an entity known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable for the
obligations of the Trust. The Declaration of Trust however, contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the Trust or the Trustees. The
Declaration of Trust provides for indemnification out of the property of the
Trust of any shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. Thus, the risk
of a shareholder's incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would be unable to meet
its obligations. The Adviser believes that, in view of the above, the risk of
personal liability to shareholders is immaterial and extremely remote. The
Declaration of Trust further provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office. The
Trust may have an obligation to indemnify Trustees and officers with respect to
litigation.
Trading by Portfolio Managers and Other Access Persons. Pursuant to Section
17(j) of the 1940 Act and Rule 17j-1 thereunder, the Trust and the Adviser have
adopted Codes of Ethics restricting personal securities trading by portfolio
managers and other access persons of the Funds. Among other things, such
persons, except the Trustees: (a) must have all non-exempt trades pre-cleared;
(b) are restricted from short-term trading; (c) must provide duplicate
statements and transactions confirmations to a compliance officer; and (d) are
prohibited from purchasing securities of initial public offerings.
APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
Standard & Poor's Ratings Group ("S&P") commercial paper rating is a
current assessment of the likelihood of timely payment of debt considered
short-term in the relevant market. Ratings are graded into several categories,
ranging from "A-1" for the highest quality obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
Moody's Investors Service, Inc. ("Moody's") short-term debt ratings are
opinions of the ability of issuers to repay punctually senior debt obligations
which have an original maturity not exceeding one year. Obligations relying upon
support mechanisms such as letters-of-credit and bonds of indemnity are excluded
unless explicitly rated.
Prime-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
43
<PAGE>
- 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.
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.
44
<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 1996.
1928 .................. 300.00
1929 .................. 248.48
1930 .................. 164.58
1931 .................. 77.90
1932 .................. 59.93
1933 .................. 99.90
1934 .................. 104.04
1935 .................. 144.13
1936 .................. 179.90
1937 .................. 120.85
1938 .................. 154.76
1939 .................. 150.24
1940 .................. 131.13
1941 .................. 110.96
1942 .................. 119.40
1943 .................. 136.20
1944 .................. 152.32
1945 .................. 192.91
1946 .................. 177.20
1947 .................. 181.16
1948 .................. 177.30
1949 .................. 200.10
1950 .................. 235.40
1951 .................. 269.22
1952 .................. 291.89
1953 .................. 280.89
1954 .................. 404.38
1955 .................. 488.39
1956 .................. 499.46
1957 .................. 435.68
1958 .................. 583.64
1959 .................. 679.35
1960 .................. 615.88
1961 .................. 731.13
1962 .................. 652.10
1963 .................. 762.94
1964 .................. 874.12
1965 .................. 969.25
1966 .................. 785.68
1967 .................. 905.10
1968 .................. 943.75
1969 .................. 800.35
1970 .................. 838.91
1971 .................. 890.19
1972 .................. 1,020.01
1973 .................. 850.85
1974 .................. 616.24
1975 .................. 858.71
1976 .................. 1,004.65
1977 .................. 831.17
1978 .................. 805.01
1979 .................. 838.74
1980 .................. 963.98
1981 .................. 875.00
1982 .................. 1,046.55
1983 .................. 1,258.64
1984 .................. 1,211.56
1985 .................. 1,546.67
1986 .................. 1,895.95
1987 .................. 1,938.80
1988 .................. 2,168.60
1989 .................. 2,753.20
1990 .................. 2,633.66
1991 .................. 3,168.83
1992 .................. 3,301.11
1993 .................. 3,754.09
1994 .................. 3,834.44
1995 .................. 5,000.00
1996 .................. 6,000.00
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart shows that inflation is constantly eroding the value of your
money.
THE EFFECTS OF INFLATION OVER TIME
1966 ....................... 96.61836
1967 ....................... 93.80423
1968 ....................... 89.59334
1969 ....................... 84.36285
1970 ....................... 79.88906
1971 ....................... 77.33694
1972 ....................... 74.79395
1973 ....................... 68.80768
1974 ....................... 61.27131
1975 ....................... 57.31647
1976 ....................... 54.63915
1977 ....................... 51.20820
1978 ....................... 46.98000
1979 ....................... 41.46514
1980 ....................... 36.85790
1981 ....................... 33.84564
1982 ....................... 32.60659
1983 ....................... 31.41290
1984 ....................... 30.23378
1985 ....................... 29.12696
1986 ....................... 28.81005
1987 ....................... 27.59583
1988 ....................... 26.43279
1989 ....................... 25.27035
1990 ....................... 23.81748
1991 ....................... 23.10134
1992 ....................... 22.45028
1993 ....................... 21.86006
1994 ....................... 21.28536
1995 ....................... 20.76620
1996 ....................... 20.39000
1995........................ 1.00
1996........................ 1.03
1997........................ 1.06
1998 ....................... 1.09
1999 ....................... 1.13
2000 ....................... 1.16
2001 ....................... 1.19
2002 ....................... 1.23
2003 ....................... 1.27
2004 ....................... 1.30
2005 ....................... 1.34
2006 ....................... 1.38
2007 ....................... 1.43
2008 ....................... 1.47
2009 ....................... 1.51
2010 ....................... 1.56
2011 ....................... 1.60
2012 ....................... 1.65
2013 ....................... 1.70
2014 ....................... 1.75
2015 ....................... 1.81
2016 ....................... 1.86
2017 ....................... 1.92
2018 ....................... 1.97
2019 ....................... 2.03
2020 ....................... 2.09
2021 ....................... 2.16
2022 ....................... 2.22
2023 ....................... 2.29
2024 ....................... 2.36
2025 ....................... 2.43
2026 ....................... 2.43
Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and services as it could in 1996 ($100 vs. $20).* Projecting inflation at
3%, goods and services costing $100 today will cost $243 in the year 2026.
* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.
<PAGE>
[The following tables are represented as graphs in the printed document.]
This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.
1926 through 1996(1)
Total Number of Percentage of
Number of Positive Positive
Periods Periods Periods
------- ------- -------
1-Year Periods 71 51 72%
5-Year Periods 67 60 90%
10-Year Periods 62 60 97%
15-Year Periods 57 57 100%
20-Year Periods 52 52 100%
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 1982 -- 1996(1)
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 13.66
The following chart illustrates for the period shown that long-term corporate
bonds have outpaced U.S. Treasury Bills and inflation.
Compound Annual Return from 1982 -- 1996(1)
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 16.79
(1) Used with permission. (C) 1997 Ibbotson Associates Inc. All rights
reserved. [Certain portions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.]
