<PAGE>
As filed with the Securities and Exchange Commission on April 26, 1995
Registration No. 33-25623
811-5690
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 18 X
-
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 19 X
-
----------
FIRST INVESTORS SERIES FUND
(Exact name of Registrant as specified in charter)
Mr. Larry R. Lavoie
Secretary and General Counsel
First Investors Corporation
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement
It is proposed that this filing will become effective on May 1, 1995 pursuant to
paragraph (b) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
previously elected to register an indefinite number of shares of beneficial
interest, no par value $.01 per share, under the Securities Act of 1933.
Registrant filed a Rule 24f-2 Notice for its fiscal year ending December 31,
1994 on February 21, 1995.
<PAGE>
FIRST INVESTORS SERIES FUND
Blue Chip Series
Investment Grade Series
Special Situations Series
Total Return Series
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------- --------
<S> <C>
PART A: PROSPECTUS
1. Cover Page.............................. Cover Page
2. Synopsis................................ Fee Table
3. Condensed Financial Information......... Financial Highlights
4. General Description of Registrant....... Investment Objectives
and Policies; General
Information
5. Management of the Fund.................. Management
5A. Management's Discussion of
Fund Performance....................... Performance Information
6. Capital Stock and Other Securities...... Description of Shares;
Dividends and Other
Distributions; Taxes;
Determination of Net
Asset Value
7. Purchase of Securities Being Offered.... Alternative Purchase
Plan; How to Buy Shares
8. Redemption or Repurchase................ How to Exchange Shares;
How to Redeem Shares;
Telephone Transactions
9. Pending Legal Proceedings............... Management
PART B: STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page.............................. Cover Page
11. Table of Contents....................... Table of Contents
12. General Information and History......... General Information
13. Investment Objectives and Policies...... Investment Policies;
Investment Restrictions
14. Management of the Fund.................. Trustees and Officers
15. Control Persons and Principal
Holders of Securities.................. Not Applicable
16. Investment Advisory and Other Services.. Management
17. Brokerage Allocation.................... Allocation of Portfolio
Brokerage
18. Capital Stock and Other Securities...... Determination of Net
Asset Value
19. Purchase, Redemption and Pricing
of Securities Being Offered............ Reduced Sales Charges, Additional
Exchange and Redemption
Information and Other Services;
Determination of Net Asset Value
</TABLE>
<PAGE>
N-1A Item No. Location
- ------------- --------
20. Tax Status............................. Taxes
21. Underwriters........................... Underwriter
22. Performance Data....................... Performance Information
23. Financial Statements................... Financial Statements;
Report of Independent
Accountants
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under
the appropriate item so numbered, in Part C hereof.
<PAGE>
FIRST INVESTORS SERIES FUND
Insured Intermediate Tax Exempt Series
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------- --------
<S> <C>
PART A: PROSPECTUS
1. Cover Page................................ Cover Page
2. Synopsis.................................. Fee Table
3. Condensed Financial Information........... Financial Highlights
4. General Description of Registrant......... Investment Objectives
and Policies; General
Information
5. Management of the Fund.................... Management
5A. Management's Discussion of
Fund Performance......................... Performance Information
6. Capital Stock and Other Securities........ Description of Shares;
Dividends and Other
Distributions; Taxes;
Determination of Net
Asset Value
7. Purchase of Securities Being Offered...... Alternative Purchase
Plan; How to Buy Shares
8. Redemption or Repurchase.................. How to Exchange Shares;
How to Redeem Shares;
Telephone Transactions
9. Pending Legal Proceedings................. Management
PART B: STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page................................ Cover Page
11. Table of Contents......................... Table of Contents
12. General Information and History........... General Information
13. Investment Objectives and Policies........ Investment Policies;
Investment Restrictions
14. Management of the Fund.................... Directors or Trustees
and Officers
15. Control Persons and Principal
Holders of Securities.................... Not Applicable
16. Investment Advisory and Other Services.... Management
17. Brokerage Allocation...................... Allocation of Portfolio
Brokerage
18. Capital Stock and Other Securities........ Determination of Net
Asset Value
19. Purchase, Redemption and Pricing
of Securities Being Offered.............. Reduced Sales Charges,
Additional Exchange and
Redemption Information
and Other Services;
Determination of Net
Asset Value
</TABLE>
<PAGE>
N-1A Item No. Location
- ------------- --------
20. Tax Status................................ Taxes
21. Underwriters.............................. Underwriter
22. Performance Data.......................... Performance Information
23. Financial Statements...................... Financial Statements;
Report of Independent
Accountants
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under
the appropriate item so numbered, in Part C hereof.
<PAGE>
FIRST INVESTORS SERIES FUND
BLUE CHIP SERIES SPECIAL SITUATIONS SERIES
INVESTMENT GRADE SERIES TOTAL RETURN SERIES
95 Wall Street, New York, New York 10005/1-800-423-4026
This is a Prospectus for BLUE CHIP SERIES, INVESTMENT GRADE SERIES, SPECIAL
SITUATION SERIES and TOTAL RETURN SERIES, each of which is a separate designated
series of FIRST INVESTORS SERIES FUND ("Fund"). The Fund is an open-end
diversified management investment company which presently offers five separate
investment series. This Prospectus relates to the four series of the Fund
listed above (singularly and collectively, "Series"). Each Series sells two
classes of shares. Investors may select Class A or Class B shares, each with a
public offering price that reflects different sales charges and expense levels.
See "Alternative Purchase Plans."
BLUE CHIP SERIES seeks to provide investors with high total investment return
consistent with the preservation of capital. This Series seeks to achieve its
objective by investing, under normal market conditions, at least 65% of its
total assets in equity securities of larger, well-capitalized companies with
high earnings that have shown a history of dividend payments, commonly known as
"Blue Chip" companies.
INVESTMENT GRADE SERIES seeks to generate a maximum level of income consistent
with investment in investment grade debt securities. This Series seeks to
achieve its objective by investing, under normal market conditions, at least 65%
of its total assets in investment grade debt securities, which are securities
rated in one of the four highest rating categories by Moody's Investors Service,
Inc. or Standard & Poor's Ratings Group or, if unrated, are deemed to be of
comparable quality by the Series' investment adviser.
SPECIAL SITUATIONS SERIES seeks long-term growth of capital. This Series
seeks to achieve its objective by investing, under normal market conditions, at
least 65% of its total assets in the common stock of companies with small to
medium market capitalization that the Series' investment adviser considers to be
undervalued or less well known in the current marketplace and to have potential
for capital growth.
TOTAL RETURN SERIES seeks to provide investors with high long-term total
investment return consistent with moderate investment risk. This Series seeks
to achieve its objective by investing, under normal market conditions, primarily
in stocks, bonds and money market instruments.
There can be no assurance that any Series will achieve its investment
objective.
This Prospectus sets forth concisely the information about the Series that a
prospective investor should know before investing and should be retained for
future reference. First Investors Management Company, Inc. ("FIMCO" or
"Adviser") serves as investment adviser to the Fund and First Investors
Corporation ("FIC" or "Underwriter") serves as distributor of the Fund's shares.
A Statement of Additional Information ("SAI"), dated May 1, 1995 (which is
incorporated by reference herein), has been filed with the Securities and
Exchange Commission. The SAI is available at no charge upon request to the Fund
at the address or telephone number indicated above.
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured or protected by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other government agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1995
<PAGE>
FEE TABLE
The following table is intended to assist investors in understanding the
expenses associated with investing in each class of shares of a Series. Shares
of the Series issued prior to January 12, 1995 have been designated as Class A
shares.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
- ------------------------------------------------------ ------- -------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................. 6.25% None
Deferred Sales Load
(as a percentage of the lower of original purchase
price or redemption proceeds)....................... None* 4% in the first year;
declining to 0% after
the sixth year
Exchange Fee** None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT 12B-1 OTHER OPERATING
FEES(2) FEES EXPENSES EXPENSES(3)
---------- ---- -------- ----------
<S> <C> <C> <C> <C>
BLUE CHIP SERIES
Class A Shares........................................ 0.75%+ 0.30% 0.49% 1.54%+
Class B Shares/(1)/................................... 0.75+ 1.00 0.49 2.24+
INVESTMENT GRADE SERIES
Class A Shares........................................ 0.75 0.30 0.30+ 1.35
Class B Shares/(1)/................................... 0.75 1.00 0.30+ 2.05
SPECIAL SITUATIONS SERIES
Class A Shares........................................ 0.75+ 0.30 0.60 1.65+
Class B Shares/(1)/................................... 0.75+ 1.00 0.60 2.35+
TOTAL RETURN SERIES
Class A Shares........................................ 0.75+ 0.30 0.58 1.63+
Class B Shares/(1)/................................... 0.75+ 1.00 0.58 2.33+
- -------------------------
</TABLE>
* A contingent deferred sales charge ("CDSC") of 1.00% will be assessed on
certain redemptions of Class A shares that are purchased without a sales
charge. See "How to Buy Shares."
** Although there is a $5.00 exchange fee for exchanges into a Series, this fee
is being assumed by that Series for a minimum period ending December 31,
1995. Each Series reserves the right to change or suspend this privilege
after December 31, 1995. See "How to Exchange Shares."
+ Net of waiver and/or reimbursement
(1) Since Class B shares were not issued during each Series' prior fiscal year,
Other Expenses and Total Fund Operating Expenses are based on estimated
amounts for the fiscal year ending December 31, 1995.
(2) Management Fees for each Series, other than INVESTMENT GRADE SERIES, have
been restated. The Adviser will waive Management Fees of 0.25% for each
Series except INVESTMENT GRADE SERIES for a minimum period ending December
31, 1995. If not waived, Management Fees for each Series, other than
INVESTMENT GRADE SERIES, would be 1.00%.
2
<PAGE>
(3) Other Expenses for INVESTMENT GRADE SERIES have been restated. The Adviser
will reimburse each class of that Series for Other Expenses in excess of
0.30% for a minimum period ending December 31, 1995. Otherwise, Other
Expenses for Class A shares would be and are estimated for Class B shares
to be 0.42%.
(4) If certain operating expenses were not waived or reimbursed, Total Fund
Operating Expenses for Class A shares would have been as follows: BLUE
CHIP SERIES - 1.79%; INVESTMENT GRADE SERIES - 1.47%; SPECIAL SITUATIONS
SERIES -1.90%; and TOTAL RETURN SERIES - 1.88%; and for Class B shares are
estimated to be as follows: BLUE CHIP SERIES -2.49%; INVESTMENT GRADE
SERIES - 2.49%; SPECIAL SITUATIONS SERIES - 2.60%; and TOTAL RETURN SERIES
- 2.58%.
For a more complete description of the various costs and expenses, see
"Alternative Purchase Plans," "How to Buy Shares," "How to Redeem Shares,"
"Management" and "Distribution Plans." Due to the imposition of 12b-1 fees, it
is possible that long-term shareholders of a Series may pay more in total sales
charges than the economic equivalent of the maximum front-end sales charge
permitted by the rules of the National Association of Securities Dealers, Inc.
The Example below is based on Class A expense data for each Series' fiscal
year ended December 31, 1994, except that certain Operating Expenses have been
restated, as noted above. Expense data for Class B shares has been estimated
because the shares were not issued during this period.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
BLUE CHIP SERIES
Class A.................... $77 $108 $141 $234
Class B.................... 63 100 140 240
INVESTMENT GRADE SERIES
Class A.................... 75 103 132 215
Class B.................... 61 94 130 220
SPECIAL SITUATIONS SERIES
Class A.................... 78 111 147 246
Class B.................... 64 103 146 251
TOTAL RETURN SERIES
Class A.................... 78 111 146 244
Class B.................... 64 103 145 249
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) no redemption at the end of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
BLUE CHIP SERIES
Class A.................... $77 $108 $141 $234
Class B.................... 23 70 120 240
INVESTMENT GRADE SERIES
Class A.................... 75 103 132 215
Class B.................... 21 64 110 220
SPECIAL SITUATIONS SERIES
Class A.................... 78 111 147 246
Class B.................... 24 73 126 251
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
TOTAL RETURN SERIES
Class A.................... $78 $111 $146 $244
Class B.................... 24 73 125 249
</TABLE>
THE EXPENSES IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION BY THE
SERIES OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES IN FUTURE YEARS MAY BE
GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE>
[This page intentionally left blank]
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data for a
share of beneficial interest outstanding, total return, ratios to average net
assets and other supplemental data for each period indicated. Financial
highlights are not presented for Class B shares since no shares of that class
were outstanding during these periods. The table has been derived from
financial statements which have been examined by Tait, Weller & Baker,
independent certified public accountants, whose report thereon appears in the
SAI. This information should be read in conjunction with the Financial
Statements and Notes thereto, which also appear in the SAI, available at no
charge upon request to the Series.
<TABLE>
<CAPTION>
Class A Shares
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------------------------------------------------------
Income from
Investment Operations
Net ------------------------------------- Net
Asset Net Realized Less Distributions from Asset
Value and Unrealized ----------------------- Value
--------- Net Gain Total from Net Net ------
Beginning Investment (Loss) on Investment Investment Realized Total End of
of Period Income Investments Operations Income Gains Distributions Period
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BLUE CHIP SERIES
- -----------------------
1/3/89** to 12/31/89... $11.13 $ .50 $ 1.18 $1.68 $.40 $ -- $ .40 $12.41
1990................... 12.41 .32 (.74) (.42) .35 -- .35 11.64
1991................... 11.64 .21 2.96 3.17 .22 -- .22 14.59
1992................... 14.59 .13 .82 .95 .13 .12 .25 15.29
1993................... 15.29 .10 1.08 1.18 .10 .79 .89 15.58
1994................... 15.58 .11 (.58) (.47) .09 1.56 1.65 13.46
INVESTMENT GRADE SERIES
- -----------------------
2/19/91** to 12/31/91.. 9.31 .57 .67 1.24 .57 .05 .62 9.93
1992................... 9.93 .71 .04 .75 .72 .06 .78 9.90
1993................... 9.90 .65 .50 1.15 .65 .07 .72 10.33
1994................... 10.33 .62 (1.09) (.47) .62 -- .62 9.24
SPECIAL SITUATIONS
SERIES
- -----------------------
9/18/90** to 12/31/90.. 9.31 .09 .27 .36 .09 -- .09 9.58
1991................... 9.58 .10 4.74 4.84 .10 .33 .43 13.99
1992................... 13.99 -- 2.41 2.41 -- .78 .78 15.62
1993................... 15.62 (.08) 3.29 3.21 -- .83 .83 18.00
1994................... 18.00 (.04) (.62) (.66) -- .91 .91 16.43
TOTAL RETURN SERIES
- -----------------------
4/24/90** to 12/31/90.. 11.17 .32 (.12) .20 .32 -- .32 11.05
1991................... 11.05 .37 1.97 2.34 .34 .12 .46 12.93
1992................... 12.93 .27 (.41) (.14) .30 -- .30 12.49
1993................... 12.49 .26 .63 .89 .26 1.24 1.50 11.88
1994................... 11.88 .21 (.62) (.41) .19 .39 .58 10.89
- -----------------------
</TABLE>
+ Calculated without sales charge
++ Net of expenses waived or assumed by the investment adviser
* Annualized
** Commencement of operations
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Ratio to Average
Net Assets Before
Ratio to Average Expenses Waived
Net Assets++ or Assumed
Net Assets --------------- ----------------------
Total End of Net Net Portfolio
Return+ Period (in Investment Investment Turnover
(%) thousands) Expenses(%) Income(%) Expenses(%) Income(%) Rate(%)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
15.40 $ 27,212 .02 3.72 1.48 2.26 49
(3.50) 55,816 .77 2.57 1.88 1.46 49
27.52 79,932 1.28 1.63 1.78 1.14 31
6.56 99,501 1.46 .95 1.73 .67 44
7.77 117,929 1.48 .66 1.73 .41 39
(3.02) 123,694 1.54 .80 1.79 .55 82
15.70* 18,153 -- 7.79* 1.48* 6.31* 51
7.83 37,922 .57 7.20 1.41 6.36 44
11.82 48,507 .86 6.27 1.40 5.73 38
(4.62) 46,179 .95 6.46 1.47 5.94 17
13.58* 1,321 -- 3.93* 2.74* 1.19* 0
50.47 9,183 -- 1.44 2.31 (.87) 86
17.26 25,814 1.06 (.05) 1.92 (.91) 88
20.52 59,148 1.55 (.63) 1.89 (.96) 71
(3.66) 89,906 1.65 (.26) 1.90 (.51) 53
2.67* 41,499 -- 5.85* 2.11* 3.74* 13
21.51 60,888 .83 3.20 1.88 2.14 51
(1.00) 65,537 1.29 2.25 1.78 1.76 75
7.18 58,176 1.45 2.00 1.83 1.62 131
(3.45) 50,714 1.63 1.91 1.88 1.66 124
</TABLE>
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
BLUE CHIP SERIES
BLUE CHIP SERIES seeks to provide investors with high total investment return
consistent with the preservation of capital. The Series seeks to achieve its
objective by investing, under normal market conditions, at least 65% of its
total assets in securities of "Blue Chip" companies, including common and
preferred stocks and securities convertible into common stock, that the Adviser
believes have potential earnings growth that is greater than the average company
included in the Standard & Poor's 500 Composite Stock Price Index ("S&P 500").
The Series 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 Series' objective, the Series may invest
up to 25% of its total assets in fixed income securities.
The Series defines Blue Chip companies as those companies that have a market
capitalization of at least $300 million, are dividend paying and are included in
the S&P 500. Market capitalization is the total market value of a company's
outstanding common stock. 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 AT&T
Corp., General Electric Co., Pepsico Inc. and Bristol-Myers Squibb Co.
The fixed income securities in which the Series may invest include money
market instruments (including prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), obligations issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), including mortgage-related
securities, and corporate debt securities. However, no more than 5% of the
Series' net assets may be invested in corporate debt securities rated below Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Ratings Group ("S&P"). The Series may borrow money for temporary or emergency
purposes in amounts not exceeding 5% of its total assets. The Series may also
invest up to 5% of its net assets in American Depository Receipts ("ADRs"),
enter into repurchase agreements and make loans of portfolio securities. See
"Description of Certain Securities, Other Investment Policies and Risk Factors"
and the SAI for additional information concerning these securities.
INVESTMENT GRADE SERIES
INVESTMENT GRADE SERIES seeks to generate a maximum level of income consistent
with investment in investment grade debt securities. The Series seeks to
achieve its objective by investing, under normal market conditions, at least 65%
of its total assets in debt securities of U.S. issuers that are rated in the
four highest rating categories by Moody's or S&P, or in unrated securities that
are deemed to be of comparable quality by the Adviser ("investment grade
securities"). The Series may invest up to 35% of its total assets in U.S.
Government Obligations, including mortgage-related securities, dividend-paying
common and preferred stocks, obligations convertible
8
<PAGE>
into common stocks, repurchase agreements, debt securities rated below
investment grade and money market instruments. The Series may invest up to 5%
of its net assets in corporate or government debt securities of foreign issuers
which are U.S. dollar denominated and traded in U.S. markets. The Series also
may borrow money for temporary or emergency purposes in amounts not exceeding 5%
of its total assets. The Series may purchase securities on a when-issued basis,
engage in short sales "against the box" and make loans of portfolio securities.
The Series may invest up to 5% of its net assets in zero coupon or pay-in-kind
securities. See "Description of Certain Securities, Other Investment Policies
and Risk Factors," below, and the SAI for additional information concerning
these securities.
The published reports of rating services are considered by the Adviser in
selecting rated securities for the Series' portfolio. The Adviser also relies,
among other things, on its own credit analysis, which includes a study of the
existing debt's capital structure, the issuer's ability to service debt (or to
pay dividends, if investing in common or preferred stock) and the current trend
of earnings for the issuer. Although up to 100% of the Series' total assets can
be invested in debt securities rated at least Baa by Moody's or at least BBB by
S&P, or unrated debt securities deemed to be of comparable quality by the
Adviser, no more than 5% of the Series' net assets may be invested in debt
securities rated lower than Baa by Moody's or BBB by S&P (including securities
that have been downgraded), or if unrated, deemed to be of comparable quality by
the Adviser, or in any equity securities of any issuer if a majority of the debt
securities of such issuer are rated lower than Baa by Moody's or BBB by S&P.
The Adviser continually monitors the investments in the Series' portfolio and
carefully evaluates on a case-by-case basis whether to dispose of or retain a
debt security which has been downgraded to a rating lower than investment grade.
See "Debt Securities--Risk Factors" and Appendix A for a description of
corporate bond ratings.
SPECIAL SITUATIONS SERIES
SPECIAL SITUATIONS SERIES seeks long-term growth of capital. The Series seeks
to achieve its objective by investing, under normal market conditions, at least
65% of its total assets in the common stock of companies with small to medium
market capitalization that the Adviser considers to be undervalued or less well
known in the current marketplace and to have potential for capital growth. The
Series may invest up to 35% of its total assets in other common stocks, in
preferred stock that is convertible into common stock issued by U.S.
corporations and in the common stock of companies located outside the United
States.
SPECIAL SITUATIONS SERIES seeks to invest in the common stock of companies
that are undervalued in the current market in relation to fundamental economic
values such as earnings, sales, cash flow and tangible book value; that are
early in their corporate development (i.e., before they become widely recognized
and well known and while their reputations and track records are still
emerging); or that offer the possibility of greater earnings because of
revitalized management, new products or structural changes in the economy. Such
companies primarily are those with small to medium market capitalization, which
the Series considers to be market capitalization of up to $1 billion. The
Adviser believes that, over time, these securities are more likely to appreciate
in price than securities whose market prices have already reached their
perceived economic value. In addition, the Series intends to diversify its
holdings among as many companies and industries as the Adviser deems
appropriate.
9
<PAGE>
Companies that are early in their corporate development may be dependent on
relatively few products or services, may lack adequate capital reserves, may be
dependent on one or two management individuals and may have less of a track
record or historical pattern of performance. In addition, there may be less
information available as to the issuers and their securities may not be well
known to the general public and may not yet have wide institutional ownership.
Thus, the investment risk is higher than that normally associated with larger,
older or better-known companies.
Investments in securities of companies with small to medium market
capitalization are generally considered to offer greater opportunity for
appreciation and to involve greater risk of depreciation than securities of
companies with larger market capitalization. Because the securities of most
companies with small to medium market capitalization are not as broadly traded
as those of companies with larger market capitalization, these securities are
often subject to wider and more abrupt fluctuations in market price. In the
past, there have been prolonged periods when these securities have substantially
underperformed or outperformed the securities of larger capitalization
companies. In addition, smaller capitalization companies generally have fewer
assets available to cushion an unforeseen adverse occurrence and thus such an
occurrence may have a disproportionately negative impact on these companies.
The majority of SPECIAL SITUATIONS SERIES' investments are expected to be
securities listed on the New York Stock Exchange ("NYSE") or other national
securities exchanges, or securities that have an established over-the-counter
("OTC") market, although the depth and liquidity of the OTC market may vary from
time to time and from security to security.
SPECIAL SITUATIONS SERIES may invest up to 15% of its total assets in common
stocks issued by foreign companies which are traded on a recognized domestic or
foreign securities exchange. In addition to the fundamental analysis of
companies and their industries which it performs for U.S. issuers, the Adviser
evaluates the economic and political climate of the country in which the company
is located and the principal securities markets in which such securities are
traded. Although the foreign stocks in which the Series invests are primarily
denominated in foreign currencies, the Series also may invest in ADRs. The
Adviser does not attempt to time actively either short-term market trends or
short-term currency trends in any market. See "Foreign Securities--Risk
Factors" and "American Depository Receipts."
The Series may invest up to 5% of its total assets in the securities of other
registered investment companies. Such investments will probably involve
additional advisory or distribution fees. The Series may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets.
The Series also may enter into repurchase agreements and engage in short sales
"against the box." See "Description of Certain Securities, Other Investment
Policies and Risk Factors" and the SAI for more information regarding these
securities.
TOTAL RETURN SERIES
TOTAL RETURN SERIES seeks to provide investors with high long-term investment
return consistent with moderate investment risk. The Series employs a flexible
investment strategy which emphasizes investments in stocks, bonds and money
market instruments. The amount of Series assets which may be invested in any of
these securities is not fixed. The Series may invest in domestic and foreign
common stocks and other equity securities, such as preferred stocks, securities
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convertible into common stocks and warrants to purchase common stock. The
Series also may invest in fixed-income securities, including money market
instruments (consisting of prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), U.S. Government
Obligations, including mortgage-related securities, municipal bonds and
corporate and foreign debt securities. The Series also may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets,
enter into repurchase agreements and make loans of portfolio securities. The
Series may invest up to 5% of its net assets in zero coupon and pay-in-kind
securities. See "Description of Certain Securities, Other Investment Policies
and Risk Factors," below, and the SAI for additional information concerning
these securities. There is the possibility that 100% of the Series' total
assets could be invested in corporate debt securities and municipal bonds. No
more than 25% of the Series' net assets may be invested in corporate debt
securities and municipal bonds rated below Baa by Moody's or BBB by S&P. See
"Debt Securities--Risk Factors" and Appendix A for a description of corporate
and municipal bond ratings.
The type of equity securities in which the Series generally invests include
growth and value equity securities. Growth equity securities include securities
of seasoned companies, i.e., companies with above-average earnings growth as
compared to the average of the stocks in the S&P 500, other companies which the
Adviser believes demonstrate changing or accelerating growth profiles and
smaller companies with outstanding growth records and potential based on the
Adviser's fundamental analysis of the company. Growth equity securities tend to
have above-average price/earnings ratios and less-than-average current yields
compared to non-growth equity securities.
Growth equity securities include newer and less seasoned companies with small
to medium market capitalization, which the Series considers to be market
capitalization of up to $1 billion. These include the equity securities of
companies which represent new or changing industries and those which, in the
opinion of the Adviser, represent special situations, the potential future value
of which has not been fully recognized. Such growth securities are more
speculative than securities issued by established and well-seasoned issuers.
The risks connected with such securities may include less available information
about the issuer, the absence of a track record or historical pattern of
performance, as well as normal risks which accompany the development of new
products, markets or services. Growth securities of companies with small to
medium market capitalization which represent a special situation bear the risk
that the special situation will not develop as favorably as expected, or the
situation may deteriorate. For example, a merger with favorable implications
may be blocked, an industrial development may not enjoy anticipated market
acceptance or a bankruptcy may not be as profitably resolved as had been
expected. Such investments are not expected to constitute a significant portion
of the Series' portfolio.
The majority of the Series' equity investments are expected to be securities
listed on the NYSE, other national securities exchanges or securities that have
an established OTC market, although the depth and liquidity of the OTC market
may vary from time to time and from security to security. The Series' ability to
invest in unseasoned companies with above-average earnings growth, other
companies with changing or accelerating growth profiles and smaller companies
with outstanding growth records and potential subjects the Series to greater
risk than may be involved in investing in securities which are not selected for
such growth characteristics.
TOTAL RETURN SERIES does not intend to invest more than 25% of its total
assets in foreign securities. Foreign securities include equity and debt
securities issued by foreign companies and government instrumentalities which
usually are denominated in foreign currencies. Although the
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foreign securities in which the Series invests are primarily denominated in
foreign currencies, the Series also may invest in ADRs. In addition to the
fundamental analysis of companies and their industries which it performs for
U.S. issuers, the Adviser evaluates the economic and political climate of the
country in which the company is located and the principal securities markets in
which such securities are traded. The Series does not purchase foreign
securities which are not traded on a recognized domestic or foreign securities
exchange. The Adviser does not attempt to time actively either short-term
market trends or short-term currency trends in any market. See "Foreign
Securities--Risk Factors" and "American Depository Receipts."
GENERAL
In any period of market weakness or of uncertain market or economic
conditions, each Series may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents, including bank certificates
of deposit, bankers' acceptances, U.S. Government Obligations and commercial
paper issued by domestic corporations. See the SAI for a description of these
securities.
Each Series' net asset value fluctuates based mainly upon changes in the value
of its portfolio securities. Each Series' investment objective and certain
investment policies set forth in the SAI that are designated fundamental
policies may not be changed without shareholder approval. There can be no
assurance that any Series will achieve its investment objective.
DESCRIPTION OF CERTAIN SECURITIES, OTHER INVESTMENT POLICIES AND RISK FACTORS
AMERICAN DEPOSITORY RECEIPTS. SPECIAL SITUATIONS SERIES may invest in
sponsored and unsponsored ADRs. ADRs are receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying securities of
foreign issuers, and other forms of depository receipts for securities of
foreign issuers. Generally, ADRs, in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets. Thus, these
securities are not denominated in the same currency as the securities into which
they may be converted. In addition, the issuers of the securities underlying
unsponsored ADRs are not obligated to disclose material information in the
United States and, therefore, there may be less information available regarding
such issuers and there may not be a correlation between such information and the
market value to the ADRs. GDRs are issued globally and evidence a similar
ownership arrangement. Generally, GDRs are designed for trading in non-U.S.
securities markets. ADRs and GDRs are considered to be foreign securities by
SPECIAL SITUATIONS SERIES. See "Foreign Securities--Risk Factors."
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock because they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. See
the SAI for more information on convertible securities.
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DEBT SECURITIES--RISK FACTORS. The market value of debt securities is
influenced primarily by changes in the level of interest rates. Generally, as
interest rates rise, the market value of debt securities decreases. Conversely,
as interest rates fall, the market value of debt securities increases. Factors
which could result in a rise in interest rates, and a decrease in the market
value of debt securities, include an increase in inflation or inflation
expectations, an increase in the rate of U.S. economic growth, an expansion in
the Federal budget deficit or an increase in the price of commodities such as
oil. Debt obligations rated lower than Baa by Moody's or BBB by S&P, commonly
referred to as "junk bonds", are speculative and generally involve a higher risk
of loss of principal and income than higher-rated securities. See Appendix A
for a description of corporate and municipal bond ratings.
The prices of lower-rated debt obligations 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. Thus, there
could be a higher incidence of default. This would affect the value of such
securities and thus a Series' net asset value. Further, if the issuer of a
security owned by a Series defaults, the Series might incur additional expenses
to seek recovery. Generally, when interest rates rise, the value of fixed rate
debt obligations tends to decrease; when interest rates fall, the value of fixed
rate debt obligations tends to increase. Factors which could result in a rise
in interest rates, and a decrease in market value of debt securities, include an
increase in inflation or inflation expectations, an increase in the rate of U.S.
economic growth, an expansion in the Federal budget deficit, or an increase in
the price of commodities such as oil. In addition, the market value of debt
securities is influenced by perceptions of the credit risks associated with such
securities. If a Series experiences unexpected net redemptions in a rising
interest rate market, it might be forced to sell certain securities, regardless
of investment merit. This could result in decreasing the assets to which Series
expenses could be allocated and in a reduced rate of return for the Series.
While it is impossible to protect entirely against this risk, diversification of
a Series' portfolio and the Adviser's careful analysis of prospective portfolio
securities should minimize the impact of a decrease in value of a particular
security or group of securities in a Series' portfolio.
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 lower-rated
debt securities. Also, credit rating agencies may fail to change on a timely
basis a credit rating to reflect changes in economic or company conditions that
affect a security's market value. Although the Adviser considers ratings of
recognized rating services such as Moody's and S&P, the Adviser primarily relies
on its own credit analysis, which includes a study of existing debt, capital
structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current trend
of earnings. The Adviser continually monitors the investments in a Series'
portfolio and carefully evaluates whether to dispose of or retain lower-rated
debt securities whose credit ratings have changed.
Lower-rated debt securities are typically traded among a smaller number of
broker-dealers than in a broad secondary market. Purchasers of such securities
tend to be institutions, rather than individuals, which is a factor that further
limits the secondary market. To the extent that no established retail secondary
market exists, many lower-rated debt securities may not be as liquid as higher-
grade securities. A less active and thinner market for such securities than
that available for higher quality securities may result in more volatile
valuations of a Series' holdings and more difficulty in executing trades at fair
value during unsettled market conditions. The ability of a Series
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to value or sell lower-rated debt securities will be adversely affected to the
extent that such securities are thinly traded or illiquid. See "Risks Factors
of High Yield Securities" in the SAI.
FOREIGN SECURITIES--RISK FACTORS. SPECIAL SITUATIONS SERIES 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.
Because SPECIAL SITUATIONS SERIES 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 Series' share price. In
addition, the Series' will be affected by changes in exchange control
regulations and fluctuations in the relative rates of exchange between the
currencies of different nations, as well as by economic and political
developments. Other risks involved in foreign securities include the following:
there may be less publicly available information about foreign companies
comparable to the reports and ratings that are published about companies in the
United States; foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies; some foreign stock markets
have substantially less volume than U.S. markets, and securities of some foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies; there may be less government supervision and regulation of foreign
stock exchanges, brokers and listed companies than exist in the United States;
and there may be the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments which could affect
assets of the SPECIAL SITUATIONS SERIES held in foreign countries.
MONEY MARKET INSTRUMENTS. Investments in commercial paper are limited to
obligations rated Prime-1 by Moody's or A-1 by S&P. Commercial paper includes
notes, drafts, or similar instruments payable on demand or having a maturity at
the time of issuance not exceeding nine months, exclusive of days of grace or
any renewal thereof. Investments in certificates of deposit will be made only
with domestic institutions with assets in excess of $500 million. See the SAI
for more information regarding money market instruments and Appendix A to the
SAI for a description of commercial paper ratings.
MORTGAGE-RELATED SECURITIES. Mortgage loans often are assembled into pools,
the interests in which are issued and guaranteed by an agency or instrumentality
of the U.S. Government, though not necessarily by the U.S. Government itself.
Interests in such pools are referred to herein as "mortgage-related securities."
The market value of these securities can and will fluctuate as interest rates
and market conditions change. In addition, prepayment of principal by the
mortgagees which often occurs with mortgage-related securities when interest
rates decline, can significantly change the realized yield of these securities.
See the SAI for more information concerning mortgage-related securities.
RISKS OF MORTGAGE-RELATED SECURITIES. Investments in mortgage-related
securities entail both market and prepayment risk. Fixed-rate mortgage-related
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-related securities generally may
be prepaid in whole or in part at the option of the individual buyer.
Prepayments of the underlying mortgages can affect the yield to maturity on
mortgage-related securities and, if interest rates decline, the prepayment may
only be invested at the then prevailing lower interest rate. Changes in market
conditions, particularly during periods of rapid or unanticipated changes in
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market interest rates, may result in volatility and reduced liquidity of the
market value of certain mortgage-related securities.
MUNICIPAL BONDS. TOTAL RETURN SERIES may invest in municipal bonds that are
rated Baa or better by Moody's or BBB or better by S&P. Municipal bonds are
debt obligations issued by or on behalf of states, territories and possessions
of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, generally 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, conditions of
the municipal bond market, the size of a particular offering, the maturity of
the obligation and the rating of the issuer. Generally, the value of municipal
bonds varies inversely to changes in interest rates. See Appendix A for a
description of municipal bond ratings.
In order for the Series' interest income from municipal bonds to be exempt
from Federal income taxation when distributed to its shareholders, the Series
must comply with certain requirements of the Internal Revenue Code of 1986, as
amended (the "Code"). The Series' investments in municipal bonds are not
expected to meet these requirements. Accordingly, distributions of interest
income from municipal bonds in the Series' portfolio will be taxable to
shareholders the same as distributions of interest income from other securities
held by the Series. See "Taxes."
PORTFOLIO TURNOVER. The TOTAL RETURN SERIES' portfolio turnover resulted
primarily from changes in asset allocation throughout 1994. With the objective
of maximizing total return, as much as 15% of the Series' assets would be
shifted routinely between different asset classes during the fiscal year 1994.
This resulted in a portfolio turnover rate of 124% for fiscal year ended
December 31, 1994 as opposed to 131% for the prior fiscal year. A high rate of
portfolio turnover generally leads to increased transaction costs and may result
in a greater number of taxable transactions. See "Allocation of Portfolio
Brokerage" in the SAI. See the SAI for the portfolio turnover rate of the other
Series and for more information on portfolio turnover rate.
PREFERRED STOCK. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and, unlike common stock, its participation in the issuer's growth may be
limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Series purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. Each Series' risk is
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limited to the ability of the seller to repurchase the securities at the agreed-
upon price upon the delivery date. See the SAI for more information regarding
repurchase agreements.
RESTRICTED AND ILLIQUID SECURITIES. Each Series, other than INVESTMENT GRADE
SERIES, may invest up to 15% of its net assets in illiquid securities, including
(1) securities that are illiquid due to the absence of a readily available
market or due to legal or contractual restrictions on resale and (2) repurchase
agreements maturing in more than seven days. INVESTMENT GRADE SERIES may invest
up to 10% of its net assets in such illiquid securities. However, illiquid
securities for purposes of this limitation do not include securities eligible
for resale under Rule 144A under the Securities Act of 1933, as amended (the
"1933 Act"), which the Board of Trustees or the Adviser has determined are
liquid under Board-approved guidelines. See the SAI for more information
regarding restricted and illiquid securities.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed as to principal
and interest by the U.S. Government include (1) U.S. Treasury obligations which
differ only in their interest rates, maturities and times of issuance as
follows: U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), and (2) obligations issued or guaranteed
by U.S. Government agencies and instrumentalities that are backed by the full
faith and credit of the United States, such as securities issued by the Federal
Housing Administration, Government National Mortgage Association, the Department
of Housing and Urban Development, the Export-Import Bank, the General Services
Administration and the Maritime Administration and certain securities issued by
the Farmers Home Administration and the Small Business Administration. The
range of maturities of U.S. Government Obligations is usually three months to
thirty years.
ALTERNATIVE PURCHASE PLANS
Each Series has two classes of shares, Class A and Class B, which represent
interests in the same portfolio of securities and have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that each class (i) is subject to a different sales charge and bears its
separate distribution and certain other class expenses; (ii) has exclusive
voting rights with respect to matters affecting only that class; and (iii) has
different exchange privileges.
CLASS A SHARES. Class A shares are sold with an initial sales charge of up to
6.25% of the amount invested with discounts available for volume purchases.
Class A shares pay a 12b-1 fee at the annual rate of 0.30% of each Series'
average daily net assets attributable to Class A shares, of which no more than
0.25% may be paid as a service fee and the balance thereof paid as an asset-
based sales charge. The initial sales charge is waived for certain purchases
and a CDSC may be imposed on such purchases. See "How to Buy Shares."
CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are generally subject to a CDSC which declines in steps from 4% to 0% during a
six-year period and bear a higher 12b-1 fee than Class A shares. Class B shares
pay a 12b-1 fee at the annual rate of 1.00% of each Series' average daily net
assets attributable to Class B shares, of which no more than 0.25% may be paid
as a service fee and the balance thereof paid as an asset-based sales charge.
Class B shares automatically convert into Class A shares after eight years. See
"How to Buy Shares."
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FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES. In deciding which
alternative is most suitable, an investor should consider several factors, as
discussed below. Regardless of whether an investor purchases Class A or Class B
shares, your Representative, as defined under "How to Buy Shares," receives
compensation for selling shares of a Series, which may differ for each class.
The principal advantages of purchasing Class A shares are the lower overall
expenses, the availability of quantity discounts on volume purchases and certain
account privileges which are not offered to Class B shareholders. If an
investor plans to make a substantial investment, the sales charge on Class A
shares may either be lower due to the reduced sales charges available on volume
purchases of Class A shares or waived for certain eligible purchasers. Because
of the reduced sales charge available on quantity purchases of Class A shares,
it is recommended that investments of $250,000 or more be made in Class A
shares. Investments in excess of $1,000,000 must be made in Class A shares.
Distributions paid by each Series with respect to Class A shares will also
generally be greater than those paid with respect to Class B shares because
expenses attributable to Class A shares will generally be lower.
The principal advantage of purchasing Class B shares is that, since no initial
sales charge is paid, all of an investor's money is put to work from the outset.
Furthermore, although any investment in a Series should only be viewed as a
long-term investment, if a redemption must be made soon after purchase, an
investor will pay a lower sales charge than if Class A shares had been
purchased. Conversely, because Class B shares are subject to a higher asset-
based sales charge, long-term Class B shareholders may pay more in an asset-
based sales charge than the economic equivalent of the maximum sales charge on
Class A shares. The automatic conversion of Class B shares into Class A shares
is designed to reduce the probability of this occurring.
HOW TO BUY SHARES
You may buy shares of a Series through a First Investors registered
representative ("FIC Representative") or through a registered representative
("Dealer Representative") of an unaffiliated broker-dealer ("Dealer") which is
authorized to sell shares of the Series. Your FIC Representative or Dealer
Representative (collectively, "Representative") may help you complete and submit
an application to open an account with a Series. Applications accompanied by
checks drawn on U.S. banks made payable to "FIC" received in FIC's Woodbridge
offices by the close of regular trading on the New York Stock Exchange ("NYSE"),
generally 4:00 P.M. (New York City time), will be processed and shares will be
purchased at the public offering price determined at the close of regular
trading on the NYSE on that day. The "public offering price" is defined in this
Prospectus as net asset value plus the applicable sales charge for Class A
shares and net asset value for Class B shares. Checks received after the close
of regular trading on the NYSE will be processed at the public offering price
determined at the close of regular trading on the NYSE on the next trading day.
Orders given to Representatives before the close of regular trading on the NYSE
and received by FIC at their Woodbridge offices before the close of its business
day, generally 5:00 P.M. (New York City time), will be executed at the public
offering price determined at the close of regular trading on the NYSE on that
day. Orders received by Representatives after the close of regular trading on
the NYSE or received by FIC after the close of its business day will be executed
at the public offering price determined after the close of regular trading on
the NYSE on the next trading day. It is the responsibility of Representatives
to promptly transmit orders they receive to FIC. Each Series reserves the right
to reject any application or order for its shares for any reason and to suspend
the offering of its shares.
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WHEN YOU OPEN A SERIES ACCOUNT, YOU MUST SPECIFY WHICH CLASS OF SHARES YOU
WISH TO PURCHASE. If not, your order will be processed as follows: (1) if you
are opening an account with a new registration with First Investors your order
will not be processed until the Series receives notification of which class of
shares to purchase; (2) if you have existing First Investors accounts solely in
either Class A shares or Class B shares with the identical registration, your
investment in the Series will be made in the same class of shares as your
existing account(s); (3) if you are an existing First Investors shareholder and
own a combination of Class A and Class B shares with an identical registration,
your investment in the Series will be made in Class B shares; and (4) if you own
in the aggregate at least $250,000 in any combination of classes, your
investment will be made in Class A shares.
INITIAL INVESTMENT IN A SERIES. You may open a Series account with as little
as $1,000. This account minimum is waived if you open an account for a
particular class of shares through a full exchange of shares of the same class
of another "Eligible Fund," as defined below. Class A share accounts opened
through an exchange of shares from First Investors Cash Management Fund, Inc. or
First Investors Tax-Exempt Money Market Fund, Inc. (collectively, "Money Market
Funds") may be subject to an initial sales charge. You may open a Series
account with $250 for individual retirement accounts ("IRAs") or, at the Series'
discretion, a lesser amount for Simplified Employee Pension Plans ("SEPs"),
salary reduction SEPs ("SARSEPs") and qualified or other retirement plans.
Automatic investment plans allow you to open an account with as little as $50,
provided you invest at least $600 a year. See "Systematic Investing."
ADDITIONAL PURCHASES. After you make your first investment in a Series, you
may purchase additional shares of the Series by mailing a check made payable to
FIC, directly to First Investors Corporation, 10 Woodbridge Center Drive,
Woodbridge, NJ 07095-1198, Attn: Dept. CP. Include your account number on the
face of the check. There is no minimum on additional purchases of Series
shares.
ELIGIBLE FUNDS. Shares of all the funds and/or series in the First Investors
family of funds, except as noted below, are eligible to participate in certain
shareholder privileges noted in this Prospectus and the SAI (singularly,
"Eligible Fund" and, collectively, "Eligible Funds"). Shares of First Investors
Special Bond Fund, Inc., First Investors Life Series Fund and First Investors
U.S. Government Plus Fund are not deemed to be Eligible Funds. Shares of the
Money Market Funds, unless otherwise noted, are not deemed to be Eligible Funds.
Class A shares of each series of Executive Investors Trust ("Executive
Investors") are deemed to be Eligible Funds if such shares have either (a) been
acquired through an exchange from an Eligible Fund which imposes a maximum sales
charge of 6.25%, or (b) been held for at least one year from their date of
purchase.
SYSTEMATIC INVESTING
FIRST INVESTORS MONEY LINE. This service allows you to invest in a Series
through automatic deductions from your bank checking account. Scheduled
investments may be made on a bi-weekly, semi-monthly, monthly, quarterly, semi-
annual or annual basis provided a minimum total of $600 is invested per year.
Shares of the Series are purchased at the public offering price determined at
the close of business on the day your designated bank account is debited and a
confirmation will be sent to you after every transaction. You may decrease the
amount or discontinue this service at any time by calling Shareholder Services
or writing to Administrative Data Management Corp. (the "Transfer Agent"), 10
Woodbridge Center Drive, Woodbridge, NJ 07095-
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1198, Attn: Control Dept. To increase the amount, send a written request to the
Transfer Agent at the address noted above, which may take up to five days to
process. Money Line application forms are available from your Representative or
by calling Shareholder Services at 1-800-423-4026.
AUTOMATIC PAYROLL INVESTMENT. You also may arrange for automatic
investments into a Series on a systematic basis through salary deductions,
provided your employer has direct deposit capabilities. Shares of the Series
are purchased at the public offering price determined as of the close of
business on the day the electronic fund transfer is received by the Series, and
a confirmation will be sent to you after every transaction. You may change the
amount or discontinue the service by contacting your employer. An application
is available from your Representative or by calling Shareholder Services at
1-800-423-4026. Arrangements must also be made with your employer's payroll
department.
CROSS-INVESTMENT OF CASH DISTRIBUTIONS. You may elect to invest in Class A
shares of a Series at net asset value all the cash distributions from the same
class of shares of another Eligible Fund. You may also elect to invest cash
distributions of a Series' Class A shares into the same class of another
Eligible Fund, including the Money Market Funds. See "Dividends and Other
Distributions." To arrange for cross-investing, call Shareholder Services at
1-800-423-4026.
INVESTMENT OF SYSTEMATIC WITHDRAWAL PLAN PAYMENTS. You may elect to invest
in Class A shares of a Series at net asset value through payments from a
Systematic Withdrawal Plan you maintain with any other Eligible Fund. Scheduled
investments may be made on a monthly, quarterly, semi-annual or annual basis.
You may also elect to invest Systematic Withdrawal Plan payments of Class A
shares from a Series into the same class of another Eligible Fund, including the
Money Market Funds. See "How to Redeem Shares." To arrange for Systematic
Withdrawal Plan investments, call Shareholder Services at 1-800-423-4026.
CLASS A SHARES. Class A shares of each Series are sold at the public offering
price, which will vary with the size of the purchase, as shown in the following
table:
<TABLE>
<CAPTION>
SALES CHARGE AS % OF
---------------------------------- CONCESSION TO
OFFERING NET AMOUNT DEALERS AS % OF
AMOUNT OF INVESTMENT PRICE INVESTED OFFERING PRICE
- -------------------- --------------------- ----------- ----------------
<S> <C> <C> <C>
Less than $25,000.............. 6.25% 6.67% 5.13%
$25,000 but under $50,000...... 5.75 6.10 4.72
$50,000 but under $100,000..... 5.50 5.82 4.51
$100,000 but under $250,000.... 4.50 4.71 3.69
$250,000 but under $500,000.... 3.50 3.63 2.87
$500,000 but under $1,000,000.. 2.50 2.56 2.05
</TABLE>
There is no sales charge on transactions of $1 million or more, including
transactions subject to the Cumulative Purchase Privilege or a Letter of Intent.
The Underwriter will pay from its own resources a sales commission to FIC
Representatives and a concession equal to 0.90% of the amount invested to
Dealers on such purchases. If shares are purchased on or after the date of this
Prospectus and are redeemed within 24 months of purchase (this holding period is
18 months for shares purchased prior to the date of this Prospectus), a CDSC of
1.00% will be deducted from the redemption proceeds. The CDSC will be
calculated in the same manner as the CDSC on the Class B shares. See "Class B
Shares."
19
<PAGE>
WAIVERS OF CLASS A SALES CHARGES. Sales charges on Class A shares do not
apply to: (1) any purchase by an officer, director, trustee or full-time
employee (who has completed the introductory period) of the Fund, the
Underwriter, the Adviser, or their affiliates, by a Representative, or by the
spouse, or by the children and grandchildren under the age of 21 of any such
person; and (2) any purchase by a former officer, director, trustee or full-time
employee of the Fund, the Underwriter, the Adviser, or their affiliates, or by a
former FIC Representative; provided they had acted as such for at least five
years and had retired or otherwise terminated the relationship in good standing:
The sales charge will be waived on any purchase of Class A shares by a
participant in a Qualified Plan account, as defined under "Retirement Plans," if
the purchase is made with the proceeds from a redemption of shares of a fund in
another fund group on which either an initial sales charge or a CDSC has been
paid.
Additionally, policyholders of participating life insurance policies issued by
First Investors Life Insurance Company, an affiliate of the Adviser and
Underwriter, may elect to invest dividends earned on such policies in Class A
shares of a Series at net asset value, provided the annual dividend is at least
$50 and the policyholder has an existing account with the Series.
CUMULATIVE PURCHASE PRIVILEGE AND LETTERS OF INTENT. You may purchase Class A
shares of a Series at a reduced sales charge through the Cumulative Purchase
Privilege or by executing a Letter of Intent. You may combine your Class A and
Class B shares of any Eligible Fund (including Class B shares of the Money
Market Funds) to qualify for this reduced sales charge. Under the Cumulative
Purchase Privilege, Class A shares of a Series are available at quantity
discounts. By completing a Letter of Intent, you state your intention to invest
a specific amount in Class A shares over the next 13 months which, if made in
one lump sum, would qualify you for a reduced sales charge. For more
information, see the SAI, call your Representative or call Shareholder Services
at 1-800-423-4026.
UNITHOLDERS. Holders of certain unit trusts ("Unitholders") who have elected
to invest the entire amount of cash distributions from either principal,
interest income or capital gains or any combination thereof ("Unit
Distributions") from the following trusts may invest such Unit Distributions in
Class A shares of a Series at a reduced sales charge.
Unitholders of various series of New York Insured Municipals-Income Trust
sponsored by Van Kampen Merritt Inc. (the "New York Trust"); Unitholders of
various series of the Multistate Tax Exempt Trust sponsored by Advest Inc.; and
Unitholders of various series of the Municipal Insured National Trust, J.C.
Bradford & Co. as agent, may purchase Class A shares of a Series with Unit
Distributions at an offering price which is the net asset value per share plus a
sales charge of 1.5%. Unitholders of various series of tax-exempt trusts, other
than the New York Trust, sponsored by Van Kampen Merritt Inc. may purchase Class
A shares of a Series with Unit Distributions at an offering price which is the
net asset value per share plus a sales charge of 1.0%. Each Series' initial
minimum investment requirement is waived for purchases of Class A shares with
Unit Distributions. Unitholders of First Investors Special Situations Growth &
Treasury Securities Trust, Series 1 (the "FIST Trust") may purchase Class A
shares of SPECIAL SITUATIONS SERIES with Unit Distributions of the proceeds from
the scheduled termination of the FIST Trust at net asset value, without a sales
charge. Shares of a Series purchased by Unitholders may be exchanged for Class
A shares of any Eligible Fund subject to the terms and conditions set forth
under "How to Exchange Shares."
20
<PAGE>
RETIREMENT PLANS. You may invest in shares of a Series through an IRA, SEP,
SARSEP or any retirement plan. Participant directed plans, such as 401(k)
plans, profit sharing and money purchase plans and 403(b) plans, that are
subject to Title I of ERISA (each, a "Qualified Plan") are entitled to a special
reduced sales charge based upon the number of employees who are eligible to
participate, as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS % OF
---------------------- CONCESSION TO
NUMBER OF OFFERING NET AMOUNT DEALERS AS % OF
ELIGIBLE EMPLOYEES PRICE INVESTED OFFERING PRICE
- -------------------- --------- ----------- ----------------
<S> <C> <C> <C>
99 or less.......... 3.00% 3.09% 2.55%
100 or more......... 1.00% 1.01% 0.85%
</TABLE>
The reduced sales charge will be available regardless of whether the account
is registered with the Transfer Agent in the name of the individual participant
or the sponsoring employer or plan trustee. A Qualified Plan account will be
subject to the lower of the sales charge for Qualified Plans or the sales charge
for the purchase of Series shares (see page 18).
CLASS B SHARES. The public offering price of Class B shares of each Series is
the next determined net asset value, with no initial sales charge imposed. A
CDSC, however, is imposed upon most redemptions of Class B shares at the rates
set forth below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
YEAR SINCE PURCHASE AS A PERCENTAGE OF DOLLARS INVESTED
PAYMENT MADE OR REDEMPTION PROCEEDS
- -------------------- -------------------------------------
<S> <C>
First................... 4%
Second.................. 4
Third................... 3
Fourth.................. 3
Fifth................... 2
Sixth................... 1
Seventh and thereafter.. 0
</TABLE>
The CDSC will not be imposed on (1) the redemption of Class B shares acquired
as dividends or other distributions, or (2) any increase in the net asset value
of redeemed shares above their initial purchase price (in other words, the CDSC
will be imposed on the lower of net asset value or purchase price). In
determining whether a CDSC is payable on any redemption, it will be assumed that
the redemption is made first of any Class B shares acquired as dividends or
distributions, second of Class B shares that have been held for a sufficient
period of time such that the CDSC no longer is applicable to such shares and
finally of Class B shares held longest during the period of time that a CDSC is
applicable to such shares. This will result in your paying the lowest possible
CDSC.
As an example, assume an investor purchased 100 shares of Class B shares at
$10 per share for a total cost of $1,000 and in the second year after purchase,
the net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares as dividends. If at such time the
investor makes his or her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to a CDSC charge because redemptions are first made
of shares acquired through dividend reinvestment. With respect to the remaining
40 shares, the charge is applied only to the
21
<PAGE>
original cost of $10 per share and not to the increase in net asset value of $2
per share. Therefore, $400 of the $600 redemption proceeds will be charged at a
rate of 4.00% (the applicable rate in the second year after purchase).
For purposes of determining the CDSC on Class B shares, all purchases made
during a calendar month will be deemed to have been made on the first business
day of that month at the average cost of all purchases made during that month.
The holding period of Class B shares acquired through an exchange with another
Eligible Fund will be calculated from the first business day of the month that
the Class B shares were initially acquired in the other Eligible Fund. The
amount of any CDSC will be paid to FIC. The CDSC imposed on the purchase of
Class B shares will be waived under certain circumstances. See "Waivers of CDSC
on Class B Shares" in the SAI.
CONVERSION OF CLASS B SHARES. A shareholder's Class B shares will
automatically convert to Class A shares approximately eight years after the date
of purchase, together with a pro rata portion of all Class B shares representing
dividends and other distributions paid in additional Class B shares. The Class
B shares so converted will no longer be subject to the higher expenses borne by
Class B shares. The conversion will be effected at the relative net asset
values per share of the two classes on the first business day of the month
following that in which the eighth anniversary of the purchase of the Class B
shares occurs. If a shareholder effects one or more exchanges between Class B
shares of the Eligible Funds during the eight-year period, the holding period
for the shares so exchanged will commence upon the date of the purchase of the
original shares. Because the per share net asset value of the Class A shares
may be higher than that of the Class B shares at the time of conversion, a
shareholder may receive fewer Class A shares than the number of Class B shares
converted. See "Determination of Net Asset Value."
GENERAL. The Underwriter may at times agree to reallow to Dealers up to an
additional 0.25% of the dollar amount of shares of the Series and/or certain
other First Investors or Executive Investors funds sold by such Dealers during a
specific period of time. From time to time, the Underwriter also will pay,
through additional reallowances or other sources, a bonus or other compensation
to Dealers which employ a Dealer Representative who sells a minimum dollar
amount of the shares of the Series and/or certain other First Investors or
Executive Investors funds during a specific period of time. Such bonus or other
compensation may take the form of reimbursement of certain seminar expenses, co-
operative advertising, or payment for travel expenses, including lodging
incurred in connection with trips taken by qualifying Dealer Representatives to
the Underwriter's principal office in New York City.
HOW TO EXCHANGE SHARES
Should your investment needs change, you may exchange, at net asset value,
shares of a Series for shares of any Eligible Fund (including the Money Market
Funds). In addition, Class A shares of a Series may be exchanged at net asset
value for units of any single payment plan ("plan") sponsored by the
Underwriter. SHARES OF A PARTICULAR CLASS MAY BE EXCHANGED ONLY FOR SHARES OF
THE SAME CLASS OF ANOTHER FUND. For example, you can exchange Class A shares of
a Series only for Class A shares of another Eligible Fund. Exchanges can only
be made into accounts registered to identical owners. If your exchange is into
a new account, it must meet the minimum investment and other requirements of the
fund or plan into which the exchange is being made. Additionally, the fund or
plan must be available for sale in the state where you reside. A $5.00 exchange
fee is charged for each exchange. However, currently this fee is being
voluntarily borne
22
<PAGE>
by the fund into which you are making the exchange and, thus, that fund's
shareholders are bearing the fee ratably. Before exchanging Series shares for
shares of another fund or plan, you should read the Prospectus of the fund or
plan into which the exchange is to be made. You may obtain Prospectuses and
information with respect to which funds or plans qualify for the exchange
privilege free of charge by calling Shareholder Services at 1-800-423-4026.
Exchange requests may be made in writing or by telephone (for shares held on
deposit only) if telephone privileges were elected on your application.
Exchange requests received in "good order" by the Transfer Agent before the
close of regular trading on the NYSE, generally 4:00 P.M. (New York City time),
will be processed at the net asset value determined as of the close of regular
trading on the NYSE on that day; exchange requests received after that time will
be processed on the following trading day.
EXCHANGES BY MAIL. To exchange shares by mail, you should mail requests to
Administrative Data Management Corp., 10 Woodbridge Center Drive, Woodbridge, NJ
07095-1198. Shares will be exchanged after the request is received in "good
order" by the Transfer Agent. "Good order" means that exchange requests must
state: (1) the names of the funds; (2) account numbers (if existing accounts);
(3) the dollar amount, number of shares or percentage of the account you wish to
exchange; and (4) the exchange request must be signed by all registered owners
exactly as the account is registered. If information is missing, your request
is ambiguous or the value of your account is less than the amount indicated on
your request, the exchange will not be processed. The Transfer Agent will seek
additional information from you and process the exchange on the day it receives
such information. Signature guarantees may be required to process certain
exchange requests. See "How to Redeem Shares--Signature Guarantees."
EXCHANGES BY TELEPHONE. See "Telephone Transactions" for instructions on
making exchanges by telephone.
ADDITIONAL EXCHANGE INFORMATION. Exchanges should be made for investment
purposes only. A pattern of frequent exchanges may be contrary to the best
interests of a Series' other shareholders. Accordingly, each Series has the
right, at its sole discretion, to limit the amount of an exchange, reject any
exchange, or, upon 60 days' notice, materially modify or discontinue the
exchange privilege. Each Series will consider all relevant factors in
determining whether a particular frequency of exchanges is contrary to the best
interests of the Series and/or a class of the Series and its other shareholders.
Any such restriction will be made by a Series on a prospective basis only, upon
notice to the shareholder not later than ten days following such shareholder's
most recent exchange.
HOW TO REDEEM SHARES
You may redeem your Series shares at the next determined net asset value, less
any applicable CDSC, on any day the NYSE is open, directly through the Transfer
Agent. Your Representative may help you with this transaction. Shares may be
redeemed by mail or telephone (provided written authorization for telephone
transactions is on file). Redemption requests received in "good order" by the
Transfer Agent before the close of regular trading on the NYSE, generally 4:00
P.M. (New York City time), will be processed at the net asset value, less any
applicable CDSC, determined as of the close of regular trading on the NYSE on
that day; redemption requests received after that time will be processed on the
following trading day. Payment of redemption proceeds will be made within seven
days. If the shares being redeemed were recently purchased by check, payment
may be delayed to verify that the check has been honored, normally not more than
fifteen days.
23
<PAGE>
REDEMPTIONS BY MAIL. Written redemption requests should be mailed to
Administrative Data Management Corp., 10 Woodbridge Center Drive, Woodbridge, NJ
07095-1198. For your redemption request to be in good order, you must include:
(1) the name of the Series; (2) your account number; (3) the dollar amount,
number of shares or percentage of the account you want redeemed; (4) share
certificates, if issued; (5) the original signatures of all registered owners
exactly as the account is registered; (6) signature guarantees as described
below; and (7) additional documents required for redemptions by corporations,
trusts, partnerships, organizations, retirement, pension or profit sharing plans
and for requests from anyone other than the shareholder(s) of record. If
information is missing, your request is ambiguous or the value of your account
is less than the amount indicated on your request, the redemption will not be
processed. The Transfer Agent will seek additional information and process the
redemption on the day it receives such information.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect you, the
Series and their agents. Members of STAMP (Securities Transfer Agents Medallion
Program), MSP (New York Stock Exchange Medallion Signature Program), SEMP (Stock
Exchanges Medallion Program) or any underwriter of any issue for which the
Transfer Agent acts as transfer agent are eligible signature guarantors. A
notary public is not an acceptable guarantor. The guarantee must be manually
signed by an authorized signatory of the guarantor and the words "Signature
Guaranteed" must appear in direct association with such signature. Although
each Series reserves the right to require signature guarantees at any other
time, signature guarantees are required whenever: (1) the amount of the
redemption is $50,000 or more, (2) an exchange in the amount of $50,000 or more
is made into the Money Market Funds, (3) a redemption check is to be made
payable to someone other than the registered accountholder, other than
institutions on behalf of the shareholder, (4) a redemption check is to be
mailed to an address other than the address of record, (5) an account
registration is being transferred to another owner, (6) an account, other than
an individual, joint, UGMA or UTMA nonretirement account, is being exchanged or
redeemed, (7) the redemption request is for certificated shares, or (8) your
address of record has changed within 60 days prior to a redemption request or an
exchange to a Money Market Fund of $50,000 or more.
REDEMPTIONS BY TELEPHONE. See "Telephone Transactions" for instructions on
making redemptions by telephone.
SYSTEMATIC WITHDRAWAL PLAN. If you own noncertificated Class A shares with a
net asset value of $5,000 or more in a single Series account, you may set up a
plan for redemptions to be made automatically at regular intervals. You may
elect to have the payments (a) sent directly to you or persons you designate; or
(b) automatically invested at net asset value in shares of the same class of any
other Eligible Fund, including the Money Market Funds. If you own Class B
shares in a retirement account and qualify to receive distributions under the
Internal Revenue Code of 1986, as amended (the "Code"), you may elect to receive
redemptions at regular intervals. The redemption proceeds, less any applicable
CDSC, will be automatically sent directly to you. See the SAI for more
information on the Systematic Withdrawal Plan. To establish a Systematic
Withdrawal Plan, call Shareholder Services at 1-800-423-4026.
REINVESTMENT AFTER REDEMPTION. If you redeem Class A or Class B shares in
your Series account, you can reinvest within ninety days from the date of
redemption all or any part of the proceeds in shares of the same class of the
same Series or any other Eligible Fund (including the Money Market Funds), at
net asset value, on the date the Transfer Agent receives your purchase request.
