As filed with the Securities and Exchange Commission on April 29, 1999
1933 Act File No. 33-10648
1940 Act File No. 811-4927
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 22 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22 [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)
(Registrant's Telephone Number, Including Area Code): (212) 858-8000
Ms. Concetta Durso
Secretary and Vice President
First Investors Series Fund
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Copy to:
Robert J. Zutz, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[x] on April 30, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXECUTIVE INVESTORS TRUST
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Prospectus for the Executive Investors Trust
Statement of Additional Information for the Executive Investors Trust
Part C of Form N-1A
Signature Page
Exhibits
<PAGE>
EXECUTIVE INVESTORS TRUST
BLUE CHIP
HIGH YIELD
INSURED TAX EXEMPT
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1999
<PAGE>
CONTENTS
INTRODUCTION
FUND DESCRIPTIONS
Blue Chip Fund
High Yield Fund
Insured Tax Exempt Fund
FUND MANAGEMENT
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
How do I buy shares?
How do I sell shares?
Can I exchange my shares for the shares of other Funds?
ACCOUNT POLICIES
What about dividends and capital gain distributions?
What about taxes?
How do I obtain a complete explanation of all account privileges and
policies?
FINANCIAL HIGHLIGHTS
Blue Chip Fund
High Yield Fund
Insured Tax Exempt Fund
2
<PAGE>
INTRODUCTION
Each individual Fund description in this prospectus has an "Overview" which
provides a brief explanation of the Fund's objectives, its primary strategies
and primary risks, how it has performed, and its fees and expenses. To help you
decide which Funds may be right for you, we have included in each Overview a
section offering examples of who should consider buying the Fund. Each Fund
description also contains a "Fund in Detail" section with more information on
strategies and risks of the Fund.
None of the Funds in this prospectus pursues a strategy of allocating its assets
among stocks, bonds, and money market instruments. For most investors, a
complete program should include each of these asset classes. Stocks have
historically outperformed other categories of investments over long periods of
time and are therefore considered an important part of a diversified investment
portfolio. There have been extended periods, however, during which bonds and
money market instruments have outperformed stocks. By allocating your assets
among different types of funds, you can reduce the overall risk of your
portfolio and benefit when bonds and money market instruments outperform stocks.
Of course, even a diversified investment program can result in a loss.
3
<PAGE>
FUND DESCRIPTIONS
BLUE CHIP FUND
OVERVIEW
OBJECTIVE: The Fund seeks high total investment return consistent with the
preservation of capital.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in the common stocks of large,
well-established companies that are included in the Standard and
Poor's 500 Composite Stock Price Index ("S&P 500 Index"). These
are defined by the Fund as "Blue Chip" stocks. The Fund selects
stocks that it believes will have earnings growth in excess of
the average company in the S&P 500 Index. While the Fund attempts
to diversify its investments so that its weightings in different
industries are similar to those of the S&P 500 Index, it is not
an index fund and therefore will not necessarily mirror the S&P
500 Index. The Fund generally stays fully invested in stocks
under all market conditions.
PRIMARY
RISKS: While Blue Chip stocks are regarded as among the most
conservative stocks, like all stocks they fluctuate in price in
response to movements in the overall securities markets, general
economic conditions, and changes in interest rates or investor
sentiment. Fluctuations in the prices of Blue Chip stocks at
times can be substantial. Accordingly, the value of your
investment in the Fund will go up and down, which means that you
could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Blue Chip Fund?
The Blue Chip Fund may be used as a core holding for an
investment portfolio or as a base on which to build a portfolio.
It may be appropriate for you if you:
. Are seeking growth of capital,
. Are willing to accept a moderate degree of market
volatility, and
. Have a long-term investment horizon and are able to ride out
market cycles.
4
<PAGE>
How has the Blue Chip Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 19.69% (for the
quarter ended December 31, 1998), and the lowest quarterly return was -13.06%
(for the quarter ended September 30, 1998). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Fund's
shares compare to those of the S&P 500 Index. This table assumes that the
maximum sales charge was paid. The S&P 500 Index is an unmanaged index generally
representative of the market for the stocks of large-sized U.S. companies. The
S&P 500 Index does not take into account fees and expenses that an investor
would incur in holding the securities in the S&P 500 Index. If it did so, the
returns would be lower than those shown.
Inception
1 Year* 5 Years* (5/17/90)
Blue Chip 12.22% 18.20% 14.47%
S&P 500 Index 28.34 24.55 18.40
* The annual returns are based upon calendar years.
5
<PAGE>
What are the fees and expenses of the Blue Chip Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).......... 4.75%
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)................... None*
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL
AND SERVICE ANNUAL FUND FEE WAIVER
MANAGEMENT (12b-1) OTHER OPERATING AND EXPENSE NET
FEES(1) FEES(2) EXPENSES(3) EXPENSES(4) ASSUMPTION(1),(2),(3) EXPENSES(4)
- ---------- ------------ ----------- ----------- --------------------- -----------
<S> <C> <C> <C> <C> <C>
1.00% 0.50% 0.47% 1.97% 0.97% 1.00%
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of the Fund's shares that are purchased without a sales charge.
(1) For the fiscal year ended December 31, 1998, the Adviser waived Management
Fees in excess of 0.42% for the Fund. The Adviser has contractually agreed
with the Fund to waive Management Fees in excess of 0.50% for a period of
twelve months commencing on May 1, 1999.
(2) The Adviser has contractually agreed with the Fund to waive 12b-1 Fees in
excess of 0.40% for a period of twelve months commencing on May 1, 1999.
Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(3) The Adviser has contractually agreed with the Fund to assume Other Expenses
in excess of 0.10% for a period of twelve months commencing on May 1, 1999.
(4) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived and expenses assumed. Although your
actual costs may be higher or lower, under these assumptions your costs would
be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
$572 $974 $1,401 $2,587
6
<PAGE>
THE FUND IN DETAIL
What are the Blue Chip Fund's objective, principal investment strategies,
and risks?
OBJECTIVE: The Fund seeks high total investment return consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of large, well-established companies that are included
in the S&P 500 Index. These are defined by the Fund as "Blue Chip" stocks. The
S&P 500 Index consists of both U.S. and foreign corporations.
The Fund uses fundamental research to select stocks of companies with strong
balance sheets, relatively consistent records of achievement, and potential
earnings growth that is greater than that of the average company included in the
S&P 500 Index. The Fund attempts to stay broadly diversified and sector neutral
relative to the S&P 500 Index, but it may emphasize certain industry sectors
based on economic and market conditions. The Fund intends to remain relatively
fully invested in stocks under all market conditions rather than attempt to time
the market by maintaining large cash or fixed income securities positions when
market declines are anticipated. The Fund usually will sell a stock when the
reason for holding it is no longer valid, it shows deteriorating fundamentals,
or it falls short of the Fund's expectations. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of owning the Blue Chip Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While Blue Chip stocks have historically been the
least risky and most liquid stocks, like all stocks they fluctuate in value.
Fluctuations of Blue Chip stocks can be sudden and substantial. Accordingly, the
value of your investment in the Fund will go up and down, which means that you
could lose money.
OTHER RISKS: While the Fund generally attempts to remain sector neutral relative
to the S&P 500 Index, it is not an index fund. The Fund may hold securities
other than those in the S&P 500 Index, may hold fewer securities than the index,
and may have sector or industry allocations different from the index, each of
which could cause the Fund to underperform the index.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses by
investing up to 100% of its assets in short-term money market instruments. If
the Fund does so, it may not achieve its investment objective.
7
<PAGE>
HIGH YIELD FUND
OVERVIEW
OBJECTIVES: The Fund primarily seeks high current income and secondarily
seeks capital appreciation.
PRIMARY
INVESTMENT
STRATEGIES: The Fund primarily invests in a diversified portfolio of
high-yield, below-investment grade corporate bonds (commonly
known as "junk bonds"). These bonds provide a higher level of
income than investment grade bonds because they have a higher
risk of default. The Fund seeks to reduce the risk of a default
by selecting bonds through careful credit research and analysis.
The Fund seeks to reduce the impact of a potential default by
diversifying its investments among bonds of many different
companies and industries. While the Fund invests primarily in
domestic companies, it also invests in securities of issuers
domiciled in foreign countries. These securities will generally
be dollar-denominated and traded in the U.S. The Fund seeks to
achieve capital appreciation by investing in high-yield bonds
with stable to improving credit conditions.
PRIMARY
RISKS: There are four primary risks of investing in the Fund.
First, the value of the Fund's shares could decline as a result
of a deterioration of the financial condition of an issuer of
bonds owned by the Fund or as a result of a default by the
issuer. This is known as credit risk. High-yield bonds carry
higher credit risks than investment grade bonds because the
companies that issue them are not as strong financially as
companies with investment grade credit ratings. High-yield bonds
issued by foreign companies are subject to additional risks
including political instability, government regulation, and
differences in financial reporting standards. Second, the value
of the Fund's shares could decline if the entire high-yield bond
market were to decline, even if none of the Fund's bond holdings
were at risk of a default. The high-yield market can experience
sharp declines at times as the result of a deterioration in the
overall economy, declines in the stock market, a change of
investor tolerance for risk, or other factors. Third, high-yield
bonds tend to be less liquid than other bonds, which means that
they are more difficult to sell. Fourth, while high-yield bonds
are generally less interest rate sensitive than higher quality
bonds, their values generally will decline when interest rates
rise. Fluctuations in the prices of high-yield bonds can be
substantial. Accordingly, the value of your investment in the
Fund will go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the High Yield Fund?
The High Yield Fund is most appropriately used to add
diversification to an investment portfolio. It may be appropriate
for you if you:
. Are seeking an investment that offers a high level of
current income and moderate growth potential,
. Are willing to accept a high degree of credit risk and
market volatility, and
. Have a long-term investment horizon and are able to ride out
market cycles.
8
<PAGE>
How has the High Yield Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares for each of
the last ten calendar years. The bar chart does not reflect sales charges that
you may pay upon purchase or redemption of Fund shares. If they were included,
the returns would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 12.03% (for the
quarter ended March 31, 1991), and the lowest quarterly return was -9.09% (for
the quarter ended September 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Fund's
shares compare to those of the Credit Suisse First Boston High Yield Index
("High Yield Index"). This table assumes that the maximum sales charge was paid.
The High Yield Index is designed to measure the performance of the high-yield
bond market. The High Yield Index does not take into account fees and expenses
that an investor would incur in holding the securities in the Index. If it did
so, the returns would be lower than those shown.
1 Year* 5 Years* 10 Years*
High Yield (3.89)% 7.32% 8.50%
High Yield Index 0.58 8.16 10.74
*The annual returns are based upon calendar years.
9
<PAGE>
What are the fees and expenses of the High Yield Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).......... 4.75%
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)................... None*
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
TOTAL
DISTRIBUTION ANNUAL FUND NET
MANAGEMENT AND SERVICE OTHER OPERATING FEE WAIVERS EXPENSES
FEES(1) (12b-1) FEES (2) EXPENSES EXPENSES (3) (1),(2) (3)
------- ---------------- -------- ------------ ------- ---
<S> <C> <C> <C> <C> <C>
1.00% 0.50% 0.35% 1.85% 0.60% 1.25%
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of the Fund's shares that are purchased without a sales charge.
(1) For the fiscal year ended December 31, 1998, the Adviser waived Management
Fees in excess of 0.50% for the Fund. The Adviser has contractually agreed
with the Fund to waive Management Fees in excess of 0.50% for a period of
twelve months commencing on May 1, 1999.
(2) The Adviser has contractually agreed with the Fund to waive 12b-1 Fees in
excess of 0.40% for a period of twelve months commencing on May 1, 1999.
Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(3) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
$596 $974 $1,375 $2,494
10
<PAGE>
THE FUND IN DETAIL
What are the High Yield Fund's objectives, principal investment strategies,
and risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily seeks
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in a diversified portfolio of high-yield, below-investment grade
corporate bonds commonly known as "junk bonds" (those rated below Baa by Moody's
Investors Service, Inc. or below BBB by Standard & Poor's Ratings Group).
High-yield bonds generally provide higher income than investment grade bonds to
compensate investors for their higher risk of default (i.e., failure to make
required interest or principal payments). High-yield bond issuers include small
or relatively new companies lacking the history or capital to merit investment
grade status, former Blue Chip companies downgraded because of financial
problems, companies using debt rather than equity to fund capital investment or
spending programs, companies electing to borrow heavily to finance or avoid a
takeover or buyout, and firms with heavy debt loads. The Fund's portfolio may
include zero coupon bonds and pay in kind bonds. While the Fund invests
primarily in domestic companies, it also invests in securities of issuers
domiciled in foreign countries. These securities will generally be
dollar-denominated and traded in the U.S. The Fund seeks to reduce the risk of a
default by selecting bonds through careful credit research and analysis. The
Fund seeks to reduce the impact of a potential default by diversifying its
investments among bonds of many different companies and industries.
To achieve its secondary objective of capital appreciation, the Fund attempts to
invest in bonds that have stable to improving credit quality that could
appreciate in value because of a credit rating upgrade or an improvement in the
outlook for a particular company, industry or the economy as a whole.
Although the Fund will consider ratings assigned by ratings agencies in
selecting high-yield bonds, it relies principally on its own research and
investment analysis. The Fund considers a variety of factors, including the
issuer's managerial strength, anticipated cash flow, debt maturity schedules,
borrowing requirements, interest or dividend coverage, asset coverage and
earnings prospects. The Fund will usually sell a bond when it shows
deteriorating fundamentals or falls short of the portfolio manager's
expectations. Information on the Fund's recent strategies and holdings can be
found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In
general, the greater the potential reward of the investment, the greater
the risk. Here are the principal risks of owning the Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High-yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds.
While credit ratings may be available to assist in evaluating an issuer's credit
quality, they may not accurately predict an issuer's ability to make timely
payments of principal and interest.
MARKET RISK: The entire junk bond market can experience sharp price swings due
to a variety of factors, including changes in economic forecasts, stock market
volatility, large sustained sales of junk bonds by major investors, high-profile
defaults, or changes in the market's psychology. This degree of volatility in
the high-yield market is usually associated more with stocks than bonds. The
11
<PAGE>
prices of high-yield bonds held by the Fund could therefore decline, regardless
of the financial condition of the issuers of such bonds. Markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when prices generally go down, referred to as "bear" markets.
LIQUIDITY: High-yield bonds tend to be less liquid than higher quality bonds,
meaning that it may be difficult to sell high-yield bonds at a reasonable price,
particularly if there is a deterioration in the economy or in the financial
prospects of their issuers. As a result, the prices of high-yield bonds may be
subject to wide price fluctuations due to liquidity concerns.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines;
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
FOREIGN ISSUERS: Foreign investments involve additional risks, including
political instability, government regulation, differences in financial reporting
standards, and less stringent regulation of foreign securities markets.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
12
<PAGE>
INSURED TAX EXEMPT FUND
OVERVIEW
OBJECTIVE: The Fund seeks a high level of interest income that is
exempt from federal income tax and is not a tax preference item
for purposes of the Alternative Minimum Tax ("AMT").
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in municipal bonds and other municipal
securities that pay interest that is exempt from federal income
tax, including the AMT. The Fund invests primarily in municipal
bonds that are insured as to timely payment of interest and
principal by independent insurance companies that are rated in
the top rating category by a nationally recognized rating
organization, such as Moody's Investors Service, Inc.
("Moody's"). The Fund invests primarily in long-term bonds with
maturities of fifteen years or more.
PRIMARY
RISKS: The most significant risk of investing in the Fund is
interest rate risk. As with other bonds, the market values of
municipal bonds fluctuate with changes in interest rates. When
interest rates rise, municipal bonds tend to decline in price,
and when interest rates fall, they tend to increase in price. In
general, long-term bonds pay higher interest rates, but are more
volatile in price than short- or intermediate-term bonds. When
interest rates decline, the interest income received by the Fund
may also decline. To a lesser degree, an investment in the Fund
is subject to credit risk. This is the risk that an issuer of the
bonds held by the Fund may not be able to pay interest or
principal when due. The market prices of bonds are affected by
the credit quality of the issuer. While the Fund primarily
invests in municipal bonds that are insured against credit risk,
the insurance does not eliminate credit risk because the insurer
may not be financially able to pay claims. In addition, not all
of the securities held by the Fund are insured. Moreover, the
insurance does not apply in any way to the market prices of
securities owned by the Fund or the Fund's share price, both of
which will fluctuate. The Fund may, at times, engage in
short-term trading, which could produce higher brokerage costs
and taxable distributions and may result in a lower total return
for the Fund. Accordingly, the value of your investment in the
Fund will go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Insured Tax Exempt Fund?
The Insured Tax Exempt Fund may be used by individuals as a core
holding for an investment portfolio or as a base on which to
build a portfolio. It may be appropriate for you if you:
. Are seeking a conservative investment which provides a high
degree of credit quality,
. Are seeking income that is exempt from federal income tax,
including the AMT,
13
<PAGE>
. Are seeking a relatively high level of tax exempt income and
are willing to assume a moderate degree of market volatility
to achieve this goal, and
. Have a long-term investment horizon and are able to ride out
market cycles.
The Insured Tax Exempt Fund is generally not appropriate for
retirement accounts or investors in low tax brackets, or
corporate or similar business accounts. Different tax rules apply
to corporations and other entities.
How has the Insured Tax Exempt Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The bar chart shows changes in the performance of the Fund's shares from year to
year over the life of the Fund. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[BAR CHART OMITTED]
During the periods shown, the highest quarterly return was 8.06% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -5.64% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for the Fund's
shares compare to those of the Lehman Brothers Municipal Bond Index ("Lehman
Index"). This table assumes that the maximum sales charge was paid. The Lehman
Index is a total return performance benchmark for the long-term investment grade
tax-exempt bond market. The Lehman Index does not take into account fees and
expenses that an investor would incur in holding the securities in the Lehman
Index. If it did so, the returns would be lower than those shown.
14
<PAGE>
Inception
1 Year* 5 Years* (7/26/90)
Insured Tax Exempt 2.28% 6.34% 8.89%
Lehman Index 6.48 6.21 7.94**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 7/31/90 to
12/31/98.
What are the fees and expenses of the Insured Tax Exempt Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).......... 4.75%
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)................... None*
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL
AND SERVICE ANNUAL FUND FEE WAIVERS
MANAGEMENT (12b-1) OTHER OPERATING AND EXPENSE NET
FEES (1) FEES (2) EXPENSES(3) EXPENSES(4) ASSUMPTIONS (1),(3) EXPENSES(4)
- ------------- ------------- ----------- ----------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
1.00% 0.50% 0.23% 1.73% 0.93% 0.80%
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of the Fund's shares that are purchased without a sales charge.
(1) For the fiscal year ended December 31, 1998, the Adviser waived Management
Fees in excess of 0.28%. The Adviser has contractually agreed with the Fund
to waive Management Fees in excess of 0.30% for a period of twelve months
commencing on May 1, 1999.
(2) The Adviser has contractually agreed with the Fund to waive 12b-1 Fees in
excess of 0.40% for a period of twelve months commencing on May 1, 1999.
Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(3) The Adviser has contractually agreed with the Fund to assume Other Expenses
in excess of 0.10% for a period of twelve months commencing on May 1, 1999.
(4) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived and expenses assumed. Although your
actual costs may be higher or lower, under these assumptions your costs would
be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
$553 $908 $1,286 $2,345
15
<PAGE>
THE FUND IN DETAIL
What are the Insured Tax Exempt Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks a high level of interest income that is exempt
from federal income tax and is not a tax preference item for
purposes of the AMT.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 80% of its total
assets in municipal bonds that pay interest that is exempt from federal income
tax, including the AMT. The Fund may also invest in other types of municipal
securities ("Municipal Securities"). Municipal securities include private
activity bonds, industrial development bonds, certificates of participation,
municipal notes, municipal commercial paper, variable rate demand notes, and
floating rate demand notes. Municipal bonds and municipal securities are issued
by state and local governments, their agencies and authorities, the District of
Columbia and any commonwealths, territories or possessions of the United States
(including Guam, Puerto Rico and the U.S. Virgin Islands) or their respective
agencies, instrumentalities and authorities. The Fund diversifies its assets
among municipal bonds and securities of different states, municipalities, and
U.S. territories, rather than concentrating on bonds of a particular state or
municipality.