(2) Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, 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
---------------------------------------------
your tax-free yield 31.0% 36.0% 39.6%
------------------- ----- ----- -----
3.00% 4.35% 4.69% 4.97%
3.50% 5.07% 5.47% 5.79%
4.00% 5.80% 6.25% 6.62%
4.50% 6.52% 7.03% 7.45%
5.00% 7.25% 7.81% 8.25%
5.50% 7.97% 8.59% 9.11%
This information is general in nature and should not be construed as tax advice.
Please consult a tax or financial adviser as to how this information affects
your particular circumstances.
<PAGE>
Financial Statements
as of December 31, 1997
<PAGE>
Financial Statements
as of December 31, 1997
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, 1997 electronically filed with the Commission on
March 3, 1998 (Accession Number: 0001047469-98-00383).
47
<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)/1/ Amended and Restated Declaration of Trust
(2)/1/ 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)/1/ Investment Advisory Agreement between Registrant and
Executive Investors Management Company, Inc.
(6)/1/ Underwriting Agreement between Executive Investors
Corporation and the Registrant
(7) Not Applicable
(8)a./1/ Custodian Agreement between Irving Trust Company and
Registrant
b. Custodian Agreement between Irving Trust Company and
Executive Investors High Yield Fund
c./1/ Supplement to Custodian Agreement between The Bank of New
York and Registrant
(9)a./1/ Administration Agreement by and among Administrative Data
Management Corp., Executive Investors Corporation and
Registrant
b./2/ Schedule A to Administration Agreement
(10) Opinion of Counsel
(11)a. Consent of independent accountants
b./1/ Powers of Attorney
(12) Not Applicable
<PAGE>
(13) No undertakings in effect
(14)a./2/ First Investors Profit Sharing/Money Purchase Pension
Retirement Plan for Sole Proprietorships, Partnerships,
and Corporations
b./2/ First Investors Individual Retirement Account
c./2/ First Investors 403(b) Custodial Account
d./2/ First Investors SEP-IRA and SARSEP-IRA
(15) 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 Post-Effective Amendment No. 17 to
Registrant's Registration Statement (File No. 33-10648) filed on April 24,
1996.
/2/ Incorporated by reference from Post-Effective Amendment No. 18 to
Registrant's Registration Statement (File No. 33-10648) filed on May 15,
1997.
Item 25. Persons Controlled by or under common control with Registrant
There are no persons controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
Number of
Record Holders as of
Title of Class February 2, 1998
-------------- ----------------
Class A
Executive Investors
High Yield Fund 853
Executive Investors
Blue Chip Fund 204
Executive Investors
Insured Tax Exempt Fund 350
Item 27. Indemnification
Indemnification provisions are contained in:
<PAGE>
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
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
<PAGE>
Kathryn S. Head Vice President Trustee
581 Main Street and Director
Woodbridge, NJ 07095
Carol Lerner Brown Secretary Assistant Secretary
95 Wall Street
New York, NY 10005
Elizabeth Reilly Vice President None
581 Main Street
Woodbridge, NJ 07095
William M. Lipkus Chief Financial Officer 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
<PAGE>
annual report to shareholders, upon request and without charge, to each person
to whom a prospectus is delivered.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this Amendment
meets all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this Post-Effective Amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
15th day of April, 1998.
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 15, 1998
- ------------------------ Officer and Trustee
Glenn O. Head
/s/Joseph I. Benedek Principal Financial April 15, 1998
- ------------------------ and Accounting Officer
Joseph I. Benedek
* Trustee April 15, 1998
- ------------------------
Kathryn S. Head
* Trustee April 15, 1998
- ------------------------
Roger L. Grayson
* Trustee April 15, 1998
- ------------------------
Herbert Rubinstein
* Trustee April 15 1998
- ------------------------
Nancy Schaenen
<PAGE>
* Trustee April 15, 1998
- ------------------------
James M. Srygley
* Trustee April 15, 1998
- ------------------------
John T. Sullivan
* Trustee April 15, 1998
- ------------------------
Rex R. Reed
* Trustee April 15, 1998
- ------------------------
Robert F. Wentworth
*By: /s/Larry R. Lavoie
-------------------------
Larry R. Lavoie
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
99.B8 Custodian Agreement
99.B10 Opinion of counsel
99.B11 Consent of accountants
99.B15 Class A Distribution Plan
99.B16 Performance Calculations
27.01 FDS-Blue Chip Fund
27.02 FDS-High Yield Fund
27.03 FDS-Tax Exempt Fund
CUSTODIAN AGREEMENT
BETWEEN
IRVING TRUST COMPANY
AND
EXECUTIVE INVESTORS HIGH YIELD FUND
(A Series of Executive Investors Trust)
CUSTODIAN AGREEMENT, made this 18th day of December, 1986 between EXECUTIVE
INVESTORS HIGH YIELD FUND (the "Fund"), a series of Executive Investors Trust, a
business trust organized and existing under the laws of the State of
Massachusetts, having its office and place of business at 120 Wall Street, New
York, New York 10005 and Irving Trust Company, a banking corporation organized
and existing under the laws of the State of New York, having its principal
office and place of business at One Wall Street, New York, New York 10015 (the
"Custodian").
WITNESSETH:
That for and in consideration of the mutual promises hereinafter set forth
the Fund and the Custodian agree as follows:
I
APPOINTMENT OF CUSTODIAN
1. The Trust hereby constitutes and appoints the Custodian as custodian of
all the securities and monies at any time owned by the Fund during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees to
perform the duties thereof as hereinafter set forth.
II
CUSTODY OF CASH AND SECURITIES
1. The Fund will deliver or cause to be delivered to the Custodian all
securities and all monies owned by it, including cash received for the issuance
of its shares, at any time during the period of this Agreement. The Custodian
will not be responsible for such securities and such monies until actually
received by it.
2. The Custodian shall credit to a separate account in the name of the Fund
all monies received by it for the account of the Fund, and shall disburse the
same only:
(a) In payment for securities purchased, as provided in Article III
hereof;
EXECUTIVE 1
<PAGE>
(b) In payment of dividends or distributions as provided in Article V
hereof;
(c) In payment of original issue or other taxes, as provided in
Article VI hereof;
(d) In payment for shares of beneficial interest of the Fund redeemed
by it, as provided in Article VI hereof;
(e) Pursuant to an officers certificate, or with respect to money
market securities, as defined in Article IX, the oral instructions of an
authorized person, as defined in Article IX, setting forth the name and
address of the person to whom payment is to be made, the amount to be paid,
and the corporate purpose for which payment is to be made; and
(f) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian, as provided in Article VII hereof.
3. The Custodian shall provide the Fund promptly after the close of
business on each day with a statement summarizing all transactions and entries
for the account of the Fund during said day, and it shall, at least monthly and
from time to time, at the reasonable request of the Fund, render a detailed
statement of the securities and monies held for the Fund under this Agreement.
