As filed with the Securities and Exchange Commission on April 28, 2000
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. 30 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 30 [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
Vice President and Secretary
First Investors Series Fund
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Copy to:
Robert J. Zutz, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[x] on April 28, 2000 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 First Investors Insured Intermediate Tax Exempt Fund,
a series of First Investors Series Fund
Combined Prospectus for First Investors Insured Intermediate Tax
Exempt Fund, First Investors Tax-Exempt Money Market Fund, Inc.,
First Investors Insured Tax Exempt Fund, Inc., First Investors New
York Insured Tax Free Fund, Inc. and First Investors Multi-State Tax
Free Fund
Combined Statement of Additional Information for First Investors
Insured Intermediate Tax Exempt Fund, First Investors Tax-Exempt
Money Market Fund, Inc., First Investors Insured Tax Exempt Fund,
Inc., First Investors New York Insured Tax Free Fund, Inc. and First
Investors Multi-State Tax Free Fund
Part C of Form N-1A
Signature Page
Exhibits
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[FIRST INVESTORS LOGO]
INSURED INTERMEDIATE TAX EXEMPT FUND
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
THE DATE OF THIS PROSPECTUS IS APRIL 28, 2000
<PAGE>
CONTENTS
OVERVIEW OF THE INSURED INTERMEDIATE TAX EXEMPT FUND
o What is the Insured Intermediate Tax Exempt Fund?
oo Objective
oo Primary Investment Strategies
oo Primary Risks
o Who should consider buying the Insured Intermediate Tax Exempt Fund?
o How has the Insured Intermediate Tax Exempt Fund performed?
o What are the fees and expenses of the Insured Intermediate Tax Exempt Fund?
THE INSURED INTERMEDIATE TAX EXEMPT FUND IN DETAIL
o What are the Insured Intermediate Tax Exempt Fund's objective, principal
investment strategies and principal risks?
o Who manages the Insured Intermediate Tax Exempt Fund?
BUYING AND SELLING SHARES
o How and when does the Insured Intermediate Tax Exempt 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 INSURED INTERMEDIATE TAX EXEMPT FUND
What is the Insured Intermediate Tax Exempt Fund?
OBJECTIVE: The Fund seeks a high level of interest income that is exempt
from federal income tax and is not a tax preference item for
purposes of the Alternative Minimum Tax ("AMT").
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in municipal bonds and other Municipal
Securities ("Municipal Securities") that pay interest that is
exempt from federal income tax, including the AMT. The Fund
invests primarily in municipal bonds which are insured as to
timely payment of interest and principal by independent
insurance companies that are rated in the top rating category
by a nationally recognized statistical rating organization,
such as Moody's Investors Service, Inc. ("Moody's"). The Fund
invests primarily in municipal bonds with intermediate
maturities. These bonds are generally less volatile but also
lower yielding than long-term municipal bonds. Under normal
market conditions, the Fund attempts to maintain a portfolio
with a dollar-weighted average maturity of between three and
ten years.
PRIMARY
RISKS: The most significant risk of investing in the Fund is interest
rate risk. As with other bonds, the market values of
municipal bonds fluctuate with changes in interest rates.
When interest rates rise, municipal bonds tend to decline in
price, and when interest rates fall, they tend to increase in
price. In general, bonds with longer maturities pay higher
interest rates but are more volatile in price than shorter
term bonds. When interest rates decline, the interest income
received by the Fund may also decline. To a lesser degree, an
investment in the Fund is subject to credit risk. This is the
risk that an issuer of the bonds held by the Fund may not be
able to pay interest or principal when due. The market prices
of bonds are affected by the credit quality of their issuers.
While the Fund primarily invests in municipal bonds that are
insured against credit risk, the insurance does not eliminate
credit risk because the insurer may not be financially able to
pay claims. In addition, not all of the securities held by
the Fund are insured. Moreover, the insurance does not apply
in any way to the market prices of securities owned by the
Fund, or the Fund's share price, both of which will
fluctuate. Accordingly, the value of your investment in the
Fund will go up and down, which means that you could lose
money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Insured Intermediate Tax Exempt Fund?
The Insured Intermediate Tax Exempt Fund may be used by
individuals as a core holding for an investment portfolio or as a
base on which to build a portfolio. It may be appropriate for you
if you:
o Are seeking a conservative investment which provides a high
degree of credit quality,
o Are seeking income that is exempt from federal income tax,
including the AMT, and
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o Are seeking a higher level of tax exempt income than is
available from a tax exempt money market fund and are willing
to assume some market volatility to achieve this goal.
The Insured Intermediate Tax Exempt Fund is generally not
appropriate for retirement accounts, investors in low tax
brackets, or corporate or similar business accounts. Different
tax rules apply to corporations and other entities.
How has the Insured Intermediate Tax Exempt Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The 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
they do 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.
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INSURED INTERMEDIATE TAX EXEMPT
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 5.34%
(for the quarter ended March 31, 1995), and the lowest quarterly return was
- -3.70% (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 Lehman Brothers Municipal Bond
Index ("Lehman Index") as of December 31, 1999. This table assumes that the
maximum sales charge or contingent deferred sales charge ("CDSC") was paid. The
Lehman Index is a total return performance benchmark for the investment grade
tax exempt bond market. The Lehman Index does not take into account fees and
expenses that an investor would incur in holding the securities in the Lehman
Index. If it did so, the returns would be lower than those shown.
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Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* (11/22/93) (1/12/95)
Class A Shares (5.76)% 5.00% 3.71% N/A
Class B Shares (4.48)% N/A N/A 5.00%
Lehman Index (2.06)% 6.90% 5.06%** 6.90%***
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 11/30/93 to 12/31/99.
*** The average annual total return shown is for the period 1/1/95 to 12/31/99.
What are the fees and expenses of the Insured Intermediate Tax Exempt 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 FEE WAIVERS AND/OR
AND SERVICE ANNUAL FUND EXPENSE
MANAGEMENT (12B-1) OTHER OPERATING ASSUMPTIONS NET
FEES(1) FEES(2) EXPENSES(3) EXPENSES(4) (1),(2),(3) EXPENSES(4)
--------- ----------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares . 0.60% 0.30% 0.28% 1.18% 0.43% 0.75%
Class B Shares . 0.60% 1.00% 0.28% 1.88% 0.38% 1.50%
</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 eight years.
(1) For the fiscal year ended December 31, 1999, the Adviser waived Management
Fees in excess of 0.40%. The Adviser has contractually agreed with the
Fund to waive Management Fees in excess of 0.40% for the fiscal year
ending December 31, 2000.
(2) For the fiscal year ended December 31, 1999, the Adviser waived all 12b-1
Fees on Class A shares. The Adviser has contractually agreed with the Fund
to waive 12b-1 fees in excess of 0.25% on Class A Shares for the fiscal
year ending December 31, 2000. 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 December 31, 1999, the Adviser assumed Other
Expenses in excess of 0.10%. The Adviser has contractually agreed with the
Fund to assume Other Expenses in excess of 0.10% for the fiscal year
ending December 31, 2000.
(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.
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EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived and expenses assumed. Although your
actual costs may be higher or lower, under these assumptions your costs would
be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $697 $936 $1,195 $1,931
Class B shares $553 $854 $1,181 $1,987*
If you do not redeem your shares:
Class A shares $697 $936 $1,195 $1,931
Class B shares $153 $554 $ 981 $1,987*
*Assumes conversion to Class A shares eight years after purchase.
THE INSURED INTERMEDIATE TAX EXEMPT FUND IN DETAIL
What are the Insured Intermediate Tax Exempt Fund's objective, principal
investment strategies, and principal risks?
OBJECTIVE: The Fund seeks a high level of interest income that is exempt
from federal income tax and is not a tax preference item for purposes of the
AMT.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 80% of its total
assets in municipal bonds and other types of Municipal Securities ("Municipal
Securities") that pay interest that is exempt from federal income tax, including
the AMT. Municipal Securities include private activity bonds, industrial
development bonds, certificates of participation, municipal notes, municipal
commercial paper, variable rate demand notes, and floating rate demand notes.
Municipal bonds and Municipal Securities are issued by state and local
governments, the District of Columbia and commonwealths, territories or
possessions of the United States (including Guam, Puerto Rico, and the U.S.
Virgin Islands) or their respective agencies, instrumentalities and authorities.
The Fund diversifies its assets among municipal bonds and securities of
different states, municipalities, and U.S. territories, rather than
concentrating in bonds of a particular state or municipality.
All municipal bonds in which the Fund invests are insured as to the timely
payment of interest and principal by independent insurance companies which are
rated in the top rating category by a nationally recognized statistical rating
organization, such as Moody's, Standard & Poor's Ratings Group and Fitch IBCA.
The Fund may purchase bonds and other Municipal Securities which have already
been insured by the issuer, underwriter, or some other party or it may purchase
uninsured bonds and insure them under a policy purchased by the Fund. While
every municipal bond purchased by the Fund must be insured, the Fund is allowed
to invest up to 35% of its assets in securities that are not insured. (In other
words, at least 65% of the Fund's assets must be insured.) In general, the
non-insured securities held by the Fund are limited to municipal commercial
paper and other short-term investments. In any event, as described below, the
insurance does not guarantee the market values of the bonds held by the Fund or
the Fund's share price.
The Fund follows the strategy of investing in intermediate term municipal bonds,
which are generally less volatile in price but offer less yield than longer term
bonds. Under normal market conditions, the Fund will attempt to maintain a
portfolio with a dollar-weighted average maturity of between three and ten
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years. The Fund adjusts the duration of its portfolio based upon its outlook on
interest rates. Duration is a measurement of a bond's sensitivity to changes in
interest rates that takes into consideration not only the maturity of the bond
but also the time value of money that will be received from the bond over its
life. The Fund will generally adjust the duration of its portfolio by buying or
selling Municipal Securities, including zero coupon bonds. For example, if the
Fund believes that interest rates are likely to rise, it will generally attempt
to reduce its duration by purchasing Municipal Securities with shorter
maturities or selling Municipal Securities with longer maturities.
In selecting investments, the Fund considers coupon and yield, relative value of
an issue, the credit quality of the issuer, the cost of insurance and the
outlook for interest rates and the economy. Up to 20% of the Fund's net assets
may be invested in securities, the interest of which is subject to Federal
income tax, including the AMT. The Fund will usually sell an investment when
there are changes in the interest rate environment that are adverse to the
investment or it falls short of the portfolio manager's expectations. The Fund
will not necessarily sell an investment if its rating is reduced or there is a
default by the issuer. Information on the Fund's recent strategies and holdings
can be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of owning the Insured Intermediate Tax Exempt Fund:
INTEREST RATE RISK: The market values of Municipal Securities are affected by
changes in interest rates. When interest rates rise, the market values of
Municipal Securities decline, and when interest rates decline, the market values
of Municipal Securities increase. The price volatility of Municipal Securities
also depends on their maturities and durations. Generally, the longer the
maturity and duration of a municipal security, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, Municipal
Securities with longer maturities and durations generally offer higher yields
than Municipal Securities with shorter maturities and durations.
Interest rate risk also includes the risk that the yields received by the Fund
on some of its investments will decline as interest rates decline. The Fund buys
investments with fixed maturities as well as investments that give the issuer
the option to "call" or redeem these investments before their maturity dates. If
investments mature or are "called" during a time of declining interest rates,
the Fund will have to reinvest the proceeds in investments offering lower
yields. The Fund also invests in floating rate and variable rate demand notes.
When interest rates decline, the rates paid on these securities may decline.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. Although all of the municipal bonds purchased by
the Fund are insured as to scheduled payments of interest and principal, the
insurance does not eliminate credit risk because the insurer may not be
financially able to pay interest and principal on the bonds and up to 35% of the
Fund's assets may be invested in securities that are not insured. It is also
important to note that, although insurance may increase the credit safety of
investments held by the Fund, it decreases the Fund's yield as the Fund must pay
for the insurance directly or indirectly. It is also important to emphasize that
the insurance does not protect against fluctuations in the market value of the
municipal bonds or the share price of the Fund.
MARKET RISK: The Fund is subject to market risk. Bond prices in general may
decline over short or even extended periods primarily due to changes in interest
rates and the credit conditions of the issuers. This is another way of
describing interest rate risk and credit risk. However, market prices also
fluctuate with the forces of supply and demand. Municipal bonds may decline in
value even if the overall market is doing well. Accordingly, the value of your
investment in the Fund will go up and down, which means that you could lose
money.
8
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Who manages the Insured Intermediate Tax Exempt Fund?
First Investors Management Company, Inc. ("FIMCO" or "Adviser") is the
investment adviser to the Fund. Its address is 95 Wall Street, New York, NY
10005. It currently is investment adviser to 48 mutual funds or series of funds
with total net assets of over $5 billion. FIMCO supervises all aspects of the
Fund's operations and determines the Fund's portfolio transactions. For the
fiscal year ended December 31, 1999, FIMCO received advisory fees of 0.40% of
the Fund's average daily net assets, net of waiver.
Clark D. Wagner serves as Portfolio Manager of the 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.
BUYING AND SELLING SHARES
How and when does the Insured Intermediate Tax Exempt 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 Time ("E.T."), on each
day the New York Stock Exchange ("NYSE") is open for regular trading. The NYSE
is closed on most holidays and Good Friday. 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 have lower initial investment requirements for certain types of accounts and
offer automatic investment plans that allow you to open a Fund account with as
little as $50. Subsequent investments may be made in any amount. You can also
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.
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.
offices by 5 p.m., E.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.
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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 invested 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 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
CDSC as a Percentage of Purchase Price
YEAR OF REDEMPTION 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.
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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 0.30% on Class A shares and 1.00% on Class
B shares. No more than 0.25% 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, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
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 over time. 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
(telephone redemptions are not available on retirement and certain
other types of accounts); or
o Instructing us to make an electronic transfer to a predesignated bank
account (if you have completed an application authorizing such
transfers).
Your redemption request will be processed at the price next computed after we
receive the request, in good order, as described in the Shareholder Manual. For
all requests, have your account number available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account fails to meet the minimum account balance as a result of a
redemption, or 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
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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 the same class of any other
First Investors Fund without paying any additional sales charge. 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, the 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 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 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?
For individual shareholders, income dividends paid by the Fund should generally
be exempt from federal income taxes, including the AMT. For federal income tax
12
<PAGE>
purposes, long-term capital gain distributions by the Fund are taxed to you as
long-term capital gains, regardless of how long you owned your Fund shares.
Distributions by the Fund of interest income from taxable obligations, if any,
and short-term capital gains are taxed to you as ordinary income. You are taxed
in the same manner whether you receive your capital gain distributions in cash
or reinvest them in additional Fund shares. Your sale or exchange of Fund shares
will 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
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.
13
<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.
14
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE TAX EXEMPT FUND
--------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- ------------------------
NET REALIZED
AND
NET ASSET NET UNREALIZED NET
VALUE INVEST- GAIN (LOSS) TOTAL FROM INVEST- NET TOTAL
YEAR ENDED DECEMBER BEGINNING MENT ON INVESTMENT MENT REALIZED DISTRI-
31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS BUTIONS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
1995...................... $5.43 $.301 $.419 $.720 $.300 $-- $.300
1996...................... 5.85 .290 (.060) .230 .290 -- .290
1997...................... 5.79 .292 .140 .432 .292 -- .292
1998...................... 5.93 .288 .086 .374 .294 -- .294
1999...................... 6.01 .231 (.200) .031 .231 -- .231
CLASS B
1995*..................... 5.45 .254 .407 .661 .261 -- .261
1996...................... 5.85 .235 (.055) .180 .230 -- .230
1997...................... 5.80 .234 .128 .362 .232 -- .232
1998...................... 5.93 .226 .098 .324 .234 -- .234
1999...................... 6.02 1.73 (.202) (.029) .171 -- .171
</TABLE>
* For the period January 12, 1995 (date Class B shares were first
offered) to December 31, 1995.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the
transfer agent.
15
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
ASSETS WAIVED OR
RATIO TO AVERAGE EXPENSES WAIVED OR
NET ASSETS++ ASSUMED
---------------- --------------------
NET
NET ASSET ASSETS NET NET
VALUE TOTAL END OF INVEST- INVEST- PORTFOLIO
END OF RETURN* PERIOD MENT MENT TURNOVER
PERIOD (%) (IN EXPENSES INCOME EXPENSES INCOME RATE (%)
MILLIONS) (%) (%) (%) (%)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$5.85 13.50 $7,017 .35 5.32 1.22 4.45 47
5.79 4.07 7,415 .49 5.05 1.24 4.30 82
5.93 7.68 7,344 .53 5.02 1.21 4.34 91
6.01 6.47 8,674 .50 4.80 1.20 4.10 163
5.81 0.51 8,263 .50 3.88 1.18 3.20 142
5.85 12.27 378 1.35+ 4.32+ 1.92+ 3.75+ 47
5.80 3.17 613 1.49 4.05 1.94 3.60 82
5.93 6.39 808 1.53 4.02 1.91 3.64 91
6.02 5.57 1,000 1.50 3.80 1.90 3.40 163
5.82 (0.50) 1,154 1.50 2.88 1.88 2.50 142
</TABLE>
16
<PAGE>
[FIRST INVESTORS LOGO]
INSURED INTERMEDIATE TAX EXEMPT 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 Fund documents (including reports, Shareholder Manuals
and SAIs) at the Public Reference Room of the SEC in Washington, D.C. You can
also obtain copies of Fund documents after paying a duplicating fee (i) by
writing to the Public Reference Section of the SEC, Washington, D.C. 20549-0102
or (ii) by electronic request at [email protected]. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling (202) 942-8090. Text-only versions of Fund
documents can be viewed online or downloaded from the EDGAR database on the
SEC's Internet website at http://www.sec.gov.
(Investment Company Act
File No.: First Investors
Insured Intermediate Tax
Exempt Fund 811-5690)
<PAGE>
[FIRST INVESTORS LOGO]
TAX EXEMPT FUNDS
TAX-EXEMPT MONEY MARKET
INSURED INTERMEDIATE TAX EXEMPT
INSURED TAX EXEMPT
NEW YORK INSURED TAX FREE
MULTI-STATE INSURED TAX FREE
Arizona
California
Colorado
Connecticut
Florida
Georgia
Maryland
Massachusetts
Michigan
Minnesota
Missouri
New Jersey
North Carolina
Ohio
Oregon
Pennsylvania
Virginia
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THE DATE OF THIS PROSPECTUS IS APRIL 28, 2000
<PAGE>
CONTENTS
INTRODUCTION
FUND DESCRIPTIONS
Tax-Exempt Money Market Fund
Insured Intermediate Tax Exempt Fund
Insured Tax Exempt Fund
Single State Insured Tax Free Funds
New York Michigan
Arizona Minnesota
California Missouri
Colorado New Jersey
Connecticut North Carolina
Florida Ohio
Georgia Oregon
Maryland Pennsylvania
Massachusetts Virginia
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
Tax-Exempt Money Market Fund
Insured Intermediate Tax Exempt Fund
Insured Tax Exempt Fund
Single State Insured Tax Free Funds
New York Michigan
Arizona Minnesota
California Missouri
Colorado New Jersey
Connecticut North Carolina
Florida Ohio
Georgia Oregon
Maryland Pennsylvania
Massachusetts Virginia
2
<PAGE>
INTRODUCTION
This prospectus describes the First Investors Funds that invest primarily in tax
exempt municipal bonds and the Tax-Exempt Money Market Fund.
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.
If you are interested in a municipal bond fund that diversifies its assets
nationally among bonds of different states, you should consider Insured
Intermediate Tax Exempt ("Intermediate Tax Exempt") and Insured Tax Exempt ("Tax
Exempt"). If you are interested in a municipal bond fund that invests primarily
in the bonds of a single state, you should consider one of our 18 single state
insured tax exempt funds. Seventeen of these single state insured tax exempt
funds are individual funds within the Multi-State Insured Tax Free Fund. The
eighteenth is the New York Insured Tax Free 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. Of course, even a diversified investment program can result in a
loss.
3
<PAGE>
FUND DESCRIPTIONS
TAX-EXEMPT MONEY MARKET FUND
OVERVIEW
Objective: The Fund seeks to earn a high rate of current income that
is exempt from Federal income tax, including the
Alternative Minimum Tax ("AMT"), consistent with the
preservation of capital and maintenance of liquidity.
Primary
Investment
Strategies: The Fund invests primarily in high quality, short-term
municipal instruments that the Fund determines present
minimal credit risk. The Fund attempts to limit its
investments to instruments which pay interest that is
exempt from federal income tax, including the AMT. The
Fund's portfolio is managed to meet regulatory
requirements that permit the Fund to maintain a stable net
asset value ("NAV") of $1.00 per share. These regulatory
requirements include stringent credit quality standards on
investments, limits on the maturity of individual
investments and the dollar-weighted average maturity of
the entire portfolio, and diversification requirements.
Primary
Risks: While money market funds are designed to be relatively low
risk investments, they are not entirely free of risk. The
following are the risks of investing in the Fund, which
are common to all money market funds:
o The Fund's NAV could decline (below $1.00 per share)
if there is a default by an issuer of one of the
Fund's investments, a credit downgrade of one of the
Fund's investments, or an unexpected change in
interest rates.
o The Fund's yield will change daily based upon changes
in interest rates and other market conditions.
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. ALTHOUGH THE
FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUND.
Who should consider buying the Tax-Exempt Money Market
Fund ?
The Tax-Exempt Money Market Fund is most appropriately
used for that portion of your investment portfolio that
you may need in the near future. Since the Fund limits its
investments to high-quality, short-term securities, it
generally has a lower risk profile but also a lower yield
than funds which invest in lower-quality, longer-term debt
securities. It may be appropriate for you if you:
o Are seeking income that is exempt from federal income
tax, including the AMT, and
o Are seeking a conservative investment that provides a
high degree of credit quality.
4
<PAGE>
The Fund is generally not appropriate for retirement
accounts or investors in low tax brackets.
How has the Tax-Exempt Money Market Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year. 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
they do not have the same expenses.
TAX-EXEMPT MONEY MARKET
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 1.32% (for the
quarter ended December 31, 1990), and the lowest quarterly return was 0.42% (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 the average annual total returns for Class A shares
and Class B shares as of December 31, 1999. This table assumes that the maximum
contingent deferred sales charge ("CDSC") on Class B shares was paid.
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
Class A Shares 2.61% 3.35% 3.00% N/A
Class B Shares (0.44)% N/A N/A 1.69%
* The annual returns are based upon calendar years.
5
<PAGE>
What are the fees and expenses of the Tax-Exempt Money Market 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).................. None 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 EXPENSE NET
FEES FEES (1) EXPENSES(2) EXPENSES(3) ASSUMPTION(2) EXPENSES(3)
--------- ------------ ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares . . . . 0.50% 0.00% 0.70% 1.20% 0.40% 0.80%
Class B Shares . . . . 0.50% 0.75% 0.70% 1.95% 0.40% 1.55%
</TABLE>
*Class B shares can only be acquired through an exchange from Class B shares of
another First Investors Fund. When shares are so acquired, the CDSC imposed on
the other Fund's Class B shares carries over to the Fund's shares. The CDSC is
4% in the first year and declines 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 on its Class B shares, long-term
Class B shareholders could pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. There are currently no Rule 12b-1 fees of Class A
shares of the Fund.