If you reinvest the entire proceeds of a redemption of Class B shares for which
a CDSC has
24
<PAGE>
been paid, you will be credited for the amount of the CDSC. If you reinvest
less than the entire proceeds, you will be credited with a pro rata portion of
the CDSC. All credits will be paid in Class B shares of the fund into which the
reinvestment is being made. The period you owned the original Class B shares
prior to redemption will be added to the period of time you own Class B shares
acquired through reinvestment for purposes of determining (a) the applicable
CDSC upon a subsequent redemption and (b) the date on which Class B shares
automatically convert to class A shares. If your reinvestment is into a new
account, it must meet the minimum investment and other requirements of the fund
into which the reinvestment is being made. To take advantage of this option,
send your reinvestment check along with a written request to the Transfer Agent
within 90 days from the date of your redemption. Include your account number
and a statement that you are taking advantage of the "Reinvestment Privilege."
REPURCHASE THROUGH UNDERWRITER. You may redeem Class A shares for which a
certificate has been issued through a Dealer. In this event, the Underwriter,
acting as agent for each Series, will offer to repurchase or accept an offer to
sell such shares at a price equal to the net asset value next determined after
the making of such offer. The Dealer may charge you an added commission for
handling any redemption transaction.
REDEMPTION OF LOW BALANCE ACCOUNTS. Because each Series incurs certain fixed
costs in maintaining shareholder accounts, each Series may redeem without your
consent, on at least 60 days' prior written notice (which may appear on your
account statement), any Series account of Class A or Class B shares which has a
net asset value of less than $500. To avoid such redemption, you may, during
such 60-day period, purchase additional Series shares of the same class so as to
increase your account balance to the required minimum. There will be no CDSC
imposed on such redemptions of Class B shares. The Series will not redeem
accounts that fall below $500 solely as a result of a reduction in net asset
value. Accounts established under a Systematic Investment Plan which have been
discontinued prior to meeting the $1,000 minimum are subject to this policy.
Additional information concerning how to redeem shares of the Series is
available upon request to your Representative or Shareholder Services at 1-800-
423-4026.
TELEPHONE TRANSACTIONS
Provided you have selected telephone privileges on your account application,
you may redeem or exchange noncertificated shares of a Series by calling the
Special Services Department at 1-800-342-6221 weekdays (except holidays) between
9:00 A.M. and 5:00 P.M. (New York City time). Exchange or redemption requests
received after the close of regular trading on the NYSE, generally 4:00 P.M.
(New York City time), will be processed at the net asset value, less any
applicable CDSC, determined as of the close of business on the following
business day. For your convenience, you may authorize your FIC Representative
(or your Dealer Representative, provided certain minimum sales requirements are
met) to exchange or redeem shares for you.
TELEPHONE EXCHANGES. Telephone exchanges are available between nonretirement
accounts and between IRA accounts of the same class of shares registered in the
same name. A telephone exchange also is available from an individually
registered nonretirement account to an IRA account of the same class of shares
in the same name (provided an IRA application is on file). Telephone exchanges
are not available for exchanges of Series shares for plan units. For joint
accounts, telephone exchange instructions will be accepted from any one owner.
You are limited to one
25
<PAGE>
telephone exchange within any 30-day period for each account authorized.
Telephone exchanges to Money Market Funds are not available if your address of
record has changed within 60 days prior to the exchange request.
TELEPHONE REDEMPTIONS. The telephone redemption privilege may be used
provided: (1) the redemption proceeds are being mailed to the address of record;
(2) your address of record has not changed within the past 60 days; (3) the
shares to be redeemed have not been issued in certificate form; (4) the proceeds
of the redemption do not exceed $50,000; and (5) shares have not been redeemed
by telephone from the account in the past 30 days. Retirement plan accounts are
not eligible for the telephone redemption option. For joint accounts, telephone
redemption instructions will be accepted from any one owner.
ADDITIONAL INFORMATION. The Series, the Underwriter and their affiliates will
not be liable for any loss, damage, cost or expense arising out of any
instruction (or any interpretation of such instruction) received by telephone
which they reasonably believe to be authentic. In acting upon telephone
instructions, these parties use procedures which are reasonably designed to
ensure that such instructions are genuine. If the Series, the Underwriter or
their affiliates do not follow reasonable procedures, some or all of them may be
liable for any such losses. For more information on telephone transactions see
the SAI. Each Series has the right, at its sole discretion, upon 60 days'
notice, to materially modify or discontinue the telephone exchange and
redemption privilege. During times of drastic economic or market changes,
telephone exchanges or redemptions may be difficult to implement. If you
experience difficulty in making a telephone exchange or redemption, your
exchange or redemption request may be made by regular or express mail, and it
will be implemented at the next determined net asset value, less any applicable
CDSC, following receipt by the Transfer Agent.
MANAGEMENT
BOARD OF TRUSTEES. The Fund's Board of Trustees, as part of its overall
management responsibility, oversees various organizations responsible for that
Series' day-to-day management.
ADVISER. First Investors Management Company, Inc. supervises and manages each
Series' investments, supervises all aspects of each Series' operations and
determines each Series' portfolio transactions. The Adviser is a New York
corporation located at 95 Wall Street, New York, NY 10005. The Adviser
presently acts as investment adviser to 14 mutual funds. First Investors
Consolidated Corporation ("FICC") owns all of the voting common stock of the
Adviser and all of the outstanding stock of FIC and the Transfer Agent. Mr.
Glenn O. Head (and members of his family) and Mrs. Julie W. Grayson (as
executrix of the estate of her deceased husband, David D. Grayson) are
controlling persons of FICC and, therefore, jointly control the Adviser.
As compensation for its services, the Adviser receives an annual fee from each
of the Series, which is payable monthly. For the fiscal year ended December 31,
1994, the advisory fees were 0.75% of average daily net assets, net of waiver,
for each of BLUE CHIP SERIES, TOTAL RETURN SERIES and SPECIAL SITUATIONS SERIES
and 0.65% of average daily assets, net of waiver, for INVESTMENT GRADE SERIES.
Each Series bears all expenses of its operations other than those incurred by
the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Series expenses include,
26
<PAGE>
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.
PORTFOLIO MANAGERS. Patricia D. Poitra, Director of Equities, has been
primarily responsible for the day-to-day management of the BLUE CHIP SERIES
since October 1994. Ms. Poitra is assisted by a team of portfolio analysts.
Ms. Poitra has been responsible for the management of the SPECIAL SITUATIONS
SERIES since its inception in 1990 and the small capitalization equity portion
of TOTAL RETURN SERIES since 1993. Ms. Poitra also is responsible for the
management of the Blue Chip Series and Discovery Series of First Investors Life
Series Fund, the Blue Chip Fund of Executive Investors Trust and the Made In The
U.S.A. Fund of First Investors Series Fund II, Inc. Ms. Poitra joined FIMCO in
1985 as a Senior Equity Analyst.
Nancy Jones has been Portfolio Manager for INVESTMENT GRADE SERIES since its
inception in 1991 and has managed the fixed income corporate securities portion
of TOTAL RETURN SERIES since 1992. Ms. Jones joined FIMCO in 1983 as Director
of Research in the High Yield Department. Ms. Jones also is Portfolio Manager
for First Investors Fund For Income, Inc., First Investors Cash Management Fund,
Inc., First Investors Tax-Exempt Money Market Fund, Inc. and the Investment
Grade Series and Cash Management Series of First Investors Life Series Fund.
Since April 1995, John Tomasulo has been primarily responsible for the day-to-
day management of the U.S. Government and mortgage-backed securities portion of
the TOTAL RETURN SERIES. Mr. Tomasulo is also responsible for the management of
the Government Fund and for the Government Series and Target Maturity 2007
Series of First Investors Life Series Fund. Prior to joining FIMCO, Mr.
Tomasulo was affiliated with Seligman & Co. since 1987 where he assisted in the
management of a U.S. government fund and individual accounts and had primary
responsibility for three money market funds.
BROKERAGE. Each Series may allocate brokerage commissions, if any, to broker-
dealers in consideration of Series share distribution, but only when execution
and price are comparable to that offered by other broker-dealers. Brokerage may
be directed to brokers who provide research. See the SAI for more information
on allocation of portfolio brokerage.
UNDERWRITER. The Fund has entered into an Underwriting Agreement with First
Investors Corporation, 95 Wall Street, New York, NY 10005, as Underwriter. The
Underwriter receives all sales charges in connection with the sale of each
Series' Class A shares and all contingent deferred sales charges in connection
with each Series' Class B shares and may receive payments under a plan of
distribution. See "How to Buy Shares" and "Distribution Plans."
REGULATORY MATTERS. In June 1992, the Fund's underwriter FIC, entered into a
settlement with the Securities and Exchange Commission ("SEC") to resolve
allegations by the agency that certain of FIC's sales representatives had made
misrepresentations concerning the risks of investing in two high yield bond
funds, the First Investors Fund For Income, Inc. and the First Investors High
Yield Fund, Inc. ("High Yield Funds"), and had sold these Funds to investors for
whom they were not suitable. Without admitting or denying the SEC's
allegations, FIC: (a) consented to the entry of a final judgment enjoining it
from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 thereunder and Section 17(a) of the 1933 Act; (b) agreed to the entry of
an
27
<PAGE>
administrative order censuring it and requiring it to comply with undertakings
to improve its policies and procedures with regard to sales, training,
supervision and compliance; and (c) agreed to pay $24.7 million to certain
investors who purchased shares of the High Yield Funds from in or about November
1984 to in or about November 1990.
FIC, FIMCO and/or certain affiliated entities and persons have entered into
settlements with regulators in 29 states to resolve allegations, similar to
those made by the SEC, concerning sales of the High Yield Funds. In October
1993, as part of settlements with Maine, Massachusetts, New York, Virginia and
Washington ("State Settlements"), FIC, FIMCO and certain affiliated entities
and persons agreed, without admitting or denying any of the allegations, (a) to
be enjoined from violating certain provisions of the state securities laws, (b)
to engage in remedial measures designed to ensure that proper sales practices
are observed in the future, and (c) to pay $7.5 million, in addition to the
$24.7 million previously paid by FIC in connection with the SEC settlement, to
investors in the High Yield Funds. In addition, as part of those settlements,
several FIC executives, including Glenn O. Head, who is an officer and trustee
of the Fund agreed to be suspended and enjoined temporarily from associating
with any broker-dealer in a supervisory capacity in certain of the states. On
December 8, 1993, several present and former FIC executives, including Mr. Head,
also agreed, without admitting or denying the allegations, to temporary SEC
suspensions from associating with broker-dealers and in some cases other
regulated entities in a supervisory capacity.
DISTRIBUTION PLANS
Pursuant to separate distribution plans pertaining to each Series' Class A and
Class B shares ("Class A Plan" or "Class B Plan," and collectively, "Plans"),
each Series is authorized to compensate the Underwriter for certain expenses
incurred in the distribution of that Series' shares ("distribution fees") and
the servicing or maintenance of existing Series shareholder accounts ("service
fees"). Pursuant to the Plans, distribution fees are paid for activities
relating to the distribution of Series shares, including costs of printing and
dissemination of sales material or literature, prospectuses and reports used in
connection with the sale of Series shares. Service fees are paid for the
ongoing maintenance and servicing of existing shareholder accounts, including
payments to Representatives who provide shareholder liaison services to their
customers who are holders of that Series, provided they meet certain criteria.
Pursuant to each Class A Plan, each Series is authorized to pay the
Underwriter a distribution fee at the annual rate of 0.05% that Series' average
daily net assets attributable to Class A shares and a service fee of 0.25% of
that Series' average daily net assets attributable to Class A shares. Pursuant
to each Class B Plan, each Series is authorized to pay the Underwriter a
distribution fee at the annual rate of 0.75% of that Series' average daily net
assets attributable to Class B shares and a service fee of 0.25% of that Series'
average daily net assets attributable to Class B shares. Payments made to the
Underwriter under the Plans will represent compensation for distribution and
service activities, not reimbursement for specific expenses incurred.
Although Class B shares are sold without an initial sales charge, the
Underwriter pays from its own resources a sales commission to FIC
Representatives and a concession equal to 3.5% of the amount invested to Dealers
who sell Class B shares. In addition, the Underwriter will make quarterly
payments of service fees to Representatives commencing after the thirteenth
month following the initial sale of Class B shares. The Underwriter will make
such payments at an annual
28
<PAGE>
rate of up to 0.25% of the average net asset value of Class B shares which are
attributable to shareholders for whom the Representatives are designated as
dealer of record.
The Series may suspend or modify payments under the Plans at any time, and
payments are subject to the continuation of each Plan, the terms of any dealer
agreements between Dealers and the Underwriter and any applicable limits imposed
by the National Association of Securities Dealers, Inc. Each Series will not
carry over any fees under the Plans to the next fiscal year. See "Distribution
Plans" in the SAI for a full discussion of the various Plans.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Series' shares fluctuates and is determined
separately for each class of shares. The per share net asset value of the Class
B shares will generally be lower than that of the Class A shares because of the
higher expenses borne by the Class B shares. The net asset value of shares of a
given class of each Series is determined as of the close of regular trading on
the NYSE (generally 4:00 P.M., New York City time) on each day the NYSE is open
for trading, and at such other times as the Fund's Board of Trustees deems
necessary, by dividing the market value of the securities held by such Series,
plus any cash and other assets, less all liabilities attributable to that class,
by the number of shares of the applicable class outstanding. If there is no
available market value, securities will be valued at their fair value as
determined in good faith pursuant to procedures adopted by the Fund's Board of
Trustees. The NYSE currently observes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are generally declared daily by
INVESTMENT GRADE SERIES, quarterly by BLUE CHIP SERIES and TOTAL RETURN SERIES
and annually by SPECIAL SITUATION SERIES. Unless you direct the Transfer Agent
otherwise, (a) dividends declared on a class of shares of INVESTMENT GRADE
SERIES are paid in additional shares of that class at the net asset value
generally determined as of the close of business on the first business day of
the following month, and (b) dividends declared on a class of shares of any
other Series are paid in additional shares of that class at the net asset value
generally determined as of the close of business on the business day immediately
following the record date of the dividend. If you redeem all of your shares of
INVESTMENT GRADE SERIES at any time during a month, you are paid all dividends
declared through the day prior to the date of the redemption, together with the
proceeds of your redemption, less any applicable CDSC. Net investment income
includes interest and dividends, earned discount and other income earned on
portfolio securities less expenses.
Each Series also distributes with its regular dividend at the end of the year
substantially all of its net capital gain (the excess of net long-term capital
gain over net short-term capital loss) and net short-term capital gain, if any,
after deducting any available capital loss carryovers and, for SPECIAL
SITUATIONS SERIES and TOTAL RETURN SERIES, any net realized gains from foreign
currency transactions. Unless you direct the Transfer Agent otherwise, these
distributions are paid in additional shares of the same class of the
distributing Series at the net asset value generally determined as of the close
of business on the business day immediately following the record date of the
distribution. A Series may make an additional distribution in any year if
necessary to avoid a Federal excise tax on certain undistributed income and
capital gain.
29
<PAGE>
Dividends and other distributions paid on both classes of a Series' shares are
calculated at the same time and in the same manner. Dividends on Class B shares
of a Series are expected to be lower than those for its Class A shares because
of the higher distribution fees borne by the Class B shares. Dividends on each
class also might be affected differently by the allocation of other class-
specific expenses.
In order to be eligible to receive a dividend or other distribution, you must
own Series shares as of the close of business on the record date of the
distribution. You may elect to receive dividends and/or other distributions in
cash by notifying the Transfer Agent by telephone or in writing prior to the
record date of any such distribution. If you elect this form of payment, the
payment date generally is two weeks following the record date of any such
distribution. Your election remains in effect until you revoke it by notifying
the Transfer Agent.
You may elect to invest the entire amount of any cash distribution on Class A
shares in shares of the same class of any Eligible Fund, including the Money
Market Funds, by notifying the Transfer Agent. See "How to Buy Shares--Cross-
Investment of Cash Distributions." The investment will be made at the net asset
value per share of the other fund, generally determined as of the close of
business, on the business day immediately following the record date of any such
distribution.
A dividend or other distribution paid on a class of shares of a Series will be
paid in additional shares of that class and not in cash if any of the following
events occur: (1) the total amount of the distribution is under $5, (2) the
Series has received notice of your death on an individual account (until written
alternate payment instructions and other necessary documents are provided by
your legal representative), or (3) a distribution check is returned to the
Transfer Agent, marked as being undeliverable, by the U.S. Postal Service after
two consecutive mailings.
TAXES
Each Series intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of Federal income
tax on that part of its investment company taxable income (consisting generally
of net investment income, net short-term capital gain and, for SPECIAL
SITUATIONS SERIES and TOTAL RETURN SERIES, net gains from certain foreign
currency transactions) and net capital gain that is distributed to its
shareholders.
Dividends from a Series' investment company taxable income are taxable to you
as ordinary income, to the extent of the Series' earnings and profits, whether
paid in cash or in additional Series shares. Distributions of a Series' net
capital gain, when designated as such, are taxable to you as long-term capital
gain, whether paid in cash or in additional Series shares, regardless of the
length of time you have owned your shares. If you purchase shares shortly
before the record date for a dividend or other distribution, you will pay full
price for the shares and receive some portion of the price back as a taxable
distribution. You will receive an annual statement following the end of each
calendar year describing the tax status of distributions paid by the Series
during that year.
Each Series is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to you after any applicable CDSC
is deducted (if you are an individual or certain other non-corporate
shareholder) if the Series is not furnished with your correct taxpayer
identification number, and that percentage of dividends and such distributions
in certain other circumstances.
30
<PAGE>
Your redemption of Series shares will result in a taxable gain or loss to you,
depending on whether the redemption proceeds are more or less than your adjusted
basis for the redeemed shares (which normally includes any initial sales charge
paid on Class A shares). An exchange of Series shares for shares of any
Eligible Fund generally will have similar tax consequences. However, special
tax rules apply when a shareholder (1) disposes of Class A shares through a
redemption or exchange within 90 days of purchase and (2) subsequently acquires
Class A shares of an Eligible Fund without paying a sales charge due to the 90-
day reinvestment privilege or exchange privilege. In these cases, any gain on
the disposition of the original Class A shares will be increased, or loss
decreased, by the amount of the sales charge paid when the shares were acquired,
and that amount will increase the basis of the Eligible Fund's shares
subsequently acquired. In addition, if you purchase Series shares within 30
days before or after redeeming other shares of that Series (regardless of class)
at a loss, all or a portion of the loss will not be deductible and will increase
the basis of the newly purchased shares.
No gain or loss will be recognized to a shareholder as a result of a
conversion of Class B shares into Class A shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting each Series and its shareholders; see the SAI
for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. You therefore are urged to
consult your own tax adviser.
PERFORMANCE INFORMATION
For purposes of advertising, each Series' performance may be calculated for
each class of its shares based on average annual total return and total return.
Each of these figures reflects past performance and does not necessarily
indicate future results. Average annual total return shows the average annual
percentage change in an assumed $1,000 investment. It reflects the hypothetical
annually compounded return that would have produced the same total return if a
Series' performance had been constant over the entire period. Because average
annual total return tends to smooth out variations in a Series' return, you
should recognize that it is not the same as actual year-by-year results.
Average annual total return includes the effect of paying the maximum sales
charge (in the case of Class A shares) or the deduction of any applicable CDSC
(in the case of Class B shares) and payment of dividends and other distributions
in additional shares. One, five and ten year periods will be shown unless the
class has been in existence for a shorter period. Total return is computed
using the same calculations as average annual total return. However, the rate
expressed is the percentage change from the initial $1,000 invested to the value
of the investment at the end of the stated period. Total return calculations
assume reinvestment of dividends and other distributions.
INVESTMENT GRADE SERIES also may advertise its yield for each class of shares.
Yield reflects investment income net of expenses over a 30-day (or one-month)
period on a Series share, expressed as an annualized percentage of the maximum
offering price per share for Class A shares and the net asset value per share
for Class B shares at the end of the period. Yield computations differ from
other accounting methods and therefore may differ from dividends actually paid
or reported net income. INVESTMENT GRADE SERIES may also advertise its "actual
distribution rate" for each class of shares. This is computed in the same
manner as yield except that actual income dividends declared per share during
the period in questions are substituted for net investment income per
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<PAGE>
share. In addition, INVESTMENT GRADE SERIES calculates its "actual distribution
rate" based upon net asset value for dissemination to existing shareholders.
Each of the above performance calculations may be based on investment at
reduced sales charge levels or at net asset value. Any quotation of performance
figures not reflecting the maximum sales charge or CDSC will be greater than if
the maximum sales charge or CDSC were used. Additional performance information
is contained in the Fund's Annual Report which may be obtained without charge by
contacting the Fund at 1-800-423-4026.
GENERAL INFORMATION
ORGANIZATION. The Fund is a Massachusetts business trust organized on
September 23, 1988. The Fund is authorized to issue an unlimited number of
shares of beneficial interest, no par value, in such separate and distinct
series and classes of shares as the Board of Trustees shall from time to time
establish. The shares of beneficial interest of the Fund are presently divided
into five separate and distinct series, each having two classes, designated
Class A shares and Class B shares. In addition to the four Series of the Fund in
this Prospectus, First Investors Insured Intermediate Tax Exempt Series is also
a separate series of the Fund. The classes differ in that (1) each class has
exclusive voting rights on matters affecting only that class, (2) Class A shares
are subject to an initial sales charge and relatively lower ongoing distribution
fees, (3) Class B shares bear higher ongoing distribution fees, are subject to a
CDSC upon certain redemptions and will automatically convert to Class A shares
approximately eight years after purchase, (4) each class may bear differing
amounts of certain other class-specific expenses, and (5) each class has
different exchange privileges. The Fund's Board of Trustees anticipates that
there will not be any conflicts among the interests of the holders of the
different classes of each Series' shares. On an ongoing basis, the Fund's Board
of Trustees will consider whether any such conflict exists and, if so, take
appropriate action. The Fund does not hold annual shareholder meetings. If
requested to do so by the holders of at least 10% of the Fund's outstanding
shares, the Fund's Board of Trustees will call a special meeting of shareholders
for any purpose, including the removal of Trustees. Each share of each Series
has equal voting rights except as noted above. Each share of a Series is
entitled to participate equally in dividends and other distributions and the
proceeds of any liquidation except that, due to the higher expenses borne by the
Class B shares, such dividends and proceeds are likely to be lower for the Class
B shares than for the Class A shares.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Series, except TOTAL RETURN SERIES.
Brown Brothers Harriman & Co., 40 Water Street, Boston, MA 02109, is custodian
for TOTAL RETURN SERIES and employs foreign sub-custodians to provide custody of
the Series' foreign assets.
TRANSFER AGENT. Administrative Data Management Corp., 10 Woodbridge Center
Drive, Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as
transfer and dividend disbursing agent for each Series and as redemption agent
for regular redemptions. The Transfer Agent's telephone number is 1-800-423-
4026.
SHARE CERTIFICATES. The Series do not issue share certificates unless
requested in writing to do so. The Series do not issue certificates for Class B
shares or for Class A shares purchased under any retirement account. Ownership
of shares of each Series is recorded on a stock register by the
32
<PAGE>
Transfer Agent and shareholders have the same rights of ownership with respect
to such shares as if certificates had been issued.
CONFIRMATIONS AND STATEMENTS. You will receive confirmations of purchases and
redemptions of shares of a Series. Statements of shares owned will be sent to
you following a transaction in the account, including payment of a dividend or
capital gain distribution in additional shares or cash.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES. Ronald J. Davis, 99
Lindley Ave., North Kingstown, RI 02852 owns 26.2% of the Class B shares of
INVESTMENT GRADE SERIES and may, therefore, be deemed to control this class of
that Series under the 1940 Act.
SHAREHOLDER INQUIRIES. Shareholder inquiries can be made by calling
Shareholder Services at 1-800-423-4026.
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. It is each Series' practice
to mail only one copy of its annual and semi-annual reports to any address at
which more than one shareholder with the same last name has indicated that mail
is to be delivered. Additional copies of the reports will be mailed if
requested in writing or by telephone by any shareholder. Each Series will
ensure that an additional copy of such reports are sent to any shareholder who
subsequently changes his or her mailing address.
APPENDIX A
DESCRIPTION OF CORPORATE AND MUNICIPAL BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
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<PAGE>
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal. "BB" indicates the least degree of speculation and "C" the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is being
paid.
D Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.
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<PAGE>
The "D" rating also will be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities, fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat greater than the Aaa
securities.
A Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
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<PAGE>
C Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
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TABLE OF CONTENTS
- -----------------------------------------
<TABLE>
<S> <C>
Fee Table........................... 2
Financial Highlights................ 6
Investment Objectives and Policies.. 8
Alternative Purchase Plans.......... 16
How to Buy Shares................... 17
How to Exchange Shares.............. 22
How to Redeem Shares................ 23
Telephone Transactions.............. 25
Management.......................... 26
Distribution Plans.................. 28
Determination of Net Asset Value.... 29
Dividends and Other Distributions... 29
Taxes............................... 30
Performance Information............. 31
General Information................. 32
Appendix A.......................... 33
</TABLE>
INVESTMENT ADVISER CUSTODIANS
First Investors Management The Bank of New York
Company, Inc. 48 Wall Street
95 Wall Street New York, NY 10286
New York, NY 10005
Brown Brothers
UNDERWRITER Harriman & Co.
First Investors Corporation 40 Water Street
95 Wall Street Boston, MA 02109
New York, NY 10005
AUDITORS
TRANSFER AGENT Tait, Weller & Baker
Administrative Data Two Penn Center Plaza
Management Corp. Philadelphia, PA 19102-1707
10 Woodbridge Center Drive
Woodbridge, NJ 07095-1198 LEGAL COUNSEL
Kirkpatrick & Lockhart
1800 M Street, N.W.
Washington, D.C. 20036
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus or the Statement of Additional Information, and if given or made,
such information and representation must not be relied upon as having been
authorized by the Fund, First Investors Corporation, or any affiliate thereof.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the shares offered hereby in any state to any person to whom
it is unlawful to make such offer in such state.
<PAGE>
First Investors
Series Fund
- ------------------------------------
Blue Chip Series
Investment Grade Series
Special Situation Series
Total Return Series
- ------------------------------------
Prospectus
- ------------------------------------
May 1, 1995
First Investors Logo
Logo is described as follows: the arabic numeral one separated into seven
vertical segments followed by the words "First Investors."
Vertical line from top to bottom in center of page about 1/2 inch in thickness.
The following language appears to the left of the above language in the printed
piece:
The words "BULK RATE U.S. POSTAGE PAID PERMIT NO. 1796" in a box to the right of
a circle containing the words "MAILED FROM ZIP CODE 17604" appears on the
righthand side.
The following language appears on the lefthand side:
FIRST INVESTORS SERIES FUND
95 WALL STREET
NEW YORK, NY 10005
First Investors Logo (as described above)
A MEMBER OF THE
FIRST INVESTORS
FINANCIAL NETWORK
FISF001
<PAGE>
FIRST INVESTORS SERIES FUND
BLUE CHIP SERIES
INVESTMENT GRADE SERIES
SPECIAL SITUATIONS SERIES
TOTAL RETURN SERIES
95 Wall Street 1-800-423-4026
New York, New York 10005
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1995
This is a Statement of Additional Information ("SAI") for BLUE CHIP SERIES,
INVESTMENT GRADE SERIES, SPECIAL SITUATION SERIES and TOTAL RETURN SERIES
(individually and collectively, "Series"), each of which is a separate
designated series of First Investors Series Fund ("Fund"). The Fund is an open-
end diversified management investment company which presently offers five
separate investment series.
BLUE CHIP SERIES seeks to provide investors with high total investment
return consistent with the preservation of capital.
INVESTMENT GRADE SERIES seeks to generate a maximum level of income
consistent with investment in investment grade debt securities.
SPECIAL SITUATIONS SERIES seeks long-term growth of capital.
TOTAL RETURN SERIES seeks to provide investors with high long-term total
investment return consistent with moderate investment risk.
There can be no assurance that any Series will achieve its investment
objective.
This SAI is not a prospectus. It should be read in conjunction with the
Series' Prospectus dated May 1, 1995, which may be obtained free of cost from
the Fund at the address or telephone number noted above.
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
Page
----
Investment Policies............................. 3
Hedging and Option Income Strategies............ 9
Investment Restrictions......................... 18
Trustees and Officers........................... 26
Management...................................... 28
Underwriter..................................... 29
Distribution Plans.............................. 30
Determination of Net Asset Value................ 32
Allocation of Portfolio Brokerage............... 32
Reduced Sales Charges, Additional Exchange and
Redemption Information and Other Services...... 34
Taxes........................................... 38
Performance Information......................... 41
General Information............................. 46
Appendix A...................................... 48
Appendix B...................................... 49
Financial Statements 51
</TABLE>
2
<PAGE>
INVESTMENT POLICIES
BANKERS' ACCEPTANCES. Each Series may invest in bankers' acceptances.
--------------------
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
asset or it may be sold in the secondary market at the going rate of interest
for a specific maturity. Although maturities for acceptances can be as long as
270 days, most acceptances have maturities of six months or less.
CERTIFICATES OF DEPOSIT. Each Series may invest in bank certificates of
-----------------------
deposit ("CDs") subject to the restrictions set forth in the Prospectus. The
Federal Deposit Insurance Corporation is an agency of the U.S. Government which
insures the deposits of certain banks and savings and loan associations up to
$100,000 per deposit. The interest on such deposits may not be insured if this
limit is exceeded. Current Federal regulations also permit such institutions to
issue insured negotiable CDs in amounts of $100,000 or more, without regard to
the interest rate ceilings on other deposits. To remain fully insured, these
investments currently must be limited to $100,000 per insured bank or savings
and loan association.
CONVERTIBLE SECURITIES. Each Series 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 Series' investment adviser, First Investors Management Company,
Inc. ("Adviser" or "FIMCO"), 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.
LOANS OF PORTFOLIO SECURITIES. BLUE CHIP SERIES, INVESTMENT GRADE SERIES
------------------------------
and TOTAL RETURN SERIES may loan securities to qualified broker-dealers or other
institutional investors provided: the borrower pledges to the Series and agrees
to maintain at all times with the Series 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 Series; the Series 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 Series at any time and the Series 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 Series. The
borrower must add to the collateral whenever the market value of the securities
rises above the level of such collateral. The Series 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.
MORTGAGE-RELATED SECURITIES. BLUE CHIP SERIES, INVESTMENT GRADE SERIES and
---------------------------
TOTAL RETURN SERIES 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 a
Series), like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans
3
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are for specified periods of time, such as twenty to thirty years, the borrowers
can, and typically do, repay them sooner. Thus, the security holders frequently
receive prepayments of principal, in addition to the principal which is part of
the regular monthly payments. A borrower is more likely to prepay a mortgage
which bears a relatively high rate of interest. Thus, in times of declining
interest rates, some higher yielding mortgages might be repaid resulting in
larger cash payments to a Series, and the Series will be forced to accept lower
interest rates when that cash is used to purchase additional securities.
Interest rate fluctuations may significantly alter the average maturity of
mortgage-backed securities, due to the level of refinancing by homeowners. When
interest rates rise, prepayments often drop, which should increase the average
maturity of the mortgage-backed security. Conversely, when interest rates fall,
prepayments often rise, which should decrease the average maturity of the
mortgage-backed security.
GNMA CERTIFICATES. 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 Series purchase 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. A Series 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
Series will, however, be distributed to shareholders. Foreclosures impose no
risk to principal investment because of the GNMA guarantee. As prepayment rates
of the individual mortgage pools vary widely, it is not possible to predict
accurately the average life of a particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of
------------------------------------------
interest on GNMA Certificates is lower than the interest rate paid on the VA-
guaranteed or FHA-insured mortgages underlying the Certificates by the amount of
the fees paid to GNMA and the issuer. The coupon rate by itself, however, does
not indicate the yield which will be earned on GNMA Certificates. First,
Certificates may trade in the secondary market at a premium or discount.
Second, interest is earned monthly, rather than semi-annually as with
traditional bonds; monthly compounding raises the effective yield earned.
Finally, the actual yield of a GNMA Certificate is influenced by the prepayment
experience of the mortgage pool underlying it. For example, if the higher-
yielding mortgages from the pool are prepaid, the yield on the remaining pool
will be reduced.
4
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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.
PORTFOLIO TURNOVER. Although each Series generally will not invest for
------------------
short-term trading purposes, portfolio securities may be sold from time to time
without regard to the length of time they have been held when, in the opinion of
the Adviser, investment considerations warrant such action. Portfolio turnover
rate is calculated by dividing (1) the lesser of purchases or sales of portfolio
securities for the fiscal year by (2) the monthly average of the value of
portfolio securities owned during the fiscal year. A 100% turnover rate would
occur if all the securities in a Series' 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 generally leads to transaction costs and may result in a
greater number of taxable transactions. See "Allocation of Portfolio
Brokerage."
For the fiscal years ended December 31, 1993 and 1994, BLUE CHIP SERIES'
portfolio turnover rate was 39% and 82%, respectively, INVESTMENT GRADE SERIES'
portfolio turnover rate was 38% and 17%, respectively, and SPECIAL SITUATIONS
SERIES' portfolio turnover rate was 71% and 53%, respectively. See the
Prospectus for the portfolio turnover rate of TOTAL RETURN SERIES.
REPURCHASE AGREEMENTS. Each Series 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 Series 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 Series 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 Series in each agreement, and
the Series 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 Series 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 Series may be delayed or limited. No
Series, other than INVESTMENT GRADE SERIES, may enter into a repurchase
agreement with more than seven days to maturity if, as a result, more than 15%
of such Series' net assets would be invested in such repurchase agreements and
other illiquid investments. INVESTMENT GRADE SERIES may not enter into a
repurchase agreement with more than seven days to maturity if, as a result,
5
<PAGE>
more than 10% of its net assets would be invested in such repurchase agreements
and other illiquid investments.
RESTRICTED AND ILLIQUID SECURITIES. No Series, other than INVESTMENT GRADE
----------------------------------
SERIES, 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. INVESTMENT GRADE SERIES
will not invest more than 10% of its net assets in such illiquid securities.
This policy includes foreign issuers' unlisted securities with a limited trading
market and repurchase agreements maturing in more than seven days. This policy
does not include restricted securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, as amended ("1933 Act"), which the Board of
Trustees or the Adviser has determined under Board-approved guidelines are
liquid. As a result of undertakings to certain state securities commissions,
BLUE CHIP SERIES and TOTAL RETURN SERIES each will not invest more than 10% of
its net assets in illiquid securities, including restricted securities
(excluding Rule 144A securities), and unseasoned issuers and SPECIAL SITUATIONS
SERIES will not invest more than 10% of its net assets in illiquid securities,
including restricted securities (excluding Rule 144A securities), and unseasoned
issuers nor more than 15% of its total assets in restricted securities,
including Rule 144A securities and unseasoned issuers.
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 each Series' limit, as noted above. Where registration
is required, a Series 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 Series may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a Series might obtain a less favorable price than
prevailed when it decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Series, however, could affect adversely the marketability
of such portfolio securities and a Series might be unable to dispose of such
securities promptly or at reasonable prices.
6
<PAGE>
HIGH YIELD SECURITIES--RISK FACTORS. High Yield Securities are subject to
certain risks that may not be present with investments in higher grade
securities.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. Debt obligations rated
lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds"
are speculative and generally involve a higher risk or loss of principal and
income than higher-rated securities ("High Yield Securities"). The prices of
High Yield Securities tend to be less sensitive to interest rate changes than
higher-rated investments, but may be more sensitive to adverse economic changes
or individual corporate developments. Periods of economic uncertainty and
changes generally result in increased volatility in the market prices and yields
of High Yield Securities and thus in a Series' net asset value. A strong
economic downturn or a substantial period of rising interest rates could
severely affect the market for High Yield Securities. In these circumstances,
highly leveraged companies might have greater difficulty in making principal and
interest payments, meeting projected business goals, and obtaining additional
financing. Thus, there could be a higher incidence of default. This would
affect the value of such securities and thus a Series' net asset value.
Further, if the issuer of a security owned by a Series defaults, that Series
might incur additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, a Series would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a Series experiences unexpected net redemptions in
a rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Series expenses could be allocated and in a reduced rate of return for
that Series. While it is impossible to protect entirely against this risk,
diversification of a Series' portfolio and the Adviser's careful analysis of
prospective portfolio securities should minimize the impact of a decrease in
value of a particular security or group of securities in a Series' portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below investment
grade bonds expanded rapidly in the 1980's, and its growth paralleled a long
economic expansion. During that period, the yields on below investment grade
bonds rose dramatically. Such higher yields did not reflect the value of the
income stream that holders of such bonds expected, but rather the risk that
holders of such bonds could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. In fact, from 1989
to 1991 during a period of economic recession, the percentage of lower quality
securities that defaulted rose significantly, although the default rate
decreased in subsequent years. There can be no assurance that such declines in
the below investment grade market will not reoccur. The market for below
investment grade bonds generally is thinner and less active than that for higher
quality bonds, which may limit a Fund's ability to sell such securities at fair
value in response to changes in the economy or the financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower rated securities,
especially in a thinly traded market.
CREDIT RATINGS. The credit ratings issued by credit rating services
may not fully reflect the true risks of an investment. For example, credit
ratings typically evaluate the safety of principal and interest payments, not
market value risk, of High Yield Securities. Also, credit rating agencies may
fail to change on a timely basis a credit rating to reflect changes in economic
or company conditions that affect a security's market value. Although the
Adviser considers ratings of recognized rating services such as Moody's and S&P,
the Adviser primarily relies on its own credit analysis, which includes a study
of existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to
7
<PAGE>
economic conditions, its operating history and the current trend of earnings.
Each Fund may invest in securities rated 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 in great danger of defaulting and
are considered to be highly speculative. See "Deep Discount Securities." The
Adviser continually monitors the investments in a Series' portfolio and
carefully evaluates whether to dispose of or retain High Yield Securities whose
credit ratings have changed. See Appendix A for a description of corporate bond
ratings.
LIQUIDITY AND VALUATION. Lower-rated bonds are typically traded among
a smaller number of broker-dealers than in a broad secondary market. Purchasers
of High Yield Securities tend to be institutions, rather than individuals, which
is a factor that further limits the secondary market. To the extent that no
established retail secondary market exists, many High Yield Securities may not
be as liquid as higher-grade bonds. A less active and thinner market for High
Yield Securities than that available for higher quality securities may result in
more volatile valuations of a Fund's holdings and more difficulty in executing
trades at favorable prices during unsettled market conditions.
The ability of a Series 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 Fund's Board of Trustees to value
High Yield Securities becomes more difficult, with judgment playing a greater
role. Further, adverse publicity about the economy or a particular issuer may
adversely affect the public's perception of the value, and thus liquidity, of a
High Yield Security, whether or not such perceptions are based on a fundamental
analysis.
LEGISLATION. Provisions of the Revenue Reconciliation Act of 1989
limit a corporate issuer's deduction for a portion of the original issue
discount on "high yield discount" obligations (including certain pay-in-kind
securities). This limitation could have a materially adverse impact on the
market for certain High Yield Securities. From time to time, legislators and
regulators have proposed other legislation that would limit the use of high
yield debt securities in leveraged buyouts, mergers and acquisitions. It is not
certain whether such proposals, which also could adversely affect High Yield
Securities, will be enacted into law.
SHORT SALES. Although neither Series intends to do so in the foreseeable
-----------
future, INVESTMENT GRADE SERIES and SPECIAL SITUATIONS SERIES may borrow
securities for cash sale to others. This type of transaction is commonly known
as a "short sale." These Series will engage in short sales for hedging purposes
only. These Series only may make short sales "against the box," which occurs
when a Series enters into a short sale with a security identical to one it
already owns or has the immediate or unconditional right, at no cost, to obtain
the identical security.
WARRANTS. INVESTMENT GRADE SERIES, SPECIAL SITUATIONS SERIES and TOTAL
--------
RETURN SERIES may purchase warrants, which are instruments that permit a Series
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. Each Series' 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.
8
<PAGE>
WHEN-ISSUED SECURITIES. INVESTMENT GRADE SERIES and TOTAL RETURN SERIES
----------------------
may each invest up to 10% of its net assets in securities issued on a when-
issued or delayed delivery basis at the time the purchase is made. The Series
generally would not pay for such securities or start earning interest on them
until they are issued or received. However, when the Series 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 the Series on
a when-issued basis may result in the Series' incurring a loss or missing an
opportunity to make an alternative investment. When the Series enters into a
commitment to purchase securities on a when-issued basis, it establishes a
separate account with its custodian consisting of cash or liquid high-grade debt
securities equal to the amount of the Series' commitment, which are valued at
their fair market value. If on any day the market value of this segregated
account falls below the value of the Series' commitment, the Series will be
required to deposit additional cash or qualified securities into the account
until equal to the value of the Series' commitment. When the securities to be
purchased are issued, the Series 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 the
Series is committed to purchase. Sale of securities in the segregated account
or other securities owned by the Series and when-issued securities may cause the
realization of a capital gain or loss.
ZERO COUPON AND PAY-IN-KIND SECURITIES. INVESTMENT GRADE SERIES and TOTAL
--------------------------------------
RETURN SERIES may each invest up to 5% of its net assets in zero coupon and pay-
in-kind securities. Zero coupon securities are debt obligations that do not
entitle the holder to any periodic payment of interest prior to maturity or a
specified date when the securities begin paying current interest. They are
issued and traded at a discount from their face amount or par value, which
discount varies depending on the time remaining until cash payments begin,
prevailing interest rates, liquidity of the security and the perceived credit
quality of the issuer. Pay-in-kind securities are those that pay interest
through the issuance of additional securities. The market prices of zero coupon
and pay-in-kind securities generally are more volatile than the prices of
securities that pay interest periodically and in cash and are likely to respond
to changes in interest rates to a greater degree than do other types of debt
securities having similar maturities and credit quality. Original issue
discount earned on zero coupon securities and the "interest" on pay-in-kind
securities must be included in a Series' income. Thus, to continue to qualify
for tax treatment as a regulated investment company and to avoid a certain
excise tax on undistributed income, a Series 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 Series' cash
assets or, if necessary, from the proceeds of sales of portfolio securities.
Each Series will not be able to purchase additional income-producing securities
with cash used to make such distributions, and its current income ultimately
could be reduced as a result.
HEDGING AND OPTION INCOME STRATEGIES
The Adviser may engage in certain options and futures strategies to hedge
the Series' portfolios, in other circumstances permitted by the Commodities
Futures Trading Commission ("CFTC") and, for TOTAL RETURN SERIES, engage in
certain options strategies to enhance income. The instruments described below
are sometimes referred to collectively as "Hedging Instruments" and are defined
in Appendix B. Certain special characteristics of and risks associated with
using Hedging Instruments are discussed below.
9
<PAGE>
In addition to the non-fundamental investment guidelines (described below)
adopted by the Board of Trustees to govern each Series' investments in Hedging
Instruments, use of these instruments is subject to the applicable regulations
of the Securities and Exchange Commission ("SEC"), the several options and
futures exchanges upon which options and futures contracts are traded, the CFTC
and various state regulatory authorities. In addition, a Series' ability to use
Hedging Instruments will be limited by tax considerations. See "Taxes."
Participation in the options or futures markets involves investment risks
and transaction costs to which a Series 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 Series may leave the Series in a worse position than if such
strategies were not used. A Series might not employ any of the strategies
described below, and there can be no assurance that any strategy will succeed.
The use of these strategies involve certain special risks, including (1)
dependence on the Adviser's ability to predict correctly movements in the
direction of interest rates and securities prices, (2) imperfect correlation
between the price of options, futures contracts and options thereon and
movements in the prices of the securities being hedged, (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities, (4) the possible absence of a liquid secondary market for
any particular instrument at any time, and (5) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences.
BLUE CHIP SERIES. Although it does not intend to engage in these
----------------
strategies in the coming year, BLUE CHIP SERIES may attempt to hedge against
changes in market conditions by buying U.S. exchange-traded put and call options
on stock indices and enter into closing transactions with respect to such
options.
INVESTMENT GRADE SERIES. Although it does not intend to engage in these
-----------------------
strategies in the coming year, INVESTMENT GRADE SERIES may buy and sell interest
rate futures contracts and buy and sell call and put options thereon traded on a
U.S. exchange or board of trade. INVESTMENT GRADE SERIES also may enter into
closing transactions with respect to such options to terminate an existing
position.
SPECIAL SITUATIONS SERIES. Although it does not intend to engage in these
-------------------------
strategies in the coming year, SPECIAL SITUATIONS SERIES may enter into forward
currency contracts.
TOTAL RETURN SERIES. Although it does not intend to engage in these
-------------------
strategies in the coming year, TOTAL RETURN SERIES may buy U.S. exchange-traded
put and call options on stock indices and enter into closing transactions with
respect to such options. The Series also may sell covered listed put and call
options and buy call and put options on its portfolio securities and may enter
into closing transactions with respect to such options. The Series may also 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. The Series also may enter into
forward currency contracts.
COVER FOR HEDGING AND OPTION INCOME STRATEGIES. No Series will use
----------------------------------------------
leverage in its hedging and option income strategies. In the case of each
transaction entered into as a hedge, each Series will hold securities,
currencies or other options or futures positions whose values are expected to
offset ("cover") its obligations hereunder. Each Series will not enter into a
hedging or option income strategy that exposes the Series to an obligation to
another party unless it owns either (1) an offsetting ("covered") position in
securities, currencies or other options or futures contracts or (2) cash,
receivables and short-term debt
10
<PAGE>
securities with a value sufficient at all times to cover its potential
obligations. Each Series 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, high-grade debt securities
in a segregated account with its custodian in the prescribed amount.
Securities, currencies or other options or futures positions used for cover and
securities held in a segregated account cannot be sold or closed out while the
hedging or option income strategy is outstanding unless they are replaced with
similar assets. As a result, there is a possibility that the use of cover or
segregation involving a large percentage of a Series' assets could impede
portfolio management or the Series' ability to meet redemption requests or other
current obligations.
OPTIONS STRATEGIES. TOTAL RETURN SERIES 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 Series' potential loss to the option premium paid;
conversely, if the market price of the underlying security increases above the
exercise price and the Series either sells or exercises the option, any profit
eventually realized will be reduced by the premium. TOTAL RETURN SERIES 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 Series to sell the
underlying security at the predetermined exercise price; thus the potential for
loss to the Series 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 Series 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.
TOTAL RETURN SERIES 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 Series will write covered call options on securities
generally when the Adviser believes that the premium received by the Series,
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 Series
declines, the amount of such decline will be offset wholly or in part by the
amount of the premium received by the Series. If, however, there is an increase
in the market price of the underlying security and the option is exercised, the
Series will be obligated to sell the security at less than its market value.
The Series gives up the ability to sell the portfolio securities used to cover
the call option while the call option is outstanding. Such securities may also
be considered illiquid in the case of over-the-counter ("OTC") options written
by the Series, to the extent described under "Investment Policies--Restricted
and Illiquid Securities" and therefore subject to the Series' limitation on
investments in illiquid securities. In addition, the Series 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).
TOTAL RETURN SERIES 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
11
<PAGE>
during the option period. So long as the obligation of the writer continues,
the writer may be assigned an exercise notice by the broker-dealer through which
such option was sold, requiring it to make payment of the exercise price against
delivery of the underlying security. The operation of put options in other
respects, including their related risks and rewards, is substantially identical
to that of call options. The Series 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 Series 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 Series would expect to suffer a
loss.
BLUE CHIP SERIES and TOTAL RETURN SERIES 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 Series
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 Series and the opposite party with no clearing
organization guarantee. Thus, when a Series 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 Series as well as the
loss of the expected benefit of the transaction.
OPTIONS GUIDELINES. In view of the risks involved in using options, the
------------------
Board of Trustees has adopted non-fundamental investment guidelines to govern a
Series' use of options that may be modified by the Board without shareholder
vote: (1) options will be purchased or written only when the Adviser believes
that there exists a liquid secondary market in such options; and (2) no Series
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 Series, exceeds
5% of that Series' total assets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. A Series may
----------------------------------------------------
effectively terminate its right or obligation under an option by entering into a
closing transaction. If TOTAL RETURN SERIES wishes to terminate its obligation
to sell securities under a call option it has written, the Series may purchase a
call option of the same series (that is, a call 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 Series may
write an option of the same series as the option held; this is known as a
closing sale transaction. Closing
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transactions essentially permit a Series to realize profits or limit losses on
its options positions prior to the exercise or expiration of the option.
Whether a profit or loss is realized from a closing transaction depends on the
price movement of the underlying index or security and the market value of the
option.
The value of an option position will reflect, among other things, the
current market price of the underlying security or stock index, the time
remaining until expiration, the relationship of the exercise price to the market
price, the historical price volatility of the underlying security or stock index
and general market conditions. For this reason, the successful use of options
depends upon the Adviser's ability to forecast the direction of price
fluctuations in the underlying securities markets or, in the case of stock index
options, fluctuations in the market sector represented by the index selected.
Options normally have expiration dates of up to nine months. Unless an
option purchased by a Series 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 SERIES and TOTAL RETURN SERIES
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 Series 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 Series,
there is no assurance that the Series 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 Series 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 Series would have to exercise those
options that it has purchased in order to realize any profit. With respect to
options written by a Series, the inability to enter into a closing transaction
may result in material losses to the Series. For example, because a Series must
maintain a covered position with respect to any call option it writes, the
Series 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
Series' 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 a Series 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 Series' activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, a Series 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.
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FUTURES STRATEGIES. INVESTMENT GRADE SERIES and TOTAL RETURN SERIES 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 each invests.
TOTAL RETURN SERIES may sell stock index futures contracts in anticipation
of a general market or market sector decline that could adversely affect the
market value of the Series' portfolio. To the extent that a portion of the
Series' portfolio correlates with a given stock index, the sale of futures
contracts on that index could reduce the risks associated with a market decline
and thus provide an alternative to the liquidation of securities positions. The
Series may purchase a stock index futures contract if a significant market or
market sector advance is anticipated. Such a purchase would serve as a
temporary substitute for the purchase of individual stocks, which stocks may
then be purchased in an orderly fashion. This strategy may minimize the effect
of all or part of an increase in the market price of securities that the Series
intends to purchase. A rise in the price of the securities should be partially
or wholly offset by gains in the futures position.
TOTAL RETURN SERIES may purchase a call option on a stock index future to
hedge against a market advance in equity securities that the Series plans to
purchase at a future date. The Series may write covered call options on stock
index futures as a partial hedge against a decline in the prices of stocks held
in the Series' portfolio. The Series also may purchase put options on stock
index futures contracts.
INVESTMENT GRADE SERIES and TOTAL RETURN SERIES may use interest rate
futures contracts and options thereon to hedge the debt portion of each of its
portfolio against changes in the general level of interest rates. Each Series
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 the Series or
avoided by taking delivery of the debt securities under the futures contract.
Conversely, a fall in the market price of the underlying debt securities may
result in a corresponding decrease in the value of the futures position. Each
Series 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.
INVESTMENT GRADE SERIES and TOTAL RETURN SERIES may purchase a call option
on an interest rate futures contract to hedge against a market advance in debt
securities that such Series plans to acquire at a future date. Each Series also
may write covered call options on interest rate futures contracts as a partial
hedge against a decline in the price of debt securities held in such Series'
portfolio or purchase put options on interest rate futures contracts in order to
hedge against a decline in the value of debt securities held in the Series'
portfolio.
INVESTMENT GRADE SERIES and TOTAL RETURN SERIES will use futures contracts
and options thereon solely in bona fide hedging transactions or under other
circumstances permitted by the CFTC and will not enter into such investments for
which the aggregate initial margin and premiums exceed 5% of each Series' total
assets. The Fund, on behalf of each Series, has represented the foregoing to
the CFTC.
FUTURES GUIDELINES. In view of the risks involved in using futures
------------------
strategies described below, the Board of Trustees has adopted non-fundamental
investment guidelines to govern the use of such investments by INVESTMENT GRADE
SERIES and TOTAL RETURN SERIES that may be modified by the Board
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without shareholder vote. Each Series will not purchase or sell futures
contracts or related options if, immediately thereafter, the sum of the amount
of initial margin deposits on such Series' existing futures positions and margin
and premiums paid for related options would exceed 5% of the market value of
such Series' total assets. The value of all futures sold will not exceed the
total market value of a Series' portfolio. In addition, INVESTMENT GRADE SERIES
and TOTAL RETURN SERIES may not purchase interest rate futures contracts if
immediately thereafter more than 30% of such Series' 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, INVESTMENT GRADE SERIES and TOTAL RETURN SERIES 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 Series upon termination of the transaction, assuming all
obligations have been satisfied. Under certain circumstances, such as periods
of high volatility, a Series 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 Series' obligation
to or from a clearing organization.
Holders and writers of futures positions and options thereon can enter into
offsetting closing transactions, similar to closing transactions on options on
securities, by selling or purchasing, respectively, a futures position or
options position with the same terms as the position or option held or written.
Positions in futures contracts and options thereon may be closed only on an
exchange or board of trade providing a secondary market for such futures or
options.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidation of
unfavorable positions. In such event, it may not be possible for a Series to
close a position and, in the event of adverse price movements a Series 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 INVESTMENT GRADE SERIES and TOTAL RETURN SERIES of
futures contracts and related options will depend upon the Adviser's ability to
predict movements in the direction of the overall securities and interest rate
markets, which requires different skills and techniques than predicting changes
in the prices of individual securities. Moreover, futures contracts relate not
to the current price level of
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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 Series 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 Series may need to
sell assets at a time when such sales are disadvantageous to a Series. If the
price of the futures contract or related option moves more than the price of the
underlying securities, a Series 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 INVESTMENT GRADE SERIES and TOTAL RETURN SERIES
intend to purchase or sell futures and related options only on exchanges or
boards of trade where there appears to be a liquid secondary market, there is no
assurance that such a market will exist for any particular contract or option at
any particular time. In such event, it may not be possible to close a futures
or option position and, in the event of adverse price movements, a Series would
continue to be required to make variation margin payments.
Like options on securities, options on futures contracts have a limited
life. The ability to establish and close out options on futures will be subject
to the development and maintenance of liquid secondary markets on the relevant
exchanges or boards of trade. There can be no certainty that liquid secondary
markets for all options on futures contracts will develop.
Purchasers of options on futures contracts pay a premium in cash at the
time of purchase. This amount and the transaction costs are all that is at
risk. Sellers of options on a futures contract, however, must post initial
margin and are subject to additional margin calls that could be substantial in
the event of adverse price movements. In addition, although the maximum amount
at risk when a Series 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 that Series 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.
INVESTMENT GRADE SERIES' and TOTAL RETURN SERIES' activities in the futures
and related options markets may result in a higher portfolio turnover rate and
additional transaction costs in the form of added brokerage commissions;
however, each Series also may save on commissions by using futures and related
options as a hedge rather than buying or selling individual securities or
currencies in anticipation or as a result of market movements.
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FORWARD CURRENCY CONTRACTS. SPECIAL SITUATIONS SERIES and TOTAL RETURN
--------------------------
SERIES may use forward currency contracts to protect against uncertainty in the
level of future exchange rates. These Series will not speculate with forward
currency contracts or foreign currency exchange rates.
SPECIAL SITUATIONS SERIES and TOTAL RETURN SERIES may enter into forward
currency contracts with respect to specific transactions. For example, when a
Series enters into a contract for the purchase or sale of a security denominated
in a foreign currency, or when a Series anticipates the receipt in a foreign
currency of dividend or interest payments on a security that it holds, the
Series may desire to "lock-in" the U.S. dollar price of the security or the U.S.
dollar equivalent of such payment, as the case may be, by entering into a
forward contract for the purchase or sale, for a fixed amount of U.S. dollars or
foreign currency, of the amount of foreign currency involved in the underlying
transaction. A Series will thereby be able to protect itself against a possible
loss resulting from an adverse change in the relationship between the currency
exchange rates during the period between the date on which the security is
purchased or sold, or on which the payment is declared, and the date of which
such payments are made or received.
A Series also may use forward currency contracts in connection with
portfolio positions to lock in the U.S. dollar value of those positions, to
increase the Series' exposure to foreign currencies that the Adviser believes
may rise in value relative to the U.S. dollar or to shift a Series' exposure to
foreign currency fluctuations from one country to another. This investment
practice generally is referred to as "cross-hedging" when another foreign
currency is used.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for a
Series to purchase additional foreign currency on the spot (i.e., cash) market
----
and bear the expense of such purchase if the market value of the security is
less than the amount of foreign currency the Series is obligated to deliver and
if a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio security if its
market value exceeds the amount of foreign currency a Series is obligated to
deliver. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing a Series to sustain losses
on these contracts and transactions costs. A Series may enter into formal
contracts or maintain a net exposure to such contracts only if the Series
maintains cash, U.S. Government securities or liquid, high-grade debt securities
in a segregated account in an amount not less than the value of the Series'
total assets committed to the consummation of the contract, as marked to market
daily.
At or before the maturity date of a forward contract requiring a Series to
sell a currency, the Series may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Series will obtain, on the same maturity date,
the same amount of the currency that it is obligated to deliver. Similarly, a
Series may close out a forward contract requiring it to purchase a specified
currency by entering into a second contract entitling it to sell the same amount
of the same currency on the maturity date of the first contract. A Series would
realize a gain or loss as a result of entering into an offsetting forward
currency contract under either circumstance to the extent the exchange rate or
rates between the currencies involved moved between the execution dates of the
first contract and
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the offsetting contract. There can be no assurance that new forward contracts
or offsets always will be available for a Series. Forward currency contracts
also involve a risk that the other party to the contract may fail to deliver
currency when due, which could result in substantial losses to a Series. The
cost to a Series of engaging in forward currency contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
respective Series 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 Series, voting separately from any other series of the Fund.
As provided in the Investment Company Act of 1940, as amended ("1940 Act"), a
"vote of a majority of the outstanding voting securities of the Series" means
the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of the Series or (2) 67% or more of the shares of the Series present at a
meeting, if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. Changes in values of a particular Series' assets
will not cause a violation of the following investment restrictions so long as
percentage restrictions are observed by that Series at the time it purchases any
security.
BLUE CHIP SERIES. BLUE CHIP SERIES 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 Series may borrow from a bank for temporary or emergency purposes in amounts
not exceeding 5% (taken at the lower of cost or current value) of its total
assets (not including the amount borrowed) and pledge its assets to secure such
borrowings.
(3) Make loans, except loans of portfolio securities (limited to 10% of the
Series' total assets).
(4) Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result: (1) as to 75% of the Series'
total assets (taken at current value), more than 5% of such assets would then be
invested in securities of a single issuer, or (2) 25% or more of the Series'
total assets (taken at current value) would be invested in a single industry.
(5) Purchase more than 10% of the outstanding voting securities of any one
issuer or more than 10% of any class of securities of one issuer (all debt and
all preferred stock of an issuer are each considered a single class for this
purpose).
(6) Pledge, mortgage or hypothecate any of its assets except that the
Series may pledge its assets to secure borrowings made in accordance with
paragraph (2) above, provided the Series 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, although it may purchase and sell securities which are
secured by real estate and securities of companies which invest or deal in real
estate.
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(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 Fund, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of the
Series, any officer, director or Trustee of the Fund 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 Series will not:
(1) Purchase any security if as a result the Series would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) less than three years old.
(2) Invest in securities of other registered investment companies, except
by purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total assets would be invested
in such securities, or except as part of a merger, consolidation or other
acquisition.
(3) Purchase oil, gas or other mineral leases. However, the Series may
purchase and sell the securities of companies engaged in the exploration,
development, production, refining, transporting and marketing of oil, gas or
minerals.
(4) Write, purchase or sell options (puts, calls or combinations thereof),
except that the Series 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 Series' total assets.
(5) Purchase warrants if as a result the Series would then have more than
5% of its total assets invested in warrants (of which no more than 2% may be
warrants not listed on the New York or American Stock Exchange).
(6) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Trustees, or the
Series' 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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The Fund, on behalf of the Series, has filed the following undertakings to
comply with requirements of certain states in which shares of the Series are
sold, which may be changed without shareholder approval:
(1) Notwithstanding non-fundamental investment restrictions (1) and (6)
above, the Series will not invest more than 10% of its net assets in illiquid
securities, including restricted securities (excluding Rule 144A securities),
and unseasoned issuers.
(2) Notwithstanding fundamental investment restriction (7) above, the
Series will not invest in real estate limited partnership interests or in
interests in real estate investment trusts that are not readily marketable.
INVESTMENT GRADE SERIES. INVESTMENT GRADE SERIES will not:
-----------------------
(1) Make short sales of securities "against the box" in excess of 10% of
the Series' total assets.
(2) Issue senior securities, as defined in the 1940 Act, or borrow money,
except that the Series may borrow money 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).
(3) Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result: (1) as to 75% of the Series'
total assets (taken at current value), more than 5% of such assets would then be
invested in securities of a single issuer, or (2) 25% or more of the Series'
total assets (taken at current value) would be invested in a single industry.
(4) Purchase more than 10% of the outstanding voting securities of any one
issuer or more than 10% of any class of securities of one issuer (all debt and
all preferred stock of an issuer are each considered a single class for this
purpose).
(5) Pledge, mortgage or hypothecate any of its assets, except that the
Series may pledge its assets to secure borrowings made in accordance with
paragraph (2) above, provided the Series maintains asset coverage of at least
300% for all such borrowings.
(6) Purchase or sell commodities or commodity contracts or real estate or
interests in real estate, although it may purchase and sell securities which are
secured by real estate, securities of companies which invest or deal in real
estate and interests in real estate investment trusts. However, this
restriction will not preclude bona fide hedging transactions, including the
purchase and sale of futures contracts and related options.
(7) 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.
(8) Make investments for the purpose of exercising control or management.
(9) Purchase any securities on margin (although the Series may obtain such
short-term credit as may be necessary for the purchases and sales of its
portfolio securities).
20
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(10) Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objective and policies, (b) through
the lending of its portfolio securities, or (c) to the extent a repurchase
agreement is deemed a loan.
(11) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of the Fund, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of the
Series, any officer, director or Trustee of the Fund 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 Series will not:
(1) Invest more than 10% of its assets in repurchase agreements maturing in
more than seven days or in other illiquid securities, including securities that
are illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions as to resale. Securities that have legal or
contractual restrictions as to resale but have a readily available market are
not deemed illiquid for purposes of this limitation; the Adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Trustees.
(2) Purchase any security if as a result the Series would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) less than three years old.
(3) Invest in securities of other registered investment companies, except
by purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total assets would be invested
in such securities, or except as part of a merger, consolidation or other
acquisition.
(4) Purchase oil, gas or other mineral leases. However, the Series may
purchase and sell the securities of companies engaged in the exploration,
development, production, refining, transporting and marketing of oil, gas or
minerals.
(5) Purchase warrants if as a result the Series would then have more than
5% of its total assets, valued at the lower of cost or market, invested in
warrants (of which no more than 2% may be warrants not listed on the New York or
American Stock Exchange).
(6) Write, purchase or sell options (puts, calls or combinations thereof),
except that the Series may purchase or write put and call U.S. exchange-traded
options on futures contracts, and may enter into closing transactions with
respect to such options.
The Fund, on behalf of the Series, has filed the following undertakings to
comply with requirements of certain states in which shares of the Series are
sold, which may be changed without shareholder approval:
21
<PAGE>
(1) Notwithstanding fundamental investment restriction (5) above, the
Series will not borrow, pledge, mortgage or hypothecate in excess of one-third
of its total assets.
(2) Notwithstanding fundamental investment restriction (6) above, the
Series will not invest in real estate limited partnership interests or in
interests in real estate investment trusts that are not readily marketable and
will not invest more than 5% of its total assets in puts, calls, straddles,
spreads or any combination thereof.
