As filed with the Securities and Exchange Commission on February 12, 1999
1933 Act File No. 33-25623
1940 Act File No. 811-5690
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26 [X]
FIRST INVESTORS SERIES FUND
(Exact name of Registrant as specified in charter)
95 Wall Street
New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code): (212) 858-8000
Ms. Concetta Durso
Secretary and Vice President
First Investors Series Fund
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Copy to:
Robert J. Zutz, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on February 19, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post- effective amendment.
<PAGE>
FIRST INVESTORS SERIES FUND
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Prospectus for the First Investors Blue Chip Fund, the First Investors
Special Situations Fund, the First Investors Total Return Fund and
the First Investors Investment Grade Fund
Combined Prospectus for the First Investors Series Fund, the First
Investers Series Fund II, Inc. and the First Investors Global Fund,
Inc.
Combined Prospectus for the First Investors Government Fund, Inc., the
First Investors Investment Grade Fund, a series of the First
Investors Series Fund, the First Investors Fund For Income, Inc., and
the First Investors High Yield Fund, Inc.
Combined Statement of Additional Information for the First Investors
Series Fund, the First Investors Series Fund II, Inc. and the First
Investors Global Fund, Inc.
Combined Statement of Additional Information for the First Investors
Government Fund, Inc., the First Investors Investment Grade Fund, a
series of the First Investors Series Fund, the First Investors Fund
for Income, Inc., and the First Investors High Yield Fund, Inc.
Part C of Form N-1A
Signature Page
This filing does not relate to the First Investors Insured Intermediate Tax
Exempt Fund, a series of the First Investors Series Fund.
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[FIRST INVESTORS LOGO]
BLUE CHIP FUND
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is February 19, 1999
<PAGE>
CONTENTS
OVERVIEW OF THE BLUE CHIP FUND
o What is the Blue Chip Fund?
oo Objective
oo Primary Investment Strategies
oo Primary Risks
o Who should consider buying the Blue Chip Fund?
o How has the Blue Chip Fund performed?
o What are the fees and expenses of the Blue Chip Fund?
THE BLUE CHIP FUND IN DETAIL
o What are the Blue Chip Fund's objective, principal investment strategies
and principal risks?
o Who manages the Blue Chip Fund?
BUYING AND SELLING SHARES
o How and when does the Fund price its shares?
o How do I buy shares?
o Which class of shares is best for me?
o How do I sell shares?
o Can I exchange my shares for the shares of other First Investors Funds?
ACCOUNT POLICIES
o What about dividends and capital gain distributions?
o What about taxes?
o How do I obtain a complete explanation of all account privileges and
policies?
FINANCIAL HIGHLIGHTS
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OVERVIEW OF THE BLUE CHIP FUND
What is the Blue Chip Fund?
Objective The Fund seeks high total investment return consistent with the
preservation of capital.
Primary
Investment
Strategies The Fund primarily invests in the common stocks of large,
well-established companies that are included in the Standard and
Poor's 500 Composite Stock Price Index ("S&P 500 Index"). These
are defined by the Fund as "Blue Chip" stocks. The Fund selects
stocks that it believes will have earnings growth in excess of
the average company in the S&P 500 Index. While the Fund attempts
to diversify its investments so that its weightings in different
industries are similar to those of the S&P 500 Index, it is not
an index fund and therefore will not necessarily mirror the S&P
500 Index. The Fund generally stays fully invested in stocks
under all market conditions.
Primary
Risks While Blue Chip stocks are regarded as among the most
conservative stocks, like all stocks they fluctuate in price in
response to movements in the overall securities markets, general
economic conditions, and changes in interest rates or investor
sentiment. Fluctuations in the prices of Blue Chip stocks at
times can be substantial. Accordingly, the value of your
investment in the Fund will go up and down, which means that you
could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Blue Chip Fund?
The Blue Chip Fund may be used as a core holding for an
investment portfolio or as a base on which to build a portfolio.
It may be appropriate for you if you:
. Are seeking growth of capital,
. Are willing to accept a moderate degree of market volatility,
and
. Have a long-term investment horizon and are able to ride out
market cycles.
You should keep in mind that the Blue Chip Fund is not a complete
investment program. For most investors, a complete program should
include not only stock funds but also bond and money market
funds. While stocks have historically outperformed other
categories of investments over long periods of time, they
generally carry higher risks. There have also been extended
periods during which bonds and money market instruments have
outperformed stocks. By allocating your assets among different
types of funds, you can reduce the overall risk of your portfolio
and benefit when bonds and money market instruments outperform
stocks. Of course, even a diversified investment program can
result in a loss.
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How has the Blue Chip Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[BAR CHART OF CHANGES IN PERFORMANCE OF CLASS A SHARES FROM 1989 TO 1998, WITH
FOLLOWING PLOT POINTS:
1989 15.40%
1990 -3.50%
1991 27.52%
1992 6.56%
1993 7.77%
1994 -3.02%
1995 34.01%
1996 20.55%
1997 26.05%
1998 18.10%
During the periods shown, the highest quarterly return was 19.96% (for the
quarter ended December 31, 1998) and the lowest quarterly return was -14.96%
(for the quarter ended October 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the S&P 500 Index. This table
assumes that the maximum sales charge or CDSC was paid. The S&P 500 Index is an
unmanaged index generally representative of the market for the stocks of
large-sized U.S. companies. The S&P 500 Index does not take into account fees
and expenses that an investor would incur in holding the securities in the S&P
500 Index. If it did so, the returns would be lower than those shown.
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (1/3/89) (1/12/95)
Class A Shares 10.74% 16.94% 13.56% N/A
Class B Shares 13.28 N/A N/A 23.41%
S&P 500 Index 28.34 24.55 18.47 30.41
* The annual returns are based upon calendar years.
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What are the fees and expenses of the Blue Chip Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------- -------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).......... 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
DISTRIBUTION TOTAL
AND SERVICE ANNUAL FUND
MANAGEMENT (12B-1) OTHER OPERATING FEE NET
FEES (1) FEES (2) EXPENSES EXPENSES (3) WAIVER (1) EXPENSES (3)
---------- ------------ -------- ------------ ---------- ------------
Class A Shares ........... 0.85% 0.30% 0.32% 1.47% 0.10% 1.37%
Class B Shares ........... 0.85 1.00 0.32 2.17 0.10 2.07
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) For the fiscal year ended September 30, 1998, the Adviser waived Management
Fees in excess of 0.75% for the Blue Chip Fund. The Adviser has
contractually agreed with the Fund to waive Management Fees in excess of
0.75% for a period of twelve months commencing on February 1, 1999.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(3) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
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ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $756 $1,052 $1,369 $2,265
Class B shares 610 969 1,355 2,318*
If you do not redeem your shares:
Class A shares $756 $1,052 $1,369 $2,265
Class B shares 210 669 1,165 2,318*
*Assumes conversion to Class A shares eight years after purchase.
THE BLUE CHIP FUND IN DETAIL
What are the Blue Chip Fund's objective, principal investment strategies,
and risks?
OBJECTIVE: The Fund seeks high total investment return consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of large, well-established companies that are included
in the S&P 500 Index. These are defined by the Fund as "Blue Chip" stocks. The
S&P 500 Index consists of both U.S. and foreign corporations.
The Fund uses fundamental research to select stocks of companies with strong
balance sheets, relatively consistent records of achievement, and potential
earnings growth that is greater than that of the average company included in the
S&P 500 Index. The Fund attempts to stay broadly diversified and sector neutral
relative to the S&P 500 Index, but it may emphasize certain industry sectors
based on economic and market conditions. The Fund intends to remain relatively
fully invested in stocks under all market conditions rather than attempt to time
the market by maintaining large cash or fixed income securities positions when
market declines are anticipated. The Fund usually will sell a stock when the
reason for holding it is no longer valid, it shows deteriorating fundamentals,
or it falls short of the Fund's expectations. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of owning the Blue Chip Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While Blue Chip stocks have historically been the
least risky and most liquid stocks, like all stocks they fluctuate in value.
Fluctuations of Blue Chip stocks can be sudden and substantial. Accordingly, the
value of your investment in the Fund will go up and down, which means that you
could lose money.
OTHER RISKS: While the Fund generally attempts to remain sector-neutral relative
to the S&P 500 Index, it is not an index fund. The Fund may hold securities
other than those in the S&P 500 Index, may hold fewer securities than the index,
and may have sector or industry allocations different from the index, each of
which could cause the Fund to underperform the index.
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<PAGE>
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
Who manages the Blue Chip Fund?
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
the Fund. Its address is 95 Wall Street, New York, NY 10005. It currently is
investment adviser to 51 mutual funds or series of funds with total net assets
of approximately $5 billion. FIMCO supervises all aspects of the Fund's
operations and determines the Fund's portfolio transactions. For the fiscal year
ended September 30, 1998, FIMCO received advisory fees of 0.75 % of the Fund's
average daily net assets, net of waiver.
Dennis T. Fitzpatrick serves as Portfolio Manager of the Fund. Mr. Fitzpatrick
has been a member of FIMCO's investment management team since 1995. During 1995,
Mr. Fitzpatrick was a Regional Surety Manager at United States Fidelity &
Guaranty Co. From 1988 to 1995, he was Northeast Surety Manager at American
International Group.
In addition to the investment risks of the Year 2000 which are discussed above,
the ability of FIMCO and its affiliates to price the Fund's shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
provided by FIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
Fund. FIMCO and its affiliates are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Fund's other service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund. Nor can the
Fund estimate the extent of any impact.
BUYING AND SELLING SHARES
How and when does the Fund price its shares?
The share price (which is called "net asset value" or "NAV" per share) for the
Fund is calculated once each day as of 4 p.m., Eastern Standard Time ("E.S.T."),
on each day the New York Stock Exchange ("NYSE") is open for regular trading. In
the event that the NYSE closes early, the share price will be determined as of
the time of the closing.
To calculate the NAV, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The prices or NAVs of Class A shares and Class B shares will
generally differ because they have different expenses.
In valuing its assets, the Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
7
<PAGE>
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Fund.
How do I buy shares?
You may buy shares of the Fund through a First Investors registered
representative or through a registered representative of an authorized
broker-dealer ("Representative"). Your Representative will help you complete and
submit an application. Your initial investment must be at least $1,000. However,
we offer automatic investment plans that allow you to open a Fund account with
as little as $50. You also may open certain retirement plan accounts with as
little as $500 even without an automatic investment plan. Subsequent investments
may be made in any amount.
If we receive your application or order in our Woodbridge, N.J. offices in
correct form, as described in the Shareholder Manual, prior to the close of
regular trading on the NYSE, your transaction will be priced at that day's NAV.
If you place your order with your Representative prior to the close of regular
trading on the NYSE, your transaction will also be priced at that day's NAV
provided that your Representative transmits the order to our Woodbridge, NJ
office by 5 p.m., E.S.T. Orders placed after the close of regular trading on the
NYSE will be priced at the next business day's NAV. The procedures for
processing transactions are explained in more detail in our Shareholder Manual
which is available upon request.
You can arrange to make systematic investments electronically from your bank
account or through payroll deduction. All the various ways you can buy shares
are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
The Fund reserves the right to refuse any order to buy shares if the Fund
determines that doing so would be in the best interests of the Fund and its
shareholders.
Which class of shares is best for me?
The Fund has two classes of shares, Class A and Class B. While each class
invests in the same portfolio of securities, the classes have separate sales
charge and expense structures. Because of the different expense structures, each
class of shares generally will have different NAVs and dividends.
The principal advantages of Class A shares are the lower overall expenses, the
availability of quantity discounts on volume purchases and certain account
privileges that are available only on Class A shares. The principal advantage of
Class B shares is that all of your money is put to work from the outset.
Class A shares of the Fund are sold at the public offering price which includes
a front-end sales load. The sales charge declines with the size of your
purchase, as illustrated below.
8
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Class A Shares
Your investment Sales Charge as a percentage of
-------------------------------
offering price net amount invested
Less than $25,000 6.25% 6.67%
$25,000-$49,999 5.75 6.10
$50,000-$99,999 5.50 5.82
$100,000-$249,999 4.50 4.71
$250,000-$499,999 3.50 3.63
$500,000-$999,999 2.50 2.56
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Class B shares are sold at net asset value, without any initial sales charge.
However, you may pay a CDSC when you sell your shares. The CDSC declines the
longer you hold your shares, as illustrated below. Class B shares convert to
Class A shares after eight years.
Class B Shares
Year of Redemption CDSC as a Percentage of Purchase
Price or NAV at Redemption
--------------------------
Within the 1st or 2nd year...... 4%
Within the 3rd or 4th year...... 3
In the 5th year................. 2
In the 6th year................. 1
Within the 7th year and 8th year 0
There is no CDSC on Class B shares which are acquired through reinvestment of
dividends or distributions. The CDSC is imposed on the lower of the original
purchase price or the net asset value of the shares being sold. For purposes of
determining the CDSC, all purchases made during a calendar month are counted as
having been made on the first day of that month at the average cost of all
purchases made during that month.
To keep your CDSC as low as possible, each time you place a request to sell
shares, we will first sell any shares in your account that carry no CDSC. If
there is an insufficient number of these shares to meet your request in full, we
will then sell those shares that have the lowest CDSC.
Sales charges and CDSCs may be reduced or waived under certain circumstances and
for certain groups. Consult your Representative or call us directly at
1-800-423-4026 for details.
The Fund has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. Each class of
shares pays Rule 12b-1 fees for the marketing of fund shares and for services
provided to shareholders. The plans provide for payments at annual rates (based
on average daily net assets) of up to .30% on Class A shares and 1.00% on Class
B shares. No more than .25% of these payments may be for service fees. These
fees are paid monthly in arrears. Because these fees are paid out of the Fund's
assets on an ongoing basis, the higher fees for Class B shares will increase the
cost of your investment and over time may cost you more than paying the initial
sales charge for Class A shares.
9
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FOR ACTUAL PAST EXPENSES OF CLASS A AND CLASS B SHARES, SEE THE SECTION ENTITLED
"WHAT ARE THE FEES AND EXPENSES OF THE FUND?" IN THIS PROSPECTUS.
Because of the lower overall expenses on Class A shares, we recommend Class A
shares for purchases in excess of $250,000. If you are investing in excess of
$1,000,000, we will only sell Class A shares to you. For purchases below
$250,000, the class that is best for you generally depends upon the amount you
invest, your time horizon, and your preference for paying the sales charge
initially or later. If you fail to tell us what Class of shares you want, we
will purchase Class A shares for you.
How do I sell shares?
You may redeem your Fund shares on any day the Fund is open for business by:
. Contacting your Representative who will place a redemption order for
you;
. Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, NJ
07095-1198;
. Telephoning the Special Services Department of ADM at 1-800-342-6221
(if you have elected to have telephone privileges); or
. Instructing us to make an electronic transfer to a predesignated bank
(if you have completed an application authorizing such transfers).
Your redemption request will be processed at the price next computed after we
receive the request in good order, as described in the Shareholder Manual. For
all requests, have your account number available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account falls below the minimum account balance for any reason other
than market fluctuation, the Fund reserves the right to redeem your account
without your consent or to impose a low balance account fee of $15 annually on
60 days prior notice. The Fund may also redeem your account or impose a low
balance account fee if you have established your account under a systematic
investment program and discontinue the program before you meet the minimum
account balance. You may avoid redemption or imposition of a fee by purchasing
additional Fund shares during this 60-day period to bring your account balance
to the required minimum. If you own Class B shares, you will not be charged a
CDSC on a low balance redemption.
The Fund reserves the right to make in-kind redemptions. This means that it
could respond to a redemption request by distributing shares of the Fund's
underlying investments rather than distributing cash.
Can I exchange my shares for the shares of other First Investors Funds?
You may exchange shares of the Fund for shares of other First Investors Funds
without paying any additional sales charge. You can only exchange within the
same class of shares (i.e., Class A to Class A). Consult your Representative or
call ADM at 1-800-423-4026 for details.
The Fund reserves the right to reject any exchange request that appears to be
part of a market timing strategy based upon the holding period of the initial
investment, the amount of the investment being exchanged, the funds involved,
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and the background of the shareholder or dealer involved. The Fund is designed
for long-term investment purposes. It is not intended to provide a vehicle for
short-term market timing.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
To the extent that the Fund has net investment income, the Fund will declare and
pay a dividend from net investment income on a quarterly basis. Any net realized
capital gains will be declared and distributed on an annual basis, usually after
the end of the Fund's fiscal year. The Fund may make an additional distribution
in any year if necessary to avoid a Federal excise tax on certain undistributed
income and capital gain.
Dividends and other distributions paid on both classes of the Fund's shares are
calculated at the same time and in the same manner. Dividends on Class B shares
of the Fund 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 Fund shares as of the close of business on the record
date of the distribution.
You may choose to reinvest all dividends and other distributions at NAV in
additional shares of the same class of the Fund or certain other First Investors
Funds, or receive all dividends and other distributions in cash. If you do not
select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of the Fund. If you do not
cash a distribution check and do not notify ADM to issue a new check within 12
months, the distribution may be reinvested in the Fund. If any correspondence
sent by the Fund is returned as "undeliverable," dividends and other
distributions automatically will be reinvested in the Fund. No interest will be
paid to you while a distribution remains uninvested.
A dividend or other distribution paid on a class of shares will only be paid in
additional shares of the distributing class if the total amount of the
distribution is under $5 or the Fund has received notice of your death (until
written alternate payment instructions and other necessary documents are
provided by your legal representative).
What about taxes?
Any dividends or capital gain distributions paid by the Fund are taxable to you
unless you hold your shares in an individual retirement account ("IRA"), 403(b)
account, or 401(k) account, or other tax- deferred account. Dividends (including
distributions of net short-term capital gains) are taxable to you as ordinary
income. Capital gain distributions (essentially, distributions of net long-term
capital gains) by the Fund are taxed to you as long-term capital gains,
regardless of how long you owned your Fund shares. You are taxed in the same
manner whether you receive your dividends and capital gain distributions in cash
or reinvest them in additional Fund shares. Your sale or exchange of Fund shares
may be considered a taxable event for you. Depending on the purchase price and
the sale price of the shares you sell or exchange, you may have a gain or a loss
on the transaction. You are responsible for any tax liabilities generated by
your transactions.
How do I obtain a complete explanation of all account privileges and
policies?
The Fund offers a full range of special privileges, including special investment
programs for group retirement plans, systematic investment programs, automatic
payroll investment programs, telephone privileges, check writing privileges, and
expedited redemptions by wire order or Automated Clearing House transfer. The
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full range of privileges, and related policies, are described in a special
Shareholder Manual, which you may obtain on request. For more information on the
full range of services available, please contact us directly at 1-800-423-4026.
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by Tait, Weller & Baker, whose report, along with
the Fund's financial statements, are included in the SAI, which is available
upon request.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------
PER SHARE DATA
----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET ASSET
VALUE NET REALIZED
-------- NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS TOTAL DISTRIBTUIONS
- --------------------- ------------- ------------- ---------------- -------------- -------------- ----------- ---------------------
BLUE CHIP FUND
- --------------
CLASS A
- -------
1/1/94 - 12/31/94...... $15.58 $.11 $(.58) $(.47) $.09 $1.56 $1.65
1/1/95 - 12/31/95...... 13.46 .19 4.37 4.56 .20 .60 .80
1/1/96 - 12/31/96...... 17.22 .14 3.39 3.53 .17 1.11 1.28
1/1/97 - 12/31/97...... 19.47 .09 4.98 5.07 .08 1.62 1.70
1/1/98 - 09/30/98...... 22.84 .04 (.39) (.35) .03 -- .03
CLASS B
- -------
1/12/95* - 12/31/95.... 13.51 .10 4.31 4.41 .16 .60 .76
1/1/96 - 12/31/96...... 17.16 .06 3.32 3.38 .06 1.11 1.17
1/1/97 - 12/31/97...... 19.37 (.03) 4.91 4.88 -- 1.62 1.62
1/1/98 - 09/30/98...... 22.63 (.06) (.42) (.48) -- -- --
* Date Class B shares were first offered.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
R A T I O S / S U P P L E M E N T A L D A T A
--------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
ASSETS BEFORE
RATIO TO AVERAGE EXPENSES WAIVED OR
NET ASSETS ++ ASSUMED
---------------- --------------------
NET ASSET NET NET PORTFOLIO
VALUE TOTAL NET ASSETS INVESTMENT INVESTMENT TURNOVER
END RETURN** END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
OF PERIOD (%) (IN MILLIONS) (%) (%) (%) (%) (%)
--------------------------------------------------------------------------------------------------------------------
$13.46 (3.02) $124 1.54 .80 1.79 .55 82
17.22 34.01 170 1.49 1.23 1.74 .98 25
19.47 20.55 240 1.44 .78 1.67 .55 45
22.84 26.05 351 1.39 .40 1.64 .15 63
22.46 (1.55) 368 1.37+ .23+ 1.47+ .13+ 71
17.16 32.76 5 2.20+ .52+ 2.46+ .26+ 25
19.37 19.71 17 2.22 -- 2.37 (.16) 45
22.63 25.19 37 2.09 (.30) 2.34 (.55) 63
22.15 (2.12) 47 2.07+ (.47)+ 2.17+ (.57)+ 71
</TABLE>
14
<PAGE>
[FIRST INVESTORS LOGO]
BLUE CHIP FUND
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
prospectus.
SHAREHOLDER MANUAL: The Shareholder Manual provides more detailed information
about the purchase, redemption and sale of Fund shares.
You can get free copies of reports, the SAI and the Shareholder Manual, request
other information and discuss your questions about the Fund by contacting the
Fund at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Fund for a fee (including the
Fund's reports, Shareholder Manual and SAI) at the Public Reference Room of the
Securities and Exchange Commission ("SEC") in Washington, D.C. You can also send
your request and a duplicating fee to the Public Reference Room of the SEC,
Washington, DC 20549-6009. You can obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. Text-only versions of Fund
documents can be viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No. First
Investors Blue Chip Fund 811-5690)
<PAGE>
[FIRST INVESTORS LOGO]
SPECIAL SITUATIONS FUND
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is February 19, 1999
<PAGE>
CONTENTS
OVERVIEW OF THE SPECIAL SITUATIONS FUND
o What is the Special Situations Fund?
oo Objective
oo Primary Investment Strategies
oo Primary Risks
o Who should consider buying the Special Situations Fund?
o How has the Special Situations Fund performed?
o What are the fees and expenses of the Special Situations Fund?
THE SPECIAL SITUATIONS FUND IN DETAIL
o What are the Special Situations Fund's objective, principal investment
strategies and principal risks?
o Who manages the Special Situations Fund?
BUYING AND SELLING SHARES
o How and when does the Fund price its shares?
o How do I buy shares?
o Which class of shares is best for me?
o How do I sell shares?
o Can I exchange my shares for the shares of other First Investors Funds?
ACCOUNT POLICIES
o What about dividends and capital gain distributions?
o What about taxes?
o How do I obtain a complete explanation of all account privileges and
policies?
FINANCIAL HIGHLIGHTS
2
<PAGE>
OVERVIEW OF THE SPECIAL SITUATIONS FUND
What is the Special Situations Fund?
Objective The Fund seeks long-term growth of capital.
Primary
Investment
Strategies The Fund primarily invests in common stocks of companies wit
small market capitalizations ("small-cap stocks") which have the
potential for substantial long-term growth. The Fund looks for
companies that are in the early stages of their development, have
a new product or service, are in a position to benefit from some
change in the economy, have new management, or are experiencing
some other "special situation" which makes their stocks
undervalued. Because these companies tend to be smaller, their
growth potential is often greater.
Primary
Risks While the potential long-term rewards of investing in small-cap
stocks are substantial, there are also substantial risks.
Small-cap stocks carry more risk because they are often in the
early stages of development, dependent on a small number of
products or services, lack substantial financial resources, and
have less predictable earnings. Small-cap stocks also tend to be
less liquid, and experience sharper price fluctuations than
stocks of companies with large capitalizations. These
fluctuations can be substantial. Accordingly, the value of your
investment in the Fund will go up and down, which means that you
could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Special Situations Fund?
The Special Situations Fund is most appropriately used to add
diversification to an investment portfolio. It may be appropriate
for you if you:
. Are seeking significant growth of capital,
. Are willing to accept a high degree of market volatility, and
. Have a long-term investment horizon and are able to ride out
market cycles.
You should keep in mind that the Special Situations Fund is not a
complete investment program. For most investors, a complete
program should include not only stock funds but also bond and
money market funds. While stocks have historically outperformed
other categories of investments over long periods of time, they
generally carry higher risks. There have also been extended
periods during which bonds and money market instruments have
outperformed stocks. By allocating your assets among different
types of funds, you can reduce the overall risk of your portfolio
and benefit when bonds and money market instruments outperform
stocks. Of course, even a diversified investment program can
result in a loss.
3
<PAGE>
How has the Special Situations Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[BAR CHART OF CHANGES IN PERFORMANCE OF CLASS A SHARES FROM 1990 TO 1998, WITH
FOLLOWING PLOT POINTS:
1991 50.47%
1992 17.26%
1993 20.52%
1994 -3.66%
1995 23.92%
1996 11.56%
1997 16.15%
1998 1.53%
During the periods shown, the highest quarterly return was 26.30% (for the
quarter ended December 31, 1998) and the lowest quarterly return was -23.05%
(for the quarter ended September 30, 1998). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Russell 2000 Index. This table
assumes that the maximum sales charge or CDSC was paid. The Russell 2000 Index
is an unmanaged index generally representative of the U.S. market for small-cap
stocks. The Russell 2000 Index does not take into account fees and expenses that
an investor would incur in holding the securities in the Russell 2000 Index. If
it did so, the returns would be lower than those shown.
4
<PAGE>
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (9/18/90) (1/12/95)
Class A Shares -4.82% 8.05% 15.29% N/A
Class B Shares -3.20 N/A N/A 11.87
Russell 2000 Index -2.24 12.31 17.14 15.45
*The annual returns are based upon calendar years.
What are the fees and expenses of the Special Situations Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------- -------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).......... 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
DISTRIBUTION TOTAL
AND SERVICE ANNUAL FUND
MANAGEMENT (12B-1) OTHER OPERATING FEE NET
FEES (1) FEES (2) EXPENSES EXPENSES (3) WAIVER (1) EXPENSES (3)
---------- ------------ -------- ------------ ---------- ------------
Class A Shares ........... 0.97% 0.30% 0.48% 1.75% 0.22% 1.53%
Class B Shares ........... 0.97 1.00 0.48 2.45 0.22 2.23
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) For the fiscal year ended September 30, 1998, the Adviser waived Management
Fees in excess of 0.75% for the Fund. The Adviser has contractually agreed
with the Fund to waive Management Fees in excess of 0.75% for a period of
twelve months commencing on February 1, 1999.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted
by the National Association of Securities Dealers, Inc.
(3) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual Fund
Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
5
<PAGE>
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $771 $1,122 $1,495 $2,541
Class B shares 626 1,043 1,486 2,597*
If you do not redeem your shares:
Class A shares $771 $1,122 $1,495 $2,541
Class B shares 226 743 1,286 2,597*
*Assumes conversion to Class A shares eight years after purchase.
THE SPECIAL SITUATIONS FUND IN DETAIL
What are the Special Situations Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of companies with small market capitalizations, which
have the potential for substantial long-term growth. The Fund defines small-cap
stocks as those with market capitalizations of less than 90% of the weighted
market capitalization of the Standard & Poor's 600 Smallcap Index ("S&P 600
Index") (currently $1.5 billion). The Fund's definition of small-cap will change
with market conditions. The Fund looks for companies that are in the early
stages of their development, have a new product or service, are in a position to
benefit from some change in the economy, have new management, or are
experiencing some other "special situation" which makes their stocks
undervalued. Because these companies tend to be smaller, their growth potential
is often greater.
In selecting stocks, the Fund relies on fundamental research. It considers,
among other things, earnings growth potential, revenue growth potential, cash
flow and tangible book value. The Fund attempts to stay broadly diversified but
it may emphasize certain industry sectors based on economic and market
conditions. The Fund usually will sell a stock when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of owning the Special Situations Fund:
MARKET RISK. Because this Fund invests in stocks, an investment in the Fund is
subject to stock market risk. Stock prices in general may decline over short or
even extended periods not only because of company-specific developments but also
due to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets and periods when stock prices generally
go down, referred to as "bear" markets. The market risk associated with
small-cap stocks is greater than that associated with larger-cap stocks because
small-cap stocks tend to experience sharper price fluctuations than larger-cap
stocks, particularly during bear markets.
6
<PAGE>
Small-cap companies are generally dependent on a small number of products or
services, their earnings are less predictable, and their share prices more
volatile. These companies are also more likely to have limited markets or
financial resources, and may depend on a small, inexperienced management group.
LIQUIDITY: Stocks of small-cap companies often are not as broadly traded as
those of larger-cap companies and are often subject to wider price fluctuations.
As a result, at times it may be difficult for the Fund to sell these securities
at a reasonable price.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then temporarily may use
alternative strategies that are mainly designed to limit the Fund's losses.
Who manages the Special Situations Fund?
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
the Fund. Its address is 95 Wall Street, New York, NY 10005. It currently serves
as investment adviser to 51 mutual funds or series of funds with total net
assets of approximately $5 billion. FIMCO supervises all aspects of the Fund's
operations and determines the Fund's portfolio transactions. For the fiscal year
ended September 30, 1998, FIMCO received advisory fees of 0.75% of the Fund's
average daily net assets, net of waiver.
The Fund is co-managed by Patricia D. Poitra, Director of Equities, and David A.
Hanover. Ms. Poitra also is responsible for the management of certain other
First Investors Funds. Ms. Poitra joined FIMCO in 1985 as a Senior Equity
Analyst. From 1997 to August 1998, Mr. Hanover was a Portfolio Manager and
Analyst at Heritage Investors Management Corporation. From 1994 to 1996, Mr.
Hanover was Co-Portfolio Manager and Analyst at Psagot Mutual Funds and in 1993
he was an International Equity Investments Summer Associate at Howard Hughes
Medical Institute.
In addition to the investment risks of the Year 2000 which are discussed above,
the ability of FIMCO and its affiliates to price the Fund's shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
provided by FIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
Fund. FIMCO and its affiliates are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Fund's other service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund. Nor can the
Fund estimate the extent of any impact.
7
<PAGE>
BUYING AND SELLING SHARES
How and when does the Fund price its shares?
The share price (which is called "net asset value" or "NAV" per share) for the
Fund is calculated once each day as of 4 p.m., Eastern Standard Time ("E.S.T."),
on each day the New York Stock Exchange ("NYSE") is open for regular trading. In
the event that the NYSE closes early, the share price will be determined as of
the time of the closing.
To calculate the NAV, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The prices or NAVs of Class A shares and Class B shares will
generally differ because they have different expenses.
In valuing its assets, the Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Fund.
How do I buy shares?
You may buy shares of the Fund through a First Investors registered
representative or through a registered representative of an authorized
broker-dealer ("Representative"). Your Representative will help you complete and
submit an application. Your initial investment must be at least $1,000. However,
we offer automatic investment plans that allow you to open a Fund account with
as little as $50. You also may open certain retirement plan accounts with as
little as $500 even without an automatic investment plan. Subsequent investments
may be made in any amount.
If we receive your application or order in our Woodbridge, N.J. offices in
correct form, as described in the Shareholder Manual, prior to the close of
regular trading on the NYSE, your transaction will be priced at that day's NAV.
If you place your order with your Representative prior to the close of regular
trading on the NYSE, your transaction will also be priced at that day's NAV
provided that your Representative transmits the order to our Woodbridge, NJ
office by 5 p.m., E.S.T. Orders placed after the close of regular trading on the
NYSE will be priced at the next business day's NAV. The procedures for
processing transactions are explained in more detail in our Shareholder Manual
which is available upon request.
You can arrange to make systematic investments electronically from your bank
account or through payroll deduction. All the various ways you can buy shares
are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
The Fund reserves the right to refuse any order to buy shares if the Fund
determines that doing so would be in the best interests of the Fund and its
shareholders.
Which class of shares is best for me?
The Fund has two classes of shares, Class A and Class B. While each class
invests in the same portfolio of securities, the classes have separate sales
charge and expense structures. Because of the different expense structures, each
class of shares generally will have different NAVs and dividends.
The principal advantages of Class A shares are the lower overall expenses, the
availability of quantity discounts on volume purchases and certain account
8
<PAGE>
privileges that are available only on Class A shares. The principal advantage of
Class B shares is that all of your money is put to work from the outset.
Class A shares of the Fund are sold at the public offering price which includes
a front-end sales load. The sales charge declines with the size of your
purchase, as illustrated below.
Class A Shares
Your investment Sales Charge as a percentage of
-------------------------------
offering price net amount invested
Less than $25,000 6.25% 6.67%
$25,000-$49,999 5.75 6.10
$50,000-$99,999 5.50 5.82
$100,000-$249,999 4.50 4.71
$250,000-$499,999 3.50 3.63
$500,000-$999,999 2.50 2.56
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Class B shares are sold at net asset value, without any initial sales charge.
However, you may pay a CDSC when you sell your shares. The CDSC declines the
longer you hold your shares, as illustrated below. Class B shares convert to
Class A shares after eight years.
Class B Shares
Year of Redemption CDSC as a Percentage of Purchase
------------------ Price or NAV at Redemption
--------------------------
Within the 1st or 2nd year...... 4%
Within the 3rd or 4th year...... 3
In the 5th year................. 2
In the 6th year................. 1
Within the 7th year and 8th year 0
There is no CDSC on Class B shares which are acquired through reinvestment of
dividends or distributions. The CDSC is imposed on the lower of the original
purchase price or the net asset value of the shares being sold. For purposes of
determining the CDSC, all purchases made during a calendar month are counted as
having been made on the first day of that month at the average cost of all
purchases made during that month.
To keep your CDSC as low as possible, each time you place a request to sell
shares, we will first sell any shares in your account that carry no CDSC. If
there is an insufficient number of these shares to meet your request in full, we
will then sell those shares that have the lowest CDSC.
Sales charges and CDSCs may be reduced or waived under certain circumstances and
for certain groups. Consult your Representative or call us directly at
1-800-423-4026 for details.
The Fund has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. Each class of
shares pays Rule 12b-1 fees for the marketing of fund shares and for services
provided to shareholders. The plans provide for payments at annual rates (based
on average daily net assets) of up to .30% on Class A shares and 1.00% on Class
9
<PAGE>
B shares. No more than .25% of these payments may be for service fees. These
fees are paid monthly in arrears. Because these fees are paid out of the Fund's
assets on an ongoing basis, the higher fees for Class B shares will increase the
cost of your investment and over time may cost you more than paying the initial
sales charge for Class A shares.
FOR ACTUAL PAST EXPENSES OF CLASS A AND CLASS B SHARES, SEE THE SECTION ENTITLED
"WHAT ARE THE FEES AND EXPENSES OF THE FUND?" IN THIS PROSPECTUS.
Because of the lower overall expenses on Class A shares, we recommend Class A
shares for purchases in excess of $250,000. If you are investing in excess of
$1,000,000, we will only sell Class A shares to you. For purchases below
$250,000, the class that is best for you generally depends upon the amount you
invest, your time horizon, and your preference for paying the sales charge
initially or later. If you fail to tell us what Class of shares you want, we
will purchase Class A shares for you.
How do I sell shares?
You may redeem your Fund shares on any day the Fund is open for business by:
. Contacting your Representative who will place a redemption order for
you;
. Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, NJ
07095-1198;
. Telephoning the Special Services Department of ADM at 1-800-342-622
(if you have elected to have telephone privileges); or
. Instructing us to make an electronic transfer to a predesignated bank
(if you have completed an application authorizing such transfers).
Your redemption request will be processed at the price next computed after we
receive the request in good order, as described in the Shareholder Manual. For
all requests, have your account number available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account falls below the minimum account balance for any reason other
than market fluctuation, the Fund reserves the right to redeem your account
without your consent or to impose a low balance account fee of $15 annually on
60 days prior notice. The Fund may also redeem your account or impose a low
balance account fee if you have established your account under a systematic
investment program and discontinue the program before you meet the minimum
account balance. You may avoid redemption or imposition of a fee by purchasing
additional Fund shares during this 60-day period to bring your account balance
to the required minimum. If you own Class B shares, you will not be charged a
CDSC on a low balance redemption.
The Fund reserves the right to make in-kind redemptions. This means that it
could respond to a redemption request by distributing shares of the Fund's
underlying investments rather than distributing cash.
Can I exchange my shares for the shares of other First Investors Funds?
You may exchange shares of the Fund for shares of other First Investors Funds
without paying any additional sales charge. You can only exchange within the
10
<PAGE>
same class of shares (i.e., Class A to Class A). Consult your Representative or
call ADM at 1-800-423-4026 for details. The Fund reserves the right to reject
any exchange request that appears to be part of a market timing strategy based
upon the holding period of the initial investment, the amount of the investment
being exchanged, the funds involved, and the background of the shareholder or
dealer involved. The Fund is designed for long-term investment purposes. It is
not intended to provide a vehicle for short-term market timing.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
To the extent that it has net investment income and net realized capital gains,
the Fund will declare and pay dividends from net investment income and will
distribute any net realized capital gains on an annual basis, usually after the
end of the Fund's fiscal year. The Fund may make an additional distribution in
any year if necessary to avoid a Federal excise tax on certain undistributed
income and capital gain.
Dividends and other distributions paid on both classes of the Fund's shares are
calculated at the same time and in the same manner. Dividends on Class B shares
of the Fund 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 Fund shares as of the close of business on the record
date of the distribution.
You may choose to reinvest all dividends and other distributions at NAV in
additional shares of the same class of the Fund or certain other First Investors
Funds, or receive all dividends and other distributions in cash. If you do not
select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of the Fund. If you do not
cash a distribution check and do not notify ADM to issue a new check within 12
months, the distribution may be reinvested in the Fund. If any correspondence
sent by the Fund is returned as "undeliverable," dividends and other
distributions automatically will be reinvested in the Fund. No interest will be
paid to you while a distribution remains uninvested.
A dividend or other distribution paid on a class of shares will only be paid in
additional shares of the distributing class if the total amount of the
distribution is under $5 or the Fund has received notice of your death (until
written alternate payment instructions and other necessary documents are
provided by your legal representative).
What about taxes?
Any dividends or capital gains distributions paid by the Fund are taxable to you
unless you hold your shares in an individual retirement account ("IRA"), 403(b)
account, or 401(k) account, or other tax-deferred account. Dividends (including
distributions of net short-term capital gains) are taxable to you as ordinary
income. Capital gain distributions (essentially, distributions of net long-term
capital gains) by the Fund are taxed to you as long-term capital gain,
regardless of how long you owned your Fund shares. You are taxed in the same
manner whether you receive your dividends and capital gain distributions in cash
or reinvest them in additional Fund shares. Your sale or exchange of Fund shares
may be a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
How do I obtain a complete explanation of all account privileges and
policies?
11
<PAGE>
The Fund offers a full range of special privileges, including special investment
programs for group retirement plans, systematic investment programs, automatic
payroll investment programs, telephone privileges, check writing privileges, and
expedited redemptions by wire order or Automated Clearing House transfer. The
full range of privileges, and related policies, are described in a special
Shareholder Manual, which you may obtain on request. For more information on the
full range of services available, please contact us directly at 1-800-423-4026.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). The
information has been sudited by Tait, Weller & Baker, whose report, along with
the Fund's financial statements, are included in the SAI, which is available
upon request.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------
PER SHARE DATA
----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET ASSET
VALUE NET REALIZED
--------- NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS TOTAL DISTRIBTUIONS
- --------------------- ------------- ------------- ---------------- -------------- -------------- ----------- ---------------------
SPECIAL SITUATIONS FUND
- -----------------------
CLASS A
- -------
1/1/94 - 12/31/94...... $18.00 $(.04) $(.62) $(.66) $ -- $.91 $.91
1/1/95 - 12/31/95...... 16.43 (.01) 3.94 3.93 -- .73 .73
1/1/96 - 12/31/96...... 19.63 (.01) 2.28 2.27 -- 1.17 1.17
1/1/97 - 12/31/97...... 20.73 (.09) 3.44 3.35 -- 1.90 1.90
1/1/98 - 09/30/98...... 22.18 (.05) (4.30) (4.35) -- -- --
CLASS B
- -------
1/12/95* - 12/31/95.... 16.40 (.01) 3.85 3.84 -- .73 .73
1/1/96 - 12/31/96...... 19.51 (.14) 2.25 2.11 -- 1.17 1.17
1/1/97 - 12/31/97...... 20.45 (.15) 3.29 3.14 -- 1.90 1.90
1/1/98 - 09/30/98...... 21.69 (.13) (4.22) (4.35) -- -- --
* Date Class B shares were first offered.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
R A T I O S / S U P P L E M E N T A L D A T A
--------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
ASSETS BEFORE
RATIO TO AVERAGE EXPENSES WAIVED OR
NET ASSETS ++ ASSUMED
---------------- --------------------
NET ASSET NET NET PORTFOLIO
VALUE TOTAL NET ASSETS INVESTMENT INVESTMENT TURNOVER
END RETURN** END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
OF PERIOD (%) (IN MILLIONS) (%) (%) (%) (%) (%)
--------------------------------------------------------------------------------------------------------------------
$16.43 (3.66) $ 90 1.65 (.26) 1.90 (.51) 53
19.63 23.92 125 1.60 (.08) 1.85 (.33) 80
20.73 11.56 158 1.59 (.13) 1.84 (.38) 99
22.18 16.15 194 1.53 (.45) 1.78 (.70) 84
17.83 (19.61) 160 1.53+ (.32)+ 1.75+ (.54)+ 70
19.51 23.42 5 2.33+ (.81)+ 2.59+ (1.07)+ 80
20.45 10.81 10 2.38 (.92) 2.55 (1.09) 99
21.69 15.34 17 2.23 (1.15) 2.48 (1.40) 84
17.34 (20.06) 15 2.23+ (1.02)+ 2.45+ (1.24)+ 70
</TABLE>
14
<PAGE>
[FIRST INVESTORS LOGO]
SPECIAL SITUATIONS FUND
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
prospectus.
SHAREHOLDER MANUAL: The Shareholder Manual provides more detailed information
about the purchase, redemption and sale of Fund shares.
You can get free copies of reports, the SAI and the Shareholder Manual, request
other information and discuss your questions about the Fund by contacting the
Fund at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Fund for a fee (including the
Fund's reports, Shareholder Manual and SAI) at the Public Reference Room of the
Securities and Exchange Commission ("SEC") in Washington, D.C. You can also send
your request and a duplicating fee to the Public Reference Room of the SEC,
Washington, DC 20549-6009. You can obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. Text-only versions of Fund
documents can be viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No:
First Investors Special Situations Fund 811-
5690)
<PAGE>
[FIRST INVESTORS LOGO]
TOTAL RETURN FUND
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is February 19, 1999
<PAGE>
CONTENTS
OVERVIEW OF THE TOTAL RETURN FUND
o What is the Total Return Fund?
oo Objective
oo Primary Investment Strategies
oo Primary Risks
o Who should consider buying the Total Return Fund?
o How has the Total Return Fund performed?
o What are the fees and expenses of the Total Return Fund?
THE TOTAL RETURN FUND IN DETAIL
o What are the Total Return Fund's objective, principal investment
strategies and principal risks?
o Who manages the Total Return Fund?
BUYING AND SELLING SHARES
o How and when does the Fund price its shares?
o How do I buy shares?
o Which class of shares is best for me?
o How do I sell shares?
o Can I exchange my shares for the shares of other First Investors Funds?
ACCOUNT POLICIES
o What about dividends and capital gain distributions?
o What about taxes?
o How do I obtain a complete explanation of all account privileges and
policies?
FINANCIAL HIGHLIGHTS
2
<PAGE>
OVERVIEW OF THE TOTAL RETURN FUND
What is the Total Return Fund?
Objective The Fund seeks high, long-term total investment return consistent
with moderate investment risk.
Primary
Investment
Strategies The Fund allocates its assets among stocks, bonds and money
market instruments based upon its views on market conditions, the
relative values of these asset classes, and economic trends. The
percentage of assets allocated to each asset class is flexible
rather than fixed. On a regular basis, the Fund reviews and
determines whether to adjust the asset allocations. Because the
Fund's focus is on high, "long term" total return, a significant
portion of the Fund's assets has historically been allocated to
stocks. Once the target allocation for stocks has been set, the
Fund uses fundamental research and analysis to determine which
particular stocks to purchase or sell. The Fund decides how to
invest the assets allocated to bonds by first considering the
outlook for the economy and interest rates and thereafter the
financial strength of particular issuers.
Primary
Risks While a diversified portfolio of stocks, bonds and money
market instruments is generally regarded as having less risk than
a portfolio invested exclusively in stocks, it is nevertheless
subject to market risk. Both stocks and bonds fluctuate not only
as a result of company-specific developments but also with market
conditions, economic cycles, and interest rates. The Fund may
invest in below investment grade bonds ("high yield" or "junk
bonds"). These bonds provide a higher yield but fluctuate more
than investment grade bonds because of their speculative nature
and their potential lack of liquidity. There are times when the
value of bonds and stocks may decline simultaneously, such as
when interest rates rise. The Fund may, at times, engage in
short-term trading, which could produce higher brokerage costs
and taxable distributions and may result in a lower total return
for the Fund. Accordingly, the value of your investment in the
Fund will go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Total Return Fund?
The Total Return Fund may be used as a core holding of an
investment portfolio. While every investor should consider an
asset allocation strategy that meets his or her own needs, the
Fund can be used as a stand-alone investment by an investor who
does not want to make his or her own asset allocation decisions.
It may be appropriate for you if you:
. Are seeking total return,
. Are willing to accept a moderate degree of market
volatility, and
. Have a long-term investment horizon and are able to ride
out market cycles.
3
<PAGE>
How has the Total Return Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[BAR CHART OF CHANGES IN PERFORMANCE OF CLASS A SHARES FROM 1990 TO 1998, WITH
FOLLOWING PLOT POINTS:
1991 21.51%
1992 -1.00%
1993 7.18%
1994 -3.45%
1995 26.71%
1996 10.62%
1997 18.08%
1998 16.20%
During the periods shown, the highest quarterly return was 11.79% (for the
quarter ended June 30, 1997) and the lowest quarterly return was -4.95% (for the
quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT NECESSARILY
INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") and the Lehman Brothers
Government/Corporate Bond Index ("Government/Corporate Bond Index"). This table
assumes that the maximum sales charge or CDSC was paid. The S&P 500 Index is an
unmanaged index generally representative of the market for the stocks of
large-sized U.S. companies. The Government/Corporate Bond Index is an index
which includes Treasury obligations, obligations of U.S. agencies, and
investment grade corporate bonds. The indices do not take into account fees and
expenses that an investor would incur in holding the securities in the indices.
If they did so, the returns would be lower than those shown.
4
<PAGE>
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (4/24/90) (1/12/95)
Class A Shares 8.90% 11.73% 9.98% N/A
Class B Shares 11.33 N/A N/A 16.58%
S&P 500 Index 28.34 24.55 19.53 10.41
Government/Corporate
Bond Index 9.47 7.30 9.13** 10.19***
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/90 to
12/31/98.
*** The average annual total return shown is f or the period 1/1/95 to
12/31/98.
What are the fees and expenses of the Total Return Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------- -------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).......... 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
DISTRIBUTION TOTAL
AND SERVICE ANNUAL FUND
MANAGEMENT (12B-1) OTHER OPERATING FEE NET
FEES (1) FEES (2) EXPENSES EXPENSES (3) WAIVER (1) EXPENSES (3)
---------- ------------ -------- ------------ ---------- ------------
Class A Shares ........... 1.00% 0.30% 0.35% 1.65% 0.25% 1.40%
Class B Shares ........... 1.00 1.00 0.35 2.35 0.25 2.10
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) For the fiscal year ended September 30, 1998, the Adviser waived Management
Fees in excess of 0.75% for the Fund. The Adviser has contractually agreed
with the Fund to waive Management Fees in excess of 0.75% for a period of
twelve months commencing on February 1, 1999.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted
by the National Association of Securities Dealers, Inc.
(3) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual Fund
Operating Expenses or Net Expenses.
5
<PAGE>
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and 3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $759 $1,090 $1,444 $2,438
Class B shares 613 1,010 1,433 2,492*
If you do not redeem your shares:
Class A shares $759 $1,090 $1,444 $2,438
Class B shares 213 710 1,233 2,492*
*Assumes conversion to Class A shares eight years after purchase.
THE TOTAL RETURN FUND IN DETAIL
What are the Total Return Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks high, long-term total investment return consistent
with moderate investment risk.
PRINCIPAL INVESTMENT STRATEGIES: The Fund allocates its assets among stocks,
bonds, and money market instruments. The percentage of the portfolio that is
allocated to any one class of assets is flexible rather than fixed. On a regular
basis, the Fund reviews and determines whether to adjust its asset allocations
based upon its views on market conditions, the relative values of the asset
classes and economic trends. The Fund may allocate up to 25% of its net assets
to high yield bonds. These are bonds that are below investment grade. Investment
grade bonds are those that are rated among the four highest ratings categories
by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. Because
the Fund's focus is on high, "long-term" total return, a significant portion of
the Fund's assets has historically been allocated to stocks. The stock
allocation typically has been 50% or more of the Fund's portfolio.
Once the asset allocation for stocks has been set, the Fund uses fundamental
research and analysis to determine which particular stocks to purchase or sell.
In selecting stocks, the Fund looks for companies that have a mix of strong
management, solid financial condition, and above-average earnings growth
potential.
Once the target allocation for bonds has been set, the Fund determines how this
percentage should be allocated among different types of bonds based upon the
outlook for the economy and interest rates. If the outlook for the economy is
positive, the Fund would normally allocate more to high yield, below-investment
grade bonds to secure additional income and potential capital appreciation. If
the outlook for the economy is negative, the Fund would normally allocate more
to investment grade or Treasury bonds. The duration of the bond portion of the
portfolio would be determined by the interest rate outlook. Duration is a
measurement of a bond's sensitivity to changes in interest rates that takes into
consideration not only the maturity of the bond but also the time value of money
that will be received from the bond over its life. In selecting bonds, the Fund
considers a variety of factors, including the issuer's earnings and cash flow
generating capabilities, asset quality, debt levels, and management strength.
6
<PAGE>
While the Fund invests primarily in domestic companies, it also invests in
securities of issuers domiciled in foreign countries. These securities will
generally be dollar-denominated and traded in the U.S.
The Fund sells a security if its fundamentals have deteriorated or if it is
necessary to rebalance the portfolio. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In
general, the greater the potential reward of the investment, the greater the
risk. Here are the principal risks of owning the Total Return Fund:
MARKET RISK: The Fund's portfolio is subject to market risk. Stock prices in
general may decline over short or even extended periods not only because of
company-specific developments but also due to an economic downturn, a change in
interest rates, or a change in investor sentiment, regardless of the success or
failure of an individual company's operations. Stock markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when stock prices generally go down, referred to as "bear" markets.
Similarly, bond prices fluctuate in value with changes in interest rates, the
economy and in the case of corporate bonds, the financial conditions of
companies that issue them. In general, bonds decline in value when interest
rates rise. High yield bonds behave like bonds at times and like stocks at
times. Like other bonds, high yield bonds tend to decline in value when interest
rates rise. Like stocks, however, high yield bonds generally decline in value
when the economy deteriorates.
While stocks and bonds may react differently to economic events, and thereby
provide a more balanced return, there are times when stocks and bonds both may
decline in value simultaneously. Accordingly, the value of your investment in
the Fund will go up and down, which means that you could lose money.
ASSET ALLOCATION RISK: The Fund may allocate assets to investment classes which
underperform other classes. For example, the Fund may be overweighted in stocks
when the stock market is falling and the bond market is rising.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds,
but BBB-rated bonds may have speculative characteristics as well. While credit
ratings may be available to assist in evaluating an issuer's credit quality,
they may not accurately predict an issuer's ability to make timely payments of
principal and interest.
LIQUIDITY: High yield bonds tend to be less liquid than higher quality bonds,
meaning that it may be difficult to sell high yield bonds at a reasonable price,
particularly if there is a deterioration in the economy or in the financial
prospects of their issuers. As a result, the prices of high yield bonds may be
subject to wide price fluctuations due to liquidity concerns.
7
<PAGE>
FOREIGN ISSUERS: Foreign investments involve additional risks, including
political instability, government regulation and differences in financial
reporting standards.
FREQUENT TRADING: The Fund may, at times, engage in short-term trading, which
could produce higher brokerage costs and taxable distributions and may result in
a lower total return for the Fund.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
Who manages the Total Return Fund?
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
the Fund. Its address is 95 Wall Street, New York, NY 10005. It currently serves
as investment adviser to 51 mutual funds or series of funds with total net
assets of approximately $5 billion. FIMCO supervises all aspects of the Fund's
operations and determines the Fund's portfolio transactions. For the fiscal year
ended September 30, 1998, FIMCO received advisory fees of 0.75% of the Fund's
average daily net assets, net of waiver.
The Fund is managed by a team of portfolio managers who collectively make the
initial allocation decisions among stocks, bonds and money market instruments:
Patricia D. Poitra, Nancy W. Jones and Clark D. Wagner. Ms. Poitra, Director of
Equities, manages the equity portion of the Fund; Ms. Jones manages the fixed
income corporate securities portion of the Fund; Mr. Wagner manages the
government securities and money market portion of the Fund. Each member of the
team is also responsible for the management of certain other First Investors
Funds. Ms. Poitra joined FIMCO in 1985 as a Senior Equity Analyst. Ms. Jones
joined FIMCO in 1983 as Director of Research in the High Yield Department. Mr.
Wagner has been Chief Investment Officer of FIMCO since 1992.
In addition to the investment risks of the Year 2000 which are discussed above,
the ability of FIMCO and its affiliates to price the Fund's shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
provided by FIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
Fund. FIMCO and its affiliates are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Fund's other service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund. Nor can the
Fund estimate the extent of any impact.
8
<PAGE>
BUYING AND SELLING SHARES
How and when does the Fund price its shares?
The share price (which is called "net asset value" or "NAV" per share) for the
Fund is calculated once each day as of 4 p.m., Eastern Standard Time ("E.S.T."),
on each day the New York Stock Exchange ("NYSE") is open for regular trading. In
the event that the NYSE closes early, the share price will be determined as of
the time of the closing.
To calculate the NAV, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The prices or NAVs of Class A shares and Class B shares will
generally differ because they have different expenses.
In valuing its assets, the Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Fund.
How do I buy shares?
You may buy shares of the Fund through a First Investors registered
representative or through a registered representative of an authorized
broker-dealer ("Representative"). Your Representative will help you complete and
submit an application. Your initial investment must be at least $1,000. However,
we offer automatic investment plans that allow you to open a Fund account with
as little as $50. You also may open certain retirement plan accounts with as
little as $500 even without an automatic investment plan.
Subsequent investments may be made in any amount.
If we receive your application or order in our Woodbridge, N.J. offices in
correct form, as described in the Shareholder Manual, prior to the close of
regular trading on the NYSE, your transaction will be priced at that day's NAV.
If you place your order with your Representative prior to the close of regular
trading on the NYSE, your transaction will also be priced at that day's NAV
provided that your Representative transmits the order to our Woodbridge, NJ
office by 5 p.m., E.S.T. Orders placed after the close of regular trading on the
NYSE will be priced at the next business day's NAV. The procedures for
processing transactions are explained in more detail in our Shareholder Manual
which is available upon request.
You can arrange to make systematic investments electronically from your bank
account or through payroll deduction. All the various ways you can buy shares
are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
The Fund reserves the right to refuse any order to buy shares if the Fund
determines that doing so would be in the best interests of the Fund and its
shareholders.
Which class of shares is best for me?
The Fund has two classes of shares, Class A and Class B. While each class
invests in the same portfolio of securities, the classes have separate sales
charge and expense structures. Because of the different expense structures, each
class of shares generally will have different NAVs and dividends.
The principal advantages of Class A shares are the lower overall expenses, the
availability of quantity discounts on volume purchases and certain account
privileges that are available only on Class A shares. The principal advantage of
Class B shares is that all of your money is put to work from the outset.
9
<PAGE>
Class A shares of the Fund are sold at the public offering price which includes
a front-end sales load. The sales charge declines with the size of your
purchase, as illustrated below.
Class A Shares
Your investment Sales Charge as a percentage of
-------------------------------
offering price net amount invested
Less than $25,000 6.25% 6.67%
$25,000-$49,999 5.75 6.10
$50,000-$99,999 5.50 5.82
$100,000-$249,999 4.50 4.71
$250,000-$499,999 3.50 3.63
$500,000-$999,999 2.50 2.56
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Class B shares are sold at net asset value, without any initial sales charge.
However, you may pay a CDSC when you sell your shares. The CDSC declines the
longer you hold your shares, as illustrated below. Class B shares convert to
Class A shares after eight years.
Class B Shares
Year of Redemption
--------------- CDSC as a Percentage of Purchase
Price or NAV at Redemption
--------------------------
Within the 1st or 2nd year.......... 4%
Within the 3rd or 4th year.......... 3
In the 5th year..................... 2
In the 6th year..................... 1
Within the 7th year and 8th year.... 0
There is no CDSC on Class B shares which are acquired through reinvestment of
dividends or distributions. The CDSC is imposed on the lower of the original
purchase price or the net asset value of the shares being sold. For purposes of
determining the CDSC, all purchases made during a calendar month are counted as
having been made on the first day of that month at the average cost of all
purchases made during that month.
To keep your CDSC as low as possible, each time you place a request to sell
shares, we will first sell any shares in your account that carry no CDSC. If
there is an insufficient number of these shares to meet your request in full, we
will then sell those shares that have the lowest CDSC.
Sales charges and CDSCs may be reduced or waived under certain circumstances and
for certain groups. Consult your Representative or call us directly at
1-800-423-4026 for details.
The Fund has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. Each class of
shares pays Rule 12b-1 fees for the marketing of fund shares and for services
provided to shareholders. The plans provide for payments at annual rates (based
on average daily net assets) of up to .30% on Class A shares and 1.00% on Class
B shares. No more than .25% of these payments may be for service fees. These
fees are paid monthly in arrears. Because these fees are paid out of the Fund's
assets on an ongoing basis, the higher fees for Class B shares will increase the
cost of your investment and over time may cost you more than paying the initial
sales charge for Class A shares.
10
<PAGE>
FOR ACTUAL PAST EXPENSES OF CLASS A AND CLASS B SHARES, SEE THE SECTION ENTITLED
"WHAT ARE THE FEES AND EXPENSES OF THE FUND?" IN THIS PROSPECTUS.
Because of the lower overall expenses on Class A shares, we recommend Class A
shares for purchases in excess of $250,000. If you are investing in excess of
$1,000,000, we will only sell Class A shares to you. For purchases below
$250,000, the class that is best for you generally depends upon the amount you
invest, your time horizon, and your preference for paying the sales charge
initially or later. If you fail to tell us what Class of shares you want, we
will purchase Class A shares for you.
How do I sell shares?
You may redeem your Fund shares on any day the Fund is open for business by:
. Contacting your Representative who will place a redemption order for
you;
. Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, NJ
07095-1198;
. Telephoning the Special Services Department of ADM at 1-800-342-6221
(if you have elected to have telephone privileges); or
. Instructing us to make an electronic transfer to a predesignated bank
(if you have completed an application authorizing such transfers).
Your redemption request will be processed at the price next computed after we
receive the request in good order, as described in the Shareholder Manual.
For all requests, have your account number available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account falls below the minimum account balance for any reason other
than market fluctuation, the Fund reserves the right to redeem your account
without your consent or to impose a low balance account fee of $15 annually on
60 days prior notice. The Fund may also redeem your account or impose a low
balance account fee if you have established your account under a systematic
investment program and discontinue the program before you meet the minimum
account balance. You may avoid redemption or imposition of a fee by purchasing
additional Fund shares during this 60-day period to bring your account balance
to the required minimum. If you own Class B shares, you will not be charged a
CDSC on a low balance redemption.
The Fund reserves the right to make in-kind redemptions. This means that it
could respond to a redemption request by distributing shares of the Fund's
underlying investments rather than distributing cash.
Can I exchange my shares for the shares of other First Investors Funds?
You may exchange shares of the Fund for shares of other First Investors Funds
without paying any additional sales charge. You can only exchange within the
same class of shares (i.e., Class A to Class A). Consult your Representative or
call ADM at 1-800-423-4026 for details.
The Fund reserves the right to reject any exchange request that appears to be
part of a market timing strategy based upon the holding period of the initial
investment, the amount of the investment being exchanged, the funds involved,
11
<PAGE>
and the background of the shareholder or dealer involved. The Fund is designed
for long-term investment purposes. It is not intended to provide a vehicle for
short-term market timing.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
To the extent that it has net investment income, the Fund will declare and pay
dividends from net investment income on a quarterly basis. Any net realized
capital gains will be declared and distributed on an annual basis, usually after
the end of the Fund's fiscal year. The Fund may make an additional distribution
in any year if necessary to avoid a Federal excise tax on certain undistributed
income and capital gain.
Dividends and other distributions paid on both classes of the Fund's shares are
calculated at the same time and in the same manner. Dividends on Class B shares
of the Fund 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 Fund shares as of the close of business on the record
date of the distribution.
You may choose to reinvest all dividends and other distributions at NAV in
additional shares of the same class of the Fund or certain other First Investors
Funds, or receive all dividends and other distributions in cash. If you do not
select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of the Fund. If you do not
cash a distribution check and do not notify ADM to issue a new check within 12
months, the distribution may be reinvested in the Fund. If any correspondence
sent by the Fund is returned as "undeliverable," dividends and other
distributions automatically will be reinvested in the Fund. No interest will be
paid to you while a distribution remains uninvested.
A dividend or other distribution will only be paid in additional shares of the
distributing class if the total amount of the distribution is under $5 or the
Fund has received notice of your death (until written alternate payment
instructions and other necessary documents are provided by your legal
representative).
What about taxes?
Any dividends or capital gains distributions paid by the Fund are taxable to you
unless you hold your shares in an individual retirement account ("IRA"), 403(b)
account, or 401(k) account, or other tax-deferred account. Dividends (including
distributions of net short-term capital gains) are taxable to you as ordinary
income. Capital gain distributions (essentially, distributions of net long-term
capital gains) by the Fund are taxed to you as long-term capital gain,
regardless of how long you owned your Fund shares. You are taxed in the same
manner whether you receive your dividends and capital gain distributions in cash
or reinvest them in additional Fund shares. Your sale or exchange of Fund shares
may be a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
How do I obtain a complete explanation of all account privileges and policies?
The Fund offers a full range of special privileges, including special investment
programs for group retirement plans, systematic investment programs, automatic
payroll investment programs, telephone privileges, check writing privileges, and
expedited redemptions by wire order or Automated Clearing House transfer. The
full range of privileges, and related policies, are described in a special
Shareholder Manual, which you may obtain on request. For more information on the
full range of services available, please contact us directly at 1-800-423-4026.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by Tait, Weller & Baker, whose report, along with
the Fund's financial statements, are included in the SAI, which is available
upon request.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------
PER SHARE DATA
----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET ASSET
VALUE NET REALIZED
--------- NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS TOTAL DISTRIBTUIONS
- --------------------- ------------- ------------- ---------------- -------------- -------------- ----------- ---------------------
TOTAL RETURN FUND
- -----------------
CLASS A
- -------
1/1/94 - 12/31/94...... $11.88 $.21 $(.62) $(.41) $.19 $.39 $.58
1/1/95 - 12/31/95...... 10.89 .39 2.50 2.89 .37 .44 .81
1/1/96 - 12/31/96...... 12.97 .39 .97 1.36 .41 1.12 1.53
1/1/97 - 12/31/97...... 12.80 .26 2.04 2.30 .28 1.08 1.36
1/1/98 - 09/30/98...... 13.74 .23 .43 .66 .13 -- .13
CLASS B
- -------
1/12/95* - 12/31/95.... 10.90 .25 2.54 2.79 .33 .44 .77
1/1/96 - 12/31/96...... 12.92 .32 .94 1.26 .34 1.12 1.46
1/1/97 - 12/31/97...... 12.72 .21 1.97 2.18 .19 1.08 1.27
1/1/98 - 09/30/98...... 13.63 .17 .41 .58 .08 -- .08
* Date Class B shares were first offered.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
R A T I O S / S U P P L E M E N T A L D A T A
--------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
ASSETS BEFORE
RATIO TO AVERAGE EXPENSES WAIVED OR
NET ASSETS ++ ASSUMED
---------------- --------------------
NET ASSET NET NET PORTFOLIO
VALUE TOTAL NET ASSETS INVESTMENT INVESTMENT TURNOVER
END RETURN** END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
OF PERIOD (%) (IN MILLIONS) (%) (%) (%) (%) (%)
--------------------------------------------------------------------------------------------------------------------
$10.89 (3.45) $ 51 1.63 1.91 1.88 1.66 124
12.97 26.71 55 1.58 3.08 1.83 2.83 135
12.80 10.62 57 1.53 2.93 1.78 2.68 146
13.74 18.08 67 1.49 1.94 1.74 1.69 149
14.27 4.76 73 1.42+ 2.15+ 1.65+ 1.92+ 111
12.92 25.74 0.3 2.41+ 2.24+ 2.67+ 1.98+ 135
12.72 9.86 1 2.32 2.14 2.49 1.97 146
13.63 17.24 3 2.19 1.24 2.44 .99 149
14.13 4.25 4 2.12+ 1.45+ 2.35+ 1.22+ 111
</TABLE>
14
<PAGE>
[FIRST INVESTORS LOGO]
TOTAL RETURN FUND
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
prospectus.
SHAREHOLDER MANUAL: The Shareholder Manual provides more detailed information
about the purchase, redemption and sale of Fund shares.
You can get free copies of reports, the SAI and the Shareholder Manual, request
other information and discuss your questions about the Fund by contacting the
Fund at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Fund for a fee (including the
Fund's reports, Shareholder Manual and SAI) at the Public Reference Room of the
Securities and Exchange Commission ("SEC") in Washington, D.C. You can also send
your request and a duplicating fee to the Public Reference Room of the SEC,
Washington, DC 20549-6009. You can obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. Text-only versions of Fund
documents can be viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No:
First Investors Total Return Fund 811-5690)
<PAGE>
[FIRST INVESTORS LOGO]
INVESTMENT GRADE FUND
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is February 19, 1999
<PAGE>
CONTENTS
OVERVIEW OF THE INVESTMENT GRADE FUND
o What is the Investment Grade Fund?
oo Objective
oo Primary Investment Strategies
oo Primary Risks
o Who should consider buying the Investment Grade Fund?
o How has the Investment Grade Fund performed?
o What are the fees and expenses of the Investment Grade Fund?
THE INVESTMENT GRADE FUND IN DETAIL
o What are the Investment Grade Fund's objective, principal investment
strategies and principal risks?
o Who manages the Investment Grade Fund?
BUYING AND SELLING SHARES
o How and when does the Fund price its shares?
o How do I buy shares?
o Which class of shares is best for me?
o How do I sell shares?
o Can I exchange my shares for the shares of other First Investors Funds?
ACCOUNT POLICIES
o What about dividends and capital gain distributions?
o What about taxes?
o How do I obtain a complete explanation of all account privileges and
policies?
FINANCIAL HIGHLIGHTS
2
<PAGE>
OVERVIEW OF THE INVESTMENT GRADE FUND
What is the Investment Grade Fund?
Objective The Fund seeks to generate a maximum level of income consistent
with investment in investment grade debt securities.
Primary
Investment
Strategies The Fund primarily invests in corporate bonds of U.S. companies
that are rated in one of the four highest ratings categories by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Ratings Group ("S&P"). Such bonds are generally called
"investment grade bonds." Investment grade bonds offer higher
yields than Treasury securities of comparable maturities to
compensate investors for the risk of default. The Fund selects
bonds primarily on the basis of its own research and investment
analysis. The Fund also takes economic and interest rate outlooks
into consideration when selecting investments.
Primary
Risks There are two main risks of investing in the Fund: credit risk
and interest rate risk. The Fund's share price will decline if
one or more of its bond holdings is downgraded in rating, or one
or more issuers suffers a default, or there is a concern about
credit downgrades or defaults in general as a result of a
deterioration in the economy as a whole. Also the Fund's share
price will decline as interest rates rise. Like all bonds,
investment grade bonds tend to rise in price when interest rates
decline, and decline in price when interest rates rise.
Accordingly, the value of your investment in the Fund will go up
and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Investment Grade Fund?
The Investment Grade Fund may be used as a core holding for an
investment portfolio or as a base on which to build a portfolio.
It may be appropriate for you if you:
. Are seeking an investment which offers current income and a
moderate degree of credit risk,
. Are willing to accept fluctuations in the value of your
investment and the income it produces as a result of changes
in interest rates, credit ratings, and the economy, and
. Have a long-term investment horizon and are able to ride out
market cycles.
You should keep in mind that the Investment Grade Fund is not a
complete investment program. For most investors, a complete
program should include stock, bond and money market funds. Stocks
have historically outperformed other categories of investments
over long periods of time and are therefore considered an
important part of a diversified investment portfolio. There have
been extended periods, however, during which bonds and money
market instruments have outperformed stocks. By allocating your
assets among different types of funds, you can reduce the overall
risk of your portfolio and benefit when stocks outperform other
asset classes. Of course, even a diversified investment program
could result in a loss.
3
<PAGE>
How has the Investment Grade Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[BAR CHART OF CHANGES IN PERFORMANCE OF CLASS A SHARES FROM 1991 TO 1998, WITH
FOLLOWING PLOT POINTS:
1992 7.83%
1993 11.82%
1994 -4.62%
1995 19.40%
1996 2.39%
1997 9.14%
1998 8.63%
During the periods shown, the highest quarterly return was 6.71% (for the
quarter ended June 30, 1995) and the lowest quarterly return was -4.01% (for the
quarter ended August 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT NECESSARILY
INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Lehman Brothers Corporate Bond
Index ("Corporate Bond Index"). This table assumes that the maximum sales charge
or CDSC was paid. The Corporate Bond Index includes all publicly issued, fixed
rate, nonconvertible investment grade dollar-denominated, corporate debt which
have at least one year to maturity and an outstanding par value of at least $100
million. The Corporate Bond Index does not take into account fees and expenses
that an investor would incur in holding the securities in the Corporate Bond
Index. If it did so, the returns would be lower than those shown.
4
<PAGE>
Inception Inception
Class A Shares Class B Shares
1 Year 5 Years* (2/19/91) (1/12/95)
Class A Shares 1.81% 5.32% 7.58% N/A
Class B Shares 3.79 N/A N/A 8.31%
Corporate Bond Index 8.57 7.74 9.69** 10.87***
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 2/1/91 to 12/31/98.
***The average annual total return shown is for the period 1/1/95 to 12/31/98.
What are the fees and expenses of the Investment Grade Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------- -------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).......... 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
DISTRIBUTION TOTAL
AND SERVICE ANNUAL FUND
MANAGEMENT (12B-1) OTHER OPERATING FEE NET
FEES (1) FEES (2) EXPENSES(3) EXPENSES (4) WAIVER (1),(3) EXPENSES (4)
---------- ------------ -------- ------------ ---------- ------------
Class A Shares ........... 0.75% 0.30% 0.35% 1.40% 0.30% 1.10%
Class B Shares ........... 0.75 1.00 0.35 2.10 0.30 1.80
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) For the fiscal year ended September 30, 1998, the Adviser waived Management
Fees in excess of .60% for the Fund. The Adviser has contractually agreed
with the Fund to waive Management Fees in excess of 0.60% for a period of
twelve months commencing on February 1, 1999.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted
by the National Association of Securities Dealers, Inc.