(2) For the fiscal year ended December 31, 1999, the Adviser assumed Other
Expenses in excess of 0.30%. The Adviser has contractually agreed with the
Fund to assume Other Expenses in excess of 0.30% for the fiscal year ending
December 31, 2000.
(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 expenses assumed. Although your actual costs may
be higher or lower, under these assumptions your costs would be:
One Year Three Years Five Years Ten Years
If you redeem your shares:
Class A shares $82 $341 $ 621 $1,419
Class B shares $558 $874 $1,215 $2,047*
6
<PAGE>
If you do not redeem your shares:
Class A shares $ 82 $341 $ 621 $1,419
Class B shares $158 $574 $1,015 $2,047*
*Assumes conversion to Class A shares eight years after purchase.
THE FUND IN DETAIL
What are the Tax-Exempt Money Market Fund's objective,
principal investment strategies, and principal risks?
OBJECTIVE: The Fund seeks to earn a high rate of current income that is exempt
from Federal income tax, including the AMT, consistent with the preservation of
capital and maintenance of liquidity.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests primarily in high quality
short-term municipal instruments ("Municipal Securities") that are determined by
the Fund's Adviser to present minimal credit risk. The Fund invests at least 80%
of its total assets in Municipal Securities which pay interest that is exempt
from federal income tax, including the AMT. Municipal Securities are issued by
state and local governments, the District of Columbia and commonwealths,
territories or possessions of the United States (including Guam, Puerto Rico,
and the U.S. Virgin Islands) or their respective agencies, instrumentalities and
authorities to borrow money for various public or private projects. The issuer
pays a fixed or variable rate of interest, and must repay the amount borrowed
(the "principal") at maturity.
The Fund's portfolio is managed to meet regulatory requirements that permit the
Fund to maintain a stable net asset value ("NAV") of $1.00 per share. These
include requirements relating to the credit quality, maturity, and
diversification of the Fund's investments. For example, to be an eligible
investment for the Fund, a security must have a remaining maturity of 397
calendar days or less. The security must be rated in one of the two highest
credit ratings categories for short-term securities by at least two nationally
recognized statistical rating organizations (or by one, if only one rating
service has rated the security), or if unrated, be determined by the Fund's
Adviser to be of quality equivalent to those in the two highest credit ratings
categories. The Fund must also maintain a dollar-weighted average portfolio
maturity of 90 days or less.
The Fund invests significantly in variable rate demand notes and bonds. These
investments may have maturities of more than thirteen months, but have demand
features which allow the holder to demand payment of principal plus accrued
interest within a period of 397 days or less. The demand features have the
effect of reducing the maturities of the instruments and qualifying them as
eligible investments for the Fund. The interest rate on a variable rate demand
note is reset at specified intervals at a market rate. While this feature helps
protect against a decline in the security's market price when interest rates go
up, it lowers the Fund's income when interest rates fall.
The Fund also buys investments backed by credit enhancements, such as letters of
credit, which are designed to give additional protection to investors. For
example, if an issuer of a note does not have the credit rating usually required
by the Fund, another company may use its higher credit rating to back up the
credit of the issuer of the note by selling the issuer a letter of credit. A
risk of investing in investments backed by a letter of credit is that the
company issuing the letter of credit will not be able to fulfill its obligations
to the Fund.
In buying and selling securities, the Fund will consider ratings assigned by
ratings services as well as its own credit analysis. The Fund considers, among
other things, the issuer's earnings and cash flow generating capabilities, the
issuer's yield and relative value, and the outlook for interest rates and the
economy. In the case of instruments with demand features or credit enhancements,
the Fund considers the financial strength of the party providing the demand
feature or credit enhancement, including any ratings assigned to such party. Up
7
<PAGE>
to 20% of the Fund's net assets may be invested in high quality fixed-income
obligations, the interest on which is subject to Federal income tax, including
the AMT. Information on the Fund's recent holdings can be found in the most
recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Although the Fund tries to maintain a $1.00 per share price, it may not be able
to do so. It is therefore possible to lose money by investing in the Fund. Here
are the principal risks of owning the Tax-Exempt Money Market Fund:
INTEREST RATE RISK: Like the values of other debt instruments, the market values
of money market instruments are affected by changes in interest rates. When
interest rates rise, the market values of money market instruments decline, and
when interest rates decline, the market values of money market instruments
increase. The price volatility of money market instruments also depends on their
maturities and durations. Generally, the shorter the maturity and duration of a
money market instrument, the lesser its sensitivity to interest rates.
Interest rate risk also includes the risk that in a declining interest rate
environment the Fund will have to invest the proceeds of maturing investments in
lower-yielding investments. The yields received by the Fund on some of its
investments will also decline as interest rates decline. For example, the Fund
invests in floating rate and variable rate bonds and notes. When interest rates
decline, the yields paid on these securities may decline.
CREDIT RISK: A money market instrument's credit quality depends upon the
issuer's ability to pay interest on the security and, ultimately, to repay the
principal. The lower the rating by one of the independent bond-rating agencies
(for example, Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group), the greater the risk (in the rating agency's opinion) the security's
issuer will default, or fail to meet its repayment obligations. Direct U.S.
Treasury obligations (securities backed by the U.S. government) carry the
highest credit ratings. All things being equal, money market instruments with
greater credit risk offer higher yields. The amount of information about the
financial condition of issuers of tax exempt debt is generally not as extensive
as that which is made available by issuers of taxable debt.
In the case of a money market instrument that is supported by a credit
enhancement, the credit quality of the investment depends upon the credit
quality of the party which provides the enhancement. The Fund's ability to
maintain a stable share price may depend on these credit enhancements, which are
not backed by federal deposit insurance.
8
<PAGE>
INSURED INTERMEDIATE TAX EXEMPT FUND
OVERVIEW
OBJECTIVE: The Fund seeks a high level of interest income that is
exempt from federal income tax and is not a tax preference
item for purposes of the Alternative Minimum Tax ("AMT").
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in municipal bonds and other Municipal
Securities ("Municipal Securities") that pay interest that
is exempt from federal income tax, including the AMT. The
Fund invests primarily in municipal bonds which are
insured as to timely payment of interest and principal by
independent insurance companies that are rated in the top
rating category by a nationally recognized statistical
rating organization, such as Moody's Investors Service,
Inc. ("Moody's"). The Fund invests primarily in municipal
bonds with intermediate maturities. These bonds are
generally less volatile but also lower yielding than
long-term municipal bonds. Under normal market conditions,
the Fund attempts to maintain a portfolio with a
dollar-weighted average maturity of between three and ten
years.
Primary
Risks: The most significant risk of investing in the Fund is
interest rate risk. As with other bonds, the market values
of municipal bonds fluctuate with changes in interest
rates. When interest rates rise, municipal bonds tend to
decline in price, and when interest rates fall, they tend
to increase in price. In general, bonds with longer
maturities pay higher interest rates but are more volatile
in price than shorter term bonds. When interest rates
decline, the interest income received by the Fund may also
decline. To a lesser degree, an investment in the Fund is
subject to credit risk. This is the risk that an issuer of
the bonds held by the Fund may not be able to pay interest
or principal when due. The market prices of bonds are
affected by the credit quality of their issuers. While the
Fund primarily invests in municipal bonds that are insured
against credit risk, the insurance does not eliminate
credit risk because the insurer may not be financially
able to pay claims. In addition, not all of the securities
held by the Fund are insured. Moreover, the insurance does
not apply in any way to the market prices of securities
owned by the Fund, or the Fund's share price, both of
which will fluctuate. Accordingly, the value of your
investment in the Fund will go up and down, which means
that you could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Insured Intermediate Tax Exempt
Fund?
The Insured Intermediate Tax Exempt Fund may be used by
individuals as a core holding for an investment portfolio
or as a base on which to build a portfolio. It may be
appropriate for you if you:
o Are seeking a conservative investment which provides a
high degree of credit quality,
o Are seeking income that is exempt from federal income
tax, including the AMT, and
9
<PAGE>
o Are seeking a higher level of tax exempt income than
is available from a tax exempt money market fund and
are willing to assume some market volatility to
achieve this goal.
The Insured Intermediate Tax Exempt Fund is generally not
appropriate for retirement accounts, investors in low tax
brackets, or corporate or similar business accounts.
Different tax rules apply to corporations and other
entities.
How has the Insured Intermediate Tax Exempt Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The 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
they do 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>
INSURED INTERMEDIATE TAX EXEMPT
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 5.34% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -3.70% (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 Lehman Brothers Municipal Bond
Index ("Lehman Index") as of December 31, 1999. This table assumes that the
maximum sales charge or contingent deferred sales charge ("CDSC") was paid. The
Lehman Index is a total return performance benchmark for the investment grade
tax exempt bond market. The Lehman Index does not take into account fees and
expenses that an investor would incur in holding the securities in the Lehman
Index. If it did so, the returns would be lower than those shown.
11
<PAGE>
Inception Inception
Class A Shares Class B Shares
1 Year* 5 Years* 11/22/93) (1/12/95)
Class A Shares (5.76)% 5.00% 3.71% N/A
Class B Shares (4.48)% N/A N/A 5.00%
Lehman Index (2.06)% 6.90% 5.06%** 6.90%***
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 11/30/93 to 12/31/99.
*** The average annual total return shown is for the period 1/1/95 to 12/31/99
What are the fees and expenses of the Insured Intermediate Tax Exempt 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 Fee Waivers and/or
Management (12b-1) Other Operating Expense Net
Fees(1) Fees (2) Expenses(3) Expenses(4) Assumptions Expenses(4)
--------- ------------ ----------- ----------- ----------- -----------
(1),(2),(3)
<S> <C> <C> <C> <C> <C> <C>
-----------
Class A Shares ...... 0.60% 0.30% 0.28% 1.18% 0.43% 0.75%
Class B Shares ...... 0.60% 1.00% 0.28% 1.88% 0.38% 1.50%
</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 eight years.
(1) For the fiscal year ended December 31, 1999, the Adviser waived Management
Fees in excess of 0.40%. The Adviser has contractually agreed with the Fund
to waive Management Fees in excess of 0.40% for the fiscal year ending
December 31, 2000.
(2) For the fiscal year ended December 31, 1999, the Adviser waived all 12b-1
fees on Class A shares. The Adviser has contractually agreed with the Fund
to waive 12b-1 Fees in excess of 0.25% on Class A shares for the fiscal year
ending December 31, 2000. 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 December 31, 1999, the Adviser assumed Other
Expenses in excess of 0.10%. The Adviser has contractually agreed with the
Fund to assume Other Expenses in excess of 0.10% for the fiscal year ending
December 31, 2000.
(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
12
<PAGE>
custodian. Any such fee reductions are not reflected under Total Annual Fund
Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) the Fund's operating expenses remain the same, except
for year one which is net of fees waived and expenses assumed. Although your
actual costs may be higher or lower, under these assumptions your costs would
be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
If you redeem your shares:
Class A shares $697 $936 $1,195 $1,931
Class B shares $553 $854 $1,181 $1,987*
If you do not redeem your shares:
Class A shares $697 $936 $1,195 $1,931
Class B shares $153 $554 $ 981 $1,987*
*Assumes conversion to Class A shares eight years after purchase.
</TABLE>
THE FUND IN DETAIL
What are the Insured Intermediate Tax Exempt Fund's objective, principal
investment strategies, and principal risks?
OBJECTIVE: The Fund seeks a high level of interest income that is exempt from
federal income tax and is not a tax preference item for purposes of the AMT.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 80% of its total
assets in municipal bonds and other types of Municipal Securities ("Municipal
Securities") that pay interest that is exempt from federal income tax, including
the AMT. Municipal Securities include private activity bonds, industrial
development bonds, certificates of participation, municipal notes, municipal
commercial paper, variable rate demand notes, and floating rate demand notes.
Municipal bonds and Municipal Securities are issued by state and local
governments, the District of Columbia and commonwealths, territories or
possessions of the United States (including Guam, Puerto Rico, and the U.S.
Virgin Islands) or their respective agencies, instrumentalities and authorities.
The Fund diversifies its assets among municipal bonds and securities of
different states, municipalities, and U.S. territories, rather than
concentrating in bonds of a particular state or municipality.
All municipal bonds in which the Fund invests are insured as to the timely
payment of interest and principal by independent insurance companies which are
rated in the top rating category by a nationally recognized statistical rating
organization, such as Moody's, Standard & Poor's Ratings Group and Fitch IBCA.
The Fund may purchase bonds and other Municipal Securities which have already
been insured by the issuer, underwriter, or some other party or it may purchase
uninsured bonds and insure them under a policy purchased by the Fund. While
every municipal bond purchased by the Fund must be insured, the Fund is allowed
to invest up to 35% of its assets in securities that are not insured. (In other
words, at least 65% of the Fund's assets must be insured.) In general, the
non-insured securities held by the Fund are limited to municipal commercial
paper and other short-term investments. In any event, as described below, the
insurance does not guarantee the market values of the bonds held by the Fund or
the Fund's share price.
The Fund follows the strategy of investing in intermediate term municipal bonds,
which are generally less volatile in price but offer less yield than longer term
bonds. Under normal market conditions, the Fund will attempt to maintain a
13
<PAGE>
portfolio with a dollar-weighted average maturity of between three and ten
years. The Fund adjusts the duration of its portfolio based upon its outlook on
interest rates. Duration is a measurement of a bond's sensitivity to changes in
interest rates that takes into consideration not only the maturity of the bond
but also the time value of money that will be received from the bond over its
life. The Fund will generally adjust the duration of its portfolio by buying or
selling Municipal Securities, including zero coupon bonds. For example, if the
Fund believes that interest rates are likely to rise, it will generally attempt
to reduce its duration by purchasing Municipal Securities with shorter
maturities or selling Municipal Securities with longer maturities.
In selecting investments, the Fund considers coupon and yield, relative value of
an issue, the credit quality of the issuer, the cost of insurance and the
outlook for interest rates and the economy. Up to 20% of the Fund's net assets
may be invested in securities, the interest of which is subject to Federal
income tax, including the AMT. The Fund will usually sell an investment when
there are changes in the interest rate environment that are adverse to the
investment or it falls short of the portfolio manager's expectations. The Fund
will not necessarily sell an investment if its rating is reduced or there is a
default by the issuer. Information on the Fund's recent strategies and holdings
can be found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk An investment
offering greater potential rewards generally carries greater risks. Here are the
principal risks of owning the Insured Intermediate Tax Exempt Fund:
INTEREST RATE RISK: The market values of Municipal Securities are affected by
changes in interest rates. When interest rates rise, the market values of
Municipal Securities decline, and when interest rates decline, the market values
of Municipal Securities increase. The price volatility of Municipal Securities
also depends on their maturities and durations. Generally, the longer the
maturity and duration of a municipal security, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, Municipal
Securities with longer maturities and durations generally offer higher yields
than Municipal Securities with shorter maturities and durations.
Interest rate risk also includes the risk that the yields received by the Fund
on some of its investments will decline as interest rates decline. The Fund buys
investments with fixed maturities as well as investments that give the issuer
the option to "call" or redeem these investments before their maturity dates. If
investments mature or are "called" during a time of declining interest rates,
the Fund will have to reinvest the proceeds in investments offering lower
yields. The Fund also invests in floating rate and variable rate demand notes.
When interest rates decline, the rates paid on these securities may decline.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. Although all of the municipal bonds purchased by
the Fund are insured as to scheduled payments of interest and principal, the
insurance does not eliminate credit risk because the insurer may not be
financially able to pay interest and principal on the bonds and up to 35% of the
Fund's assets may be invested in securities that are not insured. It is also
important to note that, although insurance may increase the credit safety of
investments held by the Fund, it decreases the Fund's yield as the Fund must pay
for the insurance directly or indirectly. It is also important to emphasize that
the insurance does not protect against fluctuations in the market value of the
municipal bonds or the share price of the Fund.
MARKET RISK: The Fund is subject to market risk. Bond prices in general may
decline over short or even extended periods primarily due to changes in interest
rates and the credit conditions of the issuers. This is another way of
describing interest rate risk and credit risk. However, market prices also
fluctuate with the forces of supply and demand. Municipal bonds may decline in
value even if the overall market is doing well. Accordingly, the value of your
investment in the Fund will go up and down, which means that you could lose
money.
14
<PAGE>
INSURED TAX EXEMPT FUND
OVERVIEW
OBJECTIVE: The Fund seeks a high level of interest income that is
exempt from federal income tax and is not a tax preference
item for purposes of the Alternative Minimum Tax ("AMT").
PRIMARY
INVESTMENT
STRATEGIES: The Fund invests in municipal bonds and other Municipal
Securities that pay interest that is exempt from federal
income tax, including the AMT. The Fund invests primarily
in municipal bonds that are insured as to timely payment
of interest and principal by independent insurance
companies that are rated in the top rating category by a
nationally recognized statistical rating organization,
such as Moody's Investors Service, Inc. ("Moody's"). The
Fund generally invests in long-term bonds with maturities
of fifteen years or more. The Fund invests in variable
rate and floating rate municipal notes, including "inverse
floaters."
PRIMARY
RISKS: The most significant risk of investing in the Fund is
interest rate risk. As with other bonds, the market values
of municipal bonds fluctuate with changes in interest
rates. When interest rates rise, municipal bonds tend to
decline in price, and when interest rates fall, they tend
to increase in price. In general, long-term bonds pay
higher interest rates but are more volatile in price than
short- or intermediate-term bonds. When interest rates
decline, the interest income received by the Fund may also
decline. Inverse floaters tend to fluctuate significantly
more than other bonds in response to interest rate
changes. To a lesser degree, an investment in the Fund is
subject to credit risk. This is the risk that an issuer of
the bonds held by the Fund may not be able to pay interest
or principal when due. The market prices of bonds are
affected by the credit quality of their issuers. While the
Fund primarily invests in municipal bonds that are insured
against credit risk, the insurance does not eliminate
credit risk because the insurer may not be financially
able to pay claims. In addition, not all of the securities
held by the Fund are insured. Moreover, the insurance does
not apply in any way to the market prices of securities
owned by the Fund or the Fund's share price, both of which
will fluctuate. Accordingly, the value of your investment
in the Fund will go up and down, which means that you
could lose money.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Who should consider buying the Insured Tax Exempt Fund?
The Insured Tax Exempt Fund may be used by individuals as
a core holding for an investment portfolio or as a base on
which to build a portfolio. It may be appropriate for you
if you:
o Are seeking a relatively conservative investment
which provides a high degree of credit quality,
o Are seeking income that is exempt from federal
income tax, including the AMT,
o Are seeking a relatively high level of tax exempt
income and are willing to assume a moderate degree
of market volatility to achieve this goal, and
15
<PAGE>
o Have a long-term investment horizon and are able to
ride out market cycles.
The Insured Tax Exempt Fund is generally not appropriate
for retirement accounts or investors in low tax brackets,
or corporate or similar business accounts. Different tax
rules apply to corporations and other entities.
How has the Insured Tax Exempt Fund performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The 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
they do 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.
16
<PAGE>
INSURED TAX EXEMPT
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 6.44% (for the
quarter ended March 31, 1995) and the lowest quarterly return was -5.43% (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 Lehman Brothers Municipal Bond
Index ("Lehman Index") as of December 31, 1999. This table assumes that the
maximum sales charge or CDSC was paid. The Lehman Index is a total return
performance benchmark for the investment grade tax-exempt bond market. The
Lehman Index does not take into account fees and expenses that an investor would
incur in holding the securities in the Lehman Index. If it did so, the returns
would be lower than those shown.
17
<PAGE>
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
Class A Shares (9.62)% 4.26% 4.93% N/A
Class B Shares (8.14%) N/A N/A 4.40%
Lehman Index (2.06)% 6.90% 6.88% 6.90%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
What are the fees and expenses of the Insured Tax Exempt Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
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 .... 0.70% 0.27% 0.15% 1.12%
Class B Shares .... 0.70% 1.00% 0.15% 1.85%
*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 eight 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.
18
<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.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
If you redeem your shares:
Class A shares $732 $959 $1,203 $1,903
Class B shares $588 $882 $1,201 $1,978*
If you do not redeem your shares:
Class A shares $732 $959 $1,203 $1,903
Class B shares $188 $582 $1,001 $1,978*
*Assumes conversion to Class A shares eight years after purchase.
</TABLE>
THE FUND IN DETAIL
What are the Insured Tax Exempt Fund's objective, principal investment
strategies, and principal risks?
OBJECTIVE: The Fund seeks a high level of interest income that is exempt from
federal income tax and is not a tax preference item for purposes of
the AMT.
PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 80% of its total
assets in municipal bonds that pay interest that is exempt from federal income
tax, including the AMT. The Fund may also invest in other types of Municipal
Securities ("Municipal Securities"). Municipal Securities include, private
activity bonds, industrial development bonds, certificates of participation,
municipal notes, municipal commercial paper, variable rate demand notes, and
floating rate demand notes. Municipal bonds and other Municipal Securities are
issued by state and local governments, their agencies and authorities, the
District of Columbia and any commonwealths, territories or possessions of the
United States (including Guam, Puerto Rico and the U.S. Virgin Islands) or their
respective agencies, instrumentalities and authorities. The Fund diversifies its
assets among municipal bonds and securities of different states, municipalities,
and U.S. territories, rather than concentrating in bonds of a particular state
or municipality.
All municipal bonds in which the Fund invests are insured as to the timely
payment of interest and principal by independent insurance companies which are
rated in the top rating category by a nationally recognized statistical rating
organization, such as Moody's, Standard & Poor's Ratings Group and Fitch IBCA.
The Fund may purchase bonds and other Municipal Securities which have already
been insured by the issuer, underwriter, or some other party or it may purchase
uninsured bonds and insure them under a policy purchased by the Fund. While
every municipal bond purchased by the Fund must be insured, the Fund is allowed
to invest up to 20% of its assets in securities that are not insured. (In other
words, at least 80% of the Fund's assets must be insured.) In general, the
non-insured securities held by the Fund are limited to municipal commercial
paper and other short-term investments. In any event, as described below, the
insurance does not guarantee the market values of the bonds held by the Fund or
the Fund's share price.
The Fund follows the strategy of investing in long-term municipal bonds, which
are generally more volatile in price but offer more yield than short- or
intermediate- term bonds. The Fund generally purchases bonds with maturities of
fifteen years or more. The Fund adjusts the duration of its portfolio based upon
19
<PAGE>
its outlook on interest rates. Duration is a measurement of a bond's sensitivity
to changes in interest rates that takes into consideration not only the maturity
of the bond but also the time value of money that will be received from the bond
over its life. The Fund will generally adjust the duration of its portfolio by
buying or selling Municipal Securities, including zero coupon bonds. For
example, if the Fund believes that interest rates are likely to rise, it will
generally attempt to reduce its duration by purchasing Municipal Securities with
shorter maturities or selling Municipal Securities with longer maturities.
The Fund invests in variable rate and floating rate municipal notes, including
"inverse floaters." These securities pay interest which adjusts at specific
intervals or when a benchmark rate changes. Inverse floaters are floating rate
securities whose rates of interest move inversely to a floating rate benchmark.