(3) All investors in the Series shall receive written notification at
least thirty days prior to a change in the Series' investment objective and that
there shall be no exit fee for those investors who desire to redeem their
Series' shares based upon receipt of such notification.
SPECIAL SITUATIONS SERIES. SPECIAL SITUATIONS SERIES will not:
-------------------------
(1) Make short sales of securities "against the box" in excess of 10% of
the Series' total assets.
(2) Issue senior securities or borrow money, except that the Series may
borrow money 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).
(3) Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result: (i) as to 75% of the Series'
total assets (taken at current value), more than 5% of such assets would then be
invested in securities of a single issuer, or (ii) 25% or more of the Series'
total assets (taken at current value) would be invested in a single industry.
(4) Purchase more than 10% of the outstanding voting securities of any one
issuer or more than 10% of any class of securities of one issuer (all debt and
all preferred stock of an issuer are each considered a single class for this
purpose).
(5) Pledge, mortgage or hypothecate any of its assets, except that the
Series may pledge its assets to secure borrowings made in accordance with
paragraph (2) above, provided the Series maintains asset coverage of at least
300% for all such borrowings.
(6) Buy or sell commodities or commodity contracts including futures
contracts, or real estate or interests in real estate, although it may purchase
and sell securities which are secured by real estate, securities of companies
which invest or deal in real estate and interests in real estate investment
trusts.
(7) 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.
(8) Make investments for the purpose of exercising control or management.
(9) Purchase any securities on margin.
(10) Make loans, except through repurchase agreements.
22
<PAGE>
(11) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of the Fund, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of the
Series, any officer, director or Trustee of the Fund 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 Series will not:
(1) Invest more than 10% of its net assets in repurchase agreements
maturing in more than seven days or in other illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions as to resale. Securities that have
legal or contractual restrictions as to resale but have a readily available
market are not deemed illiquid for purposes of this limitation; the Adviser will
monitor the liquidity of such restricted securities under the supervision of the
Board of Trustees.
(2) Purchase any security if as a result the Series would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) less than three years old.
(3) Invest in securities of other registered investment companies, except
by purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total assets would be invested
in such securities, or except as part of a merger, consolidation or other
acquisition.
(4) Purchase oil, gas or other mineral leases. However, the Series may
purchase and sell the securities of companies engaged in the exploration,
development, production, refining, transporting and marketing of oil, gas or
minerals.
(5) Write, purchase or sell options (puts, calls or combinations thereof).
(6) Purchase warrants if as a result the Series would then have more than
5% of its total assets, valued at the lower of cost or market, invested in
warrants (of which no more than 2% may be warrants not listed on the New York or
American Stock Exchange).
The Fund, on behalf of the Series, has filed the following undertakings to
comply with requirements of certain states in which shares of the Series are
sold, which may changed without shareholder approval:
(1) Notwithstanding non-fundamental investment restrictions (1) and (2)
above, the Series will not invest more than 10% of its net assets in illiquid
securities, including restricted securities (excluding Rule 144A securities),
and unseasoned issuers nor more than 15% of its total assets in restricted
securities, including Rule 144A securities and unseasoned issuers.
23
<PAGE>
(2) Notwithstanding fundamental investment restriction (6) above, the
Series will not invest in real estate limited partnership interests or in
interests in real estate investment trusts that are not readily marketable.
TOTAL RETURN SERIES. TOTAL RETURN SERIES 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 Series' 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
Series' total assets).
(4) Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result: (i) as to 75% of the Series'
total assets (taken at current value), more than 5% of such assets would then be
invested in securities of a single issuer, or (ii) 25% or more of the Series'
total assets (taken at current value) would be invested in a single industry.
(5) Purchase more than 10% of the outstanding voting securities of any one
issuer or more than 10% of any class of securities of one issuer (all debt and
all preferred stock of an issuer are each considered a single class for this
purpose).
(6) Buy or sell real estate or interests in real estate, although it may
purchase and sell securities which are secured by real estate and securities of
companies which invest or deal in real estate, including limited partnership
interests.
(7) 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.
(8) Make investments for the purpose of exercising control or management.
(9) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of the Fund, as principals.
(10) Invest in any securities of any issuer if, to the knowledge of the
Series, any officer, director or Trustee of the Fund 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 Series will not:
24
<PAGE>
(1) Purchase any security if as a result the Series would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) less than three years old.
(2) Invest in securities of other registered investment companies, except
by purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total assets would be invested
in such securities, or except as part of a merger, consolidation or other
acquisition.
(3) Purchase oil, gas or other mineral leases. However, the Series may
purchase and sell the securities of companies engaged in the exploration,
development, production, refining, transporting and marketing of oil, gas or
minerals.
(4) Purchase warrants if as a result the Series would then have more than
5% of its total assets, valued at the lower of cost or market, invested in
warrants (of which no more than 2% may be warrants not listed on the New York or
American Stock Exchange).
(5) 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
Series' 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.
(6) Purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this restriction shall not prevent the Series 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).
(7) Enter into futures contracts or options on futures contracts if
immediately thereafter the aggregate margin deposits on all outstanding futures
contracts positions held by the Series and premiums paid on outstanding options
on futures contracts, after taking into account unrealized profits and losses,
would exceed 5% of the market value of the total assets of the Series, or enter
into any futures contracts or options on futures contracts if the aggregate
amount of the Series' commitments under outstanding futures contracts positions
and options on future contracts written by the Series would exceed the market
value of the total assets of the Series.
(8) Pledge assets, except that the Series may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (1) above,
provided the Series 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 Series' use of options, futures
contracts or options on futures contracts.
(9) Purchase securities on margin, except that the Series 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.
25
<PAGE>
(10) Sell securities short, unless it owns or has the right to obtain
securities, without additional consideration, equivalent in kind and amount to
the securities sold short, and provided that transactions in options, futures
contracts, swaps, forward contracts, and other derivative instruments are not
deemed to constitute selling securities short.
The Fund, on behalf of the Series, has filed the following undertakings to
comply with requirements of certain states in which shares of the Series are
sold, which may be changed without shareholder approval:
(1) Notwithstanding non-fundamental investment restrictions (1) and (5)
above, the Series will not invest more than 10% of its net assets in illiquid
securities, including restricted securities (excluding Rule 144A securities),
and unseasoned issuers.
(2) Notwithstanding fundamental investment restriction (6) above, the
Series will not invest in real estate limited partnership interests or in
interests in real estate investment trusts that are not readily marketable.
TRUSTEES AND OFFICERS
The following table lists the Trustees and executive officers of the Fund,
their business address and principal occupations during the past five years.
Unless otherwise noted, an individual's business address is 95 Wall Street, New
York, New York 10005.
GLENN O. HEAD*+, President and Trustee. Chairman of the Board, Director and
Treasurer, Administrative Data Management Corp. ("ADM"); Chairman of the Board
and Director, FIMCO, Executive Investors Management Company, Inc. ("EIMCO"),
First Investors Corporation ("FIC"), Executive Investors Corporation ("EIC") and
First Investors Consolidated Corporation ("FICC").
JAMES J. COY, Trustee, 90 Buell Lane, East Hampton, NY 11937. Retired; formerly
Senior Vice President, James Talcott, Inc. (financial institution).
ROGER L. GRAYSON*, Trustee. Director, FIC and FICC; President and Director,
First Investors Resources, Inc.; Commodities Portfolio Manager.
KATHRYN S. HEAD*+, Trustee, 10 Woodbridge Center Drive, Woodbridge, NJ 07095.
President, FICC and FIMCO; Vice President, Chief Financial Officer and Director,
FIC and EIC; President and Director, First Financial Savings Bank, S.L.A.;
Chief Financial Officer, ADM.
F. WILLIAM ORTMAN, JR., Trustee, 50 B Cambridge Circle, Lakehurst, NJ 08723.
Retired; formerly Management Consultant.
REX R. REED, Trustee, 76 Keats Way, Morristown, NJ 07960. Retired; formerly
Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN, Trustee, 145 Elm Drive, Roslyn, NY 11576. Retired; formerly
President, Belvac International Industries, Ltd.; President, Central Dental
Supply.
26
<PAGE>
JOHN T. SULLIVAN*, Trustee and Chairman of the Board; Director, FIMCO, FIC, FICC
and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH, Trustee, RR1, Box 2554, Upland Downs Road, Manchester
Center, VT 05255. Retired; formerly financial and planning executive with
American Telephone & Telegraph Company.
JOSEPH I. BENEDEK, Treasurer, 10 Woodbridge Center Drive, Woodbridge, NJ 07095.
Treasurer, FIC, FIMCO, EIMCO and EIC.
CONCETTA DURSO, Vice President and Secretary. Vice President, FIMCO, EIMCO and
ADM; Assistant Vice President and Assistant Secretary, FIC.
NANCY W. JONES, Vice President. Vice President, First Investors Asset
Management Company, Inc., First Investors Cash Management Fund, Inc., First
Investors Tax-Exempt Money Market Fund, Inc., First Investors Fund For Income,
Inc.; Portfolio Manager, FIMCO.
CAROL LERNER BROWN, Assistant Secretary. Secretary, FIMCO, EIMCO, FIC, EIC and
ADM.
PATRICIA D. POITRA, Vice President. Vice President, First Investors U.S.
Government Plus Fund, First Investors Series Fund II, Inc. and Executive
Investors Trust; Director of Equities, FIMCO.
- -------------------------------
* These Trustees may be deemed to be "interested persons," as defined in the
1940 Act.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
All of the officers and Trustees, except for Ms. Jones and Ms. Poitra, hold
identical or similar positions with Executive Investors Trust, First Investors
Cash Management Fund, Inc., First Investors Global Fund, Inc., First Investors
Government Fund, Inc., First Investors Insured Tax Exempt Fund, Inc., First
Investors High Yield Fund, Inc., First Investors Fund For Income, Inc., First
Investors Life Series Fund, First Investors Multi-State Insured Tax Free Fund,
First Investors New York Insured Tax Free Fund, Inc., First Investors Series
Fund II, Inc., First Investors Special Bond Fund, Inc., First Investors Tax-
Exempt Money Market Fund, Inc. and First Investors U.S. Government Plus Fund.
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 and School Financial Management Services, Inc.
Compensation to officers and interested Trustees of the Fund is paid by the
Adviser and not by the Fund. In addition, compensation to non-interested
Trustees of the Fund is currently voluntarily paid by the Adviser.
27
<PAGE>
MANAGEMENT
Investment advisory services to each Series are provided by First Investors
Management Company, Inc. pursuant to an Investment Advisory Agreement ("Advisory
Agreement") dated June 13, 1994. The Advisory Agreement was approved by the
Board of Trustees of the Fund, including a majority of the Trustees who are not
parties to the Fund's 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
Series.
Pursuant to the Advisory Agreement, FIMCO shall supervise and manage each
Series' investments, determine each Series' portfolio transactions and supervise
all aspects of each Series' operations, subject to review by the Fund's
Trustees. The Advisory Agreement also provides that FIMCO 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 Fund and each Series and assume certain expenses thereof, other than
obligations or liabilities of the Series. The Advisory Agreement may be
terminated at any time, with respect to a Series, without penalty by the Fund's
Trustees or by a majority of the outstanding voting securities of such Series,
or by FIMCO, in each instance on not less than 60 days' written notice, and
shall automatically terminate in the event of its assignment (as defined in the
1940 Act). The Advisory Agreement also provides that it will continue in
effect, with respect to a Series, for a period of over two years only if such
continuance is approved annually either by the Fund's Trustees or by a majority
of the outstanding voting securities of such Series, and, in either case, by a
vote of a majority of the Fund's Independent Trustees voting in person at a
meeting called for the purpose of voting on such approval.
Under the Advisory Agreement, each Series pays the Adviser an annual fee,
paid monthly, according to the following schedules:
<TABLE>
<CAPTION>
BLUE CHIP SERIES, TOTAL RETURN SERIES, SPECIAL SITUATIONS SERIES
Annual
Average Daily Net Assets Rate
- ------------------------ ------
<S> <C>
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
<CAPTION>
INVESTMENT GRADE SERIES
Annual
Average Daily Net Assets Rate
- ------------------------ ------
<S> <C>
Up to $300 million............................ 0.75%
In excess of $300 million up to $500 million.. 0.72
In excess of $500 million up to $750 million.. 0.69
Over $750 million............................. 0.66
</TABLE>
28
<PAGE>
The SEC staff takes the position that fees of 0.75% or greater are higher than
those paid by most investment companies.
For the fiscal year ended December 31, 1992, BLUE CHIP SERIES, TOTAL
RETURN SERIES, SPECIAL SITUATIONS SERIES and INVESTMENT GRADE SERIES paid
$658,555, $135,633, $103,481 and $451,054, respectively, in advisory fees. For
the same period, the Advisor voluntary waived advisory fees accrued by BLUE CHIP
SERIES, TOTAL RETURN SERIES, SPECIAL SITUATIONS SERIES and INVESTMENT GRADE
SERIES in the amounts of $219,518, $79,676, $166,591 and $184,277, respectively.
For the fiscal year ended December 31, 1993, BLUE CHIP SERIES, TOTAL
RETURN SERIES, SPECIAL SITUATIONS SERIES and INVESTMENT GRADE SERIES paid
$825,779, $461,927, $308,911 and $291,166, respectively, in advisory fees. For
the same period, the Advisor voluntary waived advisory fees accrued by BLUE CHIP
SERIES, TOTAL RETURN SERIES, SPECIAL SITUATIONS SERIES and INVESTMENT GRADE
SERIES in the amounts of $275,260, $153,975, $102,923 and $44,795, respectively.
For the fiscal year ended December 31, 1994, BLUE CHIP SERIES,
INVESTMENT GRADE SERIES, SPECIAL SITUATIONS SERIES and TOTAL RETURN SERIES paid
$910,508, $303,734, $560,009 and $411,603, respectively, in advisory fees. For
the same period, the Advisor voluntarily waived advisory fees accrued by BLUE
CHIP SERIES, INVESTMENT GRADE SERIES, SPECIAL SITUATIONS SERIES and TOTAL RETURN
SERIES in the amounts of $303,502, $46,728, $186,670 and $137,201, respectively.
In additiona, for the same period, the Advisor voluntarily reimbursed INVESTMENT
GRADE SERIES the amount of $85,012.
Pursuant to certain state regulations, the Adviser has agreed to
reimburse a Series if and to the extent that Series' aggregate operating and
management expenses, including advisory fees but generally excluding interest,
taxes, brokerage commissions and extraordinary expenses, exceed any limitation
on expenses applicable to that Series for any full fiscal year (unless a waiver
of such expense limitation is obtained). The amount of any such reimbursement
is limited to the amount of the advisory fees paid or accrued to the Adviser for
the fiscal year. For the fiscal year ended December 31, 1994, no reimbursement
was required pursuant to these regulations.
The Adviser has an Investment Committee composed of George V. Ganter,
Margaret Haggerty, Glenn O. Head, Nancy W. Jones, Patricia D. Poitra, Ronald
Rolleri, Clark D. Wagner and John Tomasulo. The Committee usually meets weekly
to discuss the composition of the portfolio of each Series and to review
additions to and deletions from the portfolios.
UNDERWRITER
The Fund has entered into an Underwriting Agreement ("Underwriting
Agreement") with First Investors Corporation ("Underwriter" or "FIC") which
requires the Underwriter to use its best efforts to sell shares of the Series.
Pursuant to the Underwriting Agreement, the Underwriter shall bear all fees and
expenses incident to the registration and qualification of the Series' shares.
In addition, the Underwriter shall bear all expenses of sales material or
literature, including prospectuses and proxy materials, to the extent such
materials are used in connection with the sale of the Series' shares, unless the
Series has agreed to bear such costs pursuant to a plan of distribution. See
"Distribution Plans." The Underwriting Agreement was approved by the Fund's
Board of Trustees, including a majority of the Independent Trustees. The
Underwriting Agreement provides that it will continue in effect from year to
year, with
29
<PAGE>
respect to a Series, only so long as such continuance is specifically approved
at least annually by the Fund's Board of Trustees or by a vote of a majority of
the outstanding voting securities of such Series, and in either case by the vote
of a majority of the Fund'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 years ended December 31, 1992, 1993 and 1994, FIC
received underwriting commissions with respect to BLUE CHIP SERIES of
$1,607,036, $1,327,463 and $1,207,688, respectively. For the fiscal years ended
December 31, 1992, 1993 and 1994, FIC received underwriting commissions with
respect to INVESTMENT GRADE SERIES of $1,022,172, $647,412 and $423,503,
respectively. For the fiscal years ended December 31, 1992, 1993 and 1994, FIC
received underwriting commissions with respect to SPECIAL SITUATIONS SERIES of
$730,319, $1,144,803 and $1,494,055, respectively. For the fiscal years ended
December 31, 1992, 1993 and 1994, FIC received underwriting commissions with
respect to TOTAL RETURN SERIES of $920,427, $326,514 and $261,280, respectively.
For the fiscal year ended December 31, 1993, with respect to INVESTMENT GRADE
SERIES and SPECIAL SITUATIONS SERIES, FIC reallowed an additional $1,026 and
$9,393, respectively, to outside dealers. For the fiscal year ended December
31, 1994, with respect to BLUE CHIP SERIES, SPECIAL SITUATIONS SERIES and TOTAL
RETURN SERIES, FIC reallowed an addititional $52, $40,187 and $257,
respectively, to outside dealers.
DISTRIBUTION PLANS
As stated in the Series' Prospectus, pursuant to a separate plan of
distribution for each class of shares adopted by the Fund pursuant to Rule 12b-1
under the 1940 Act ("Class A Plan" and "Class B Plan" and, collectively,
"Plans"), each Series is authorized to compensate the Underwriter for certain
expenses incurred in the distribution of that Series' shares and the servicing
or maintenance of existing Series shareholder accounts.
Each Plan was approved by the Fund's Board of Trustees, including a
majority of the Independent Trustees, and by a majority of the outstanding
voting securities of the relevant class of each Series. Each Plan will continue
in effect, with respect to a Series, from year to year as long as its
continuance is approved annually be either the Fund's Board of Trustees or by a
vote of a majority of the outstanding voting securities of the relevant class of
shares of that Series. In either case, to continue, each Plan must be approved
by the vote of a majority of the Independent Trustees of the Fund. The Fund's
Board reviews quarterly and annually a written report provided by the Treasurer
of the amounts expended under the applicable Plan and the purposes for which
such expenditures were made. While each Plan is in effect, the selection and
nomination of the Fund's Independent Trustees will be committed to the
discretion of such Independent Trustees then in office.
Each Plan can be terminated, with respect to a Series, at any time by
a vote of a majority of the Fund's Independent Trustees or by a vote of a
majority of the outstanding voting securities of the relevant class of shares of
that Series. Any change to each Class B Plan that would materially increase the
costs to that class of shares of a Series or any material change to each Class A
Plan may not be instituted without the approval of the outstanding voting
securities of the relevant class of shares of that Series. Such changes also
require approval by a majority of the Fund's Independent Trustees.
30
<PAGE>
In reporting amounts expended under the Plans to the Trustees, FIMCO
will allocate expenses attributable to the sale of each class of a Series'
shares to such class based on the ratio of sales of such class to the sales of
both classes of shares. The fees paid by one class of a Series' shares will not
be used to subsidize the sale of any other class of that Series' shares.
For the fiscal year ended December 31, 1994, BLUE CHIP SERIES,
INVESTMENT GRADE SERIES, SPECIAL SITUATIONS SERIES and TOTAL RETURN SERIES paid
$364,206, $140,185, $224,004 and $163,112 respectively, in fees pursuant to the
Class A Plan.
The Underwriter incurred the following Class A Plan-related expenses
with respect to each Series during the fiscal year ended December 31, 1994:
<TABLE>
<CAPTION>
COMPENSATION COMPENSATION TO
SERIES ADVERTISING TO SALES PERSONNEL* UNDERWRITER**
- --------------------------- ----------- ------------------- ---------------
<S> <C> <C> <C>
BLUE CHIP SERIES $0 $117,650 $246,554
INVESTMENT GRADE SERIES 0 45,729 94,456
SPECIAL SITUATIONS SERIES 0 67,604 156,400
TOTAL RETURN SERIES 0 52,594 110,413
</TABLE>
* Represents service fees
** Represents distribution fees
In approving the Fund's overall system of distribution, the Fund's
Board of Trustees considered several factors, including that implementation of
the system would (1) enable investors to choose the purchasing option better
suited to their individual situation, thereby encouraging current shareholders
to make additional investments in a Series and attracting new investors and
assets to that Series to the benefit of the Series and its shareholders; (2)
facilitate distribution of each Series' shares; and (3) maintain the competitive
position of each Series in relation to other funds that have implemented or are
seeking to implement similar distribution arrangements.
In adopting the Class B Plan for the Fund, the Fund's Board of
Trustees considered all the features of the distribution system, including (1)
the conditions under which a contingent deferred sales charge ("CDSC") would be
imposed and the amount of such charge, (2) the advantage to investors in having
no initial sales charges deducted from a Series' purchase payments and instead
having the entire amount of their purchase payments immediately invested in
Series shares, (3) the Underwriter's belief that the ability to receive sales
commissions and service fees under the Class B Plan would prove attractive to
Representatives, resulting in greater growth of each Series than might otherwise
be the case, (4) the advantages to the shareholders of a Series of economies of
scale resulting from growth in such Series' assets, and (5) the Underwriter's
shareholder service and distribution-related expenses and costs.
In adopting the Class A Plan for the Fund, the Fund's Board of
Trustees considered all relevant information and determined that there is a
reasonable likelihood that the Class A Plan will benefit each Series and its
shareholders. The Fund's Board believes that the amounts spent pursuant to the
Fund's Class A Plan have assisted each Series 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 Series.
31
<PAGE>
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange
or the Nasdaq national market system is valued at its last sale price on the
exchange or market system where the security is primarily traded, and lacking
any sales on a particular day, the security is valued at the mean between the
closing bid and asked prices on that day. Each security traded in the market
(including securities listed on exchanges whose primary market is believed to be
OTC) is valued at the mean between the last bid and asked prices based upon
quotes furnished by a market maker for such securities. In the absence of
market quotations, a Series will determine the value of bonds based upon quotes
furnished by market makers, if available, or in accordance with the procedures
described herein. In that connection, the Board of Trustees has determined that
a Series may use an outside pricing service. The pricing service uses
quotations obtained from investment dealers or brokers for the particular
securities being evaluated, information with respect to market transactions in
comparable securities and other available information in determining value.
This service is furnished by Interactive Data Corporation. Short-term debt
securities that mature in 60 days or less are valued at amortized cost if their
original term to maturity from the date of purchase was 60 days or less, or by
amortizing their value on the 61st day prior to maturity if their term to
maturity from the date of purchase exceeded 60 days, unless the Board of
Trustees determines that such valuation does not represent fair value.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Fund's
officers in a manner specifically authorized by the Board of Trustees.
With respect INVESTMENT GRADE SERIES "when-issued securities" are
reflected in the assets of the Series 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.
For valuation purposes, with respect to SPECIAL SITUATIONS SERIES and TOTAL
RETURN SERIES, quotations of foreign securities in foreign currencies are
converted into U.S. dollar equivalents using the foreign exchange equivalents in
effect.
The Fund's Board of Trustees may suspend the determination of a
Series' net asset value per share separately for each class of shares 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 U.S. market, exists as a result of
which disposal by a Series of securities owned by it is not reasonably
practicable for the Series fairly to determine the value of its net assets, or
(3) for such other period as the SEC has by order permitted.
ALLOCATION OF PORTFOLIO BROKERAGE
Purchases and sales of portfolio securities by the Series may be
principal transactions. In principal transactions, portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. There will usually be no brokerage commissions paid
by a Series for such purchases. Purchases from underwriters will include the
underwriter's commission or concession and purchases from dealers serving as
market makers will include the spread between the bid and asked price. Certain
money market instruments may be purchased by a Series directly from an issuer,
in which no commission or discounts are paid. Each Series may purchase fixed
income securities on a "net" basis with
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dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer.
Each Series may deal in securities which are not listed on a national
securities exchange or the Nasdaq national market system but are traded in the
OTC market. Each Series also may purchase listed securities through the "third
market." When transactions are executed in the OTC market, a Series seeks to
deal with the primary market makers, but when advantageous it utilizes the
services of brokers.
In effecting portfolio transactions, the Adviser seeks best execution
of trades either (1) at the most favorable and competitive rate of commission
charged by any broker or member of an exchange, or (2) with respect to agency
transactions, at a higher rate of commission if reasonable in relation to
brokerage and research services provided to a Series or the Adviser by such
member or broker. Such services may include, but are not limited to, any one or
more of the following: information as to the availability of securities for
purchase or sale and statistical or factual information or opinions pertaining
to investments. The Adviser may use research and services provided to it by
brokers in servicing all the funds in the First Investors Group of Funds;
however, not all such services may be used by the Adviser in connection with a
Series. No portfolio orders are placed with an affiliated broker, nor does any
affiliated broker-dealer participate in these commissions.
The Adviser may combine transaction orders placed on behalf of a
Series and any other fund in the First Investors Group of Funds, any series of
Executive Investors Trust and First Investors Life Insurance Company, affiliates
of the Fund, 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 terms of price and amount, to a Series according to
the proportion that the size of the transaction order actually placed by a
Series bears to the aggregate size of the transaction orders simultaneously made
by other participants in the transaction.
For the fiscal year ended December 31, 1992, BLUE CHIP SERIES paid
$183,180 in brokerage commissions. Of that amount, $4,715 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $2,150,859. For the fiscal year ended December 31, 1992,
SPECIAL SITUATIONS SERIES paid $46,219 in brokerage commissions. Of that
amount, $42,522 was paid in brokerage commissions to brokers who furnished
research services on portfolio transactions in the amount of $10,849,167. For
the fiscal year ended December 31, 1992, TOTAL RETURN SERIES paid $93,945 in
brokerage commissions. Of that amount, $2,557 was paid in brokerage commissions
to brokers who furnished research services on portfolio transactions in the
amount of $1,218,829. For the same period, INVESTMENT GRADE SERIES did not pay
brokerage commissions.
For the fiscal year ended December 31, 1993, BLUE CHIP SERIES paid
$155,395 in brokerage commissions. For the fiscal year ended December 31, 1993,
SPECIAL SITUATIONS SERIES paid $59,900 in brokerage commissions. Of that
amount, $21,818 was paid in brokerage commissions to brokers who furnished
research services on portfolio transactions in the amount of $5,807,458. For
the fiscal year ended December 31, 1993, TOTAL RETURN SERIES paid $85,921 in
brokerage commissions. Of that amount, $14,910 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $4,999,354. For the same period, INVESTMENT GRADE SERIES did
not pay brokerage commissions.
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For the fiscal year ended December 31, 1994, SPECIAL SITUATIONS SERIES
paid $96,700 in brokerage commissions. For the fiscal year ended December 31,
1994, BLUE CHIP SERIES paid $291,605 in brokerage commissions. Of that amount,
$892 was paid in brokerage commissions to brokers who furnished research
services on portfolio transactions in the amount of $923,452. For the fiscal
year ended December 31, 1994, TOTAL RETURN SERIES paid $96,700 in brokerage
commissions. Of that amount, $2,350 was paid in brokerage commissions to
brokers who furnished research services on portfolio transactions in the amount
of $672,269. For the same period, INVESTMENT GRADE SERIES did not pay brokerage
commissions.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND
REDEMPTION INFORMATION AND OTHER SERVICES
ELIGIBLE FUNDS. Shares of all the funds and/or series in the First
--------------
Investors family of funds, except as noted below, are eligible to participate in
certain shareholder privileges noted in this SAI and the Prospectus (singularly,
"Eligible Fund" and, collectively, "Eligible Funds"). Shares of First Investors
Special Bond Fund, Inc., First Investors Life Series Fund and First Investors
U.S. Government Plus Fund are not deemed to be Eligible Funds. Shares of the
Money Market Funds, unless otherwise noted, are not deemed to be Eligible Funds.
Class A shares of each series of Executive Investors Trust are deemed to be
Eligible Funds if such shares have either (a) been acquired through an exchange
from an Eligible Fund which imposes a maximum sales charge of 6.25%, or (b) been
held for at least one year from their date of purchase.
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are applicable to purchases made at one time of
Class A shares of any one or more of the Series or of any one or more of the
Eligible Funds by "any person," which term shall include an individual, or an
individual, his or her spouse and children under the age of 21, or a trustee or
other fiduciary of a single trust, estate or fiduciary account (including a
pension, profit-sharing or other employee benefit trust created pursuant to a
plan qualified under section 401 of the Internal Revenue Code of 1986, as
amended (the "Code")), although more than one beneficiary is involved; provided,
however, that the term "any person" shall not include a group of individuals
whose funds are combined, directly or indirectly, for the purchase of redeemable
securities of a registered investment company, nor shall it include a trustee,
agent, custodian or other representative of such a group of individuals.
Ownership of Class A and Class B shares of any Eligible Fund, except
as noted below, qualify for a reduced sales charge on the purchase of Class A
shares. Class A shares purchased at net asset value, Class A shares of the
Money Market Funds, or shares owned under a Contractual Plan are not eligible
for the purchase of Class A shares of a Series at a reduced sales charge through
a Letter of Intent or the Cumulative Purchase Privilege.
LETTER OF INTENT. Any of the eligible persons described above may,
----------------
within 90 days of their investment, sign a statement of intent ("Letter of
Intent") in the form provided by the Underwriter, covering purchases of Class A
shares of any one or more of the Series and of the other Eligible Funds to be
made within a period of thirteen months, provided said shares are currently
being offered to the general public and only in those states where such shares
may be legally sold, and thereby become eligible for the reduced sales charge
applicable to the total amount purchased. A Letter of Intent filed after the
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date of investment is considered retroactive to the date of investment for
determination of the thirteen-month period. The Letter of Intent is not a
binding obligation on either the investor or the Series. During the term of a
Letter of Intent, Administrative Data Management Corp. ("Transfer Agent") will
hold Class A shares representing 5% of each purchase in escrow, which shares
will be released upon completion of the intended investment.
Purchases of Class A Shares made under a Letter of Intent are made at
the sales charge applicable to the purchase of the aggregate amount of shares
covered by the Letter of Intent as if they were purchased in a single
transaction. The applicable quantity discount will be based on the sum of the
then current value at public offering price (i.e., net asset value plus
----
applicable sales charge) of all Class A shares and the net asset value of all
Class B shares of a Series and of the other Eligible Funds, including Class B
shares of the Money Market Funds, currently owned, together with the aggregate
offering price of purchases to be made under the Letter of Intent. If all such
shares are not so purchased, a price adjustment is made, depending upon the
actual amount invested within such period, by the redemption of sufficient Class
A shares held in escrow in the name of the investor (or by the investor paying
the commission differential). A Letter of Intent can be amended (1) during the
thirteen-month period if the purchaser files an amended Letter of Intent with
the same expiration date as the original Letter of Intent, or (2) automatically
after the end of the period, if total purchases credited to the Letter of Intent
qualify for an additional reduction in the sales charge. The Letter of Intent
privilege may be modified or terminated at any time by the Underwriter.
CUMULATIVE PURCHASE PRIVILEGE. Upon written notice to FIC, Class A
-----------------------------
shares of a Series are also available at a quantity discount on new purchases if
the then current value at the current public offering price (i.e., net asset
----
value plus applicable sales charge) of all Class A shares and the net asset
value of all Class B shares of a Series and of the other Eligible Funds,
including Class B shares of the Money Market Funds, previously purchased and
then owned, plus the value of Class A shares being purchased at the current
public offering price, amount to $25,000 or more. Such quantity discounts may
be modified or terminated at any time by the Underwriter.
SYSTEMATIC WITHDRAWAL PLAN--CLASS A SHARES. Shareholders who own
------------------------------------------
Class A shares of a Series with a net asset value of at least $5,000 may
establish a Systematic Withdrawal Plan ("Withdrawal Plan") and either (a)
receive monthly, quarterly, semi-annual or annual checks for any designated
amount (minimum $25); or (b) automatically reinvest the proceeds at net asset
value in the same class of shares in any other Eligible Fund, including the
Money Market Funds. Dividends and other distributions, if any, are reinvested
in additional Class A shares of the Series. Shareholders may add shares to the
Withdrawal Plan or terminate the Withdrawal Plan at any time. Withdrawal Plan
payments will be suspended when a distributing Series has received notice of a
shareholder's death on an individual account. Payments may recommence upon
receipt of written alternate payment instructions and other necessary documents
from the deceased's legal representative. Withdrawal payments will also be
suspended when a payment check is returned to the Transfer Agent marked as
undeliverable by the U.S. Postal Service after two consecutive mailings.
The withdrawal payments derived from the redemption of sufficient
shares in the account to meet designated payments in excess of dividends and
other distributions may deplete or possibly extinguish the initial investment,
particularly in the event of a market decline, and may result in a capital gain
or loss depending on the shareholder's cost. Purchases of additional shares of
a Series concurrent with withdrawals are ordinarily disadvantageous to
shareholders because of tax liabilities and sales charges.
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CONVERSION OF CLASS B SHARES. Class B Shares of a Series will
----------------------------
automatically convert to Class A shares of that Series, based on the relative
net asset values per share of the two classes, as of the close of business on
the first business day of the month in which the eighth anniversary of the
initial purchase of such Class B shares occurs. For these purposes, the date of
initial purchase shall mean (1) the first business day of the month in which
such Class B shares were issued, or (2) for Class B shares obtained through an
exchange or a series of exchanges, the first business day of the month in which
the original Class B shares were issued. For conversion purposes, Class B
shares purchased through the reinvestment of dividends and other distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
in the sub-account) convert to Class A shares, a pro rata portion of the Class B
shares in the sub-account also will convert to Class A shares. The portion will
be determined by the ratio that the shareholder's Class B shares converting to
Class A shares bears to the shareholder's total Class B shares not acquired
through dividends and other distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue Service ("IRS"), or
an opinion of counsel, that: (1) the dividends and other distributions paid on
Class A and Class B shares will not result in "preferential dividends" under the
Code; and (2) the conversion of shares does not constitute a taxable event. If
the conversion feature ceased to be available, the Class B shares of the Series
would not be converted and would continue to be subject to the higher ongoing
expenses of the Class B shares beyond eight years from the date of purchase.
FIMCO has no reason to believe that these conditions for the availability of the
conversion feature will not continue to be met.
If a Series implements any amendments to its Class A Plan that would
increase materially the costs that may be borne under such Plan by Class A
shareholders, Class B shares will stop converting into Class A shares unless a
majority of Class B shareholders, voting separately as a class, approve the
proposal.
WAIVERS OF CDSC ON CLASS B SHARES. The CDSC imposed on Class B shares
---------------------------------
does not apply to: (a) any redemption pursuant to the tax-free return of an
excess contribution to an IRA or other qualified retirement plan if the Series
is notified at the time of such request; (b) any redemption of a lump-sum or
other distribution from qualified retirement plans or accounts provided the
shareholder has attained the minimum age of 70 1/2 years and has held the Class
B shares for a minimum period of three years; (c) any redemption by advisory
accounts managed by the Adviser or any of its affiliates or for shares held by
the Adviser or any of its affiliates; (d) any redemption by a tax-exempt
employee benefit plan if continuance of the investment would be improper under
applicable laws or regulations; and (e) any redemption or transfer of ownership
of Class B shares following the death or disability, as defined in Section
72(m)(7) of the Code, of a shareholder if the Series is provided with proof of
death or disability and with all documents required by the Transfer Agent within
one year after the death or disability. For more information on what specific
documents are required, call Shareholder Services at 1-800-423-4026.
TELEPHONE TRANSACTIONS. As stated in the Series' Prospectus, the
----------------------
Series, the Underwriter and their affiliates will not be liable for any loss,
damage, cost or expense arising out of any instruction (or any interpretation of
such instruction) received by telephone which they reasonably believe to be
authentic. In acting upon telephone instructions, these parties use procedures
which are reasonably designed to ensure that such instructions are genuine, such
as (1) obtaining some or all of the following information: account number;
name(s) and social security number registered to the account; and personal
identification; (2)
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recording all telephone transactions; and (3) sending written confirmation of
each transaction to the registered owner.
RETIREMENT PLANS
PROFIT-SHARING/MONEY PURCHASE PENSION PLANS. FIC offers prototype
-------------------------------------------
Profit-Sharing, Money Purchase Pension and 401(k) Retirement Plans ("Retirement
Plans") approved by the IRS for corporations, sole proprietorships and
partnerships. The Custodial Agreement for each Profit-Sharing and Money
Purchase Pension Plan provides that First Financial Savings Bank, S.L.A. ("First
Financial Savings"), an affiliate of FIC, will furnish all required custodial
services.
FIC offers additional versions of prototype qualified retirement plans
for eligible employers, including 401(k), money purchase, profit sharing and
target benefit plans.
Currently, there are no annual service fees chargeable to participants
in connection with a Retirement Plan account. Participants are, however,
charged $5.00 for opening a Retirement Plan account, other than a 401(k)
Retirement Plan account. Each Series currently pays the annual $10.00 custodian
fee for each Retirement Plan account, if applicable, maintained with such
Series. This policy may be changed at any time by a Series on 45 days' written
notice. First Financial Savings has reserved the right to waive its fees at any
time or to change the fees on 45 days' prior written notice.
The Retirement Plan documents contain further specific information
about the Retirement Plans and may be obtained from your First Investors
Representative. Prior to establishing a Retirement Plan, you are advised to
consult with your legal and tax advisers.
INDIVIDUAL RETIREMENT ACCOUNTS. A qualified individual may purchase
------------------------------
shares of a Series through an individual retirement account ("IRA") or, as an
employee of a qualified employer, through a Simplified Employee Pension-IRA
("SEP-IRA") or a Salary Reduction Simplified Employee Pension-IRA ("SARSEP-IRA")
furnished by FIC. Under the related Custodial Agreements, First Financial
Savings acts as custodian of each of these retirement plans.
A taxpayer generally may make an annual IRA contribution no greater
than the lesser of: (a) 100% of his or her compensation, or (b) $2,000 (or
$2,250 when also contributing to a spousal IRA). However, contributions are
deductible only under certain conditions. The requirements as to SEP-IRAs and
SARSEP-IRAs are described in IRS Form 5305-SEP and 5305A-SEP, respectively,
which is provided to employers. Employers are required to provide copies of
Forms 5305-SEP and 5305A-SEP to their eligible employees. A disclosure
statement setting forth complete details of the IRA is given to each participant
before the contribution is invested.
Currently, there are no annual service fees chargeable to a
participant in connection with an IRA, SEP-IRA or SARSEP-IRA. Each Series
currently pays the annual $10.00 custodian fee for each IRA account maintained
with such Series. This policy may be changed at any time by a Series on 45
days' written notice to the holder of any IRA, SEP-IRA or SARSEP-IRA. First
Financial Savings has reserved the right to waive its fees at any time or to
change the fees on 45 days' prior written notice to the holder of any IRA.
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An application and other documents necessary to establish an IRA, SEP-
IRA or SARSEP-IRA, are available from your Representative. Prior to
establishing an IRA, SEP-IRA or SARSEP-IRA, you are advised to consult with your
legal and tax advisers.
RETIREMENT BENEFIT PLANS FOR EMPLOYEES OF ELIGIBLE ORGANIZATIONS. FIC
----------------------------------------------------------------
makes available model custodial accounts under Section 403(b)(7) of the Code
("Custodial Accounts") to provide retirement benefits for employees of certain
eligible public educational institutions and other eligible non-profit
charitable, religious and humane organizations. The Custodial Accounts are
designed to permit contributions (up to a "maximum exclusion allowance") by
employees through salary reduction. First Financial Savings acts as custodian
of these accounts.
Contributions may be made to a Custodial Account under the Optional
Retirement Program for Employees of Texas Institutions of Higher Education
("ORP"), either by salary reduction agreement or otherwise, in accordance with
the terms and conditions of the ORP, and under the Texas Deferred Compensation
Plan Program for eligible state employees by salary reduction agreement.
Currently, there are no annual service fees chargeable to participants
in connection with a Custodial Account. Each Series currently pays the annual
$10.00 custodian fee for each Custodial Account maintained with such Series.
This policy may be changed at any time by a Series on 45 days' written notice to
a Custodial Account participant. First Financial Savings has reserved the right
to waive its fees at any time or to change the fees on 45 days' prior written
notice to a Custodial Account participant.
An application and other documents necessary to establish a Custodial
Account are available from your First Investors Representative. Persons
desiring to create a Custodial Account are advised to confer with their legal
and tax advisers concerning the specifics of this type of retirement benefit
plan.
Mandatory income tax withholding, at the rate of 20%, may be required
for Federal income tax purposes on "eligible rollover" distributions made from
any of the foregoing retirement plans (other than IRAs, including SEP-IRAs and
SARSEP-IRAs). If the recipient elects to directly transfer an eligible rollover
distribution to an "eligible retirement plan" that permits acceptance of such
distributions, no withholding will apply. For distributions that are not
"eligible rollover" distributions, the recipient can elect, in writing, not to
require any withholding. This election must be submitted immediately before, or
must accompany, the distribution request. The amount, if any, of any such
optional withholding depends on the amount and type of the distribution.
Appropriate election forms are available from the Custodian or Shareholder
Services. Other types of withholding nonetheless may apply.
DISTRIBUTION FEES. A participant/shareholder's account under any of
-----------------
the foregoing retirement plans (including IRAs) may be charged a distribution
fee (at the time of withdrawal) of $7.00 for a single distribution of the entire
account and $1.00 for each periodic distribution therefrom.
TAXES
In order to continue to qualify for treatment as a regulated
investment company ("RIC") under the Code, a Series -- each Series being treated
as a separate entity for these purposes -- must distribute to its shareholders
for each taxable year at least 90% of the sum its investment company taxable
income
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(consisting generally of taxable net investment income and net short-term
capital gain and, for SPECIAL SITUATIONS SERIES and TOTAL RETURN SERIES, net
gains from certain foreign currency transactions) plus its net interest income
excludable from gross income under section 103(a) of the Code ("Distribution
Requirement") and must meet several additional requirements. For each Series
these requirements include the following: (1) the Series must derive at least
90% of its gross income each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other disposition of
securities, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) the Series must derive less than
30% of its gross income each taxable year from the sale or other disposition of
securities, or any of the following, that were held for less than three months -
- - options, futures or forward contracts (other than those on foreign
currencies), or foreign currencies (or options, futures or forward contract
thereon), that are not directly related to the Series' principal business of
investing in securities (or options and futures with respect thereto); (3) at
the close of each quarter of the Series' 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 Series' total assets; and (4) at the close of each
quarter of the Series' 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 Series 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 Series and received
by the shareholders on December 31 of that year if the distributions are paid by
the Series during the following January. Accordingly, those distributions will
be reported by shareholders for the year in which that December 31 falls.
Each Series will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
A portion of the dividends from a Series' 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 a Series 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.
Although INVESTMENT GRADE SERIES is authorized to hold equity securities, it is
expected that any dividend income received by that Series will be minimal;
accordingly, very little, if any, of the distributions made by INVESTMENT GRADE
SERIES will be eligible for the dividends-received deduction.
If shares of a Series 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.
SPECIAL SITUATIONS SERIES and TOTAL RETURN SERIES may invest in the
stock of "passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
39
<PAGE>
assets produce, or are held for the production of, passive income. Under
certain circumstances, if each such Series holds stock of a PFIC, it will be
subject to Federal income tax on a portion of any "excess distribution" received
on the stock or of any gain on disposition of the stock (collectively "PFIC
income"), plus interest thereon, even if the Series distributes the PFIC income
as a taxable dividend to its shareholders. The balance of the PFIC income will
be included in the Series' investment company taxable income and, accordingly,
will not be taxable to it to the extent that income is distributed to its
shareholders.
If SPECIAL SITUATIONS SERIES or TOTAL RETURN SERIES invest in a PFIC
and elect to treat the PFIC as a "qualified electing fund," then in lieu of the
foregoing tax and interest obligation, the Series would be required to include
in income each year its pro rata share of the qualified electing fund's annual
ordinary earnings and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) -- which would have to be distributed to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax --
even if those earnings and gain were not received by the Series. In most
instances it will be very difficult, if not impossible, to make this election
because of certain requirements thereof.
The "Tax Simplification and Technical Corrections Bill of 1993,"
passed in May 1994 by the House of Representatives would substantially modify
the taxation of U.S. shareholders of foreign corporations, including eliminating
the provisions described above dealing with PFICs and replacing them (and other
provisions) with a regulatory scheme involving entities called "passive foreign
corporations." Three similar bills were passed in 1991 and 1992 and were vetoed.
It is unclear at this time whether, and in what form, the proposed modifications
may be enacted into law.
Proposed regulations have been published pursuant to which open-end
RICs, such as the Series, would be entitled to elect to "mark-to-market" their
stock in certain PFICs. "Marking-to-market," in this context, means recognizing
as gain for each taxable year the excess, as of the end of that year, of the
fair market value of such a PFIC's stock over the adjusted basis in that stock
(including mark-to-market gain for each prior year for which an election was in
effect).
For SPECIAL SITUATIONS SERIES and TOTAL RETURN SERIES, income from
foreign currencies (except certain gains therefrom that may be excluded by
future regulations) will qualify as permissible income under the Income
Requirement. Income from such Series' disposition of foreign currencies that
are not directly related to its principal business of investing in securities
also will be subject to the Short-Short Limitation if they are held for less
than three months.
INVESTMENT GRADE SERIES and TOTAL RETURN SERIES may acquire zero
coupon securities issued with original issue discount. As the holder of those
securities, each such Series must include in its income the original issue
discount that accrues on the securities during the taxable year, even if the
Series receives no corresponding payment on the securities during the year.
Similarly, each such Series must include in its gross income securities it
receives as "interest" on pay-in-kind securities. Because each Series annually
must distribute substantially all of its investment company taxable income,
including any original issue discount, in order to satisfy the Distribution
Requirement and to avoid imposition of the Excise Tax, the Series 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 Series' cash assets or from the proceeds of sales of
portfolio securities, if necessary. Each Series may realize capital gains or
losses from those sales, which would increase or decrease its investment company
taxable income and/or net capital gain. In addition, any such gains may be
realized on the disposition of securities held for less
40
<PAGE>
than three months. Because of the Short-Short Limitation, any such gains would
reduce a Series' ability to sell other securities or options, futures or certain
forward contracts, held for less than three months that it might wish to sell in
the ordinary course of its portfolio management.
The use of hedging strategies, such as selling and purchasing options
and futures contracts, and entering into forward contracts, involves complex
rules that will determine for income tax purposes the character and timing of
recognition of the gains and losses a Series realizes in connection therewith.
Income from foreign currencies (except certain gains therefrom that may be
excluded by future regulations), and income from transactions in options,
futures and forward contracts derived by a Series with respect to its business
of investing in securities or foreign currencies, will qualify as permissible
income under the Income Requirement. However, income from a Series' disposition
of options and futures contracts will be subject to the Short-Short Limitation
if they are held for less than three months. Income from a Series' disposition
of foreign currencies and forward contracts that are not directly related to its
principal business of investing in securities also will be subject to the Short-
Short Limitation if they are held for less than three months.
If a Series satisfies certain requirements, then any increase in value
of a position that is part of a "designated hedge" will be offset by any
decrease in value (whether realized or not) of the offsetting hedging position
during the period of the hedge for purposes of determining whether the Series
satisfies the Short-Short Limitation. Thus, only the net gain (if any) from the
designated hedge will be included in gross income for purposes of that
limitation. Each Series intends that, when it engages in hedging strategies, it
will qualify for this treatment, but at the present time it is not clear whether
this treatment will be available for all of the Series' hedging transactions.
To the extent this treatment is not available, a Series may be forced to defer
the closing out of certain options, futures or forward contracts beyond the time
when it otherwise would be advantageous to do so, in order for the Series to
continue to qualify as a RIC.
PERFORMANCE INFORMATION
A Series may advertise its performance in various ways.
Each Series' "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) to the 1/nth power ] - 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 Series
41
<PAGE>
will deduct the maximum sales charge of 6.25% (as a percentage of the offering
price) from the initial $1,000 payment and, for Class B shares, the applicable
CDSC imposed on a redemption of Class B shares held for the period is deducted.
All dividends and other distributions are assumed to have been reinvested at net
asset value on the initial investment ("P"). 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.
Return information may be useful to investors in reviewing a Series'
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 Series of future rates of return on its shares. At times,
the Adviser may reduce its compensation or assume expenses of a Series in order
to reduce the Series' expenses. Any such waiver or reimbursement would increase
the Series' return during the period of the waiver or reimbursement. The
average annual return for the periods ending December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:*
Class A Shares**
Twelve Months Five Years From Inception***
------------- ---------- -----------------
<S> <C> <C> <C>
BLUE CHIP SERIES (9.09)% 5.14% 6.78%
INVESTMENT GRADE SERIES (10.59) N/A 5.41
SPECIAL SITUATIONS SERIES (9.68) N/A 17.48
TOTAL RETURN SERIES (9.55) N/A 3.74
</TABLE>
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 computed at net asset
value for the periods ended December 31, 1994 for each Series' Class A shares is
set forth in the table below:
_______________
* All average annual total return figures reflect the maximum sales charge of
6.25%. Until December 29, 1989, the maximum sales charge for BLUE CHIP SERIES
was 7.25%, and until July 1, 1993, the maximum sales charge for all Series was
6.90%. The figures also assume the reinvestment of dividends at net asset
value. Prior to April 1, 1991, SPECIAL SITUATIONS SERIES' dividends were
reinvested at the public offering price (net asset value plus applicable sales
charge).
** Performance for Class B shares is not quoted because Class B shares were not
offered for sale during these periods.
*** The inception dates for the Series are as follows: BLUE CHIP SERIES -
January 3, 1989; INVESTMENT GRADE SERIES - February 19, 1991; SPECIAL SITUATIONS
SERIES - September 18, 1990; and TOTAL RETURN SERIES - April 24, 1990. Certain
expenses of the Series have been waived or reimbursed from inception through
December 31, 1994. Accordingly, average annual total return figures are higher
than they would have been had such expenses not been waived or reimbursed.
42
<PAGE>
AVERAGE ANNUAL TOTAL RETURN:
Class A Shares*
<TABLE>
<CAPTION>
Twelve Months Five Years From Inception***
------------- ---------- -----------------
<S> <C> <C> <C>
BLUE CHIP SERIES (3.02)% 6.51% 7.94%
INVESTMENT GRADE SERIES (4.62) N/A 7.18
SPECIAL SITUATIONS SERIES (3.66) N/A 19.26
TOTAL RETURN SERIES (3.53) N/A 5.17
</TABLE>
________________
* Performance for Class B shares is not quoted because Class B shares were not
offered for sale during these periods.
** The inception dates for the Series are as follows: BLUE CHIP SERIES -
January 3, 1989; INVESTMENT GRADE SERIES - February 19, 1991; SPECIAL SITUATIONS
SERIES - September 18, 1990; and TOTAL RETURN SERIES - April 24, 1990. Certain
expenses of the Series have been waived or reimbursed from inception through
December 31, 1994. Accordingly, average annual total return figures are higher
than they would have been had such expenses not been waived or reimbursed.
Yield is presented for a specified thirty-day period ("base period").
Yield is based on the amount determined by (i) calculating the aggregate amount
of dividends and interest earned by a Fund during the base period less expenses
accrued for that period (net of reimbursement), and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B) the per share
maximum public offering price for Class A shares or the net asset value for
Class B shares of the Fund on the last day of the base period. The result is
annualized by compounding on a semi-annual basis to determine the Fund's yield.
For this calculation, interest earned on debt obligations held by the Fund is
generally calculated using the yield to maturity (or first expected call date)
of such obligations based on their market values (or, in the case of
receivables-backed securities such as GNMA Certificates, based on cost).
Dividends on equity securities are accrued daily at their estimated stated
dividend rates.
For the thirty days ended December 31, 1994, the yield for Class A
shares of INVESTMENT GRADE SERIES was 6.99%. Some of the Series' expenses were
waived or reimbursed during this period. Accordingly, yield is higher than it
would have been had such expenses not been waived or reimbursed. The yield for
Class B shares is not quoted because Class B shares were not offered for sale
during this period.
The distribution rate for INVESTMENT GRADE SERIES is presented for a
twelve-month period. It is calculated by adding the dividends for the last
twelve months and dividing the sum by the Series' offering price per share at
the end of that period. The distribution rate is also calculated by using the
Series' 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, 1994 for Class A shares of INVESTMENT
43
<PAGE>
GRADE SERIES calculated using the offering price and net asset value was 6.25%
and 6.67%, respectively. During this period certain expenses of INVESTMENT
GRADE SERIES were waived or reimbursed. Accordingly, the distribution rates are
higher than they would have been had such expenses not been waived or
reimbursed. The distribution rate for Class B shares is not quoted because
Class B shares were not offered for sale during this period.
Each Series 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 Series of past or future yield or return.
From time to time, in reports and promotional literature, the Series
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, the Series' 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. This calculation
is at variance with SEC release 327 of August 8, 1972, which utilizes latest
12 month dividends. The latter method is the one used by S&P.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of
Morningstar, Inc. Morningstar proprietary ratings reflect historical risk-
adjusted performance and are subject to change every month. Funds with at
least three years of performance history are assigned ratings from one star
(lowest) to five stars (highest). Morningstar ratings are calculated from
the funds' three-, five-, and ten-year average annual returns (when
available) and a risk factor that reflects fund performance relative to
three-month Treasury bill monthly returns. Fund's returns are adjusted for
fees and sales loads. Ten percent of the funds in an investment category
receive five stars, 22.5% receive four stars, 35% receive three stars, 22.5%
receive two stars, and the bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly publication which
tracks principal return, total return and yield on the Salomon Brothers
Broad Investment-Grade Bond Index and the components of the Index.
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.
44
<PAGE>
The Wall Street Journal, a daily newspaper publication which lists the
yields and current market values on money market instruments, public
corporate debt obligations, public obligations of the U.S. Treasury and
agencies of the U.S. Government as well as common stocks, preferred stocks,
convertible preferred stocks, options and commodities; in addition to
indices prepared by the research departments of such financial organizations
as Lehman Bros., Merrill Lynch, Pierce, Fenner and Smith, Inc., First
Boston, Salomon Brothers, Morgan Stanley, Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette, Value Line, Datastream International, James Capel, S.G.
Warburg Securities, County Natwest and UBS UK Limited, including information
provided by the Federal Reserve Board, Moody's, and the Federal Reserve
Bank.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal, coupon
and total return on over 100 different taxable bond indices which Merrill
Lynch tracks. They also list the par weighted characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication which
tracks principal, coupon and total return on the Lehman Govt./Corp. Index
and Lehman Aggregate Bond Index, as well as all the components of these
Indices.
Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average of 30 stocks are unmanaged lists of common stocks
frequently used as general measures of stock market performance. Their
performance figures reflect changes of market prices and quarterly
reinvestment of all distributions but are not adjusted for commissions or
other costs.
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics,
is a commonly used measure of inflation. The Index shows changes in the
cost of selected consumer goods and does not represent a return on an
investment vehicle.
The NYSE composite of component indices--unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the
NYSE.
The Russell 2500 Index, prepared by the Frank Russell Company, consists of
U.S. publicly traded stocks of domestic companies that rank from 500 to 3000
by market capitalization. The Russell 2500 tracks the return on these
stocks based on price appreciation or depreciation and does not include
dividends and income or changes in market values caused by other kinds of
corporate changes.
The Russell 2000 Index, prepared by the Frank Russell Company, consists of
U.S. publicly traded stocks of domestic companies that rank from 1000 to
3000 by market capitalization. The Russell 2000 tracks the return on these
stocks based on price appreciation or depreciation and does not include
dividends and income or changes in market values caused by other kinds of
corporate changes.
Reuters, a wire service that frequently reports on global business.
45
<PAGE>
Standard & Poor's Utilities Index is an unmanaged capitalization weighted
index comprising common stock in approximately 40 electric, natural gas
distributors and pipelines, and telephone companies. The Index assumes the
reinvestment of dividends.
Moody's Stock Index, an unmanaged index of utility stock performance.
From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
GENERAL INFORMATION
AUDITS AND REPORTS. The accounts of the Series are audited twice a
------------------
year by Tait, Weller & Baker, independent certified public accountants, Two Penn
Center Plaza, Philadelphia, PA, 19102-1707. Shareholders of each Series receive
semi-annual and annual reports, including audited financial statements, and a
list of securities owned.
5% SHAREHOLDERS. As of April 17, 1995, Hagerman & Co., c/o The Bank
---------------
of New York, P.O. Box 1066-Wall Street Station, New York, NY 10286, owned 5.7%
of the Class A shares of SPECIAL SITUATIONS SERIES.
As of April 17, 1995, the following beneficially owned more than 5% of
the outstanding Class B shares of the Series listed below:
<TABLE>
<CAPTION>
Series % of Shares Shareholder
- ------ ----------- -----------
<S> <C> <C>
Blue Chip 6.4% Rocco Luongo
44 Pulaski Dr.
N. Arlington, NJ 07031
9.9% Edward L. Stachelski and
Mary Elizabeth Walsh
23 Davis Ave.
Arlington, MA 02174
Investment Grade 10.6% Anita Daniel
4 Ridge Rd.
Westbrook, ME 04092
18.3% Robert Pollack and
Belle Pollack
30 Sandalwood Ave.
Valley Stream, N.Y. 11581
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Series % of Shares Shareholder
- ------ ----------- -----------
<S> <C> <C>
5.3% Trumbull Board of Education Tax Deferred
Investment Plan
819 Dogburn Rd.
Orange, CT 06477
Total Return 19.9% Eric M. Holt, as Custodian
23 Sweet Briar Dr.
Ballston Lake, N.Y. 12019
5.1% John G. Carroll
P.O. Box 942
Montauk, N.Y. 11954
9.5% William Saring
1434 Center Rd.
Feasterville, PA 19047
7.9% Francis G. Gradel, Sr.
90 Clearview Ave.
Huntington Valley, PA 19006
19.3% Joan W. Seifred
678 Freeman Dr. NW
Lilburn, GA 30247
21.4% Russell M. Flint
5805 228th St. SW
Mountlake Terrace, WA 98043
5.0% Lyle E. Honstein, as Trustee
1135 D Big Thompson Canyon Rd.
Loveland, CO 80538
</TABLE>
TRANSFER AGENT. Administrative Data Management Corp., 10 Woodbridge
--------------
Center Drive, Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as
transfer agent for the Series and as redemption agent for regular redemptions.
The fees charged to each Series by the Transfer Agent are $5.00 to open an
account; $3.00 for each certificate issued; $.65 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 Series; $5.00 for each partial withdrawal or
complete liquidation; and $1.00 per account per report required by any
governmental authority. Additional fees charged to the Series by the Transfer
Agent are assumed by the Underwriter. The Transfer Agent reserves the right to
change the fees on prior notice to the Series. The $5 administrative fee for
exchange transactions into the Series, which is generally charged to the
shareholder, is being borne on a voluntary basis by the Series for an indefinite
period. 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
47
<PAGE>
administrative fee for each account history covering the period 1983 through
1990 and $10.00 per year for each account history covering the period 1974
through 1982. Account histories prior to 1974 will not be provided. If any
communication from the Transfer Agent to a shareholder is returned from the U.S.
Postal Service marked as "Undeliverable" two consecutive times, the Transfer
Agent will cease sending any further materials to the shareholder until the
Transfer Agent is provided with a correct address. Furthermore, if there is no
known address for a shareholder for at least one year, the Transfer Agent will
charge such shareholder's account $40 to cover the Transfer Agent's expenses in
trying to locate the shareholder's correct address. For the fiscal year ended
December 31, 1994, BLUE CHIP SERIES, SPECIAL SITUATIONS SERIES and TOTAL RETURN
SERIES paid $312,544, $252,952 and $150,528, respectively, in transfer agency
fees. For the fiscal year ended December 31, 1994, INVESTMENT GRADE SERIES
accrued $110,839 in transfer agency fees and expenses, all of which were
voluntarily waived by the Transfer Agent. The Transfer Agent's telephone number
is 1-800-423-4026.
SHAREHOLDER LIABILITY. The Fund is organized as an entity known as a
---------------------
"Massachusetts business trust." Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable for the
obligations of the Fund. The Declaration of Trust however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the Fund or the Trustees. The Fund's
Declaration of Trust provides for indemnification out of the property of the
Fund of any shareholder held personally liable for the obligations of the Fund.
The Declaration of Trust also provides that the Fund shall, upon request, assume
the defense of any claim made against any shareholder for any act or obligation
of the Fund and satisfy any judgment thereon. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
The Adviser believes that, in view of the above, the risk of personal liability
to shareholders is immaterial and extremely remote. The Declaration of Trust
further provides that the Trustees will not be liable for errors of judgment or
mistakes of fact or law, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office. The Fund 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 Fund and the
Adviser have adopted Codes of Ethics restricting personal securities trading by
portfolio managers and other access persons of the Fund. Among other things,
such persons: (a) must have all trades pre-cleared by the Adviser; (b) are
restricted from short-term trading; (c) must have duplicate statements and
transactions confirmations reviewed by a compliance officer; and (d) are
prohibited from purchasing securities of initial public offerings.
APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
Standard & Poor's Rating Group ("S&P") commercial paper rating is a
current assessment of the likelihood of timely payment of debt considered short-
term in the relevant market. Ratings are graded into several categories,
ranging from "A-1" for the highest quality obligations to "D" for the lowest.
48
<PAGE>
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.
APPENDIX B
The Series may use some or all of the following hedging instruments:
OPTIONS ON EQUITY AND DEBT SECURITIES--A call option is a short-term
contract pursuant to which the purchaser of the option, in return for a premium,
has the right to buy the security underlying the option at a specified price at
any time during the term of the option. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option during the
option term, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract that gives its purchaser, in return
for a premium, the right to sell the underlying security at a specified price
during the option term. The writer of the put option, who receives the premium,
has the obligation, upon exercise of the option during the option term, to buy
the underlying security at the exercise price.
OPTIONS ON STOCK INDEXES--A stock index assigns relative values to the
stocks included in the index and fluctuates with changes in the market values of
those stocks. A stock index option operates in the same way as a more
traditional stock option, except that exercise of a stock index option is
effected with cash payment and does not involve delivery of securities. Thus,
upon exercise 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.
49
<PAGE>
STOCK INDEX FUTURES CONTRACTS--A stock index futures contract is a
bilateral agreement pursuant to which one party agrees to accept, and the other
party agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the stocks comprising the index is
made. Generally, contracts are closed out prior to the expiration date of the
contract.
INTEREST RATE FUTURES CONTRACTS--Interest rate futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, in
most cases the contracts are closed out before the settlement date without the
making or taking of delivery.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to
options on securities, except that an option on a futures contract gives the
purchaser the right, in return for the premium, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put), rather than to purchase or sell a security, at a
specified price at any time during the option term. Upon exercise of the
option, the delivery of the futures position to the holder of the option will be
accompanied by delivery of the accumulated balance that represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future. The writer of an option, upon exercise, will assume a short position in
the case of a call and a long position in the case of a put.
FORWARD CURRENCY CONTRACTS--A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into.