(3) For the fiscal year ended September 30, 1998, the Adviser assumed for each
class of shares of the Fund for certain Other Expenses that were in excess
of 0.20%. The Adviser has contractually agreed with the Fund to assume Other
Expenses in excess of 0.20% for a period of twelve months commencing on
February 1, 1999.
(4) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual Fund
Operating Expenses or Net Expenses.
5
<PAGE>
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
If you redeem your shares:
Class A shares $730 $1,013 $1,316 $2,175
Class B shares 583 929 1,301 2,228*
If you do not redeem your shares:
Class A shares $730 $1,013 $1,316 $2,175
Class B shares 183 629 1,101 2,228*
*Assumes conversion to Class A shares eight years after purchase.
THE INVESTMENT GRADE FUND IN DETAIL
What are the Investment Grade Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks to generate a maximum level of income consistent with
investment in investment grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in corporate bonds of companies that are rated investment grade by
Moody's or S&P ("investment grade bonds"). These are bonds that are rated among
the four highest ratings categories by Moody's or S&P. Investment grade bonds
generally offer higher yields than Treasury securities of comparable maturities
to compensate investors for the risk of default.
Although the Fund may diversify among the four investment grade ratings, it may
emphasize bonds with higher ratings at times when the economy appears to be
weakening and bonds with lower ratings when the economy appears to be improving.
The Fund adjusts the average weighted maturity of the bonds in its portfolio
based on its interest rate outlook. If it believes that interest rates are
likely to fall, it will attempt to buy bonds with longer maturities or sell
bonds with shorter maturities. By contrast, if it believes interest rates are
likely to rise, it will attempt to buy bonds with shorter maturities or sell
bonds with longer maturities. The Fund also attempts to stay broadly
diversified, but it may emphasize certain industries within a sector based on
the outlook for interest rates, economic forecasts, and market conditions. The
Fund may buy or sell Treasury securities instead of investment grade corporate
bonds to adjust the Fund's average weighted maturity.
Although the Fund will consider ratings assigned by ratings services in
selecting investments, it relies principally on its own research and investment
analysis. The Fund considers, among other things, the issuer's earnings and cash
flow generating capabilities, asset quality, debt levels, and management
strength. The Fund will not necessarily sell an investment if its rating is
reduced. The Fund usually will sell a bond when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of owning the Fund:
6
<PAGE>
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic conditions that
affect a particular type of issuer can impact the credit quality of an issuer.
Such changes may weaken an issuer's ability to make payments of principal or
interest, or cause an issuer of bonds to fail to make timely payments of
interest or principal. Lower quality bonds generally tend to be more sensitive
to these changes than higher quality bonds, but BBB-rated bonds may have
speculative characteristics as well. While credit ratings may be available to
assist in evaluating an issuer's credit quality, they may not accurately predict
an issuer's ability to make timely payment of principal and interest.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
Who manages the Investment Grade Fund?
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
the Fund. Its address is 95 Wall Street, New York, NY 10005. It currently serves
as investment adviser to 51 mutual funds or series of funds with total net
assets of approximately $5 billion. FIMCO supervises all aspects of the Fund's
operations and determines the Fund's portfolio transactions. For the fiscal year
ended September 30, 1998, FIMCO received advisory fees of 0.60% of the Fund's
average daily net assets, net of waiver.
Nancy W. Jones and Clark D. Wagner serve as Co-Portfolio Managers of the Fund.
Ms. Jones and Mr. Wagner also individually manage certain other First Investors
Funds. Ms. Jones joined FIMCO in 1983 as Director of Research in the High Yield
Department. Mr. Wagner has been Chief Investment Officer of FIMCO since 1992.
In addition to the investment risks of the Year 2000 which are discussed above,
the ability of FIMCO and its affiliates to price the Fund's shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
provided by FIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
Fund. FIMCO and its affiliates are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Fund's other service providers. However, there can be no assurance that these
7
<PAGE>
steps will be sufficient to avoid any adverse impact on the Fund. Nor can the
Fund estimate the extent of any impact.
BUYING AND SELLING SHARES
How and when does the Fund price its shares?
The share price (which is called "net asset value" or "NAV" per share) for the
Fund is calculated once each day as of 4 p.m., Eastern Standard Time ("E.S.T."),
on each day the New York Stock Exchange ("NYSE") is open for regular trading. In
the event that the NYSE closes early, the share price will be determined as of
the time of the closing.
To calculate the NAV, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The prices or NAVs of Class A shares and Class B shares will
generally differ because they have different expenses.
In valuing its assets, the Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Fund.
How do I buy shares?
You may buy shares of the Fund through a First Investors registered
representative or through a registered representative of an authorized
broker-dealer ("Representative"). Your Representative will help you complete and
submit an application. Your initial investment must be at least $1,000. However,
we offer automatic investment plans that allow you to open a Fund account with
as little as $50. You also may open certain retirement plan accounts with as
little as $500 even without an automatic investment plan.. Subsequent
investments may be made in any amount.
If we receive your application or order in our Woodbridge, N.J. offices in
correct form, as described in the Shareholder Manual, prior to the close of
regular trading on the NYSE, your transaction will be priced at that day's NAV.
If you place your order with your Representative prior to the close of regular
trading on the NYSE, your transaction will also be priced at that day's NAV
provided that your Representative transmits the order to our Woodbridge, NJ
office by 5 p.m., E.S.T. Orders placed after the close of regular trading on the
NYSE will be priced at the next business day's NAV. The procedures for
processing transactions are explained in more detail in our Shareholder Manual
which is available upon request.
You can arrange to make systematic investments electronically from your bank
account or through payroll deduction. All the various ways you can buy shares
are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
The Fund reserves the right to refuse any order to buy shares if the Fund
determines that doing so would be in the best interests of the Fund and its
shareholders.
Which class of shares is best for me?
The Fund has two classes of shares, Class A and Class B. While each class
invests in the same portfolio of securities, the classes have separate sales
charge and expense structures. Because of the different expense structures, each
class of shares generally will have different NAVs and dividends.
The principal advantages of Class A shares are the lower overall expenses, the
availability of quantity discounts on volume purchases and certain account
8
<PAGE>
privileges that are available only on Class A shares. The principal advantage of
Class B shares is that all of your money is put to work from the outset.
Class A shares of the Fund are sold at the public offering price which includes
a front-end sales load. The sales charge declines with the size of your
purchase, as illustrated below.
Class A Shares
Your investment Sales Charge as a percentage of
-------------------------------
offering price net amount invested
Less than $25,000 6.25% 6.67%
$25,000-$49,999 5.75 6.10
$50,000-$99,999 5.50 5.82
$100,000-$249,999 4.50 4.71
$250,000-$499,999 3.50 3.63
$500,000-$999,999 2.50 2.56
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Class B shares are sold at net asset value, without any initial sales charge.
However, you may pay a CDSC when you sell your shares. The CDSC declines the
longer you hold your shares, as illustrated below. Class B shares convert to
Class A shares after eight years.
Class B Shares
Year of Redemption CDSC as a Percentage of Purchase
------------------ Price or NAV at Redemption
--------------------------
Within the 1st or 2nd year........ 4%
Within the 3rd or 4th year........ 3
In the 5th year................... 2
In the 6th year................... 1
Within the 7th year and 8th year.. 0
There is no CDSC on Class B shares which are acquired through reinvestment of
dividends or distributions. The CDSC is imposed on the lower of the original
purchase price or the net asset value of the shares being sold. For purposes of
determining the CDSC, all purchases made during a calendar month are counted as
having been made on the first day of that month at the average cost of all
purchases made during that month.
To keep your CDSC as low as possible, each time you place a request to sell
shares, we will first sell any shares in your account that carry no CDSC. If
there is an insufficient number of these shares to meet your request in full, we
will then sell those shares that have the lowest CDSC.
Sales charges and CDSCs may be reduced or waived under certain circumstances and
for certain groups. Consult your Representative or call us directly at
1-800-423-4026 for details.
The Fund has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. Each class of
shares pays Rule 12b-1 fees for the marketing of fund shares and for services
provided to shareholders. The plans provide for payments at annual rates (based
on average daily net assets) of up to .30% on Class A shares and 1.00% on Class
B shares. No more than .25% of these payments may be for service fees. These
fees are paid monthly in arrears. Because these fees are paid out of the Fund's
assets on an on-going basis, the higher fees for Class B shares will increase
9
<PAGE>
the cost of your investment and over time may cost you more than paying the
initial sales charge for Class A shares.
FOR ACTUAL PAST EXPENSES OF CLASS A AND CLASS B SHARES, SEE THE SECTION ENTITLED
"WHAT ARE THE FEES AND EXPENSES OF THE FUND?" IN THIS PROSPECTUS.
Because of the lower overall expenses on Class A shares, we recommend Class A
shares for purchases in excess of $250,000. If you are investing in excess of
$1,000,000, we will only sell Class A shares to you. For purchases below
$250,000, the class that is best for you generally depends upon the amount you
invest, your time horizon, and your preference for paying the sales charge
initially or later. If you fail to tell us what Class of shares you want, we
will purchase Class A shares for you.
How do I sell shares?
You may redeem your Fund shares on any day the Fund is open for business by:
. Contacting your Representative who will place a redemption order for
you;
. Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, NJ
07095-1198;
. Telephoning the Special Services Department of ADM at 1-800-342-6221
(if you have elected to have telephone privileges); or
. Instructing us to make an electronic transfer to a predesignated bank
(if you have completed an application authorizing such transfers).
Your redemption request will be processed at the price next computed after we
receive the request in good order, as described in the Shareholder Manual. For
all requests, have your account number available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account falls below the minimum account balance for any reason other
than market fluctuation, the Fund reserves the right to redeem your account
without your consent or to impose a low balance account fee of $15 annually on
60 days prior notice. The Fund may also redeem your account or impose a low
balance account fee if you have established your account under a systematic
investment program and discontinue the program before you meet the minimum
account balance. You may avoid redemption or imposition of a fee by purchasing
additional Fund shares during this 60-day period to bring your account balance
to the required minimum. If you own Class B shares, you will not be charged a
CDSC on a low balance redemption.
The Fund reserves the right to make in-kind redemptions. This means that it
could respond to a redemption request by distributing shares of the Fund's
underlying investments rather than distributing cash.
Can I exchange my shares for the shares of other First Investors Funds?
You may exchange shares of the Fund for shares of other First Investors Funds
without paying any additional sales charge. You can only exchange within the
same class of shares (i.e., Class A to Class A). Consult your Representative or
call ADM at 1-800-423-4026 for details.
The Fund reserves the right to reject any exchange request that appears to be
part of a market timing strategy based upon the holding period of the initial
10
<PAGE>
investment, the amount of the investment being exchanged, the funds involved,
and the background of the shareholder or dealer involved. The Fund is designed
for long-term investment purposes. It is not intended to provide a vehicle for
short-term market timing.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
To the extent that it has net investment income, the Fund will declare daily and
pay on a monthly basis dividends from net investment income. Any net realized
capital gains will be declared and distributed on an annual basis, usually after
the end of the Fund's fiscal year. The Fund may make an additional distribution
in any year if necessary to avoid a Federal excise tax on certain undistributed
income and capital gain.
Dividends and other distributions paid on both classes of the Fund's shares are
calculated at the same time and in the same manner. Dividends on Class B shares
of the Fund 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 Fund shares as of the close of business on the record
date of the distribution.
You may choose to reinvest all dividends and other distributions at NAV in
additional shares of the same class of the Fund or certain other First Investors
Funds, or receive all dividends and other distributions in cash. If you do not
select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of the Fund. If you do not
cash a distribution check and do not notify ADM to issue a new check within 12
months, the distribution may be reinvested in the Fund. If any correspondence
sent by the Fund is returned as "undeliverable," dividends and other
distributions automatically will be reinvested in the Fund. No interest will be
paid to you while a distribution remains uninvested.
A dividend or other distribution paid on a class of shares will only be paid in
additional shares of the distributing class if the total amount of the
distribution is under $5 or the Fund has received notice of your death (until
written alternate payment instructions and other necessary documents are
provided by your legal representative).
What about taxes?
Any dividends or capital gains distributions paid by the Fund are taxable to you
unless you hold your shares in an individual retirement account ("IRA"), 403(b)
account, or 401(k) account, or other tax-deferred account. Dividends (including
distributions of net short-term capital gains) are taxable to you as ordinary
income. Capital gain distributions (essentially, distributions of net long-term
capital gains) by the Fund are taxed to you as long-term capital gain,
regardless of how long you owned your Fund shares. You are taxed in the same
manner whether you receive your dividends and capital gain distributions in cash
or reinvest them in additional Fund shares. Your sale or exchange of Fund shares
may be a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
How do I obtain a complete explanation of all account privileges and
policies?
The Fund offers a full range of special privileges, including special investment
programs for group retirement plans, systematic investment programs, automatic
payroll investment programs, telephone privileges, check writing privileges, and
expedited redemptions by wire order or Automated Clearing House transfer. The
full range of privileges, and related policies, are described in a special
11
<PAGE>
Shareholder Manual, which you may obtain on request. For more information on the
full range of services available, please contact us directly at 1-800-423-4026.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by Tait, Weller & Baker, whose report, along with
the Fund's financial statements, are included in the SAI, which is available
upon request.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------
PER SHARE DATA
----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET ASSET
VALUE NET REALIZED
--------- NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS TOTAL DISTRIBTUIONS
- --------------------- ------------- ------------- ---------------- -------------- -------------- ----------- ---------------------
INVESTMENT GRADE FUND
- ---------------------
CLASS A
- -------
1/1/94 - 12/31/94...... $10.33 $.62 $(1.09) $(.47) $.62 $ -- $.62
1/1/95 - 12/31/95...... 9.24 .64 1.10 1.74 .64 -- .64
1/1/96 - 12/31/96...... 10.34 .62 (.39) .23 .62 .02 .64
1/1/97 - 12/31/97...... 9.93 .62 .25 .87 .61 .03 .64
1/1/98 - 09/30/98...... 10.16 .46 .36 .82 .45 -- .45
CLASS B
- -------
1/12/95* to 12/31/95... 9.26 .54 1.10 1.64 .55 -- .55
1/1/96 - 12/31/96...... 10.35 .55 (.39) .16 .55 .02 .57
1/1/97 - 12/31/97...... 9.94 .55 .26 .81 .55 .03 .58
1/1/98 - 09/30/98...... 10.17 .41 .36 .77 .40 -- .40
* Date Class B shares were first offered.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
R A T I O S / S U P P L E M E N T A L D A T A
--------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
ASSETS BEFORE
RATIO TO AVERAGE EXPENSES WAIVED OR
NET ASSETS ++ ASSUMED
---------------- --------------------
NET ASSET NET NET PORTFOLIO
VALUE TOTAL NET ASSETS INVESTMENT INVESTMENT TURNOVER
END RETURN** END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
OF PERIOD (%) (IN MILLIONS) (%) (%) (%) (%) (%)
--------------------------------------------------------------------------------------------------------------------
$ 9.24 (4.62) $ 46 .95 6.46 1.47 5.94 17
10.34 19.40 50 1.10 6.43 1.43 6.10 27
9.93 2.39 46 1.11 5.96 1.42 5.65 22
10.16 9.14 45 1.11 6.18 1.43 5.86 34
10.53 8.29 50 1.10+ 6.02+ 1.40+ 5.72+ 49
10.35 18.08 1 1.80+ 5.73+ 2.13+ 5.40+ 27
9.94 1.64 2 1.81 5.26 2.12 4.95 22
10.17 8.40 3 1.81 5.48 2.13 5.16 34
10.54 7.73 5 1.80+ 5.32+ 2.10+ 5.02+ 49
</TABLE>
14
<PAGE>
[FIRST INVESTORS LOGO]
INVESTMENT GRADE FUND
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
prospectus.
SHAREHOLDER MANUAL: The Shareholder Manual provides more detailed information
about the purchase, redemption and sale of Fund shares.
You can get free copies of reports, the SAI and the Shareholder Manual, request
other information and discuss your questions about the Fund by contacting the
Fund at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Fund for a fee (including the
Fund's reports, Shareholder Manual and SAI) at the Public Reference Room of the
Securities and Exchange Commission ("SEC") in Washington, D.C. You can also send
your request and a duplicating fee to the Public Reference Room of the SEC,
Washington, DC 20549-6009. You can obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. Text-only versions of Fund
documents can be viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No:
First Investors Investment Grade Fund 811-
5690)
<PAGE>
[FIRST INVESTORS LOGO]
EQUITY FUNDS
TOTAL RETURN
GROWTH & INCOME
BLUE CHIP
UTILITIES INCOME
MID-CAP OPPORTUNITY
SPECIAL SITUATIONS
GLOBAL
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is February 19, 1999
<PAGE>
CONTENTS
INTRODUCTION
FUND DESCRIPTIONS
Total Return Fund
Growth & Income Fund
Blue Chip Fund
Utilities Income Fund
Mid-Cap Opportunity Fund
Special Situations Fund
Global Fund
FUND MANAGEMENT
BUYING AND SELLING SHARES
How and when do the Funds price their shares? How do I buy shares?
Which class of shares is best for me?
How do I sell shares?
Can I exchange my shares for the shares of other First Investors Funds?
ACCOUNT POLICIES
What about dividends and capital gain distributions? What about taxes?
How do I obtain a complete explanation of all account privileges and
policies?
FINANCIAL HIGHLIGHTS
Total Return Fund
Growth & Income Fund
Blue Chip Fund
Utilities Income Fund
Mid-Cap Opportunity Fund
Special Situations Fund
Global Fund
2
<PAGE>
INTRODUCTION
This prospectus describes the First Investors Funds that invest
primarily in common stocks and other equity securities. Each individual Fund
description in this prospectus has an "Overview" which provides a brief
explanation of the Fund's objectives, its primary strategies and primary risks,
how it has performed, and its fees and expenses. To help you decide which Funds
may be right for you, we have included in each Overview a section offering
examples of who should consider buying the Fund. Each Fund description also
contains a "Fund in Detail" section with more information on strategies and
risks of the Fund.
None of the Funds in this prospectus, other than the Total Return Fund,
pursues a strategy of allocating its assets among stocks, bonds, and money
market instruments. For most investors, a complete investment program should
include each of these asset classes. While stocks have historically outperformed
other categories of investments over long periods of time, they generally carry
higher risks. There have also been extended periods during which bonds and money
market instruments have outperformed stocks. By allocating your assets among
different types of funds, you can reduce the overall risk of your portfolio and
benefit when bonds and money market instruments outperform stocks. Of course,
even a diversified investment program can result in a loss.
3
<PAGE>
FUND DESCRIPTIONS
TOTAL RETURN FUND
OVERVIEW
Objective The Fund seeks high, long-term total investment return
consistent with moderate investment risk.
Primary
Investment
Strategies The Fund allocates its assets among stocks, and money
market instruments based upon its views on market
conditions, the relative values of these asset classes,
and economic trends. The percentage of assetsallocated to
each asset class is flexible rather than fixed. On a
regular basis, the Fund reviews and determines whether to
adjust the asset allocations. Because the Fund's focus is
on high, "long term" total return, a significant portion
of the Fund's assets has historically been allocated to
stocks. Once the target allocation for stocks has been
set, the Fund uses fundamental research and analysis to
determine which particular stocks to purchase or sell. The
Fund decides how to invest the assets allocated to bonds
by first considering the outlook for the economy and
interest rates and thereafter the financial strength of
particular issuers.
Primary
Risks While a diversified portfolio of stocks, bonds and money
market instruments is generally regarded as having less
risk than a portfolio invested exclusively in stocks, it
is nevertheless subject to market risk. Both stocks and
bonds fluctuate not only as a result of company-specific
developments but also with market conditions, economic
cycles, and interest rates. The Fund may invest in below
investment grade bonds ("high yield" or "junk bonds").
These bonds provide a higher yield but fluctuate more than
investment grade bonds because of their speculative nature
and their potential lack of liquidity. There are times
when the value of bonds and stocks may decline
simultaneously, such as when interest rates rise. The Fund
may, at times, engage in short-term trading, which could
produce higher brokerage costs and taxable distributions
and may result in a lower total return for the Fund.
Accordingly, the value of your investment in the Fund will
go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Total Fund?
The Total Return Fund may be used as a core holding of an
investment portfolio. While every investor should consider
an asset allocation strategy that meets his or her own
needs, the Fund can be used as a stand-alone investment by
an investor who does not want to make his or her own asset
allocation decisions. It may be appropriate for you if
you:
o Are seeking total return,
o Are willing to accept a moderate degree of market
volatility, and
o Have a long-term investment horizon and are able to
ride out market cycles.
4
<PAGE>
How has the Total Return Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
TOTAL RETURN FUND
[BAR CHART OF CHANGES IN PERFORMANCE OF CLASS A SHARES FROM 1990 TO 1998, WITH
FOLLOWING PLOT POINTS:
1991 21.51%
1992 -1.00%
1993 7.18%
1994 -3.45%
1995 26.71%
1996 10.62%
1997 18.08%
1998 16.20%
During the periods shown, the highest quarterly return was 11.79% (for the
quarter ended June 30, 1997) and the lowest quarterly return was -4.95% (for the
quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT NECESSARILY
INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") and the Lehman Brothers
Government/Corporate Bond Index ("Government/Corporate Bond Index"). This table
assumes that the maximum sales charge or CDSC was paid. The S&P 500 Index is an
unmanaged index generally representative of the market for the stocks of
large-sized U.S. companies. The Government/Corporate Bond Index is an index
which includes Treasury obligations, obligations of U.S. agencies, and
investment grade corporate bonds. The indices do not take into account fees and
expenses that an investor would incur in holding the securities in the indices.
If they did so, the returns would be lower than those shown.
5
<PAGE>
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (4/24/90) (1/12/95)
Class A Shares 8.90% 11.73% 9.98% N/A
Class B Shares 11.33 N/A N/A 16.58%
S&P 500 Index 28.34 24.55 19.53 10.41
Government/Corporate
Bond Index 9.47 7.30 9.13** 10.19***
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 4/30/90 to 12/31/98.
*** The average annual total return shown is for the period 1/1/95 to 12/31/98.
What are the fees and expenses of the Return Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).................6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)..........................None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total
and Service Annual Fund
Management 12b-1) Other Operating Fee Net
Fees (1) Fees (2) Expenses Expenses (3) Waiver (1) Expenses (3)
-------- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares............ 1.00% 0.30% 0.35% 1.65% 0.25% 1.40%
Class B Shares............ 1.00 1.00 0.35 2.35 0.25 2.10
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) For the fiscal year ended September 30, 1998, the Adviser waived Management
Fees in excess of 0.75% for the Fund. The Adviser has contractually agreed
with Fund to waive Management Fees in excess of 0.75% for a period of twelve
months commencing on February 1, 1999.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted
by the National Association of Securities Dealers, Inc.
(3) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
6
<PAGE>
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
One Year Three Years Five Years Ten Years
If you redeem your shares:
Class A shares $759 $1,090 $1,444 $2,438
Class B shares 613 1,010 1,433 2,492*
If you do not redeem your shares:
Class A shares $759 $1,090 $1,444 $2,438
Class B shares 213 710 1,233 2,492*
*Assumes conversion to Class A shares eight years after purchase.
THE FUND IN DETAIL
What are the Total Return Fund's objective, principal investment
strategies, and risks?
OBJECTIVE: The Fund seeks high, long-term total investment return consistent
with moderate investment risk.
PRINCIPAL INVESTMENT STRATEGIES: The Fund allocates its assets among stocks,
bonds, and money market instruments. The percentage of the portfolio that is
allocated to any one class of assets is flexible rather than fixed. On a regular
basis, the Fund reviews and determines whether to adjust its asset allocations
based upon its views on market conditions, the relative values of the asset
classes and economic trends. The Fund may allocate up to 25% of its net assets
to high yield bonds. These are bonds that are below investment grade. Investment
grade bonds are those that are rated among the four highest ratings categories
by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. Because
the Fund's focus is on high, "long-term" total return, a significant portion of
the Fund's assets has historically been allocated to stocks. The stock
allocation typically has been 50% or more of the Fund's portfolio.
Once the asset allocation for stocks has been set, the Fund uses fundamental
research and analysis to determine which particular stocks to purchase or sell.
In selecting stocks, the Fund looks for companies that have a mix of strong
management, solid financial condition, and above-average earnings growth
potential.
Once the target allocation for bonds has been set, the Fund determines how this
percentage should be allocated among different types of bonds based upon the
outlook for the economy and interest rates. If the outlook for the economy is
positive, the Fund would normally allocate more to high yield, below-investment
grade bonds to secure additional income and potential capital appreciation. If
the outlook for the economy is negative, the Fund would normally allocate more
to investment grade or Treasury bonds. The duration of the bond portion of the
portfolio would be determined by the interest rate outlook. Duration is a
measurement of a bond's sensitivity to changes in interest rates that takes into
consideration not only the maturity of the bond but also the time value of money
that will be received from the bond over its life. In selecting bonds, the Fund
considers a variety of factors, including the issuer's earnings and cash flow
generating capabilities, asset quality, debt levels, and management strength.
While the Fund invests primarily in domestic companies, it also invests in
securities of issuers domiciled in foreign countries. These securities will
generally be dollar-denominated and traded in the U.S.
7
<PAGE>
The Fund sells a security if its fundamentals have deteriorated or if it is
necessary to rebalance the portfolio. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of owning the Total Return Fund:
MARKET RISK: The Fund's portfolio is subject to market risk. Stock prices in
general may decline over short or even extended periods not only because of
company-specific developments but also due to an economic downturn, a change in
interest rates, or a change in investor sentiment, regardless of the success or
failure of an individual company's operations. Stock markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when stock prices generally go down, referred to as "bear" markets.
Similarly, bond prices fluctuate in value with changes in interest rates, the
economy and in the case of corporate bonds, the financial conditions of
companies that issue them. In general, bonds decline in value when interest
rates rise. High yield bonds behave like bonds at times and like stocks at
times. Like other bonds, high yield bonds tend to decline in value when interest
rates rise. Like stocks, however, high yield bonds generally decline in value
when the economy deteriorates.
While stocks and bonds may react differently to economic events, and thereby
provide a more balanced return, there are times when stocks and bonds both may
decline in value simultaneously. Accordingly, the value of your investment in
the Fund will go up and down, which means that you could lose money.
ASSET ALLOCATION RISK: The Fund may allocate assets to investment classes which
underperform other classes. For example, the Fund may be overweighted in stocks
when the stock market is falling and the bond market is rising.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds,
but BBB-rated bonds may have speculative characteristics as well. While credit
ratings may be available to assist in evaluating an issuer's credit quality,
they may not accurately predict an issuer's ability to make timely payments of
principal and interest.
LIQUIDITY: High yield bonds tend to be less liquid than higher quality bonds,
meaning that it may be difficult to sell high yield bonds at a reasonable price,
particularly if there is a deterioration in the economy or in the financial
prospects of their issuers. As a result, the prices of high yield bonds may be
subject to wide price fluctuations due to liquidity concerns.
FOREIGN ISSUERS: Foreign investments involve additional risks, including
political instability, government regulation and differences in financial
reporting standards.
8
<PAGE>
FREQUENT TRADING: The Fund may, at times, engage in short-term trading, which
could produce higher brokerage costs and taxable distributions and may result in
a lower total return for the Fund.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
9
<PAGE>
GROWTH & INCOME FUND
OVERVIEW
Objectives: The Fund seeks long-term growth of capital and current
income.
Primary
Investment
Strategies: The Fund primarily invests in dividend-paying common
stocks and securities that are convertible into common
stocks of established domestic and foreign companies. The
strategy of focusing on securities which offer income as
well as the potential for capital appreciation is intended
to reduce the Fund's volatility relative to the general
stock market while affording potential for long-term total
return. The Fund also may invest in corporate bonds to
increase the income component of its total return.
Primary
Risks: While dividend-paying common stocks and convertible
securities are expected to hold up better in a declining
market than stocks which do not pay dividends, like all
stocks they fluctuate in price in response to movements in
the overall securities markets, general economic
conditions, changes in interest rates, company-specific
developments and other factors. Moreover, under certain
conditions, the dividends paid on stocks held by the Fund
may not be sufficient to provide a significant cushion
against price declines. Fluctuations in the prices of the
stocks held by the Fund at times can be substantial.
Accordingly, the value of your investment in the Fund will
go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Growth & Income Fund?
The Growth & Income Fund may be used as a core holding for
an investment portfolio or as a base on which to build a
portfolio. It may be appropriate for you if you:
o Are primarily seeking growth of capital,
o Are willing to accept a moderate degree of market
volatility, and
o Have a long-term investment horizon and are able to
ride out market cycles.
Since the Fund's income level will likely be small and
will fluctuate, there can be no assurance that the Fund
will be able to pay regular dividends. The Fund is
therefore not designed for investors who need an assured
level of current income.
How has the Growth & Income Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
10
<PAGE>
GROWTH & INCOME FUND
[Bar Chart of Changes in Performance of Class A Shares From 1993 to 1998,
With Following Plot Points:
1994 -0.76%
1995 30.61%
1996 19.96%
1997 27.96%
1998 23.41%
During the periods shown, the highest quarterly return was 19.42% (for the
quarter ended December 31, 1998), and the lowest quarterly return was -10.80%
(for the quarter ended September 30, 1998). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the Fund's average annual total returns for Class
A shares and Class B shares compare to those of the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index"). This table assumes that the
maximum sales charge or CDSC was paid. The S&P 500 Index is an unmanaged index
generally representative of the market for the stocks of large-sized U.S.
companies. The S&P 500 Index does not take into account fees and expenses that
an investor would incur in holding the securities in the index. If it did so,
the returns would be lower than those shown.
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (10/4/93) (1/12/95)
Class A Shares 15.65% 18.00% 17.43% N/A
Class B Shares 18.58 N/A N/A 24.24%
S&P 500 Index 28.34 24.55 18.47 30.41
*The annual returns are based upon calendar years.
What are the fees and expenses of the Growth & Income Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).................. 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)........................... None* 4%**
11
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Distribution Total
and Service Annual Fund
Management (12b-1) Other Operating
Fees Fees (1) Expenses Expenses(2)
---- -------- --------- -----------
Class A Shares............ 0.75% 0.30% 0.34% 1.39%
Class B Shares............ 0.75 1.00 0.34 2.09
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
(2) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual Fund
Operating Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
One Year Three Years Five Years Ten Years
If you redeem your shares:
Class A shares $758 $1,038 $1,338 $2,189
Class B shares 612 955 1,324 2,242*
If you do not redeem your shares:
Class A shares $758 $1,038 $1,338 $2,189
Class B shares 212 655 1,124 2,242*
*Assumes conversion to Class A shares eight years after purchase.
THE FUND IN DETAIL
What are the Growth & Income Fund's objectives, principal investment strategies,
and principal risks?
OBJECTIVES: The Fund seeks long-term growth of capital and current income.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in dividend-paying common stocks and convertible securities of
established domestic and foreign companies. The Fund also invests in corporate
bonds to increase the income component of its total return. The strategy of
focusing on securities which offer income as well as the potential for capital
appreciation is intended to reduce the Fund's volatility relative to the overall
stock market while affording potential for long-term total return.
The Fund uses a "bottom-up" approach to selecting investments. This means that
the Fund identifies potential investments through fundamental research and
analysis and thereafter focuses on broader issues, such as economic trends,
interest rates, and industry diversification. The Fund focuses on companies
12
<PAGE>
which have solid balance sheets, strong management, relatively consistent
earnings growth or potential earnings growth greater than that of the average
company included in the S&P 500 Index. The Fund typically sells a security when
the reason for holding it is no longer valid, it shows deteriorating
fundamentals, or falls short of the manager's expectations. Information on the
Fund's recent strategies and holdings can be found in the most recent annual
report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of owning the Growth & Income Fund:
MARKET RISK: Because the Fund primarily invests in common stocks and convertible
securities, it is subject to market risk. Stock prices in general may decline
over short or even extended periods not only because of company-specific
developments but also due to an economic downturn, a change in interest rates,
or a change in investor sentiment, regardless of the success or failure of an
individual company's operations. Stock markets tend to run in cycles with
periods when prices generally go up, known as "bull" markets, and periods when
stock prices generally go down, referred to as "bear" markets.
While dividend-paying common stocks and convertible securities are expected to
hold up better in a declining market than stocks which do not pay dividends,
like all stocks they fluctuate in price in response to movements in the overall
securities markets, general economic conditions, company-specific developments,
and other factors. Moreover, under certain conditions, the dividends paid on
these stocks may not be sufficient to provide a significant cushion against
price declines. Fluctuations in the prices of these stocks can therefore be
substantial. The dividend income received by the Fund will also fluctuate with
market conditions. Depending upon market conditions, the Fund may not have
sufficient income to pay its shareholders regular dividends. Accordingly, the
value of your investment in the Fund will go up and down, which means that you
could lose money.
The Fund's focus on growth stocks increases the potential volatility of its
share price. Growth stocks are stocks of companies which are expected to
increase their earnings faster than the overall market. If expectations are not
met, the prices of these stocks may decline drastically even if earnings do
increase. Investments in growth companies may lack the dividend yield that can
cushion stock prices in market downturns.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic conditions that
affect a particular type of issuer can impact the credit quality of an issuer.
Such changes may weaken an issuer's ability to make payments of principal or
interest, or cause an issuer of bonds to fail to make timely payments of
interest or principal. Lower quality bonds generally tend to be more sensitive
to these changes than higher quality bonds, but BBB-rated bonds may have
speculative characteristics as well. While credit ratings may be available to
assist in evaluating an issuer's credit quality, they may not accurately predict
an issuer's ability to make timely payment of principal and interest.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
13
<PAGE>
BLUE CHIP FUND
OVERVIEW
Objective The Fund seeks high total investment return consistent
with the preservation of capital.
Primary
Investment
Strategies The Fund primarily invests in the common stocks of large,
well-established companies that are included in the
Standard and Poor's 500 Composite Stock Price Index ("S&P
500 Index"). These are defined by the Fund as "Blue Chip"
stocks. The Fund selects stocks that it believes will have
earnings growth in excess of the average company in the
S&P 500 Index. While the Fund attempts to diversify its
investments so that its weightings in different industries
are similar to those of the S&P 500 Index, it is not an
index fund and therefore will not necessarily mirror the
S&P 500 Index. The Fund generally stays fully invested in
stocks under all market conditions.
Primary
Risks While Blue Chip stocks are regarded as among the most
conservative stocks, like all stocks they fluctuate in
price in response to movements in the overall securities
markets, general economic conditions, and changes in
interest rates or investor sentiment. Fluctuations in the
prices of Blue Chip stocks at times can be substantial.
Accordingly, the value of your investment in the Fund will
go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Blue Chip Fund?
The Blue Chip Fund may be used as a core holding for an
investment portfolio or as a base on which to build a
portfolio. It may be appropriate for you if you:
o Are seeking growth of capital,
o Are willing to accept a moderate degree of market
volatility, and
o Have a long-term investment horizon and are able to
ride out market cycles.
How has the Blue Chip Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
14
<PAGE>
BLUE CHIP
[BAR CHART OF CHANGES IN PERFORMANCE OF CLASS A SHARES FROM 1989 TO 1998, WITH
FOLLOWING PLOT POINTS:
1989 15.40%
1990 -3.50%
1991 27.52%
1992 6.56%
1993 7.77%
1994 -3.02%
1995 34.01%
1996 20.55%
1997 26.05%
1998 18.10%
During the periods shown, the highest quarterly return was 19.96% (for the
quarter ended December 31, 1998) and the lowest quarterly return was -14.96%
(for the quarter ended October 30, 1990). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the S&P 500 Index. This table
assumes that the maximum sales charge or CDSC was paid. The S&P 500 Index is an
unmanaged index generally representative of the market for the stocks of
large-sized U.S. companies. The S&P 500 Index does not take into account fees
and expenses that an investor would incur in holding the securities in the S&P
500 Index. If it did so, the returns would be lower than those shown.
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (1/3/89) (1/12/95)
Class A Shares 10.74% 16.94% 13.56% N/A
Class B Shares 13.28 N/A N/A 23.41%
S&P 500 Index 28.34 24.55 18.47 30.41
* The annual returns are based upon calendar years.
What are the fees and expenses of the Blue Chip Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
Shareholder fees
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).................. 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)........................... None* 4%**
15
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total
and Service Annual Fund
Management (12b-1) Other Operating Fee Net
Fees(1) Fees (2) Expenses Expenses(3) Waiver(1) Expenses(3)
---------- ------------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares.......... 0.85% 0.30% 0.32% 1.47% 0.10% 1.37%
Class B Shares.......... 0.85 1.00 0.32 2.17 0.10 2.07
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) For the fiscal year ended September 30, 1998, the Adviser waived Management
Fees in excess of 0.75% for the Blue Chip Fund. The Adviser has
contractually agreed with the Fund to waive Management Fees in excess of
0.75% for a period of twelve months commencing on February 1, 1999.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted
by the National Association of Securities Dealers, Inc.
(3) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $756 $1,052 $1,369 $2,265
Class B shares 610 969 1,355 2,318*
If you do not redeem your shares:
Class A shares $756 $1,052 $1,369 $2,265
Class B shares 210 669 1,155 2,318*
*Assumes conversion to Class A shares eight years after purchase.
THE FUND IN DETAIL
What are the Blue Chip Fund's objective, principal investment strategies,
and risks?
OBJECTIVE: The Fund seeks high total investment return consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of large, well-established companies that are included
in the S&P 500 Index. These are defined by the Fund as "Blue Chip" stocks. The
S&P 500 Index consists of both U.S. and foreign corporations.
16
<PAGE>
The Fund uses fundamental research to select stocks of companies with strong
balance sheets, relatively consistent records of achievement, and potential
earnings growth that is greater than that of the average company included in the
S&P 500 Index. The Fund attempts to stay broadly diversified and sector neutral
relative to the S&P 500 Index, but it may emphasize certain industry sectors
based on economic and market conditions. The Fund intends to remain relatively
fully invested in stocks under all market conditions rather than attempt to time
the market by maintaining large cash or fixed income securities positions when
market declines are anticipated. The Fund usually will sell a stock when the
reason for holding it is no longer valid, it shows deteriorating fundamentals,
or it falls short of the Fund's expectations. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of owning the Blue Chip Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While Blue Chip stocks have historically been the
least risky and most liquid stocks, like all stocks they fluctuate in value.
Fluctuations of Blue Chip stocks can be sudden and substantial. Accordingly, the
value of your investment in the Fund will go up and down, which means that you
could lose money.
OTHER RISKS: While the Fund generally attempts to remain sector-neutral relative
to the S&P 500 Index, it is not an index fund. The Fund may hold securities
other than those in the S&P 500 Index, may hold fewer securities than the index,
and may have sector or industry allocations different from the index, each of
which could cause the Fund to underperform the index.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
17
<PAGE>
UTILITIES INCOME FUND
OVERVIEW
Objectives The Fund primarily seeks high current income and
secondarily long-term capital appreciation.
Primary
Investment
Strategies The Fund concentrates its investments in stocks of public
utilities companies ("utilities stocks"). The Fund
attempts to diversify across all sectors of the utilities
industry (i.e., electric, gas, telecommunications, and
water), but from time to time it will emphasize one or
more sectors based on the outlook for the various sectors.
While the Fund emphasizes investments in U.S. companies,
it may invest in stocks of foreign utilities companies.
Primary
Risks While utilities stocks tend to be regarded as less
volatile than other stocks, like all stocks they fluctuate
in value in response to movements in the overall
securities markets, general economic conditions, and
changes in interest rates or investor sentiment. Because
the Fund concentrates its investments in public utilities
stocks, the value of its shares will be particularly
affected by events that impact on the utilities industry,
such as changes in public utilities regulation, changes in
weather, and changes in interest rates. Stocks of foreign
utilities companies carry additional risks including
political instability, government regulation and
differences in financial reporting standards. An
investment in the Fund could decline in value even if the
market as a whole does well. Accordingly, the value of
your investment in the Fund will go up and down, which
means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Utilities Income Fund?
The Utilities Income Fund is most appropriately used to
add diversification to an investment portfolio. It may be
appropriate for you if you:
o Are seeking income and growth of capital,
o Are willing to accept a moderate degree of market
volatility, and
o Have a long-term investment horizon and are able to
ride out market cycles.
How has the Utilities Income Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
18
<PAGE>
UTILITIES INCOME FUND
[Bar Chart of Changes in Performance of Class A Shares From 1993 to 1998, with
Following Plot Points:
1994 -8.50%
1995 32.20%
1996 7.63%
1997 24.01%
1998 11.43%
During the periods shown, the highest quarterly return was 12.13% (for the
quarter ended December 31, 1997) and the lowest quarterly return was -7.56% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") and the Standard and Poor's
Utilities Index ("S&P Utilities Index"). This table assumes that the maximum
sales charge or CDSC was paid. The S&P 500 Index is an unmanaged index generally
representative of the market for the stocks of large-sized U.S. companies. The
S&P Utilities Index is a capitalization-weighted index of 37 stocks designed to
measure the performance of the utilities sector of the S&P 500 Index. The
indices do not take into account fees and expenses that an investor would incur
in holding the securities in the indices. If they did so, the returns would be
lower than those shown.
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (2/22/93) (1/12/95)
Class A Shares 4.47% 11.01% 10.15% N/A
Class B Shares 6.56 N/A N/A 17.19%
S&P 500 Index 28.34 24.55 21.72 30.41
S&P Utilities Index** 14.36 13.50 10.98 19.91
*The annual returns are based upon calendar years.
**This Index is used to show how the Fund's performance compares with the
returns of an index of stocks in market sectors in which the Fund may invest.
19
<PAGE>
What are the fees and expenses of the Utilities Income Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)................ 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)......................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Distribution Total
and Service Annual Fund
Management (12b-1) Other Operating
Fees Fees (1) Expenses Expenses (2)
---- -------- -------- ------------
Class A Shares........... 0.75% 0.30% 0.38% 1.43%
Class B Shares........... 0.75 1.00 0.38 2.13
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted
by the National Association of Securities Dealers, Inc.
(2) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with
its custodian. Any such fee reductions are not reflected under Total
Annual Fund Operating Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $761 $1,049 $1,358 $2,231
Class B shares 616 967 1,344 2,284*
If you do not redeem your shares:
Class A shares $761 $1,049 $1,358 $2,231
Class B shares 216 667 1,144 2,284*
*Assumes conversion to Class A shares eight years after purchase.
20
<PAGE>
THE FUND IN DETAIL
What are the Utilities Income Fund's objectives,
principal investment strategies, and risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily
long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in stocks (including not only common stocks, but also preferred stocks
and securities convertible into common or preferred stocks) of companies in the
utilities industry. These are securities of companies which are primarily
engaged in owning or operating facilities used to provide electricity, gas,
water or telecommunications (including telephone, telegraph and satellite, but
not public broadcasting or cable television). While the Fund emphasizes
investments in U.S. companies, it may invest in stocks of foreign utilities
companies. The Fund's investments in foreign utilities companies are generally
limited to stocks that are dollar-denominated and traded in the U.S.
While the Fund attempts to diversify across all utilities sectors, it may
emphasize a particular sector based on that sector's yield, price to earnings
ratio, economic trends, and the regulatory environment. The Fund uses a
"top-down" approach to selecting investments. This means that it first decides
on how much of its assets to allocate to each sector of the utilities market and
then identifies potential investments for each sector through fundamental
research and analysis.
In selecting securities, the Fund will consider a stock's dividend potential,
its price to earnings ratio, the company's management, the company's ratio of
international to domestic earnings, the company's future strategies, and
external factors such as demographics and mergers and acquisitions prospects.
The Fund typically sells a security when its issuer shows deteriorating
fundamentals, it falls short of the manager's expectations or there is a change
in economic trends. Information on the Fund's recent strategies and holdings can
be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of owning the Utilities Income Fund:
MARKET RISK: Because this Fund invests in stocks, it is subject to stock market
risk. Stock prices in general may decline over short or even extended periods
not only because of company-specific developments, but also due to an economic
downturn, a change in interest rates, or a change in investor sentiment,
regardless of the success or failure of an individual company's operations.
Stock markets tend to run in cycles with periods when prices generally go up,
known as "bull" markets, and periods when stock prices generally go down,
referred to as "bear" markets. While utilities stocks have long been thought of
as being less volatile than other stocks, like all stocks they fluctuate in
value. As the utilities industry has begun to deregulate and earnings have
become less predictable, utilities stocks have begun to have price fluctuations
which are more like other stocks. Stocks of foreign utilities companies carry
additional risks including political instability, government regulation and
differences in financial reporting standards.
INDUSTRY CONCENTRATION RISK: Because the Fund concentrates its investments in
public utilities companies, the value of its shares will be especially affected
by events that are peculiar to or have a greater impact on the utilities
industry. Utilities companies, especially electric and gas and other
energy-related utilities companies, have historically been subject to the risk
of increases in fuel and other operating costs, changes in weather patterns,
changes in interest rates, changes in applicable laws and regulations, and costs
and operating constraints associated with compliance with environmental
regulations. Utilities stocks therefore may decline in value even if the overall
market is doing well.
SECTOR CONCENTRATION RISK: Because the Fund may concentrate its portfolio in one
sector of the utilities industry, its share value could decline if one sector of
the utilities industry does poorly even if the industry does well as a whole.
21
<PAGE>
DEREGULATION/COMPETITION RISK: Regulatory changes in the United States have
increasingly allowed utilities companies to provide services and products
outside their traditional geographical areas and lines of business, creating
competitors and new areas of competition. As a result, certain utilities
companies earn more than their traditional, regulated rates of return, while
others are forced to defend their core business from competition and are less
profitable. Some utilities companies may not be able to recover the costs of
facilities built or acquired prior to the date of deregulation. This is known as
the "stranded assets" problem.
INTEREST RATE RISK: Utilities stocks tend to be more interest rate sensitive
than other stocks. As interest rates increase, utilities stocks tend to decline
in value.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
OTHER RISKS: Changes in weather patterns or regional weather circumstances may
affect the ability of the utilities industry, a sector of the industry, or
certain utilities companies to meet supply and demand.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
22
<PAGE>
MID-CAP OPPORTUNITY FUND
OVERVIEW
Objective The Fund seeks long-term capital growth.
Primary
Investment
Strategies The Fund primarily invests in common stocks of companies
with medium market capitalizations ("mid-cap stocks")
which offer the potential for substantial long-term
growth. These companies are generally more established
than smaller companies, yet are early enough in their
development to still be capable of increasing their
revenues and earnings at a strong rate. In selecting
stocks, the Fund will look for companies that have strong
balance sheets, experienced management, above- average
earnings growth potential, and stocks that are
attractively priced relative to their fundamental economic
values. Based upon the Fund's economic outlook for stocks,
the Fund may decide to invest a portion of its assets in
stocks of companies with small or large market
capitalizations ("small-cap" and "large-cap").
Primary
Risks While the potential long-term rewards of investing in
mid-cap stocks are substantial, there are also substantial
risks. Mid-cap companies carry more risk because they
generally rely on a smaller number of products or
services, their earnings tend to be less predictable, and
their stocks tend to be less liquid than those of
large-cap companies. Mid-cap stocks tend to experience
sharper price fluctuations than stocks of large-cap
companies. These fluctuations can be substantial. To the
extent that the Fund decides to invest in small-cap
companies, the risk of price fluctuations is greater.
Accordingly, the value of your investment in the Fund will
go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Mid-Cap Opportunity Fund?
The Mid-Cap Opportunity Fund is most appropriately used to
add diversification to an investment portfolio. It may be
appropriate for you if you:
o Are seeking significant growth of capital,
o Are willing to accept higher than average market
volatility, and
o Have a long-term investment horizon and are able to
ride out market cycles.
How has the Mid-Cap Opportunity Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
23
<PAGE>
MID-CAP OPPORTUNITY
[Bar Chart of Changes in Performance of Class A Shares From 1992 to 1998,
With Following Plot Points:
1993 -0.89%
1994 0.50%
1995 24.40%
1996 15.34%
1997 18.57%
1998 11.90%
During the periods shown, the highest quarterly return was 30.70% (for the
quarter ended December 31, 1998) and the lowest quarterly return was -20.16%
(for the quarter ended September 30, 1998). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Standard & Poor's 400 Midcap
Index ("S&P 400 Index"). This table assumes that the maximum sales charge or
CDSC was paid. The S&P 400 Index is an unmanaged index generally representative
of the U.S. market for medium cap stocks. The S&P 400 Index does not take into
account fees and expenses that an investor would incur in holding the securities
in the S&P 400 Index. If it did so, the returns would be lower than those shown.
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (8/24/92) (1/12/95)
Class A Shares 4.92% 12.40% 10.27% N/A
Class B Shares 7.06 N/A N/A 15.92%
S&P 400 Index 19.09 18.71 18.31 25.16
*The annual returns are based upon calendar years.
24
<PAGE>
What are the fees and expenses of the Mid-Cap Opportunity Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)................... 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)............................ None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total
and Service Annual Fund
Management (12b-1) Other Operating Fee Net
Fees(1) Fees (2) Expenses (3) Expenses(4) Waiver(1),(3),(4) Expenses(4)
--------- ------------- ------------ -------------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares........... 1.00% 0.30% 0.59% 1.89% 0.39% 1.50%
Class B Shares........... 1.00 1.00 0.59 2.59 0.39 2.20
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) For the fiscal year ended September 30, 1998, the adviser waived Management
Fees in excess of 0.75% for the Fund. The Adviser has contractually agreed
with the Fund to waive Management Fees in excess of 0.75% for a period
of twelve months commencing on February 1, 1999.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(3) For the fiscal year ended September 30, 1998, the Adviser assumed for each
class of shares of Mid-Cap Opportunity Fund certain Other Expenses that
were in excess of 0.45%. The Adviser has contractually agreed with the
Fund to assume Other Expenses in excess of 0.45% for a period of twelve
months commencing on February 1, 1999.
(4) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. The Fund's custodial credits equaled .03%. Any such fee
reductions are not reflected under Total Annual Fund Operating Expenses,
but are reflected under Fee Waiver and Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
25
<PAGE>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $768 $1,146 $1,549 $2,669
Class B shares 623 1,068 1,541 2,725*
If you do not redeem your shares:
Class A shares $768 $1,146 $1,549 $2,669
Class B shares 223 768 1,341 2,725*
*Assumes conversion to Class A shares eight years after purchase.
THE FUND IN DETAIL
What are the Mid-Cap Opportunity Fund's objective, principal
investment strategies, and risks?
OBJECTIVE: The Fund seeks long-term capital growth.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of mid-cap companies. The Fund defines mid-cap stocks as
those with market capitalizations of less than 90% of the weighted market
capitalization of the S&P 400 Index (currently $7.6 billion). The Fund's
definition of mid-cap will change with market conditions. Mid-cap companies are
generally more established than smaller capitalization companies, yet are early
enough in their development to still be capable of increasing their revenues and
earnings at a strong rate. The Fund also may invest a portion of its assets in
stocks of small-cap or large-cap companies.
The Fund uses a "bottom-up" approach to selecting investments. The Fund uses
fundamental research to search for stocks of companies that have strong balance
sheets, experienced management, above average earnings growth potential and
attractive prices relative to their fundamental economic values. The Fund
attempts to stay broadly diversified, but it may emphasize certain industry
sectors based upon economic and market conditions. The Fund will usually sell a
stock when the reason for holding it is no longer valid, it shows deteriorating
fundamentals, or it falls short of the portfolio manager's expectations.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of owning the Mid-Cap Opportunity Fund:
MARKET RISK: Because the Fund invests in equity securities, it is subject to
stock market risk. Stock prices in general may decline over short or even
extended periods not only because of company-specific developments but also due
to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets.
The market risk associated with mid-cap and small-cap stocks is generally
greater than that associated with large-cap stocks because mid-cap and small-cap
stocks tend to experience sharper price fluctuations than large-cap stocks,
particularly during bear markets. Their earnings tend to be less predictable
than those of larger, more established companies. The prices of these stocks can
also be influenced by the anticipation of future products and services which, if
delayed, could cause the prices to drop.
LIQUIDITY: The stocks in which the Fund primarily invests are less liquid than
those of larger, more well-established companies. Securities of companies with
small-to-medium market capitalization often are not as broadly traded as those
of companies with larger market capitalization and are often subject to wider
26
<PAGE>
price fluctuations. As a result, at times it may be difficult for the Fund to
sell these securities at a reasonable price.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
27
<PAGE>
SPECIAL SITUATIONS FUND
OVERVIEW
Objective The Fund seeks long-term growth of capital.
Primary
Investment
Strategies The Fund primarily invests in common stocks of companies
with small market capitalizations ("small-cap stocks")
which have the potential for substantial long-term growth.
The Fund looks for companies that are in the early stages
of their development, have a new product or service, are
in a position to benefit from some change in the economy,
have new management, or are experiencing some other
"special situation" which makes their stocks undervalued.
Because these companies tend to be smaller, their growth
potential is often greater.
Primary
Risks While the potential long-term rewards of investing in
small-cap stocks are substantial, there are also
substantial risks. Small-cap stocks carry more risk
because they are often in the early stages of development,
dependent on a small number of products or services, lack
substantial financial resources, and have less predictable
earnings. Small-cap stocks also tend to be less liquid,
and experience sharper price fluctuations than stocks of
companies with large capitalizations. These fluctuations
can be substantial. Accordingly, the value of your
investment in the Fund will go up and down, which means
that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Special Situations Fund?
The Special Situations Fund is most appropriately used to
add diversification to an investment portfolio. It may be
appropriate for you if you:
o Are seeking significant growth of capital, Are
o willing to accept a high degree of market
volatility, and
o Have a long-term investment horizon and are able to
ride out market cycles.
How has the Special Situations Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
28
<PAGE>
SPECIAL SITUTATIONS
[BAR CHART OF CHANGES IN PERFORMANCE OF CLASS A SHARES FROM 1990 TO 1998, WITH
FOLLOWING PLOT POINTS:
1991 50.47%
1992 17.26%
1993 20.52%
1994 -3.66%
1995 23.92%
1996 11.56%
1997 16.15%
1998 1.53%
During the periods shown, the highest quarterly return was 26.30% (for the
quarter ended December 31, 1998) and the lowest quarterly return was -23.05%
(for the quarter ended September 30, 1998). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Russell 2000 Index. This table
assumes that the maximum sales charge or CDSC was paid. The Russell 2000 Index
is an unmanaged index generally representative of the U.S. market for small-cap
stocks. The Russell 2000 Index does not take into account fees and expenses that
an investor would incur in holding the securities in the Russell 2000 Index. If
it did so, the returns would be lower than those shown.
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (9/18/90) (1/12/95)
Class A Shares -4.82% 8.05% 15.29% N/A
Class B Shares -3.20 N/A N/A 11.87
Russell 2000 Index -2.24 12.31 17.14 15.45
*The annual returns are based upon calendar years.
29
<PAGE>
What are the fees and expenses of the Special Situations Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).................. 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)........................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total
and Service Annual Fund
Management (12b-1) Other Operating Fee Net
Fees (1) Fees (2) Expenses Expenses (3) Waiver (1) Expenses (3)
----------- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares.......... 0.97% 0.30% 0.48% 1.75% 0.22% 1.53%
Class B Shares.......... 0.97 1.00 0.48 2.45 0.22 2.23
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) For the fiscal year ended September 30, 1998, the Adviser waived Management
Fees in excess of 0.75% for the Fund. The Adviser has contractually agreed
with the Fund to waive Management Fees in excess of 0.75% for a period of
twelve months commencing on February 1, 1999.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted
by the National Association of Securities Dealers, Inc.
(3) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual Fund
Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $771 $1,122 $1,495 $2,541
Class B shares 626 1,043 1,486 2,597*
If you do not redeem your shares:
Class A shares $771 $1,122 $1,495 $2,541
Class B shares 226 743 1,286 2,597*
*Assumes conversion to Class A shares eight years after purchase.
30
<PAGE>
THE FUND IN DETAIL
What are the Special Situations Fund's objective, principal
investment strategies, and risks?
OBJECTIVE: The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in common stocks of companies with small market capitalizations, which
have the potential for substantial long-term growth. The Fund defines small-cap
stocks as those with market capitalizations of less than 90% of the weighted
market capitalization of the Standard & Poor's 600 Smallcap Index ("S&P 600
Index") (currently $1.5 billion). The Fund's definition of small-cap will change
with market conditions. The Fund looks for companies that are in the early
stages of their development, have a new product or service, are in a position to
benefit from some change in the economy, have new management, or are
experiencing some other "special situation" which makes their stocks
undervalued. Because these companies tend to be smaller, their growth potential
is often greater.
In selecting stocks, the Fund relies on fundamental research. It considers,
among other things, earnings growth potential, revenue growth potential, cash
flow and tangible book value. The Fund attempts to stay broadly diversified but
it may emphasize certain industry sectors based on economic and market
conditions. The Fund usually will sell a stock when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of owning the Special Situations Fund:
MARKET RISK. Because this Fund invests in stocks, an investment in the Fund is
subject to stock market risk. Stock prices in general may decline over short or
even extended periods not only because of company-specific developments but also
due to an economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets and periods when stock prices generally
go down, referred to as "bear" markets. The market risk associated with
small-cap stocks is greater than that associated with larger-cap stocks because
small-cap stocks tend to experience sharper price fluctuations than larger-cap
stocks, particularly during bear markets.
Small-cap companies are generally dependent on a small number of products or
services, their earnings are less predictable, and their share prices more
volatile. These companies are also more likely to have limited markets or
financial resources, and may depend on a small, inexperienced management group.
LIQUIDITY: Stocks of small-cap companies often are not as broadly traded as
those of larger-cap companies and are often subject to wider price fluctuations.
As a result, at times it may be difficult for the Fund to sell these securities
at a reasonable price.
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YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then temporarily may use
alternative strategies that are mainly designed to limit the Fund's losses.
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GLOBAL FUND
OVERVIEW
Objectives The Fund primarily seeks long-term capital growth and
secondarily a reasonable level of current income.
Primary
Investment
Strategies The Fund invests in a diversified portfolio of common
stocks of companies which are located throughout the
world. While the Fund attempts to maintain broad country
diversification, under normal market conditions it must
allocate assets to at least three countries, including the
United States. The Fund primarily invests in large or
medium capitalization stocks which are traded in larger or
more established markets throughout the world. The Fund
also invests opportunistically in small capitalization
stocks and stocks of smaller, less-developed or emerging
markets. The Fund generally does not attempt to hedge its
foreign securities investments against currency rate
fluctuations.
Primary
Risks All stocks fluctuate in price in response to movements in
the overall securities markets, general economic
conditions, and changes in interest rates or investor
sentiment. The risks of investing in a stock fund that
invests in foreign stocks are accentuated because
investments in foreign stocks, particularly emerging
markets, can decline in value because of declines in the
values of local currencies, irrespective of how well the
companies that issue such stocks are doing; there is less
supervision and regulation of foreign securities markets;
foreign securities markets are generally less liquid than
U.S. markets; there may be less financial information
available on certain foreign companies; and there may be
political instability in some countries in which the Fund
may invest. Fluctuations in the prices of foreign stocks
can be especially sudden and substantial. Stocks with
smaller market capitalizations tend to experience sharper
price fluctuations. Accordingly, the value of your
investment in the Fund will go up and down, which means
that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Global Fund?
The Global Fund is most appropriately used to add
diversification to an investment portfolio. It may be
appropriate for you if you:
o Are seeking significant growth of capital,
o Want exposure not only to U.S. but also foreign
securities,
o Are willing to accept a high degree of market
volatility and the additional risks of foreign
investments, and
o Have a long-term investment horizon and are able to
ride out market cycles.
How has the Global Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
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The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares for each of
the last 10 calendar years. The performance of Class B shares differs from the
performance of Class A shares shown in the bar chart only to the extent that it
does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
GLOBAL FUND
[BAR CHART OF CHANGES IN PERFORMANCE OF CLASS A SHARES FROM 1989 TO 1998, WITH
FOLLOWING PLOT POINTS:
1989 37.65%
1990 -12.22%
1991 14.56%
1992 -2.89%
1993 22.97%
1994 -3.78%
1995 17.83%
1996 14.43%
1997 7.98%
1998 16.80%
During the periods shown, the highest quarterly return was 23.13% (for the
quarter ended October 30, 1989) and the lowest quarterly return was -21.79% (for
the quarter ended October 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Morgan Stanley All Country
World Free Index ("All Country Index"). This table assumes that the maximum
sales charge or CDSC was paid. The All Country Index is designed to measure the
performance of stock markets in the United States, Europe, Canada, Australia,
New Zealand and the developed and emerging markets of Eastern Europe, Latin
America, Asia and the Far East. The index consists of approximately 60% of the
aggregate market value of the covered stock exchanges and is calculated to
exclude companies and share classes which cannot be freely purchased by
foreigners. The All Country Index does not take into account fees and expenses
that an investor would incur in holding the securities in the index. If it did
so, the returns would be lower than those shown.
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
Class A Shares 9.46% 8.98% 9.75% N/A
Class B Shares 11.75 N/A N/A 13.34%
All Country Index 21.96 7.13 10.87 6.61**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 1/1/95 to 12/31/98.
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What are the fees and expenses of the Global Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)................... 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)............................ None* 4%**
(ANNUAL FUND OPERATING EXPENSES
expenses that are deducted from Fund assets)
Distribution Total
and Service Annual Fund
Management (12b-1) Other Operating
Fees Fees (1) Expenses Expenses
---- -------- -------- --------
Class A Shares.............. 0.99% 0.30% 0.53% 1.82%
Class B Shares.............. 0.99 1.00 0.53 2.52
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
One Year Three Years Five Years Ten Years
If you redeem your shares:
Class A shares $798 $1,162 $1,549 $2,629
Class B shares 655 1,085 1,540 2,684*
If you do not redeem your shares:
Class A shares $798 $1,162 $1,549 $2,629
Class B shares 255 785 1,340 2,684*
*Assumes conversion to Class A shares eight years after purchase.
THE FUND IN DETAIL
What are the Global Fund's objectives, principal
investment strategies, and risks?
OBJECTIVES: The Global Fund primarily seeks long-term capital growth and
secondarily a reasonable level of current income.
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PRINCIPAL INVESTMENT STRATEGIES: The Fund invests in a diversified portfolio of
common stocks of companies which are located throughout the world. While the
Fund attempts to maintain broad country diversification, under normal market
conditions it must allocate assets to at least three countries, including the
United States.
The Fund primarily invests in stocks of companies which are considered large to
medium in size (measured by market capitalization). The Fund may also invest in
smaller companies when management views them as attractive alternatives to the
stocks of larger or more established companies.
The Fund primarily invests in stocks which trade in larger or more established
markets, but also may invest (to a lesser degree) in smaller, less-developed or
emerging markets where management believes there is significant opportunity for
growth of capital. The definition of "emerging markets" may change over time as
a result of developments in national or regional economies and capital markets.
The foreign stocks that the Fund purchases are typically denominated in foreign
currencies. The Fund generally does not hedge against fluctuations in the value
of foreign currencies.
The Fund uses fundamental research and analysis to identify prospective
investments. Security selection is based on any one or more of the following
characteristics: accelerating earnings growth or the possibility of positive
earnings surprises; strong possibility of price-to-earnings multiple expansion
(or increases in other similar valuation measures); hidden or unappreciated
value; or improving local market and/or industry outlook.
Once the purchase candidates for the Fund are identified, the portfolio
construction process begins. In this phase, many factors are considered in
creating a total portfolio of securities for the Fund, including: (1) regional
and country allocation, (2) currency exposure, (3) industry and sector
allocation, and (4) exposure to a number of other factors such as interest rates
or company size. The total risk of the Fund is monitored and controlled at this
point in the portfolio construction process.
Every company in the portfolio is monitored to ensure its fundamental
attractiveness. A stock may be sold if its downside risk equals or exceeds its
upside potential; it suffers from a decreasing trend of earnings growth or
suffers an earnings disappointment; it experiences excessive valuations; or
there is a deteriorating local market and/or industry outlook.
Information on the Fund's recent strategies and holdings can be found in the
most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of owning the Global Fund:
MARKET RISK: Because the Fund primarily invests in common stocks, it is subject
to market risk. Stock prices in general may decline over short or even extended
periods not only because of company-specific developments but also due to an
economic downturn, a change in interest rates, or a change in investor
sentiment, regardless of the success or failure of an individual company's
operations. Stock markets tend to run in cycles with periods when prices
generally go up, known as "bull" markets, and periods when stock prices
generally go down, referred to as "bear" markets.
While the Fund's strategy of being globally diversified may help to reduce the
volatility or variability of the Fund's returns relative to another fund which
invests in fewer stocks or whose investments are focused in fewer countries or
industry sectors, this strategy may not prevent a loss if stock markets
worldwide were to decline at the same time. Fluctuations of prices of stocks can
be sudden and substantial. Accordingly, the value of your investment in the Fund
will go up and down, which means that you could lose money.
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FOREIGN SECURITIES RISKS: There are special risk factors associated with
investing in foreign securities. Some of these factors are also present when
investing in the United States but are heightened issues when investing in
non-U.S. markets, especially emerging markets. For example, such risks and
considerations may include political and economic instability, differing
accounting and financial reporting standards or inability to obtain reliable
financial information regarding a company's balance sheet and operations. Risks
such as these are common to all investments but are exacerbated when investing
in international markets. In addition, international investors may experience
higher commission rates on foreign portfolio transactions, potentially adverse
changes in tax and exchange control regulations, the potential for restrictions
on the flow of international capital and the transition to the euro for European
Monetary Union countries. Many foreign countries impose withholding taxes on
income from investments in such countries, which the Fund may not recover. Also,
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies may have a negative impact on investments denominated in foreign
currencies, for example, by eroding or reversing gains or widening losses from
those investments.
LIQUIDITY RISK: The Fund is also susceptible to the risk that certain securities
may be difficult or impossible to sell at the time and the price that the Fund
would like. As a result, the Fund may have to lower the price on certain
securities that it is trying to sell, sell other securities instead, or forego
an investment opportunity, any of which could have a negative effect on fund
management or performance. This risk is common to most stock mutual funds, but
is particularly acute in the case of foreign investments.
SMALL-CAP RISK: The market risk associated with small-to mid-cap stocks is
greater than that associated with larger-cap stocks because small-to mid-cap
stocks tend to experience sharper price fluctuations than larger-cap stocks,
particularly during bear markets. Small-to mid-cap companies are generally
dependent on a smaller number of products or services, their earnings are less
predictable, and their share prices more volatile. These companies are also more
likely to have limited markets or financial resources, or to depend on a small,
inexperienced management group.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
be particularly acute in the case of the Fund's holdings in foreign securities
since foreign issuers and foreign markets may be more likely to experience Year
2000 problems. These problems could have a negative effect on the Fund's
investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
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FUND MANAGEMENT
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
the Fund. Its address is 95 Wall Street, New York, NY 10005. It currently serves
as investment adviser to 51 mutual funds or series of funds with total net
assets of approximately $5 billion. FIMCO supervises all aspects of each Fund's
operations and determines each Fund's portfolio transactions, except for Global
Fund. For the fiscal year ended September 30, 1998, FIMCO received advisory fees
as follows: .75% of average daily net assets, net of waiver, for Total Return
Fund, Blue Chip Fund, Mid-Cap Opportunity Fund, and Special Situations Fund;
.75% of average daily net assets for Growth & Income Fund and Utilities Income
Fund; and .99% of average daily net assets for Global Fund.
The Total Return Fund is managed by a team of portfolio managers who
collectively make the initial allocation decisions among stocks, bonds and money
market instruments: Patricia D. Poitra, Nancy W. Jones and Clark D. Wagner. Ms.
Poitra, Director of Equities, manages the equity portion of the Fund; Ms. Jones
manages the fixed-income corporate securities portion of the Fund; Mr. Wagner
manages the government securities and money market portion of the Fund. Each
member of the team is also responsible for the management of certain other First
Investors Funds. Ms. Poitra joined FIMCO in 1985 as a Senior Equity Analyst. Ms.
Jones joined FIMCO in 1983 as Director of Research in the High Yield Department.
Mr. Wagner has been Chief Investment Officer of FIMCO since 1992.
Dennis T. Fitzpatrick serves as Portfolio Manager of the Growth & Income Fund
and the Blue Chip Fund. Mr. Fitzpatrick has been a member of FIMCO's investment
management team since October 1995. During 1995, Mr. Fitzpatrick was a Regional
Surety Manager at United States Fidelity & Guaranty Co. From 1988 to 1995, he
was Northeast Surety Manager at American International Group.
Matthew S. Wright serves as Portfolio Manager of the Utilities Income Fund. Mr.
Wright is also the Portfolio Manager for the Utilities Income Fund of First
Investors Life Series Fund. Mr. Wright joined FIMCO in February 1996 as an
Equity Analyst. From May 1995 to January 1996, Mr. Wright was an Analyst at Fuji
Bank. From June 1994 to April 1995, he was Market Editor of Bloomberg Magazine
and from September 1991 to June 1994, he was Editor/Reporter for Bloomberg
Business News.
Patricia D. Poitra serves as Portfolio Manager of the Mid-Cap Opportunity Fund
and Co-Portfolio Manager of the Special Situations Fund.
David A. Hanover is Co-Portfolio Manager of the Special Situations Fund. From
1997 to August 1998, Mr. Hanover was a Portfolio Manager and Analyst at Heritage
Investors Management Corporation. From 1994 to 1996, Mr. Hanover was
Co-Portfolio Manager and Analyst at Psagot Mutual Funds and in 1993 he was an
International Equity Investments Summer Associate at Howard Hughes Medical
Institute.
FIMCO and the Global Fund have retained Wellington Management Company, LLP
("WMC") as the Global Fund's investment subadviser. WMC has discretionary
trading authority over all of the Global Fund's assets, subject to continuing
oversight and supervision by FIMCO and the Board of Directors. WMC is located at
75 State Street, Boston, MA 02109. WMC is a professional investment counseling
firm which provides investment services to investment companies, employee
benefit plans, endowment funds, foundations and other institutions and
individuals. As of September 30, 1998, WMC held investment management authority
with respect to $186.5 billion of assets. Of that amount, WMC acted as
investment adviser or subadviser to approximately 145 registered investment
companies or series of such companies, with net assets of approximately $130.4
billion as of September 30, 1998. The Global Fund is managed by Trond Skramstad,
Senior Vice President of WMC and Chairman of the firm's Global Equity Strategy
Group. Mr. Skramstad joined WMC in 1993.
In addition to the investment risks of the Year 2000 which are disclosed above,
the ability of FIMCO and its affiliates to price the Funds' shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
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<PAGE>
provided by FIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
Funds. FIMCO and its affiliates are taking steps that they believe are
reasonably designed to address the Year 2000 problem for computer and other
systems used by them and are obtaining assurances that comparable steps are
being taken by the Funds' other service providers. However, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds. Nor can the Funds estimate the extent of any impact.
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
The share price (which is called "net asset value" or "NAV" per share) for each
Fund is calculated once each day as of 4 p.m., Eastern Standard Time ("E.S.T."),
on each day the New York Stock Exchange ("NYSE") is open for regular trading. In
the event that the NYSE closes early, the share price will be determined as of
the time of the closing.
To calculate the NAV, each Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The prices or NAVs of Class A shares and Class B shares will
generally differ because they have different expenses.
In valuing its assets, each Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Funds.
How do I buy shares?
You may buy shares of each Fund through a First Investors registered
representative or through a registered representative of an authorized
broker-dealer ("Representative"). Your Representative will help you complete and
submit an application. Your initial investment must be at least $1,000. However,
we offer automatic investment plans that allow you to open a Fund account with
as little as $50. You also may open certain retirement plan accounts with as
little as $500 even without an automatic investment plan. Subsequent investments
may be made in any amount.