4. All securities held for the Fund, which are issued or issuable only in
bearer form, shall be held by the Custodian in that form; all other securities
held for the Fund may be registered in the name of the Fund or in the name of
any duly appointed and registered nominee of the Custodian, as the Custodian may
from time to time determine. The Fund agrees to furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee, any
securities which it may held for the account of the Fund and which may from time
to time be registered in the name of the Fund. The Custodian shall hold all
securities in a separate account in the name of the Fund physically segregated
at all times from those of any person or persons. Notwithstanding the foregoing,
to the extent authorized by the Board of Trustees of the Fund, the Custodian may
deposit securities in a clearing agency or the book entry system of the Federal
Reserve Banks, as provided in Rule 17f-4 of the Investment Company Act of 1940,
as amended, and securities deposited in such agency may be registered in the
name of such agency or its nominee.
5. Unless otherwise instructed to the contrary by an officers certificate,
the Custodian shall, with respect to all securities held for the Fund:
EXECUTIVE 2
<PAGE>
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed, or retired, or
otherwise become payable;
(c) Surrender securities in temporary form for definitive securities;
(d) Execute, as custodian, any necessary declarations or certificates
of ownership under the Federal Income Tax laws or the laws or regulations
of any other taxing authority now or hereafter in effect; and
(e) Hold for the account of the Fund all stock dividends, rights and
similar securities issued with respect to any securities held by it
hereunder.
6. Upon receipt of an officers certificate and not otherwise, the Custodian
shall:
(a) Execute and deliver to such persons as may be designated in such
officers certificate, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities
may be exercised;
(b) Deliver any securities held for the Fund in exchange for other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of
any corporation or the exercise of any conversion privilege;
(c) Deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold under the terms of
this Agreement, such certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence such delivery;
(d) Take such other action as may be authorized in such officers
certificate.
III
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
1. Promptly after each purchase of securities by the Fund, the Fund shall
deliver to the Custodian (i) with respect to each purchase of securities which
are not money market securities an
EXECUTIVE 3
<PAGE>
officers certificate and (ii) with respect to each purchase of money market
securities such an officers certificate or oral instructions from an authorized
person, specifying with respect to each such purchase: (a) the name of the
issuer and the title of the securities, (b) the number of shares or the
principal amount purchased, and accrued interest, if any, (c) the date of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, (f) the name of the person from whom or the broker
through whom the purchase was made and (g) such other information as shall be
necessary for the issuance by the Custodian or a depository of escrow receipts
relating to options purchased by the Fund, if the issuance of escrow receipts is
requested by the officers certificate. The Custodian shall receive all
securities purchased by or for the Fund from the persons through or from whom
the same were purchased, and shall pay out the monies held for the account of
the Fund, the total amount payable upon such purchase as set forth in such
officers certificate or such oral instruments, as the case may be, provided that
the same conforms to the total amount payable as set forth on such officers
certificate or in such oral instructions. The Custodian may make payment in such
forms as shall be satisfactory to it and may accept securities in accordance
with the customs prevailing among dealers.
2. Promptly after each sale of securities by the Fund, the Fund shall
deliver to the Custodian, (i) with respect to each sale of securities which are
not money market securities an officers certificate and (ii) with respect to
each sale of money market securities such an officers certificate or oral
instructions from an authorized person specifying with respect to each such
sale: (a) the name of the issuer and the title of the securities, (b) the number
of shares or principal amount sold, and accrued interest, if any, (c) the date
of sale, (d) the sale price per unit, (e) the total amount payable to the Fund
upon such sale and (f) the name of the broker through whom or the person to whom
the sale was made. The Custodian shall deliver the securities thus designated to
the broker or other person named in such officers certificate upon receipt of
the total amount payable to the Fund as set forth in such officers certificate
or such oral instructions as the case may be, with respect to such sale. The
Custodian may accept payment in such form as shall be satisfactory to it, and
may deliver securities and arrange for payment in accordance with the customs
prevailing among dealers in securities.
IV
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Where the Fund is permitted to lend its portfolio securities and wishes
to lend its portfolio securities, the Fund
EXECUTIVE 4
<PAGE>
shall deliver to the Custodian an officers certificate specifying with respect
to each such loan: (a) the name of the issuer and the title of the securities,
(b) the number of shares or the principal amount loaned, (c) the date of the
loan and delivery, (d) the total amount to be delivered to the Custodian against
the loan of the securities including the amount of cash collateral and the
premium, if any, separately identified and (e) the name of the broker to whom
the loan was made. The Custodian shall deliver the securities thus designated to
the broker to whom the loan was made upon receipt of the total amount designated
as to be delivered against the loan of securities. The Custodian may accept
payment only in the form of immediately available funds or a certified or bank
cashier's check payable to the order of the Fund or the Custodian drawn on New
York Clearing House funds and may deliver securities in accordance with the
customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of securities by the Fund,
the Fund shall deliver to the Custodian an officers certificate specifying with
respect to each such loan termination and return of securities: (a) the name of
the issuer and the title of the securities to be returned, (b) the number of
shares or the principal amount to be returned, (c) the date of termination, (d)
the total amount to be delivered by the Custodian (including the cash collateral
for such securities minus any offsetting credits as described in said officers
certificate) and (e) the name of the broker from whom the securities will be
returned. The Custodian shall receive all securities returned from the broker to
whom such securities were loaned and upon receipt thereof shall pay, out of the
monies held for the account of the Fund, the total amount payable upon such
return of securities as set forth in the officers certificate.
V
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of any resolution of the
Board of Trustees, certified by the Secretary or any Assistant Secretary,
authorizing the declaration of dividends on a monthly, quarterly, semi-annual,
annual or other basis, and authorizing the Custodian to rely on the oral
instructions from an authorized officer of the Fund, setting forth the date of
the declaration of such dividend or distribution, the date of payment thereof,
the record date as of which shareholders entitled to payment shall be
determined, and the amount payable per share to the stockholders of record as of
that date and the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such officers certificate or oral
instructions, the Custodian shall pay out of
EXECUTIVE 5
<PAGE>
the monies held for the account of the Fund the total amount payable to the
Dividend Agent for the Fund.
VI
SALE AND REDEMPTION OF CAPITAL STOCK OF THE FUND
1. Whenever the Fund shall sell any of its shares of beneficial interest,
it shall cause to be delivered to the Custodian an officers certificate duly
specifying:
(a) The number of shares sold, trade date, and price; and
(b) The amount of money to be received by the Custodian for the sale
of such shares.
2. Upon receipt of such money the Custodian shall credit such money into
the account of the Fund.
3. Upon the issuance of any shares of beneficial interest of the Fund in
accordance with the foregoing provisions of this Article, the Custodian shall
pay, out of the money held for the account of the Fund, all original issue or
other taxes required to be paid by the Fund in connection with such issuance
upon the receipt of an officers certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund shall hereafter redeem
any of its shares of beneficial interest, it shall furnish to the Custodian an
officers certificate specifying:
(a) The number of shares redeemed; and
(b) The amount to be paid for the shares redeemed.