All municipal bonds in which the Fund invests are insured as to the timely
payment of interest and principal by independent insurance companies which are
rated in the top rating category by a nationally recognized rating organization,
such as Moody's, Standard & Poor's Ratings Group and Fitch IBCA. The Fund may
purchase bonds and other municipal securities which have already been insured by
the issuer, underwriter, or some other party or it may purchase uninsured bonds
and insure them under a policy purchased by the Fund. While every municipal bond
purchased by the Fund must be insured, the Fund is allowed to invest up to 20%
of its assets in securities that are not insured. (In other words, at least 80%
of the Fund's assets must be insured.) In general, the non-insured securities
held by the Fund are limited to municipal commercial paper and other short-term
investments. In any event, as described below, the insurance does not guarantee
the market values of the bonds held by the Fund or the Fund's share price.
The Fund follows the strategy of investing in long-term municipal bonds, which
are generally more volatile in price but offer more yield than short-or
intermediate-term bonds. The Fund generally purchases bonds with maturities of
fifteen years or more. The Fund adjusts the duration of its portfolio based upon
its outlook on interest rates. Duration is a measurement of a bond's sensitivity
to changes in interest rates that takes into consideration not only the maturity
of the bond but also the time value of money that will be received from the bond
over its life. The Fund will generally adjust the duration of its portfolio by
buying or selling municipal securities, including zero coupon bonds. For
example, if the Fund believes that interest rates are likely to rise, it will
generally attempt to reduce its duration by purchasing municipal securities with
shorter maturities or selling municipal securities with longer maturities.
In selecting investments, the Fund considers maturity, coupon and yield,
relative value of an issue, the credit quality of the issuer, the cost of
insurance and the outlook for interest rates and the economy. While the Fund
does not intend to buy any instruments whose interest income is subject to
Federal income tax or is a Tax Preference Item, up to 20% of the Fund's net
assets may be invested in securities, the interest on which is subject to
Federal income tax, including the AMT. The Fund will usually sell an investment
when there are changes in the interest rate environment that are adverse to the
investment or it falls short of the portfolio manager's expectations. The Fund
will not necessarily sell an investment if its rating is reduced or there is a
default by the issuer. Information on the Fund's recent strategies and holdings
can be found in the most recent annual report (see back cover).
16
<PAGE>
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of owning the Insured Tax Exempt Fund:
INTEREST RATE RISK: The market value of municipal securities is affected by
changes in interest rates. When interest rates rise, the market values of
municipal securities decline; when interest rates decline, the market values of
municipal securities increase. The price volatility of municipal securities also
depends on their maturities and durations. Generally, the longer the maturity
and duration of a municipal security, the greater its sensitivity to interest
rates. To compensate investors for this higher risk, municipal securities with
longer maturities and durations generally offer higher yields than municipal
securities with shorter maturities and durations.
Interest rate risk also includes the risk that the yields received by the Fund
on some of its investments will decline as interest rates decline. The Fund buys
investments with fixed maturities as well as investments that give the issuer
the option to "call" or redeem these investments before their maturity dates. If
investments mature or are "called" during a time of declining interest rates,
the Fund will have to reinvest the proceeds in investments offering lower
yields. The Fund also invests in floating rate and variable rate demand notes.
When interest rates decline, the rates paid on these securities may decline.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. Although all of the municipal bonds purchased by
the Fund are insured as to scheduled payments of interest and principal, the
insurance does not eliminate credit risk because the insurer may not be
financially able to pay interest and principal on the bonds and up to 20% of the
Fund's assets may be invested in securities that are not insured. It is also
important to note that, although insurance may increase the credit safety of
investments held by the Fund, it decreases the Fund's yield as the Fund must pay
for the insurance directly or indirectly. It is also important to emphasize that
the insurance does not protect against fluctuations in the market value of the
municipal bonds owned by the Fund or the share price of the Fund.
MARKET RISK: The Fund is subject to market risk. Bond prices in general may
decline over short or even extended periods primarily due to changes in interest
rates and the credit conditions of the issuers. This is another way of
describing interest rate risk and credit risk. However, market prices also
fluctuate with the forces of supply and demand. Municipal bonds may decline in
value even if the overall market is doing well. Accordingly, the value of your
investment in the Fund will go up and down, which means that you could lose
money.
FREQUENT TRADING: The Fund may, at times, engage in short-term trading, which
could produce higher brokerage costs and taxable distributions and may result in
a lower total return for the Fund.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
17
<PAGE>
FUND MANAGEMENT
Executive Investors Management Company, Inc. ("EIMCO") is the investment adviser
to the Fund. Its address is 95 Wall Street, New York, NY 10005. It currently is
investment adviser to 3 mutual funds or series of funds with total net assets of
approximately $40.7 million. EIMCO supervises all aspects of the Funds'
operations and determines the Funds' portfolio transactions. For the fiscal year
ended December 31, 1998, EIMCO received advisory fees as follows: 0.42% of
average daily net assets, net of waiver, for Blue Chip Fund; 0.50% of average
daily net assets, net of waiver, for High Yield Fund; and 0.28% of average daily
net assets, net of waiver, for Tax Exempt Fund.
Dennis T. Fitzpatrick serves as Portfolio Manager of the Blue Chip Fund. Mr.
Fitzpatrick also serves as Portfolio Manager of certain funds that are managed
by an affiliated investment adviser First Investors Management Company, Inc.
("FIMCO") ("First Investors Funds"). Mr. Fitzpatrick has been a member of
FIMCO's and EIMCO's investment management team since 1995. During 1995, Mr.
Fitzpatrick was a Regional Surety Manager at United States Fidelity & Guaranty
Co. From 1988 to 1995, he was Northeast Surety Manager at American International
Group.
George V. Ganter serves as Portfolio Manager of the High Yield Fund. Mr. Ganter
also serves as Portfolio Manager of certain First Investors Funds. Mr. Ganter
joined FIMCO and EIMCO in 1985 as a Senior Investment Analyst.
Clark D. Wagner serves as Portfolio Manager of the Insured Tax Exempt Fund. Mr.
Wagner also serves as Portfolio Manager of certain First Investors Funds. Mr.
Wagner has been Chief Investment Officer of FIMCO and EIMCO since 1992.
In addition to the investment risks of the Year 2000 which are discussed above,
the ability of EIMCO and its affiliates to price the Funds' shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
provided by EIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
Funds. EIMCO and its affiliates 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.
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
The share price (which is called "net asset value" or "NAV" per share) for each
Fund is calculated once each day as of 4 p.m., Eastern Time ("ET"), on each day
the New York Stock Exchange ("NYSE") is open for regular trading. In the event
that the NYSE closes early, the share price will be determined as of the time of
the closing.
To calculate the NAV, each Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding.
In valuing its assets, each Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Funds.
18
<PAGE>
How do I buy shares?
You may buy shares of each Fund through a registered representative of an
authorized broker-dealer ("Representative"). Your Representative will help you
complete and submit an application. Your initial investment must be at least
$1,000. However, we offer automatic investment plans that allow you to open a
Fund account with as little as $50. You also may open certain retirement plan
accounts with as little as $500 even without an automatic investment plan.
Subsequent investments may be made in any amount.
If we receive your application or order in our Woodbridge, N.J. offices in
correct form, as described in the Shareholder Manual, prior to the close of
regular trading on the NYSE, your transaction will be priced at that day's NAV.
If you place your order with your Representative prior to the close of regular
trading on the NYSE, your transaction will also be priced at that day's NAV
provided that your Representative transmits the order to our Woodbridge, N.J.
office by 5 p.m., ET. Orders placed after the close of regular trading on the
NYSE will be priced at the next business day's NAV. The procedures for
processing transactions are explained in more detail in our Shareholder Manual
which is available upon request.
You can arrange to make systematic investments electronically from your bank
account or through payroll deduction. All the various ways you can buy shares
are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
Each Fund reserves the right to refuse any order to buy shares if the Fund
determines that doing so would be in the best interests of the Fund and its
shareholders.
Shares of a Fund are sold at the public offering price which includes a
front-end sales load. The sales charge declines with the size of your purchase,
as illustrated below.
Your investment Sales Charge as a percentage of
-------------------------------
offering price net amount invested
Less than $100,000 4.75% 4.99%
$100,000-$249,999 3.90 4.06
$250,000-$499,999 2.90 2.99
$500,000-$999,999 2.40 2.46
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more, you will not pay a sales charge. However, if
you make such an investment and then sell your shares within 24 months of
purchase, you will pay a contingent deferred sales charge ("CDSC") of 1.00%.
Sales charges may be reduced or waived under certain circumstances and for
certain groups. Consult your Representative or call us directly at
1-800-423-4026 for details.
Each Fund has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. Each Fund pays
Rule 12b-1 fees for the marketing of fund shares and for services provided to
shareholders. The plans provide for payments at annual rates (based on average
daily net assets) of up to .50%. No more than .25% of these payments may be for
service fees. These fees are paid monthly in arrears. Because these fees are
paid out of each Fund's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
19
<PAGE>
FOR ACTUAL PAST EXPENSES OF THE FUND, SEE THE APPROPRIATE SECTION IN THIS
PROSPECTUS ENTITLED "WHAT ARE THE FEES AND EXPENSES OF THE FUND?"
How do I sell shares?
You may redeem your Fund shares on any day a Fund is open for business by:
O Contacting your Representative who will place a redemption order
for you;
O Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, NJ
07095-1198;
O Telephoning the Special Services Department of ADM at
1-800-342-6221 (if you have elected to have telephone
privileges); or
O Instructing us to make an electronic transfer to a predesignated
bank account (if you have completed an application authorizing
such transfers).
Your redemption request will be processed at the price next computed after we
receive the request in good order, as described in the Shareholder Manual. For
all requests, have your account number available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account falls below the minimum account balance for any reason other
than market fluctuation, each Fund reserves the right to redeem your account
without your consent or to impose a low balance account fee of $15 annually on
60 days prior notice. Each Fund may also redeem your account or impose a low
balance account fee if you have established your account under a systematic
investment program and discontinue the program before you meet the minimum
account balance. You may avoid redemption or imposition of a fee by purchasing
additional Fund shares during this 60-day period to bring your account balance
to the required minimum.
Each Fund reserves the right to make in-kind redemptions. This means that it
could respond to a redemption request by distributing shares of the Fund's
underlying investments rather than distributing cash.
Can I exchange my shares for the shares of other Funds?
You may exchange shares of a Fund for shares of other Executive Investors Funds
without paying any additional sales charge. You may also exchange shares of a
Fund for Class A shares of the First Investors Funds without paying any
additional sales charge; provided that, you held your shares for at least one
year from their date of purchase or acquired your shares through an exchange
from Class A shares of a First Investors Fund. You can only exchange within the
same class of shares (i.e., Class A to Class A). Consult your Representative or
call ADM at 1-800-423-4026 for details.
Each Fund reserves the right to reject any exchange request that appears to be
part of a market timing strategy based upon the holding period of the initial
investment, the amount of the investment being exchanged, the funds involved,
and the background of the shareholder or dealer involved. Each Fund is designed
for long-term investment purposes. It is not intended to provide a vehicle for
short-term market timing.
20
<PAGE>
ACCOUNT POLICIES
What about dividends and capital gain distributions?
To the extent that it has net investment income, the Blue Chip Fund will declare
and pay dividends from net investment income on a quarterly basis. To the extent
that they have net investment income, the High Yield Fund and Insured Tax Exempt
Fund will declare daily and pay, on a monthly basis, dividends from net
investment income. Each Fund will declare and distribute any net realized
capital gains, on an annual basis, usually after the end of each Fund's fiscal
year. Each Fund may make an additional distribution in any year if necessary to
avoid a Federal excise tax on certain undistributed income and capital gain.
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 choose to reinvest all dividends and other distributions
at NAV in additional shares of each Fund or certain Class A shares of First
Investors Funds, or receive all dividends and other distributions in cash. If
you do not select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of the Fund. If you do not
cash a distribution check and do not notify ADM to issue a new check within 12
months, the distribution may be reinvested in a Fund. If any correspondence sent
by a Fund is returned as "undeliverable," dividends and other distributions
automatically will be reinvested in a Fund. No interest will be paid to you
while a distribution remains uninvested.
A dividend or other distribution paid on a class of shares will only be paid in
additional shares of the distributing class if the total amount of the
distribution is under $5 or a Fund has received notice of your death (until
written alternate payment instructions and other necessary documents are
provided by your legal representative).
What about taxes?
Any income dividends or short-term capital gain distributions paid by the Blue
Chip Fund or High Yield Fund are taxable to you unless you hold your shares in
an individual retirement account ("IRA"), 403(b) account, 401(k) account, or
other tax-deferred account. Dividends are taxable to you as ordinary income. Any
income dividends paid by the Insured Tax Exempt Fund should generally be exempt
from federal income taxes. Short-term capital gains distributions by any of the
Funds are taxed to you as ordinary income. Long-term capital gain distributions
by any of the Funds are taxed to you as long-term capital gains, regardless of
how long you owned your Fund shares. You are taxed in the same manner whether
you receive your dividends and capital gain distributions in cash or reinvest
them in additional Fund shares. Your sale or exchange of Fund shares may be
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
How do I obtain a complete explanation of all account privileges and
policies?
The Funds offer a full range of special privileges, including special investment
programs for group retirement plans, systematic investment programs, automatic
payroll investment programs, telephone privileges, and expedited redemptions by
wire order or Automated Clearing House transfer. The full range of privileges,
and related policies, are described in the First Investors Shareholder Manual,
which you may obtain on request. The Funds are deemed to be part of the First
Investors Family of Funds for purposes of the policies and procedures that are
described in the Shareholder Manual, except those that pertain to sales charges
and classes of shares. First Investors Funds have different sales charges and
classes of shares. For more information on the full range of services available,
please contact us directly at 1-800-423-4026.
21
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
financial performance of each Fund for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
tables represent the rates that an investor would have earned (or lost) on an
investment in each Fund (assuming reinvestment of all dividends and
distributions). The information has been audited by Tait, Weller & Baker, whose
report, along with the Funds' financial statements, are included in the SAI,
which is available upon request.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PER SHARE DATA
---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
INCOME FROM INVESTMENT OPERATIONS FROM
--------------------------------- ------------------
NET ASSET NET NET REALIZED NET
VALUE INVEST- AND UNREALIZED TOTAL FROM INVEST- NET TOTAL
BEGINNING MENT GAIN (LOSS) ON INVESTMENT INCOME REALIZED DISTRI-
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAIN BUTIONS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BLUE CHIP FUND
1/1/94 - 12/31/94........ $14.07 $.24 $(.41) $(.17) $.22 $.93 $1.15
1/1/95 - 12/31/95........ 12.75 .30 4.30 4.60 .29 .74 1.03
1/1/96 - 12/31/96........ 16.32 .22 3.13 3.35 .24 1.07 1.31
1/1/97 - 12/31/97........ 18.36 .19 4.68 4.87 .19 1.36 1.55
1/1/98 - 12/31/98........ 21.68 .11 3.74 3.85 .12 .58 .70
HIGH YIELD FUND
1/1/94 - 12/31/94........ $7.89 $.70 $(.87) $(.17) $.74 $-- $.74
1/1/95 - 12/31/95........ 6.98 .70 .58 1.28 .67 -- .67
1/1/96 - 12/31/96........ 7.59 .72 .28 1.00 .70 -- .70
1/1/97 - 12/31/97........ 7.89 .68 .23 .91 .70 -- .70
1/1/98 - 12/31/98........ 8.10 .67 (.60) .07 .68 -- .68
INSURED TAX EXEMPT FUND
1/1/94 - 12/31/94........ $13.77 $.68 $(1.23) $(.55) $.69 $-- $.69
1/1/95 - 12/31/95........ 12.53 .72 1.80 2.52 .73 .28 1.01
1/1/96 - 12/31/96........ 14.04 .66 (.10) .56 .67 .11 .78
1/1/97 - 12/31/97........ 13.82 .67 .71 1.38 .67 .12 .79
1/1/98 - 12/31/98........ 14.41 .66 .39 1.05 .66 .24 .90
</TABLE>
* Calculated without sales charges.
+ Net of expenses waived or assumed.
22
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS+ WAIVED OR ASSUMED
---------------- ----------------------
NET ASSET
VALUE TOTAL NET ASSETS NET NET PORTFOLIO
END RETURN* END OF PERIOD EXPENSES INVESTMENT EXPENSES INVESTMENT TURNOVER
OF PERIOD (%) (IN MILLIONS) (%) INCOME (%) (%) INCOME (%) RATE (%)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$12.75 (1.21) $1 .50 1.82 2.54 (.22) 89
16.32 36.30 1 .50 1.99 2.20 .29 33
18.36 20.62 2 .75 1.33 2.28 (.20) 50
21.68 26.58 4 .75 .92 2.03 (.36) 163
24.83 17.81 5 1.00 .55 1.84 (.29) 96
$6.98 (2.32) $15 1.33 9.45 1.88 8.90 53
7.59 19.08 16 1.35 9.52 1.90 8.97 69
7.89 13.69 17 1.22 9.38 1.82 8.78 27
8.10 12.03 19 1.22 8.68 1.82 8.08 49
7.49 .86 19 1.25 8.54 1.83 7.96 41
$12.53 (3.95) $10 .50 5.39 1.80 4.09 215
14.04 20.53 13 .50 5.35 1.74 4.11 147
13.82 4.11 15 .75 4.85 1.71 3.89 116
14.41 10.30 16 .75 4.80 1.71 3.84 126
14.56 7.39 17 .80 4.50 1.73 3.57 172
</TABLE>
23
<PAGE>
EXECUTIVE INVESTORS TRUST
BLUE CHIP
HIGH YIELD
INSURED TAX EXEMPT
For investors who want more information about the Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about each Fund's investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected each Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is incorporated by reference into this
prospectus.
SHAREHOLDER MANUAL: The Shareholder Manual provides more detailed
information about the purchase, redemption and sale of the Funds' shares.
You can get free copies of reports, the SAI and the Shareholder Manual, request
other information and discuss your questions about the Funds by contacting the
Funds at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Funds (including the Funds'
reports, Shareholder Manual and SAI) at the Public Reference Room of the
Securities and Exchange Commission ("SEC") in Washington, D.C. You can also send
your request for copies and a duplicating fee to the Public Reference Room of
the SEC, Washington, DC 20549-6009. You can obtain information on the operation
of the Public Reference Room by calling 1-800-SEC-0330. Text-only versions of
Fund documents can be viewed online or downloaded from the SEC's Internet
website at http://www.sec.gov.
(Investment Company Act File
No. 811-4927 Executive Trust
Trust)
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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, 1999
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 (each a "Fund").
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectus dated April 30, 1999 which may be obtained free of cost from
the Trust at the address or telephone number noted above. Information regarding
the purchase, redemption, sale and exchange of your Fund shares is contained in
the Shareholder Manual, a separate section of the SAI that is a distinct
document and may also be obtained free of charge by contacting your Fund at the
address or telephone number noted above.
TABLE OF CONTENTS
Page
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Investment Strategies and Risks..............................................2
Investment Policies..........................................................5
Futures and Options Strategies..............................................16
Portfolio Turnover..........................................................22
Investment Restrictions.....................................................22
Trustees And Officers.......................................................27
Management..................................................................29
Underwriter.................................................................30
Distribution Plans..........................................................31
Determination of Net Asset Value............................................32
Allocation of Portfolio Brokerage...........................................33
Purchase, Redemption and Exchange of Shares.................................35
Taxes.......................................................................35
Performance Information.....................................................38
General Information.........................................................43
Appendix A .................................................................45
Appendix B .................................................................46
Appendix C .................................................................47
Financial Statements........................................................53
Shareholder Manual: A Guide to your First Investors Mutual Fund Account.....74
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INVESTMENT STRATEGIES AND RISKS
BLUE CHIP FUND
The Fund seeks its objective by investing, under normal market conditions,
at least 65% of its total assets in common stocks of "Blue Chip" companies that
the Fund's investment adviser, Executive Investors Management Company, Inc.