If we receive your application or order in our Woodbridge, N.J. offices in
correct form, as described in the Shareholder Manual, prior to the close of
regular trading on the NYSE, your transaction will be priced at that day's NAV.
If you place your order with your Representative prior to the close of regular
trading on the NYSE, your transaction will also be priced at that day's NAV
provided that your Representative transmits the order to our Woodbridge, N.J.
office by 5 p.m., E.S.T. Orders placed after the close of regular trading on the
NYSE will be priced at the next business day's NAV. The procedures for
processing transactions are explained in more detail in our Shareholder Manual
which is available upon request.
You can arrange to make systematic investments electronically from your bank
account or through payroll deduction. All the various ways you can buy shares
are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
Each Fund reserves the right to refuse any order to buy shares if the Fund
determines that doing so would be in the best interests of the Fund and its
shareholders.
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Which class of shares is best for me?
Each Fund has two classes of shares, Class A and Class B. While each class
invests in the same portfolio of securities, the classes have separate sales
charge and expense structures. Because of the different expense structures, each
class of shares generally will have different NAVs and dividends.
The principal advantages of Class A shares are the lower overall expenses, the
availability of quantity discounts on volume purchases and certain account
privileges that are available only on Class A shares. The principal advantage of
Class B shares is that all of your money is put to work from the outset.
Class A shares of a Fund are sold at the public offering price which includes a
front-end sales load. The sales charge declines with the size of your purchase,
as illustrated below.
Class A Shares
Your investment Sales Charge as a percentage of
-------------------------------
offering price net amount invested
Less than $25,000 6.25% 6.67%
$25,000-$49,999 5.75 6.10
$50,000-$99,999 5.50 5.82
$100,000-$249,999 4.50 4.71
$250,000-$499,999 3.50 3.63
$500,000-$999,999 2.50 2.56
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Class B shares are sold at net asset value, without any initial sales charge.
However, you may pay a CDSC when you sell your shares. The CDSC declines the
longer you hold your shares, as illustrated below. Class B shares convert to
Class A shares after eight years.
Class B Shares
Year of Redemption CDSC as a Percentage of
------------------ Purchase Price
or NAV at Redemption
--------------------
Within the 1st or 2nd year............. 4%
Within the 3rd or 4th year............. 3
In the 5th year........................ 2
In the 6th year........................ 1
Within the 7th year and 8th year....... 0
There is no CDSC on Class B shares which are acquired through reinvestment of
dividends or distributions. The CDSC is imposed on the lower of the original
purchase price or the net asset value of the shares being sold. For purposes of
determining the CDSC, all purchases made during a calendar month are counted as
having been made on the first day of that month at the average cost of all
purchases made during that month.
To keep your CDSC as low as possible, each time you place a request to sell
shares, we will first sell any shares in your account that carry no CDSC. If
there is an insufficient number of these shares to meet your request in full, we
will then sell those shares that have the lowest CDSC.
Sales charges and CDSCs may be reduced or waived under certain circumstances and
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for certain groups. Consult your Representative or call us directly at
1-800-423-4026 for details.
Each Fund has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. Each class of
shares pays Rule 12b-1 fees for the marketing of fund shares and for services
provided to shareholders. The plans provide for payments at annual rates (based
on average daily net assets) of up to .30% on Class A shares and 1.00% on Class
B shares. No more than .25% of these payments may be for service fees. These
fees are paid monthly in arrears. Because these fees are paid out of a Fund's
assets on an ongoing basis, the higher fees for Class B shares will increase the
cost of your investment and over time may cost you more than paying the initial
sales charge for Class A shares.
FOR ACTUAL PAST EXPENSES OF CLASS A AND CLASS B SHARES OF A FUND, SEE THE
APPROPRIATE SECTION IN THIS PROSPECTUS ENTITLED "WHAT ARE THE FEES AND EXPENSES
OF THE FUND?"
Because of the lower overall expenses on Class A shares, we recommend Class A
shares for purchases in excess of $250,000. If you are investing in excess of
$1,000,000, we will only sell Class A shares to you. For purchases below
$250,000, the class that is best for you generally depends upon the amount you
invest, your time horizon, and your preference for paying the sales charge
initially or later. If you fail to tell us what Class of shares you want, we
will purchase Class A shares for you.
How do I sell shares?
You may redeem your Fund shares on any day the Fund is open for business by:
o Contacting your Representative who will place a redemption order for
you;
o Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, NJ
07095-1198;
o Telephoning the Special Services Department of ADM at 1-800-342-6221
(if you have elected to have telephone privileges); or
o Instructing us to make an electronic transfer to a predesignated
bank (if you have completed an application authorizing such
transfers).
Your redemption request will be processed at the price next computed after we
receive the request in good order, as described in the Shareholder Manual. For
all requests, have your account number available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account falls below the minimum account balance for any reason other
than market fluctuation, each Fund reserves the right to redeem your account
without your consent or to impose a low balance account fee of $15 annually on
60 days prior notice. Each Fund may also redeem your account or impose a low
balance account fee if you have established your account under a systematic
investment program and discontinue the program before you meet the minimum
account balance. You may avoid redemption or imposition of a fee by purchasing
additional Fund shares during this 60-day period to bring your account balance
to the required minimum. If you own Class B shares, you will not be charged a
CDSC on a low balance redemption.
Each Fund reserves the right to make in-kind redemptions. This means that it
could respond to a redemption request by distributing shares of the Fund's
underlying investments rather than distributing cash.
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Can I exchange my shares for the shares of other First Investors Funds?
You may exchange shares of a Fund for shares of other First Investors Funds
without paying any additional sales charge. You can only exchange within the
same class of shares (i.e., Class A to Class A). Consult your Representative or
call ADM at 1-800-423-4026 for details.
Each Fund reserves the right to reject any exchange request that appears to be
part of a market timing strategy based upon the holding period of the initial
investment, the amount of the investment being exchanged, the funds involved,
and the background of the shareholder or dealer involved. Each Fund is designed
for long-term investment purposes. It is not intended to provide a vehicle for
short-term market timing.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
To the extent that it has net investment income, Total Return Fund, Growth &
Income Fund, Blue Chip Fund and Utilities Income Fund will declare and pay a
dividend from net investment income on a quarterly basis. To the extent that it
has net investment income, Mid-Cap Opportunity Fund, Special Situations Fund and
Global Fund will declare and pay a dividend from net investment income on an
annual basis. Any net realized capital gains will be declared and distributed on
an annual basis, usually after the end of each Fund's fiscal year. Each Fund may
make an additional distribution in any year if necessary to avoid a Federal
excise tax on certain undistributed income and capital gain.
Dividends and other distributions paid on both classes of a Fund's shares are
calculated at the same time and in the same manner. Dividends on Class B shares
of a Fund 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 Fund shares as of the close of business on the record
date of the distribution.
You may choose to reinvest all dividends and other distributions at NAV in
additional shares of the same class of a Fund or certain other First Investors
Funds, or receive all dividends and other distributions in cash. If you do not
select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of a Fund. If you do not
cash a distribution check and do not notify ADM to issue a new check within 12
months, the distribution may be reinvested in a Fund. If any correspondence sent
by a Fund is returned as "undeliverable," dividends and other distributions
automatically will be reinvested in a Fund. No interest will be paid to you
while a distribution remains uninvested.
A dividend or other distribution paid on a class of shares will only be paid in
additional shares of the distributing class if the total amount of the
distribution is under $5 or a Fund has received notice of your death (until
written alternate payment instructions and other necessary documents are
provided by your legal representative).
What about taxes?
Any dividends or capital gain distributions paid by a Fund are taxable to you
unless you hold your shares in an individual retirement account ("IRA"), 403(b)
account, or 401(k) account, or other tax- deferred account. Dividends (including
distributions of net short-term capital gains) are taxable to you as ordinary
income. Capital gain distributions (essentially, distributions of net long-term
capital gains) by a Fund are taxed to you as long-term capital gains, regardless
of how long you owned your Fund shares. You are taxed in the same manner whether
you receive your dividends and capital gain distributions in cash or reinvest
them in additional Fund shares. Your sale or exchange of Fund shares may be
42
<PAGE>
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
How do I obtain a complete explanation of all account privileges and policies?
The Funds offer a full range of special privileges, including special investment
programs for group retirement plans, systematic investment programs, automatic
payroll investment programs, telephone privileges, check writing privileges, and
expedited redemptions by wire order or Automated Clearing House transfer. The
full range of privileges, and related policies, are described in a special
Shareholder Manual, which you may obtain on request. For more information on the
full range of services available, please contact us directly at 1-800-423-4026.
43
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
financial performance of each Fund for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
tables represent the rates that an investor would have earned (or lost) on an
investment in each Fund (assuming reinvestment of all dividends and
distributions). The information has been audited by Tait, Weller & Baker, whose
report, along with the Funds' financial statements, are included in the SAI,
which is available upon request.
<TABLE>
<CAPTION>
TOTAL RETURN FUND
- -------------------------------------------------------------------------------------------------------------
PER SHARE DATA
- -------------------------------------------------------------------------------------------------------------
Less Distributions
Income from Investment Operations from
--------------------------------- ------------------
Net
Realized
and
Net Asset Net Unrealized Total from Net
Value Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- -------------------------------------------------------------------------------------------------------------
CLASS A
- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/94 - 12/31/94............. $11.88 $.21 $(.62) $(.41) $.19 $.39 $.58
1/1/95 - 12/31/95............. 10.89 .39 2.50 2.89 .37 .44 .81
1/1/96 - 12/31/96............. 12.97 .39 .97 1.36 .41 1.12 1.53
1/1/97 - 12/31/97............. 12.80 .26 2.04 2.30 .28 1.08 1.36
1/1/98 - 9/30/98.............. 13.74 .23 .43 .66 .13 -- .13
CLASS B
- -------
1/12/95* - 12/31/95........... 10.90 .25 2.54 2.79 .33 .44 .77
1/1/96 - 12/31/96............. 12.92 .32 .94 1.26 .34 1.12 1.46
1/1/97 - 12/31/97............. 12.72 .21 1.97 2.18 .19 1.08 1.27
1/1/98 - 9/30/98.............. 13.63 .17 .41 .58 .08 -- .08
</TABLE>
* Date Class B shares first offered
** Calculated without sales charges
+ Annualized
++ Net of expenses waived or assumed
44
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets ++ Assumed
---------------- --------------------
Net Assets Net Net
Net Asset End of Invest- Invest-
Value Total Period ment ment Portfolio
End of Return ** (in Expenses Income Expenses Income Turnover
Period (%) millions) (%) (%) (%) (%) Rate (%)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.89 (3.45) $51 1.63 1.91 1.88 1.66 124
12.97 26.71 55 1.58 3.08 1.83 2.83 135
12.80 10.62 57 1.53 2.93 1.78 2.68 146
13.74 18.08 67 1.49 1.94 1.74 1.69 149
14.27 4.76 73 1.42+ 2.15+ 1.65+ 1.92+ 111
12.92 25.74 0.3 2.41+ 2.24+ 2.67+ 1.98+ 135
12.72 9.86 1 2.32 2.14 2.49 1.97 146
13.63 17.24 3 2.19 1.24 2.44 .99 149
14.13 4.25 4 2.12+ 1.45+ 2.35+ 1.22+ 111
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
GROWTH & INCOME FUND
-----------------------------------------------------------------------------------------------
PER SHARE DATA
-----------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions from
--------------------------------- from
----
Net
Realized
and
Net Asset Net Unrealized Total from Net
Value Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- -------------------------------------------------------------------------------------------------------------
CLASS A
- -------
<S> <C> <C> <C> <C> <C> <C> <C>
11/1/93 - 10/31/94............ $6.56 $.13 $.11 $.24 $.11 $-- $.11
11/1/94 - 10/31/95............ 6.69 .16 1.13 1.29 .17 -- .17
11/1/95 - 10/31/96............ 7.81 .10 1.60 1.70 .12 -- .12
11/1/96 - 10/31/97............ 9.39 .06 2.36 2.42 .06 .16 .22
11/1/97 - 9/30/98............. 11.59 .05 .97 1.02 .03 .27 .30
CLASS B
- -------
1/12/95* - 10/31/95........... 6.43 .08 1.38 1.46 .11 -- .11
11/1/95 - 10/31/96............ 7.78 .07 1.55 1.62 .07 -- .07
11/1/96 - 10/31/97............ 9.33 -- 2.32 2.32 .01 .16 .17
11/1/97 - 9/30/98............. 11.48 (.01) .94 .93 -- .27 .27
</TABLE>
* Date Class B shares were first offered.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed.
46
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets ++ Assumed
---------------- --------------------
Net Assets Net Net
Net Asset End of Invest- Invest-
Value Total Period ment ment Portfolio
End of Return ** (in Expenses Income Expenses Income Turnover
Period (%) millions) (%) (%) (%) (%) Rate (%)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 6.69 3.67 $ 34 .67 2.26 1.83 1.11 6
7.81 19.51 63 .98 2.34 1.59 1.74 19
9.39 21.82 112 1.31 1.20 1.49 1.02 25
11.59 26.20 194 1.39 .55 1.43 .51 28
12.31 8.84 258 1.39+ .47+ N/A N/A 36
7.78 22.73 4 1.90+ 2.23+ 2.61+ 1.52+ 19
9.33 20.92 12 2.03 .48 2.19 .31 25
11.48 25.23 27 2.09 (.15) 2.13 (.19) 28
12.14 8.19 43 2.09+ (.23)+ N/A N/A 36
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
BLUE CHIP FUND
-----------------------------------------------------------------------------------------------
PER SHARE DATA
-----------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions from
--------------------------------- from
----
Net
Realized
and
Net Asset Net Unrealized Total from Net
Value Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- -------------------------------------------------------------------------------------------------------------
CLASS A
- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/94 - 12/31/94............ $15.58 $.11 $(.58) $(.47) $.0 $1.56 $1.65
1/1/95 - 12/31/95............ 13.46 .19 4.37 4.56 .20 .60 .80
1/1/96 - 12/31/96............ 17.22 .14 3.39 3.53 .17 1.11 1.28
1/1/97 - 12/31/97............ 19.47 .09 4.98 5.07 .08 1.62 1.70
1/1/98 - 9/30/98............. 22.84 .04 (.39) (.35) .03 -- .03
CLASS B
- -------
1/12/95* - 12/31/95......... 13.51 .10 4.31 4.41 .16 .60 .76
1/1/96 - 12/31/96............ 17.16 .06 3.32 3.38 .06 1.11 1.17
1/1/97 - 12/31/97............ 19.37 (.03) 4.91 4.88 -- 1.62 1.62
1/1/98 - 9/30/98............. 22.63 (.06) (.42) (.48) -- -- --
* Date Class B shares first offered
** Calculated without sales charges
+ Annualized
++ Net of expenses waived or assumed
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets ++ Assumed
---------------- --------------------
Net Assets Net Net
Net Asset End of Invest- Invest-
Value Total Period ment ment Portfolio
End of Return ** (in Expenses Income Expenses Income Turnover
Period (%) millions) (%) (%) (%) (%) Rate (%)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$13.46 (3.02) $124 1.54 .80 1.79 .55 82
17.22 34.01 170 1.49 1.23 1.74 .98 25
19.47 20.55 240 1.44 .78 1.67 .55 45
22.84 26.05 351 1.39 .40 1.64 .15 63
22.46 (1.55) 368 1.37+ .23+ 1.47+ .13+ 71
17.16 32.76 5 2.20+ .52+ 2.46+ .26+ 25
19.37 19.71 17 2.22 -- 2.37 (.16) 45
22.63 25.19 37 2.09 (.30) 2.34 (.55) 63
22.15 (2.12) 47 2.07+ (.47)+ 2.17+ (.57)+ 71
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
UTILITIES INCOME FUND
-----------------------------------------------------------------------------------------------
PER SHARE DATA
-----------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions from
--------------------------------- from
----
Net
Realized
and
Net Asset Net Unrealized Total from Net
Value Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
11/1/93 - 10/31/94............ $5.92 $.24 $(.84) $(.60) $.23 $.01 $.24
11/1/94 - 10/31/95............ 5.08 .23 .83 1.06 .24 -- .24
11/1/95 - 10/31/96............ 5.90 .21 .52 .73 .22 -- .22
11/1/96 - 10/31/97............ 6.41 .20 .61 .81 .19 -- .19
11/1/97 - 9/30/98............. 7.03 .14 .96 1.10 .14 .37 .51
CLASS B
- -------
1/12/95* - 10/31/95........... 4.95 .14 .93 1.07 .16 -- .16
11/1/95 - 10/31/96............ 5.86 .18 .49 .67 .18 -- .18
11/1/96 - 10/31/97............ 6.35 .15 .61 .76 .15 -- .15
11/1/97 - 9/30/98............. 6.96 .10 .94 1.04 .10 .37 .47
* Date Class B shares were first offered.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets ++ Assumed
---------------- --------------------
Net Assets Net Net
Net Asset End of Invest- Invest-
Value Total Period ment ment Portfolio
End of Return ** (in Expenses Income Expenses Income Turnover
Period (%) millions) (%) (%) (%) (%) Rate (%)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$5.08 (10.15) $ 63 .80 4.59 1.59 3.80 58
5.90 21.35 84 1.04 4.37 1.57 3.84 16
6.41 12.45 104 1.20 3.49 1.49 3.19 38
7.03 12.86 102 1.40 2.98 1.48 2.90 60
7.62 16.05 123 1.43+ 2.10+ N/A N/A 83
5.86 21.99 3 1.82+ 4.93+ 2.53+ 4.21+ 16
6.35 11.61 8 1.91 2.77 2.28 2.40 38
6.96 12.08 9 2.10 2.28 2.18 2.20 60
7.53 15.38 14 2.13+ 1.40+ N/A N/A 83
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
MID-CAP OPPORTUNITY FUND***
-----------------------------------------------------------------------------------------------
PER SHARE DATA
-----------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions from
--------------------------------- from
----
Net
Realized
and
Net Asset Net Unrealized Total from Net
Value Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
- -------
11/1/93 - 10/31/94............ $12.15 $.08 $(.33) $(.25) $.12 $-- $.12
11/1/94 - 10/31/95............ 11.78 .08 2.80 2.88 .08 -- .08
11/1/95 - 10/31/96............ 14.58 .04 1.57 1.61 .06 .84 .90
11/1/96 - 10/31/97............ 15.29 (.03) 4.02 3.99 .04 .68 .72
11/1/97 - 09/30/98............ 18.56 (.03) (2.82) (2.85) -- 1.18 1.18
CLASS B
- -------
1/12/95* - 10/31/95........... 12.03 (.01) 2.49 2.48 -- -- --
11/1/95 - 10/31/96............ 14.51 .01 1.47 1.48 .05 .84 .89
11/1/96 - 10/31/97............ 15.10 (.08) 3.89 3.81 -- .68 .68
11/1/97 - 09/30/98............ 18.23 (.12) (2.76) (2.88) -- 1.18 1.18
* Date Class B shares were first offered.
** Calculated without sales charges.
*** Prior to December 31, 1997, known as U.S.A. Mid-Cap Opportunity Fund and prior to February 15, 1996, known as Made In The
U.S.A. Fund.
+ Annualized.
++ Net of expenses waived or assumed.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets ++ Assumed
---------------- --------------------
Net Assets Net Net
Net Asset End of Invest- Invest-
Value Total Period ment ment Portfolio
End of Return ** (in Expenses Income Expenses Income Turnover
Period (%) millions) (%) (%) (%) (%) Rate (%)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$11.78 (2.05) $ 8 .90 .45 2.32 (.97) 29
14.58 24.59 9 1.34 .48 2.36 (.55) 106
15.29 11.64 14 1.57 .36 2.15 (.21) 118
18.56 27.09 26 1.50 (.21) 1.94 (.65) 90
14.53 (16.42) 30 1.50+ (.25) + 1.89+ (.64) + 102
14.51 20.62 .3 2.29+ (.03)+ 3.79+ (1.53)+ 106
15.10 10.80 1 2.30 (.37) 3.03 (1.10) 118
18.23 26.17 3 2.20 (.91) 2.64 (1.35) 90
14.17 (16.91) 4 2.20+ (.95) + 2.59+ (1.34) + 102
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
SPECIAL SITUATIONS FUND
-----------------------------------------------------------------------------------------------
PER SHARE DATA
-----------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions from
--------------------------------- from
----
Net
Realized
and
Net Asset Net Unrealized Total from Net
Value Invest- Gain (Loss) Invest- Invest- Net Total
Beginning ment on ment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
- -------
1/1/94 - 12/31/94............ $18.00 $(.04) $(.62) $(.66) $ -- $.91 $.91
1/1/95 - 12/31/95............ 16.43 (.01) 3.94 3.93 -- .73 .73
1/1/96 - 12/31/96............ 19.63 (.01) 2.28 2.27 -- 1.17 1.17
1/1/97 - 12/31/97............ 20.73 (.09) 3.44 3.35 -- 1.90 1.90
1/1/98 - 9/30/98.............. 22.18 (.05) (4.30) (4.35) -- -- --
CLASS B
- -------
1/12/95* - 12/31/95........... 16.40 (.01) 3.85 3.84 -- .73 .73
1/1/96 - 12/31/96............ 19.51 (.14) 2.25 2.11 -- 1.17 1.17
1/1/97 - 12/31/97............ 20.45 (.15) 3.29 3.14 -- 1.90 1.90
1/1/98 - 9/30/98.............. 21.69 (.13) (4.22) (4.35) -- -- --
</TABLE>
* Date Class B shares first offered
** Calculated without sales charges
+ Annualized
++ Net of expenses waived or assumed
54
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Ratio to Average Net
Assets Before
Ratio to Average Expenses Waived or
Net Assets ++ Assumed
---------------- --------------------
Net Assets Net Net
Net Asset End of Invest- Invest-
Value Total Period ment ment Portfolio
End of Return ** (in Expenses Income Expenses Income Turnover
Period (%) millions) (%) (%) (%) (%) Rate (%)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$16.43 (3.66) $ 90 1.65 (.26) 1.90 (.51) 53
19.63 23.92 125 1.60 (.08) 1.85 (.33) 80
20.73 11.56 158 1.59 (.13) 1.84 (.38) 99
22.18 16.15 194 1.53 (.45) 1.78 (.70) 84
17.83 (19.61) 160 1.53+ (.32)+ 1.75+ (.54)+ 70
19.51 23.42 5 2.33+ (.81)+ 2.59+ (1.07)+ 80
20.45 10.81 10 2.38 (.92) 2.55 (1.09) 99
21.69 15.34 17 2.23 (1.15) 2.48 (1.40) 84
17.34 (20.06) 15 2.23+ (1.02)+ 2.45+ (1.24) + 70
</TABLE>
55
<PAGE>
<TABLE>
<<CAPTION>
GLOBAL FUND
- ------------------------------------------------------------------------------------------------------
1/1/98- 1/1/97- 1/1/96- 1/1/95- 1/1/94-
9/30/98 12/31/97 12/31/96 12/31/95 12/31/94
- ------------------------------------------------------------------------------------------------------
PER SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $6.41 $6.59 $6.57 $5.84 $6.27
----- ----- ----- ----- -----
Income from Investment Operations
Net investment income (loss)...... .01 .03 .04 .03 .03
Net realized and unrealized gain
(loss) on investments (.09) .50 .91 1.01 (.27)
----- ----- ----- ----- -----
Total from Investment Operations.. (.08) .53 .95 1.04 (.24)
----- ----- ----- ----- -----
Less Distributions from:
Net investment income.............. -- .03 .04 .04 .03
Net realized gain.................. -- .68 .89 .27 .16
Capital surplus....................
Total Distributions....... -- .71 .93 .31 .19
----- ----- ----- ----- -----
Net Asset Value, End of Period.............. $6.33 $6.41 $6.59 $6.57 $5.84
===== ===== ===== ===== =====
TOTAL RETURN (%) +......................... (1.25) 7.98 14.43 17.83 (3.78)
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (in millions)..... $261 $277 $263 $228 $214
Ratio to Average Net Assets: (%)++
Expenses........................... 1.82(a) 1.82 1.83 1.83 1.84
Net investment income (loss)....... .12(a) .41 .50 .55 .45
Portfolio Turnover Rate (%)................. 82 70 73 47 56
* Date Class B shares first offered
+ Calculated without sales charge
++ Net of expenses waived or assume
(a) Annualized
</TABLE>
56
<PAGE>
- --------------------------------------------------------------
Class B
- --------------------------------------------------------------
1/1/98 - 1/1/97 - 1/1/96 - 1/1/95*-
9/30/98 12/31/97 12/31/96 12/31/95
- --------------------------------------------------------------
6.31 $6.51 $6.54 $5.76
---- ----- ----- -----
(.03) (.01) (.01) .03
(.09) .49 .88 1.05
---- ----- ----- -----
(.12) .48 .87 1.08
---- ----- ----- -----
-- -- .02 .03
-- .68 .88 .27
-- .68 .90 .30
---- ----- ----- -----
$6.19 $6.31 $6.51 $6.54
===== ===== ===== =====
(1.90) 7.36 13.33 18.80
$12 $10 $5 $1
2.52(a) 2.52 2.54 2.56 (a)
(.58)(a) (.29) (.21) (.19)(a)
82 70 73 47
57
<PAGE>
[First Investors Logo]
TOTAL RETURN
GROWTH & INCOME
BLUE CHIP
UTILITIES INCOME
MID-CAP OPPORTUNITY
SPECIAL SITUATIONS
GLOBAL
For investors who want more information about the Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about each Fund's investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected each Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is incorporated by reference into this
prospectus.
SHAREHOLDER MANUAL: The Shareholder Manual provides more detailed information
about the purchase, redemption and sale of the Funds' shares.
You can get free copies of reports, the SAI and the Shareholder Manual, request
other information and discuss your questions about the Funds by contacting the
Funds at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Funds for a fee (including the
Funds' reports, Shareholder Manual and SAI) at the Public Reference Room of the
Securities and Exchange Commission ("SEC") in Washington, D.C. You can also send
your request and a duplicating fee to the Public Reference Room of the SEC,
Washington, DC 20549-6009. You can obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. Text-only versions of Fund
documents can be viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No: First
Investors Total Return Fund 811-5690,
First Investors Growth & Income Fund
811-6618, First Investors Blue Chip
Fund 811-5690, First Investors
Utilities Income Fund 811-6618, First
Investors Mid-Cap Opportunity Fund
811-6618, First Investors Special
Situations Fund 811-5690, First
Investors Global Fund 811-3169)
<PAGE>
[FIRST INVESTORS LOGO]
TAXABLE BOND FUNDS
GOVERNMENT
INVESTMENT GRADE
FUND FOR INCOME
HIGH YIELD
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is February 19, 1999
<PAGE>
CONTENTS
INTRODUCTION
FUND DESCRIPTIONS
Government Fund
Investment Grade Fund
Fund For Income
High Yield Fund
FUND MANAGEMENT
BUYING AND SELLING SHARES
How and when do the Funds price their shares? How do I buy shares?
Which class of shares is best for me?
How do I sell shares?
Can I exchange my shares for the shares of other First Investors Funds?
ACCOUNT POLICIES
What about dividends and capital gain distributions? What about taxes?
How do I obtain a complete explanation of all account privileges and
policies?
FINANCIAL HIGHLIGHTS
Government Fund
Investment Grade Fund
Fund For Income
High Yield Fund
2
<PAGE>
INTRODUCTION
This prospectus describes the First Investors Funds that invest
primarily in taxable bonds. Each individual Fund description in this prospectus
has an "Overview" which provides a brief explanation of the Fund's objectives,
its primary strategies and primary risks, how it has performed, and its fees and
expenses. To help you decide which Funds may be right for you, we have included
in each Overview a section offering examples of who should consider buying the
Fund. Each Fund Description also contains a "Fund in Detail" section with more
information on strategies and risks of the Fund.
None of the Funds in this prospectus pursues a strategy of allocating
its assets among stocks, bonds, and money market instruments. For most
investors, a complete program should include each of these asset classes. Stocks
have historically outperformed other categories of investments over long periods
of time and are therefore considered an important part of a diversified
investment portfolio. There have been extended periods, however, during which
bonds and money market instruments have outperformed stocks. By allocating your
assets among different types of funds, you can reduce the overall risk of your
portfolio and benefit when bonds and money market instruments outperform stocks.
Of course, even a diversified investment program can result in a loss.
3
<PAGE>
FUND DESCRIPTIONS
GOVERNMENT FUND
OVERVIEW
Objective The Fund seeks to achieve a significant level of current
income which is consistent with security and liquidity of
principal.
Primary
Investment
Strategies The Fund primarily invests in obligations issued or
guaranteed as to payment of principal and interest by the
U.S. Government, its agencies or instrumentalities. The
majority of the Fund's investments consist of
mortgage-backed securities, guaranteed by the Government
National Mortgage Association ("GNMA"). Mortgage-backed
securities guaranteed by the GNMA are commonly known as
Ginnie Maes. Ginnie Maes represent interests in "pools" of
mortgage loans. The yields on Ginnie Maes are higher than
on U.S. Treasury securities with comparable maturities.
Because GNMA guarantees the timely payment of principal
and interest to investors in the pools, the Fund's primary
strategies revolve around managing interest rate risk,
prepayment risk and extension risk. The Fund attempts to
manage these risks by adjusting the duration of its
portfolio and the average coupon rate of its Ginnie Mae
holdings.
Primary
Risks While Ginnie Maes are guaranteed as to payment of
principal and interest, this guarantee does not apply in
any way to the market prices of these securities or the
Fund's share price, both of which will fluctuate. There
are three main risks of investing in Ginnie Maes: interest
rate risk, prepayment risk, and extension risk. When
interest rates rise, Ginnie Maes tend to decline in price,
and when interest rates fall, they tend to increase in
price. This is interest rate risk. When interest rates
fall, homeowners also tend to refinance their mortgages.
When this occurs, the Fund loses the benefit of higher
yielding mortgages and must reinvest in lower interest
rate mortgages. This is prepayment risk. Extension risk is
the flip side of prepayment risk. Rising interest rates
can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This
will increase both the Fund's sensitivity to rising
interest rates and its potential for price declines. The
Fund may, at times, engage in short-term trading, which
could produce higher brokerage costs and taxable
distributions and may result in a lower total return for
the Fund. Accordingly, the value of your investment in the
Fund as well as the dividends you receive will go up and
down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Government Fund?
The Government Fund may be used as a core holding for an
investment portfolio or as a base on which to build a
portfolio. It may be appropriate for you if you:
o Are seeking an investment which offers both current
income and credit safety,
o Are willing to accept fluctuations in the value of
your investment and the income it produces as a
result of changes in interest rates and mortgage
refinancing, and
4
<PAGE>
o Have a long-term investment horizon and are able to
ride out market cycles.
How has the Government Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares for each of
the last ten calendar years. The performance of Class B shares differs from the
performance of Class A shares shown in the bar chart only to the extent that it
does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[BAR CHART OF CHANGES IN PERFORMANCE OF CLASS A SHARES FROM 1989 TO 1998, WITH
FOLLOWING PLOT POINTS:
1989 12.02%
1990 9.20%
1991 15.74%
1992 5.90%
1993 3.99%
1994 -3.22%
1995 14.98%
1996 3.51%
1997 8.40%
1998 6.06%
During the periods shown, the highest quarterly return was 6.66% (for the
quarter ended June 30, 1989) and the lowest quarterly return was -2.81% (for the
quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT NECESSARILY
INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Salomon Brothers Mortgage
Index ("Mortgage Index") and the Salomon Brothers Government Index ("Government
Index"). This table assumes that the maximum sales charge or CDSC was paid. The
Mortgage Index is a market capitalization-weighted index that consists of all
agency pass-throughs and Federal Housing Administration ("FHA") and GNMA project
notes. The Government Index is a market capitalization-weighted index that
consists of debt issued by the U.S. Treasury and U.S. Government sponsored
agencies. The indices do not take into account fees and expenses that an
investor would incur in holding the securities in the indices. If they did so,
the returns would be lower than those shown.
5
<PAGE>
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
Class A Shares -.54% 4.42% 6.83% N/A
Class B Shares 1.38 N/A N/A 6.78%
Mortgage Index 6.98 7.27 9.18 7.58**
Government Index 9.84 7.24 9.20 7.98**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 1/1/95 to 12/31/98.
What are the fees and expenses of the Government Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------ ------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)................ 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)......................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total
and Service Annual Fund
Management (12b-1) Other Operating Fee Net
Fees (1) Fees (2) Expenses Expenses (3) Waiver (1) Expenses (3)
-------- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares 1.00% 0.30% 0.32% 1.62% 0.45% 1.17%
Class B Shares 1.00 1.00 0.32 2.32 0.40 1.92
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) For the fiscal year ended September 30, 1998, the Adviser waived Management
Fees in excess of 0.65% for the Fund. The Adviser has contractually agreed
with the Fund to waive Management Fees in excess of 0.60% for a period of
twelve months commencing on February 1, 1999.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(3) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses or Net Expenses.
6
<PAGE>
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $737 $ 1,063 $ 1,411 $ 2,391
Class B shares 595 986 1,404 2,450*
If you do not redeem your shares:
Class A shares $737 $ 1,063 $ 1,411 $ 2,391
Class B shares 195 686 1,204 2,450*
*Assumes conversion to Class A shares eight years after purchase.
THE FUND IN DETAIL
What are the Government Fund's objective, principal
investment strategies, and risks?
OBJECTIVE: The Fund seeks to achieve a significant level of current income which
is consistent with security and liquidity of principal.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 80% of its total
assets in obligations issued or guaranteed as to payment of principal and
interest by the U.S. Government, its agencies or instrumentalities. The vast
majority of the Fund's investments consist of mortgage-backed securities that
are guaranteed by the GNMA. These securities are commonly known as Ginnie Maes.
They represent interests in pools of mortgages. The principal and interest from
the underlying mortgages are passed through to investors in the pools. The GNMA
guarantees the timely payment of principal and interest to the investors in the
pools. The GNMA will only guarantee pools of mortgages that are insured by the
Federal Housing Administration, Veterans Administration, or Farmers Home
Administration.
Because there is essentially no credit risk associated with an investment in
Ginnie Maes, the Fund's investment strategy revolves around managing interest
rate risk, prepayment risk, and extension risk. Interest rate risk is managed by
adjusting the duration of the Ginnie Maes owned by the Fund. Duration is a
measurement of a bond's sensitivity to changes in interest rates that takes into
consideration not only the maturity of the bond but also the time value of money
that will be received from the bond over its life. The Fund will generally
adjust duration by buying or selling U.S. Treasury securities. For example, if
the Fund believes that interest rates are likely to rise, it will generally
attempt to reduce its duration by purchasing U.S. Treasury securities with
shorter maturities or selling U.S. Treasury securities with longer maturities.
Prepayment risk and extension risk are managed by adjusting the composition of
the Fund's holdings of Ginnie Maes. For example, if interest rates appear likely
to decline, the Fund may attempt to reduce prepayment risk by buying new Ginnie
Maes with lower coupons. Conversely, if interest rates appear likely to
increase, the Fund may reduce extension risk by purchasing Ginnie Maes with
higher coupons.
The Fund uses a "top-down" approach in making investment decisions based on
interest rate, economic and market conditions. In selecting investments, the
Fund considers coupon and yield, relative value and weighted average maturity of
the pool. The Fund will usually sell an investment when there are changes in the
interest rate environment that are adverse to the investment or if it fails to
meet the expectations of the portfolio manager. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
7
<PAGE>
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of owning the Fund:
INTEREST RATE RISK: Because the Fund invests primarily in mortgage-backed
securities, it is subject to interest rate risk. In general, the market prices
of Ginnie Maes rise when interest rates fall and fall when interest rates rise.
Short-term interest rates and long-term interest rates do not necessarily move
in the same direction or in the same amounts. Ginnie Maes with longer maturities
tend to be more sensitive to interest rate changes than those with shorter
maturities.
PREPAYMENT RISK: Because the Fund invests primarily in mortgage-backed
securities, it is subject to prepayment risk. When interest rates decline,
homeowners tend to refinance their mortgages. When this occurs, investors in
Ginnie Mae pools suffer a higher rate of prepayment. As a result, investors in
Ginnie Mae pools not only lose the benefit of the higher yielding underlying
mortgages that are being prepaid but they must reinvest the proceeds at lower
interest rates. This could cause a decrease in the Fund's income and share
price.
EXTENSION RISK: Extension risk is the flip side of prepayment risk. Rising
interest rates can cause the Fund's average maturity to lengthen unexpectedly
due to a drop in mortgage prepayments. This will increase both the Fund's
sensitivity to rising interest rates and its potential for price declines.
FREQUENT TRADING: The Fund may, at times, engage in short-term trading, which
could produce higher brokerage costs and taxable distributions and may result in
a lower total return for the Fund.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
8
<PAGE>
INVESTMENT GRADE FUND
OVERVIEW
Objective The Fund seeks to generate a maximum level of income
consistent with investment in investment grade debt
securities.
Primary
Investment
Strategies The Fund primarily invests in corporate bonds of U.S.
companies that are rated in one of the four highest
ratings categories by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P").
Such bonds are generally called "investment grade bonds."
Investment grade bonds offer higher yields than Treasury
securities of comparable maturities to compensate
investors for the risk of default. The Fund selects bonds
primarily on the basis of its own research and investment
analysis. The Fund also takes economic and interest rate
outlooks into consideration when selecting investments.
Primary
Risks There are two main risks of investing in the Fund: credit
risk and interest rate risk. The Fund's share price will
decline if one or more of its bond holdings is downgraded
in rating, or one or more issuers suffers a default, or
there is a concern about credit downgrades or defaults in
general as a result of a deterioration in the economy as a
whole. Also the Fund's share price will decline as
interest rates rise. Like all bonds, investment grade
bonds tend to rise in price when interest rates decline,
and decline in price when interest rates rise.
Accordingly, the value of your investment in the Fund will
go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Investment Grade Fund?
The Investment Grade Fund may be used as a core holding
for an investment portfolio or as a base on which to build
a portfolio. It may be appropriate for you if you:
o Are seeking an investment which offers current
income and a moderate degree of credit risk,
o Are willing to accept fluctuations in the value of
your investment and the income it produces as a
result of changes in interest rates, credit ratings,
and the economy, and
o Have a long-term investment horizon and are able to
ride out market cycles.
How has the Investment Grade Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares from year to
year over the life of the Fund. The performance of Class B shares differs from
the performance of Class A shares shown in the bar chart only to the extent that
it does not have the same expenses. The bar chart does not reflect sales charges
9
<PAGE>
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[BAR CHART OF CHANGES IN PERFORMANCE OF CLASS A SHARES FROM 1991 TO 1998, WITH
FOLLOWING PLOT POINTS:
1992 7.83%
1993 11.82%
1994 -4.62%
1995 19.40%
1996 2.39%
1997 9.14%
1998 8.63%
During the periods shown, the highest quarterly return was 6.71% (for the
quarter ended June 30, 1995) and the lowest quarterly return was -4.01% (for the
quarter ended August 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT NECESSARILY
INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Lehman Brothers Corporate Bond
Index ("Corporate Bond Index"). This table assumes that the maximum sales charge
or CDSC was paid. The Corporate Bond Index includes all publicly issued, fixed
rate, nonconvertible investment grade dollar-denominated, corporate debt which
have at least one year to maturity and an outstanding par value of at least $100
million. The Corporate Bond Index does not take into account fees and expenses
that an investor would incur in holding the securities in the Corporate Bond
Index. If it did so, the returns would be lower than those shown.
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (2/19/91) (1/12/95)
Class A Shares 1.81% 5.32% 7.58% N/A
Class B Shares 3.79 N/A N/A 8.31%
Corporate Bond Index 8.57 7.74 9.69** 10.87***
*The annual returns are based upon calendar years.
** The average annual total return shown is for the period 2/1/91 to 12/31/98.
***The average annual total return shown is for the period 1/1/95 to 12/31/98.
10
<PAGE>
What are the fees and expenses of the Investment Grade Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------ ------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)................ 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)......................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total
and Service Annual Fund
Management (12b-1) Other Operating Fee Net
Fees (1) Fees (2) Expenses (3) Expenses (4) Waiver(1),(3) Expenses (4)
-------- -------- --------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares................ 0.75% 0.30% 0.35% 1.40% 0.30% 1.10%
Class B Shares................ 0.75 1.00 0.35 2.10 0.30 1.80
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) For the fiscal year ended September 30, 1998, the Adviser waived Management
Fees in excess of 0.60% for the Fund. The Adviser has contractually agreed
with the Fund to waive Management Fees in excess of 0.60% for a period of
twelve months commencing on February 1, 1999.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(3) For the fiscal year ended September 30, 1998, the Adviser assumed for each
class of shares of the Fund for certain Other Expenses that were in excess
of 0.20%. The Adviser has contractually agreed with the Fund to assume
Other Expenses in excess of 0.20% for a period of twelve months commencing
on February 1, 1999.
(4) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
11
<PAGE>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $730 $1,013 $1,316 $2,175
Class B shares 583 929 1,301 2,228*
If you do not redeem your shares:
Class A shares $730 $1,013 $1,316 $2,175
Class B shares 183 629 1,101 2,228*
*Assumes conversion to Class A shares eight years after purchase.
THE FUND IN DETAIL
What are the Investment Grade Fund's objective,
principal investment strategies, and risks?
OBJECTIVE: The Fund seeks to generate a maximum level of income consistent with
investment in investment grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its total
assets in corporate bonds of companies that are rated investment grade by
Moody's or S&P ("investment grade bonds"). These are bonds that are rated among
the four highest ratings categories by Moody's or S&P. Investment grade bonds
generally offer higher yields than Treasury securities of comparable maturities
to compensate investors for the risk of default.
Although the Fund may diversify among the four investment grade ratings, it may
emphasize bonds with higher ratings at times when the economy appears to be
weakening and bonds with lower ratings when the economy appears to be improving.
The Fund adjusts the average weighted maturity of the bonds in its portfolio
based on its interest rate outlook. If it believes that interest rates are
likely to fall, it will attempt to buy bonds with longer maturities or sell
bonds with shorter maturities. By contrast, if it believes interest rates are
likely to rise, it will attempt to buy bonds with shorter maturities or sell
bonds with longer maturities. The Fund also attempts to stay broadly
diversified, but it may emphasize certain industries within a sector based on
the outlook for interest rates, economic forecasts, and market conditions. The
Fund may buy or sell Treasury securities instead of investment grade corporate
bonds to adjust the Fund's average weighted maturity.
Although the Fund will consider ratings assigned by ratings services in
selecting investments, it relies principally on its own research and investment
analysis. The Fund considers, among other things, the issuer's earnings and cash
flow generating capabilities, asset quality, debt levels, and management
strength. The Fund will not necessarily sell an investment if its rating is
reduced. The Fund usually will sell a bond when it shows deteriorating
fundamentals or falls short of the portfolio manager's expectations. Information
on the Fund's recent strategies and holdings can be found in the most recent
annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of an investment, the greater the risk. Here
are the principal risks of owning the Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic conditions that
affect a particular type of issuer can impact the credit quality of an issuer.
Such changes may weaken an issuer's ability to make payments of principal or
interest, or cause an issuer of bonds to fail to make timely payments of
interest or principal. Lower quality bonds generally tend to be more sensitive
12
<PAGE>
to these changes than higher quality bonds, but BBB-rated bonds may have
speculative characteristics as well. While credit ratings may be available to
assist in evaluating an issuer's credit quality, they may not accurately predict
an issuer's ability to make timely payment of principal and interest.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
13
<PAGE>
FUND FOR INCOME
OVERVIEW
Objectives The Fund primarily seeks high current income and
secondarily seeks capital appreciation.
Primary
Investment
Strategies The Fund primarily invests in a diversified portfolio of
high-yield, below-investment grade corporate bonds
(commonly known as "junk bonds"). These bonds provide a
higher level of income than investment grade bonds because
they have a higher risk of default. The Fund seeks to
reduce the risk of a default by selecting bonds through
careful credit research and analysis. The Fund seeks to
reduce the impact of a default by diversifying its
investments among bonds of many different companies and
industries. While the Fund invests primarily in domestic
companies, it also invests in securities of issuers
domiciled in foreign countries. These securities will
generally be dollar-denominated and traded in the U.S. The
Fund seeks to achieve capital appreciation by investing in
high yield bonds with stable to improving credit
conditions.
Primary
Risks There are four primary risks of investing in the Fund.
First, the value of the Fund's shares could decline as a
result of a deterioration of the financial condition of an
issuer of bonds owned by the Fund or as a result of a
default by the issuer. This is known as credit risk. High
yield bonds carry higher credit risks than investment
grade bonds because the companies that issue them are not
as strong financially as companies with investment grade
credit ratings. High yield bonds issued by foreign
companies are subject to additional risks including
political instability, government regulation and
differences in financial reporting standards. Second, the
value of the Fund's shares could decline if the entire
high yield bond market were to decline, even if none of
the Fund's bond holdings were at risk of a default. The
high yield market can experience sharp declines at times
as the result of a deterioration in the overall economy,
declines in the stock market, a change of investor
tolerance for risk, or other factors. Third, high yield
bonds tend to be less liquid than other bonds, which means
that they are more difficult to sell. Fourth, while high
yield bonds are generally less interest rate sensitive
than higher quality bonds, their values generally will
decline when interest rates rise. Fluctuations in the
prices of high yield bonds can be substantial.
Accordingly, the value of your investment in the Fund will
go up and down, which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Fund For Income?
The Fund For Income is most appropriately used to add
diversification to an investment portfolio. It may be
appropriate for you if you:
o Are seeking an investment that offers a high level
of current income and moderate growth potential,
o Are willing to accept a high degree of credit risk
and market volatility, and
o Have a long-term investment horizon and are able to
ride out market cycles.
14
<PAGE>
How has the Fund For Income performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares for each of
the last ten calendar years. The performance of Class B shares differs from the
performance of Class A shares shown in the bar chart only to the extent that it
does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[Bar Chart of Changes in Performance of Class A
Shares From 1989 to 1998, With the Following Plot Points:
1989 -8.05%
1990 -17.23%
1991 42.84%
1992 16.70%
1993 18.06%
1994 .58%
1995 18.54%
1996 13.40%
1997 12.62%
1998 3.32%
During the periods shown, the highest quarterly return was 14.74% (for the
quarter ended March 31, 1991) and the lowest quarterly return was -8.75% (for
the quarter ended August 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Credit Suisse First Boston
High Yield Index ("High Yield Index"). This table assumes that the maximum sales
charge or CDSC was paid. The High Yield Index is designed to measure the
performance of the high yield bond market. The High Yield Index does not take
into account fees and expenses that an investor would incur in holding the
securities in the Index. If it did so, the returns would be lower than those
shown.
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
Class A Shares -3.24 8.07 8.26 N/A
Class B Shares -1.38 N/A N/A 10.55%
High Yield Index 0.58 8.16 10.74 10.57**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 1/1/95 to 12/31/98.
15
<PAGE>
What are the fees and expenses of the Fund For Income?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------ ------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)................ 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)......................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Distribution Total
and Service Annual Fund
Management (12b-1) Other Operating
Fees Fees (1) Expenses Expenses (2)
----- -------- -------- ------------
Class A Shares............. 0.74% 0.30% 0.25% 1.29%
Class B Shares............. 0.74 1.00 0.25 1.99
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
(2) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual Fund
Operating Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $748 $1,008 $1,288 $2,084
Class B shares 602 924 1,273 2,136*
If you do not redeem your shares:
Class A shares $748 $1,008 $1,288 $2,084
Class B shares 202 624 1,073 2,136*
*Assumes conversion to Class A shares eight years after purchase.
16
<PAGE>
THE FUND IN DETAIL
What are the Fund For Income's objectives,
principal investment strategies, and risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily seeks
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily invests in a diversified
portfolio of high-yield, below-investment grade corporate bonds commonly known
as "junk bonds" (those rated below Baa by Moody's Investors Service, Inc. or
below BBB by Standard & Poor's Ratings Group). High yield bonds generally
provide higher income than investment grade bonds to compensate investors for
their higher risk of default (i.e., failure to make required interest or
principal payments). High-yield bond issuers include small or relatively new
companies lacking the history or capital to merit investment grade status,
former Blue Chip companies downgraded because of financial problems, companies
using debt rather than equity to fund capital investment or spending programs,
companies electing to borrow heavily to finance or avoid a takeover or buyout,
and firms with heavy debt loads. The Fund's portfolio may include zero coupon
bonds and pay in kind bonds. While the Fund invests primarily in domestic
companies, it also invests in securities of issuers domiciled in foreign
countries. These securities will generally be dollar-denominated and traded in
the U.S. The Fund seeks to reduce the risk of a default by selecting bonds
through careful credit research and analysis. The Fund seeks to reduce the
impact of a potential default by diversifying its investments among bonds of
many different companies and industries. The Fund attempts to invest in bonds
that have stable to improving credit quality and potential for capital
appreciation because of a credit rating upgrade or an improvement in the outlook
for a particular company, industry or the economy as a whole.
Although the Fund will consider ratings assigned by ratings agencies in
selecting high yield bonds, it relies principally on its own research and
investment analysis. The Fund considers a variety of factors, including the
issuer's managerial strength, anticipated cash flow, debt maturity schedules,
borrowing requirements, interest or dividend coverage, asset coverage and
earnings prospects. The Fund will usually sell a bond when it shows
deteriorating fundamentals or falls short of the portfolio manager's
expectations. Information on the Fund's recent strategies and holdings can be
found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of owning the Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds.
While credit ratings may be available to assist in evaluating an issuer's credit
quality, they may not accurately predict an issuer's ability to make timely
payments of principal and interest.
MARKET RISK: The entire junk bond market can experience sharp price swings due
to a variety of factors, including changes in economic forecasts, stock market
volatility, large sustained sales of junk bonds by major investors, high-profile
defaults, or changes in the market's psychology. This degree of volatility in
the high yield market is usually associated more with stocks than bonds. The
prices of high yield bonds held by the Fund could therefore decline, regardless
of the financial condition of the issuers of such bonds. Markets tend to run in
17
<PAGE>
cycles with periods when prices generally go up, known as "bull" markets, and
periods when prices generally go down, referred to as "bear" markets.
LIQUIDITY: High yield bonds tend to be less liquid than higher quality bonds,
meaning that it may be difficult to sell high yield bonds at a reasonable price,
particularly if there is a deterioration in the economy or in the financial
prospects of their issuers. As a result, the prices of high yield bonds may be
subject to wide price fluctuations due to liquidity concerns.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
FOREIGN ISSUERS: Foreign investments involve additional risks, including
political instability, government regulation, and
differences in financial reporting standards.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
18
<PAGE>
HIGH YIELD FUND
OVERVIEW
Objectives The Fund primarily seeks high current income and
secondarily seeks capital appreciation.
Primary
Investment
Strategies The Fund primarily invests in a diversified portfolio of
high-yield, below-investment grade corporate bonds
(commonly known as "junk bonds"). These bonds provide a
higher level of income than investment grade bonds because
they have a higher risk of default. The Fund seeks to
reduce the risk of a default by selecting bonds through
careful credit research and analysis. The Fund seeks to
reduce the impact of a potential default by diversifying
its investments among bonds of many different companies
and industries. While the Fund invests primarily in
domestic companies, it also invests in securities of
issuers domiciled in foreign countries, including emerging
or developing countries. These securities will generally
be dollar-denominated and traded in the U.S. The Fund
seeks to achieve capital appreciation by investing in high
yield bonds with stable to improving credit conditions
and, to a limited extent, in common stocks.
Primary
Risks There are five primary risks of investing in the Fund.
First, the value of the Fund's shares could decline as a
result of a deterioration of the financial condition of an
issuer of bonds owned by the Fund or as a result of a
default by the issuer. This is known as credit risk. High
yield bonds carry higher credit risks than investment
grade bonds because the companies that issue them are not
as strong financially as companies with investment grade
credit ratings. High yield bonds issued by foreign
companies are subject to additional risks including
political instability, government regulation, and
differences in financial reporting standards. Second, the
value of the Fund's shares could decline if the entire
high yield bond market were to decline, even if none of
the Fund's bond holdings were at risk of a default. The
high yield market can experience sharp declines at times
as the result of a deterioration in the overall economy,
declines in the stock market, a change of investor
tolerance for risk, or other factors. Third, high yield
bonds tend to be less liquid than other bonds, which means
that they are more difficult to sell. Fourth, while high
yield bonds are generally less interest rate sensitive
than higher quality bonds, their values generally will
decline when interest rates rise. Fifth, because the Fund
may decide to invest a portion of its assets in common
stocks, its shares may be more volatile and its yield may
be less than those of other high yield bond funds which do
not invest in common stocks. Fluctuations in the prices of
high yield bonds can be substantial. Accordingly, the
value of your investment in the Fund will go up and down,
which means that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the High Yield Fund?
The High Yield Fund is most appropriately used to add
diversification to an investment portfolio. It may be
appropriate for you if you:
19
<PAGE>
o Are seeking an investment that offers a high level
of current income and moderate growth potential,
o Are willing to accept a high degree of credit risk
and market volatility, and
o Have a long-term investment horizon and are able to
ride out market cycles.
How has the High Yield Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares for each of
the last ten calendar years. The performance of Class B shares differs from the
performance of Class A shares shown in the bar chart only to the extent that it
does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[BAR CHART OF CHANGES IN PERFORMANCE OF CLASS A SHARES FROM 1989 TO 1998, WITH
THE FOLLOWING PLOT POINTS:
1989 - - 8.07%
1990 - -17.25%
1991 - 35.87%
1992 - 18.94%
1993 - 16.95%
1994 - .39%
1995 - 18.43%
1996 - 13.35%
1997 - 11.84%
1998 - 2.83%
During the periods shown, the highest quarterly return was 11.65% (for the
quarter ended March 31, 1991) and the lowest quarterly return was -8.30% (for
the quarter ended August 30, 1990). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
The following table shows how the average annual total returns for Class A
shares and Class B shares compare to those of the Credit Suisse First Boston
High Yield Index ("High Yield Index"). This table assumes that the maximum sales
charge or CDSC was paid. The High Yield Index is designed to measure the
performance of the high yield bond market. The High Yield Index does not take
into account fees and expenses that an investor would incur in holding the
securities in the Index. If it did so, the returns would be lower than those
shown.
20
<PAGE>
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
Class A Shares -3.62% 7.77% 7.65% N/A
Class B Shares -2.04 N/A N/A 10.10%
High Yield Index 0.58 8.16 10.74 10.57**
*The annual returns are based upon calendar years.
**The average annual total return shown is for the period 1/1/95 to 12/31/98.
What are the fees and expenses of the High Yield Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------ ------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)................ 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)......................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total
and Service Annual Fund
Management (12b-1) Other Operating Fee Net
Fees (1) Fees (2) Expenses Expenses (3) Waiver (1) Expenses (3)
-------- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares............. 0.98% 0.30% 0.33% 1.61% 0.23% 1.38%
Class B Shares.............. 0.98 1.00 0.33 2.31 0.23 2.08
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year. Class B shares
convert to Class A shares after 8 years.
(1) For the fiscal year ended September 30, 1998, the Adviser waived Management
Fees in excess of 0.75% for the Fund. The Adviser has contractually agreed
with the Fund to waive Management Fees in excess of 0.75% for a period of
twelve months commencing on February 1, 1999.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(3) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses or Net Expenses.
21
<PAGE>
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived. Although your actual costs may be
higher or lower, under these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $757 $1,080 $1,426 $2,398
Class B shares 611 999 1,414 2,453*
If you do not redeem your shares:
Class A shares $757 $1,080 $1,426 $2,398
Class B shares 211 699 1,214 2,453*
*Assumes conversion to Class A shares eight years after purchase.
THE FUND IN DETAIL
What are the High Yield Fund's objectives,
principal investment strategies, and risks?
Objectives: The Fund primarily seeks high current income and secondarily seeks
capital appreciation.
Principal Investment Strategies: The Fund invests at least 65% of its total
assets in a diversified portfolio of high-yield, below-investment grade
corporate bonds commonly known as "junk bonds" (those rated below Baa by Moody's
Investors Service, Inc. or below BBB by Standard & Poor's Ratings Group). High
yield bonds generally provide higher income than investment grade bonds to
compensate investors for their higher risk of default (i.e., failure to make
required interest or principal payments). High-yield bond issuers include small
or relatively new companies lacking the history or capital to merit investment
grade status, former Blue Chip companies downgraded because of financial
problems, companies using debt rather than equity to fund capital investment or
spending programs, companies electing to borrow heavily to finance or avoid a
takeover or buyout, and firms with heavy debt loads. The Fund's portfolio may
include zero coupon bonds and pay in kind bonds. While the Fund invests
primarily in domestic companies, it also invests in securities of issuers
domiciled in foreign countries, including emerging or developing countries.
These securities will generally be dollar-denominated and traded in the U.S. The
Fund seeks to reduce the risk of a default by selecting bonds through careful
credit research and analysis. The Fund seeks to reduce the impact of a potential
default by diversifying its investments among bonds of many different companies
and industries.
To achieve its secondary objective of capital appreciation, the Fund attempts to
invest in bonds that have stable to improving credit quality that could
appreciate in value because of a credit rating upgrade or an improvement in the
outlook for a particular company, industry or the economy as a whole. It will
also invest, opportunistically, in common stocks of domestic and foreign
companies that are deemed to offer attractive potential for appreciation. The
Fund's investments in common stocks will not exceed 10% of its total assets.
(Income-producing preferred stocks, convertible securities, or equity securities
that are acquired as part of a unit with a fixed-income security are not
considered common stocks for purposes of this limitation.)
Although the Fund will consider ratings assigned by ratings agencies in
selecting high yield bonds, it relies principally on its own research and
investment analysis. The Fund considers a variety of factors, including the
issuer's managerial strength, anticipated cash flow, debt maturity schedules,
borrowing requirements, interest or dividend coverage, asset coverage and
earnings prospects. The Fund will usually sell a bond when it shows
22
<PAGE>
deteriorating fundamentals or falls short of the portfolio manager's
expectations. Information on the Fund's recent strategies and holdings can be
found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are the principal risks of owning the Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds.
While credit ratings may be available to assist in evaluating an issuer's credit
quality, they may not accurately predict an issuer's ability to make timely
payments of principal and interest.
MARKET RISK: The entire junk bond market can experience sharp price swings due
to a variety of factors, including changes in economic forecasts, stock market
volatility, large sustained sales of junk bonds by major investors, high-profile
defaults, or changes in the market's psychology. This degree of volatility in
the high yield market is usually associated more with stocks than bonds. The
prices of high yield bonds held by the Fund could therefore decline, regardless
of the financial condition of the issuers of such bonds. Markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when prices generally go down, referred to as "bear" markets. Because
the Fund may decide to invest a portion of its assets in common stocks, its
shares may be more volatile than those of other high yield bond funds which do
not invest in common stocks and its yield may be less than other high yield
funds.
LIQUIDITY: High yield bonds tend to be less liquid than higher quality bonds,
meaning that it may be difficult to sell high yield bonds at a reasonable price,
particularly if there is a deterioration in the economy or in the financial
prospects of their issuers. As a result, the prices of high yield bonds may be
subject to wide price fluctuations due to liquidity concerns.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
FOREIGN ISSUERS: Foreign investments involve additional risks, including
currency fluctuations, political instability, government regulation, differences
in financial reporting standards, and less stringent regulation of foreign
securities markets.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
23
<PAGE>
Alternative Strategies: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
FUND MANAGEMENT
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
the Funds. Its address is 95 Wall Street, New York, NY 10005. It currently
serves as investment adviser to 51 mutual funds or series of funds with total
net assets of approximately $5 billion. FIMCO supervises all aspects of each
Fund's operations and determines each Fund's portfolio transactions. For the
fiscal year ended September 30, 1998, FIMCO received advisory fees as follows:
.65% of average daily net assets, net of waiver, for Government Fund; .60% of
average daily net assets, net of waiver, for Investment Grade Fund; .74% of
average daily net assets for Fund For Income; and .75% of average daily net
assets, net of waiver, for High Yield Fund.
Clark D. Wagner serves as Portfolio Manager of the Government Fund and
Co-Portfolio Manager of the Investment Grade Fund. Mr. Wagner also serves as
Portfolio Manager of certain other First Investors Funds. Mr. Wagner has been
Chief Investment Officer of FIMCO since 1992.
Nancy W. Jones serves as Co-Portfolio Manager of the Investment Grade Fund and
Portfolio Manager of the Fund For Income. Ms. Jones manages certain other First
Investors Funds. Ms. Jones joined FIMCO in 1983 as Director of Research in the
High Yield Department.
George V. Ganter serves as Portfolio Manager of the High Yield Fund. Mr. Ganter
also serves as Portfolio Manager of certain other First Investors Funds. Mr.
Ganter joined FIMCO in 1985 as a Senior Investment Analyst.
In addition to the investment risks of the Year 2000 which are disclosed above,
the ability of FIMCO and its affiliates to price the Funds' shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
provided by FIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
Funds. FIMCO and its affiliates are taking steps that they believe are
reasonably designed to address the Year 2000 problem for computer and other
systems used by them and are obtaining assurances that comparable steps are
being taken by the Funds' other service providers. However, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds. Nor can the Funds estimate the extent of any impact.
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
The share price (which is called "net asset value" or "NAV" per share) for each
Fund is calculated once each day as of 4 p.m., Eastern Standard Time ("E.S.T."),
on each day the New York Stock Exchange ("NYSE") is open for regular trading. In
the event that the NYSE closes early, the share price will be determined as of
the time of the closing.
To calculate the NAV, each Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The prices or NAVs of Class A shares and Class B shares will
generally differ because they have different expenses.
24
<PAGE>
In valuing its assets, each Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Funds.
How do I buy shares?
You may buy shares of each Fund through a First Investors registered
representative or through a registered representative of an authorized
broker-dealer ("Representative"). Your Representative will help you complete and
submit an application. Your initial investment must be at least $1,000. However,
we offer automatic investment plans that allow you to open a Fund account with
as little as $50. You also may open certain retirement plan accounts with as
little as $500 even without an automatic investment plan. Subsequent investments
may be made in any amount.
If we receive your application or order in our Woodbridge, N.J. offices in
correct form, as described in the Shareholder Manual, prior to the close of
regular trading on the NYSE, your transaction will be priced at that day's NAV.
If you place your order with your Representative prior to the close of regular
trading on the NYSE, your transaction will also be priced at that day's NAV
provided that your Representative transmits the order to our Woodbridge, N.J.
office by 5 p.m., E.S.T. Orders placed after the close of regular trading on the
NYSE will be priced at the next business day's NAV. The procedures for
processing transactions are explained in more detail in our Shareholder Manual
which is available upon request.
You can arrange to make systematic investments electronically from your bank
account or through payroll deduction. All the various ways you can buy shares
are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
Each Fund reserves the right to refuse any order to buy shares if the Fund
determines that doing so would be in the best interests of the Fund and its
shareholders.
Which class of shares is best for me?
Each Fund has two classes of shares, Class A and Class B. While each class
invests in the same portfolio of securities, the classes have separate sales
charge and expense structures. Because of the different expense structures, each
class of shares generally will have different NAVs and dividends.
The principal advantages of Class A shares are the lower overall expenses, the
availability of quantity discounts on volume purchases and certain account
privileges that are available only on Class A shares. The principal advantage of
Class B shares is that all of your money is put to work from the outset.
Class A shares of a Fund are sold at the public offering price which includes a
front-end sales load. The sales charge declines with the size of your purchase,
as illustrated below.
25
<PAGE>
Class A Shares
Your investment Sales Charge as a percentage of
-------------------------------
offering price net amount invested
Less than $25,000 6.25% 6.67%
$25,000-$49,999 5.75 6.10
$50,000-$99,999 5.50 5.82
$100,000-$249,999 4.50 4.71
$250,000-$499,999 3.50 3.63
$500,000-$999,999 2.50 2.56
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Class B shares are sold at net asset value, without any initial sales charge.
However, you may pay a CDSC when you sell your shares. The CDSC declines the
longer you hold your shares, as illustrated below. Class B shares convert to
Class A shares after eight years.
Class B Shares
Year of Redemption CDSC as a Percentage of Purchase Price
------------------ or NAV at Redemption
--------------------
Within the 1st or 2nd year.............. 4%
Within the 3rd or 4th year.............. 3
In the 5th year......................... 2
In the 6th year......................... 1
Within the 7th year and 8th year........ 0
There is no CDSC on Class B shares which are acquired through reinvestment of
dividends or distributions. The CDSC is imposed on the lower of the original
purchase price or the net asset value of the shares being sold. For purposes of
determining the CDSC, all purchases made during a calendar month are counted as
having been made on the first day of that month at the average cost of all
purchases made during that month.
To keep your CDSC as low as possible, each time you place a request to sell
shares, we will first sell any shares in your account that carry no CDSC. If
there is an insufficient number of these shares to meet your request in full, we
will then sell those shares that have the lowest CDSC.
Sales charges and CDSCs may be reduced or waived under certain circumstances and
for certain groups. Consult your Representative or call us directly at
1-800-423-4026 for details.
Each Fund has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. Each class of
shares pays Rule 12b-1 fees for the marketing of fund shares and for services
provided to shareholders. The plans provide for payments at annual rates (based
on average daily net assets) of up to .30% on Class A shares and 1.00% on Class
B shares. No more than .25% of these payments may be for service fees. These
fees are paid monthly in arrears. Because these fees are paid out of a Fund's
assets on an on-going basis, the higher fees for Class B shares will increase
the cost of your investment and over time may cost you more than paying the
initial sales charge for Class A shares.
26
<PAGE>
FOR ACTUAL PAST EXPENSES OF CLASS A AND CLASS B SHARES OF A FUND, SEE THE
APPROPRIATE SECTION IN THIS PROSPECTUS ENTITLED "WHAT ARE THE FEES AND EXPENSES
OF THE FUND?"
Because of the lower overall expenses on Class A shares, we recommend Class A
shares for purchases in excess of $250,000. If you are investing in excess of
$1,000,000, we will only sell Class A shares to you. For purchases below
$250,000, the class that is best for you generally depends upon the amount you
invest, your time horizon, and your preference for paying the sales charge
initially or later. If you fail to tell us what Class of shares you want, we
will purchase Class A shares for you.
How do I sell shares?
You may redeem your Fund shares on any day the Fund is open for business by:
o Contacting your Representative who will place a redemption order for
you;
o Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, NJ
07095-1198;
o Telephoning the Special Services Department of ADM at 1-800-342-6221
(if you have elected to have telephone privileges); or
o Instructing us to make an electronic transfer to a predesignated
bank (if you have completed an application authorizing such
transfers).
Your redemption request will be processed at the price next computed after we
receive the request in good order, as described in the Shareholder Manual. For
all requests, have your account number available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account falls below the minimum account balance for any reason other
than market fluctuation, each Fund reserves the right to redeem your account
without your consent or to impose a low balance account fee of $15 annually on
60 days prior notice. Each Fund may also redeem your account or impose a low
balance account fee if you have established your account under a systematic
investment program and discontinue the program before you meet the minimum
account balance. You may avoid redemption or imposition of a fee by purchasing
additional Fund shares during this 60-day period to bring your account balance
to the required minimum. If you own Class B shares, you will not be charged a
CDSC on a low balance redemption.
Each Fund reserves the right to make in-kind redemptions. This means that it
could respond to a redemption request by distributing shares of the Fund's
underlying investments rather than distributing cash.
Can I exchange my shares for the shares of other First Investors Funds?
You may exchange shares of a Fund for shares of other First Investors Funds
without paying any additional sales charge. You can only exchange within the
same class of shares (i.e., Class A to Class A). Consult your Representative or
call ADM at 1-800-423-4026 for details.
Each Fund reserves the right to reject any exchange request that appears to be
part of a market timing strategy based upon the holding period of the initial
27
<PAGE>
investment, the amount of the investment being exchanged, the funds involved,
and the background of the shareholder or dealer involved. Each Fund is designed
for long-term investment purposes. It is not intended to provide a vehicle for
short-term market timing.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
To the extent that it has net investment income, a Fund will declare on a daily
basis and pay, on a monthly basis, dividends from net investment income. Any net
realized capital gains will be declared and distributed on an annual basis,
usually after the end of a Fund's fiscal year. A Fund may make an additional
distribution in any year if necessary to avoid a Federal excise tax on certain
undistributed income and capital gain.
Dividends and other distributions paid on both classes of a Fund's shares are
calculated at the same time and in the same manner. Dividends on Class B shares
of a Fund 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 Fund shares as of the close of business on the record
date of the distribution.
You may choose to reinvest all dividends and other distributions at NAV in
additional shares of the same class of a Fund or certain other First Investors
Funds, or receive all dividends and other distributions in cash. If you do not
select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of a Fund. If you do not
cash a distribution check and do not notify ADM to issue a new check within 12
months, the distribution may be reinvested in a Fund. If any correspondence sent
by a Fund is returned as "undeliverable," dividends and other distributions
automatically will be reinvested in a Fund. No interest will be paid to you
while a distribution remains uninvested.
A dividend or other distribution paid on a class of shares will only be paid in
additional shares of the distributing class if the total amount of the
distribution is under $5 or a Fund has received notice of your death (until
written alternate payment instructions and other necessary documents are
provided by your legal representative).
What about taxes?
Any dividends or capital gain distributions paid by a Fund are taxable to you
unless you hold your shares in an individual retirement account ("IRA"), 403(b)
account, or 401(k) account, or other tax-deferred account. Dividends (including
distributions of net short-term capital gains) are taxable to you as ordinary
income. Capital gain distributions (essentially, distributions of net long-term
capital gains) by a Fund are taxed to you as long-term capital gains, regardless
of how long you owned your Fund shares. You are taxed in the same manner whether
you receive your dividends and capital gain distributions in cash or reinvest
them in additional Fund shares. Your sale or exchange of Fund shares may be
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
How do I obtain a complete explanation of all account privileges and policies?
The Funds offer a full range of special privileges, including special investment
programs for group retirement plans, systematic investment programs, automatic
payroll investment programs, telephone privileges, check writing privileges, and
expedited redemptions by wire order or Automated Clearing House transfer. The
28
<PAGE>
full range of privileges, and related policies, are described in a special
Shareholder Manual, which you may obtain on request. For more information on the
full range of services available, please contact us directly at 1-800-423-4026.
29
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
financial performance of each Fund for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
tables represent the rates that an investor would have earned (or lost) on an
investment in each Fund (assuming reinvestment of all dividends and
distributions). The information has been audited by Tait, Weller & Baker, whose
report, along with the Funds' financial statements, are included in the SAI,
which is available upon request.
<TABLE>
<CAPTION>
GOVERNMENT FUND
- ---------------------------------------------------------------------------------------------------
Class A
-----------------------------------------------------------
1/1/98 - 1/1/97 - 1/1/96 - 1/1/95 - 1/1/94 -
9/30/98 12/31/97 12/31/96 12/31/95 12/31/94
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
Net Asset Value at
Beginning of Period............ $11.29 $11.05 $11.31 $10.50 $11.55
------ ------ ------ ------ ------
Income from Investment Operations
Net investment income.......... .49 .69 .68 .71 .69
Net realized and unrealized
gain (loss) on investments... .18 .21 (.30) .82 (1.06)
--- -------- ---------- --------- ---------
Total from Investment
Operations............. .67 .90 .38 1.53 (.37)
--- --------- --------- -------- ----------
Less Distributions from:
Net investment income.......... .47 .66 .64 .72 .68
Net realized gains............. -- -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions........ .47 .66 .64 .72 .68
--- --------- --------- --------- ---------
Net Asset Value at
End of Period.................. $11.49 $11.29 $11.05 $11.31 $10.50
------ ====== ====== ====== ======
TOTAL RETURN (%) +................. 6.03 8.40 3.51 14.98 (3.22)
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets,
End of Period (in millions).... $161 $170 $187 $217 $219
Ratio to Average
Net Assets: (%) ++
Expenses....................... 1.28(a) 1.34 1.39 1.38 1.40
Net investment income.......... 5.71(a) 6.16 6.15 6.50 6.31
Ratio to Average Net
Assets Before Expenses
Waived or Assumed (%)
Expenses....................... 1.62(a) 1.64 1.63 1.61 1.60
Net investment income.......... 5.37(a) 5.86 5.90 6.27 6.11
Portfolio Turnover Rate (%)......... 62 134 121 163 260
* Date class B shares first offered.