5. Upon receipt from the Transfer Agent of an advice setting forth the
number of shares received by the Transfer Agent for redemption and that such
shares are valid and in good form for redemption, the Custodian shall make
payment to the Transfer Agent out of the monies held for the account of the
Fund, of the total amount specified in the officers certificate issued pursuant
to the foregoing paragraph 4 of this Article.
VII
CONCERNING THE CUSTODIAN
1. Neither the Custodian nor its nominee shall be liable
EXECUTIVE 6
<PAGE>
for any loss or damage including counsel fees, resulting from its action or
omission to act or otherwise, except for any such loss or damage arising out of
its own negligence or willful misconduct. The Custodian may, with respect to
questions of law, apply for and obtain the advice and opinion of counsel to the
Fund or of its own counsel, at the expense of the Fund, and shall be fully
protected with respect to anything done or omitted by it in good faith in
conformity with such advice or opinion.
2. Without limiting the generality of the foregoing, the Custodian shall be
under no duty or obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any securities purchased by or for
the Fund, the legality of the purchase thereof, or the propriety of the
amount paid therefor;
(b) The legality of the sale of any securities by or for the Fund or
the propriety of the amount for which the same are sold;
(c) The legality of the issue or sale of any shares of beneficial
ownership of the Fund, or the sufficiency of the amount to be received
therefor;
(d) The legality of the redemption of any shares of beneficial
interest of the Fund, or the propriety of the amount to be paid therefor;
(e) The legality of the declaration of any dividend by the Fund or the
legality of the issue of any shares of the Fund's capital stock in payment
of any stock dividend;
(f) The legality of any loan of portfolio securities pursuant to
Article IV of this Agreement, nor shall the Custodian be under any duty or
obligation to see to it that any cash collateral delivered to it by a
brokerage firm or held by it at any time as a result of such loan of the
portfolio securities of the Fund is adequate collateral for the Fund
against any loss it might sustain as a result of such loan. The Custodian
specifically, but not by way of limitation, shall not be under any duty or
obligation to periodically check or notify the Fund that the amount of such
cash collateral held by it for the Fund is sufficient collateral for the
Fund, but such duty or obligation shall be the sole responsibility of the
Fund. In addition, the Custodian shall be under no duty or obligation to
see that any brokerage firm to whom portfolio securities of the Fund are
lent pursuant to Article IV of this Agreement makes payment to it of any
dividends or interest which are payable to or for the account of the Fund
during the period of such loan or at the termination of such loan, provided
however, that the Custodian shall promptly notify the Fund in the event
that such
EXECUTIVE 7
<PAGE>
dividends or interest are not paid and received when due;
(g) The legality of a payment made pursuant to an officers certificate
or, in the case of money market securities, pursuant to oral instructions
of any authorized person.
3. The Custodian shall not be liable for, or considered to be the Custodian
of, any money represented by any check, draft, or other instrument for the
payment of money received by it on behalf of the Fund, until the Custodian
actually receives such money.
4. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount due to the Fund from the Transfer Agent of
the Fund nor to take any action to effect payment or distribution by the
Transfer Agent of the Fund of any amount paid by the Custodian to the Transfer
Agent of the Fund in accordance with this Agreement.
5. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount, if the securities upon which such amount is
payable are in default or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by
an officers certificate and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any such action.
6. The Custodian may appoint one or more banking institutions, including,
but not limited to, banking institutions located in foreign countries, as
Depository or Depositories or as a Sub-Custodian of securities and monies at any
time owned by the Fund, upon terms and conditions approved in written
instructions from two officers of the Fund.
7. The Custodian shall not be under any duty or obligation to ascertain
whether any securities at any time delivered to or held by it for the account of
the Fund are such as may, properly be held by the Fund under the provisions of
its Articles of Incorporation.
8. The Custodian shall be entitled to receive and the Fund agrees to pay to
the Custodian, such compensation as may be agreed upon from time to time between
the Custodian and the Fund. The Custodian may charge such compensation and any
expenses incurred by the Custodian in the performance of its duties pursuant to
such agreement against any money held by it for the account of the Fund. The
Custodian shall also be entitled to charge against any money held by it for the
account of the Fund the amount of any loss, damage, liability or expense,
including counsel fees, for which it shall be entitled to reimbursement under
the provisions of this Agreement. The expenses which the
EXECUTIVE 8
<PAGE>
Custodian may charge against the account of the Fund include, but are not
limited to, the expenses of Sub-Custodians and foreign branches of the Custodian
incurred in settling transactions involving the purchase and sale of securities
of the Fund.
9. The Custodian shall be entitled to rely upon any officers certificate,
notice or other instrument in writing received by the Custodian and believed by
the Custodian to be genuine and to be signed by two officers of the Fund as
defined in Article IX. The Custodian shall be entitled to rely upon any oral
instructions received by the Custodian pursuant to Article III or V hereof and
believed by the Custodian to be genuine and to be given by an authorized person.
The Fund agrees to forward to the Custodian written instructions from an
authorized person confirming such oral instructions in such manner so that such
written instructions are received by the Custodian, whether by hand delivery,
telex or otherwise, by the close of business of the same day that such oral
instructions are given to the Custodian. The Custodian's understanding of any
oral instructions on which it has acted shall be binding on the Fund
notwithstanding receipt by the Custodian of written confirmation of such oral
instructions which is inconsistent with the Custodian's understanding thereof.
The Fund agrees that the fact that such confirming written instructions are not
received by the Custodian shall in no way affect the validity of transactions or
enforceability of the transactions hereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund in acting upon
oral instructions given to the Custodian hereunder concerning such transactions
provided such instructions reasonably appear to have been received from a duly
authorized person.
VIII
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving to
the other party a notice in writing specifying the date of such termination,
which shall be no less than 60 days after the date of the giving of such notice.
In the event such notice is given by the Fund, it shall be accompanied by a copy
of a resolution of the Board of Directors of the Fund, certified by the
Secretary or any Assistant Secretary, electing to terminate this Agreement and
designating a successor custodian or custodians, each of which shall be a bank
or trust company having not less than $2,000,000 aggregate capital, surplus and
undivided profits. In the event such notice is given by the Custodian, the Fund
shall, on or before the termination date, deliver to the Custodian a copy of
resolution of its Board of Trustees, certified by the Secretary or any Assistant
Secretary, designating a successor custodian or custodians. In the absence of
such designation by the Fund, the Custodian may apply to any
EXECUTIVE 9
<PAGE>
court of competent jurisdiction for the appointment of a successor custodian
which shall be a bank or a trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. If the Fund fails to designate
a successor custodian, the Fund shall, upon the date specified in the notice of
termination of this Agreement and upon the delivery by the Custodian of all
securities and monies then owned by the Fund be deemed to be its own custodian
and the Custodian shall thereby be relieved of all duties and responsibilities
pursuant to this Agreement.