50
<PAGE>
Financial Statements
as of December 31, 1994
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS BLUE CHIP SERIES
(A Series of First Investors Series Fund)
December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
$10,000 of
Shares Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--88.0%
Basic Industry--1.3%
22,500 Monsanto Company $ 1,586,250 $ 128
- ----------------------------------------------------------------------------------------------------------------------------
Capital Goods--8.9%
12,400 Boeing Co. 579,700 47
8,000 Browning Ferris Industries, Inc. 227,000 18
12,500 Deere & Company 828,125 67
20,000 Dover Corporation 1,032,500 83
6,100 Eaton Corp. 301,950 24
8,200 Emerson Electric 512,500 41
62,700 General Electric Company 3,197,700 259
15,000 Grainger (W.W.), Inc. 866,250 70
18,600 Ingersoll-Rand Co. 585,900 47
10,300 ITT Corporation 912,837 74
2,600 McDonnell Douglas Corp. 369,200 30
32,000 * Varity Corp. 1,160,000 94
17,700 WMX Technologies Inc. 464,625 38
- ----------------------------------------------------------------------------------------------------------------------------
11,038,287 892
- ----------------------------------------------------------------------------------------------------------------------------
Consumer Durables--3.0%
12,800 Chrysler Corporation 627,200 51
4,000 Fleetwood Enterprises Inc. 75,000 6
33,700 Ford Motor Co. 943,600 76
27,200 General Motors Corp. 1,149,200 93
13,350 Goodyear Tire & Rubber Company 448,894 36
19,600 Masco Corporation 443,450 36
- ----------------------------------------------------------------------------------------------------------------------------
3,687,344 298
- ----------------------------------------------------------------------------------------------------------------------------
Consumer Non-Durables--18.7%
29,500 Abbott Laboratories 962,437 78
11,200 American Home Products Corp. 702,800 57
18,300 Anheuser Busch Companies, Inc. 931,012 75
18,800 Bristol-Myers Squibb Co. 1,088,050 88
47,500 Coca Cola Company 2,446,250 198
5,400 Colgate-Palmolive Company 342,225 28
13,900 CPC International Inc. 740,175 60
13,500 Eastman Kodak Co. 644,625 52
8,100 Gillette Co. 605,475 49
23,600 Johnson & Johnson 1,292,100 104
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
12,500 Kellogg Company 726,562 59
28,000 Kimberly-Clark Corporation 1,414,000 114
10,700 Lilly (Eli) & Co. 702,187 57
45,000 Merck & Co.,Inc. 1,715,625 139
29,100 Pepsico Inc. 1,054,875 85
15,200 Pet, Inc. 300,200 24
11,200 Pfizer Inc. 865,200 70
42,500 Philip Morris Cos., Inc. 2,443,750 198
25,100 Procter & Gamble Co. 1,556,200 126
14,000 * Ralcorp Holdings Inc. 311,500 25
29,400 Sara Lee Corp. 742,350 60
7,100 Schering-Plough Corp. 525,400 42
31,800 Stride Rite Corp. 353,775 29
5,900 Unilever PLC 687,350 56
- ----------------------------------------------------------------------------------------------------------------------------
23,154,123 1,873
- ----------------------------------------------------------------------------------------------------------------------------
Consumer Services--8.0%
12,800 Albertson's, Inc. 371,200 30
8,100 Dayton-Hudson Corp. 573,075 46
18,000 GAP, Inc. (The) 549,000 44
15,800 Home Depot, Inc. (The) 726,800 59
15,700 * Kroger Company 378,762 31
15,700 Mattel Inc. 394,462 32
12,900 May Department Stores Co. 435,375 35
27,200 McDonald's Corp. 795,600 64
15,000 Nordstrom Inc. 630,000 51
9,700 * Officemax Inc. 257,050 21
12,600 Rite Aid Corp. 294,525 24
13,300 Sears, Roebuck & Co. 611,800 49
18,800 The Walt Disney Company 867,150 70
14,200 Time Warner Inc. 498,775 40
12,900 Toys "R" Us, Inc. 393,450 32
10,100 * Viacom Inc.-Class "B" 410,312 33
82,400 Wal-Mart Stores, Inc. 1,751,000 142
- -----------------------------------------------------------------------------------------------------------------------------
9,938,336 803
- ----------------------------------------------------------------------------------------------------------------------------
Energy--16.7%
33,500 Alcan Aluminum Ltd. 850,062 69
18,100 Amoco Corp. 1,070,162 86
9,100 Atlantic Richfield Co. 925,925 75
7,100 Burlington Resources, Inc. 248,500 20
23,700 Chevron Corp. 1,057,612 85
10,100 Dow Chemical Co. 679,225 55
25,800 Du Pont (E.I.) De Nemours & Co. 1,451,250 117
26,900 Enron Corporation 820,450 66
43,900 Exxon Corp. 2,666,925 216
14,700 Halliburton Co. 486,937 39
12,500 * Inland Steel Industries, Inc. 439,063 35
6,700 Kerr-McGee Corp. 308,200 25
16,100 Minnesota Mining & Manufacturing Company 859,338 69
16,150 Mobil Corporation 1,360,638 110
29,100 NICOR, Inc. 662,025 54
18,500 Nucor Corp. 1,026,750 83
13,400 Pacific Enterprises 284,750 23
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
9,400 Phillips Petroleum Co. 307,850 25
19,300 Royal Dutch Petroleum Company 2,074,750 168
11,200 Schlumberger, Ltd. 564,200 46
19,000 Scott Paper Co. 1,313,375 106
9,400 Texaco Inc. 562,825 46
23,500 Unocal Corp. 640,375 52
- ----------------------------------------------------------------------------------------------------------------------------
20,661,187 1,670
- ----------------------------------------------------------------------------------------------------------------------------
Financial--8.4%
18,100 American Express Co. 533,950 43
11,600 American International Group Inc. 1,136,800 92
41,250 Banc One Corporation 1,046,719 85
28,900 BankAmerica Corporation 1,141,550 92
14,800 Chase Manhattan Corp. 508,750 41
14,100 Chemical Banking Corp. 505,838 41
16,200 Citicorp 670,275 54
16,700 Federal National Mortgage Association 1,217,013 98
21,700 First Fidelity Bancorporation 973,788 79
40,200 MGIC Investment Corporation 1,331,625 108
28,400 NationsBank Corporation 1,281,550 104
- ----------------------------------------------------------------------------------------------------------------------------
10,347,858 837
- ----------------------------------------------------------------------------------------------------------------------------
Health Care Miscellaneous--1.7%
16,600 Columbia/HCA Healthcare Corporation 605,900 49
22,500 U.S. Healthcare, Inc. 928,125 75
6,900 Warner-Lambert Company 531,300 43
- ----------------------------------------------------------------------------------------------------------------------------
2,065,325 167
- ----------------------------------------------------------------------------------------------------------------------------
Retail Trade--.1%
7,400 * Price/Costco, Inc. 95,275 8
- ----------------------------------------------------------------------------------------------------------------------------
Technology--8.8%
24,000 Airtouch Communications Inc. 699,000 57
5,000 Autodesk, Inc. 198,125 16
8,400 Automatic Data Processing, Inc. 491,400 40
10,100 Cisco Systems, Inc. 354,763 29
7,600 * Compaq Computer Corp. 300,200 24
10,200 Hewlett-Packard Co. 1,018,725 82
15,300 Intel Corporation 977,288 79
21,700 International Business Machines Corp. 1,594,950 129
40,000 MCI Communications Corp. 735,000 59
24,200 * Microsoft Corporation 1,479,225 120
31,500 Motorola, Inc. 1,823,063 147
19,000 * National Semiconductor Corp. 370,500 30
19,700 * Oracle Systems Corp. 869,263 70
- ----------------------------------------------------------------------------------------------------------------------------
10,911,502 882
- ----------------------------------------------------------------------------------------------------------------------------
Transportation--1.1%
10,000 * AMR Corp. 532,500 43
28,700 * Southern Pacific Rail Corp. 520,188 42
18,775 Southwest Airlines Co. 314,481 26
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
1,367,169 111
- ----------------------------------------------------------------------------------------------------------------------------
Utilities--11.3%
57,250 A T & T Corp. 2,876,813 232
20,000 Ameritech Corp. 807,500 65
16,600 Bell Atlantic Corp. 825,850 67
21,300 BellSouth Corp. 1,152,863 93
23,000 Carolina Power & Light Co. 612,375 50
40,000 Cinergy Corp. 935,000 76
23,000 Duke Power Co. 876,875 71
28,200 FPL Group, Inc. 990,525 80
35,000 GTE Corporation 1,063,125 86
15,300 Nynex Corp. 562,275 45
16,000 Pacific Telesis Group 456,000 37
26,000 Pacificorp 471,250 38
22,100 SBC Communications Inc. 892,287 72
28,000 Texas Utilities Co. 896,000 72
16,500 US West, Inc. 587,812 48
- ----------------------------------------------------------------------------------------------------------------------------
14,006,550 1,132
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $104,705,520) 108,859,206 8,801
- ----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS--.8%
Leisure Time
$1,500M Bell Sports Corporation, 4 1/4%, 11/15/00 (cost $1,256,709) 965,625 78
- ----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--6.5%
3,200M Central Louisiana Electric, 6%, 1/3/95 3,198,933 259
1,500M General Electric Capital Corp., 6.05%, 1/17/95 1,495,967 121
3,300M Oklahoma Gas & Electric, 5.90%, 1/11/95 3,294,592 266
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $7,989,492) 7,989,492 646
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Value of Investments (cost $113,951,721) 95.3% 117,814,323 9,525
Other Assets, Less Liabilities 4.7 5,879,560 475
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $123,693,883 $10,000
============================================================================================================================
*Non-income producing
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS INSURED INTERMEDIATE TAX EXEMPT SERIES
(A Series of First Investors Series Fund)
December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
<S> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS--95.9%
Alaska--3.6%
$ 200M Anchorage General Obligation, 6 1/2%, 7/1/2004 $ 207,000 $ 364
- ----------------------------------------------------------------------------------------------------------------------------
California--10.9%
300M California State Rev. Antic. Wts., 5 3/4%, 4/25/1996 299,859 527
150M Pittsburg Pub. Fing. Auth. Wastewater Rev. 6.8%, Prerefunded 6/1/2001 160,875 283
150M Sacramento Municipal Utility District Electric Revenue,
6 1/2%, Prerefunded 9/1/2001 158,625 279
- ----------------------------------------------------------------------------------------------------------------------------
619,359 1,089
- ----------------------------------------------------------------------------------------------------------------------------
Florida--3.6%
200M Orange County Sales Tax Revenue, 6 1/8%, Prerefunded 1/1/2000 207,000 364
- ----------------------------------------------------------------------------------------------------------------------------
Georgia--1.9%
100M Metropolitan Atlanta Rapid Transit Auth. Rev., 7.2%, Prerefunded 7/1/1999 108,250 190
- ----------------------------------------------------------------------------------------------------------------------------
Illinois--15.4%
200M Chicago Wastewater Transmission Rev., 6 3/4%, Prerefunded 11/15/2000 213,750 376
200M Illinois State Sales Tax Revenue, 7%, Prerefunded 6/15/1999 214,500 377
400M Regional Transportation Authority, 7 3/4%, 6/1/2003 448,000 788
- ----------------------------------------------------------------------------------------------------------------------------
876,250 1,541
- ----------------------------------------------------------------------------------------------------------------------------
Indiana--2.8%
150M Valparaiso Indpt. Multi-Schools Bldg. Corp., 6 5/8%, Prerefunded 7/1/2002 158,812 279
- ----------------------------------------------------------------------------------------------------------------------------
Kentucky--4.5%
200M Louisville & Jefferson County Met. Sewer District, 10%, 5/15/2004 254,000 447
- ----------------------------------------------------------------------------------------------------------------------------
Louisiana--3.6%
200M Louisiana Stadium & Exposition District Revenue, 5 7/8%, 7/1/2000 204,250 359
- ----------------------------------------------------------------------------------------------------------------------------
Maryland--3.7%
200M Baltimore Water Projects Revenue, 6 1/4%, Prerefunded 7/1/2002 208,000 366
- ----------------------------------------------------------------------------------------------------------------------------
Michigan--4.6%
1,000M Brighton Area School District General Obligation Zero Cpn., Prerefunded 5/1/2005 260,000 457
- ----------------------------------------------------------------------------------------------------------------------------
New Jersey--3.8%
200M New Jersey Economic Dev. Auth. Mkt. Transition Fac. Rev., 7%, 7/1/2004 216,000 380
- ----------------------------------------------------------------------------------------------------------------------------
New York--5.6%
150M New York City General Obligation, 6 5/8%, Prerefunded 8/1/2002 159,000 280
150M Niagara Falls Bridge Commission, 6.3%, Prerefunded 10/1/2002 156,562 275
- ----------------------------------------------------------------------------------------------------------------------------
315,562 555
- ----------------------------------------------------------------------------------------------------------------------------
Ohio--10.4%
200M Columbus City Sch. Dist. General Obligation, 6.65%, Prerefunded 12/1/2002 213,250 375
200M Franklin County Convention Facs. Auth., 7%, Prerefunded 12/1/2000 216,750 381
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
150M Ohio State Building Authority Revenue, 7 1/4%, Prerefunded 4/1/2000 163,313 287
- ----------------------------------------------------------------------------------------------------------------------------
593,313 1,043
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania--12.2%
- ----------------------------------------------------------------------------------------------------------------------------
200M Hampton Township Sch. Dist. General Obligation, 6.9%,
Prerefunded 2/15/2001 212,250 373
250M North Hills School District General Obligation, 7%, Prerefunded 7/15/2001 267,500 470
200M Pennsylvania Intergovernmental Coop. Auth. Special Tax Rev.,
7%, 6/15/2001 212,500 374
- ----------------------------------------------------------------------------------------------------------------------------
692,250 1,217
- ----------------------------------------------------------------------------------------------------------------------------
Rhode Island--3.8%
200M Rhode Island Depositors Econ. Protection Corp., 7.1%,
Prerefunded 8/1/2001 217,250 382
- ----------------------------------------------------------------------------------------------------------------------------
Texas--5.5%
300M Harris County Toll Road General Obligation, 6 1/2%, Prerefunded 8/15/2002 315,750 555
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Municipal Bonds (cost $5,517,237) 95.9% 5,453,046 9,588
Other Assets, Less Liabilities 4.1 234,505 412
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $5,687,551 $10,000
============================================================================================================================
Municipal Bonds which have been prerefunded
are shown maturing at the prerefunded call date.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS INVESTMENT GRADE SERIES
(A Series of First Investors Series Fund)
December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS--81.1%
Aerospace/Defense--3.9%
$ 500M Allison Engine Co., Inc., 10%, 2003 $ 515,000 $ 112
700M Boeing Co., 6.35%, 2003 618,929 134
750M Lockheed Corp., 6 3/4%, 2003 674,178 146
- ----------------------------------------------------------------------------------------------------------------------------
1,808,107 392
- ----------------------------------------------------------------------------------------------------------------------------
Apparel/Textiles--.6%
250M VF Corp., 9 1/2%, 2001 262,984 57
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Building Materials--1.3%
600M Masco Corp., 9%, 2001 614,450 133
- ----------------------------------------------------------------------------------------------------------------------------
Chemicals--.6%
250M Arco Chemical Co., 9.9%, 2000 267,027 58
- ----------------------------------------------------------------------------------------------------------------------------
Computers/Software/Business Equipment--1.4%
600M Card Establishment Services, Inc., 10%, 2003 627,000 136
- ----------------------------------------------------------------------------------------------------------------------------
Conglomerates--3.0%
700M Hanson Overseas, B.V., 7 3/8%, 2003 657,955 143
750M Tenneco, Inc., 7 7/8%, 2002 717,129 155
- ----------------------------------------------------------------------------------------------------------------------------
1,375,084 298
- ----------------------------------------------------------------------------------------------------------------------------
Consumer Products--2.5%
1,250M Mattel, Inc., 6 3/4%, 2000 1,154,812 250
- ----------------------------------------------------------------------------------------------------------------------------
Electric & Gas Utilities--13.7%
750M Baltimore Gas & Electric Co., 6 1/2%, 2003 665,929 144
800M Carolina Power & Light Co., 7 3/4%, 2003 767,806 166
1,000M Duke Power Co., 5 7/8%, 2003 850,617 184
500M Gulf States Utilities, Co., 8 1/4%, 2004 485,139 105
800M Kansas Gas & Electric Co., 7.6%, 2003 754,647 164
525M Old Dominion Electric Cooperative, 7.97%, 2002 514,132 111
750M Philadelphia Electric Co., 8%, 2002 727,224 158
800M SCE Capital Corp., 7 3/8%, 2003 742,027 161
925M Southwestern Electric Power Co., 7%, 2007 822,722 178
- ----------------------------------------------------------------------------------------------------------------------------
6,330,243 1,371
- ----------------------------------------------------------------------------------------------------------------------------
Financial Services--16.9%
925M Banc One Corp., 7 1/4%, 2002 852,324 184
660M BankAmerica Corp., 9 1/2%, 2001 683,753 148
875M Barnett Banks, Inc., 8 1/2%, 1999 875,240 190
700M Chemical Bank, Inc., 7%, 2005 616,976 134
150M Citicorp, 10.15%, 1998 157,557 34
800M Citicorp, 8%, 2003 768,928 166
250M Corestates Capital Corp., 9 3/8%, 2003 259,723 56
450M First Union Corp., 8 1/8%, 2002 437,026 95
750M Fleet Financial Group, 6 7/8%, 2003 670,678 145
750M Mellon Bank N.A., 6 1/2%, 2005 635,898 138
550M Meridian Bancorp, 7 7/8%, 2002 524,329 114
925M Morgan Guaranty Trust Co., 7 3/8%, 2002 884,184 191
450M Nationsbank Corp., 8 1/8%, 2002 435,156 94
- ----------------------------------------------------------------------------------------------------------------------------
7,801,772 1,689
- ----------------------------------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--5.3%
500M Coca-Cola Enterprises, Inc., 7 7/8%, 2002 487,232 106
900M Philip Morris Cos., Inc., 7 1/8%, 2002 819,499 177
500M Seagram Co., Ltd., 8.35%, 2006 491,765 106
650M Universal Corp., 9 1/4%, 2001 664,775 144
- ----------------------------------------------------------------------------------------------------------------------------
2,463,271 533
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Healthcare--.9%
450M Healthtrust, Inc., 8 3/4%, 2005 434,250 94
- ----------------------------------------------------------------------------------------------------------------------------
Investment/Finance Companies--7.6%
700M Associates Corp. of North America, 7 7/8%, 2001 679,038 147
700M General Electric Capital Corp., 7 7/8%, 2006 677,017 147
700M General Motors Acceptance Corp., 7 1/8%, 1999 658,517 143
725M Heller Financial, Inc., 9 3/8%, 1998 743,630 161
250M International Lease Finance Corp., 8 7/8%, 2001 254,398 55
500M ITT Financial Corp., 8 1/2%, 1998 500,842 108
- ----------------------------------------------------------------------------------------------------------------------------
3,513,442 761
- ----------------------------------------------------------------------------------------------------------------------------
Miscellaneous--.6%
250M Alco Standard Corp., 8 7/8%, 2001 253,917 55
- ----------------------------------------------------------------------------------------------------------------------------
Oil/Natural Gas--3.7%
750M BP America, Inc., 7 7/8%, 2002 731,755 158
472M Marathon Oil Co., 8 1/2%, 2000 469,868 102
500M Mobil Corp., 8 5/8%, 2021 508,910 110
- ----------------------------------------------------------------------------------------------------------------------------
1,710,533 370
- ----------------------------------------------------------------------------------------------------------------------------
Paper/Forest Products--4.1%
500M Macmillan & Bloedel, Ltd., 8 1/2%, 2004 487,758 106
650M Stone Container Corp., 10 3/4%, 2002 648,375 140
750M Temple Inland, Inc., 9%, 2001 773,262 167
- ----------------------------------------------------------------------------------------------------------------------------
1,909,395 413
- ----------------------------------------------------------------------------------------------------------------------------
Retail-General Merchandise--2.6%
500M Dayton-Hudson Corp., 9 3/4%, 2002 535,492 116
750M Penney J.C. & Co., 6 1/8%, 2003 648,909 141
- ----------------------------------------------------------------------------------------------------------------------------
1,184,401 257
- ----------------------------------------------------------------------------------------------------------------------------
Technology--2.9%
750M International Business Machines Corp., 6 3/8%, 2000 686,312 149
725M Xerox Corp., 7.15%, 2004 667,827 145
- ----------------------------------------------------------------------------------------------------------------------------
1,354,139 294
- ----------------------------------------------------------------------------------------------------------------------------
Telecommunications--1.6%
800M Tele-Communications, Inc., 8 1/4%, 2003 754,501 163
- ----------------------------------------------------------------------------------------------------------------------------
Telephone--7.9%
500M GTE Corp., 8.85%, 1998 506,546 110
850M MCI Communication Corp., 7 1/2%, 2004 804,007 174
250M New Jersey Bell Telephone Co., 7 3/8%, 2012 224,852 49
1,000M Pacific Bell Telephone Co., 7%, 2004 919,096 199
1,250M Southern Bell Telephone & Telegraph Co., Inc., 8 1/8%, 2017 1,179,808 255
- ----------------------------------------------------------------------------------------------------------------------------
3,634,309 787
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $39,799,462) 37,453,637 8,111
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS-7.7%
700M Federal Home Loan Mortgage Corp., 7.88%, 2004 661,281 143
1,775M United States Treasury Notes, 8 7/8%, 1997 1,821,871 395
1,190M United States Treasury Notes, 5 1/4%, 1998 1,094,614 237
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of U.S. Government Obligations (cost $3,909,185) 3,577,766 775
- ----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--9.2%
1,000M Ameritech Corp., 5.97%, 1/9/95 998,673 216
2,000M Federal National Mortgage Association, 5.89%, 1/1 1,996,728 432
250M General Electric Capital Corp., 5.80%, 1/11/95 249,597 54
1,000M Raytheon Co., 5.95%, 1/9/95 998,678 216
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $4,243,676) 4,243,676 918
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Investments ($47,952,323) 98.0% 45,275,079 9,804
Other Assets, Less Liabilities 2.0 903,808 196
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $46,178,887 $10,000
============================================================================================================================
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS SPECIAL SITUATIONS SERIES
(A Series of First Investors Series Fund)
December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
$10,000 of
Shares Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--85.0%
Commercial Service--3.0%
26,000 Equifax, Inc. $ 685,750 $ 76
21,500 * Insurance Auto Auctions, Inc. 657,094 73
114,400 * International Post Ltd. 543,400 60
52,700 * Interpool Inc. 783,912 87
- ----------------------------------------------------------------------------------------------------------------------------
2,670,156 296
- ----------------------------------------------------------------------------------------------------------------------------
Computers/Software/Business Equipment--12.8%
42,300 * Adaptec, Inc. 999,337 111
14,600 * Altera Corp. 611,375 68
16,600 * Bysis Group, Inc. 367,275 41
38,000 * Convex Computer Corp. 299,250 33
12,400 * Cornerstone Imaging Inc. 189,100 21
50,600 * Data General Corp. 506,000 56
48,600 ECI Telecommunications Limited Designs (ADR) 662,175 73
18,600 * EMC Corp. 402,225 45
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
19,650 * FileNet Corp. 530,550 59
56,100 * Fourth Shift Corp. 154,275 17
71,700 * Fulcrum Technologies, Inc. 851,437 95
74,000 * Integrated Micro Products PLC (ADR) 536,500 60
36,500 * Lasermaster Technologies, Inc. 255,500 28
11,300 * Lotus Development Corp. 463,300 52
32,900 * Metatec Corp. 316,662 35
10,400 * Microsoft Corp. 635,700 71
24,800 * Oracle Systems Corp. 1,094,300 122
31,900 * Perceptron Inc. 733,700 82
18,800 * Phoenix Technologies Ltd. 141,000 16
32,000 * Pyxis Corp. 608,000 68
32,100 Reynolds & Reynolds Co. 802,500 89
14,600 * Robotic Vision Systems, Inc. 91,250 10
14,000 * Sybron Chemicals, Inc. 217,000 24
- ----------------------------------------------------------------------------------------------------------------------------
11,468,411 1,276
- ----------------------------------------------------------------------------------------------------------------------------
Consumer Products--3.1%
23,900 * CUC International, Inc. 800,650 89
47,300 Dixie Yarns, Inc. 331,100 37
25,700 Falcon Products, Inc. 301,975 33
19,700 * Harvey Entertainment 280,725 31
63,800 * National R.V. Holdings, Inc. 482,487 54
17,200 Oakwood Homes Corp. 419,250 47
14,600 * Shuler Homes, Inc. 208,050 23
- ----------------------------------------------------------------------------------------------------------------------------
2,824,237 314
- ----------------------------------------------------------------------------------------------------------------------------
Electronics/Instruments/Components--2.4%
20,700 General Electric Co. 1,055,700 118
12,100 Nokia Corp. (ADR) 907,500 101
11,100 * Recoton Corp. 208,125 23
- ----------------------------------------------------------------------------------------------------------------------------
2,171,325 242
- ----------------------------------------------------------------------------------------------------------------------------
Electronics/Semiconductors--7.4%
37,300 * Actel Corp. 307,725 34
8,200 * Alliance Semiconductor Corp. 256,250 28
11,400 * Applied Materials, Inc. 481,650 54
27,800 * Asyst Technologies, Inc. 653,300 73
16,500 * Electroglas, Inc. 550,687 61
39,600 * Integrated Device Technology Inc. 1,168,200 130
25,800 * Megatest Corp. 166,895 19
15,600 Motorola, Inc. 902,850 100
46,300 * National Semiconductor Corp. 902,850 100
76,000 * Tower Semiconductor Ltd. 836,000 93
7,700 * Xilinx Inc. 456,225 51
- ----------------------------------------------------------------------------------------------------------------------------
6,682,632 743
- ----------------------------------------------------------------------------------------------------------------------------
Environmental Services--.2%
33,600 * Encon Systems, Inc. 155,400 17
- ----------------------------------------------------------------------------------------------------------------------------
Financial/Miscellaneous--5.9%
17,300 * American Travellers Corp. 283,287 32
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
65,700 * Amvestors Financial Corp. 624,150 69
42,000 * Credit Acceptance Corp. 745,500 83
32,500 First USA, Inc. 1,068,437 119
44,350 * Grupo Financiero Bancomer, S.A. de C.V. (ADR) 525,889 58
52,500 Independent Bank Corp. 275,625 31
1,900 * Medaphis Corp. 88,350 10
16,050 NAC Re Corp. 537,675 60
27,800 Presidential Life Corp. 145,950 16
43,550 Reliance Group Holdings, Inc. 223,194 25
18,468 Southern National Corp. 353,201 39
12,100 Sunamerica Inc. 438,625 49
- ----------------------------------------------------------------------------------------------------------------------------
5,309,883 591
- ----------------------------------------------------------------------------------------------------------------------------
Foods--3.5%
18,200 * Canadaigua Wine Co. Class "A" 691,600 77
26,000 Dreyers Grand Ice Cream, Inc. 643,500 72
45,500 * Grist Mill Co. 426,562 48
45,000 * Ralcorp Holdings, Inc. 1,001,250 111
44,700 * Taco Cabana Class "A" 407,887 45
- ----------------------------------------------------------------------------------------------------------------------------
3,170,799 353
- ----------------------------------------------------------------------------------------------------------------------------
Gaming/Lodging--2.3%
36,600 * GTECH Holdings Corp. 745,725 83
49,700 * Monarch Casino & Resort, Inc. 273,350 31
23,300 * Players International, Inc. 524,250 58
43,900 * Rio Hotel and Casino, Inc. 532,287 59
- ----------------------------------------------------------------------------------------------------------------------------
2,075,612 231
- ----------------------------------------------------------------------------------------------------------------------------
Health Care/Miscellaneous--23.0%
18,600 * Advocat, Inc. 246,450 27
35,800 * American Medical Response, Inc. 1,033,725 115
75,500 * Applied Bioscience International, Inc. 415,250 46
11,300 * Arbor Health Care Co. 231,650 26
56,300 * Beverly Enterprises 809,313 90
26,000 * Boston Scientific Corp. 451,750 50
11,250 * Cellpro, Inc. 111,094 12
21,800 * Clinicom, Inc. 242,525 27
28,000 * Dentsply International, Inc. 882,000 98
72,400 * Ethical Holdings PLC (ADR) 470,600 52
38,200 Fisher Scientific International 945,450 105
56,200 * Future Healthcare, Inc. 1,159,125 129
26,500 * GMIS, Inc. 516,750 58
26,000 * Health Care & Retirement Corp. 783,250 87
30,925 * Healthcare Compare Corp. 1,055,316 118
14,600 * I-Stat Corp. 277,400 31
32,190 Ivax Corp. 611,611 68
31,600 * Living Centers of America, Inc. 1,054,650 117
11,200 * MedCath Inc. 159,600 18
57,100 * Mid Atlantic Medical Services, Inc. 1,306,163 145
44,400 * North American Vaccine, Inc. 371,850 41
17,000 * Noven Pharmaceuticals, Inc. 210,375 24
30,900 * Pacific Physicians Services, Inc. 517,575 58
22,200 * Penederm, Inc. 138,750 15
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
21,600 * Pharmaceutical Resources, Inc. 199,800 22
3,800 * Physician Reliance Network, Inc. 73,150 8
176,500 * Plasma-Therm, Inc. 1,213,438 135
74,500 * Protocol Systems, Inc. 670,500 75
47,700 * Quantum Health Resources, Inc. 1,371,375 153
51,500 Rite Aid Corp. 1,203,813 134
57,200 Teva Pharmaceutical Industries Ltd. (ADR) 1,383,525 154
20,000 * Watson Pharmaceuticals, Inc. 525,000 58
- ----------------------------------------------------------------------------------------------------------------------------
20,642,823 2,296
- ----------------------------------------------------------------------------------------------------------------------------
Industrial Services--.6%
22,100 * SPS Technologies, Inc. 560,788 62
- ----------------------------------------------------------------------------------------------------------------------------
Machinery/Diversified--4.4%
28,200 AGCO Corp. 856,575 95
12,200 Breed Technologies, Inc. 346,175 39
41,800 Case Corp. 898,700 100
14,000 * Clark Equipment Co. 759,500 84
24,200 Federal-Mogul Corp. 487,025 54
63,400 Owosso Corp. 634,000 71
- ----------------------------------------------------------------------------------------------------------------------------
3,981,975 443
- ----------------------------------------------------------------------------------------------------------------------------
Manufacturing/Diversified--.6%
13,700 * Dovatron International, Inc. 352,775 39
24,050 * Figgie International, Inc. 147,306 17
- ----------------------------------------------------------------------------------------------------------------------------
500,081 56
- ----------------------------------------------------------------------------------------------------------------------------
Paper/Forest Products--1.7%
10,300 Chesapeake Corp. 339,900 38
19,700 Pope & Talbot, Inc. 312,738 35
18,400 Willamette Industries, Inc. 874,000 97
- ----------------------------------------------------------------------------------------------------------------------------
1,526,638 170
- ----------------------------------------------------------------------------------------------------------------------------
Retail Trade--4.2%
24,100 * Designs, Inc. 168,700 19
16,800 Haverty Furniture Co., Inc. 197,400 22
44,000 * Hi-Lo Automotive, Inc. 429,000 48
26,100 * Men's Wearhouse, Inc. (The) 587,250 65
43,100 * Meyer (Fred), Inc. 1,325,325 147
31,400 * REX Stores Corp. 510,250 57
18,300 Talbots, Inc. 571,875 64
- ----------------------------------------------------------------------------------------------------------------------------
3,789,800 422
- ----------------------------------------------------------------------------------------------------------------------------
Telecommunications--6.0%
12,900 A T & T Corp. 648,225 72
27,800 * Boston Technology, Inc. 399,625 44
10,500 Ericsson (L.M.) Telephone Co. (ADR) 578,813 64
34,800 MCI Communications Corp. 639,450 71
31,200 * Nextel Communications, Inc. 448,500 50
35,800 * Octel Communications Corp. 742,850 83
30,000 * Porta Systems Corp. 153,750 17
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
15,300 * Rogers Cantel Mobile Communications Class "B" 446,091 50
33,000 * Viacom Inc. Class "B" 1,340,625 149
- ----------------------------------------------------------------------------------------------------------------------------
5,397,929 600
- ----------------------------------------------------------------------------------------------------------------------------
Transportation--3.9%
36,500 London & Overseas Freighters Limited 520,125 58
32,400 MK Rail Corp. 344,250 38
18,500 * Rural/Metro Corp. 346,875 39
20,700 Sea Container Ltd. Class "A" 274,275 30
50,800 * Southern Pacific Rail Corp. 920,750 102
90,400 Transportacion Maritima Mexicana S.A. (ADR) 689,300 77
21,200 * ValuJet Airlines, Inc. 450,500 50
- ----------------------------------------------------------------------------------------------------------------------------
3,546,075 394
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $74,477,613) 76,474,564 8,506
- ----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS--.4%
$ 450M Pacific Physicians Services, Inc., 5 1/2%, 2003 (cost $450,000) 348,750 39
- ----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--24.8%
4,000M American General Finance Corp. 5.75%, 1/9/95 3,994,889 444
4,600M Chevron Oil Finance Co., 5.97%, 1/17/95 4,587,794 510
4,400M Exxon Credit Corp., 5.80%, 1/12/95 4,392,202 489
2,200M Ford Motor Credit Corp., 5.40%, 1/3/95 2,199,070 245
2,000M General Electric Capital Corp., 5.45%, 1/3/95 1,999,394 222
2,500M General Electric Capital Corp., 5.86%, 1/24/95 2,490,641 277
2,625M Temple-Inland Inc. 5.85%, 1/3/95 2,624,147 292
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $22,288,137) 22,288,137 2,479
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $97,215,750) 110.2% 99,111,451 11,024
Excess of Liabilities Over Other Assets (10.2) (9,205,366) (1,024)
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $89,906,085 $10,000
============================================================================================================================
*Non-income producing
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS TOTAL RETURN SERIES
(A Series of First Investors Series Fund)
December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
$10,000 of
Shares Security Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
COMMON STOCKS--51.4%
Basic Industry--3.2%
23,900 Dixie Yarns, Inc. $ 167,300 $33
26,400 * Interpool, Inc. 392,700 77
6,000 Monsanto Company 423,000 83
16,300 * Sybron Chemicals, Inc. 252,650 50
7,700 Willamette Industries, Inc. 365,750 72
- ----------------------------------------------------------------------------------------------------------------------------
1,601,400 315
- ----------------------------------------------------------------------------------------------------------------------------
Capital Goods--3.7%
7,950 Agco Corporation 241,481 47
4,400 Browning-Ferris Industries, Inc. 124,850 25
4,000 * Clark Equipment Co. 217,000 43
3,900 Deere & Company 258,375 51
10,000 Grainger (W.W.), Inc. 577,500 114
4,200 * SPS Technologies, Inc. 106,575 21
10,000 * Varity Corporation 362,500 71
- ----------------------------------------------------------------------------------------------------------------------------
1,888,281 372
- ----------------------------------------------------------------------------------------------------------------------------
Computers/Software/Business Equipment--.4%
15,200 ECI Telecommunications Limited Designs (ADR) 207,100 41
- ----------------------------------------------------------------------------------------------------------------------------
Conglomerates--.7%
10,100 Norsk Hydro A.S. (ADR) 395,162 78
- ----------------------------------------------------------------------------------------------------------------------------
Consumer Durables--3.1%
4,400 Breed Technologies, Inc. 124,850 25
7,500 Chrysler Corporation 367,500 72
21,900 Falcon Products, Inc. 257,325 51
8,000 Goodyear Tire & Rubber Company 269,000 53
16,000 Masco Corporation 362,000 71
6,900 Oakwood Homes Corp. 168,187 33
- ----------------------------------------------------------------------------------------------------------------------------
1,548,862 305
- ----------------------------------------------------------------------------------------------------------------------------
Consumer Non-Durables--5.4%
8,000 Colgate-Palmolive Company 507,000 100
15,700 Dreyers Grand Ice Cream, Inc. 388,575 77
10,000 Eastman Kodak Company 477,500 94
10,000 Kimberly-Clark Corporation 505,000 100
8,300 * Lone Star Steakhouse & Saloon 166,000 33
6,650 Pepsico, Inc. 241,062 48
20,000 Pet, Inc. 395,000 78
5,000 Stride Rite Corp. 55,625 11
- ----------------------------------------------------------------------------------------------------------------------------
2,735,762 541
- ----------------------------------------------------------------------------------------------------------------------------
Consumer Services--6.4%
11,800 Gap, Inc. (The) 359,900 71
29,100 * Hi-Lo Automotive, Inc. 283,725 56
11,400 * Insurance Auto Auctions, Inc. 348,412 69
16,900 * Monarch Casino & Resort, Inc. 92,950 18
18,200 * REX Stores Corporation 295,750 58
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
20,000 * Rio Hotel and Casino, Inc. 242,500 48
10,300 Talbots, Inc. 321,875 63
16,000 The Walt Disney Company 738,000 146
8,000 Time Warner, Inc. 281,000 55
13,000 Wal-Mart Stores, Inc. 276,250 54
- ----------------------------------------------------------------------------------------------------------------------------
3,240,362 638
- ----------------------------------------------------------------------------------------------------------------------------
Energy--2.9%
6,000 Mobil Corporation 505,500 100
7,400 Royal Dutch Petroleum Company 795,500 157
3,750 Schlumberger, Ltd. 188,906 37
- ----------------------------------------------------------------------------------------------------------------------------
1,489,906 294
- ----------------------------------------------------------------------------------------------------------------------------
Financial--6.1%
12,375 Banc One Corporation 314,016 62
13,000 Bankamerica Corporation 513,500 101
8,000 Federal National Mortgage Association 583,000 115
15,000 MGIC Investment Corporation 496,875 98
7,500 NationsBank Corporation 338,437 67
52,500 Reliance Group Holdings, Inc. 269,063 53
19,525 Southern National Corp. 373,416 74
9,000 U.S. Bancorp Inc. 189,000 37
- ----------------------------------------------------------------------------------------------------------------------------
3,077,307 607
- ----------------------------------------------------------------------------------------------------------------------------
Health Care/Miscellaneous--8.5%
9,000 * American Medical Response, Inc. 259,875 51
62,900 * Applied Bioscience International, Inc. 345,950 68
6,500 Columbia Healthcare Corp. 237,250 47
43,000 * Continental Medical Systems, Inc. 268,750 53
36,300 * Ethical Holdings PLC (ADR) 235,950 47
3,300 Fisher Scientific International Inc. 81,675 16
5,000 * Living Centers of America, Inc. 166,875 33
27,400 * Mid Atlantic Medical Services Inc. 626,775 124
23,200 * Noven Pharmaceuticals, Inc. 287,100 57
15,000 * Penederm, Inc. 93,750 18
14,100 Teva Pharmaceutical Industries Ltd. (ADR) 341,044 67
11,250 U.S. Healthcare, Inc. 464,063 92
8,000 Warner-Lambert Co. 616,000 121
10,000 * Watson Pharmaceuticals, Inc. 262,500 52
- ----------------------------------------------------------------------------------------------------------------------------
4,287,557 846
- ----------------------------------------------------------------------------------------------------------------------------
Technology--7.4%
16,700 * Asyst Technologies, Inc. 392,450 78
18,600 * Boston Technology, Inc. 267,375 53
8,100 * Fulcrum Technologies, Inc. 96,188 19
10,000 * Integrated Device Technology, Inc. 295,000 58
5,600 * Lotus Development Corp. 229,600 45
15,000 MCI Communications Corp. 275,625 54
11,500 * Megatest Corp. 74,391 15
7,500 * Microsoft Corp. 458,438 90
8,100 Motorola, Inc. 468,788 92
8,400 * Nextel Communications, Inc. 120,750 24
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
15,500 * Octel Communications Corp. 321,625 63
9,500 * Oracle Systems Corp. 419,187 83
13,500 Reynolds & Reynolds Co. 337,500 67
- ----------------------------------------------------------------------------------------------------------------------------
3,756,917 741
- ----------------------------------------------------------------------------------------------------------------------------
Transportation--2.5%
5,000 * AMR Corp. 266,250 53
6,600 MK Rail Corporation 70,125 14
20,600 Sea Container Ltd. Class "A" 272,950 54
20,000 * Southern Pacific Rail Corp. 362,500 71
40,000 Transportacion Maritima Mexicana S.A. (ADR) 305,000 60
- ----------------------------------------------------------------------------------------------------------------------------
1,276,825 252
- ----------------------------------------------------------------------------------------------------------------------------
Utilities--1.1%
7,500 A T & T Corp. 376,875 74
6,700 GTE Corporation 203,513 40
- ----------------------------------------------------------------------------------------------------------------------------
580,388 114
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Common Stocks (cost $27,131,326) 26,085,829 5,144
- ----------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS--20.1%
Aerospace/Defense--1.2%
600M Allison Engine Co., Inc., 10%, 2003 618,000 122
- ----------------------------------------------------------------------------------------------------------------------------
Chemicals--1.3%
650M Rexene Corp., 11 3/4%, 2004 667,875 132
- ----------------------------------------------------------------------------------------------------------------------------
Computers/Software/Business Equipment--1.7%
800M Card Establishment Services, Inc., 10%, 2003 836,000 165
- ----------------------------------------------------------------------------------------------------------------------------
Electric & Gas Utilities--2.1%
500M Gulf States Utilities, Co., 8 1/4%, 2004 485,139 96
600M Old Dominion Electric Cooperative, 7.97%, 2002 587,580 116
- ----------------------------------------------------------------------------------------------------------------------------
1,072,719 212
- ----------------------------------------------------------------------------------------------------------------------------
Electric Power--1.4%
673M United Illuminating Corp., 9.76%, 2006 683,370 135
- ----------------------------------------------------------------------------------------------------------------------------
Electrical Equipment--1.1%
600M Essex Group, Inc., 10%, 2003 561,000 110
- ----------------------------------------------------------------------------------------------------------------------------
Financial Services--1.9%
500M First Union Corp., 8 1/8%, 2002 485,584 96
500M NationsBank Corporation, 8 1/8%, 2002 483,507 95
- ----------------------------------------------------------------------------------------------------------------------------
969,091 191
- ----------------------------------------------------------------------------------------------------------------------------
Food/Beverage/Tobacco--1.2%
600M Universal Corp., 9 1/4%, 2001 613,639 121
- ----------------------------------------------------------------------------------------------------------------------------
Healthcare--2.4%
600M Healthsouth Rehabilitation Corp., 9 1/2%, 2001 582,000 115
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
600M Ornda Healthcorp., 11 3/8%, 2004 613,500 121
- ----------------------------------------------------------------------------------------------------------------------------
1,195,500 236
- ----------------------------------------------------------------------------------------------------------------------------
Media/Cable Television--1.2%
600M Rogers Communication Inc., 10 7/8%, 2004 609,000 120
- ----------------------------------------------------------------------------------------------------------------------------
Paper/Forest Products--3.4%
800M Rainy River Forest Products Co., Inc., 10 3/4%, 2001 798,000 157
1,000M Stone Container Corp., 9 7/8%, 2001 950,000 187
- ----------------------------------------------------------------------------------------------------------------------------
1,748,000 344
- ----------------------------------------------------------------------------------------------------------------------------
Retail-Food/Drug--1.2%
600M Penn Traffic Co., Inc., 10.65%, 2004 589,500 116
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Corporate Bonds (cost $10,183,283) 10,163,694 2,004
- ----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS--.6%
Health Care/Miscellaneous
400M Pacific Physicians Services, Inc., 5 1/2%, 2003 (cost $400,000) 310,000 61
- ----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE NOTES--27.1 %
$2,000M A T & T Corp., 5.53%, 1/10/95 1,997,235 394
2,000M Baystates Gas, 5.90%, 1/25/95 1,992,134 393
1,500M Eli Lilly Discount, 5.92%, 2/22/95 1,486,926 293
2,000M Florida Power Corporation, 6%, 1/6/95 1,998,000 394
1,600M General Electric Capital Corp., 5.80%, 1/11/95 1,597,422 315
1,200M GTE Florida Discount, 5.90%, 1/17/95 1,196,853 236
2,000M Hercules Discount, 5.60%, 1/9/95 1,997,511 394
1,500M Wisconsin Power Discount, 5.99%, 1/19/95 1,495,258 295
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Short-Term Corporate Notes (cost $13,761,339) 13,761,339 2,714
- ----------------------------------------------------------------------------------------------------------------------------
Total Value of Investments (cost $51,475,948) 99.2% 50,320,862 9,923
Other Assets, Less Liabilities .8 392,746 77
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $50,713,608 $10,000
============================================================================================================================
*Non-income producing
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS SERIES FUND
December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------
Insured
Intermediate Investment Special
Blue Chip Tax Exempt Grade Situations Total Return
Series Series Series Series Series
- -------------------------- --------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Assets
Investments in securities:
At identified cost $113,951,721 $ 5,517,237 $ 47,952,323 $97,215,750 $51,475,948
============ ============ =========== ============ ============
At value (Note 1A) $117,814,323 $ 5,453,046 $ 45,275,079 $99,111,451 $50,320,862
Cash (overdraft) 7,136,190 146,232 216,878 (844,648) 432,370
Receivables:
Investment securities sold 8,194,752 203,958 -- -- --
Trust shares sold 1,325,484 97,676 77,123 749,933 43,998
Interest and dividends 312,115 99,680 876,092 33,477 277,932
Other assets 511 -- 64 32 394
------------ ---------- ----------- ----------- -----------
Total Assets 134,783,375 6,000,592 46,445,236 99,050,245 51,075,556
------------ ---------- ----------- ---------- -----------
Liabilities
Payables:
Investment securities purchased 10,296,126 254,463 -- 8,663,069 --
Trust shares redeemed 391,890 51,713 169,668 303,875 262,145
Dividend payable January 15, 1995 218,824 5,265 60,090 27,060 10,278
Accrued expenses 106,924 -- 11,555 95,557 58,127
Accrued advisory fee 75,728 1,600 25,036 54,599 31,398
------------ ---------- ----------- ----------- -----------
Total Liabilities 11,089,492 313,041 266,349 9,144,160 361,948
------------ ---------- ----------- ----------- -----------
Net Assets $123,693,883 $5,687,551 $ 46,178,887 $ 89,906,085 $50,713,608
============ ========== =========== ============ ===========
Net Assets Consist of:
Capital paid in $119,529,194 $ 5,962,264 $ 48,879,683 $88,010,384 $51,745,082
Undistributed net investment
income 302,087 845 54,052 -- 123,612
Accumulated net realized
loss on investment transactions -- (211,367) (77,604) -- --
Net unrealized appreciation
(depreciation) in value of
investments 3,862,602 (64,191) (2,677,244) 1,895,701 (1,155,086)
------------ ---------- ----------- ------------ -----------
Total $123,693,883 $5,687,551 $ 46,178,887 $ 89,906,085 $50,713,608
============ ========== =========== ============ ===========
Shares of Beneficial
Interest Outstanding (Note 2) 9,190,005 1,046,574 4,996,279 5,472,424 4,654,825
============ ========== =========== ============ ===========
Net Asset Value and
Redemption Price Per Share--
Class A (Note 2) $13.46 $5.43 $9.24 $16.43 $10.89
============ ========== =========== ============ ===========
Maximum Offering Price Per Share--
Class A (Net Asset Value/.9375)* $14.36 $5.79 $9.86 $17.53 $11.62
============ ========== =========== ============ ===========
* On purchases of $25,000 or more, the sales charge is reduced.
</TABLE>
See notes to financial statements
Statement of Operations
FIRST INVESTORS SERIES FUND
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------
Insured
Intermediate Investment Special
Blue Chip Tax Exempt Grade Situations Total Return
Series Series Series Series Series
--------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income
Income:
Interest $ 383,165 $ 210,341 $ 3,462,186 $ 812,732 $ 1,471,058
Dividends 2,455,337 -- -- 229,329 474,859
----------- ---------- ----------- ----------- -----------
Total income 2,838,502 210,341 3,462,186 1,042,061 1,945,917
----------- ---------- ----------- ----------- -----------
Expenses:
Advisory fee (Note 4) 1,214,010 27,088 350,462 746,679 548,804
Shareholder servicing costs (Note 4) 444,129 8,427 148,991 349,966 221,138
Distribution plan expenses (Note 5) 364,206 -- 140,185 224,004 163,112
Reports and notices to shareholders 75,406 881 13,494 53,562 34,902
Professional fees 35,225 5,368 17,363 24,246 21,797
Other expenses 40,008 1,675 16,003 21,612 42,924
----------- ---------- ----------- ----------- -----------
Total expenses 2,172,984 43,439 686,498 1,420,069 1,032,677
Less: Expenses waived or assumed
(Note 4) (303,502) (37,144) (242,579) (186,670) (137,201)
----------- ---------- ----------- ----------- -----------
Net expenses 1,869,482 6,295 443,919 1,233,399 895,476
----------- ---------- ----------- ----------- -----------
Net investment income (loss) 969,020 204,046 3,018,267 (191,338) 1,050,441
----------- ---------- ----------- ----------- -----------
Realized and Unrealized Gain (Loss)
on Investments (Note 3):
Net realized gain (loss) on investments 12,824,558 (211,367) (77,604) 4,914,240 1,748,894
Net unrealized depreciation of
investments (17,486,358) (64,191) (5,141,298) (7,165,669) (4,665,923)
----------- ---------- ----------- ----------- -----------
Net loss on investments (4,661,800) (275,558) (5,218,902) (2,251,429) (2,917,029)
----------- ---------- ----------- ----------- -----------
Net Decrease in Net Assets Resulting
from Operations $(3,692,780) $ (71,512) $(2,200,635) $(2,442,767) $(1,866,588)
=========== ========== =========== =========== ===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS SERIES FUND
- ----------------------------------------------------------------------------------------------------------------------------
INSURED
INTERMEDIATE
TAX EXEMPT
BLUE CHIP SERIES SERIES
<S> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
-------------------------------- ----------------------------
Year Ended December 31 1994 1993 1994 1993*
- --------------------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income (loss) $ 969,020 $ 728,685 $ 204,046 $ 464
Net realized gain (loss) on investments 12,824,558 5,699,408 (211,367) --
Net unrealized appreciation (depreciation)
of investments (17,486,358) 1,775,364 (64,191) --
------------ ------------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations $ (3,692,780) $ 8,203,457 $ (71,512) $ 464
------------ ------------- ---------- ----------
Distributions to Shareholders from:
Net investment income (736,036) (722,550) (203,201) (464)
Net realized gain on investments (12,824,558) (5,699,408) -- --
Capital surplus -- -- -- --
------------ ------------- ---------- ----------
Total distributions (13,560,594) (6,421,958) (203,201) (464)
------------ ------------- ---------- ----------
Trust Share Transactions--Class A(a)
Issued 28,516,378 28,277,221 5,941,925 1,615,189
Issued on reinvestments 13,336,027 6,347,455 146,538 --
Redeemed (18,834,076) (17,977,798) (1,741,446) --
------------ ------------- ---------- ----------
Net increase (decrease) from share transactions 23,018,329 16,646,878 4,347,017 1,615,189
------------ ------------- ---------- ----------
Total increase (decrease) in net assets 5,764,955 18,428,377 4,072,304 1,615,189
Net Assets
Beginning of year (Note 6) 117,928,928 99,500,551 1,615,247 58
------------ ------------- ---------- ----------
End of year+ $123,693,883 $ 117,928,928 $5,687,551 $1,615,247
============ ============= ========== ==========
+ Includes undistributed net investment
income of $ 302,087 $ 69,103 $ 845 $ --
============ ============= ========== ==========
(a) Shares issued and redeemed--Class A (Note 2)
Issued 1,859,807 1,791,151 1,055,065 278,962
Issued on reinvestments 987,102 406,727 26,577 --
Redeemed (1,228,162) (1,134,354) (314,040) --
------------ ------------- ---------- ----------
Net increase (decrease) in shares 1,618,747 1,063,524 767,602 278,962
============ ============= ========== ==========
* From November 22, 1993 (commencement of operations) to December 31, 1993
</TABLE>
See notes to financial statements
Statement of Changes in Net Assets (Continued)
FIRST INVESTORS SERIES FUND
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT GRADE SPECIAL SITUATIONS
SERIES SERIES
------------------------------- ------------------------------
Year Ended December 31 1994 1993 1994 1993
- ---------------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income (loss) $ 3,018,267 $ 2,808,846 $ (191,338) $ (259,808)
Net realized gain (loss) on investments (77,604) 341,122 4,914,240 2,851,654
Net unrealized appreciation (depreciation)
of investments (5,141,298) 1,619,788 (7,165,669) 5,601,252
------------ ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ (2,200,635) $ 4,769,756 $(2,442,767) $ 8,193,098
------------ ------------ ----------- -----------
Distributions to Shareholders from:
Net investment income (2,986,294) (2,790,479) -- --
Net realized gain on investments -- (334,229) (4,722,902) (2,589,674)
Capital surplus -- -- (32) (2,064)
------------ ------------ ----------- -----------
Total distributions (2,986,294) (3,124,708) (4,722,934) (2,591,738)
------------ ------------ ----------- -----------
Trust Share Transactions--Class A(a)
Issued 11,602,927 15,713,878 44,120,605 31,336,227
Issued on reinvestments 2,283,004 2,414,370 4,695,874 2,580,327
Redeemed (11,027,449) (9,188,408) (10,892,979) (6,183,279)
------------ ------------ ----------- -----------
Net increase (decrease) from share transactions 2,858,482 8,939,840 37,923,500 27,733,275
------------ ------------ ----------- -----------
Total increase (decrease) in net assets (2,328,447) 10,584,888 30,757,799 33,334,635
Net Assets
Beginning of year (Note 6) 48,507,334 37,922,446 59,148,286 25,813,651
------------ ------------ ----------- -----------
End of year+ $ 46,178,887 $ 48,507,334 $89,906,085 $59,148,286
============ ============ =========== ===========
+ Includes undistributed net investment
income of $ 54,052 $ 22,079 $ -- $ --
============ ============ =========== ===========
(a) Shares issued and redeemed--Class A (Note 2)
Issued 1,196,162 1,519,451 2,520,975 1,858,623
Issued on reinvestments 238,751 233,210 285,811 143,352
Redeemed (1,136,131) (884,825) (620,009) (369,459)
------------ ------------ ----------- -----------
Net increase (decrease) in shares 298,782 867,836 2,186,777 1,632,516
============ ============ =========== ===========
* From November 22, 1993 (commencement of operations) to December 31, 1993
</TABLE>
See notes to financial statements
Statement of Changes in Net Assets (Continued)
<PAGE>
<TABLE>
<CAPTION>
FIRST INVESTORS SERIES FUND
TOTAL RETURN
SERIES
-------------------------------
Year Ended December 31 1994 1993
- ---------------------- ------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income (loss) $ 1,050,441 $ 1,229,855
Net realized gain (loss) on investments 1,748,894 6,350,729
Net unrealized appreciation (depreciation)
of investments (4,665,923) (3,376,375)
------------ ------------
Net increase (decrease) in net assets
resulting from operations $ (1,866,588) $ 4,204,209
------------ ------------
Distributions to Shareholders from:
Net investment income (881,057) (1,228,362)
Net realized gain on investments (1,748,894) (5,467,764)
Capital surplus -- --
------------ ------------
Total distributions (2,629,951) (6,696,126)
------------ ------------
Trust Share Transactions--Class A(a)
Issued 5,931,145 6,247,849
Issued on reinvestments 2,614,430 6,655,224
Redeemed (11,511,286) (17,772,550)
------------ ------------
Net increase (decrease) from share transactions (2,965,711) (4,869,477)
------------ ------------
Total increase (decrease) in net assets (7,462,250) (7,361,394)
Net Assets
Beginning of year (Note 6) 58,175,858 65,537,252
------------ ------------
End of year+ $ 50,713,608 $ 58,175,858
============ ============
+ Includes undistributed net investment
income of $ 123,612 $ 22,114
============ ============
(a) Shares issued and redeemed--Class A (Note 2)
Issued 509,492 491,829
Issued on reinvestments 237,905 554,761
Redeemed (991,334) (1,395,742)
------------ ------------
Net increase (decrease) in shares (243,937) (349,152)
============ ============
</TABLE>
* From November 22, 1993 (commencement of operations) to December 31, 1993
See notes to financial statements
Notes to Financial Statements
FIRST INVESTORS SERIES FUND
<PAGE>
1. Significant Accounting Policies--The Fund, a Massachusetts business trust, is
registered under the Investment Company Act of 1940 (the "1940 Act") as a
diversified, open-end management investment company. The Fund operates as a
series fund, issuing shares of beneficial interest in the Blue Chip, Insured
Intermediate Tax Exempt, Investment Grade, Special Situations and Total Return
Series and accounts separately for the assets, liabilities and operations of
each Series.
A. Security Valuation--Except as provided below, a security listed or traded on
an exchange or the NASDAQ National Market System is valued at its last sale
price on the exchange or system where the security is principally traded, and
lacking any sales, the security is valued at the mean between the closing bid
and asked prices. Each security traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be over-the-
counter) is valued at the mean between the last bid and asked prices based upon
quotes furnished by a market maker for such securities. Securities may also be
priced by a pricing service. The pricing service uses quotations obtained from
investment dealers or brokers, information with respect to market transactions
in comparable securities and other available information in determining value.
Short-term corporate notes which are purchased at a discount are valued at
amortized cost. Securities for which market quotations are not readily available
and other assets are valued on a consistent basis at fair value as determined in
good faith by or under the supervision of the Fund's officers in a manner
specifically authorized by the Trustees of the Fund.
The municipal bonds in which the Insured Intermediate Tax Exempt Series invests
are traded primarily in the over-the-counter markets. Such securities are valued
daily on the basis of valuations provided by a pricing service approved by the
Board of Trustees. The pricing service considers security type, rating, market
condition and yield data, as well as market quotations and prices provided by
market makers in determining value. "When Issued Securities" are reflected in
the assets of the Series as of the date the securities are purchased.
The municipal bonds held by the Insured Intermediate Tax Exempt Series are
insured as to payment of principal and interest by the issuer or under insurance
policies written by independent insurance companies. It is the intention of the
Series 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 securities which are not in default. The Series may invest up
to 20% of its assets in portfolio securities not covered by the insurance
feature.
B. Federal Income Taxes--No provision has been made for federal income taxes on
net income or capital gains since it is the policy of each Series to continue to
comply with the special provisions of the Internal Revenue Code applicable to
investment companies and to make sufficient distributions of income and capital
gains to relieve it from all, or substantially all, federal income taxes. At
December 31, 1994, the Investment Grade Series and the Insured Intermediate Tax
Exempt Series had capital loss carryovers of $65,952 and $160,056, respectively,
expiring in 2002.
<PAGE>
C. Distributions to Shareholders--Dividends from net investment income to
shareholders of the Insured Intermediate Tax Exempt Series and the Investment
Grade Series are declared daily and paid monthly. Dividends from net investment
income of the Blue Chip Series and Total Return Series are declared and paid
quarterly and dividends from net investment income of the Special Situations
Series are declared and paid annually. Distributions from net realized capital
gains of all Series are normally declared and paid annually. To the extent that
net realized capital gains can be offset by capital loss carryovers, it is the
policy of the Fund not to distribute such gains.
Income dividends and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for net
operating losses, tax-exempt interest, capital loss carryforwards and post
October losses.
D. Expense Allocation--Expenses directly charged or attributable to a Series are
paid from the assets of that Series. General expenses of First Investors Series
Fund are allocated among and charged to the assets of each Series on a fair and
equitable basis, which may be based on the relative assets of each Series or the
nature of the services performed and relative applicability to each Series.
E. Other--Security transactions are accounted for on the date the securities are
purchased or sold. Cost is determined, and gains and losses are based, on the
identified cost basis for both financial statement and federal income tax
purposes. Dividend income is recorded on the ex-dividend date. Interest income
and estimated expenses are accrued daily.
2. Trust Shares--The Declaration of Trust permits the Fund to issue an unlimited
number of shares of beneficial interest. On September 22, 1994, the Board of
Trustees established an unlimited number of Class A and an unlimited number of
Class B shares of beneficial interest. As of December 31, 1994, only Class A
shares have been issued by the Fund.
3. Security Transactions--For the year ended December 31, 1994, purchases and
sales of securities and long-term U.S. Government obligations, excluding U.S.
Treasury bills and short-term corporate notes, were as follows:
<TABLE>
<CAPTION>
Long-Term U.S.
Securities Government Obligations
--------------------------------- ----------------------------------
Cost of Proceeds Cost of Proceeds
SERIES Purchases of Sales Purchases of Sales
- ------ ----------- ----------- --------- ----------
<S> <C> <C> <C> <C>
BLUE CHIP $97,220,865 $94,298,216 $ -- $ --
INSURED INTERMEDIATE TAX EXEMPT 13,929,396 8,200,792 -- --
INVESTMENT GRADE 6,555,976 6,747,505 699,999 562,159
SPECIAL SITUATIONS 59,407,836 31,101,873 -- --
TOTAL RETURN 53,324,555 63,618,094 -- 5,553,395
</TABLE>
<PAGE>
At December 31, 1994, aggregate cost and net unrealized appreciation
(depreciation) of securities for federal income tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net
Aggregate Unrealized Unrealized Appreciation
SERIES Cost Appreciation Depreciation (Depreciation)
- ------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
BLUE CHIP $113,951,721 $ 7,303,289 $ 3,440,687 $ 3,862,602
INSURED INTERMEDIATE TAX EXEMPT 5,517,237 26,424 90,615 (64,191)
INVESTMENT GRADE 47,952,323 112,996 2,790,240 (2,677,244)
SPECIAL SITUATIONS 97,215,750 10,384,438 8,488,737 1,895,701
TOTAL RETURN 51,475,948 2,984,829 4,139,915 (1,155,086)
</TABLE>
4. Advisory Fee and Other Transactions With Affiliates (Also see Note 5)--
Certain officers and trustees of the Fund are officers and directors of its
investment adviser, First Investors Management Company, Inc. ("FIMCO"), its
underwriter, First Investors Corporation (FIC), its transfer agent,
Administrative Data Management Corp. ("ADM") and/or First Financial Savings
Bank, S.L.A. ("FFS"), custodian of the Fund's Individual Retirement Accounts.
Officers and trustees of the Fund received no remuneration from the Fund for
serving in such capacities. Their remuneration (together with certain other
expenses of the Fund) is paid by FIMCO or FIC.
The Investment Advisory Agreement provides as compensation to FIMCO for each
Series other than the Insured Intermediate Tax Exempt Series and the Investment
Grade Series, an annual fee, payable monthly, at the rate of 1% on the first
$200 million of each Series' average daily net assets, .75% on the next $300
million, declining by .03% on each $250 million thereafter, down to .66% on
average daily net assets over $1 billion. The annual fee for the Insured
Intermediate Tax Exempt Series is payable monthly, at the rate of .60% of the
Series' average daily net assets. The annual fee for the Investment Grade Series
is payable monthly, at the rate of .75% on the first $300 million of the Series'
average daily net assets, .72% on the next $200 million, .69% on the next $250
million, and .66% on average daily net assets over $750 million. Total advisory
fees accrued to FIMCO for the year ended December 31, 1994 were $2,887,043, of
which $694,895 was waived. In addition, expenses of the Insured Intermediate Tax
Exempt and Investment Grade Series amounting to $7,923 and $85,012,
respectively, were assumed by FIMCO.
Pursuant to certain state regulations, FIMCO has agreed to reimburse each Series
if and to the extent that the Series' aggregate operating expenses, including
advisory fees but generally excluding interest, taxes, brokerage commissions and
extraordinary expenses, exceed any limitation on expenses applicable to each
Series in those states (unless waivers of such limitations have been obtained).
The amount of any such reimbursement is limited to each Series' yearly advisory
fee.
<PAGE>
For the year ended December 31, 1994, no reimbursement was required
pursuant to these provisions.