+ Calculated without sales charge.
++ Net after fees waived.
(a) Annualized.
</TABLE>
30
<PAGE>
- ----------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------
1/1/98 - 1/1/97 - 1/1/96 - 1/12/95* -
9/30/98 12/31/97 12/31/96 12/31/95
- ----------------------------------------------------------------------
$11.27 $11.04 $11.31 $10.52
------ ------ ------ ------
.42 .61 .60 .63
.19 .21 (.31) .80
--- ------ -------- ---------
.61 .82 .29 1.43
--- -------- -------- --------
.40 .59 .56 .64
-- -- -- --
.40 .59 .56 .64
-------- -------- -------- ---------
$11.48 $11.27 $11.04 $11.31
====== ====== ====== ======
5.54 7.60 2.73 13.94
$3 $2 $1 $1
1.98(a) 2.04 2.09 2.13(a)
5.01(a) 5.46 5.44 5.75(a)
2.32(a) 2.34 2.34 2.37(a)
4.67(a) 5.16 5.20 5.51(a)
62 134 121 163
31
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT GRADE FUND
--------------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions from
--------------------------------- -----------------------
Net Asset Net Net Realized Net
Value at Invest- and Unrealized Total from Invest- Total Total
Beginning ment Gain (Loss) on Investment ment Realized Distri-
of Period Income Investments Operations Income Gains butions
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
- -------
1/1/94 - 12/31/94.... $10.33 $.62 $(1.09) $(.47) $.62 $ -- $.62
1/1/95 - 12/31/95.... 9.24 .64 1.10 1.74 .64 -- .64
1/1/96 - 12/31/96.... 10.34 .62 (.39) .23 .62 .02 .64
1/1/97 - 12/31/97.... 9.93 .62 .25 .87 .61 .03 .64
1/1/98 - 9/30/98...... 10.16 .46 .36 .82 .45 -- .45
CLASS B
- -------
1/12/95* to 12/31/95 9.26 .54 1.10 1.64 .55 -- .55
1/1/96 - 12/31/96.... 10.35 .55 (.39) .16 .55 .02 .57
1/1/97 - 12/31/97.... 9.94 .55 .26 .81 .55 .03 .58
1/1/98 - 9/30/98...... 10.17 .41 .36 .77 .40 -- .40
* Date Class B shares first offered.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
Ratio to Average Net
Ratio to Average Assets Before Expenses
Net Assets ++ Waived or Assumed
------------ -----------------------
Net Net
Net Asset Total Invest- Invest-
Value at Total Net Assets ment ment Portfolio
End of Return** End of Period Expenses Income Expenses Income Turnover Rate
Period (%) (in millions) (%) (%) (%) (%) (%)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$9.24 (4.62) $46 .95 6.46 1.47 5.94 17
10.34 19.40 50 1.10 6.43 1.43 6.10 27
9.93 2.39 46 1.11 5.96 1.42 5.65 22
10.16 9.14 45 1.11 6.18 1.43 5.86 34
10.53 8.29 50 1.10 6.02 1.40 5.72 49
10.35 18.08 1 1.80+ 5.73+ 2.13+ 5.40+ 27
9.94 1.64 2 1.81 5.26 2.12 4.95 22
10.17 8.40 3 1.81 5.48 2.13 5.16 34
10.54 7.73 5 1.80 5.32 2.10 5.02 49
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
FUND FOR INCOME
- --------------------------------------------------------------------------------------------------------
Class A
-----------------------------------------------------------
1/1/98 - 1/1/97 - 1/1/96 - 1/1/95 - 1/1/94 -
9/30/98 12/31/97 12/31/96 12/31/95 12/31/94
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
Net Asset Value at
Beginning of Period.................. $4.43 $4.29 $4.13 $3.81 $4.17
----- ----- ----- ----- -----
Income from Investment Operations
Net investment income............ .29 .38 .39 .38 .37
Net realized and unrealized gain
(loss) on investments............ (.26) .14 .14 .30 (.35)
-------- ------- ------- ------- --------
Total from Investment Operations.. .03 .52 .53 .68 .02
------- ------- ------- ------- -------
Less Distributions from
Net Investment Income.................... .29 .38 .37 .36 .38
------- ------- ------- ------- -------
Net Realized Gain........................ -- -- -- -- --
------- ------- ------- ------- -------
Total distributions................. .29 .38 .37 .36 .38
------- ------- ------- ------- -------
Net Asset Value at End of Period............ $4.17 $4.43 $4.29 $4.13 $3.81
===== ===== ===== ===== =====
TOTAL RETURN (%)+........................... .49 12.62 13.40 18.54 .58
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (in millions)..... $410 $439 $432 $425 $401
Ratio to Average Net Assets: (%)++
Expenses................................. 1.27(a) 1.15 1.16 1.18 1.22
Net investment income.................... 8.68(a) 8.63 9.27 9.53 9.34
Portfolio Turnover Rate (%)................. 28 45 30 33 39
+ Calculated without sales charge.
* Date Class B shares first offered.
++ Net of expenses waived or assumed.
(a) Annualized.
</TABLE>
34
<PAGE>
- ----------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------
1/1/98 - 1/1/97 - 1/1/96 - 1/12/95* -
9/30/98 12/31/97 12/31/96 12/31/95
- ----------------------------------------------------------------------
$4.42 $4.28 $4.13 $3.81
----- ----- ----- -----
.26 .34 .38 .31
(.26) .15 .12 .33
------ ------ ------- -------
-- .49 .50 .64
------ ------- -------
.26 .35 .35 .32
------- ------- ------- -------
-- -- -- --
.26 .35 .35 .32
------- ------- ------- -------
$4.16 $4.42 $4.28 $4.13
===== ===== ===== =====
(.06) 11.95 12.51 17.46
$9 $6 $3 $2
1.97(a) 1.85 1.86 1.92(a)
7.98(a) 7.93 8.57 8.78(a)
28 45 30 33
35
<PAGE>
<TABLE>
<CAPTION>
HIGH YIELD FUND
- -----------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------
1/1/98 - 1/1/97- 1/1/96 - 1/1/95 - 1/1/94 -
9/30/98 12/31/97 12/31/97 12/31/95 12/31/94
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
Net Asset Value,
Beginning of Period.................. $5.53 $5.40 $5.22 $4.84 $5.30
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income................ .35 .46 .47 .47 .48
Net realized and unrealized gain
(loss) on investments................. (.34) .15 .20 .39 (.46)
------- ------- ------- ------- --------
Total from Investment
Operations................... .01 .61 .67 .86 .02
------ ------ ------- ------- -------
Less Distributions from:
Net Investment Income................ .34 .48 .49 .48 .48
------ ------ ------- ------- -------
Net Realized Gain.................... -- -- -- -- --
------ ------ ------- ------- -------
Total Distributions.................. .34 .48 .49 .48 .48
--- --- --- --- ---
Net Asset Value,
End of Period........................ $5.20 $5.53 $5.40 $5.22 $4.84
===== ===== ===== ===== =====
TOTAL RETURN (%) +...................... .08 11.84 13.35 18.43 .39
- ----------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (in
millions)................................. $194 $209 $202 $187 $170
Ratio to Average Net Assets: (%)++
Expenses............................. 1.36(a) 1.29 1.37 1.45 1.56
Net investment income................ 8.36(a) 8.17 8.99 9.22 9.48
Ratio to Average Net Assets
Before Expenses Waived (%)
Expenses............................. 1.59(a) 1.48 1.52 1.55 1.59
Net investment income................ 8.13(a) 7.98 8.84 9.12 9.44
Portfolio Turnover Rate (%)............... 20 46 29 42 32
+ Calculated without sales charge
* Date Class B shares first offered
++ Net of expenses waived or assumed.
(a) Annualized
</TABLE>
36
<PAGE>
- --------------------------------------------------------------
Class B
- --------------------------------------------------------------
- ---------------- -------------- --------------- --------------
1/1/98 - 1/1/97 - 1/1/96 - 1/12/95 -
9/30/98 12/31/97 12/31/96 12/31/95
- ---------------- -------------- --------------- --------------
$5.53 $5.40 $5.23 $4.84
----- ----- ----- -----
.32 .43 .44 .42
(.34) .14 .18 .40
------ --- ------- -------
(.02) .57 .62 .82
------- ------ ------- -------
.32 .44 .45 .43
------ ------ ------- -------
-- -- -- --
.32 .44 .45 .43
--- --- --- ---
$5.19 $5.53 $5.40 $5.23
===== ===== ===== =====
(.59) 11.11 12.41 17.40
$9 $7 $4 $1
2.06(a) 1.99 2.07 2.22(a)
7.66(a) 7.47 8.28 8.45(a)
2.29(a) 2.18 2.22 2.32(a)
7.43(a) 7.28 8.13 8.35(a)
20 46 29 42
37
<PAGE>
[First Investors Logo]
GOVERNMENT
INVESTMENT GRADE
FUND FOR INCOME
HIGH YIELD
For investors who want more information about the Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about each Fund's investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected each Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is incorporated by reference into this
prospectus.
SHAREHOLDER MANUAL: The Shareholder Manual provides more detailed information
about the purchase, redemption and sale of the Funds' shares.
You can get free copies of reports, the SAI and the Shareholder Manual, request
other information and discuss your questions about the Funds by contacting the
Funds at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Funds for a fee (including the
Funds' reports, Shareholder Manual and SAI) at the Public Reference Room of the
Securities and Exchange Commission ("SEC") in Washington, D.C. You can also send
your request and a duplicating fee to the Public Reference Room of the SEC,
Washington, DC 20549-6009. You can obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. Text-only versions of Fund
documents can be viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No: First
Investors Government Fund, Inc.
811-3967, First Investors Investment
Grade Fund 811-5690, First Investors
Fund For Income, Inc. 811-2107, First
Investors High Yield Fund, Inc.
811-4674)
<PAGE>
FIRST INVESTORS SERIES FUND II, INC.
GROWTH & INCOME FUND
MID-CAP OPPORTUNITY FUND
UTILITIES INCOME FUND
FIRST INVESTORS SERIES FUND
BLUE CHIP FUND
SPECIAL SITUATIONS FUND
TOTAL RETURN FUND
FIRST INVESTORS GLOBAL FUND, INC.
95 Wall Street
New York, New York 10005
1-800-423-4026
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 19, 1999
This is a Statement of Additional Information ("SAI") for FIRST
INVESTORS SERIES FUND II, INC. ("SERIES FUND II"), FIRST INVESTORS SERIES FUND
("SERIES FUND") and FIRST INVESTORS GLOBAL FUND, INC. ("GLOBAL FUND"), each an
open-end diversified management investment company. SERIES FUND II offers three
separate series, each of which has different investment objectives and policies:
FIRST INVESTORS GROWTH & INCOME FUND, FIRST INVESTORS MID-CAP OPPORTUNITY FUND
and FIRST INVESTORS UTILITIES INCOME FUND. SERIES FUND offers five separate
series, three of which are described in this SAI and each of which has different
investment objectives and policies: FIRST INVESTORS BLUE CHIP FUND, FIRST
INVESTORS SPECIAL SITUATIONS FUND and FIRST INVESTORS TOTAL RETURN FUND. GLOBAL
FUND offers one series. (Each series is referred to as a "Fund").
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectus dated February 19, 1999 which may be obtained free of cost
from the Funds at the address or telephone number noted above. Information
regarding the purchase, redemption and exchange of your Fund shares is contained
in the Shareholder Manual, a separate section of the SAI that is a distinct
document and may also be obtained free of charge by contacting your Fund at the
address or telephone number noted above.
TABLE OF CONTENTS
Page
----
Investment Strategies and Risks............................................ 2
Investment Policies........................................................ 10
Futures and Options Strategies............................................. 20
Portfolio Turnover......................................................... 26
Investment Restrictions.................................................... 26
Directors/Trustees and Officers............................................ 35
Management................................................................. 38
Underwriter................................................................ 41
Distribution Plans......................................................... 42
Determination of Net Asset Value........................................... 43
Allocation of Portfolio Brokerage.......................................... 45
Purchase, Redemption and Exchange of Shares................................ 46
Taxes...................................................................... 47
Performance Information.................................................... 50
General Information........................................................ 55
Appendix A................................................................. A-1
Appendix B................................................................. A-4
Appendix C................................................................. A-6
Reports of Independent Accountants......................................... A-12
Financial Statements....................................................... A-13
Shareholder Manual: A Guide to your First Investors Mutual Fund Account...
<PAGE>
INVESTMENT STRATEGIES AND RISKS
GROWTH & INCOME FUND
The Fund seeks its objective by investing, under normal market
conditions, at least 65% of its total assets in securities that provide the
potential for growth and offer income, such as
stocks and
securities convertible into common stock. The portion of the Fund's assets
invested in equity securities and in debt securities may vary from time to time
due to changes in interest rates and economic and other factors. The Fund is not
designed for investors seeking a steady flow of income distributions. Rather,
the Fund's policy of investing in income producing securities is intended to
provide investors with a more consistent total return than may be achieved by
investing solely in growth stocks.
The convertible debt securities in which the Fund may invest are not
subject to any limitations as to ratings and may include high, medium, lower and
unrated securities. Although the Fund may invest up to 20% of its total assets
in convertible debt securities rated below Baa by Moody's Investors Service,
Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P") (so-called
"junk bonds") (including convertible debt securities that have been downgraded),
or in unrated convertible debt securities that are of comparable quality as
determined by First Investors Management Company, Inc. ("FIMCO" or "Adviser"),
it does not anticipate investing more than 5% of its total net assets in such
securities in the coming year. Convertible debt securities rated lower than BBB
by S&P or Baa by Moody's, 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 "Debt Securities," below, and Appendix A for a
description of convertible debt security ratings.
The Fund may invest up to 35% of its total assets in the following
instruments: money market instruments, including U.S. bank certificates of
deposit, bankers' acceptances, commercial paper issued by domestic corporations
and repurchase agreements; fixed income securities, including obligations issued
or guaranteed as to principal and interest by the U.S. Government, its agencies
or instrumentalities ("U.S. Government Obligations"), including mortgage-backed
securities, and corporate debt securities rated at least Baa by Moody's or BBB
by S&P, commonly known as "investment grade securities" or unrated securities
that are of comparable quality as determined by the Adviser; and common stock
and securities convertible into common stock of companies that are not paying a
dividend if there exists the potential for growth of capital or future income.
It is the Fund's policy to attempt to sell, within a reasonable time period, a
debt security which has been downgraded below investment grade (other than
convertible debt securities, as previously discussed), provided that such
disposition is in the best interests of the Fund and its shareholders. See "Debt
Securities," below, and Appendix A for a description of corporate and
convertible debt security ratings.
Because the Fund invests in bonds and convertible debt securities, it
is subject to interest rate risk. The market value of a bond or convertible debt
security is affected by changes in interest rates. When interest rates rise, the
market value of a bond declines. When interest rates decline, the market value
of a bond increases. Generally, the longer a bond's maturity, the greater its
sensitivity to interest rates. A bond's value can also be affected by changes in
the credit rating of the financial condition of its issuer.
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The Fund's investments in bonds are also subject to the risk of
default. This risk is greater in the case of its investments in high yield
bonds. These bonds generally provide higher income in an effort to compensate
investors for their higher risk of default (failure to make required interest or
principal payments). High yield bond issuers include small or relatively new
companies lacking the history or capital to merit investment grade status,
former blue chip companies downgraded because of financial problems, and
companies which have elected to borrow heavily.
Generally, the prices of equity securities could be affected by such
factors as a change in a company's earnings, fluctuations in interest rates or
changes in the rate of economic growth. To the extent the Fund invests in
issuers with small capitalizations, the Fund would be subject to greater risk
than may be involved in investing in companies with larger capitalizations.
These securities generally include newer and less seasoned companies which are
more speculative than securities issued by well-established issuers. Other risks
may include less available information about the issuer, the absence of a
business history or historical pattern of performance, as well as normal risks
which accompany the development of new products, markets or services.
The Fund may invest up to 20% of its total assets in securities of
well-established foreign companies in developed countries which are traded on a
recognized domestic or foreign securities exchange. Foreign investments involve
additional risks, including currency fluctuations, political instability,
differences in financial reporting standards, and less stringent regulation of
securities markets. Although such foreign securities may be denominated in
foreign currencies, the Fund anticipates that the majority of its foreign
investments will be in American Depository Receipts ("ADRs") and Global
Depository Receipts ("GDRs"). While the Fund may invest in both ADRs and GDRs,
it currently intends to invest only in ADRs. See "Foreign Securities" and
"American Depository Receipts and Global Depository Receipts," below. While the
Fund may enter into forward currency contracts to protect against uncertainty in
the level of future exchange rates, it does not currently intend to use this
authority. In any event, the Adviser will not attempt to time actively either
short-term market trends or short-term currency trends in any market.
See "Futures and Options Strategies."
The Fund may also borrow money for temporary or emergency purposes in
amounts not exceeding 5% of its net assets, make loans of portfolio securities
and invest in securities issued on a "when-issued" or delayed delivery basis. In
addition, in any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having up to 100% of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
MID-CAP OPPORTUNITY FUND
The Fund seeks its objective of long-term capital growth by investing,
under normal market conditions, at least 65% of its total assets in common
stocks of companies that have a medium market capitalization. The Fund seeks to
invest in equity securities that the Adviser believes demonstrate outstanding
growth records and potential based on the Adviser's fundamental analysis of the
company. The companies in which the Fund invests will be primarily those with
medium market capitalization (often known as "mid-cap"). The Fund defines
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mid-cap stocks as those with market capitalizations of less than 90% of the
weighted market capitalization of the Standard & Poor's 400 Mid-Cap Index
(currently $7.6 billion). The Fund's definition of "mid-cap" will change with
market conditions. Market capitalization is the total market value of a
company's outstanding common stock. Growth equity securities tend to have
above-average price to earnings ratios and less-than-average current yields
compared to non-growth equity securities. The payment of dividend income will
not be a primary consideration in the selection of equity investments.
The Fund's focus on growth stocks increases the potential volatility of
its share price. Growth stocks are stocks of companies which are expected to
increase their earnings faster than the overall market. If expectations are not
met, the prices of these stocks may decline drastically even if earnings do
increase. Investments in growth companies may lack the dividend yield that can
cushion stock prices in market downturns.
The Fund may invest up to 35% of its total assets in small
capitalization stocks, large capitalization stocks, U.S. Government Obligations,
including mortgage-backed securities, and investment grade debt securities or
unrated securities that are of comparable quality as determined by the Adviser,
repurchase agreements, investment grade securities convertible into common
stock, warrants to purchase common stock and zero coupon and pay-in-kind
securities. The Fund may invest up to 15% of its total assets in ADRs. The Fund
may borrow money for temporary or emergency purposes in an amount not exceeding
5% of its net assets and invest in securities issued on a "when-issued" or
delayed delivery basis. The Adviser continually monitors the investments in the
Fund's portfolio and carefully evaluates on a case-by-case basis whether to
dispose of or retain a debt security that has been downgraded below investment
grade. No more than 5% of the Fund's net assets will remain invested in such
downgraded securities. See "Debt Securities," below, and Appendix A for a
description of corporate bond ratings.
To a limited degree, the Fund may invest in foreign securities. Foreign
investments involve additional risks, including currency fluctuations, political
instability, differences in financial reporting standards, and less stringent
regulation of securities markets.
In any period of market weakness or of uncertain market or economic
conditions, the Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents, including U.S. Government
Obligations, mortgage-backed securities, bank certificates of deposit, bankers'
acceptances and commercial paper issued by domestic corporations.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
UTILITIES INCOME FUND
The Fund seeks its objective by investing, under normal market
conditions, at least 65% of its total assets in equity and debt securities
issued by companies primarily engaged in the public utilities industry. Equity
securities in which the Fund may invest include common stocks, preferred stocks,
securities convertible into common stocks or preferred stocks and warrants to
purchase common or preferred stocks. Debt securities in which the Fund may
invest will be rated at the time of investment at least A by Moody's or S&P or,
if unrated, will be of comparable quality as determined by the Adviser. The
Fund's policy is to attempt to sell, within a reasonable time period, a debt
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security in its portfolio which has been downgraded below A, provided that such
disposition is in the best interests of the Fund and its shareholders. See "Debt
Securities," below, and Appendix A for a description of corporate bond ratings.
The portion of the Fund's assets invested in equity securities and in debt
securities will vary from time to time due to changes in interest rates and
economic and other factors.
The Fund defines utilities companies as those that are primarily
engaged in the ownership or operation of facilities used to provide electricity,
gas, water or telecommunications (including telephone, telegraph and satellite,
but not public broadcasting or cable television). For these purposes, "primarily
engaged" means that (1) more than 50% of the company's assets are devoted to the
ownership or operation of one or more facilities as described above, or (2) more
than 50% of the company's operating revenues are derived from the business or
combination of any of the businesses described above. It should be noted that
based on this definition, the Fund may invest in companies which are also
involved to a significant degree in non-public utilities activities.
Utilities stocks generally offer dividend yields that exceed those of
industrial companies and their prices tend to be less volatile than stocks of
industrial companies. However, utilities stocks can still be affected by the
risks of the stock of industrial companies. The Fund has a policy to concentrate
its investments in the securities of companies in the public utilities industry.
Because the Fund concentrates its investments in public utilities companies, the
value of its shares will be especially affected by factors peculiar to the
utilities industry, and may fluctuate more widely than the value of shares of a
fund that invests in a broader range of industries. See "Utilities Industries."
The Fund may invest up to 35% of its total assets in the following
instruments: debt securities (rated at least A by Moody's or S&P) and common and
preferred stocks of non-utilities companies; U.S. Government Obligations;
mortgage-backed securities; cash; and money market instruments consisting of
prime commercial paper, bankers' acceptances, certificates of deposit and
repurchase agreements. The Fund may invest in securities on a "when-issued" or
delayed delivery basis and make loans of portfolio securities. The Fund may
invest up to 10% of its total assets in ADRs. The Fund may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its net assets.
The Fund also may invest in zero coupon and pay-in-kind securities. In addition,
in any period of market weakness or of uncertain market or economic conditions,
the Fund may establish a temporary defensive position to preserve capital by
having up to 100% of its assets invested in short-term fixed income securities
or retained in cash or cash equivalents.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
BLUE CHIP FUND
The Fund seeks its objective by investing, under normal market
conditions, at least 65% of its total assets in common stocks of "Blue Chip"
companies that the Adviser believes have potential earnings growth that is
greater than the average company included in the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500"). The Fund also may invest up to 35% of its total
assets in the equity securities of non-Blue Chip companies that the Adviser
believes have significant potential for growth of capital or future income
consistent with the preservation of capital. When market conditions warrant, or
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when the Adviser believes it is necessary to achieve the Fund's objective, the
Fund may invest up to 25% of its total assets in fixed-income securities. It is
the Fund's policy to remain relatively fully invested in equity securities under
all market conditions rather than to attempt to time the market by maintaining
large cash or fixed-income securities positions when market declines are
anticipated. The Fund is appropriate for investors who are comfortable with a
fully invested stock portfolio.
The Fund defines Blue Chip companies as those companies that are
included in the S&P 500. Blue Chip companies are considered to be of relatively
high quality and generally exhibit superior fundamental characteristics, which
may include: potential for consistent earnings growth, a history of
profitability and payment of dividends, leadership position in their industries
and markets, proprietary products or services, experienced management, high
return on equity and a strong balance sheet. Blue Chip companies usually exhibit
less investment risk and share price volatility than smaller, less established
companies. Examples of Blue Chip companies are Microsoft Corp., General Electric
Co., Pepsico Inc. and Bristol-Myers Squibb Co.
The Fund primarily invests in stocks of growth companies. These are
companies which are expected to increase their earnings faster than the overall
market. If earnings expectations are not met, the prices of these stocks may
decline substantially even if earnings do increase. Investments in growth
companies may lack the dividend yield that can cushion stock prices in market
downturns.
The fixed-income securities in which the Fund may invest include money
market instruments (including prime commercial paper, certificates of deposit of
domestic branches of U.S. banks and bankers' acceptances), U.S. Government
Obligations (including mortgage-backed securities) and corporate debt
securities. However, no more than 5% of the Fund's net assets may be invested in
corporate debt securities rated below Baa by Moody's or BBB by S&P. The Fund may
borrow money for temporary or emergency purposes in amounts not exceeding 5% of
its total assets. The Fund may also invest up to 10% of its total assets in
ADRs, enter into repurchase agreements and make loans of portfolio securities.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
SPECIAL SITUATIONS FUND
The Fund seeks its objective by investing, under normal market
conditions, at least 65% of its total assets in the common stock of companies
with small market capitalization that the Adviser considers to be undervalued or
less well known in the current marketplace and to have potential for capital
growth. The Fund may invest up to 35% of its total assets in other common stocks
and 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, including companies with larger market capitalization if the Fund
determines that they present good opportunities for growth.
The Fund seeks to invest in the common stock of companies that the
Adviser believes are undervalued in the current market in relation to
fundamental economic values such as earnings, sales, cash flow and tangible book
value; that are early in their corporate development (i.e., before they become
widely recognized and well known and while their reputations and track records
are still emerging); or that offer the possibility of greater earnings because
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of revitalized management, new products or structural changes in the economy.
Such companies primarily are those with small market capitalizations (often
knows as "small-cap." The Fund defines small-cap stocks as those with market
capitalizations of less than 90% of the weighted market capitalization of the
Standard & Poor's 600 Small-Cap Index. The Fund's definition of small-cap will
change with market conditions. The Adviser believes that, over time, these
securities are more likely to appreciate in price than securities whose market
prices have already reached their perceived economic value. In addition, the
Fund intends to diversify its holdings among as many companies and industries as
the Adviser deems appropriate.
Companies that are early in their corporate development may be
dependent on relatively few products or services, may lack adequate capital
reserves, may be dependent on one or two management individuals and may have
less of a track record or historical pattern of performance. In addition, there
may be less information available as to the issuers and their securities may not
be well known to the general public and may not yet have wide institutional
ownership. Securities of these companies may have more potential for growth but
also greater risk than that normally associated with larger, older or
better-known companies.
Investments in securities of companies with small market
capitalizations are generally considered to offer greater opportunity for
appreciation and to involve greater risk of depreciation than securities of
companies with larger market capitalization. These include the equity securities
of companies which represent new or changing industries and those which, in the
opinion of the Adviser, represent special situations, the potential future value
of which has not been fully recognized. Growth securities of companies with
small market capitalizations which represent a special situation bear the risk
that the special situation will not develop as favorably as expected, or the
situation may deteriorate. For example, a merger with favorable implications may
be blocked, an industrial development may not enjoy anticipated market
acceptance or a bankruptcy may not be as profitably resolved as had been
expected. Because the securities of most companies with small market
capitalizations are not as broadly traded as those of companies with larger
market capitalizations, these securities are often subject to wider and more
abrupt fluctuations in market price. In the past, there have been prolonged
periods when these securities have substantially underperformed or outperformed
the securities of larger capitalization companies. In addition, smaller
capitalization companies generally have fewer assets available to cushion an
unforeseen adverse occurrence and thus such an occurrence may have a
disproportionately negative impact on these companies.
The majority of the Fund's investments are expected to be securities of
U.S. issuers that are traded on a U.S. securities exchange, or in the
over-the-counter ("OTC") market. The depth and liquidity of the market for
small-cap stocks may vary from time to time and from security to security.
The Fund 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 Fund invests are primarily denominated
in foreign currencies, the Fund also may invest in ADRs. The Adviser does not
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attempt to time actively either short-term market trends or short-term currency
trends in any market. See "Foreign Securities" and "American Depository
Receipts."
The Fund 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 Fund may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets
and enter into repurchase agreements.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
TOTAL RETURN FUND
The Fund seeks its objective by employing a flexible investment
strategy which emphasizes investments in stocks, bonds and money market
instruments. The percentage of the portfolio that is allocated to any one class
of assets is flexible rather than fixed. On a regular basis, the Fund reviews
and determines whether to adjust its asset allocations based upon its views on
market conditions, the relative values of the asset classes and economic trends.
The Fund may invest in domestic and foreign common stocks and other equity
securities, such as preferred stocks, securities convertible into common stocks
and warrants to purchase common stock. The Fund also may invest in debt
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-backed
securities), municipal bonds rated Baa or better by Moody's or BBB or better by
S&P and corporate and foreign debt securities. The Fund 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 Fund may invest up to 5% of its net assets in zero coupon and pay-in-kind
securities and may invest up to 10% of its net assets in securities issued on a
when-issued or delayed delivery basis. There is the possibility that 100% of the
Fund's total assets could be invested in corporate debt securities and municipal
bonds. No more than 25% of the Fund's net assets may be invested in corporate
debt securities and municipal bonds rated below Baa by Moody's or BBB by S&P.
See "High Yield Securities" and Appendix A for a description of corporate and
municipal bond ratings.
The equity securities in which the Fund generally invests include both
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 to earnings ratios and less-than-average current yields
as compared to other equity securities. Value equity securities tend to have
below average price to earnings ratios, low price to book value and potentially
high current yields.
The majority of the Fund's 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 Fund may
invest in newer and less seasoned companies with small to medium market
capitalizations. The Fund's ability to invest in unseasoned companies with
above-average earnings growth, other companies with changing or accelerating
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growth profiles and smaller companies with outstanding growth records and
potential subjects the Fund to greater risk than may be involved in investing in
securities which are not selected for such growth characteristics.
The Fund may invest up to 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 foreign securities in which the Fund invests
are primarily denominated in foreign currencies, the Fund 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 Fund 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" and "American Depository Receipts."
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
GLOBAL FUND
The Fund, under normal market conditions, invests in common stocks,
preferred stocks and bonds and other debt obligations issued by companies or
governments of at least three countries, including the United States. Currently,
the Fund primarily is invested in common stocks. The emphasis is on
high-quality, medium to large capitalization companies with an established
market throughout the world and the United States, with opportunistic investment
in smaller companies and/or emerging markets. Investments in foreign markets
involve special risks and considerations which are in addition to the usual
risks inherent in domestic investments. See "Foreign Securities," below.
The Fund may purchase securities traded on any foreign stock exchange.
The Fund may also purchase ADRs and GDRs. See "American Depository Receipts and
Global Depository Receipts," below. The Fund also may invest up to 25% of its
total assets in unlisted securities of foreign issuers; provided, however, that
no more than 10% of the value of its net assets may be invested in such
securities with a limited trading market. The investment standards for the
selection of unlisted securities are the same as those used in the purchase of
securities traded on a stock exchange. The Fund will invest in debt securities
rated in the three highest rating categories by either Moody's or S&P or, if
unrated, determined to be of comparable quality by Wellington Management
Company, LLP ("WMC" or the "Subadviser"). See Appendix A for a description of
such bond ratings.
The Fund may invest in securities convertible into common stocks,
preferred stocks, warrants and repurchase agreements and may purchase securities
on a when-issued or delayed delivery basis. The Fund also may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets
and make loans of portfolio securities. For temporary defensive purposes, the
Fund may invest up to 100% of its total assets in U.S. Government obligations
and cash equivalents denominated in U.S. dollars.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
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INVESTMENT POLICIES
AMERICAN DEPOSITORY RECEIPTS AND GLOBAL DEPOSITORY RECEIPTS. Each Fund
may invest in ADRs and GLOBAL FUND AND GROWTH & INCOME FUND may invest in GDRs.
ADRs typically are issued by a U.S. bank or trust company and evidence ownership
of the underlying securities of foreign issuers. Generally, ADRs 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 underlying
securities into which they may be converted. ADRs are subject to many of the
risks inherent in investing in foreign securities. ADRs are not considered by
the Fund to be foreign securities. ADRs may be purchased through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the underlying security and a depository, whereas a depository may
establish an unsponsored facility without participation by the issuer of the
depository security. Holders of unsponsored depository receipts generally bear
all the costs of such facilities and the depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts of the deposited securities.
GDRs are issued globally and evidence a similar ownership arrangement
to ADRs. Generally, GDRs are not denominated in U.S. dollars and are designed
for trading in non-U.S. securities markets. Like ADRs, GDRs may not necessarily
be denominated in the same currency as the underlying securities into which they
may be converted. As with ADRs, the issuers of the securities underlying
unsponsored GDRs are not obligated to disclose material information in the U.S.
and, therefore, there may be less information available regarding such issuers
and there may not be a correlation between such information and the market value
of the GDRs. GDRs also involve the risks of other investments in foreign
securities. For purposes of certain investment limitations, GDRs are considered
to be foreign securities by the Funds.
BANKERS' ACCEPTANCES. Each Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
CERTIFICATES OF DEPOSIT. Each Fund may invest in bank certificates of
deposit ("CDs"). The Federal Deposit Insurance Corporation is an agency of the
U.S. Government which insures the deposits of certain banks and savings and loan
associations up to $100,000 per deposit. The interest on such deposits may not
be insured if this limit is exceeded. Current Federal regulations also permit
such institutions to issue insured negotiable CDs in amounts of $100,000 or
more, without regard to the interest rate ceilings on other deposits. To remain
fully insured, these investments currently must be limited to $100,000 per
insured bank or savings and loan association.
CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities.
While no securities investment is without some risk, investments in convertible
securities generally entail less risk than the issuer's common stock, although
the extent to which such risk is reduced depends in large measure upon the
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degree to which the convertible security sells above its value as a fixed income
security. The Adviser will decide to invest based upon a fundamental analysis of
the long-term attractiveness of the issuer and the underlying common stock, the
evaluation of the relative attractiveness of the current price of the underlying
common stock, and the judgment of the value of the convertible security relative
to the common stock at current prices.
DEBT SECURITIES. Each Fund may invest in debt securities. 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 securities, include an increase in
inflation or inflation expectations, an increase in the rate of U.S. economic
growth, an expansion in the Federal budget deficit, or an increase in the price
of commodities such as oil. In addition, the market value of debt securities is
influenced by perceptions of the credit risks associated with such securities.
Credit risk is the risk that adverse changes in economic conditions can affect
an issuer's ability to pay principal and interest. GLOBAL FUND may invest in
debt securities that, at the time of purchase, are rated in the three highest
rating categories by at least one nationally recognized statistical rating
organization rating that security, such as S&P and Moody's, or, if unrated,
deemed to be of comparable quality by the Subadviser. The Adviser or, for GLOBAL
FUND, its Subadviser, continually monitor the investments in each Fund's
portfolio and carefully evaluates on a case-by-case basis whether to dispose of
or retain a debt security that has been downgraded.
FOREIGN GOVERNMENT OBLIGATIONS. GLOBAL FUND and TOTAL RETURN FUND may
invest in foreign government obligations, which generally consist of obligations
supported by national, state or provincial governments or similar political
subdivisions. Investments in foreign government debt obligations involve special
risks. The issuer of the debt may be unable or unwilling to pay interest or
repay principal when due in accordance with the terms of such debt, and the Fund
may have limited legal resources in the event of default. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance.
FOREIGN SECURITIES. GLOBAL FUND may sell a security denominated in a
foreign currency and retain the proceeds in that foreign currency to use at a
future date (to purchase other securities denominated in that currency) or the
Fund may buy foreign currency outright to purchase securities denominated in
that foreign currency at a future date. Investing in foreign securities involves
more risk than investing in securities of U.S. companies. GLOBAL FUND currently
does not intend to hedge its foreign investments against the risk of foreign
currency fluctuations. Accordingly, changes in the value of foreign currencies
can significantly affect the Fund's share price, irrespective of developments
relating to the issuers of securities held by the Fund. In addition, the Fund
will be affected by changes in exchange control regulations and fluctuations in
the relative rates of exchange between the currencies of different nations, as
well as by economic and political developments. Other risks involved in foreign
securities include the following: there may be less publicly available
information about foreign companies comparable to the reports and ratings that
are published about companies in the United States; foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies;
some foreign stock markets have substantially less volume than U.S. markets, and
securities of some foreign companies are less liquid and more volatile than
securities of comparable U.S. companies; there may be less government
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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 GLOBAL FUND held in
foreign countries.
GLOBAL FUND may also invest in the securities of issuers in less
developed foreign countries. The Fund's investments in emerging markets include
investments in countries whose economies or securities markets are not yet
highly developed. Special considerations associated with these investments (in
addition to the considerations regarding foreign investments generally) may
include, among others, greater political uncertainties, an economy's dependence
on revenues from particular commodities or on international aid or development
assistance, currency transfer restrictions, a limited number of potential buyers
for such securities and delays and disruptions in securities settlement
procedures.
HIGH YIELD SECURITIES-RISK FACTORS. BLUE CHIP FUND, TOTAL RETURN FUND
and GROWTH & INCOME FUND may invest in high yield, high risk securities
(commonly referred to as "junk bonds") ("High Yield Securities"). High Yield
Securities are subject to greater risks than those that are present with
investments of higher grade securities, as discussed below. These risks also
apply to lower-rated and certain unrated convertible securities.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. Debt
obligations, including convertible debt securities, rated lower than Baa by
Moody's or BBB by S&P, commonly referred to as "junk bonds" are speculative and
generally involve a higher risk or loss of principal and income than
higher-rated securities. The prices of High Yield Securities tend to be less
sensitive to interest rate changes than higher-rated investments, but may be
more sensitive to adverse economic changes or individual corporate developments.
Periods of economic uncertainty and changes generally result in increased
volatility in the market prices and yields of High Yield Securities and thus in
a Fund's net asset value. A significant economic downturn or a substantial
period of rising interest rates could severely affect the market for High Yield
Securities. In these circumstances, highly leveraged companies might have
greater difficulty in making principal and interest payments, meeting projected
business goals, and obtaining additional financing. Thus, there could be a
higher incidence of default. This would affect the value of such securities and
thus the Fund's net asset value. Further, if the issuer of a security owned by
the Fund defaults, the Fund might incur additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed rate
debt obligations, including High Yield Securities, tends to decrease; when
interest rates fall, the value of fixed rate debt obligations tends to increase.
If an issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, the Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if the Fund experiences unexpected net redemptions in
a rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Fund expenses could be allocated and in a reduced rate of return for the
Fund. While it is impossible to protect entirely against this risk,
diversification of the Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities helps to minimize the impact of a decrease in
value of a particular security or group of securities in the Fund's portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below
investment grade bonds expanded rapidly in recent years and its growth
paralleled a long economic expansion. At times in the past, the prices of many
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lower-rated debt securities have declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower-rated debt securities rose
dramatically. However, such higher yields did not reflect the value of the
income streams that holders of such securities expected, but rather the risk
that holders of such securities could lose a substantial portion of their value
as a result of the issuers' financial restructuring or default. There can be no
assurance that such declines in the below investment grade market will not
reoccur. The market for below investment grade bonds generally is thinner and
less active than that for higher quality bonds, which may limit the Fund's
ability to sell such securities at reasonable prices 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.
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 the Fund's holdings and
more difficulty in executing trades at favorable prices during unsettled market
conditions.
The ability of a Fund to value or sell High Yield Securities
will be adversely affected to the extent that such securities are thinly traded
or illiquid. During such periods, there may be less reliable objective
information available and thus the responsibility of the Board of Directors or
Trustees, as applicable (hereinafter referred to as the "Board" or "Directors")
to value High Yield Securities becomes more difficult, with judgment playing a
greater role. Further, adverse publicity about the economy or a particular
issuer may adversely affect the public's perception of the value, and thus
liquidity, of a High Yield Security, whether or not such perceptions are based
on a fundamental analysis.
LOANS OF PORTFOLIO SECURITIES. While they have no present intention of
doing so in the coming year, GROWTH & INCOME FUND, UTILITIES INCOME FUND, GLOBAL
FUND, BLUE CHIP FUND and TOTAL RETURN FUND may loan securities to qualified
broker-dealers or other institutional investors provided: the borrower pledges
to a Fund and agrees to maintain at all times with the Fund collateral equal to
not less than 100% of the value of the securities loaned (plus accrued interest
or dividend, if any); the loan is terminable at will by the Fund; the Fund pays
only reasonable custodian fees in connection with the loan; and the Adviser
monitors the creditworthiness of the borrower throughout the life of the loan.
Such loans may be terminated by a Fund at any time and the Fund may vote the
proxies if a material event affecting the investment is to occur. The market
risk applicable to any security loaned remains a risk of the Fund. The borrower
must add to the collateral whenever the market value of the securities rises
above the level of such collateral. A Fund could incur a loss if the borrower
should fail financially at a time when the value of the loaned securities is
greater than the collateral.
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MONEY MARKET INSTRUMENTS. Each Fund may invest in 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 are made only with domestic
institutions with assets in excess of $500 million.
MORTGAGE-BACKED SECURITIES. BLUE CHIP FUND, TOTAL RETURN FUND, GROWTH &
INCOME FUND, UTILITIES INCOME FUND and MID-CAP OPPORTUNITY FUND may invest in
mortgage-backed securities, including those representing an undivided ownership
interest in a pool of mortgage loans. Each of the certificates described below
is characterized by monthly payments to the security holder, reflecting the
monthly payments made by the mortgagees of the underlying mortgage loans. The
payments to the security holders (such as a Fund), like the payments on the
underlying loans, generally represent both principal and interest. Although the
underlying mortgage loans are for specified periods of time, such as twenty to
thirty years, the borrowers can, and typically do, repay them sooner. Thus, the
security holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest.
Thus, in times of declining interest rates, some higher yielding mortgages might
be repaid resulting in larger cash payments to a Fund, and the Fund will be
forced to accept lower interest rates when that cash is used to purchase
additional securities.
Interest rate fluctuations may significantly alter the average maturity
of mortgage-backed securities by changing the rates at which homeowners
refinance mortgages. 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. In the case of
GNMA Certificates, principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA Certificates
that the Fund 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
Fund normally will not distribute principal payments (whether regular or
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prepaid) to its shareholders. Rather, it will invest such payments in additional
mortgage-backed securities of the types described above. Interest received by
the Fund will, however, be distributed to shareholders. Foreclosures impose no
risk to principal investment because of the GNMA guarantee. As prepayment rates
of the individual mortgage pools vary widely, it is not possible to predict
accurately the average life of a particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of
interest on GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the Certificates by the amount
of the fees paid to GNMA and the issuer. The coupon rate by itself, however,
does not indicate the yield which will be earned on GNMA Certificates. First,
Certificates may trade in the secondary market at a premium or discount. Second,
interest is earned monthly, rather than semi-annually as with traditional bonds;
monthly compounding raises the effective yield earned. Finally, the actual yield
of a GNMA Certificate is influenced by the prepayment experience of the mortgage
pool underlying it. For example, if the higher-yielding mortgages from the pool
are prepaid, the yield on the remaining pool will be reduced.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation
("FHLMC") issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool.
FNMA SECURITIES. The Federal National Mortgage Association
("FNMA") issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
on FNMA Certificates and the full return of principal.
Risk of foreclosure of the underlying mortgages is greater
with FHLMC and FNMA securities because, unlike GNMA Certificates, FHLMC and FNMA
securities are not guaranteed by the full faith and credit of the U.S.
Government.
MUNICIPAL BONDS. Total Return Fund may invest in municipal bonds.
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. Distributions
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of interest income from municipal bonds in the Fund's portfolio will be taxable
to shareholders the same as distributions of interest income from other
securities held by the Fund. See "Taxes."
PREFERRED STOCK. Each Fund may invest in preferred stock. A preferred
stock is a security which has 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. While each Fund has no present intention of
doing so in the coming year, it may invest in repurchase agreements. A
repurchase agreement essentially is a short-term collateralized loan. The lender
(a Fund) agrees to purchase a security from a borrower (typically a
broker-dealer) at a specified price. The borrower simultaneously agrees to
repurchase that same security at a higher price on a future date (which
typically is the next business day). The difference between the purchase price
and the repurchase price effectively constitutes the payment of interest. In a
standard repurchase agreement, the securities which serve as collateral are
transferred to a Fund's custodian bank. In a "tri-party" repurchase agreement,
these securities would be held by a different bank for the benefit of the Fund
as buyer and the broker-dealer as seller. In a "quad-party" repurchase
agreement, the Fund's custodian bank also is made a party to the agreement.
Although each Fund may enter into repurchase agreements with banks which are
members of the Federal Reserve System or securities dealers who are members of a
national securities exchange or are market makers in government securities, the
Funds currently do not intend to do so. The period of these repurchase
agreements will usually be short, from overnight to one week, and at no time
will a Fund invest in repurchase agreements with more than one year in time to
maturity. The securities which are subject to repurchase agreements, however,
may have maturity dates in excess of one year from the effective date of the
repurchase agreement. Each Fund will always receive, as collateral, securities
whose market value, including accrued interest, which will at all times be at
least equal to 100% of the dollar amount invested by the Fund in each agreement,
and the Fund will make payment for such securities only upon physical delivery
or evidence of book entry transfer to the account of the custodian. If the
seller defaults, a Fund might incur a loss if the value of the collateral
securing the repurchase agreement declines, and might incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy or
similar proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. No Fund may
enter into a repurchase agreement with more than seven days to maturity if, as a
result, more than 15% of such Fund's net assets would be invested in such
repurchase agreements and other illiquid investments.
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS. None of the Funds may
purchase or otherwise acquire any security if, as a result, more than 15% of its
net assets (taken at current value) would be invested in securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. This policy includes foreign issuers'
unlisted securities with a limited trading market and repurchase agreements
maturing in more than seven days. This policy does not include restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended ("1933 Act"), which the Fund's Board or the Adviser has
determined under Board-approved guidelines are liquid.
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Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at reasonable prices.
Over-the-counter ("OTC") options and their underlying collateral are
also considered illiquid investments. Utilities Income Fund, BLUE CHIP FUND, and
TOTAL RETURN FUND may invest in options though these Funds have no intention of
investing in options in the coming year. The assets used as cover for OTC
options written by a Fund would not be considered illiquid unless the OTC
options are sold to qualified dealers who agree that a Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option
U.S. GOVERNMENT OBLIGATIONS. BLUE CHIP FUND, TOTAL RETURN FUND, Growth
& Income Fund and Utilities Income Fund may invest in U.S. Government
Obligations. U.S. Government Obligations include: (1) U.S. Treasury obligations
(which differ only in their interest rates, maturities and times of issuance),
and (2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are backed by the full faith and credit of the United
States (such as securities issued by the FHA, GNMA, 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 FMHA and the Small Business Administration). The range of maturities of U.S.
Government Obligations is usually three months to thirty years.
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UTILITIES INDUSTRIES. The Utilities Income Fund invests primarily in
utilities companies. Many utilities companies, especially electric and gas and
other energy-related utilities companies, have historically been subject to the
risk of increases in fuel and other operating costs, changes in interest rates
on borrowings for capital improvement programs, changes in applicable laws and
regulations, and costs and operating constraints associated with compliance with
environmental regulations.
In recent years, regulatory changes in the United States have
increasingly allowed utilities companies to provide services and products
outside their traditional geographical areas and lines of business, creating new
areas of competition with the utilities industries. This trend toward
deregulation and the emergence of new entrants have caused non-regulated
providers of utilities services to become a significant part of the utilities
industries. The Adviser believes that the emergence of competition and
deregulation will result in certain utilities companies being able to earn more
than their traditional regulated rates of return, while others may be forced to
defend their core business from increased competition and may be less
profitable.
Certain utilities, especially gas and telephone utilities, have in
recent years been affected by increased competition, which could adversely
affect the profitability of such utilities companies. In addition, expansion by
companies engaged in telephone communication services of their non-regulated
activities into other businesses (such as cellular telephone services, data
processing, equipment retailing, computer services and financial services) has
provided the opportunity for increases in earnings and dividends at faster rates
than have been allowed in traditional regulated businesses. However,
technological innovations and other structural changes also could adversely
affect the profitability of such companies. Although the Adviser seeks to take
advantage of favorable investment opportunities that may arise from these
structural changes, there can be no assurance that the Fund will benefit from
any such changes.
Foreign utilities companies may be more heavily regulated than U.S.
utilities companies, which may result in increased costs or otherwise adversely
affect the operations of such companies. The securities of foreign utilities
companies also have lower dividend yields than U.S. utilities companies. The
Fund's investments in foreign issuers may include recently privatized
enterprises, in which the Fund's participation may be limited or otherwise
affected by local law. There can e no assurance that governments with
privatization programs will continue such programs or that privatization will
succeed in such countries.
Because securities issued by utilities companies are particularly
sensitive to movement in interest rates, the equity securities of such companies
are more affected by movements in interest rates than are the equity securities
of other companies.
Each of these risks could adversely affect the ability and inclination
of public utilities companies to declare or pay dividends and the ability of
holders of common stock, such as Utilities Income Fund, to realize any value
from the assets of the company upon liquidation or bankruptcy.
WARRANTS. Each Fund except BLUE CHIP FUND may purchase warrants, which
are instruments that permit a Fund to acquire, by subscription, the capital
stock of a corporation at a set price, regardless of the market price for such
stock. Warrants may be either perpetual or of limited duration. There is a
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greater risk that warrants might drop in value at a faster rate than the
underlying stock.
WHEN-ISSUED SECURITIES. GROWTH & INCOME FUND, Utilities Income Fund and
TOTAL RETURN FUND may invest up to 10%, and Mid-Cap Opportunity Fund and Global
Fund may invest up to 5%, of each of its net assets in securities issued on a
when-issued or delayed delivery basis at the time the purchase is made. A Fund
generally would not pay for such securities or start earning interest on them
until they are issued or received. However, when a Fund purchases debt
obligations on a when-issued basis, it assumes the risks of ownership, including
the risk of price fluctuation, at the time of purchase, not at the time of
receipt. Failure of the issuer to deliver a security purchased by the Fund on a
when-issued basis may result in the Fund's incurring a loss or missing an
opportunity to make an alternative investment. When a Fund enters into a
commitment to purchase securities on a when-issued basis, it establishes a
separate account with its custodian consisting of cash or liquid high-grade debt
securities equal to the amount of the Fund's commitment, which are valued at
their fair market value. If on any day the market value of this segregated
account falls below the value of the Fund's commitment, the Fund will be
required to deposit additional cash or qualified securities into the account
until the value of the account is equal to the value of the Fund's commitment.
When the securities to be purchased are issued, a Fund will pay for the
securities from available cash, the sale of securities in the segregated
account, sales of other securities and, if necessary, from the sale of the
when-issued securities themselves although this is not ordinarily expected.
Securities purchased on a when-issued basis are subject to the risk that yields
available in the market, when delivery takes place, may be higher than the rate
to be received on the securities a Fund is committed to purchase. Sale of
securities in the segregated account or sale of the when-issued securities may
cause the realization of a capital gain or loss.
ZERO COUPON AND PAY-IN-KIND SECURITIES. Mid-Cap Opportunity Fund,
Utilities Income Fund and Total Return Fund may each invest 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 each year on zero coupon securities and the "interest" on pay-in-kind
securities must be accounted for by the Fund that holds the securities for
purposes of determining the amount it must distribute that year to continue to
qualify for tax treatment as a regulated investment company. See "Taxes." Thus,
a Fund may be required to distribute as a dividend an amount that is greater
than the total amount of cash it actually receives. These distributions must be
made from a Fund's cash assets or, if necessary, from the proceeds of sales of
portfolio securities. Each Fund will not be able to purchase additional
income-producing securities with cash used to make such distributions, and its
current income ultimately could be reduced as a result.
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FUTURES AND OPTIONS STRATEGIES
GLOBAL FUND is the only Fund that currently anticipates using financial
futures or options as part of its investment strategy. Other Funds that are
authorized to purchase and sell futures and option contracts but at this time
have no intention of doing so for the coming year include: Utilities Income Fund
and TOTAL RETURN FUND which may purchase and sell futures contracts and options
on futures contracts to hedge their portfolios, and Utilities Income Fund, Blue
Chip Fund, and Total Return Fund which may purchase and sell options on
securities and indices to enhance income. Certain special characteristics of and
risks associated with using these instruments are discussed below. In addition
to the investment guidelines (described below) adopted by each Fund's Board to
govern a Fund's investments in futures and options, use of these instruments is
subject to the applicable regulations of the Securities and Exchange Commission
("SEC"), the several options and futures exchanges upon which options and
futures contracts are traded and the Commodities Futures Trading Commission
("CFTC"). In addition, a Fund's ability to use these instruments will be limited
by tax considerations. See "Taxes."
To the extent that they participate in the options or futures markets,
the Funds will incur investment risks and transaction costs to which the Funds
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 Funds may leave the
Funds in a worse position than if such strategies were not used. The Funds might
not employ any of the strategies described below, and there can be no assurance
that any strategy will succeed. The use of these strategies involve certain
special risks, including (1) dependence on the Adviser's ability to predict
correctly movements in the direction of interest rates and securities prices;
(2) imperfect correlation between the price of options, futures contracts and
options thereon and movements in the prices of the securities being hedged; (3)
the fact that skills needed to use these strategies are different from those
needed to select portfolio securities; and (4) the possible absence of a liquid
secondary market for any particular instrument at any time.
FUTURES AND OPTIONS ON FUTURES STRATEGIES. GLOBAL FUND expects to use
stock index futures contracts and options thereon in anticipation of a
significant market or market sector advance. The purchase of a stock index
futures contract affords a hedge against not participating in such advance at a
time when the Fund is not fully invested. Such purchase of a futures contract
would serve as a temporary substitute for the purchase of individual stocks
which may then be purchased in a orderly fashion. Further, stock index futures
contracts and options thereon may be purchased to maintain a desired percentage
of the Fund invested in stocks in the event of a large cash flow into the Fund,
or to generate additional income from cash held by the Fund. Stock index futures
and options thereon may also be used to adjust country exposure. When the Fund
purchases a stock index futures contract on foreign stocks, an accompanying
foreign currency forward or foreign currency futures contract is executed to
provide the same currency exposure that would result from directly owning the
underlying foreign stocks. Failure to obtain such currency exposure would
constitute a hedge back into U.S. dollars with respect to such index futures
positions. The value of the Fund's futures positions shall not exceed 5% of the
total assets in the Fund's portfolio.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid
upon entering into futures contracts. Instead, upon entering into a futures
contract, the Funds are required to deposit with their custodian in a segregated
account in the name of the futures broker through which the transaction is
effected and amount of cash, U.S. Government securities or other liquid,
high-grade debt instruments generally equal to 3%-5% or less of the contract
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value. This amount is known as "initial margin." When writing a call or put
option on a futures contract, margin also must be deposited in accordance with
applicable exchange rules. Initial margin on futures contracts is in the nature
of a performance bond or good-faith deposit that is returned to a Fund upon
termination of the transaction, assuming all obligations have been satisfied.
Under certain circumstances, such as periods of high volatility, a Fund may be
required by an exchange to increase the level of its initial margin payment.
Additionally, initial margin requirements may be increased generally in the
future by regulatory action. Subsequent payments, called "variation margin," to
and from the broker, are made on a daily basis as the value of the futures
position varies, a process known as "marking to market." Variation margin does
not involve borrowing to finance the futures transactions, but rather represents
a daily settlement of a Fund's obligation to or from a clearing organization. A
Fund is also obligated to make initial and variation margin payments when it
writes options on futures contracts.
Holders and writers of futures positions and options thereon can enter
into offsetting closing transactions, by selling or purchasing, respectively, a
futures position or options position with the same terms as the position or
option held or written. Positions in futures contracts and options thereon may
be closed only on an exchange or board of trade providing a secondary market for
such futures or options.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or related option may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidation of
unfavorable positions. In such event, it may not be possible for a Fund to close
a position and, in the event of adverse price movements a Fund would have to
make daily cash payments of variation margin (except in the case of purchased
options). However, in the event futures contracts have been used to hedge
portfolio securities, such securities will not be sold until the contracts can
be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
Successful use by a Fund of futures contracts and related options will
depend upon the Adviser's ability to predict movements in the direction of the
overall securities, currency and interest rate markets, which requires different
skills and techniques than predicting changes in the prices of individual
securities. 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 underlying instruments or currencies. In addition, if a Fund has
insufficient cash, it may have to sell assets from its portfolio to meet daily
variation margin requirements. Any such sale of assets may or may not be made at
prices that reflect the rising market. Consequently, a Fund may need to sell
assets at a time when such sales are disadvantageous to a Fund. If the price of
the futures contract or related option moves more than the price of the
underlying instruments or currencies, a Fund will experience either a loss or a
gain on the futures contract or related option that may or may not be completely
offset by movement in the price of the instruments or currencies that are the
subject of the hedge.
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In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures or
related option position and the securities or currencies being hedged, movements
in the prices of futures contracts and related options may not correlate
perfectly with movements in the prices of the hedged securities or currencies
because of price distortions in the futures market. As a result, a correct
forecast of general market trends may not result in successful hedging through
the use of futures contracts and related options over the short term.
Positions in futures contracts and related options may be closed out
only on the exchange or board of trade that provides a secondary market for such
futures contracts or related options. Although a Fund intends to purchase or
sell futures contracts and related options only on the exchanges or boards of
trade where there appears to be a liquid secondary market for such futures and
related options, there is no assurance that such a market will exist for any
particular contract or option at any particular time. In such event, it may not
be possible to close a futures or option position and, in the event of adverse
price movements, a Fund would continue to be required to make variation margin
payments.
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 s
Fund purchases an option is the premium paid for the option and the transaction
costs, there may be circumstances when the purchase of an option on a futures
contract would result in a loss to s Fund when the use of a futures contract
would not, such as when there is no movement in the level of the underlying
stock index or the value of securities or currencies being hedged.
A Fund's activities in the futures and related options markets may
result in a higher portfolio turnover rate and additional transaction costs in
the form of added brokerage commissions; however, a Fund also may save on
commissions by using futures and related options as a hedge rather than buying
or selling individual securities or currencies in anticipation or as a result of
market movements.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS. Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. Further, settlement
of a foreign currency futures contract may occur within the country issuing the
underlying currency. In that case, a Fund must accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign restrictions
or regulations regarding the maintenance of foreign banking arrangements by U.S.
residents, and may be required to pay any fees, taxes or charges associated with
such delivery that are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain
additional risks. Trading of such options is relatively new. The ability to
establish and close out positions on such options is subject to the maintenance
of a liquid secondary market. To reduce this risk, a Fund will not purchase or
write options on foreign currency futures contracts unless and until, in the
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Adviser's opinion, the market for such options has developed sufficiently that
the risks in connection with such options are not greater than the risks in
connection with transactions in the underlying futures contracts. Compared to
the purchase or sale of foreign currency futures contracts, the purchase of call
or put options thereon involves less potential risk to a Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a foreign currency futures contract would result in a loss, such as
when there is no movement in the price of the underlying currency or futures
contract.
FUTURES GUIDELINES. To the extent that a Fund enters into futures
contracts or options thereon other than for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required to
establish these positions (excluding the in-the-money amount for options that
are in-the-money at the time of purchase) will not exceed 5% of the liquidation
value of the Fund's portfolio, after taking into account unrealized profits and
losses on any contracts into which the Fund has entered. This policy does not
limit a Fund's assets at risk to 5%. The value of all futures sold will not
exceed the total market value of a Fund's portfolio.
COVER FOR FUTURES AND OPTIONS STRATEGIES. No Fund will use leverage in
its futures and options strategies. No Fund will write options or purchase or
sell futures contracts unless it owns either (1) an offsetting ("covered")
position in securities, or other options or futures contracts or (2) cash and
liquid securities with a value sufficient at all times to cover its potential
obligations. A Fund will comply with guidelines established by the SEC with
respect to coverage of such instruments by mutual funds and, if required, will
set aside cash and liquid 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 Fund's assets could
impede portfolio management and decrease a Fund's liquidity.
OPTIONS GUIDELINES. In view of the risks involved in using options, a
Fund's Board may adopt non-fundamental investment guidelines to govern a Fund's
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) a Fund may not
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 a Fund, exceeds 5% of
the Fund's total assets. However, this does not limit the amount of a Fund's
assets at risk to 5%.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. A Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If a Fund wishes to terminate its obligation to sell
securities under a call option it has written, a Fund 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 Fund may write an
option of the same series, as the option held; this is known as a closing sale
transaction. Closing transactions essentially permit a Fund to realize profits
or limit losses on its options positions prior to the exercise or expiration of
the option.
The value of an option position will reflect, among other things, the
current market price of the underlying security or index, the time remaining
until expiration, the relationship of the exercise price to the market price,
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the historical price volatility of the underlying security or 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 index options, fluctuations in the
market sector represented by the index selected.
Options normally have expiration dates of up to nine months. Unless an
option purchased by a Fund is exercised or unless a closing transaction is
effected with respect to that position, a loss will be realized in the amount of
the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. The ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market. Although a Fund intends to purchase or write only
those exchange-traded options for which there appears to be a liquid secondary
market, there is no assurance that a liquid secondary market will exist for any
particular option at any particular time. Closing transactions may be effected
with respect to options traded in the OTC markets (currently the primary markets
for options on debt securities) only by negotiating directly with the other
party to the option contract or in a secondary market for the option if such
market exists. Although a Fund will enter into OTC options only with dealers
that agree to enter into, and that are expected to be capable of entering into,
closing transactions with a Fund, there is no assurance that a Fund will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
In the event of insolvency of the opposite party, a Fund may be unable to
liquidate an OTC option. Accordingly, it may not be possible to effect closing
transactions with respect to certain options, with the result that a Fund would
have to exercise those options that it has purchased in order to realize any
profit. With respect to options written by a Fund, the inability to enter into a
closing transaction may result in material losses to a Fund. For example,
because a Fund must maintain a covered position or segregate assets with respect
to any call option it writes, a Fund may not sell the underlying assets used to
cover an option during the period it is obligated under the option. This
requirement may impair a Fund's ability to sell a portfolio security or make an
investment at a time when such a sale or investment might be advantageous.
Index options are settled exclusively in cash. If a Fund purchases an
option on an index, the option is settled based on the closing value of the
index on the exercise date. Thus, a holder of an index option who exercises it
before the closing index value for that day is available runs the risk that the
level of the underlying index may subsequently change. For example, in the case
of a call option, if such a change causes the closing index value to fall below
the exercise price of the option on the index, the exercising holder will be
required to pay the difference between the closing index value and the exercise
price of the option.
A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, a Fund also may
save on commissions by using options as a hedge rather than buying or selling
individual securities in anticipation or as a result of market movements.
FORWARD CURRENCY CONTRACTS STRATEGIES. GROWTH & INCOME FUND, Special
Situations Fund, Total Return Fund and GLOBAL FUND may use forward currency
contracts to protect against uncertainty in the level of future foreign currency
exchange rates. The GLOBAL FUND currently is the only Fund that intends to use
this authority in the coming year. The Funds will not speculate with forward
currency contracts or foreign currency exchange rates.
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While the Funds generally do not attempt to hedge its foreign security
holdings against the risk of changes in foreign currency exchange rates, it will
use forward currency contracts to hedge cash positions during the settlement of
transactions and in between transactions. For example, when a Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, or when a Fund anticipates the receipt in a foreign currency of
dividend or interest payments on a security that it holds, a Fund may desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such payment, as the case may be, by entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars or foreign currency, of the
amount of foreign currency involved in the underlying transaction. A Fund will
thereby be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the currency exchange rates during
the period between the date on which the security is purchased or sold, or on
which the dividend or interest payment is declared, and the date on which such
payments are made or received. When the Fund uses foreign currency contracts in
connection with stock index futures contracts, as noted previously it is doing
so to replicate the experience of owning the foreign securities and not to hedge
against foreign currency fluctuations.
The precise matching of the forward currency contract amounts and the
value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. Accordingly,
it may be necessary for the Fund to purchase additional foreign currency on the
spot (i.e., cash) market and bear the expense of such purchase if the market
value of the security is less than the amount of foreign currency the Fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency a Fund is
obligated to deliver. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Forward currency contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing a Fund
to sustain losses on these contracts and transactions costs. Unless a Fund's
obligations under a forward contract are covered with positions in securities,
currencies or other forward contracts, a Fund will enter into a forward contract
only if the Fund maintains cash or liquid assets in a segregated account in an
amount not less than the value of a Fund's total assets committed to the
consummation of the contract, as marked to market daily.
At or before the maturity date of a forward contract requiring a Fund
to sell a currency, a Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which a Fund will obtain, on the same maturity date, the same amount
of the currency that it is obligated to deliver. Similarly, a Fund may close out
a forward contract requiring it to purchase a specified currency by entering
into a second contract entitling it to sell the same amount of the same currency
on the maturity date of the first contract. A Fund would realize a gain or loss
as a result of entering into an offsetting forward currency contract under
either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
the offsetting contract. There can be no assurance that the Fund will be able to
enter into new or offsetting forward currency contracts. Forward currency
contracts also involve a risk that the other party to the contract may fail to
deliver currency or pay for currency when due, which could result in substantial
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losses to a Fund. The cost to a Fund of engaging in forward currency contracts
varies with factors such as the currencies involved, the length of the contract
period and the market conditions then prevailing. Because forward currency
contracts are usually entered into on a principal basis, no fees or commissions
are involved.
PORTFOLIO TURNOVER
Although each Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold from time to time without regard to
the length of time they have been held when, in the opinion of the Adviser,
investment considerations warrant such action. Portfolio turnover rate is
calculated by dividing (1) the lesser of purchases or sales of portfolio
securities for the fiscal year by (2) the monthly average of the value of
portfolio securities owned during the fiscal year. A 100% turnover rate would
occur if all the securities in a Fund's portfolio, with the exception of
securities whose maturities at the time of acquisition were one year or less,
were sold and either repurchased or replaced within one year. A high rate of
portfolio turnover (100% or more) generally leads to higher transaction costs
and may result in a greater number of taxable transactions. See "Allocation of
Portfolio Brokerage."
For the fiscal year ended October 31, 1997, the portfolio turnover rate
for GROWTH & INCOME FUND, Mid-Cap Opportunity Fund, and Utilities Income Fund
was 28%, 90% and 60%, respectively. For the fiscal year ended December 31, 1997,
the portfolio turnover rate for BLUE CHIP FUND, Special Situations Fund, Total
Return Fund and GLOBAL FUND was 63%, 84%, 149% and 70%, respectively. For the
fiscal year ended September 30, 1998, the portfolio turnover rate for Growth &
Income Fund, Mid-Cap Opportunity Fund, Utilities Income Fund, BLUE CHIP FUND,
Special Situations Fund, TOTAL RETURN FUND and GLOBAL FUND was 36%, 102%, 83%,
71%, 70%, 111% and 82%, respectively.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
respective Fund and, unless identified as non-fundamental policies, may not be
changed without the affirmative vote of a majority of the outstanding voting
securities of that Fund, voting separately from any other Fund. As provided in
the Investment Company Act of 1940, as amended ("1940 Act"), a "vote of a
majority of the outstanding voting securities of the Fund" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of the Fund or
(2) 67% or more of the shares of the Fund present at a meeting, if more than 50%
of the outstanding shares are represented at the meeting in person or by proxy.
Except with respect to borrowing, changes in values of a particular Fund's
assets as a whole will not cause a violation of the following investment
restrictions so long as percentage restrictions are observed by each Fund at the
time it purchases any security.
GROWTH & INCOME FUND WILL NOT:
(1) Issue senior securities or borrow money, except that the Fund 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 net assets
(not including the amount borrowed).
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(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 Fund's 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) Concentrate its investments in any particular industry.
(5) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (1) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(6) Buy or sell commodities or commodity contracts, or real estate or
interests in real estate, except that the Fund may purchase and sell securities
that 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 loans, except loans of portfolio securities and repurchase
agreements.
The following investment restrictions are not fundamental and may be
changed without shareholder approval. The Fund 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. Securities that have
legal or contractual restrictions as to resale but have a readily available
market and securities eligible for resale under Rule 144A under the 1933 Act,
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 Directors.
(2) Make investments for the purpose of exercising control or
management.
(3) Purchase any securities on margin.
(4) Purchase or sell portfolio securities from or to the Adviser or any
director or officer thereof or of Series Fund II, as principals.
MID-CAP OPPORTUNITY FUND WILL NOT:
(1) Issue senior securities or borrow money, except that the Fund 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 net assets
(not including the amount borrowed).
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(2) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result: (a) as to 75% of
the Fund's total assets more than 5% of such assets would then be invested in
securities of a single issuer, or (b) 25% or more of the Fund's total assets
would be invested in a single industry.
(3) 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) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (1) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(5) 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.
(6) 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.
(7) Make investments for the purpose of exercising control or
management.
(8) Purchase any securities on margin.
(9) Make loans, except through repurchase agreements.
(10) Purchase or sell portfolio securities from or to the Adviser or
any director or officer thereof or of Series Fund II, as principals.
(11) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer or director of Series Fund II or of the Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers or
directors 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. The Fund 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. Securities that have
legal or contractual restrictions as to resale but have a readily available
market and securities eligible for resale under Rule 144A under the Securities
Act of 1933, as amended, 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 Directors.
(2) Write, purchase or sell options (puts, calls or combinations
thereof).
UTILITIES INCOME FUND will not:
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(1) Issue senior securities or borrow money, except that the Fund 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 net assets
(not including the amount borrowed).
(2) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result as to 75% of the
Fund's total assets more than 5% of such assets would then be invested in
securities of a single issuer.
(3) 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) Concentrate its investments in any particular industry, except that
the Fund may concentrate its investments in securities of companies in the
public utilities industry.
(5) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (1) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(6) Buy or sell commodities or commodity contracts, or real estate or
interests in real estate, except that the Fund may purchase and sell futures
contracts, options on futures contracts, securities that 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, except the Fund may make
deposits of margin in connection with futures contracts and options.
(10) Make loans, except loans of portfolio securities and repurchase
agreements.
(11) Purchase or sell portfolio securities from or to the Adviser or
any director or officer thereof or of Series Fund II, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer or director of Series Fund II or of the Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers or
directors 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. The Fund 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. Securities that have
legal or contractual restrictions as to resale but have a readily available
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market and securities eligible for resale under Rule 144A under the 1933 Act,
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 Directors.
(2) Make short sales of securities, except short sales "against the
box."
BLUE CHIP FUND will not:
(1) Make short sales of securities to maintain a short position.
(2) Issue senior securities, borrow money or pledge its assets except
that the Fund may borrow from a bank for temporary or emergency purposes in
amounts not exceeding 5% (taken at the lower of cost or current value) of its
total assets (not including the amount borrowed) and pledge its assets to secure
such borrowings.
(3) Make loans, except loans of portfolio securities (limited to 10%
of the Fund's total assets).
(4) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result: (1) as to 75% of
the Fund's 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 Fund's 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
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (2) above, provided the Fund maintains asset coverage of at least 300%
for pledged assets.
(7) Buy or sell commodities or commodity contracts or real estate or
interests in real estate, although it may purchase and sell securities which are
secured by real estate and securities of companies which invest or deal in real
estate.
(8) Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
(9) Make investments for the purpose of exercising control or
management.
(10) Purchase any securities on margin.
(11) Purchase or sell portfolio securities from or to the Adviser or
any director, officer or Trustee thereof or of Series Fund, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of
Series Fund, any officer, director or Trustee of Series 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.