2. Upon the date set forth in such notice, this Agreement shall terminate
and the Custodian shall, upon receipt of a notice of acceptance by the successor
custodian, on that date deliver directly to the successor custodian all
securities and monies then owned by the Fund and held by it as Custodian, after
deducting all fees, expenses and other amounts for the payment or reimbursement
of which it shall be entitled.
IX
MISCELLANEOUS
1. The term "officers certificate" shall mean any notice, instructions or
other instrument in writing, authorized or required by this Agreement to be
given to the Custodian signed by two officers on behalf of the Fund.
2. The term "Officers" shall be deemed to include the President,
Vice-President, the Secretary, the Treasurer, any Assistant Secretary, any
Assistant Treasurer, or any other person or persons duly authorized by the Board
of Trustees of the Trust to execute any certificate, instruction, notice or
other instrument on behalf of the Fund. The term "securities" shall include, but
shall not be limited to, stocks, bonds, debentures, notices, bankers'
acceptances, certificates of deposit, options, securities covered by options,
and money market instruments.
3. Annexed hereto as Appendix A, is a certificate signed by two of the
present officers of the Fund under its corporate seal, setting forth the names
and the signatures of the present officers of the Fund. The Fund agrees to
notify the Custodian promptly if any such present officer ceases to be an
officer of the Fund, and to furnish the Custodian a new certificate in similar
form in the event other or additional officers as defined in Article IX are
elected or appointed. Until such new certificate shall be received, the
Custodian shall be fully protected in acting under the provisions of this
Agreement upon the signatures of the present officers as set forth in said
annexed certificate or upon the signatures of the present officers as set forth
in subsequently issued certificates.
EXECUTIVE 10
<PAGE>
4. The term "authorized person" shall be deemed to include the Treasurer,
the Secretary or any other persons, whether or not any such person is an officer
or employee of the Fund, duly authorized by the Board of Director to execute any
certificate, instruction, notice or other instrument or to deliver oral
instructions on behalf of the Fund.
5. Annexed hereto as Appendix B is a certificate signed by two of the
present officers of the Fund under its corporate seal, setting forth the names
and signatures of the present authorized persons. The Fund agrees to notify the
Custodian promptly if any such present authorized person ceases to be an
authorized person and to furnish to the Custodian a new certificate in similar
form in the event that other or additional authorized persons are elected or
appointed. Until such new certificate shall be received, the Custodian shall be
fully protected in acting under the provisions of this Agreement upon oral
instructions or signatures of the present authorized persons as set forth in
said annexed certificate or upon oral instructions or the signatures of the
present authorized persons as set forth in a subsequently issued certificate.
6. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at One
Wall Street, New York, New York 10015, Attn: Institutional Custody
Administration Department or at such other place as the Custodian may from time
to time designate in writing.
7. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office, at 120 Wall Street, New
York, New York 10005, or at such other place as the Fund may from time to time
designate in writing.
8. This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties with the same formality as this
Agreement, and authorized and approved by a resolution of the Board of Directors
of the Fund.
9. The term "money market security" shall be deemed to include, but not be
limited to, debt obligations issued or guaranteed as to interest and principal
by the Government of the United States or agencies or instrumentalities thereof,
bank deposits, certificates of deposit, commercial paper and bankers'
acceptances, where the purchase or sale of such securities normally requires
settlement in federal funds on the same day as such purchase or sale.
10. This Agreement shall extend to and shall be binding
EXECUTIVE 11
<PAGE>
upon the parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Fund without the
written consent of the Custodian and shall not be assignable by the Custodian
without the written consent of the Fund, authorized or approved by a resolution
of its Trustees.
11. Notwithstanding any provision of law to the contrary, the Custodian
hereby severally waives any right to enforce this Agreement against the
individual and separate assets of any shareholder of the Fund, or any other
series of Executive Investors Trust.
12. This Agreement shall be construed in accordance with the laws of the
State of New York.
14. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original but such counterparts shall, together,
constitute only one instrument.
15. The term "written instructions" shall mean written communications by
telex or any other such system whereby the receiver of such communications is
able to verify by codes or otherwise with a reasonable degree of certainty the
authenticity of the sender of such communications.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers, thereunto duly authorized and
their respective corporate seals to be hereunto affixed as of the day and year
first above written.
EXECUTIVE INVESTORS TRUST
HIGH YIELD FUND
By: /s/ Andrew J. Donohue
-----------------------------
Andrew J. Donohue, President
ATTEST:
/s/ C. Durso
- ------------------------------
Concetta Durso, Vice President
and Secretary
IRVING TRUST COMPANY
By: /s/ Michael A. Mertz
-----------------------------
Michael A. Mertz
Vice President
EXECUTIVE 12
<PAGE>
ATTEST:
/s/ Maria Fernandes
- ------------------------------
Assistant Secretary
EXECUTIVE 13
<PAGE>
APPENDIX A
I, Andrew J. Donohue, President and I, Concetta Durso, Secretary of
Executive Investors High Yield Fund (A Series of Executive Investors Trust) (the
"Fund"), a Massachusetts business trust, do hereby certify that:
The following individuals serve in the following positions with the Fund
and each individual has been duly elected or appointed to each such position and
qualified therefor in conformity with the Fund's Declaration of Trust and
By-Laws and the signatures set forth opposite their respective names are true
and correct signatures:
SIGNATURE
Andrew J. Donohue President /s/ Andrew J. Donohue
----------------------------
David D. Grayson Vice President /s/ David D. Grayson
----------------------------
Glenn 0 Head Vice President /s/ Glenn 0. Head
----------------------------
Concetta Durso Vice President
& Secretary /s/ C. Durso
----------------------------
Nicholas Orros Treasurer /s/ Nicholas Orros
----------------------------
Joseph P. Abbamont Assistant Treasurer /s/ Joseph P. Abbamont
----------------------------
Anthony Gentile Authorized Signer /s/ Anthony Gentile
----------------------------
Jay G. Bans Authorized Signer /s/ Jay G. Bans
----------------------------
Robert J. Grosso Authorized Signer /s/ Robert J. Grosso
----------------------------
Regina D. Ruffo
Tenzer Authorized Signer /s/ Regina D. Ruffo Tenzer
----------------------------
Mariarosa Cartolano Authorized Signer Mariarosa Cartolano
----------------------------
I, Andrew Executive J. Donohue, in my official Investors High Yield Fund
capacity as President of (A Series of Executive Investors Trust), hereby certify
that Concetta Durso is currently the duly elected and appointed Secretary of
Executive Investors High Yield Fund (A Series of Executive Investors Trust) and
that the above named individuals have been duly appointed to each such position
and that the signatures appearing opposite their names are true and correct
signatures.