For the year ended December 31, 1994, FIC, as underwriter, received
$3,458,992 in commissions from the sale of Fund shares after allowing
$69,378 to other dealers. Shareholder servicing costs included $835,289
in transfer agent fees and out of pocket expenses accrued to ADM (of
which $119,266 was waived by ADM) and $337,362 in custodian fees paid
to FFS.
5. Distribution Plan--Pursuant to a Distribution Plan adopted under
Rule 12b-1 of the 1940 Act, each Series pays a fee equal to .30% of its
average net assets on an annualized basis each fiscal year, payable
monthly. The fee consists of a distribution fee and a service fee. The
service fee is paid for the ongoing servicing of clients who are
shareholders of that Series.
6. Capitalization--The Insured Intermediate Tax Exempt Series commenced
operations in November 1993, following the sale of 10 shares to FIMCO
for $58.
<PAGE>
Independent Auditor's Report
To the Shareholders and Trustees of
First Investors Series Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of the Blue Chip, Insured
Intermediate Tax Exempt, Investment Grade, Special Situations and Total
Return Series (comprising First Investors Series Fund), as of December
31, 1994, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years
in the period then ended and financial highlights for each of the
periods presented. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the Blue Chip, Insured Intermediate Tax Exempt,
Investment Grade, Special Situations and Total Return Series of First
Investors Series Fund at December 31, 1994, and the results of their
operations, changes in their net assets and financial highlights for
each of the respective periods presented, in conformity with generally
accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 31, 1995
<PAGE>
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
FIRST INVESTORS INSURED INTERMEDIATE
TAX EXEMPT SERIES
A SERIES OF FIRST INVESTORS SERIES FUND
95 Wall Street, New York, New York 10005/1-800-423-4026
This is a Prospectus for FIRST INVESTORS INSURED TAX EXEMPT FUND, INC. ("TAX
EXEMPT FUND") and FIRST INVESTORS INSURED INTERMEDIATE TAX EXEMPT SERIES
("INTERMEDIATE SERIES"). INTERMEDIATE SERIES is a separate series of FIRST
INVESTORS SERIES FUND ("SERIES FUND"). TAX EXEMPT FUND and SERIES FUND are each
an open-end diversified management investment company (collectively, "Funds").
TAX EXEMPT FUND and INTERMEDIATE SERIES are sometimes referred to herein
collectively and singularly as "Series." Each Series sells two classes of
shares. Investors may select Class A or Class B shares, each with a public
offering price that reflects different sales charges and expense levels. See
"Alternative Purchase Plans."
The investment objective of each Series is to seek to provide a high level of
interest income which is exempt from Federal income tax and, for non-corporate
shareholders, the Federal alternative minimum tax. Each Series invests
primarily in tax-exempt obligations issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the interest
on which is exempt from Federal income tax and, for non-corporate shareholders,
the Federal alternative minimum tax. The Series' municipal bonds are insured as
to payment of principal and interest through the issuer or under insurance
policies written by independent insurance companies. There can be no assurance
that the objective of any Series will be realized.
THE SERIES' MUNICIPAL BONDS ARE INSURED AS TO TIMELY PAYMENT OF PRINCIPAL AND
INTEREST. INSURANCE DOES NOT PROTECT AGAINST FLUCTUATIONS IN THE BONDS' MARKET
VALUE OR THE NET ASSET VALUE PER SHARE OF EACH SERIES. FOR MORE INFORMATION
REGARDING THE SERIES' INSURANCE COVERAGE, SEE "INSURANCE" ON PAGE 8.
This Prospectus sets forth concisely the information about the Series that a
prospective investor should know before investing and should be retained for
future reference. First Investors Management Company, Inc. ("FIMCO" or
"Adviser") serves as investment adviser to the Series and First Investors
Corporation ("FIC" or "Underwriter") serves as distributor of the Series'
shares. A Statement of Additional Information ("SAI"), dated May 1, 1995 (which
is incorporated by reference herein), has been filed with the Securities and
Exchange Commission. The SAI is available at no charge upon request to the
Series at the address or telephone number indicated above.
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured or protected by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other government agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1995
<PAGE>
FEE TABLE
The following table is intended to assist investors in understanding the
expenses associated with investing in each class of shares of a Series. Shares
of either Series issued prior to January 12, 1995 have been designated as Class
A shares.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
-------- ---------------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................. 6.25% None
Deferred Sales Load
(as a percentage of the lower of original purchase
price or redemption proceeds)....................... None* 4% in the first year;
declining to 0% after
the sixth year
Exchange Fee** None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Intermediate Series Tax Exempt Fund
--------------------- -----------------------
Class A Class B/(1)/ Class A Class B/(1)/
Shares Shares Shares Shares
------- ------------ -------- -------------
<S> <C> <C> <C> <C>
Management Fees/(2)/ 0.50%+ 0.50%+ 0.69% 0.69%
12b-1 Fees/(3)/ 0.30 1.00 0.30 1.00
Other Expenses/(4)/ 0.20+ 0.20+ 0.19 0.19
Total Fund Operating Expenses/(5)/ 1.00+ 1.70+ 1.18 1.88
- ---------------------
</TABLE>
* A contingent deferred sales charge ("CDSC") of 1.00% will be assessed on
certain redemptions of Class A shares that are purchased without a sales
charge. See "How to Buy Shares."
** Although there is a $5.00 exchange fee for exchanges into a Series, this fee
is being assumed by that Series for a minimum period ending December 31,
1995. Each Series reserves the right to change or suspend this privilege
after December 31, 1995. See "How to Exchange Shares."
+ Net of waiver and/or reimbursement.
(1) Since Class B shares were not issued during each Series' prior fiscal year,
Other Expenses and Total Fund Operating Expenses are based on estimated
amounts for the fiscal year ending December 31, 1995.
(2) Management Fees have been restated for INTERMEDIATE SERIES. The Adviser
will waive Management Fees in excess of 0.50% for a minimum period ending
December 31, 1995. Otherwise, such fee would have been 0.60%.
(3) 12b-1 Fees have been restated for Class A shares of INTERMEDIATE SERIES to
reflect the maximum 12b-1 Fees that may be incurred by that Series for the
fiscal year ending December 31, 1995.
(4) Other Expenses for INTERMEDIATE SERIES have been restated. The Adviser will
reimburse each class of that Series for Other Expenses in excess of 0.20%
for a minimum period ending December 31, 1995. Otherwise, Other Expenses
for Class A shares would be and for Class B shares are estimated to be
0.36%.
(5) If certain Operating Expenses were not waived or reimbursed, Total Fund
Operating Expenses for INTERMEDIATE SERIES would have been 1.26% for Class A
shares and are estimated to be 1.96% for Class B shares.
2
<PAGE>
For more complete descriptions of the various costs and expenses, see
"Investment Objectives and Policies-Insurance," "Alternative Purchase Plans,"
"Management," "Distribution Plans," "How to Buy Shares" and "How to Redeem
Shares." Due to the imposition of 12b-1 fees, it is possible that long-term
shareholders of a Series may pay more in total sales charges than the economic
equivalent of the maximum front-end sales charge permitted by the rules of the
National Association of Securities Dealers, Inc. The Fee Table does not reflect
the costs incurred by those shareholders of TAX EXEMPT FUND who purchase their
shares through First Investors Contractual Plans.
The Example below is based on Class A expense data for each Series' fiscal
year ended December 31, 1994, except that certain Operating Expenses have been
restated, as noted above. Expense data for Class B shares has been estimated
because the shares were not issued during this period.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
INTERMEDIATE SERIES
Class A.............. $72 $92 $114 $177
Class B.............. 57 84 112 182
TAX EXEMPT FUND
Class A.............. 74 98 123 197
Class B.............. 59 89 122 202
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) no redemption at the end of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
INTERMEDIATE SERIES
Class A.............. $72 $98 $114 $177
Class B.............. 17 54 92 182
TAX EXEMPT FUND
Class A.............. 74 98 123 197
Class B.............. 19 59 102 202
</TABLE>
THE EXPENSES IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION BY THE
SERIES OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES IN FUTURE YEARS MAY BE
GREATER OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables set forth the per share operating performance data for a
share of capital stock or beneficial interest, as applicable, outstanding, total
return, ratios to average net assets and other supplemental data for each year
indicated. Financial highlights are not presented for Class B shares since no
shares of that class were outstanding during these periods. The tables have
been derived from financial statements which have been examined by Tait, Weller
& Baker, independent certified public accountants, whose reports thereon appear
in the SAI. This information should be read in conjunction with the Financial
Statements and Notes thereto, which also appear in the SAI, available at no
charge upon request to the Series.
TAX EXEMPT FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
Net Asset Value, $10.56 $10.32 $10.22 $ 9.92 $10.03 $ 9.91 $ 9.64 $10.14 $ 9.48 $ 8.69
Beginning of Year .............. ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
Investment Operations
Net investment income ....... .56 .60 .65 .69 .70 .71 .72 .72 .75 .78
Net realized and unrealized
gain (loss) on investments .. (1.15) .40 .15 .30 (.11) .12 .27 (.50) .68 .79
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations ................. (.59) 1.00 .80 .99 .59 .83 .99 .22 1.43 1.57
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions from:
Net investment income .......... .55 .61 .65 .69 .70 .71 .72 .72 .76 .78
Net realized gains ............. -- .15 .05 -- -- -- -- -- .01 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions ......... .55 .76 .70 .69 .70 .71 .72 .72 .77 .78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Year ....................... $ 9.42 $10.56 $10.32 $10.22 $ 9.92 $10.03 $ 9.91 $ 9.64 $10.14 $ 9.48
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(%)+ .................. (5.61) 9.88 8.05 10.26 6.13 8.64 10.61 2.33 15.51 18.64
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year
(in millions) .................. $1,302 $1,507 $1,363 $1,208 $1,132 $1,079 $ 971 $ 853 $ 730 $ 507
Ratio to Average Net Assets:(%)
Expenses ....................... 1.18 1.15 1.16 1.13 1.14 1.01 1.04 1.13 1.02 1.11
Net Investment Income .......... 5.64 5.69 6.32 6.82 7.03 7.16 7.33 7.39 7.75 8.62
Portfolio Turnover Rate(%) ........ 57 58 52 34 28 26 43 18 16 24
- ----------------------
</TABLE>
+ Calculated without sales charge
4
<PAGE>
INTERMEDIATE SERIES
CLASS A SHARES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
1994 1993**
- ---------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
- --------------
Net Asset Value, Beginning of Period.... $ 5.79 $ 5.79
------ -------
Income from Investment Operations
Net investment income.................. .24 --
Net realized and unrealized gain (loss)
on investments........................ (.36) --
------ -------
Total from Investment Operations....... (.12) --
------ -------
Less Distributions from:
Net Investment Income................... .24 --
------ -------
Net Asset Value, End of Period.......... $ 5.43 $ 5.79
====== =======
TOTAL RETURN+(%) (2.05) .00
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (in thousands) $5,688 $ 1,615
Ratio to Average Net Assets:++(%)
Expenses............................... .14 --
Net Investment Income.................. 4.52 .54*
Ratio to Average Net Assets Before
Expenses
Waived or Assumed:(%)
Expenses............................... .96 1.78*
Net Investment Income.................. 3.70 (1.24)*
Portfolio Turnover Rate(%).............. 210 0
</TABLE>
+ Calculated without sales charge
++ Net of expenses waived or assumed by the investment adviser
* Annualized
** From November 22, 1993 (commencement of operations) to December 31, 1994.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INSURED TAX EXEMPT
The investment objective of TAX EXEMPT FUND is to provide a high level of
interest income which is exempt from Federal income tax and, for non-corporate
shareholders, the Federal alternative minimum tax. The Series seeks to achieve
its objective by investing at least 80% of its total assets in municipal bonds
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities, the interest on which is exempt from Federal income tax
and, for non-corporate shareholders, the Federal alternative minimum tax. The
Series also may invest up to 20% of its total assets in certificates of
participation, municipal notes, municipal commercial paper and variable rate
demand instruments. See "Municipal Instruments," below.
INTERMEDIATE SERIES
The investment objective of INTERMEDIATE SERIES is to provide a high level of
interest income which is exempt from Federal income tax and, for non-corporate
shareholders, the Federal alternative minimum tax. The Series seeks to achieve
its objective by investing at least 80% of its total assets in Municipal
Instruments, as defined below, which are issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the interest
on which is exempt from Federal income tax and, for non-corporate shareholders,
the Federal alternative minimum tax. See "Municipal Instruments," below.
GENERAL POLICIES
The Series differ in the maturities of the securities in their portfolios
and, accordingly, in their degree of risk and level of income. Generally, bonds
with longer maturities are likely to exhibit greater fluctuations in market
value and have the potential for higher levels of income than bonds with shorter
maturities. In order to reduce the effect of bond price declines on a Series'
net asset value during periods of rising interest rates, each Series may invest
in shorter maturity securities. Conversely, during periods of falling interest
rates, each Series may invest in longer maturity securities. There is no limit
on the maturity of any individual security in any Series' portfolio. See "Debt
Securities-Risk Factors."
INTERMEDIATE SERIES is designed for investors seeking a higher level of
income than is generally available on short-term tax-exempt bonds and money
market securities and who are willing to accept a greater degree of fluctuation
in principal. It is expected that, under normal market conditions, the Series
will maintain a dollar-weighted average maturity of between three and ten years.
TAX EXEMPT FUND is designed for investors seeking a higher level of income
than is generally available on short-term and intermediate tax-exempt bonds and
who are willing to accept a potentially high degree of fluctuation in principal.
The Series generally invests in bonds with maturities of longer than fifteen
years.
6
<PAGE>
As used in this Prospectus and in the SAI, "Municipal Instruments" include
the following: (1) municipal bonds; (2) certificates of participation ("COPs");
(3) municipal notes; (4) municipal commercial paper; and (5) variable rate
demand instruments ("VRDIs").
Each Series may purchase securities on a "when-issued" basis, make loans of
portfolio securities and invest in zero coupon municipal securities. Each
Series also may invest 20% of its assets, on a temporary basis, in high quality
fixed income obligations, the interest on which is subject to Federal and state
or local income taxes. Each Series also may invest up to 10% of its total
assets in municipal obligations on which the rate of interest varies inversely
with interest rates on other municipal obligations or an index (commonly
referred to as inverse floaters). INTERMEDIATE SERIES also may acquire
detachable call options relating to municipal bonds. Each Series may borrow
money for temporary or emergency purposes in amounts not exceeding 5% of its
total assets. See "Description of Certain Securities, Other Investment Policies
and Risk Factors," below, and the SAI for more information regarding these
securities.
Although each Series generally invests in municipal bonds rated Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard &
Poor's Ratings Group ("S&P"), each Series may invest up to 5% of its net assets
in lower rated municipal bonds or in unrated municipal bonds deemed to be of
comparable quality by the Adviser. See "Debt Securities--Risk Factors."
However, in each instance such municipal bonds will be covered by the insurance
feature and thus are considered to be of higher quality than lower rated
municipal bonds without an insurance feature. See "Insurance" for a discussion
of the insurance feature. The Adviser will carefully evaluate on a case-by-case
basis whether to dispose of or retain a municipal bond which has been downgraded
in rating subsequent to its purchase by a Series. A description of municipal
bond ratings is contained in Appendix A to the SAI.
Each Series may invest more than 25% of its total assets in a particular
segment of the municipal bond market, such as hospital revenue bonds, housing
agency bonds, industrial development bonds, airport bonds and university
dormitory bonds, during periods when one or more of these segments offer higher
yields and/or profit potential. This possible concentration of the assets of a
Series may result in the Series being invested in securities which are related
in such a way that economic, business, political developments, or other changes
which would affect one security would probably likewise affect the other
securities within that particular segment of the bond market. Such
concentration of a Series' investments could increase market risks, but risk of
non-payment of interest when due, or default on the payment of principal, is
covered by the insurance feature of each Series.
Each Series' net asset value fluctuates based mainly upon changes in the
value of its portfolio securities. Each Series' investment objective and
certain investment policies set forth in the SAI that are designated fundamental
policies may not be changed without shareholder approval. There can be no
assurance that any of the Series will achieve its investment objective.
DESCRIPTION OF CERTAIN SECURITIES, OTHER INVESTMENT POLICIES AND RISK FACTORS
DEBT SECURITIES--RISK FACTORS. The market value of debt securities is
influenced significantly by changes in the level of interest rates. Generally,
as interest rates rise, the market value of debt securities decreases.
Conversely, as interest rates fall, the market value of debt securities
increases. Factors which could result in a rise in interest rates, and a
decrease in market value of debt
7
<PAGE>
securities, include an increase in inflation or inflation expectations, an
increase in the rate of U.S. economic growth, an expansion in the Federal budget
deficit, or an increase in the price of commodities such as oil. In addition,
the market value of debt securities is influenced by perceptions of the credit
risks associated with such securities. Debt obligations rated lower than Baa by
Moody's or BBB by S&P, commonly referred to as "junk bonds," are speculative and
generally involve a higher risk of loss of principal and income than higher-
rated securities. See Appendix A to the SAI for a description of municipal bond
ratings.
INSURANCE. All municipal bonds in each Series' portfolio will be insured as
to their scheduled payment of principal and interest at the time of purchase
either (1) under a Mutual Fund Insurance Policy purchased by TAX EXEMPT FUND and
by SERIES FUND, on behalf of INTERMEDIATE SERIES, from 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 portfolio of a Series typically will be covered by only one of the
three policies. All three types of insurance policies insure the scheduled
payment of all principal and interest on the Series' municipal bonds as they
fall due. The insurance does not guarantee the market value or yield of the
insured municipal bonds or the net asset value or yield of the shares of a
Series. Investors should note that while all municipal bonds in which the
Series will invest will be insured, TAX EXEMPT FUND and INTERMEDIATE SERIES each
may invest up to 20% and 35%, respectively, of its total assets in portfolio
securities not covered by the insurance feature. Each Fund has purchased a
Mutual Fund Insurance Policy from AMBAC Indemnity Corporation ("AMBAC"), a
Wisconsin stock insurance company with its principal executive offices in New
York City. Under certain circumstances, each Fund may obtain such insurance
from an insurer other than AMBAC, provided such insurer has a claims-paying
ability rated AAA by S&P and Aaa by Moody's. Because these insurance premiums
are paid by each Series, a Series' yield is reduced by this expense. See
"Insurance" in the SAI for a detailed discussion of the insurance feature.
INVERSE FLOATERS. Each Series may invest in securities on which the rate of
interest varies inversely with interest rates on similar securities or the value
of an index. For example, an inverse floating rate security may pay interest at
a rate that increases as a specified interest rate index decreases but decreases
as that index increases. The secondary market for inverse floaters may be
limited. The market value of such securities generally is more volatile than
that of a fixed rate obligation and, like most debt obligations, will vary
inversely with changes in interest rates. The interest rates on inverse
floaters may be significantly reduced, even to zero, if interest rates rise.
Each Series may invest up to 10% of its net assets in inverse floaters.
MUNICIPAL INSTRUMENTS
MUNICIPAL BONDS. Municipal bonds are debt obligations that generally are
issued to obtain funds for various public purposes and have a time to maturity,
at issuance, of more than one year. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. General
obligation bonds are secured by the issuer's pledge of its full faith and credit
for the payment of principal and interest. Revenue bonds generally are payable
only from revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special tax or other specific revenue
source. There are variations in the security of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors. The yields
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<PAGE>
on municipal bonds depend on, among other things, general money market
conditions, condition of the municipal bond market, size of a particular
offering, the maturity of the obligation and rating of the issuer. Generally,
the value of municipal bonds varies inversely to changes in interest rates. See
Appendix A to the SAI for a description of municipal bond ratings.
PRIVATE ACTIVITY BONDS OR INDUSTRIAL DEVELOPMENT BONDS. Certain types of
revenue bonds, referred to as private activity bonds ("PABs") or industrial
development bonds ("IDBs"), are issued by or on behalf of public authorities to
obtain funds to provide for various privately operated facilities, such as
airports or mass transportation facilities. Most PABs and IDBs are pure revenue
bonds and are not backed by the taxing power of the issuing agency or authority.
See "Taxes" in the SAI for a discussion of special tax consequences to
"substantial users," or persons related thereto, of facilities financed by PABs
or IDBs.
CERTIFICATES OF PARTICIPATION. COPs provide participation interests in
lease revenues and each certificate represents a proportionate interest in or
right to the lease-purchase payment made under municipal lease obligations or
installment sales contracts. In certain states, COPs constitute a majority of
new municipal financing issues. The possibility that a municipality will not
appropriate funds for lease payments is a risk of investing in COPs, although
this risk is mitigated by the fact that each COP will be covered by the
insurance feature. See "Certificates of Participation" in the SAI for further
information on COPs.
MUNICIPAL COMMERCIAL PAPER. Issues of municipal commercial paper which a
Series may purchase are rated P-1 by Moody's or A-1 by S&P or have insurance
through the issuer or an independent insurance company and include unsecured,
short-term, negotiable promissory notes. Municipal commercial paper is issued
usually to meet temporary capital needs of the issuer or to serve as a source of
temporary construction financing. These obligations are paid from general
revenues of the issuer or are refinanced with long-term debt. A description of
commercial paper ratings is contained in Appendix C to the SAI.
MUNICIPAL NOTES. Municipal notes which a Series may purchase will be
principally tax anticipation notes, bond anticipation notes, revenue
anticipation notes and project notes. The obligations are sold by an issuer
prior to the occurrence of another revenue producing event to bridge a financial
gap for such issuer. Municipal notes are usually general obligations of the
issuing municipality. Project notes are issued by housing agencies, but are
guaranteed by the U.S. Department of Housing and Urban Development and are
secured by the full faith and credit of the United States. Such municipal notes
must be rated MIG-1 by Moody's or SP-1 by S&P or have insurance through the
issuer or an independent insurance company. A description of municipal note
ratings is contained in Appendix B to the SAI.
VARIABLE RATE DEMAND INSTRUMENTS. VRDIs are Municipal Instruments, the
interest on which is adjusted periodically, and which allow the holder to demand
payment of all unpaid principal plus accrued interest from the issuer. A VRDI
that a Series may purchase will be selected if it meets criteria established and
designed by that Fund's Board to minimize risk to that Series. 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.
PORTFOLIO TURNOVER. Due to the large decline in the municipal bond market
during 1994, the INTERMEDIATE SERIES had significant unrealized losses. the
Series' portfolio was restructured by
9
<PAGE>
selling holdings with losses and replacing them with higher yielding bonds. This
resulted in a portfolio turnover rate of 210% for the fiscal year ending
December 31, 1994. The Series commenced operations on November 22, 1993 and,
therefore, had no portfolio turnover for the prior fiscal year. A high rate of
portfolio turnover generally leads to transaction costs and may result in a
greater number of taxable transactions. See "Allocation of Portfolio Brokerage"
in the SAI. See the SAI for the TAX EXEMPT FUND'S portfolio turnover rate and
for more information on portfolio turnover.
RESTRICTED AND ILLIQUID SECURITIES. Each Series may invest up to 15% of its
net assets in illiquid securities, including (1) securities that are illiquid
due to the absence of a readily available market or due to legal or contractual
restrictions on resale and (2) repurchase agreements maturing in more than seven
days. However, illiquid securities for purposes of this limitation do not
include securities eligible for resale under Rule 144A under the Securities Act
of 1933, as amended (the "1933 Act"), which each Fund's Board of Directors or
Trustees or the Adviser has determined are liquid under Board-approved
guidelines. See the SAI for more information regarding restricted and illiquid
securities.
TAXABLE SECURITIES. Each Series may invest up to 20% of its assets, on a
temporary basis, in high quality fixed income obligations, the interest on which
is subject to Federal and state or local income taxes. A Series may, for
example, invest the proceeds from the sale of portfolio securities in taxable
obligations pending the investment or reinvestment thereof in Municipal
Instruments. A Series may invest in highly liquid taxable obligations in order
to avoid the necessity of liquidating portfolio investments to meet redemptions
by Series investors. Each Series' temporary investments in taxable securities
may consist of: (1) obligations of the U.S. Government, its agencies or
instrumentalities; (2) other debt securities rated within the highest grade of
S&P or Moody's; (3) commercial paper rated in the highest grade by either of
such rating services; and (4) certificates of deposit and letters of credit.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
ALTERNATIVE PURCHASE PLANS
Each Series has two classes of shares, Class A and Class B, which represent
interests in the same portfolio of securities and have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that each class (i) is subject to a different sales charge and bears its
separate distribution and certain other class expenses; (ii) has exclusive
voting rights with respect to matters affecting only that class; and (iii) has
different exchange privileges.
CLASS A SHARES. Class A shares are sold with an initial sales charge of up
to 6.25% of the amount invested with discounts available for volume purchases.
Class A shares are subject to a maximum 12b-1 fee at the annual rate of 0.30% of
each Series' average daily net assets attributable to Class A shares, of which
no more than 0.25% may be paid as a service fee and the balance thereof paid as
an asset-based sales charge. The initial sales charge is waived for certain
purchases and a CDSC may be imposed on such purchases. See "How to Buy Shares."
CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are generally subject to a CDSC which declines in steps from 4% to 0% during a
six-year period and bear a higher 12b-1 fee than Class A shares. Class B shares
pay a 12b-1 fee at the annual rate of 1.00% of each Series' average daily net
assets attributable to Class B shares, of which no more than 0.25% may be
10
<PAGE>
paid as a service fee and the balance thereof paid as an asset-based sales
charge. Class B shares automatically convert into Class A shares after eight
years. See "How to Buy Shares."
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES. In deciding which
alternative is most suitable, an investor should consider several factors, as
discussed below. Regardless of whether an investor purchases Class A or Class B
shares, your Representative, as defined under "How to Buy Shares," receives
compensation for selling shares of a Series, which may differ for each class.
The principal advantages of purchasing Class A shares are the lower overall
expenses, the availability of quantity discounts on volume purchases and certain
account privileges which are not offered to Class B shareholders. If an
investor plans to make a substantial investment, the sales charge on Class A
shares may either be lower due to the reduced sales charges available on volume
purchases of Class A shares or waived for certain eligible purchasers. Because
of the reduced sales charge available on quantity purchases of Class A shares,
it is recommended that investments of $250,000 or more be made in Class A
shares. Investments in excess of $1,000,000 must be made in Class A shares.
Distributions paid by each Series with respect to Class A shares will also
generally be greater than those paid with respect to Class B shares because
expenses attributable to Class A shares will generally be lower.
The principal advantage of purchasing Class B shares is that, since no
initial sales charge is paid, all of an investor's money is put to work from the
outset. Furthermore, although any investment in a Series should only be viewed
as a long-term investment, if a redemption must be made soon after purchase, an
investor will pay a lower sales charge than if Class A shares had been
purchased. Conversely, because Class B shares are subject to a higher asset-
based sales charge, long-term Class B shareholders may pay more in an asset-
based sales charge than the economic equivalent of the maximum sales charge on
Class A shares. The automatic conversion of Class B shares into Class A shares
is designed to reduce the probability of this occurring.
HOW TO BUY SHARES
You may buy shares of a Series through a First Investors registered
representative ("FIC Representative") or through a registered representative
("Dealer Representative") of an unaffiliated broker-dealer ("Dealer") which is
authorized to sell shares of the Series. Your FIC Representative or Dealer
Representative (collectively, "Representative") may help you complete and submit
an application to open an account with a Series. Applications accompanied by
checks drawn on U.S. banks made payable to "FIC" received in FIC's Woodbridge
offices by the close of regular trading on the New York Stock Exchange ("NYSE"),
generally 4:00 P.M. (New York City time), will be processed and shares will be
purchased at the public offering price determined at the close of regular
trading on the NYSE on that day. The "public offering price" is defined in this
Prospectus as net asset value plus the applicable sales charge for Class A
shares and net asset value for Class B shares. Checks received after the close
of regular trading on the NYSE will be processed at the public offering price
determined at the close of regular trading on the NYSE on the next trading day.
Orders given to Representatives before the close of regular trading on the NYSE
and received by FIC at their Woodbridge offices before the close of its business
day, generally 5:00 P.M. (New York City time), will be executed at the public
offering price determined at the close of regular trading on the NYSE on that
day. Orders received by Representatives after the close of regular trading on
the NYSE or received by FIC after the close of its business day will be executed
at the public offering price determined after the close of regular trading on
the NYSE on the next trading day. It is the
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<PAGE>
responsibility of Representatives to promptly transmit orders they receive to
FIC. Each Series reserves the right to reject any application or order for its
shares for any reason and to suspend the offering of its shares.
WHEN YOU OPEN A SERIES ACCOUNT, YOU MUST SPECIFY WHICH CLASS OF SHARES YOU
WISH TO PURCHASE. If not, your order will be processed as follows: (1) if you
are opening an account with a new registration with First Investors your order
will not be processed until the Series receives notification of which class of
shares to purchase; (2) if you have existing First Investors accounts solely in
either Class A shares or Class B shares with the identical registration, your
investment in the Series will be made in the same class of shares as your
existing account(s); (3) if you are an existing First Investors shareholder and
own a combination of Class A and Class B shares with an identical registration,
your investment in the Series will be made in Class B shares; and (4) if you own
in the aggregate at least $250,000 in any combination of classes, your
investment will be made in Class A shares.
INITIAL INVESTMENT IN A SERIES. You may open a Series account with as little
as $1,000. This account minimum is waived if you open an account for a
particular class of shares through a full exchange of shares of the same class
of another "Eligible Fund," as defined below. Class A share accounts opened
through an exchange of shares from First Investors Cash Management Fund, Inc. or
First Investors Tax-Exempt Money Market Fund, Inc. (collectively, "Money Market
Funds") may be subject to an initial sales charge. Automatic investment plans
allow you to open an account with as little as $50, provided you invest at least
$600 a year. See "Systematic Investing."
ADDITIONAL PURCHASES. After you make your first investment in a Series, you
may purchase additional shares of the Series by mailing a check made payable to
FIC, directly to First Investors Corporation, 10 Woodbridge Center Drive,
Woodbridge, NJ 07095-1198, Attn: Dept. CP. Include your account number on the
face of the check. There is no minimum on additional purchases of Series
shares.
ELIGIBLE FUNDS. Shares of all the funds and/or series in the First Investors
family of funds, except as noted below, are eligible to participate in certain
shareholder privileges noted in this Prospectus and the SAI (singularly,
"Eligible Fund" and, collectively, "Eligible Funds"). Shares of First Investors
Special Bond Fund, Inc., First Investors Life Series Fund and First Investors
U.S. Government Plus Fund are not deemed to be Eligible Funds. Shares of the
Money Market Funds, unless otherwise noted, are not deemed to be Eligible Funds.
Class A shares of each series of Executive Investors Trust ("Executive
Investors") are deemed to be Eligible Funds if such shares have either (a) been
acquired through an exchange from an Eligible Fund which imposes a maximum sales
charge of 6.25%, or (b) been held for at least one year from their date of
purchase.
SYSTEMATIC INVESTING
FIRST INVESTORS MONEY LINE. This service allows you to invest in a Series
through automatic deductions from your bank checking account. Scheduled
investments may be made on a bi-weekly, semi-monthly, monthly, quarterly, semi-
annual or annual basis provided a minimum total of $600 is invested per year.
Shares of the Series are purchased at the public offering price determined at
the close of business on the day your designated bank account is debited and a
confirmation will be sent to you after every transaction. You may decrease the
amount or discontinue this service at any time by calling Shareholder Services
or writing to Administrative
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Data Management Corp. (the "Transfer Agent"), 10 Woodbridge Center Drive,
Woodbridge, NJ 07095-1198, Attn: Control Dept. To increase the amount, send a
written request to the Transfer Agent at the address noted above, which may take
up to five days to process. Money Line application forms are available from your
Representative or by calling Shareholder Services at 1-800-423-4026.
AUTOMATIC PAYROLL INVESTMENT. You also may arrange for automatic
investments into a Series on a systematic basis through salary deductions,
provided your employer has direct deposit capabilities. Shares of the Series
are purchased at the public offering price determined as of the close of
business on the day the electronic fund transfer is received by the Series, and
a confirmation will be sent to you after every transaction. You may change the
amount or discontinue the service by contacting your employer. An application
is available from your Representative or by calling Shareholder Services at 1-
800-423-4026. Arrangements must also be made with your employer's payroll
department.
CROSS-INVESTMENT OF CASH DISTRIBUTIONS. You may elect to invest in Class
A shares of a Series at net asset value all the cash distributions from the same
class of shares of another Eligible Fund. You may also elect to invest cash
distributions of a Series' Class A shares into the same class of another
Eligible Fund, including the Money Market Funds. See "Dividends and Other
Distributions." To arrange for cross-investing, call Shareholder Services at 1-
800-423-4026.
INVESTMENT OF SYSTEMATIC WITHDRAWAL PLAN PAYMENTS. You may elect to
invest in Class A shares of a Series at net asset value through payments from a
Systematic Withdrawal Plan you maintain with any other Eligible Fund. Scheduled
investments may be made on a monthly, quarterly, semi-annual or annual basis.
You may also elect to invest Systematic Withdrawal Plan payments of Class A
shares from a Series into the same class of another Eligible Fund, including the
Money Market Funds. See "How to Redeem Shares." To arrange for Systematic
Withdrawal Plan investments, call Shareholder Services at 1-800-423-4026.
CLASS A SHARES. Class A shares of each Series are sold at the public
offering price, which will vary with the size of the purchase, as shown in the
following table:
<TABLE>
<CAPTION>
SALES CHARGE AS % OF CONCESSION TO
---------------------------
OFFERING NET AMOUNT DEALERS AS % OF
AMOUNT OF INVESTMENT PRICE INVESTED OFFERING PRICE
- ------------------------------- -------- ----------- ----------------
<S> <C> <C> <C>
Less than $25,000.............. 6.25% 6.67% 5.13%
$25,000 but under $50,000...... 5.75 6.10 4.72
$50,000 but under $100,000..... 5.50 5.82 4.51
$100,000 but under $250,000.... 4.50 4.71 3.69
$250,000 but under $500,000.... 3.50 3.63 2.87
$500,000 but under $1,000,000.. 2.50 2.56 2.05
</TABLE>
There is no sales charge on transactions of $1 million or more, including
transactions subject to the Cumulative Purchase Privilege or a Letter of Intent.
The Underwriter will pay from its own resources a sales commission to FIC
Representatives and a concession equal to 0.90% of the amount invested to
Dealers on such purchases. If shares are purchased on or after the date of this
Prospectus and are redeemed within 24 months of purchase (this holding period is
18 months for shares purchased prior to the date of this Prospectus), a CDSC of
1.00% will be deducted from the
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<PAGE>
redemption proceeds. The CDSC will be calculated in the same manner as the CDSC
on the Class B shares. See "Class B Shares."
WAIVERS OF CLASS A SALES CHARGES. Sales charges on Class A shares do not
apply to: (1) any purchase by an officer, director, trustee or full-time
employee (who has completed the introductory period) of either Fund, the
Underwriter, the Adviser, or their affiliates, by a Representative, or by the
spouse, or by the children and grandchildren under the age of 21 of any such
person; and (2) any purchase by a former officer, director, trustee or full-time
employee of either Fund, the Underwriter, the Adviser, or their affiliates, or
by a former FIC Representative; provided they had acted as such for at least
five years and had retired or otherwise terminated the relationship in good
standing:
Additionally, policyholders of participating life insurance policies issued
by First Investors Life Insurance Company, an affiliate of the Adviser and
Underwriter, may elect to invest dividends earned on such policies in Class A
shares of a Series at net asset value, provided the annual dividend is at least
$50 and the policyholder has an existing account with the Series.
CUMULATIVE PURCHASE PRIVILEGE AND LETTERS OF INTENT. You may purchase Class
A shares of a Series at a reduced sales charge through the Cumulative Purchase
Privilege or by executing a Letter of Intent. You may combine your Class A and
Class B shares of any Eligible Fund (including Class B shares of the Money
Market Funds) to qualify for this reduced sales charge. Under the Cumulative
Purchase Privilege, Class A shares of a Series are available at quantity
discounts. By completing a Letter of Intent, you state your intention to invest
a specific amount in Class A shares over the next 13 months which, if made in
one lump sum, would qualify you for a reduced sales charge. For more
information, see the SAI, call your Representative or call Shareholder Services
at 1-800-423-4026.
UNITHOLDERS. Holders of certain unit trusts ("Unitholders") who have elected
to invest the entire amount of cash distributions from either principal,
interest income or capital gains or any combination thereof ("Unit
Distributions") from the following trusts may invest such Unit Distributions in
Class A shares of a Series at a reduced sales charge.
Unitholders of various series of New York Insured Municipals-Income Trust
sponsored by Van Kampen Merritt Inc. (the "New York Trust"); Unitholders of
various series of the Multistate Tax Exempt Trust sponsored by Advest Inc.; and
Unitholders of various series of the Municipal Insured National Trust, J.C.
Bradford & Co. as agent, may purchase Class A shares of a Series with Unit
Distributions at an offering price which is the net asset value per share plus a
sales charge of 1.5%. Unitholders of various series of tax-exempt trusts, other
than the New York Trust, sponsored by Van Kampen Merritt Inc. may purchase Class
A shares of a Series with Unit Distributions at an offering price which is the
net asset value per share plus a sales charge of 1.0%. Each Series' initial
minimum investment requirement is waived for purchases of Class A shares with
Unit Distributions. Shares of a Series purchased by Unitholders may be
exchanged for Class A shares of any Eligible Fund subject to the terms and
conditions set forth under "How to Exchange Shares."
CLASS B SHARES. The public offering price of Class B shares of each Series
is the next determined net asset value, with no initial sales charge imposed. A
CDSC, however, is imposed upon most redemptions of Class B shares at the rates
set forth below:
14
<PAGE>
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
YEAR SINCE PURCHASE AS A PERCENTAGE OF DOLLARS INVESTED
PAYMENT MADE OR REDEMPTION PROCEEDS
------------------- -----------------------------------
<S> <C>
First................... 4%
Second.................. 4
Third................... 3
Fourth.................. 3
Fifth................... 2
Sixth................... 1
Seventh and thereafter.. 0
</TABLE>
The CDSC will not be imposed on (1) the redemption of Class B shares acquired
as dividends or other distributions, or (2) any increase in the net asset value
of redeemed shares above their initial purchase price (in other words, the CDSC
will be imposed on the lower of net asset value or purchase price). In
determining whether a CDSC is payable on any redemption, it will be assumed that
the redemption is made first of any Class B shares acquired as dividends or
distributions, second of Class B shares that have been held for a sufficient
period of time such that the CDSC no longer is applicable to such shares and
finally of Class B shares held longest during the period of time that a CDSC is
applicable to such shares. This will result in your paying the lowest possible
CDSC.
As an example, assume an investor purchased 100 shares of Class B shares at
$10 per share for a total cost of $1,000 and in the second year after purchase,
the net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares as dividends. If at such time the
investor makes his or her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to a CDSC charge because redemptions are first made
of shares acquired through dividend reinvestment. With respect to the remaining
40 shares, the charge is applied only to the original cost of $10 per share and
not to the increase in net asset value of $2 per share. Therefore, $400 of the
$600 redemption proceeds will be charged at a rate of 4.00% (the applicable rate
in the second year after purchase).
For purposes of determining the CDSC on Class B shares, all purchases made
during a calendar month will be deemed to have been made on the first business
day of that month at the average cost of all purchases made during that month.
The holding period of Class B shares acquired through an exchange with another
Eligible Fund will be calculated from the first business day of the month that
the Class B shares were initially acquired in the other Eligible Fund. The
amount of any CDSC will be paid to FIC. The CDSC imposed on the purchase of
Class B shares will be waived under certain circumstances. See "Waivers of CDSC
on Class B Shares" in the SAI.
CONVERSION OF CLASS B SHARES. A shareholder's Class B shares will
automatically convert to Class A shares approximately eight years after the date
of purchase, together with a pro rata portion of all Class B shares representing
dividends and other distributions paid in additional Class B shares. The Class
B shares so converted will no longer be subject to the higher expenses borne by
Class B shares. The conversion will be effected at the relative net asset
values per share of the two classes on the first business day of the month
following that in which the eighth anniversary of the purchase of the Class B
shares occurs. If a shareholder effects one or more exchanges between Class B
shares of the Eligible Funds during the eight-year period, the holding period
for the shares so exchanged will commence upon the date of the purchase of the
original shares. Because the per
15
<PAGE>
share net asset value of the Class A shares may be higher than that of the Class
B shares at the time of conversion, a shareholder may receive fewer Class A
shares than the number of Class B shares converted. See "Determination of Net
Asset Value."
GENERAL. The Underwriter may at times agree to reallow to Dealers up to an
additional 0.25% of the dollar amount of shares of the Series and/or certain
other First Investors or Executive Investors funds sold by such Dealers during a
specific period of time. From time to time, the Underwriter also will pay,
through additional reallowances or other sources, a bonus or other compensation
to Dealers which employ a Dealer Representative who sells a minimum dollar
amount of the shares of the Series and/or certain other First Investors or
Executive Investors funds during a specific period of time. Such bonus or other
compensation may take the form of reimbursement of certain seminar expenses, co-
operative advertising, or payment for travel expenses, including lodging
incurred in connection with trips taken by qualifying Dealer Representatives to
the Underwriter's principal office in New York City.
HOW TO EXCHANGE SHARES
Should your investment needs change, you may exchange, at net asset value,
shares of a Series for shares of any Eligible Fund (including the Money Market
Funds). In addition, Class A shares of a Series may be exchanged at net asset
value for units of any single payment plan ("plan") sponsored by the
Underwriter. SHARES OF A PARTICULAR CLASS MAY BE EXCHANGED ONLY FOR SHARES OF
THE SAME CLASS OF ANOTHER FUND. For example, you can exchange Class A shares of
a Series only for Class A shares of another Eligible Fund. Exchanges can only
be made into accounts registered to identical owners. If your exchange is into
a new account, it must meet the minimum investment and other requirements of the
fund or plan into which the exchange is being made. Additionally, the fund or
plan must be available for sale in the state where you reside. A $5.00 exchange
fee is charged for each exchange. However, currently this fee is being
voluntarily borne by the fund into which you are making the exchange and, thus,
that fund's shareholders are bearing the fee ratably. Before exchanging Series
shares for shares of another fund or plan, you should read the Prospectus of the
fund or plan into which the exchange is to be made. You may obtain Prospectuses
and information with respect to which funds or plans qualify for the exchange
privilege free of charge by calling Shareholder Services at 1-800-423-4026.
Exchange requests may be made in writing or by telephone (for shares held on
deposit only) if telephone privileges were elected on your application.
Exchange requests received in "good order" by the Transfer Agent before the
close of regular trading on the NYSE, generally 4:00 P.M. (New York City time),
will be processed at the net asset value determined as of the close of regular
trading on the NYSE on that day; exchange requests received after that time will
be processed on the following trading day.
EXCHANGES BY MAIL. To exchange shares by mail, you should mail requests to
Administrative Data Management Corp., 10 Woodbridge Center Drive, Woodbridge, NJ
07095-1198. Shares will be exchanged after the request is received in "good
order" by the Transfer Agent. "Good order" means that exchange requests must
state: (1) the names of the funds; (2) account numbers (if existing accounts);
(3) the dollar amount, number of shares or percentage of the account you wish to
exchange; and (4) the exchange request must be signed by all registered owners
exactly as the account is registered. If information is missing, your request
is ambiguous or the value of your account is less than the amount indicated on
your request, the exchange will not be processed. The Transfer Agent will seek
additional information from you and process the exchange on the day it
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receives such information. Signature guarantees may be required to process
certain exchange requests. See "How to Redeem Shares--Signature Guarantees."
EXCHANGES BY TELEPHONE. See "Telephone Transactions" for instructions on
making exchanges by telephone.
ADDITIONAL EXCHANGE INFORMATION. Exchanges should be made for investment
purposes only. A pattern of frequent exchanges may be contrary to the best
interests of a Series' other shareholders. Accordingly, each Series has the
right, at its sole discretion, to limit the amount of an exchange, reject any
exchange, or, upon 60 days' notice, materially modify or discontinue the
exchange privilege. Each Series will consider all relevant factors in
determining whether a particular frequency of exchanges is contrary to the best
interests of the Series and/or a class of the Series and its other shareholders.
Any such restriction will be made by a Series on a prospective basis only, upon
notice to the shareholder not later than ten days following such shareholder's
most recent exchange.
HOW TO REDEEM SHARES
You may redeem your Series shares at the next determined net asset value,
less any applicable CDSC, on any day the NYSE is open, directly through the
Transfer Agent. Your Representative may help you with this transaction. Shares
may be redeemed by mail or telephone (provided written authorization for
telephone transactions is on file). Redemption requests received in "good
order" by the Transfer Agent before the close of regular trading on the NYSE,
generally 4:00 P.M. (New York City time), will be processed at the net asset
value, less any applicable CDSC, determined as of the close of regular trading
on the NYSE on that day; redemption requests received after that time will be
processed on the following trading day. Payment of redemption proceeds will be
made within seven days. If the shares being redeemed were recently purchased by
check, payment may be delayed to verify that the check has been honored,
normally not more than fifteen days.
REDEMPTIONS BY MAIL. Written redemption requests should be mailed to
Administrative Data Management Corp., 10 Woodbridge Center Drive, Woodbridge, NJ
07095-1198. For your redemption request to be in good order, you must include:
(1) the name of the Series; (2) your account number; (3) the dollar amount,
number of shares or percentage of the account you want redeemed; (4) share
certificates, if issued; (5) the original signatures of all registered owners
exactly as the account is registered; (6) signature guarantees as described
below; and (7) additional documents required for redemptions by corporations,
trusts, partnerships, organizations, retirement, pension or profit sharing plans
and for requests from anyone other than the shareholder(s) of record. If
information is missing, your request is ambiguous or the value of your account
is less than the amount indicated on your request, the redemption will not be
processed. The Transfer Agent will seek additional information and process the
redemption on the day it receives such information.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect you, the
Series and their agents. Members of STAMP (Securities Transfer Agents Medallion
Program), MSP (New York Stock Exchange Medallion Signature Program), SEMP (Stock
Exchanges Medallion Program) or any underwriter of any issue for which the
Transfer Agent acts as transfer agent are eligible signature guarantors. A
notary public is not an acceptable guarantor. The guarantee must be manually
signed by an authorized signatory of the guarantor and the words "Signature
Guaranteed" must appear in direct association with such signature. Although
each Series reserves the right to require
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signature guarantees at any other time, signature guarantees are required
whenever: (1) the amount of the redemption is $50,000 or more, (2) an exchange
in the amount of $50,000 or more is made into the Money Market Funds, (3) a
redemption check is to be made payable to someone other than the registered
accountholder, other than institutions on behalf of the shareholder, (4) a
redemption check is to be mailed to an address other than the address of record,
(5) an account registration is being transferred to another owner, (6) an
account, other than an individual, joint, UGMA or UTMA nonretirement account, is
being exchanged or redeemed, (7) the redemption request is for certificated
shares, or (8) your address of record has changed within 60 days prior to a
redemption request or an exchange to a Money Market Fund of $50,000 or
more.
REDEMPTIONS BY TELEPHONE. See "Telephone Transactions" for instructions on
making redemptions by telephone.
SYSTEMATIC WITHDRAWAL PLAN. If you own noncertificated Class A shares with a
net asset value of $5,000 or more in a single Series account, you may set up a
plan for redemptions to be made automatically at regular intervals. You may
elect to have the payments (a) sent directly to you or persons you designate; or
(b) automatically invested at net asset value in shares of the same class of any
other Eligible Fund, including the Money Market Funds. See the SAI for more
information on the Systematic Withdrawal Plan. To establish a Systematic
Withdrawal Plan, call Shareholder Services at 1-800-423-4026.
REINVESTMENT AFTER REDEMPTION. If you redeem Class A or Class B shares in
your Series account, you can reinvest within ninety days from the date of
redemption all or any part of the proceeds in shares of the same class of the
same Series or any other Eligible Fund (including the Money Market Funds), at
net asset value, on the date the Transfer Agent receives your purchase request.
If you reinvest the entire proceeds of a redemption of Class B shares for which
a CDSC has been paid, you will be credited for the amount of the CDSC. If you
reinvest less than the entire proceeds, you will be credited with a pro rata
portion of the CDSC. All credits will be paid in Class B shares of the fund
into which the reinvestment is being made. The period you owned the original
Class B shares prior to redemption will be added to the period of time you own
Class B shares acquired through reinvestment for purposes of determining (a) the
applicable CDSC upon a subsequent redemption and (b) the date on which Class B
shares automatically convert to class A shares. If your reinvestment is into a
new account, it must meet the minimum investment and other requirements of the
fund into which the reinvestment is being made. To take advantage of this
option, send your reinvestment check along with a written request to the
Transfer Agent within 90 days from the date of your redemption. Include your
account number and a statement that you are taking advantage of the
"Reinvestment Privilege."
REPURCHASE THROUGH UNDERWRITER. You may redeem Class A shares for which a
certificate has been issued through a Dealer. In this event, the Underwriter,
acting as agent for each Series, will offer to repurchase or accept an offer to
sell such shares at a price equal to the net asset value next determined after
the making of such offer. The Dealer may charge you an added commission for
handling any redemption transaction.
REDEMPTION OF LOW BALANCE ACCOUNTS. Because each Series incurs certain fixed
costs in maintaining shareholder accounts, each Series may redeem without your
consent, on at least 60 days' prior written notice (which may appear on your
account statement), any Series account of Class A or Class B shares which has a
net asset value of less than $500. To avoid such redemption, you may,
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during such 60-day period, purchase additional Series shares of the same class
so as to increase your account balance to the required minimum. There will be no
CDSC imposed on such redemptions of Class B shares. The Series will not redeem
accounts that fall below $500 solely as a result of a reduction in net asset
value. Accounts established under a Systematic Investment Plan which have been
discontinued prior to meeting the $1,000 minimum are subject to this policy.
Additional information concerning how to redeem shares of the Series is
available upon request to your Representative or Shareholder Services at 1-800-
423-4026.
TELEPHONE TRANSACTIONS
Provided you have selected telephone privileges on your account application,
you may redeem or exchange noncertificated shares of a Series by calling the
Special Services Department at 1-800-342-6221 weekdays (except holidays) between
9:00 A.M. and 5:00 P.M. (New York City time). Exchange or redemption requests
received after the close of regular trading on the NYSE, generally 4:00 P.M.
(New York City time), will be processed at the net asset value, less any
applicable CDSC, determined as of the close of business on the following
business day. For your convenience, you may authorize your FIC Representative
(or your Dealer Representative, provided certain minimum sales requirements are
met) to exchange or redeem shares for you.
TELEPHONE EXCHANGES. Telephone exchanges are available between nonretirement
accounts and between IRA accounts of the same class of shares registered in the
same name. A telephone exchange also is available from an individually
registered nonretirement account to an IRA account of the same class of shares
in the same name (provided an IRA application is on file). Telephone exchanges
are not available for exchanges of Fund shares for plan units. For joint
accounts, telephone exchange instructions will be accepted from any one owner.
You are limited to one telephone exchange within any 30-day period for each
account authorized. Telephone exchanges to Money Market Funds are not available
if your address of record has changed within 60 days prior to the exchange
request.
TELEPHONE REDEMPTIONS. The telephone redemption privilege may be used
provided: (1) the redemption proceeds are being mailed to the address of record;
(2) your address of record has not changed within the past 60 days; (3) the
shares to be redeemed have not been issued in certificate form; (4) the proceeds
of the redemption do not exceed $50,000; and (5) shares have not been redeemed
by telephone from the account in the past 30 days. For joint accounts,
telephone redemption instructions will be accepted from any one owner.
ADDITIONAL INFORMATION. The Series, the Underwriter and their affiliates
will not be liable for any loss, damage, cost or expense arising out of any
instruction (or any interpretation of such instruction) received by telephone
which they reasonably believe to be authentic. In acting upon telephone
instructions, these parties use procedures which are reasonably designed to
ensure that such instructions are genuine. If the Series, the Underwriter or
their affiliates do not follow reasonable procedures, some or all of them may be
liable for any such losses. For more information on telephone transactions see
the SAI. Each Series has the right, at its sole discretion, upon 60 days'
notice, to materially modify or discontinue the telephone exchange and
redemption privilege. During times of drastic economic or market changes,
telephone exchanges or redemptions may be difficult to implement. If you
experience difficulty in making a telephone exchange or redemption, your
exchange or redemption request may be made by regular or express mail, and it
will be implemented
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at the next determined net asset value, less any applicable CDSC, following
receipt by the Transfer Agent.
MANAGEMENT
BOARD OF DIRECTORS OR TRUSTEES. Each Fund's Board of Directors or Trustees,
as part of its overall management responsibility, oversees various organizations
responsible for the applicable Series' day-to-day management.
ADVISER. First Investors Management Company, Inc. supervises and manages
each Series' investments, determines each Series' portfolio transactions and
supervises all aspects of each Series' operations. The Adviser is a New York
corporation located at 95 Wall Street, New York, NY 10005. The Adviser
presently acts as investment adviser to 14 mutual funds. First Investors
Consolidated Corporation ("FICC") owns all of the voting common stock of the
Adviser and all of the outstanding stock of FIC and the Transfer Agent. Mr.
Glenn O. Head (and members of his family) and Mrs. Julie W. Grayson (as
executrix of the estate of her deceased husband, David D. Grayson) are
controlling persons of FICC and, therefore, jointly control the Adviser.
As compensation for its services, the Adviser receives an annual fee from
each of the Series, which is payable monthly. For the fiscal year ended
December 31, 1994, the advisory fees for TAX EXEMPT FUND were 0.69% of its
average daily net assets. As compensation for its services, the Adviser
receives a fee from INTERMEDIATE SERIES at the rate of 0.60% of its average
daily net assets.
Each Series bears all expenses of its operations other than those incurred by
the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Series 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.
PORTFOLIO MANAGER. Clark D. Wagner has been Portfolio Manager of each Series
since he joined FIMCO in 1991. Mr. Wagner is also Portfolio Manager for all of
First Investors municipal bond funds. In 1992, he became Chief Investment
Officer of FIMCO. Prior to joining FIMCO, Mr. Wagner was a Vice President at
General Electric Investment Corporation from 1988-1991, where he managed a tax-
exempt portfolio.
BROKERAGE. Each Series may allocate brokerage commissions, if any, to
broker-dealers in consideration of Series share distribution, but only when
execution and price are comparable to that offered by other broker-dealers.
Brokerage may be directed to brokers who provide research. See the SAI for more
information on allocation of portfolio brokerage.
UNDERWRITER. Each Fund has entered into an Underwriting Agreement with First
Investors Corporation, 95 Wall Street, New York, NY 10005, as Underwriter. The
Underwriter receives all sales charges in connection with the sale of each
Series' Class A shares and all contingent deferred sales charges in connection
with each Series' Class B shares and may receive payments under a plan of
distribution. See "How to Buy Shares" and "Distribution Plans."
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REGULATORY MATTERS. In June 1992, the Funds' underwriter FIC, entered into a
settlement with the Securities and Exchange Commission ("SEC") to resolve
allegations by the agency that certain of FIC's sales representatives had made
misrepresentations concerning the risks of investing in two high yield bond
funds, the First Investors Fund For Income, Inc. and the First Investors High
Yield Fund, Inc. ("High Yield Funds"), and had sold these Funds to investors for
whom they were not suitable. Without admitting or denying the SEC's
allegations, FIC: (a) consented to the entry of a final judgment enjoining it
from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 thereunder and Section 17(a) of the 1933 Act; (b) agreed to the entry of
an administrative order censuring it and requiring it to comply with
undertakings to improve its policies and procedures with regard to sales,
training, supervision and compliance; and (c) agreed to pay $24.7 million to
certain investors who purchased shares of the High Yield Funds from in or about
November 1984 to in or about November 1990.
FIC, FIMCO and/or certain affiliated entities and persons have entered into
settlements with regulators in 29 states to resolve allegations, similar to
those made by the SEC, concerning sales of the High Yield Funds. In October
1993, as part of settlements with Maine, Massachusetts, New York, Virginia and
Washington ("State Settlements"), FIC, FIMCO and certain affiliated entities
and persons agreed, without admitting or denying any of the allegations, (a) to
be enjoined from violating certain provisions of the state securities laws, (b)
to engage in remedial measures designed to ensure that proper sales practices
are observed in the future, and (c) to pay $7.5 million, in addition to the
$24.7 million previously paid by FIC in connection with the SEC settlement, to
investors in the High Yield Funds. In addition, as part of those settlements,
several FIC executives, including Glenn O. Head, who is an officer and Director
or Trustee of the Funds, agreed to be suspended and enjoined temporarily from
associating with any broker-dealer in a supervisory capacity in certain of the
states. On December 8, 1993, several present and former FIC executives,
including Mr. Head, also agreed, without admitting or denying the allegations,
to temporary SEC suspensions from associating with broker-dealers and in some
cases other regulated entities in a supervisory capacity.
DISTRIBUTION PLANS
Pursuant to separate distribution plans pertaining to each Series' Class A
and Class B shares ("Class A Plan" or "Class B Plan," and collectively,
"Plans"), each Series may reimburse or compensate, as applicable, the
Underwriter for certain expenses incurred in the distribution of that Series'
shares ("distribution fees") and the servicing or maintenance of existing Series
shareholder accounts ("service fees"). Pursuant to the Plans, distribution fees
are paid for activities relating to the distribution of Series shares, including
costs of printing and dissemination of sales material or literature,
prospectuses and reports used in connection with the sale of Series shares.
Service fees are paid for the ongoing maintenance and servicing of existing
shareholder accounts, including payments to Representatives who provide
shareholder liaison services to their customers who are holders of that Series,
provided they meet certain criteria.
Pursuant to TAX EXEMPT FUND'S Class A Plan, the Fund's Board of Directors, in
its sole discretion, may periodically allocate the portion of distribution fees
and services fees that may be spent, provided the aggregate of such fees paid by
the Fund may not exceed an annual rate of 0.30% of its average daily net assets
attributable to Class A shares in any one fiscal year. Of that amount, no more
than 0.25% of the Fund's average daily net assets attributable to Class A shares
may be
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paid as service fees. Payments made to the Underwriter will be for reimbursement
of specific expenses incurred in connection with distribution and service
activities.
Pursuant to INTERMEDIATE SERIES' Class A Plan, the Series is authorized to
pay the Underwriter a distribution fee at the annual rate of 0.05% of the
Series' average daily net assets attributable to Class A shares and a service
fee of 0.25% of the Series' average daily net assets attributable to Class A
shares. Payments made to the Underwriter will represent compensation for
distribution and service activities, not reimbursement for specific expenses
incurred.
Pursuant to each Class B Plan, each Series is authorized to pay the
Underwriter a distribution fee at the annual rate of 0.75% of that Series'
average daily net assets attributable to Class B shares and a service fee of
0.25% of the Series' average daily net assets attributable to Class B shares.
Payments made to the Underwriter under each Class B Plan will represent
compensation for distribution and service activities, not reimbursement for
specific expenses incurred.
Although Class B shares are sold without an initial sales charge, the
Underwriter pays from its own resources a sales commission to FIC
Representatives and a concession equal to 3.5% of the amount invested to Dealers
who sell Class B shares. In addition, the Underwriter will make quarterly
payments of service fees to Representatives commencing after the thirteenth
month following the initial sale of Class B shares. The Underwriter will make
such payments at an annual rate of up to 0.25% of the average net asset value of
Class B shares which are attributable to shareholders for whom the
Representatives are designated as dealer of record.
Each Series may suspend or modify payments under the Plans at any time, and
payments are subject to the continuation of each Plan, the terms of any dealer
agreements between Dealers and the Underwriter and any applicable limits imposed
by the National Association of Securities Dealers, Inc. Each Series will not
carry over any fees under the Plans to the next fiscal year. See "Distribution
Plans" in the SAI for a full discussion of the various Plans.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Series' shares fluctuates and is determined
separately for each class of shares. The per share net asset value of the Class
B shares will generally be lower than that of the Class A shares because of the
higher expenses borne by the Class B shares. The net asset value of shares of a
given class of each Series is determined as of the close of regular trading on
the NYSE (generally 4:00 P.M., New York City time) on each day the NYSE is open
for trading, and at such other times as the applicable Fund's Board of Directors
or Trustees deems necessary, by dividing the market value of the securities held
by such Series, plus any cash and other assets, less all liabilities
attributable to that class, by the number of shares of the applicable class
outstanding. If there is no available market value, securities will be valued
at their fair value as determined in good faith pursuant to procedures adopted
by the applicable Fund's Board of Directors or Trustees. The NYSE currently
observes the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are generally declared daily and paid
monthly by each Series. Unless you direct the Transfer Agent otherwise,
dividends declared on a class of shares of
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a Series are paid in additional shares of that class at the net asset value
generally determined as of the close of business on the first business day of
the following month. If you redeem all of your shares of a Series at any time
during a month, you are paid all dividends declared through the day prior to the
date of the redemption, together with the proceeds of your redemption, less any
applicable CDSC. Net investment income includes interest, earned discount and
other income earned on portfolio securities less expenses.
Each Series also distributes with its regular dividend at the end of the year
substantially all of its net capital gain (the excess of net long-term capital
gain over net short-term capital loss) and net short-term capital gain, if any,
after deducting any available capital loss carryovers. Unless you direct the
Transfer Agent otherwise, these distributions are paid in additional shares of
the same class of the distributing Series at the net asset value generally
determined as of the close of business on the business day immediately following
the record date of the distribution. A Series may make an additional
distribution in any year if necessary to avoid a Federal excise tax on certain
undistributed ordinary (taxable) income and capital gain.
Dividends and other distributions paid on both classes of a Series' shares
are calculated at the same time and in the same manner. Dividends on Class B
shares of a Series are expected to be lower than those for its Class A shares
because of the higher distribution fees borne by the Class B shares. Dividends
on each class also might be affected differently by the allocation of other
class-specific expenses.
In order to be eligible to receive a dividend or other distribution, you must
own Series shares as of the close of business on the record date of the
distribution. You may elect to receive dividends and/or other distributions in
cash by notifying the Transfer Agent by telephone or in writing prior to the
record date of any such distribution. If you elect this form of payment, the
payment date generally is two weeks following the record date of any such
distribution. Your election remains in effect until you revoke it by notifying
the Transfer Agent.
You may elect to invest the entire amount of any cash distribution on Class A
shares in shares of the same class of any Eligible Fund, including the Money
Market Funds, by notifying the Transfer Agent. See "How to Buy Shares--Cross-
Investment of Cash Distributions." The investment will be made at the net asset
value per share of the other fund, generally determined as of the close of
business, on the business day immediately following the record date of any such
distribution.
A dividend or other distribution paid on a class of shares of a Series will
be paid in additional shares of that class and not in cash if any of the
following events occurs: (1) the total amount of the distribution is under $5,
(2) the Series has received notice of your death on an individual account (until
written alternate payment instructions and other necessary documents are
provided by your legal representative), or (3) a distribution check is returned
to the Transfer Agent, marked as being undeliverable, by the U.S. Postal Service
after two consecutive mailings.
TAXES
Each Series intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended, so that
it will be relieved of Federal income tax on that part of its investment company
taxable income (consisting generally of taxable net investment income and net
short-term capital gain) and net capital gain that is distributed to its
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shareholders. In addition, each Series intends to continue to qualify to pay
"exempt-interest dividends" (as defined below), which requires, among other
things, that at the close of each calendar quarter at least 50% of the value of
its total assets must consist of Municipal Instruments.