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The following investment restriction is not fundamental and may be
changed without shareholder approval. The investment restriction provides that
the Fund will not:
Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Trustees, or the
Fund's investment adviser acting pursuant to authority delegated by the
Trustees, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, or any other applicable rule, and therefore that such securities are
not subject to the foregoing limitation; the Adviser will monitor the liquidity
of such restricted securities under the supervision of the Board of Trustees.
SPECIAL SITUATIONS FUND will not:
(1) Make short sales of securities "against the box" in excess of 10%
of the Fund's total assets.
(2) Issue senior securities or borrow money, except that the Fund 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 Fund's 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 Fund's 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
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (2) above, provided the Fund maintains asset coverage of at least 300%
for 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.
31
<PAGE>
(10) Make loans, except through repurchase agreements.
(11) Purchase or sell portfolio securities from or to the Adviser or
any director, officer or Trustee thereof or of Series Fund, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of
Series Fund, any officer, director or Trustee of Series 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 Fund 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. 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) Write, purchase or sell options (puts, calls or combinations
thereof).
TOTAL RETURN FUND will not:
(1) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 5% of the value of the Fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 5% limitation. This
policy shall not prohibit deposits of assets to provide margin or guarantee
positions in connection with transactions in options, futures contracts, swaps,
forward contracts, and other derivative instruments or the segregation of assets
in connection with such transactions.
(2) Issue senior securities.
(3) Make loans, except loans of portfolio securities (limited to 10%
of the Fund's total assets).
(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 Fund's 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 Fund's 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).
32
<PAGE>
(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 Series Fund, as principals.
(10) Invest in any securities of any issuer if, to the knowledge of
Series Fund, any officer, director or Trustee of Series 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 Fund will not:
(1) Purchase any security if, as a result, more than 15% of its net
assets would be invested in illiquid securities, including repurchase agreements
not entitling the holder to payment of principal and interest within seven days
and any securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available market. The
Trustees, or the Fund's investment adviser acting pursuant to authority
delegated by the Trustees, may determine that a readily available market exists
for securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933, as amended, or any other applicable rule, and therefore that such
securities are not subject to the foregoing limitation; the Adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Trustees.
(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 for
non-bona fide hedging purposes if immediately thereafter the aggregate margin
deposits on all outstanding futures contracts positions held by the Fund and
premiums paid on outstanding options on futures contracts, after taking into
account unrealized profits and losses, would exceed 5% of the market value of
the total assets of the Fund, or enter into any futures contracts or options on
futures contracts if the aggregate amount of the Fund's commitments under
outstanding futures contracts positions and options on future contracts written
by the Fund would exceed the market value of the total assets of the Fund.
(4) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (1) above,
provided the Fund maintains asset coverage of at least 300% for pledged assets;
provided, however, this limitation will not prohibit escrow, collateral or
margin arrangements in connection with the Fund's use of options, futures
contracts or options on futures contracts.
33
<PAGE>
(5) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
transactions in options, futures contracts, swaps, forward contracts, and other
derivative instruments shall not be deemed to constitute purchasing securities
on margin.
GLOBAL FUND will not:
(1) Borrow money, except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets taken at
cost or value, whichever is the lesser.
(2) Make loans to other persons, except that the Fund's Board of
Directors may, on the request of broker-dealers or other institutional investors
that 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 total assets. The purchase of a portion of
an issue of publicly distributed debt securities is not considered the making of
a loan. This restriction is not intended to prohibit the Fund from investing in
repurchase agreements.
(3) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(4) Invest more than 15% of the value of its total assets in warrants.
(5) Invest more than 25% of the value of its total assets in securities
of foreign issuers, other than American Depository Receipts, that are not listed
on a recognized U.S. or foreign securities exchange, including no more than 10%
of the value of its assets in securities with a limited trading market.
(6) Invest 25% or more of the value of its total assets in a particular
industry at one time. The Fund, however, is not limited in the amount of its
total assets that may be invested in any particular country.
(7) Underwrite securities of other issuers, except to the extent that
the purchase and sale of restricted securities may be deemed to be underwriting.
(8) Purchase or sell real estate, commodities or commodity contracts.
However, the Fund may purchase interests in real estate investment trusts whose
securities are registered under the 1933 Act and are readily marketable, and may
purchase or sell options on securities, securities indices and foreign
currencies, stock index futures, interest rate futures and foreign currency
futures, as well as options on such futures contracts.
(9) Invest in companies for the purpose of exercising control or
management.
34
<PAGE>
(10) Purchase any securities on margin or sell any securities short,
except to make margin deposits in connection with the use of options, futures
contracts and options on futures contracts.
(11) Purchase or retain securities of any issuer if any officer or
Director of the Fund or the Adviser owns beneficially more than 1/2 of 1% of the
securities of such issuer and, together such officers and Directors own more
than 5% of the securities of such issuer.
(12) Purchase or sell portfolio securities from or to the Adviser or
any Director or officer thereof or of the Fund, as principals.
(13) Buy or sell puts, calls, straddles or spreads, except with respect
to options on securities, securities indices and foreign currencies or on
futures contracts.
(14) Issue senior securities.
(15) Invest more than 5% of the value of its total assets in securities
of issuers that have been in business for less than three years.
(16) Invest in securities of other domestic investment companies,
except in connection with a merger of another investment company, although the
Fund may purchase the securities of foreign investment companies or investment
trusts in the open market where no commissions or profits accrue to a sponsor or
dealer other than customary broker's commission, provided such securities do not
have an aggregate value (at cost) of more than 10% of the value of the Fund's
total net assets. Investment in securities of other investment companies may
cause a duplication of management and/or advisory fees.
The following investment restrictions are not fundamental and may be
changed without prior shareholder approval. These restrictions provide that the
Fund may 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) Pledge, mortgage or hypothecate any of its 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 all such borrowings.
DIRECTORS/TRUSTEES AND OFFICERS
The following table lists the Directors and executive officers of
Series Fund II, Series Fund and/or GLOBAL 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.
35
<PAGE>
GLENN O. HEAD*+ (73), President and Director. Chairman of the Board and
Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Corporation
("FIC"), Executive Investors Corporation ("EIC") and First Investors
Consolidated Corporation ("FICC").
KATHRYN S. HEAD*+ (43), Director, 581 Main Street, Woodbridge, NJ 07095.
President and Director, FICC, ADM and FIMCO; Vice President and Director, FIC
and EIC; President, EIMCO; Chairman, President and Director, First Financial
Savings Bank, S.L.A.
LARRY R. LAVOIE* (51), Director. Assistant Secretary, ADM, EIC, EIMCO, FICC and
FIMCO; Secretary and General Counsel, FIC.
REX R. REED** (75), Director, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN** (77), Director, 695 Charolais Circle, Edwards, CO
81632-1136. Retired; formerly President, Belvac
International Industries, Ltd. and President, Central Dental Supply.
NANCY SCHAENEN** (67), Director, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
JAMES M. SRYGLEY** (66), Director, 33 Hampton Road, Chatham, NJ 07982.
Principal, Hampton Properties, Inc. (property investment
company).
JOHN T. SULLIVAN* (66), Director and Chairman of the Board; Director, FIMCO,
FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH** (69), Director, RR1, Box 217, Upland Downs Road,
Manchester Center, VT 05255. Retired; formerly financial and planning executive
with American Telephone & Telegraph Company.
JOSEPH I. BENEDEK (41), Treasurer and Principal Accounting Officer, 581 Main
Street, Woodbridge, NJ 07095. Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller
and Treasurer, FICC.
CONCETTA DURSO (63), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
PATRICIA D. POITRA (42), Vice President. Vice President, First Investors Series
Fund, First Investors U.S. Government Plus Fund
and Executive Investors Trust; Director of Equities, FIMCO.
CLARK D. WAGNER (39), Vice President. Vice President, First Investors
Multi-State Insured Tax Free Fund, Executive Investors Trust, First Investors
New York Insured Tax Free Fund, Inc. and First Investors Government Fund, Inc.;
Chief Investment Officer, FIMCO.
These Directors may be deemed to be "interested persons," as defined in the
1940 Act.
** These Directors are members of the Board's Audit Committee.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
36
<PAGE>
The Directors and officers, as a group, owned less than 1% of either
Class A or Class B shares of each Fund.
All of the officers and Directors, except for Ms. Poitra and Mr.
Wagner, hold identical or similar positions with the other registered investment
companies in the First Investors Family of Funds. Mr. Head is also an officer
and/or Director of First Investors Asset Management Company, Inc., First
Investors Credit Funding Corporation, First Investors Leverage Corporation,
First Investors Realty Company, Inc., First Investors Resources, Inc., N.A.K.
Realty Corporation, Real Property Development Corporation, Route 33 Realty
Corporation, First Investors Life Insurance Company, First Financial Savings
Bank, S.L.A., First Investors Credit Corporation and School Financial Management
Services, Inc. Ms. Head is also an officer and/or Director of First Investors
Life Insurance Company, First Investors Credit Corporation, School Financial
Management Services, Inc., First Investors Credit Funding Corporation, N.A.K.
Realty Corporation, Real Property Development Corporation, First Investors
Leverage Corporation and Route 33 Realty Corporation.
The following table lists compensation paid to the Directors of each
Fund for the fiscal year ended September 30, 1998.*
<TABLE>
<CAPTION>
Total
Compensation
Aggregate Aggregate Aggregate From First
Compensation Compensation Compensation Investors Family
From From From of Funds Paid to
Director Series Fund II** Series Fund**++ GLOBAL FUND** Director+++
- -------- ------------------ ---------------- -------------- -----------
<S> <C> <C> <C> <C>
James J. Coy*** $0 $0 $0 $?
Roger L. Grayson**** $0 $0 $0 -0-
Glenn O. Head $0 $0 $0 -0-
Kathryn S. Head $0 $0 $0 -0-
Larry R. Lavoie+ $0 $0 $0 -0-
Rex R. Reed $3,500 $4,650 $1,800 $34,495
Herbert Rubinstein $3,500 $4,650 $1,800 $34,495
Nancy Schaenen $3,100 $4,100 $1,600 $31,150
James M. Srygley $3,500 $4,650 $1,800 $34,495
John T. Sullivan $0 $0 $0 -0-
Robert F. Wentworth $3,500 $4,650 $1,800 $34,495
</TABLE>
- ---------------
* Fiscal year 1998 consisted of nine calendar months for GLOBAL FUND and
Series Fund, and eleven calendar months for Series II Fund.
** Compensation to officers and interested Directors of the Funds is paid by
the Adviser.
*** On March 27, 1997, Mr. Coy resigned as a Director of the Funds. Mr. Coy
currently serves as an emeritus Director.
**** On August 20, 1998, Mr. Grayson resigned as a Director of the Funds.
+ On September 17, 1998, Mr. Lavoie was elected by the Board of Directors
to serve as a Director.
++ Does not include compensation with respect to the Insured Intermediate Tax
Exempt Fund.
+++ The First Investors Family of Funds consist of 15 separate registered
investment companies.
37
<PAGE>
MANAGEMENT
ADVISER. Investment advisory services to each Fund 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 each Fund's Board, including a majority of the Directors who are not
parties to the Funds' Advisory Agreement or "interested persons" (as defined in
the 1940 Act) of any such party ("Independent Directors"), in person at a
meeting called for such purpose and by a majority of the public shareholders of
each Fund.
Pursuant to each Advisory Agreement, FIMCO shall supervise and manage
each Fund's investments, determine each Fund's portfolio transactions and
supervise all aspects of each Fund's operations, subject to review by the
Directors. The Advisory Agreement also provides that FIMCO shall provide the
Funds with certain executive, administrative and clerical personnel, office
facilities and supplies, conduct the business and details of the operation of
each Fund and assume certain expenses thereof, other than obligations or
liabilities of the Funds. An Advisory Agreement may be terminated at any time,
with respect to a Fund, without penalty by the Directors or by a majority of the
outstanding voting securities of such Fund, or by FIMCO, in each instance on not
less than 60 days' written notice, and shall automatically terminate in the
event of its assignment (as defined in the 1940 Act). Each Advisory Agreement
also provides that it will continue in effect, with respect to a Fund, for a
period of over two years only if such continuance is approved annually either by
the Directors or by a majority of the outstanding voting securities of such
Fund, and, in either case, by a vote of a majority of the Independent Directors
voting in person at a meeting called for the purpose of voting on such approval.
Under the Advisory Agreements, each Fund is obligated to pay the
Adviser an annual fee, paid monthly, according to the following schedules:
MID-CAP OPPORTUNITY FUND
Annual
Average Daily Net Assets Rate
- ------------------------ -----
Up to $200 million.............................................. 1.00%
In excess of $200 million up to $500 million.................... 0.75
In excess of $500 million up to $750 million.................... 0.72
In excess of $750 million up to $1.0 billion.................... 0.69
Over $1.0 billion............................................... 0.66
GROWTH & INCOME FUND, UTILITIES INCOME FUND
Annual
Average Daily Net Assets Rate
- ------------------------ -----
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
GLOBAL FUND
Annual
Average Daily Net Assets Rate
- ------------------------ -----
Up to $250 million.............................................. 1.00%
In excess of $250 million up to $500 million.................... 0.97
In excess of $500 million up to $750 million.................... 0.94
Over $750 million............................................... 0.91
38
<PAGE>
BLUE CHIP FUND, TOTAL RETURN FUND, SPECIAL SITUATIONS FUND
Annual
Average Daily Net Assets Rate
- ------------------------ -----
Up to $200 million.............................................. 1.00%
In excess of $200 million up to $500 million.................... 0.75
In excess of $500 million up to $750 million.................... 0.72
In excess of $750 million up to $1.0 billion.................... 0.69
Over $1.0 billion............................................... 0.66
The following tables reflect the advisory fees paid, advisory fees
waived and expenses reimbursed with respect to each Fund for the fiscal years
ended October 31, 1996, December 31, 1996, October 31, 1997, December 31, 1997
and September 30, 1998.
<TABLE>
<CAPTION>
Fiscal Year Ended 10/31/96 Fiscal Year Ended 10/31/97
-------------------------- --------------------------
Advisory Advisory Expenses Advisory Advisory
Fees Fees Assumed or Fees Fees Expenses
Paid Waived Reimbursed Paid Waived Reimbursed
---- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund $86,930 $28,977 $38,900 $86,930 $28,977 $38,900
GROWTH & INCOME FUND 561,048 125,042 17,942 561,048 125,042 17,942
Utilities Income Fund 601,030 169,147 137,128 601,030 169,147 137,128
Fiscal Year Ended 12/31/96 Fiscal Year Ended 12/31/97
-------------------------- --------------------------
Advisory Advisory Expenses Advisory Advisory
Fees Fees Assumed or Fees Fees Expenses
Paid Waived Reimbursed Paid Waived Reimbursed
---- ------ ---------- ---- ------ ----------
BLUE CHIP FUND $1,589,142 $490,381 $-0- $2,451,280 $817,093 $-0-
Special Situations Fund 1,123,731 374,577 -0- 1,411,573 470,525 -0-
TOTAL RETURN FUND 417,844 139,362 -0- 474,344 158,115 -0-
GLOBAL FUND 2,491,112 -0- -0- 2,883,822 -0- -0-
</TABLE>
Fiscal Year Ended 9/30/98
-------------------------
Advisory Advisory
Fees Fees Expenses
Paid Waived Reimbursed
---- ------ ----------
Mid-Cap Opportunity Fund $243,554 $81,184 $35,000
GROWTH & INCOME FUND $1,931,302 $0 $0
Utilities Income Fund $886,819 $0 $0
BLUE CHIP FUND $2,447,114 $375,000 $0
Special Situations Fund $1,215,398 $375,000 $0
TOTAL RETURN FUND $422,293 $140,764 $0
GLOBAL FUND $2,298,343 $0 $0
The Adviser has an Investment Committee composed of Dennis T. Fitzpatrick,
George V. Ganter, Richard Guinnessey, David Hanover, Glenn O. Head, Kathryn S.
Head, Nancy W. Jones, Michael O'Keefe, Patricia D. Poitra, Clark D. Wagner, and
Matthew Wright. The Committee usually meets weekly to discuss the composition of
the portfolio of each Fund and to review additions to and deletions from the
portfolios.
39
<PAGE>
First Investors Consolidated Corporation ("FICC") owns all of the
voting common stock of the Adviser and all of the outstanding stock of First
Investors Corporation and the Funds' transfer agent. Mr. Glenn O. Head controls
FICC and, therefore, controls the Adviser.
Prior to January 1, 1998, Wellington Management Company, LLP was the
subadviser to GROWTH & INCOME FUND. For the fiscal years ended October 31, 1996
and 1997, the Adviser paid Wellington Management Company, LLP fees of $257,037
and $489,484, respectively.
SUBADVISER. Wellington Management Company, LLP has been retained by the
Adviser and GLOBAL FUND as the investment subadviser to GLOBAL FUND under a
subadvisory agreement dated June 13, 1994 ("Subadvisory Agreement"). The
Subadvisory Agreement was approved by the Board of Directors of the Fund,
including a majority of Independent Directors in person at a meeting called for
such purpose and by a majority of the shareholders of the GLOBAL FUND.
The Subadvisory Agreement provides that it will continue for a period
of more than two years from the date of execution only so long as such
continuance is approved annually by either GLOBAL FUND's Board of Directors or a
majority of the outstanding voting securities of the Fund and, in either case,
by a vote of a majority of the Independent Directors voting in person at a
meeting called for the purpose of voting on such approval. The Subadvisory
Agreement provides that it will terminate automatically if assigned or upon the
termination of the Advisory Agreement, and that it may be terminated at any time
without penalty by GLOBAL FUND's Board of Directors or a vote of a majority of
the outstanding voting securities of the Fund or by the Subadvisor upon not more
than 60 days' nor less than 30 days' written notice. The Subadvisory Agreement
provides that WMC will not be liable for any error of judgment or for any loss
suffered by the Fund in connection with the matters to which the Subadvisory
Agreement relates, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation or from willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties.
Under the Subadvisory Agreement, the Adviser will pay to the Subadviser
a fee at an annual rate of 0.400% of the average daily net assets of GLOBAL FUND
up to and including $50 million; 0.275% of the average daily net assets in
excess of $50 million up to and including $150 million, 0.225% of the average
daily net assets in excess of $150 million up to and including $500 million; and
0.200% of the average daily net assets in excess of $500 million. This fee will
be computed daily and paid monthly. For the fiscal years ended December 31, 1996
and 1997, and September 30, 1998, the Adviser paid the Subadviser fees of
$699,146, $786,373 and $623,514, respectively
Each Fund bears all expenses of its operations other than those assumed
by the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.
40
<PAGE>
UNDERWRITER
Series Fund II, Series Fund and GLOBAL FUND have 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 Funds. The Underwriting Agreement was
approved by each Fund's Board, including a majority of the Independent
Directors. The Underwriting Agreement provides that it will continue in effect
from year to year, with respect to a Fund, only so long as such continuance is
specifically approved at least annually by the Board or by a vote of a majority
of the outstanding voting securities of such Fund, and in either case by the
vote of a majority of the Independent Directors, voting in person at a meeting
called for the purpose of voting on such approval. The Underwriting Agreement
will terminate automatically in the event of its assignment.
For the fiscal year ended October 31, 1996, FIC received underwriting
commissions with respect to GROWTH & INCOME FUND, Mid-Cap Opportunity Fund and
Utilities Income Fund of $1,741,985, $244,548 and $1,275,372, respectively. For
the same period, FIC allowed to unaffiliated dealers an additional $3,902 with
respect to GROWTH & INCOME FUND, $2,805 with respect to Mid-Cap Opportunity Fund
and $8,212 with respect to Utilities Income Fund.
For the fiscal year ended December 31, 1996, FIC received underwriting
commissions with respect to BLUE CHIP FUND, Special Situations Fund, Total
Return Fund and GLOBAL FUND of $2,440,825, $1,840,951, $228,699 and $1,455,711,
respectively. For the same period, FIC allowed to unaffiliated dealers an
additional $11,607 with respect to BLUE CHIP FUND, $44,618 with respect to
Special Situations Fund, $2,402 with respect to TOTAL RETURN FUND and $5,196
with respect to GLOBAL FUND.
For the fiscal year ended October 31, 1997, FIC received underwriting
commissions with respect to GROWTH & INCOME FUND, Mid-Cap Opportunity Fund and
Utilities Income Fund of $2,689,581, $365,416 and $586,037, respectively. For
the same period, FIC allowed to unaffiliated dealers an additional $8,575 with
respect to GROWTH & INCOME FUND, $1,353 with respect to Mid-Cap Opportunity Fund
and $770 with respect to Utilities Income Fund.
For the fiscal year ended December 31, 1997, FIC received underwriting
commissions with respect to BLUE CHIP FUND, Special Situations Fund, Total
Return Fund and GLOBAL FUND of $3,445,078, $1,787,009, $372,980 and $1,410,014,
respectively. or the same period, FIC allowed to unaffiliated dealers an
additional $22,793 with respect to BLUE CHIP FUND, $19,149 with respect to
Special Situations Fund, $0 with respect to TOTAL RETURN FUND and $5,856 with
respect to GLOBAL FUND.
For the fiscal year ended September 30, 1998, FIC received underwriting
commissions with respect to Growth & Income Fund, Mid-Cap Opportunity Fund,
Utilities Income Fund, BLUE CHIP FUND, Special Situations Fund, Total Return
Fund and GLOBAL FUND of $3,063,270, $583,003, $766,650, $2,563,743, $1,334,822,
$398,189, and $814,076, respectively. For the same period, FIC allowed to
unaffiliated dealers an additional $12,781 with respect to GROWTH & INCOME FUND,
$3,970 with respect to Mid-Cap Opportunity Fund, $1,729 with respect to
Utilities Income Fund, $10,859 with respect to BLUE CHIP FUND, $8,944 with
respect to Special Situations Fund, $472 with respect to TOTAL RETURN FUND and
$2,883 with respect to GLOBAL FUND.
41
<PAGE>
DISTRIBUTION PLANS
As stated in the Funds' Prospectus, pursuant to a separate plan of
distribution for each class of shares adopted by Series Fund II, Series Fund and
GLOBAL FUND pursuant to Rule 12b-1 under the 1940 Act ("Class A Plan" and "Class
B Plan" and, collectively, "Plans"), each Fund is authorized to compensate the
Underwriter for certain expenses incurred in the distribution of that Fund's
shares and the servicing or maintenance of existing Fund shareholder accounts.
Each Class A Plan is a compensation plan exempt for the GLOBAL FUND Class A Plan
which is a reimbursement plan. Each Class B Plan is a compensation plan.
Each Plan was approved by each Fund's Board, including a majority of
the Independent Directors, and by a majority of the outstanding voting
securities of the relevant class of each Fund. Each Plan will continue in effect
from year to year, with respect to a Fund, as long as its continuance is
approved annually by either the Board or by a vote of a majority of the
outstanding voting securities of the relevant class of shares of such Fund. In
either case, to continue, each Plan must be approved by the vote of a majority
of the Independent Directors. The 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 Independent Directors will be
committed to the discretion of such Independent Directors then in office.
Each Plan can be terminated at any time by a vote of a majority of the
applicable Fund's Independent Directors or by a vote of a majority of the
outstanding voting securities of the relevant class of shares of such Fund. Any
change to any Plan that would materially increase the costs to that class of
shares of such Fund may not be instituted without the approval of the
outstanding voting securities of the class of shares of such Fund as well as any
class of shares that converts into that class. Such changes also require
approval by a majority of the applicable Fund's Independent Directors.
In adopting each Plan, the Board considered all relevant information
and determined that there is a reasonable likelihood that each Plan will benefit
each Fund and their class of shareholders. The Board believes that the amounts
spent pursuant to each Plan have assisted each Fund in providing ongoing
servicing to shareholders, in competing with other providers of financial
services and in promoting sales, thereby increasing the net assets of each Fund.
In reporting amounts expended under the Plans to the Directors, in the
event tht the expenses are not related solely to one class, FIMCO will allocate
expenses attributable to the sale of each class of a Fund's 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 Fund's shares will not be used to
subsidize the sale of any other class of that Fund's shares.
For the fiscal year ended September 30, 1998, GROWTH & INCOME FUND,
Mid-Cap Opportunity Fund, Utilities Income Fund, Blue Chip Fund, Special
Situations Fund, Total Return Fund and GLOBAL FUND paid $668,814, $86,556,
$321,409, $875,895, $445,708, $161,479 and $669,986, respectively, in fees
pursuant to the Class A Plan. For the same period, the Underwriter incurred the
following Class A Plan-related expenses with respect to each Fund:
42
<PAGE>
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
GROWTH & INCOME FUND $460,843 $345 $207,626
Mid-Cap Opportunity Fund 59,883 134 26,538
Utilities Income Fund 222,267 24 99,117
BLUE CHIP FUND 566,219 162 309,005
Special Situations Fund 283,690 13,290 148,938
TOTAL RETURN FUND 101,599 15 59,727
GLOBAL FUND 391,303 149 278,373
For the fiscal year ended September 30, 1998, GROWTH & INCOME FUND,
Mid-Cap Opportunity Fund, Utilities Income Fund, Blue Chip Fund, Special
Situations Fund, Total Return Fund and GLOBAL FUND paid $344,036, $36,000,
$110,042, $343,166, $134,841, $24,799 and $90,899, respectively, in fees
pursuant to the Class B Plan. For the same period, the Underwriter incurred the
following Class B Plan-related expenses with respect to each Fund:
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
GROWTH & INCOME FUND $325,664 $1,212 $17,160
Mid-Cap Opportunity Fund 34,765 84 1,152
Utilities Income Fund 101,369 316 8,358
BLUE CHIP FUND 319,007 4,069 19,610
Special Situations Fund 124,117 888 9,823
TOTAL RETURN FUND 23,962 83 683
GLOBAL FUND 82,594 310 7,899
DEALER CONCESSIONS. With respect to Class A shares of each Fund, the Fund will
reallow a portion of the sales load to the dealers selling the shares as shown
in the following table:
Sales Charges as % of
--------------------- Concession to
Offering Net Amount Dealers as % of
Amount of Investment Price Invested Offering Price
- -------------------- ----- -------- --------------
Less than $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
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange
or the Nasdaq Stock Market is valued at its last sale price on the exchange or
market where the security is principally traded, and lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices. Securities traded in the over-the-counter market ("OTC")
(including securities listed on exchanges whose primary market is believed to be
OTC) are valued at the mean between the last bid and asked prices based upon
quotes furnished by market makers for such securities. Securities may also be
priced by pricing services. Pricing services use quotations obtained from
investment dealers or brokers for the particular securities being evaluated,
information with respect to market transactions in comparable securities and
43
<PAGE>
other available information in determining value. Short-term debt securities
that mature in 60 days or less are valued at amortized cost. Securities for
which market quotations are not readily available and other assets are valued on
a consistent basis at fair value as determined in good faith by or under the
supervision of the particular Fund's officers in a manner specifically
authorized by the Board.
With respect to each Fund, "when-issued securities" are reflected in
the assets of the Fund as of the date the securities are purchased. Such
investments are valued thereafter at the mean between the most recent bid and
asked prices obtained from recognized dealers in such securities or by the
pricing service. For valuation purposes, where applicable, quotations of foreign
securities in foreign currencies are converted into U.S. dollar equivalents
using the foreign exchange equivalents in effect.
Each Fund's Board may suspend the determination of a Fund's 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
Fund of securities owned by it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or (3) for such other period as the
SEC has by order permitted.
EMERGENCY PRICING PROCEDURES. In the event that the Funds must halt
operations during any day that they would normally be required to price under
Rule 22c-1 under the 1940 Act due to an emergency ("Emergency Closed Day"), the
Funds will apply the following procedures:
1. The Funds will make every reasonable effort to segregate orders
received on the Emergency Closed Day and give them the price that they would
have received but for the closing. The Emergency Closed Day price will be
calculated as soon as practicable after operations have resumed and will be
applied equally to sales, redemptions and repurchases that were in fact received
in the mail or otherwise on the Emergency Closed Day.
2. For purposes of paragraph 1, an order will be deemed to have been
received by the Funds on an Emergency Closed Day, even if neither the Funds nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:
(a) In the case of a mail order the order will be considered
received by a Fund when the postal service has delivered it to FIC's offices in
Woodbridge, New Jersey prior to the close of regular trading on the NYSE, or at
such other time as may be prescribed in its prospectus; and
(b) In the case of a wire order, including a Fund/SERV order,
the order will be considered received when it is received in good form by a FIC
branch office or an authorized dealer prior to the close of regular trading on
the NYSE, or such other time as may be prescribed in its prospectus.
3. If the Funds are unable to segregate orders received on the
Emergency Closed Day from those received on the next day the Funds are open for
business, the Funds may give all orders the next price calculated after
operations resume.
44
<PAGE>
4. Notwithstanding the foregoing, on business days in which the NYSE is
not open for regular trading, the Funds may determine not to price their
portfolio securities if such prices would lead to a distortion of the NAV for
the Funds and their shareholders.
ALLOCATION OF PORTFOLIO BROKERAGE
The Adviser may purchase or sell portfolio securities on behalf of the
Fund in agency or principal transactions. In agency transactions, the Fund
generally pays brokerage commissions. In principal transactions, the Fund
generally does not pay commissions, however the price paid for the security may
include an undisclosed dealer commission or "mark-up" or selling concessions.
The Adviser normally purchases fixed-income securities on a net basis from
primary market makers acting as principals for the securities. The Adviser may
purchase certain money market instruments directly from an issuer without paying
commissions or discounts. The Adviser may also purchase securities traded in the
OTC market. As a general practice, OTC securities are usually purchased from
market makers without paying commissions, although the price of the security
usually will include undisclosed compensation. However, when it is advantageous
to the Fund the Adviser may utilize a broker to purchase OTC securities and pay
a commission.
In purchasing and selling portfolio securities on behalf of the Fund,
the Adviser will seek to obtain best execution. The Fund may pay more than the
lowest available commission in return for brokerage and research services.
Research and other services may include information as to the availability of
securities for purchase or sale, statistical or factual information or opinions
pertaining to securities, reports and analysis concerning issuers and their
creditworthiness, and Lipper's Directors' Analytical Data concerning Fund
performance and fees. The Adviser generally uses the research and other services
to service all the funds in the First Investors Family of Funds, rather than the
particular Funds whose commissions may pay for research or other services. In
other words, a Fund's brokerage may be used to pay for a research service that
is used in managing another Fund within the First Investors Fund Family. The
Lipper's Directors' Analytical Data is used by the Adviser and the Fund Board to
analyze a fund's performance relative to other comparable funds.
In selecting the broker-dealers to execute the Fund's portfolio
transactions, the Adviser may consider such factors as the price of the
security, the rate of the commission, the size and difficulty of the order, the
trading characteristics of the security involved, the difficulty in executing
the order, the research and other services provided, the expertise, reputation
and reliability of the broker-dealer, access to new offerings, and other factors
bearing upon the quality of the execution. The Adviser does not place portfolio
orders with an affiliated broker, or allocate brokerage commission business to
any broker-dealer for distributing fund shares. Moreover, no broker-dealer
affiliated with the Adviser participates in commissions generated by portfolio
orders placed on behalf of the Fund.
The Adviser may combine transaction orders placed on behalf of a Fund
and any other fund in the First Investors Group of Funds, any Fund of Executive
Investors Trust and First Investors Life Insurance Company, affiliates of the
Funds for the purpose of negotiating brokerage commissions or obtaining a more
favorable transaction price; and where appropriate, securities purchased or sold
may be allocated in accordance with written procedures approved by the Board of
Directors.
45
<PAGE>
The following tables reflect the total commissions paid, commissions
paid to brokers who furnished research services and the amount of portfolio
transactions for which commissions were paid to brokers for research services,
with respect to each Fund for the fiscal years ended October 31, 1996, December
31, 1996, October 31, 1997, December 31, 1997 and September 30, 1998.
<TABLE>
<CAPTION>
Fiscal Year Ended 10/31/96 Fiscal Year Ended 10/31/97
-------------------------- --------------------------
Transactions Transactions
for Which for Which
Commissions Commissions Commissions Commissions
Total Paid for Paid for Total Paid for Paid for
Commissions Research Research Commissions Research Research
Paid Services Services Paid Services Services
---- -------- -------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund $39,267 $21,766 $5,012,732 $111,995 $17,242 $6,861,292
GROWTH & INCOME FUND 92,694 35,498 28,859,209 146,190 46,196 50,452,086
Utilities Income Fund 210,594 62,273 26,793,286 277,318 13,624 6,820,235
Fiscal Year Ended 12/31/96 Fiscal Year Ended 12/31/97
-------------------------- --------------------------
Transactions Transactions
for Which for Which
Commissions Commissions Commissions Commissions
Total Paid for Paid for Total Paid for Paid for
Commissions Research Research Commissions Research Research
Paid Services Services Paid Services Services
---- -------- -------- ---- -------- --------
BLUE CHIP FUND $267,278 $121,545 $60,753,840 $497,747 $270,364 $198,146,829
Special Situations Fund 240,088 125,413 46,784,781 285,203 126,202 51,723,575
TOTAL RETURN FUND 93,483 30,665 15,308,100 101,918 41,817 24,738,675
GLOBAL FUND 964,445 23,910 15,987,718 940,540 44,537 45,620,259
</TABLE>
Fiscal Year Ended 9/30/98
-------------------------
Transactions
for Which
Commissions Commissions
Total Paid for Paid for
Commissions Research Research
Paid Services Services
---- -------- --------
Mid-Cap Opportunity Fund $89,618 $12,996 $5,787,100
GROWTH & INCOME FUND $257,106 $30,162 $23,988,319
Utilities Income Fund $245,565 $31,740 $23,906,565
BLUE CHIP FUND $699,323 $55,969 $52,726,903
Special Situations Fund $249,971 $26,598 $11,528,675
TOTAL RETURN FUND $108,028 $23,685 $20,827,238
GLOBAL FUND $1,169,770 $25,798 $24,747,557
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Information regarding the purchase, redemption and exchange of Fund
shares is contained in the Shareholder Manual, a separate section of the SAI
that is a distinct document and may be obtained free of charge by contacting
your Fund.
REDEMPTIONS-IN-KIND. If each Fund's Board should determine that it
would be detrimental to the best interests of the remaining shareholders of a
Fund to make payment wholly or partly in cash, the Fund may pay redemption
proceeds in whole or in part by a distribution in kind of securities from the
portfolio of the Fund. In this connection, Series Fund II has elected to be
governed by Rule 18f-1 under the 1940 Act. Pursuant to Rule 18f-1 Series Fund II
is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. With respect to all Funds, if shares are redeemed in kind, the
46
<PAGE>
redeeming shareholder will likely incur brokerage costs in converting the assets
into cash. The method of valuing portfolio securities for this purpose is
described under "Determination of Net Asset Value."
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended, a Fund --
each Fund being treated as a separate corporation for these purposes -- must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. For each Fund these requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, 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) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with those other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
securities; and (3) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer. If a Fund failed to qualify as a RIC for any taxable year, it would
be taxed on the full amount of its taxable income for that year without being
able to deduct the distributions it makes to its shareholders and the
shareholders would treat all those distributions, including distributions of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), as dividends (that is, ordinary income) to the extent of the
Fund's earnings and profits.
Dividends and other distributions declared by a Fund in October,
November or December of any year and payable to shareholders of record on a date
in any of those months are deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from a Fund's investment company taxable
income may be eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the aggregate dividends
received by the Fund from U.S. corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the alternative minimum tax.
If shares of a Fund are sold at a loss after being held for six months
or less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary 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.
47
<PAGE>
Dividends and interest received by Growth & Income Fund, Special
Situations Fund, GLOBAL FUND and TOTAL RETURN FUND, and gains realized by these
Funds, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions ("foreign taxes") that would reduce the yield
and/or total return on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of a Fund's total assets at
the close of any taxable year consists of securities of foreign corporations, it
will be eligible to, and may, file an election with the Internal Revenue Service
that would enable its shareholders, in effect, to benefit from any foreign tax
credit or deduction available with respect to any foreign taxes paid by it.
Pursuant to any such election, a Fund would treat those taxes as dividends paid
to its shareholders and each shareholder (1) would be required to include in
gross income, and treat as paid by the shareholder, the shareholder's
proportionate share of those taxes, (2) would be required to treat that share of
those taxes and of any dividend paid by the Fund that represents income from
foreign or U.S. possessions sources as the shareholder's own income from those
sources, and (3) could either deduct the taxes deemed paid by the shareholder in
computing taxable income or, alternatively, use the foregoing information in
calculating the tax credit against the shareholder's Federal income tax. Each
Fund that makes this election will report to its shareholders shortly after each
taxable year their respective shares of its income from sources within, and
taxes paid to, foreign countries and U.S. possessions. Individuals who have no
more than $300 ($600 for married persons filing jointly) of creditable foreign
taxes included on Form 1099 and all of whose foreign source income is "qualified
passive income" may elect each year to be exempt from the extremely complicated
foreign tax credit limitation and will be able to claim a foreign tax credit
without having to file the detailed Form 1116 that otherwise is required.
GROWTH & INCOME FUND, Special Situations Fund, Total Return and Global
Fund may each invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation - other than a "controlled foreign
corporation" (i.e., a foreign corporation in which, on any day during its
taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly,
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly, or constructively, at least 10% of that
voting power) as to which a Fund is a U.S. shareholder - that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, if a Fund holds
stock of a PFIC, it will be subject to Federal income tax on a portion of any
"excess distribution" received on the stock or of any gain on disposition of the
stock (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund would be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain -
which probably would have to be distributed by the Fund to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax - even if those
earnings and gain were not distributed to the Fund by the QEF. In most instances
it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
48
<PAGE>
Each Fund may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the PFIC's stock
over a Fund's adjusted basis in that stock as of the end of that year. Pursuant
to the election, a Fund also may deduct (as an ordinary, not capital, loss) the
excess, if any, of its adjusted basis in PFIC stock over the fair market value
thereof as of the taxable year-end, but only to the extent of any net
mark-to-market gains with respect to that stock included by the Fund for prior
taxable years. A Fund's adjusted basis in each PFIC's stock subject to the
election would be adjusted to reflect the amounts of income included and
deductions taken thereunder (and under regulations proposed in 1992 that
provided a similar election with respect to the stock of certain PFICs).
GLOBAL FUND's use of hedging strategies, such as selling (writing) and
purchasing options and futures contracts and entering into forward currency
contracts, involve complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses the Fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), futures and options
thereon, and forward currency contracts derived by GLOBAL FUND with respect to
its business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement.
Mid-Cap Opportunity Fund, TOTAL RETURN FUND and Utilities Income Fund
may acquire zero coupon or other securities issued with original issue discount.
As a holder of those securities, each such Fund must include in its income the
portion of the original issue discount that accrues on the securities during the
taxable year, even if the Fund receives no corresponding payment on them during
the year. Similarly, each such Fund must include in its gross income securities
it receives as "interest" on pay-in-kind securities. Because each Fund annually
must distribute substantially all of its investment company taxable income,
including any original issue discount and other non-cash income, to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax, a Fund may be
required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those distributions
will be made from a Fund's cash assets or from the proceeds of sales of
portfolio securities, if necessary. A Fund may realize capital gains or losses
from those sales, which would increase or decrease its investment company
taxable income and/or net capital gain.
If a Fund has an "appreciated financial position" - generally, an
interest (including an interest through an option, futures or forward contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis - and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by a Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
49
<PAGE>
PERFORMANCE INFORMATION
A Fund may advertise its top holdings from time to time. A Fund may
also advertise its performance in various ways.
Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)(1/n)]-1
The "total return" uses the same factors, but does not average the rate
of return on an annual basis. Total return is determined as follows:
(ERV-P)/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, each Fund will deduct the maximum sales
charge of 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").
Return information may be useful to investors in reviewing a Fund's
performance. However, certain factors should be taken into account before using
this information as a basis for comparison with alternative investments. No
adjustment is made for taxes payable on distributions. Return information will
fluctuate over time and return information for any given past period will not be
an indication or representation of future rates of return. At times, the Adviser
may reduce its compensation or assume expenses of a Fund in order to reduce the
Fund's expenses. Any such waiver or reimbursement would increase the Fund's
return during the period of the waiver or reimbursement.
Average annual return and total return computed at the public offering
price (maximum sales charge for Class A shares and applicable CDSC for Class B
shares) for the period ended September 30, 1998 are set forth in the tables
below:
50
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN: 1, 2
One Year Five Years Life of Fund
-------------------- -------------------- ----------------------
Class A Class B Class A Class B Class A Class B
Shares Shares3 Shares Shares3 Shares Shares3
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund (25.24%) (23.99%) 6.11% N/A 5.96% 8.86%
Utilities Income Fund 7.87% 10.45% 8.36% N/A 9.03% 15.91%
GROWTH & INCOME FUND (.92%) 1.07% N/A N/A 14.25% 20.19%
BLUE CHIP FUND (7.00%) (5.45%) 12.99% N/A 11.82% 19.15%
Special Situations Fund (30.63%) (29.48%) 3.60% N/A 12.49% 5.75%
TOTAL RETURN FUND (2.70%) (.90%) 9.47% N/A 8.95% 14.58%
GLOBAL FUND (13.56%) (12.13%) 6.99% N/A 8.84% 9.23%
TOTAL RETURN: 1, 2
Class A Class B Class A Class B Class A Class B
Shares Shares3 Shares Shares3 Shares Shares3
------ ------ ------ ------ ------ ------
Mid-Cap Opportunity Fund (25.24%) (23.99%) 34.54% N/A 42.42% 37.10%
Utilities Income Fund 7.87% 10.45% 49.42% N/A 62.37% 73.07%
GROWTH & INCOME FUND (.92%) 1.07% N/A N/A 94.42% 98.06%
BLUE CHIP FUND (7.00%) (5.45%) 84.13% N/A 197.15% 91.75%
Special Situations Fund (30.63%) (29.48%) 19.32% N/A 157.58% 23.11%
TOTAL RETURN FUND (2.70%) (.90%) 57.21% N/A 106.15% 65.82%
GLOBAL FUND (13.56%) (12.13%) 40.21% N/A 133.38% 38.80%
</TABLE>
1 All Class A total return figures assume the maximum front-end sales charge of
6.25% and dividends reinvested at net asset value. All Class B total return
figures assume the maximum applicable CDSC. Prior to July 1, 1993, the maximum
front-end sales charge was 6.90%. Prior to December 29, 1989, the maximum
front-end sales charge was 7.25% for BLUE CHIP FUND and 8.50% for GLOBAL FUND.
2 Certain expenses of the Funds have been waived from commencement of operations
through September 30, 1998. Accordingly, return figures are higher than they
would have been had such expenses not been waived.
3 The commencement date for the offering of Class B shares is January 12, 1995.
Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual return and total return computed
at net asset value for the period ended September 30, 1998 are set forth in the
tables below:
51
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN: 1
One Year Five Years Life of Fund
------------------- ------------------- -------------------
Class A Class B Class A Class B Class A Class B
Shares Shares2 Shares Shares2 Shares Shares2
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Mid-Cap Opportunity Fund (20.24%) (20.82%) 7.50% N/A 7.10% 9.50%
Utilities Income Fund 15.14% 14.45% 9.77% N/A 10.29% 16.45%
GROWTH & INCOME FUND 5.72% 5.07% N/A N/A 15.74% 20.68%
BLUE CHIP FUND (.80%) (1.51%) 14.45% N/A 12.56% 19.65%
Special Situations Fund (26.01%) (26.54%) 4.95% N/A 13.40% 6.44%
TOTAL RETURN FUND 3.80% 3.10% 10.89% N/A 9.78% 15.14%
GLOBAL FUND (7.78%) (8.46%) 8.39% N/A 9.54% 9.86%
TOTAL RETURN: 1
One Year Five Years Life of Fund
-------------------- ------------------- -------------------
Class A Class B Class A Class B Class A Class B2
Shares Shares2 Shares Shares2 Shares Shares2
------ ------ ------ ------ ------ ------
Mid-Cap Opportunity Fund (20.24%) (20.82%) 43.55% N/A 51.96% 40.10%
Utilities Income Fund 15.14% 14.45% 59.36% N/A 73.12% 76.07%
GROWTH & INCOME FUND 5.72% 5.07% N/A N/A 107.46% 101.06%
BLUE CHIP FUND (.80%) (1.51%) 96.36% N/A 216.91% 94.75%
Special Situations Fund (26.01%) (26.54%) 27.30% N/A 174.73% 26.11%
TOTAL RETURN FUND 3.80% 3.10% 67.66% N/A 119.81% 68.82%
GLOBAL FUND (7.78%) (8.46%) 49.62% N/A 148.71% 41.80%
</TABLE>
1 Certain expenses of the Funds have been waived from commencement of operations
through September 30, 1998. Accordingly, return figures are higher than they
would have been had such expenses not been waived.
2 The commencement date for the offering of Class B shares is January 12, 1995.
Each Fund may include in advertisements and sales literature,
information, examples and statistics to illustrate the effect of compounding
income at a fixed rate of return to demonstrate the growth of an investment over
a stated period of time resulting from the payment of dividends and capital gain
distributions in additional shares. These examples may also include hypothetical
returns comparing taxable versus tax-deferred growth which would pertain to an
IRA, section 403(b)(7) Custodial Account or other qualified retirement program.
The examples used will be for illustrative purposes only and are not
representations by the Funds of past or future yield or return. Examples of
typical graphs and charts depicting such historical performance, compounding and
hypothetical returns are included in Appendix C.
From time to time, in reports and promotional literature, the Funds may
compare their performance to, or cite the historical performance of, Overnight
Government repurchase agreements, U.S. Treasury bills, notes and bonds,
certificates of deposit, and six-month money market certificates or indices of
broad groups of unmanaged securities considered to be representative of, or
similar to, the Funds' 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
52
<PAGE>
dividends on ex-dividend dates accumulated for the quarter and
reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly
publication of Morningstar, Inc. Morningstar proprietary ratings
reflect historical risk-adjusted performance and are subject to change
every month. Funds with at least three years of performance history are
assigned ratings from one star (lowest) to five stars (highest).
Morningstar ratings are calculated from the 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.
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., Credit Suisse First Boston,
Salomon Smith Barney, Morgan Stanley Dean Witter & Co., Goldman, Sachs
& Co., Donaldson, Lufkin & Jenrette, Value Line, Datastream
International, HBSC James Capel, Warburg Dillion Read, 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.
Reuters, a wire service that frequently reports on global
business.
53
<PAGE>
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of inflation. The Index shows
changes in the cost of selected consumer goods and does not represent a
return on an investment vehicle.
The Credit Suisse First Boston High Yield Index is designed to
measure the performance of the high yield bond market.
The Lehman Brothers Aggregate Index is an unmanaged index
which generally covers the U.S. investment grade fixed rate bond
market, including government and corporate securities, agency mortgage
pass-through securities, and asset-backed securities.
The Lehman Brothers Corporate Bond Index includes all publicly
issued, fixed rate, nonconvertible investment grade dollar-denominated,
corporate debt which have at least one year to maturity and an
outstanding par value of at least $100 million.
Moody's Stock Index, an unmanaged index of utility stock
performance.
The Morgan Stanley All Country World Free Index is designed to
measure the performance of stock markets in the United States, Europe,
Canada, Australia, New Zealand and the developed and emerging markets
of Eastern Europe, Latin America, Asia and the Far East. The index
consists of approximately 60% of the aggregate market value of the
covered stock exchanges and is calculated to exclude companies and
share classes which cannot be freely purchased by foreigners.
The Morgan Stanley World Index is designed to measure the
performance of stock markets in the United States, Europe, Canada,
Australia, New Zealand and the Far East. The index consists of
approximately 60% of the aggregate market value of the covered stock
exchanges.
The NYSE composite of component indices--unmanaged indices of
all industrial, utilities, transportation, and finance stocks listed on
the NYSE.
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.
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 Salomon Brothers Government Index is a market
capitalization-weighted index that consists of debt issued by the U.S.
Treasury and U.S. Government sponsored agencies.
The Salomon Brothers Mortgage Index is a market
capitalization-weighted index that consists of all agency pass-throughs
and FHA and GNMA project notes.
54
<PAGE>
The Standard & Poor's 400 Midcap Index is an unmanaged
capitalization-weighted index that is generally representative of the
U.S. market for medium cap stocks.
The 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 Standard & Poor's Smallcap 600 Index is a
capitalization-weighted index that measures the performance of selected
U.S. stocks with a small market capitalization.
The Standard & Poor's Utilities Index is a
capitalization-weighted index of 37 stocks designed to measure the
performance of the utilities sector of the S&P 500 Index. 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
Series Fund is a Massachusetts business trust organized on September
23, 1988. Series 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 Series Fund are presently divided into five
separate and distinct series, each having two classes, designated Class A shares
and Class B shares. Series Fund does not hold annual shareholder meetings. If
requested to do so by the holders of at lest 10% of Series Fund's outstanding
shares, Series Fund's Board of Trustees will call a special meeting of
shareholders for any purpose, including the removal of Trustees. Each share of
each Fund has equal voting rights except as noted above.
55
<PAGE>
GLOBAL FUND was incorporated in the state of Maryland on March 9,
1981. GLOBAL FUND's authorized capital stock consists of 100 million shares of
common stock, all of one series, with a par value per share of $1.00. The Fund
is authorized to issue shares of common stock in such separate and distinct
series and classes of shares as the Fund's Board of Directors shall from time to
time establish. The shares of common stock of the Fund are presently divided
into two classes, designated Class A shares and Class B shares. Each class of
the Fund represents interests in the same assets of the Fund. 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 Directors will
call a special meeting of shareholders for any purpose, including the removal of
Directors. Each share of the Fund has equal voting rights except as noted above.
Series Fund II is a Maryland corporation organized on April 1, 1992.
Series Fund II is authorized to issue 400 million shares of common stock, $0.001
par value, in such separate and distinct series and classes of shares as Series
Fund II's Board of Directors shall from time to time establish. The shares of
common stock of Series Fund II are presently divided into three separate and
distinct series, each having two classes, designated Class A shares and Class B
shares. Each class of a Fund represents interests in the same assets of that
Fund. Series Fund II does not hold annual shareholder meetings. If requested to
do so by the holders of at least 10% of a Fund's outstanding shares, the Board
of Directors will call a special meeting of shareholders for any purpose,
including the removal of Directors. Each share of each Fund has equal voting
rights except as noted above. Prior to December 31, 1997, the Mid-Cap
Opportunity Fund was known as U.S.A. Mid-Cap Opportunity Fund and prior to
February 15, 1996 it was known as Made in the U.S.A. Fund.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund, except for the GLOBAL FUND,
and employs foreign sub-custodians to provide custody of foreign assets for
Special Situations Fund and TOTAL RETURN FUND. Brown Brothers Harriman & Co., 40
Water Street, Boston, MA 02109, is custodian of the securities and cash of the
GLOBAL FUND and employs foreign subcustodians to provide custody of the Global
Fund's foreign assets.
AUDITS AND REPORTS. The accounts of the Funds are audited twice a year
by Tait, Weller & Baker, independent certified public accountants, 8 Penn Center
Plaza, Philadelphia, PA, 19103-2108. Shareholders of each Fund receive
semi-annual and annual reports, including audited financial statements, and a
list of securities owned.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., Washington, D.C. 20036 serves as counsel to the Funds.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent
for the Funds and as redemption agent for regular redemptions. The fees charged
to each Fund by the Transfer Agent are $5.00 to open an account; $3.00 for each
certificate issued; $.75 per account per month; $10.00 for each legal transfer
of shares; $.45 per account per dividend declared; $5.00 for each exchange of
shares into a Fund; $5.00 for each partial withdrawal or complete liquidation;
$1.00 for each Systematic Withdrawal Plan check; $4.00 for each shareholder
services call; $20.00 for each item of correspondence; and $1.00 per account per
report required by any governmental authority. Additional fees charged to the
Funds by the Transfer Agent are assumed by the Underwriter. The Transfer Agent
reserves the right to change the fees on prior notice to the Funds. Upon request
from shareholders, the Transfer Agent will provide an account history. For
56
<PAGE>
account histories covering the most recent three year period, there is no
charge. The Transfer Agent charges a $5.00 administrative fee for each account
history covering the period 1983 through 1994 and $10.00 per year for each
account history covering the period 1974 through 1982. Account histories prior
to 1974 will not be provided. If any communication from the Transfer Agent to a
shareholder is returned from the U.S. Postal Service marked as "Undeliverable"
two consecutive times, the Transfer Agent will cease sending any further
materials to the shareholder until the Transfer Agent is provided with a correct
address. Efforts to locate a shareholder will be conducted in accordance with
SEC rules and regulations prior to forfeiture of funds to the appropriate state
treasury. The Transfer Agent may deduct the costs of its efforts to locate a
shareholder from the shareholder's account. These costs may include a percentage
of the account if a search company charges such a fee in exchange for its
location services. The Transfer Agent is not responsible for any fees that
states and/or their representatives may charge for processing the return of
funds to investors whose funds have been escheated. The Transfer Agent's
telephone number is 1-800-423-4026.
5% SHAREHOLDERS. As of December 31, 1998, The Bank of New York, 48 Wall
Street, New York, NY 10286, Custodian of First Investors Single Payment and
Periodic Payment Plans for the Accumulation of Shares of First Investors Global
Fund, Inc., owned of record 14.4% of the outstanding Class A shares of Global
Fund for beneficial owners of such Plans.
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 Series Fund. The Declaration of Trust however, contains an
express disclaimer of shareholder liability for acts or obligations of Series
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
Series 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. Series
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 Funds and the
Adviser have adopted Codes of Ethics restricting personal securities trading by
portfolio managers and other access persons of the Funds. Among other things,
such persons, except the Director or Trustees of the Funds, as applicable: (a)
must have all non-exempt trades pre-cleared; (b) are restricted from short-term
trading; (c) must provide duplicate statements and transactions confirmations to
a compliance officer; and (d) are prohibited from purchasing securities of
initial public offerings.
57
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND AND
CONVERTIBLE SECURITY RATINGS
STANDARD & POOR'S
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal. "BB" indicates the least degree of speculation
and "C" the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
A-1
<PAGE>
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.
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.
A-2
<PAGE>
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.
A-3
<PAGE>
APPENDIX B
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S
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.
A-4
<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.
A-5
<PAGE>
APPENDIX C
[The following tables are represented as graphs in the printed document.]
The following graphs and chart illustrate hypothetical returns:
INCREASE RETURNS
This graph shows over a period of time even a small increase in returns can make
a significant difference. This assumes a hypothetical investment of $10,000.
Years 10% 8% 6% 4%
----- ------- ------ ------ ------
5 16,453 14,898 13,489 12,210
10 27,070 22,196 18,194 14,908
15 44,539 33,069 24,541 18,203
20 73,281 49,268 33,102 22,226
25 120,569 73,402 44,650 27,138
INCREASE INVESTMENT
This graph shows the more you invest on a regular basis over time, the more you
can accumulate. this assumes monthly installment with a constant hypothetical
return rate of 8%.
Years $100 $250 $500 $1,000
----- ------ ------- ------- -------
5 7,348 18,369 36,738 73,476
10 18,295 43,736 91,473 182,946
15 34,604 86,509 173,019 346,038
20 58,902 147,255 294,510 589,020
25 95,103 237,757 475,513 951,026
A-6
<PAGE>
[The following table is represented as a graph in the printed document.]
This chart illustrates the time value of money based upon the following
assumptions:
If you invested $2,000 each year for 20 years, starting at 25, assuming a 9%
investment return, you would accumulate $573,443 by the time you reach age 65.
However, had you invested the same $2,000 each year for 20 years, at that rate,
but waited until age 35, you would accumulate only $242,228 - a difference of
$331,215.
25 years old .............. 573,443
35 years old .............. 242,228
45 years old .............. 103,320
For each of the above graphs and chart it should be noted that systematic
investment plans do not assume a profit or protect against loss in declining
markets. Investors should consider their financial ability to continue purchases
through periods of both high and low price levels. Figures are hypothetical and
for illustrative purposes only and do not represent any actual investment or
performance. The value of a shareholder's investment and return may vary.
A-7
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1996.
1928 .................. 300.00
1929 .................. 248.48
1930 .................. 164.58
1931 .................. 77.90
1932 .................. 59.93
1933 .................. 99.90
1934 .................. 104.04
1935 .................. 144.13
1936 .................. 179.90
1937 .................. 120.85
1938 .................. 154.76
1939 .................. 150.24
1940 .................. 131.13
1941 .................. 110.96
1942 .................. 119.40
1943 .................. 136.20
1944 .................. 152.32
1945 .................. 192.91
1946 .................. 177.20
1947 .................. 181.16
1948 .................. 177.30
1949 .................. 200.10
1950 .................. 235.40
1951 .................. 269.22
1952 .................. 291.89
1953 .................. 280.89
1954 .................. 404.38
1955 .................. 488.39
1956 .................. 499.46
1957 .................. 435.68
1958 .................. 583.64
1959 .................. 679.35
1960 .................. 615.88
1961 .................. 731.13
1962 .................. 652.10
1963 .................. 762.94
1964 .................. 874.12
1965 .................. 969.25
1966 .................. 785.68
1967 .................. 905.10
1968 .................. 943.75
1969 .................. 800.35
1970 .................. 838.91
1971 .................. 890.19
1972 .................. 1,020.01
1973 .................. 850.85
1974 .................. 616.24
1975 .................. 858.71
1976 .................. 1,004.65
1977 .................. 831.17
1978 .................. 805.01
1979 .................. 838.74
1980 .................. 963.98
1981 .................. 875.00
1982 .................. 1,046.55
1983 .................. 1,258.64
1984 .................. 1,211.56
1985 .................. 1,546.67
1986 .................. 1,895.95
1987 .................. 1,938.80
1988 .................. 2,168.60
1989 .................. 2,753.20
1990 .................. 2,633.66
1991 .................. 3,168.83
1992 .................. 3,301.11
1993 .................. 3,754.09
1994 .................. 3,834.44
1995 .................. 5,000.00
1996 .................. 6,000.00
The performance of the Dow Jones Industrial Average is not indicative of
the performance of any particular investment. It does not take into account fees
and expenses associated with purchasing mutual fund shares. Individuals cannot
invest directly in any index. Please note that past performance does not
guarantee future results.
A-8
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart shows that inflation is constantly eroding the value of your
money.
THE EFFECTS OF INFLATION OVER TIME
1966 ....................... 96.61836
1967 ....................... 93.80423
1968 ....................... 89.59334
1969 ....................... 84.36285
1970 ....................... 79.88906
1971 ....................... 77.33694
1972 ....................... 74.79395
1973 ....................... 68.80768
1974 ....................... 61.27131
1975 ....................... 57.31647
1976 ....................... 54.63915
1977 ....................... 51.20820
1978 ....................... 46.98000
1979 ....................... 41.46514
1980 ....................... 36.85790
1981 ....................... 33.84564
1982 ....................... 32.60659
1983 ....................... 31.41290
1984 ....................... 30.23378
1985 ....................... 29.12696
1986 ....................... 28.81005
1987 ....................... 27.59583
1988 ....................... 26.43279
1989 ....................... 25.27035
1990 ....................... 23.81748
1991 ....................... 23.10134
1992 ....................... 22.45028
1993 ....................... 21.86006
1994 ....................... 21.28536
1995 ....................... 20.76620
1996 ....................... 20.16135
1996 ....................... 100.00
1997 ....................... 103.00
1998 ....................... 106.00
1999 ....................... 109.00
2000 ....................... 113.00
2001 ....................... 116.00
2002 ....................... 119.00
2003 ....................... 123.00
2004 ....................... 127.00
2005 ....................... 130.00
2006 ....................... 134.00
2007 ....................... 138.00
2008 ....................... 143.00
2009 ....................... 147.00
2010 ....................... 151.00
2011 ....................... 156.00
2012 ....................... 160.00
2013 ....................... 165.00
2014 ....................... 170.00
2015 ....................... 175.00
2016 ....................... 181.00
2017 ....................... 186.00
2018 ....................... 192.00
2019 ....................... 197.00
2020 ....................... 203.00
2021 ....................... 209.00
2022 ....................... 216.00
2023 ....................... 222.00
2024 ....................... 229.00
2025 ....................... 236.00
2026 ....................... 243.00
Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and service as in 1996 ($100 vs. $20).* Projecting inflation at 3%, goods
and services costing $100 today will cost $243 in the year 2026.
* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.
A-9
<PAGE>
[The following tables are represented as graphs in the printed document.]
This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.
1926 through 1996*
Total Number of Percentage of
Number of Positive Positive
Rolling Period Periods Periods Periods
-------------- ------- ------- -------
1-Year 71 51 72%
5-Year 67 60 90%
10-Year 62 60 97%
15-Year 57 57 100%
20-Year 52 52 100%
The following chart shows the compounded annual return of large company stocks
compared to U.S. Treasury Bills and inflation over the most recent 15 year
period. **
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 16.79
The following chart illustrates for the period shown that long-term corporate
bonds have outpaced U.S. Treasury Bills and inflation.
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 13.66
* Source: Used with permission. (c)1997 Ibbotson Associates, Inc. All rights
reserved. [Certain provisions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.]
** Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, returns of U.S. Treasury bills historically have
not outpaced inflation by as great a margin as stocks.
A-10
<PAGE>
The accompanying table illustrates that if you are in the 36% tax bracket, a
tax-free yield of 3% is actually equivalent to a taxable investment earning
4.69%.
Your Taxable Equivalent Yield
Your Federal Tax Bracket
---------------------------------------------
28.0% 31.0% 36.0% 39.6%
your tax-free yield
3.00% 4.17% 4.35% 4.69% 4.97%
3.50% 4.86% 5.07% 5.47% 5.79%
4.00% 5.56% 5.80% 6.25% 6.62%
4.50% 6.25% 6.52% 7.03% 7.45%
5.00% 6.94% 7.25% 7.81% 8.25%
5.50% 7.64% 7.97% 8.59% 9.11%
This information is general in nature and should not be construed as tax advice.
Please consult a tax or financial adviser as to how this information affects
your particular circumstances.
A-11
<PAGE>
[The following table is represented as a graph in the printed document.]
The following graph illustrates how income has affected the gains from stock
investments since 1965.
S&P 500 Dividends Reinvested S&P 500 Principal Only
12/31/64 10,000 10,000
12/31/65 11,269 10,906
12/31/66 10,115 9,478
12/31/67 12,550 11,383
12/31/68 13,948 12,255
12/31/69 12,795 10,863
12/31/70 13,299 10,873
12/31/71 15,200 12,046
12/31/72 18,088 13,929
12/31/73 15,431 11,510
12/31/74 11,346 8,090
12/31/75 15,570 10,642
12/31/76 19,296 12,680
12/31/77 17,915 11,221
12/31/78 19,092 11,340
12/31/79 22,645 12,736
12/31/80 30,004 16,019
12/31/81 28,528 14,460
12/31/82 34,674 16,595
12/31/83 42,496 19,461
12/31/84 45,161 19,733
12/31/85 59,489 24,930
12/31/86 70,594 28,575
12/31/87 74,301 29,154
12/31/88 86,641 32,769
12/31/89 114,093 41,699
12/31/90 110,549 38,964
12/31/91 144,230 49,214
12/31/92 155,218 51,411
12/31/93 170,863 55,039
12/31/94 173,120 54,191
12/31/95 238,175 72,676
12/31/96 292,863 87,403
11/30/97 383,977 112,732
Source: First Investors Management Company, Inc. Standard & Poor's is a
registered trademark. The S&P 500 is an unmanaged index comprising 500 common
stocks spread across a variety of industries. The total returns represented
above compare the impact of reinvestment of dividends and illustrates past
performance of the index. The performance of any index is not indicative of the
performance of a particular investment and does not take into account the
effects of inflation or the fees and expenses associated with purchasing mutual
fund shares. Individuals cannot invest directly in any index. Mutual fund shares
will fluctuate in value, therefore, the value of your original investment and
your return may vary. Moreover, past performance is no guarantee of future
results.
A-12
<PAGE>
Financial Statements
as of September 30, 1998
Registrants incorporate by reference the financial statements and report of
independent auditors contained in the Annual Reports to shareholders for the
fiscal years ended September 30, 1998 for First Investors Global Fund, Inc.,
First Investors Series Fund II, Inc., and First Investors Series Fund, Blue Chip
Fund, Total Return Fund and Special Situations Fund, electronically filed with
the Commission on December 3, 1998 (Accession Number: 0001047469-98-042877).
<PAGE>
FIRST INVESTORS LOGO
Shareholder Manual
A Guide to Your
First Investors
Mutual Fund Account
as of February 19, 1999
<PAGE>
INTRODUCTION
Investing in mutual funds doesn't have to be complicated. In addition to a wide
variety of mutual funds, First Investors offers personalized service. Your
registered representative is available to answer your questions and help you
process your transactions. In the event you wish to process a transaction
directly, the material provided in this easy-to-follow guide tells you how to
contact us and explains our policies and procedures. Please note that there are
special rules for money market funds. Please read this manual completely to gain
a better understanding of how shares are bought, sold, exchanged, and
transferred. In addition, the manual provides you with a description of the
services we offer to simplify investing. The services, privileges and fees
referenced in this manual are subject to change. You should call our Shareholder
Services Department at 1 (800) 423-4026 before initiating any transaction. This
manual must be preceded or accompanied by a First Investors mutual fund
prospectus. For more complete information on any First Investors Fund, including
charges and expenses, refer to the prospectus. Read the prospectus carefully
before you invest or send money.
Principal Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
Transfer Agent
Administrative Data
Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
<PAGE>
TABLE OF CONTENTS
HOW TO BUY SHARES
To Open An Account ......................................................... 5
To Open a Retirement Account ............................................... 6
Minimum Initial Investment ................................................. 6
Additional Investments ..................................................... 6
Acceptable Forms of Payment ................................................ 6
Share Classes .............................................................. 6
Share Class Specification .................................................. 7
Class A Shares ............................................................. 7
Sales Charge Waivers & REductions on Class A Shares ........................ 7
Class B Shares ............................................................. 9
How To Pay ................................................................. 10
Wire Transfers ............................................................. 11
Distribution Cross-Investment .............................................. 12
HOW TO SELL SHARES
REDEMPTION OPTIONS ......................................................... 13
Written Redemptions ........................................................ 13
Telephone Redemptions ...................................................... 13
Electronic Funds Transfer .................................................. 13
Systematic Withdrawal Plans ................................................ 14
Expedited Wire Redemptions ................................................. 14
HOW TO EXCHANGE SHARES
Exchange Methods ........................................................... 15
Exchange Conditions ........................................................ 16
Exchanging Funds With.
Automatic Investments or
Systematic Withdrawals ..................................................... 16
WHEN AND HOW ARE FUND SHARES PRICED? ....................................... 17
HOW ARE PURCHASE, REDEMPTION, AND EXCHANGE ORDERS PROCESSED AND PRICED? .... 17
Purchases .................................................................. 17
Redemptions ................................................................ 18
Exchanges .................................................................. 18
Orders Placed Via First Investors Registered Representatives ............... 18
Special Rules for Money Market Funds ....................................... 19
SPECIAL RULES FOR MONEY MARKET ACCOUNTS .................................... 18
RIGHT TO REJECT PURCHASE OR EXCHANGE ORDERS ................................ 19
SIGNATURE GUARANTEE ARE REQUIRED............................................ 19
TELEPHONE SERVICES TELEPHONE EXCHANGES AND REDEMPTIONS ..................... 20
Security MEasures .......................................................... 20
Eligibility ................................................................ 20
NON-RETIREMENT ACCOUNTS .................................................... 20
RETIREMENT ACCOUNTS ........................................................ 20
Shareholder Services ....................................................... 21
OTHER SERVICES ............................................................. 22
Reinvestment Privilege ..................................................... 22
Certificate Shares ......................................................... 22
Money Market Fund Draft Checks ............................................. 22
Return Mail ................................................................ 23
Transferring Shares ........................................................ 23
ACCOUNT STATEMENTS
Transaction Confirmation Statements ........................................ 24
Master Account Statements .................................................. 24
Annual and Semi-Annual Reports ............................................. 24
DIVIDENDS AND DISTRIBUTIONS
Dividends and Distributions ................................................ 25
Buying a Dividend .......................................................... 25
TAX FORMS .................................................................. 26
4
<PAGE>
HOW TO BUY SHARES
First Investors offers a wide variety of mutual funds to meet your financial
needs ("FI Funds"). Your First Investors registered representative will review
your financial objectives and risk tolerance, explain our product line and
services, and help you select the right investments. Call our Shareholder
Services Department at 1 (800) 423-4026 for the number of the First Investors
office near you or visit us on-line at www.firstinvestors.com
o TO OPEN AN ACCOUNT
Before investing, you must establish an account with your broker/dealer. At
First Investors Corporation ("FI") you do this by completing and signing a
Master Account Agreement ("MAA"). After you determine the fund(s) you want to
purchase, deliver your completed MAA and your check, made payable to First
Investors Corporation, to your registered representative. New client accounts
must be established through your registered representative. You need to tell us
how you want your shares registered when you open a new Fund account. Please
keep the following information in mind:
- -JOINT ACCOUNTS. For any account with two or more owners, all owners must sign
requests to process transactions. Telephone privileges allow any one of the
owners to process transactions independently.
- -GIFTS AND TRANSFERS TO MINORS. Custodial accounts for a minor may be
established under your state's Uniform Gifts/Transfers to Minors Act. Custodial
accounts are registered under the minor's social security number.
TRUSTS. A trust account may be opened only if you have a valid written trust
document.
- -TRANSFER ON DEATH (TOD). TOD registrations, available on all FI Funds in all
states, allow individual and joint account owners to name one or more
beneficiaries. The ownership of the account automatically passes to the named
beneficiaries in the event of the death of all account owners.
- -DIVIDENDS AND CAPITAL GAINS. Fund distributions will be automatically
reinvested in your account unless you request otherwise.
_______________________________________________________________________________
SOME REGISTRATIONS REQUIRE ADDITIONAL PAPERWORK.
_______________________________________________________________________________
TYPE OF ACCOUNT ADDITIONAL DOCUMENTS REQUIRED
Corporations
Partnership
& Trusts First Investors Certificate of Authority
Transfer On Death First Investors TOD Registration Request Form
(TOD)
Estates Original or Certified Copy of Death Certificate
Certified Copy of Letters Testamentary/Administration
First Investors Executor's Certification &
Indemnification Form
Conservatorships Copy of court document appointing Conservator/Guardian
& Guardianships
_______________________________________________________________________________
5
<PAGE>
oTO OPEN A RETIREMENT ACCOUNT
Fund shares may be purchased for your retirement account by completing the MAA
and the appropriate retirement plan application. First Investors offers
retirement plans for both individuals and employers as follows:
INDIVIDUAL RETIREMENT ACCOUNTS
including Roth, Traditional, and Rollover IRAs.
SIMPLE IRAS offered by employers.
SEP-IRAS (SIMPLIFIED EMPLOYEE PENSION PLANS) for small business owners or people
with income from self-employment, including SARSEP IRAs.
403(B)(7) accounts for employees of eligible tax-exempt organizations such as
schools, hospitals and charitable organizations.
401(K) plans for employers.
MONEY PURCHASE PENSION & PROFIT SHARING plans for sole proprietors.