The rates on inverse floaters typically fall as short-term market interest rates
rise and rise as short-term rates fall. The Fund benefits from its investments
in inverse floaters by receiving a higher rate of interest than it does on other
comparable bonds. However, inverse floaters tend to fluctuate in price more than
other bonds in response to interest rate changes and therefore they cause the
Fund's share price to be subject to greater volatility. The Fund will not invest
more than 10% of its assets in inverse floaters.
In selecting investments, the Fund considers maturity, coupon and yield,
relative value of an issue, the credit quality of the issuer, the cost of
insurance and the outlook for interest rates and the economy. Up to 20% of the
Fund's net assets may be invested in securities, the interest of which is
subject to Federal income tax, including the AMT. The Fund will usually sell an
investment when there are changes in the interest rate environment that are
adverse to the investment or it falls short of the portfolio manager's
expectations. The Fund will not necessarily sell an investment if its rating is
reduced or there is a default by the issuer. Information on the Fund's recent
strategies and holdings can be found in the most recent annual report (see back
cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of owning the Insured Tax Exempt Fund:
INTEREST RATE RISK: The market value of Municipal Securities is affected by
changes in interest rates. When interest rates rise, the market values of
Municipal Securities decline, and when interest rates decline, the market values
of Municipal Securities increase. The price volatility of Municipal Securities
also depends on their maturities and durations. Generally, the longer the
maturity and duration of a municipal security, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, Municipal
Securities with longer maturities and durations generally offer higher yields
than Municipal Securities with shorter maturities and durations.
Interest rate risk also includes the risk that the yields received by the Fund
on some of its investments will decline as interest rates decline. The Fund buys
investments with fixed maturities as well as investments that give the issuer
the option to "call" or redeem these investments before their maturity dates. If
investments mature or are "called" during a time of declining interest rates,
the Fund will have to reinvest the proceeds in investments offering lower
yields. The Fund also invests in floating rate and variable rate demand notes.
When interest rates decline, the rates paid on these securities may decline.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. Although all of the municipal bonds purchased by
the Fund are insured as to scheduled payments of interest and principal, the
insurance does not eliminate credit risk because the insurer may not be
financially able to pay interest and principal on the bonds and up to 20% of the
Fund's assets may be invested in securities that are not insured. It is also
important to note that, although insurance may increase the credit safety of
investments held by the Fund, it decreases the Fund's yield as the Fund must pay
for the insurance directly or indirectly. It is also important to emphasize that
20
<PAGE>
the insurance does not protect against fluctuations in the market value of the
municipal bonds owned by the Fund or the share price of the Fund.
MARKET RISK: The Fund is subject to market risk. Bond prices in general may
decline over short or even extended periods primarily due to changes in interest
rates and the credit conditions of the issuers. This is another way of
describing interest rate risk and credit risk. However, market prices also
fluctuate with the forces of supply and demand. Municipal bonds may decline in
value even if the overall market is doing well. Accordingly, the value of your
investment in the Fund will go up and down, which means that you could lose
money.
DERIVATIVE SECURITIES RISK: Because the Fund invests in inverse floaters which
are a form of derivative securities, it is subject to a greater degree of
interest rate risk than funds which do not invest in these securities. Inverse
floaters tend to fluctuate in price significantly more than other bonds as the
result of interest rate changes.
21
<PAGE>
SINGLE STATE INSURED TAX FREE FUNDS
OVERVIEW
OBJECTIVE: The New York Insured Tax Free Fund ("New York Fund") and
each fund of the Multi-State Insured Tax Free Fund
(collectively with the New York Fund, the "Single State
Insured Tax Free Funds" or "Funds") seek a high level of
interest income that is exempt from both federal and state
income tax for individual residents of a particular state.
Each Fund also seeks income that is not a tax preference
item for purposes of the Alternative Minimum Tax ("AMT").
PRIMARY
INVESTMENT
STRATEGIES: Each Fund invests in municipal bonds and Municipal
Securities that pay interest that is exempt from federal
income tax, including the federal AMT, as well as any
applicable income tax for individual residents of a
particular state. Each Fund concentrates its investments
in municipal bonds issued by a single state. For example,
the New York Fund invests primarily in New York Municipal
Securities, the New Jersey Fund invests primarily in New
Jersey Municipal Securities, and so on. Each Fund, other
than the Minnesota Fund, also invests in Municipal
Securities that are issued by U.S. commonwealths,
possessions or territories as long as they do not produce
income that is subject to state income tax. The Minnesota
Fund only invests in Minnesota obligations. The Florida
Fund invests only in municipal bonds that are not subject
to the Florida intangible personal property tax. The Funds
generally invest in municipal bonds which are insured as
to timely payment of interest and principal by independent
insurance companies that are rated in the top rating
category by a nationally recognized statistical rating
organization, such as Moody's Investors Service, Inc.
("Moody's"). The Funds generally invest in long-term bonds
with maturities of fifteen years or more. The New York
Fund invests in variable rate and floating rate municipal
notes, including "inverse floaters."
PRIMARY
RISKS: The most significant risk of investing in the Funds is
interest rate risk. As with other bonds, the market values
of municipal bonds fluctuate with changes in interest
rates. When interest rates rise, they tend to decline in
price, and when interest rates fall, they tend to increase
in price. In general, bonds with longer maturities pay
higher interest rates but are more volatile than shorter
term bonds. When interest rates decline, the interest
income received by the Fund may also decline. Inverse
floaters tend to fluctuate significantly more than other
bonds in response to interest rate changes. Since each
Fund invests primarily in the Municipal Securities of a
particular state, its performance is affected by local,
state and regional factors. This is called concentration
risk. An investment in any of the Funds is also subject to
credit risk. This is the risk that the issuer of the bonds
may not be able to pay interest or principal when due. The
market prices of bonds are affected by the credit quality
of their issuers. While the Funds primarily invest in
municipal bonds that are insured against credit risk, the
insurance does not eliminate this risk because the insurer
may not be financially able to pay claims. In addition,
not all of the securities held by the Funds are insured.
Moreover, the insurance does not apply in any way to the
market prices of securities owned by the Funds, or their
share prices, both of which will fluctuate. Accordingly,
the value of your investment in the Funds will go up and
down, which means that you could lose money.
22
<PAGE>
AN INVESTMENT IN A 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 a Single State Insured Tax Free Fund?
A Single State Insured Tax Free Fund may be used by
individuals as a core holding for an investment portfolio
or as a base on which to build a portfolio. It may be
appropriate for you if you:
o Are seeking a relatively conservative investment which
provides a high degree of credit quality,
o Are seeking income that is exempt from federal income
tax, including the federal AMT, and from state income
tax for individual residents of a particular state,
o Are seeking a relatively high level of tax exempt
income and are willing to assume a moderate degree of
market volatility, and
o Have a long-term investment horizon and are able to
ride out market cycles.
The Single State Insured Tax Free Funds are generally not
appropriate for retirement accounts or investors in low
tax brackets, or corporate or similar business accounts.
Different tax rules apply to corporations and other
entities.
How have the Single State Insured Tax Free Funds performed?
The following bar charts and tables show you how each 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 Funds.
Each Fund has two classes of shares, Class A shares and Class B shares. The bar
charts show changes in the performance of each Fund's Class A shares for each of
the last ten calendar years, or from year to year over the life of the Fund, if
shorter. The performances of Class B shares differ from the performances of
Class A shares shown in the bar charts only to the extent that they do not have
the same expenses. The bar charts do 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.
The tables show how the average annual total returns for Class A shares and
Class B shares of each Single State Insured Tax Free Fund compare to those of
the Lehman Brothers Municipal Bond Index ("Lehman Index") as of December 31,
1999. The tables assume that the maximum sales charge or CDSC was paid. The
Lehman Index is a total return performance benchmark for the investment grade
tax-exempt bond market. The Lehman Index does not take into account fees and
expenses that an investor would incur in holding the securities in the Lehman
Index. If it did so, the returns would be lower than those shown.
23
<PAGE>
NEW YORK
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 6.70% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -5.68% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
New York Fund
- -------------
Class A Shares (9.69)% 4.09% 5.00% N/A
Class B Shares (8.17)% N/A N/A 4.22%
Lehman Index (2.06)% 6.90% 6.88% 6.90%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
24
<PAGE>
ARIZONA
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 8.03%(for the quarter
ended March 31, 1995), and the lowest quarterly return was -6.24% (for the
quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT NECESSARILY
INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Inception Class B Shares
1 Year* 5 Years* Class A Shares (1/12/95)
ARIZONA FUND
- ------------
Class A Shares+ (8.02)% 5.56% 6.09% N/A
Class B Shares (6.49)% N/A N/A 5.57%
Lehman Index (2.06)% 6.90% 7.00%++ 6.90%**
+ Class A shares commenced operations on 11/1/90.
++ The average annual total return shown is for the period 10/31/90 to 12/31/99.
* The annual returns are based upon calendar years.
** The average annual total
return shown is for the period 1/1/95 to 12/31/99.
25
<PAGE>
CALIFORNIA
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.28% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -5.57% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
CALIFORNIA FUND
- ---------------
Class A Shares (8.93)% 5.44% 6.10% N/A
Class B Shares (7.52)% N/A N/A 5.43%
Lehman Index (2.06)% 6.90% 6.88% 6.90%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
26
<PAGE>
COLORADO
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.79% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -6.51% (for
the quarter ended March 31, 1994). The Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Inception
Inception Class B Shares
1 Year* 5 Years* Class A Shares (1/12/95)
COLORADO FUND
- -------------
Class A Shares+ (8.29)% 5.68% 5.57% N/A
Class B Shares (6.85)% N/A N/A 5.72%
Lehman Index (2.06)% 6.90% 6.31%++ 6.90%**
+ Class A shares commenced operations on 5/4/92.
++ The average annual total return shown is for the period 4/30/92 to 12/31/99.
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
27
<PAGE>
CONNECTICUT
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.41% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -6.33% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Inception Class B Shares
1 Year* 5 Years* Class A Shares (1/12/95)
CONNECTICUT FUND
- ----------------
Class A Shares+ (8.06)% 5.16% 5.57% N/A
Class B Shares (6.56)% N/A N/A 5.21%
Lehman Index (2.06)% 6.90% 7.15%++ 6.90%**
+ Class A shares commenced operations on 10/8/90.
++ The average annual total return shown is for the period 9/30/90 to 12/31/99.
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
28
<PAGE>
FLORIDA
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.39% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -5.76% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Inception Class B Shares
1 Year* 5 Years* Class A Shares (1/12/95)
FLORIDA FUND
- ------------
Class A Shares+ (9.02)% 5.28% 6.03% N/A
Class B Shares (7.50)% N/A N/A 5.40%
Lehman Index (2.06)% 6.90% 7.15%++ 6.90%**
+ Class A shares commenced operations on 10/5/90.
++ The average annual total return shown is for the period 9/30/90 to 12/31/99.
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
29
<PAGE>
GEORGIA
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.19%
(for the quarter ended March 31, 1995), and the lowest quarterly return was
- -5.48% (for the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES
NOT NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Inception Class B Shares
1 Year* 5 Years* Class A Shares (1/12/95)
GEORGIA FUND
- ------------
Class A Shares+ (9.08)% 5.46% 5.41% N/A
Class B Shares (7.63)% N/A N/A 5.50%
Lehman Index (2.06)% 6.90% 6.31%++ 6.90%**
+ Class A shares commenced operations on 5/1/92.
++ The average annual total return shown is for the period 4/30/92 to 12/31/99.
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
30
<PAGE>
MARYLAND
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.02% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -5.79% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Inception Class B Shares
1 Year* 5 Years* Class A Shares (1/12/95)
MARYLAND FUND
- -------------
Class A Shares+ (8.64)% 5.29% 5.87% N/A
Class B Shares (7.20)% N/A N/A 5.38%
Lehman Index (2.06)% 6.90% 7.15%++ 6.90%**
+ Class A shares commenced operations on 10/8/90.
++ The average annual total return shown is for the period 9/30/90 to 12/31/99.
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
31
<PAGE>
MASSACHUSETTS
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 6.54% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -4.80% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
MASSACHUSETTS FUND
- ------------------
Class A Shares (8.48)% 4.71% 5.72% N/A
Class B Shares (7.06)% N/A N/A 4.78%
Lehman Index (2.06)% 6.90% 6.88% 6.90%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
32
<PAGE>
MICHIGAN
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.48% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -5.94% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
MICHIGAN FUND
- -------------
Class A Shares (8.70)% 5.07% 6.09% N/A
Class B Shares (7.21)% N/A N/A 5.11%
Lehman Index (2.06)% 6.90% 6.88% 6.90%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
33
<PAGE>
MINNESOTA
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 6.88% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -5.56% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
MINNESOTA FUND
- --------------
Class A Shares (7.78)% 4.94% 5.59% N/A
Class B Shares (6.36)% N/A N/A 5.03%
Lehman Index (2.06)% 6.90% 6.88% 6.90%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
34
<PAGE>
MISSOURI
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.76% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -6.36% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Inception Class B Shares
1 Year* 5 Years* Class A Shares (1/12/95)
MISSOURI FUND
- -------------
Class A Shares+ (8.11)% 5.70% 5.38% N/A
Class B Shares (6.67)% N/A N/A 5.70%
Lehman Index (2.06)% 6.90% 6.31%++ 6.90%**
+ Class A shares commenced operations on 5/4/92.
++ The average annual total return shown is for the period 4/30/92 to 12/31/99.
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
35
<PAGE>
NEW JERSEY
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 6.78% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -5.36 % (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
NEW JERSEY FUND
- ---------------
Class A Shares (8.19)% 4.82% 5.83% N/A
Class B Shares (6.74)% N/A N/A 4.82%
Lehman Index (2.06)% 6.90% 6.88% 6.90%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
36
<PAGE>
NORTH CAROLINA
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.85% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -6.89% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Inception Class B Shares
1 Year* 5 Years* Class A Shares (1/12/95)
NORTH CAROLINA FUND
- -------------------
Class A Shares+ (8.46)% 5.66% 5.09% N/A
Class B Shares (7.06)% N/A N/A 5.69%
Lehman Index (2.06)% 6.90% 6.31%++ 6.90%**
+ Class A shares commenced operations on 5/4/92.
++ The average annual total return shown is for the period 4/30/92 to 12/31/99.
* The annual returns are based upon calendar years. ** The average annual total
return shown is for the period 1/1/95 to 12/31/99.
37
<PAGE>
OHIO
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.29% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -5.77% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
OHIO FUND
- ---------
Class A Shares (7.93)% 5.20% 6.05% N/A
Class B Shares (6.49)% N/A N/A 5.21%
Lehman Index (2.06)% 6.90% 6.88% 6.90%**
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
38
<PAGE>
OREGON
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.62% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -6.85% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Inception Class B Shares
1 Year* 5 Years* Class A Shares (1/12/95)
OREGON FUND
- -----------
Class A Shares+ (8.07)% 5.63% 4.96% N/A
Class B Shares (6.74)% N/A N/A 5.65%
Lehman Index (2.06)% 6.90% 6.31%++ 6.90%**
+ Class A shares commenced operations on 5/4/92.
++ The average annual total return shown is for the period 4/30/92 to 12/31/99.
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
39
<PAGE>
PENNSYLVANIA
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.78% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -5.90% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Inception Class B Shares
1 Year* 5 Years* Class A Shares (1/12/95)
PENNSYLVANIA FUND
- -----------------
Class A Shares+ (8.32)% 5.18% 5.94% N/A
Class B Shares (6.91)% N/A N/A 5.25%
Lehman Index (2.06)% 6.90% 7.16%++ 6.90%**
+ Class A shares commenced operations on 4/30/90.
++ The average annual total return shown is for the period 4/30/90 to 12/31/99.
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
40
<PAGE>
VIRGINIA
[OBJECT OMITTED]
During the periods shown, the highest quarterly return was 7.27% (for the
quarter ended March 31, 1995), and the lowest quarterly return was -7.82% (for
the quarter ended March 31, 1994). THE FUND'S PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
Inception
Inception Class B Shares
1 Year* 5 Years* Class A Shares (1/12/95)
VIRGINIA FUND
- -------------
Class A Shares+ (8.68)% 5.03% 5.80% N/A
Class B Shares (7.30)% N/A N/A 5.06%
Lehman Index (2.06)% 6.90% 7.16%++ 6.90%**
+ Class A shares commenced operations on 4/30/90.
++ The average annual total return shown is for the period 4/30/90 to 12/31/99.
* The annual returns are based upon calendar years.
** The average annual total return shown is for the period 1/1/95 to 12/31/99.
41
<PAGE>
What are the fees and expenses of the Single State Insured Tax Free Funds?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C>
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%**
</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 eight years.
Annual Fund operating expenses
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FEE WAIVERS
AND SERVICE ANNUAL FUND AND/OR EXPENSE
MANAGEMENT (12B-1) OTHER OPERATING ASSUMPTIONS
FEES ( 1) FEES (2) EXPENSES(3) EXPENSES(4) (1), (3) NET EXPENSES(4)
--------- -------- ----------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C>
NEW YORK FUND
- -------------
Class A Shares 0.75% 0.30% 0.16% 1.21% 0.12% 1.09%
Class B Shares 0.75% 1.00% 0.16% 1.91% 0.12% 1.79%
ARIZONA FUND
- ------------
Class A Shares 0.75% 0.20% 0.20% 1.15% 0.50% 0.65%
Class B Shares 0.75% 1.00% 0.20% 1.95% 0.50% 1.45%
CALIFORNIA FUND
- ---------------
Class A Shares 0.75% 0.20% 0.22% 1.17% 0.52% 0.65%
Class B Shares 0.75% 1.00% 0.22% 1.97% 0.52% 1.45%
COLORADO FUND
- -------------
Class A Shares 0.75% 0.20% 0.33% 1.28% 0.78% 0.50%
Class B Shares 0.75% 1.00% 0.33% 2.08% 0.78% 1.30%
CONNECTICUT FUND
- ----------------
Class A Shares 0.75% 0.20% 0.20% 1.15% 0.35% 0.80%
Class B Shares 0.75% 1.00% 0.20% 1.95% 0.35% 1.60%
FLORIDA FUND
- ------------
Class A Shares 0.75% 0.20% 0.17% 1.12% 0.32% 0.80%
Class B Shares 0.75% 1.00% 0.17% 1.92% 0.32% 1.60%
GEORGIA FUND
- ------------
Class A Shares 0.75% 0.20% 0.24% 1.19% 0.69% 0.50%
Class B Shares 0.75% 1.00% 0.24% 1.99% 0.69% 1.30%
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FEE WAIVERS
AND SERVICE ANNUAL FUND AND/OR EXPENSE
MANAGEMENT (12B-1) OTHER OPERATING ASSUMPTIONS
FEES ( 1) FEES (2) EXPENSES(3) EXPENSES(4) (1), (3) NET EXPENSES(4)
--------- -------- ----------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
MARYLAND FUND
- -------------
Class A Shares 0.75% 0.20% 0.20% 1.15% 0.50% 0.65%
Class B Shares 0.75% 1.00% 0.20% 1.95% 0.50% 1.45%
MASSACHUSETTS FUND
- ------------------
Class A Shares 0.75% 0.20% 0.20% 1.15% 0.35% 0.80%
Class B Shares 0.75% 1.00% 0.20% 1.95% 0.35% 1.60%
MICHIGAN FUND
- -------------
Class A Shares 0.75% 0.20% 0.17% 1.12% 0.25% 0.87%
Class B Shares 0.75% 1.00% 0.17% 1.92% 0.25% 1.67%
MINNESOTA FUND
- --------------
Class A Shares 0.75% 0.20% 0.30% 1.25% 0.75% 0.50%
Class B Shares 0.75% 1.00% 0.30% 2.05% 0.75% 1.30%
MISSOURI FUND
- -------------
Class A Shares 0.75% 0.20% 0.55% 1.50% 1.00% 0.50%
Class B Shares 0.75% 1.00% 0.55% 2.30% 1.00% 1.30%
NEW JERSEY FUND
- ---------------
Class A Shares 0.75% 0.20% 0.17% 1.12% 0.15% 0.97%
Class B Shares 0.75% 1.00% 0.17% 1.92% 0.15% 1.77%
NORTH CAROLINA FUND
- -------------------
Class A Shares 0.75% 0.20% 0.29% 1.24% 0.74% 0.50%
Class B Shares 0.75% 1.00% 0.29% 2.04% 0.74% 1.30%
OHIO FUND
- ---------
Class A Shares 0.75% 0.20% 0.22% 1.17% 0.37% 0.80%
Class B Shares 0.75% 1.00% 0.22% 1.97% 0.37% 1.60%
OREGON FUND
- -----------
Class A Shares 0.75% 0.20% 0.26% 1.21% 0.56% 0.65%
Class B Shares 0.75% 1.00% 0.26% 2.01% 0.56% 1.45%
PENNSYLVANIA FUND
- -----------------
Class A Shares 0.75% 0.20% 0.16% 1.11% 0.25% 0.86%
Class B Shares 0.75% 1.00% 0.16% 1.91% 0.25% 1.66%
VIRGINIA FUND
- -------------
Class A Shares 0.75% 0.20% 0.22% 1.17% 0.37% 0.80%
Class B Shares 0.75% 1.00% 0.22% 1.97% 0.37% 1.60%
</TABLE>
(1) For the fiscal year ended December 31, 1999, the Adviser waived Management
Fees as follows: in excess of 0.63% for New York Fund; in excess of 0.30%
for Arizona Fund; in excess of 0.50% for California Fund; in excess of
0.30% for Colorado Fund; in excess of 0.50% for Connecticut Fund; in excess
of 0.50% for Florida Fund; in excess of 0.30% for Georgia Fund; in excess
of 0.30% for Maryland Fund; in excess of 0.50% for Massachusetts Fund; in
excess of 0.50% for Michigan Fund; in excess of 0.30% for Minnesota Fund;
43
<PAGE>
in excess of 0.30% for Missouri Fund; in excess of 0.60% for New Jersey
Fund; in excess of 0.30% for North Carolina Fund; in excess of 0.50% for
Ohio Fund; in excess of 0.30% for Oregon Fund; in excess of 0.50% for
Pennsylvania Fund; and in excess of 0.50% for Virginia Fund. The Adviser
has contractually agreed with the Funds to waive Management Fees for the
fiscal year ending December 31, 2000 as follows: in excess of 0.63% for New
York Fund; in excess of 0.35% for Arizona Fund; in excess of 0.35% for
California Fund; in excess of 0.30% for Colorado Fund; in excess of 0.50%
for Connecticut Fund; in excess of 0.50% for Florida Fund; in excess of
0.30% for Georgia Fund; in excess of 0.35% for Maryland Fund; in excess of
0.50% for Massachusetts Fund; in excess of 0.50% for Michigan Fund; in
excess of 0.30% for Minnesota Fund; in excess of 0.30% for Missouri Fund;
in excess of 0.60% for New Jersey Fund; in excess of 0.35% for North
Carolina Fund; in excess of 0.50% for Ohio Fund; in excess of 0.35% for
Oregon Fund; in excess of 0.50% for Pennsylvania Fund; and in excess of
0.50% for Virginia Fund.