("EIMCO" or "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 Fund primarily invests in stocks of growth companies. These are
companies which are expected to increase their earnings faster than the overall
market. If earnings expectations are not met, the prices of these stocks may
decline substantially even if earnings do increase. Investments in growth
companies may lack the dividend yield that can cushion stock prices in market
downturns.
The fixed-income securities in which the Fund may invest include money
market instruments (including prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), 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") (commonly referred
to as "high yield bonds" or "junk bonds"). 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 ADRs, enter into
repurchase agreements and make loans of portfolio securities.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
HIGH YIELD FUND
The Fund primarily seeks high current income and secondarily seeks capital
appreciation by investing, under normal market conditions, at least 65% of its
total assets in high risk, high yield securities, commonly referred to as "junk
bonds" ("High Yield Securities"). High Yield Securities include the following
instruments: fixed, variable or floating rate debt obligations (including bonds,
debentures and notes) which are rated below Baa by Moody's or below BBB by S&P,
or are unrated and deemed to be of comparable quality by the Fund's Adviser;
preferred stocks and dividend-paying common stocks that have yields comparable
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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 in debt securities issued by foreign governments and
companies and in foreign currencies for the purpose of purchasing such
securities. However, the Fund may not invest more than 5% of its total assets in
debt securities issued by foreign governments and companies that are denominated
in foreign currencies. The Fund may invest up to 5% of its total assets in debt
securities of issuers located in emerging market countries. 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, invest up to 15% of its net assets in
restricted securities (which may not be publicly marketable), and invest in zero
coupon and pay-in-kind securities. In addition, the Fund may make loans of
portfolio 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 BBB 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.
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 have speculative
characteristics or are speculative, and generally involve more risk of loss of
principal and income than higher-rated securities. Also, their yields and market
values tend to fluctuate more than those of higher quality securities. The
greater risks and fluctuations in yield and value occur because investors
generally perceive issuers of lower-rated and unrated securities to be less
creditworthy. These risks cannot be eliminated, but may be reduced by
diversifying holdings to minimize the portfolio impact of any single investment.
In addition, fluctuations in market value do not affect the cash income from the
securities, but are reflected in the computation of the Fund's net asset value.
When interest rates rise, the net asset value of the Fund tends to decrease.
When interest rates decline, the net asset value of the Fund tends to increase.
Variable or floating rate debt obligations in which the Fund may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
investor. This reduces the effect of changing market conditions on the
security's underlying market value.
A High Yield Security may itself be convertible into or exchangeable for
equity securities, or may carry with it the right to acquire equity securities
evidenced by warrants attached to the security or acquired as part of a unit
with the security. Although the Fund invests primarily in High Yield Securities,
securities received upon conversion or exercise of warrants and securities
remaining upon the break-up of units or detachment of warrants may be retained
to permit orderly disposition, to establish a long-term holding period for
Federal income tax purposes, or to seek capital appreciation.
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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 Fund seeks to achieve its secondary objective to the extent consistent
with its primary objective. There can be no assurance that the Fund will be able
to achieve its investment objectives. The Fund's net asset value fluctuates
based mainly upon changes in the value of its portfolio securities.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INSURED TAX EXEMPT FUND
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 various 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.
While the Fund does not intend to buy any instruments whose interest income is
subject to Federal income tax or is a Tax Preference Item, up to 20% of the
Fund's net assets may be invested in securities, the interest of which is
subject to Federal income tax, including the AMT. The Fund also may invest up to
20% of its total assets in certificates of participation, municipal notes,
municipal commercial paper and variable rate demand instruments (collectively
with municipal bonds, "Municipal Instruments"). The Fund generally invests in
bonds with maturities of over fifteen years. See "Municipal Instruments," below.
While the Fund diversifies its assets among municipal issuers in different
states, municipalities and territories, from time to time it 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, airport bonds or
electric utility bonds. Such a possible concentration of the assets of the Fund
could result in the Fund being invested in securities which are related in such
a way that economic, business, political or other developments which would
affect one security would probably likewise affect the other securities within
that particular segment of the bond market.
The Fund may make loans of portfolio securities and invest in zero coupon
municipal securities. The Fund may invest up to 25% of its net assets in
securities on a "when issued" basis, which involves an arrangement whereby
delivery of, and payment for, the instruments occur up to 45 days after the
agreement to purchase the instruments is made by a 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. In addition, the Fund 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). The Fund may borrow money for temporary or
emergency purposes in amounts not exceeding 5% of its total assets. See
"Investment Policies," below.
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," below. However, in
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each instance such municipal bonds will be covered by the insurance feature and
thus are considered to be of higher quality than lower rated municipal bonds
without an insurance feature. See "Insurance" for a discussion of the insurance
feature. The Adviser will carefully evaluate on a case-by-case basis whether to
dispose of or retain a municipal bond which has been downgraded in rating
subsequent to its purchase by a Fund. A description of municipal bond ratings is
contained in Appendix B.
There can be no assurances that future national, regional or state-wide
economic developments will not adversely affect the market value of Municipal
Securities held by the Fund or the ability of particular obligors to make timely
payments of debt service on (or lease payments relating to) those obligations.
There is also the risk that some or all of the interest income that the Fund
receives might become taxable or be determined to be taxable by the Internal
Revenue Service, applicable state tax authorities, or a judicial body. See the
discussion on "Taxes." In addition, there can be no assurances that future court
decisions or legislative actions will not affect the ability of the issuer of a
Municipal Security to repay its obligations.
Additional restrictions are set forth in the "Investment Restrictions"section of
this SAI.
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.
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CERTIFICATES OF DEPOSIT. Each Fund may invest in bank certificates of
deposit ("CDs"). The Federal Deposit Insurance Corporation is an agency of the
U.S. Government which insures the deposits of certain banks and savings and loan
associations up to $100,000 per deposit. The interest on such deposits may not
be insured if this limit is exceeded. Current Federal regulations also permit
such institutions to issue insured negotiable CDs in amounts of $100,000 or
more, without regard to the interest rate ceilings on other deposits. To remain
fully insured, these investments currently must be limited to $100,000 per
insured bank or savings and loan association.
CONVERTIBLE SECURITIES. 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;
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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.
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 involved 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 the Fund's net asset value. A significant economic
downturn or a substantial period of rising interest rates could severely affect
the market for High Yield Securities. In these circumstances, highly leveraged
companies might have greater difficulty in making principal and interest
payments, meeting projected business goals and obtaining additional financing.
Thus, there could be higher incidence of default. This would affect the value of
such securities and thus the Fund's net asset value. Further, if the issuer of a
security owned by the Fund defaults, it might incur additional expenses to seek
recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercised either provision in a declining interest rate market, the fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if the Fund experience 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 the
Fund. While it is impossible to protect entirely against this risk,
diversification of the Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities helps to minimize the impact of a decrease in
value of a particular security or group of securities in the 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 the 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. The 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. The Adviser continually monitors the investments in the
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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 second market. To the
extent that no established retail secondary market exists, many High Yield
Securities may not be as liquid as higher-grade bonds. A less active and thinner
market for High Yield Securities than that available for higher quality
securities may result in more volatile valuations of a Fund's holdings and more
difficulty in executing trades at favorable prices during unsettled market
conditions.
The ability of the 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 ("Board")
to value High Yield Securities become 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. The municipal bonds in INSURED TAX EXEMPT FUND'S portfolio will
be insured as to their scheduled payments of principal and interest at the time
of purchase either (1) under a Mutual Fund Insurance Policy written by an
independent insurance company; (2) under an insurance policy obtained subsequent
to a municipal bond's original issue (a "Secondary Market Insurance Policy"); or
(3) under an insurance policy obtained by the issuer or underwriter of such
municipal bond at the time of original issuance (a "New Issue Insurance
Policy"). An insured municipal bond in the Fund's portfolio typically will be
covered by only one of the three policies. For instance, if a municipal bond is
already covered by a New Issue Insurance Policy or a Secondary Market Insurance
Policy, then that security will not be additionally insured under the Mutual
Fund Insurance Policy.
The Trust has purchased a Mutual Fund Insurance Policy ("Policy") from AMBAC
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
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insurer. If another insurer cannot be found to replace AMBAC, the Fund may 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 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 $3,289,594,353
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(unaudited) and statutory capital of $1,920,300,000 (unaudited) as of December
31, 1998. 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 private letter 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. Investors should understand that a private letter ruling may not be cited
as precedent by persons other than the taxpayer to whom it is addressed;
nevertheless, those rulings may be viewed as generally indicative of the
Internal Revenue Service's views on the proper interpretation of the Code and
the regulations thereunder.
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.
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.
LOANS OF PORTFOLIO SECURITIES. Each Fund may loan securities to qualified
broker-dealers or other institutional investors provided: the borrower pledges
to the Fund and agrees to maintain at all times with the Fund collateral equal
to not less than 100% of the value of the securities loaned (plus accrued
interest or dividend, if any); the loan is terminable at will by the Fund; the
Fund pays only reasonable custodian fees in connection with the loan; and the
Adviser monitors the creditworthiness of the borrower throughout the life of the
loan. Such loans may be terminated by the Fund at any time and the Fund may vote
the proxies if a material event affecting the investment is to occur. The market
risk applicable to any security loaned remains a risk of the Fund. The borrower
must add to the collateral whenever the market value of the securities rises
above the level of such collateral. The Fund could incur a loss if the borrower
should fail financially at a time when the value of the loaned securities is
greater than the collateral. BLUE CHIP FUND and INSURED TAX EXEMPT FUND may make
loans not in excess of 10% of each Fund's total assets. HIGH YIELD FUND may make
loans, together with illiquid securities, not in excess of 15% of its net
assets.
MONEY MARKET INSTRUMENTS. Investments by each Fund 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
Appendix A for a description of commercial paper ratings.
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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 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.
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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.
MUNICIPAL INSTRUMENTS-INSURED TAX EXEMPT FUND. As used in this SAI,
"Municipal Instruments" include the following: (1) municipal bonds; (2) private
activity bonds or industrial development bonds, (3) certificates of
participation ("COPS"), (4) municipal commercial paper; (5) municipal notes; and
(6) variable rate demand instruments (`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 B 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.
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See "Taxes" 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.
The Board has established guidelines for determining the liquidity of
COPs in the Fund's portfolio and, subject to its review, has delegated that
responsibility to the Adviser. Under these guidelines, the Adviser will consider
(1) the frequency of trades and quotes for the security, (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers, (3) the willingness of dealers to undertake to make a market
in the security, (4) the nature of the marketplace, namely, the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer, (5) the coverage of the obligation by new issue insurance, (6) the
likelihood that the marketability of the obligation will be maintained through
the time the security is held by the Fund, and (7) for unrated COPs, the COPs'
credit status analyzed by the Adviser according to the factors reviewed by
rating agencies.
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.
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.
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 Board 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. Each Fund may invest in 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.
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REPURCHASE AGREEMENTS. A repurchase agreement essentially is a short-term
collateralized loan. The lender (a Fund) agrees to purchase a security from a
borrower (typically a broker-dealer) at a specified price. The borrower
simultaneously agrees to repurchase that same security at a higher price on a
future date (which typically is the next business day). The difference between
the purchase price and the repurchase price effectively constitutes the payment
of interest. In a standard repurchase agreement, the securities which serve as
collateral are transferred to a Fund's custodian bank. In a "tri-party"
repurchase agreement, these securities would be held by a different bank for the
benefit of the Fund as buyer and the broker-dealer as seller. In a "quad-party"
repurchase agreement, the Fund's custodian bank also is made a party to the
agreement. Each Fund may enter into repurchase agreements with banks which are
members of the Federal Reserve System or securities dealers who are members of a
national securities exchange or are market makers in government securities. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will a Fund invest in repurchase agreements with more
than one year in time to maturity. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of one year
from the effective date of the repurchase agreement. Each Fund will always
receive, as collateral, securities whose market value, including accrued
interest, which will at all times be at least equal to 100% of the dollar amount
invested by the Fund in each agreement, and the Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of the custodian. If the seller defaults, a Fund might incur a loss if
the value of the collateral securing the repurchase agreement declines, and
might incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy or similar proceedings are commenced with respect to the
seller of the security, realization upon the collateral by a Fund may be delayed
or limited. 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 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
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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.
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 AND BLUE CHIP FUND may each 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. HIGH YIELD 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.
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
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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". 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.
FUTURES AND OPTIONS STRATEGIES
Although they do not intend to engage in such strategies in the coming year,
BLUE CHIP FUND has the legal authority to engage in certain options strategies,
and HIGH YIELD FUND AND INSURED TAX EXEMPT FUND have the legal authority to
engage in certain futures strategies, to hedge their portfolios and in other
circumstances permitted by the Commodities Futures Trading Commission ("CFTC").
In addition, INSURED TAX EXEMPT FUND may engage in certain options strategies to
enhance income. To hedge their portfolios, BLUE CHIP FUND may buy
exchange-traded put and call options on stock indices and enter into closing
transactions with respect to such options, and HIGH YIELD FUND may buy and sell
interest rate futures contracts traded on a board of trade. INSURED TAX EXEMPT
FUND may sell covered listed put and call options and buy call and put 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.
Certain special characteristics of, and risks associated with, using these
instruments and strategies are discussed below. In addition to the
non-fundamental investment guidelines (described below) adopted by the Board to
govern each Fund's investments in futures and options, 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. The discussion of these
strategies does not imply that the Funds will use them to hedge against risks or
for any other purpose.
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.
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
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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.
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,
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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. 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. To the extent that a Fund may use options: (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
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fluctuations in the underlying securities market or, in the case of stock index
options, fluctuations in the market sector represented by the index selected.
Options normally have expiration dates of up to nine months. Unless an
option purchased by a Fund is exercised or unless a closing transaction is
effected with respect to that position, a loss will be realized in the amount of
the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. The ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market. Although BLUE CHIP FUND and INSURED TAX EXEMPT
FUND intend to purchase or write only those exchange-traded options for which
there appears to be a liquid secondary market, there is no assurance that a
liquid secondary market will exist for any particular option at any particular
time. Closing transactions may be effected with respect to 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
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securities may result in a corresponding decrease in the value of the futures
position. A Fund may sell an interest rate futures contract in order to continue
to receive the income from a debt security, while endeavoring to avoid part or
all of the decline in the market value of that security that would accompany an
increase in interest rates.
INSURED TAX EXEMPT FUND may purchase a call option on a financial futures
contract to hedge against a market advance in debt securities that the Fund
plans to acquire at a future date. The Fund also may write covered call options
on financial futures contracts as a partial hedge against a decline in the price
of debt securities held in the Fund's portfolio or purchase put options on
financial futures contracts in order to hedge against a decline in the value of
debt securities held in the Fund's portfolio.
HIGH YIELD FUND and INSURED TAX EXEMPT FUND will use futures contracts and,
for INSURED TAX EXEMPT FUND, options thereon solely in bona fide hedging
transactions or under other circumstances permitted by the CFTC and INSURED TAX
EXEMPT FUND will not enter into such investments for which the aggregate initial
margin and premiums exceed 5% of that Fund's total assets. This does not limit
that Fund's assets at risk to 5%. The Fund has represented the foregoing to the
CFTC.
FUTURES GUIDELINES. To the extent that a Fund enters into futures contracts
or 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 (excluding the in-the-money amount for options that are in-the-money
at the time of purchase) will not exceed 5% of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and losses on any
contracts into which the Fund has entered. This policy 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.
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Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for a Fund to close a position
and, in the event of adverse price movements 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
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are subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
INSURED TAX EXEMPT FUND purchases an option is the premium paid for the option
and the transaction costs, there may be circumstances when the purchase of an
option on a futures contract would result in a loss to the Fund when the use of
a futures contract would not, such as when there is no movement in the level of
the underlying stock index or the value of the securities being hedged.
HIGH YIELD FUND and INSURED TAX EXEMPT FUND'S activities in the futures and,
for INSURED TAX EXEMPT FUND, related options, markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions; however, a Fund also may save on commissions by using
futures and related options as a hedge rather than buying or selling individual
securities in anticipation or as a result of market movements.
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 year ended December 31, 1997, the portfolio turnover rate for
BLUE CHIP FUND, HIGH YIELD FUND and INSURED TAX EXEMPT FUND was 163%, 49% and
126%, respectively. For the fiscal year ended December 31, 1998, the portfolio
turnover rate for BLUE CHIP FUND, HIGH YIELD FUND and INSURED TAX EXEMPT FUND
was 96%, 41% and 172%, respectively.
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.
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(3) Make loans, except loans of portfolio securities (limited to 10% of the
Fund's total assets).
(4) Invest more than 25% of the Fund's total assets (taken at current value)
in the obligations of one or more issuers having their principal business
activities in the same industry.
(5) With respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(6) Pledge, mortgage or hypothecate any of its assets except that the Fund
may pledge its assets to secure borrowings made in accordance with paragraph (2)
above, provided the Fund maintains asset coverage of at least 300% for pledged
assets.
(7) Buy or sell commodities or commodity contracts or real estate or
interests in real estate limited partnerships, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate.
(8) Act as an underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain Federal securities laws.
(9) Make investments for the purpose of exercising control or management.
(10) Purchase any securities on margin.
(11) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of the Trust, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer, director or Trustee of the Trust or of the Adviser owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such officers,
directors or Trustees who own more than 1/2 of 1% own in the aggregate more than
5% of the outstanding securities of such issuer.
The following investment restrictions are not fundamental and may be changed
without prior shareholder approval. These investment restrictions provide that
the Fund will not:
(1) 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.
(2) 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.
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HIGH YIELD FUND. HIGH YIELD FUND will not:
(1) Borrow money, except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets.
(2) Engage in "short sales" in excess of 10% of the Fund's total assets.
(3) Pledge, mortgage or hypothecate any of its assets, except that the Fund
may pledge its assets to secure borrowings made in accordance with paragraphs
(1) and (2) above and for margin to secure its obligations under interest rate
futures contracts, provided the Fund maintains asset coverage of at least 300%
for pledged assets.
(4) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the Trust's Board 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).
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(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 more than 25% of the Fund's total assets (taken at current
value) in the obligations of one or more issuers having their principal business
activities in the same industry.
(14) Invest more than 5% of the value of its net assets in warrants, with no
more than 2% in warrants not listed on either the New York or American Stock
Exchanges.
(15) Purchase or sell portfolio securities from or to the Adviser or any
trustee or officer thereof or of the Trust, as principals.
(16) Invest more than 15% of the value of its total assets, at the time of
purchase, in deep discount securities of companies that are financially
troubled, in default or in bankruptcy or reorganization.
(17) Issue senior securities.
(18) Invest any of its assets in interests in oil, gas or other mineral
exploration or development programs, or in puts, calls, straddles or any
combination thereof.
(19) Invest more than 10% of its net assets in when-issued securities at the
time such purchase is made.
The following investment restriction is not fundamental and may be changed
without shareholder approval:
(1) 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.
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(4) With respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer. With respect to pre-refunded bonds, the Adviser considers an escrow
account to be the issuer of such bonds when the escrow account consists solely
of U.S. Government obligations fully substituted for the obligation of the
issuing municipality.
(5) Invest in any municipal bonds unless they will be insured municipal
bonds or unless they are already insured under an insurance policy obtained by
the issuer or underwriter thereof.
(6) Invest more than 25% of the Fund's total assets (taken at current value)
in the obligations of one or more issuers having their principal business
activities in the same industry.
(7) 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.
(8) Underwrite any issue of securities, although the Fund may purchase
municipal bonds directly from the issuer thereof for investment in accordance
with the Fund's investment objective, policy and limitations.
(9) Make investments for the purpose of exercising control or management.
(10) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of the Trust, as principals.
(11) 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 other than
for bona fide hedging purposes (as defined by the CFTC) if the aggregate initial
margin and premiums required to establish these positions (excluding the amount
by which options are "in-the-money" at the time of purchase) exceeds 5% of the
liquidation value of the Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any contracts the Fund has entered into.
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(4) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (1) above,
provided the Fund maintains asset coverage of at least 300% for pledged assets;
provided, however, this limitation will not prohibit escrow, collateral or
margin arrangements in connection with the Fund's use of options, futures
contracts or options on futures contracts.