For more information about these plans call your registered representative or
our Shareholder Services Department at 1 (800) 423-4026.
oMINIMUM INITIAL INVESTMENT
You can open a non-retirement account with a check made payable to First
Investors Corporation for as little as $1,000. The minimum is waived if you open
an account through one of our Automatic Investment Programs (see "How to Pay")
or through a full exchange from another FI Fund. You can open a First Investors
Traditional IRA or Roth IRA with as little as $500 (except for the Cash
Management Fund which requires a $1,000 investment). Other retirement accounts
may have lower initial investment requirements at the Fund's discretion.
oADDITIONAL INVESTMENTS
Once you have established an account, you can add to it through your registered
representative or by sending us a check directly. There is no minimum
requirement on additional purchases into existing fund accounts. Remember to
include your FI Fund account number on your check made payable to First
Investors Corporation. Mail checks to: First Investors Corporation Attn: Dept.
Cp 581 Main Street Woodbridge, NJ 07095-1198
oACCEPTABLE FORMS OF PAYMENT
The following forms of payment are acceptable:
- -checks made payable to First Investors Corporation
- -Money Line electronic funds transfers
- -federal funds wire transfers For your protection, never give your registered
representative cash or a check made payable to your registered representative.
We do not accept:
- -Third party checks
- -Traveler's checks
- -Checks drawn on non-US banks
- -Money orders
- -Cash
oSHARE CLASSES
All FI Funds are available in Class A and Class B shares. Direct purchases into
Class B share money market accounts are not accepted. Class B money market fund
shares may only be acquired through an exchange from another Class B share
account or through Class B share dividend cross-reinvestment.
Each class of shares has its own cost structure. As a result, different classes
6
<PAGE>
of shares in the same fund generally have different prices. Class A shares have
a front-end sales charge. Class B shares have a contingent deferred sales charge
("CDSC"). While both classes have a Rule 12b-1 fee, the fee on Class B shares is
generally higher. The principal advantages of Class A shares are that they have
lower overall expenses, the availability of quantity discounts on sales charges,
and certain account privileges that are not offered on Class B shares. The
principal advantage of Class B shares is that all your money is put to work from
the outset. Your registered representative can help you decide which class of
shares is best for you.
oSHARE CLASS SPECIFICATION
It's very important to specify which class of shares you wish to purchase when
you open a new account. All First Investors account applications have a place to
designate your preference. If you do not specify which class of shares you want
to purchase, Class A shares will automatically be purchased.
oCLASS A SHARES
When you buy Class A shares, you pay the offering price - the net asset value of
the fund plus a front-end sales charge. The front-end sales charge declines with
larger investments.
_______________________________________________________________________________
CLASS A SALES CHARGES
_______________________________________________________________________________
As a % OF AS a % of your
Investment offering price investment
up to $24,999 6.25% 6.67%
$25,000 - $49,999 5.75% 6.10%
$50,000 - $99,999 5.50% 5.82%
$100,000 - $249,999 4.50% 4.71%
$250,000 - $499,999 3.50% 3.63%
$500,000 - $999,999 2.50% 2.56%
Investments of $1 million or more will only be made in Class A shares at the
Fund's net asset value.
Generally, you should consider purchasing Class A shares if you plan to invest
$250,000 or more either initially or over time.
_______________________________________________________________________________
_______________________________________________________________________________
oSALES CHARGE WAIVERS & REDUCTIONS ON CLASS A SHARES
If you qualify for one of the sales charge reductions or waivers, it is very
important to let us know at the time you place your order. Include a written
statement with your check explaining which privilege applies. If you do not
include this statement we cannot guarantee that you will receive the reduction
or waiver.
CLASS A SHARES MAY BE PURCHASED WITHOUT A SALES CHARGE:
1: By an officer, trustee, director, or employee of the Fund, the Fund's adviser
or subadviser, First Investors Corporation, or any affiliates of First Investors
Corporation.
2: By a former officer, trustee, director, or employee of the Fund,
First Investors Corporation, or their affiliates provided the person worked for
the company for at least 5 years and retired or terminated employment in good
standing.
7
<PAGE>
3: By a FI registered representative or an authorized dealer, or by his/her
spouse, child (under age 21) or grandchild (under age 21).
4: When fund distributions are reinvested in Class A shares.
5: When Systematic Withdrawal Plan payments are reinvested in Class A shares.
6: When qualified retirement plan loan repayments are reinvested in Class A
shares.
7: With the liquidation proceeds from a First Investors Life Variable Annuity
Fund A, C, or D contract within one year of the contract's maturity date.
8:When dividends (at least $50 a year) from a First Investors Life Insurance
Company policy are invested into an EXISTING account.
9: When a group qualified plan (401(k) plans, money purchase pension plans,
profit sharing plans and 403(b) plans that are subject to Title I of ERISA) is
reinvesting redemption proceeds from another fund on which a sales charge or
CDSC was paid.
10: With distribution proceeds from a First Investors group qualified plan
account into an IRA.
11: By participant directed group qualified plans with 100 or more eligible
employees or $1,000,000 or more in assets.
12: In amounts of $1 million or more.
13: By individuals under a Letter of Intent or Cumulative Purchase Privilege of
$1 million or more.
FOR ITEMS 9 THROUGH 13 ABOVE: A CDSC OF 1.00% WILL BE
DEDUCTED IF SHARES ARE REDEEMED WITHIN 2 YEARS OF PURCHASE.
SALES CHARGES ON CLASS A SHARES MAY BE REDUCED FOR:
1: Participant directed group qualified retirement plans with 99 or fewer
eligible employees. The initial sales charge is reduced to 3.00% of the offering
price.
2: Certain unit trust holders ("unitholders") who elect to invest the entire
amount of principal, interest, and/or capital gains distributions from their
unit investment trusts in Class A shares. Unitholders of various series of New
York Insured Municipals-Income Trust sponsored by Van Kampen Merrit, Inc.,
unitholders of various series of the Multistate Tax Exempt trust sponsored by
Advest Inc., and unitholders of various series of the Insured Municipal Insured
National Trust, J.C. Bradford & Co. as agent, may buy Class A shares of a FI
Fund with unit trust distributions at the net asset value plus a sales charge of
1.5%. Unitholders of various tax-exempt trusts, other than the New York Trust,
sponsored by Van Kampen Merritt Inc. may buy Class A shares of a FI Fund at the
net asset value plus a sales charge of 1.0%.
Unitholders may make additional purchases, other than those made by unit trust
distributions, at the Fund's regular offering price.
CUMULATIVE PURCHASE PRIVILEGE The Cumulative Purchase Privilege lets you add the
value of all your existing FI Fund accounts (Class A and Class B shares) to the
amount of your next Class A share investment to reach sales charge discount
breakpoints. For example, if the combined value of your existing FI Fund
accounts is $25,000, your next purchase will be eligible for a sales charge
discount at the $25,000 level. Cumulative Purchase discounts are applied to
purchases as indicated in the first column of the Class A Sales Charge table.
All your accounts registered with the same social security number will be linked
together under the Cumulative Purchase Privilege. In addition, your spouse's
accounts and custodial accounts held for minor children residing at your home
can also be linked to your accounts upon request.
8
<PAGE>
- -Conservator accounts are linked to the social security number of the ward, not
the conservator.
- -Sole proprietorship accounts are linked to personal/family accounts only if the
account is registered with a social security number, not an employer
identification number ("EIN").
- -Testamentary trusts and living trusts may be linked to other accounts
registered under the same trust EIN, but not to the personal accounts of the
trustee(s).
- -Estate accounts may only be linked to other accounts registered under the same
EIN of the estate or social security number of the decedent.
- -Church and religious organizations may link accounts to others registered with
the same EIN but not to the personal accounts of any member.
LETTER OF INTENT
A Letter of Intent ("LOI") lets you purchase at a discounted sales charge level
even though you do not yet have sufficient investments to qualify for that
discount level. An LOI is a commitment by you to invest a specified dollar
amount during a 13-month period. The amount you agree to invest determines the
sales charge you pay. Under an LOI, you can reduce the initial sales charge on
Class A share purchases based on the total amount you agree to invest in both
Class A and Class B shares during the 13 month period. Purchases made up to 90
days before the date of the LOI may be included.
Your LOI can be amended in two ways. First, you may file an amended LOI to raise
or lower the LOI amount during the 13 month period. Second, your LOI will be
automatically amended if you invest more than your LOI amount during the
13-month period and qualify for an additional sales charge reduction.
By purchasing under an LOI, you acknowledge and agree to the following:
- -You authorize First Investors to reserve 5% of your total intended investment
in shares held in escrow in your name until the LOI is completed.
- -First Investors is authorized to sell any or all of the escrow shares to
satisfy any additional sales charges owed in the event you do not fulfill the
LOI.
- -Although you may exchange all your shares, you may not sell the reserve shares
held in escrow until you fulfill the LOI or pay the higher sales charge.
oCLASS B SHARES
Class B shares are sold without an initial sales charge, putting all your money
to work for you immediately. If you redeem Class B shares within 6 years of
purchase, a CDSC will be imposed. The CDSC declines from 4% to 0% over a 6-year
period, as shown in the chart below. Class B share money market fund shares are
not sold directly. They can only be acquired through an exchange from another
Class B fund account. Class B shares, and the dividend and distribution shares
they earn, automatically convert to Class A shares after 8 years, reducing
future annual expenses.
Generally, you should consider purchasing Class B shares if you intend to invest
less than $250,000 and you would rather pay higher ongoing expenses than an
initial sales charge.
CLASS B SALES CHARGES
THE CDSC DECLINES OVER TIME AS SHOWN IN THE TABLE BELOW:
________________________________________________________________
Year 1 2 3 4 5 6 7+
________________________________________________________________
CDSC 4% 4% 3% 3% 2% 1% 0%
________________________________________________________________
9
<PAGE>
If shares redeemed are subject to a CDSC, the CDSC will be based on the lesser
of the original purchase price or redemption price. There is no CDSC on shares
acquired through dividend and capital gains reinvestment. We call these "free
shares."
Anytime you sell shares, your shares will be redeemed in the following manner to
ensure that you pay the lowest possible CDSC:
FIRST-Class B shares representing dividends and capital gains that are not
subject to a CDSC.
SECOND-Class B shares held more than six years which are not subject to a CDSC.
THIRD-Class B shares held longest which will result in the lowest CDSC.
For purposes of calculating the CDSC, all purchases made during the calendar
month are deemed to have been made on the first business day of the month at the
average cost of the shares purchased during that period.
SALES CHARGE WAIVERS ON CLASS B SHARES
The CDSC on Class B shares does not apply to:
1: Appreciation on redeemed shares above their original purchase price.
2: Redemptions due to death or disability (as defined in section 72(m)(7) of the
Internal Revenue Code) requested within one year of death. Additional
documentation is required.
3: Distributions from employee benefit plans due to termination or plan
transfer.
4: Redemptions to remove an excess contribution from an IRA or qualified
retirement plan.
5: Distributions upon reaching required minimum age 70 1/2 provided you have
held the shares for at least three years.
6: Annual redemptions of up to 8% of your account's value redeemed by a
Systematic Withdrawal Plan. Free shares not subject to a CDSC will be redeemed
first and will count towards the 8% limit.
7: Shares redeemed from advisory accounts managed by or held by the Fund's
investment advisor or any of its affiliates.
8: Tax-free returns of excess contributions from employee benefit plans.
9: Redemptions of non-retirement shares purchased with proceeds from the sale of
shares of another fund group between April 29, 1996 and June 30, 1996 that did
not pay a sales charge (other than money market fund accounts or retirement plan
accounts).
10: Redemptions by the Fund when the account falls below the minimum.
11: Redemptions to pay account fees.
Include a written statement with your redemption request explaining which
exemption applies. If you do not include this statement we cannot guarantee that
you will receive the waiver.
oHOW TO PAY
You can invest using one or more of the
following options:
- -CHECK:
You can buy shares by writing a check payable to
First Investors Corporation. If you are opening a new fund account, your check
must meet the fund minimum. When making purchases to an existing account,
remember to include your fund account number on your check.
- -AUTOMATIC INVESTMENT PROGRAMS:
We offer several automatic investment programs to simplify
investing.
- -MONEY LINE:
With our Money Line program, you can open an account with as little as $50 a
month or $600 each year in a FI Fund account by transferring funds
electronically from your bank account. You can invest up to $10,000 a month
through Money Line.
10
<PAGE>
Money Line allows you to select the payment amount and frequency that is best
for you. You can make automatic investments bi-weekly, semi-monthly, monthly,
quarterly, semi-annually, or annually. The date you select as your Money Line
investment date is the date on which shares will be purchased. THE PROCEEDS MUST
BE AVAILABLE IN YOUR BANK ACCOUNT TWO BUSINESS DAYS PRIOR TO THE INVESTMENT
DATE.
HOW TO APPLY:
1: Complete the Electronic Funds Transfer ("EFT") section of the application to
provide complete bank information and authorize EFT fund share purchases. Attach
a voided check. A signature guarantee of all shareholders and bank account
owners is required.
PLEASE ALLOW AT LEAST 10 BUSINESS DAYS FOR INITIAL PROCESSING.
2: Complete the Money Line section of the application to specify the amount,
frequency and date of the investment.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP., ATTN: CONTROL DEPT., 581 MAIN STREET,
WOODBRIDGE, NJ 07095-1198.
HOW TO CHANGE:
Provided you have telephone privileges, you may call Shareholder Services at 1
(800) 423-4026 to:
- -Increase the payment up to $999.99.
- -Decrease the payment.
- -Discontinue the service.
To change investment amounts, reallocate or cancel Money Line, you must notify
us at least 3 business days prior to the investment date.
You must send a signature guaranteed written request to Administrative Data
Management Corp. to:
- -Increase the payment to $1,000 or more.
- -Change bank information.
A medallion signature guarantee (see Signature Guarantee Policy) is required to
increase a Money Line payment to $2,500 or more. Changing banks or bank account
numbers requires 10 days notice. Money Line service will be suspended upon
notification that all account owners are deceased.
AUTOMATIC PAYROLL INVESTMENT: With our Automatic Payroll Investment service
("API") you can systematically purchase shares by salary reduction. To
participate, your employer must offer direct deposit and permit you to
electronically transfer a portion of your salary. Contact your company payroll
department to authorize the salary reductions. If not available, you may
consider our Money Line program.
Shares purchased through API are bought at the offering price on the day the
electronic transfer is received by the Fund.
HOW TO APPLY:
1: Complete an API Application.
2: Complete an API
Authorization Form.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP., ATTN: CONTROL DEPT., 581 MAIN STREET,
WOODBRIDGE, NJ 07095-1198.
oWire Transfers:
You may purchase shares via a federal funds wire transfer from your bank account
into your EXISTING First Investors account. Federal fund wire transfer proceeds
are not subject to a holding period and are available to you immediately upon
receipt, as long as we have been notified properly.
YOU MUST CALL US AT 1 (800) 423-4026 TO ADVISE US OF AN INCOMING FEDERAL FUNDS
WIRE and provide us with the federal funds wire transfer confirmation number,
the amount of the wire, and the fund account number to receive same day credit.
11
<PAGE>
There are special rules for money market fund accounts. To wire federal funds to
an existing First Investors account (other than money markets), instruct your
bank to wire your investment to: FIRST FINANCIAL SAVINGS BANK, S.L.A. ABA #
221272604 ACCOUNT # 0306142 YOUR NAME YOUR FIRST INVESTORS FUND ACCOUNT#
oDISTRIBUTION CROSS-INVESTMENT:
You can invest the dividends and capital gains from one fund account, excluding
the money market funds, into another fund account in the same class of shares.
The shares will be purchased at the net asset value on the day after the record
date of the distribution.
- -You must invest at least $50 a month or $600 a year into a NEW account.
- -A signature guarantee is required if the ownership on both accounts is not
identical.
You may establish a Distribution Cross-Investment service by contacting your
registered representative or calling Shareholder Services at 1 (800) 423-4026.
oSYSTEMATIC WITHDRAWAL PLAN PAYMENT INVESTMENTS:
You can invest Systematic Withdrawal Plan payments (see How to Sell Shares) from
one fund account in shares of another fund account.
- -Payments are invested without a sales charge.
- -A signature guarantee is required if the ownership on both accounts is not
identical.
- -Both accounts must be in the same class of shares.
- -You must invest at least $600 a year if into a new account.
- -You can invest on a monthly, quarterly, semi-annual, or annual basis.
Redemptions are suspended upon notification that all account owners are
deceased. Service will recommence upon receipt of written alternative payment
instructions and other required documents from the decedent's legal
representative.
HOW TO SELL SHARES
You can sell your shares on any day the New York Stock Exchange is open for
regular trading. In the mutual fund industry, a sale is referred to as a
"redemption." Redemption proceeds are generally mailed within three days. If the
shares being redeemed were purchased by check, payment may be delayed to verify
that the check has been honored, which may take up to 15 days from the date of
purchase. Shareholders may not redeem shares by telephone or electronic funds
transfer unless the shares have been owned for at least 15 days.
Redemptions of shares are not subject to the 15 day verification period if the
shares were purchased via:
- -Automatic Payroll Investment
- -FIC registered representative payroll checks -First Investors Life Insurance
Company checks
- -Federal funds wire payments
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<PAGE>
oREDEMPTION OPTIONS
For trusts, estates, attorneys-in-fact, corporations, partnerships, and other
entities, additional documents are required to redeem shares. Call Shareholder
Services at 1 (800) 423-4026 for more information.
WRITTEN REDEMPTIONS
You can write a letter of instruction or contact your First Investors registered
representative for a liquidation request form. A written liquidation request in
good order must include:
1: The name of the fund;
2: Your account number;
3: The dollar amount, number of shares or percentage of the account you want to
redeem;
4: Share certificates (if they were issued to you);
5: Original signatures of all owners exactly as your account is registered;
6: Signature
guarantees, if required (see Signature Guarantee Policy).
Written redemption requests should be mailed to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198
TELEPHONE REDEMPTIONS
You, or any person we believe is authorized to act on your behalf, may redeem
shares which have been owned for at least 15 days by calling our Special
Services Department at 1 (800) 342-6221 from 9:00 a.m. to 5:00 p.m., EST,
provided:
- -Telephone privileges are available for your account registration (see Telephone
Privileges);
- -You have telephone privileges (see Telephone Privileges);
- -You do not hold share certificates (issued shares);
- -The redemption check is made payable to the registered owner(s) or
pre-designated bank;
- -The redemption check is mailed to your address of record;
- -Your address of record has not changed within the past 60 days;
- -The redemption amount is $50,000 or less; AND -The redemption amount, combined
with the amount of all telephone redemptions made within the previous 30 days
does not exceed $100,000.
ELECTRONIC FUNDS TRANSFER
The Electronic Funds Transfer ("EFT") service allows you to redeem shares and
electronically transfer proceeds to your bank account.
YOU MUST ENROLL IN THE ELECTRONIC FUNDS TRANSFER SERVICE AND PROVIDE COMPLETE
BANK ACCOUNT INFORMATION BEFORE USING THE PRIVILEGE. Signature guarantees of all
shareholders and all bank account owners are required. Please allow at least 10
business days for initial processing. We will send any proceeds during the
processing period to your address of record. Call your registered representative
or Shareholder Services at 1 (800) 423-4026 for an application.
You may call Shareholder Services or send written instructions to Administrative
Data Management Corp. to request an EFT redemption of shares which are held at
least 15 days. Each EFT redemption:
1: Must be electronically transferred to your pre-designated bank account;
2: Must be at least $500;
3: Cannot exceed $50,000;
4: Cannot exceed $100,000 when added to the total amount of all EFT
redemptions made within the previous 30 days.
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<PAGE>
If your redemption does not qualify for an EFT redemption, you may request to
have the redemption proceeds mailed to you.
The Electronic Funds Transfer service may also be used to purchase shares (see
Money Line) and transfer systematic withdrawal payments (see Systematic
Withdrawal Plans) and dividend distributions (see Other Services) to your bank
account.
SYSTEMATIC WITHDRAWAL PLANS
Our Systematic Withdrawal Plan allows you to redeem a specific dollar amount or
percentage from your account on a regular basis. Your payments can be mailed to
you or a pre-authorized payee by check, transferred to your bank account
electronically (if you have enrolled in the EFT service) or invested in shares
of another FI fund in the same class of shares through our Systematic Withdrawal
Plan Payment investment service (see How to Buy Shares).
You can receive payments on a monthly, quarterly, semi-annual, or annual basis.
Your account must have a value of at least $5,000 in non-certificated shares
("unissued shares"). The $5,000 minimum account balance is waived for required
minimum distributions from retirement plan accounts. The minimum Systematic
Withdrawal Plan payment is $25 (waived for Required Minimum Distributions on
retirement accounts or FIL premium payments).
Once you establish the Systematic Withdrawal Plan, you should not make
additional investments into this account (except money market funds). Buying
shares during the same period as you are selling shares is not advantageous to
you because of sales charges.
If you own Class B shares, you may establish a Systematic Withdrawal Plan and
redeem up to 8% of the value of your account annually without a CDSC.
If you own Class B shares of a retirement account and you are receiving your
Required Minimum Distribution through a Systematic Withdrawal Plan, up to 8% of
the value of your account may be redeemed annually without a CDSC. However, if
your Required Minimum Distribution exceeds the 8% limit, the applicable CDSC
will be charged if the additional shares were held less than 3 years and you
have not reached age 70-1/2.
To establish a Systematic Withdrawal Plan, complete the appropriate section of
the account application or contact your registered representative or call
Shareholder Services at 1 (800) 423-4026.
oEXPEDITED WIRE REDEMPTIONS (MONEY MARKET FUNDS ONLY)
Enroll in our Expedited Redemption service to wire proceeds from your FI money
market account to your bank account. Call Shareholder Services at 1 (800)
423-4026 for an application or to discuss specific requirements.
- -Each wire under $5,000 is subject to a $10 fee. -Six wires of $5,000 or more
are permitted without charge each month. Each additional wire is $10.00.
- -Wires must be directed to your pre-authorized bank account.
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<PAGE>
HOW TO EXCHANGE SHARES
The exchange privilege gives you the flexibility to change investments as your
goals change without incurring a sales charge. Since an exchange is a redemption
and a purchase, it creates a gain or loss which is reportable for tax purposes.
You should consult your tax advisor before requesting an exchange. Read the
prospectus of the FI Fund you are purchasing carefully. Review the differences
in objectives, policies, risk, privileges and restrictions.
<TABLE>
<CAPTION>
______________________________________________________________________________
EXCHANGE METHODS
_______________________________________________________________________________
METHOD STEPS TO FOLLOW
<S> <C>
Through Your FI
Registered Representative Call your registered representative.
___________________________________________________________________________________
By Phone Call Special Services from 9:00 a.m. to 5:00 p.m., EST
(800) 342-6221 Orders received after the close of the New York Stock
Exchange, usually 4:00 p.m., est, are processed the following business day.
1.You must have telephone privileges
(see Telephone Transactions)
2.Certificate shares cannot be exchanged by phone.
3.For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional documents
are required.
____________________________________________________________________________________
By Mail to: 1.Send us written instructions signed by all account
ADM exactly as the account is registered.
owners 2. Include your fund account number.
ATTN: EXCHANGE DEPT. 3. Indicate either the dollar amount, number of shares
581 MAIN STREET or percent of the account you want to exchange.
WOODBRIDGE, NJ 07095-119 4. Specify the existing account number or the name of
the new Fund you are exchanging into.
5. Include any outstanding share certificates for the
shares you want to exchange.
6. For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional documents
are required. Call Shareholder Services at 1 (800)
423-4026.
____________________________________________________________________________________
</TABLE>
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<PAGE>
oEXCHANGE CONDITIONS
1: You may only exchange shares within the same Class.
2: Exchanges can only be
made into identically owned accounts.
3: Partial exchanges into a new fund account must meet the new fund's minimum
initial investment.
4: The fund you are exchanging into must be eligible for
sale in your state.
5: If your request does not clearly indicate the amount to
be exchanged or the accounts involved, no shares will be exchanged.
6: Amounts
exchanged from a non-money market fund to a money market fund may be exchanged
back at net asset value. Dividends earned from money market fund shares will be
subject to a sales charge.
7: If you are exchanging from a money market fund to
a fund with a sales charge, there will be a sales charge on any shares that were
not previously subject to a sales charge. Your request must be in writing and
include a statement acknowledging that a sales charge will be paid. If you
exchange Class B shares of a fund for shares of a Class B money market fund, the
CDSC will not be imposed and the holding period used to calculate the CDSC will
carry over to the acquired shares.
8: FI Funds reserve the right to reject any
exchange order which in the opinion of the Fund is part of a market timing
strategy. In the event that an exchange is rejected, neither the redemption nor
the purchase side of the exchange will be processed.
oEXCHANGING FUNDS WITH AUTOMATIC INVESTMENTS OR SYSTEMATIC WITHDRAWALS
Let us know if you want to continue automatic investments into the original fund
or the fund you are exchanging into ("receiving fund") or if you want to change
the amount or allocation into both. Also inform us if you wish to continue,
terminate, or change a preauthorized systematic withdrawal. Without specific
instructions, we will amend account privileges as outlined below:
________________________________________________________________________________
EXCHANGE EXCHANGE EXCHANGE A
ALL SHARES TO ALL SHARES TO PORTION OF
ONE FUND MULTIPLE SHARES TO ONE OR
FUNDS MULTIPLE FUNDS
________________________________________________________________________________
MONEY LINE ML moves to ML stays with ML stays with
(ML) Receiving Fund Original Fund Original Fund
AUTOMATIC PAYROLL API moves to API Stays with API stays with
INVESTMENT (API) Receiving Fund Original Fund Original Fund
SYSTEMATIC SWP moves to SWP SWP stays
WITHDRAWALS Receiving Fund Canceled with Original Fund (SWP)
________________________________________________________________________________
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<PAGE>
WHEN AND HOW ARE FUND SHARES PRICED?
Each FI Fund prices its shares each day that the New York Stock Exchange
("NYSE") is open for trading. The share price is calculated as of the close of
trading on the NYSE (generally 4:00 p.m., EST) except for shares of the money
market funds which are priced as of 12:00 noon. These days are referred to as
"Trading Days" in this Manual.
Each Fund calculates the net asset value of each class of its shares separately
by taking the total value of class assets, subtracting class expenses, and
dividing the difference by the total number of shares in the class. The price
that you will pay for a share is the NAV plus any applicable front-end sales
charge. You receive the NAV price if you redeem or exchange your shares, less
any applicable CDSC.
Fund prices are on our website (www.firstinvestors.com) the next day. The prices
for our larger funds are also reported in many newspapers, including The Wall
Street Journal and The New York Times. Special pricing procedures are employed
during emergencies. For a description of these procedures you can request, free
of charge, a copy of a Statement of Additional Information.
HOW ARE PURCHASE, REDEMPTION, AND EXCHANGE ORDERS PROCESSED AND PRICED?
The processing and price for a purchase, redemption or exchange depends upon how
your order is placed. As indicated below, special rules apply to money market
transactions.
oPURCHASES
Purchases that are made by written application or order are processed when they
are received in "good order" by our Woodbridge, NJ office. To be in good order,
all required paperwork must be completed and payment received. If your order is
received prior to the close of trading on the NYSE, it will receive that day's
price (except in the case of the money market funds which are discussed below).
This procedure applies whether your purchase order is given to your registered
representative or mailed directly by you to our Woodbridge, NJ office.
As described previously in "How to Buy Shares," certain types of purchases can
only be placed by written application. For example, purchases in connection with
the opening of retirement accounts may only be made by written application.
Furthermore, rollovers of retirement accounts will be processed only when we
have received both written application and the proceeds of the rollover. Thus,
for example, if it takes 30 days for another fund group to send us the proceeds
of a retirement account, your purchase of First Investors funds will not occur
until we receive the proceeds.
Some types of purchases may be phoned or electronically transmitted to us by
your broker/dealer. If you give your order to a First Investors registered
17
<PAGE>
representative before the close of trading on the NYSE and the order is phoned
to our Woodbridge, NJ office prior to 5:00 p.m., EST, your shares will be
purchased at that day's price (except money market funds which are discussed
below). If you are buying a First Investors Fund through a broker-dealer other
than First Investors, other requirements may apply. Consult with your
broker-dealer about its requirements. Payment is due within three business days
of placing an order by phone or electronic means or the trade may be cancelled.
(In such event, you will be liable for any loss resulting from the
cancellation.) To avoid cancellation of your orders, you may arrange to open a
money market account and use it to pay for subsequent purchases.
Purchases made pursuant to our Automatic Investment Programs are processed as
follows:
- -Money Line purchases are processed on the dates you select on your application.
- -Automatic Payroll Investment Service purchases are processed on the dates that
we receive funds from your employer.
oREDEMPTIONS
As described previously in "How To Sell Shares", certain redemption orders may
only be made by written instructions or application. Unless you have declined
Telephone Privileges, most redemptions can be made by phone by you or your
registered representative.
Written redemption orders will be processed when received in good order in our
Woodbridge, NJ office. Phone redemption orders will be processed when received
in our Woodbridge, NJ office.
If your redemption order is received prior to the close of trading on the NYSE,
you will receive that day's price (except in the case of money market funds
which are discussed below). If you are redeeming through a broker-dealer other
than First Investors, other requirements may apply. Consult with your
broker-dealer about its requirements.
oEXCHANGES
Exchanges can generally be made by written instructions or, unless you have
declined Telephone Privileges, by phone by you or your registered
representative. Exchange orders are processed when we receive them in good order
in our Woodbridge, NJ office.
Exchange orders received prior to the close of trading on the NYSE will be
processed at that day's prices (except in the case of exchanges into or out of
money market funds which are discussed below).
oORDERS PLACED VIA FIRST INVESTORS REGISTERED REPRESENTATIVES
All orders placed through a First Investors registered representative must be
reviewed and approved by a principal officer of the branch office before being
mailed or transmitted to the Woodbridge, NJ office.
oORDERS PLACED VIA DEALERS
It is the responsibility of the Dealer to forward or transmit orders to the Fund
promptly and accurately. A fund will not be liable for any change in the price
per share due to the failure of the Dealer to place the order in a timely
fashion. Any such disputes must be settled between you and the Dealer.
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<PAGE>
oSPECIAL RULES FOR MONEY MARKET FUNDS
A money market fund share purchase will not be made until we receive the funds
for the purchase. The funds for the purchase will not be deemed to have been
received until the morning of the next Trading Day following the Trading Day on
which your purchase check is received in our Woodbridge, NJ office. If a check
is received in our Woodbridge, NJ office after the close of regular trading on
the NYSE, the funds for the purchase will not be deemed to have been received
until the morning of the second following Trading Day.
If you make your purchase by wire transfer prior to 12:00 p.m., EST, and you
have previously advised us that the wire is on the way, the funds for the
purchase will be deemed to have been received on that same day. You must call
beforehand and give us your name, account number, the amount of the wire, and a
federal reference number documenting the transfer. If we fail to receive such
advance notification, the funds for your purchase will not be deemed to have
been received until the morning of the next Trading Day following receipt of the
federal wire and your account information. To wire funds to an existing First
Investors money market account, instruct your bank to wire your investment, as
applicable, to: CASH MANAGEMENT FUND BANK OF NEW YORK ABA #021000018 ACCOUNT
8900005696 YOUR NAME YOUR FIRST INVESTORS ACCOUNT # TAX-EXEMPT MONEY MARKET FUND
BANK OF NEW YORK ABA #021000018 ACCOUNT 8900023198 YOUR NAME YOUR FIRST
INVESTORS ACCOUNT #
Purchases by Money Line and Automatic Payroll Investment are processed in the
same manner as those in other Funds.
Requests for redemptions or exchanges out of or into our money market funds must
be received in writing or by phone prior to 12:00 p.m., EST, on a Trading Day,
to be processed the same day. Redemption or exchange orders received after 12:00
p.m., EST, but before the close of regular trading on the NYSE, will be
processed on the morning of the following Trading Day.
RIGHT TO REJECT PURCHASE OR EXCHANGE ORDERS
A fund reserves the right to reject or restrict any specific purchase request if
the fund determines that doing so is in the best interest of the fund and its
shareholders. Investments in a fund are designed for long-term purposes and are
not intended to provide a vehicle for short-term market timing. The funds also
reserve the right to reject any exchange that in the funds' opinion is part of a
market timing strategy. In the event that a fund rejects an exchange request,
neither the redemption nor the purchase side of the exchange will be processed.
SIGNATURE GUARANTEE POLICY
A signature guarantee protects you from the risk of a
fraudulent signature and is generally required for non-standard and large dollar
transactions. A signature guarantee may be obtained from your First Investors
registered representative or eligible guarantor institutions including banks,
savings associations, credit unions and brokerage firms which are members of the
Securities Transfer Agents Medallion Program ("STAMP"), the New York Stock
Exchange Medallion Signature Program ("MSP"), or the Stock Exchanges Medallion
Program ("SEMP"). Please note that a notary public stamp or seal is not
acceptable. The words "Signature Guaranteed" must appear beside the signature of
the guarantor.
- -SIGNATURE GUARANTEES ARE REQUIRED:
1: For redemptions over $50,000.
2: For redemption checks made payable to any person(s) other than the registered
shareholder(s) or a major financial institution for the benefit of the
registered shareholder(s).
3: For redemption checks mailed to an address other than the address of record
(unless the check is mailed to a financial institution on your behalf).
4: For redemptions when the address of record has changed within 60 days of the
request.
5: When a stock certificate is mailed to an address other than the address of
record or to the dealer on the account.
6: When shares are transferred to a new registration.
7: When issued shares are redeemed.
8: To establish any EFT service.
19
<PAGE>
9: For requests to change the address of record to a P.O. box or a "c/o" street
address.
10: If multiple account owners of one account give inconsistent instructions.
11: When a transaction requires additional legal documentation.
12: When the authority of a representative of a corporation, partnership, trust,
or other entity has not been satisfactorily established.
13: When an address on an account which was coded "Do Not Mail" to suppress
check and dividend mailings due to a previously unknown address is updated.
14: Any other instance whereby a fund or its transfer agent deems it necessary
as a matter of prudence.
TELEPHONE SERVICES TELEPHONE EXCHANGES AND REDEMPTIONS 1 (800) 342-6221
You automatically receive telephone privileges when you open a First Investors
individual, joint, or custodial account unless you decline the option on your
account application or send the Fund written instructions. For trusts, estates,
attorneys-in-fact, corporations, partnerships, and other entities, additional
documents are required. Call Shareholder Services at 1 (800) 423-4026 for
assistance.
Telephone privileges allow you to exchange or redeem shares and authorize other
transactions by calling Special Services at 1 (800) 342-6221 from 9:00 a.m. to
5:00 p.m., EST, on any day the NYSE is open. Your First Investors registered
representative may also use telephone privileges to execute your transactions.
oSECURITY MEASURES For your protection, the following security measures are
taken:
1: Telephone requests are recorded to verify accuracy.
2: Some or all of
the following information is obtained:
- -Account number -Address -Social security
number
- -Other information as deemed necessary
3: A written confirmation of each
transaction is mailed to you.
We will not be liable for following instructions
if we reasonably believe the instructions are genuine based on our verification
procedures.
oELIGIBILITY
NON-RETIREMENT ACCOUNTS:
You can exchange or redeem shares of any non-retirement account by phone. Shares
must be owned for 15 days for telephone redemption. Telephone exchanges and
redemptions are not available on guardianship and conservatorship accounts.
RETIREMENT ACCOUNTS:
You can exchange between shares of any participant directed IRA, 403(b) or
401(k) Simplifier plan where First Financial Savings Bank, S.L.A. is Custodian.
You may also exchange shares from an individually registered non-retirement
account to an IRA account registered to the same owner (provided an IRA
application is on file). Telephone exchanges are permitted on 401(k) Flexible
plans, money purchase pension plans and profit sharing plans if a First
Investors Qualified Retirement Plan Application is on file with the fund.
Contact your First Investors registered representative or call Shareholder
Services at 1 (800) 423-4026 to obtain a Qualified Retirement Plan Application.
Telephone redemptions are not permitted on First Investors retirement accounts.
20
<PAGE>
SHAREHOLDER SERVICES:
1 (800) 423-4026
PROVIDED YOU HAVE NOT DECLINED TELEPHONE PRIVILEGES, CALL US TO UPDATE OR
CORRECT:
- -Your address or phone number.
- -Your birth date (important for retirement distributions).
- -Your distribution option to reinvest or pay in cash (non-retirement accounts
only) or initiate cross reinvestment of dividends.
- -The amount of your Money Line or Automatic Payroll Investment payment.
- -The allocation of your Money Line or Automatic Payroll Investment payment.
- -The amount of your Systematic Withdrawal payment.
TO REQUEST:
- -A duplicate copy of a statement or tax form.
- -A history of your account (the fee can be debited from your non-retirement
account).
- -A share certificate to be mailed to your address of record.
- -A stop payment on a dividend, redemption or money market check.
- -Suspension (up to six months) or cancellation of Money Line.
- -Cancellation of your Systematic Withdrawal Plan.
- -Cancellation of cross-reinvestment of dividends.
- -Money market fund draft checks.
21
<PAGE>
OTHER SERVICES
oREINVESTMENT PRIVILEGE
If you sell some or all of your Class A or Class B shares, you may be entitled
to reinvest all or a portion of the proceeds in the same class of shares of a FI
fund within six months of the redemption without a sales charge.
If you reinvest proceeds into a new fund account, you must meet the fund's
minimum initial investment requirement.
If you reinvest all the proceeds from a Class B share redemption, you will be
credited, in additional shares, for the full amount of the CDSC. If you reinvest
a portion of a Class B share redemption, you will be credited with a pro-rated
percentage of the CDSC.
The reinstatement privilege does not apply to automated purchases, automated
redemptions, or reinvestments in Class B shares of less than $1,000. Please
notify us if you qualify for this privilege. For more information, call
Shareholder Services at 1 (800) 423-4026.
oCERTIFICATE SHARES
Every time you make a purchase of Class A shares, we will credit shares to your
fund account. We do not issue shares certificates unless you specifically
request them. Certificates are not issued on any Class B shares or on Class A
money market funds.
Having us credit shares on your behalf eliminates the expense of replacing lost,
stolen, or destroyed certificates. If a certificate is lost, stolen, or damaged,
you will be charged a replacement fee of the greater of 2% of the current value
of the certificated shares or $25.
In addition, certificated shares cannot be redeemed or exchanged until they are
returned with your transaction request. The share certificate must be properly
endorsed and signature guaranteed.
oMoney Market Fund Draft Checks
Free draft check writing privileges are available when you open a First
Investors Cash Management Fund or a First Investors Tax Exempt Money Market Fund
account. Checks may be written for a minimum of $500. Draft checks are not
available for Class B share accounts, retirement accounts, guardianships and
conservatorships. Complete the Money Market Fund Check Redemption section of the
account application to apply for draft checks. To order additional checks, call
Shareholder Services at 1 (800) 423-4026.
Additional documentation is required to establish check writing privileges for
trusts, corporations, partnerships and other entities. Call Shareholder Services
at 1 (800) 423-4026 for further information.
_______________________________________________________________________________
FEE TABLE
Call Shareholder Services at 1 (800) 423-4026 or send your request to FIC, Attn:
Correspondence Dept., 581 Main Street, Woodbridge N.J. 07095-1198 to request a
copy of the following records:
ACCOUNT HISTORY STATEMENTS CANCELLED CHECKS
1974 - 1982* $10 per year fee There is a $10 fee for a copy of a
1983 - present $5 total fee for all years cancelled dividend, liquidation, or
Current & investment check requested. There
Two Prior Years Free cancelled money market draft check.
DUPLICATE TAX FORMS
Current Year Free
Prior Year(s) $7.50 per tax form
per year
* ACCOUNT HISTORIES ARE NOT AVAILABLE
PRIOR TO 1974.
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oRETURN MAIL
If mail is returned to the fund marked undeliverable by the U.S. Postal Service
after two consecutive mailings, and the fund is unable to obtain a current
shareholder address, the account status will be changed to "Do Not Mail" to
discontinue future mailings and prevent unauthorized persons from obtaining
account information.
You can remove the "Do Not Mail" status on your account by submitting written
instructions including your current address signed by all shareholders with a
signature guarantee (see Signature Guarantee Policy). Additional requirements
may apply for certain accounts. Call Shareholder Services at 1 (800) 423-4026
for more information.
Returned dividend checks and other distributions will be reinvested in the fund
when an account's status has been changed to "Do Not Mail". No interest will be
paid on outstanding checks prior to reinvestment. All future dividends and other
distributions will be reinvested in additional shares until new instructions are
provided. If you cannot be located within a period of time mandated by your
state of residence your fund shares may be turned over to your state (in other
words forfeited).
Prior to turning over assets to your state, the fund will seek to obtain a
current shareholder address in accordance with Securities and Exchange
Commission rules. A search company may be employed to locate a current address.
The fund may deduct the costs associated with the search from your account.
oTRANSFERRING SHARES
A transfer is a change of share ownership from one customer to another. Unlike
an exchange, transfers occur within the same fund. You can transfer your shares
at any time.
To transfer shares, submit a letter of instruction including:
- -Your account number.
- -Dollar amount, percentage, or number of shares to be transferred.
- -Existing account number receiving the shares (IF ANY).
- -The name(s), registration, and taxpayer identification number of the customer
receiving the shares.
- -The signature of each account owner requesting the transfer with signature
guarantee(s).
In addition, we will request that the transferee complete a Master Account
Agreement to establish a brokerage account with First Investors Corporation and
validate his or her social security number to avoid back-up withholding. If the
transferee declines to complete an MAA, all transactions in the account must be
on an unsolicited basis and the account will be so coded.
Depending upon your account registration, additional documentation may be
required to transfer shares. Transfers due to the death or disability of a
shareholder also require additional documentation. Please call our Shareholder
Services Department at 1 (800) 423-4026 for specific transfer requirements
before initiating a request.
A transfer is a change of ownership and may trigger a taxable event. You should
consult your tax advisor before initiating a transfer.
23
<PAGE>
ACCOUNT STATEMENTS
oTRANSACTION CONFIRMATION STATEMENTS
You will receive a confirmation statement immediately after most transactions.
These include:
- -shareorder purchases
- -check investments
- -redemptions
- -exchanges
- -transfers
- -systematic withdrawals
Money Line and Automatic Payroll Investment purchases are not confirmed for each
transaction. They will appear on your next regularly scheduled monthly or
quarterly statement (see Dividend Schedule under "Dividends and Distributions").
A separate confirmation statement is generated for each fund account you own. It
provides:
- -Your fund account number -The date of the transaction
- -A description of the transaction (PURCHASE, REDEMPTION, ETC.)
- -The number of shares bought or sold for the transaction
- -The dollar amount of the transaction
- -The dollar amount of the dividend payment (IF APPLICABLE)
- -The total share balance in the account -The dollar amount of any dividends or
capital gains paid
- -The number of shares held by you, held for you (INCLUDING ESCROW SHARES), and
the total number of shares you own.
The confirmation statement also provides a perforated Investment Stub with your
preprinted name, registration, and fund account number for future investments.
oMASTER ACCOUNT STATEMENTS
If First Investors Corporation is your broker, you will receive a Master Account
Statement for all your identically owned First Investors fund accounts on at
least a quarterly basis. The Master Account Statement will also include a recap
of any First Investors Life Insurance and Executive Investors Trust accounts you
may own. Joint accounts registered under your taxpayer identification number
will appear on a separate Master Account Statement but may be mailed in the same
envelope upon request.
The Master Account Statement provides the following information for each First
Investors fund you own:
- -fund name
- -fund's current market value
- -total distributions paid year-to-date
- -total number of shares owned
oANNUAL AND SEMI-ANNUAL REPORTS
You will also receive an Annual and a Semi-Annual Report. These financial
reports show the assets, liabilities, revenues, expenses, and earnings of the
fund as well as a detailed accounting of all portfolio holdings. You will
receive one report per household.
24
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
oDIVIDENDS AND DISTRIBUTIONS
For funds that declare daily dividends, you start earning dividends on the day
your purchase is made. For FI money market funds, you start earning dividends on
the day federal funds are credited to your fund account. The funds declare
dividends from net investment income and distribute the accrued earnings to
shareholders as noted below:
________________________________________________________________________________
DIVIDEND PAYMENT SCHEDULE
________________________________________________________________________________
MONTHLY: QUARTERLY: ANNUALLY (IF ANY):
Cash Management Fund Blue Chip Fund Global Fund
Fund for Income Growth & Income Fund Special Situations Fund
Government Fund Total Return Fund Mid-Cap Opportunity Fund
Insured Intermediate Tax-Exempt Utilities Income Fund
Insured Tax Exempt Fund
Investment Grade Fund
High Yield Fund
Multi-State Insured Tax Free Fund
New York Insured Tax Free Fund
Tax-Exempt Money Market Fund
________________________________________________________________________________
Capital gains distributions, if any, are paid annually, usually near the end of
the fund's fiscal year. On occasion, more than one capital gains distribution
may be paid during one year. Dividend and capital gains distributions are
automatically reinvested to purchase additional fund shares unless otherwise
instructed. Dividend payments of less than $5.00 are automatically reinvested to
purchase additional fund shares.
oBUYING A DIVIDEND
If you buy shares shortly before the record date of the dividend, the entire
dividend you receive may be taxable even though a part of the distribution is
actually a return of your purchase price. This is called "buying a dividend."
There is no advantage to buying a dividend because a fund's net asset value per
share is reduced by the amount of the dividend.
25
<PAGE>
<TABLE>
<CAPTION>
TAX FORMS
TAX FORM DESCRIPTION MAILED BY
<S> <C> <C>
_________________________________________________________________________________________________
1099-DIV Consolidated report lists all taxable dividend and capital gains January 31
distributions for all of the shareholder's accounts. Also includes
foreign taxes paid and any federal income tax withheld due to backup
withholding.
_________________________________________________________________________________________________
1099-B Lists proceeds from all redemptions including systematic January
31 withdrawals and exchanges. A separate form is issued for each
fund account. Includes amount of federal income tax withheld due
to backup withholding.
_________________________________________________________________________________________________
1099-R Lists taxable distributions from a retirement account. A separate January 31
form is issued for each fund account. Includes federal
income tax withheld due to IRS withholding requirements.
_________________________________________________________________________________________________
5498 Provided to shareholders who made an annual IRA May 31
contribution or rollover purchase. Also provides the account's
fair market value as of the last business day of the previous year.
A separate form is issued for each fund account.
_________________________________________________________________________________________________
1042-S Provided to non-resident alien shareholders to report the amount March 15
of fund dividends paid and the amount of federal taxes
withheld. A separate form is issued for each fund account.
_________________________________________________________________________________________________
Cost Basis Uses the "average cost-single category" method to show the cost January 31
Statement basis of any shares sold or exchanged. Information is provided
to assist shareholders in calculating capital gains or losses. A
separate statement, included with Form 1099-B, is issued for each
fund account. This statement is not reported to the IRS and does
not include money market funds or retirement accounts.
_________________________________________________________________________________________________
Tax Savings Consolidated report lists all amounts not subject to federal, January 31
Report for state and local income tax for all the shareholder's accounts.
Non-Taxable Also includes any amounts subject to alternative minimum tax.
Income
_________________________________________________________________________________________________
Tax Savings Provides the percentage of income paid by each fund that may January 31
Summary be exempt from state income tax.
_________________________________________________________________________________________________
</TABLE>
THE OUTLOOK
Today's strategies for tomorrow's goals are brought into focus in the OUTLOOK,
the quarterly newsletter for clients of First Investors Corporation. This
informative tool discusses the products and services we offer to help you take
advantage of current market conditions and tax law changes. The OUTLOOK'S
straight forward approach and timely articles make it a valuable resource. As
always, your registered representative is available to provide you with
additional information and assistance. Material contained in this publication
should not be considered legal, financial, or other professional advice.
26
<PAGE>
Principal Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
Transfer Agent
Administrative Data
Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
A-13
<PAGE>
FIRST INVESTORS GOVERNMENT FUND, INC.
FIRST INVESTORS INVESTMENT GRADE FUND
A SERIES OF FIRST INVESTORS SERIES FUND
FIRST INVESTORS FUND FOR INCOME, INC.
FIRST INVESTORS HIGH YIELD FUND, INC.
95 Wall Street
New York, New York 10005
1-800-423-4026
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 19, 1999
This is a Statement of Additional Information ("SAI") for FIRST INVESTORS
GOVERNMENT FUND, INC. ("GOVERNMENT FUND"), FIRST INVESTORS INVESTMENT GRADE FUND
("INVESTMENT GRADE FUND"), A SERIES OF FIRST INVESTORS SERIES FUND ("SERIES
FUND"), FIRST INVESTORS FUND FOR INCOME, INC. ("INCOME FUND"), and FIRST
INVESTORS HIGH YIELD FUND, INC. ("HIGH YIELD Fund"). Each fund is an open-end
diversified management investment company. Series Fund offers five separate
series, one of which INVESTMENT GRADE FUND, is described in this SAI, while HIGH
YIELD FUND, INCOME FUND and GOVERNMENT FUND each offers one series. GOVERNMENT
FUND, INVESTMENT GRADE FUND, INCOME FUND, AND HIGH YIELD FUND are referred to
herein collectively as "Funds."
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectus dated February 19, 1999, which may be obtained free of cost
from the Funds at the address or telephone number noted above. Information
regarding the purchase, redemption, sale and exchange of your Fund shares is
contained in the Shareholder Manual, a separate section of the SAI that is a
distinct document and may also be obtained free of charge by contacting your
Fund at the address or telephone number noted above.
TABLE OF CONTENTS
PAGE
Investment Strategies and Risks...................................... 1
Investment Policies.................................................. 4
Futures and Options Strategies...................................... 11
Investment Restrictions.............................................. 14
Portfolio Turnover................................................... 19
Directors/Trustees and Officers...................................... 20
Management........................................................... 22
Underwriter.......................................................... 24
Distribution Plans................................................... 24
Determination of Net Asset Value..................................... 26
Allocation of Portfolio Brokerage.................................... 27
Purchase, Redemption and Exchange of Shares.......................... 28
Taxes................................................................ 29
Performance Information.............................................. 31
General Information.................................................. 37
Appendix A........................................................... A-1
Appendix B........................................................... A-4
Appendix C........................................................... A-6
Reports of Independent Accountants................................... A-13
Financial Statements................................................. A-14
Shareholder Manual: A Guide to your First Investors Mutual Fund
Account............................................................
<PAGE>
INVESTMENT STRATEGIES AND RISKS
GOVERNMENT FUND
GOVERNMENT FUND seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal by investing, under
normal market conditions, at least 80% of its assets in U.S. Government
Obligations (including mortgage-backed securities). The Fund has no fixed policy
with respect to the duration of U.S. Government Obligations it purchases.
Securities issued or guaranteed as to payment of principal and interest (but not
market value) by the U.S. Government include a variety of Treasury securities,
which differ only in their interest rates, maturities and times of issuance.
Although the payment of interest and principal on a portfolio security may be
guaranteed by the U.S. Government or one of its agencies or instrumentalities,
shares of GOVERNMENT FUND are not insured or guaranteed by the U.S. Government
or any agency or instrumentality. The net asset value of shares of the Fund
generally will fluctuate in response to interest rate levels. When interest
rates rise, prices of fixed income securities generally decline; when interest
rates decline, prices of fixed income securities generally rise. See "U.S.
Government Obligations" and "Debt Securities," below.
GOVERNMENT FUND may invest in mortgage-backed securities, including
Government National Mortgage Association ("GNMA") certificates, Federal National
Mortgage Association ("FNMA") certificates and Federal Home Loan Mortgage
Corporation ("FHLMC") certificates. The Fund also may invest in securities
issued or guaranteed by other U.S. Government agencies or instrumentalities,
including: the Federal Farm Credit System (obligations supported only by the
credit of the issuer, but do not give the issuer the right to borrow from the
U.S. Treasury, and are not guaranteed by the U.S. Government); the Federal Home
Loan Bank (obligations supported by the right of the issuer to borrow from the
U.S. Treasury to meet its obligations but are not guaranteed by the U.S.
Government); the Tennessee Valley Authority and the U.S. Postal Service (the
obligations of each supported by the right of the issuer to borrow from the U.S.
Treasury to meet it obligations); and the Farmers Home Administration and the
Export-Import Bank (obligations backed by the full faith and credit of the
United States). The Fund may invest in collateralized mortgage obligations
("CMOs") and stripped mortgage-backed securities issued or guaranteed by the
U.S. Government, its agencies, authorities or instrumentalities. See
"Mortgage-Backed Securities," below.
The Fund may, from time to time or for temporary defensive purposes,
invest up to 20% of its assets in prime commercial paper, certificates of
deposit of domestic branches of U.S. banks, bankers' acceptances, repurchase
agreements (applicable to U.S. Government Obligations), participation interests,
insured certificates of deposit and certificates representing accrual on U.S.
Treasury securities. The Fund also may purchase securities on a when-issued
basis and make loans of portfolio securities. The Fund may borrow money on a
temporary or emergency basis in amounts not exceeding 5% of its total assets.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INVESTMENT GRADE FUND
INVESTMENT GRADE FUND seeks to generate a maximum level of income
consistent with investment in investment grade debt securities. The Fund seeks
to achieve its objective by investing, under normal market conditions, at least
65% of its total assets in debt securities of U.S. issuers that are rated in the
four highest rating categories by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"), or in unrated securities that are
deemed to be of comparable quality ("investment grade securities") by the Fund's
Investment Adviser, First Investors Management Company, Inc. ("FIMCO" or
"Adviser"). The Fund may invest up to 35% of its total assets in U.S. Government
Obligations (including mortgage-backed securities), dividend-paying common and
1
<PAGE>
preferred stocks, obligations convertible into common stocks, repurchase
agreements, debt securities rated below investment grade and money market
instruments. The Fund may invest up to 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 Fund also may borrow money for temporary or
emergency purposes in amounts not exceeding 5% of its total assets. The Fund may
make loans of portfolios securities and invest up to 5% of its net assets in
securities issued on a when-issued or delayed delivery basis. The Fund may
invest up to 5% of its net assets in zero coupon or pay-in-kind securities.
Although up to 100% of the Fund's total assets can be invested in debt
securities rated at least Baa by Moody's or at least BBB by S&P, or unrated debt
securities deemed to be of comparable quality by the Adviser, no more than 5% of
the Fund's net assets may be invested in debt securities rated lower than Baa by
Moody's or BBB by S&P (commonly referred to as "high yield bonds" or "junk
bonds") (including securities that have been downgraded), or if unrated, deemed
to be of comparable quality by the Adviser, or in any equity securities of any
issuer if a majority of the debt securities of such issuer are rated lower than
Baa by Moody's or BBB by S&P. The Adviser continually monitors the investments
in the Fund's portfolio and carefully evaluates on a case-by-case basis whether
to dispose of or retain a debt security which has been downgraded to a rating
lower than investment grade. However, if downgrading results in the Fund holding
more than 5% of its net assets in securities rated lower than Baa by Moody's or
BBB by S&P, the Adviser will sell sufficient securities to stay within this
limit. See "Debt Securities" and Appendix A for a description of corporate bond
ratings.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
HIGH YIELD FUND AND INCOME FUND
The HIGH YIELD FUND primarily seeks high current income and secondarily
seeks capital appreciation by investing, under normal market conditions, at
least 65% of its total assets in high risk, high yield securities, commonly
referred to as "junk bonds" ("High Yield Securities"). Similarly, the INCOME
FUND primarily seeks to earn a high level of current income and, to the extent
possible, in view of that objective, secondarily seeks growth of capital by
emphasizing, under normal market conditions, investments in High Yield
Securities.
High Yield Securities include the following instruments: fixed, variable
or floating rate debt obligations (including bonds, debentures and notes) which
are rated below Baa by Moody's or below BBB by S&P, or are unrated and deemed to
be of comparable quality by the Fund's Adviser; preferred stocks and
dividend-paying common stocks that have yields comparable to those of high
yielding debt securities; any of the foregoing securities of companies that are
financially troubled, in default or undergoing bankruptcy or reorganization
("Deep Discount Securities"); and any securities convertible into any of the
foregoing. See "High Yield Securities" and "Deep Discount Securities," below.
Each Fund may invest in debt securities issued by foreign governments and
companies and in foreign currencies for the purpose of purchasing such
securities. However, a Fund may not invest more than 5% of its total assets in
debt securities issued by foreign governments and companies that are denominated
in foreign currencies. Each Fund may invest up to 5% of its total assets in debt
securities of issuers located in emerging market countries. Each Fund also may
borrow money for temporary or emergency purposes in amounts not exceeding 5% of
its total assets, invest up to 10% of its net assets in securities issued on a
when-issued or delayed delivery basis, invest up to 15% of its net assets in
restricted securities (which may not be publicly marketable), and invest in zero
coupon and pay-in-kind securities. In addition, HIGH YIELD FUND may make loans
of portfolio securities.
2
<PAGE>
HIGH YIELD FUND may invest up to 35% of its total assets, and INCOME FUND
may invest without limitation, in the following instruments: common and
preferred stocks, other than those considered to be High Yield Securities; debt
obligations of all types (including bonds, debentures and notes) rated A or
better by Moody's or S&P; securities issued by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Obligations"); warrants and
money market instruments consisting of prime commercial paper, certificates of
deposit of domestic branches of U.S. banks, bankers' acceptances and repurchase
agreements.
In any period of market weakness or of uncertain market or economic
conditions, each Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents, including bank certificates
of deposit, bankers' acceptances, U.S. Government Obligations and commercial
paper issued by domestic corporations.
The medium- to lower-rated, and certain of the unrated, securities in
which each Fund invests tend to offer higher yields than higher-rated securities
with the same maturities because the historical financial condition of the
issuers of such securities may not be as strong as that of other issuers. Debt
obligations rated lower than A by Moody's or S&P have speculative
characteristics or are speculative, and generally involve more risk of loss of
principal and income than higher-rated securities. Also, their yields and market
values tend to fluctuate more than those of higher quality securities. The
greater risks and fluctuations in yield and value occur because investors
generally perceive issuers of lower-rated and unrated securities to be less
creditworthy. These risks cannot be eliminated, but may be reduced by
diversifying holdings to minimize the portfolio impact of any single investment.
In addition, fluctuations in market value do not affect the cash income from the
securities, but are reflected in the computation of a Fund's net asset value.
When interest rates rise, the net asset value of the Funds tends to decrease.
When interest rates decline, the net asset value of the Funds tends to increase.
Variable or floating rate debt obligations in which the Funds may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
investor. This reduces the effect of changing market conditions on the
security's underlying market value.
A High Yield Security may itself be convertible into or exchangeable for
equity securities, or may carry with it the right to acquire equity securities
evidenced by warrants attached to the security or acquired as part of a unit
with the security. Although each Fund invests primarily in High Yield
Securities, securities received upon conversion or exercise of warrants and
securities remaining upon the break-up of units or detachment of warrants may be
retained to permit orderly disposition, to establish a long-term holding period
for Federal income tax purposes, or to seek capital appreciation.
Because of the greater number of investment considerations involved in
investing in High Yield Securities, the achievement of either Fund's investment
objectives depends more on the Adviser's research abilities than would be the
case if a Fund were investing primarily in securities in the higher rated
categories. Because medium- to lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities, investors
should consider carefully the relative risks associated with investments in
securities that carry medium to lower ratings or are unrated. See "Types of
Securities and Their Risks-High Yield Securities" and Appendix A for a
description of corporate bond ratings.
Each Fund seeks to achieve its secondary objective to the extent
consistent with its primary objective. There can be no assurance that either
Fund will be able to achieve its investment objectives. Each Fund's net asset
3
<PAGE>
value fluctuates based mainly upon changes in the value of its portfolio
securities.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INVESTMENT POLICIES
BANKERS' ACCEPTANCES. Each Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
CERTIFICATES OF ACCRUAL ON U.S. TREASURY SECURITIES. GOVERNMENT FUND may
purchase certificates, not issued by the U.S. Treasury, which evidence ownership
of future interest, principal or interest and principal payments on obligations
issued by the U.S. Treasury. The actual U.S. Treasury securities will be held by
a custodian on behalf of the certificate holder. These certificates are
purchased with original issue discount and are subject to greater fluctuations
in market value, based upon changes in market interest rates, than
income-producing securities.
CERTIFICATES OF DEPOSIT. Each Fund may invest in bank certificates of
deposit ("CDs"). The Federal Deposit Insurance Corporation is an agency of the
U.S. Government which insures the deposits of certain banks and savings and loan
associations up to $100,000 per deposit. The interest on such deposits may not
be insured if this limit is exceeded. Current Federal regulations also permit
such institutions to issue insured negotiable CDs in amounts of $100,000 or
more, without regard to the interest rate ceilings on other deposits. To remain
fully insured, these investments currently must be limited to $100,000 per
insured bank or savings and loan association.
CONVERTIBLE SECURITIES. HIGH YIELD FUND, INCOME FUND AND INVESTMENT GRADE
FUND may invest in convertible securities. The convertible securities in which
the Funds may invest will be rated no higher nor lower by Moody's or by S&P than
the bonds in which each Fund may invest. While no securities investment is
without some risk, investments in convertible securities generally entail less
risk than the issuer's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security. The Adviser will
decide to invest based upon a fundamental analysis of the long-term
attractiveness of the issuer and the underlying common stock, the evaluation of
the relative attractiveness of the current price of the underlying common stock
and the judgment of the value of the convertible security relative to the common
stock at current prices.
DEBT SECURITIES. Each Fund may invest in debt securities. The market value
of debt securities is influenced primarily by changes in the level of interest
rates. Generally, as interest rates rise, the market value of debt securities
decreases. Conversely, as interest rates fall, the market value of debt
securities increases. Factors which could result in a rise in interest rates,
and a decrease in the market value of debt securities, include an increase in
inflation or inflation expectations, an increase in the rate of U.S. economic
growth, an expansion in the Federal budget deficit or an increase in the price
of commodities such as oil. In addition, the market value of debt securities is
influenced by perceptions of the credit risks associated with such securities.
Credit risk is the risk that adverse changes in economic conditions can affect
an issuer's ability to pay principal and interest. See Appendix A for a
description of corporate bond ratings.
4
<PAGE>
DEEP DISCOUNT SECURITIES. HIGH YIELD FUND AND INCOME FUND may each invest
up to 15% of its total assets in securities of companies that are financially
troubled, in default or undergoing bankruptcy or reorganization. Such securities
are usually available at a deep discount from the face value of the instrument.
A Fund will invest in Deep Discount Securities when the Adviser believes that
there exist factors that are likely to restore the company to a healthy
financial condition. Such factors include a restructuring of debt, management
changes, existence of adequate assets or other unusual circumstances. Debt
instruments purchased at deep discounts may pay very high effective yields. In
addition, if the financial condition of the issuer improves, the underlying
value of the security may increase, resulting in a capital gain. If the company
defaults on its obligations or remains in default, or if the plan of
reorganization is insufficient for debtholders, the Deep Discount Securities may
stop paying interest and lose value or become worthless. The Adviser will
attempt to balance the benefits of investing in Deep Discount Securities with
their risks. While a diversified portfolio may reduce the overall impact of a
Deep Discount Security that is in default or loses its value, the risk cannot be
eliminated. See "High Yield Securities," below.
FOREIGN GOVERNMENT OBLIGATIONS. INVESTMENT GRADE FUND, HIGH YIELD FUND AND
INCOME FUND may invest in foreign government obligations, which generally
consist of obligations supported by national, state or provincial governments or
similar political subdivisions. Investments in foreign government debt
obligations involve special risks. The issuer of the debt may be unable or
unwilling to pay interest or repay principal when due in accordance with the
terms of such debt, and a Fund may have limited legal resources in the event of
default. Political conditions, especially a sovereign entity's willingness to
meet the terms of its debt obligations, are of considerable significance.
FOREIGN SECURITIES-RISK FACTORS. INVESTMENT GRADE FUND, HIGH YIELD FUND
AND INCOME FUND may sell a security denominated in a foreign currency and retain
the proceeds in that foreign currency to use at a future date (to purchase other
securities denominated in that currency) or the Fund may buy foreign currency
outright to purchase securities denominated in that foreign currency at a future
date. Investing in foreign securities involves more risk than investing in
securities of U.S. companies. Each Fund currently does not intend to hedge its
foreign investments against the risk of foreign currency fluctuations.
Accordingly, changes in the value of foreign currencies can significantly affect
a Fund's share price, irrespective of developments relating to the issuers of
securities held by the Funds. In addition, a Fund will be affected by changes in
exchange control regulations and fluctuations in the relative rates of exchange
between the currencies of different nations, as well as by economic and
political developments. Other risks involved in foreign securities include the
following: there may be less publicly available information about foreign
companies comparable to the reports and ratings that are published about
companies in the United States; foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies; some foreign stock markets
have substantially less volume than U.S. markets, and securities of some foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies; there may be less government supervision and regulation of foreign
stock exchanges, brokers and listed companies than exist in the United States;
and there may be the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments which could affect
assets of a Fund held in foreign countries.
HIGH YIELD SECURITIES. HIGH YIELD FUND, INCOME FUND AND INVESTMENT GRADE
FUND may invest in High Yield Securities. High Yield Securities are subject to
greater risks than those that are present with investments in higher grade debt
securities, as discussed below.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. Debt obligations rated
lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds,"
are speculative and generally involve a higher risk or loss of principal and
income than higher-rated debt securities. The prices of High Yield Securities
tend to be less sensitive to interest rate changes than higher-rated
investments, but may be more sensitive to adverse economic changes or individual
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corporate developments. Periods of economic uncertainty and changes generally
result in increased volatility in the market prices and yields of High Yield
Securities and thus in a Fund's net asset value. A significant economic downturn
or a substantial period of rising interest rates could severely affect the
market for High Yield Securities. In these circumstances, highly leveraged
companies might have greater difficulty in making principal and interest
payments, meeting projected business goals, and obtaining additional financing.
Thus, there could be a higher incidence of default. This would affect the value
of such securities and thus a Fund's net asset value. Further, if the issuer of
a security owned by a Fund defaults, that Fund might incur additional expenses
to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, a Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a Fund experiences unexpected net redemptions in a
rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Fund expenses could be allocated and in a reduced rate of return for that
Fund. While it is impossible to protect entirely against this risk,
diversification of a Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities helps to minimize the impact of a decrease in
value of a particular security or group of securities in a Fund's portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below investment
grade bonds expanded rapidly in recent years and its growth paralleled a long
economic expansion. At times in the past, the prices of many lower-rated debt
securities have declined substantially, reflecting an expectation that many
issuers of such securities might experience financial difficulties. As a result,
the yields on lower-rated debt securities rose dramatically. However, such
higher yields did not reflect the value of the income streams that holders of
such securities expected, but rather the risk that holders of such securities
could lose a substantial portion of their value as a result of the issuers'
financial restructuring or default. There can be no assurance that such declines
in the below investment grade market will not reoccur. The market for below
investment grade bonds generally is thinner and less active than that for higher
quality bonds, which may limit a Fund's ability to sell such securities at
reasonable prices 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. Each Fund which is
permitted to invest in High Yield Securities may invest in securities rated as
low as D by S&P or C by Moody's or, if unrated, deemed to be of comparable
quality by the Adviser. Debt obligations with these ratings either have
defaulted or are in great danger of defaulting and are considered to be highly
speculative. See "Deep Discount Securities." The Adviser continually monitors
the investments in a Fund's portfolio and carefully evaluates whether to dispose
of or retain High Yield Securities whose credit ratings have changed. See
Appendix A for a description of corporate bond ratings.
LIQUIDITY AND VALUATION. Lower-rated bonds are typically traded
among a smaller number of broker-dealers than in a broad secondary market.
Purchasers of High Yield Securities tend to be institutions, rather than
individuals, which is a factor that further limits the secondary market. To the
extent that no established retail secondary market exists, many High Yield
Securities may not be as liquid as higher-grade bonds. A less active and thinner
market for High Yield Securities than that available for higher quality
securities may result in more volatile valuations of a Fund's holdings and more
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difficulty in executing trades at favorable prices during unsettled market
conditions.
The ability of a Fund to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. During such periods, there may be less reliable objective information
available and thus the responsibility of each Fund's Board of Directors 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.
MONEY MARKET INSTRUMENTS. Each Fund may invest in money market
instruments. Investments in commercial paper are limited to obligations rated
Prime-l by Moody's or A-l by S&P. Commercial paper includes notes, drafts, or
similar instruments payable on demand or having a maturity at the time of
issuance not exceeding nine months, exclusive of days of grace or any renewal
thereof. Investments in certificates of deposit will be made only with domestic
institutions with assets in excess of $500 million. See Appendix A for a
description of commercial paper ratings.
PREFERRED STOCK. Each Fund may invest in preferred stock. A preferred
stock is a security which has 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.
LOANS OF PORTFOLIO SECURITIES. While they have no present intention of
doing so in the coming year, HIGH YIELD FUND, INVESTMENT GRADE FUND AND
GOVERNMENT FUND may loan securities to qualified broker-dealers or other
institutional investors provided: the borrower pledges to the Fund and agrees to
maintain at all times with the Fund collateral equal to not less than 100% of
the value of the securities loaned (plus accrued interest or dividend, if any);
the loan is terminable at will by the Fund; the Fund pays only reasonable
custodian fees in connection with the loan; and the Adviser monitors the
creditworthiness of the borrower throughout the life of the loan. Such loans may
be terminated by the Fund at any time and the Fund may vote the proxies if a
material event affecting the investment is to occur. The market risk applicable
to any security loaned remains a risk of the Fund. The borrower must add to the
collateral whenever the market value of the securities rises above the level of
such collateral. The Fund could incur a loss if the borrower should fail
financially at a time when the value of the loaned securities is greater than
the collateral.
MORTGAGE-BACKED SECURITIES. GOVERNMENT FUND AND INVESTMENT GRADE FUND may
invest in mortgage-backed securities, including those representing an undivided
ownership interest in a pool of mortgage loans. Each of the certificates
described below is characterized by monthly payments to the security holder,
reflecting the monthly payments made by the mortgagees of the underlying
mortgage loans. The payments to the security holders (such as the Fund), like
the payments on the underlying loans, generally represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, such as twenty to thirty years, the borrowers can, and typically do, repay
them sooner. Thus, the security holders frequently receive prepayments of
principal, in addition to the principal which is part of the regular monthly
payments. A borrower is more likely to prepay a mortgage which bears a
relatively high rate of interest. Thus, in times of declining interest rates,
some higher yielding mortgages might be repaid resulting in larger cash payments
to the Fund, and the Fund will be forced to accept lower interest rates when
that cash is used to purchase additional securities.
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Interest rate fluctuations may significantly alter the average maturity of
mortgage-backed securities by changing the rates at which homeowners refinance
mortgages. When interest rates rise, prepayments often drop, which should
increase the average maturity of the mortgage-backed security. Conversely, when
interest rates fall, prepayments often rise, which should decrease the average
maturity of the mortgage-backed security.
GNMA CERTIFICATES. GNMA Certificates are mortgage-backed securities,
which evidence an undivided interest in a pool of mortgage loans. In the case of
GNMA Certificates, principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA Certificates
that the Fund purchases are the "modified pass-through" type. "Modified
pass-through" GNMA Certificates entitle the holder to receive a share of all
interest and principal payments paid and owed on the mortgage pool net of fees
paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to
guarantee the timely payment of principal and interest on securities backed by a
pool of mortgages insured by the Federal Housing Administration ("FHA") or the
Farmers' Home Administration ("FMHA"), or guaranteed by the Department of
Veteran Affairs ("VA"). The GNMA guarantee is backed by the full faith and
credit of the U.S. Government. GNMA also is empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before maturity of the mortgages in the pool. The Fund normally
will not distribute principal payments (whether regular or prepaid) to its
shareholders. Rather, it will invest such payments in additional mortgage-backed
securities of the types described above. Interest received by the Fund will,
however, be distributed to shareholders. Foreclosures impose no risk to
principal investment because of the GNMA guarantee. As prepayment rates of the
individual mortgage pools vary widely, it is not possible to predict accurately
the average life of a particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of
interest on GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the Certificates by the amount
of the fees paid to GNMA and the issuer. The coupon rate by itself, however,
does not indicate the yield which will be earned on GNMA Certificates. First,
Certificates may trade in the secondary market at a premium or discount. Second,
interest is earned monthly, rather than semi-annually as with traditional bonds;
monthly compounding raises the effective yield earned. Finally, the actual yield
of a GNMA Certificate is influenced by the prepayment experience of the mortgage
pool underlying it. For example, if the higher-yielding mortgages from the pool
are prepaid, the yield on the remaining pool will be reduced.