(2) Because each 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 December 31, 1999, the Adviser assumed Other
Expenses of certain Funds as follows: in excess of 0.0% for Arizona Fund;
in excess of 0.10% for California Fund; in excess of 0.0% for Colorado
Fund; in excess of 0.10% for Connecticut Fund; in excess of 0.10% for
Florida Fund; in excess of 0.0% for Georgia Fund; in excess of 0.0% for
Maryland Fund; in excess of 0.10% for Massachusetts Fund; in excess of 0.0%
for Minnesota Fund; in excess of 0.0% for Missouri Fund; in excess of 0.0%
for North Carolina Fund; in excess of 0.10% for Ohio Fund; in excess of
0.0% for Oregon Fund; and in excess of 0.10% for Virginia Fund. The Adviser
has contractually agreed with the Multi-State Insured Tax Free Fund to
assume the Other Expenses of certain of the Funds for the fiscal year
ending December 31, 2000 as follows: in excess of 0.10% for Arizona Fund;
in excess of 0.10% for California Fund; in excess of 0.0% for Colorado
Fund; in excess of 0.10% for Connecticut Fund; in excess of 0.10% for
Florida Fund; in excess of 0.0% for Georgia Fund; in excess of 0.10% for
Maryland Fund; in excess of 0.10% for Massachusetts Fund; in excess of 0.0%
for Minnesota Fund; in excess of 0.0% for Missouri Fund; in excess of 0.0%
for North Carolina Fund; in excess of 0.10% for Ohio Fund; in excess of
0.10% for Oregon Fund; and in excess of 0.10% for Virginia Fund.
(4) Each Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual
Fund Operating Expenses or Net Expenses.
EXAMPLE
This example helps you to compare the costs of investing in a Fund with the cost
of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in a Fund for the time periods indicated; (2) your investment has a 5%
return each year; and (3) a Fund's operating expenses remain the same, except
for year one which is net of fees waived and/or expenses assumed. Although your
actual costs may be higher or lower, under these assumptions your costs would
be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
If you redeem your shares:
<S> <C> <C> <C> <C>
NEW YORK FUND
- -------------
Class A shares $729 $974 $1,238 $1,989
Class B shares $582 $888 $1,220 $2,041*
ARIZONA FUND
- ------------
Class A shares $687 $921 $1,173 $1,893
Class B shares $548 $864 $1,206 $2,026*
44
<PAGE>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
CALIFORNIA FUND
- ---------------
Class A shares $687 $925 $1,181 $1,913
Class B shares $548 $868 $1,214 $2,046*
COLORADO FUND
- -------------
Class A shares $673 $933 $1,213 $2,009
Class B shares $532 $876 $1,247 $2,142*
CONNECTICUT FUND
- ----------------
Class A shares $702 $935 $1,187 $1,906
Class B shares $563 $878 $1,220 $2,039*
FLORIDA FUND
- ------------
Class A shares $702 $929 $1,174 $1,876
Class B shares $563 $872 $1,207 $2,009*
GEORGIA FUND
- ------------
Class A shares $673 $915 $1,176 $1,920
Class B shares $532 $858 $1,209 $2,053*
MARYLAND FUND
- -------------
Class A shares $687 $921 $1,173 $1,893
Class B shares $548 $864 $1,206 $2,026*
MASSACHUSETTS FUND
- ------------------
Class A shares $702 $935 $1,187 $1,906
Class B shares $563 $878 $1,220 $2,039*
MICHIGAN FUND
- -------------
Class A shares $708 $935 $1,181 $1,882
Class B shares $570 $879 $1,214 $2,015*
MINNESOTA FUND
- --------------
Class A shares $673 $927 $1,201 $1,980
Class B shares $532 $870 $1,234 $2,113*
MISSOURI FUND
- -------------
Class A shares $673 $977 $1,303 $2,223
Class B shares $532 $922 $1,339 $2,356*
NEW JERSEY FUND
- ---------------
Class A shares $718 $945 $1,190 $1,890
Class B shares $580 $889 $1,223 $2,023*
NORTH CAROLINA FUND
- -------------------
Class A shares $673 $925 $1,197 $1,970
Class B shares $532 $868 $1,230 $2,103*
OHIO FUND
- ---------
Class A shares $702 $939 $1,195 $1,926
Class B shares $563 $883 $1,228 $2,058*
45
<PAGE>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
OREGON FUND
- -----------
Class A shares $687 $933 $1,198 $1,953
Class B shares $548 $876 $1,231 $2,086*
PENNSYLVANIA FUND
- -----------------
Class A shares $707 $933 $1,176 $1,871
Class B shares $569 $876 $1,208 $2,004*
VIRGINIA FUND
- -------------
Class A shares $702 $939 $1,195 $1,926
Class B shares $563 $883 $1,228 $2,058*
If you do not redeem your shares:
NEW YORK FUND
- -------------
Class A shares $729 $974 $1,238 $1,989
Class B shares $182 $588 $1,020 $2,041*
ARIZONA FUND
- ------------
Class A shares $687 $921 $1,173 $1,893
Class B shares $148 $564 $1,006 $2,026*
CALIFORNIA FUND
- ---------------
Class A shares $687 $925 $1,181 $1,913
Class B shares $148 $568 $1,014 $2,046*
COLORADO FUND
- -------------
Class A shares $673 $933 $1,213 $2,009
Class B shares $132 $576 $1,047 $2,142*
CONNECTICUT FUND
- ----------------
Class A shares $702 $935 $1,187 $1,906
Class B shares $163 $578 $1,020 $2,039*
FLORIDA FUND
- ------------
Class A shares $702 $929 $1,174 $1,876
Class B shares $163 $572 $1,007 $2,009*
GEORGIA FUND
- ------------
Class A shares $673 $915 $1,176 $1,920
Class B shares $132 $558 $1,009 $2,053
MARYLAND FUND
- -------------
Class A shares $687 $921 $1,173 $1,893
Class B shares $148 $564 $1,006 $2,026*
MASSACHUSETTS FUND
- ------------------
Class A shares $702 $935 $1,187 $1,906
Class B shares $163 $578 $1,020 $2,039*
MICHIGAN FUND
- -------------
Class A shares $708 $935 $1,181 $1,882
Class B shares $170 $579 $1,014 $2,015*
46
<PAGE>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
MINNESOTA FUND
- --------------
Class A shares $673 $927 $1,201 $1,980
Class B shares $132 $570 $1,034 $2,113*
MISSOURI FUND
- -------------
Class A shares $673 $977 $1,303 $2,223
Class B shares $132 $622 $1,139 $2,356*
NEW JERSEY FUND
- ---------------
Class A shares $718 $945 $1,190 $1,890
Class B shares $180 $589 $1,023 $2,023*
NORTH CAROLINA FUND
- -------------------
Class A shares $673 $925 $1,197 $1,970
Class B shares $132 $568 $1,030 $2,103*
OHIO FUND
- ---------
Class A shares $702 $939 $1,195 $1,926
Class B shares $163 $583 $1,028 $2,058*
OREGON FUND
- -----------
Class A shares $687 $933 $1,198 $1,953
Class B shares $148 $576 $1,031 $2,086*
PENNSYLVANIA FUND
- -----------------
Class A shares $707 $933 $1,176 $1,871
Class B shares $169 $576 $1,008 $2,004*
VIRGINIA FUND
- -------------
Class A shares $702 $939 $1,195 $1,926
Class B shares $163 $583 $1,028 $2,058*
</TABLE>
*Assumes conversion to Class A shares eight years after purchase.
THE FUNDS IN DETAIL
What are the Single State Insured Tax Free Funds' objectives, principal
investment strategies, and risks?
OBJECTIVES: Each of the Single State Insured Tax Free Funds seeks a high level
of interest income that is exempt from both federal and state income tax for
individual residents of a particular state. Each Fund also seeks income that is
not a tax preference item for purposes of the AMT.
PRINCIPAL INVESTMENT STRATEGIES: Each Fund invests at least 80% of its total
assets in municipal bonds and other types of Municipal Securities ("Municipal
Securities") that pay interest that is exempt from federal income tax, including
the federal AMT. Municipal Securities include, private activity bonds,
industrial development bonds, certificates of participation, municipal notes,
municipal commercial paper, variable rate demand notes, and floating rate demand
notes. Municipal Securities are issued by state and local governments, their
agencies and authorities, the District of Columbia and any commonwealths,
territories or possessions of the United States (including Guam, Puerto Rico and
the U.S. Virgin Islands) or their respective agencies, instrumentalities and
authorities.
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<PAGE>
Each Fund concentrates its assets in municipal bonds and securities of a
particular state in order to produce income that is exempt from any applicable
state income tax for individual residents of the state. At least 65% of each
Fund's assets will be invested in municipal bonds and securities of a single
state. For example, the New York Fund will invest at least 65% of its assets in
New York bonds, the New Jersey Fund will invest at least 65% of its assets in
New Jersey bonds, and so on. Each Fund, other than the Minnesota Fund, may also
invest in Municipal Securities that are issued by U.S. commonwealths,
possessions, or territories such as Puerto Rico if the interest produced is
exempt from state income taxes for residents of the particular state. The
Minnesota Fund invests only in Minnesota municipal obligations because under
Minnesota tax law, dividends paid to shareholders of the Fund are exempt from
the regular Minnesota personal income tax only if 95% or more of the dividends
are derived from Minnesota municipal obligations. In certain cases, the interest
paid by a Fund may also be exempt from local taxes. For example, for resident
shareholders of New York, any interest paid by the New York Fund would also be
exempt from New York City tax. There is no state income tax in Florida. However,
the Florida Fund is managed so that investments in the Florida Fund will not be
subject to the Florida intangible personal property tax.
All municipal bonds in which the Funds invest are insured as to the timely
payment of interest and principal by independent insurance companies which are
rated in the top rating category by a nationally recognized statistical rating
organization, such as Moody's, Standard & Poor's Ratings Group and Fitch IBCA.
The Funds may purchase bonds and other Municipal Securities which have already
been insured by the issuer, underwriter, or some other party or it may purchase
uninsured bonds and insure them under a policy purchased by the Funds. While
every municipal bond purchased by the Funds must be insured, the Funds are
allowed to invest up to 35% of their assets in securities that are not insured.
(In other words, at least 65% of each Fund's assets must be insured.) In
general, the non-insured securities held by the Funds are limited to municipal
commercial paper and other short-term investments. In any event, as described
below, the insurance does not guarantee the market values of the bonds held by
the Funds or the Funds' share price.
The Funds follow the strategy of investing in long term municipal bonds, which
are generally more volatile in price but offer more yield than short or
intermediate term bonds. The Funds generally purchase bonds with maturities of
fifteen years or more. The Funds adjust the duration of their portfolios based
upon their outlook on interest rates. Duration is a measurement of a bond's
sensitivity to changes in interest rates that takes into consideration not only
the maturity of the bond but also the time value of money that will be received
from the bond over its life. The Funds will generally adjust the duration of
their portfolios by buying or selling Municipal Securities, including zero
coupon bonds. For example, if the Funds believe that interest rates are likely
to rise, they will generally attempt to reduce their durations by purchasing
Municipal Securities with shorter maturities or selling Municipal Securities
with longer maturities.
New York Fund invests in variable rate and floating rate municipal notes,
including "inverse floaters." These securities pay interest which adjusts at
specific intervals or when a benchmark rate changes. Inverse floaters are
floating rate securities whose rates of interest move inversely to a floating
rate benchmark. The rates on inverse floaters typically fall as short-term
market interest rates rise and rise as short-term rates fall. The Fund benefits
from its investments in inverse floaters by receiving a higher rate of interest
than it does on other comparable bonds. However, inverse floaters tend to
fluctuate in price more than other bonds in response to interest rate changes
and therefore they cause the Fund's share price to be subject to greater
volatility. The Fund will not invest more than 10% of its assets in inverse
floaters.
In selecting investments, the Funds consider maturity, coupon and yield,
relative value of an issue, the credit quality of the issuer, the cost of
insurance and the outlook for interest rates and the economy. Up to 20% of each
Fund's net assets may be invested in securities, the interest on which is
subject to federal income tax, including the federal AMT. The Funds will usually
sell investments when there are changes in the interest rate environment that
are adverse to the investments or they fall short of the portfolio manager's
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<PAGE>
expectations. The Funds will not necessarily sell investments if their ratings
are reduced or there is a default by the issuer. Information on the Funds'
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. An
investment offering greater potential rewards generally carries greater risks.
Here are the principal risks of owning the Single State Insured Tax Free Funds:
INTEREST RATE RISK: The market value of Municipal Securities is affected by
changes in interest rates. When interest rates rise, the market values of
Municipal Securities decline, and when interest rates decline, the market values
of Municipal Securities increase. The price volatility of Municipal Securities
also depends on their maturities and durations. Generally, the longer the
maturity and duration of a municipal security, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, Municipal
Securities with longer maturities and durations generally offer higher yields
than Municipal Securities with shorter maturities and durations.
Interest rate risk also includes the risk that the yields received by the Funds
on some of their investments will decline as interest rates decline. The Funds
buy investments with fixed maturities as well as investments that give the
issuer the option to "call" or redeem these investments before their maturity
dates. If investments mature or are "called" during a time of declining interest
rates, the Funds will have to reinvest the proceeds in investments offering
lower yields. The Funds also invest in floating rate and variable rate demand
notes. When interest rates decline, the rates paid on these securities may
decline.
CONCENTRATION RISK: Since each Fund invests primarily in the Municipal
Securities of a particular state, each Fund is more vulnerable than more
geographically diversified funds to events in a particular state that could
impair investor confidence in Municipal Securities issued within the state. Such
events could include, but are not limited to, economic or demographic factors
that may cause a decrease in tax or other revenues for a state or its
municipalities, state legislative changes (especially those changes regarding
taxes), state constitutional limits on tax increases, judicial decisions
declaring particular Municipal Securities to be unconstitutional or void, budget
deficits and financial difficulties such as the 1994 bankruptcy of Orange
County.
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. Although all of the municipal bonds purchased by
the Funds are insured as to scheduled payments of interest and principal, the
insurance does not eliminate credit risk because the insurer may not be
financially able to pay interest and principal on the bonds and up to 35% of
each Fund's assets may be invested in securities that are not insured. It is
also important to note that, although insurance may increase the credit safety
of an investment, it decreases yield as insurance must be paid for directly or
indirectly. It is also important to emphasize that the insurance does not
protect against fluctuations in the market value of the municipal bonds owned by
the Funds, or the share price of the Funds.
MARKET RISK: The Funds are subject to market risk. Bond prices in general may
decline over short or even extended periods primarily due to changes in interest
rates and the credit conditions of the issuers. This is another way of
describing interest rate risk and credit risk. However, market prices also
fluctuate with the forces of supply and demand. Municipal bonds may decline in
value even if the overall market is doing well. Accordingly, the value of your
investment in the Funds will go up and down, which means that you could lose
money.
DERIVATIVE SECURITIES RISK: Because the New York Fund invests in inverse
floaters which are a form of derivative securities, it is subject to a greater
degree of interest rate risk than funds which do not invest in these securities.
Inverse floaters tend to fluctuate in price significantly more than other bonds
as the result of interest rate changes.
49
<PAGE>
FUND MANAGEMENT
First Investors Management Company, Inc. ("FIMCO" or "Adviser") is the
investment adviser to each Fund. Its address is 95 Wall Street, New York, NY
10005. It currently is investment adviser to 48 mutual funds or series of funds
with total net assets of over $5 billion. FIMCO supervises all aspects of the
Funds' operations and determines the Funds' portfolio transactions. For the
fiscal year ended December 31, 1999, FIMCO received advisory fees as follows:
0.50% of average daily net assets for Tax-Exempt Money Market; 0.40% of average
daily net assets, net of waiver, for Insured Intermediate Tax Exempt Fund; 0.70%
of average daily net assets for Insured Tax Exempt Fund; 0.63% of average daily
net assets, net of waiver, for New York Fund; 0.30% of average daily net assets,
net of waiver, for Arizona Fund; 0.50% of average daily net assets, net of
waiver, for California Fund; 0.30% of average daily net assets, net of waiver,
for Colorado Fund; 0.50% of average daily net assets, net of waiver, for
Connecticut Fund; 0.50% of average daily net assets, net of waiver, for Florida
Fund; 0.30% of average daily net assets, net of waiver, for Georgia Fund; 0.30%
of average daily net assets, net of waiver, for Maryland Fund; 0.50% of average
daily net assets, net of waiver, for Massachusetts Fund; 0.50% of average daily
net assets, net of waiver, for Michigan Fund; 0.30% of average daily net assets,
net of waiver, for Minnesota Fund; 0.30% of average daily net assets, net of
waiver, for Missouri Fund; 0.60% of average daily net assets, net of waiver, for
New Jersey Fund; 0.30% of average daily net assets, net of waiver, for North
Carolina Fund; 0.50% of average daily net assets, net of waiver, for Ohio Fund;
0.30% of average daily net assets, net of waiver, for Oregon Fund; 0.50% of
average daily net assets, net of waiver, for Pennsylvania Fund; and 0.50% of
average daily net assets, net of waiver, for Virginia Fund.
Clark D. Wagner serves as Portfolio Manager of the Funds. Mr. Wagner also serves
as Portfolio Manager of certain other First Investors Funds. Mr. Wagner has been
Chief Investment Officer of FIMCO since 1992.
BUYING AND SELLING SHARES
How and when do the Funds price their shares?
The share price (which is called "net asset value" or "NAV" per share) for each
Fund is calculated once each day as of 4 p.m., Eastern Time ("E.T."), on each
day the New York Stock Exchange ("NYSE") is open for regular trading. These are
referred to as "Trading Days." The NYSE is closed on most national holidays and
Good Friday. In the event that the NYSE closes early, the share price will be
determined as of the time of the closing.
To calculate its NAV, each Fund, other than the Tax-Exempt Money Market Fund,
first values its assets, subtracts its liabilities, and then divides the
balance, called net assets, 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, other than the Tax-Exempt Money Market 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.
The Tax-Exempt Money Market Fund values its assets using the amortized cost
method which is intended to permit the Fund to maintain a stable $1.00 per share
for each class of shares.
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
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<PAGE>
submit an application. Your initial investment must be at least $1,000. However,
we have lower initial investment requirements for certain types of accounts and
offer automatic investment plans that allow you to open a Fund account with as
little as $50. Subsequent investments may be made in any amount. You can also
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.
In the case of all Funds other than the Tax-Exempt Money Market Fund, if you
send your order directly to 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. offices by 5 p.m.,
E.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.
In the case of the Tax Exempt-Money Market Fund, your purchase will not be
deemed to occur until the Fund receives federal funds for the purchase. Federal
funds for a purchase will generally not be received until the morning of the
next Trading Day following the Trading Day on which your purchase check or other
form of payment is received in our Woodbridge, N.J. offices. If a check is
received in our Woodbridge, N.J. offices after the close of regular trading on
the NYSE, the federal funds for the purchase will generally not be received
until the morning of the second following Trading Day.
If we receive a wire transfer for a purchase of the Tax-Exempt Money Market Fund
prior to 12:00 p.m., E.T., and you have previously advised us that the wire is
on the way, federal funds for the purchase will be deemed to have been received
on that same day. You must call before 12:00 p.m. 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 federal 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.
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 invested from the outset.
Class A shares of each Fund, except the Tax-Exempt Money Market 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. The
Tax-Exempt Money Market Fund's Class A shares are sold at NAV without any
initial or deferred sales charge.
51
<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 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
CDSC AS A PERCENTAGE
OF PURCHASE PRICE OR
YEAR OF REDEMPTION 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
Class B shares of the Tax-Exempt Money Market Fund are not available for direct
investment. They may be acquired only through an exchange from the Class B
shares of another First Investors Fund. While an exchange will be processed at
the relative NAVs of the shares involved, any CDSC on the shares being exchanged
will carry over to the new shares.
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 Fund, except
for the Tax-Exempt Money Market Fund, has a separate Rule 12b-1 plan for each
class of shares. The Tax-Exempt Money Market Fund has only one plan, which is
52
<PAGE>
for its Class B shares. The plans provide for payments at annual rates (based on
average daily net assets) of up to 0.30% on Class A shares and 1.00% on Class B
shares. No more than 0.25% 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, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
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 over time. 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 a Fund is open for business by:
o Contacting your Representative who will place a redemption order for
you;
o Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, NJ
07095-1198;
o Telephoning the Special Services Department of ADM at 1-800-342-6231
(telephone redemptions are not available on retirement and certain
other types of accounts); or
o Instructing us to make an electronic transfer to a predesignated bank
account (if you have completed an application authorizing such
transfers).
You may also redeem Tax-Exempt Money Market Fund shares by writing a check
against your money market fund account or requesting an expedited wire
redemption to a predesignated bank account. You may be charged a fee for certain
of these privileges. For example, each wire under $5,000 is subject to a $15
fee. Consult your Representative or call ADM at 1-800-423-4026 for details.
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 fails to meet the minimum account balance as a result of a
redemption, or 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
53
<PAGE>
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 the same class of any other
First Investors Fund without paying any additional sales charge with one
exception. If you are exchanging from the Tax-Exempt 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. 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, each Fund, other than the
Tax-Exempt Money Market 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. The Tax-Exempt Money Market Fund will declare daily and
pay monthly dividends from net investment income, which generally consists of
interest income on investments, plus or minus all realized short-term gains and
losses on the Fund's securities, less expenses. The Tax-Exempt Money Market Fund
does not expect to realize any long-term capital gains. 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 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).
54
<PAGE>
What about taxes?
For individual shareholders, income dividends paid by the Funds should generally
be exempt from federal income taxes, including the federal AMT. Generally,
dividends paid by the Single State Insured Tax Free Funds should also be exempt
from state income taxes, if any, for individual resident shareholders of a
particular Fund's state and in certain cases, from local taxes. For Florida
residents, investments in the Florida Fund should be exempt from the Florida
intangible personal property tax. For federal income tax purposes, long-term
capital gain distributions by a Fund are taxed to you as long-term capital
gains, regardless of how long you owned your Fund shares. Distributions by a
Fund of interest income from taxable obligations, if any, and short-term capital
gains are taxed to you as ordinary income. You are taxed in the same manner
whether you receive your capital gain distributions in cash or reinvest them in
additional Fund shares. Your sale or exchange of Fund shares will 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. For the Tax-Exempt Money Market Fund, if the Fund maintains a
stable share price of $1.00, your sale or exchange of Fund shares will not
result in recognition of any taxable gain or loss. 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.
55
<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.
TAX-EXEMPT MONEY MARKET FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-----------------------------------------------------------------------------------------
INCOME FROM INVESTMENTS OPERATIONS LESS DISTRIBUTONS FROM
-------------------------------------- ------------------------
NET ASSET NET REALIZED
VALUE NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL
YEAR ENDED DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAIN DISTRIBUTIONS
- ------------------------------------- ------------ ----------- -------------- ------------ ------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT MONEY MARKET FUND
- ----------------------------
CLASS A
- -------
1995................................ $1.00 $.032 $__ $.032 $.032 $__ $.032
1996................................ 1.00 .028 __ .028 .028 __ .028
1997................................ 1.00 .030 __ .030 .030 __ .030
1998................................ 1.00 .027 __ .027 .027 __ .027
1999................................ 1.00 .026 __ .026 .026 __ .026
CLASS B
- -------
1995*............................... $1.00 $.024 $__ $.024 $.024 $__ $.024
1996................................ 1.00 .020 __ .020 .020 __ .020
1997................................ 1.00 .022 __ .022 .022 __ .022
1998................................ 1.00 .018 __ .018 .018 __ .018
1999................................ 1.00 .018 __ .018 .018 __ .018
</TABLE>
....