(5) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
transactions in options, futures contracts, swaps, forward contracts, and other
derivative instruments shall not be deemed to constitute purchasing securities
on margin.
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.
JAMES J. COY (84). Emeritus Trustee, 90 Buell Lane, East Hampton, NY 11937.
Retired; formerly Senior Vice President, James Talcott, Inc. (financial
institution).
GLENN O. HEAD*+ (73), 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").
KATHRYN S. HEAD*+ (43), 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.
LARRY R. LAVOIE* (51), Trustee. Assistant Secretary, ADM, EIC, EIMCO, FICC and
FIMCO; Secretary and General Counsel, FIC.
REX R. REED** (76), Trustee, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN** (77), Trustee, 695 Charolais Circle, Edwards, CO
81632-1136. Retired; formerly President, Belvac International Industries,
Ltd. and President, Central Dental Supply.
NANCY SCHAENEN** (67), Trustee, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
JAMES M. SRYGLEY** (66), 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** (69), Trustee, RR1, Box 217, Upland Downs Road, Manchester
Center, VT 05255. Retired; formerly financial and planning executive with
American Telephone & Telegraph Company.
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JOSEPH I. BENEDEK (41), Treasurer and Principal Accounting Officer, 581 Main
Street, Woodbridge, NJ 07095. Treasurer, FIC, FIMCO, EIMCO and EIC;
Comptroller and Treasurer, FICC.
CONCETTA DURSO (63), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
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 (42), Vice President. Vice President, First Investors
U.S. Government Plus Fund, First Investors Series Fund II, Inc. and First
Investors Series Fund; Director of Equities, FIMCO.
* These Trustees may be deemed to be "interested persons," as defined in
the 1940 Act.
** These Trustees are members of the Board's Audit Committee.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
The Trustees and officers, as a group, owned less than 1% of shares of any
Fund.
All of the officers and Trustees, 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.
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The following table lists compensation paid to the Trustees of the Trust for
the fiscal year ended December 31, 1998.
TOTAL
COMPENSATION
FROM FIRST
AGGREGATE INVESTORS FAMILY
COMPENSATION OF FUNDS PAID TO
TRUSTEE FROM TRUST* TRUSTEE++
------- ----------- ----------------
James J. Coy** $-0- $-0-
Roger L. Grayson*** $-0- $-0-
Glenn O. Head $-0- $-0-
Kathryn S. Head $-0- $-0-
Larry R. Lavoie+ $-0- $-0-
Rex R. Reed $180 $20,045
Herbert Rubinstein $180 $20,045
James M. Srygley $180 $20,045
John T. Sullivan $-0- $-0-
Robert F. Wentworth $180 $20,045
Nancy Schaenen(1) $165 $18,350
* Compensation to officers and interested Trustees of the Trust is paid by the
Adviser.
** On March 27, 1997, Mr. Coy resigned as a Trustee of the Trust. Mr. Coy
currently serves as an Emeritus Trustee. Mr. Coy is paid by the Adviser.
*** On August 20, 1998, Mr. Grayson resigned as a Trustee of the Trust.
+ On September 17, 1998, Mr. Lavoie was elected by the Board to serve as
Trustee.
++ The First Investors Family of Funds consists of 15 separate registered
investment companies.
(1) The dollar compensation shown for Ms. Schaenen is lower than that for the
other Trustees because Ms. Schaenen was absent from one Board Meeting and
did not receive compensation for that Board Meeting.
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 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. The Board of Trustees is responsible for overseeing the management of the
Funds.
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
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<PAGE>
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:
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, 1996, 1997 and 1998, BLUE CHIP
FUND'S advisory fees were $17,351, $29,330 and $43,487, respectively. Of such
amounts, the Adviser voluntarily waived $13,013, $21,997 and $25,229,
respectively. For the fiscal years ended December 31, 1996, 1997 and 1998,
INSURED TAX EXEMPT FUND'S advisory fees were $148,917, $156,479 and $167,864,
respectively. Of such amounts, the Adviser voluntarily waived $111,688, $117,359
and $120,222, respectively. For the fiscal years ended December 31, 1996, 1997
and 1998, HIGH YIELD FUND'S advisory fees were $161,441, $180,560 and $195,205,
respectively. Of such amounts, the Adviser voluntarily waived $80,721, $90,280
and $97,603, 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. For the fiscal year
ended December 31, 1998, the Adviser voluntarily assumed expenses for BLUE CHIP
FUND and INSURED TAX EXEMPT FUND in the amounts of $10,161 and $21,698,
respectively.
The Adviser has an Investment Committee composed of Dennis T.
Fitzpatrick, George V. Ganter, Richard Guinnessey, David Hanover, Glenn O.
Head, Kathryn S. Head, Nancy W. Jones, Michael O'Keefe, Patricia D. Poitra,
Clark D. Wagner and Matthew Wright. The Committee usually meets weekly to
discuss the composition of the portfolio of each Fund and to review additions
to and deletions from the portfolios.
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.
First Investors Consolidated Corporation ("FICC") owns all of the
outstanding stock of the Adviser, Executive Investors Corporation, and the
Funds' transfer agent. Mr. Glenn O. Head controls FICC and, therefore,
controls the Adviser.
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.
The Underwriting Agreement was approved by the Trust's Board, 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
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long as such continuance is specifically approved at least annually by the
Trust's Board or by a vote of a majority of the outstanding voting securities of
such Fund, and in either case by the vote of a majority of 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, 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, 1998, BLUE
CHIP FUND paid EIC underwriting commissions of $4,954. For the same period, EIC
reallowed an additional $27,753 to unaffiliated dealers and $4,526 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,
1998, HIGH YIELD FUND paid EIC underwriting commissions of $14,639. For the same
period, EIC reallowed an additional $108,983 to unaffiliated dealers and $5,172
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. For the fiscal year ended December
31, 1998, INSURED TAX EXEMPT FUND paid EIC underwriting commissions of $9,625.
For the same period, EIC reallowed an additional $76,513 to unaffiliated dealers
and $1,494 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. Each Class A
Plan is a compensation plan.
In adopting the Plan for the Funds, the Trust's Board 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, 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 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
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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, 1998, BLUE CHIP FUND paid $21,744 in
fees pursuant to the Plan. For the same period, the Underwriter waived an
additional $4,351 in fees pursuant to the Plan. For the fiscal year ended
December 31, 1998, HIGH YIELD FUND paid $97,601 in fees pursuant to the Plan.
For the same period, the Underwriter waived an additional $19,519 in fees
pursuant to the Plan. For the fiscal year ended December 31, 1998, INSURED TAX
EXEMPT FUND paid $83,931 in fees pursuant to the Plan. For the same period, the
Underwriter waived an additional $16,785 in fees pursuant to the Plan. For the
fiscal year ended December 31, 1998, 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 $10,455 $0 $10,575
HIGH YIELD FUND $42,494 $0 $48,999
INSURED TAX EXEMPT $26,712 $0 $41,510
FUND
DEALER CONCESSIONS. With respect to shares of each Fund, the Fund will reallow a
portion of the sales load to the dealers selling the shares as shown in the
following table:
SALES CHARGES AS % OF
--------------------- CONCESSION TO
OFFERING NET AMOUNT DEALERS AS % OF
AMOUNT OF INVESTMENT PRICE INVESTED OFFERING PRICE
- -------------------- ----- -------- --------------
Less than $100,000.................. 4.75% 4.99 4.27%
$100,000 but under $250,000......... 3.90 4.06 3.51
$250,000 but under $500,000......... 2.90 2.99 2.61
$500,000 but under $1,000,000....... 2.40 2.46 2.16
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 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,
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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 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.
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 Woodbridge
offices prior to the close of regular trading on the NYSE; and
(b) In the case of a wire order, including a Fund/SERV order, the
order will be considered received when it is received in good form by a FIC
branch office or an authorized dealer prior to the close of regular trading on
the NYSE.
3. If the Funds are unable to segregate orders received on the Emergency
Closed Day from those received on the next day the Funds are open for business,
the Funds may give all orders the next price calculated after operations resume.
4. Notwithstanding the foregoing, on business days in which the NYSE is
not open for regular trading, the Funds may determine not to price their
portfolio securities if such prices would lead to a distortion of the NAV, for
the Funds and their shareholders.
ALLOCATION OF PORTFOLIO BROKERAGE
The Adviser may purchase or sell portfolio securities on behalf of the Fund
in agency or principal transactions. In agency transactions, the Fund generally
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<PAGE>
pays brokerage commissions. In principal transactions, the Fund generally does
not pay commissions, however the price paid for the security may include an
undisclosed dealer commission or "mark-up" or selling concessions. The Adviser
normally purchases fixed-income securities on a net basis from primary market
makers acting as principals for the securities. The Adviser may purchase certain
money market instruments directly from an issuer without paying commissions or
discounts. The Adviser may also purchase securities traded in the OTC market. As
a general practice, OTC securities are usually purchased from market makers
without paying commissions, although the price of the security usually will
include undisclosed compensation. However, when it is advantageous to the Fund
the Adviser may utilize a broker to purchase OTC securities and pay a
commission.
In purchasing and selling portfolio securities on behalf of the Fund, the
Adviser will seek to obtain best execution. The Fund may pay more than the
lowest available commission in return for brokerage and research services.
Additionally, upon instruction by the Board, the Adviser may use dealer
concessions available in fixed-priced underwritings to pay for research and
other services. Research and other services may include information as to the
availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to securities, reports and analysis
concerning issuers and their creditworthiness, and Lipper's Directors'
Analytical Data concerning Fund performance and fees. The Adviser generally uses
the research and other services to service all the funds in the First Investors
Family of Funds, rather than the particular Funds whose commissions may pay for
research or other services. In other words, a Fund's brokerage may be used to
pay for a research service that is used in managing another Fund within the
First Investor Fund Family. The Lipper's Directors' Analytical Data is used by
the Adviser and the Fund Board to analyze a fund's performance relative to other
comparable funds.
In selecting the broker-dealers to execute the Fund's portfolio
transactions, the Adviser may consider such factors as the price of the
security, the rate of the commission, the size and difficulty of the order, the
trading characteristics of the security involved, the difficulty in executing
the order, the research and other services provided, the expertise, reputation
and reliability of the broker-dealer, access to new offerings, and other factors
bearing upon the quality of the execution. The Adviser does not place portfolio
orders with an affiliated broker, or allocate brokerage commission business to
any broker-dealer for distributing fund shares. Moreover, no broker-dealer
affiliated with the Adviser participates in commissions generated by portfolio
orders placed on behalf of the Fund.
The Adviser may combine transaction orders placed on behalf of a Fund, 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. The Trust's Board has authorized and
directed the Adviser to use dealer concessions available in fixed-price
underwritings of municipal bonds to pay for research services which are
beneficial in the management of INSURED TAX EXEMPT FUND'S portfolio.
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.
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
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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.
For the fiscal year ended December 31, 1998, BLUE CHIP FUND paid $9,840 in
brokerage commissions. Of that amount $594 was paid to brokers who furnished
research services on portfolio transactions in the amount of $598,897. For the
fiscal year ended December 31, 1998, HIGH YIELD FUND and INSURED TAX EXEMPT FUND
did not pay brokerage commissions.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Information regarding the purchase, redemption and exchange of Fund shares
is contained in the Shareholder Manual, a separate section of the SAI that is a
distinct document and may be obtained free of charge by contacting your Fund.
REDEMPTIONS-IN KIND. If the Board should determine that it would be
detrimental to the best interests of the remaining shareholders of a Fund to
make payment wholly or partly in cash, the Fund may pay redemption proceeds in
whole or in part by a distribution in kind of securities from the portfolio of
the Fund. If shares are redeemed in kind, the redeeming shareholder will likely
incur brokerage costs in converting the assets into cash. The method of valuing
portfolio securities for this purpose is described under "Determination of Net
Asset Value."
TAXES
GENERAL
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended (the
"Code"), a Fund - 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 excludable from gross income under
section 103(a) of the Code ("Distribution Requirement"), and must meet several
additional requirements. For each Fund these requirements include the following:
(1) the Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or, 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 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.
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<PAGE>
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 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 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.
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<PAGE>
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 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
37
<PAGE>
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 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.
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<PAGE>
Average annual return and total return computed at the public offering price
for the periods ended December 31, 1998 are set forth in the tables below:
AVERAGE ANNUAL TOTAL RETURN:*
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND**
-------- ---------- --------- --------------
BLUE CHIP FUND 12.22% 18.20% N/A 14.47%
HIGH YIELD FUND (3.89%) 7.32% 8.50% N/A
INSURED TAX EXEMPT FUND 2.28% 6.24% N/A 8.89%
TOTAL RETURN:*
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND**
-------- ---------- --------- --------------
BLUE CHIP FUND 12.22% 130.74% N/A 221.07%
HIGH YIELD FUND (3.89%) 42.39% 126.10% N/A
INSURED TAX EXEMPT FUND 2.28% 35.35% N/A 105.11%
* 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, 1998. 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.
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, 1998 is set forth in the tables
below:
AVERAGE ANNUAL TOTAL RETURN:*
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND**
-------- ---------- --------- --------------
BLUE CHIP FUND 17.81% 19.36% N/A 15.12%
HIGH YIELD FUND .86% 8.36% 9.03% N/A
INSURED TAX EXEMPT FUND 7.39% 7.28% N/A 9.51%
TOTAL RETURN:*
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND**
-------- ---------- --------- --------------
BLUE CHIP FUND 17.81% 142.22% N/A 237.10%
HIGH YIELD FUND .86% 49.42% 137.41% N/A
INSURED TAX EXEMPT FUND 7.39% 42.13% N/A 115.32%
- -----------------
* Certain expenses of the Funds have been waived or reimbursed from
commencement of operations through December 31, 1998. Accordingly, return
figures are higher than they would have been had such expenses not been
waived or reimbursed.
** The inception dates for the Funds are as follows: BLUE CHIP FUND - May 17,
1990; HIGH YIELD FUND - March 24, 1987; and INSURED TAX EXEMPT FUND - July
26, 1990.
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<PAGE>
Yield for HIGH YIELD FUND and INSURED TAX EXEMPT FUND is presented for a
specified thirty-day period ("base period"). Yield is based on the amount
determined by (i) calculating the aggregate amount of dividends and interest
earned by a Fund during the base period less expenses accrued for that period
(net of reimbursement), and (ii) dividing that amount by the product of (A) the
average daily number of shares of that Fund outstanding during the base period
and entitled to receive dividends and (B) the per share maximum public offering
price of that Fund on the last day of the base period. The result is annualized
by compounding on a semi-annual basis to determine a Fund's yield. For this
calculation, interest earned on debt obligations held by a Fund is generally
calculated using the yield to maturity (or first expected call date) of such
obligations based on their market values (or, in the case of receivables-backed
securities such as GNMA Certificates, based on cost). Dividends on equity
securities are accrued daily at their estimated stated dividend rates.
INSURED TAX-EXEMPT FUND's tax-equivalent yield during the base period may be
presented in one or more stated tax brackets. Tax-equivalent yield is calculated
by adjusting the Fund's tax-exempt yield by a factor designed to show the
approximate yield that a taxable investment would have to earn to produce an
after-tax yield equal to the Fund's tax-exempt yield.
To calculate a taxable bond yield which is equivalent to a tax-exempt bond
yield (for Federal tax purposes), shareholders may use the following formula:
Tax Free Yield
-------------- = Taxable Equivalent Yield
1-Your Tax Bracket
For the 30 days ended December 31, 1998, the yield and tax-equivalent yield
(assuming a Federal tax rate of 28%) for INSURED TAX EXEMPT FUND was 3.56% and
4.94%, respectively. The maximum Federal tax rate for this period was 39.6%. For
the 30 days ended December 31, 1998, the yield for HIGH YIELD FUND was 8.34%.
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, 1998 for shares of HIGH YIELD FUND and
INSURED TAX EXEMPT FUND calculated using the offering price was 8.70% and 4.29%,
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 9.13%
and 4.51%, 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.
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<PAGE>
From time to time, in reports and promotional literature, the Funds may
compare their performance to, or cite the historical performance of, Overnight
Government repurchase agreements, U.S. Treasury bills, notes and bonds,
certificates of deposit, and six-month money market certificates or indices of
broad groups of unmanaged securities considered to be representative of, or
similar to, a Fund's portfolio holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized
independent service that monitors and ranks the performance of regulated
investment companies. The Lipper performance analysis includes the
reinvestment of capital gain distributions and income dividends but does not
take sales charges into consideration. The method of calculating total
return data on indices utilizes actual dividends on ex-dividend dates
accumulated for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of
Morningstar, Inc. Morningstar proprietary ratings reflect historical
risk-adjusted performance and are subject to change every month. Funds with
at least three years of performance history are assigned ratings from one
star (lowest) to five stars (highest). Morningstar ratings are calculated
from the Fund's three-, five-, and ten-year average annual returns (when
available) and a risk factor that reflects fund performance relative to
three-month Treasury bill monthly returns. Fund's returns are adjusted for
fees and sales loads. Ten percent of the funds in an investment category
receive five stars, 22.5% receive four stars, 35% receive three stars, 22.5%
receive two stars, and the bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly publication which
tracks principal return, total return and yield on the Salomon Brothers
Broad Investment-Grade Bond Index and the components of the Index.
Telerate Systems, Inc., a computer system to which the Adviser subscribes
which daily tracks the rates on money market instruments, public
corporate debt obligations and public obligations of the U.S. Treasury
and agencies of the U.S. Government.
THE WALL STREET JOURNAL, a daily newspaper publication which lists the
yields and current market values on money market instruments, public
corporate debt obligations, public obligations of the U.S. Treasury and
agencies of the U.S. Government as well as common stocks, preferred stocks,
convertible preferred stocks, options and commodities; in addition to
indices prepared by the research departments of such financial organizations
as Lehman Bros., Merrill Lynch, Pierce, Fenner and Smith, Inc., First
Boston, Salomon Brothers, Morgan Stanley, Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette, Value Line, Datastream International, James Capel, S.G.
Warburg Securities, County Natwest and UBS UK Limited, including information
provided by the Federal Reserve Board, Moody's, and the Federal Reserve
Bank.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal, coupon
and total return on over 100 different taxable bond indices which Merrill
Lynch tracks. They also list the par weighted characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication which
tracks principal, coupon and total return on the Lehman Govt./Corp. Index
and Lehman Aggregate Bond Index, as well as all the components of these
Indices.
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.
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<PAGE>
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics,
is a commonly used measure of inflation. The Index shows changes in the cost
of selected consumer goods and does not represent a return on an investment
vehicle.
Credit Suisse First Boston High Yield Index is designed to measure the
performance of the high yield bond market.
Lehman Brothers Aggregate Index is an unmanaged index which generally covers
the U.S. investment grade fixed rate bond market, including government and
corporate securities, agency mortgage pass-through securities, and
asset-backed securities.
Lehman Brothers Corporate Bond Index includes all publicly issued, fixed
rate, non-convertible investment grade dollar-denominated, corporate debt
which have at least one year to maturity and an outstanding par value of at
least $100 million.
The NYSE composite of component indices--unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the
NYSE.
Moody's Stock Index, an unmanaged index of utility stock performance.
Morgan Stanley All Country World Free Index is designed to measure the
performance of stock markets in the United States, Europe, Canada,
Australia, New Zealand and the developed and emerging markets of Eastern
Europe, Latin America, Asia and the Far East. The index consists of
approximately 60% of the aggregate market value of the covered stock
exchanges and is calculated to exclude companies and share classes which
cannot be freely purchased by foreigners.
Morgan Stanley World Index is designed to measure the performance of stock
markets in the United States, Europe, Canada, Australia, New Zealand and the
Far East. The index consists of approximately 60% of the aggregate market
value of the covered stock exchanges.
Reuters, a wire service that frequently reports on global business.
Russell 2000 Index, prepared by the Frank Russell Company, consists of U.S.
publicly traded stocks of domestic companies that rank from 1000 to 3000 by
market capitalization. The Russell 2000 tracks the return on these stocks
based on price appreciation or depreciation and does not include dividends
and income or changes in market values caused by other kinds of corporate
changes.