FHLMC SECURITIES. FHLMC issues two types of mortgage pass-through
securities, mortgage participation certificates ("PCs") and guaranteed mortgage
certificates ("GMCs"). PCs resemble GNMA Certificates in that each PC represents
a pro rata share of all interest and principal payments made and owed on the
underlying pool.
FNMA SECURITIES. FNMA issues guaranteed mortgage pass-through
certificates ("FNMA Certificates"). FNMA Certificates resemble GNMA Certificates
in that each FNMA Certificate represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. FNMA guarantees timely
payment of interest on FNMA Certificates and the full return of principal.
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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.
PARTICIPATION INTERESTS. Participation interests which may be held by
GOVERNMENT Fund are pro rata interests in securities held either by banks which
are members of the Federal Reserve System or securities dealers who are members
of a national securities exchange or are market makers in government securities,
which are represented by an agreement in writing between the Fund and the entity
in whose name the security is issued, rather than possession by the Fund. The
Fund will purchase participation interests only in securities otherwise
permitted to be purchased by the Fund, and only when they are evidenced by
deposit, safekeeping receipts, or book-entry transfer, indicating the creation
of a security interest in favor of the Fund in the underlying security. However,
the issuer of the participation interests to the Fund will agree in writing,
among other things: to promptly remit all payments of principal, interest and
premium, if any, to the Fund once received by the issuer; to repurchase the
participation interest upon seven days' notice; and to otherwise service the
investment physically held by the issuer, a portion of which has been sold to
the Fund.
REPURCHASE AGREEMENTS. While each Fund has no present intention of doing
so in the coming year, it may invest in repurchase agreements. A repurchase
agreement essentially is a short-term collateralized loan. The lender (a Fund)
agrees to purchase a security from a borrower (typically a broker-dealer) at a
specified price. The borrower simultaneously agrees to repurchase that same
security at a higher price on a future date (which typically is the next
business day). The difference between the purchase price and the repurchase
price effectively constitutes the payment of interest. In a standard repurchase
agreement, the securities which serve as collateral are transferred to a Fund's
custodian bank. In a "tri-party" repurchase agreement, these securities would be
held by a different bank for the benefit of the Fund as buyer and the
broker-dealer as seller. In a "quad-party" repurchase agreement, the Fund's
custodian bank also is made a party to the agreement. Each Fund may enter into
repurchase agreements with banks which are members of the Federal Reserve System
or securities dealers who are members of a national securities exchange or are
market makers in government securities. The period of these repurchase
agreements will usually be short, from overnight to one week, and at no time
will a Fund invest in repurchase agreements with more than one year in time to
maturity. The securities which are subject to repurchase agreements, however,
may have maturity dates in excess of one year from the effective date of the
repurchase agreement. Each Fund will always receive, as collateral, securities
whose market value, including accrued interest, which will at all times be at
least equal to 100% of the dollar amount invested by the Fund in each agreement,
and the Fund will make payment for such securities only upon physical delivery
or evidence of book entry transfer to the account of the custodian. If the
seller defaults, a Fund might incur a loss if the value of the collateral
securing the repurchase agreement declines, and might incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy or
similar proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Neither
Fund will enter into a repurchase agreement with more than seven days to
maturity if, as a result, more than 15% of the Fund's net assets would be
invested in such repurchase agreements and other illiquid investments.
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS. None of the Funds may
purchase or otherwise acquire any security if, as a result, more than 15% of its
net assets (taken at current value) would be invested in securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. This policy includes foreign issuers'
unlisted securities with a limited trading market and repurchase agreements
maturing in more than seven days. This policy does not include restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended ("1933 Act"), which the Board of Directors or Trustees, as
applicable (hereinafter "Directors" or "Board"), or the Adviser has determined
under Board-approved guidelines are liquid.
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Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at reasonable prices.
SEPARATED OR DIVIDED U.S. TREASURY SECURITIES. GOVERNMENT FUND may invest
in separated or divided U.S. Treasury securities. These instruments represent a
single interest, or principal, payment on a U.S. Treasury bond which has been
separated from all the other interest payments as well as the bond itself. When
the Fund purchases such an instrument, it purchases the right to receive a
single payment of a set sum at a known date in the future. The interest rate on
such an instrument is determined by the price the Fund pays for the instrument
when it purchases the instrument at a discount under what the instrument
entitles the Fund to receive when the instrument matures. The amount of the
discount the Fund will receive will depend upon the length of time to maturity
of the separated U.S. Treasury security and prevailing market interest rates
when the separated U.S. Treasury security is purchased. Separated U.S. Treasury
securities can be considered a zero coupon investment because no payment is made
to the Fund until maturity. The market values of these securities are much more
susceptible to change in market interest rates than income-producing securities.
These securities are purchased with original issue discount and such discount is
includable as gross income to a Fund shareholder over the life of the security.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in U.S. Government
Obligations. U.S. Government Obligations include: (1) U.S. Treasury obligations
(which differ only in their interest rates, maturities and times of issuance),
and (2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are backed by the full faith and credit of the United
States (such as securities issued by the Federal Housing Administration,
Government National Mortgage Association, the Department of Housing and Urban
Development, the Export-Import Bank, the General Services Administration and the
Maritime Administration and certain securities issued by the Farmers Home
Administration and the Small Business Administration). The range of maturities
of U.S. Government Obligations is usually three months to thirty years.
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WARRANTS. HIGH YIELD FUND, INCOME FUND AND INVESTMENT GRADE FUND may
purchase warrants, which are instruments that permit a Fund to acquire, by
subscription, the capital stock of a corporation at a set price, regardless of
the market price for such stock. Warrants may be either perpetual or of limited
duration. There is greater risk that warrants might drop in value at a faster
rate than the underlying stock.
WHEN-ISSUED SECURITIES. Each Fund many invest in securities issued on a
when-issued or delayed delivery basis at the time the purchase is made. A Fund
generally would not pay for such securities or start earning interest on them
until they are issued or received. However, when a Fund purchases debt
obligations on a when-issued basis, it assumes the risks of ownership, including
the risk of price fluctuation, at the time of purchase, not at the time of
receipt. Failure of the issuer to deliver a security purchased by a Fund on a
when-issued basis may result in such Fund incurring a loss or missing an
opportunity to make an alternative investment. When a Fund enters into a
commitment to purchase securities on a when-issued basis, it establishes a
separate account on its books and records or with its custodian consisting of
cash or liquid high-grade debt securities equal to the amount of the Fund's
commitment, which are valued at their fair market value. If on any day the
market value of this segregated account falls below the value of the Fund's
commitment, the Fund will be required to deposit additional cash or qualified
securities into the account until the value of the account is equal to the value
of the Fund's commitment. When the securities to be purchased are issued, the
Fund will pay for the securities from available cash, the sale of securities in
the segregated account, sales of other securities and, if necessary, from the
sale of the when-issued securities themselves although this is not ordinarily
expected. Securities purchased on a when-issued basis are subject to the risk
that yields available in the market, when delivery takes place, may be higher
than the rate to be received on the securities a Fund is committed to purchase.
Sale of securities in the segregated account or sale of the when-issued
securities may cause the realization of a capital gain or loss.
ZERO COUPON AND PAY-IN-KIND SECURITIES. INVESTMENT GRADE FUND AND
GOVERNMENT FUND may each invest 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 each year
on zero coupon securities and the "interest" on pay-in-kind securities must be
accounted for by the Fund that holds the securities for purposes of determining
the amount it must distribute that year to continue to qualify for tax treatment
as a regulated investment company. Thus, a Fund may be required to distribute as
a dividend an amount that is greater than the total amount of cash it actually
receives. See "Taxes." These distributions must be made from a Fund's cash
assets or, if necessary, from the proceeds of sales of portfolio securities.
Each Fund will not be able to purchase additional income-producing securities
with cash used to make such distributions, and its current income ultimately
could be reduced as a result.
FUTURES AND OPTIONS STRATEGIES
Although they do not intend to engage in such strategies in the coming
year, HIGH YIELD FUND may engage in certain futures strategies to hedge its
investment portfolio and INVESTMENT GRADE FUND 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, and may also enter into closing transactions with
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respect to such options to terminate an existing position. Certain special
characteristics of and risks associated with using hedging instruments are
discussed below. In addition to the investment guidelines adopted by the Funds'
Directors to govern its investments in hedging instruments, use of these
instruments is subject to the applicable regulations of the Securities and
Exchange Commission ("SEC"), the Commodities Futures Trading Commission ("CFTC")
and the several futures exchanges upon which futures contracts are traded.
Participation in the futures markets involves investment risks and
transaction costs to which the Fund would not be subject absent the use of these
strategies. If the Adviser's prediction of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategies were not
used. The Fund might not employ any of the strategies described below, and there
can be no assurance that any strategy will succeed. The use of these strategies
involve certain special risks, including (1) dependence on the Adviser's ability
to predict correctly movements in the direction of interest rates and securities
prices; (2) imperfect correlation between the price of futures contracts and
movements in the prices of the securities being hedged; (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities; and (4) the possible absence of a liquid secondary market
for any particular instrument at any time.
COVER FOR HEDGING STRATEGIES. In the event that the Funds engage in
hedging, they will not use leverage in their hedging strategies. In the case of
each transaction entered into as a hedge, the Funds will hold securities or
futures positions whose values are expected to offset ("cover") its obligations
thereunder. The Funds will not enter into a hedging strategy that exposes the
Funds to an obligation to another party unless it owns either (1) an offsetting
("covered") position in securities or futures contracts, or (2) cash and liquid
securities with a value sufficient at all times to cover its potential
obligations. The Funds will comply with guidelines established by the SEC with
respect to coverage of hedging strategies by mutual funds and, if required, will
set aside cash and liquid securities in a segregated account with its custodian
in the prescribed amount. Securities or futures positions used for cover and
assets held in a segregated account cannot be sold or closed out while the
hedging 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 each Fund's assets could impede portfolio management and
decrease a Fund's liquidity.
FUTURES GUIDELINES. In view of the risks involved in using futures
strategies described above, each Fund's Board may adopt non-fundamental
investment guidelines to govern the Fund's use of such investments that may be
modified by the Board without shareholder vote. In the event that the Fund
enters into futures contracts or options thereon other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish these positions (excluding the in-the-money
amount for options that are in-the-money at the time of purchase) will not
exceed 5% of the liquidation value of the Fund's portfolio, after taking into
account unrealized profits and losses on any contracts into which the Fund was
entered. This policy does not limit the Fund's assets at risk to 5%.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid
upon entering into futures contracts. Instead, upon entering into a futures
contract, the Fund 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 10% or less of the contract
value. This amount is known as "initial margin." Initial margin on futures
contracts is in the nature of a performance bond or good-faith deposit that is
returned to the Fund upon termination of the transaction, assuming all
obligations have been satisfied. Under certain circumstances, such as periods of
high volatility, the Fund may be required by an exchange to increase the level
of its initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. Subsequent payments,
called "variation margin," to and from the broker, are made on a daily basis as
the value of the futures position varies, a process known as "marking to
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market." Variation margin does not involve borrowing to finance the futures
transactions, but rather represents a daily settlement of the Fund's obligation
to or from a clearing organization. The Fund is also obligated to make initial
and variation margin payments when it writes options on futures contracts.
Holders and writers of futures positions can enter into offsetting closing
transactions, similar to closing transactions on options on securities, by
selling or purchasing, respectively, a futures position with the same terms as
the position held or written. Positions in futures contracts 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 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 the Fund to close a position and, in the event of
adverse price movements the Fund would have to make daily cash payments of
variation margin. 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 the Fund of futures contracts will depend upon the
Adviser's ability to predict movements in the direction of the overall 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 will not correlate with
the movements in prices of the securities being hedged. In addition, if the Fund
has insufficient cash, it may have to sell assets from its portfolio to meet
daily variation margin requirements. Any such sale of assets may or may not be
made at prices that reflect the rising market. Consequently, the Fund may need
to sell assets at a time when such sales are disadvantageous to the Fund. If the
price of the futures contract moves more than the price of the underlying
securities, the Fund will experience either a loss or a gain on the futures
contract 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 position and
the securities being hedged, movements in the prices of futures contracts 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 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.
Although the Fund intends to purchase or sell futures 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 at any
particular time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, the Fund would continue
to be required to make variation margin payments.
Each Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions; however, each Fund also may save on commissions by using
13
<PAGE>
futures as a hedge rather than buying or selling individual securities in
anticipation or as a result of market movements.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
respective Fund and, unless identified as non-fundamental policies, may not be
changed without the affirmative vote of a majority of the outstanding voting
securities of that Fund. As provided in the Investment Company Act of 1940, as
amended ("1940 Act"), a "vote of a majority of the outstanding voting securities
of the Fund" means the affirmative vote of the lesser of (1) more than 50% of
the outstanding shares of the Fund or (2) 67% or more of the shares present at a
meeting, if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. Except with respect to borrowing, changes in
values of a particular Fund's assets will not cause a violation of the following
investment restrictions so long as percentage restrictions are observed by such
Fund at the time it purchases any security.
GOVERNMENT FUND will not:
(1) Borrow money, except as a temporary or emergency measure in an amount
not to exceed 5% of the value of its assets.
(2) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with paragraph (1) above, provided the Fund
maintains asset coverage of at least 300% for pledged assets.
(3) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the Fund's Board of Directors may, on the
request of broker-dealers or other institutional investors which they deem
qualified, authorize the Fund to loan securities to cover the borrower's short
position; provided, however, the borrower pledges to the Fund and agrees to
maintain at all times with the Fund cash collateral equal to not less than 100%
of the value of the securities loaned, the loan is terminable at will by the
Fund, the Fund receives interest on the loan as well as any distributions upon
the securities loaned, the Fund retains voting rights associated with the
securities, the Fund pays only reasonable custodian fees in connection with the
loan, and the Adviser monitors the creditworthiness of the borrower throughout
the life of the loan; provided further, that such loans will not be made if the
value of all loans, repurchase agreements with more then seven days to maturity,
and other illiquid assets is greater than an amount equal to 15% of the Fund's
net assets.
(4) Purchase, with respect to only 75% of the Fund's assets, the
securities of any issuer (other than U.S. Government Obligations (as defined in
the Prospectus)) if, as a result thereof, (a) more than 5% of the Fund's total
assets (taken at current value) would be invested in the securities of such
issuer, or (b) the Fund would hold more than 10% of any class of securities
(including any class of voting securities) of such issuer (for this purpose, all
debt obligations of an issuer maturing in less than one year are treated as a
single class of securities).
(5) Purchase the securities of an issuer if such purchase, at the time
thereof, would cause more than 5% of the value of the Fund's total assets to be
invested in securities of issuers which, including predecessors, have a record
of less than three years' continuous operation.
(6) Concentrate its investments in any particular industry.
(7) Purchase securities on margin; except that the Fund may obtain such
credits as may be necessary for the clearance of purchases and sales of
securities. (The deposit or payment by the Fund of initial or variation margin
14
<PAGE>
in connection with interest rate futures contracts or related options
transactions is not considered the purchase of a security on margin.)
(8) Write put or call options; except that the Fund may write options with
respect to U.S. Government Obligations (as defined in the Prospectus) and
interest rate futures contracts. Notwithstanding the foregoing, a
non-fundamental investment restriction, adopted by the Fund's Board of
Directors, prohibits the Fund from engaging in any option transactions.
(9) Make short sales of securities.
(10) Issue senior securities.
(11) Purchase the securities of other investment trusts, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.
(12) Underwrite securities issued by other persons except to the extent
that, in connection with this disposition of its portfolio investments, it may
be deemed to be an underwriter under federal securities laws.
(13) Buy or sell real estate, (unless acquired as a result of ownership of
securities) or interests in oil, gas or mineral exploration; provided, however,
the Fund may invest in securities secured by real estate or interests in real
estate.
(14) Purchase or sell commodities or commodity contracts, except that the
Fund may purchase and sell interest rate futures contracts and related options.
The Fund has adopted the following non-fundamental investment restriction,
which may be changed without shareholder approval. This restriction provides
that the Fund will not:
Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The 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 1933 Act, or any other
applicable rule, and therefore that such securities are not subject to the
foregoing limitation.
INVESTMENT GRADE FUND will not:
(1) Make short sales of securities "against the box" in excess of 10% of
the Fund's total assets.
(2) Issue senior securities, as defined in the 1940 Act, or borrow money,
except that the Fund 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 Fund's
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 Fund's
total assets (taken at current value) would be invested in a single industry.
15
<PAGE>
(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
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (2) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(6) Concentrate its investments in any particular industry.
(7) 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.
(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 (although the Fund may obtain such
short-term credit as may be necessary for the purchases and sales of its
portfolio securities).
(11) 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.
(12) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of Series Fund, as principals.
(13) Invest in any securities of any issuer if, to the knowledge of Series
Fund, any officer, director or Trustee of Series 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 restriction is not fundamental and may be changed
without shareholder approval. The investment restriction provides that the Fund
will not:
Invest more than 15% 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.
HIGH YIELD FUND will not:
(1) Borrow money, except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets.
(2) Engage in "short sales" in excess of 10% of the Fund's total assets.
16
<PAGE>
(3) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraphs (1) and (2) above and for margin to secure its obligations under
interest rate futures contracts, provided the Fund maintains asset coverage of
at least 300% for pledged assets.
(4) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the Board of Directors may, on the request of
broker-dealers or other institutional investors which they deem qualified,
authorize the Fund to loan securities to cover the borrower's short position;
provided, however, the borrower pledges to the Fund and agrees to maintain at
all times with the Fund cash collateral equal to not less than 100% of the value
of the securities loaned, the loan is terminable at will by the Fund, the Fund
receives interest on the loan as well as any distributions upon the securities
loaned, the Fund retains voting rights associated with the securities, the Fund
pays only reasonable custodian fees in connection with the loan, and the Adviser
monitors the creditworthiness of the borrower throughout the life of the loan;
provided further, that such loans will not be made if the value of all
repurchase agreements with more than seven days to maturity, and other illiquid
assets is greater than an amount equal to 15% of the Fund's net assets.
(5) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(6) Purchase the securities of an issuer if such purchase, at the time
thereof, would cause more than 5% value of the Fund's total assets to be
invested in securities of issuers which, including predecessors, have a record
of less than three years' continuous operation.
(7) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under Federal securities laws.
(8) Purchase or sell real estate or commodities or commodity contracts.
However, the Fund may purchase interests in real estate investment trusts whose
securities are registered under the Act and are readily marketable and may
invest in interest rate futures contracts and options thereon (provided the
margin required does not violate the investment restrictions pertaining to
pledging assets).
(9) Invest in companies for the purpose of exercising control or
management.
(10) Invest in securities of other investment companies, except in
connection with a merger of another investment company.
(11) Purchase any securities on margin (however, the Fund's engaging in
"hedging transactions" and the margins required thereon shall not be considered
a violation of this provision).
(12) Purchase or retain securities of any issuer if any officer or
Director of the Fund or the Adviser owns beneficially more than 1/2 of 1% of the
securities of such issuer or if all such officers and Directors together own
more than 5% of the securities of such issuer.
(13) Invest 25% or more of the value of its total assets in a particular
industry at any one time.
(14) Invest more than 5% of the value of its net assets in warrants, with
no more than 2% in warrants not listed on either the New York or American Stock
Exchange.
17
<PAGE>
(15) Purchase or sell portfolio securities from or to the Adviser or any
Director or officer thereof or of the Fund, as principals.
(16) Invest more than 15% of the value of its total assets, at the time of
purchase, in deep discount securities of companies that are financially
troubled, in default or in bankruptcy or reorganization.
(17) Issue senior securities.
(18) Invest any of its assets in interests in oil, gas or other mineral
exploration or development programs, or in puts, calls, straddles or any
combination thereof.
(19) Invest more than 10% of its net assets in when-issued securities at
the time such purchase is made.
The Fund has adopted the following non-fundamental investment restriction
which may be changed without shareholder approval. This investment restriction
provides that the Fund will not:
Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The 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 1933 Act, or any other
applicable rule, and therefore that such securities are not subject to the
foregoing limitation.
INCOME FUND will not:
(1) Borrow money except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets taken at
cost or value, whichever is the lesser.
(2) Make loans to other persons except that the Board of Directors may, on
the request of broker-dealers or other institutional investors that 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 exceeds 10% of
the value of the Fund's total assets. The Fund may terminate such loans at any
time and vote the proxies if a material event affecting the investment is about
to occur. The market risk applicable to any security loaned remains a risk of
the Fund. The borrower must add to collateral whenever the market value of the
securities rises above the level of such collateral. The primary objective of
such loaning function is to supplement the Fund's income through investment of
the cash collateral in short-term interest-bearing obligations. The purchase of
a portion of an issue of publicly distributed debt securities is not considered
the making of a loan.
(3) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(4) Invest more than 5% of the value of its total assets in securities of
issuers, including the operations of predecessors, that have been in business
for less than three years.
(5) Invest 25% or more of the value of its total assets in a particular
industry at one time.
18
<PAGE>
(6) Underwrite securities of other issuers, except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under Federal securities laws.
(7) Purchase or sell real estate or commodities or commodity contracts.
However, the Fund may purchase interests in real estate investment trusts whose
securities are registered under the 1933 Act and are readily marketable.
(8) Invest in companies for the purpose of exercising control or
management.
(9) Invest in securities of other investment companies, except in
connection with a merger of another investment company.
(10) Purchase any securities on margin or sell any securities short.
(11) Purchase or retain securities of any issuer if any officer or
Director of the Fund or the Adviser owns beneficially more than 1/2 of 1% of the
securities of such issuer and together own more than 5% of the securities of
such issuer.
(12) Purchase or sell portfolio securities from or to the Adviser or any
Director or officer thereof or of the Fund, as principals.
(13) Issue senior securities.
The Fund has adopted the following non-fundamental investment
restrictions, which may be changed without shareholder approval. These
investment restrictions provide that the Fund will not:
(1) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The 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 1933 Act, or any other
applicable rule, and therefore that such securities are not subject to the
foregoing limitation.
(2) Pledge, mortgage or hypothecate any of its 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 all such borrowings.
PORTFOLIO TURNOVER
Although each Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Adviser, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in a Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to high transaction costs and may result
in a greater number of taxable transactions. See "Allocation of Portfolio
Brokerage." For the fiscal years ended December 31, 1997 and September 30, 1998,
HIGH YIELD FUND'S portfolio turnover rate was 46% and 20%, respectively, INCOME
19
<PAGE>
FUND'S portfolio turnover rate was 45% and 28%, respectively, GOVERNMENT FUND'S
portfolio turnover rate was 134% and 62%, and INVESTMENT GRADE'S portfolio
turnover rate was 34% and 49%.
DIRECTORS/TRUSTEES AND OFFICERS
Each Fund's Board of Directors, as part of its overall management
responsibility, oversees various organizations responsible for that Fund's
day-to-day management. The following table lists the Directors and executive
officers of Government Fund, Investment Grade Fund, Income Fund, and/or High
Yield Fund, their age, business address and principal occupations during the
past five years. Unless otherwise noted, an individual's business address is 95
Wall Street, New York, New York 10005.
GLENN O. HEAD*+ (73), President and Director. Chairman of the Board and
Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Corporation
("FIC"), Executive Investors Corporation ("EIC") and First Investors
Consolidated Corporation ("FICC").
JAMES J. COY (84), Emeritus Director, 90 Buell Lane, East Hampton, NY 11937.
Retired; formerly Senior Vice President, James Talcott, Inc. (financial
institution).
KATHRYN S. HEAD*+ (43), Director, 581 Main Street, Woodbridge, NJ 07095.
President and Director, FICC, ADM and FIMCO; Vice President and Director, FIC
and EIC; President EIMCO; Chairman, President and Director, First Financial
Savings Bank, S.L.A.
LARRY R. LAVOIE* (51) Director. Assistant Secretary, ADM, EIC, EIMCO, FICC, and
FIMCO; Secretary and General Counsel, FIC.
REX R. REED** (76), Director, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN** (77), Director, 695 Charolais Circle, Edwards, CO
81632-1136. Retired; formerly President, Belvac International Industries, Ltd.
and President, Central Dental Supply.
NANCY SCHAENEN** (67), Director, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
JAMES M. SRYGLEY** (66), Director, 33 Hampton Road, Chatham, NJ 07982.
Principal, Hampton Properties, Inc. (property investment company).
JOHN T. SULLIVAN* (66), Director and Chairman of the Board; Director, FIMCO,
FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH** (69), Director, RR1, Box 217, Upland Downs Road,
Manchester Center, VT 05255. Retired; formerly financial and planning executive
with American Telephone & Telegraph Company.
JOSEPH I. BENEDEK (41), Treasurer and Principal Accounting Officer, 581 Main
Street, Woodbridge, NJ 07095. Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller
and Treasurer, FICC.
CONCETTA DURSO (63), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
20
<PAGE>
NANCY W. JONES (54), Vice President, INCOME FUND. Vice President, First
Investors Asset Management Company, Inc. and First Investors Series Fund;
Portfolio Manager, FIMCO.
GEORGE V. GANTER (46), Vice President, HIGH YIELD FUND. Vice President, First
Investors Asset Management Company, Inc., First Investors Special Bond Fund,
Inc., and Executive Investors Trust; Portfolio Manager, FIMCO.
CLARK D. WAGNER (39), Vice President. Vice President, First Investors
Multi-State Insured Tax Free Fund, Executive Investors Trust, First Investors
New York Insured Tax Free Fund, Inc. and First Investors Government Fund, Inc.;
Chief Investment Officer, FIMCO.
- ---------------
* These Directors may be deemed to be "interested persons," as defined in the
1940 Act.
** These Directors are members of the Board's Audit Committee.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
The Directors and officers, as a group, owned less than 1% of either Class
A or Class B shares of each Fund.
All of the officers and Directors, except for Ms. Jones, Mr. Ganter and
Mr. Wagner, hold identical or similar positions with the other registered
investment companies in the First Investors Family of Funds. Mr. Head is also an
officer and/or Director of First Investors Asset Management Company, Inc., First
Investors Credit Funding Corporation, First Investors Leverage Corporation,
First Investors Realty Company, Inc., First Investors Resources, Inc., N.A.K.
Realty Corporation, Real Property Development Corporation, Route 33 Realty
Corporation, First Investors Life Insurance Company, First Financial Savings
Bank, S.L.A., First Investors Credit Corporation and School Financial Management
Services, Inc. Ms. Head is also an officer and/or Director of First Investors
Life Insurance Company, First Investors Credit Corporation, School Financial
Management Services, Inc., First Investors Credit Funding Corporation, N.A.K.
Realty Corporation, Real Property Development Corporation, First Investors
Leverage Corporation and Route 33 Realty Corporation.
The following table lists compensation paid to the Directors of each Fund
for the fiscal year ended September 30, 1998.*
<TABLE>
<CAPTION>
Aggregate Aggregate Aggregate
Compensation Aggregate Compensation Compensation Total Compensation
From Compensation From From From First Investors
High Yield From Government Investment Family of Funds Paid
Director Fund** Income Fund** Fund** Grade Fund** to Director++
- -------- ------ ------------- ------ ------------ --------------------
<S> <C> <C> <C> <C> <C>
James J. Coy*** $0 $0 $0 $0 $0
Roger L. Grayson**** $0 $0 $0 $0 $0
Glenn O. Head $0 $0 $0 $0 $0
Kathryn S. Head $0 $0 $0 $0 $0
Larry R. Lavoie+ $0 $0 $0 $0 $0
Rex R. Reed $1,350 $1,800 $1,350 $600 $34,495
Herbert Rubinstein $1,350 $1,800 $1,350 $600 $34,495
James M. Srygley $1,350 $1,800 $1,350 $600 $34,495
John T. Sullivan $0 $0 $0 $0 $0
Robert F. Wentworth $1,350 $1,800 $1,350 $600 $34,495
Nancy Schaenen $1,200 $1,600 $1,200 $500 $31,150
</TABLE>
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<PAGE>
- -----------------
* Fiscal year 1998 consisted of nine calendar months, January through September
1998.
** Compensation to officers and interested Directors of the Funds is paid by the
Adviser.
*** On March 27, 1997, Mr. Coy resigned as a Director of the Funds. Mr. Coy
currently serves as an emeritus Director.
****On August 20, 1998, Mr. Grayson resigned as a Director of the Funds.
+ On September 17, 1998, Mr. Lavoie was elected by the Board of Directors to
serve as Director.
++ The First Investors Family of Funds consist of 15 separate registered
investment companies.
MANAGEMENT
Investment advisory services to each Fund 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 the applicable Fund, including a majority of the
Directors 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"), in person at a meeting called for such purpose and by a majority of
the public shareholders of the applicable Fund.
Pursuant to each Advisory Agreement, FIMCO shall supervise and manage each
Fund's investments, determine each Fund's portfolio transactions and supervise
all aspects of each Fund's operations, subject to review by the applicable
Fund's Directors. Each Advisory Agreement also provides that FIMCO shall provide
the applicable Fund with certain executive, administrative and clerical
personnel, office facilities and supplies, conduct the business and details of
the operation of such Fund and assume certain expenses thereof, other than
obligations or liabilities of such Fund. Each Advisory Agreement may be
terminated at any time without penalty by the applicable Fund's Directors or by
a majority of the outstanding voting securities of such Fund, or by FIMCO, in
each instance on not less than 60 days' written notice, and shall automatically
terminate in the event of its assignment (as defined in the 1940 Act). Each
Advisory Agreement also provides that it will continue in effect, with respect
to the applicable Fund, for a period of over two years only if such continuance
is approved annually either by such Fund's Directors or by a majority of the
outstanding voting securities of such Fund, and, in either case, by a vote of a
majority of such Fund's Independent Directors voting in person at a meeting
called for the purpose of voting on such approval.
Under each Advisory Agreement, the applicable Fund is obligated to pay the
Adviser an annual fee, paid monthly, according to the following schedules:
HIGH YIELD FUND
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $200 million..................................................... 1.00%
In excess of $200 million up to $500 million........................... 0.75
In excess of $500 million up to $750 million........................... 0.72
In excess of $750 million up to $1.0 billion........................... 0.69
Over $1.0 billion...................................................... 0.66
22
<PAGE>
INCOME FUND
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $250 million..................................................... 0.75%
In excess of $250 million up to $500 million........................... 0.72
In excess of $500 million up to $750 million........................... 0.69
Over $750 million...................................................... 0.66
GOVERNMENT FUND
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $200 million.................................................... 1.00%
In excess of $200 million up to $500 million.......................... 0.75
In excess of $500 million up to $750 million.......................... 0.72
In excess of $750 million up to $1.0 billion.......................... 0.69
Over $1.0 billion..................................................... 0.66
INVESTMENT GRADE FUND
Annual
Average Daily Net Assets Rate
- ------------------------ ------
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
For the fiscal years ended December 31, 1996 and 1997 and September 30,
1998, HIGH YIELD FUND paid the Adviser $1,647,510, $1,674,251 and $1,212,262,
respectively, in advisory fees. For the same periods, the Adviser voluntarily
waived $290,138, $400,000 and $375,000, respectively, in advisory fees. For the
fiscal years ended December 31, 1996 and 1997 and September 30, 1998, INCOME
FUND paid the Adviser $3,153,822, $3,217,285 and $2,448,268, respectively, in
advisory fees. For the fiscal years ended December 31, 1996 and 1997 and
September 30, 1998, GOVERNMENT FUND paid the Adviser $1,498,163, $1,241,821 and
$810,988, respectively, in advisory fees. For these same time periods, the
Adviser voluntarily waived $489,874, $532,208 and $436,686, respectively, in
advisory fees. For the fiscal years ended December 31, 1996 and 1997 and
September 30, 1998, INVESTMENT GRADE paid the Adviser $319,601, $307,123 and
$226,719, respectively, in advisory fees. For the same periods, the Adviser
voluntarily waived $49,170, $47,250, and $56,680, respectively, in advisory
fees. In addition, for the same periods the Adviser voluntarily assumed expenses
in the amount of $103,286, $105,581, and $58,718, respectively.
Each Fund bears all expenses of its operations other than those assumed by
the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.
The Adviser has an Investment Committee composed of Dennis T. Fitzpatrick,
George V. Ganter, Richard Guinnessey, David Hanover, Glenn O. Head, Kathryn S.
Head, Nancy W. Jones, Michael O'Keefe, Patricia D. Poitra, Clark D. Wagner, and
Matthew Wright. The Committee usually meets weekly to discuss the composition of
the portfolio of each Fund and to review additions to and deletions from the
portfolios.
23
<PAGE>
First Investors Consolidated Corporation ("FICC") owns all of the voting
common stock of the Adviser and all of the outstanding stock of First Investors
Corporation and the Funds' transfer agent. Mr. Glenn O. Head controls FICC and,
therefore, controls the Adviser.
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 Funds.
Each Underwriting Agreement was approved by the applicable Fund's Board,
including a majority of the Independent Directors. Each Underwriting Agreement
provides that it will continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the applicable Fund's
Board or by a vote of a majority of the outstanding voting securities of such
Fund, and in either case by the vote of a majority of such Fund's Independent
Directors, 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, 1996 and 1997 and September 30,
1998, FIC received underwriting commissions with respect to HIGH YIELD FUND of
$499,411, $466,862 and $383,388, respectively. For the same periods, FIC
reallowed an additional $284,181, $133,969 and $60,089, respectively, to
unaffiliated dealers. For the fiscal years ended December 31, 1996 and 1997 and
September 30, 1998, FIC received underwriting commissions with respect to INCOME
FUND of $339,449, $472,941 and $503,910, respectively. For the same periods, FIC
reallowed an additional $15,512, $60,576 and $102,233, respectively, to
unaffiliated dealers. For the fiscal years ended December 31, 1996 and 1997 and
September 30, 1998, FIC received underwriting commissions with respect to
GOVERNMENT FUND of $279,408, $176,381 and $127,799, respectively. For the same
periods, FIC reallowed an additional $7,092, $8,095 and $8,072, respectively, to
unaffiliated dealers. For the fiscal years ended December 31, 1996 and 1997 and
September 30, 1998, FIC received underwriting commissions with respect to
INVESTMENT GRADE FUND of $349,473, $223,846 and $229,010. For the same periods,
FIC reallowed an additional $2,060, $1 and $6,498, respectively, to unaffiliated
dealers.
DISTRIBUTION PLANS
As stated in the Funds' 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 Fund may reimburse or compensate, as applicable, the Underwriter
for certain expenses incurred in the distribution of that Fund's shares and the
servicing or maintenance of existing Fund shareholder accounts. Each Class B
Plan is a compensation plan. Each Class A Plan is a reimbursement plan, except
for Investment Grade Fund Class A Plan which is a compensation plan.
Each Plan was approved by the applicable Fund's Board, including a
majority of the Independent Directors, and by a majority of the outstanding
voting securities of the relevant class of such Fund. Each Plan will continue in
effect from year to year as long as its continuance is approved annually be
either the applicable Fund's Board or by a vote of a majority of the outstanding
voting securities of the relevant class of shares of such Fund. In either case,
to continue, each Plan must be approved by the vote of a majority of the
Independent Directors 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 will be committed to the discretion of
such Independent Directors then in office.
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<PAGE>
Each Plan can be terminated at any time by a vote of a majority of the
applicable Fund's Independent Directors or by a vote of a majority of the
outstanding voting securities of the relevant class of shares of such Fund. Any
change to any Plan that would materially increase the costs to that class of
shares of a Fund may not be instituted without the approval of the outstanding
voting securities of that class of shares of such Fund as well as any class of
shares that converts into that class. Such changes also require approval by a
majority of the applicable Fund's Independent Directors.
In adopting each Plan, the Board of each Fund considered all relevant
information and determined that there is a reasonable likelihood that each Plan
will benefit each Fund and their class of shareholders. The Boards believe that
amounts spent pursuant to each Plan have assisted each Fund in providing ongoing
servicing to shareholders, in competing with other providers of financial
services and in promoting sales, thereby increasing the net assets of each Fund.
In reporting amounts expended under the Plans to the Directors, in the
event that the expenses are not related solely to one class, FIMCO will allocate
expenses attributable to the sale of each class of a Fund's 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 Fund's shares will not be used to
subsidize the sale of any other class of the Fund's shares.
For the fiscal year ended September 30, 1998, HIGH YIELD FUND, INCOME
FUND, GOVERNMENT FUND AND INVESTMENT GRADE FUND paid $440,202, $925,396,
$369,108 and $104,202, respectively, pursuant to their respective Class A Plan.
For the same period, the Underwriter incurred the following Class A Plan-related
expenses with respect to each Fund:
<TABLE>
<CAPTION>
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
- ---- ----------- ------- ---------------
<S> <C> <C> <C>
HIGH YIELD FUND $296,559 $590 $143,232
INCOME FUND 629,589 617 295,548
GOVERNMENT FUND 213,872 21 155,319
INVESTMENT GRADE FUND 65,199 86 38,859
</TABLE>
For the fiscal year ended September 30, 1998, HIGH YIELD FUND, INCOME
FUND, GOVERNMENT FUND AND INVESTMENT GRADE FUND paid $60,776, $52,937, $17,316
and $30,519, respectively, pursuant to their respective Class B Plan. For the
same period, the Underwriter incurred the following Class B Plan-related
expenses with respect to each Fund:
<TABLE>
<CAPTION>
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
- ---- ----------- ------- ---------------
<S> <C> <C> <C>
HIGH YIELD FUND $51,082 $8,233 $1,396
INCOME FUND 39,895 12,067 851
GOVERNMENT FUND 15,733 0 1,540
INVESTMENT GRADE FUND 29,066 0 1,374
</TABLE>
DEALER CONCESSIONS. With respect to Class A shares of each Fund, the Fund
will reallow a portion of the sales load to the dealers selling the shares as
shown in the following table:
25
<PAGE>
Sales Charges as % of Concession to
Offering Net Amount Dealers as % of
Amount of Investment Price Invested Offering Price
- -------------------- ----- -------- --------------
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
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange or
the Nasdaq Stock Market is valued at its last sale price on the exchange or
market where the security is principally traded, and lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices. Securities traded in the over-the-counter ("OTC") market
(including securities listed on exchanges whose primary market is believed to be
OTC) are valued at the mean between the last bid and asked prices based upon
quotes furnished by market makers for such securities. Securities may also be
priced by pricing services. Pricing services use quotations obtained from
investment dealers or brokers for the particular securities being evaluated,
information with respect to market transactions in comparable securities and
other available information in determining value. Short-term debt securities
that mature in 60 days or less are valued at amortized cost. Securities for
which market quotations are not readily available and other assets are valued on
a consistent basis at fair value as determined in good faith by or under the
supervision of the applicable Fund's officers in a manner specifically
authorized by the applicable Fund's Board of Directors.
"When-issued securities" are reflected in the assets of a Fund as of the
date the securities are purchased. Such investments are valued thereafter at the
mean between the most recent bid and asked prices obtained from recognized
dealers in such securities or by the pricing services. For valuation purposes,
quotations of foreign securities in foreign currencies are converted into U.S.
dollar equivalents using the foreign exchange equivalents in effect.
Each Fund's Board may suspend the determination of a Fund's net asset
value per share 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 Fund of securities owned by it
is not reasonably practicable for the Fund fairly to determine the value of its
net assets, or (3) for such other period as the SEC has by order permitted.
EMERGENCY PRICING PROCEDURES. In the event that the Funds must halt
operations during any day that they would normally be required to price under
Rule 22c-1 under the 1940 Act due to an emergency ("Emergency Closed Day"), the
Funds will apply the following procedures:
1. The Funds will make every reasonable effort to segregate orders
received on the Emergency Closed Day and give them the price that they would
have received but for the closing. The Emergency Closed Day price will be
calculated as soon as practicable after operations have resumed and will be
applied equally to sales, redemptions and repurchases that were in fact received
in the mail or otherwise on the Emergency Closed Day.
26
<PAGE>
2. For purposes of paragraph 1, an order will be deemed to have been
received by the Funds on an Emergency Closed Day, even if neither the Funds nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:
(a) In the case of a mail order the order will be considered
received by a Fund when the postal service has delivered it to FIC's Woodbridge
offices prior to the close of regular trading on the NYSE; and
(b) In the case of a wire order, including a Fund/SERV order, the
order will be considered received when it is received in good form by a FIC
branch office or an authorized dealer prior to the close of regular trading on
the NYSE.
3. If the Funds are unable to segregate orders received on the Emergency
Closed Day from those received on the next day the Funds are open for business,
the Funds may give all orders the next price calculated after operations resume.
4. Notwithstanding the foregoing, on business days in which the NYSE is
not open for regular trading, the Funds may determine not to price their
portfolio securities if such prices would lead to a distortion of the NAV, for
the Funds and their shareholders.
ALLOCATION OF PORTFOLIO BROKERAGE
The Adviser may purchase or sell portfolio securities on behalf of the
Fund in agency or principal transactions. In agency transactions, the Fund
generally pays brokerage commissions. In principal transactions, the Fund
generally does not pay commissions, however the price paid for the security may
include an undisclosed dealer commission or "mark-up" or selling concessions.
The Adviser normally purchases fixed-income securities on a net basis from
primary market makers acting as principals for the securities. The Adviser may
purchase certain money market instruments directly from an issuer without paying
commissions or discounts. The Adviser may also purchase securities traded in the
OTC market. As a general practice, OTC securities are usually purchased from
market makers without paying commissions, although the price of the security
usually will include undisclosed compensation. However, when it is advantageous
to the Fund the Adviser may utilize a broker to purchase OTC securities and pay
a commission.
In purchasing and selling portfolio securities on behalf of the Fund, the
Adviser will seek to obtain best execution. The Fund may pay more than the
lowest available commission in return for brokerage and research services.
Additionally, upon instruction by the Board, the Adviser may use dealer
concessions available in fixed-priced underwritings to pay for research and
other services. Research and other services may include information as to the
availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to securities, reports and analysis
concerning issuers and their creditworthiness, and Lipper's Directors'
Analytical Data concerning Fund performance and fees. The Adviser generally uses
the research and other services to service all the funds in the First Investors
Family of Funds, rather than the particular Funds whose commissions may pay for
research or other services. In other words, a Fund's brokerage may be used to
pay for a research service that is used in managing another Fund within the
First Investor Fund Family. The Lipper's Directors' Analytical Data is used by
the Adviser and the Fund Board to analyze a fund's performance relative to other
comparable funds.
In selecting the broker-dealers to execute the Fund's portfolio
transactions, the Adviser may consider such factors as the price of the
security, the rate of the commission, the size and difficulty of the order, the
trading characteristics of the security involved, the difficulty in executing
the order, the research and other services provided, the expertise, reputation
and reliability of the broker-dealer, access to new offerings, and other factors
bearing upon the quality of the execution. The Adviser does not place portfolio
27
<PAGE>
orders with an affiliated broker, or allocate brokerage commission business to
any broker-dealer for distributing fund shares. Moreover, no broker-dealer
affiliated with the Adviser participates in commissions generated by portfolio
orders placed on behalf of the Fund.
The Adviser may combine transaction orders placed on behalf of a Fund and
any other Fund in the First Investors Group of Funds, any fund of Executive
Investors Trust and First Investors Life Insurance Company, affiliates of the
Funds, for the purpose of negotiating brokerage commissions or obtaining a more
favorable transaction price; and where appropriate, securities purchased or sold
may be allocated in accordance with written procedures approved by each Fund's
Board of Directors.
For the fiscal year ended December 31, 1996, HIGH YIELD FUND paid $5,096
in brokerage commissions. Of that amount $4,731 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $733,093. For the fiscal year ended December 31, 1996, INCOME
FUND paid $9,315 in brokerage commissions. Of that amount, $8,534 was paid in
brokerage commissions to brokers who furnished research services on portfolio
transactions in the amount of $1,007,112. For the fiscal year ended December 31,
1996, GOVERNMENT FUND paid $666 in brokerage commissions, none of which was paid
to brokers who provided research services. For the fiscal year ended December
31, 1996, INVESTMENT GRADE FUND did not pay any brokerage commissions.
For the fiscal year ended December 31, 1997, HIGH YIELD FUND paid $2,359
in brokerage commissions, all of which was paid to brokers who furnished
research services on portfolio transactions in the amount of $385,732. For the
fiscal year ended December 31, 1997, INCOME FUND paid $1,200 in brokerage
commissions, all of which was paid to brokers who furnished research services on
portfolio transactions in the amount of $538,470. For the fiscal year ended
December 31, 1997, GOVERNMENT FUND did not pay any brokerage commissions. For
the fiscal year ended December 31, 1997, INVESTMENT GRADE FUND did not pay any
brokerage commissions.
For the fiscal year ended September 30, 1998, HIGH YIELD FUND paid $1,071
in brokerage commissions, all of which was paid to brokers who furnished
research services on portfolio transactions in the amount of $100,312. For the
fiscal year ended September 30, 1998, INCOME FUND paid $4,005 in brokerage
commissions of which $2,723 was paid to brokers who furnished research services
on portfolio transactions in the amount of $463,349. For the fiscal year ended
September 30, 1998, GOVERNMENT FUND did not pay any brokerage commissions. For
the fiscal year ended September 30, 1998, INVESTMENT GRADE FUND did not pay any
brokerage commissions.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Information regarding the purchase, redemption and exchange of Fund shares
is contained in the Shareholder Manual, a separate section of the SAI that is a
distinct document and may be obtained free of charge by contacting your Fund.
REDEMPTIONS-IN-KIND. If each Fund's Board should determine that it would
be detrimental to the best interests of the remaining shareholders of a Fund to
make payment wholly or partly in cash, the Fund may pay redemption proceeds in
whole or in part by a distribution in kind of securities from the portfolio of
the Fund. If shares are redeemed in kind, the redeeming shareholder will likely
incur brokerage costs in converting the assets into cash. The method of valuing
portfolio securities for this purpose is described under "Determination of Net
Asset Value."
28
<PAGE>
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended (the
"Code"), a Fund must distribute to its shareholders for each taxable year at
least 90% of its investment company taxable income (consisting generally of net
investment income, net short-term capital gain and net gains from certain
foreign currency transactions) ("Distribution Requirement") and must meet
several additional requirements. For each Fund these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including, for HIGH YIELD FUND gains from futures
contracts and, for INVESTMENT GRADE FUND, gains from options and futures
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with those other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (3) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer. If a Fund failed to qualify as a RIC for any
taxable year, it would be taxed on the full amount of its taxable income for
that year without being able to deduct the distributions it makes to its
shareholders and the shareholders would treat all those distributions, including
distributions of net capital gain (the excess of net long-term capital gain over
net short-term capital loss), as dividends (that is, ordinary income) to the
extent of the Fund's earnings and profits.
Dividends and other distributions declared by a Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions are taxed to
shareholders for the year in which that December 31 falls.
A portion of the dividends from a Fund's investment company taxable income
may be eligible for the dividends-received deduction allowed to corporations.
The eligible portion may not exceed the aggregate dividends received by the Fund
from U.S. corporations. However, dividends received by a corporate shareholder
and deducted by it pursuant to the dividends-received deduction are subject
indirectly to the Federal alternative minimum tax. Although each Fund is
authorized to hold equity securities, it is expected that any dividend income
received by a Fund will be minimal; accordingly, very little, if any, of the
distributions made by the Funds will be eligible for the dividends-received
deduction.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary 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.
Dividends and interest received by a Fund, and gains realized by a Fund,
may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield and/or total return
on its securities. Tax conventions between certain countries and the United
States may reduce or eliminate these taxes, however, and many foreign countries
do not impose taxes on capital gains in respect of investments by foreign
investors.
29
<PAGE>
HIGH YIELD FUND, INCOME FUND AND INVESTMENT GRADE FUND may each invest in
the stock of "passive foreign investment companies" ("PFICs"). A PFIC is a
foreign corporation other than a "controlled foreign corporation" (i.e., a
foreign corporation in which, on any day during its taxable year, more than 50%
of the total voting power of all voting stock therein or the total value of all
stock therein is owned, directly, indirectly, or constructively, by "U.S.
shareholders," defined as U.S. persons that individually own, directly,
indirectly, or constructively, at least 10% of that voting power) as to which
the Fund is a U.S. shareholder ( effective after October 31, 1998) - that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, if
the Fund holds stock of a PFIC, it will be subject to Federal income tax on a
portion of any "excess distribution" received on the stock or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders.
If these Funds invest in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF") then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) - which
probably would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax - even if those earnings and
gain were not distributed to the Fund by the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Effective for its taxable year beginning November 1, 1998, these Funds may
elect to "mark-to-market" its stock in any PFICs. "Marking-to-market," in this
context, means including in ordinary income each taxable year the excess, if
any, of the fair market value of the PFIC's stock over the Fund's adjusted basis
in that stock as of the end of that year. Pursuant to the election, the Fund
also will be allowed to deduct (as an ordinary, not capital, loss) the excess,
if any, of its adjusted basis in PFIC stock over the fair market value thereof
as of the taxable year-end, but only to the extent of any net mark-to-market
gains with respect to that stock included by the Fund for prior taxable years.
The Fund's adjusted basis in each PFIC's stock with respect to which it makes
this election will be adjusted to reflect the amounts of income included and
deductions taken under the election. Regulations proposed in 1992 would provide
a similar election with respect to the stock of certain PFICs.
Each Fund may acquire zero coupon or other securities issued with original
issue discount. As a holder of those securities, each Fund must include in its
income the portion of the original issue discount that accrues on the securities
during the taxable year, even if the Fund receives no corresponding payment on
them during the year. Similarly, each Fund must include in its gross income
securities it receives as "interest" on pay-in-kind securities. Because each
Fund annually must distribute substantially all of its investment company
taxable income, including any original issue discount and other non-cash income,
to satisfy the Distribution Requirement and avoid imposition of the Excise Tax,
a Fund may be required in a particular year to distribute as a dividend an
amount that is greater than the total amount of cash it actually receives. Those
distributions will be made from a Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. A Fund may realize capital gains or
losses from those sales, which would increase or decrease its investment company
taxable income and/or net capital gain.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the amount, character and timing of recognition of the gains
and losses HIGH YIELD FUND AND INVESTMENT GRADE FUND will realize in connection
therewith. Gains from options and futures contracts derived by a Fund with
respect to its business of investing in securities or foreign currencies and
gains from each Fund's disposition of foreign currencies (except certain gains
30
<PAGE>
therefrom that may be excluded by future regulations) will qualify as
permissible income under the Income Requirement.
If a Fund has an "appreciated financial position" - generally, an interest
(including an interest through an option, futures contract or short sale) with
respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted basis -
and enters into a "constructive sale" of the same or substantially similar
property, the Fund will be treated as having made an actual sale thereof, with
the result that gain will be recognized at that time. A constructive sale
generally consists of a short sale, an offsetting notional principal contract or
futures contract entered into by a Fund or a related person with respect to the
same or substantially similar property. In addition, if the appreciated
financial position is itself a short sale or such a contract, acquisition of the
underlying property or substantially similar property will be deemed a
constructive sale.
PERFORMANCE INFORMATION
A Fund may advertise its top holdings from time to time. A Fund may also
advertise performance in various ways.
Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)^(1/n)]-1
The "total return" uses the same factors, but does not average the rate of
return on an annual basis. Total return is determined as follows:
(ERV-P)/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, each Fund will deduct the maximum sales
charge of 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").
Return information may be useful to investors in reviewing a Fund's
performance. However, certain factors should be taken into account before using
this information as a basis for comparison with alternative investments. No
adjustment is made for taxes payable on distributions. Return information will
fluctuate over time and return information for any given past period will not be
an indication or representation of future rates of return. At times, the Adviser
may reduce its compensation or assume expenses of a Fund in order to reduce the
Fund's expenses. Any such waiver or reimbursement would increase the Fund's
return during the period of the waiver or reimbursement.
Average annual return and total return computed at the public offering
price (maximum sales charge for Class A shares and applicable CDSC for Class B
shares) for the period ended September 30, 1998 are set forth in the tables
below:
31
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN1, 2
High Yield Fund Income Fund
--------------- -----------
Class A Class B Class A Class B
Shares Shares3 Shares Shares3
------ ------- ------ -------
<S> <C> <C> <C> <C>
One Year (4.29%) (2.76%) (3.83%) (2.03%)
Five Years 8.02% N/A 8.43% N/A
Ten Years 7.47% N/A 8.26% N/A
Life of Fund N/A 10.05% N/A 10.50%
Government Fund Investment Grade Fund
--------------- ---------------------
Class A Class B Class A Class B
Shares Shares3 Shares Shares3
------ ------- ------ -------
One Year 1.64% 3.66% 4.43% 6.62%
Five Years 4.23% N/A 5.23% N/A
Ten Years 6.85% N/A N/A N/A
Life of Fund N/A 7.30% 7.79% 8.88%
TOTAL RETURN1, 2
High Yield Fund Income Fund
--------------- -----------
Class A Class B Class A Class B
Shares Shares3 Shares Shares3
------ ------- ------ -------
One Year (4.29%) (2.76%) (3.83%) (2.03%)
Five Years 47.09% N/A 49.86% N/A
Ten Years 105.57% N/A 121.22% N/A
Life of Fund N/A 42.75% N/A 44.89%
Government Fund Investment Grade Fund
--------------- ---------------------
Class A Class B Class A Class B
Shares Shares3 Shares Shares3
------ ------- ------ -------
One Year 1.64% 3.66% 4.43% 6.62%
Five Years 23.01% N/A 29.05% N/A
Ten Years 93.90% N/A N/A N/A
Life of Fund N/A 29.94% 77.19% 37.18%
</TABLE>
- ---------------------
1 All Class A total return figures assume the maximum front-end sales charge of
6.25% and dividends reinvested at net asset value. All Class B total return
figures assume the maximum applicable CDSC. Prior to July 1, 1993, the maximum
front-end sales charge was 6.90%. Prior to December 29, 1989, the maximum
front-end sales charge was 7.25% for HIGH YIELD FUND AND GOVERNMENT FUND, and
8.50% for INCOME FUND. Prior to December 18, 1990, HIGH YIELD FUND'S dividends
were paid in additional shares at the public offering price.
2 Certain expenses of the Funds have been waived from commencement of operations
through September 30, 1998. Accordingly, return figures are higher than they
would have been had such expenses not been waived.
3 The commencement date for the offering of Class B shares is January 12, 1995.
32
<PAGE>
Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual total return and total return
computed at net asset value for the period ended September 30, 1998 are set
forth in the tables below:
AVERAGE ANNUAL TOTAL RETURN1
High Yield Fund Income Fund
--------------- -----------
Class A Class B Class A Class B
Shares Shares2 Shares Shares2
------ ------- ------ -------
One Year 2.10% 1.24% 2.68% 1.97%
Five Years 9.44% N/A 9.82% N/A
Ten Years 8.17% N/A 8.96% N/A
Life of Fund N/A 10.67% N/A 11.11%
Government Fund Investment Grade Fund
--------------- ---------------------
Class A Class B Class A Class B
Shares Shares2 Shares Shares2
------ ------- ------ -------
One Year 8.44% 7.66% 11.39% 10.62%
Five Years 5.59% N/A 6.59% N/A
Ten Years 7.54% N/A N/A N/A
Life of Fund N/A 7.96% 8.71% 9.52%
TOTAL RETURN1
High Yield Fund Income Fund
--------------- -----------
Class A Class B Class A Class B
Shares Shares2 Shares Shares2
------ ------- ------ -------
One Year 2.10% 1.24% 2.68% 1.97%
Five Years 56.96% N/A 59.75% N/A
Ten Years 119.36% N/A 135.95% N/A
Life of Fund N/A 45.75% N/A 47.89%
Government Fund Investment Grade Fund
--------------- ---------------------
Class A Class B Class A Class B
Shares Shares2 Shares Shares2
------ ------- ------ -------
One Year 8.44% 7.66% 11.39% 10.62
Five Years 31.25% N/A 37.59% N/A
Ten Years 106.90% N/A N/A N/A
Life of Fund N/A 32.94% 88.99% 40.18%
33
<PAGE>
- ----------------
1 Certain expenses of the Funds have been waived from commencement of operations
through September 30, 1998. Accordingly, return figures are higher than they
would have been had such expenses not been waived.
2 The commencement date for the offering of Class B shares is January 12, 1995.
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 30 days ended September 30, 1998, the yield for Class A shares and
Class B shares of HIGH YIELD FUND was 7.66% and 7.42%, respectively. For the 30
days ended September 30, 1998, the yield for Class A and Class B shares of
INCOME FUND was 7.43% and 7.20%, respectively. For the 30 days ended September
30, 1998, the yield for Class A shares and Class B shares of GOVERNMENT FUND was
5.15% and 4.78%, respectively. For the 30 days ended September 30, 1998, the
yield for Class A and Class B shares of INVESTMENT GRADE FUND was 4.47% and
4.07%, respectively. During this period certain expenses of the Funds were
waived. Accordingly, yield is higher than it would have been if such expenses
had not been waived.
The distribution rate for each Fund is presented for a twelve-month
period. It is calculated by adding the dividends for the last twelve months and
dividing the sum by a Fund's offering price per share at the end of that period.
The distribution rate is also calculated by using a Fund's net asset value.
Distribution rate calculations do not include capital gain distributions, if
any, paid. The distribution rate for the twelve-month period ended September 30,
1998 for Class A shares of HIGH YIELD FUND, INCOME FUND, GOVERNMENT FUND AND
INVESTMENT GRADE FUND calculated using the offering price was 8.32%, 8.63%,
5.13% and 5.38%, respectively. The distribution rate for the same period for
Class A shares of the Funds calculated using net asset value was 8.88%, 9.21%,
5.47% and 5.74%, respectively. The distribution rate for the same period for
Class B shares of HIGH YIELD FUND, INCOME FUND, GOVERNMENT FUND AND INVESTMENT
GRADE FUND calculated using net asset value was 8.21%, 8.49%, 4.76% and 5.07%,
respectively. During this period certain expenses of the Funds were waived.
Accordingly, the distribution rates are higher than they would have been had
such expenses not been waived.
Each Fund may include in advertisements and sales literature, information,
examples and statistics to illustrate the effect of compounding income at a
fixed rate of return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and capital gain
distributions in additional shares. These examples may also include hypothetical
returns comparing taxable versus tax-deferred growth which would pertain to an
IRA, section 403(b)(7) Custodial Account or other qualified retirement program.
The examples used will be for illustrative purposes only and are not
representations by the Fund of past or future yield or return. Examples of
typical graphs and charts depicting such historical performance, compounding and
hypothetical returns are included in Appendix C.
34
<PAGE>
From time to time, in reports and promotional literature, each Fund may
compare its 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, that Fund's portfolio holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized
independent service that monitors and ranks the performance of regulated
investment companies. The Lipper performance analysis includes the
reinvestment of capital gain distributions and income dividends but does
not take sales charges into consideration. The method of calculating total
return data on indices utilizes actual dividends on ex-dividend dates
accumulated for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of
Morningstar, Inc. Morningstar proprietary ratings reflect historical
risk-adjusted performance and are subject to change every month. Funds
with at least three years of performance history are assigned ratings from
one star (lowest) to five stars (highest). Morningstar ratings are
calculated from the 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.
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., Credit Suisse First Boston, Salomon Smith Barney, Morgan Stanley
Dean Witter & Co., Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette,
Value Line, Datastream International, HBSC James Capel, Warburg Dillion
Read, 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.
Reuters, a wire service that frequently reports on global business.
35
<PAGE>
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics,
is a commonly used measure of inflation. The Index shows changes in the
cost of selected consumer goods and does not represent a return on an
investment vehicle.
The Credit Suisse First Boston High Yield Index is designed to measure the
performance of the high yield bond market.
The Lehman Brothers Aggregate Index is an unmanaged index which generally
covers the U.S. investment grade fixed rate bond market, including
government and corporate securities, agency mortgage pass-through
securities, and asset-backed securities.
The Lehman Brothers Corporate Bond Index includes all publicly issued,
fixed rate, nonconvertible investment grade dollar-denominated, corporate
debt which have at least one year to maturity and an outstanding par value
of at least $100 million.
Moody's Stock Index, an unmanaged index of utility stock performance.
The Morgan Stanley All Country World Free Index is designed to measure the
performance of stock markets in the United States, Europe, Canada,
Australia, New Zealand and the developed and emerging markets of Eastern
Europe, Latin America, Asia and the Far East. The index consists of
approximately 60% of the aggregate market value of the covered stock
exchanges and is calculated to exclude companies and share classes which
cannot be freely purchased by foreigners.
The Morgan Stanley World Index is designed to measure the performance of
stock markets in the United States, Europe, Canada, Australia, New Zealand
and the Far East. The index consists of approximately 60% of the aggregate
market value of the covered stock exchanges.
The NYSE composite of component indices--unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the
NYSE.
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.
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 Salomon Brothers Government Index is a market capitalization-weighted
index that consists of debt issued by the U.S. Treasury and U.S.
Government sponsored agencies.
The Salomon Brothers Mortgage Index is a market capitalization-weighted
index that consists of all agency pass-throughs and FHA and GNMA project
notes.
The Standard & Poor's 400 Midcap Index is an unmanaged
capitalization-weighted index that is generally representative of the U.S.
market for medium cap stocks.
The 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
36
<PAGE>
performance figures reflect changes of market prices and quarterly
reinvestment of all distributions but are not adjusted for commissions or
other costs.
The Standard & Poor's Smallcap 600 Index is a capitalization-weighted
index that measures the performance of selected U.S. stocks with a small
market capitalization.
The Standard & Poor's Utilities Index is an unmanaged capitalization
weighted index comprising common stock in approximately 40 electric,
natural gas distributors and pipelines, and telephone companies. The Index
assumes the reinvestment of dividends.
From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
GENERAL INFORMATION
HIGH YIELD FUND and INCOME FUND were incorporated in the state of Maryland
on November 14, 1984 and August 20, 1970, respectively. HIGH YIELD FUND'S
authorized capital stock consists of 500 million shares of common stock, all of
one series, with a par value per share of $0.01. INCOME FUND'S authorized
capital stock consists of 1 billion shares of common stock, all of one series,
with a par value per share of $1.00. Each Fund is authorized to issue shares of
common stock in such separate and distinct series and classes of series as the
particular Fund's Board of Directors shall from time to time establish. The
shares of common stock of each Fund are presently divided into two classes,
designated Class A shares and Class B shares. Each class of a Fund represents
interests in the same assets of that Fund. 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, such Fund's Board of Directors will call a special
meeting of shareholders for any purpose, including the removal of Directors.
Each share of each Fund has equal voting rights except as noted above.
GOVERNMENT FUND was incorporated in the state of Maryland on September 21,
1983. GOVERNMENT FUND'S authorized capital stock consists of 1 billion shares of
common stock, all of one series, with a par value per share of $.01. The Fund is
authorized to issue shares of common stock in such separate and distinct series
and classes of shares as the particular Fund's Board of Directors shall from
time to time establish. The shares of common stock of the Fund are presently
divided into two classes, designated Class A shares and Class B shares. Each
class of the Fund represents interests in the same assets of that Fund. 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 Directors
will call a special meeting of shareholders for any purpose, including the
removal of Directors. Each share of the Fund has equal voting rights except as
noted above.
SERIES FUND is a Massachusetts business trust organized on September 23,
1988. SERIES 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 SERIES FUND are presently divided into five
separate and distinct series, each having two classes, designated Class A shares
and Class B shares. SERIES FUND does not hold annual shareholder meetings. If
requested to do so by the holders of at least 10% of SERIES FUND'S outstanding
shares, SERIES FUND'S Board of Trustees will call a special meeting of
shareholders for any purpose, including the removal of Trustees. Each share of
each Fund has equal voting rights except as noted above.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund.
37
<PAGE>
AUDITS AND REPORTS. The accounts of each Fund are audited twice a year by
Tait, Weller & Baker, independent certified public accountants, 8 Penn Center
Plaza, Philadelphia, PA, 19103. Shareholders of each Fund receive semi-annual
and annual reports, including audited financial statements, and a list of
securities owned.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., Washington, D.C. 20036 serves as counsel to the Funds.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent
for the Funds and as redemption agent for regular redemptions. The fees charged
to each Fund by the Transfer Agent are $5.00 to open an account; $3.00 for each
certificate issued; $.75 per account per month; $10.00 for each legal transfer
of shares; $.45 per account per dividend declared; $5.00 for each exchange of
shares into a Fund; $5.00 for each partial withdrawal or complete liquidation;
$1.00 for each Systematic Withdrawal Plan check; $4.00 for each shareholder
services call; $20.00 for each item of correspondence; and $1.00 per account per
report required by any governmental authority. Additional fees charged to the
Funds by the Transfer Agent are assumed by the Underwriter. The Transfer Agent
reserves the right to change the fees on prior notice to the Funds. Upon request
from shareholders, the Transfer Agent will provide an account history. For
account histories covering the most recent three year period, there is no
charge. The Transfer Agent charges a $5.00 administrative fee for each account
history covering the period 1983 through 1994 and $10.00 per year for each
account history covering the period 1974 through 1982. Account histories prior
to 1974 will not be provided. If any communication from the Transfer Agent to a
shareholder is returned from the U.S. Postal Service marked as "Undeliverable"
two consecutive times, the Transfer Agent will cease sending any further
materials to the shareholder until the Transfer Agent is provided with a correct
address. Efforts to locate a shareholder will be conducted in accordance with
SEC rules and regulations prior to escheatment of funds to the appropriate state
treasury. The Transfer Agent may deduct the costs of its efforts to locate a
shareholder from the shareholder's account. These costs may include a percentage
of the account if a search company charges such a fee in exchange for its
location services. The Transfer Agent is not responsible for any fees that
states and/or their representatives may charge for processing the return of
funds to investors whose funds have been escheated. The Transfer Agent's
telephone number is 1-800-423-4026.
5% AND 25% SHAREHOLDERS. As of December 31, 1998, The Bank of New York, 48
Wall Street, New York, NY 10286, Custodian of First Investors Periodic Payment
Plans for investment In First Investors High Yield Fund, Inc., owned of record
7.9% of the outstanding Class A shares of HIGH YIELD FUND for beneficial owners
of such Plans and as Custodian of First Investors Single Payment and Periodic
Payment Plans for Investment in First Investors Fund For Income, Inc. owned 23.
7% of the outstanding Class A shares of INCOME FUND for beneficial owners of
such Plans. As of December 31, 1998, The Bank of New York, 48 Wall Street, NY
10286, Custodian First Investors Single Payment and Periodic Payment Plans for
Investment in First Investors Government Fund, Inc., owned of record 18.9% of
the outstanding Class A shares of GOVERNMENT FUND for beneficial owners of such
Plans.
SHAREHOLDER LIABILITY. SERIES FUND, INVESTMENT GRADE 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 INVESTMENT GRADE FUND. The Declaration
of Trust however, contains an express disclaimer of shareholder liability for
acts or obligations of INVESTMENT GRADE 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 INVESTMENT GRADE 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. INVESTMENT GRADE FUND may have
an obligation to indemnify Trustees and officers with respect to litigation.
38
<PAGE>
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, the Funds and the
Adviser have adopted Codes of Ethics restricting personal securities trading by
portfolio managers and other access persons of the Funds. Among other things,
such persons, except the Directors: (a) must have all non-exempt trades
pre-cleared; (b) are restricted from short-term trading; (c) must provide
duplicate statements and transactions confirmations to a compliance officer; and
(d) are prohibited from purchasing securities of initial public offerings.
39
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
- -------------------------------
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. 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.
A-1
<PAGE>
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.
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.
A-2
<PAGE>
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.
A-3
<PAGE>
APPENDIX B
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.
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.
A-4
<PAGE>
- 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.
A-5
<PAGE>
APPENDIX C
[The following tables are represented as graphs in the printed document.]
The following graphs and chart illustrate hypothetical returns:
INCREASE RETURNS
This graph shows over a period of time even a small increase in returns can make
a significant difference. This assumes a hypothetical investment of $10,000.
Years 10% 8% 6% 4%
----- ------- ------ ------ ------
5 16,453 14,898 13,489 12,210
10 27,070 22,196 18,194 14,908
15 44,539 33,069 24,541 18,203
20 73,281 49,268 33,102 22,226
25 120,569 73,402 44,650 27,138
INCREASE INVESTMENT
This graph shows the more you invest on a regular basis over time, the more you
can accumulate. this assumes monthly installment with a constant hypothetical
return rate of 8%.
Years $100 $250 $500 $1,000
----- ------ ------- ------- -------
5 7,348 18,369 36,738 73,476
10 18,295 43,736 91,473 182,946
15 34,604 86,509 173,019 346,038
20 58,902 147,255 294,510 589,020
25 95,103 237,757 475,513 951,026
A-6
<PAGE>
[The following table is represented as a graph in the printed document.]
This chart illustrates the time value of money based upon the following
assumptions:
If you invested $2,000 each year for 20 years, starting at 25, assuming a 9%
investment return, you would accumulate $573,443 by the time you reach age 65.
However, had you invested the same $2,000 each year for 20 years, at that rate,
but waited until age 35, you would accumulate only $242,228 - a difference of
$331,215.
25 years old .............. 573,443
35 years old .............. 242,228
45 years old .............. 103,320
For each of the above graphs and chart it should be noted that systematic
investment plans do not assume a profit or protect against loss in declining
markets. Investors should consider their financial ability to continue purchases
through periods of both high and low price levels. Figures are hypothetical and
for illustrative purposes only and do not represent any actual investment or
performance. The value of a shareholder's investment and return may vary.
A-7
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1996.
1928 .................. 300.00
1929 .................. 248.48
1930 .................. 164.58
1931 .................. 77.90
1932 .................. 59.93
1933 .................. 99.90
1934 .................. 104.04
1935 .................. 144.13
1936 .................. 179.90
1937 .................. 120.85
1938 .................. 154.76
1939 .................. 150.24
1940 .................. 131.13
1941 .................. 110.96
1942 .................. 119.40
1943 .................. 136.20
1944 .................. 152.32
1945 .................. 192.91
1946 .................. 177.20
1947 .................. 181.16
1948 .................. 177.30
1949 .................. 200.10
1950 .................. 235.40
1951 .................. 269.22
1952 .................. 291.89
1953 .................. 280.89
1954 .................. 404.38
1955 .................. 488.39
1956 .................. 499.46
1957 .................. 435.68
1958 .................. 583.64
1959 .................. 679.35
1960 .................. 615.88
1961 .................. 731.13
1962 .................. 652.10
1963 .................. 762.94
1964 .................. 874.12
1965 .................. 969.25
1966 .................. 785.68
1967 .................. 905.10
1968 .................. 943.75
1969 .................. 800.35
1970 .................. 838.91
1971 .................. 890.19
1972 .................. 1,020.01
1973 .................. 850.85
1974 .................. 616.24
1975 .................. 858.71
1976 .................. 1,004.65
1977 .................. 831.17
1978 .................. 805.01
1979 .................. 838.74
1980 .................. 963.98
1981 .................. 875.00
1982 .................. 1,046.55
1983 .................. 1,258.64
1984 .................. 1,211.56
1985 .................. 1,546.67
1986 .................. 1,895.95
1987 .................. 1,938.80
1988 .................. 2,168.60
1989 .................. 2,753.20
1990 .................. 2,633.66
1991 .................. 3,168.83
1992 .................. 3,301.11
1993 .................. 3,754.09
1994 .................. 3,834.44
1995 .................. 5,000.00
1996 .................. 6,000.00
The performance of the Dow Jones Industrial Average is not indicative of
the performance of any particular investment. It does not take into account fees
and expenses associated with purchasing mutual fund shares. Individuals cannot
invest directly in any index. Please note that past performance does not
guarantee future results.