* For the period January 12, 1995 (date Class B shares were first offered) to
December 31, 1995.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the
transfer agent.
56
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE NET ASSETS BEFORE EXPENSES
ASSETS ++ WAIVED OR ASSUMED
---------------------- ----------------------
NET ASSET NET NET PORTFOLIO
VALUE NET ASSETS INVESTMENT INVESTMENT TURNOVER
END OF TOTAL RETURN END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
PERIOD **(%) (IN THOUSANDS) (%) (%) (%) (%) (%)
- ---------------- ------------- -------------- ---------- ------------ ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1.00 3.24 $25,045 .70 3.20 1.06 2.84 N/A
1.00 2.85 22,888 .70 2.81 1.08 2.43 N/A
1.00 3.00 18,680 .75 2.95 1.12 2.58 N/A
1.00 2.77 16,310 .80 2.73 1.19 2.34 N/A
1.00 2.61 16,478 .80 2.58 1.20 2.18 N/A
$1.00 2.40 $.01 1.45 2.45 1.81 2.09 N/A
1.00 2.04 80 1.45 2.06 1.83 1.68 N/A
1.00 2.20 13 1.50 2.20 1.87 1.83 N/A
1.00 1.78 1 1.55 1.98 1.94 1.59 N/A
1.00 1.82 1 1.55 1.83 1.95 1.43 N/A
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
INSURED INTERMEDIATE TAX EXEMPT FUND
- ------------------------------------- -----------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------ ----------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
------------------------------------ --------------------------
NET ASSET NET REALIZED
VALUE NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL
YEAR ENDED DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAIN DISTRIBUTIONS
- ------------------------------------- ------------ ----------- --------------- ----------- ------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
INSURED INTERMEDIATE TAX EXEMPT FUND
- ------------------------------------
CLASS A
- -------
1995................................ $5.43 $.301 $.419 $.720 $.300 $__ $.300
1996................................ 5.85 .290 (.060) .230 .290 __ .290
1997................................ 5.79 .292 .140 .432 .292 __ .292
1998................................ 5.93 .288 .086 .374 .294 __ .294
1999................................ 6.01 .231 (.200) .031 .231 __ .231
CLASS B
- -------
1995*............................... $5.45 $.254 $.407 $.661 $.261 $__ $.261
1996................................ 5.85 .235 (.055) .180 .230 __ .230
1997................................ 5.80 .234 .128 .362 .232 __ .232
1998................................ 5.93 .226 .098 .324 .234 __ .234
1999................................ 6.02 .173 (.202) (.029) .171 __ .171
* For the period January 12, 1995 (date Class B shares were first offered) to December 31, 1995.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the transfer agent.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE NET ASSETS BEFORE EXPENSES
ASSETS ++ WAIVED OR ASSUMED
----------------------- ----------------------
NET ASSET NET NET PORTFOLIO
VALUE INVESTMENT INVESTMENT TURNOVER
END OF TOTAL RETURN NET ASSETS EXPENSES INCOME EXPENSES INCOME RATE
PERIOD **(%) END OF PERIOD (%) (%) (%) (%) (%)
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$5.85 13.50 $7,017 .35 5.32 1.22 4.45 47
5.79 4.07 7,415 .49 5.05 1.24 4.30 82
5.93 7.68 7,344 .53 5.02 1.21 4.34 91
6.01 6.47 8,674 .50 4.80 1.20 4.10 163
5.81 0.51 8,263 .50 3.88 1.18 3.20 142
$5.85 12.27 $378 1.35+ 4.32+ 1.92+ 3.75+ 47
5.80 3.17 613 1.49 4.05 1.94 3.60 82
5.93 6.39 808 1.53 4.02 1.91 3.64 91
6.02 5.57 1,000 1.50 3.80 1.90 3.40 163
5.82 (0.50) 1,154 1.50 2.88 1.88 2.50 142
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
INSURED TAX EXEMPT FUND
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
INCOME FROM INVESTMENT OPERATIONS FROM
------------------------------------- --------------------
NET ASSET NET REALIZED
VALUE NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL
YEAR ENDED DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAIN DISTRIBUTIONS
- ------------------------------------- ------------ ----------- --------------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INSURED TAX EXEMPT FUND
- -----------------------
CLASS A
- -------
1995................................ $9.42 $.524 $.952 $1.476 $.526 $__ $.526
1996................................ 10.37 .510 (.233) .277 .507 __ .507
1997................................ 10.14 .502 .312 .814 .504 __ .504
1998................................ 10.45 .475 .099 .574 .474 __ .474
1999................................ 10.55 .515 (.889) (.374) .466 __ .466
CLASS B
- -------
1995*............................... $9.48 $.438 $.891 $1.329 $.439 $__ $.439
1996................................ 10.37 .441 (.242) .199 .439 __ .439
1997................................ 10.13 .429 .323 .752 .432 __ .432
1998................................ 10.45 .400 .096 .496 .396 __ .396
1999................................ 10.55 .431 (.877) (.446) .394 __ .394
* For the period January 12, 1995 (date Class B shares were first offered) to December 31, 1995.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the transfer agent.
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE NET ASSETS BEFORE EXPENSES
ASSETS ++ WAIVED OR ASSUMED
----------------------- ----------------------
NET ASSET NET NET PORTFOLIO
VALUE NET ASSETS INVESTMENT INVESTMENT TURNOVER
END OF TOTAL RETURN END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
PERIOD **(%) (IN THOUSANDS) (%) (%) (%) (%) (%)
- ---------------- ------------- -------------- ---------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.37 16.01 $1,372,752 1.14 5.25 N/A N/A 37
10.14 2.81 1,252,608 1.14 5.06 N/A N/A 21
10.45 8.27 1,191,815 1.14 4.93 N/A N/A 13
10.55 5.62 1,118,898 1.11 4.51 N/A N/A 19
9.71 (3.63) 958,668 1.12 5.03 N/A N/A 31
10.37 $14.27 $2,019 1.88+ 4.45+ N/A N/A 37
10.13 2.03 3,046 1.83 4.37 N/A N/A 21
10.45 7.62 3,460 1.85 4.22 N/A N/A 13
10.55 4.83 3,878 1.83 3.79 N/A N/A 19
9.71 (4.31) 4,290 1.85 4.30 N/A N/A 31
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
----------------------------------- ------------------------
NET ASSET NET REALIZED
VALUE NET AND TOTAL FROM NET NET
BEGINNING INVESTMENT UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS INCOME GAIN DISTRIBUTIONS
ON INVESTMENTS
- -------------------------------- ------------ ------------ --------------- -------------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW YORK FUND
- -------------
CLASS A
- -------
1995............................ $13.66 $ .738 $1.331 $2.069 $.740 $059 $.799
1996............................ 14.93 .719 (.298) .421 .720 .091 .811
1997............................ 14.54 .709 .395 1.104 .708 .076 .784
1998............................ 14.86 .674 .137 .811 .676 .145 .821
1999............................ 14.85 .718 (1.249) (.531) .659 __ .659
CLASS B
- -------
1995*........................... $13.76 $.616 $1.232 $1.848 $.619 $.059 $.678
1996............................ 14.93 .617 (.306) .311 .620 .091 .711
1997............................ 14.53 .608 .406 1.014 .608 .076 .684
1998............................ 14.86 .569 .134 .703 .568 .145 .713
1999............................ 14.85 .618 (1.250) (.632) .558 __ .558
* For the period January 12, 1995 (date Class B shares were first offered) to December 31, 1995.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the transfer agent.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS ++ WAIVED OR ASSUMED
--------------------- -------------------------
NET ASSET NET NET PORTFOLIO
VALUE NET ASSETS INVESTMENT INVESTMENT TURNOVER
END OF TOTAL RETURN END OF PERIOD EXPENSES (%) INCOME EXPENSES INCOME RATE
PERIOD **(%) (IN THOUSANDS) (%) (%) (%) (%)
- -------------- ------------- ----------------- ------------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$14.93 15.45 $215,259 1.23 5.10 N/A N/A 53
14.54 2.95 203,496 1.23 4.93 N/A N/A 53
14.86 7.82 195,273 1.17 4.86 1.22 4.81 24
14.85 5.59 187,544 1.12 4.54 1.22 4.44 44
13.66 (3.67) 164,622 1.09 4.99 1.21 4.87 55
$14.93 13.66 $1,156 2.00+ 4.34+ N/A N/A 53
14.53 2.18 2,242 1.93 4.23 N/A N/A 53
14.86 7.16 3,602 1.87 4.16 1.92 4.11 24
14.85 4.84 5,271 1.82 3.84 1.92 3.74 44
13.66 (4.34) 4,734 1.79 4.29 1.91 4.17 55
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
MULTI-STATE INSURED TAX FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
INCOME FROM INVESTMENT OPERATIONS FROM
--------------------------------- ------------------
NET ASSET NET REALIZED
VALUE NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT REALIZED TOTAL
YEAR ENDED DECEMBER 31 OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME GAIN DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MULTI-STATE INSURED TAX FREE FUND
- ---------------------------------
ARIZONA FUND
- ------------
CLASS A
- -------
1995.................................... $11.71 $.665 $1.448 $2.113 $.673 -- $.673
1996.................................... 13.15 .664 (.199) .465 .665 -- .665
1997.................................... 12.95 .658 .511 1.169 .659 -- .659
1998.................................... 13.46 .657 .155 .812 .652 -- .652
1999.................................... 13.62 .707 (.955) (.248) .662 __ .662
CLASS B
- -------
1995*................................... $11.82 $.544 $1.340 $1.884 $.554 -- $.554
1996.................................... 13.15 .565 (.201) .364 .564 -- .564
1997.................................... 12.95 .556 .500 1.056 .556 -- .556
1998.................................... 13.45 .549 .155 .704 .544 -- .544
1999.................................... 13.61 .603 (.948) (.345) .555 __ .555
CALIFORNIA FUND
- ---------------
CLASS A
- -------
1995.................................... $10.77 $.580 $1.335 $1.915 $.589 $.136 $.725
1996.................................... 11.96 .576 (.128) .448 .575 .073 .648
1997.................................... 11.76 .569 .534 1.103 .570 .173 .743
1998.................................... 12.12 .558 .190 .748 .554 .114 .668
1999.................................... 12.20 .609 (.952) (.343) .558 .019 .577
CLASS B
- -------
1995*................................... $10.87 $.472 $1.227 $1.699 $.483 $.136 $.619
1996.................................... 11.95 .486 (.123) .363 .480 .073 .553
1997.................................... 11.76 .476 .532 1.008 .475 .173 .648
1998.................................... 12.12 .458 .184 .642 .458 .114 .572
1999.................................... 12.19 .511 (.949) (.438) .463 .019 .482
* For the period January 12, 1995 (date Class B shares were first offered) to December 31, 1995.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the transfer agent.
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS
RATIO TO AVERAGE BEFORE EXPENSES WAIVED OR
NET ASSETS++ ASSUMED
------------------------ --------------------------
NET ASSET NET NET PORTFOLIO
VALUE NET ASSETS INVESTMENT INVESTMENT TURNOVER
END OF TOTAL RETURN END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
PERIOD **(%) (IN THOUSANDS) (%) (%) (%) (%) (%)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$13.15 18.41 $8,834 .50 5.27 1.15 4.62 36
12.95 3.69 8,383 .53 5.17 1.23 4.47 27
13.46 9.28 9,691 .50 5.03 1.16 4.37 24
13.62 6.17 10,873 .50 4.88 1.13 4.25 50
12.71 (1.88) 11,746 .50 5.37 1.15 4.72 62
$13.15 16.20 $173 1.30+ 4.62+ 1.95+ 3.95+ 36
12.95 2.89 289 1.33 4.37 2.03 3.67 27
13.45 8.36 437 1.30 4.23 1.96 3.57 24
13.61 5.33 489 1.30 4.08 1.93 3.45 50
12.71 (2.60) 508 1.30 4.57 1.95 3.92 62
$11.96 18.16 $16,547 .90 5.02 1.15 4.77 53
11.76 3.91 15,558 .84 4.93 1.19 4.58 30
12.12 9.66 15,601 .80 4.80 1.16 4.44 46
12.20 6.31 14,614 .80 4.59 1.17 4.22 79
11.28 (2.88) 13,383 .80 5.15 1.17 4.79 49
$11.95 15.91 $59 1.74+ 4.31+ 2.00+ 4.04+ 53
11.76 3.16 114 1.63 4.14 1.98 3.79 30
12.12 8.79 220 1.60 4.00 1.96 3.64 46
12.19 5.40 479 1.60 3.79 1.97 3.42 79
11.27 (3.67) 483 1.60 4.35 1.97 3.99 49
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -------------------------
NET REALIZED
NET ASSET AND
VALUE NET UNREALIZED TOTAL FROM NET NET TOTAL
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED DISTRIBUTIONS
YEAR ENDED DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAIN
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COLORADO FUND
- --------------
CLASS A
- -------
1995............................. $11.24 $.668 $1.340 $2.008 $.668 -- $.668
1996............................. 12.58 .642 (.089) .553 .643 -- .643
1997............................. 12.49 .638 .498 1.136 .636 -- .636
1998............................. 12.99 .644 .152 .796 .636 -- .636
1999............................. 13.15 .634 (.907) (.273) .637 __ .637
CLASS B
- -------
1995*............................ $11.35 $.564 $1.239 $1.803 $.573 -- $.573
1996............................. 12.58 .547 (.100) .447 .547 -- .547
1997............................. 12.48 .539 .501 1.040 .540 -- .540
1998............................. 12.98 .538 .160 .698 .528 -- .528
1999............................. 13.15 .534 (.914) (.380) .530 __ .530
CONNECTICUT FUND
- -----------------
CLASS A
- -------
1995............................. $11.57 $.617 $1.333 $1.950 $.620 -- $.620
1996............................. 12.90 .619 (.202) .417 .617 -- .617
1997............................. 12.70 .613 .471 1.084 .614 -- .614
1998............................. 13.17 .607 .186 .793 .603 -- .603
1999............................. 13.36 .651 (.902) (.251) .619 __ .619
CLASS B
- -------
1995*............................ $11.67 $.512 $1.242 $1.754 $.524 -- $.524
1996............................. 12.90 .522 (.204) .318 .518 -- .518
1997............................. 12.70 .516 .470 .986 .516 -- .516
1998............................. 13.17 .500 .176 .676 .496 -- .496
1999............................. 13.35 .552 (.901) (.349) .511 __ .511
* For the period January 12, 1995 (date Class B shares were first offered) to December 31, 1995.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the transfer agent.
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS ++ WAIVED OR ASSUMED
-------------------------- ---------------------------
NET ASSET NET NET PORTFOLIO
VALUE NET ASSETS INVESTMENT INVESTMENT TURNOVER
END OF TOTAL RETURN END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
PERIOD **(%) (IN THOUSANDS) (%) (%) (%) (%) (%)
- -------------- ------------- ----------------- ------------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$12.58 18.25 $3,525 .20 5.54 1.32 4.42 45
12.49 4.57 3,466 .38 5.20 1.40 4.17 20
12.99 9.37 3,424 .40 5.07 1.29 4.18 39
13.15 6.27 3,571 .40 4.96 1.26 4.10 25
12.24 (2.15) 4,068 .47 4.99 1.28 4.18 40
$12.58 16.18 $131 1.00+ 4.90+ 2.12+ 3.75+ 45
12.48 3.68 241 1.19 4.39 2.21 3.36 20
12.98 8.55 370 1.20 4.27 2.09 3.38 39
13.15 5.48 374 1.20 4.16 2.06 3.30 25
12.24 (2.96) 372 1.27 4.19 2.08 3.38 40
$12.90 17.18 $16,725 .85 4.98 1.20 4.63 26
12.70 3.37 15,203 .81 4.92 1.23 4.50 15
13.17 8.77 16,151 .80 4.78 1.17 4.41 14
13.36 6.15 17,434 .80 4.58 1.16 4.22 25
12.49 (1.93) 17,903 .80 5.04 1.15 4.69 47
$12.90 15.28 $857 1.71+ 4.12+ 2.07+ 3.76+ 26
12.70 2.57 1,505 1.61 4.12 2.02 3.71 15
13.17 7.95 2,891 1.60 3.98 1.97 3.61 14
13.35 5.22 3,484 1.60 3.78 1.96 3.42 25
12.49 (2.67) 3,205 1.60 4.24 1.95 3.89 47
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
---------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS- LESS DISTRIBUTIONS FROM
---------------------------------- ---------------------------
NET ASSET NET REALIZED
VALUE NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING OF INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT REALIZED TOTAL
YEAR ENDED DECEMBER 31 PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME GAIN DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FLORIDA FUND
- -------------
CLASS A
- -------
1995.............................. $11.79 $.640 $1.527 $2.167 $.647 $-- $.647
1996.............................. 13.31 .623 (.198) .425 .625 -- .625
1997.............................. 13.11 .624 .547 1.171 .624 .037 .661
1998.............................. 13.62 .616 .195 .811 .613 .068 .681
1999.............................. 13.75 .679 (1.074) (.395) .625 __ .625
CLASS B
- -------
1995*............................ $11.87 $.529 $1.460 $1.989 $.549 $-- $.549
1996.............................. 13.31 .530 (.204) .326 .526 -- .526
1997.............................. 13.11 .531 .552 1.083 .526 .037 .563
1998.............................. 13.63 .507 .186 .693 .505 .068 .573
1999.............................. 13.75 .572 (1.065) (.493) .517 __ .517
GEORGIA FUND
- -------------
CLASS A
- -------
1995.............................. $11.33 $.653 $1.387 $2.040 $.650 $-- $.650
1996.............................. 12.72 .639 (.161) .478 .648 -- .648
1997.............................. 12.55 .639 .578 1.217 .637 -- .637
1998.............................. 13.13 .645 .135 .780 .640 -- .640
1999.............................. 13.27 .633 (1.025) (.392) .638 __ .638
CLASS B
- -------
1995*............................. $11.42 $.529 $1.303 $1.832 $.542 $-- $.542
1996.............................. 12.71 .563 (.183) .380 .550 -- .550
1997.............................. 12.54 .524 .584 1.108 .538 -- .538
1998.............................. 13.11 .539 .133 .672 .532 -- .532
1999.............................. 13.25 .540 (1.029) (.489) .531 __ .531
* For the period January 12, 1995 (date Class B shares were first offered) to December 31, 1995
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the transfer agent.
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS
RATIO TO AVERAGE BEFORE EXPENSES WAIVED OR
NET ASSETS ++ ASSUMED
------------------------- -----------------------------
NET ASSET NET NET PORTFOLIO
VALUE NET ASSETS INVESTMENT INVESTMENT TURNOVER
END OF TOTAL RETURN END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
PERIOD ** (%) (IN THOUSANDS) (%) (%) (%) (%) (%)
- -------------- ------------- ---------------- ------------- -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$13.31 18.77 $22,229 .75 5.05 1.15 4.65 68
13.11 3.34 23,299 .83 4.80 1.16 4.47 55
13.62 9.18 23,840 .80 4.71 1.11 4.40 19
13.75 6.09 25,873 .80 4.50 1.10 4.20 44
12.73 (2.93) 23,729 .80 5.12 1.12 4.80 68
$13.31 17.06 $299 1.68+ 4.12+ 2.09+ 3.70+ 68
13.11 2.56 549 1.62 4.01 1.95 3.68 55
13.63 8.38 837 1.60 3.91 1.91 3.60 19
13.75 5.19 858 1.60 3.70 1.90 3.40 44
12.74 (3.65) 789 1.60 4.32 1.92 4.00 68
$12.72 18.40 $3,047 .20 5.41 1.42 4.20 45
12.55 3.94 3,269 .38 5.17 1.44 4.11 37
13.13 10.00 3,152 .40 5.03 1.33 4.10 21
13.27 6.08 3,162 .40 4.92 1.20 4.12 36
12.24 (3.04) 5,527 .48 4.99 1.19 4.28 57
$12.71 16.34 $97 1.00+ 4.61+ 2.22+ 3.40+ 45
12.54 3.13 151 1.19 4.36 2.25 3.30 37
13.11 9.07 203 1.20 4.23 2.13 3.30 21
13.25 5.23 250 1.20 4.12 2.00 3.32 36
12.23 (3.78) 296 1.28 4.19 1.99 3.48 57
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
---------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET ASSET NET REALIZED
VALUE NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL
YEAR ENDED DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAIN DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MARYLAND FUND
- -------------
CLASS A
- -------
1995.............................. $11.77 $.668 $1.348 $2.016 $.666 -- $.666
1996.............................. 13.12 .650 (.235) .415 .655 -- .655
1997.............................. 12.88 .652 .549 1.201 .651 -- .651
1998.............................. 13.43 .651 .186 .837 .647 -- .647
1999.............................. 13.62 .658 (.994) (.336) .654 __ .654
CLASS B
- -------
1995*............................. $11.85 $.561 $1.279 $1.840 $.570 -- $.570
1996.............................. 13.12 .555 (.249) .306 .556 -- .556
1997.............................. 12.87 .551 .556 1.107 .547 -- .547
1998.............................. 13.43 .543 .186 .729 .539 -- .539
1999.............................. 13.62 .551 (.995) (.444) .546 __ .546
MASSACHUSETTS FUND
- ------------------
CLASS A
- -------
1995............................... $11.01 $.612 $1.227 $1.839 $.613 $.016 $.629
1996............................... 12.22 .603 (.256) .347 .602 .045 .647
1997............................... 11.92 .601 .356 .957 .603 .074 .677
1998............................... 12.20 .586 .049 .635 .578 .237 .815
1999............................... 12.02 .609 (.887) (.278) .572 __ .572
CLASS B
- -------
1995*.............................. $11.09 $.508 $1.155 $1.663 $.527 $.016 $.543
1996............................... 12.21 .514 (.263) .251 .506 .045 .551
1997............................... 11.91 .508 .353 .861 .507 .074 .581
1998............................... 12.19 .488 .061 .549 .482 .237 .719
1999............................... 12.02 .520 (.894) (.374) .476 __ .476
* For the period January 12, 1995 (date Class B shares were first offered) to December 31, 1995
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the transfer agent.