Russell 2500 Index, prepared by the Frank Russell Company, consists of U.S.
publicly traded stocks of domestic companies that rank from 500 to 3000 by
market capitalization. The Russell 2500 tracks the return on these stocks
based on price appreciation or depreciation and does not include dividends
and income or changes in market values caused by other kinds of corporate
changes.
Salomon Brothers Government Index is a market capitalization-weighted index
that consists of debt issued by the U.S. Treasury and U.S.
Government sponsored agencies.
Salomon Brothers Mortgage Index is a market capitalization-weighted index
that consists of all agency pass-throughs and FHA and GNMA project notes.
Standard & Poor's 400 Midcap Index is an unmanaged capitalization-weighted
index that is generally representative of the U.S. market for medium cap
stocks.
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<PAGE>
Standard & Poor's Smallcap 600 Index is a capitalization-weighted index that
measures the performance of selected U.S. stocks with a small market
capitalization.
Standard & Poor's Utilities Index is an unmanaged capitalization weighted
index comprising common stock in approximately 40 electric, natural gas
distributors and pipelines, and telephone companies. The Index assumes the
reinvestment of dividends.
From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
GENERAL INFORMATION
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 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 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.
AUDITS AND REPORTS. The accounts of each Fund are audited twice a year by
Tait, Weller & Baker, independent certified public accountants, 8 Penn Center
Plaza, Philadelphia, PA, 19103. Shareholders of each Fund receive semi-annual
and annual reports, including audited financial statements, and a list of
securities owned.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., Washington, D.C. 20036 serves as counsel to the Funds.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of 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;
$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
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<PAGE>
Agent will cease sending any further materials to the shareholder until the
Transfer Agent is provided with a correct address. Efforts to locate a
shareholder will be conducted in accordance with SEC rules and regulations prior
to escheatment of funds to the appropriate state treasury. The Transfer Agent
may deduct the costs of its efforts to locate a shareholder from the
shareholder's account. These costs may include a percentage of the account if a
search company charges such a fee in exchange for its location services. The
Transfer Agent is not responsible for any fees that states and/or their
representatives may charge for processing the return of funds to investors whose
funds have been escheated. The Transfer Agent's telephone number is
1-800-423-4026.
5% SHAREHOLDERS. As of March 31, 1999, the following owned of record or
beneficially 5% or more of the outstanding shares of each of the Funds listed
below:
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
BLUE CHIP 13.1 First Clearing Corporation
10700 Wheat First Drive
Glen Allen, V 23060
INSURED TAX EXEMPT 5.4 First Clearing Corporation
10700 Wheat First Drive
Glen Allen, V 23060
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.
44
<PAGE>
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.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
45
<PAGE>
APPENDIX 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.
46
<PAGE>
APPENDIX C
[The following tables are represented as graphs in the printed document.]
The following graphs and chart illustrate hypothetical returns:
INCREASE RETURNS
This graph shows over a period of time even a small increase in returns can make
a significant difference. This assumes a hypothetical investment of $10,000.
Years 10% 8% 6% 4%
----- ------- ------ ------ ------
5 16,453 14,898 13,489 12,210
10 27,070 22,196 18,194 14,908
15 44,539 33,069 24,541 18,203
20 73,281 49,268 33,102 22,226
25 120,569 73,402 44,650 27,138
INCREASE INVESTMENT
This graph shows the more you invest on a regular basis over time, the more you
can accumulate. this assumes monthly installment with a constant hypothetical
return rate of 8%.
Years $100 $250 $500 $1,000
----- ------ ------- ------- -------
5 7,348 18,369 36,738 73,476
10 18,295 43,736 91,473 182,946
15 34,604 86,509 173,019 346,038
20 58,902 147,255 294,510 589,020
25 95,103 237,757 475,513 951,026
47
<PAGE>
[The following table is represented as a graph in the printed document.]
This chart illustrates the time value of money based upon the following
assumptions:
If you invested $2,000 each year for 20 years, starting at 25, assuming a 9%
investment return, you would accumulate $573,443 by the time you reach age 65.
However, had you invested the same $2,000 each year for 20 years, at that rate,
but waited until age 35, you would accumulate only $242,228 - a difference of
$331,215.
25 years old .............. 573,443
35 years old .............. 242,228
45 years old .............. 103,320
For each of the above graphs and chart it should be noted that systematic
investment plans do not assume a profit or protect against loss in declining
markets. Investors should consider their financial ability to continue purchases
through periods of both high and low price levels. Figures are hypothetical and
for illustrative purposes only and do not represent any actual investment or
performance. The value of a shareholder's investment and return may vary.
48
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1996.
1928 .................. 300.00
1929 .................. 248.48
1930 .................. 164.58
1931 .................. 77.90
1932 .................. 59.93
1933 .................. 99.90
1934 .................. 104.04
1935 .................. 144.13
1936 .................. 179.90
1937 .................. 120.85
1938 .................. 154.76
1939 .................. 150.24
1940 .................. 131.13
1941 .................. 110.96
1942 .................. 119.40
1943 .................. 136.20
1944 .................. 152.32
1945 .................. 192.91
1946 .................. 177.20
1947 .................. 181.16
1948 .................. 177.30
1949 .................. 200.10
1950 .................. 235.40
1951 .................. 269.22
1952 .................. 291.89
1953 .................. 280.89
1954 .................. 404.38
1955 .................. 488.39
1956 .................. 499.46
1957 .................. 435.68
1958 .................. 583.64
1959 .................. 679.35
1960 .................. 615.88
1961 .................. 731.13
1962 .................. 652.10
1963 .................. 762.94
1964 .................. 874.12
1965 .................. 969.25
1966 .................. 785.68
1967 .................. 905.10
1968 .................. 943.75
1969 .................. 800.35
1970 .................. 838.91
1971 .................. 890.19
1972 .................. 1,020.01
1973 .................. 850.85
1974 .................. 616.24
1975 .................. 858.71
1976 .................. 1,004.65
1977 .................. 831.17
1978 .................. 805.01
1979 .................. 838.74
1980 .................. 963.98
1981 .................. 875.00
1982 .................. 1,046.55
1983 .................. 1,258.64
1984 .................. 1,211.56
1985 .................. 1,546.67
1986 .................. 1,895.95
1987 .................. 1,938.80
1988 .................. 2,168.60
1989 .................. 2,753.20
1990 .................. 2,633.66
1991 .................. 3,168.83
1992 .................. 3,301.11
1993 .................. 3,754.09
1994 .................. 3,834.44
1995 .................. 5,000.00
1996 .................. 6,000.00
The performance of the Dow Jones Industrial Average is not indicative of
the performance of any particular investment. It does not take into account fees
and expenses associated with purchasing mutual fund shares. Individuals cannot
invest directly in any index. Please note that past performance does not
guarantee future results.
49
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart shows that inflation is constantly eroding the value of your
money.
THE EFFECTS OF INFLATION OVER TIME
1966 ....................... 96.61836
1967 ....................... 93.80423
1968 ....................... 89.59334
1969 ....................... 84.36285
1970 ....................... 79.88906
1971 ....................... 77.33694
1972 ....................... 74.79395
1973 ....................... 68.80768
1974 ....................... 61.27131
1975 ....................... 57.31647
1976 ....................... 54.63915
1977 ....................... 51.20820
1978 ....................... 46.98000
1979 ....................... 41.46514
1980 ....................... 36.85790
1981 ....................... 33.84564
1982 ....................... 32.60659
1983 ....................... 31.41290
1984 ....................... 30.23378
1985 ....................... 29.12696
1986 ....................... 28.81005
1987 ....................... 27.59583
1988 ....................... 26.43279
1989 ....................... 25.27035
1990 ....................... 23.81748
1991 ....................... 23.10134
1992 ....................... 22.45028
1993 ....................... 21.86006
1994 ....................... 21.28536
1995 ....................... 20.76620
1996 ....................... 20.16135
1996 ....................... 100.00
1997 ....................... 103.00
1998 ....................... 106.00
1999 ....................... 109.00
2000 ....................... 113.00
2001 ....................... 116.00
2002 ....................... 119.00
2003 ....................... 123.00
2004 ....................... 127.00
2005 ....................... 130.00
2006 ....................... 134.00
2007 ....................... 138.00
2008 ....................... 143.00
2009 ....................... 147.00
2010 ....................... 151.00
2011 ....................... 156.00
2012 ....................... 160.00
2013 ....................... 165.00
2014 ....................... 170.00
2015 ....................... 175.00
2016 ....................... 181.00
2017 ....................... 186.00
2018 ....................... 192.00
2019 ....................... 197.00
2020 ....................... 203.00
2021 ....................... 209.00
2022 ....................... 216.00
2023 ....................... 222.00
2024 ....................... 229.00
2025 ....................... 236.00
2026 ....................... 243.00
Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and service as in 1996 ($100 vs. $20).* Projecting inflation at 3%, goods
and services costing $100 today will cost $243 in the year 2026.
* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.
50
<PAGE>
[The following tables are represented as graphs in the printed document.]
This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.
1926 through 1996*
Total Number of Percentage of
Number of Positive Positive
Rolling Period Periods Periods Periods
-------------- ------- ------- -------
1-Year 71 51 72%
5-Year 67 60 90%
10-Year 62 60 97%
15-Year 57 57 100%
20-Year 52 52 100%
The following chart shows the compounded annual return of large company stocks
compared to U.S. Treasury Bills and inflation over the most recent 15 year
period. **
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 16.79
The following chart illustrates for the period shown that long-term corporate
bonds have outpaced U.S. Treasury Bills and inflation.
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 13.66
* Source: Used with permission. (c)1997 Ibbotson Associates, Inc. All rights
reserved. [Certain provisions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.]
** Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, returns of U.S. Treasury bills historically have
not outpaced inflation by as great a margin as stocks.
51
<PAGE>
The accompanying table illustrates that if you are in the 36% tax bracket, a
tax-free yield of 3% is actually equivalent to a taxable investment earning
4.69%.
Your Taxable Equivalent Yield
Your Federal Tax Bracket
---------------------------------------------
28.0% 31.0% 36.0% 39.6%
your tax-free yield
3.00% 4.17% 4.35% 4.69% 4.97%
3.50% 4.86% 5.07% 5.47% 5.79%
4.00% 5.56% 5.80% 6.25% 6.62%
4.50% 6.25% 6.52% 7.03% 7.45%
5.00% 6.94% 7.25% 7.81% 8.25%
5.50% 7.64% 7.97% 8.59% 9.11%
This information is general in nature and should not be construed as tax advice.
Please consult a tax or financial adviser as to how this information affects
your particular circumstances.
52
<PAGE>
[The following table is represented as a graph in the printed document.]
The following graph illustrates how income has affected the gains from stock
investments since 1965.
S&P 500 Dividends Reinvested S&P 500 Principal Only
12/31/64 10,000 10,000
12/31/65 11,269 10,906
12/31/66 10,115 9,478
12/31/67 12,550 11,383
12/31/68 13,948 12,255
12/31/69 12,795 10,863
12/31/70 13,299 10,873
12/31/71 15,200 12,046
12/31/72 18,088 13,929
12/31/73 15,431 11,510
12/31/74 11,346 8,090
12/31/75 15,570 10,642
12/31/76 19,296 12,680
12/31/77 17,915 11,221
12/31/78 19,092 11,340
12/31/79 22,645 12,736
12/31/80 30,004 16,019
12/31/81 28,528 14,460
12/31/82 34,674 16,595
12/31/83 42,496 19,461
12/31/84 45,161 19,733
12/31/85 59,489 24,930
12/31/86 70,594 28,575
12/31/87 74,301 29,154
12/31/88 86,641 32,769
12/31/89 114,093 41,699
12/31/90 110,549 38,964
12/31/91 144,230 49,214
12/31/92 155,218 51,411
12/31/93 170,863 55,039
12/31/94 173,120 54,191
12/31/95 238,175 72,676
12/31/96 292,863 87,403
11/30/97 383,977 112,732
Source: First Investors Management Company, Inc. Standard & Poor's is a
registered trademark. The S&P 500 is an unmanaged index comprising 500 common
stocks spread across a variety of industries. The total returns represented
above compare the impact of reinvestment of dividends and illustrates past
performance of the index. The performance of any index is not indicative of the
performance of a particular investment and does not take into account the
effects of inflation or the fees and expenses associated with purchasing mutual
fund shares. Individuals cannot invest directly in any index. Mutual fund shares
will fluctuate in value, therefore, the value of your original investment and
your return may vary. Moreover, past performance is no guarantee of future
results.
53
<PAGE>
Financial Statements
as of December 31, 1998
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, 1998 electronically filed with the Securities and
Exchange Commission on March 2, 1999 (Accession Number:
0001047469-99-008111).
54
<PAGE>
SHAREHOLDER MANUAL
A Guide to Your (FIRST INVESTORS LOGO)
First Investors
Mutual Fund Account
- -------------------
as of April 22, 1999
<PAGE>
INTRODUCTION
Investing in mutual funds doesn't have to be complicated. Your registered
representative is available to answer your questions and help you process your
transactions. First Investors offers personalized service and a wide variety of
mutual funds. In the event you wish to process a transaction directly, the
material provided in this easy-to-follow guide tells you how to contact us and
explains our policies and procedures. Please note that there are special rules
for money market funds.
Please read this manual completely to gain a better understanding of how shares
are bought, sold, exchanged, and transferred. In addition, the manual provides
you with a description of the services we offer to simplify investing. The
services, privileges and fees referenced in this manual are subject to change.
You should call our Shareholder Services Department at 1 (800) 423-4026 before
initiating any transaction.
This manual must be preceded or accompanied by a First Investors mutual fund
prospectus. For more complete information on any First Investors Fund, including
charges and expenses, refer to the prospectus. Read the prospectus carefully
before you invest or send money.
(FIRST INVESTORS LOGO)
PRINCIPAL UNDERWRITER TRANSFER AGENT
First Investors Corporation Administrative Data Management Corp.
95 Wall Street 581 Main Street
New York, NY 10005 Woodbridge, NJ 07095
1-212-858-8000 1-800-423-4026
<PAGE>
TABLE OF CONTENTS
HOW TO BUY SHARES
To Open an Account.......................................................... 1
To Open a Retirement Account................................................ 2
Minimum Initial Investment.................................................. 2
Additional Investments...................................................... 2
Acceptable Forms of Payment................................................. 2
Share Classes............................................................... 2
Share Class Specification................................................... 3
Class A Shares.............................................................. 3
Class B Shares.............................................................. 5
How to Pay.................................................................. 6
HOW TO SELL SHARES
Written Redemptions......................................................... 9
Telephone Redemptions....................................................... 9
Electronic Funds Transfer................................................... 9
Systematic Withdrawal Plans................................................ 10
Expedited Wire Redemptions................................................. 10
HOW TO EXCHANGE SHARES
Exchange Methods........................................................... 11
Exchange Conditions........................................................ 12
Exchanging Funds with Automatic Investments or
Systematic Withdrawals..................................................... 12
WHEN AND HOW
FUND SHARES ARE PRICED..................................................... 13
HOW PURCHASE, REDEMPTION AND EXCHANGE ORDERS
ARE PROCESSED AND PRICED................................................... 13
SPECIAL RULES FOR MONEY MARKET FUNDS....................................... 14
RIGHT TO REJECT PURCHASE OR EXCHANGE ORDERS................................ 15
SIGNATURE GUARANTEE POLICY................................................. 15
TELEPHONE SERVICES
Telephone Exchanges and Redemptions........................................ 16
Shareholder Services....................................................... 17
OTHER SERVICES............................................................. 18
ACCOUNT STATEMENTS
Transaction Confirmation Statements........................................ 20
Master Account Statements.................................................. 20
Annual and Semi-Annual Reports............................................. 20
DIVIDENDS AND DISTRIBUTIONS
Dividends and Distributions................................................ 21
Buying a Dividend.......................................................... 21
TAX FORMS.................................................................. 22
THE OUTLOOK................................................................ 22
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
HOW TO BUY SHARES
First Investors offers a wide variety of mutual funds to meet your financial
needs ("FI Funds"). Your registered representative will review your financial
objectives and risk tolerance, explain our product line and services, and help
you select the right investments. Call our Shareholder Services Department at 1
(800) 423-4026 or visit us on-line at www.firstinvestors.com for more
information.
o TO OPEN AN ACCOUNT
Before investing, you must establish an account with your broker-dealer. At
First Investors Corporation ("FI") you do this by completing and signing a
Master Account Agreement ("MAA"). After you determine the fund(s) you want to
purchase, deliver your completed MAA and your check, made payable to First
Investors Corporation, to your registered representative. New client accounts
must be established through your registered representative.
You need to tell us how you want your shares registered when you open a new Fund
account. Please keep the following information in mind:
JOINT ACCOUNTS. For any account with two or more owners, all owners must sign
requests to process transactions. Telephone privileges allow any one of the
owners to process transactions independently.
GIFTS AND TRANSFERS TO MINORS. Custodial accounts for a minor may be established
under your state's Uniform Gifts/Transfers to Minors Act. Custodial accounts are
registered under the minor's social security number.
TRUSTS. A trust account may be opened only if you have a valid written trust
document.
TRANSFER ON DEATH (TOD). TOD registrations, available on all FI Funds in all
states, allow individual and joint account owners to name one or more
beneficiaries. The ownership of the account passes to the named beneficiaries in
the event of the death of all account owners.
DIVIDENDS AND CAPITAL GAINS. Fund distributions will be automatically reinvested
in your account unless you request otherwise.
SOME REGISTRATIONS REQUIRE ADDITIONAL PAPERWORK.
- --------------------------------------------------------------------------------
TYPE OF ACCOUNT ADDITIONAL DOCUMENTS REQUIRED
- --------------------------------------------------------------------------------
Corporations First Investors Certificate of Authority
Partnership
& Trusts
Transfer On Death First Investors TOD Registration Request Form
(TOD)
Estates Original or Certified Copy of Death Certificate
Certified Copy of Letters Testamentary/Administration
First Investors Executor's Certification & Indemnification
Form
Conservatorships Certified copy of court document appointing Conservator/
& Guardianships Guardian
- --------------------------------------------------------------------------------
1
<PAGE>
o TO OPEN A RETIREMENT ACCOUNT
Before opening a retirement account, you must establish an account with your
broker-dealer. Fund shares may be purchased for your retirement account by
completing the appropriate retirement plan application. First Investors offers
retirement plans for both individuals and employers as follows:
INDIVIDUAL RETIREMENT ACCOUNTS including Roth, Traditional, and Rollover IRAs.
SIMPLE IRAS offered by employers.
SEP-IRAS (SIMPLIFIED EMPLOYEE PENSION PLANS) for small business owners or people
with income from self-employment, including SARSEP-IRAs.
403(b)(7) accounts for employees of eligible tax-exempt organizations such as
schools, hospitals and charitable organizations.
401(k) plans for employers.
MONEY PURCHASE PENSION & PROFIT SHARING plans for sole proprietors and
partnerships.
For more information about these plans call your registered representative or
our Shareholder Services Department at
1 (800) 423-4026.
o MINIMUM INITIAL INVESTMENT
You can open a non-retirement account with a check made payable to First
Investors Corporation for as little as $1,000. The minimum is waived if you open
an account through one of our Automatic Investment Programs (see How to Pay) or
through a full exchange from another FI Fund. You can open a First Investors
Traditional IRA or Roth IRA with as little as $500. Other retirement accounts
may have lower initial investment requirements at the Fund's discretion.
o ADDITIONAL INVESTMENTS
Once you have established an account, you can add to it through your registered
representative or by sending us a check directly. There is no minimum
requirement on additional purchases into existing fund accounts. Remember to
include your FI Fund account number on your check made payable to First
Investors Corporation.
Mail checks to:
First Investors Corporation
Attn: Dept. CP
581 Main Street
Woodbridge, NJ 07095-1198
o ACCEPTABLE FORMS OF PAYMENT
The following forms of payment are acceptable:
- -checks made payable to First Investors Corporation.
- -Money Line and Automatic Payroll Investment electronic funds transfers.