A-8
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart shows that inflation is constantly eroding the value of your
money.
THE EFFECTS OF INFLATION OVER TIME
1966 ....................... 96.61836
1967 ....................... 93.80423
1968 ....................... 89.59334
1969 ....................... 84.36285
1970 ....................... 79.88906
1971 ....................... 77.33694
1972 ....................... 74.79395
1973 ....................... 68.80768
1974 ....................... 61.27131
1975 ....................... 57.31647
1976 ....................... 54.63915
1977 ....................... 51.20820
1978 ....................... 46.98000
1979 ....................... 41.46514
1980 ....................... 36.85790
1981 ....................... 33.84564
1982 ....................... 32.60659
1983 ....................... 31.41290
1984 ....................... 30.23378
1985 ....................... 29.12696
1986 ....................... 28.81005
1987 ....................... 27.59583
1988 ....................... 26.43279
1989 ....................... 25.27035
1990 ....................... 23.81748
1991 ....................... 23.10134
1992 ....................... 22.45028
1993 ....................... 21.86006
1994 ....................... 21.28536
1995 ....................... 20.76620
1996 ....................... 20.16135
1996 ....................... 100.00
1997 ....................... 103.00
1998 ....................... 106.00
1999 ....................... 109.00
2000 ....................... 113.00
2001 ....................... 116.00
2002 ....................... 119.00
2003 ....................... 123.00
2004 ....................... 127.00
2005 ....................... 130.00
2006 ....................... 134.00
2007 ....................... 138.00
2008 ....................... 143.00
2009 ....................... 147.00
2010 ....................... 151.00
2011 ....................... 156.00
2012 ....................... 160.00
2013 ....................... 165.00
2014 ....................... 170.00
2015 ....................... 175.00
2016 ....................... 181.00
2017 ....................... 186.00
2018 ....................... 192.00
2019 ....................... 197.00
2020 ....................... 203.00
2021 ....................... 209.00
2022 ....................... 216.00
2023 ....................... 222.00
2024 ....................... 229.00
2025 ....................... 236.00
2026 ....................... 243.00
Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and service as in 1996 ($100 vs. $20).* Projecting inflation at 3%, goods
and services costing $100 today will cost $243 in the year 2026.
* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.
A-9
<PAGE>
[The following tables are represented as graphs in the printed document.]
This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.
1926 through 1996*
Total Number of Percentage of
Number of Positive Positive
Rolling Period Periods Periods Periods
-------------- ------- ------- -------
1-Year 71 51 72%
5-Year 67 60 90%
10-Year 62 60 97%
15-Year 57 57 100%
20-Year 52 52 100%
The following chart shows the compounded annual return of large company stocks
compared to U.S. Treasury Bills and inflation over the most recent 15 year
period. **
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 16.79
The following chart illustrates for the period shown that long-term corporate
bonds have outpaced U.S. Treasury Bills and inflation.
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 13.66
* Source: Used with permission. (c)1997 Ibbotson Associates, Inc. All rights
reserved. [Certain provisions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.]
** Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, returns of U.S. Treasury bills historically have
not outpaced inflation by as great a margin as stocks.
A-10
<PAGE>
The accompanying table illustrates that if you are in the 36% tax bracket, a
tax-free yield of 3% is actually equivalent to a taxable investment earning
4.69%.
Your Taxable Equivalent Yield
Your Federal Tax Bracket
---------------------------------------------
28.0% 31.0% 36.0% 39.6%
your tax-free yield
3.00% 4.17% 4.35% 4.69% 4.97%
3.50% 4.86% 5.07% 5.47% 5.79%
4.00% 5.56% 5.80% 6.25% 6.62%
4.50% 6.25% 6.52% 7.03% 7.45%
5.00% 6.94% 7.25% 7.81% 8.25%
5.50% 7.64% 7.97% 8.59% 9.11%
This information is general in nature and should not be construed as tax advice.
Please consult a tax or financial adviser as to how this information affects
your particular circumstances.
A-11
<PAGE>
[The following table is represented as a graph in the printed document.]
The following graph illustrates how income has affected the gains from stock
investments since 1965.
S&P 500 Dividends Reinvested S&P 500 Principal Only
12/31/64 10,000 10,000
12/31/65 11,269 10,906
12/31/66 10,115 9,478
12/31/67 12,550 11,383
12/31/68 13,948 12,255
12/31/69 12,795 10,863
12/31/70 13,299 10,873
12/31/71 15,200 12,046
12/31/72 18,088 13,929
12/31/73 15,431 11,510
12/31/74 11,346 8,090
12/31/75 15,570 10,642
12/31/76 19,296 12,680
12/31/77 17,915 11,221
12/31/78 19,092 11,340
12/31/79 22,645 12,736
12/31/80 30,004 16,019
12/31/81 28,528 14,460
12/31/82 34,674 16,595
12/31/83 42,496 19,461
12/31/84 45,161 19,733
12/31/85 59,489 24,930
12/31/86 70,594 28,575
12/31/87 74,301 29,154
12/31/88 86,641 32,769
12/31/89 114,093 41,699
12/31/90 110,549 38,964
12/31/91 144,230 49,214
12/31/92 155,218 51,411
12/31/93 170,863 55,039
12/31/94 173,120 54,191
12/31/95 238,175 72,676
12/31/96 292,863 87,403
11/30/97 383,977 112,732
Source: First Investors Management Company, Inc. Standard & Poor's is a
registered trademark. The S&P 500 is an unmanaged index comprising 500 common
stocks spread across a variety of industries. The total returns represented
above compare the impact of reinvestment of dividends and illustrates past
performance of the index. The performance of any index is not indicative of the
performance of a particular investment and does not take into account the
effects of inflation or the fees and expenses associated with purchasing mutual
fund shares. Individuals cannot invest directly in any index. Mutual fund shares
will fluctuate in value, therefore, the value of your original investment and
your return may vary. Moreover, past performance is no guarantee of future
results.
A-12
<PAGE>
Financial Statements
as of September 30, 1998
First Investors Fund For Income, Inc. (2-38309) incorporates by reference the
financial statements and report of independent auditors contained in the Annual
Report to shareholders for the fiscal year ended September 30, 1998
electronically filed with the Commission on December 3, 1998 (Accession Number:
0001047469-98-42875).
First Investors High Yield Fund, Inc. (33-4935) incorporates by reference the
financial statements and report of independent auditors contained in the Annual
Report to shareholders for the fiscal year ended September 30, 1998
electronically filed with the Commission on December 3, 1998 (Accession Number:
0001047469-98-42875).
First Investors Government Fund, Inc. (2-89287) incorporates by reference the
financial statements and report of independent auditors contained in the Annual
Report to shareholders for the fiscal year ended September 30, 1998
electronically filed with the Commission on December 3, 1998 (Accession Number:
0001047469-98-42875).
First Investors Series Fund, Investment Grade Fund. (33-25623) incorporates by
reference the financial statements and report of independent auditors contained
in the Annual Report to shareholders for the fiscal year ended September 30,
1998 electronically filed with the Commission on December 3, 1998 (Accession
Number: 0001047469-98-42875).
A-13
<PAGE>
FIRST INVESTORS LOGO
Shareholder Manual
A Guide to Your
First Investors
Mutual Fund Account
as of February 19, 1999
<PAGE>
INTRODUCTION
Investing in mutual funds doesn't have to be complicated. In addition to a wide
variety of mutual funds, First Investors offers personalized service. Your
registered representative is available to answer your questions and help you
process your transactions. In the event you wish to process a transaction
directly, the material provided in this easy-to-follow guide tells you how to
contact us and explains our policies and procedures. Please note that there are
special rules for money market funds. Please read this manual completely to gain
a better understanding of how shares are bought, sold, exchanged, and
transferred. In addition, the manual provides you with a description of the
services we offer to simplify investing. The services, privileges and fees
referenced in this manual are subject to change. You should call our Shareholder
Services Department at 1 (800) 423-4026 before initiating any transaction. This
manual must be preceded or accompanied by a First Investors mutual fund
prospectus. For more complete information on any First Investors Fund, including
charges and expenses, refer to the prospectus. Read the prospectus carefully
before you invest or send money.
Principal Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
Transfer Agent
Administrative Data
Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
<PAGE>
TABLE OF CONTENTS
HOW TO BUY SHARES
To Open An Account ......................................................... 5
To Open a Retirement Account ............................................... 6
Minimum Initial Investment ................................................. 6
Additional Investments ..................................................... 6
Acceptable Forms of Payment ................................................ 6
Share Classes .............................................................. 6
Share Class Specification .................................................. 7
Class A Shares ............................................................. 7
Sales Charge Waivers & REductions on Class A Shares ........................ 7
Class B Shares ............................................................. 9
How To Pay ................................................................. 10
Wire Transfers ............................................................. 11
Distribution Cross-Investment .............................................. 12
HOW TO SELL SHARES
REDEMPTION OPTIONS ......................................................... 13
Written Redemptions ........................................................ 13
Telephone Redemptions ...................................................... 13
Electronic Funds Transfer .................................................. 13
Systematic Withdrawal Plans ................................................ 14
Expedited Wire Redemptions ................................................. 14
HOW TO EXCHANGE SHARES
Exchange Methods ........................................................... 15
Exchange Conditions ........................................................ 16
Exchanging Funds With.
Automatic Investments or
Systematic Withdrawals ..................................................... 16
WHEN AND HOW ARE FUND SHARES PRICED? ....................................... 17
HOW ARE PURCHASE, REDEMPTION, AND EXCHANGE ORDERS PROCESSED AND PRICED? .... 17
Purchases .................................................................. 17
Redemptions ................................................................ 18
Exchanges .................................................................. 18
Orders Placed Via First Investors Registered Representatives ............... 18
Special Rules for Money Market Funds ....................................... 19
SPECIAL RULES FOR MONEY MARKET ACCOUNTS .................................... 18
RIGHT TO REJECT PURCHASE OR EXCHANGE ORDERS ................................ 19
SIGNATURE GUARANTEE ARE REQUIRED............................................ 19
TELEPHONE SERVICES TELEPHONE EXCHANGES AND REDEMPTIONS ..................... 20
Security MEasures .......................................................... 20
Eligibility ................................................................ 20
NON-RETIREMENT ACCOUNTS .................................................... 20
RETIREMENT ACCOUNTS ........................................................ 20
Shareholder Services ....................................................... 21
OTHER SERVICES ............................................................. 22
Reinvestment Privilege ..................................................... 22
Certificate Shares ......................................................... 22
Money Market Fund Draft Checks ............................................. 22
Return Mail ................................................................ 23
Transferring Shares ........................................................ 23
ACCOUNT STATEMENTS
Transaction Confirmation Statements ........................................ 24
Master Account Statements .................................................. 24
Annual and Semi-Annual Reports ............................................. 24
DIVIDENDS AND DISTRIBUTIONS
Dividends and Distributions ................................................ 25
Buying a Dividend .......................................................... 25
TAX FORMS .................................................................. 26
4
<PAGE>
HOW TO BUY SHARES
First Investors offers a wide variety of mutual funds to meet your financial
needs ("FI Funds"). Your First Investors registered representative will review
your financial objectives and risk tolerance, explain our product line and
services, and help you select the right investments. Call our Shareholder
Services Department at 1 (800) 423-4026 for the number of the First Investors
office near you or visit us on-line at www.firstinvestors.com
o TO OPEN AN ACCOUNT
Before investing, you must establish an account with your broker/dealer. At
First Investors Corporation ("FI") you do this by completing and signing a
Master Account Agreement ("MAA"). After you determine the fund(s) you want to
purchase, deliver your completed MAA and your check, made payable to First
Investors Corporation, to your registered representative. New client accounts
must be established through your registered representative. You need to tell us
how you want your shares registered when you open a new Fund account. Please
keep the following information in mind:
- -JOINT ACCOUNTS. For any account with two or more owners, all owners must sign
requests to process transactions. Telephone privileges allow any one of the
owners to process transactions independently.
- -GIFTS AND TRANSFERS TO MINORS. Custodial accounts for a minor may be
established under your state's Uniform Gifts/Transfers to Minors Act. Custodial
accounts are registered under the minor's social security number.
TRUSTS. A trust account may be opened only if you have a valid written trust
document.
- -TRANSFER ON DEATH (TOD). TOD registrations, available on all FI Funds in all
states, allow individual and joint account owners to name one or more
beneficiaries. The ownership of the account automatically passes to the named
beneficiaries in the event of the death of all account owners.
- -DIVIDENDS AND CAPITAL GAINS. Fund distributions will be automatically
reinvested in your account unless you request otherwise.
_______________________________________________________________________________
SOME REGISTRATIONS REQUIRE ADDITIONAL PAPERWORK.
_______________________________________________________________________________
TYPE OF ACCOUNT ADDITIONAL DOCUMENTS REQUIRED
Corporations
Partnership
& Trusts First Investors Certificate of Authority
Transfer On Death First Investors TOD Registration Request Form
(TOD)
Estates Original or Certified Copy of Death Certificate
Certified Copy of Letters Testamentary/Administration
First Investors Executor's Certification &
Indemnification Form
Conservatorships Copy of court document appointing Conservator/Guardian
& Guardianships
_______________________________________________________________________________
5
<PAGE>
oTO OPEN A RETIREMENT ACCOUNT
Fund shares may be purchased for your retirement account by completing the MAA
and the appropriate retirement plan application. First Investors offers
retirement plans for both individuals and employers as follows:
INDIVIDUAL RETIREMENT ACCOUNTS
including Roth, Traditional, and Rollover IRAs.
SIMPLE IRAS offered by employers.
SEP-IRAS (SIMPLIFIED EMPLOYEE PENSION PLANS) for small business owners or people
with income from self-employment, including SARSEP IRAs.
403(B)(7) accounts for employees of eligible tax-exempt organizations such as
schools, hospitals and charitable organizations.
401(K) plans for employers.
MONEY PURCHASE PENSION & PROFIT SHARING plans for sole proprietors.
For more information about these plans call your registered representative or
our Shareholder Services Department at 1 (800) 423-4026.
oMINIMUM INITIAL INVESTMENT
You can open a non-retirement account with a check made payable to First
Investors Corporation for as little as $1,000. The minimum is waived if you open
an account through one of our Automatic Investment Programs (see "How to Pay")
or through a full exchange from another FI Fund. You can open a First Investors
Traditional IRA or Roth IRA with as little as $500 (except for the Cash
Management Fund which requires a $1,000 investment). Other retirement accounts
may have lower initial investment requirements at the Fund's discretion.
oADDITIONAL INVESTMENTS
Once you have established an account, you can add to it through your registered
representative or by sending us a check directly. There is no minimum
requirement on additional purchases into existing fund accounts. Remember to
include your FI Fund account number on your check made payable to First
Investors Corporation. Mail checks to: First Investors Corporation Attn: Dept.
Cp 581 Main Street Woodbridge, NJ 07095-1198
oACCEPTABLE FORMS OF PAYMENT
The following forms of payment are acceptable:
- -checks made payable to First Investors Corporation
- -Money Line electronic funds transfers
- -federal funds wire transfers For your protection, never give your registered
representative cash or a check made payable to your registered representative.
We do not accept:
- -Third party checks
- -Traveler's checks
- -Checks drawn on non-US banks
- -Money orders
- -Cash
oSHARE CLASSES
All FI Funds are available in Class A and Class B shares. Direct purchases into
Class B share money market accounts are not accepted. Class B money market fund
shares may only be acquired through an exchange from another Class B share
account or through Class B share dividend cross-reinvestment.
Each class of shares has its own cost structure. As a result, different classes
6
<PAGE>
of shares in the same fund generally have different prices. Class A shares have
a front-end sales charge. Class B shares have a contingent deferred sales charge
("CDSC"). While both classes have a Rule 12b-1 fee, the fee on Class B shares is
generally higher. The principal advantages of Class A shares are that they have
lower overall expenses, the availability of quantity discounts on sales charges,
and certain account privileges that are not offered on Class B shares. The
principal advantage of Class B shares is that all your money is put to work from
the outset. Your registered representative can help you decide which class of
shares is best for you.
oSHARE CLASS SPECIFICATION
It's very important to specify which class of shares you wish to purchase when
you open a new account. All First Investors account applications have a place to
designate your preference. If you do not specify which class of shares you want
to purchase, Class A shares will automatically be purchased.
oCLASS A SHARES
When you buy Class A shares, you pay the offering price - the net asset value of
the fund plus a front-end sales charge. The front-end sales charge declines with
larger investments.
_______________________________________________________________________________
CLASS A SALES CHARGES
_______________________________________________________________________________
As a % OF AS a % of your
Investment offering price investment
up to $24,999 6.25% 6.67%
$25,000 - $49,999 5.75% 6.10%
$50,000 - $99,999 5.50% 5.82%
$100,000 - $249,999 4.50% 4.71%
$250,000 - $499,999 3.50% 3.63%
$500,000 - $999,999 2.50% 2.56%
Investments of $1 million or more will only be made in Class A shares at the
Fund's net asset value.
Generally, you should consider purchasing Class A shares if you plan to invest
$250,000 or more either initially or over time.
_______________________________________________________________________________
_______________________________________________________________________________
oSALES CHARGE WAIVERS & REDUCTIONS ON CLASS A SHARES
If you qualify for one of the sales charge reductions or waivers, it is very
important to let us know at the time you place your order. Include a written
statement with your check explaining which privilege applies. If you do not
include this statement we cannot guarantee that you will receive the reduction
or waiver.
CLASS A SHARES MAY BE PURCHASED WITHOUT A SALES CHARGE:
1: By an officer, trustee, director, or employee of the Fund, the Fund's adviser
or subadviser, First Investors Corporation, or any affiliates of First Investors
Corporation.
2: By a former officer, trustee, director, or employee of the Fund,
First Investors Corporation, or their affiliates provided the person worked for
the company for at least 5 years and retired or terminated employment in good
standing.
7
<PAGE>
3: By a FI registered representative or an authorized dealer, or by his/her
spouse, child (under age 21) or grandchild (under age 21).
4: When fund distributions are reinvested in Class A shares.
5: When Systematic Withdrawal Plan payments are reinvested in Class A shares.
6: When qualified retirement plan loan repayments are reinvested in Class A
shares.
7: With the liquidation proceeds from a First Investors Life Variable Annuity
Fund A, C, or D contract within one year of the contract's maturity date.
8:When dividends (at least $50 a year) from a First Investors Life Insurance
Company policy are invested into an EXISTING account.
9: When a group qualified plan (401(k) plans, money purchase pension plans,
profit sharing plans and 403(b) plans that are subject to Title I of ERISA) is
reinvesting redemption proceeds from another fund on which a sales charge or
CDSC was paid.
10: With distribution proceeds from a First Investors group qualified plan
account into an IRA.
11: By participant directed group qualified plans with 100 or more eligible
employees or $1,000,000 or more in assets.
12: In amounts of $1 million or more.
13: By individuals under a Letter of Intent or Cumulative Purchase Privilege of
$1 million or more.
FOR ITEMS 9 THROUGH 13 ABOVE: A CDSC OF 1.00% WILL BE
DEDUCTED IF SHARES ARE REDEEMED WITHIN 2 YEARS OF PURCHASE.
SALES CHARGES ON CLASS A SHARES MAY BE REDUCED FOR:
1: Participant directed group qualified retirement plans with 99 or fewer
eligible employees. The initial sales charge is reduced to 3.00% of the offering
price.
2: Certain unit trust holders ("unitholders") who elect to invest the entire
amount of principal, interest, and/or capital gains distributions from their
unit investment trusts in Class A shares. Unitholders of various series of New
York Insured Municipals-Income Trust sponsored by Van Kampen Merrit, Inc.,
unitholders of various series of the Multistate Tax Exempt trust sponsored by
Advest Inc., and unitholders of various series of the Insured Municipal Insured
National Trust, J.C. Bradford & Co. as agent, may buy Class A shares of a FI
Fund with unit trust distributions at the net asset value plus a sales charge of
1.5%. Unitholders of various tax-exempt trusts, other than the New York Trust,
sponsored by Van Kampen Merritt Inc. may buy Class A shares of a FI Fund at the
net asset value plus a sales charge of 1.0%.
Unitholders may make additional purchases, other than those made by unit trust
distributions, at the Fund's regular offering price.
CUMULATIVE PURCHASE PRIVILEGE The Cumulative Purchase Privilege lets you add the
value of all your existing FI Fund accounts (Class A and Class B shares) to the
amount of your next Class A share investment to reach sales charge discount
breakpoints. For example, if the combined value of your existing FI Fund
accounts is $25,000, your next purchase will be eligible for a sales charge
discount at the $25,000 level. Cumulative Purchase discounts are applied to
purchases as indicated in the first column of the Class A Sales Charge table.
All your accounts registered with the same social security number will be linked
together under the Cumulative Purchase Privilege. In addition, your spouse's
accounts and custodial accounts held for minor children residing at your home
can also be linked to your accounts upon request.
8
<PAGE>
- -Conservator accounts are linked to the social security number of the ward, not
the conservator.
- -Sole proprietorship accounts are linked to personal/family accounts only if the
account is registered with a social security number, not an employer
identification number ("EIN").
- -Testamentary trusts and living trusts may be linked to other accounts
registered under the same trust EIN, but not to the personal accounts of the
trustee(s).
- -Estate accounts may only be linked to other accounts registered under the same
EIN of the estate or social security number of the decedent.
- -Church and religious organizations may link accounts to others registered with
the same EIN but not to the personal accounts of any member.
LETTER OF INTENT
A Letter of Intent ("LOI") lets you purchase at a discounted sales charge level
even though you do not yet have sufficient investments to qualify for that
discount level. An LOI is a commitment by you to invest a specified dollar
amount during a 13-month period. The amount you agree to invest determines the
sales charge you pay. Under an LOI, you can reduce the initial sales charge on
Class A share purchases based on the total amount you agree to invest in both
Class A and Class B shares during the 13 month period. Purchases made up to 90
days before the date of the LOI may be included.
Your LOI can be amended in two ways. First, you may file an amended LOI to raise
or lower the LOI amount during the 13 month period. Second, your LOI will be
automatically amended if you invest more than your LOI amount during the
13-month period and qualify for an additional sales charge reduction.
By purchasing under an LOI, you acknowledge and agree to the following:
- -You authorize First Investors to reserve 5% of your total intended investment
in shares held in escrow in your name until the LOI is completed.
- -First Investors is authorized to sell any or all of the escrow shares to
satisfy any additional sales charges owed in the event you do not fulfill the
LOI.
- -Although you may exchange all your shares, you may not sell the reserve shares
held in escrow until you fulfill the LOI or pay the higher sales charge.
oCLASS B SHARES
Class B shares are sold without an initial sales charge, putting all your money
to work for you immediately. If you redeem Class B shares within 6 years of
purchase, a CDSC will be imposed. The CDSC declines from 4% to 0% over a 6-year
period, as shown in the chart below. Class B share money market fund shares are
not sold directly. They can only be acquired through an exchange from another
Class B fund account. Class B shares, and the dividend and distribution shares
they earn, automatically convert to Class A shares after 8 years, reducing
future annual expenses.
Generally, you should consider purchasing Class B shares if you intend to invest
less than $250,000 and you would rather pay higher ongoing expenses than an
initial sales charge.
CLASS B SALES CHARGES
THE CDSC DECLINES OVER TIME AS SHOWN IN THE TABLE BELOW:
________________________________________________________________
Year 1 2 3 4 5 6 7+
________________________________________________________________
CDSC 4% 4% 3% 3% 2% 1% 0%
________________________________________________________________
9
<PAGE>
If shares redeemed are subject to a CDSC, the CDSC will be based on the lesser
of the original purchase price or redemption price. There is no CDSC on shares
acquired through dividend and capital gains reinvestment. We call these "free
shares."
Anytime you sell shares, your shares will be redeemed in the following manner to
ensure that you pay the lowest possible CDSC:
FIRST-Class B shares representing dividends and capital gains that are not
subject to a CDSC.
SECOND-Class B shares held more than six years which are not subject to a CDSC.
THIRD-Class B shares held longest which will result in the lowest CDSC.
For purposes of calculating the CDSC, all purchases made during the calendar
month are deemed to have been made on the first business day of the month at the
average cost of the shares purchased during that period.
SALES CHARGE WAIVERS ON CLASS B SHARES
The CDSC on Class B shares does not apply to:
1: Appreciation on redeemed shares above their original purchase price.
2: Redemptions due to death or disability (as defined in section 72(m)(7) of the
Internal Revenue Code) requested within one year of death. Additional
documentation is required.
3: Distributions from employee benefit plans due to termination or plan
transfer.
4: Redemptions to remove an excess contribution from an IRA or qualified
retirement plan.
5: Distributions upon reaching required minimum age 70 1/2 provided you have
held the shares for at least three years.
6: Annual redemptions of up to 8% of your account's value redeemed by a
Systematic Withdrawal Plan. Free shares not subject to a CDSC will be redeemed
first and will count towards the 8% limit.
7: Shares redeemed from advisory accounts managed by or held by the Fund's
investment advisor or any of its affiliates.
8: Tax-free returns of excess contributions from employee benefit plans.
9: Redemptions of non-retirement shares purchased with proceeds from the sale of
shares of another fund group between April 29, 1996 and June 30, 1996 that did
not pay a sales charge (other than money market fund accounts or retirement plan
accounts).
10: Redemptions by the Fund when the account falls below the minimum.
11: Redemptions to pay account fees.
Include a written statement with your redemption request explaining which
exemption applies. If you do not include this statement we cannot guarantee that
you will receive the waiver.
oHOW TO PAY
You can invest using one or more of the
following options:
- -CHECK:
You can buy shares by writing a check payable to
First Investors Corporation. If you are opening a new fund account, your check
must meet the fund minimum. When making purchases to an existing account,
remember to include your fund account number on your check.
- -AUTOMATIC INVESTMENT PROGRAMS:
We offer several automatic investment programs to simplify
investing.
- -MONEY LINE:
With our Money Line program, you can open an account with as little as $50 a
month or $600 each year in a FI Fund account by transferring funds
electronically from your bank account. You can invest up to $10,000 a month
through Money Line.
10
<PAGE>
Money Line allows you to select the payment amount and frequency that is best
for you. You can make automatic investments bi-weekly, semi-monthly, monthly,
quarterly, semi-annually, or annually. The date you select as your Money Line
investment date is the date on which shares will be purchased. THE PROCEEDS MUST
BE AVAILABLE IN YOUR BANK ACCOUNT TWO BUSINESS DAYS PRIOR TO THE INVESTMENT
DATE.
HOW TO APPLY:
1: Complete the Electronic Funds Transfer ("EFT") section of the application to
provide complete bank information and authorize EFT fund share purchases. Attach
a voided check. A signature guarantee of all shareholders and bank account
owners is required.
PLEASE ALLOW AT LEAST 10 BUSINESS DAYS FOR INITIAL PROCESSING.
2: Complete the Money Line section of the application to specify the amount,
frequency and date of the investment.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP., ATTN: CONTROL DEPT., 581 MAIN STREET,
WOODBRIDGE, NJ 07095-1198.
HOW TO CHANGE:
Provided you have telephone privileges, you may call Shareholder Services at 1
(800) 423-4026 to:
- -Increase the payment up to $999.99.
- -Decrease the payment.
- -Discontinue the service.
To change investment amounts, reallocate or cancel Money Line, you must notify
us at least 3 business days prior to the investment date.
You must send a signature guaranteed written request to Administrative Data
Management Corp. to:
- -Increase the payment to $1,000 or more.
- -Change bank information.
A medallion signature guarantee (see Signature Guarantee Policy) is required to
increase a Money Line payment to $2,500 or more. Changing banks or bank account
numbers requires 10 days notice. Money Line service will be suspended upon
notification that all account owners are deceased.
AUTOMATIC PAYROLL INVESTMENT: With our Automatic Payroll Investment service
("API") you can systematically purchase shares by salary reduction. To
participate, your employer must offer direct deposit and permit you to
electronically transfer a portion of your salary. Contact your company payroll
department to authorize the salary reductions. If not available, you may
consider our Money Line program.
Shares purchased through API are bought at the offering price on the day the
electronic transfer is received by the Fund.
HOW TO APPLY:
1: Complete an API Application.
2: Complete an API
Authorization Form.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP., ATTN: CONTROL DEPT., 581 MAIN STREET,
WOODBRIDGE, NJ 07095-1198.
oWire Transfers:
You may purchase shares via a federal funds wire transfer from your bank account
into your EXISTING First Investors account. Federal fund wire transfer proceeds
are not subject to a holding period and are available to you immediately upon
receipt, as long as we have been notified properly.
YOU MUST CALL US AT 1 (800) 423-4026 TO ADVISE US OF AN INCOMING FEDERAL FUNDS
WIRE and provide us with the federal funds wire transfer confirmation number,
the amount of the wire, and the fund account number to receive same day credit.
11
<PAGE>
There are special rules for money market fund accounts. To wire federal funds to
an existing First Investors account (other than money markets), instruct your
bank to wire your investment to: FIRST FINANCIAL SAVINGS BANK, S.L.A. ABA #
221272604 ACCOUNT # 0306142 YOUR NAME YOUR FIRST INVESTORS FUND ACCOUNT#
oDISTRIBUTION CROSS-INVESTMENT:
You can invest the dividends and capital gains from one fund account, excluding
the money market funds, into another fund account in the same class of shares.
The shares will be purchased at the net asset value on the day after the record
date of the distribution.
- -You must invest at least $50 a month or $600 a year into a NEW account.
- -A signature guarantee is required if the ownership on both accounts is not
identical.
You may establish a Distribution Cross-Investment service by contacting your
registered representative or calling Shareholder Services at 1 (800) 423-4026.
oSYSTEMATIC WITHDRAWAL PLAN PAYMENT INVESTMENTS:
You can invest Systematic Withdrawal Plan payments (see How to Sell Shares) from
one fund account in shares of another fund account.
- -Payments are invested without a sales charge.
- -A signature guarantee is required if the ownership on both accounts is not
identical.
- -Both accounts must be in the same class of shares.
- -You must invest at least $600 a year if into a new account.
- -You can invest on a monthly, quarterly, semi-annual, or annual basis.
Redemptions are suspended upon notification that all account owners are
deceased. Service will recommence upon receipt of written alternative payment
instructions and other required documents from the decedent's legal
representative.
HOW TO SELL SHARES
You can sell your shares on any day the New York Stock Exchange is open for
regular trading. In the mutual fund industry, a sale is referred to as a
"redemption." Redemption proceeds are generally mailed within three days. If the
shares being redeemed were purchased by check, payment may be delayed to verify
that the check has been honored, which may take up to 15 days from the date of
purchase. Shareholders may not redeem shares by telephone or electronic funds
transfer unless the shares have been owned for at least 15 days.
Redemptions of shares are not subject to the 15 day verification period if the
shares were purchased via:
- -Automatic Payroll Investment
- -FIC registered representative payroll checks -First Investors Life Insurance
Company checks
- -Federal funds wire payments
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<PAGE>
oREDEMPTION OPTIONS
For trusts, estates, attorneys-in-fact, corporations, partnerships, and other
entities, additional documents are required to redeem shares. Call Shareholder
Services at 1 (800) 423-4026 for more information.
WRITTEN REDEMPTIONS
You can write a letter of instruction or contact your First Investors registered
representative for a liquidation request form. A written liquidation request in
good order must include:
1: The name of the fund;
2: Your account number;
3: The dollar amount, number of shares or percentage of the account you want to
redeem;
4: Share certificates (if they were issued to you);
5: Original signatures of all owners exactly as your account is registered;
6: Signature
guarantees, if required (see Signature Guarantee Policy).
Written redemption requests should be mailed to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198
TELEPHONE REDEMPTIONS
You, or any person we believe is authorized to act on your behalf, may redeem
shares which have been owned for at least 15 days by calling our Special
Services Department at 1 (800) 342-6221 from 9:00 a.m. to 5:00 p.m., EST,
provided:
- -Telephone privileges are available for your account registration (see Telephone
Privileges);
- -You have telephone privileges (see Telephone Privileges);
- -You do not hold share certificates (issued shares);
- -The redemption check is made payable to the registered owner(s) or
pre-designated bank;
- -The redemption check is mailed to your address of record;
- -Your address of record has not changed within the past 60 days;
- -The redemption amount is $50,000 or less; AND -The redemption amount, combined
with the amount of all telephone redemptions made within the previous 30 days
does not exceed $100,000.
ELECTRONIC FUNDS TRANSFER
The Electronic Funds Transfer ("EFT") service allows you to redeem shares and
electronically transfer proceeds to your bank account.
YOU MUST ENROLL IN THE ELECTRONIC FUNDS TRANSFER SERVICE AND PROVIDE COMPLETE
BANK ACCOUNT INFORMATION BEFORE USING THE PRIVILEGE. Signature guarantees of all
shareholders and all bank account owners are required. Please allow at least 10
business days for initial processing. We will send any proceeds during the
processing period to your address of record. Call your registered representative
or Shareholder Services at 1 (800) 423-4026 for an application.
You may call Shareholder Services or send written instructions to Administrative
Data Management Corp. to request an EFT redemption of shares which are held at
least 15 days. Each EFT redemption:
1: Must be electronically transferred to your pre-designated bank account;
2: Must be at least $500;
3: Cannot exceed $50,000;
4: Cannot exceed $100,000 when added to the total amount of all EFT
redemptions made within the previous 30 days.
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<PAGE>
If your redemption does not qualify for an EFT redemption, you may request to
have the redemption proceeds mailed to you.
The Electronic Funds Transfer service may also be used to purchase shares (see
Money Line) and transfer systematic withdrawal payments (see Systematic
Withdrawal Plans) and dividend distributions (see Other Services) to your bank
account.
SYSTEMATIC WITHDRAWAL PLANS
Our Systematic Withdrawal Plan allows you to redeem a specific dollar amount or
percentage from your account on a regular basis. Your payments can be mailed to
you or a pre-authorized payee by check, transferred to your bank account
electronically (if you have enrolled in the EFT service) or invested in shares
of another FI fund in the same class of shares through our Systematic Withdrawal
Plan Payment investment service (see How to Buy Shares).
You can receive payments on a monthly, quarterly, semi-annual, or annual basis.
Your account must have a value of at least $5,000 in non-certificated shares
("unissued shares"). The $5,000 minimum account balance is waived for required
minimum distributions from retirement plan accounts. The minimum Systematic
Withdrawal Plan payment is $25 (waived for Required Minimum Distributions on
retirement accounts or FIL premium payments).
Once you establish the Systematic Withdrawal Plan, you should not make
additional investments into this account (except money market funds). Buying
shares during the same period as you are selling shares is not advantageous to
you because of sales charges.
If you own Class B shares, you may establish a Systematic Withdrawal Plan and
redeem up to 8% of the value of your account annually without a CDSC.
If you own Class B shares of a retirement account and you are receiving your
Required Minimum Distribution through a Systematic Withdrawal Plan, up to 8% of
the value of your account may be redeemed annually without a CDSC. However, if
your Required Minimum Distribution exceeds the 8% limit, the applicable CDSC
will be charged if the additional shares were held less than 3 years and you
have not reached age 70-1/2.
To establish a Systematic Withdrawal Plan, complete the appropriate section of
the account application or contact your registered representative or call
Shareholder Services at 1 (800) 423-4026.
oEXPEDITED WIRE REDEMPTIONS (MONEY MARKET FUNDS ONLY)
Enroll in our Expedited Redemption service to wire proceeds from your FI money
market account to your bank account. Call Shareholder Services at 1 (800)
423-4026 for an application or to discuss specific requirements.
- -Each wire under $5,000 is subject to a $10 fee. -Six wires of $5,000 or more
are permitted without charge each month. Each additional wire is $10.00.
- -Wires must be directed to your pre-authorized bank account.
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<PAGE>
HOW TO EXCHANGE SHARES
The exchange privilege gives you the flexibility to change investments as your
goals change without incurring a sales charge. Since an exchange is a redemption
and a purchase, it creates a gain or loss which is reportable for tax purposes.
You should consult your tax advisor before requesting an exchange. Read the
prospectus of the FI Fund you are purchasing carefully. Review the differences
in objectives, policies, risk, privileges and restrictions.
<TABLE>
<CAPTION>
______________________________________________________________________________
EXCHANGE METHODS
_______________________________________________________________________________
METHOD STEPS TO FOLLOW
<S> <C>
Through Your FI
Registered Representative Call your registered representative.
___________________________________________________________________________________
By Phone Call Special Services from 9:00 a.m. to 5:00 p.m., EST
(800) 342-6221 Orders received after the close of the New York Stock
Exchange, usually 4:00 p.m., est, are processed the following business day.
1.You must have telephone privileges
(see Telephone Transactions)
2.Certificate shares cannot be exchanged by phone.
3.For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional documents
are required.
____________________________________________________________________________________
By Mail to: 1.Send us written instructions signed by all account
ADM exactly as the account is registered.
owners 2. Include your fund account number.
ATTN: EXCHANGE DEPT. 3. Indicate either the dollar amount, number of shares
581 MAIN STREET or percent of the account you want to exchange.
WOODBRIDGE, NJ 07095-119 4. Specify the existing account number or the name of
the new Fund you are exchanging into.
5. Include any outstanding share certificates for the
shares you want to exchange.
6. For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional documents
are required. Call Shareholder Services at 1 (800)
423-4026.
____________________________________________________________________________________
</TABLE>
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<PAGE>
oEXCHANGE CONDITIONS
1: You may only exchange shares within the same Class.
2: Exchanges can only be
made into identically owned accounts.
3: Partial exchanges into a new fund account must meet the new fund's minimum
initial investment.
4: The fund you are exchanging into must be eligible for
sale in your state.
5: If your request does not clearly indicate the amount to
be exchanged or the accounts involved, no shares will be exchanged.
6: Amounts
exchanged from a non-money market fund to a money market fund may be exchanged
back at net asset value. Dividends earned from money market fund shares will be
subject to a sales charge.
7: If you are exchanging from a money market fund to
a fund with a sales charge, there will be a sales charge on any shares that were
not previously subject to a sales charge. Your request must be in writing and
include a statement acknowledging that a sales charge will be paid. If you
exchange Class B shares of a fund for shares of a Class B money market fund, the
CDSC will not be imposed and the holding period used to calculate the CDSC will
carry over to the acquired shares.
8: FI Funds reserve the right to reject any
exchange order which in the opinion of the Fund is part of a market timing
strategy. In the event that an exchange is rejected, neither the redemption nor
the purchase side of the exchange will be processed.
oEXCHANGING FUNDS WITH AUTOMATIC INVESTMENTS OR SYSTEMATIC WITHDRAWALS
Let us know if you want to continue automatic investments into the original fund
or the fund you are exchanging into ("receiving fund") or if you want to change
the amount or allocation into both. Also inform us if you wish to continue,
terminate, or change a preauthorized systematic withdrawal. Without specific
instructions, we will amend account privileges as outlined below:
________________________________________________________________________________
EXCHANGE EXCHANGE EXCHANGE A
ALL SHARES TO ALL SHARES TO PORTION OF
ONE FUND MULTIPLE SHARES TO ONE OR
FUNDS MULTIPLE FUNDS
________________________________________________________________________________
MONEY LINE ML moves to ML stays with ML stays with
(ML) Receiving Fund Original Fund Original Fund
AUTOMATIC PAYROLL API moves to API Stays with API stays with
INVESTMENT (API) Receiving Fund Original Fund Original Fund
SYSTEMATIC SWP moves to SWP SWP stays
WITHDRAWALS Receiving Fund Canceled with Original Fund (SWP)
________________________________________________________________________________
16
<PAGE>
WHEN AND HOW ARE FUND SHARES PRICED?
Each FI Fund prices its shares each day that the New York Stock Exchange
("NYSE") is open for trading. The share price is calculated as of the close of
trading on the NYSE (generally 4:00 p.m., EST) except for shares of the money
market funds which are priced as of 12:00 noon. These days are referred to as
"Trading Days" in this Manual.
Each Fund calculates the net asset value of each class of its shares separately
by taking the total value of class assets, subtracting class expenses, and
dividing the difference by the total number of shares in the class. The price
that you will pay for a share is the NAV plus any applicable front-end sales
charge. You receive the NAV price if you redeem or exchange your shares, less
any applicable CDSC.
Fund prices are on our website (www.firstinvestors.com) the next day. The prices
for our larger funds are also reported in many newspapers, including The Wall
Street Journal and The New York Times. Special pricing procedures are employed
during emergencies. For a description of these procedures you can request, free
of charge, a copy of a Statement of Additional Information.
HOW ARE PURCHASE, REDEMPTION, AND EXCHANGE ORDERS PROCESSED AND PRICED?
The processing and price for a purchase, redemption or exchange depends upon how
your order is placed. As indicated below, special rules apply to money market
transactions.
oPURCHASES
Purchases that are made by written application or order are processed when they
are received in "good order" by our Woodbridge, NJ office. To be in good order,
all required paperwork must be completed and payment received. If your order is
received prior to the close of trading on the NYSE, it will receive that day's
price (except in the case of the money market funds which are discussed below).
This procedure applies whether your purchase order is given to your registered
representative or mailed directly by you to our Woodbridge, NJ office.
As described previously in "How to Buy Shares," certain types of purchases can
only be placed by written application. For example, purchases in connection with
the opening of retirement accounts may only be made by written application.
Furthermore, rollovers of retirement accounts will be processed only when we
have received both written application and the proceeds of the rollover. Thus,
for example, if it takes 30 days for another fund group to send us the proceeds
of a retirement account, your purchase of First Investors funds will not occur
until we receive the proceeds.
Some types of purchases may be phoned or electronically transmitted to us by
your broker/dealer. If you give your order to a First Investors registered
17
<PAGE>
representative before the close of trading on the NYSE and the order is phoned
to our Woodbridge, NJ office prior to 5:00 p.m., EST, your shares will be
purchased at that day's price (except money market funds which are discussed
below). If you are buying a First Investors Fund through a broker-dealer other
than First Investors, other requirements may apply. Consult with your
broker-dealer about its requirements. Payment is due within three business days
of placing an order by phone or electronic means or the trade may be cancelled.
(In such event, you will be liable for any loss resulting from the
cancellation.) To avoid cancellation of your orders, you may arrange to open a
money market account and use it to pay for subsequent purchases.
Purchases made pursuant to our Automatic Investment Programs are processed as
follows:
- -Money Line purchases are processed on the dates you select on your application.
- -Automatic Payroll Investment Service purchases are processed on the dates that
we receive funds from your employer.
oREDEMPTIONS
As described previously in "How To Sell Shares", certain redemption orders may
only be made by written instructions or application. Unless you have declined
Telephone Privileges, most redemptions can be made by phone by you or your
registered representative.
Written redemption orders will be processed when received in good order in our
Woodbridge, NJ office. Phone redemption orders will be processed when received
in our Woodbridge, NJ office.
If your redemption order is received prior to the close of trading on the NYSE,
you will receive that day's price (except in the case of money market funds
which are discussed below). If you are redeeming through a broker-dealer other
than First Investors, other requirements may apply. Consult with your
broker-dealer about its requirements.
oEXCHANGES
Exchanges can generally be made by written instructions or, unless you have
declined Telephone Privileges, by phone by you or your registered
representative. Exchange orders are processed when we receive them in good order
in our Woodbridge, NJ office.
Exchange orders received prior to the close of trading on the NYSE will be
processed at that day's prices (except in the case of exchanges into or out of
money market funds which are discussed below).
oORDERS PLACED VIA FIRST INVESTORS REGISTERED REPRESENTATIVES
All orders placed through a First Investors registered representative must be
reviewed and approved by a principal officer of the branch office before being
mailed or transmitted to the Woodbridge, NJ office.
oORDERS PLACED VIA DEALERS
It is the responsibility of the Dealer to forward or transmit orders to the Fund
promptly and accurately. A fund will not be liable for any change in the price
per share due to the failure of the Dealer to place the order in a timely
fashion. Any such disputes must be settled between you and the Dealer.
18
<PAGE>
oSPECIAL RULES FOR MONEY MARKET FUNDS
A money market fund share purchase will not be made until we receive the funds
for the purchase. The funds for the purchase will not be deemed to have been
received until the morning of the next Trading Day following the Trading Day on
which your purchase check is received in our Woodbridge, NJ office. If a check
is received in our Woodbridge, NJ office after the close of regular trading on
the NYSE, the funds for the purchase will not be deemed to have been received
until the morning of the second following Trading Day.
If you make your purchase by wire transfer prior to 12:00 p.m., EST, and you
have previously advised us that the wire is on the way, the funds for the
purchase will be deemed to have been received on that same day. You must call
beforehand and give us your name, account number, the amount of the wire, and a
federal reference number documenting the transfer. If we fail to receive such
advance notification, the funds for your purchase will not be deemed to have
been received until the morning of the next Trading Day following receipt of the
federal wire and your account information. To wire funds to an existing First
Investors money market account, instruct your bank to wire your investment, as
applicable, to: CASH MANAGEMENT FUND BANK OF NEW YORK ABA #021000018 ACCOUNT
8900005696 YOUR NAME YOUR FIRST INVESTORS ACCOUNT # TAX-EXEMPT MONEY MARKET FUND
BANK OF NEW YORK ABA #021000018 ACCOUNT 8900023198 YOUR NAME YOUR FIRST
INVESTORS ACCOUNT #
Purchases by Money Line and Automatic Payroll Investment are processed in the
same manner as those in other Funds.
Requests for redemptions or exchanges out of or into our money market funds must
be received in writing or by phone prior to 12:00 p.m., EST, on a Trading Day,
to be processed the same day. Redemption or exchange orders received after 12:00
p.m., EST, but before the close of regular trading on the NYSE, will be
processed on the morning of the following Trading Day.
RIGHT TO REJECT PURCHASE OR EXCHANGE ORDERS
A fund reserves the right to reject or restrict any specific purchase request if
the fund determines that doing so is in the best interest of the fund and its
shareholders. Investments in a fund are designed for long-term purposes and are
not intended to provide a vehicle for short-term market timing. The funds also
reserve the right to reject any exchange that in the funds' opinion is part of a
market timing strategy. In the event that a fund rejects an exchange request,
neither the redemption nor the purchase side of the exchange will be processed.
SIGNATURE GUARANTEE POLICY
A signature guarantee protects you from the risk of a
fraudulent signature and is generally required for non-standard and large dollar
transactions. A signature guarantee may be obtained from your First Investors
registered representative or eligible guarantor institutions including banks,
savings associations, credit unions and brokerage firms which are members of the
Securities Transfer Agents Medallion Program ("STAMP"), the New York Stock
Exchange Medallion Signature Program ("MSP"), or the Stock Exchanges Medallion
Program ("SEMP"). Please note that a notary public stamp or seal is not
acceptable. The words "Signature Guaranteed" must appear beside the signature of
the guarantor.
- -SIGNATURE GUARANTEES ARE REQUIRED:
1: For redemptions over $50,000.
2: For redemption checks made payable to any person(s) other than the registered
shareholder(s) or a major financial institution for the benefit of the
registered shareholder(s).
3: For redemption checks mailed to an address other than the address of record
(unless the check is mailed to a financial institution on your behalf).
4: For redemptions when the address of record has changed within 60 days of the
request.
5: When a stock certificate is mailed to an address other than the address of
record or to the dealer on the account.
6: When shares are transferred to a new registration.
7: When issued shares are redeemed.
8: To establish any EFT service.
19
<PAGE>
9: For requests to change the address of record to a P.O. box or a "c/o" street
address.
10: If multiple account owners of one account give inconsistent instructions.
11: When a transaction requires additional legal documentation.
12: When the authority of a representative of a corporation, partnership, trust,
or other entity has not been satisfactorily established.
13: When an address on an account which was coded "Do Not Mail" to suppress
check and dividend mailings due to a previously unknown address is updated.
14: Any other instance whereby a fund or its transfer agent deems it necessary
as a matter of prudence.
TELEPHONE SERVICES TELEPHONE EXCHANGES AND REDEMPTIONS 1 (800) 342-6221
You automatically receive telephone privileges when you open a First Investors
individual, joint, or custodial account unless you decline the option on your
account application or send the Fund written instructions. For trusts, estates,
attorneys-in-fact, corporations, partnerships, and other entities, additional
documents are required. Call Shareholder Services at 1 (800) 423-4026 for
assistance.
Telephone privileges allow you to exchange or redeem shares and authorize other
transactions by calling Special Services at 1 (800) 342-6221 from 9:00 a.m. to
5:00 p.m., EST, on any day the NYSE is open. Your First Investors registered
representative may also use telephone privileges to execute your transactions.
oSECURITY MEASURES For your protection, the following security measures are
taken:
1: Telephone requests are recorded to verify accuracy.
2: Some or all of
the following information is obtained:
- -Account number -Address -Social security
number
- -Other information as deemed necessary
3: A written confirmation of each
transaction is mailed to you.
We will not be liable for following instructions
if we reasonably believe the instructions are genuine based on our verification
procedures.
oELIGIBILITY
NON-RETIREMENT ACCOUNTS:
You can exchange or redeem shares of any non-retirement account by phone. Shares
must be owned for 15 days for telephone redemption. Telephone exchanges and
redemptions are not available on guardianship and conservatorship accounts.
RETIREMENT ACCOUNTS:
You can exchange between shares of any participant directed IRA, 403(b) or
401(k) Simplifier plan where First Financial Savings Bank, S.L.A. is Custodian.
You may also exchange shares from an individually registered non-retirement
account to an IRA account registered to the same owner (provided an IRA
application is on file). Telephone exchanges are permitted on 401(k) Flexible
plans, money purchase pension plans and profit sharing plans if a First
Investors Qualified Retirement Plan Application is on file with the fund.
Contact your First Investors registered representative or call Shareholder
Services at 1 (800) 423-4026 to obtain a Qualified Retirement Plan Application.
Telephone redemptions are not permitted on First Investors retirement accounts.
20
<PAGE>
SHAREHOLDER SERVICES:
1 (800) 423-4026
PROVIDED YOU HAVE NOT DECLINED TELEPHONE PRIVILEGES, CALL US TO UPDATE OR
CORRECT:
- -Your address or phone number.
- -Your birth date (important for retirement distributions).
- -Your distribution option to reinvest or pay in cash (non-retirement accounts
only) or initiate cross reinvestment of dividends.
- -The amount of your Money Line or Automatic Payroll Investment payment.
- -The allocation of your Money Line or Automatic Payroll Investment payment.
- -The amount of your Systematic Withdrawal payment.
TO REQUEST:
- -A duplicate copy of a statement or tax form.
- -A history of your account (the fee can be debited from your non-retirement
account).
- -A share certificate to be mailed to your address of record.
- -A stop payment on a dividend, redemption or money market check.
- -Suspension (up to six months) or cancellation of Money Line.
- -Cancellation of your Systematic Withdrawal Plan.
- -Cancellation of cross-reinvestment of dividends.
- -Money market fund draft checks.
21
<PAGE>
OTHER SERVICES
oREINVESTMENT PRIVILEGE
If you sell some or all of your Class A or Class B shares, you may be entitled
to reinvest all or a portion of the proceeds in the same class of shares of a FI
fund within six months of the redemption without a sales charge.
If you reinvest proceeds into a new fund account, you must meet the fund's
minimum initial investment requirement.
If you reinvest all the proceeds from a Class B share redemption, you will be
credited, in additional shares, for the full amount of the CDSC. If you reinvest
a portion of a Class B share redemption, you will be credited with a pro-rated
percentage of the CDSC.
The reinstatement privilege does not apply to automated purchases, automated
redemptions, or reinvestments in Class B shares of less than $1,000. Please
notify us if you qualify for this privilege. For more information, call
Shareholder Services at 1 (800) 423-4026.
oCERTIFICATE SHARES
Every time you make a purchase of Class A shares, we will credit shares to your
fund account. We do not issue shares certificates unless you specifically
request them. Certificates are not issued on any Class B shares or on Class A
money market funds.
Having us credit shares on your behalf eliminates the expense of replacing lost,
stolen, or destroyed certificates. If a certificate is lost, stolen, or damaged,
you will be charged a replacement fee of the greater of 2% of the current value
of the certificated shares or $25.
In addition, certificated shares cannot be redeemed or exchanged until they are
returned with your transaction request. The share certificate must be properly
endorsed and signature guaranteed.
oMoney Market Fund Draft Checks
Free draft check writing privileges are available when you open a First
Investors Cash Management Fund or a First Investors Tax Exempt Money Market Fund
account. Checks may be written for a minimum of $500. Draft checks are not
available for Class B share accounts, retirement accounts, guardianships and
conservatorships. Complete the Money Market Fund Check Redemption section of the
account application to apply for draft checks. To order additional checks, call
Shareholder Services at 1 (800) 423-4026.
Additional documentation is required to establish check writing privileges for
trusts, corporations, partnerships and other entities. Call Shareholder Services
at 1 (800) 423-4026 for further information.
_______________________________________________________________________________
FEE TABLE
Call Shareholder Services at 1 (800) 423-4026 or send your request to FIC, Attn:
Correspondence Dept., 581 Main Street, Woodbridge N.J. 07095-1198 to request a
copy of the following records:
ACCOUNT HISTORY STATEMENTS CANCELLED CHECKS
1974 - 1982* $10 per year fee There is a $10 fee for a copy of a
1983 - present $5 total fee for all years cancelled dividend, liquidation, or
Current & investment check requested. There
Two Prior Years Free cancelled money market draft check.
DUPLICATE TAX FORMS
Current Year Free
Prior Year(s) $7.50 per tax form
per year
* ACCOUNT HISTORIES ARE NOT AVAILABLE
PRIOR TO 1974.
22
<PAGE>
oRETURN MAIL
If mail is returned to the fund marked undeliverable by the U.S. Postal Service
after two consecutive mailings, and the fund is unable to obtain a current
shareholder address, the account status will be changed to "Do Not Mail" to
discontinue future mailings and prevent unauthorized persons from obtaining
account information.
You can remove the "Do Not Mail" status on your account by submitting written
instructions including your current address signed by all shareholders with a
signature guarantee (see Signature Guarantee Policy). Additional requirements
may apply for certain accounts. Call Shareholder Services at 1 (800) 423-4026
for more information.
Returned dividend checks and other distributions will be reinvested in the fund
when an account's status has been changed to "Do Not Mail". No interest will be
paid on outstanding checks prior to reinvestment. All future dividends and other
distributions will be reinvested in additional shares until new instructions are
provided. If you cannot be located within a period of time mandated by your
state of residence your fund shares may be turned over to your state (in other
words forfeited).
Prior to turning over assets to your state, the fund will seek to obtain a
current shareholder address in accordance with Securities and Exchange
Commission rules. A search company may be employed to locate a current address.
The fund may deduct the costs associated with the search from your account.
oTRANSFERRING SHARES
A transfer is a change of share ownership from one customer to another. Unlike
an exchange, transfers occur within the same fund. You can transfer your shares
at any time.
To transfer shares, submit a letter of instruction including:
- -Your account number.
- -Dollar amount, percentage, or number of shares to be transferred.
- -Existing account number receiving the shares (IF ANY).
- -The name(s), registration, and taxpayer identification number of the customer
receiving the shares.
- -The signature of each account owner requesting the transfer with signature
guarantee(s).
In addition, we will request that the transferee complete a Master Account
Agreement to establish a brokerage account with First Investors Corporation and
validate his or her social security number to avoid back-up withholding. If the
transferee declines to complete an MAA, all transactions in the account must be
on an unsolicited basis and the account will be so coded.
Depending upon your account registration, additional documentation may be
required to transfer shares. Transfers due to the death or disability of a
shareholder also require additional documentation. Please call our Shareholder
Services Department at 1 (800) 423-4026 for specific transfer requirements
before initiating a request.
A transfer is a change of ownership and may trigger a taxable event. You should
consult your tax advisor before initiating a transfer.
23
<PAGE>
ACCOUNT STATEMENTS
oTRANSACTION CONFIRMATION STATEMENTS
You will receive a confirmation statement immediately after most transactions.
These include:
- -shareorder purchases
- -check investments
- -redemptions
- -exchanges
- -transfers
- -systematic withdrawals
Money Line and Automatic Payroll Investment purchases are not confirmed for each
transaction. They will appear on your next regularly scheduled monthly or
quarterly statement (see Dividend Schedule under "Dividends and Distributions").
A separate confirmation statement is generated for each fund account you own. It
provides:
- -Your fund account number -The date of the transaction
- -A description of the transaction (PURCHASE, REDEMPTION, ETC.)
- -The number of shares bought or sold for the transaction
- -The dollar amount of the transaction
- -The dollar amount of the dividend payment (IF APPLICABLE)
- -The total share balance in the account -The dollar amount of any dividends or
capital gains paid
- -The number of shares held by you, held for you (INCLUDING ESCROW SHARES), and
the total number of shares you own.
The confirmation statement also provides a perforated Investment Stub with your
preprinted name, registration, and fund account number for future investments.
oMASTER ACCOUNT STATEMENTS
If First Investors Corporation is your broker, you will receive a Master Account
Statement for all your identically owned First Investors fund accounts on at
least a quarterly basis. The Master Account Statement will also include a recap
of any First Investors Life Insurance and Executive Investors Trust accounts you
may own. Joint accounts registered under your taxpayer identification number
will appear on a separate Master Account Statement but may be mailed in the same
envelope upon request.
The Master Account Statement provides the following information for each First
Investors fund you own:
- -fund name
- -fund's current market value
- -total distributions paid year-to-date
- -total number of shares owned
oANNUAL AND SEMI-ANNUAL REPORTS
You will also receive an Annual and a Semi-Annual Report. These financial
reports show the assets, liabilities, revenues, expenses, and earnings of the
fund as well as a detailed accounting of all portfolio holdings. You will
receive one report per household.
24
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
oDIVIDENDS AND DISTRIBUTIONS
For funds that declare daily dividends, you start earning dividends on the day
your purchase is made. For FI money market funds, you start earning dividends on
the day federal funds are credited to your fund account. The funds declare
dividends from net investment income and distribute the accrued earnings to
shareholders as noted below:
________________________________________________________________________________
DIVIDEND PAYMENT SCHEDULE
________________________________________________________________________________
MONTHLY: QUARTERLY: ANNUALLY (IF ANY):
Cash Management Fund Blue Chip Fund Global Fund
Fund for Income Growth & Income Fund Special Situations Fund
Government Fund Total Return Fund Mid-Cap Opportunity Fund
Insured Intermediate Tax-Exempt Utilities Income Fund
Insured Tax Exempt Fund
Investment Grade Fund
High Yield Fund
Multi-State Insured Tax Free Fund
New York Insured Tax Free Fund
Tax-Exempt Money Market Fund
________________________________________________________________________________
Capital gains distributions, if any, are paid annually, usually near the end of
the fund's fiscal year. On occasion, more than one capital gains distribution
may be paid during one year. Dividend and capital gains distributions are
automatically reinvested to purchase additional fund shares unless otherwise
instructed. Dividend payments of less than $5.00 are automatically reinvested to
purchase additional fund shares.
oBUYING A DIVIDEND
If you buy shares shortly before the record date of the dividend, the entire
dividend you receive may be taxable even though a part of the distribution is
actually a return of your purchase price. This is called "buying a dividend."
There is no advantage to buying a dividend because a fund's net asset value per
share is reduced by the amount of the dividend.
25
<PAGE>
<TABLE>
<CAPTION>
TAX FORMS
TAX FORM DESCRIPTION MAILED BY
<S> <C> <C>
_________________________________________________________________________________________________
1099-DIV Consolidated report lists all taxable dividend and capital gains January 31
distributions for all of the shareholder's accounts. Also includes
foreign taxes paid and any federal income tax withheld due to backup
withholding.
_________________________________________________________________________________________________
1099-B Lists proceeds from all redemptions including systematic January
31 withdrawals and exchanges. A separate form is issued for each
fund account. Includes amount of federal income tax withheld due
to backup withholding.
_________________________________________________________________________________________________
1099-R Lists taxable distributions from a retirement account. A separate January 31
form is issued for each fund account. Includes federal
income tax withheld due to IRS withholding requirements.
_________________________________________________________________________________________________
5498 Provided to shareholders who made an annual IRA May 31
contribution or rollover purchase. Also provides the account's
fair market value as of the last business day of the previous year.
A separate form is issued for each fund account.
_________________________________________________________________________________________________
1042-S Provided to non-resident alien shareholders to report the amount March 15
of fund dividends paid and the amount of federal taxes
withheld. A separate form is issued for each fund account.
_________________________________________________________________________________________________
Cost Basis Uses the "average cost-single category" method to show the cost January 31
Statement basis of any shares sold or exchanged. Information is provided
to assist shareholders in calculating capital gains or losses. A
separate statement, included with Form 1099-B, is issued for each
fund account. This statement is not reported to the IRS and does
not include money market funds or retirement accounts.
_________________________________________________________________________________________________
Tax Savings Consolidated report lists all amounts not subject to federal, January 31
Report for state and local income tax for all the shareholder's accounts.
Non-Taxable Also includes any amounts subject to alternative minimum tax.
Income
_________________________________________________________________________________________________
Tax Savings Provides the percentage of income paid by each fund that may January 31
Summary be exempt from state income tax.
_________________________________________________________________________________________________
</TABLE>
THE OUTLOOK
Today's strategies for tomorrow's goals are brought into focus in the OUTLOOK,
the quarterly newsletter for clients of First Investors Corporation. This
informative tool discusses the products and services we offer to help you take
advantage of current market conditions and tax law changes. The OUTLOOK'S
straight forward approach and timely articles make it a valuable resource. As
always, your registered representative is available to provide you with
additional information and assistance. Material contained in this publication
should not be considered legal, financial, or other professional advice.
26
<PAGE>
Principal Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
Transfer Agent
Administrative Data
Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
A-13
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 23. Exhibits
--------
(a)(i) Amended and Restated Declaration of Trust(1)
(ii) Supplemental Declaration of Trust(2)
(b) By-laws(1)
(c) Shareholders' rights are contained in (a) Articles III, VIII, X, XI
and XII of Registrant's Amended and Restated Declaration of Trust
dated September 19, 1988, as amended September 22, 1994, previously
filed as Exhibit 99.B1 to Registrant's Registration Statement and
(b) Articles III and V of Registrant's By-laws, previously filed as
Exhibit 99.B2 to Registrant's Registration Statement
(d) Investment Advisory Agreement between Registrant and First Investors
Management Company, Inc.(1)
(e) Underwriting Agreement between Registrant and First Investors
Corporation(1)
(f) Bonus, profit sharing or pension plans - none
(g)(i) Custodian Agreement between Registrant and Irving Trust Company(1)
(ii) Supplement to Custodian Agreement between Registrant and The Bank of
New York(1)
(h)(i) Administration Agreement between Registrant, First Investors
Management Company, Inc., First Investors Corporation and
Administrative Data Management Corp.(1)
(ii) Schedule A to Administration Agreement(2)
(i) Consent of Counsel 3
(j)(i) Consent of Independent Accountants 3
(ii) Powers of Attorney(1)
(k) Financial statements omitted from prospectus -none
(l) Initial capital agreements - none
(m)(i) Amended and Restated Class A Distribution Plan1
(ii) Class B Distribution Plan1
(n) Financial Data Schedules 3
C-1
<PAGE>
(o) 18f-3 Plan(1)
1 Incorporated by reference from Post-Effective Amendment No. 20 to
Registrant's Registration Statement (File No. 33-25623) filed on April 23,
1996.
2 Incorporated by reference from Post-Effective Amendment No. 22 to
Registrant's Registration Statement (File No. 33-25623) filed on May 15,
1997.
3 Incorporated by reference from Post-Effective Amendment No. 25 to
Registrant's Registration Statement (file No. 33-25623) filed on January
22, 1999.
Item 24. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------- ----------
There are no persons controlled by or under common control with the
Registrant.
Item 25. Indemnification
---------------
Article XI, Section 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
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.
C-2
<PAGE>
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body
before which the proceeding was brought (A) to be liable
to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office or (B) not to have acted in good faith in the
reasonable belief that his action was in the best
interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office,
(A) by the court or other body approving the settlement; or
(B) by at least a majority or those Trustees who are neither
interested persons of the Trust nor are parties to the
matter based upon a review of readily available facts (as
opposed to 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.
C-3
<PAGE>
The general effect of this Indemnification will be to indemnify the
officers and Trustees of the Registrant from costs and expenses arising from any
action, suit or proceeding to which they may be made a party by reason of their
being or having been a Trustee or officer of the Registrant, except where such
action is determined to have arisen out of the willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
the Trustee's or officer's office.
The Registrant's Investment Advisory Agreement provides as follows:
The Manager shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Company or any Series in connection with
the matters to which this Agreement relate except a loss resulting from the
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
partner, employee, or agent of the Manager, who may be or become an officer,
Board member, employee or agent of the Company shall be deemed, when rendering
services to the Company or acting in any business of the Company, to be
rendering such services to or acting solely for the Company and not as an
officer, partner, employee, or agent or one under the control or direction of
the Manager even though paid by it.
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 30 herein.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
First Investors Management Company, Inc. offers investment
management services and is a registered investment adviser.
Affiliations of the officers and directors of the Investment Adviser
are set forth in Part B, Statement of Additional Information, under
"Directors or Trustees and Officers."
C-4
<PAGE>
Item 27. 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.
First Investors Life Variable Annuity Fund A
First Investors Life Variable Annuity Fund C
First Investors Life Variable Annuity Fund D
First Investors Life Level Premium Variable Life Insurance
(Separate Account B)
(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 President
95 Wall Street and Director and Trustee
New York, NY 10005
Marvin M. Hecker President None
95 Wall Street
New York, NY 10005
John T. Sullivan Director Chairman of the
95 Wall Street Board of Trustees
New York, NY 10005
Joseph I. Benedek Treasurer Treasurer
581 Main Street
Woodbridge, NJ 07095
Lawrence A. Fauci Senior Vice President None
95 Wall Street and Director
New York, NY 10005
Kathryn S. Head Vice President Trustee
581 Main Street and Director
Woodbridge, NJ 07095
C-5
<PAGE>
Louis Rinaldi Senior Vice None
581 Main Street President
Woodbridge, NJ 07095
Frederick Miller Senior Vice President None
581 Main Street
Woodbridge, NJ 07095
Larry R. Lavoie Secretary and Trustee
95 Wall Street General Counsel
New York, NY 10005
Matthew Smith Vice President None
581 Main Street
Woodbridge, NJ 07095
Jeremiah J. Lyons Director None
56 Weston Avenue
Chatham, NJ 07928
Anne Condon Vice President None
581 Main Street
Woodbridge, NJ 07095
Jane W. Kruzan Director None
232 Adair Street
Decatur, GA 30030
Elizabeth Reilly Vice President None
581 Main Street
Woodbridge, NJ 07095
Robert Flanagan Vice President- None
95 Wall Street Sales Administration
New York, NY 10005
William M. Lipkus Chief Financial Officer None
581 Main Street
Woodbridge, NJ 07095
(c) Not applicable
Item 28. Location of Accounts and Records
--------------------------------
Physical possession of the books, accounts and records of the
Registrant are held by First Investors Management Company, Inc. and its
affiliated companies, First Investors Corporation and Administrative Data
Management Corp., at their corporate headquarters, 95 Wall Street, New York, NY
10005 and administrative offices, 581 Main Street, Woodbridge, NJ 07095, except
C-6
<PAGE>
for those maintained by the Registrant's Custodian, The Bank of New York, 48
Wall Street, New York, NY 10286.
Item 29. Management Services
-------------------
Not Applicable.
Item 30. Undertakings
------------
The Registrant undertakes to carry out all indemnification provisions
of its Declaration of Trust, Advisory Agreement and Underwriting Agreement in
accordance with Investment Company Act Release No. 11330 (September 4, 1980) and
successor releases.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the provisions under Item 27 herein, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes to furnish a copy of its latest
annual report to shareholders, upon request and without charge, to each person
to whom a prospectus is delivered.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant represents
that this Post-Effective Amendment No. 26 meets all of the requirements for
effectiveness pursuant to Rule 485(b) under the Securities Act of 1933, and has
duly caused this Post-Effective Amendment No. 26 to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 8th day of February, 1999.
FIRST INVESTORS SERIES FUND
By: /s/ Glenn O. Head
-----------------
Glenn O. Head
President and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 26 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 February 8, 1999
- -------------------------
Glenn O. Head Officer and Trustee
/s/ Joseph I. Benedek Principal Financial February 8, 1999
- -------------------------
Joseph I. Benedek and Accounting Officer
Kathryn S. Head* Trustee February 8, 1999
- -------------------------
Kathryn S. Head
/s/ Larry R. Lavoie Trustee February 8, 1999
- -------------------------
Larry R. Lavoie
Herbert Rubinstein* Trustee February 8, 1999
- -------------------------
Herbert Rubinstein
Nancy Schaenen* Trustee February 8, 1999
- -------------------------
Nancy Schaenen
James M. Srygley* Trustee February 8, 1999
- -------------------------
James M. Srygley
<PAGE>
John T. Sullivan* Trustee February 8, 1999
- -------------------------
John T. Sullivan
Rex R. Reed* Trustee February 8, 1999
- -------------------------
Rex R. Reed
Robert F. Wentworth* Trustee February 8, 1999
- -------------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
-------------------
Larry R. Lavoie
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------ ----------- ----
23(a)(i) Amended and Restated Declaration of Trust(1)
23(a)(ii) Supplemental Declaration of Trust(2)
23(b) By-laws(1)
23(c) Shareholders rights are contained in (a) Articles
III, VIII, X, XI and XII of Registrant's Amended
and Restated Declaration of Trust dated September
19, 1988, as amended September 22, 1994,
previously filed as Exhibit 99.B1 to Registrant's
Registration Statement; and (b) Articles III and
V of Registrant's By-laws, previously filed as
Exhibit 99.B2 to Registrant's Registration
Statement.
23(d) Investment Advisory Agreement between Registrant
and First Investors Management Company, Inc.(1)
23(e) Underwriting Agreement between Registrant and
First Investors Corporation(1)
23(f) Bonus or Profit Sharing Contracts--None
23(g)(i) Custodian Agreement between Registrant and Irving
Trust Company(1)
23(g)(ii) Supplement to Custodian Agreement between
Registrant and The Bank of New York(1)
23(h)(i) Administration Agreement between Registrant,
First Investors Management Company, Inc., First
Investors Corporation and Administrative Data
Management Corp.(1)
23(h)(ii) Schedule A to Administration Agreement(2)
23(i) Consent of Counsel 3
23(j)(i) Consent of independent accountants 3
<PAGE>
23(j)(ii) Powers of Attorney(1)
23(k) Omitted Financial Statements -- None
23(l) Initial Capital Agreements -- None
23(m)(i) Amended and Restated Class A Distribution Plan(1)
23(m)(ii) Class B Distribution Plan(1)
23(n) Financial Data Schedules 3
23(o) Rule 18f-3 Plan(1)
1 Incorporated by reference from Post-Effective Amendment No. 20 to
Registrant's Registration Statement (File No. 33-25623) filed on April 23,
1996.
2 Incorporated by reference from Post-Effective Amendment No. 22 to
Registrant's Registration Statement (File No. 33-25623) filed on May 15,
1997.
3 Incorporated by reference from Post-Effective Amendment No. 25 to
Registrant's Registration Statement (File No. 33-25623) filed on January
22, 1999.