Distributions by a Series of the excess of interest income from Municipal
Instruments over certain amounts disallowed as deductions, which are designated
by the Series as "exempt-interest dividends," generally may be excluded by you
from gross income. Distributions by a Series of interest income from taxable
obligations and net short-term capital gain, if any, are taxable to you as
ordinary income to the extent of the Series' earnings and profits, whether
received in cash or paid in additional Series shares. Distributions of a
Series' realized net capital gain, if any, when designated as such, are taxable
to you as long-term capital gains, whether received in cash or paid in
additional Series shares, regardless of the length of time you have owned your
shares. If you purchase your shares shortly before the record date for a
taxable dividend or capital gain distribution, you will pay full price for the
shares and receive some portion of the price back as a taxable distribution.
You will receive an annual statement following the end of each calendar year
describing the tax status of distributions paid by your Series during that year.
Interest on indebtedness incurred or continued to purchase or carry shares of
a Series will not be deductible for Federal income tax purposes to the extent
the Series' distributions consist of exempt-interest dividends. Each Series
does not intend to invest in PABs or IDBs the interest on which is treated as a
tax preference item for purposes of the Federal alternative minimum tax.
Proposals may be introduced before Congress for the purpose of restricting or
eliminating the Federal income tax exemption for interest on Municipal
Instruments. If such a proposal were enacted, the availability of Municipal
Instruments for investment by each Series and the value of its portfolio
securities would be affected. In that event, each Series would reevaluate its
investment objective and policies.
Each Series is required to withhold 31% of all taxable dividends, capital
gain distributions and redemption proceeds payable to you after any applicable
CDSC is deducted (if you are an individual or certain other non-corporate
shareholder) if the Series is not furnished with your correct taxpayer
identification number, and that percentage of dividends and such distributions
in certain other circumstances.
Your redemption of Series shares will result in a taxable gain or loss to
you, depending on whether the redemption proceeds are more or less than your
adjusted basis for the redeemed shares (which normally includes any initial
sales charge paid on Class A shares). An exchange of Series shares for shares
of any other Eligible Fund generally will have similar tax consequences.
However, special tax rules apply when a shareholder (1) disposes of Class A
shares through a redemption or exchange within 90 days of purchase and (2)
subsequently acquires Class A shares of an Eligible Fund without paying a sales
charge due to the 90-day reinvestment privilege or exchange privilege. In these
cases, any gain on the disposition of the original Class A shares will be
increased, or loss decreased, by the amount of the sales charge paid when the
shares were acquired, and that amount will increase the basis of the Eligible
Fund's shares subsequently acquired. In addition, if you purchase Series shares
within 30 days before or after redeeming other shares of that Series (regardless
of class) at a loss, all or a portion of the loss will not be deductible and
will increase the basis of the newly purchased shares.
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No gain or loss will be recognized to a shareholder as a result of a
conversion of Class B shares into Class A shares.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting each Series and its shareholders; see the SAI
for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor; for example, a Series'
distributions may be wholly or partly taxable under state and/or local laws.
You therefore are urged to consult your own tax adviser.
PERFORMANCE INFORMATION
For purposes of advertising, each Series' performance may be calculated for
each class of its shares based on average annual total return and total return.
Each of these figures reflects past performance and does not necessarily
indicate future results. Average annual total return shows the average annual
percentage change in an assumed $1,000 investment. It reflects the hypothetical
annually compounded return that would have produced the same total return if a
Series' performance had been constant over the entire period. Because average
annual total return tends to smooth out variations in a Series' return, you
should recognize that it is not the same as actual year-by-year results.
Average annual total return includes the effect of paying the maximum sales
charge (in the case of Class A shares) or the deduction of any applicable CDSC
(in the case of Class B shares) and payment of dividends and other distributions
in additional shares. One, five and ten year periods will be shown unless the
class has been in existence for a shorter period. Total return is computed
using the same calculations as average annual total return. However, the rate
expressed is the percentage change from the initial $1,000 invested to the value
of the investment at the end of the stated period. Total return calculations
assume reinvestment of dividends and other distributions.
Each Series also may advertise its yield for each class of shares. Yield
reflects investment income net of expenses over a 30-day (or one-month) period
on a Series share, expressed as an annualized percentage of the maximum offering
price per share for Class A shares and the net asset value per share for Class B
shares at the end of the period. Yield computations differ from other
accounting methods and therefore may differ from dividends actually paid or
reported net income.
Tax-equivalent yields show the taxable yields an investor would have to earn
to equal a Series' tax-free yields. The tax-equivalent yield is calculated
similarly to the yield, except that the yield is increased using a stated income
tax rate to demonstrate the taxable yield necessary to produce an after-tax
yield equivalent to a Series' tax-free yield. Each Series may also advertise
its "actual distribution rate" for each class of shares. This is computed in
the same manner as yield except that actual income dividends declared per share
during the period in question are substituted for net investment income per
share. In addition, each Series calculates its "actual distribution rate" based
upon net asset value for dissemination to existing shareholders.
Each of the above performance calculations may be based on investment at
reduced sales charge levels or at net asset value. Any quotation of performance
figures not reflecting the maximum sales charge or CDSC will be greater than if
the maximum sales charge or CDSC were used. Additional performance information
is contained in the Series' Annual Reports which may be obtained without charge
by contacting the applicable Fund at 1-800-423-4026.
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GENERAL INFORMATION
ORGANIZATION. INSURED TAX EXEMPT was incorporated in the State of Maryland
on September 28, 1976. SERIES FUND is a Massachusetts business trust organized
on September 23, 1988. Prior to February 15, 1990, the name of SERIES FUND was
First Investors Fund. Each Fund is authorized to issue shares of beneficial
interest or common stock, as applicable, in such separate and distinct series
and classes of shares as that Fund's Board of Directors or Trustees shall from
time to time establish. The shares of common stock of INSURED TAX EXEMPT
presently comprise one series and the shares of beneficial interest of SERIES
FUND are presently divided into five separate and distinct series. In addition
to INTERMEDIATE SERIES, First Investors Blue Chip Series, First Investors
Investment Grade Series, First Investors Special Situations Series and First
Investors Total Return Series are also separate series of SERIES FUND. Each
Series presently has two classes, designed Class A shares and Class B shares.
Each class of a Series represents interests in the same assets of that Series.
The classes differ in that (1) each class has exclusive voting rights on matters
affecting only that class, (2) Class A shares are subject to an initial sales
charge and relatively lower ongoing distribution fees, (3) Class B shares bear
higher ongoing distribution fees, are subject to a CDSC upon certain redemptions
and will automatically convert to Class A shares approximately eight years after
purchase, (4) each class may bear differing amounts of certain other class-
specific expenses, and (5) each class has different exchange privileges. Each
Fund's Board of Directors or Trustees does not anticipate that there will be any
conflicts among the interests of the holders of the different classes of each
Series' shares. On an ongoing basis, each Fund's Board of Directors or Trustees
will consider whether any such conflict exists and, if so, take appropriate
action. The Funds do not hold annual shareholder meetings. If requested to do
so by the holders of at least 10% of a Fund's outstanding shares, that Fund's
Board of Directors or Trustees will call a special meeting of shareholders for
any purpose, including the removal of Directors or Trustees. Each share of each
Series has equal voting rights except as noted above. Each share of a Series is
entitled to participate equally in dividends and other distributions and the
proceeds of any liquidation except that, due to the higher expenses borne by the
Class B shares, such dividends and proceeds are likely to be lower for the Class
B shares than for the Class A shares.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Series.
TRANSFER AGENT. Administrative Data Management Corp., 10 Woodbridge Center
Drive, Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as
transfer and dividend disbursing agent for each Series and as redemption agent
for regular redemptions. The Transfer Agent's telephone number is 1-800-423-
4026.
SHARE CERTIFICATES. The Series do not issue share certificates unless
requested in writing to do so. The Series do not issue certificates for Class B
shares. Ownership of shares of each Series is recorded on a stock register by
the Transfer Agent and shareholders have the same rights of ownership with
respect to such shares as if certificates had been issued.
CONFIRMATIONS AND STATEMENTS. You will receive confirmations of purchases
and redemptions of shares of a Series. Statements of shares owned will be sent
to you following a transaction in the account, including payment of a dividend
or capital gain distribution in additional shares or cash.
26
<PAGE>
SHAREHOLDER INQUIRIES. Shareholder inquiries can be made by calling
Shareholder Services at 1-800-423-4026.
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. It is each Series' practice
to mail only one copy of its annual and semi-annual reports to any address at
which more than one shareholder with the same last name has indicated that mail
is to be delivered. Additional copies of the reports will be mailed if
requested in writing or by telephone by any shareholder. Each Series will
ensure that an additional copy of such reports are sent to any shareholder who
subsequently changes his or her mailing address.
27
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Fee Table........................... 2
Financial Highlights................ 4
Investment Objectives and Policies.. 6
Alternative Purchase Plans.......... 10
How to Buy Shares................... 11
How to Exchange Shares.............. 16
How to Redeem Shares................ 17
Telephone Transactions.............. 19
Management.......................... 20
Distribution Plans.................. 21
Determination of Net Asset Value.... 22
Dividends and Other Distributions... 22
Taxes............................... 23
Performance Information............. 25
General Information................. 26
</TABLE>
INVESTMENT ADVISER CUSTODIAN
First Investors Management The Bank of New York
Company, Inc. 48 Wall Street
95 Wall Street New York, NY 10286
New York, NY 10005
TRANSFER AGENT
UNDERWRITER Administrative Data
First Investors Corporation Management Corp.
95 Wall Street 10 Woodbridge Center Drive
New York, NY 10005 Woodbridge, NJ 07095-1198
LEGAL COUNSEL AUDITORS
Kirkpatrick & Lockhart Tait, Weller & Baker
1800 M Street, N.W. Two Penn Center Plaza
Washington, D.C. 20036 Philadelphia, PA 19102-1707
This Prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this Prospectus. No Fund intends to make any representation as to
the accuracy or completeness of the disclosure in this Prospectus relating to
any other Fund. No dealer, salesman or any other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus or the Statement of Additional Information, and if given or
made, such information and representation must not be relied upon as having been
authorized by either Fund, First Investors Corporation, or any affiliate
thereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the shares offered hereby in any state to any person
to whom it is unlawful to make such offer in such state.
<PAGE>
First Investors
Insured Tax Exempt
Fund, Inc.
- ------------------------------------
First Investors
Insured Intermediate
Tax Exempt Series
A Series of
First Investors Series Fund
- ------------------------------------
Prospectus
- ------------------------------------
May 1, 1995
First Investors Logo
Logo is described as follows: the arabic numeral one separated into seven
vertical segments followed by the words "First Investors."
Vertical line from top to bottom in center of page about 1/2 inch in thickness.
The following language appears to the left of the above language in the printed
piece:
The words "BULK RATE U.S. POSTAGE PAID PERMIT NO. 1796" in a box to the right of
a circle containing the words "MAILED FROM ZIP CODE 17604" appears on the
righthand side.
The following language appears on the lefthand side:
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
FIRST INVESTORS INSURED INTERMEDIATE TAX EXEMPT SERIES
a Series of First Investors Series Fund
95 WALL STREET
NEW YORK, NY 10005
First Investors Logo (as described above)
A MEMBER OF THE
FIRST INVESTORS
FINANCIAL NETWORK
FIITE01
<PAGE>
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
FIRST INVESTORS INSURED INTERMEDIATE
TAX EXEMPT SERIES, A SERIES OF
FIRST INVESTORS SERIES FUND
95 Wall Street 1-800-423-4026
New York, New York 10005
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1995
This is a Statement of Additional Information ("SAI") for FIRST INVESTORS
INSURED TAX EXEMPT FUND, INC. ("TAX EXEMPT FUND") and FIRST INVESTORS INSURED
INTERMEDIATE TAX EXEMPT SERIES ("INTERMEDIATE SERIES"). INTERMEDIATE SERIES is
a separate series of FIRST INVESTORS SERIES FUND ("SERIES FUND"). TAX EXEMPT
FUND and SERIES FUND are each an open-end diversified management investment
company (collectively, "Funds"). TAX EXEMPT FUND and INTERMEDIATE SERIES are
sometimes referred to herein collectively and singularly as "Series." The
investment objective of each Series is to seek to provide a high level of
interest income which is exempt from Federal income tax and, for non-corporate
shareholders, the Federal alternative minimum tax. There can be no assurance
that the objective of any Series will be realized.
This SAI is not a prospectus. It should be read in conjunction with the
Series' Prospectus dated May 1, 1995, which may be obtained free of cost from
the Funds at the address or telephone number noted above.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
Investment Policies............................. 2
Hedging and Option Income Strategies............ 6
Insurance....................................... 12
Investment Restrictions......................... 15
Directors or Trustees and Officers.............. 19
Management...................................... 21
Underwriter..................................... 22
Distribution Plans.............................. 23
Determination of Net Asset Value................ 24
Allocation of Portfolio Brokerage............... 25
Reduced Sales Charges, Additional Exchange and
Redemption Information and Other Services..... 26
Taxes........................................... 29
Performance Information......................... 31
General Information............................. 36
Appendix A...................................... 38
Appendix B...................................... 40
Appendix C...................................... 41
Financial Statements............................ 43
</TABLE>
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<PAGE>
INVESTMENT POLICIES
BOND MARKET CONCENTRATION. Each Series may invest more than 25% of its
-------------------------
total assets in a particular segment of the municipal bond market, such as
hospital revenue bonds, housing agency bonds, industrial development bonds,
utility bonds and university bonds, during periods when one or more of these
segments offer higher yields and/or profit potential. As of December 31, 1994,
TAX EXEMPT FUND had 25.9% of its assets in utility bonds and INTERMEDIATE SERIES
had 31.5% of its assets in general obligation bonds.
CERTIFICATES OF PARTICIPATION. TAX EXEMPT FUND's Board of Directors and
-----------------------------
SERIES FUND's Board of Trustees (collectively, "Board") have established
guidelines for determining the liquidity of the COPs in the applicable Series'
portfolio and, subject to review by that Fund's Board, has delegated that
responsibility to the Adviser. Pursuant to these guidelines, the Adviser will
consider (1) the frequency of trades and quotes for the security, (2) the number
of dealers willing to purchase or sell the security and the number of other
potential buyers, (3) the willingness of dealers to undertake to make a market
in the security, (4) the nature of the marketplace, namely, the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer, (5) the coverage of the obligation by new issue insurance, (6) the
likelihood that the marketability of the obligation will be maintained through
the time the security is held by the Series, and (7) for unrated COPs, the COPs'
credit status analyzed by the Adviser according to the factors reviewed by
rating agencies.
DETACHABLE CALL OPTIONS. Detachable call options are sold by issuers of
-----------------------
municipal bonds separately from the municipal bonds to which the call options
relate and permit the purchasers of the call options to acquire the municipal
bonds at the call prices and call dates. In the event that interest rates drop,
the purchaser could exercise the call option to acquire municipal bonds that
yield above-market rates. INTERMEDIATE SERIES may acquire detachable call
options relating to municipal bonds that the Series already owns or will acquire
in the immediate future and thereby, in effect, make such municipal bonds non-
callable so long as the Series continues to hold the detachable call option.
INTERMEDIATE SERIES will consider detachable call options to be illiquid
securities and they will be treated as such for purposes of certain investment
limitation calculations.
HIGH YIELD SECURITIES. Although each Series may invest up to 5% of its net
---------------------
assets in municipal bonds rated lower than Baa by Moody's Investors Service,
Inc. ("Moody's") or BBB by Standard &Poor's Ratings Group ("S&P"), each Series
currently does not intend to purchase such municipal bonds. However,
occasionally a Series may hold in its portfolio a municipal bond that has had
its rating downgraded. In each instance, such bonds will be covered by the
insurance feature and thus considered to be of higher quality than high yield
securities without an insurance feature. See "Insurance" for a detailed
discussion of the insurance feature. Debt obligations rated lower than Baa by
Moody's or BBB by S&P, commonly referred to as "junk bonds" are speculative and
generally involve a higher risk or loss of principal and income than higher-
rated securities ("High Yield Securities"). High Yield Securities are subject
to certain risks that may not be present with investments in high grade
securities. The prices of High Yield Securities tend to be less sensitive to
interest rate changes than higher-rated investments, but may be more sensitive
to adverse economic changes. A strong economic downturn or a substantial period
of rising interest rates could severely affect the market for High Yield
Securities.
Municipal obligations that are high yield securities rated below investment
grade ("Municipal High Yield Securities") are deemed by Moody's and S&P to be
predominantly speculative with respect to the
- 2 -
<PAGE>
issuer's capacity to pay interest and repay principal and may involve major risk
exposure to adverse conditions. "Municipal High Yield Securities," unless
otherwise noted, include unrated securities deemed to be rated below investment
grade by the Series' investment adviser, First Investors Management Company,
Inc. ("Adviser" or "FIMCO"). Ratings of Municipal High Yield Securities
represent the rating agencies' opinions regarding their quality, are not a
guarantee of quality and may be reduced after a Series has acquired the
security. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Also, rating agencies may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates.
Municipal High Yield Securities generally offer a higher current yield than
higher grade issues. However, Municipal High Yield Securities involve higher
risks, in that they are especially subject to adverse changes in the general
economic conditions, in economic conditions of an issuer's geographic area and
in the industries or activities in which the issuer is engaged. Municipal High
Yield Securities are also especially sensitive to changes in the financial
condition of the issuer and to price fluctuations in response to changes in
interest rates. Accordingly, the yield on lower rated Municipal High Yield
Securities will fluctuate over time. During periods of economic downturn or
rising interest rates, municipal issuers may experience financial stress which
could adversely affect their ability to make payments of principal and interest
and increase the possibility of default.
In addition, Municipal High Yield Securities are frequently traded only in
markets where the number of potential purchasers and sellers, if any, is
limited. This factor may limit a Series' ability to acquire such securities and
to sell such securities at their fair value in response to changes in the
economy or the financial markets, especially for unrated Municipal High Yield
Securities. Although unrated Municipal High Yield Securities are not
necessarily of lower quality than rated Municipal High Yield Securities, the
market for rated Municipal High Yield Securities generally is broader than that
for unrated Municipal High Yield Securities. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of Municipal High Yield Securities, especially in a thinly
traded market.
LOANS OF PORTFOLIO SECURITIES. Each Series may loan securities to
-----------------------------
qualified broker-dealers or other institutional investors provided: the borrower
pledges to a Series and agrees to maintain at all times with that Series cash
collateral equal to not less than 100% of the value of the securities loaned
(plus accrued interest or dividend), if any, the loan is terminable at will by a
Series, that Series pays only reasonable custodian fees in connection with the
loan, and the Adviser monitors the creditworthiness of the borrower throughout
the life of the loan. Such loans may be terminated by a Series at any time and
that Series may vote the proxies if a material event affecting the investment is
to occur. The market risk applicable to any security loaned remains a risk of a
Series. The borrower must add to the collateral whenever the market value of
the securities rises above the level of such collateral. A Series could incur a
loss if the borrower should fail financially at a time when the value of the
loaned securities is greater than the collateral. The primary objective of such
loaning function is to supplement a Series' income through investment of the
cash collateral in short-term interest bearing obligations. INTERMEDIATE SERIES
has a non-fundamental policy that the aggregate value of portfolio securities it
can lend will not exceed 10% of its net assets and TAX EXEMPT FUND may not make
such loans in excess of 10% of its total assets.
PORTFOLIO TURNOVER. Although each Series generally will not invest for
------------------
short-term trading purposes, portfolio securities may be sold from time to time
without regard to the length of time they have
- 3 -
<PAGE>
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 Series'
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 generally leads to
transaction costs and may result in a greater number of taxable transactions.
See "Allocation of Portfolio Brokerage." For the fiscal years ended December 31,
1993 and 1994, TAX EXEMPT FUND's portfolio turnover rate was 58% and 57%,
respectively. See the Prospectus for the portfolio turnover rate for
INTERMEDIATE SERIES.
REPURCHASE AGREEMENTS. The INTERMEDIATE SERIES 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 Series invest in repurchase agreements with more than one year in time to
maturity. The securities which are subject to repurchase agreements, however,
may have maturity dates in excess of one year from the effective date of the
repurchase agreement. The Series 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 Series in each
agreement, and the Series will make payment for such securities only upon
physical delivery or evidence of book entry transfer to the account of the
Series' custodian. If the seller defaults, the Series might incur a loss if the
value of the collateral securing the repurchase agreement declines, and might
incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy or similar proceedings are commenced with respect to the
seller of the security, realization upon the collateral by the Series may be
delayed or limited. The Series may not enter into a repurchase agreement with
more than seven days to maturity if, as a result, more than 15% of the Series'
net assets would be invested in such repurchase agreements and other illiquid
investments.
RESTRICTED AND ILLIQUID SECURITIES. Neither Series will purchase or
----------------------------------
otherwise acquire any security if, as a result, more than 15% of its net assets
(taken at current value) would be invested in securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. This policy includes detachable call options and
repurchase agreements maturing in more than seven days. This policy does not
include restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended ("1933 Act"), which each Fund's Board of
Directors or Trustees or the Adviser has determined under Board-approved
guidelines are liquid. As a result of an undertaking to a certain state
securities commission, INTERMEDIATE SERIES will not invest more than 10% of its
total assets in restricted securities, excluding Rule 144A securities.
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 Series
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 Series may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions
were to develop, a Series might obtain a less favorable price than prevailed
when it decided to sell.
- 4 -
<PAGE>
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Series, however, could affect adversely the marketability
of such portfolio securities and the Series might be unable to dispose of such
securities promptly or at reasonable prices.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed as to
---------------------------
principal and interest by the U.S. Government include (1) U.S. Treasury
obligations which differ only in their interest rates, maturities and times of
issuance as follows: U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years), and U.S. Treasury bonds
(generally maturities of greater than ten years); and (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities that are backed by
the full faith and credit of the United States, such as securities issued by the
Federal Housing Administration, Government National Mortgage Association, the
Department of Housing and Urban Development, the Export-Import Bank, the General
Services Administration and the Maritime Administration and certain securities
issued by the Farmers Home Administration and the Small Business Administration.
The range of maturities of U.S. Government Obligations is usually three months
to thirty years.
WHEN-ISSUED SECURITIES. Each Series may invest up to 25% of its net assets
----------------------
in securities issued on a when-issued or delayed delivery basis, which involves
an arrangement whereby delivery of, and payment for, the instruments occur up to
45 days after the agreement to purchase the instruments is made by a Series.
The purchase price to be paid by a Series and the interest rate on the
instruments to be purchased are both selected when the Series agrees to purchase
the securities on a "when-issued" basis. A Series generally would not pay for
such securities or start earning interest on them until they are issued or
received. However, when a Series 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 Series on a when-issued basis
may result in such Series incurring a loss or missing an opportunity to make an
alternative investment. When a Series enters into a commitment to purchase
securities on a when-issued basis, it establishes a separate account with its
custodian consisting of cash, U.S. Government securities or other liquid high-
grade debt securities equal to the amount of the Series' commitment, which are
valued at their fair market value. If on any day the market value of this
segregated account falls below the value of the Series' commitment, the Series
will be required to deposit additional cash or qualified securities into the
account until equal to the value of the Series' commitment. When the securities
to be purchased are issued, a Series will pay
- 5 -
<PAGE>
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 Series is committed to purchase. Sale of
securities in the segregated account or other securities owned by a Series and
when-issued securities may cause the realization of a capital gain or loss.
ZERO COUPON SECURITIES. Each Series may invest in zero coupon municipal
----------------------
securities. Zero coupon securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or a specified date
when the securities begin paying current interest. They are issued and traded
at a discount from their face amount or par value, which discount varies
depending on the time remaining until cash payments begin, prevailing interest
rates, liquidity of the security and the perceived credit quality of the issuer.
Original issue discount earned on zero coupon securities must be included in a
Series' income. Thus, to continue to qualify for tax treatment as a regulated
investment company, a Series may be required to distribute as a dividend an
amount that is greater than the total amount of cash it actually receives.
These distributions must be made from a Series' cash assets or, if necessary,
from the proceeds of sales of portfolio securities. A Series will not be able
to purchase additional income-producing securities with cash used to make such
distributions, and its current income ultimately could be reduced as a result.
The market prices of zero coupon securities generally are more volatile than the
prices of securities that pay interest periodically and in cash and are likely
to respond to changes in interest rates to a greater degree than do other types
of debt securities having similar maturities and credit quality.
HEDGING AND OPTION INCOME STRATEGIES
The Adviser may engage in certain options and futures strategies to hedge
each Series' portfolio, in other circumstances permitted by the Commodities
Futures Trading Commission ("CFTC") and engage in certain options strategies to
enhance income. The instruments described below are sometimes referred to
collectively as "Hedging Instruments." Certain special characteristics of and
risks associated with using Hedging Instruments are discussed below. In
addition to the non-fundamental investment guidelines (described below) adopted
by each Fund's Board of Directors or Trustees to govern each Series' investments
in Hedging Instruments, use of these instruments is subject to the applicable
regulations of the Securities and Exchange Commission ("SEC"), the several
options and futures exchanges upon which options and futures contracts are
traded, the CFTC and various state regulatory authorities. In addition, a
Series' ability to use Hedging Instruments will be limited by tax
considerations. See "Taxes."
Participation in the options or futures markets involves investment risks
and transaction costs to which a Series would not be subject absent the use of
these strategies. If the Adviser's prediction of movements in the direction of
the securities and interest rate markets are inaccurate, the adverse
consequences to a Series may leave the Series in a worse position than if such
strategies were not used. A Series might not employ any of the strategies
described below, and there can be no assurance that any strategy will succeed.
The use of these strategies involve certain special risks, including (1)
dependence on the Adviser's ability to predict correctly movements in the
direction of interest rates and securities prices, (2) imperfect correlation
between the price of options, futures contracts and options thereon and
movements in the prices of the securities being hedged, (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities, (4) the possible absence of a liquid
- 6 -
<PAGE>
secondary market for any particular instrument at any time, and (5) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences.
Although each Series may engage in the strategies listed below,
INTERMEDIATE SERIES does not intend to do so in the coming year and TAX EXEMPT
FUND will only engage in transactions involving futures contracts and options
thereon.
COVER FOR HEDGING AND OPTION INCOME STRATEGIES. No Series will use
----------------------------------------------
leverage in its hedging and option income strategies. In the case of each
transaction entered into as a hedge, each Series will hold securities or other
options or futures positions whose values are expected to offset ("cover") its
obligations hereunder. No Series will enter into a hedging or option income
strategy that exposes the Series 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, receivables and short-term debt
securities with a value sufficient at all times to cover its potential
obligations. Each Series 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, high-grade debt securities
in a segregated account with its custodian in the prescribed amount. Securities
or other options or futures positions used for cover and securities held in a
segregated account cannot be sold or closed out while the hedging or option
income strategy is outstanding unless they are replaced with similar assets. As
a result, there is a possibility that the use of cover or segregation involving
a large percentage of a Series' assets could impede portfolio management or the
Series' ability to meet redemption requests or other current obligations.
OPTIONS STRATEGIES. Each Series 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
Series' potential loss to the option premium paid; conversely, if the market
price of the underlying security increases above the exercise price and a Series
either sells or exercises the option, any profit eventually realized will be
reduced by the premium. Each Series may purchase put options in order to hedge
against a decline in the market value of securities held in its portfolio. The
put option enables a Series to sell the underlying security at the predetermined
exercise price; thus the potential for loss to the Series 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 Series realizes on the sale of the security will be reduced by the
premium paid for the put option less any amount for which the put option may be
sold.
Each Series may write covered call options on securities to increase income
in the form of premiums received from the purchasers of the options. Because it
can be expected that a call option will be exercised if the market value of the
underlying security increases to a level greater than the exercise price, a
Series will write covered call options on securities generally when the Adviser
believes that the premium received by the Series, plus anticipated appreciation
in the market price of the underlying security up to the exercise price of the
option, will be greater than the total appreciation in the price of the
security. The strategy may be used to provide limited protection against a
decrease in the market price of the security in an amount equal to the premium
received for writing the call option less any transaction costs. Thus, if the
market price of the underlying security held by a Series declines, the amount of
such decline will be offset wholly or in part by the amount of the premium
received by the Series. If, however, there is an increase in the market price
of the underlying security and the option is exercised, the Series will be
obligated to sell the security at less than its market value. A Series gives up
the ability to sell the
- 7 -
<PAGE>
portfolio securities used to cover the call option while the call option is
outstanding. Such securities may also be considered illiquid in the case of
over-the-counter ("OTC") options written by a Series, to the extent described
under "Investment Policies--Restricted and Illiquid Securities" and therefore
subject to each Series' limitation on investments in illiquid securities. In
addition, a Series could lose the ability to participate in an increase in the
value of such securities above the exercise price of the call option because
such an increase would likely be offset by an increase in the cost of closing
out the call option (or could be negated if the buyer chose to exercise the call
option at an exercise price below the securities' current market value).
Each Series may write put options. A put option gives the purchaser of the
option the right to sell, and the writer (seller) the obligation to buy, the
underlying security at the exercise price during the option period. So long as
the obligation of the writer continues, the writer may be assigned an exercise
notice by the broker-dealer through which such option was sold, requiring it to
make payment of the exercise price against delivery of the underlying security.
The operation of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options. A Series may
write covered put options in circumstances when the Adviser believes that the
market price of the securities will not decline below the exercise price less
the premiums received. If the put option is not exercised, a Series 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 Series would expect to suffer a loss.
Each Series 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 Series 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 Series and the opposite party with no clearing
organization guarantee. Thus, when a Series 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 Series as well as the
loss of the expected benefit of the transaction.
OPTIONS GUIDELINES. In view of the risks involved in using options, each
------------------
Fund's Board of Directors or Trustees has adopted non-fundamental investment
guidelines to govern a Series' use of options that may be modified by each Board
without shareholder vote: (1) options will be purchased or written only when
the Adviser believes that there exists a liquid secondary market in such
options; and (2) a
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Series 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 Series,
exceeds 5% of that Series' total assets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. Each Series may
----------------------------------------------------
effectively terminate its right or obligation under an option by entering into a
closing transaction. If a Series wishes to terminate its obligation to sell
securities under a call option it has written, the Series may purchase a call
option of the same series (that is, a call 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 Series 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 Series to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. Whether a profit or loss is realized from a
closing transaction depends on the price movement of the underlying index or
security and the market value of the option.
The value of an option position will reflect, among other things, the
current market price of the underlying security or stock index, the time
remaining until expiration, the relationship of the exercise price to the market
price, the historical price volatility of the underlying security or stock index
and general market conditions. For this reason, the successful use of options
depends upon the Adviser's ability to forecast the direction of price
fluctuations in the underlying securities 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 Series is exercised or unless a closing transaction is
effected with respect to that position, a loss will be realized in the amount of
the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. The ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market. Although each Series intends to purchase or write
only those exchange-traded options for which there appears to be a liquid
secondary market, there is no assurance that a liquid secondary market will
exist for any particular option at any particular time. Closing transactions may
be effected with respect to options traded in the OTC markets (currently the
primary markets for options on debt securities) only by negotiating directly
with the other party to the option contract or in a secondary market for the
option if such market exists. Although a Series 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 Series, there is no assurance that
the Series 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
Series 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 Series would have to exercise those options that it has
purchased in order to realize any profit. With respect to options written by a
Series, the inability to enter into a closing transaction may result in material
losses to the Series. For example, because a Series must maintain a covered
position with respect to any call option it writes, the Series may not sell the
underlying assets used to cover an option during the period it is obligated
under the option. This requirement may impair a Series' 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 a Series 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
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<PAGE>
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 Series' activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, a Series also
may save on commissions by using options as a hedge rather than buying or
selling individual securities in anticipation or as a result of market
movements.
FUTURES STRATEGIES. Each Series may engage in futures strategies to
------------------
attempt to reduce the overall investment risk that would normally be expected to
be associated with ownership of the securities in which it invests.
Each Series may use financial futures contracts and options thereon to
hedge the debt portion of its portfolio against changes in the general level of
interest rates. A Series may purchase a financial futures contract when it
intends to purchase debt securities but has not yet done so. This strategy may
minimize the effect of all or part of an increase in the market price of those
securities because a rise in the price of the securities prior to their purchase
may either be offset by an increase in the value of the futures contract
purchased by the Series or avoided by taking delivery of the debt securities
under the futures contract. Conversely, a fall in the market price of the
underlying debt securities may result in a corresponding decrease in the value
of the futures position. A Series may sell a financial futures contract in
order to continue to receive the income from a debt security, while endeavoring
to avoid part or all of the decline in the market value of that security that
would accompany an increase in interest rates.
Each Series may purchase a call option on a financial futures contract to
hedge against a market advance in debt securities that the Series plans to
acquire at a future date. A Series 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 Series' 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 Series' portfolio.
Each Series will use futures contracts and options thereon solely in bona
fide hedging transactions or under other circumstances permitted by the CFTC and
will not enter into such investments for which the aggregate initial margin and
premiums exceed 5% of such Series' total assets. Each Fund has represented the
foregoing to the CFTC.
FUTURES GUIDELINES. In view of the risks involved in using futures
------------------
strategies described below, each Fund's Board of Directors or Trustees has
adopted non-fundamental investment guidelines to govern the use of such
investments by the Series that may be modified by each Board without shareholder
vote. A Series will not purchase or sell futures contracts or related options
if, immediately thereafter, the sum of the amount of initial margin deposits on
such Series' existing futures positions and margin and premiums paid for related
options would exceed 5% of the market value of that Series' total assets. The
value of all futures sold will not exceed the total market value of a Series'
portfolio. In addition, each Series may not purchase financial futures
contracts if immediately thereafter more than 30% of its total assets would be
so invested.
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<PAGE>
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid
----------------------------------------------------
upon entering into futures contracts. Instead, upon entering into a futures
contract, a Series is required to deposit with its custodian in a segregated
account in the name of the futures broker through which the transaction is
effected an amount of cash, U.S. Government securities or other liquid, high-
grade debt instruments generally equal to 3%-5% of the contract value. This
amount is known as "initial margin." When writing a put or call option on a
futures contract, margin also must be deposited in accordance with applicable
exchange rules. Initial margin on futures contracts is in the nature of a
performance bond or good-faith deposit that is returned to a Series upon
termination of the transaction, assuming all obligations have been satisfied.
Under certain circumstances, such as periods of high volatility, a Series 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 Series' obligation to or from a clearing organization.
Holders and writers of futures positions and options thereon can enter into
offsetting closing transactions, similar to closing transactions on options on
securities, by selling or purchasing, respectively, a futures position or
options position with the same terms as the position or option held or written.
Positions in futures contracts and options thereon may be closed only on an
exchange or board of trade providing a secondary market for such futures or
options.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidation of
unfavorable positions. In such event, it may not be possible for a Series to
close a position and, in the event of adverse price movements the Series would
have to make daily cash payments of variation margin (except in the case of
purchased options). However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the contracts
can be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
Successful use by a Series of futures contracts and related options will
depend upon the Adviser's ability to predict movements in the direction of the
overall securities and interest rate markets, which requires different skills
and techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current price level of the
underlying instrument but to the anticipated levels at some point in the future.
There is, in addition, the risk that the movements in the price of the futures
contract or related option will not correlate with the movements in prices of
the securities being hedged. In addition, if a Series 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 Series may need to sell assets at a
time when such sales are disadvantageous to the Series. If the price of the
futures contract or related option moves more than the price of the underlying
securities, a Series will experience either a loss or a gain on the futures
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<PAGE>
contract or related option, that may or may not be completely offset by
movements in the price of the securities that are the subject of the hedge.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between price movements in the futures or related
option position and the securities being hedged, movements in the prices of
futures contracts and related options may not correlate perfectly with movements
in the prices of the hedged securities because of price distortions in the
futures market. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures contracts and
related options over the short term.
Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts or
related options. Although each Series intends to purchase or sell futures and
related options only on exchanges or boards of trade where there appears to be a
liquid secondary market, there is no assurance that such a market will exist for
any particular contract or option at any particular time. In such event, it may
not be possible to close a futures or option position and, in the event of
adverse price movements, a Series would continue to be required to make
variation margin payments.
Like options on securities, options on futures contracts have a limited
life. The ability to establish and close out options on futures will be subject
to the development and maintenance of liquid secondary markets on the relevant
exchanges or boards of trade. There can be no certainty that liquid secondary
markets for all options on futures contracts will develop.
Purchasers of options on futures contracts pay a premium in cash at the
time of purchase. This amount and the transaction costs are all that is at
risk. Sellers of options on a futures contract, however, must post initial
margin and are subject to additional margin calls that could be substantial in
the event of adverse price movements. In addition, although the maximum amount
at risk when a Series 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 Series 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.
Each Series' activities in the futures and related options markets may
result in a higher portfolio turnover rate and additional transaction costs in
the form of added brokerage commissions; however, the Series also may save on
commissions by using futures and related options as a hedge rather than buying
or selling individual securities or currencies in anticipation or as a result of
market movements.
INSURANCE
The municipal bonds in each Series' portfolio will be insured as to their
scheduled payments of principal and interest at the time of purchase either (1)
under a Mutual Fund Insurance Policy written by an independent insurance
company; (2) under an insurance policy obtained subsequent to a municipal bond's
original issue (a "Secondary Market Insurance Policy"); or (3) under an
insurance policy obtained by the issuer or underwriter of such municipal bond at
the time of original issuance (a "New Issue Insurance Policy"). An insured
municipal bond in a Series' 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
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<PAGE>
Policy or a Secondary Market Insurance Policy, then that security will not be
additionally insured under the Mutual Fund Insurance Policy.
Each Fund has purchased a Mutual Fund Insurance Policy ("Policy") from
AMBAC Indemnity Corporation ("AMBAC Indemnity"), a Wisconsin stock insurance
company, with its principal executive offices in New York City. The Policy
guarantees the payment of principal and interest on municipal bonds purchased by
a Series which are eligible for insurance under the Policy. Municipal bonds are
eligible for insurance if they are approved by AMBAC Indemnity prior to their
purchase by a Series. AMBAC Indemnity furnished each Series with an approved
list of municipal bonds at the time the Policy was issued and subsequently
provides amended and modified lists of this type at periodic intervals. AMBAC
Indemnity may withdraw particular securities from the approved list and may
limit the aggregate amount of each issue or category of municipal bonds therein,
in each case by notice to a Series prior to the entry by the Series 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 Indemnity to insure such securities. In determining
eligibility for insurance, AMBAC Indemnity has applied its own standards which
correspond generally to the standard it normally uses in establishing the
insurability of new issues of municipal bonds and which are not necessarily the
criteria which would be used in regard to the purchase of municipal bonds by a
Series. The Policy does not insure: (1) obligations of, or securities
guaranteed by, the United States of America or any agency or instrumentality
thereof; (2) municipal bonds which were insured as to payment of principal and
interest at the time of their issuance; (3) municipal bonds purchased by a
Series at a time when they were ineligible for insurance; (4) municipal bonds
which are insured by insurers other than AMBAC Indemnity; and (5) municipal
bonds which are no longer owned by a Series. AMBAC Indemnity has reserved the
right at any time, upon 90 days' prior written notice to a Series, to refuse to
insure any additional municipal bonds purchased by a Series, on or after the
effective date of such notice. If AMBAC Indemnity so notifies a Series, the
Series will attempt to replace AMBAC Indemnity with another insurer. If another
insurer cannot be found to replace AMBAC Indemnity, the Series will ask its
shareholders to approve continuation of its business without insurance.
In the event of nonpayment of interest or principal when due, in respect of
an insured municipal bond, AMBAC Indemnity is obligated under the Policy to make
such payment not later than 30 days after it has been notified by a Series that
such nonpayment has occurred (but not earlier than the date such payment is
due). AMBAC Indemnity, as regards insurance payments it may make, will succeed
to the rights of a Series. 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 a Series' shares. The Policy
will be effective only as to insured municipal bonds owned by a Series. In the
event of a sale by a Series of a municipal bond insured under the Policy, the
insurance terminates as to such municipal bond on the date of sale. If an
insured municipal bond in default is sold by a Series, AMBAC Indemnity is liable
only for those payments of interest and principal which are then due and owing
and, after making such payments, AMBAC Indemnity will have no further
obligations to a Series in respect of such municipal bond. It is the intention
of each Series, 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
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<PAGE>
a defaulted bond is held by a Series, the Series 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 Series' method of valuing securities in default and
securities which have a significant risk of default.
Each Fund may purchase a Secondary Market Insurance Policy from an
independent insurance company having a claims-paying ability rated AAA by S&P
and Aaa by Moody's which insures a particular bond for the remainder of its term
at a premium rate fixed at the time such bond is purchased by a Series. It is
expected that these premiums will range from 1% to 5% of par value. Such
insurance coverage will be noncancellable and will continue in force so long as
such bond so insured is outstanding. Each Series may also purchase municipal
bonds which are already insured under a Secondary Market Insurance Policy. A
Secondary Market Insurance Policy could enable a Series to sell a municipal bond
to a third party as an AAA/Aaa rated insured municipal bond at a market price
higher than what otherwise might be obtainable if the security were sold without
the insurance coverage. (Such rating is not automatic, however, and must
specifically be requested for each bond.) Any difference between the excess of
a bond's market value as an AAA/Aaa rated bond over its market value without
such rating and the single premium payment would inure to a Series in
determining the net capital gain or loss realized by a Series upon the sale of
the bond.
In addition to the contract of insurance relating to each Fund, there is a
contract of insurance between AMBAC Indemnity and Executive Investors Trust,
between AMBAC Indemnity and First Investors Multi-State Insured Tax Free Fund
and between AMBAC Indemnity and First Investors New York Insured Tax Free Fund,
Inc. Otherwise, neither AMBAC Indemnity nor its parent AMBAC Inc., or any
affiliate thereof, has any material business relationship, direct or indirect,
with the Funds.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in 50 states and the District of Columbia,
with admitted assets of approximately $2,145,000,000 (unaudited) and statutory
capital of approximately $1,218,000,000 (unaudited) as of December 31, 1994.
Statutory capital consists of AMBAC Indemnity's policyholders' surplus and
statutory contingency reserve. AMBAC Indemnity is a wholly owned subsidiary of
AMBAC Inc., a 100% publicly held company. Moody's and S&P have both assigned a
triple-A claims-paying ability rating to AMBAC Indemnity.
Copies of AMBAC Indemnity's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Indemnity. The
address of AMBAC Indemnity's administrative offices and its telephone number are
One State Street Plaza, 17th Floor, New York, New York, 10004 and 1-212-668-
0340.
AMBAC Indemnity has obtained a ruling from the Internal Revenue Service to
the effect that the insuring of an obligation by AMBAC Indemnity will not affect
the treatment for Federal income tax purposes of interest on such obligation and
that insurance proceeds representing maturing interest paid by AMBAC Indemnity
under policy provisions substantially identical to those contained in its
municipal bond insurance policy shall be treated for Federal income tax purposes
in the same manner as if such payments were made by the issuer of the municipal
bonds.
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<PAGE>
AMBAC Indemnity makes no representation regarding the municipal bonds
included in the investment portfolio of each Series or the advisability of
investing in such municipal bonds and makes no representation regarding, nor has
it participated in the preparation of, the Prospectuses and this Statement of
Additional Information.
The information relating to AMBAC Indemnity contained above has been
furnished by AMBAC Indemnity. No representation is made herein as to the
accuracy or adequacy of such information, or as to the existence of any adverse
changes in such information, subsequent to the date hereof.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
respective Series 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 Series. 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 Series" means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of the Series or (2) 67% or more of the
shares of the Series present at a meeting, if more than 50% of the outstanding
shares are represented at the meeting in person or by proxy. Changes in values
of a Series' assets will not cause a violation of the following investment
restrictions so long as percentage restrictions are observed by such Series at
the time it purchases any security.
INTERMEDIATE SERIES INTERMEDIATE SERIES will not:
- -------------------
(1) Issue senior securities.
(2) Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result, with respect to 75% of the
Series' total assets more than 5% of such assets would then be invested in
securities of a single issuer.
(3) With respect to 75% of its total assets, purchase more than 10% of the
outstanding voting securities of any one issuer or more than 10% of any class of
securities of one issuer (all debt and all preferred stock of an issuer are each
considered a single class for this purpose).
(4) Buy or sell real estate or interests in oil, gas or mineral
exploration, or senior securities (as defined in the 1940 Act); provided,
however, the Series may invest in Municipal Instruments secured by real estate
or interests in real estate.
(5) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain Federal securities laws.
(6) Make loans, except loans of portfolio securities and repurchase
agreements.
(7) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 5% of the value of the Series' total
assets by reason of a decline in net assets will be reduced within three
business days to the
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<PAGE>
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.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. The Series will not:
(1) Invest more than 15% of its net assets in repurchase agreements
maturing in more than seven days or in other illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions as to resale.
(2) Invest more than 5% of its total assets in securities of companies
(including predecessors) which have been in operation for less than three years.
(3) Invest in securities of other registered investment companies, except
by purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total assets would be invested
in such securities, or except as part of a merger, consolidation or other
acquisition.
(4) Make investments for the purpose of exercising control or management.
(5) Purchase or sell portfolio securities from or to the Adviser or any
trustee, director or officer thereof or of the Fund, as principals.
(6) Invest in any securities of any issuer if, to the knowledge of the
Series, any officer, trustee or director of the Fund or of the Adviser owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such officers,
trustees or directors who own more than 1/2 of 1% own in the aggregate more than
5% of the outstanding securities of such issuer.
(7) Purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this restriction shall not prevent the Series from
purchasing or selling options, futures contracts, caps, floors and other
derivative instruments, engaging in swap transactions or investing in securities
or other instruments backed by physical commodities).
(8) Enter into futures contracts or options on futures contracts if
immediately thereafter the aggregate margin deposits on all outstanding futures
contracts positions held by the Series and premiums paid on outstanding options
on futures contracts, after taking into account unrealized profits and losses,
would exceed 5% of the market value of the total assets of the Series, or enter
into any futures contracts or options on futures contracts if the aggregate
amount of the Series' commitments under outstanding futures contracts positions
and options on future contracts written by the Series would exceed the market
value of the total assets of the Series.
(9) Pledge assets, except that the Series may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (7) above,
provided the Series maintains asset coverage of at least 300% for pledged
assets; provided, however, this limitation will not prohibit escrow, collateral
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<PAGE>
or margin arrangements in connection with the Series' use of options, futures
contracts or options on futures contracts.
(10) Purchase securities on margin, except that the Series 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.
(11) Sell securities short, unless it owns or has the right to obtain
securities, without additional consideration, equivalent in kind and amount to
the securities sold short, and provided that transactions in options, futures
contracts, swaps, forward contracts, and other derivative instruments are not
deemed to constitute selling securities short.
The SERIES FUND, on behalf of the INTERMEDIATE SERIES, has filed the
following undertakings to comply with requirements of certain states in which
shares of the Series are sold, which may be changed without shareholder
approval:
1. The Series will not invest more than 10% of its total assets in
restricted securities, excluding Rule 144A Securities.
2. The Series will not purchase puts, calls, straddles, spreads or any
combination thereof, if by reason thereof, the value of its aggregate investment
in such securities will exceed 5% of its total assets.
3. The Series will not purchase or sell real estate limited partnership
interests.
TAX EXEMPT FUND. TAX EXEMPT FUND will not:
---------------
(1) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 5% of the value of the Fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 5% limitation. This
policy shall not prohibit deposits of assets to provide margin or guarantee
positions in connection with transactions in options, futures contracts, swaps,
forward contracts, and other derivative instruments or the segregation of assets
in connection with such transactions.
(2) Make loans (the purchase of a portion of an issue of publicly
distributed debt securities is not considered the making of a loan). In
addition, the Fund's Board of Directors may on the request of broker-dealers or
other institutional investors, which it deems qualified, authorize the Fund to
lend securities for the purpose of covering short positions of the borrower, but
only when the borrower pledges cash collateral to the Fund and agrees to
maintain such collateral so that it amounts at all times to at least 100% of the
value of the securities. Such security loans will not be made if as a result
the aggregate of such loans exceed 10% of the value of the Fund's gross assets.
(3) Invest more than 5% of the value of its gross assets, at the time of
purchase, in securities of any one issuer (except obligations of the U.S.
Government).
- 17 -
<PAGE>
(4) Purchase securities in an amount to exceed 5% of its gross assets, of
unseasoned issuers, including their predecessors, which have been in operation
less than three years.
(5) Invest in any municipal bonds unless they will be insured municipal
bonds or unless they are already insured under an insurance policy obtained by
the issuer or underwriter thereof.
(6) Issue senior securities.
(7) Invest in securities of other investment companies, except in the case
of money market funds offered without selling commissions, or in the event of
merger with another investment company.
(8) Underwrite any issue of securities, although the Fund may purchase
municipal bonds directly from the issuer thereof for investment in accordance
with the Fund's investment objective, policy and limitations.
(9) Purchase or sell real estate, but this shall not prevent the Fund from
investing in municipal bonds or other obligations secured by real estate or
interests therein.
(10) Invest in oil, gas or other mineral exploration or development
programs.
(11) Purchase or retain the securities of any issuer, if, to the Fund's
knowledge, those officers and directors of the Adviser, who individually own
beneficially more than 1/2 of 1% of the outstanding securities of such issuer
together own beneficially more than 5% of such outstanding securities.
(12) Purchase securities which would not enable the Fund to qualify as a
regulated investment company qualified to pay exempt-interest dividends under
the Internal Revenue Code of 1986, as amended.
The Fund has adopted the following non-fundamental investment restrictions
which may be changed without shareholder approval. These restrictions provide
that the Fund will not:
(1) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Directors, or the
Fund's investment adviser acting pursuant to authority delegated by the
Directors, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, or any other applicable rule, and therefore that such securities are
not subject to the foregoing limitation.
(2) Purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this restriction shall not prevent the Fund from
purchasing or selling options, futures contracts, caps, floors and other
derivative instruments, engaging in swap transactions or investing in securities
or other instruments backed by physical commodities).
(3) Enter into futures contracts or options on futures contracts if
immediately thereafter the aggregate margin deposits on all outstanding futures
contracts positions held by the Fund and premiums
- 18 -
<PAGE>
paid on outstanding options on futures contracts, after taking into account
unrealized profits and losses, would exceed 5% of the market value of the total
assets of the Fund, or enter into any futures contracts or options on futures
contracts if the aggregate amount of the Fund's commitments under outstanding
futures contracts positions and options on future contracts written by the Fund
would exceed the market value of the total assets of the Fund.
(4) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (1) above,
provided the Fund maintains asset coverage of at least 300% for pledged assets;
provided, however, this limitation will not prohibit escrow, collateral or
margin arrangements in connection with the Fund's use of options, futures
contracts or options on futures contracts.
(5) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
transactions in options, futures contracts, swaps, forward contracts, and other
derivative instruments shall not be deemed to constitute purchasing securities
on margin.
(6) Sell securities short, unless it owns or has the right to obtain
securities, without additional consideration, equivalent in kind and amount to
the securities sold short, and provided that transactions in options, futures
contracts, swaps, forward contracts, and other derivative instruments are not
deemed to constitute selling securities short.
(7) Invest in real estate limited partnership interests or in interests in
real estate investment trusts that are not readily marketable.
The Fund has also filed the following undertaking to comply with
requirements of certain states in which shares of the Fund are sold, which may
be changed without shareholder approval. In the event the original custodian or
any successor custodian resigns or for any reason cannot or will not continue to
serve as custodian and no successor custodian can be found, the Fund will submit
to shareholders for their approval or disapproval, the matter of possible
liquidation of the Fund.
DIRECTORS OR TRUSTEES AND OFFICERS
The following table lists the Directors or Trustees and executive officers
of the Funds, their business address and principal occupations during the past
five years. Unless otherwise noted, an individual's business address is 95 Wall
Street, New York, New York 10005.
GLENN O. HEAD*+, President and Director or Trustee. Chairman of the Board,
Director and Treasurer, Administrative Data Management Corp. ("ADM"); Chairman
of the Board and Director, FIMCO, Executive Investors Management Company, Inc.
("EIMCO"), First Investors Corporation ("FIC"), Executive Investors Corporation
("EIC") and First Investors Consolidated Corporation ("FICC").
JAMES J. COY, Director or Trustee, 90 Buell Lane, East Hampton, NY 11937.
Retired; formerly Senior Vice President, James Talcott, Inc. (financial
institution).
- 19 -
<PAGE>
ROGER L. GRAYSON*, Director or Trustee. Director, FIC and FICC; President and
Director, First Investors Resources, Inc.; Commodities Portfolio Manager.
KATHRYN S. HEAD*+, Director or Trustee, 10 Woodbridge Center Drive, Woodbridge,
NJ 07095. President, FICC and FIMCO; Vice President, Chief Financial Officer
and Director, FIC and EIC; President and Director, First Financial Savings Bank,
S.L.A.; Chief Financial Officer, ADM.
F. WILLIAM ORTMAN, JR., Director or Trustee, 50 B Cambridge Circle, Lakehurst,
NJ 08723. Retired; formerly Management Consultant.
REX R. REED, Director or Trustee, 76 Keats Way, Morristown, NJ 07960. Retired;
formerly Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN, Director or Trustee, 145 Elm Drive, Roslyn, NY 11576.
Retired; formerly President, Belvac International Industries, Ltd.; President,
Central Dental Supply.
JOHN T. SULLIVAN*, Director or Trustee and Chairman of the Board; Director,
FIMCO, FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH, Director or Trustee, RR1, Box 2554, Upland Downs Road,
Manchester Center, VT 05255. Retired; formerly financial and planning
executive with American Telephone & Telegraph Company.
JOSEPH I. BENEDEK, Treasurer, 10 Woodbridge Center Drive, Woodbridge, NJ
07095. Treasurer, FIC, FIMCO, EIMCO and EIC.
CLARK D. WAGNER, Vice President, TAX EXEMPT FUND. Vice President, Executive
Investors Trust, First Investors New York Insured Tax Free Fund, Inc., First
Investors Multi-State Insured Tax Free Fund; Chief Investment Officer, FIMCO;
Vice President, General Electric Investment Corporation from 1988 to 1991.
CONCETTA DURSO, Vice President and Secretary. Vice President, FIMCO, EIMCO and
ADM; Assistant Vice President and Assistant Secretary, FIC.
NANCY W. JONES, Vice President, SERIES FUND. Vice President, First Investors
Asset Management Company, Inc., First Investors Cash Management Fund, Inc.,
First Investors Tax-Exempt Money Market Fund, Inc., First Investors Fund For
Income, Inc.; Portfolio Manager, FIMCO.
PATRICIA D. POITRA, Vice President, SERIES FUND. Vice President, First
Investors U.S. Government Plus Fund, Executive Investors Trust and First
Investors Series Fund II, Inc.; Director of Equities, FIMCO.
CAROL LERNER BROWN, Assistant Secretary. Secretary, FIMCO, EIMCO, FIC, EIC and
ADM.
- -------------------------------
* These Directors or Trustees may be deemed to be "interested persons," as
defined in the 1940 Act.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
- 20 -
<PAGE>
All of the officers and Directors or Trustees, except for Ms. Jones, Ms.
Poitra and Mr. Wagner, hold identical or similar positions with Executive
Investors Trust, First Investors Cash Management Fund, Inc., First Investors
Global Fund, Inc., First Investors Government Fund, Inc., First Investors Series
Fund, First Investors High Yield Fund, Inc., First Investors Fund For Income,
Inc., First Investors Life Series Fund, First Investors Multi-State Insured Tax
Free Fund, First Investors New York Insured Tax Free Fund, Inc., First Investors
Series Fund II, Inc., First Investors Special Bond Fund, Inc., First Investors
Tax-Exempt Money Market Fund, Inc. and First Investors U.S. Government Plus
Fund. 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 and School Financial Management Services, Inc.
Compensation to officers and interested Directors or Trustees of the Funds
is paid by the Adviser and not by the Funds. In addition, compensation to non-
interested Directors or Trustees of the Funds is currently voluntarily paid by
the Adviser.
MANAGEMENT
Investment advisory services to each Series are provided by First Investors
Management Company, Inc. pursuant to separate Investment Advisory Agreements
(each, an "Advisory Agreement") dated June 13, 1994. Each Advisory Agreement
was approved by the Board of Directors or Trustees of the applicable Fund,
including a majority of the Directors or Trustees who are not parties to such
Fund's Advisory Agreement or "interested persons" (as defined in the 1940 Act)
of any such party ("Independent Directors or Trustees"), in person at a meeting
called for such purpose and by a majority of the public shareholders of the
applicable Series.
Pursuant to each Advisory Agreement, FIMCO shall supervise and manage each
Series' investments, determine each Series' portfolio transactions and supervise
all aspects of each Series' operations, subject to review by the applicable
Fund's Directors or Trustees. Each Advisory Agreement also provides that FIMCO
shall provide the applicable Series with certain executive, administrative and
clerical personnel, office facilities and supplies, conduct the business and
details of the operation of such Series and assume certain expenses thereof,
other than obligations or liabilities of such Series. Each Advisory Agreement
may be terminated, with respect to a Series, at any time without penalty by the
applicable Fund's Directors or Trustees or by a majority of the outstanding
voting securities of such Series, or by FIMCO, in each instance on not less than
60 days' written notice, and shall automatically terminate in the event of its
assignment (as defined in the 1940 Act). Each Advisory Agreement also provides
that it will continue in effect, with respect to a Series, for a period of over
two years only if such continuance is approved annually either by the applicable
Fund's Directors or Trustees or by a majority of the outstanding voting
securities of such Series, and, in either case, by a vote of a majority of that
Fund's Independent Directors or Trustees voting in person at a meeting called
for the purpose of voting on such approval.
- 21 -
<PAGE>
Under SERIES FUND's Advisory Agreement, INTERMEDIATE SERIES pays the
Adviser an annual fee, paid monthly of 0.60% of its average daily net assets.
Under TAX EXEMPT FUND's Advisory Agreement, it pays the Adviser an annual fee,
paid monthly, according to the following schedule:
<TABLE>
<CAPTION>
Annual
Average Daily Net Assets Rate
- ---------------------------------------------- -------
<S> <C>
Up to $250 million............................ 0.75%
In excess of $250 million up to $500 million.. 0.72
In excess of $500 million up to $750 million.. 0.69
Over $750 million............................. 0.66
</TABLE>
The SEC staff takes the position that fees of 0.75% or greater are higher than
those paid by most investment companies.
Pursuant to certain state regulations, the Adviser has agreed to
reimburse a Series if and to the extent that Series' aggregate operating and
management expenses, including advisory fees but generally excluding interest,
taxes, brokerage commissions and extraordinary expenses, exceed any limitation
on expenses applicable to that Series for any full fiscal year (unless a waiver
of such expense limitation is obtained). The amount of any such reimbursement
is limited to the amount of the advisory fees paid or accrued to the Adviser for
the fiscal year. For the fiscal year ended December 31, 1994, no reimbursement
was required pursuant to these regulations.
The Adviser has an Investment Committee composed of George V. Ganter,
Margaret Haggerty, Glenn O. Head, Nancy W. Jones, Patricia D. Poitra, Ronald
Rolleri, Clark D. Wagner and John Tomasulo. The Committee usually meets weekly
to discuss the composition of the portfolio of each Series and to review
additions to and deletions from the portfolios.
For the fiscal years ended December 31, 1992, 1993 and 1994, TAX
EXEMPT FUND paid $8,902,336, $10,024,983 and $9,654,489, respectively, in
advisory fees. For the fiscal period November 22, 1993 (commencement of
operations) through December 31, 1993, INTERMEDIATE SERIES accrued $485 in
advisory fees, all of which were voluntarily waived by the Adviser. For the
fiscal year ended December 31, 1994, INTERMEDIATE SERIES paid $6,294 in advisory
fees. For the same period, the Adviser voluntarily waived $20,794 in advisory
fees accrued by the INTERMEDIATE SERIES. In addition, the Adviser voluntarily
reimbursed the INTERMEDIATE SERIES $7,923 in expenses.
UNDERWRITER
Each Fund has entered into an Underwriting Agreement ("Underwriting
Agreement") with First Investors Corporation ("Underwriter" or "FIC") which
requires the Underwriter to use its best efforts to sell shares of the Series.
Pursuant to each Underwriting Agreement, the Underwriter shall bear all fees and
expenses incident to the registration and qualification of the applicable
Series' shares. In addition, the Underwriter shall bear all expenses of sales
material or literature, including prospectuses and proxy materials, to the
extent such materials are used in connection with the sale of the Series'
shares, unless a Series has agreed to bear such costs pursuant to a plan of
distribution. See "Distribution Plans." Each Underwriting Agreement was
approved by the applicable Fund's Board of Directors or Trustees, including
- 22 -
<PAGE>
a majority of the Independent Directors or Trustees. Each Underwriting
Agreement provides that it will continue in effect, with respect to a Series,
from year to year only so long as such continuance is specifically approved at
least annually by the applicable Fund's Board of Directors or Trustees or by a
vote of a majority of the outstanding voting securities of that Series, and in
either case by the vote of a majority of such Fund's Disinterested Directors or
Trustees, voting in person at a meeting called for the purpose of voting on such
approval. Each Underwriting Agreement will terminate automatically in the event
of its assignment.
For the fiscal years ended December 31, 1992, 1993 and 1994, FIC
received underwriting commissions with respect to TAX EXEMPT FUND of $3,744,854,
$2,547,432 and $1,033,292, respectively. For the same periods, FIC reallowed an
additional $880,460, $495,968 and $173,429, respectively, to unaffiliated
dealers. For the fiscal period November 22, 1993 (commencement of operations)
through December 31, 1993 and the fiscal year ended December 31, 1994, FIC
received underwriting commissions with respect to INTERMEDIATE SERIES of $37,954
and $72,466, respectively. For the same periods, FIC reallowed an additional
$4,254 and $28,882, respectively, to unaffiliated dealers.
DISTRIBUTION PLANS
As stated in the Series' Prospectus, pursuant to a separate plan of
distribution for each class of shares adopted by each Fund pursuant to Rule 12b-
1 under the 1940 Act ("Class A Plan" and "Class B Plan" and, collectively,
"Plans"), each Series may reimburse or compensate, as applicable, the
Underwriter for certain expenses incurred in the distribution of that Series'
shares and the servicing or maintenance of existing Series shareholder accounts.
Each Plan was approved by the applicable Fund's Board of Directors or
Trustees, including a majority of the Independent Directors or Trustees, and by
a majority of the outstanding voting securities of the relevant class of each
Series. Each Plan will continue in effect, with respect to a Series, from year
to year as long as its continuance is approved annually be either the applicable
Fund's Board of Directors or Trustees or by a vote of a majority of the
outstanding voting securities of the relevant class of shares of that Series.
In either case, to continue, each Plan must be approved by the vote of a
majority of the Independent Directors or Trustees of the applicable Fund. Each
Fund's Board reviews quarterly and annually a written report provided by the
Treasurer of the amounts expended under the applicable Plan and the purposes for
which such expenditures were made. While each Plan is in effect, the selection
and nomination of the applicable Fund's Independent Directors or Trustees will
be committed to the discretion of such Independent Directors or Trustees then in
office.
Each Plan can be terminated, with respect to a Series, at any time by
a vote of a majority of the applicable Fund's Independent Directors or Trustees
or by a vote of a majority of the outstanding voting securities of the relevant
class of shares of that Series. Any change to each Class B Plan that would
materially increase the costs to that class of shares of a Series or any
material change to each Class A Plan may not be instituted without the approval
of the outstanding voting securities of the relevant class of shares of that
Series. Such changes also require approval by a majority of the applicable
Fund's Independent Directors or Trustees.
In reporting amounts expended under the Plans to the Directors or
Trustees, FIMCO will allocate expenses attributable to the sale of each class of
a Series' shares to such class based on the ratio of sales
- 23 -
<PAGE>
of such class to the sales of both classes of shares. The fees paid by one
class of a Series' shares will not be used to subsidize the sale of any other
class of that Series' shares.