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS
RATIO TO AVERAGE BEFORE EXPENSES WAIVED OR
NET ASSETS ++ ASSUMED
------------------------- ------------------------
NET ASSET NET NET PORTFOLIO
VALUE TOTAL NET ASSETS INVESTMENT INVESTMENT TURNOVER
END OF RETURN END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
PERIOD **(%) (IN THOUSANDS) (%) (%) (%) (%) (%)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$13.12 17.50 $8,666 .48 5.32 1.24 4.55 49
12.88 3.33 10,118 .51 5.10 1.24 4.37 13
13.43 9.59 10,705 .50 5.01 1.18 4.33 35
13.62 6.38 11,280 .50 4.84 1.16 4.18 33
12.63 (2.54) 12,579 .50 5.00 1.15 4.35 44
$13.12 15.82 $423 1.38+ 4.42+ 2.19+ 3.61+ 49
12.87 2.45 1,021 1.31 4.30 2.05 3.57 13
13.43 8.81 1,782 1.30 4.21 1.98 3.53 35
13.62 5.54 2,215 1.30 4.04 1.96 3.38 33
12.63 (3.33) 2,718 1.30 4.20 1.95 3.55 44
$12.22 17.07 $23,180 .90 5.22 1.15 4.97 40
11.92 2.99 22,543 .86 5.08 1.18 4.76 45
12.20 8.27 22,852 .80 5.01 1.15 4.66 28
12.02 5.33 22,421 .80 4.82 1.15 4.47 49
11.17 (2.39) 20,507 .80 5.20 1.15 4.85 32
$12.21 15.28 $314 1.76+ 4.36+ 2.01+ 4.10+ 40
11.91 2.16 519 1.66 4.28 1.98 3.96 45
12.19 7.41 783 1.60 4.21 1.95 3.86 28
12.02 4.60 1,426 1.60 4.02 1.95 3.67 49
11.17 (3.19) 1,177 1.60 4.40 1.95 4.05 32
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- ------------------------
NET ASSET NET REALIZED
VALUE NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL
YEAR ENDED DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
- ---------------------------- ------------ ------------ ---------------- ------------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MICHIGAN FUND
- --------------
CLASS A
- -------
1995.......................... $11.47 $.634 $1.331 $1.965 $.635 $-- $.635
1996.......................... 12.80 .627 (.215) .412 .631 .011 .642
1997.......................... 12.57 .610 .535 1.145 .609 .046 .655
1998.......................... 13.06 .591 .124 .715 .589 .096 .685
1999.......................... 13.09 .603 (.938) (.335) .595 __ .595
CLASS B
- -------
1995*......................... $11.57 $.528 $1.241 $1.769 $.539 $-- $.539
1996.......................... 12.80 .534 (.229) .305 .534 .011 .545
1997.......................... 12.56 .511 .536 1.047 .511 .046 .557
1998.......................... 13.05 .484 .123 .607 .481 .096 .577
1999.......................... 13.08 .502 (.930) (.428) .492 __ .492
MINNESOTA FUND
- --------------
CLASS A
- -------
1995.......................... $10.48 $.589 $1.022 $1.611 $.591 -- $.591
1996.......................... 11.50 .592 (.210) .382 .592 -- .592
1997.......................... 11.29 .599 .340 .939 .599 -- .599
1998.......................... 11.63 .592 .116 .708 .588 -- .588
1999.......................... 11.75 .597 (.785) (.188) .582 __ .582
CLASS B
- -------
1995*......................... $10.55 $.515 $.950 $1.465 $.515 -- $.515
1996.......................... 11.50 .493 (.205) .288 .498 -- .498
1997.......................... 11.29 .508 .341 .849 .509 -- .509
1998.......................... 11.63 .498 .114 .612 .492 -- .492
1999.......................... 11.75 .499 (.781) (.282) .488 __ .488
* For the period January 12, 1995 (date Class B shares were first offered) to December 31, 1995.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the transfer agent.
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS
RATIO TO AVERAGE BEFORE EXPENSES WAIVED OR
NET ASSETS++ ASSUMED
--------------------------- ----------------------------
NET ASSET NET NET PORTFOLIO
VALUE NET ASSETS INVESTMENT INVESTMENT TURNOVER
END OF TOTAL RETURN END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
PERIOD **(%) (IN THOUSANDS) (%) (%) (%) (%) (%)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$12.80 17.47 $36,837 .89 5.14 1.14 4.89 45
12.57 3.37 36,928 .88 5.03 1.13 4.78 43
13.06 9.37 39,581 .87 4.80 1.12 4.55 32
13.09 5.60 39,061 .89 4.51 1.13 4.27 20
12.16 (2.63) 36,506 .87 4.74 1.12 4.49 21
12.80 15.55 388 1.76+ 4.41+ 2.02+ 4.15+ 45
12.56 2.49 724 1.69 4.22 1.94 3.97 43
13.05 8.54 1,018 1.67 4.00 1.92 3.75 32
13.08 4.73 1,032 1.69 3.71 1.93 3.47 20
12.16 (3.34) 895 1.67 3.94 1.92 3.69 21
$11.50 15.68 $8,162 .65 5.29 1.31 4.63 53
11.29 3.47 8,304 .56 5.27 1.31 4.52 49
11.63 8.57 8,231 .50 5.27 1.21 4.56 15
11.75 6.23 8,346 .50 5.08 1.23 4.35 22
10.98 (1.65) 8,363 .50 5.26 1.25 4.51 23
11.50 14.13 .1 1.45+ 4.64+ 2.11+ 3.96+ 53
11.29 2.61 41 1.40 4.44 2.14 3.69 49
11.63 7.71 44 1.30 4.47 2.01 3.76 15
11.75 5.37 47 1.30 4.28 2.03 3.55 22
10.98 (2.46) 83 1.30 4.46 2.05 3.71 23
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
---------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM
--------------------------------- -----------------------
NET ASSET NET REALIZED
VALUE NET AND UNREALIZED TOTAL FROM NET NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL
YEAR ENDED DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAIN DISTRIBUTIONS
- ---------------------------------- ------------ ------------ --------------- ------------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
MISSOURI FUND
- --------------
CLASS A
- -------
1995............................. $11.12 $.662 $1.356 $2.018 $.668 $-- $.668
1996............................. 12.47 .637 (.180) .457 .637 -- .637
1997............................. 12.29 .638 .490 1.128 .638 -- .638
1998............................. 12.78 .634 .188 .822 .632 -- .632
1999............................. 12.97 .650 (.904) (.254) .626 __ .626
CLASS B
1995*............................ 11.22 .548 1.260 1.808 .548 -- .548
1996............................. 12.48 .538 (.189) .349 .539 -- .539
1997............................. 12.29 .537 .494 1.031 .541 -- .541
1998............................. 12.78 .528 .187 .715 .525 -- .525
1999............................. 12.97 .553 (.905) (.352) .518 __ .518
NEW JERSEY FUND
- ----------------
CLASS A
- -------
1995............................. $12.06 $.648 $1.291 $1.939 $.652 $.097 $.749
1996............................. 13.25 .636 (.245) .391 .636 .015 .651
1997............................. 12.99 .630 .427 1.057 .629 .118 .747
1998............................. 13.30 .606 .153 .759 .607 .142 .749
1999............................. 13.31 .653 (.919) (.266) .594 __ .594
CLASS B
- -------
1995*............................ 12.14 .526 1.199 1.725 .528 .097 .625
1996............................. 13.24 .533 (.253) .280 .535 .015 .550
1997............................. 12.97 .525 .433 .958 .530 .118 .648
1998............................. 13.28 .498 .153 .651 .499 .142 .641
1999............................. 13.29 .537 (.909) (.372) .488 __ .488
* For the period January 12, 1995 (date Class B shares were first offered) to December 31, 1995.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the transfer agent.
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS
RATIO TO AVERAGE BEFORE EXPENSES WAIVED OR
NET ASSETS ++ ASSUMED
------------------------- -----------------------
NET ASSET NET NET PORTFOLIO
VALUE NET ASSETS INVESTMENT INVESTMENT TURNOVER
END OF TOTAL RETURN END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
PERIOD **(%) (IN THOUSANDS) (%) (%) (%) (%) (%)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$12.47 18.55 $1,890 .20 5.58 1.42 4.36 50
12.29 3.84 1,925 .38 5.24 1.69 3.93 15
12.78 9.44 1,798 .40 5.13 1.46 4.07 12
12.97 6.59 2,087 .40 4.97 1.30 4.07 17
12.09 (2.02) 2,471 .47 5.20 1.50 4.17 66
$12.48 16.41 $.1 1.00+ 4.94+ 2.22+ 3.68+ 50
12.29 2.93 36 1.24 4.38 2.55 3.07 15
12.78 8.60 117 1.20 4.33 2.26 3.27 12
12.97 5.71 172 1.20 4.17 2.10 3.27 17
12.10 (2.78) 210 1.27 4.40 2.30 3.37 66
$13.25 16.41 $59,153 .99 5.06 1.14 4.91 30
12.99 3.09 58,823 .98 4.92 1.13 4.77 35
13.30 8.36 59,243 .96 4.81 1.11 4.66 22
13.31 5.84 60,585 .97 4.53 1.11 4.39 27
12.45 (2.05) 52,846 .97 5.02 1.12 4.87 52
$13.24 14.45 $957 1.81+ 4.24+ 1.97+ 4.08+ 30
12.97 2.22 1,603 1.78 4.12 1.93 3.97 35
13.28 7.56 2,011 1.76 4.01 1.91 3.86 22
13.29 5.00 2,562 1.77 3.73 1.91 3.59 27
12.43 (2.85) 3,338 1.77 4.22 1.92 4.07 52
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM
INCOME FROM INVESTMENT OPERATIONS -----------------------
--------------------------------- NET ASSET
VALUE NET REALIZED
BEGINNING NET AND UNREALIZED TOTAL FROM NET NET
OF PERIOD INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZEDN TOTAL
YEAR ENDED DECEMER 31 INCOME INVESTMENTS OPERATIONS INCOME GAIN DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTH CAROLINA FUND
- -------------------
CLASS A
- -------
1995............................. $10.90 $.608 $1.391 $1.999 $.609 $-- $.609
1996............................. 12.29 .590 (.159) .431 .591 -- .591
1997............................. 12.13 .597 .530 1.127 .597 -- .597
1998............................. 12.66 .593 .239 .832 .592 -- .592
1999............................. 12.90 .606 (.900) (.294) .596 __ .596
CLASS B
- -------
1995*............................ 10.99 .492 1.307 1.799 .499 -- .499
1996............................. 12.29 .496 (.161) .335 .495 -- .495
1997............................. 12.13 .497 .534 1.031 .501 -- .501
1998............................. 12.66 .491 .233 .724 .484 -- .484
1999............................. 12.90 .490 (.891) (.401) .489 __ .489
OHIO FUND
- ---------
CLASS A
- -------
1995............................. $11.30 $.615 $1.306 $1.921 $.619 $.092 $.711
1996............................. 12.51 .605 (.097) .508 .609 .059 .668
1997............................. 12.35 .607 .430 1.037 .606 .071 .677
1998............................. 12.71 .614 .040 .654 .597 .067 .664
1999............................. 12.70 .636 (.853) (.217) .603 __ .603
CLASS B
- -------
1995*............................ 11.40 .503 1.212 1.715 .513 .092 .605
1996............................. 12.51 .507 (.095) .412 .513 .059 .572
1997............................. 12.35 .507 .424 .931 .510 .071 .581
1998............................. 12.70 .495 .061 .556 .489 .067 .556
1999............................. 12.70 .529 (.850) (.321) .499 __ .499
* For the period January 12, 1995 (date Class B shares were first offered) to December 31, 1995.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the transfer agent.
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS ++ WAIVED OR ASSUMED
--------------------------- --------------------------------
NET ASSET NET NET PORTFOLIO
VALUE NET ASSETS INVESTMENT INVESTMENT TURNOVER
END OF TOTAL RETURN END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
PERIOD ** (%) (IN THOUSANDS) (%) (%) (%) (%) (%)
- -------------- ------------- ----------------- ------------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$12.29 18.72 $4,984 .20 5.18 1.36 4.03 76
12.13 3.68 5,822 .38 4.94 1.31 4.02 43
12.66 9.56 6,697 .40 4.87 1.23 4.04 30
12.90 6.72 8,297 .40 4.68 1.13 3.95 54
12.01 (2.35) 8,978 .48 4.84 1.24 4.08 47
$12.29 16.65 $75 1.00+ 4.38+ 2.16+ 3.23+ 76
12.13 2.85 134 1.20 4.12 2.12 3.20 43
12.66 8.71 185 1.20 4.07 2.03 3.24 30
12.90 5.83 246 1.20 3.88 1.93 3.15 54
12.01 (3.18) 596 1.28 4.04 2.04 3.28 47
$12.51 17.34 $19,398 .87 5.07 1.22 4.72 70
12.35 4.23 20,123 .86 4.95 1.19 4.62 33
12.71 8.64 19,308 .80 4.88 1.18 4.50 25
12.70 5.26 19,767 .80 4.83 1.19 4.44 34
11.88 (1.77) 18,574 .80 5.15 1.17 4.78 48
$12.51 15.30 $282 1.76+ 4.33+ 2.13+ 3.95+ 70
12.35 3.43 279 1.66 4.15 1.99 3.82 33
12.70 7.73 335 1.60 4.08 1.98 3.70 25
12.70 4.46 403 1.60 4.03 1.99 3.64 34
11.88 (2.59) 640 1.60 4.35 1.97 3.98 48
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
INCOME FROM INVESTMENT OPERATIONS FROM
------------------------------------- --------------------
NET ASSET NET REALIZET TOTAL NET NET
VALUE NET AND UNREALIZED FROM INVESTMENT REALIZED TOTAL
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INCOME GAINS DISTRIBUTIONS
YEAR ENDED DECEMBER 31 OF PERIOD INCOME INVESTMENTS OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OREGON FUND
- -----------
CLASS A
- -------
1995............................ $10.87 $.626 $1.289 $1.915 $.625 $-- $.625
1996............................ 12.16 .589 (.161) .428 .588 -- .588
1997............................ 12.00 .582 .582 1.164 .584 -- .584
1998............................ 12.58 .582 .191 .773 .583 -- .583
1999............................ 12.77 .585 (.828) (.243) .577 __ .577
CLASS B
- -------
1995*........................... $10.97 $.541 $1.182 $1.723 $.543 $-- $.543
1996............................ 12.15 .495 (.161) .334 .494 -- .494
1997............................ 11.99 .485 .573 1.058 .488 -- .488
1998............................ 12.56 .480 .204 .684 .484 -- .484
1999............................ 12.76 .489 (.846) (.357) .473 __ .473
PENNSYLVANIA FUND
- ------------------
CLASS A
- -------
1995............................ 11.71 $.638 $1.463 $2.101 $.635 $.036 $.671
1996............................ 13.14 .622 (.197) .425 .627 .028 .655
1997............................ 12.91 .624 .523 1.147 .624 .153 .777
1998............................ 13.28 .642 .038 .680 .605 .095 .700
1999............................ 13.26 .606 (.893) (.287) .613 __ .613
CLASS B
- -------
1995*........................... $11.81 $.539 $1.376 $1.915 $.549 $.036 $.585
1996............................ 13.14 .529 (.201) .328 .530 .028 .558
1997............................ 12.91 .526 .510 1.036 .523 .153 .676
1998............................ 13.27 .533 .039 .572 .497 .095 .592
1999............................ 13.25 .498 (.890) (.392) .508 __ .508
VIRGINIA FUND
- -------------
CLASS A
- -------
1995............................ $11.68 $.625 $1.370 $1.995 $.629 $.036 $.665
1996............................ 13.01 .626 (.195) .431 .624 .067 .691
1997............................ 12.75 .615 .504 1.119 .617 .032 .649
1998............................ 13.22 .612 .123 .735 .603 .092 .695
1999............................ 13.26 .629 (.967) (.338) .612 __ .612
CLASS B
- -------
1995*........................... $11.76 $.510 $1.286 $1.796 $.520 $.036 $.556
1996............................ 13.00 .525 (.194) .331 .524 .067 .591
1997............................ 12.74 .513 .505 1.018 .516 .032 .548
1998............................ 13.21 .505 .112 .617 .495 .092 .587
1999............................ 13.24 .537 (.982) (.445) .505 __ .505
* For the period January 12, 1995 (date Class B shares were first offered) to December 31, 1995.
** Calculated without sales charges.
+ Annualized.
++ Net of expenses waived or assumed by the investment adviser and/or the transfer agent.
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET
RATIO TO AVERAGE ASSETS BEFORE EXPENSES
NET ASSETS ++ WAIVED OR ASSUMED
-------------------- ------------------------
NET ASSET NET NET PORTFOLIO
VALUE NET ASSETS INVESTMENT INVESTMENT TURNOVER
END OF TOTAL RETURN END OF PERIOD EXPENSES INCOME EXPENSES INCOME RATE
PERIOD ** (%) (IN THOUSANDS) (%) (%) (%) (%) (%)
- -------------- ------------- ----------------- ------------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$12.16 17.99 $6,840 .20 5.36 1.23 4.33 36
12.00 3.68 9,917 .46 4.97 1.26 4.16 21
12.58 9.97 11,800 .50 4.78 1.20 4.11 32
12.77 6.29 13,038 .50 4.62 1.20 3.92 27
11.95 (1.95) 12,389 .50 4.72 1.21 4.01 33
$12.15 16.00 $342 1.00+ 4.72+ 2.03+ 3.65+ 36
11.99 2.87 568 1.26 4.17 2.07 3.36 21
12.56 9.03 752 1.30 3.98 2.00 3.31 32
12.76 5.55 1,040 1.30 3.82 2.00 3.12 27
11.93 (2.85) 1,096 1.30 3.92 2.01 3.21 33
$13.14 18.29 $39,980 .86 5.07 1.11 4.82 48
12.91 3.39 42,228 .86 4.86 1.11 4.61 42
13.28 9.14 42,223 .85 4.79 1.10 4.54 37
13.26 5.23 40,774 .86 4.81 1.10 4.57 26
12.36 (2.24) 36,737 .86 4.69 1.11 4.44 36
$13.14 16.49 $247 1.72+ 4.20+ 1.98+ 3.94+ 48
12.91 2.61 781 1.66 4.06 1.91 3.81 42
13.27 8.23 1,739 1.65 3.99 1.90 3.74 37
13.25 4.39 2,048 1.66 4.01 1.90 3.77 26
12.35 (3.03) 1,936 1.66 3.89 1.91 3.64 36
$13.01 17.42 $25,193 .81 5.01 1.16 4.66 34
12.75 3.47 21,047 .79 4.93 1.20 4.52 30
13.22 9.03 22,136 .80 4.78 1.16 4.42 10
13.26 5.69 23,423 .80 4.62 1.14 4.28 26
12.31 (2.62) 21,008 .80 4.90 1.17 4.53 36
$13.00 15.53 $991 1.66+ 4.16+ 2.02+ 3.80+ 34
12.74 2.66 1,166 1.59 4.13 2.00 3.72 30
13.21 8.19 1,390 1.60 3.98 1.96 3.62 10
13.24 4.76 1,484 1.60 3.82 1.94 3.48 26
12.29 (3.44) 1,059 1.60 4.10 1.97 3.73 36
</TABLE>
79
<PAGE>
[First Investors Logo]
TAX-EXEMPT MONEY MARKET
INSURED INTERMEDIATE TAX EXEMPT
INSURED TAX EXEMPT
NEW YORK INSURED TAX FREE
MULTI-STATE INSURED TAX FREE
Arizona Minnesota
California Missouri
Colorado New Jersey
Connecticut North Carolina
Florida Ohio
Georgia Oregon
Maryland Pennsylvania
Massachusetts Virginia
Michigan
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 Fund documents (including reports, Shareholder Manuals
and SAIs) at the Public Reference Room of the SEC in Washington, D.C. You can
also obtain copies of Fund documents after paying a duplicating fee (i) by
writing to the Public Reference Section of the SEC, Washington, D.C. 20549-0102
or (ii) by electronic request at [email protected]. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling (202) 942-8090. Text-only versions of Fund
documents can be viewed online or downloaded from the EDGAR database on the
SEC's Internet website at http://www.sec.gov.
(Investment Company Act File No.:
First Investors Tax-Exempt Money
Market Fund, Inc. 811-3690; First
Investors Insured Intermediate Tax
Exempt Fund 811-5690; First
Investors Insured Tax Exempt Fund,
Inc. 811-2923; First Investors New
York Insured Tax Free Fund, Inc.
811-3843; First Investors
Multi-State Insured Tax Free Fund
811-4623)
<PAGE>
FIRST INVESTORS TAX-EXEMPT MONEY MARKET FUND, INC.
FIRST INVESTORS INSURED INTERMEDIATE TAX EXEMPT FUND
A SERIES OF FIRST INVESTORS SERIES FUND
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC.
FIRST INVESTORS NEW YORK INSURED TAX FREE FUND, INC.
FIRST INVESTORS MULTI-STATE INSURED TAX FREE FUND
95 Wall Street
New York, New York 10005
1-800-423-4026
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 28, 2000
This is a Statement of Additional Information ("SAI") for FIRST INVESTORS
TAX-EXEMPT MONEY MARKET FUND, INC. ("TAX-EXEMPT MONEY MARKET FUND"), FIRST
INVESTORS INSURED INTERMEDIATE TAX EXEMPT FUND ("INSURED INTERMEDIATE TAX EXEMPT
FUND"), a series of FIRST INVESTORS SERIES FUND ("SERIES FUND"), FIRST INVESTORS
INSURED TAX EXEMPT FUND, INC. ("INSURED TAX EXEMPT FUND"), FIRST INVESTORS NEW
YORK INSURED TAX FREE FUND, INC. ("NEW YORK INSURED TAX FREE FUND"), and FIRST
INVESTORS MULTI-STATE INSURED TAX FREE FUND ("MULTI-STATE INSURED TAX FREE
FUND"). Each Fund is an open-end diversified management investment company.
SERIES FUND offers five separate series, one of which, INSURED INTERMEDIATE TAX
EXEMPT FUND, is described in this SAI. INSURED TAX EXEMPT FUND, NEW YORK INSURED
TAX FREE FUND and TAX-EXEMPT MONEY MARKET FUND each offer one series.
MULTI-STATE INSURED TAX FREE FUND offers 17 series: ARIZONA FUND, CALIFORNIA
FUND, COLORADO FUND, CONNECTICUT FUND, FLORIDA FUND, GEORGIA FUND, MARYLAND
FUND, MASSACHUSETTS FUND, MICHIGAN FUND, MINNESOTA FUND, MISSOURI FUND, NEW
JERSEY FUND, NORTH CAROLINA FUND, OHIO FUND, OREGON FUND, PENNSYLVANIA FUND and
VIRGINIA FUND (each a "Single State Fund"). INSURED INTERMEDIATE TAX EXEMPT
FUND, INSURED TAX EXEMPT FUND, NEW YORK INSURED TAX FREE FUND, TAX-EXEMPT MONEY
MARKET FUND, and each Single State 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 April 28, 2000, which may be obtained free of charge
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.