- -Federal Funds wire transfers.
For your protection, never give your registered representative cash or a check
made payable to your registered representative.
We DO NOT accept:
- -Third party checks.
- -Traveler's checks.
- -Checks drawn on non-US banks.
- -Money orders.
- -Cash.
o SHARE CLASSES
All FI Funds are available in Class A and Class B shares. Direct purchases into
Class B share money market accounts are not accepted. Class B money market fund
shares may only be acquired through an exchange from another Class B share
account or through Class B share dividend cross-reinvestment.
2
<PAGE>
Each class of shares has its own cost structure. As a result, different classes
of shares in the same fund generally have different prices. Class A shares have
a front-end sales charge. Class B shares may have a contingent deferred sales
charge ("CDSC"). While both classes have a Rule 12b-1 fee, the fee on Class B
shares is generally higher. The principal advantages of Class A shares are that
they have lower overall expenses, the availability of quantity discounts on
sales charges, and certain account privileges that are not offered on Class B
shares. The principal advantage of Class B shares is that all your money is put
to work from the outset. Your registered representative can help you decide
which class of shares is best for you.
o SHARE CLASS SPECIFICATION
It's very important to specify which class of shares you wish to purchase when
you open a new account. All First Investors account applications have a place to
designate your preference. If you do not specify which class of shares you want
to purchase, Class A shares will automatically be purchased.
o CLASS A SHARES
When you buy Class A shares, you pay the offering price - the net asset value of
the fund plus a front-end sales charge. The front-end sales charge declines with
larger investments.
- --------------------------------------------------------------------------------
CLASS A SALES CHARGES
----------------------------------------------------------------------------
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
up to $24,999 6.25% 6.67%
$25,000 - $49,999 5.75% 6.10%
$50,000 - $99,999 5.50% 5.82%
$100,000 - $249,999 4.50% 4.71%
$250,000 - $499,999 3.50% 3.63%
$500,000 - $999,999 2.50% 2.56%
Investments of $1 million or more will only be made in Class A shares at
the Fund's net asset value.
Generally, you should consider purchasing Class A shares if you plan to
invest $250,000 or more either initially or over time.
- --------------------------------------------------------------------------------
SALES CHARGE WAIVERS & REDUCTIONS ON CLASS A SHARES:
If you qualify for one of the sales charge reductions or waivers, it is very
important to let us know at the time you place your order. Include a written
statement with your check explaining which privilege applies. If you do not
include this statement we cannot guarantee that you will receive the reduction
or waiver.
CLASS A SHARES MAY BE PURCHASED WITHOUT A SALES CHARGE:
1: By an officer, trustee, director, or employee of the Fund, the Fund's adviser
or subadviser, First Investors Corporation, or any affiliates of First Investors
Corporation, or by his/her spouse, child (under age 21) or grandchild (under age
21).
2: By a former officer, trustee, director, or employee of the Fund, First
Investors Corporation, or their affiliates provided the person worked for the
company for at least 5 years and retired or terminated employment in good
standing.
3
<PAGE>
3: By a FI registered representative or an authorized dealer, or by his/her
spouse, child (under age 21) or grandchild (under age 21).
4: When fund distributions are reinvested in Class A shares.
5: When Systematic Withdrawal Plan payments are reinvested in Class A shares
(except for certain payments from money market accounts which may be subject to
a sales charge).
6: When qualified retirement plan loan repayments are reinvested in Class A
shares.
7: With the liquidation proceeds from a First Investors Life Variable Annuity
Fund A, C, or D contract within one year of the contract's maturity date.
8: When dividends (at least $50 a year) from a First Investors Life Insurance
Company policy are invested into an EXISTING account.
9: When a group qualified plan (401(k) plans, money purchase pension plans,
profit sharing plans and 403(b) plans that are subject to Title I of ERISA) is
reinvesting redemption proceeds from another fund on which a sales charge or
CDSC was paid.
10: With distribution proceeds from a First Investors group qualified plan
account into an IRA.
11: By participant directed group qualified plans with 100 or more eligible
employees or $1,000,000 or more in assets.
12: In amounts of $1 million or more.
13: By individuals under a Letter of Intent or Cumulative Purchase Privilege of
$1 million or more.
FOR ITEMS 9 THROUGH 13 ABOVE: A CDSC OF 1.00% WILL BE DEDUCTED IF SHARES ARE
REDEEMED WITHIN 2 YEARS OF PURCHASE.
SALES CHARGES ON CLASS A SHARES MAY BE REDUCED FOR:
1: Participant directed group qualified retirement plans with 99 or fewer
eligible employees. The initial sales charge is reduced to 3.00% of the offering
price.
2: Certain unit trust holders ("unitholders") who elect to invest the entire
amount of principal, interest, and/or capital gains distributions from their
unit investment trusts in Class A shares. Unitholders of various series of New
York Insured Municipals-Income Trust sponsored by Van Kampen Merrit, Inc.,
unitholders of various series of the Multistate Tax Exempt Trust sponsored by
Advest Inc., and unitholders of various series of the Insured Municipal Insured
National Trust, J.C. Bradford & Co. as agent, may buy Class A shares of a FI
Fund with unit trust distributions at the net asset value plus a sales charge of
1.5%. Unitholders of various tax-exempt trusts, other than the New York Trust,
sponsored by Van Kampen Merritt Inc. may buy Class A shares of a FI Fund at the
net asset value plus a sales charge of 1.0%.
Unitholders may make additional purchases, other than those made by unit trust
distributions, at the Fund's regular offering price.
+ CUMULATIVE PURCHASE PRIVILEGE
The Cumulative Purchase Privilege lets you add the value of all your existing FI
Fund accounts (Class A and Class B shares) to the amount of your next Class A
share investment to reach sales charge discount breakpoints. For example, if the
combined current value of your existing FI Fund accounts is $25,000 (measured by
offering price), your next purchase will be eligible for a sales charge discount
at the $25,000 level. Cumulative Purchase discounts are applied to purchases as
indicated in the first column of the Class A Sales Charge table.
All your accounts registered with the same social security number will be linked
together under the Cumulative Purchase Privilege. Your spouse's accounts and
custodial accounts held for minor children residing at your home can also be
linked to your accounts upon request.
4
<PAGE>
- -Conservator accounts are linked to the social security number of the ward, not
the conservator.
- -Sole proprietorship accounts are linked to personal/family accounts only if the
account is registered with a social security number, not an employer
identification number ("EIN").
- -Testamentary trusts and living trusts may be linked to other accounts
registered under the same trust EIN, but not to the personal accounts of the
trustee(s).
- -Estate accounts may only be linked to other accounts registered under the same
EIN of the estate or social security number of the decedent.
-Church and religious organizations may link accounts to others registered with
the same EIN but not to the personal accounts of any member.
+ LETTER OF INTENT
A Letter of Intent ("LOI") lets you purchase at a discounted sales charge level
even though you do not yet have sufficient investments to qualify for that
discount level. An LOI is a commitment by you to invest a specified dollar
amount during a 13 month period. The amount you agree to invest determines the
sales charge you pay. Under an LOI, you can reduce the initial sales charge on
Class A share purchases based on the total amount you agree to invest in both
Class A and Class B shares during the 13 month period. Purchases made 90 days
before the date of the LOI may be included, in which case the 13 month period
begins on the date of the first purchase. Your LOI can be amended in two ways.
First, you may file an amended LOI to raise or lower the LOI amount during the
13 month period. Second, your LOI will be automatically amended if you invest
more than your LOI amount during the 13 month period and qualify for an
additional sales charge reduction.
By purchasing under an LOI, you acknowledge and agree to the following:
- -You authorize First Investors to reserve 5% of your total intended investment
in shares held in escrow in your name until the LOI is completed.
- -First Investors is authorized to sell any or all of the escrow shares to
satisfy any additional sales charges owed in the event you do not fulfill the
LOI.
- -Although you may exchange all your shares, you may not sell the reserve shares
held in escrow until you fulfill the LOI or pay the higher sales charge.
o CLASS B SHARES
Class B shares are sold without an initial sales charge, putting all your money
to work for you immediately. If you redeem Class B shares within 6 years of
purchase, a CDSC will be imposed. The CDSC declines from 4% to 0% over a 6-year
period, as shown in the chart below. Class B share money market fund shares are
not sold directly. They can only be acquired through an exchange from another
Class B fund account or through cross reinvestment of dividends from another
Class B share account. Class B shares, and the dividend and distribution shares
they earn, automatically convert to Class A shares after 8 years, reducing
future annual expenses.
Generally, you should consider purchasing Class B shares if you intend to invest
less than $250,000 and you would rather pay higher ongoing expenses than an
initial sales charge.
CLASS B SALES CHARGES
THE CDSC DECLINES OVER TIME AS SHOWN IN THE TABLE BELOW:
--------------------------------------------------------
Year 1 2 3 4 5 6 7+
--------------------------------------------------------
CDSC 4% 4% 3% 3% 2% 1% 0%
--------------------------------------------------------
5
<PAGE>
If shares redeemed are subject to a CDSC, the CDSC will be based on the lesser
of the original purchase price or redemption price. There is no CDSC on shares
acquired through dividend and capital gains reinvestment. We call these "free
shares."
Anytime you sell shares, your shares will be redeemed in the following manner to
ensure that you pay the lowest possible CDSC:
FIRST-Class B shares representing dividends and capital gains that are not
subject to a CDSC.
SECOND-Class B shares held more than six years which are not subject to a CDSC.
THIRD-Class B shares held longest which will result in the lowest CDSC.
For purposes of calculating the CDSC, all purchases made during the calendar
month are deemed to have been made on the first business day of the month at the
average cost of the shares purchased during that period.
SALES CHARGE WAIVERS ON CLASS B SHARES:
The CDSC on Class B shares does not apply to:
1: Appreciation on redeemed shares above their original purchase price and
shares acquired through dividend or capital gains distributions.
2: Redemptions due to death or disability (as defined in section 72(m)(7) of the
Internal Revenue Code) requested within one year of death. Additional
documentation is required.
3: Distributions from employee benefit plans due to plan termination.
4: Redemptions to remove an excess contribution from an IRA or qualified
retirement plan.
5: Distributions upon reaching required minimum age 70 1/2 provided you have
held the shares for at least three years.
6: Annual redemptions of up to 8% of your account's value redeemed by a
Systematic Withdrawal Plan. Free shares not subject to a CDSC will be redeemed
first and will count towards the 8% limit.
7: Shares redeemed from advisory accounts managed by or held by the Fund's
investment advisor or any of its affiliates.
8: Tax-free returns of excess contributions from employee benefit plans.
9: Redemptions of non-retirement shares purchased with proceeds from the sale of
shares of another fund group between April 29, 1996 and June 30, 1996 that did
not pay a sales charge (other than money market fund accounts or retirement plan
accounts).
10: Redemptions by the Fund when the account falls below the minimum.
11: Redemptions to pay account fees.
Include a written statement with your redemption request explaining which
exemption applies. If you do not include this statement we cannot guarantee that
you will receive the waiver.
o HOW TO PAY
You can invest using one or more of the following options:
+ CHECK:
You can buy shares by writing a check payable to First Investors Corporation. If
you are opening a new fund account, your check must meet the fund minimum. When
making purchases to an existing account, remember to include your fund account
number on your check.
AUTOMATIC INVESTMENTS:
We offer several automatic investment programs to simplify investing.
+ MONEY LINE:
With our Money Line program, you can open an account with as little as $50 a
month or $600 each year in a FI Fund account by transferring funds
electronically from your bank account. You can invest up to $10,000 a month
through Money Line.
6
<PAGE>
Money Line allows you to select the payment amount and frequency that is best
for you. You can make automatic investments bi-weekly, semi-monthly, monthly,
quarterly, semi-annually, or annually.
The date you select as your Money Line investment date is the date on which
shares will be purchased. THE PROCEEDS MUST BE AVAILABLE IN YOUR BANK ACCOUNT
TWO BUSINESS DAYS PRIOR TO THE INVESTMENT DATE.
HOW TO APPLY:
1: Complete the Electronic Funds Transfer ("EFT") section of the application to
provide complete bank information and authorize EFT fund share purchases. Attach
a voided check. A signature guarantee of all shareholders and bank account
owners is required. PLEASE ALLOW AT LEAST 10 BUSINESS DAYS FOR INITIAL
PROCESSING.
2: Complete the Money Line section of the application to specify the amount,
frequency and date of the investment.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
HOW TO CHANGE:
Provided you have telephone privileges, you may call Shareholder Services at
1 (800) 423-4026 to:
- -Increase the payment up to $999.99.
- -Decrease the payment.
- -Discontinue the service.
To change investment amounts, reallocate or cancel Money Line, you must notify
us at least 3 business days prior to the investment date.
You must send a signature guaranteed written request to Administrative Data
Management Corp. to:
- -Increase the payment to $1,000 or more.
- -Change bank information (a new Money Line Application and voided check is
required).
A medallion signature guarantee (see Signature Guarantee Policy) is required to
increase a Money Line payment to $2,500 or more. Changing banks or bank account
numbers requires 10 days notice. Money Line service will be suspended upon
notification that all account owners are deceased.
+ AUTOMATIC PAYROLL INVESTMENT:
With our Automatic Payroll Investment service ("API") you can systematically
purchase shares by salary reduction. To participate, your employer must offer
direct deposit and permit you to electronically transfer a portion of your
salary. Contact your company payroll department to authorize the salary
reductions. If not available, you may consider our Money Line program.
Shares purchased through API are purchased on the day the electronic transfer is
received by the Fund.
HOW TO APPLY:
1: Complete an API Application. If you are receiving a government payment and
wish to participate in the API Program you must also complete the government's
Direct Deposit Sign-up Form. Call Shareholder Services at 1 (800) 423-4026 for
more information.
2: Complete an API Authorization Form.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
+ WIRE TRANSFERS:
You may purchase shares via a Federal Funds wire transfer from your bank account
into your EXISTING First Investors account. Federal Fund wire transfer proceeds
are not subject to a holding period and are available to you immediately upon
receipt, as long as we have been notified properly.
7
<PAGE>
If we receive a wire transfer for a purchase prior to 12:00 p.m., Eastern Time
("ET") and you have previously notified us that the wire is on the way (by
calling 1 (800) 423-4026) the funds for the purchase will be deemed to have been
received on that same day. Your notification must include the Federal Funds wire
transfer confirmation number, the amount of the wire, and the fund account
number to receive same day credit. There are special rules for money market fund
accounts.
To wire Federal Funds to an existing First Investors account (other than money
markets), instruct your bank to wire your investment to:
FIRST FINANCIAL SAVINGS BANK, S.L.A.
ABA # 221272604
ACCOUNT # 0306142
YOUR NAME
YOUR FIRST INVESTORS FUND ACCOUNT #
+ DISTRIBUTION CROSS-INVESTMENT:
You can invest the dividends and capital gains from one fund account, excluding
the money market funds, into another fund account in the same class of shares.
The shares will be purchased at the net asset value on the day after the record
date of the distribution.
- -You must invest at least $50 a month or $600 a year into a NEW account.
- -A signature guarantee is required if the ownership on both accounts is not
identical.
You may establish a Distribution Cross-Investment service by contacting your
registered representative or calling Shareholder Services at 1 (800) 423-4026.
+ SYSTEMATIC WITHDRAWAL PLAN PAYMENT INVESTMENTS:
You can invest Systematic Withdrawal Plan payments (see How to Sell Shares) from
one fund account in shares of another fund account.
- -Payments are invested without a sales charge.
- -A signature guarantee is required if the ownership on both accounts is not
identical.
- -Both accounts must be in the same class of shares.
- -You must invest at least $600 a year if into a new account.
- -You can invest on a monthly, quarterly, semi-annual, or annual basis.
Redemptions are suspended upon notification that all account owners are
deceased. Service will recommence upon receipt of written alternative payment
instructions and other required documents from the decedent's legal
representative.
HOW TO SELL SHARES
You can sell your shares on any day the New York Stock Exchange ("NYSE") is open
for regular trading. In the mutual fund industry, a sale is referred to as a
"redemption." Payment of redemption proceeds generally will be made within seven
days. If the shares being redeemed were recently purchased by check or
electronic funds transfer, payment may be delayed to verify that the check or
electronic funds transfer has been honored, which may take up to 15 days from
the date of purchase. Shareholders may not redeem shares by telephone or
electronic funds transfer unless the shares have been owned for at least 15
days.
Redemptions of shares are not subject to the 15 day verification period if the
shares were purchased via:
- -Automatic Payroll Investment.
- -FIC registered representative payroll checks.
- -First Investors Life Insurance Company checks.
- -Federal funds wire payments.
For trusts, estates, attorneys-in-fact, corporations, partnerships, and other
entities, additional documents are required to redeem shares. Call Shareholder
Services at 1 (800) 423-4026 for more information.
8
<PAGE>
o WRITTEN REDEMPTIONS
You can write a letter of instruction or contact your registered representative
for a liquidation request form. A written liquidation request in good order must
include:
1: The name of the fund;
2: Your account number;
3: The dollar amount, number of shares or percentage of the account you want to
redeem;
4: Share certificates (if they were issued to you);
5: Original signatures of all owners exactly as your account is registered; and
6: Signature guarantees, if required (see Signature Guarantee Policy).
For your protection, the Fund reserves the right to require additional
supporting legal documentation.
Written redemption requests should be mailed to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
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.
o TELEPHONE REDEMPTIONS
You, or any person we believe is authorized to act on your behalf, may redeem
non-retirement shares which have been owned for at least 15 days by calling our
Special Services Department at 1 (800) 342-6221 from 9:00 a.m. to 5:00 p.m., ET,
provided:
- -Telephone privileges are available for your account registration and you have
not declined telephone privileges (see Telephone Privileges);
- -You do not hold share certificates (issued shares);
- -The redemption check is made payable to the registered owner(s) or
pre-designated bank;
- -The redemption check is mailed to your address of record or predesignated bank
account;
- -Your address of record has not changed within the past 60 days;
- -The redemption amount is $50,000 or less; AND
- -The redemption amount, combined with the amount of all telephone redemptions
made within the previous 30 days does not exceed $100,000.
o ELECTRONIC FUNDS TRANSFER
The Electronic Funds Transfer ("EFT") service allows you to redeem shares and
electronically transfer proceeds to your bank account.
YOU MUST ENROLL IN THE ELECTRONIC FUNDS TRANSFER SERVICE AND PROVIDE COMPLETE
BANK ACCOUNT INFORMATION BEFORE USING THE PRIVILEGE. Signature guarantees of all
shareholders and all bank account owners are required. Please allow at least 10
business days for initial processing. We will send any proceeds during the
processing period to your address of record. Call your registered representative
or Shareholder Services at 1 (800) 423-4026 for an application.
You may call Shareholder Services or send written instructions to Administrative
Data Management Corp. to request an EFT redemption of shares which have been
held at least 15 days. Each EFT redemption:
1: Must be electronically transferred to your pre-designated bank account;
2: Must be at least $500;
3: Cannot exceed $50,000; and
4: Cannot exceed $100,000 when added to the total amount of all EFT redemptions
made within the previous 30 days.
If your redemption does not qualify for an EFT redemption, your redemption
proceeds will be mailed to your address of record.
9
<PAGE>
The Electronic Funds Transfer service may also be used to purchase shares (see
Money Line) and transfer systematic withdrawal payments (see Systematic
Withdrawal Plans) and dividend distributions (see Other Services) to your bank
account.
o SYSTEMATIC WITDRAWAL PLANS
Our Systematic Withdrawal Plan allows you to redeem a specific dollar amount,
number of shares, or percentage from your account on a regular basis. Your
payments can be mailed to you or a pre-authorized payee by check, transferred to
your bank account electronically (if you have enrolled in the EFT service) or
invested in shares of another FI fund in the same class of shares through our
Systematic Withdrawal Plan Payment investment service (see How to Buy Shares).
You can receive payments on a monthly, quarterly, semi-annual, or annual basis.
Your account must have a value of at least $5,000 in non-certificated shares
("unissued shares"). The $5,000 minimum account balance is waived for required
minimum distributions from retirement plan accounts, payments to First Investors
Life Insurance Company, and systematic investments into another eligible fund
account. The minimum Systematic Withdrawal Plan payment is $25 (waived for
Required Minimum Distributions on retirement accounts or FIL premium payments).