/s/ Andrew J. Donohue
----------------------------
EXECUTIVE 14
<PAGE>
Andrew J. Donohue, President
Dated:
I, Concetta Durso, Secretary of Executive Investors High Yield Fund (A Series of
Executive Investors Trust) hereby certify that the above named individuals have
been duly elected and appointed to each position and that the signature
appearing opposite their names are true and correct signatures.
/s/ C. Durso
----------------------------
Concetta Durso, Secretary
Dated:
EXECUTIVE 15
<PAGE>
APPENDIX B
I, Andrew J. Donohue, President, and I, Concetta Durso, Secretary of
Executive Investors High Yield Fund (A Series of Executive Investors Trust), do
hereby certify that:
The following individuals have been duly authorized in conformity with the
Fund's Declaration of Trust to execute any certificate, instruction, notice or
other instrument or to give oral instructions on behalf of the Fund and each
series, and the signatures set forth opposite their respective names are their
true and correct signatures:
NAME SIGNATURE
- ---- ---------
David D. Grayson /s/ David D. Grayson
------------------------------
Glenn 0. Head /s/ Glenn 0. Head
------------------------------
Andrew J. Donohue /s/ Andrew J. Donohue
------------------------------
Nicholas Orros /s/ Nicholar Orros
------------------------------
Joseph P. Abbamont /s/ Joseph P. Abbamont
------------------------------
Concetta Durso /s/ Concetta Durso
------------------------------
Anthony Gentile /s/ Anthony Gentile
------------------------------
Jay G. Bans /s/ Jay G. Bans
------------------------------
Robert J. Grosso /s/ Robert J. Grosso
------------------------------
Regina D. Ruffo Tenzer /s/ Regina D. Ruffo Tenzer
------------------------------
Mariarosa Cartolano /s/ Mariarosa Cartolano
------------------------------
I, Andrew J. Donohue, in my official capacity as President of Executive
Investors High Yield Fund (A Series of Executive Investors Trust), hereby
certify that Concetta Durso is currently the duly elected and appointed
Secretary of Executive Investors High Yield Fund (A Series of Executive
Investors Trust) and that the above named individuals have been duly authorized
to execute any certificate, instruction, notice or other instrument or to give
oral instructions on behalf of the Trust and the signatures set forth opposite
their names are true and correct signatures.
/s/ Andrew J. Donohue
------------------------------
Andrew J. Donohue, President
Dated:
EXECUTIVE 16
<PAGE>
I, Concetta Durso, Secretary of Executive Investors High Yield Fund (A Series of
Executive Investors Trust) hereby certify that the above named individuals have
been duly elected and appointed to each such position and that the signatures
appearing opposite their names are their true and correct signatures.
/s/ C. Durso
------------------------------
Concetta Durso, Secretary
Dated:
EXECUTIVE 17
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts
Avenue, N.W.
Washington, D.C. 20036-1800
Telephone 202-778-9000
April 23, 1998
Executive Investors Trust
95 Wall Street
New York, NY 10005
Ladies and Gentlemen:
You have requested our opinion, as counsel to Executive Investors Trust
("Trust"), as to certain matters regarding the issuance of Shares of the Trust.
As used in this letter, the term "Shares" means the Class A shares of beneficial
interest of Executive Investors Blue Chip Fund, Executive Investors High Yield
Fund and Executive Investors Insured Tax Exempt Fund, the series of the Trust,
during the time that Post-Effective Amendment No. 20 to the Trust's Registration
Statement on Form N-1A ("PEA") is effective and has not been superseded by
another post-effective amendment.
As such counsel, we have examined certified or other copies, believed by us
to be genuine, of the Trust's Declaration of Trust and By-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) in the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by unincorporated voluntary associations and to the Securities Act of
1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the
regulations of the Securities and Exchange Commission ("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the
Shares has been duly authorized by the Trust and that, when sold in accordance
with the terms contemplated by the PEA, including receipt by the Trust of full
payment for the Shares and compliance with the 1933 Act and the 1940 Act, the
Shares will have been validly issued, fully paid and non-assessable.
We note, however, that the Trust is an entity of the type commonly known as
a "Massachusetts business trust." Under Massachusetts law, shareholders could,
under certain circumstances, be held personally liable for the obligations
<PAGE>
of the Trust. The Declaration of Trust states that creditors of, contractors
with and claimants against the Trust shall look only to the assets of the Trust
for payment. It also requires that notice of such disclaimer be given in each
note, bond, contract, certificate, undertaking or instrument made or issued by
the officers or the trustees of the Trust on behalf of the Trust. The
Declaration of Trust further provides: (1) for indemnification from the assets
of the Trust for all loss and expense of any shareholder held personally liable
for the obligations of the Trust by virtue of ownership of shares of the Trust;
and (2) for the Trust to assume the defense of any claim against the shareholder
for any act or obligation of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust would be unable to meet its obligations.
We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC and to the reference to our firm in the prospectus that is being
filed as part of the PEA.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Robert J. Zutz
------------------------------
Robert J. Zutz
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 No2018 to the
Registration Statement on Form N-1A (File No. 33-10648) of our report dated
January 30, 1998 relating to the December 31, 1997 financial statements of
Executive Investors Trust, which are included in said Registration Statement.
/s/Tait Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 20, 1998
AMENDED AND RESTATED
CLASS A DISTRIBUTION PLAN
OF
EXECUTIVE INVESTORS TRUST
WHEREAS, EXECUTIVE INVESTORS TRUST (the "Fund") is a diversified open-end
management investment company duly registered with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund employs one or more broker-dealers as distributors of its
shares ("Underwriter") pursuant to a written agreement ("Underwriting
Agreement");
WHEREAS, Rule 12b-1 under the 1940 Act permits registered investment
companies to bear certain expenses associated with the distribution of their
shares;
WHEREAS, the Fund offers multiple classes of shares for purchase by
shareholders;
WHEREAS, the Board of Trustees believes that payment of certain expenses
associated with the distribution of Class A shares of the Fund and the servicing
or maintenance of such Class A shareholder accounts would be beneficial to the
Fund and its shareholders; and
WHEREAS, the Fund, on behalf of its separate designated series presently
existing or hereafter established (individually and collectively, "Series"),
wishes to adopt a plan under Rule 12b-1 to permit each Series to pay some of the
expenses involved in distributing its Class A shares and the servicing or
maintenance of its Class A shareholder accounts; and
NOW, THEREFORE, in consideration of the foregoing, the Fund hereby adopts
the following distribution plan in accordance with Rule 12b-1 (the "Class A
Plan"):
1. Payment of the Fee. Pursuant to one or more Underwriting Agreements
which the Fund can enter into from time to time and the Class A Plan, each
Series shall pay as compensation for the Underwriter's services an annualized
Rule 12b-1 fee of up to an aggregate of 0.50 of 1% of each Series' average daily
net assets attributable to Class A shares (referred to herein as the "Class A
12b-1 fee"). The Class A 12b-1 fee is payable by each Series monthly or at such
intervals as shall be determined by the Board of Trustees in the manner provided
for approval of the Class A Plan in paragraph 5(a). The Class A 12b-1 fee shall
consist of a distribution fee and a service fee, in such proportions as shall be
determined from time to time by the Board of Trustees in the manner provided for
approval of the Class A Plan in paragraph 5(a). The Class A 12b-1 fee shall be
payable regardless of whether that amount exceeds or is less than the actual
expenses incurred by the Underwriter in distributing Class A shares of such
Series in a particular year.