For the fiscal year ended December 31, 1994, TAX EXEMPT FUND paid
$4,183,859 in 12b-1 fees pursuant to its Class A Plan. For the fiscal year
ended December 31, 1994, INTERMEDIATE SERIES accrued $13,544 in Rule 12b-1 fees,
all of which were waived by the Underwriter. For the same period, the
Underwriter incurred the following Class A Plan-related expenses with respect to
TAX EXEMPT FUND:
Payments to Sales Payments to the
Advertising Personnel* Underwriter**
----------- ---------- -------------
$0 $568,969 $3,614,891
* Represents service fees
** Represents distribution fees.
In approving each Fund's overall system of distribution, that Fund's
Board of Directors or Trustees considered several factors, including that
implementation of the system would (1) enable investors to choose the purchasing
option better suited to their individual situation, thereby encouraging current
shareholders to make additional investments in a Series and attracting new
investors and assets to that Series to the benefit of the Series and its
shareholders; (2) facilitate distribution of each Series' shares; and (3)
maintain the competitive position of each Series in relation to other funds that
have implemented or are seeking to implement similar distribution arrangements.
In adopting the Class B Plan for each Fund, the applicable Fund's Board
of Directors or Trustees considered all the features of the distribution system,
including (1) the conditions under which a contingent deferred sales charge
("CDSC") would be imposed and the amount of such charge, (2) the advantage to
investors in having no initial sales charges deducted from a Series' purchase
payments and instead having the entire amount of their purchase payments
immediately invested in Series shares, (3) the Underwriter's belief that the
ability to receive sales commissions and service fees under the Class B Plan
would prove attractive to Representatives, resulting in greater growth of each
Series than might otherwise be the case, (4) the advantages to the shareholders
of a Series of economies of scale resulting from growth in such Series' assets,
and (5) the Underwriter's shareholder service and distribution-related expenses
and costs.
In adopting the Class A Plan for each Fund, the applicable Fund's Board
of Directors or Trustees considered all relevant information and determined that
there is a reasonable likelihood that the Class A Plan will benefit such Fund
and its shareholders. The Board of each Fund believes that the amounts spent
pursuant to that Fund's Class A Plan have assisted the relevant Series 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 Series.
DETERMINATION OF NET ASSET VALUE
The municipal instruments in which each Series invests are traded
primarily in the over-the-counter markets. Such securities are valued daily at
their fair value on the basis of valuations provided by a pricing service
approved by the applicable Fund's Board. The pricing service uses a
computerized matrix
- 24 -
<PAGE>
system, which includes considerations of security type, rating, market condition
and yield data, as well as market quotations and prices provided by market
makers.
With respect to each Series, "when-issued securities" are reflected in
the assets of a Series 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.
The Series intend not to dispose of municipal bonds which are in
significant risk of, or are in, default in the payment of principal or interest,
until the default has been cured or the principal and interest outstanding are
paid by an insurer or the issuer of any letter of credit or other guarantee
supporting such municipal bond. In its evaluation of municipal bonds for
portfolio valuation purposes, the applicable Fund's Board will consider the
value of insurance or any other type of guarantee supporting payments of
principal and interest. This will be accomplished by comparing the value of the
municipal bonds which are in significant risk of, or are in, default with other
municipal bonds of similar maturity, interest rate and type which are not in
default. This results in the applicable Fund's Board ascribing a good faith
value to the insurance or guarantee on any municipal bond which is in, or is in
significant risk of, default equal to the difference between the insured or
guaranteed security's market value and the then-prevailing market rate for
other, similar non-defaulting municipal bonds.
Each Fund's Board may suspend the determination of a Series' net asset
value for the whole or any part of any period (1) during which trading on the
New York Stock Exchange ("NYSE") is restricted as determined by the Securities
and Exchange Commission ("SEC") or the NYSE is closed for other than weekend and
holiday closings, (2) during which an emergency, as defined by rules of the SEC
in respect to the U.S. market, exists as a result of which disposal by a Series
of securities owned by it is not reasonably practicable for the Series fairly to
determine the value of its net assets, or (3) for such other period as the SEC
has by order permitted.
ALLOCATION OF PORTFOLIO BROKERAGE
Each Series expects that purchases and sales of portfolio securities
generally will be principal transactions. Portfolio securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There will usually be no brokerage commissions paid by the
Series for such purchases. Purchases from underwriters will include the
underwriter's commission or concession and purchases from dealers serving as
market makers will include the spread between the bid and asked price.
At times the Adviser may engage in agency transactions and, in effecting
the purchase and sale of portfolio securities for the account of each Series,
will seek best execution of trades either (1) at the most favorable and
competitive rate of commission charged by any broker or member of an exchange,
or (2) at a higher rate of commission if reasonable in relation to brokerage and
research services provided to the Series or the Adviser by such member or
broker. Such services may include, but are not limited to, any one or more of
the following: information as to the availability of securities for purchase or
sale, statistical or factual information or opinions pertaining to investments.
The Adviser may use research and services provided to it by brokers in servicing
all the funds in the First Investors Group of Funds; however, not all such
services will be used by the Adviser in connection with the Series. No
portfolio orders are placed with an affiliated broker, nor does any affiliated
broker participate in these commissions.
- 25 -
<PAGE>
The Adviser may combine transaction orders placed on behalf of the Series
and any other fund in the First Investors Group of Funds, any series of
Executive Investors Trust and First Investors Life Insurance Company, affiliates
of the Series, 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 terms of price and amount, to the Series according
to the proportion that the size of the transaction order actually placed by the
Series bears to the aggregate size of the transaction orders simultaneously made
by other participants in the transaction. Each Fund's Board of Directors or
Trustees has authorized and directed the Adviser to use dealer concessions
available in fixed-price underwritings of municipal bonds to pay for research
services which are beneficial in the management of each Series' portfolio.
TAX EXEMPT FUND paid no brokerage commissions for the fiscal years
December 31, 1992, 1993 and 1994. INTERMEDIATE SERIES paid no brokerage
commissions for the period November 22, 1993 (commencement of operations)
through December 31, 1993 and for the fiscal year ended December 31, 1994. With
the approval of TAX EXEMPT FUND'S Board of Directors, $65,007.04 of principal
transactions were used to acquire research and other services which benefitted
the Fund.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
ELIGIBLE FUNDS. Shares of all the funds and/or series in the First
--------------
Investors family of funds, except as noted below, are eligible to participate in
certain shareholder privileges noted in this SAI and the Prospectus (singularly,
"Eligible Fund" and, collectively, "Eligible Funds"). Shares of First Investors
Special Bond Fund, Inc., First Investors Life Series Fund and First Investors
U.S. Government Plus Fund are not deemed to be Eligible Funds. Shares of the
Money Market Funds, unless otherwise noted, are not deemed to be Eligible Funds.
Class A shares of each series of Executive Investors Trust are deemed to be
Eligible Funds if such shares have either (a) been acquired through an exchange
from an Eligible Fund which imposes a maximum sales charge of 6.25%, or (b) been
held for at least one year from their date of purchase.
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are applicable to purchases made at one time of
Class A shares of any one or more of the Series or of any one or more of the
Eligible Funds by "any person," which term shall include an individual, or an
individual, his or her spouse and children under the age of 21, or a trustee or
other fiduciary of a single trust, estate or fiduciary account (including a
pension, profit-sharing or other employee benefit trust created pursuant to a
plan qualified under section 401 of the Internal Revenue Code of 1986, as
amended (the "Code")), although more than one beneficiary is involved; provided,
however, that the term "any person" shall not include a group of individuals
whose funds are combined, directly or indirectly, for the purchase of redeemable
securities of a registered investment company, nor shall it include a trustee,
agent, custodian or other representative of such a group of individuals.
Ownership of Class A and Class B shares of any Eligible Fund, except as
noted below, qualify for a reduced sales charge on the purchase of Class A
shares. Class A shares purchased at net asset value, Class A shares of the
Money Market Funds, or shares owned under a Contractual Plan are not eligible
for
- 26 -
<PAGE>
the purchase of Class A shares of a Series at a reduced sales charge through a
Letter of Intent or the Cumulative Purchase Privilege.
LETTER OF INTENT. Any of the eligible persons described above may,
----------------
within 90 days of their investment, sign a statement of intent ("Letter of
Intent") in the form provided by the Underwriter, covering purchases of Class A
shares of any one or more of the Series and of the other Eligible Funds to be
made within a period of thirteen months, provided said shares are currently
being offered to the general public and only in those states where such shares
may be legally sold, and thereby become eligible for the reduced sales charge
applicable to the total amount purchased. A Letter of Intent filed after the
date of investment is considered retroactive to the date of investment for
determination of the thirteen-month period. The Letter of Intent is not a
binding obligation on either the investor or the Series. During the term of a
Letter of Intent, Administrative Data Management Corp. ("Transfer Agent") will
hold Class A shares representing 5% of each purchase in escrow, which shares
will be released upon completion of the intended investment.
Purchases of Class A Shares made under a Letter of Intent are made at the
sales charge applicable to the purchase of the aggregate amount of shares
covered by the Letter of Intent as if they were purchased in a single
transaction. The applicable quantity discount will be based on the sum of the
then current value at public offering price (i.e., net asset value plus
----
applicable sales charge) of all Class A shares and the net asset value of all
Class B shares of a Series and of the other Eligible Funds, including Class B
shares of the Money Market Funds, currently owned, together with the aggregate
offering price of purchases to be made under the Letter of Intent. If all such
shares are not so purchased, a price adjustment is made, depending upon the
actual amount invested within such period, by the redemption of sufficient Class
A shares held in escrow in the name of the investor (or by the investor paying
the commission differential). A Letter of Intent can be amended (1) during the
thirteen-month period if the purchaser files an amended Letter of Intent with
the same expiration date as the original Letter of Intent, or (2) automatically
after the end of the period, if total purchases credited to the Letter of Intent
qualify for an additional reduction in the sales charge. The Letter of Intent
privilege may be modified or terminated at any time by the Underwriter.
CUMULATIVE PURCHASE PRIVILEGE. Upon written notice to FIC, Class A
-----------------------------
shares of a Series are also available at a quantity discount on new purchases if
the then current value at the current public offering price (i.e., net asset
----
value plus applicable sales charge) of all Class A shares and the net asset
value of all Class B shares of a Series and of the other Eligible Funds,
including Class B shares of the Money Market Funds, previously purchased and
then owned, plus the value of Class A shares being purchased at the current
public offering price, amount to $25,000 or more. Such quantity discounts may
be modified or terminated at any time by the Underwriter.
SYSTEMATIC WITHDRAWAL PLAN--CLASS A SHARES. Shareholders who own Class A
------------------------------------------
shares of a Series with a net asset value of at least $5,000 may establish a
Systematic Withdrawal Plan ("Withdrawal Plan") and either (a) receive monthly,
quarterly, semi-annual or annual checks for any designated amount (minimum $25);
or (b) automatically reinvest the proceeds at net asset value in the same class
of shares in any other Eligible Fund, including the Money Market Funds.
Dividends and other distributions, if any, are reinvested in additional Class A
shares of the Series. Shareholders may add shares to the Withdrawal Plan or
terminate the Withdrawal Plan at any time. Withdrawal Plan payments will be
suspended when a distributing Series has received notice of a shareholder's
death on an individual account. Payments may recommence upon receipt of written
alternate payment instructions and other necessary documents from
- 27 -
<PAGE>
the deceased's legal representative. Withdrawal payments will also be suspended
when a payment check is returned to the Transfer Agent marked as undeliverable
by the U.S. Postal Service after two consecutive mailings.
The withdrawal payments derived from the redemption of sufficient shares
in the account to meet designated payments in excess of dividends and other
distributions may deplete or possibly extinguish the initial investment,
particularly in the event of a market decline, and may result in a capital gain
or loss depending on the shareholder's cost. Purchases of additional shares of
a Series concurrent with withdrawals are ordinarily disadvantageous to
shareholders because of tax liabilities and sales charges.
CONVERSION OF CLASS B SHARES. Class B Shares of a Series will
----------------------------
automatically convert to Class A shares of that Series, based on the relative
net asset values per share of the two classes, as of the close of business on
the first business day of the month in which the eighth anniversary of the
initial purchase of such Class B shares occurs. For these purposes, the date of
initial purchase shall mean (1) the first business day of the month in which
such Class B shares were issued, or (2) for Class B shares obtained through an
exchange or a series of exchanges, the first business day of the month in which
the original Class B shares were issued. For conversion purposes, Class B
shares purchased through the reinvestment of dividends and other distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
in the sub-account) convert to Class A shares, a pro rata portion of the Class B
shares in the sub-account also will convert to Class A shares. The portion will
be determined by the ratio that the shareholder's Class B shares converting to
Class A shares bears to the shareholder's total Class B shares not acquired
through dividends and other distributions.
The availability of the conversion feature is subject to the continuing
applicability of a ruling of the Internal Revenue Service ("IRS"), or an opinion
of counsel, that: (1) the dividends and other distributions paid on Class A and
Class B shares will not result in "preferential dividends" under the Code; and
(2) the conversion of shares does not constitute a taxable event. If the
conversion feature ceased to be available, the Class B shares of the Series
would not be converted and would continue to be subject to the higher ongoing
expenses of the Class B shares beyond eight years from the date of purchase.
FIMCO has no reason to believe that these conditions for the availability of the
conversion feature will not continue to be met.
If a Series implements any amendments to its Class A Plan that would
increase materially the costs that may be borne under such Plan by Class A
shareholders, Class B shares will stop converting into Class A shares unless a
majority of Class B shareholders, voting separately as a class, approve the
proposal.
WAIVERS OF CDSC ON CLASS B SHARES. The CDSC imposed on Class B shares
---------------------------------
does not apply to: (a) any redemption pursuant to the tax-free return of an
excess contribution to an IRA or other qualified retirement plan if the Series
is notified at the time of such request; (b) any redemption of a lump-sum or
other distribution from qualified retirement plans or accounts provided the
shareholder has attained the minimum age of 70 1/2 years and has held the Class
B shares for a minimum period of three years; (c) any redemption by advisory
accounts managed by the Adviser or any of its affiliates or for shares held by
the Adviser or any of its affiliates; (d) any redemption by a tax-exempt
employee benefit plan if continuance of the investment would be improper under
applicable laws or regulations; and (e) any redemption or transfer of ownership
of Class B shares following the death or disability, as defined in
- 28 -
<PAGE>
Section 72(m)(7) of the Code, of a shareholder if the Series is provided with
proof of death or disability and with all documents required by the Transfer
Agent within one year after the death or disability. For more information on
what specific documents are required, call Shareholder Services at 1-800-423-
4026.
TELEPHONE TRANSACTIONS. As stated in the Series' Prospectus, the Series,
----------------------
the Underwriter and their affiliates will not be liable for any loss, damage,
cost or expense arising out of any instruction (or any interpretation of such
instruction) received by telephone which they reasonably believe to be
authentic. In acting upon telephone instructions, these parties use procedures
which are reasonably designed to ensure that such instructions are genuine, such
as (1) obtaining some or all of the following information: account number;
name(s) and social security number registered to the account; and personal
identification; (2) recording all telephone transactions; and (3) sending
written confirmation of each transaction to the registered owner.
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, a Series -- each Series being treated as a
separate entity for these purposes -- must distribute to its shareholders for
each taxable year at least 90% of the sum its investment company taxable income
(consisting generally of taxable net investment income and net short-term
capital gain) plus its net interest income excludable from gross income under
section 103(a) of the Code ("Distribution Requirement") and must meet several
additional requirements. For each Series these requirements include the
following: (1) the Series must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities, or other income
(including gains from options or futures) derived with respect to its business
of investing in securities ("Income Requirement"); (2) the Series must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of securities, options or futures that were held for less than three
months ("Short-Short Limitation"); (3) at the close of each quarter of the
Series' 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
Series' total assets; and (4) at the close of each quarter of the Series'
taxable year, not more than 25% of the value of its total assets may be invested
in securities (other than U.S. Government securities or the securities of other
RICs) of any one issuer.
Dividends paid by a Series will qualify as exempt-interest dividends as
defined in their Prospectuses, and thus will be excludable from gross income for
Federal tax purposes by its shareholders, if the Series satisfies the additional
requirement that, at the close of each quarter of its taxable year, at least 50%
of the value of its total assets consists of securities the interest on which is
excludable from gross income under section 103(a); each Series intends to
continue to satisfy this requirement. The aggregate dividends excludable from a
Series' shareholder's gross income may not exceed the Series' net tax-exempt
income. The shareholders' treatment of dividends from a Series under state and
local income tax laws may differ from the treatment thereof under the Code.
Investors should consult their tax adviser concerning this matter.
Dividends and other distributions declared by a Series 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
- 29 -
<PAGE>
by the Series and received by the shareholders on December 31 of that year if
the distributions are paid by the Series during the following January.
Accordingly, those distributions will be reported by shareholders for the year
in which that December 31 falls.
Each Series will be subject to a nondeductible 4% 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.
If shares of a Series are sold at a loss after being held for six months
or less, the loss will be disallowed to the extent of any exempt-interest
dividends received on those shares, and the portion of the loss that is not
disallowed, if any, will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Tax-exempt interest attributable to certain private activity bonds
("PABs") (including, in the case of a Series receiving interest on such bonds, a
proportionate part of the exempt-interest dividends paid by that Series) is an
item of tax preference for purposes of the alternative minimum tax. Exempt-
interest dividends received by a corporate shareholder also may indirectly be
subject to the alternative minimum tax without regard to whether the Series'
tax-exempt interest was attributable to such bonds. Entities or other persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by PABs or industrial development bonds ("IDBs") should
consult their tax advisers before purchasing shares of any Series because, for
users of certain of these facilities, the interest on such bonds is not exempt
from Federal income tax. For these purposes, the term "substantial user" is
defined generally to include a "non-exempt person" who regularly uses in trade
or business a part of a facility financed from the proceeds of PABs or IDBs.
Up to 85% of social security and certain railroad retirement benefits may
be included in taxable income for recipients whose modified adjusted gross
income (which includes income from tax-exempt sources such as the Series) plus
50% of their benefits exceeds certain base amounts. Exempt-interest dividends
from the Series still are tax-exempt to the extent described in the
Prospectuses; they are only included in the calculation of whether a recipient's
income exceeds the established amounts.
Each Series may acquire zero coupon municipal securities issued with
original issue discount. As the holder of those securities, a Series must
include in its income the original issue discount that accrues on the securities
during the taxable year, even if the Series receives no corresponding payment on
the securities during the year. Because each Series annually must distribute
substantially all of its net tax-exempt income, including any original issue
discount on Municipal Instruments, to satisfy the Distribution Requirement, it
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 Series' cash assets or from the proceeds of
sales of portfolio securities, if necessary. A Series may realize capital gains
or losses from those sales, which would increase or decrease its investment
company taxable income and/or net capital gain (the excess of net long-term
capital gain over net short-term capital loss). In addition, any such gains may
be realized on the disposition of securities held for less than three months.
Because of the Short-Short Limitation, any such gains would reduce the Series'
ability to sell other securities or options or futures held for less than three
months that it might wish to sell in the ordinary course of its portfolio
management.
- 30 -
<PAGE>
Each Series may invest in municipal bonds that are purchased, generally
not on their original issue, with market discount (that is, at a price less than
the principal amount of the bond or, in the case of a bond that was issued with
original issue discount, a price less than the amount of the issue price plus
accrued original issue discount) ("municipal market discount bonds"). Gain on
the disposition of a municipal market discount bond purchased by a Series after
April 30, 1993 (other than a bond with a fixed maturity date within one year
from its issuance), generally is treated as ordinary (taxable) income, rather
than capital gain, to the extent of the bond's accrued market discount at the
time of disposition. Market discount on such a bond generally is accrued
ratably, on a daily basis, over the period from the acquisition date to the date
of maturity. In lieu of treating the disposition gain as above, a Series may
elect to include market discount in its gross income currently, for each taxable
year to which it is attributable.
If a Series invests in any instruments that generate taxable income,
distributions of the interest earned thereon will be taxable to the Series'
shareholders as ordinary income to the extent of its earnings and profits.
Moreover, if a Series realizes capital gain as a result of market transactions,
any distributions of such gain will be taxable to its shareholders. There also
may be collateral Federal income tax consequences regarding the receipt of
exempt-interest dividends by shareholders such as S corporations, financial
institutions and property and casualty insurance companies. A shareholder
falling into any such category should consult its tax adviser concerning its
investment in shares of the Series.
The use of hedging strategies, such as selling and purchasing options and
futures contracts, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the gains and losses a
Series realizes in connection therewith. Income from transactions in options
and futures contracts derived by a Series with respect to its business of
investing in securities will qualify as permissible income under the Income
Requirement. However, income from a Series' disposition of options and futures
contracts will be subject to the Short-Short Limitation if they are held for
less than three months.
If a Series satisfies certain requirements, then any increase in value of
a position that is part of a "designated hedge" will be offset by any decrease
in value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Series satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Series intends that, when it engages in hedging strategies, it will qualify for
this treatment, but at the present time it is not clear whether this treatment
will be available for all of the Series' hedging transactions. To the extent
this treatment is not available, a Series may be forced to defer the closing out
of certain options or futures contracts beyond the time when it otherwise would
be advantageous to do so, in order for the Series to continue to qualify as a
RIC.
PERFORMANCE INFORMATION
A Series may advertise its performance in various ways.
Each Series' "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" in the
formula below) over a number of years ("n") with an Ending Redeemable Value
("ERV") of that investment, according to the following formula:
- 31 -
<PAGE>
T=[(ERV/P)1/ to the nth power]-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 Series will deduct the maximum
sales charge of 6.25% (as a percentage of the offering price) from the initial
$1,000 payment and, for Class B shares, the applicable CDSC imposed on a
redemption of Class B shares held for the period is deducted. All dividends and
other distributions are assumed to have been reinvested at net asset value on
the initial investment ("P"). 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.
Return information may be useful to investors in reviewing a Series'
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 Series of future rates of return on its shares. At times,
the Adviser may reduce its compensation or assume expenses of a Series in order
to reduce the Series' expenses. Any such waiver or reimbursement would increase
the Series' return during the period of the waiver or reimbursement. Average
annual total return for the periods ended December 31, 1994 are listed below:
- 32 -
<PAGE>
AVERAGE ANNUAL TOTAL RETURN:/*/
Class A Shares/**/
<TABLE>
<CAPTION>
INTERMEDIATE SERIES/***/ TAX EXEMPT FUND
----------------------- ---------------
<S> <C> <C>
December 31, 1994 (5.46)% (11.48)%
December 31, 1994 N/A 4.19
December 31, 1994 N/A 7.54
Life of Fund/****/ (4.95) N/A
</TABLE>
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 computed at net asset
value for the periods ended December 31, 1994 for each Series' Class A shares is
set forth in the table below:
AVERAGE ANNUAL TOTAL RETURN:
Class A Shares**
<TABLE>
<CAPTION>
INTERMEDIATE SERIES*** TAX EXEMPT FUND
------------------------ ---------------
<S> <C> <C>
Twelve Months (2.04)% (5.61)%
Five Years N/A 5.55
Ten Years N/A 8.24
Life of Fund/****/ (1.84) N/A
</TABLE>
- ------------------------
/*/ All average annual total return figures reflect the maximum sales charge
of 6.25%. Prior to July 1, 1993 the maximum sales charge for TAX EXEMPT FUND was
6.90% and prior to January 12, 1995, the maximum sales charge for INTERMEDIATE
SERIES was 3.5%.
/**/ Performance for Class B shares is not quoted because Class B shares were
not offered for sale during these periods.
/***/ Certain expenses of the Series have been waived or reimbursed from
commencement of operations through December 31, 1994. Accordingly, total return
is higher than it would have been had such expenses not been waived or
reimbursed.
/****/ Commenced operations on November 22, 1993.
- 33 -
<PAGE>
Each Series' yield is presented for a specified thirty-day period
("base period"). Yield is based on the amount determined by (i) calculating the
aggregate amount of dividends and interest earned by a Series during the base
period less expenses accrued for that period (net of reimbursement), and (ii)
dividing that amount by the product of (A) the average daily number of shares of
the Series outstanding during the base period and entitled to receive dividends
and (B) the per share maximum public offering price of the Series on the last
day of the base period. The result is annualized by compounding on a semi-
annual basis to determine the Series' yield. For this calculation, interest
earned on debt obligations held by each Series is generally calculated using the
yield to maturity (or first expected call date) of such obligations based on
their market values.
Each Series' tax-equivalent yield during the base period may be
presented in one or more stated tax brackets. Tax-equivalent yield is
calculated by adjusting a Series' 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 Series' tax-exempt yield.
The yield and tax-equivalent yield for TAX EXEMPT FUND Class A shares
for the thirty day period ended December 31, 1994 (assuming a Federal tax rate
of 36%) was 5.79% and 9.05%, respectively. The yield and tax-equivalent yield
(assuming the same tax rate) for INTERMEDIATE SERIES Class A shares for the
thirty days ended December 31, 1994 was 5.32% and 8.31%, respectively. The
maximum Federal tax rate during this period was 39.6%. During this period,
certain expenses of INTERMEDIATE SERIES have been waived or reimbursed.
Accordingly yield and tax-equivalent yield figures are higher than they would
have been had such expenses not been waived or reimbursed. Yield is not quoted
for Class B shares because they were not offered for sale during this period.
The distribution rate for each Series is presented for a twelve-month
period. It is calculated by adding the dividends for the last twelve months and
dividing the sum by that Series' offering price per share at the end of that
period. The distribution rate is also calculated by using the Series' 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, 1994 for Class A shares of TAX EXEMPT FUND and INSURED INTERMEDIATE TERM
calculated using the offering price was 5.51% and 4.23%, respectively. The
distribution rate for the same period for Class A shares of TAX EXEMPT FUND and
INSURED INTERMEDIATE TERM calculated using the net asset value was 5.88% and
4.38%, respectively. During this period certain expenses of INSURED TAX EXEMPT
were waived or reimbursed. Accordingly, the distribution rates are higher than
they would have been had such expenses not been waived or reimbursed. The
distribution rate for Class B shares is not quoted because Class B shares were
not offered for sale during this period.
A Series may include in advertisements and sales literature,
information, examples and statistics that illustrate the effect of taxable
versus tax-free compounding income at a fixed rate of return to demonstrate the
growth of an investment over a stated period of time resulting from the payment
of dividends and capital gains distributions in additional shares. The examples
used will be for illustrative purposes only and are not representations by any
Series of past or future yield or return.
From time to time, in reports and promotional literature, a Series may
compare its performance to, or cite the historical performance of, U.S. Treasury
bills, notes and bonds, or indices of broad groups of unmanaged securities
considered to be representative of, or similar to, that Series' portfolio
holdings, such as:
- 34 -
<PAGE>
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. This calculation is at variance with SEC
release 327 of August 8, 1972, which utilizes latest 12 month
dividends. The latter method is the one used by S&P.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication
of Morningstar, Inc. Morningstar proprietary ratings reflect
historical risk-adjusted performance and are subject to change every
month. Funds with at least three years of performance history are
assigned ratings from one star (lowest) to five stars (highest).
Morningstar ratings are calculated from the funds' three-, five-, and
ten-year average annual returns (when available) and a risk factor
that reflects fund performance relative to three-month Treasury bill
monthly returns. Fund's returns are adjusted for fees and sales loads.
Ten percent of the funds in an investment category receive five stars,
22.5% receive four stars, 35% receive three stars, 22.5% receive two
stars, and the bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly publication
which tracks principal return, total return and yield on the Salomon
Brothers Broad Investment-Grade Bond Index and the components of the
Index.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal,
coupon and total return on over 100 different taxable bond indices
which Merrill Lynch tracks. They also list the par weighted
characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication
which tracks principal, coupon and total return on the Lehman
Govt./Corp. Index and Lehman Aggregate Bond Index, as well as all the
components of these Indices.
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of inflation. The Index shows
changes in the cost of selected consumer goods and does not represent
a return on an investment vehicle.
From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
- 35 -
<PAGE>
GENERAL INFORMATION
AUDITS AND REPORTS. The accounts of each Series are audited twice a
------------------
year by Tait, Weller & Baker, independent certified public accountants, Two Penn
Center Plaza, Philadelphia, PA, 19102-1707. Shareholders of each Series receive
semi-annual and annual reports, including audited financial statements, and a
list of securities owned.
TRANSFER AGENT. Administrative Data Management Corp., 10 Woodbridge
--------------
Center Drive, Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as
transfer agent for each Series and as redemption agent for regular redemptions.
The fees charged to a Series by the Transfer Agent are $5.00 to open an account;
$3.00 for each certificate issued; $.65 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 Series; $5.00 for each partial withdrawal or complete
liquidation; and $1.00 per account per report required by any governmental
authority. Additional fees charged to a Series by the Transfer Agent are
assumed by the Underwriter. The Transfer Agent reserves the right to change the
fees on prior notice to the Series. The $5 administrative fee for exchange
transactions into a Series, which is generally to be charged to the shareholder,
is being borne on a voluntary basis by that Series for an indefinite period.
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 1990 and $10.00 per year
for each account history covering the period 1974 through 1982. Account
histories prior to 1974 will not be provided. If any communication from the
Transfer Agent to a shareholder is returned from the U.S. Postal Service marked
as "Undeliverable" two consecutive times, the Transfer Agent will cease sending
any further materials to the shareholder until the Transfer Agent is provided
with a correct address. Furthermore, if there is no known address for a
shareholder for at least one year, the Transfer Agent will charge such
shareholder's account $40 to cover the Transfer Agent's expenses in trying to
locate the shareholder's correct address. For the fiscal year ended December
31, 1994, TAX EXEMPT FUND paid $1,128,925 in transfer agency fees and expenses.
For the fiscal year ended December 31, 1994, INTERMEDIATE SERIES accrued $8,427
in transfer agency fees and expenses, all of which were voluntarily waived by
the Transfer Agent. The Transfer Agent's telephone number is 1-800-423-4026.
SHAREHOLDER LIABILITY. SERIES FUND is organized as an entity known as
---------------------
a "Massachusetts business trust." Under Massachusetts law, shareholders of such
a trust may, under certain circumstances, be held personally liable for the
obligations of the Fund. The Declaration of Trust however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the Fund or the Trustees. The
Declaration of Trust provides for indemnification out of the property of the
Fund of any shareholder held personally liable for the obligations of the Fund.
The Declaration of Trust also provides that the Fund shall, upon request, assume
the defense of any claim made against any shareholder for any act or obligation
of the Fund and satisfy any judgment thereon. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
The Adviser believes that, in view of the above, the risk of personal liability
to shareholders is immaterial and extremely remote. The Declaration of Trust
further provides that the Trustees will not be liable for errors of judgment or
mistakes of fact or law, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved
- 36 -
<PAGE>
in the conduct of his office. The Fund may have an obligation to indemnify
Trustees and officers with respect to litigation.
5% SHAREHOLDERS. As of April 17, 1995, Smith Barney Shearson, Inc.,
---------------
388 Greenwich Street, New York, NY 10013 beneficially owned 6.3% of the
outstanding Class A shares of INTERMEDIATE SERIES.
As of April 17, 1995, the following beneficially owned more than 5% of
the outstanding Class B shares of TAX EXEMPT FUND:
% of Shares Shareholder
----------- -----------
10.8% Kathryn Ort
851 Springfield Ave.
Summit, N.J. 07901
6.4% Dorothy E. Heller, as Trustee
13427 W. Castle Rock Dr.
Sun City West, AZ 85375
7.8% Thomas R. Linton, Jr.
P.O. Box 673
Santa Fe, TX 77510
11.7% Laurence Earhart and
Phyllis Gilman
2367 W. Del Sol Lane
Yuma, AZ 85364
5.8% Keith B. Pierson
4610 Christiana Meadows
Bear, DE 19701
5.7% Robert A. O'Rorke and
Jean G. O'Rorke
#3 Raleigh Dr.
Conroe, TX 77302
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to
------------------------------------------------------
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, each Fund and the
Adviser have adopted Codes of Ethics restricting personal securities trading by
portfolio managers and other access persons of the Fund. Among other things,
such persons: (a) must have all trades pre-cleared by the Adviser; (b) are
restricted from short-term trading; (c) must have duplicate statements and
transactions confirmations reviewed by a compliance officer; and (d) are
prohibited from purchasing securities of initial public offerings.
- 37 -
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform any audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the
following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation
and "C" the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic
- 38 -
<PAGE>
conditions which could lead to inadequate capacity to meet timely interest and
principal payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Aaa Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities, fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat greater than the Aaa
securities.
- 39 -
<PAGE>
A Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
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.
- 40 -
<PAGE>
- 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.
APPENDIX C
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. Ratings
are graded into several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
- 41 -
<PAGE>
PRIME-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
- 42 -
<PAGE>
FINANCIAL STATEMENTS
as of December 31, 1994
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
December 31, 1994
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
<S> <C> <C> <C>
MUNICIPAL BONDS--100.4%
Alabama--.4%
$ 5,245 M Alabama Special Care Facs. Fin. Auth. 10 1/8%, 6/1/2015 $ 5,441,687 $ 42
- ---------------------------------------------------------------------------------------------------------------------------------
Alaska--.3%
8,000 M North Slope Boro, Alaska General Obligation Zero Coupon 6/30/2005 4,080,000 31
- ---------------------------------------------------------------------------------------------------------------------------------
Arizona--1.4%
8,825 M Arizona State Ctfs. of Partn. 6 1/4%, 9/1/2010 8,483,031 65
8,550 M Arizona State Municipal Fing. Program Ctfs. of Partn. 7.7%, 8/1/2010 9,458,437 73
- -----------------------------------------------------------------------------------------------------------------------------------
17,941,468 138
- ------------------------------------------------------------------------------------------------------------------------------------
California--5.9%
2,910 M California Public Capital Improv. Fin. Auth. 8.1%, 3/1/2018 3,070,050 24
6,250 M Concord Calif. Redevelopment Agency 5 1/4%, 7/1/2013 5,195,313 40
Industry California General Obligation:
6,035 M 5 1/4%, 7/1/2019 4,843,087 37
6,485 M 5 1/4%, 7/1/2020 5,179,894 40
4,220 M Long Beach Finance Authority 6%, 11/1/2017 3,877,125 30
Sacramento, Calif. Municipal Utility District:
10,165 M 5 3/4%, 1/1/2010 9,300,975 72
4,500 M 5 1/4%, 11/15/2012 3,796,875 29
11,000 M San Francisco, Calif. City & County Redev. Agcy. 6 3/4%, 7/1/2025 10,848,750 83
14,700 M San Jose Redevelopment Agency Tax Allocation 5%, 8/1/2020 11,337,375 87
5,000 M Santa Clara County, Calif. Financing Authority 7 3/4%, 11/15/2010 5,637,500 43
5,720 M South Orange Cnty., Calif. Public Financing Authority 6 1/2%, 8/15/2010 5,755,750 44
8,500 M University of California Hsg. System 5 1/2%, 11/1/2010 7,522,500 58
- -----------------------------------------------------------------------------------------------------------------------------------
76,365,194 587
- -----------------------------------------------------------------------------------------------------------------------------------
Colorado--.2%
1,850 M Aurora Municipal Building Corp. 9.2%, 12/1/2008 2,055,812 16
- -----------------------------------------------------------------------------------------------------------------------------------
Connecticut--.8%
6,000 M Connecticut State Housing Finance Authority 6.35%, 5/15/2017 5,722,500 44
4,500 M South Central Regional Water Authority 5 3/4%, 8/1/2012 4,111,875 32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
9,834,375 76
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware--.6%
$ 7,000 M Delaware State Econ. Dev. Auth. Rev. Poll. Ctrl. 7.15%, 7/1/2018 $ 7,315,000 $ 56
- -----------------------------------------------------------------------------------------------------------------------------------
District of Columbia--2.9%
Washington D.C. General Obligation:
10,530 M Series "C" 8%, 6/1/2008 11,504,025 88
5,800 M Series "A" 6 1/2%, 6/1/2009 5,763,750 44
8,875 M Series "A" 6%, 6/1/2011 8,253,750 63
13,255 M Series "E" 6%, 6/1/2012 12,227,737 94
- ------------------------------------------------------------------------------------------------------------------------------------
37,749,262 289
- ------------------------------------------------------------------------------------------------------------------------------------
Florida--3.6%
2,255 M Dade County Spec. Oblig. (Miami Beach Conv. Ctr.) 8 5/8%, 12/1/2008 2,483,319 19
Escambia County, Florida Utilities Authority:
5,485 M 6 1/4%, 1/1/2012 5,347,875 41
5,360 M 6 1/4%, 1/1/2013 5,199,200 40
1,070 M Florida Hsg. Fin. Agy. Res. Mtge. Rev. (Series 2) 8%, 12/15/2016 1,094,075 8
1,600 M Lee County Transn. Facs. Rev. 8 1/4%, 10/1/2017 1,680,000 13
Orange County Health Facilities:
8,465 M Mercy Medical 7 7/8%, 12/1/2025 8,581,394 66
7,770 M Sarasota, Lee Memorial, Venice 7 7/8%, 12/1/2025 7,876,838 61
1,750 M Palm Beach County Solid Waste Authority 8 3/8%, 7/1/2010 1,907,500 15
1,000 M St. Lucie County (Florida Power and Light Project) 10%, 4/1/2020 1,030,000 8
Sunrise Utilities System Revenue:
1,500 M 10 1/4%, 10/1/2013 1,833,750 14
1,500 M 10 3/4%, 10/1/2018 1,869,375 14
5,975 M Tampa Utilities Tax & Spl. Rev. 8 1/8%, 10/1/2015 6,505,281 50
1,395 M West Coast Regional Water Supply Auth. 10.4%, 10/1/2013 1,844,887 14
- ------------------------------------------------------------------------------------------------------------------------------------
47,253,494 363
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia--5.0%
$ 1,490 M Fulco Hosp. Auth. Rev. Antic. Certs. 9.3%, 10/1/2015 1,568,225 12
9,400 M Fulton County, Ga. Hosp. Auth. (Northside Hosp.) 5 1/8%, 10/1/2016 7,743,250 59
6,000 M Fulton County, Georgia Water & Sewer Revenue 6 3/8%, 1/1/2014 5,925,000 46
Georgia Municipal Electric Authority Power Revenue:
5,000 M 6 1/4%, 1/1/2012 4,800,000 37
14,000 M 8 1/8%, 1/1/2017 15,050,000 116
2,000 M 8 3/8%, 1/1/2020 2,127,500 16
Metropolitan Atlanta Rapid Transit Authority:
20,600 M 6 1/4%, 7/1/2011 20,162,250 155
7,500 M 6 3/4%, 7/1/2013 7,575,000 58
- ------------------------------------------------------------------------------------------------------------------------------------
64,951,225 499
- ------------------------------------------------------------------------------------------------------------------------------------
Hawaii--.8%
Hawaii State General Obligation:
5,500 M 6%, 10/1/2009 5,273,125 40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
5,000 M 6%, 10/1/2010 4,762,500 37
- ------------------------------------------------------------------------------------------------------------------------------------
10,035,625 77
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois--9.1%
1,000 M Aurora Hosp. Facs. (Mercy Ctr. Health Care Svcs.) 9 5/8%, 10/1/2009 1,053,750 8
17,000 M Chicago Board of Education Lease Certificates 6%, 1/1/2020 15,321,250 118
3,500 M Chicago Gas Supply Rev. (Peoples Gas Lt. & Coke Co.) 10 1/4%, 3/1/2015 3,591,875 28
2,450 M Chicago Metropolitan Fair & Exp. Auth. 10 3/8%, 6/1/2014 2,582,398 20
Chicago Public Building Commission Building Revenue:
3,340 M 7 3/4%, 1/1/2006 3,657,300 28
3,500 M 8 3/4%, 1/1/2007 3,806,250 29
Chicago O'Hare International Airport Revenue:
15,500 M 5 3/4%, 1/1/2009 14,279,375 110
5,000 M 6 3/8%, 1/1/2012 4,843,750 37
2,500 M Des Plaines Hosp. Facs. (Holy Family Hosp.) 9 1/4%, 1/1/2014 2,643,750 20
2,800 M Hazel Crest Hosp. Facs. Rev. (South Sub. Proj.) 9 1/8%, 7/1/2017 3,097,500 24
$16,750 M Illinois Development Finance Auth. Poll. Ctrl. Rev. 6 3/4%, 3/1/2015 $16,666,250 $ 128
Illinois Development Finance Authority Rev. (Rockford School 205):
3,400 M 6.55%, 2/1/2009 3,391,500 26
5,000 M 6.60%, 2/1/2010 4,987,500 38
3,000 M 6.65%, 2/1/2011 2,992,500 23
Illinois Health Facilities Authority Revenue:
4,300 M Bromenn Healthcare Project 8%, 8/15/2017 4,730,000 36
1,500 M Grant Hospital 7 1/2%, 6/1/2013 1,591,875 12
3,390 M Highland Park Hospital 6.2%, 10/1/2010 3,203,550 25
1,300 M Memorial Hospital 9 1/2%, 5/1/2011 1,347,502 10
1,765 M Mercy Hospital & Medical Center 9 1/2%, 1/1/2015 1,846,631 14
1,000 M Methodist Medical Center 9 5/8%, 10/1/2010 1,050,000 8
2,600 M SSM Health Care Project Series "B" 8%, 6/1/2014 2,847,000 22
4,000 M University of Chicago Hospital 8.1%, 8/1/2014 4,335,000 33
1,000 M Illinois Housing Development Authority 11 1/4%, 7/1/2014 1,030,190 8
1,750 M Lansing Sales Tax Rfdg. 7.7%, 12/1/2008 1,896,563 15
4,000 M Regional Transportation Authority, Illinois 7 3/4%, 6/1/2019 4,490,000 35
Will County School District General Obligation:
3,600 M 7%, 12/1/2007 3,775,500 29
2,080 M 7.05%, 12/1/2008 2,176,200 17
1,175 M 7.1%, 12/1/2009 1,220,531 9
- ------------------------------------------------------------------------------------------------------------------------------------
118,455,490 910
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana--1.3%
4,070 M Delaware Cnty. Hosp. Auth. (Ball Memorial Hosp.) 6 5/8%, 8/1/2006 4,187,013 32
1,100 M Frankfort Economic Dev. Rev. (Donaldson Co. Inc.) 11 1/8%, 12/1/2012 1,139,875 9
4,205 M Indiana Housing Fin. Auth. Single-Family Mtge. Rev. 7.6%, 1/1/2016 4,273,331 33
2,000 M Indiana State Edl. Facs. Auth. (Butler University) 8%, 11/1/2009 2,202,500 17
4,000 M Marion County Hosp. Auth. (St. Vincent Hosp.) 10 1/8%, 11/1/2015 4,225,000 32
1,000 M Muncie Certificates of Participation 8.1%, 8/1/2008 1,083,750 8
- ------------------------------------------------------------------------------------------------------------------------------------
17,111,469 131
- ------------------------------------------------------------------------------------------------------------------------------------
Kansas--.1%
$ 1,200 M Wellington Elec. Waterworks & Sewer Util. Sys. Rev. 9.4%, 11/1/2010 $ 1,257,000 $ 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Kentucky--.6%
5,710 M Kenton County Hosp. Facs. Rev. (St. Elizabeth Med. Ctr.)
9.3%, 11/1/2010 6,031,187 46
1,160 M Kentucky Dev. Fin. Auth. (Baptist Hosp. Southeast) 9 3/4%, 2/1/2015 1,216,550 10
- ------------------------------------------------------------------------------------------------------------------------------------
7,247,737 56
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana--5.2%
1,030 M Bossier Cty. Public Imp. Sales & Use Tax Rev. 9 1/4%, 11/1/2011 1,145,875 9
2,000 M Calcasieu Parish Mem. Hosp.(Lake Charles Hosp.) 8.4%, 12/1/2012 2,195,000 17
3,000 M Greater New Orleans Expressway 7.8%, 11/1/2016 3,217,500 25
3,750 M Lafayette Public Power Authority 9 5/8%, 11/1/2012 4,003,125 31
2,205 M Louisiana Public Facs. Auth. (Tulane University) 6%, 2/15/2008 2,163,656 16
Louisiana Public Facilities Authority Hospital Revenue:
1,325 M Daughters of Charity 9 3/4%, 2/1/2015 1,412,781 11
2,350 M Touro Infirmary 8%, 6/1/2009 2,570,313 20
2,400 M Womens Hospital Foundation 8 1/8%, 10/1/2014 2,646,000 20
Louisiana Public Facilities Hlth. & Ed. Cap. Fac.:
5,905 M CP Program 7.9%, 12/1/2015 6,436,450 49
1,750 M Our Lady 8.2%, 12/1/2015 1,916,250 15
Louisiana State General Obligation:
14,555 M 6%, 5/1/2012 13,645,313 105
5,380 M 6%, 5/1/2013 5,010,125 38
14,000 M 6%, 5/1/2014 13,002,500 100
15,000 M New Orleans Regl. Transit Auth. Sales Tax Rev. Zero Cpn. 12/1/2021 2,306,250 18
3,000 M Regional Transportation Authority Revenue 8%, 12/1/2013 3,285,000 25
2,500 M Tangipahoa Parish School Board Sales & Use Tax Rev. 10%, 3/15/2010 2,600,125 20
- ------------------------------------------------------------------------------------------------------------------------------------
67,556,263 519
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland--2.2%
Maryland Health & Higher Education:
$ 7,920 M Francis Scott Key Med. 5%, 7/1/2018 $ 6,355,800 $ 49
7,850 M Sinai Hosp. 5 1/2%, 7/1/2013 6,947,250 53
8,430 M Suburban Hosp. 5%, 7/1/2019 6,733,462 52
9,000 M Maryland Indl. Dev. Auth. 5.928%, 8/26/2022 8,145,000 63
- ------------------------------------------------------------------------------------------------------------------------------------
28,181,512 217
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts--2.9%
4,750 M Boston General Obligation 7 3/8%, 2/1/2010 5,165,625 40
2,300 M Mass. Bay Transportation Authority Ctfs. of Partn. 7.65%, 8/1/2015 2,455,250 19
Mass. Health & Educational Facilities Authority:
2,300 M Berkshire Health Systems 7.6%, 10/1/2014 2,412,125 19
1,500 M Carney Hospital 7 3/4%, 7/1/2014 1,672,500 13
1,540 M Mass. Housing Finance Agency 7.7%, 6/1/2017 1,572,725 12
Massachusetts State General Obligation:
20,550 M 6%, 8/1/2009 19,805,063 152
3,000 M 6%, 8/1/2010 2,872,500 22
1,000 M Palmer Unlimited Tax General Obligation 7.3%, 3/1/2010 1,090,000 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
37,045,788 285
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan--3.6%
6,000 M Detroit Water Supply System Revenue 6 1/4%, 7/1/2012 5,782,500 45
7,500 M Michigan State Building Authority 5.3%, 10/1/2012 6,431,250 50
10,000 M Michigan State General Obligation 6 1/4%, 11/1/2012 9,737,500 75
6,000 M Michigan State Hosp. Fin. Auth. (St. John's Hosp.) 6%, 5/15/2008 5,775,000 44
Michigan State Housing Development Authority
Single-Family Mtge. Rev.:
4,685 M 7 1/2%, 6/1/2015 4,831,406 37
2,500 M 7.3%, 12/1/2016 2,515,625 19
2,540 M 7.7%, 12/1/2016 2,613,025 20
4,500 M Monroe Cnty. Econ. Dev. Corp. (Detroit Edison Co.) 6.95%, 9/1/2022 4,606,875 35
6,010 M Wayne Charter Cnty. Airport 5 1/4%, 12/1/2021 4,808,000 37
- ------------------------------------------------------------------------------------------------------------------------------------
47,101,181 362
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota--.8%
$ 1,340 M Eden Prairie Multi-Family Housing 8%, 7/1/2026 $1,378,525 $ 11
1,000 M Minnesota State Hsg. Fin. Agcy. Single-Family Mtge. 7.65%, 7/1/2008 1,050,000 8
5,750 M Southern Minnesota Municipal Power Agency 5%, 1/1/2012 4,801,250 37
1,000 M St. Louis Park Hosp. Rev. Facs. (Methodist Hosp.) 9 1/2%, 7/1/2015 1,041,250 8
1,240 M St. Paul Hsg. & Red. Auth. (Como-Lake Proj.) 7 1/2%, 3/1/2026
(Defaulted) (Note 1A) 1,240,000 9
1,000 M Western Minnesota Municipal Power Agency 9 1/2%, 1/1/2013 1,062,500 8
- ------------------------------------------------------------------------------------------------------------------------------------
10,573,525 81
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi--.5%
4,475 M Mississippi Hosp. Equip. & Facs. Auth. Rev. (Baptist Med. Ctr.)
7.6%, 5/1/2013 4,799,437 37
1,680 M Mississippi Hsg. Fin. Corp. Single-Family Mtge. Pur. Rev.
7.8%, 10/15/2016 1,707,300 13
- ------------------------------------------------------------------------------------------------------------------------------------
6,506,737 50
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri--2.6%
3,640 M Kansas City School District Bldg. Cap. Improvement 7.9%, 2/1/2008 3,967,600 31
Missouri State Health & Educational Facilities Authority:
BJC Health System Series "A":
6,840 M 6 3/4%, 5/15/2010 6,925,500 53
10,175 M 6 3/4%, 5/15/2011 10,353,063 80
10,000 M Lester Cox Zero Cpn. 9/1/2016 2,275,000 17
5,245 M SSM Health Care 6 1/4%, 6/1/2007 5,225,331 40
4,945 M St. Louis Mun. Fin. Corp. Leasehold Revenue 6 1/4%, 2/15/2012 4,784,287 37
- ------------------------------------------------------------------------------------------------------------------------------------
33,530,781 258
- ------------------------------------------------------------------------------------------------------------------------------------
Montana--.5%
1,000 M Missoula Hosp. Facs. Rev. (Sisters of Charity) 9.4%, 9/1/2012 1,050,000 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
5,000 M Montana State Board Housing Single Family Proj. 6.3%, 6/1/2008 4,781,250 37
- ------------------------------------------------------------------------------------------------------------------------------------
5,831,250 45
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada--.2%
$ 1,640 M Nevada Housing Div. Single-Family Prog. 7.6%, 10/1/2018 $ 1,648,200 $ 13
1,225 M Reno Hosp. Rev. (St. Mary's Hospital) 7 3/4%, 7/1/2015 1,353,625 10
- ------------------------------------------------------------------------------------------------------------------------------------
3,001,825 23
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey--3.6%
7,120 M Camden County Municipal Utilities Sewer Rev. 8 1/4%, 12/1/2017 7,725,200 59
New Jersey Economic Development Authority Market Trans. Fac. Rev.:
9,630 M 5.8%, 7/1/2009 9,052,200 70
5,375 M 5 7/8%, 7/1/2011 5,065,938 39
New Jersey Housing & Mortgage Financing Revenue:
5,380 M 7 1/2%, 4/1/2015 5,460,700 42
8,400 M 7 3/8%, 10/1/2017 8,568,000 66
4,195 M 8.1%, 10/1/2017 4,399,506 34
7,000 M New Jersey Sports & Exposition Authority Conv. Ctr. 6%, 7/1/2012 6,562,500 50
- ------------------------------------------------------------------------------------------------------------------------------------
46,834,044 360
- ------------------------------------------------------------------------------------------------------------------------------------
New Mexico--.5%
1,000 M Farmington Power Rev. Gen. Dev. 9 7/8%, 1/1/2013 1,298,750 10
New Mexico Mortgage Finance Authority, Single-Family Mortgage:
3,075 M 8%, 1/1/2017 3,075,000 24
1,320 M 8 5/8%, 7/1/2017 1,321,650 10
- ------------------------------------------------------------------------------------------------------------------------------------
5,695,400 44
- ------------------------------------------------------------------------------------------------------------------------------------
New York--8.0%
Metropolitan Transit Authority, Transit Facilities:
3,500 M 7 1/2%, 7/1/2016 3,740,625 29
10,000 M 8%, 7/1/2018 10,987,500 84
New York City General Obligation:
5,000 M Series "B" 7 3/4%, 8/1/2015 5,393,750 41
10,000 M Series "A" 8 3/4%, 11/1/2015 11,025,000 85
3,850 M Series "A" 8%, 8/1/2017 4,013,625 31
New York City Municipal Water Finance Authority:
6,000 M 5 1/2%, 6/15/2012 5,287,500 41
7,050 M 5 1/2%, 6/15/2015 6,107,062 47
$ 4,500 M New York State Dorm. Auth. Revs. City Univ. System
7 1/2%, 7/1/2020 $ 4,966,875 $ 38
New York State Dorm. Auth. Revs. State Univ. Educ. System:
11,300 M 7 3/8%, 5/15/2014 11,794,375 91
2,780 M 7 1/4%, 5/15/2015 3,030,200 23
New York State Med. Care Facs. Fin. Agcy. Rev.:
2,025 M Hosp. & Nursing 7.35%, 2/15/2029 2,103,469 16
5,000 M Mental Health 6.1/2%, 8/15/2024 4,793,750 37
10,500 M St. Luke's Hosp. 7.45%, 2/15/2029 11,510,625 88
4,000 M New York State Urban Dev. Corp. 7 1/2%, 1/1/2020 4,385,000 34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
5,840 M Suffolk County. N.Y. Indl. Dev. Agcy. Southwest Sewer System
6%, 2/1/2008 5,686,700 44
6,000 M Suffolk County Water Authority 5%, 6/1/2015 4,890,000 37
4,900 M Triborough Bridge & Tunnel Authority 5%, 1/1/2015 3,932,250 30
- ------------------------------------------------------------------------------------------------------------------------------------
103,648,306 796
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina--1.7%
North Carolina Municipal Power Agency (Catawba):
7,525 M 6%, 1/1/2010 7,205,188 55
7,945 M 6%, 1/1/2011 7,557,681 58
8,900 M 5%, 1/1/2018 7,019,875 54
- ------------------------------------------------------------------------------------------------------------------------------------
21,782,744 167
- ------------------------------------------------------------------------------------------------------------------------------------
North Dakota--1.0%
12,520 M Mercer County Poll. Ctrl. Rev. (Basin Elec. Pwr. Coop.)
10 1/2%, 6/30/2013 12,780,666 98
- ----------------------------------------------------------------------------------------------------------------------------------
Ohio--1.4%
5,250 M Clermont Cnty. Hosp. Facs. Rev. (Mercy Hlth. Care Sys.)
9 3/4%, 9/1/2013 5,525,625 43
1,145 M Cuyahoga Cnty. Hosp. Rev. (Richmond Hts. Gen. Hosp.)
10%, 12/1/2011 1,023,344 8
4,220 M Hamilton Cnty. Hlth. Care Sys. Rev. (Sisters of Charity)
6 1/4%, 5/15/2008 4,204,175 32
5,000 M Lucas Cnty. Hospital (Toledo Hosp.) 5%, 11/15/2022 3,943,750 30
1,435 M Ohio State Air Quality Dev. Auth. (Ohio Power Co.) 7.4%, 8/1/2009 1,461,906 11
1,230 M Westerville Minerva Pk. & Blendon Jt. Twp. Hosp. Dist. Rev.
9 1/2%, 9/15/2012 1,289,963 10
- ------------------------------------------------------------------------------------------------------------------------------------
17,448,763 134
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma--1.8%
4,000 M Central Oklahoma Transp. & Pkg. Rev. 8%, 7/1/2006 4,245,000 33
Grand River Dam Authority Revenue:
9,675 M 5 3/4%, 6/1/2008 9,118,688 70
5,100 M 5 1/2%, 6/1/2010 4,755,750 36
1,685 M Muskogee County Home Fin. Auth. Rev. Single-Family Mtge.
7.6%, 12/1/2010 1,701,850 13
2,350 M Oklahoma County Ind. Auth. Hosp. Rev. (South Comm. Hosp.)
8.15%, 2/1/2008 2,555,625 20
1,420 M Tulsa County Home Fin. Auth. Single-Family Mtge. 7.35%, 11/1/2010 1,425,325 11
- ------------------------------------------------------------------------------------------------------------------------------------
23,802,238 183
- ------------------------------------------------------------------------------------------------------------------------------------
Oregon--.4%
5,250 M Western Lane, Or. Hospital District (Sisters St. Joseph) 5 3/4%, 8/1/2019 4,705,313 36
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--5.1%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
6,500 M Allegheny County Hospital Develop. Auth. Rev. (Magee-Womens)
Zero Cpn. 10/1/2017 1,413,750 11
1,310 M Allegheny County Rev. Fin. Auth. Mtge. Single-Family Mtge.
8%, 6/1/2017 1,331,288 10
1,500 M Cambria County Hosp. Dev. Auth. (Conemaugh Valley Hosp.)
10%, 7/1/2003 1,571,280 12
1,750 M Pennsylvania Hsg. Fin. Agency Single-Family Mtge. 7.3%, 10/1/2017 1,756,562 14
Pennsylvania State Certificates of Participation:
7,500 M 5 1/4%, 7/1/2010 6,412,500 49
6,500 M 5%, 7/1/2015 5,159,375 40
5,000 M Pennsylvania State General Obligation 6 3/4%, 11/15/2013 5,050,000 39
8,300 M Pennsylvania State Ind. Dev. Auth. 5 1/2%, 1/1/2014 7,117,250 55
Pennsylvania State Turnpike Commission Turnpike Revenue:
$ 5,000 M 5 1/2%, 12/1/2012 $ 4,468,750 $ 34
6,000 M 5 3/4%, 12/1/2012 5,460,000 42
3,000 M Philadelphia Gas Works Revenue 9 1/8%, 3/15/2012 3,105,810 24
Philadelphia Water & Wastewater Revenue:
5,000 M 5%, 6/15/2017 3,950,000 30
5,000 M 5%, 6/15/2018 3,906,250 30
Pittsburgh Water & Sewer Authority:
5,500 M 6 1/2%, 9/1/2013 5,472,500 42
12,500 M 4 3/4%, 9/1/2016 9,500,000 73
1,000 M Sewickely Valley Hosp. Auth. (Sewickely Vy. Hosp.) 7 1/2%, 10/1/2014 1,093,750 8
- ------------------------------------------------------------------------------------------------------------------------------------
66,769,065 513
- ------------------------------------------------------------------------------------------------------------------------------------
Rhode Island--.8%
4,525 M Rhode Island General Obligation 6 1/4%, 5/15/2010 4,400,563 34
1,000 M Rhode Island Health & Ed. Bldg. Corp. (Roger Williams Hosp.)
11 3/8%, 7/1/2016 1,088,750 8
Rhode Island Housing & Mortgage Finance Corp.:
1,000 M 8 3/8%, 10/1/2013 1,033,750 8
1,500 M 8 3/8%, 10/1/2016 1,550,625 12
2,500 M 8 3/8%, 4/1/2019 2,584,375 20
- ------------------------------------------------------------------------------------------------------------------------------------
10,658,063 82
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina--1.2%
14,615 M Piedmont Municipal Power Agency Electric Revenue 9 1/4%, 1/1/2019 15,638,050 120
- ------------------------------------------------------------------------------------------------------------------------------------
South Dakota--.4%
4,485 M South Dakota Health & Edl. Facs. Auth. (McKennan Hosp.) 7 5/8%, 7/1/2014 4,804,556 37
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee--.4%
5,500 M Chattanooga-Hamilton Cntys. (Erlanger Med. Ctr.) 5 5/8%, 10/1/2009 5,032,500 39
- ------------------------------------------------------------------------------------------------------------------------------------
Texas--14.5%
Austin, Texas Utilities System Revenue:
Capital Appreciation:
$30,465 M Zero Coupon 5/15/2018 $ 6,207,244 $ 48
29,410 M Zero Coupon 5/15/2019 5,624,662 43
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
5,120 M Series "A" 7.8%, 11/15/2012 5,612,800 43
4,280 M Series "B" 7.8%, 11/15/2012 4,595,650 35
2,000 M 8 5/8%, 11/15/2012 2,322,500 18
5,000 M Series "A" 5 3/4%, 11/15/2014 4,475,000 34
1,000 M 8 5/8%, 11/15/2017 1,161,250 9
5,000 M Bexar County, Texas Health Facs. (Baptist Memorial) 6 3/4%, 8/15/2019 4,962,500 38
10,000 M Brazos River Auth., Houston Light & Power Proj. 8.1%, 5/1/2019 10,750,000 83
23,400 M Coastal Bend Health Facilities 5.929%, 11/15/2013 21,352,500 164
9,215 M Coastal Water Auth. Water Conveyance System 8 1/8%, 12/15/2017 9,906,125 76
6,080 M East Texas Criminal Justice Facs. Fing. Corp. 5 3/4%, 11/1/2009 5,631,600 43
Harris County Toll Road Senior Lien:
11,065 M Series "A" 6 1/2%, 8/15/2012 10,995,844 84
7,305 M Series "A" 6 1/2%, 8/15/2013 7,222,819 55
8,375 M Series "A" 6 1/2%, 8/15/2017 8,814,687 68
3,355 M Series "B" 6 5/8%, 8/15/2017 3,522,750 27
Houston Water Conveyance System Certificates of Participation:
2,250 M 6 1/4%, 12/15/2012 2,160,000 17
4,705 M 6 1/4%, 12/15/2013 4,463,869 34
4,350 M 6 1/4%, 12/15/2014 4,143,375 32
5,860 M 6 1/4%, 12/15/2015 5,574,325 43
2,750 M Kerrville Electric System Rev. 8 3/8%, 11/1/2017 3,014,687 23
4,720 M North Cent. Texas Hlth. Fac. Dev. Corp. (Presbyt. "A" & "B")
8 7/8%, 12/1/2015 5,245,100 40
1,500 M Northeast Hospital Auth. Rev. (Northeast Med. Ctr. Hosp.)