Once you establish the Systematic Withdrawal Plan, you should not make
additional investments into this account (except money market funds). Buying
shares during the same period as you are selling shares is not advantageous to
you because of sales charges.
If you own Class B shares, you may establish a Systematic Withdrawal Plan and
redeem up to 8% of the value of your account annually without a CDSC.
If you own Class B shares of a retirement account and you are receiving your
Required Minimum Distribution through a Systematic Withdrawal Plan, up to 8% of
the value of your account may be redeemed annually without a CDSC. However, if
your Required Minimum Distribution exceeds the 8% limit, the applicable CDSC
will be charged if the additional shares were held less than 3 years and you
have not reached age 701/2.
To establish a Systematic Withdrawal Plan, complete the appropriate section of
the account application or contact your registered representative or call
Shareholder Services at 1 (800) 423-4026.
o EXPEDITED WIRE REDEMPTIONS (MONEY MARKET FUNDS ONLY)
Enroll in our Expedited Redemption service to wire proceeds from your FI money
market account to your bank account. Call Shareholder Services at 1 (800)
423-4026 for an application or to discuss specific requirements.
Requests for redemptions by wire out of money market funds must be received in
writing or by phone prior to 12:00 p.m., ET on a day the NYSE is open for
trading. These days are referred to as "Trading Days" in this manual. Wire
Redemption orders received after 12:00 p.m., ET but before the close of regular
trading on the NYSE, will be processed on the following day.
- -Each wire under $5,000 is subject to a $15 fee.
- -Two wires of $5,000 or more are permitted without charge each month. Each
additional wire is $15.00.
- -Wires must be directed to your pre-designated bank account.
10
<PAGE>
HOW TO EXCHANGE SHARES
The exchange privilege gives you the flexibility to change investments as your
goals change without incurring a sales charge. Since an exchange of
non-retirement fund shares is a redemption and a purchase, it creates a gain or
loss which is reportable for tax purposes. You should consult your tax advisor
before requesting an exchange. Read the prospectus of the FI Fund you are
purchasing carefully. Review the differences in objectives, policies, risk,
privileges and restrictions.
o EXCHANGE METHODS
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
-------------------------------------------------------------------------------------------------
<S> <C>
Through Your
Registered Representative Call your registered representative.
-------------------------------------------------------------------------------------------------
By Phone Call Special Services from 9:00 a.m. to 5:00 p.m., ET
1(800) 342-6221 Orders received after the close of the NYSE, usually 4:00 p.m., ET,
are processed the following business day.
1. You must have telephone privileges.
(see Telephone Transactions.)
2. Certificate shares cannot be exchanged by phone.
3. For trusts, estates, attorneys-in-fact,
corporations, partnerships, and other entities,
additional documents are required and must be
on file.
-------------------------------------------------------------------------------------------------
By Mail to: 1. Send us written instructions signed by all account owners
A D M exactly as the account is registered.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198 2. Include the name and account number of your fund.
3. Indicate either the dollar amount, number of shares or
percent of the source account you want to exchange.
4. Specify the existing account number or the name of the
new Fund you want to exchange into.
5. Include any outstanding share certificates for shares you
want to exchange. A signature guarantee is required.
6. For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional documents
are required. Call Shareholder Services at 1 (800) 423-4026.
-------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
o EXCHANGE CONDITIONS
1: You may only exchange shares within the same class.
2: Exchanges can only be made into identically owned accounts.
3: Partial exchanges into a new fund account must meet the new fund's minimum
initial investment.
4: The fund you are exchanging into must be eligible for sale in your state.
5: If your request does not clearly indicate the amount to be exchanged or the
accounts involved, no shares will be exchanged.
6: Amounts exchanged from a non-money market fund to a money market fund may be
exchanged back at net asset value. Dividends earned from money market fund
shares will be subject to a sales charge.
7: If you are exchanging from a money market fund to a fund with a sales charge,
there will be a sales charge on any shares that were not previously subject to a
sales charge. Your request must be in writing and include a statement
acknowledging that a sales charge will be paid.
8: If you exchange Class B shares of a fund for shares of a Class B money market
fund, the CDSC will not be imposed but the CDSC and the holding period used to
calculate the CDSC will carry over to the acquired shares.
9: FI Funds reserve the right to reject any exchange order which in the opinion
of the Fund is part of a market timing strategy. In the event that an exchange
is rejected, neither the redemption nor the purchase side of the exchange will
be processed.
10: If your exchange request is not in good order or information is missing, the
Transfer Agent will seek additional information and process the exchange on the
day it receives such information.
o EXCHANGING FUNDS WITH AUTOMATIC INVESTMENTS OR SYSTEMATIC WITHDRAWALS
Let us know if you want to continue automatic investments into the original fund
or the fund you are exchanging into ("receiving fund") or if you want to change
the amount or allocation. Also inform us if you wish to continue, terminate, or
change a preauthorized systematic withdrawal. Without specific instructions, we
will amend account privileges as outlined below:
- --------------------------------------------------------------------------------
EXCHANGE A
EXCHANGE EXCHANGE PORTION OF
ALL SHARES TO ALL SHARES TO SHARES TO ONE
ONE FUND MULTIPLE FUNDS OR MULTIPLE FUNDS
- --------------------------------------------------------------------------------
MONEY LINE ML moves to ML stays with ML stays with
(ML) Receiving Fund Original Fund Original Fund
AUTOMATIC PAYROLL API moves to API Stays with API stays with
INVESTMENT (API) Receiving Fund Original Fund Original Fund
SYSTEMATIC SWP moves to SWP SWP stays
WITHDRAWALS Receiving Fund Canceled with Original Fund
(SWP)
- --------------------------------------------------------------------------------
12
<PAGE>
WHEN AND HOW FUND SHARES ARE PRICED
Each FI Fund prices its shares each day that the NYSE is open for trading. The
share price is calculated as of the close of trading on the NYSE (generally 4:00
p.m., ET).
Each Fund calculates the net asset value of each class of its shares separately
by taking the total value of class assets, subtracting class expenses, and
dividing the difference by the total number of shares in the class. The price
that you will pay for a share is the NAV plus any applicable front-end sales
charge. You receive the NAV price if you redeem or exchange your shares, less
any applicable CDSC.
Fund prices are on our website (www.firstinvestors.com) the next day. The prices
for our larger funds are also reported in many newspapers, including The Wall
Street Journal and The New York Times. Special pricing procedures are employed
during emergencies. For a description of these procedures you can request, free
of charge, a copy of a Statement of Additional Information.
HOW PURCHASE, REDEMPTION AND EXCHANGE ORDERS ARE PROCESSED AND PRICED
The processing and price for a purchase, redemption or exchange depends upon how
your order is placed. As indicated below, in certain instances, special rules
apply to money market transactions. Special rules also apply for emergency
conditions. These are described in the Statement of Additional Information.
+ PURCHASES:
Purchases that are made by written application or order are processed when they
are received in "good order" by our Woodbridge, NJ office. To be in good order,
all required paperwork must be completed and payment received. If your order is
received prior to the close of trading on the NYSE, it will receive that day's
price (except in the case of money market funds which are discussed in the
section below called Special Rules for Money Market Funds). This procedure
applies whether your purchase order is given to your registered representative
or mailed directly by you to our Woodbridge, NJ office.
As described previously in "How to Buy Shares", certain types of purchases can
only be placed by written application. For example, purchases in connection with
the opening of retirement accounts may only be made by written application.
Furthermore, rollovers of retirement accounts will be processed only when we
have received both written application and the proceeds of the rollover. Thus,
for example, if it takes 30 days for another fund group to send us the proceeds
of a retirement account, your purchase of First Investors funds will not occur
until we receive the proceeds.
Some types of purchases may be phoned or electronically transmitted to us via
Fund/SERV by your broker-dealer. If you give your order to a registered
representative before the close of trading on the NYSE and the order is phoned
13
<PAGE>
to our Woodbridge, NJ office prior to 5:00 p.m., ET, your shares will be
purchased at that day's price (except in the case of money market funds which
are discussed in the section below called Special Rules for Money Market Funds).
If you are buying a First Investors Fund through a broker-dealer other than
First Investors, other requirements may apply. Consult with your broker-dealer
about its requirements. Payment is due within three business days of placing an
order by phone or electronic means or the trade may be cancelled. (In such
event, you will be liable for any loss resulting from the cancellation.) To
avoid cancellation of your orders, you may arrange to open a money market
account and use it to pay for subsequent purchases.
Purchases made pursuant to our Automatic Investment Programs are processed as
follows:
- -Money Line purchases are processed on the date you select on your application.
- -Automatic Payroll Investment Service purchases are processed on the date that
we receive funds from your employer.
+ REDEMPTIONS:
As described previously in "How To Sell Shares", certain redemption orders may
only be made by written instructions or application. Unless you have declined
Telephone Privileges, most non-retirement account redemptions can be made by
phone by you or your registered representative.
Written redemption orders will be processed when received in good order in our
Woodbridge, NJ office. Phone redemption orders will be processed when received
in good order in our Woodbridge, NJ office prior to 4:00 p.m., ET.
If your redemption order is received prior to the close of trading on the NYSE,
you will receive that day's price. If you redeem through a broker-dealer other
than First Investors, other requirements may apply. Consult with your
broker-dealer about its requirements.
+ EXCHANGES:
Unless you have declined telephone privileges, you or your representative may
exchange shares by phone. Exchanges can also be made by written instructions.
Exchange orders are processed when we receive them in good order in our
Woodbridge, NJ office.
Exchange orders received in good order prior to the close of trading on the NYSE
will be processed at that day's prices.
+ ORDERS PLACED VIA FIRST INVESTORS REGISTERED REPRESENTATIVES:
All orders placed through a First Investors registered representative must be
reviewed and approved by a principal officer of the branch office before being
mailed or transmitted to the Woodbridge, NJ office.
+ ORDERS PLACED VIA DEALERS:
It is the responsibility of the Dealer to forward or transmit orders to the Fund
promptly and accurately. A fund will not be liable for any change in the price
per share due to the failure of the Dealer to place or pay for the order in a
timely fashion. Any such disputes must be settled between you and the Dealer.
SPECIAL RULES FOR MONEY MARKET FUNDS
Money market fund shares will not be purchased until the Fund receives Federal
Funds for the purchase. Federal Funds for a purchase will generally not be
received until the morning of the next Trading Day following the Trading Day on
which your purchase check or other form of payment is received in our
Woodbridge, NJ office. If a check is received in our Woodbridge, NJ office after
the close of regular trading on the NYSE, the Federal Funds for the purchase
will generally not be received until the morning of the second following Trading
Day.
14
<PAGE>
If we receive a wire transfer for a purchase prior to 12:00 p.m., ET and you
have previously notified us that the wire is on the way (by calling 1 (800)
423-4026) the funds for the purchase will be deemed to have been received on
that same day. Your notification must include the Federal Funds wire transfer
confirmation number, the amount of the wire, and the money market fund account
number to receive same day credit. If we fail to receive such advance
notification, the funds for your purchase will not be deemed to have been
received until the morning of the next Trading Day following receipt of the
Federal Wire and your account information.
To wire funds to an existing First Investors money market account, instruct your
bank to wire your investment, as applicable, to:
CASH MANAGEMENT FUND
BANK OF NEW YORK
ABA #021000018
ACCOUNT 8900005696
YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
TAX-EXEMPT MONEY MARKET FUND
BANK OF NEW YORK
ABA #021000018
ACCOUNT 8900023198
YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
Requests for redemptions by wire out of the money market funds must be received
in writing or by phone prior to 12:00 p.m., ET, on a Trading Day, to be
processed the same day. Wire redemption requests received after 12:00 p.m., ET,
but before the close of regular trading on the NYSE, will be processed the
following Trading Day.
There is no sales charge on Class A share money market fund purchases. However,
anytime you make a redemption from a Class A share money market account and
subsequently invest the proceeds in another eligible Class A share fund, the
purchase will incur a sales charge unless one has already been paid.
RIGHT TO REJECT PURCHASE OR EXCHANGE ORDERS
A fund reserves the right to reject or restrict any specific purchase or
exchange request if the fund determines that doing so is in the best interest of
the fund and its shareholders. Investments in a fund are designed for long-term
purposes and are not intended to provide a vehicle for short-term market timing.
The funds also reserve the right to reject any exchange that in the funds'
opinion is part of a market timing strategy. In the event that a fund rejects an
exchange request, neither the redemption nor the purchase side of the exchange
will be processed.
SIGNATURE GUARANTEE POLICY
A signature guarantee protects you from the risk of a fraudulent signature and
is generally required for non-standard and large dollar transactions. A
signature guarantee may be obtained from eligible guarantor institutions
including banks, savings associations, credit unions and brokerage firms which
are members of the Securities Transfer Agents Medallion Program ("STAMP"), the
New York Stock Exchange Medallion Signature Program ("MSP"), or the Stock
Exchanges Medallion Program ("SEMP"). Please note that a notary public stamp or
seal is not acceptable.
+ SIGNATURE GUARANTEES ARE REQUIRED:
1: For redemptions over $50,000.
2: For redemption checks made payable to any person(s) other than the registered
shareholder(s) or any entity other than a major financial institution for the
benefit of the registered shareholder(s).
3: For redemption checks mailed to an address other than the address of record,
pre-authorized bank account, or a major financial institution on your behalf.
15
<PAGE>
4: For redemptions when the address of record has changed within 60 days of the
request.
5: When a stock certificate is mailed to an address other than the address of
record or the dealer on the account.
6: When shares are transferred to a new registration.
7: When certificated (issued) shares are redeemed or exchanged.
8: To establish any EFT service.
9: For requests to change the address of record to a P.O. box or a "c/o" street
address.
10: If multiple account owners of one account give inconsistent instructions.
11: When a transaction requires additional legal documentation.
12: When the authority of a representative of a corporation, partnership, trust,
or other entity has not been satisfactorily established.
13: When an address is updated on an account which has been coded "Do Not Mail"
because mail has been returned as undeliverable.
14: Any other instance whereby a fund or its transfer agent deems it necessary
as a matter of prudence.
TELEPHONE SERVICES
o TELEPHONE EXCHANGES AND REDEMPTIONS
1 (800) 342-6221
You automatically receive telephone privileges when you open a First Investors
individual, joint, or custodial account unless you decline the option on your
account application or send the Fund written instructions. For trusts, estates,
attorneys-in-fact, corporations, partnerships, and other entities, telephone
privileges are not automatically granted. You must complete additional
documentation. Call Shareholder Services at 1 (800) 423-4026 for assistance.
Telephone privileges allow you to exchange or redeem shares and authorize other
transactions with a simple phone call. Your registered representative may also
use telephone privileges to execute your transactions.
+ SECURITY MEASURES:
For your protection, the following security measures are taken:
1: Telephone requests are recorded to verify accuracy.
2: Some or all of the following information is obtained:
- -Account number.
- -Address.
- -Social security number.
- -Other information as deemed necessary.
3: A written confirmation of each transaction is mailed to you.
We will not be liable for following instructions if we reasonably believe the
instructions are genuine based on our verification procedures.
+ ELIGIBILITY:
NON-RETIREMENT ACCOUNTS:
You can exchange or redeem shares of any non-retirement account by phone. Shares
must be owned for 15 days for telephone redemption. See "How To Sell Shares" for
additional information.
Telephone exchanges and redemptions are not available on guardianship and
conservatorship accounts.
RETIREMENT ACCOUNTS:
You can exchange between shares of any participant directed IRA, 403(b) or
401(k) Simplifier Plan where First Financial Savings Bank, S.L.A. is Custodian.
You may also exchange shares from an individually registered non-retirement
16
<PAGE>
account to an IRA account registered to the same owner (provided an IRA
application is on file). Telephone exchanges are permitted on 401(k) Flexible
plans, money purchase pension plans and profit sharing plans if a First
Investors Qualified Retirement Plan Application is on file with the fund.
Contact your registered representative or call Shareholder Services at 1 (800)
423-4026 to obtain a Qualified Retirement Plan Application. Telephone
redemptions are not permitted on First Investors retirement accounts.
During times of drastic economic or market changes, telephone redemptions or
exchanges may be difficult to implement. If you experience difficulty in making
a telephone exchange or redemption, you may send us a written request by regular
or express mail. The written request will be processed at the next determined
net asset value, less any applicable CDSC, when received in good order.
________________________________________________________________________________
o SHAREHOLDER SERVICES
1 (800) 423-4026
PROVIDED YOU HAVE NOT DECLINED TELEPHONE PRIVILEGES, CALL US TO UPDATE OR
CORRECT:
- -Your address or phone number. For security purposes, the Fund will not honor
telephone requests to change an address to a P.O. Box or "c/o" street address.
- -Your birth date (important for retirement distributions).
- -Your distribution option to reinvest or pay in cash or initiate cross
reinvestment of dividends (non-retirement accounts only).
- -The amount of your Money Line up to $999.99 per payment.
- -The allocation of your Money Line or Automatic Payroll Investment payment.
- -The amount of your Systematic Withdrawal payment on non-retirement accounts.
TO REQUEST:
- -A history of your account (the fee can be debited from your non-retirement
account).
- -A share certificate to be mailed to your address of record (non-retirement
accounts only).
- -Cancellation of your Systematic Withdrawal Plan (non-retirement accounts only).
- -Money market fund draft checks (non-retirement accounts only). Additional
written documentation may be required for certain registrations.
- -A stop payment on a dividend, redemption or money market draft check.
- -Reactivation of your Money Line (provided an application and voided check is on
file).
- -Suspension (up to six months) or cancellation of Money Line.
- -A duplicate copy of a statement or tax form.
- -Cancellation of cross-reinvestment of dividends.
17
<PAGE>
OTHER SERVICES
+ REINSTATEMENT PRIVILEGE:
If you sell some or all of your Class A or Class B shares, you may be entitled
to invest all or a portion of the proceeds in the same class of shares of a FI
fund within six months of the redemption without a sales charge.
If you invest proceeds into a new fund account, you must meet the fund's minimum
initial investment requirement.
If you invest all the proceeds from a Class B share redemption, you will be
credited, in additional shares, for the full amount of the CDSC. If you invest a
portion of a Class B share redemption, you will be credited with a pro-rated
percentage of the CDSC.
The reinstatement privilege does not apply to automated purchases, automated
redemptions, or reinstatements in Class B shares of less than $1,000.
Please notify us if you qualify for this privilege. For more information, call
Shareholder Services at 1 (800) 423-4026.
+ CERTIFICATE SHARES:
Every time you make a purchase of Class A shares, we will credit shares to your
fund account. We do not issue share certificates unless you specifically request
them. Certificates are not issued on any Class B shares, Class A money market
shares, or any shares in retirement accounts.
Having us credit shares on your behalf eliminates the expense of replacing lost,
stolen, or destroyed certificates. If a certificate is lost, stolen, or damaged,
you may be charged a replacement fee of the greater of 2% of the current value
of the certificated shares or $25.
In addition, certificated shares cannot be redeemed, exchanged, or transferred
until they are returned with your transaction request. The share certificate
must be properly endorsed and signature guaranteed.
+ MONEY MARKET FUND DRAFT CHECKS:
Free draft check writing privileges are available when you open a First
Investors Cash Management Fund or a First Investors Tax Exempt Money Market Fund
account. Checks may be written for a minimum of $500. Draft checks are not
available for Class B share accounts, retirement accounts, guardianships and
conservatorships. Complete the Money Market Fund Check Redemption section of the
account application to apply for draft checks. To order additional checks, call
Shareholder Services at 1 (800) 423-4026.
Additional documentation is required to establish check writing privileges for
trusts, corporations, partnerships and other entities. Call Shareholder Services
at 1 (800) 423-4026 for further information.