2. Expenses Different from Annual Rate. To the extent that the Class A
12b-1 fee paid by each Series in a particular
- 1 -
<PAGE>
year exceeds actual expenses attributable to Class A Shares incurred by an
Underwriter in that year, the Underwriter would realize a profit in that year.
If the expenses attributable to Class A Shares incurred by an Underwriter in a
particular year are greater than the Class A 12b-1 fee, the Underwriter would
incur a loss in that year and would not recover from such Series such excess of
expenses attributable to Class A Shares over the Class A 12b-1 fee unless actual
expenses attributable to Class A shares incurred in a subsequent year in which
the Class A Plan remained in effect were less than the Class A 12b-1 fee paid
under the Class A Plan in that year.
3. Distribution and Service Fees. "Distribution" fees are fees paid for the
distribution of the Series' Class A shares, including continuing payments to
registered representatives and dealers for sales of such shares, the costs of
printing and dissemination of sales material or literature, prospectuses used as
sales material and reports or proxy material prepared for the Series' Class A
shareholders to the extent that such material is used in connection with the
sales of the Series' Class A shares, and general overhead of an Underwriter.
"Service" fees are fees paid for services related to the maintenance and
servicing of existing Class A shareholder accounts, including shareholder
liaison services, whether provided by individual representatives, dealers, an
Underwriter or others entitled to receive such fees.
4. Reports to Trustees. Quarterly and annually in each year that the Class
A Plan remains in effect, the Treasurer of the Fund shall prepare and furnish to
the Board of Trustees of the Fund a written report of the amounts so expended
and the purposes for which such expenditures were made under the Class A Plan.
The Board of Trustees will promptly review the Treasurer's report.
5. Approval of Plan. The Class A Plan shall become effective with respect
to any Series of the Fund immediately upon the approval by the majority vote of
(a) the Fund's Board of Trustees and of the Trustees who are not "interested
persons" of the Fund, within the meaning of the 1940 Act, and have no direct or
indirect financial interest in the operation of the Class A Plan or in any
agreements related to the Class A Plan (the "Independent Trustees") cast in
person at a meeting called for the purpose of voting on such Class A Plan and
(b) the outstanding Class A voting securities of such Series, voting separately
from any other class or Series of the Fund, which for this purpose is defined in
Section 2(a)(42) of the 1940 Act and means the lesser of (1) more than 50% of
the outstanding shares, or (2) 67% or more of the shares present or represented
at a shareholders meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy, whichever is less.
6. Termination of Plan. The Class A Plan can be terminated by any Series at
any time without the payment of any penalty by vote of a majority of the
Independent Trustees or by vote of a majority of the outstanding Class A voting
securities of such Series, voting separately from any other class or Series of
the Fund (as defined in Section 2(a)(42) of the 1940 Act), on not more than 60
days' written notice to any other party to the Class A Plan.
7. Amendments. Any material amendment to the Class A Plan
- 2 -
<PAGE>
with respect to any Series may not be instituted without the approval of a
majority of the Fund's Board of Trustees and the Independent Trustees and a
majority of the outstanding Class A voting securities of such Series, voting
separately from any other class or Series of the Fund (as defined in the 1940
Act). If Class B shares of any Series are convertible into Class A shares, and
if such Series implements any amendment to the Class A Plan that would increase
materially the amount that may be borne by the Class A shareholders under the
Class A Plan, then Class B shares will stop converting into Class A shares
unless the holders of a majority of Class B shares of such Series, voting
separately as a class (as defined in the 1940 Act), also approve the amendment.
8. Nomination of Trustees. While the Class A Plan shall be in effect, the
selection and nomination of the Independent Trustees shall be committed to the
discretion of the Independent Trustees then in office.
9. Term. The Class A Plan shall remain in effect with respect to any Series
for one year from the date of its approval in accordance with Rule 12b-1(b) of
the 1940 Act and may continue thereafter only if the Class A Plan is approved at
least annually by either the Board of Trustees or by a vote of a majority of the
outstanding Class A voting securities of such Series, voting separately from any
other class or Series of the Fund, and in either case by a majority vote of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on the Class A Plan.
10. Payments Outside of the Plan. To the extent any payments made by any
Series to its investment advisor, its transfer agent or any company affiliated
with an Underwriter, may be deemed to be indirect financing of any monies paid
by the Underwriter or investment advisor out of their own assets for
distribution expenses, such payments are permissible under the Class A Plan.
Permissible payments may include, but are not limited to, the payment by the
Series of investment advisory and service fees.
11. Massachusetts Business Trust. It is understood and agreed that the
obligations under the Class A Plan are not binding upon any officer and/or
Trustee of the Fund individually or upon the Fund's shareholders individually;
rather, these obligations are binding upon the assets and property of the Fund.
12. Treatment of Expenses. The Trustees, including all of the Independent
Trustees, have determined that the Class A 12b-1 fee will not be an operating
expense of the Series. However, while it is expected that the payments under the
Class A Plan will be excluded from each Series' total expenses for purposes of
determining compliance with any state expense limitation, whether any
expenditure under the Class A Plan is subject to any such state expense
limitation will depend upon the nature of the expenditure and the terms of the
state regulation imposing the limitation. In any event, the amounts paid under
the Class A Plan will be an expense for accounting purposes.
Dated: November 1990, as amended and restated as of
September 22, 1994
- 3 -
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 = Maximum offering price per share on the last day of the period.
The following is a list of the information used to calculate the distribution
yield for Executive Investors Trust as of December 31, 1997.
Distribution
a b Yield
- - ------
High Yield Fund $.697 $8.50 8.20%
Insured Tax Exempt Fund $.672 $15.13 4.44%
<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, 1997.
Distribution
a b Yield
- - ------
High Yield Fund $.697 $8.10 8.60%
Insured Tax Exempt Fund $.672 $14.41 4.66%
<PAGE>
Yields for Executive 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, 1997.
<TABLE>
<CAPTION>
a b c d e Yield
- - - - - -------
<S> <C> <C> <C> <C> <C> <C>
High Yield Fund $132,670 $16,955 2,357,262 $8.50 $.00 N/A
Insured Tax Exempt Fund $69,682 $9,759 1,116,742 $15.13 $.00 6.70%
</TABLE>
*Tax Equivalent Yields are computed assuming a federal tax rate of 28%.