8 1/8%, 7/1/2018 1,651,875 13
Rio Grande Valley Hlth. Fac. Dev. Corp. (Valley Baptist Med. Ctr.):
5,300 M 6.4%, 8/1/2012 5,207,250 40
3,910 M 8%, 8/1/2017 4,296,113 33
1,500 M Sabine River Auth. Poll. Control (Texas Util. Co. Proj.) 7 3/4%, 4/1/2016 1,550,625 12
San Antonio Electric & Gas Revenue:
$ 1,850 M 10 1/2%, 2/1/2013 $ 2,143,688 $ 16
2,000 M 9.6%, 2/1/2014 2,039,220 16
3,000 M 8%, 2/1/2016 3,270,000 25
1,800 M Texas Health Facs. Dev. Corp. (Fort Worth Med. Ctr.) 8 1/8%, 6/1/2018 1,977,750 15
10,395 M Texas Municipal Power Agency 5 1/2%, 9/1/2010 9,472,444 73
5,000 M Texas Public Fin. Auth. 6.2%, 2/1/2005 5,050,000 39
Texas Public Ppty. Fin. Corp. Rev. (Mental Health & Retardation):
2,700 M 7 7/8%, 1/1/2009 2,885,625 22
6,125 M 5 1/2%, 9/1/2013 5,275,156 41
5,000 M Texas Southern University Revenue 5%, 8/1/2013 4,162,500 32
1,700 M Trinity River Auth., Ten Mile Creek System Rev. 10 1/8%, 8/1/2009 1,753,125 14
- ------------------------------------------------------------------------------------------------------------------------------------
188,494,658 1,448
- ------------------------------------------------------------------------------------------------------------------------------------
Utah--2.4%
Intermountain Power Agency (Utah Power Supply):
8,395 M 9 5/8%, 7/1/2008 8,818,192 68
6,500 M 8 3/8%, 7/1/2012 7,058,125 54
3,000 M 9 1/2%, 7/1/2015 3,134,700 24
2,000 M Provo, Utah Electric System Revenue 10 3/8%, 9/15/2015 2,622,500 20
1,500 M Provo City, Utah Energy System Revenue 9 1/2%, 11/1/2010 1,601,250 12
2,000 M Salt Lake County Hosp. (IHC Hosp.) 7 7/8%, 8/1/2020 2,095,000 16
Salt Lake County Water Conservancy District Revenue:
3,800 M Zero Cpn. 10/1/2011 1,216,000 9
3,800 M Zero Cpn. 10/1/2012 1,125,750 9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
3,760 M Zero Cpn. 10/1/2013 1,029,300 8
2,800 M Utah Associated Municipal Power System Revenue 9 7/8%, 7/1/2010 2,926,000 23
- ------------------------------------------------------------------------------------------------------------------------------------
31,626,817 243
- ------------------------------------------------------------------------------------------------------------------------------------
Washington--2.8%
Benton County Public Utilities District No. 1:
4,700 M 9 3/8%, 11/1/2004 4,923,250 38
2,850 M 11 5/8%, 11/1/2004 3,309,563 25
$ 3,500 M Chelan County Public Utility District No. 1, 9 3/4%, 6/1/2015 $ 3,635,625 $ 28
5,000 M Tacoma Electric System Revenue 8%, 1/1/2011 5,443,750 42
Washington Public Power Supply System:
4,960 M Project No. 2 - 7 3/8%, 7/1/2011 5,431,200 42
5,000 M Project No. 2 - 7 3/8%, 7/1/2012 5,475,000 42
958 M Project Nos. 4 & 5 - 8 1/2%, 7/1/2017 (Defaulted) (Note 1A) 958,120 7
2,500 M Washington State Hlth. & Educ. Facs. (Mason Med. Ctr.) 8%, 7/1/2015 2,675,000 21
4,365 M Washington State Hsg. Fin. Comm. Single-Family Mtge. 7.7%, 7/1/2016 4,430,475 34
- ------------------------------------------------------------------------------------------------------------------------------------
36,281,983 279
- ------------------------------------------------------------------------------------------------------------------------------------
West Virginia--.9%
1,050 M West Virginia State Hosp. Fin. Auth. Rev. (Monongalia Hosp.)
8 1/2%, 7/1/2007 1,127,437 9
13,885 M West Virginia Water Development Authority 5%, 11/1/2018 11,142,713 85
- ------------------------------------------------------------------------------------------------------------------------------------
12,270,150 94
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin--2.0%
5,000 M Superior, Wisconsin Ltd. Oblig. Rev. (Midwest Energy) 6.9%, 8/1/2021 5,081,250 39
Wisconsin Housing & Economic Development Authority:
1,435 M 7 1/2%, 9/1/2017 1,442,175 11
4,145 M 7.6%, 9/1/2017 4,196,812 32
14,840 M 7 3/4%, 9/1/2017 15,136,800 116
1,545 M Wisconsin Municipal Insurance Comm. Rev. 8.7%, 4/1/2007 1,689,844 13
Wisconsin State Health & Educational Facilities Authority Revenue:
2,000 M Hospital Sisters Services Inc. 7 5/8%, 11/15/2018 2,182,500 17
1,500 M Novus Health Group 8%, 12/1/2008 1,655,625 13
- ------------------------------------------------------------------------------------------------------------------------------------
31,385,006 241
- ------------------------------------------------------------------------------------------------------------------------------------
Total Value of Municipal Bonds (cost $1,304,290,792) 1,306,082,022 10,035
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TAX EXEMPT INVESTMENTS--.0%
Pennsylvania
$ 100 M Sayre Health Care Facs. Auth. Floating Rate Note
Series "I" 5.25%, (cost $100,000)* $ 100,000 $ 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total Value of Municipal Investments (cost $1,304,390,792) 100.4% 1,306,182,022 10,036
Excess of Liabilities Over Other Assets (.4) (4,645,388) (36)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $1,301,536,634 $10,000
====================================================================================================================================
</TABLE>
<PAGE>
* Interest rates are determined and reset weekly by the issuer. Interest
rate shown is the rate in effect at December 31, 1994.
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $1,304,390,792)
(Note 1A) $1,306,182,022
Cash 874,293
Receivables:
Interest $25,809,895
Capital stock sold 1,156,858
Investment securities sold 617,874 27,584,627
------------
Other assets 81,733
--------------
Total Assets 1,334,722,675
Liabilities
Payables:
Investment securities purchased 25,576,096
Capital stock redeemed 4,960,079
Dividend payable January 10, 1995 1,395,950
Accrued advisory fee 751,989
Accrued expenses 501,927
------------
Total Liabilities
33,186,041
--------------
Net Assets $1,301,536,634
Net Assets Consist of:
Capital paid in $1,321,263,958
Undistributed net investment income 493,895
Accumulated net realized loss on investment transactions (22,012,449)
Net unrealized appreciation in value of investments 1,791,230
--------------
Total $1,301,536,634
==============
Net Asset Value and Redemption Price Per Share--Class A (Note 5)
($1,301,536,634 divided by 138,224,936 shares outstanding),
300,000,000 shares authorized, $1.00 par value $ 9.42
======
Maximum Offering Price Per Share--Class A ($9.42/.9375)* $10.05
======
</TABLE>
<PAGE>
*On purchases of $25,000 or more, the sales charge is reduced.
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Operations
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
Year Ended December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Interest income $ 95,184,151
Expenses:
Advisory fee (Note 3) $ 9,654,489
Distribution plan expenses (Note 4) 4,183,859
Shareholder servicing costs (Note 3) 1,128,925
Bond insurance premiums (Note 1A) 447,252
Reports and notices to shareholders 429,555
Professional fees 152,114
Other expenses 466,506
-----------
Total expenses 16,462,700
--------------
Net investment income 78,721,451
Realized and Unrealized Gain (Loss) on Investments (Note 2):
Net realized loss on investments (21,856,239)
Net unrealized depreciation of investments (141,170,233)
------------
Net loss on investments (163,026,472)
-------------
Net Decrease in Net Assets Resulting from Operations $ (84,305,021)
=============
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income $ 78,721,451 $ 82,535,503
Net realized gain (loss) on investments (21,856,239) 21,340,808
Net unrealized appreciation (depreciation) of investments (141,170,233) 31,128,222
------------- -------------
Net increase (decrease) in net assets resulting from operations (84,305,021) 135,004,533
-------------- -------------
Distributions to Shareholders from:
Net investment income (78,422,877) (82,896,361)
Net realized gain on investments
-- (21,340,808)
------------- -------------
Total distributions (78,422,877) (104,237,169)
-------------- -----------
Capital Share Transactions - Class A (a)
Issued 98,224,276 176,343,339
Issued on reinvestments 61,033,013 83,068,182
Redeemed (202,387,164) (145,485,843)
------------- -------------
Net increase (decrease) in net assets resulting from
capital share transactions (43,129,875) 113,925,678
------------- -------------
Total increase (decrease) in net assets (205,857,773) 144,693,042
Net Assets
Beginning of year 1,507,394,407 1,362,701,365
------------- -------------
End of year (including undistributed net investment income of
$493,895 and $195,321, respectively) $1,301,536,634 $1,507,394,407
============== ==============
(a)Capital shares issued and redeemed--Class A (Note 5)
Issued 9,853,687 16,682,844
Issued on reinvestments 6,238,112 7,852,275
Redeemed (20,662,077) (13,745,284)
------------- -------------
Net increase (decrease) in shares (4,570,278) 10,789,835
============== ==============
</TABLE>
See notes to financial statements
Notes to Financial Statements
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
- -------------------------------------------------------------------------
1. Significant Accounting Policies--The Fund is registered under the
Investment Company Act of 1940 (the "1940 Act") as a diversified, open-end
management investment company.
A. Security Valuation--The Municipal Bonds in which the Fund invests are
<PAGE>
traded primarily in the over-the-counter markets. Such securities are
valued daily at their fair value on the basis of valuations provided by a
pricing service approved by the Board of Directors. The pricing service
considers security type, rating, market condition and yield data, as well
as market quotations and prices provided by market makers. "When Issued
Securities" are reflected in the assets of the Fund as of the date the
securities are purchased.
The Fund's Municipal Bonds are insured as to payment of principal and
interest by the issuer or under insurance policies written by independent
insurance companies. It is the intention of the Fund 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 securities which are not in default.
B. Federal Income Taxes--It is the policy of the Fund to continue to
qualify as a regulated investment company, which can distribute exempt-interest
dividends, by complying with the provisions available to certain
investment companies, as defined in the Internal Revenue Code, and to
make distributions of income and net realized capital gains, sufficient
to relieve it from all, or substantially all, federal income taxes. At
December 31, 1994, the Fund had a capital loss carryover of $20,025,997
expiring in the year 2002.
C. Distributions to Shareholders--Dividends from net investment income
are declared daily and are paid monthly. Distributions from net realized
capital gains are normally declared and paid annually. To the extent that
net realized capital gains can be offset by capital loss carryovers, it
is the policy of the Fund not to distribute such gains.
D. Security Transactions and Investment Income--Security transactions are
accounted for on the date the securities are purchased or sold. Cost is
determined, and gains and losses are based, on the identified cost basis
for both financial statement and federal income tax purposes. Interest
income is earned from settlement date and recorded on the accrual basis.
Estimated expenses are accrued daily.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for capital loss carryforwards, deferral of wash
sales and post October losses.
2. Securities Transactions--For the year ended December 31, 1994,
purchases and sales of investment securities, other than United States
Government obligations and short-term notes, aggregated $767,693,564 and
$744,824,295, respectively.
At December 31, 1994, the cost of investments for federal income tax
purposes was $1,304,398,342. Accumulated net unrealized appreciation on
investments was $1,783,680, consisting of $41,938,397 gross unrealized
appreciation and $40,154,717 gross unrealized depreciation.
3. Advisory Fee and Other Transactions With Affiliates (Also See Note 4)--
Certain officers and directors of the Fund are officers and directors of
its investment adviser, First Investors Management Company, Inc.
<PAGE>
("FIMCO"), its underwriter, First Investors Corporation ("FIC") and/or
its transfer agent, Administrative Data Management Corp. ("ADM").
Officers and directors of the Fund received no remuneration from the Fund
for serving in such capacity. Their remuneration (together with certain
other expenses of the Fund) is paid by FIMCO or FIC.
The Investment Advisory Agreement provides as compensation to FIMCO an
annual fee, payable monthly, at the rate of .75% of the first $250
million of the Fund's average daily net assets, declining by .03% on each
$250 million thereafter, down to .66% on average daily net assets over
$750 million.
Pursuant to certain state regulations, FIMCO has agreed to reimburse the
Fund if and to the extent that the Fund's aggregate operating expenses,
including the advisory fee but generally excluding interest, bond
insurance premiums, taxes, brokerage commissions and extraordinary
expenses, exceed any limitation on expenses applicable to the Fund in
those states (unless waivers of such limitation have been obtained). The
amount of any such reimbursement is limited to the amount of the yearly
advisory fee. For the year ended December 31, 1994, no reimbursement was
required pursuant to these provisions.
For the year ended December 31, 1994, FIC, as underwriter, received
$1,033,292 in commissions, after allowing $173,429 to other dealers.
Shareholder servicing costs included $918,970 in transfer agent fees paid
to ADM.
4. Distribution Plan--Pursuant to a Distribution Plan adopted under Rule
12b-1 of the 1940 Act, the Fund is authorized to pay FIC a fee equal to
.30% of its average net assets on an annualized basis each fiscal year,
payable monthly. The fee consists of a distribution fee and a service
fee. The service fee is paid for the ongoing servicing of clients who are
shareholders of the Fund.
5. Capital Stock--By action of the Board of Directors, the Fund amended
its Articles of Incorporation on October 21, 1994 so that of the
500,000,000 shares originally authorized, 300,000,000 shares were
allocated as Class A capital stock and 200,000,000 shares were allocated
as Class B capital stock. As of December 31, 1994, only Class A shares
have been issued.
<PAGE>
Independent Auditor's Report
To the Shareholders and Board of Directors of
First Investors Insured Tax Exempt Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
First Investors Insured Tax Exempt Fund, Inc., including the portfolio of
investments, as of December 31, 1994, and the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and financial
highlights for each of the ten years in the period then ended. These
financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.
Our procedures included confirmation of securities owned as of December
31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Investors Insured Tax Exempt Fund, Inc. at December 31, 1994, and the results of
its operations, changes in its net assets and financial highlights for each of
the respective periods presented, in conformity with generally accepted
accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 31, 1995
<PAGE>
Portfolio of Investments
FIRST INVESTORS INSURED INTERMEDIATE TAX EXEMPT SERIES
(A Series of First Investors Series Fund)
December 31, 1994
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount
Invested
For Each
Principal $10,000 of
Amount Security Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS--95.9%
Alaska--3.6%
$ 200M Anchorage General Obligation, 6 1/2%, 7/1/2004 $ 207,000 $ 364
- ------------------------------------------------------------------------------------------------------------------------------------
California--10.9%
300M California State Rev. Antic. Wts., 5 3/4%, 4/25/1996 299,859 527
150M Pittsburg Pub. Fing. Auth. Wastewater Rev. 6.8%, Prerefunded 6/1/2001 160,875 283
150M Sacramento Municipal Utility District Electric Revenue,
6 1/2%, Prerefunded 9/1/2001 158,625 279
- ------------------------------------------------------------------------------------------------------------------------------------
619,359 1,089
- ------------------------------------------------------------------------------------------------------------------------------------
Florida--3.6%
200M Orange County Sales Tax Revenue, 6 1/8%, Prerefunded 1/1/2000 207,000 364
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia--1.9%
100M Metropolitan Atlanta Rapid Transit Auth. Rev., 7.2%, Prerefunded 7/1/1999 108,250 190
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois--15.4%
200M Chicago Wastewater Transmission Rev., 6 3/4%, Prerefunded 11/15/2000 213,750 376
200M Illinois State Sales Tax Revenue, 7%, Prerefunded 6/15/1999 214,500 377
400M Regional Transportation Authority, 7 3/4%, 6/1/2003 448,000 788
- ------------------------------------------------------------------------------------------------------------------------------------
876,250 1,541
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana--2.8%
150M Valparaiso Indpt. Multi-Schools Bldg. Corp., 6 5/8%, Prerefunded 7/1/2002 158,812 279
- ------------------------------------------------------------------------------------------------------------------------------------
Kentucky--4.5%
200M Louisville & Jefferson County Met. Sewer District, 10%, 5/15/2004 254,000 447
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana--3.6%
200M Louisiana Stadium & Exposition District Revenue, 5 7/8%, 7/1/2000 204,250 359
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland--3.7%
200M Baltimore Water Projects Revenue, 6 1/4%, Prerefunded 7/1/2002 208,000 366
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan--4.6%
1,000M Brighton Area School District General Obligation Zero Cpn., Prerefunded 5/1/2005 260,000 457
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey--3.8%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
200M New Jersey Economic Dev. Auth. Mkt. Transition Fac. Rev., 7%, 7/1/2004 216,000 380
- ------------------------------------------------------------------------------------------------------------------------------------
New York--5.6%
150M New York City General Obligation, 6 5/8%, Prerefunded 8/1/2002 159,000 280
150M Niagara Falls Bridge Commission, 6.3%, Prerefunded 10/1/2002 156,562 275
- ------------------------------------------------------------------------------------------------------------------------------------
315,562 555
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio--10.4%
200M Columbus City Sch. Dist. General Obligation, 6.65%, Prerefunded 12/1/2002 213,250 375
200M Franklin County Convention Facs. Auth., 7%, Prerefunded 12/1/2000 216,750 381
150M Ohio State Building Authority Revenue, 7 1/4%, Prerefunded 4/1/2000 163,313 287
- ------------------------------------------------------------------------------------------------------------------------------------
593,313 1,043
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--12.2%
200M Hampton Township Sch. Dist. General Obligation, 6.9%, Prerefunded 2/15/2001 212,250 373
250M North Hills School District General Obligation, 7%, Prerefunded 7/15/2001 267,500 470
200M Pennsylvania Intergovernmental Coop. Auth. Special Tax Rev., 7%, 6/15/2001 212,500 374
- ------------------------------------------------------------------------------------------------------------------------------------
692,250 1,217
- ------------------------------------------------------------------------------------------------------------------------------------
Rhode Island--3.8%
200M Rhode Island Depositors Econ. Protection Corp., 7.1%, Prerefunded 8/1/2001 217,250 382
- ------------------------------------------------------------------------------------------------------------------------------------
Texas--5.5%
300M Harris County Toll Road General Obligation, 6 1/2%, Prerefunded 8/15/2002 315,750 555
- ------------------------------------------------------------------------------------------------------------------------------------
Total Value of Municipal Bonds (cost $5,517,237) 95.9% 5,453,046 9,588
Other Assets, Less Liabilities 4.1 234,505 412
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $5,687,551 $10,000
====================================================================================================================================
Municipal Bonds which have been prerefunded
are shown maturing at the prerefunded call date.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
FIRST INVESTORS SERIES FUND
December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Insured
Intermediate Investment Special
Blue Chip Tax Exempt Grade Situations Total Return
Series Series Series Series Series
--------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Investments in securities:
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
At identified cost $113,951,721 $ 5,517,237 $ 47,952,323 $97,215,750 $51,475,948
============ ============ ============ =========== ===========
At value (Note 1A) $117,814,323 $ 5,453,046 $ 45,275,079 $99,111,451 $50,320,862
Cash (overdraft) 7,136,190 146,232 216,878 (844,648) 432,370
Receivables:
Investment securities sold 8,194,752 203,958 -- -- --
Trust shares sold 1,325,484 97,676 77,123 749,933 43,998
Interest and dividends 312,115 99,680 876,092 33,477 277,932
Other assets 511 -- 64 32 394
------------ ---------- ----------- ----------- -----------
Total Assets 134,783,375 6,000,592 46,445,236 99,050,245 51,075,556
------------ ---------- ----------- ----------- -----------
Liabilities
Payables:
Investment securities purchased 10,296,126 254,463 -- 8,663,069 --
Trust shares redeemed 391,890 51,713 169,668 303,875 262,145
Dividend payable January 15, 1995 218,824 5,265 60,090 27,060 10,278
Accrued expenses 106,924 -- 11,555 95,557 58,127
Accrued advisory fee 75,728 1,600 25,036 54,599 31,398
------------ ---------- ----------- ----------- -----------
Total Liabilities 11,089,492 313,041 266,349 9,144,160 361,948
------------ ---------- ----------- ----------- -----------
Net Assets $123,693,883 $5,687,551 $46,178,887 $89,906,085 $50,713,608
============ ========== =========== =========== ===========
Net Assets Consist of:
Capital paid in $119,529,194 $5,962,264 $48,879,683 $88,010,384 $51,745,082
Undistributed net investment income 302,087 845 54,052 -- 123,612
Accumulated net realized loss on
investment transactions -- (211,367) (77,064) -- --
Net unrealized appreciation (depreciation)
in value of investments 3,862,602 (64,191) (2,677,244) 1,895,701 (1,155,086)
------------ ---------- ----------- ----------- -----------
Total $123,693,883 $5,687,551 $46,178,887 $89,906,085 $50,713,608
============ ========== =========== =========== ===========
Shares of Beneficial Interest Outstanding
(Note 2) 9,190,005 1,046,574 4,996,279 5,472,424 4,654,825
============ ========== =========== =========== ===========
Net Asset Value and Redemption Price
Per Share--Class A (Note 2) $13.46 $5.43 $9.24 $16.43 $10.89
============ ========== =========== =========== ===========
Maximum Offering Price Per Share--
Class A (Net Asset Value/.9375)* $14.36 $5.79 $9.86 $17.53 $11.62
============ ========== =========== =========== ===========
On purchases of $25,000 or more, the sales charge is reduced.
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Operations
FIRST INVESTORS SERIES FUND
Year Ended December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Insured
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Intermediate Investment Special
Blue Chip Tax Exempt Grade Situations Total Return
Series Series Series Series Series
--------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income
Income:
Interest $ 383,165 $ 210,341 $3,462,186 $ 812,732 $ 1,471,058
Dividends 2,455,337 -- -- 229,329 474,859
------------ ----------- ----------- ----------- -----------
Total income 2,838,502 210,341 3,462,186 1,042,061 1,945,917
Expenses:
Advisory fee (Note 4) 1,214,010 27,088 350,462 746,679 548,804
Shareholder servicing costs (Note 4) 444,129 8,427 148,991 349,966 221,138
Distribution plan expenses (Note 5) 364,206 -- 140,185 224,004 163,112
Reports and notices to shareholders 75,406 881 13,494 53,562 34,902
Professional fees 35,225 5,368 17,363 24,246 21,797
Other expenses 40,008 1,675 16,003 21,612 42,924
------------ ----------- ----------- ----------- -----------
Total expenses 2,172,984 43,439 686,498 1,420,069 1,032,677
Less: Expenses waived or assumed (Note 4) (303,502) (37,144) (242,579) (186,670) (137,201)
------------ ----------- ----------- ----------- -----------
Net expenses 1,869,482 6,295 443,919 1,233,399 895,476
------------ ----------- ----------- ----------- -----------
Net investment income (loss) 969,020 204,046 3,018,267 (191,338) 1,050,441
------------ ----------- ----------- ----------- -----------
Realized and Unrealized Gain (Loss)
on Investments (Note 3):
Net realized gain (loss) on investments 12,824,558 (211,367) (77,604) 4,914,240 1,748,894
Net unrealized depreciation of investments (17,486,358) (64,191) (5,141,298) (7,165,669) (4,665,923)
------------ ----------- ----------- ----------- -----------
Net loss on investments (4,661,800) (275,558) (5,218,902) (2,251,429) (2,917,029)
------------ ----------- ----------- ----------- -----------
Net Decrease in Net Assets Resulting
from Operations $ (3,692,780) $ (71,512) $(2,200,635) $(2,442,767) $(1,866,588)
============ =========== =========== =========== ===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
FIRST INVESTORS SERIES FUND
- -----------------------------------------------------------------------------------------------------
INSURED
INTERMEDIATE
TAX EXEMPT
BLUE CHIP SERIES SERIES
--------------------------- -------------------------
1994 1993 1994 1993*
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income (loss) $ 969,020 $ 728,685 $ 204,046 $ 464
Net realized gain (loss) on investments 12,824,558 5,699,408 (211,367) --
Net unrealized appreciation (depreciation)
of investments (17,486,358) 1,775,364 (64,191) --
------------ ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ (3,692,780) $8,203,457 $ (71,512) $ 464
------------ ------------ ----------- -----------
Distributions to Shareholders from:
Net investment income (736,036) (722,550) (203,201) (464)
Net realized gain on investments (12,824,558) (5,699,408) -- --
Capital surplus -- -- -- --
------------ ------------ ----------- -----------
Total distributions (13,560,594) (6,421,958) (203,201) (464)
------------ ------------ ----------- -----------
Trust Share Transactions--Class A(a)
Issued 28,516,378 28,277,221 5,941,925 1,615,189
Issued on reinvestments 13,336,027 6,347,455 146,538 --
Redeemed (18,834,076) (17,977,798) (1,741,446) --
------------ ------------ ----------- -----------
Net increase (decrease) from share
transactions 23,018,329 16,646,878 4,347,017 1,615,189
------------ ------------ ----------- -----------
Total increase (decrease) in net assets 5,764,955 18,428,377 4,072,304 1,615,189
Net Assets
Beginning of year (Note 6) 117,928,928 99,500,551 1,615,247 58
End of year+ $123,693,883 $117,928,928 $5,687,551 $1,615,247
============ ============ =========== ===========
+ Includes undistributed net investment
income of $ 302,087 $ 69,103 $ 845 $ --
============ ============ =========== ===========
(a) Shares issued and redeemed--Class A (Note 2)
Issued 1,859,807 1,791,151 1,055,065 278,962
Issued on reinvestments 987,102 406,727 26,577 --
Redeemed (1,228,162) (1,134,354) (314,040) --
------------ ------------ ----------- -----------
Net increase (decrease) in shares 1,618,747 1,063,524 767,602 278,962
============ ============ =========== ===========
* From November 22, 1993 (commencement of operations) to December 31, 1993
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (Continued)
FIRST INVESTORS SERIES FUND
INVESTMENT GRADE SPECIAL SITUATIONS
SERIES SERIES
---------------------------- -------------------------
<S> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1994 1993
- --------------------------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income (loss) $ 3,018,267 $ 2,808,846 $ (191,338) $ (259,808)
Net realized gain (loss) on investments (77,604) 341,122 4,914,240 2,851,654
Net unrealized appreciation (depreciation)
of investments (5,141,298) 1,619,788 (7,165,669) 5,601,252
------------ ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ (2,200,635) 4,769,756 $(2,442,767) $ 8,193,098
------------ ------------ ----------- -----------
Distributions to Shareholders from:
Net investment income (2,986,294) (2,790,479) -- --
Net realized gain on investments -- (334,229) (4,722,902) (2,589,674)
Capital surplus -- -- (32) (2,064)
------------ ------------ ----------- -----------
Total distributions (2,986,294) (3,124,708) (4,722,934) (2,591,738)
------------ ------------ ----------- -----------
Trust Share Transactions--Class A(a)
Issued 11,602,927 15,713,878 44,120,605 31,336,227
Issued on reinvestments 2,283,004 2,414,370 4,695,874 2,580,327
Redeemed (11,027,449) (9,188,408) (10,892,979) (6,183,279)
------------ ------------ ----------- -----------
Net increase (decrease) from
share transactions 2,858,482 8,939,840 37,923,500 27,733,275
------------ ------------ ----------- -----------
Total increase (decrease) in net assets (2,328,447) 10,584,888 30,757,799 33,334,635
Net Assets
Beginning of year (Note 6) 48,507,334 37,922,446 59,148,286 25,813,651
------------ ------------ ----------- -----------
End of year+ $ 46,178,887 $ 48,507,334 $89,906,085 $59,148,286
============ ============ =========== ===========
+ Includes undistributed net investment
income of $ 54,052 22,079 $ -- $ --
============ ============ =========== ===========
(a) Shares issued and redeemed--Class A (Note 2)
Issued 1,196,162 1,519,451 2,520,975 1,858,623
Issued on reinvestments 238,751 233,210 285,811 143,352
Redeemed (1,136,131) (884,825) (620,009) (369,459)
------------ ------------ ----------- -----------
Net increase (decrease) in shares 298,782 867,836 2,186,777 1,632,516
============ ============ =========== ===========
* From November 22, 1993 (commencement of operations) to December 31, 1993
</TABLE>
See notes to financial statements
Statement of Changes in Net Assets (Continued)
FIRST INVESTORS SERIES FUND
TOTAL RETURN
<PAGE>
<TABLE>
<CAPTION>
SERIES
--------------------------
Year Ended December 31 1994 1993
- ---------------------------------- ----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets
from Operations
Net investment income (loss) $ 1,050,441 $ 1,229,855
Net realized gain (loss) on
investments 1,748,894 6,350,729
Net unrealized appreciation
(depreciation) of investments (4,665,923) (3,376,375)
----------- -----------
Net increase (decrease) in net
assets resulting from operations $(1,866,588) $ 4,204,209
----------- -----------
Distributions to Shareholders
from:
Net investment income (881,057) (1,228,362)
Net realized gain on investments (1,748,894) (5,467,764)
Capital surplus -- --
----------- -----------
Total distributions (2,629,951) (6,696,126)
----------- -----------
Trust Share Transactions--Class A(a)
Issued 5,931,145 6,247,849
Issued on reinvestments 2,614,430 6,655,224
Redeemed (11,511,286) (17,772,550)
----------- -----------
Net increase (decrease) from
share transactions (2,965,711) (4,869,477)
----------- -----------
Total increase (decrease) in net
assets (7,462,250) (7,361,394)
Net Assets
Beginning of year (Note 6) 58,175,858 65,537,252
----------- -----------
End of year+ $50,713,608 $58,175,858
=========== ===========
+ Includes undistributed net
investment income of $ 123,612 $ 22,114
=========== ===========
(a) Shares issued and
redeemed--Class A (Note 2)
Issued 509,492 491,829
Issued on reinvestments 237,905 554,761
Redeemed (991,334) (1,395,742)
----------- -----------
Net increase (decrease) in shares (243,937) (349,152)
=========== ===========
* From November 22, 1993 (commencement of operations) to December 31, 1993
</TABLE>
See notes to financial statements
Notes to Financial Statements
FIRST INVESTORS SERIES FUND
1. Significant Accounting Policies--The Fund, a Massachusetts business
trust, is registered under the Investment Company Act of 1940 (the
<PAGE>
"1940 Act") as a diversified, open-end management investment company.
The Fund operates as a series fund, issuing shares of beneficial
interest in the Blue Chip, Insured Intermediate Tax Exempt, Investment
Grade, Special Situations and Total Return Series and accounts
separately for the assets, liabilities and operations of each Series.
A. Security Valuation--Except as provided below, a security listed or
traded on an exchange or the NASDAQ National Market System is valued at
its last sale price on the exchange or system where the security is
principally traded, and lacking any sales, the security is valued at
the mean between the closing bid and asked prices. Each security traded
in the over-the-counter market (including securities listed on
exchanges whose primary market is believed to be over-the-counter) is
valued at the mean between the last bid and asked prices based upon
quotes furnished by a market maker for such securities. Securities may
also be priced by a pricing service. The pricing service uses
quotations obtained from investment dealers or brokers, information
with respect to market transactions in comparable securities and other
available information in determining value. Short-term corporate notes
which are purchased at a discount are valued at amortized cost.
Securities for which market quotations are not readily available and
other assets are valued on a consistent basis at fair value as
determined in good faith by or under the supervision of the Fund's
officers in a manner specifically authorized by the Trustees of the
Fund.
The municipal bonds in which the Insured Intermediate Tax Exempt Series
invests are traded primarily in the over-the-counter markets. Such
securities are valued daily on the basis of valuations provided by a
pricing service approved by the Board of Trustees. The pricing service
considers security type, rating, market condition and yield data, as
well as market quotations and prices provided by market makers in
determining value. "When Issued Securities" are reflected in the assets
of the Series as of the date the securities are purchased.
The municipal bonds held by the Insured Intermediate Tax Exempt Series
are insured as to payment of principal and interest by the issuer or
under insurance policies written by independent insurance companies. It
is the intention of the Series 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 securities
which are not in default. The Series may invest up to 20% of its assets
in portfolio securities not covered by the insurance feature.
B. Federal Income Taxes--No provision has been made for federal income
taxes on net income or capital gains since it is the policy of each
Series to continue to comply with the special provisions of the
Internal Revenue Code applicable to investment companies and to make
sufficient distributions of income and capital gains to relieve it from
all, or substantially all, federal income taxes. At December 31, 1994,
the Investment Grade Series and the Insured Intermediate Tax Exempt
Series had capital loss carryovers of $65,952 and $160,056,
respectively, expiring in 2002.
C. Distributions to Shareholders--Dividends from net investment income
to shareholders of the Insured Intermediate Tax Exempt Series and the
<PAGE>
Investment Grade Series are declared daily and paid monthly. Dividends
from net investment income of the Blue Chip Series and Total Return
Series are declared and paid quarterly and dividends from net
investment income of the Special Situations Series are declared and
paid annually. Distributions from net realized capital gains of all
Series are normally declared and paid annually. To the extent that net
realized capital gains can be offset by capital loss carryovers, it is
the policy of the Fund not to distribute such gains.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for net operating losses, tax-exempt interest,
capital loss carryforwards and post October losses.
D. Expense Allocation--Expenses directly charged or attributable to a
Series are paid from the assets of that Series. General expenses of
First Investors Series Fund are allocated among and charged to the
assets of each Series on a fair and equitable basis, which may be based
on the relative assets of each Series or the nature of the services
performed and relative applicability to each Series.
E. Other--Security transactions are accounted for on the date the
securities are purchased or sold. Cost is determined, and gains and
losses are based, on the identified cost basis for both financial
statement and federal income tax purposes. Dividend income is recorded
on the ex-dividend date. Interest income and estimated expenses are
accrued daily.
2. Trust Shares--The Declaration of Trust permits the Fund to issue an
unlimited number of shares of beneficial interest. On September 22,
1994, the Board of Trustees established an unlimited number of Class A
and an unlimited number of Class B shares of beneficial interest. As of
December 31, 1994, only Class A shares have been issued by the Fund.
3. Security Transactions--For the year ended December 31, 1994,
purchases and sales of securities and long-term U.S. Government
obligations, excluding U.S. Treasury bills and short-term corporate
notes, were as follows:
<TABLE>
<CAPTION>
Long-Term U.S.
Securities Government Obligations
------------------------ ------------------------
Cost of Proceeds Cost of Proceeds
SERIES Purchases of Sales Purchases of Sales
- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
BLUE CHIP $97,220,865 $94,298,216 $ -- $ --
INSURED INTERMEDIATE TAX EXEMPT 13,929,396 8,200,792 -- --
INVESTMENT GRADE 6,555,976 6,747,505 699,999 562,159
SPECIAL SITUATIONS 59,407,836 31,101,873 -- --
TOTAL RETURN 53,324,555 63,618,094 -- 5,553,395
</TABLE>
<PAGE>
At December 31, 1994, aggregate cost and net unrealized appreciation
(depreciation) of securities for federal income tax purposes were as
follows:
<TABLE>
<CAPTION>
Gross Gross Net
Aggregate Unrealized Unrealized Appreciation
SERIES Cost Appreciation Depreciation (Depreciation)
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BLUE CHIP $113,951,721 $ 7,303,289 $ 3,440,687 $ 3,862,602
INSURED INTERMEDIATE TAX EXEMPT 5,517,237 26,424 90,615 (64,191)
INVESTMENT GRADE 47,952,323 112,996 2,790,240 (2,677,244)
SPECIAL SITUATIONS 97,215,750 10,384,438 8,488,737 1,895,701
TOTAL RETURN 51,475,948 2,984,829 4,139,915 (1,155,086)
</TABLE>
4. Advisory Fee and Other Transactions With Affiliates (Also see Note
5)--Certain officers and trustees of the Fund are officers and
directors of its investment adviser, First Investors Management
Company, Inc. ("FIMCO"), its underwriter, First Investors Corporation
(FIC), its transfer agent, Administrative Data Management Corp. ("ADM")
and/or First Financial Savings Bank, S.L.A. ("FFS"), custodian of the
Fund's Individual Retirement Accounts. Officers and trustees of the
Fund received no remuneration from the Fund for serving in such
capacities. Their remuneration (together with certain other expenses of
the Fund) is paid by FIMCO or FIC.
The Investment Advisory Agreement provides as compensation to FIMCO for
each Series other than the Insured Intermediate Tax Exempt Series and
the Investment Grade Series, an annual fee, payable monthly, at the
rate of 1% on the first $200 million of each Series' average daily net
assets, .75% on the next $300 million, declining by .03% on each $250
million thereafter, down to .66% on average daily net assets over $1
billion. The annual fee for the Insured Intermediate Tax Exempt Series
is payable monthly, at the rate of .60% of the Series' average daily
net assets. The annual fee for the Investment Grade Series is payable
monthly, at the rate of .75% on the first $300 million of the Series'
average daily net assets, .72% on the next $200 million, .69% on the
next $250 million, and .66% on average daily net assets over $750
million. Total advisory fees accrued to FIMCO for the year ended
December 31, 1994 were $2,887,043, of which $694,895 was waived. In
addition, expenses of the Insured Intermediate Tax Exempt and
Investment Grade Series amounting to $7,923 and $85,012, respectively,
were assumed by FIMCO.
Pursuant to certain state regulations, FIMCO has agreed to reimburse
each Series if and to the extent that the Series' aggregate operating
expenses, including advisory fees but generally excluding interest,
taxes, brokerage commissions and extraordinary expenses, exceed any
limitation on expenses applicable to each Series in those states
(unless waivers of such limitations have been obtained). The amount of
any such reimbursement is limited to each Series' yearly advisory fee.
For the year ended December 31, 1994, no reimbursement was required
pursuant to these provisions.
<PAGE>
For the year ended December 31, 1994, FIC, as underwriter, received
$3,458,992 in commissions from the sale of Fund shares after allowing
$69,378 to other dealers. Shareholder servicing costs included $835,289
in transfer agent fees and out of pocket expenses accrued to ADM (of
which $119,266 was waived by ADM) and $337,362 in custodian fees paid
to FFS.
5. Distribution Plan--Pursuant to a Distribution Plan adopted under
Rule 12b-1 of the 1940 Act, each Series pays a fee equal to .30% of its
average net assets on an annualized basis each fiscal year, payable
monthly. The fee consists of a distribution fee and a service fee. The
service fee is paid for the ongoing servicing of clients who are
shareholders of that Series.
6. Capitalization--The Insured Intermediate Tax Exempt Series commenced
operations in November 1993, following the sale of 10 shares to FIMCO
for $58.
<PAGE>
Independent Auditor's Report
To the Shareholders and Trustees of
First Investors Series Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of the Blue Chip, Insured
Intermediate Tax Exempt, Investment Grade, Special Situations and Total
Return Series (comprising First Investors Series Fund), as of December
31, 1994, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years
in the period then ended and financial highlights for each of the
periods presented. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the Blue Chip, Insured Intermediate Tax Exempt,
Investment Grade, Special Situations and Total Return Series of First
Investors Series Fund at December 31, 1994, and the results of their
operations, changes in their net assets and financial highlights for
each of the respective periods presented, in conformity with generally
accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 31, 1995
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: Financial Statements are set forth in Part B,
Statement of Additional Information
(b) Exhibits:
(1)/15/ Amended and Restated Declaration of Trust
(2)/1/ By-laws
(3) Not Applicable
(4)/2,5,8,9,14/ Specimen Certificates
(5)a./15/ Investment Advisory Agreement between Registrant and First
Investors Management Company, Inc.
(6)/14/ Underwriting Agreement between Registrant and First
Investors Corporation
(7) Not Applicable
(8)a./3/ Custodian Agreement between Registrant and Irving Trust
Company
b./4/ Custodian Agreement between Registrant and Brown Brothers
Harriman & Co.
c./11/ Supplement to Custodian Agreement between Registrant and
The Bank of New York
(9)/3/ Administration Agreement between Registrant, First Investors
Management Company, Inc., First Investors Corporation and
Administrative Data Management Corp.
(10)/13/ Opinion of counsel
(11)a. Consent of Independent Accountants
b./11/ Powers of Attorney
(12) Not Applicable
C-1
<PAGE>
(13)/1,5,6,7,12/ Undertakings of the Underwriter
(14)a./10/ First Investors Profit Sharing/Money Purchase Pension
Retirement Plan for Sole Proprietorships, Partnerships, and
Corporations
b./11/ First Investors Individual Retirement Account
c./6/ First Investors 403(b) Custodial Account
d./11/ First Investors SEP-IRA and SARSEP-IRA
(15)a./15/ Amended and Restated Class A Distribution Plan
b./15/ Class B Distribution Plan
(16) Performance Calculations
- -------------------
1 Incorporated by reference from Registrant's Registration Statement
(File No. 33-25623) filed on November 18, 1988.
2 Incorporated by reference from Post-Effective Amendment No. 1 to
Registrant's Registration Statement (File No. 33-25623) filed on June
29, 1989.
3 Incorporated by reference from Post-Effective Amendment No. 2 to
Registrant's Registration Statement (File No. 33-25623) filed on
January 16, 1990.
4 Incorporated by reference from Post-Effective Amendment No. 3 to
Registrant's Registration Statement (File No. 33-25623) filed on
April 20, 1990.
5 Incorporated by reference from Post-Effective Amendment
No. 4 to Registrant's Registration Statement (File No.
33-25623) filed on June 15, 1990.
6 Incorporated by reference from Post-Effective Amendment
No. 5 to Registrant's Registration Statement (File No.
33-25623) filed on September 5, 1990.
7 Incorporated by reference from Post-Effective Amendment No. 6 to
Registrant's Registration Statement (File No.33-25623) filed on
October 15, 1990.
8 Incorporated by reference from Post-Effective Amendment No. 8 to
Registrant's Registration Statement (File No.33-25623) filed on
February 7, 1991.
9 Incorporated by reference from Post-Effective Amendment No. 9 to
Registrant's Registration Statement (File No.33-25623) filed on April
18, 1991.
10 Incorporated by reference from Post-Effective Amendment No. 10 to
Registrant's Registration Statement (File No.33-25623) filed on April
15, 1991.
C-2
<PAGE>
11 Incorporated by reference from Post-Effective Amendment No. 11 to
Registrant's Registration Statement (File No.33-25623) filed on April
29, 1993.
12 Incorporated by reference from Post-Effective Amendment No.12 to
Registrants Registration Statement (File No. 33-25623) filed on
August 30, 1993.
13 Incorporated by reference from Registrant's Rule 24f-2 Notice for its
fiscal year ending December 31, 1994 filed on February 21, 1995.
14 Incorporated by reference from Post-Effective Amendment No.15 to
Registrant's Registration Statement (File No. 33-25623) filed on
April 29, 1994.
15 Incorporated by reference from Post-Effective Amendment No. 16 to
Registrant's Registration Statement (File No. 33-25623) filed on
October 18, 1994.
Item 25. Persons Controlled by or under common control with Registrant
There are no persons controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of
Record Holders as of
Title of Class February 28, 1995
-------------- ---------------------------
<S> <C> <C>
Class A Class B
Blue Chip Series 22,716 45
Total Return Series 10,145 4
Special Situations Series 22,553 95
Investment Grade Series 4,999 6
Insured Intermediate Tax Exempt Series 360 2
</TABLE>
Item 27. Indemnification
Article XI, Section 1 of Registrant's Declaration of Trust provides as
follows:
Section 1.
Provided they have exercised reasonable care and have acted under the
reasonable belief that their actions are in the best interest of the Trust, the
Trustees shall not be responsible for or liable in any event for neglect or
wrongdoing of them or any officer, agent, employee or investment adviser of the
Trust, but nothing contained herein shall protect any Trustee against any
C-3
<PAGE>
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.
Article XI, Section 2 of Registrant's Declaration of Trust provides as
follows:
Section 2.
(a) Subject to the exceptions and limitations contained in Section (b)
below:
(i) every person who is, or has been, a Trustee or officer of the
Trust (a "Covered Person") shall be indemnified by the Trust to
the fullest extent permitted by law against liability and against
expenses reasonably incurred or paid by him in connection with any
claim, action, suit or proceeding which he becomes involved as a
party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the
settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened, and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office or (B) not to have acted in good faith in
the reasonable belief that his action was in the best interest of
the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office,
(A) by the court or other body approving the settlement; or
C-4
<PAGE>
(B) by at least a majority or those Trustees who are neither
interested persons of the Trust nor are parties to the matter
based upon a review of readily available facts (as opposed to a
full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full trial-type
inquiry); provided, however, that any Shareholder may, by
appropriate legal proceedings, challenge any such determination by
the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under the
law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 2 may be paid by the Trust from time to time prior
to final disposition thereof upon receipt of an undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the Trust if it
is ultimately determined that he is not entitled to indemnification under this
Section 2; provided, however, that either (a) such Covered Person shall have
provided appropriate security for such undertaking, (b) the Trust is insured
against losses arising out of any such advance payments or (c) either a majority
of the Trustees who are neither interested persons of the Trust nor are parties
to the matter, or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is a reason to believe that such Covered Person
will be found entitled to indemnification under this Section 2.
The general effect of this Indemnification will be to indemnify the
officers and Trustees of the Registrant from costs and expenses arising from any
action, suit or proceeding to which they may be made a party by reason of their
being or having been a Trustee or officer of the Registrant, except where such
action is determined to have arisen out of the willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
the Trustee's or officer's office.
C-5
<PAGE>
The Registrant's Investment Advisory Agreement provides as follows:
The Manager shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Company or any Series in connection with
the matters to which this Agreement relate except a loss resulting from the
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
partner, employee, or agent of the Manager, who may be or become an officer,
Board member, employee or agent of the Company shall be deemed, when rendering
services to the Company or acting in any business of the Company, to be
rendering such services to or acting solely for the Company and not as an
officer, partner, employee, or agent or one under the control or direction of
the Manager even though paid by it.
The Registrant's Underwriting Agreement provides as follows:
The Underwriter agrees to use its best efforts in effecting the sale
and public distribution of the shares of the Fund through dealers and to perform
its duties in redeeming and repurchasing the shares of the Fund, but nothing
contained in this Agreement shall make the Underwriter or any of its officers
and directors or shareholders liable for any loss sustained by the Fund or any
of its officers, trustees, or shareholders, or by any other person on account of
any act done or omitted to be done by the Underwriter under this Agreement
provided that nothing herein contained shall protect the Underwriter against any
liability to the Fund or to any of its shareholders to which the Underwriter
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties as Underwriter or by reason of its
reckless disregard of its obligations or duties as Underwriter under this
Agreement. Nothing in this Agreement shall protect the Underwriter from any
liabilities which they may have under the Securities Act of 1933 or the
Investment Company Act of 1940.
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 provisions, the Registrant
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable. See Item 32 herein.
C-6
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
First Investors Management Company, Inc., the Registrant's Investment
Adviser, also serves as investment adviser to:
First Investors Cash Management Fund, Inc.
First Investors Fund For Income, Inc.
First Investors Global Fund, Inc.
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Insured Tax Exempt Fund, Inc.
First Investors Life Series Fund
First Investors Multi-State Insured Tax Free Fund
First Investors New York Insured Tax Free Fund, Inc.
First Investors Series Fund II, Inc.
First Investors Special Bond Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
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 29. Principal Underwriters
(a) First Investors Corporation, Underwriter of the Registrant, is also
underwriter for:
First Investors Cash Management Fund, Inc.
First Investors Fund For Income, Inc.
First Investors Global Fund, Inc.
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Insured Tax Exempt Fund, Inc.
First Investors Multi-State Insured Tax Free Fund
First Investors New York Insured Tax Free Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
First Investors Series Fund II, Inc.
C-7
<PAGE>
(b) The following persons are the officers and directors of the Underwriter:
Position and Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
- ----------------------- --------------------- ---------------
Glenn O. Head Chairman and Director President
95 Wall Street and Trustee
New York, NY 10005
John T. Sullivan Director Chairman of the
95 Wall Street Board of
New York, NY 10005 Trustees
Roger L. Grayson Director Trustee
95 Wall Street
New York, NY 10005
Joseph I. Benedek Treasurer Treasurer
10 Woodbridge Center
Drive
Woodbridge, NJ 07095
Concetta Durso Assistant Vice Vice President
95 Wall Street President and and Secretary
New York, NY 10005 Assistant Secretary
Lawrence A. Fauci Senior Vice President None
95 Wall Street and Director
New York, NY 10005
Kathryn S. Head Vice President, Trustee
10 Woodbridge Center Chief Financial
Drive Officer and Director
Woodbridge, NJ 07095
Louis Rinaldi Senior Vice None
10 Woodbridge Center President
Drive
Woodbridge, NJ 07095
Frederick Miller Vice President None
10 Woodbridge Center
Drive
Woodbridge, NJ 07095
C-8
<PAGE>
Position and Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
- ----------------------- --------------------- ---------------
Larry R. Lavoie Secretary and None
95 Wall Street General Counsel
New York, NY 10005
Carol Lerner Brown Assistant Secretary Assistant
95 Wall Street Secretary
New York, NY 10005
Marvin M. Hecker President None
95 Wall Street
New York, NY 10005
Matthew Smith Vice President None
10 Woodbridge Center
Drive
Woodbridge, NJ 07095
Howard M. Factor Vice President None
95 Wall Street
New York, NY 10005
Jeremiah J. Lyons Director None
56 Weston Avenue
Chatham, NJ 07928
Jane W. Kruzan Director None
15 Norwood Avenue
Summit, NJ 07901-0493
Kellen M. Carson Vice President None
95 Wall Street
New York, NY 10005
Anne Condon Vice President None
10 Woodbridge Center
Drive
Woodbridge, NJ 07095
(c) Not applicable
Item 30. Location of Accounts and Records
Physical possession of the books, accounts and records of the
Registrant are held by First Investors Management Company, Inc. and its
affiliated companies, First Investors Corporation and Administrative Data
Management Corp., at their corporate
C-9
<PAGE>
headquarters, 95 Wall Street, New York, NY 10005 and administrative offices, 10
Woodbridge Center Drive, Woodbridge, NJ 07095, except for those maintained by
the Registrant's Custodians, The Bank of New York, 48 Wall Street, New York, NY
10286, and Brown Brothers Harriman & Co., 40 Water Street, Boston, MA 02109.
Item 31. Management Services
Inapplicable
Item 32. Undertakings
The Registrant undertakes to carry out all indemnification provisions
of its Declaration of Trust, Advisory Agreement and Underwriting Agreement in
accordance with Investment Company Act Release No. 11330 (September 4, 1980) and
successor releases.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the provisions under Item 27 herein, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes to furnish a copy of its latest
annual report to shareholders, upon request and without charge, to each person
to whom a prospectus is delivered.
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this Amendment
meets all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this Post-Effective Amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
17th day of April, 1995.
FIRST INVESTORS SERIES FUND
(Registrant)
By: /s/ Glenn O. Head
---------------------------
Glenn O. Head
President and Trustee
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Amendment to this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
/s/ Glenn O. Head Principal Executive April 17, 1995
- --------------------- Officer and Trustee
Glenn O. Head
/s/ Joseph I. Benedek Principal Financial April 17, 1995
- --------------------- and Accounting Officer
Joseph I. Benedek
/s/ Kathryn S. Head Trustee April 17, 1995
- ---------------------
Kathryn S. Head
/s/ James J. Coy Trustee April 17, 1995
- ---------------------
James J. Coy
/s/ F. William Ortman Trustee April 17, 1995
- ---------------------
F. William Ortman, Jr.
/s/ Roger L. Grayson Trustee April 17, 1995
- ---------------------
Roger L. Grayson
/s/ Herbert Rubinstein Trustee April 17, 1995
- ----------------------
Herbert Rubinstein
/s/ James M. Srygley Trustee April 17, 1995
- ---------------------
James M. Srygley
/s/ John T. Sullivan Trustee April 17, 1995
- ---------------------
John T. Sullivan
/s/ Rex R. Reed Trustee April 17, 1995
- ---------------------
Rex R. Reed
/s/ Robert F. Wentworth Trustee April 17, 1995
- -----------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
-------------------------
Larry R. Lavoie
Attorney-in-fact
C-11
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------------------------------
23 Consent of Accountants
24 Power of Attorney
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
99 Performance Calculations
<PAGE>
EXHIBIT 23
Consent of Independent Certified Public Accountants
First Investors Series Fund
95 Wall Street
New York, New York 10005
We consent to the use in Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A (File No. 33-25623) of our report dated
January 31, 1995 relating to the December 31, 1994 financial statements of First
Investors Series Fund, which are included in said Registration Statement.
/s/ Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 11, 1995
<PAGE>
EXHIBIT 24
First Investors Series Fund
Power of Attorney
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer and/or trustee
of First Investors Series Fund hereby appoints Larry R. Lavoie or Glenn O. Head,
and each of them, his true and lawful attorney to execute in his name, place and
stead and on his behalf a Registration Statement on Form N-1A for the
registration pursuant to the Securities Act of 1933 and the Investment Company
Act of 1940 of shares of beneficial interest of said Massachusetts business
trust, and any and all amendments to said Registration Statement (including
post-effective amendments), and all instruments necessary or incidental in
connection therewith and to file the same with the Securities and Exchange
Commission. Said attorney shall have full power and authority to do and perform
in the name and on behalf of the undersigned every act whatsoever requisite or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do, the undersigned hereby ratifying and
approving all such acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 19th
day of January, 1995.
/s/James M. Srygley
---------------------------------
James M. Srygley
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> FIRST INVESTORS BLUE CHIP SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 113952
<INVESTMENTS-AT-VALUE> 117814
<RECEIVABLES> 9832
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 134783
<PAYABLE-FOR-SECURITIES> 10296
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 793
<TOTAL-LIABILITIES> 11089
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119529
<SHARES-COMMON-STOCK> 9190
<SHARES-COMMON-PRIOR> 7571
<ACCUMULATED-NII-CURRENT> 302
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3863
<NET-ASSETS> 123694
<DIVIDEND-INCOME> 2455
<INTEREST-INCOME> 383
<OTHER-INCOME> 0
<EXPENSES-NET> 1869
<NET-INVESTMENT-INCOME> 969
<REALIZED-GAINS-CURRENT> 12825
<APPREC-INCREASE-CURRENT> (17486)
<NET-CHANGE-FROM-OPS> (3693)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (736)
<DISTRIBUTIONS-OF-GAINS> (12825)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28516
<NUMBER-OF-SHARES-REDEEMED> 18834
<SHARES-REINVESTED> 13336
<NET-CHANGE-IN-ASSETS> 5765
<ACCUMULATED-NII-PRIOR> 69
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1214
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2173
<AVERAGE-NET-ASSETS> 121401
<PER-SHARE-NAV-BEGIN> 15.58
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> (.58)
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> 1.56
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.46
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> FIRST INVESTORS INSURED INTERMEDIATE TAX EXEMPT SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 5517
<INVESTMENTS-AT-VALUE> 5453
<RECEIVABLES> 401
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6001
<PAYABLE-FOR-SECURITIES> 254
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59
<TOTAL-LIABILITIES> 313
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5962
<SHARES-COMMON-STOCK> 1047
<SHARES-COMMON-PRIOR> 279
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (211)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (64)
<NET-ASSETS> 5688
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 210
<OTHER-INCOME> 0
<EXPENSES-NET> 6
<NET-INVESTMENT-INCOME> 204
<REALIZED-GAINS-CURRENT> (211)
<APPREC-INCREASE-CURRENT> (64)
<NET-CHANGE-FROM-OPS> (72)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (203)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5942
<NUMBER-OF-SHARES-REDEEMED> 1741
<SHARES-REINVESTED> 147
<NET-CHANGE-IN-ASSETS> 4072
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 27
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 43
<AVERAGE-NET-ASSETS> 4515
<PER-SHARE-NAV-BEGIN> 5.79
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> (.36)
<PER-SHARE-DIVIDEND> .24
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.43
<EXPENSE-RATIO> .14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> FIRST INVESTORS INVESTMENT GRADE SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 47952
<INVESTMENTS-AT-VALUE> 45275
<RECEIVABLES> 953
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46445
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 266
<TOTAL-LIABILITIES> 266
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48880
<SHARES-COMMON-STOCK> 4996
<SHARES-COMMON-PRIOR> 4697
<ACCUMULATED-NII-CURRENT> 54
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (78)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2677)
<NET-ASSETS> 46179
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3462
<OTHER-INCOME> 0
<EXPENSES-NET> 444
<NET-INVESTMENT-INCOME> 3018
<REALIZED-GAINS-CURRENT> (78)
<APPREC-INCREASE-CURRENT> (5141)
<NET-CHANGE-FROM-OPS> (2201)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2986)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11603
<NUMBER-OF-SHARES-REDEEMED> 11027
<SHARES-REINVESTED> 2283
<NET-CHANGE-IN-ASSETS> (2328)
<ACCUMULATED-NII-PRIOR> 22
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 350
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 686
<AVERAGE-NET-ASSETS> 46723
<PER-SHARE-NAV-BEGIN> 10.33
<PER-SHARE-NII> .62
<PER-SHARE-GAIN-APPREC> (1.09)
<PER-SHARE-DIVIDEND> .62
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.24
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> FIRST INVESTORS SPECIAL SITUATIONS SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 97216
<INVESTMENTS-AT-VALUE> 99111
<RECEIVABLES> 783
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 99050
<PAYABLE-FOR-SECURITIES> 8663
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 481
<TOTAL-LIABILITIES> 9144
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88010
<SHARES-COMMON-STOCK> 5472
<SHARES-COMMON-PRIOR> 3286
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1896
<NET-ASSETS> 89906
<DIVIDEND-INCOME> 229
<INTEREST-INCOME> 813
<OTHER-INCOME> 0
<EXPENSES-NET> 1233
<NET-INVESTMENT-INCOME> (191)
<REALIZED-GAINS-CURRENT> 4914
<APPREC-INCREASE-CURRENT> (7166)
<NET-CHANGE-FROM-OPS> (2443)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (4723)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44121
<NUMBER-OF-SHARES-REDEEMED> 10893
<SHARES-REINVESTED> 4696
<NET-CHANGE-IN-ASSETS> 30758
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 747
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1420
<AVERAGE-NET-ASSETS> 74668
<PER-SHARE-NAV-BEGIN> 18
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> (.62)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .91
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.43
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> FIRST INVESTORS TOTAL RETURN SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 51476
<INVESTMENTS-AT-VALUE> 50321
<RECEIVABLES> 322
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51076
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 362
<TOTAL-LIABILITIES> 362
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51745
<SHARES-COMMON-STOCK> 4655
<SHARES-COMMON-PRIOR> 4899
<ACCUMULATED-NII-CURRENT> 124
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1155)
<NET-ASSETS> 50714
<DIVIDEND-INCOME> 475
<INTEREST-INCOME> 1471
<OTHER-INCOME> 0
<EXPENSES-NET> 895
<NET-INVESTMENT-INCOME> 1050
<REALIZED-GAINS-CURRENT> 1749
<APPREC-INCREASE-CURRENT> (4666)
<NET-CHANGE-FROM-OPS> (1867)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (881)
<DISTRIBUTIONS-OF-GAINS> (1749)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5931
<NUMBER-OF-SHARES-REDEEMED> 11511
<SHARES-REINVESTED> 2614
<NET-CHANGE-IN-ASSETS> (7462)
<ACCUMULATED-NII-PRIOR> 22
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 549
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1033
<AVERAGE-NET-ASSETS> 54880
<PER-SHARE-NAV-BEGIN> 11.88
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> (.62)
<PER-SHARE-DIVIDEND> .19
<PER-SHARE-DISTRIBUTIONS> .39
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.89
<EXPENSE-RATIO> 1.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99
SEC Standardized Total Returns
Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:
Average Annual
Total Return = ((ERV divided by P) ) - 1
Total Return = ((ERV - P) divided by P)
WHERE: ERV = Ending redeemable value of a hypothetical $1,000 investment made
at the beginning of 1, 5, or 10 year periods (or fractional period
thereof.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the standardized
average annual total return and total return for First Investors Series Fund as
of December 31, 1994.
<TABLE>
<CAPTION>
AVE. ANNUAL TOTAL
ERV P N TOTAL RETURN RETURN
--- - - ------------ ------
<S> <C> <C> <C> <C> <C>
Blue Chip Series
----------------
1 year: $909.10 $1,000.00 1.00 (9.09%) (9.09%)
5 years: $1,284.60 $1,000.00 5.00 5.14% 28.46%
Life of Fund: $1,482.10 $1,000.00 5.99 6.78% 48.21%
Insured Intermediate Series
- ---------------------------
1 year: $945.40 $1,000.00 1.00 (5.46%) (5.46%)
Life of Fund: $945.40 $1,000.00 1.09 (4.95%) (5.46%)
Investment Grade Series
-----------------------
1 year: $894.10 $1,000.00 1.00 (10.59%) (10.59%)
Life of Fund: $1,226.50 $1,000.00 3.87 5.41% 22.65%
Special Situation Series
------------------------
1 year: $903.20 $1,000.00 1.00 (9.68%) (9.68%)
Life of Fund: $1,995.50 $1,000.00 4.29 17.48% 99.55%
Total Return Series
-------------------
1 year: $904.50 $1,000.00 1.00 (9.55%) (9.55%)
Life of Fund: $1,187.90 $1,000.00 4.69 3.74% 18.79%
</TABLE>
<PAGE>
Distribution yields for First Investor's Funds are calculated using the
following formulas:
Yield = (a/b)
Where:
a = dividends declared during the last 12 months.
b = Net asset value per share on the last day of the period.
The following is a list of the information used to calculate the distribution
yield for First Investors Series Fund as of December 31, 1994.
Distribution
a b Yield
- - -----
Insured Intermediate
Tax Exempt Series $.238 $5.43 4.38%
Investment Grade Series $.616 $9.24 6.67%
<PAGE>
Yields for First Investor's Funds are calculated using the following formula:
2(((((a-b) + ((cd)-e))+1)-)-1)
Where:
a = dividends and interest earned during the 30 day period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
e = undeclared earned income.
The following is a list of the information used to calculate the for First
Investors Insured Intermediate Tax Exempt Series as of December 31, 1994.
<TABLE>
<CAPTION>
*Tax
Equivalent
a b c d e Yield Yield
- - - - - ----- ----------
<S> <C> <C> <C> <C> <C> <C>
$26,581 $1,549 1,014,561 $5.63 $.00 5.32% 8.31%
</TABLE>
* Tax Equivalent Yields are computed assuming a maximum federal tax rate of 36%.
<PAGE>
Yields for First Investor's Funds are calculated using the following formula:
2(((((a-b) + ((cd)-e))+1)-)-1)
Where:
a = dividends and interest earned during the 30 day period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
e = undeclared earned income.
The following is a list of the information used to calculate the for First
Investors Investment Grade Series as of December 31, 1994.
<TABLE>
<CAPTION>
a b c d e Yield
- - - - - -----
<S> <C> <C> <C> <C> <C>
$318,118 $35,414 4,990,799 $9.86 $.00 6.99%
</TABLE>
<PAGE>
NAV Only Total Returns
Average Annual Total Return and Total Return for First Investors Funds are
calculated using the following standardized formula:
Average Annual
Total Return = ((ERV divided by P) ) - 1
Total Return = ((ERV - P) divided by P)
WHERE: ERV = Ending redeemable value of a hypothetical $1,000 investment made
at the beginning of 1, 5, or 10 year periods (or fractional period
thereof.)
P = a hypothetical initial investment of $1,000
N = number of years
The following table lists the information used to calculate the average annual
total return and total return for First Investors Series Fund as of December 31,
1994.
<TABLE>
<CAPTION>
AVE. ANNUAL TOTAL
ERV P N TOTAL RETURN RETURN
--- - - ------------ ------
<S> <C> <C> <C> <C> <C>
Blue Chip Series
----------------
1 year: $969.80 $1,000.00 1.00 (3.02%) (3.02%)
5 years: $1,370.50 $1,000.00 5.00 6.51% 37.05%
Life of Fund: $1,580.70 $1,000.00 5.99 7.94% 58.07%
Insured Intermediate Series
- ---------------------------
1 year: $979.60 $1,000.00 1.00 (2.04%) (2.04%)
Life of Fund: $979.60 $1,000.00 1.09 (1.84%) (2.04%)
Investment Grade Series
-----------------------
1 year: $953.80 $1,000.00 1.00 (4.62%) (4.62%)
Life of Fund: $1,308.20 $1,000.00 3.87 7.18% 30.82%
Special Situation Series
------------------------
1 year: $963.40 $1,000.00 1.00 (3.66%) (3.66%)
Life of Fund: $2,128.40 $1,000.00 4.29 19.26% 112.84%
Total Return Series
-------------------
1 year: $964.70 $1,000.00 1.00 (3.53%) (3.53%)
Life of Fund: $1,266.60 $1,000.00 4.69 5.17% 22.66%
</TABLE>
<PAGE>
Distribution yields for First Investor's Funds are calculated using the
following formulas:
Yield = (a/b)
Where:
a = dividends declared during the last 12 months.
b = Maximum offering price per share on the last day of the
period.
The following is a list of the information used to calculate the distribution
yield for First Investors Series Fund as of December 31, 1994.
Distribution
a b Yield
- - -----
Insured Intermediate
Tax Exempt Series $.238 $5.63 4.23%
Investment Grade Series $.616 $9.86 6.25%