- --------------------------------------------------------------------------------
+ FEE TABLE:
Call Shareholder Services at 1 (800) 423-4026 or send your request to FIC, Attn:
Correspondence Dept., 581 Main Street, Woodbridge, NJ 07095-1198 to request a
copy of the following records:
ACCOUNT HISTORY STATEMENTS: CANCELLED CHECKS:
1974 - 1982* .... $10 per year fee There is a $10 fee for a copy of
a cancelled dividend, liquidation,
1983 - present .... $5 total fee for or investment check requested.
all years There is a $15 fee for a copy of
a cancelled money market draft
Current & check.
Two Prior Years .... Free
DUPLICATE TAX FORMS:
*ACCOUNT HISTORIES ARE NOT
AVAILABLE PRIOR TO 1974.
Current Year .... Free
Prior Year(s) .... $7.50 per
tax form per year
- --------------------------------------------------------------------------------
18
<PAGE>
+ RETURN MAIL:
If mail is returned to the fund marked undeliverable by the U.S. Postal Service
after two consecutive mailings, and the fund is unable to obtain a current
shareholder address, the account status will be changed to "Do Not Mail" to
discontinue future mailings and prevent unauthorized persons from obtaining
account information.
You can remove the "Do Not Mail" status on your account by submitting written
instructions including your current address signed by all shareholders with a
signature guarantee (see Signature Guarantee Policy). Additional requirements
may apply for certain accounts. Call Shareholder Services at 1 (800) 423-4026
for more information.
Returned dividend checks and other distributions will be reinvested in the fund
when an account's status has been changed to "Do Not Mail". No interest will be
paid on outstanding checks prior to reinvestment. All future dividends and other
distributions will be reinvested in additional shares until new instructions are
provided. If you cannot be located within a period of time mandated by your
state of residence your fund shares may be escheated to your state (in other
words turned over) in accordance with state laws governing abandoned property.
Prior to turning over assets to your state, the fund will seek to obtain a
current shareholder address in accordance with Securities and Exchange
Commission rules. A search company may be employed to locate a current address.
The fund may deduct the costs associated with the search from your account.
+ TRANSFERRING SHARES:
A transfer is a change of share ownership from one customer to another. Unlike
an exchange, transfers occur within the same fund. You can transfer your shares
at any time. Partial transfers must meet the minimum initial investment
requirement of the new fund.
To transfer shares, submit a letter of instruction including:
- -Your account number.
- -Dollar amount, percentage, or number of shares to be transferred.
- -Existing account number receiving the shares (if any).
- -The name(S), registration, and taxpayer identification number of the customer
receiving the shares.
- -The signature of each account owner requesting the transfer with signature
guarantee(S).
If First Investors is your broker-dealer, we will request that the transferee
complete a Master Account Agreement to establish a brokerage account with First
Investors Corporation and validate his or her social security number to avoid
back-up withholding. If the transferee declines to complete a MAA, all
transactions in the account must be on an unsolicited basis and the account will
be so coded.
Depending upon your account registration, additional documentation may be
required to transfer shares. Transfers due to the death of a shareholder require
additional documentation. Please call our Shareholder Services Department at
1(800)423-4026 for specific transfer requirements before initiating a request.
A transfer is a change of ownership and may trigger a taxable event. You should
consult your tax advisor before initiating a transfer.
19
<PAGE>
ACCOUNT STATEMENTS
o TRANSACTION CONFIRMATION STATEMENTS
You will receive a confirmation statement immediately after most transactions.
These include:
- -dealer purchases.
- -check investments.
- -Federal Funds wire purchases.
- -redemptions.
- -exchanges.
- -transfers.
- -systematic withdrawals.
Money Line and Automatic Payroll Investment purchases are not confirmed for each
transaction. They will appear on your next regularly scheduled monthly or
quarterly statement (see Dividend Schedule under "Dividends and Distributions").
A separate confirmation statement is generated for each fund account you own. It
provides:
- -Your fund account number.
- -The date of the transaction.
- -A description of the transaction (PURCHASE, REDEMPTION, ETC.).
- -The number of shares bought or sold for the transaction.
- -The dollar amount of the transaction.
- -The dollar amount of the dividend payment (IF APPLICABLE).
- -The total share balance in the account.
- -The dollar amount of any dividends or capital gains paid.
- -The number of shares held by you, held for you (INCLUDING ESCROW SHARES), and
the total number of shares you own.
The confirmation statement also may provide a perforated Investment Stub with
your preprinted name, registration, and fund account number for future
investments.
o MASTER ACCOUNT STATEMENTS
If First Investors Corporation is your broker, you will receive a Master Account
Statement for all your identically owned First Investors fund accounts on at
least a quarterly basis. The Master Account Statement will also include a recap
of any First Investors Life Insurance and Executive Investors Trust accounts you
may own. Joint accounts registered under your taxpayer identification number
will appear on a separate Master Account Statement but may be mailed in the same
envelope upon request.
The Master Account Statement provides the following information for each First
Investors fund you own:
- -fund name.
- -fund's current market value.
- -total distributions paid year-to-date.
- -total number of shares owned.
o ANNUAL AND SEMI-ANNUAL REPORTS
You will also receive an Annual and a Semi-Annual Report. These financial
reports show the assets, liabilities, revenues, expenses, and earnings of the
fund as well as a detailed accounting of all portfolio holdings. You will
receive one report per household.
20
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
o DIVIDENDS AND DISTRIBUTIONS
For funds that declare daily dividends, except money market funds, you start
earning dividends on the day your purchase is made. For FI money market fund
purchases, including Money Line and API purchases, you start earning dividends
on the day Federal Funds are credited to your fund account. For exchanges into
the money market funds, you start earning dividends on the day following the
Trading Day on which an exchange is processed. No dividends are earned on
exchanges out of the money market funds on the Trading Day on which an exchange
is processed. The funds declare dividends from net investment income and
distribute the accrued earnings to shareholders as noted below:
<TABLE>
- ------------------------------------------------------------------------------------
<CAPTION>
DIVIDEND PAYMENT SCHEDULE
- ------------------------------------------------------------------------------------
MONTHLY: QUARTERLY: ANNUALLY (IF ANY):
<S> <C> <C>
Cash Management Fund Blue Chip Fund Focused Equity Fund
Fund for Income Growth & Income Fund Global Fund
Government Fund Total Return Fund Mid-Cap Opportunity Fund
High Yield Fund Utilities Income Fund Special Situations Fund
Insured Intermediate Tax-Exempt
Insured Tax Exempt Fund
Investment Grade Fund
Multi-State Insured Tax Free Fund
New York Insured Tax Free Fund
Tax-Exempt Money Market Fund
- ------------------------------------------------------------------------------------
</TABLE>
Capital gains distributions, if any, are paid annually, usually near the end of
the fund's fiscal year. On occasion, more than one capital gains distribution
may be paid during one year.
Dividend and capital gains distributions are automatically reinvested to
purchase additional fund shares unless otherwise instructed. Dividend payments
of less than $5.00 are automatically reinvested to purchase additional fund
shares.
o BUYING A DIVIDEND
If you buy shares shortly before the record date of the dividend, the entire
dividend you receive may be taxable even though a part of the distribution is
actually a return of your purchase price. This is called "buying a dividend."
There is no advantage to buying a dividend because a fund's net asset value per
share is reduced by the amount of the dividend.
21
<PAGE>
TAX FORMS
<TABLE>
<CAPTION>
TAX FORM DESCRIPTION MAILED BY
<S> <C> <C>
- --------------------------------------------------------------------------------------
1099-DIV Consolidated report lists all taxable dividend and January 31
capital gains distributions for all of the
shareholder's accounts. Also includes foreign
taxes paid and any federal income tax withheld due
to backup withholding.
- --------------------------------------------------------------------------------------
1099-B Lists proceeds from all redemptions including January 31
systematic withdrawals and exchanges. A separate
form is issued for each fund account. Includes
amount of federal income tax withheld due to
backup withholding.
- --------------------------------------------------------------------------------------
1099-R Lists taxable distributions from a retirement January 31
account. A separate form is issued for each fund
account. Includes federal income tax withheld due
to IRS withholding requirements.
- --------------------------------------------------------------------------------------
5498 Provided to shareholders who made an annual IRA May 31
contribution or rollover purchase. Also provides
the account's fair market value as of the last
business day of the previous year. A separate form
is issued for each fund account.
- --------------------------------------------------------------------------------------
1042-S Provided to non-resident alien shareholders March 15
to report the amount of fund dividends paid
and the amount of federal taxes withheld.
A separate form is issued for each fund account.
- --------------------------------------------------------------------------------------
Cost Basis Uses the "average cost-single category" method January 31
Statement to show the cost basis of any shares sold or
exchanged. Information is provided to assist
shareholders in calculating capital gains or losses.
A separate statement, included with Form 1099-B,
is issued for each fund account. This statement is
not reported to the IRS and does not include money
market funds or retirement accounts.
- --------------------------------------------------------------------------------------
Tax Savings Consolidated report lists all amounts not subject to January 31
Report for federal, state and local income tax for all the
Non-Taxable shareholder's accounts. Also includes any amounts
Income subject to alternative minimum tax.
- --------------------------------------------------------------------------------------
Tax Savings Provides the percentage of income paid by each fund January 31
Summary that may be exempt from state income tax.
- --------------------------------------------------------------------------------------
</TABLE>
THE OUTLOOK
Today's strategies for tomorrow's goals are brought into focus in the OUTLOOK,
the quarterly newsletter for clients of First Investors Corporation. This
informative tool discusses the products and services we offer to help you take
advantage of current market conditions and tax law changes. The OUTLOOK'S
straight forward approach and timely articles make it a valuable resource. As
always, your registered representative is available to provide you with
additional information and assistance. Material contained in this publication
should not be considered legal, financial, or other professional advice.
22
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
(FIRST INVESTORS LOGO)
PRINCIPAL UNDERWRITER TRANSFER AGENT
First Investors Corporation Administrative Data Management Corp.
95 Wall Street 581 Main Street
New York, NY 10005 Woodbridge, NJ 07095
1-212-858-8000 1-800-423-4026
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 23. EXHIBITS
--------
(a) Amended and Restated Declaration of Trust(1)
(b) By-laws(1)
(c) 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.B(1)to Registrant's Registration Statement and
(b) Articles III and V of Registrant's By-laws, previously filed as
Exhibit 99.B2 to Registrant's Registration Statement.
(d) Investment Advisory Agreement between Registrant and Executive
Investors Management Company, Inc.(1)
(e) Underwriting Agreement between Registrant and Executive Investors
Corporation(1)
(f) Bonus, profit sharing or pension plans - none
(g)(i)Custodian Agreement between Registrant and Irving Trust Company(1)
(ii)Custodian Agreement between Executive Investors High Yield Fund
and Irving Trust Company(1)
(iii)Supplement to Custodian Agreement between Registrant and The Bank
of New York(1)
(h)(i)Administration Agreement between Registrant, Executive Investors
Corporation and Administrative Data Management Corp.(1)
(ii)Schedule A to Administration Agreement(2)
(i) Opinion and Consent of Counsel - filed herewith
(j)(i)Consent of Independent Accountants - filed herewith
(ii)Powers of Attorney(1)
(k) Financial statements omitted from prospectus -none
(l) Initial capital agreements - none
(m) Amended and Restated Class A Distribution Plan(1)
(n) Financial Data Schedules - filed herewith
(o) 18f-3 Plan - none
- -----------
(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.
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
-------------------------------------------------- ----------
There are no persons controlled by or under common control with the
Registrant.
Item 25. INDEMNIFICATION
---------------
Indemnification provisions are contained in:
1. Article XI, Sections (1)and 2 of Registrant's Declaration of Trust;
2. Paragraph 7 of the Investment Advisory Agreement by and between
Executive Investors Management Company, Inc. and Registrant; and
3. Paragraph 7 of the Underwriting Agreement by and between Executive
Investors Corporation and Registrant.
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 30 herein.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
----------------------------------------------------
Executive Investors Management Company, Inc. offers investment
management services and is a registered investment adviser. Affiliations of the
officers and directors of the Investment Adviser are set forth in Part B,
Statement of Additional Information, under "Directors or Trustees and Officers."
Item 27. PRINCIPAL UNDERWRITERS
----------------------
(a) Executive Investors Corporation, Underwriter of the Registrant, is only
underwriter for the Trust.
(b) The following persons are the officers and directors of the
Underwriter:
Position and Position and
Name and Principal Office with Executive Office with
Business Address Investors Corporation Registrant
- ---------------- --------------------- ----------
Glenn O. Head Chairman President
95 Wall Street and Director and Trustee
New York, NY 10005
Marvin M. Hecker President None
95 Wall Street
New York, NY 10005
<PAGE>
John T. Sullivan Director Chairman of the
95 Wall Street Board of Trustees
New York, NY 10005
Joseph I. Benedek Treasurer Treasurer
581 Main Street
Woodbridge, NJ 07095
Lawrence A. Fauci Senior Vice President None
95 Wall Street and Director
New York, NY 10005
Kathryn S. Head Vice President Trustee
581 Main Street and Director
Woodbridge, NJ 07095
Louis Rinaldi Senior Vice None
581 Main Street President
Woodbridge, NJ 07095
Frederick Miller Senior Vice President None
581 Main Street
Woodbridge, NJ 07095
Larry R. Lavoie Secretary and Trustee
95 Wall Street General Counsel
New York, NY 10005
Matthew Smith Vice President None
581 Main Street
Woodbridge, NJ 07095
Jeremiah J. Lyons Director None
56 Weston Avenue
Chatham, NJ 07928
Anne Condon Vice President None
581 Main Street
Woodbridge, NJ 07095
Jane W. Kruzan Director None
232 Adair Street
Decatur, GA 30030
Elizabeth Reilly Vice President None
581 Main Street
Woodbridge, NJ 07095
Robert Flanagan Vice President- None
95 Wall Street Sales Administration
New York, NY 10005
William M. Lipkus Chief Financial Officer None
581 Main Street
Woodbridge, NJ 07095
<PAGE>
(c) Not applicable
Item 28. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
Physical possession of the books, accounts and records of the
Registrant are held by First Investors Management Company, Inc. and its
affiliated companies, First Investors Corporation and Administrative Data
Management Corp., at their corporate headquarters, 95 Wall Street, New York, NY
10005 and administrative offices, 58(1)Main Street, Woodbridge, NJ 07095, except
for those maintained by the Registrant's Custodian, The Bank of New York, 48
Wall Street, New York, NY 10286.
Item 29. MANAGEMENT SERVICES
-------------------
Not Applicable.
Item 30. UNDERTAKINGS
------------
The Registrant undertakes to carry out all indemnification provisions
of its Declaration of Trust, Advisory Agreement and Underwriting Agreement in
accordance with Investment Company Act Release No. 11330 (September 4, 1980) and
successor releases.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the provisions under Item 27 herein, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes to furnish a copy of its latest
annual report to shareholders, upon request and without charge, to each person
to whom a prospectus is delivered.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant represents
that this Post-Effective Amendment No. 22 meets all the requirements for
effectiveness pursuant to Rule 485(b) under the Securities Act of 1933, and has
duly caused this Post-Effective Amendment No. 22 to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 20th day of April, 1999.
EXECUTIVE INVESTORS TRUST
By: /s/ Glenn O. Head
-----------------
Glenn O. Head
President and Trustee
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 22 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 20, 1999
- -----------------------------
Glenn O. Head Officer and Trustee
/s/ Joseph I. Benedek Principal Financial April 20, 1999
- -----------------------------
Joseph I. Benedek and Accounting Officer
Kathryn S. Head* Trustee April 20, 1999
- -----------------------------
Kathryn S. Head
/s/ Larry R. Lavoie Trustee April 20, 1999
- -----------------------------
Larry R. Lavoie
Herbert Rubinstein* Trustee April 20, 1999
- -----------------------------
Herbert Rubinstein
Nancy Schaenen* Trustee April 20, 1999
- -----------------------------
Nancy Schaenen
James M. Srygley* Trustee April 20, 1999
- -----------------------------
James M. Srygley
John T. Sullivan* Trustee April 20, 1999
- -----------------------------
John T. Sullivan
<PAGE>
Rex R. Reed* Trustee April 20, 1999
- -----------------------------
Rex R. Reed
Robert F. Wentworth* Trustee April 20, 1999
- -----------------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
Larry R. Lavoie
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
23(a) Amended and Restated Declaration of Trust(1)
23(b) By-laws(1)
23(c) 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.B(1)to
Registrant's Registration Statement and (b) Articles III
and V of Registrant's By-laws, previously filed as
Exhibit 99.B2 to Registrant's Registration Statement.
23(d) Investment Advisory Agreement between Registrant and
Executive Investors Management Company, Inc.(1)
23(e) Underwriting Agreement between Registrant and Executive
Investors Corporation(1)
23(f) Bonus or Profit Sharing Contracts--None
23(g)(i) Custodian Agreement between Registrant and Irving Trust
Company(1)
23(g)(ii) Custodian Agreement between Executive Investors High
Yield Fund and Irving Trust Company(1)
23(g)(iii) Supplement to Custodian Agreement between Registrant and
The Bank of New Yor(1)
23(h)(i) Administration Agreement between Registrant, Executive
Investors Corporation and Administrative Data Management
Corp.(1)
23(h)(ii) Schedule A to Administration Agreement(2)
23(i) Opinion and Consent of Counsel - filed herewith
23(j)(i) Consent of independent accountants - filed herewith
23(j)(ii) Powers of Attorney(1)
23(k) Omitted Financial Statements -- None
23(l) Initial Capital Agreements -- None
23(m) Amended and Restated Class A Distribution Plan(1)
<PAGE>
23(n) Financial Data Schedules - filed herewith
23(o) Rule 18f-3 Plan - none
- ---------------
(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.
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KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE (202) 778-9000
FACSIMILE (202) 778-9100
www.kl.com
April 29, 1999
Executive Investors Trust
95 Wall Street
New York, New York 10005
Ladies and Gentlemen:
You have requested our opinion, as counsel to Executive Investors Trust
(the "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 the Blue Chip Fund, High Yield Fund and Insured Tax
Exempt Fund, all series of the Trust.
As such counsel, we have examined certified or other copies, believed by
us to be genuine, of the Trust's Declaration of Trust and by-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) in the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by unincorporated voluntary associations and to the Securities Act of
1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the
regulations of the Securities and Exchange Commission ("SEC") thereunder.
Based on present laws and facts, we are of the opinion that the issuance
of the Shares has been duly authorized by the Trust and that, when sold in
accordance with the terms contemplated by the Post-Effective Amendment No. 22 to
the Trust's Registration Statement on Form N-1A ("PEA"), including receipt by
the Trust of full payment for the Shares and compliance with the 1933 Act and
the 1940 Act, the Shares will have been validly issued, fully paid and
non-assessable.
We note, however, that the Trust is an entity of the type commonly known
as a "Massachusetts business trust." Under Massachusetts law, shareholders
could, under certain circumstances, be held personally liable for the
obligations of the Trust. The Declaration of Trust states that all persons
extending credit to, contracting with or having any claim against the Trust or
the Trustees shall look only to the assets of the Trust for payment under such
credit, contract or claim; and neither the Shareholders nor the Trustees, nor
any of their agents, whether past, present or future, shall be personally liable
therefor. It also requires that every note, bond, contract or other undertaking
issued by or on behalf of the Trust or the Trustees relating to the Trust shall
include a recitation limiting the obligation represented thereby to the Trust
and its assets. The Declaration of Trust further provides: (1) for
indemnification from the assets of the Trust for all loss and expense of any
shareholder held personally liable for the obligations of the Trust by virtue of
ownership of shares of the Trust; and (2) for the Trust to assume the defense of
any claim against the shareholder for any act or obligation of the Trust. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
<PAGE>
Executive Investors Trust
April 29, 1999
Page 2
liability is limited to circumstances in which the Trust or series would be
unable to meet its obligations.
We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC and to the reference to our firm in the PEA.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By /S/ Robert J. Zutz
------------------------
Robert J. Zutz
Consent of Independent Certified Public Accountants
Executive Investors Trust
95 Wall Street
New York, New York 10005
We consent to the use in Post-Effective Amendment No. 22 to the
Registration Statement on Form N-1A (File No. 33-10648) of our report dated
January 29, 1999 relating to the December 31, 1998 financial statements of
Executive Investors Trust, which are included in said Registration Statement.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 14, 1999