<PAGE>
TABLE OF CONTENTS
Investment Strategies and Risks..............................................3
Investment Policies..........................................................6
Futures and Options Strategies..............................................15
Investment Restrictions.....................................................21
Insurance...................................................................31
State Specific Risk Factors.................................................33
Portfolio Turnover..........................................................95
Directors or Trustees and Officers..........................................97
Management.................................................................100
Underwriter................................................................103
Distribution Plans.........................................................104
Determination of Net Asset Value...........................................107
Allocation of Portfolio Brokerage..........................................108
Purchase, Redemption and Exchange of Shares................................108
Taxes......................................................................111
Performance Information....................................................125
General Information........................................................135
Appendix A Description of Municipal Bond Ratings...........................150
Appendix B Description of Municipal Note Ratings...........................156
Appendix C Description of Commercial Paper Ratings.........................157
Appendix D.................................................................158
Financial Statements.......................................................161
Shareholder Manual: A Guide To Your First Investors Mutual Fund Account...268
2
<PAGE>
INVESTMENT STRATEGIES AND RISKS
TAX-EXEMPT MONEY MARKET FUND
TAX-EXEMPT MONEY MARKET FUND seeks to earn a high rate of current income
that is exempt from Federal income tax and is not a Tax Preference Item,
consistent with the preservation of capital and maintenance of liquidity. The
Fund invests primarily in high-grade, short-term tax-exempt obligations issued
by state and municipal governments and by public authorities. See "Municipal
Instruments" below. Up to 20% of the Fund's net assets may be invested in high
quality fixed-income obligations, the interest on which is subject to Federal
income tax, including the AMT. There is also the risk that some or all of the
interest income that a Fund receives might become taxable or be determined to be
taxable by the Internal Revenue Service ("IRS"), applicable state tax
authorities, or a judicial body. See the discussion on "Taxes."
The Fund may invest without limit in securities that are related to each
other in such a fashion that economic, political or business changes or
developments would affect more than one security in the Fund's investment
portfolio. Securities or instruments of issuers in the same state or involved in
the same business, or interest paid from similar sources of tax revenues, are
examples of the factors that might have an effect on more than one instrument
purchased by the Fund. The Fund may invest up to 5% of its net assets in
securities issued on a when-issued or delayed delivery basis, that is, for
delivery to the Fund later than the normal settlement date for most securities,
at a stated price and yield. The Fund may borrow money for temporary or
emergency purposes in amounts not exceeding 5% of its total assets.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INSURED INTERMEDIATE TAX EXEMPT FUND AND INSURED TAX EXEMPT FUND
INSURED INTERMEDIATE TAX EXEMPT FUND and INSURED TAX EXEMPT FUND each
seeks to provide a high level of interest income that is exempt from Federal
income tax and is not an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT") (a "Tax Preference Item").
INSURED INTERMEDIATE TAX EXEMPT FUND seeks to achieve its objective by
investing at least 80% of its total assets in various types of municipal
securities issued by or on behalf of various states, territories and possessions
of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities ("Municipal Instruments"), the
interest on which is exempt from Federal income tax and is not a Tax Preference
Item. Up to 20% of the Fund's net assets may be invested in securities, the
interest of which is subject to Federal income tax, including the AMT. Under
normal market conditions, the Fund will maintain a dollar-weighted average
maturity of three to ten years. See "Municipal Instruments," below.
INSURED TAX EXEMPT FUND seeks to achieve its objective by investing at
least 80% of its total assets in municipal bonds issued by or on behalf of
various states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
3
<PAGE>
instrumentalities, the interest on which is exempt from Federal income tax and
is not a Tax Preference Item. The Fund also may invest up to 20% of its total
assets in other types of Municipal Instruments, including certificates of
participation, municipal notes, municipal commercial paper and variable rate
demand instruments (collectively with municipal bonds, "Municipal Instruments").
Up to 20% of the Fund's net assets may be invested in securities, the interest
of which is subject to Federal income tax, including the AMT. The Fund generally
invests in bonds with maturities of over fifteen years. See "Municipal
Instruments," below.
While each Fund diversifies its assets among municipal issuers in
different states, municipalities and territories, from time to time it may
invest more than 25% of its total assets in a particular segment of the
municipal bond market, such as hospital revenue bonds, housing agency bonds,
airport bonds or electric utility bonds. Such a possible concentration of the
assets of a Fund could result in the Fund being invested in securities which are
related in such a way that economic, business, political or other developments
which would affect one security would probably likewise affect the other
securities within that particular segment of the bond market.
Each Fund may make loans of portfolio securities and invest in zero coupon
municipal securities. Each Fund may invest up to 25% of its net assets in
securities on a "when issued" basis, which involves an arrangement whereby
delivery of, and payment for, the instruments occur up to 45 days after the
agreement to purchase the instruments is made by a Fund. Each Fund also may
invest up to 20% of its assets, on a temporary basis, in high quality fixed
income obligations, the interest on which is subject to Federal and state or
local income taxes. In addition, each Fund may invest up to 10% of its total
assets in municipal obligations on which the rate of interest varies inversely
with interest rates on other municipal obligations or an index (commonly
referred to as "inverse floaters"). INSURED INTERMEDIATE TAX EXEMPT FUND also
may acquire detachable call options relating to municipal bonds and invest in
repurchase agreements. Each Fund may borrow money for temporary or emergency
purposes in amounts not exceeding 5% of its total assets. See "Investment
Policies," below.
Although each Fund generally invests in municipal bonds rated Baa or
higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), each
Fund may invest up to 5% of its net assets in lower rated municipal bonds or in
unrated municipal bonds deemed to be of comparable quality by First Investors
Management Company, Inc. ("FIMCO" or "Adviser"). See "Debt Securities," below.
However, in each instance such municipal bonds will be covered by the insurance
feature and thus are considered to be of higher quality than lower rated
municipal bonds without an insurance feature. See "Insurance" for a discussion
of the insurance feature. The Adviser will carefully evaluate on a case-by-case
basis whether to dispose of or retain a municipal bond which has been downgraded
in rating subsequent to its purchase by a Fund. A description of municipal bond
ratings is contained in Appendix A.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
NEW YORK INSURED TAX FREE FUND AND MULTI-STATE INSURED TAX FREE FUND
4
<PAGE>
GENERAL. Each Single State Fund concentrates its assets in municipal bonds
and securities of a particular state in order to produce income that is exempt
from any applicable state income tax for residents of the state. At least 65% of
each Fund's assets will be invested in municipal bonds and securities of a
single state. For example, the NEW YORK INSURED TAX FREE FUND will invest at
least 65% of its assets in New York bonds, the NEW JERSEY FUND will invest at
least 65% of its assets in New Jersey bonds, and so on. However, the MINNESOTA
FUND only invests in Minnesota obligations.
NEW YORK INSURED TAX FREE FUND seeks to provide a high level of interest
income that is exempt from Federal income tax, New York State and New York City
personal income taxes and is not a Tax Preference Item. The Fund seeks to
achieve its objective by investing at least 80% of its total assets in Municipal
Instruments issued by or on behalf of New York State and its municipal
governments and by public authorities in New York State, as well as by
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the interest
on which is exempt from Federal income tax, New York State and New York City
personal income taxes and is not a Tax Preference Item. Up to 20% of the Fund's
net assets may be invested in securities, the interest of which is subject to
Federal income tax, including the Federal AMT.
Each Single State Fund seeks to achieve a high level of interest income
that is exempt from Federal income tax and is not a Tax Preference Item and, to
the extent indicated for each Fund, is exempt from state and local income taxes
for individual residents of a particular state. Each Fund seeks to achieve its
objective by investing at least 80% of its total assets in Municipal Instruments
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, the
interest on which is exempt from Federal income tax, state and local income
taxes in the states for whose individual residents the particular Fund is
established and is not a Federal Tax Preference Item. However, the MINNESOTA
FUND invests only in Minnesota municipal obligations because under Minnesota tax
law, dividends paid to shareholders of the Fund are exempt from the regular
Minnesota personal income tax only if 95% or more of the dividends are derived
from Minnesota municipal obligations. Up to 20% of each Fund's net assets may be
invested in securities, the interest of which is subject to Federal income tax,
including the Federal AMT.
While each Single State Fund diversifies its assets among municipal
issuers, from time to time a Fund may invest more than 25% of its total assets
in a particular segment of the municipal bond market, such as hospital revenue
bonds, housing agency bonds, airport bonds or electric utility bonds. Such a
possible concentration of the assets of a Fund could result in the Fund being
invested in securities which are related in such a way that economic, business,
political or other developments which would affect one security would probably
likewise affect the other securities within that particular segment of the bond
market.
NEW YORK INSURED TAX FREE FUND may make loans of its portfolio securities,
and each Fund may invest in zero coupon municipal securities. Each Fund may
invest up to 25% of its net assets in securities on a "when issued" basis, which
involves an arrangement whereby delivery of, and payment for, the instruments
occur up to 45 days after the agreement to purchase the instruments is made by a
5
<PAGE>
Fund. Each Fund also may invest up to 20% of its assets, on a temporary basis,
in high quality fixed income obligations, the interest on which is subject to
Federal and state or local income taxes. Each Fund also may invest up to 10% of
its total assets in municipal obligations in which the rate of interest varies
inversely with interest rates on other municipal obligations or an index
("inverse floaters") and may acquire detachable call options relating to
municipal bonds. Each Fund may borrow money for temporary or emergency purposes
in amounts not exceeding 5% of its total assets and invest in repurchase
agreements.
Although each Fund generally invests in municipal bonds rated Baa or
higher by Moody's or BBB or higher by S&P, each Fund may invest up to 5% of its
net assets in lower rated municipal bonds or in unrated municipal bonds deemed
to be of comparable quality by the Adviser. See "Debt Securities," below.
However, in each instance such municipal bonds will be covered by the insurance
feature and thus are considered to be of higher quality than lower rated
municipal bonds without an insurance feature. See "Insurance," below. The
Adviser will carefully evaluate on a case-by-case basis whether to dispose of or
retain a municipal bond which has been downgraded in rating subsequent to its
purchase by a Fund. A description of municipal bond ratings is contained in
Appendix A.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
ALL FUNDS
GENERAL RISK FACTORS. There can be no assurances that future national,
regional or state-wide economic developments will not adversely affect the
market value of Municipal Securities held by a Fund or the ability of particular
obligors to make timely payments of debt service on (or lease payments relating
to) those obligations. There is also the risk that some or all of the interest
income that a Fund receives might become taxable or be determined to be taxable
by the IRS, applicable state tax authorities, or a judicial body. See the
discussion on "Taxes." In addition, there can be no assurances that future court
decisions or legislative actions will not affect the ability of the issuer of a
Municipal Security to repay its obligations.
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 gong 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 FDIC 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
6
<PAGE>
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.
COMMERCIAL PAPER. Commercial paper is a promissory note issued by a
corporation to finance short-term needs, which may either be unsecured or backed
by a letter of credit. 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. See
Appendix C to the SAI for a description of commercial paper ratings.
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. Debt obligations rated lower
than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds," are
speculative and generally involve a higher risk of loss of principal and income
than higher-rated debt securities. Even debt obligations which are rated Baa by
Moody's or BBB by S&P have speculative characteristics.
EURODOLLAR CERTIFICATES OF DEPOSIT. Tax-Exempt Money Market Fund may
invest in Eurodollar CDs, which are issued by London branches of domestic or
foreign banks. Such securities involve risks that differ from CDs issued by
domestic branches of U.S. banks. These risks include future political and
economic developments, the possible imposition of United Kingdom withholding
taxes on interest income payable on the securities, the possible establishment
of exchange controls, the possible seizure or nationalization of foreign
deposits or the adoption of other foreign governmental restrictions that might
adversely affect the payment of principal and interest on such securities.
HIGH YIELD SECURITIES. Although each Fund except Tax-Exempt Money Market
Fund may invest up to 5% of its net assets in municipal bonds rated lower than
Baa by Moody's or BBB by S&P, each Fund currently does not intend to purchase
such municipal bonds. However, occasionally a Fund may hold in its portfolio a
municipal bond that has had its rating downgraded. In each instance, such bonds
will be covered by the insurance feature and thus considered to be of higher
quality than high yield securities without an insurance feature. See "Insurance"
for a detailed discussion of the insurance feature. Debt obligations rated lower
than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds," are
speculative and generally involve a higher risk or loss of principal and income
than higher-rated securities ("High Yield Securities"). High Yield Securities
are subject to certain risks that may not be present with investments in high
grade securities. The prices of High Yield Securities tend to be less sensitive
to interest rate changes than higher-rated investments, but may be more
sensitive to adverse economic changes. A strong economic downturn or a
7
<PAGE>
substantial period of rising interest rates could severely affect the market for
High Yield Securities.
Municipal obligations that are high yield securities rated below
investment grade ("Municipal High Yield Securities") are deemed by Moody's and
S&P to be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal and may involve major risk exposure to adverse
conditions. "Municipal High Yield Securities," unless otherwise noted, include
unrated securities deemed to be rated below investment grade by the Adviser.
Ratings of Municipal High Yield Securities represent the rating agencies'
opinions regarding their quality, are not a guarantee of quality and may be
reduced after a Fund has acquired the security. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than the rating
indicates.
Municipal High Yield Securities generally offer a higher current yield
than higher grade issues. However, Municipal High Yield Securities involve
higher risks, in that they are especially subject to adverse changes in the
general economic conditions, in economic conditions of an issuer's geographic
area and in the industries or activities in which the issuer is engaged.
Municipal High Yield Securities are also especially sensitive to changes in the
financial condition of the issuer and to price fluctuations in response to
changes in interest rates. Accordingly, the yield on lower rated Municipal High
Yield Securities will fluctuate over time. During periods of economic downturn
or rising interest rates, municipal issuers may experience financial stress
which could adversely affect their ability to make payments of principal and
interest and increase the possibility of default.
In addition, Municipal High Yield Securities are frequently traded only in
markets where the number of potential purchasers and sellers, if any, is
limited. This factor may limit a Fund's ability to acquire such securities and
to sell such securities at their fair value in response to changes in the
economy or the financial markets, especially for unrated Municipal High Yield
Securities. Although unrated Municipal High Yield Securities are not necessarily
of lower quality than rated Municipal High Yield Securities, the market for
rated Municipal High Yield Securities generally is broader than that for unrated
Municipal High Yield Securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values and
liquidity of Municipal High Yield Securities, especially in a thinly traded
market.
INVERSE FLOATERS. Each Fund except Tax-Exempt Money Market Fund may invest
up to 10% of its net assets in derivative securities on which the rate of
interest varies inversely with interest rates on similar securities or the value
of an index. For example, an inverse floating rate security may pay interest at
a rate that increases as a specified interest rate index decreases but decreases
as that index increases. The secondary market for inverse floaters may be
limited. The market value of such securities generally is more volatile than
that of a fixed rate obligation and, like most debt obligations, will vary
inversely with changes in interest rates. The interest rates on inverse floaters
may be significantly reduced, even to zero, if interest rates rise.
8
<PAGE>
LOANS OF PORTFOLIO SECURITIES. Each Fund except Tax-Exempt Money Market
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 cash collateral equal to not less than 100% of the value
of the securities loaned (plus accrued interest or dividend), if any, the loan
is terminable at will by the Fund, it 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 a 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 a 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. The primary
objective of such lending function is to supplement a Fund's income through
investment of the cash collateral in short-term interest bearing obligations.
INSURED INTERMEDIATE TAX EXEMPT FUND has a non-fundamental policy that the
aggregate value of portfolio securities it can lend will not exceed 10% of its
net assets, and INSURED TAX EXEMPT FUND may not make such loans in excess of 10%
of its total assets.
MUNICIPAL INSTRUMENTS. Each Fund, except where noted, may invest in the
following types of Municipal Instruments:
MUNICIPAL BONDS. Municipal bonds are debt obligations that generally are
issued to obtain funds for various public purposes and have a time to maturity,
at issuance, of more than one year. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith and credit for the
payment of principal and interest. Revenue bonds generally are payable only from
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special tax or other specific revenue source.
There are variations in the security of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors. The yields on municipal bonds depend on, among other things, general
money market conditions, condition of the municipal bond market, size of a
particular offering, the maturity of the obligation and rating of the issuer.
Generally, the value of municipal bonds varies inversely to changes in interest
rates. See Appendix A for a description of municipal bond ratings.
PRIVATE ACTIVITY BONDS. Certain types of revenue bonds, referred to as
private activity bonds ("PABs"), are issued by or on behalf of public
authorities to obtain funds to provide for various privately operated
facilities, such as airports or mass transportation facilities. Most PABs are
pure revenue bonds and are not backed by the taxing power of the issuing agency
or authority. See "Taxes" for a discussion of special tax consequences to
"substantial users," or persons related thereto, of facilities financed by PABs.
CERTIFICATES OF PARTICIPATION. Each Fund except Tax-Exempt Money Market
Fund may invest in Certificates of Participation ("COPs"). COPs provide
participation interests in lease revenues and each certificate represents a
proportionate interest in or right to the lease-purchase payment made under
municipal lease obligations or installment sales contracts. In certain states,
9
<PAGE>
COPs constitute a majority of new municipal financing issues. The possibility
that a municipality will not appropriate funds for lease payments is a risk of
investing in COPs, although this risk is mitigated by the fact that each COP
will be covered by the insurance feature. The applicable Fund's Board of
Directors or Trustees (each, a "Board") has established guidelines for
determining the liquidity of the COPs in the applicable Fund's portfolio and,
subject to review by that Fund's Board, has delegated that responsibility to the
Adviser. Pursuant to these guidelines, the Adviser will consider (1) the
frequency of trades and quotes for the security, (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers, (3) the willingness of dealers to undertake to make a market in the
security, (4) the nature of the marketplace, namely, the time needed to dispose
of the security, the method of soliciting offers and the mechanics of transfer,
(5) the coverage of the obligation by new issue insurance, (6) the likelihood
that the marketability of the obligation will be maintained through the time the
security is held by a Fund, and (7) for unrated COPs, the COPs' credit status
analyzed by the Adviser, according to the factors reviewed by rating agencies.
MUNICIPAL NOTES. Municipal notes which a Fund may purchase will be
principally tax anticipation notes, bond anticipation notes, revenue
anticipation notes and project notes. The obligations are sold by an issuer
prior to the occurrence of another revenue producing event to bridge a financial
gap for such issuer. Municipal notes are usually general obligations of the
issuing municipality. Project notes are issued by housing agencies, but are
guaranteed by the U.S. Department of Housing and Urban Development and are
secured by the full faith and credit of the United States. For each Fund other
than the Tax-Exempt Money Market Fund, such municipal notes must be rated MIG-1
by Moody's or SP-1 by S&P or have insurance through the issuer or an independent
insurance company. A description of municipal note ratings is contained in
Appendix B.
VARIABLE RATE DEMAND INSTRUMENTS. VRDIs are Municipal Instruments, the
interest on which is adjusted periodically and which allow the holder to demand
payment of all unpaid principal plus accrued interest from the issuer. A VRDI
that a Fund may purchase will be selected if it meets criteria established and
designed by the applicable Fund's Board to minimize risk to that Fund. In
addition, a VRDI must be rated MIG-1 by Moody's or SP-1 by S&P or insured by the
issuer or an independent insurance company. There is a recognized after-market
for VRDIs.
VARIABLE RATE AND FLOATING RATE NOTES. Each Fund may invest in variable
rate and floating rate notes, which are derivatives, issued by municipalities.
Variable rate notes include master demand notes, which are obligations
permitting the holder to invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements between the Fund, as lender,
and the borrower. The interest rates on these notes fluctuate from time to time.
The issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations.
The interest rate on a floating rate obligation is based on a known
lending rate, such as a bank's prime rate, and is adjusted automatically each
time such rate is adjusted. The interest rate on a variable rate obligation is
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adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there is generally no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the right of a Fund to redeem is dependent on the ability of the
borrower to pay agencies.
MUNICIPAL COMMERCIAL PAPER. Each Fund may invest in municipal commercial
paper. Issues of commercial paper are short-term unsecured negotiable promissory
notes. Municipal commercial paper is issued usually to meet temporary capital
needs of the issuer or to serve as a source of temporary construction financing.
These obligations are paid from general revenues of the issuer or are refinanced
with long-term debt.
PUT BONDS. Each Fund may invest in put bonds. A "put bond" is a municipal
bond that gives the holder the unconditional right to sell the bond back to the
issuer at a specified price with interest and exercise date, which is typically
well in advance of the bond's maturity date. The Fund may invest in multi-modal
put (or tender option) bonds. A tender option bond generally allows the
underwriter or issuer, at its discretion over the life of the indenture, to
convert the bond into one of several enumerated types of securities or "modes"
upon 30 days' notice to holders. Within that 30 days, holders must either submit
the existing security to the paying agent to receive the new security, or put
back the security and receive principal and interest accrued up to that time.
The FUND will only invest in put bonds as to which it can exercise the put
feature on not more than seven days' notice if there is no liquid secondary
market available for these obligations. There is no assurance that an issuer of
a put bond acquired by the Fund will be able to repurchase the bond on the
exercise date, if the Fund chooses to exercise its right to put the bond back to
the issuer.
PARTICIPATION INTERESTS. Each Fund may acquire any eligible Municipal
Instrument in the form of a participation interest. Under such an arrangement,
the Fund acquires as much as a 100% interest in a Municipal Instrument held by a
bank or other financial institution at a negotiated yield to the Fund. Banks or
other financial institutions may retain a fee, amounting to the excess of
interest paid on an instrument over the negotiated yield to the fund, for
issuing participation interests to the Fund. The Fund will acquire written
participation interests in Municipal Instruments only if they are issued by
banks or other financial institutions which, in the opinion of FIMCO, present
minimal credit risk to the Fund. Participation interests may be accompanied by a
standby commitment by the bank or other financial institution to repurchase the
participations at the option of the Fund. The Fund purchases such a
participation only if the issuer has a private letter ruling from the IRS or an
opinion of its counsel that interest on the participation for which standby
commitments have been issued is exempt from Federal income taxation.
Participations that are not accompanied by a standby commitment may not be
liquid assets.
REPURCHASE AGREEMENTS. Each Fund 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
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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 the 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.
INSURED INTERMEDIATE TAX EXEMPT 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. A 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, the 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 the Fund may be
delayed or limited.
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS. No Fund will purchase or
otherwise acquire any security if, as a result, more than 15% of its net assets
(taken at current value), and with respect to Tax Exempt Money Market Fund 10%
of its net assets, would be invested in securities that are illiquid by virtue
of the absence of a readily available market or legal or contractual
restrictions on resale. This policy includes detachable call options and
repurchase agreements maturing in more than seven days. This policy does not
include restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended ("1933 Act"), which each Fund's Board or
the Adviser has determined under Board-approved guidelines are liquid.
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. 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
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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. While the Funds have no intention of investing
in options in the coming year, if any Fund does so, the assets used as cover for
OTC options written by the Fund would not be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
STANDBY COMMITMENTS. Each Fund may acquire standby commitments from banks
with respect to simultaneous purchases of Municipal Instruments for the Fund's
portfolio. Under this arrangement, a bank agrees to buy a particular Municipal
Instrument from a Fund at a specified price at the Fund's option. A standby
commitment is similar to a put option for a particular Municipal Instrument in
the Fund's portfolio. Standby commitments acquired by a Fund are not added to
the computation of the Fund's net asset value. Standby commitments are subject
to certain risk, including the issuer's ability to pay for the Municipal
Instruments when the Fund decides to sell the Municipal Instrument for which it
is issued and the lack of familiarity with standby commitments in the
marketplace.
The Fund's ability to exercise their rights under a standby commitment is
unconditional, without any limitation whatsoever, and non-transferable. The
Fund, however, is permitted to sell a Municipal Instrument covered by a standby
commitment at any time and to any person.