<PAGE>
SEC Standardized Total Returns
Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:
Average Annual
Total Return = ((ERV / P) 1/n ) - 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 thereof.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the standardized
average annual total return and total return for Executive Investors Trust as of
December 31, 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
AVE. ANNUAL TOTAL TOTAL RETURN
ERV P N RETURN
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Blue Chip Fund
1 year: $1,205.40 $1,000.00 1.00 20.54% 20.54%
5 years: $2,117.20 $1,000.00 1.00 16.19% 111.72%
Life of Fund: $2,725.30 $1,000.00 7.63 14.04% 172.53%
High Yield Fund
1 year: $1,067.60 $1,000.00 1.00 6.76% 6.76%
5 years: $1,651.70 $1,000.00 5.00 10.56% 65.17%
10 years: $2,726.60 $1,000.00 10.00 10.55% 172.66%
Insured Tax Exempt Fund
1 year: $1,050.50 $1,000.00 1.00 5.05% 5.05%
5 years: $1,465.60 $1,000.00 5.00 7.94% 46.56%
Life of Fund: $1,909.90 $1,000.00 7.46 9.09% 90.99%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NAV Only Total Returns
Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:
Average Annual
Total Return = ((ERV / P)^1/n ) - 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 thereof.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the standardized
average annual total return and total return for Executive Investors Trust as of
December 31, 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
AVE. ANNUAL TOTAL TOTAL RETURN
ERV P N RETURN
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Blue Chip Fund
1 year: $1,265.80 $1,000.00 1.00 26.58% 26.58%
5 years: $2,223.10 $1,000.00 5.00 17.33% 122.31%
Life of Fund: $2,861.30 $1,000.00 7.63 14.77% 186.13%
High Yield Fund
1 year: $1,120.30 $1,000.00 1.00 12.03% 12.03%
5 years: $1,733.80 $1,000.00 5.00 11.64% 73.38%
10 years: $2,862.30 $1,000.00 10.00 11.09% 186.23%
Insured Tax Exempt Fund
1 year: $1,103.00 $1,000.00 1.00 10.30% 10.30%
5 years: $1,538.70 $1,000.00 5.00 9.00% 53.87%
Life of Fund: $2,005.00 $1,000.00 7.46 9.80% 100.50%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000807332
<NAME> EXECUTIVE INVESTORS TRUST
<SERIES>
<NUMBER> 01
<NAME> BLUE CHIP SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2438
<INVESTMENTS-AT-VALUE> 3635
<RECEIVABLES> 20
<ASSETS-OTHER> 114
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3769
<PAYABLE-FOR-SECURITIES> 11
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22
<TOTAL-LIABILITIES> 33
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2821
<SHARES-COMMON-STOCK> 172
<SHARES-COMMON-PRIOR> 118
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 898
<NET-ASSETS> 3727
<DIVIDEND-INCOME> 40
<INTEREST-INCOME> 9
<OTHER-INCOME> 0
<EXPENSES-NET> (22)
<NET-INVESTMENT-INCOME> 27
<REALIZED-GAINS-CURRENT> 227
<APPREC-INCREASE-CURRENT> 400
<NET-CHANGE-FROM-OPS> 654
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (27)
<DISTRIBUTIONS-OF-GAINS> (220)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 52
<NUMBER-OF-SHARES-REDEEMED> 9
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 1567
<ACCUMULATED-NII-PRIOR> 1
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (29)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (57)
<AVERAGE-NET-ASSETS> 2933
<PER-SHARE-NAV-BEGIN> 18.36
<PER-SHARE-NII> .190
<PER-SHARE-GAIN-APPREC> 4.680
<PER-SHARE-DIVIDEND> (.190)
<PER-SHARE-DISTRIBUTIONS> (1.360)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.68
<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> 02
<NAME> HIGH YIELD SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 17189
<INVESTMENTS-AT-VALUE> 18892
<RECEIVABLES> 416
<ASSETS-OTHER> 48
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19356
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29
<TOTAL-LIABILITIES> 29
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22873
<SHARES-COMMON-STOCK> 2374
<SHARES-COMMON-PRIOR> 2125
<ACCUMULATED-NII-CURRENT> 139
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (5032)
<ACCUM-APPREC-OR-DEPREC> 1254
<NET-ASSETS> 19234
<DIVIDEND-INCOME> 58
<INTEREST-INCOME> 1687
<OTHER-INCOME> 40
<EXPENSES-NET> (217)
<NET-INVESTMENT-INCOME> 1568
<REALIZED-GAINS-CURRENT> 64
<APPREC-INCREASE-CURRENT> 438
<NET-CHANGE-FROM-OPS> 2070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1583)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 485
<NUMBER-OF-SHARES-REDEEMED> 325
<SHARES-REINVESTED> 88
<NET-CHANGE-IN-ASSETS> 2460
<ACCUMULATED-NII-PRIOR> 154
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (5095)
<GROSS-ADVISORY-FEES> (181)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (310)
<AVERAGE-NET-ASSETS> 18056
<PER-SHARE-NAV-BEGIN> 7.89
<PER-SHARE-NII> .680
<PER-SHARE-GAIN-APPREC> .230
<PER-SHARE-DIVIDEND> (.700)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.10
<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> 03
<NAME> INSURED TAX EXEMPT SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 15339
<INVESTMENTS-AT-VALUE> 16958
<RECEIVABLES> 242
<ASSETS-OTHER> 37
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17237
<PAYABLE-FOR-SECURITIES> 970
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8
<TOTAL-LIABILITIES> 978
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14574
<SHARES-COMMON-STOCK> 1123
<SHARES-COMMON-PRIOR> 1115
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1)
<ACCUM-APPREC-OR-DEPREC> 1619
<NET-ASSETS> 16193
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 868
<OTHER-INCOME> 0
<EXPENSES-NET> (117)
<NET-INVESTMENT-INCOME> 751
<REALIZED-GAINS-CURRENT> 134
<APPREC-INCREASE-CURRENT> 664
<NET-CHANGE-FROM-OPS> 1549
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (752)
<DISTRIBUTIONS-OF-GAINS> (135)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 105
<NUMBER-OF-SHARES-REDEEMED> 134
<SHARES-REINVESTED> 37
<NET-CHANGE-IN-ASSETS> 785
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (156)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (253)
<AVERAGE-NET-ASSETS> 15648
<PER-SHARE-NAV-BEGIN> 13.82
<PER-SHARE-NII> .670
<PER-SHARE-GAIN-APPREC> .710
<PER-SHARE-DIVIDEND> (.670)
<PER-SHARE-DISTRIBUTIONS> (.120)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.41
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