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The Fund may pay a consideration to a bank for the issuance of a standby
commitment if necessary and advisable. Such a consideration may take the form of
either a payment in cash, or the payment of a higher price for Municipal
Instruments covered by such a commitment. The effect of the payment of such
consideration is to reduce the yield to maturity for the Municipal Instruments
so covered. The total amount the Fund may pay as consideration in either manner,
on an annual basis, of the issuance of standby commitments may not exceed 0.50%
of that Fund's total assets.
Standby commitments acquired by the Fund are not added to the computation
of that Fund's net asset value and are valued at zero. When the Fund pays a
consideration for the issuance of a standby commitment, the cost is treated as
unrealized depreciation for the time it is held by the Fund. The dollar-weighted
average maturity calculation for the Fund is not affected by standby
commitments.
In the absence of either a favorable ruling of the IRS, or opinion from
the bond issuer's counsel, that the Interest on Municipal Instruments for which
standby commitments have been issued is exempt from Federal income taxation, the
Fund will not acquire standby commitments.
TIME DEPOSITS. Each Fund may invest in time deposits. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. For the most part, time deposits that
may be held by the Fund would not benefit from insurance from the Bank Insurance
Fund or the Savings Association Insurance Fund administered by the FDIC.
TAXABLE SECURITIES. Each Fund may invest up to 20% of its assets, on a
temporary basis, in high quality fixed income obligations, the interest on which
is subject to Federal and state or local income taxes. A Fund may, for example,
invest the proceeds from the sale of portfolio securities in taxable obligations
pending the investment or reinvestment thereof in Municipal Instruments. A Fund
may invest in highly liquid taxable obligations in order to avoid the necessity
of liquidating portfolio investments to meet redemptions by Fund investors. Each
Fund's temporary investments in taxable securities may consist of (1)
obligations of the U.S. Government, its agencies or instrumentalities, (2) other
debt securities or commercial paper rated within the highest grade by S&P or
Moody's and (3) certificates of deposit and letters of credit. Certificates of
deposit are negotiable certificates issued against funds deposited in a
commercial bank or a savings and loan association for a definite period of time
and earning a specific return.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed as to
principal and interest by the U.S. Government include (1) U.S. Treasury
obligations, which differ only in their interest rates, maturities and times of
issuance as follows: U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years), and U.S. Treasury bonds
(generally maturities of greater than ten years); and (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities that are backed by
the full faith and credit of the United States, such as securities issued by the
Federal Housing Administration, Government National Mortgage Association, the
Department of Housing and Urban Development, the Export-Import Bank, the General
Services Administration and the Maritime Administration and certain securities
issued by the Farmers Home Administration and the Small Business Administration.
The range of maturities of U.S. Government obligations is usually three months
to thirty years.
WHEN-ISSUED SECURITIES. Each Fund may invest up to 25% of its net assets
in securities issued on a when-issued or delayed delivery basis, which involves
an arrangement whereby delivery of, and payment for, the instruments occur up to
45 days after the agreement to purchase the instruments is made by a Fund. The
purchase price to be paid by a Fund and the interest rate on the instruments to
be purchased are both selected when the Fund agrees to purchase the securities
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on a "when-issued" basis. 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 or with its custodian consisting of
cash, U.S. Government securities or other 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 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
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 SECURITIES. Each Fund except Tax Exempt Money Market Fund may
invest in zero coupon municipal securities. Zero coupon securities are debt
obligations that do not entitle the holder to any periodic payment of interest
prior to maturity or a specified date when the securities begin paying current
interest. They are issued and traded at a discount from their face amount or par
value, which discount varies depending on the time remaining until cash payments
begin, prevailing interest rates, liquidity of the security and the perceived
credit quality of the issuer. Original issue discount earned each year on zero
coupon 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. A 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. The market prices of
zero coupon securities generally are more volatile than the prices of securities
that pay interest periodically and in cash and are likely to respond to changes
in interest rates to a greater degree than do other types of debt securities
having similar maturities and credit quality.
FUTURES AND OPTIONS STRATEGIES
While the Funds (with the exception of the TAX-EXEMPT MONEY MARKET FUND)
have the ability to engage in the futures and options strategies discussed
below, none of the Funds have the current intention of doing so. Subject to the
lack of any current intention to do so, the Adviser may engage in certain
options and futures strategies to hedge each Fund's portfolio, in other
circumstances permitted by the Commodities Futures Trading Commission ("CFTC")
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and engage in certain options strategies to enhance income. The instruments
described below are sometimes referred to collectively as "Hedging Instruments."
Certain special characteristics of and risks associated with using Hedging
Instruments are discussed below. In addition to the non-fundamental investment
guidelines (described below) adopted by each Fund's Board to govern each Fund's
investments in Hedging Instruments, use of these instruments is subject to the
applicable regulations of the Securities and Exchange Commission ("SEC"), the
several options and futures exchanges upon which options and futures contracts
are traded and the CFTC.
Participation in the options or futures markets involves investment risks
and transaction costs to which a Fund would not be subject absent the use of
these strategies. If the Adviser's prediction of movements in the direction of
the securities and interest rate markets are inaccurate, the adverse
consequences to a Fund may leave the Fund in a worse position than if such
strategies were not used. A Fund might not employ any of the strategies
described below, and there can be no assurance that any strategy will succeed.
The use of these strategies involve certain special risks, including (1)
dependence on the Adviser's ability to predict correctly movements in the
direction of interest rates and securities prices, (2) imperfect correlation
between the price of options, futures contracts and options thereon and
movements in the prices of the securities being hedged, (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities and (4) the possible absence of a liquid secondary market
for any particular instrument at any time.
COVER FOR HEDGING AND OPTION INCOME STRATEGIES. No Fund will use leverage
in its hedging and option income strategies. No Fund will enter into a hedging
or option income strategy that exposes the Fund to an obligation to another
party unless it owns either (1) an offsetting ("covered") position in securities
or other options or futures contracts or (2) cash and/or other liquid assets
with a value sufficient at all times to cover its potential obligations. Each
Fund will comply with guidelines established by the SEC with respect to coverage
of hedging and option income strategies by mutual funds and, if required, will
set aside cash and/or liquid assets in a segregated account with its custodian
in the prescribed amount. Securities or other options or futures positions used
for cover and assets held in a segregated account cannot be sold or closed out
while the hedging or option income strategy is outstanding unless they are
replaced with similar assets. As a result, there is a possibility that the use
of cover or segregation involving a large percentage of a Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
OPTIONS STRATEGIES. A Fund may purchase call options on securities that
the Adviser intends to include in its portfolio in order to fix the cost of a
future purchase. Call options also may be used as a means of participating in an
anticipated price increase of a security. In the event of a decline in the price
of the underlying security, use of this strategy would serve to limit the Fund's
potential loss to the option premium paid; conversely, if the market price of
the underlying security increases above the exercise price and a Fund either
sells or exercises the option, any profit eventually realized will be reduced by
the premium. Each Fund may purchase put options in order to hedge against a
decline in the market value of securities held in its portfolio. The put option
enables a Fund to sell the underlying security at the predetermined exercise
price; thus the potential for loss to the Fund below the exercise price is
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limited to the option premium paid. If the market price of the underlying
security is higher than the exercise price of the put option, any profit the
Fund realizes on the sale of the security will be reduced by the premium paid
for the put option less any amount for which the put option may be sold.
A Fund may write covered call options on securities to increase income in
the form of premiums received from the purchasers of the options. Because it can
be expected that a call option will be exercised if the market value of the
underlying security increases to a level greater than the exercise price, a Fund
will write covered call options on securities generally when the Adviser
believes that the premium received by the Fund, plus anticipated appreciation in
the market price of the underlying security up to the exercise price of the
option, will be greater than the total appreciation in the price of the
security. The strategy may be used to provide limited protection against a
decrease in the market price of the security in an amount equal to the premium
received for writing the call option less any transaction costs. Thus, if the
market price of the underlying security held by a Fund declines, the amount of
such decline will be offset wholly or in part by the amount of the premium
received by the Fund. If, however, there is an increase in the market price of
the underlying security and the option is exercised, the Fund will be obligated
to sell the security at less than its market value. A Fund gives up the ability
to sell the portfolio securities used to cover the call option while the call
option is outstanding. Such securities may also be considered illiquid in the
case of OTC options written by a Fund, to the extent described under and
therefore subject to each Fund's limitation on investments in illiquid
securities. In addition, a Fund could lose the ability to participate in an
increase in the value of such securities above the exercise price of the call
option because such an increase would likely be offset by an increase in the
cost of closing out the call option (or could be negated if the buyer chose to
exercise the call option at an exercise price below the securities' current
market value).
A Fund may write put options. A put option gives the purchaser of the
option the right to sell, and the writer (seller) the obligation to buy, the
underlying security at the exercise price during the option period. So long as
the obligation of the writer continues, the writer may be assigned an exercise
notice by the broker-dealer through which such option was sold, requiring it to
make payment of the exercise price against delivery of the underlying security.
The operation of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options. A Fund may
write covered put options in circumstances when the Adviser believes that the
market price of the securities will not decline below the exercise price less
the premiums received. If the put option is not exercised, a Fund will realize
income in the amount of the premium received. This technique could be used to
enhance current return during periods of market uncertainty. The risk in such a
transaction would be that the market price of the underlying security would
decline below the exercise price less the premiums received, in which case the
Fund would expect to suffer a loss.
Currently, options on debt securities are primarily traded on the OTC
market. OTC options are contracts between a Fund and the opposite party with no
clearing organization guarantee. Thus, when a Fund purchases an OTC option, it
relies on the dealer from which it has purchased the OTC option to make or take
delivery of the securities underlying the option. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as the loss of
the expected benefit of the transaction.
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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 put or call option it has written, the Fund may purchase a
put or call option of the same series (that is, an option identical in its terms
to the put or call option previously written); this is known as a closing
purchase transaction. Conversely, in order to terminate its right to purchase or
sell specified securities under a call or put option it has purchased, a Fund
may write an option of the same series as the option held; this is known as a
closing sale transaction. Closing transactions essentially permit a Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. Whether a profit or loss is realized from a closing
transaction depends on the price movement of the underlying security and the
market value of the option.
The value of an option position will reflect, among other things, the
current market price of the underlying security, the time remaining until
expiration, the relationship of the exercise price to the market price, the
historical price volatility of the underlying security 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.
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.
Closing transactions may be effected with respect to options traded in the
OTC markets (currently the primary markets for options on debt securities) only
by negotiating directly with the other party to the option contract or in a
secondary market for the option if such market exists. Although a Fund will
enter into OTC options only with dealers that agree to enter into, and that are
expected to be capable of entering into, closing transactions with a Fund, there
is no assurance that the Fund will be able to liquidate an OTC option at a
favorable price at any time prior to expiration. In the event of insolvency of
the opposite party, a Fund may be unable to liquidate an OTC option.
Accordingly, it may not be possible to effect closing transactions with respect
to certain options, with the result that a Fund would have to exercise those
options that it has purchased in order to realize any profit. With respect to
options written by a Fund, the inability to enter into a closing transaction may
result in material losses to the Fund. For example, because a Fund must maintain
a covered position with respect to any call option it writes, the 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.
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.
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FUTURES STRATEGIES. A Fund may engage in futures strategies to attempt to
reduce the overall investment risk that would normally be expected to be
associated with ownership of the securities in which it invests.
A Fund may use financial futures contracts and options thereon to hedge
the debt portion of its portfolio against changes in the general level of
interest rates. A Fund may purchase a financial futures contract when it intends
to purchase debt securities but has not yet done so. This strategy may minimize
the effect of all or part of an increase in the market price of those securities
because a rise in the price of the securities prior to their purchase may either
be offset by an increase in the value of the futures contract purchased by the
Fund or avoided by taking delivery of the debt securities under the futures
contract. Conversely, a fall in the market price of the underlying debt
securities may result in a corresponding decrease in the value of the futures
position. A Fund may sell a financial futures contract in order to continue to
receive the income from a debt security, while endeavoring to avoid part or all
of the decline in the market value of that security that would accompany an
increase in interest rates.
A Fund may purchase a call option on a financial futures contract to hedge
against a market advance in debt securities that the Fund plans to acquire at a
future date. A Fund also may write covered call options on financial futures
contracts as a partial hedge against a decline in the price of debt securities
held in the Fund's portfolio or purchase put options on financial futures
contracts in order to hedge against a decline in the value of debt securities
held in the Fund's portfolio.
A Fund will use futures contracts and options thereon solely in bona fide
hedging transactions or under other circumstances permitted by the CFTC.
FUTURES GUIDELINES. To the extent that a Fund enters into futures
contracts or options thereon other than for bona fide hedging purposes (as
defined by the CFTC), 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 risk to 5%. The value of all futures sold will not exceed the
total market value of a 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, a 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 3%-5% of the contract value. This
amount is known as "initial margin." When writing a put or call option on a
futures contract, margin also must be deposited in accordance with applicable
exchange rules. Initial margin on futures contracts is in the nature of a
performance bond or good-faith deposit that is returned to a Fund upon
termination of the transaction, assuming all obligations have been satisfied.
Under certain circumstances, such as periods of high volatility, a Fund may be
required by an exchange to increase the level of its initial margin payment.
Additionally, initial margin requirements may be increased generally in the
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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, similar to closing transactions on options
on securities, by selling or purchasing, respectively, a futures position or
options position with the same terms as the position or option held or written.
Positions in futures contracts and options thereon may be closed only on an
exchange or board of trade providing a secondary market for such futures or
options.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for a Fund to close a position
and, in the event of adverse price movements the 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 and interest rate markets, which requires different skills
and techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current price level of the
underlying instrument but to the anticipated levels at some point in the future.
There is, in addition, the risk that the movements in the price of the futures
contract or related option will not correlate with the movements in prices of
the securities being hedged. In addition, if a Fund has insufficient cash, it
may have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect the rising market. Consequently, a Fund may need to sell assets at a
time when such sales are disadvantageous to the Fund. If the price of the
futures contract or related option moves more than the price of the underlying
securities, a Fund will experience either a loss or a gain on the futures
contract or related option, that may or may not be completely offset by
movements in the price of the securities that are the subject of the hedge.
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<PAGE>
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between price movements in the futures or related
option position and the securities being hedged, movements in the prices of
futures contracts and related options may not correlate perfectly with movements
in the prices of the hedged securities because of price distortions in the
futures market. As a result, a correct forecast of general market trends may not
result in successful hedging through the use of futures contracts and related
options over the short term.
Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts or
related options. Although each Fund intends to purchase or sell futures and
related options only on exchanges or boards of trade where there appears to be a
liquid secondary market, there is no assurance that such a market will exist for
any particular contract or option at any particular time. In such event, it may
not be possible to close a futures or option position and, in the event of
adverse price movements, a Fund would continue to be required to make variation
margin payments.
Like options on securities, options on futures contracts have a limited
life. The ability to establish and close out options on futures will be subject
to the development and maintenance of liquid secondary markets on the relevant
exchanges or boards of trade. There can be no certainty that liquid secondary
markets for all options on futures contracts will develop.
Purchasers of options on futures contracts pay a premium in cash at the
time of purchase. This amount and the transaction costs are all that is at risk.
Sellers of options on a futures contract, however, must post initial margin and
are subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when a
Fund purchases an option is the premium paid for the option and the transaction
costs, there may be circumstances when the purchase of an option on a futures
contract would result in a loss to the Fund when the use of a futures contract
would not.
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, the 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.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by each
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 that 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
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investment restrictions so long as percentage restrictions are observed by such
Fund at the time it purchases any security.
TAX-EXEMPT MONEY MARKET FUND. TAX-EXEMPT MONEY MARKET FUND will not:
(1) Borrow money, except as a temporary or emergency measure (not for
leveraging or investment) in an amount not to exceed 5% of the value of its
assets.
(2) Pledge assets, except that the Fund may pledge not more than one-third
of its total assets (taken at current value) to secure borrowings made in
accordance with paragraph (1) above.
(3) Make loans, except by purchase of debt obligations and through
repurchase agreements; provided, however, that repurchase agreements maturing in
more than seven days, along with all illiquid assets, will not exceed 10% of the
Fund's total assets (taken at current value).
(4) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed as to
principal and interest by the Government of the United States or any agency or
instrumentality thereof) if, as a result thereof, (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 voting securities of that issuer. The Fund will
not invest in securities such that any one bank's letters of credit support more
than 10% of the Fund's total assets.
(5) Invest more than 25% of the Fund's total assets (taken at current
value) in the obligations of one or more issuers having their principal business
activities in the same industry.
(6) Purchase securities on margin (but the Fund may obtain such credits as
may be necessary for the clearance of purchases and sales of securities).
(7) Make short sales of securities.
(8) Write or purchase any put or call options, except stand-by
commitments.
(9) Knowingly purchase a security which is subject to legal or contractual
restrictions on resale or for which there is no readily available market.
(10) Purchase the securities of other investment companies or investment
trusts, except as they may be acquired as part of a merger, consolidation or
acquisition of assets.
(11) Purchase the securities of a company 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 companies which, including predecessors, have a record
of less than three years' continuous operation.
(12) 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.
(13) Purchase or retain any securities of another issuer if persons
affiliated with the Fund or its Adviser or management owning, individually, more
than one-half of one percent of said issuer's outstanding stock (or securities
22
<PAGE>
convertible into stock) own, in the aggregate, more than 5% of said issuer's
outstanding stock (or securities convertible into stock).
(14) Invest in companies for the purpose of exercising control or
management.
(15) Issue senior securities.
(16) Buy or sell real estate, commodities or commodity contracts (unless
acquired as a result of ownership of securities) or interest in oil, gas or
mineral explorations, provided, however, the Fund may invest in Municipal
Instruments secured by real estate or interests in real estate.
The Fund has adopted the following non-fundamental restrictions which may
be changed without shareholder approval:
(1) Notwithstanding fundamental investment restriction (2) above, the Fund
will not pledge its assets in excess of an amount equal to 10% of its net
assets.
(2) Notwithstanding fundamental investment restriction (4) above, with
respect to 100% of its total assets, the Fund will not 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, more than 5% of
the Funds total assets would be invested in the securities of that issuer.
Notwithstanding fundamental investment restriction (16) above, the Fund
will not invest in real estate limited partnership interests or in interests in
real estate investment trusts that are not readily marketable.
INSURED INTERMEDIATE TAX EXEMPT FUND. INSURED INTERMEDIATE TAX EXEMPT FUND
will not:
(1) Issue senior securities.
(2) Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result, with respect to 75% of the
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) Buy or sell real estate or interests in oil, gas or mineral
exploration, or senior securities (as defined in the 1940 Act); provided,
however, the Fund may invest in Municipal Instruments secured by real estate or
interests in real estate.
(5) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain Federal securities laws.
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<PAGE>
(6) Invest more than 25% of the Fund's total assets (taken at current
value) in the obligations of one or more issuers having their principal business
activities in the same industry.
(7) Make loans, except loans of portfolio securities and repurchase
agreements.
(8) 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 exceeds 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.
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.
(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) To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that is not for BONA FIDE hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
(4) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (7) above,
provided the Fund maintains asset coverage of at least 300% for pledged assets;
provided, however, this limitation will not prohibit escrow, collateral or
margin arrangements in connection with the Fund's use of options, futures
contracts or options on futures contracts.
(5) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
transactions in options, futures contracts, swaps, forward contracts, and other
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<PAGE>
derivative instruments shall not be deemed to constitute purchasing securities
on margin.
INSURED TAX EXEMPT FUND. INSURED TAX EXEMPT FUND will not:
(1) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 5% of the value of the Fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 5% limitation. This
policy shall not prohibit deposits of assets to provide margin or guarantee
positions in connection with transactions in options, futures contracts, swaps,
forward contracts, and other derivative instruments or the segregation of assets
in connection with such transactions.
(2) Make loans (the purchase of a portion of an issue of publicly
distributed debt securities is not considered the making of a loan). In
addition, the Insured Tax Exempt Fund's Board of Directors may on the request of
broker-dealers or other institutional investors, which it deems qualified,
authorize the Fund to lend securities for the purpose of covering short
positions of the borrower, but only when the borrower pledges cash collateral to
the Fund and agrees to maintain such collateral so that it amounts at all times
to at least 100% of the value of the securities. Such security loans will not be
made if as a result the aggregate of such loans exceed 10% of the value of the
Fund's gross assets.
(3) Invest more than 5% of the value of its gross assets, at the time of
purchase, in securities of any one issuer (except obligations of the U.S.
Government).
(4) Purchase securities in an amount to exceed 5% of its gross assets, of
unseasoned issuers, including their predecessors, which have been in operation
less than three years.
(5) Invest in any municipal bonds unless they will be insured municipal
bonds or unless they are already insured under an insurance policy obtained by
the issuer or underwriter thereof.
(6) Invest more than 25% of the Fund's total assets (taken at current
value) in the obligations of one or more issuers having their principal business
activities in the same industry.
(7) Issue senior securities.
(8) Invest in securities of other investment companies, except in the case
of money market funds offered without selling commissions, or in the event of
merger with another investment company.
(9) Underwrite any issue of securities, although the Fund may purchase
municipal bonds directly from the issuer thereof for investment in accordance
with the Fund's investment objective, policy and limitations.
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<PAGE>
(10) Purchase or sell real estate, but this shall not prevent the Fund
from investing in municipal bonds or other obligations secured by real estate or
interests therein.
(11) Invest in oil, gas or other mineral exploration or development
programs.
(12) Purchase or retain the securities of any issuer, if, to the Fund's
knowledge, those officers and directors of the Adviser, who individually own
beneficially more than 1/2 of 1% of the outstanding securities of such issuer
together own beneficially more than 5% of such outstanding securities.
(13) Purchase securities which would not enable the Fund to qualify as a
regulated investment company qualified to pay exempt-interest dividends under
the Internal Revenue Code of 1986, as amended (the "Code").
The Fund has adopted the following non-fundamental investment restrictions
which may be changed without shareholder approval. These restrictions provide
that the Fund will not:
(1) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Directors, or the
Fund's investment adviser acting pursuant to authority delegated by the
Directors, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, or any other applicable rule, and therefore that such securities are
not subject to the foregoing limitation.
(2) Purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this restriction shall not prevent the Fund from
purchasing or selling options, futures contracts, caps, floors and other
derivative instruments, engaging in swap transactions or investing in securities
or other instruments backed by physical commodities).
(3) To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that is not for BONA FIDE hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
(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.
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<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.
NEW YORK INSURED TAX FREE FUND. NEW YORK INSURED TAX FREE FUND will not:
(1) Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 5% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 5% of the value of the Fund's total
assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 5% limitation. This
policy shall not prohibit deposits of assets to provide margin or guarantee
positions in connection with transactions in options, futures contracts, swaps,
forward contracts, and other derivative instruments or the segregation of assets
in connection with such transactions.
(2) Make loans, 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; and, further provided, that such loans
will not be made if the value of all such loans, repurchase agreements maturing
in more than seven days and other illiquid assets is greater than an amount
equal to 15% of the Fund's net assets.
(3) Invest more than 25% of the Fund's total assets (taken at current
value) in the obligations of one or more issuers having their principal business
activities in the same industry.
(4) Purchase a Municipal Instrument unless it is an Insured Municipal
Instrument, or is already insured by a policy of insurance or, as to uninsured
municipal commercial paper or municipal notes, is supported by a letter of
credit or other similar guarantee obtained by the issuer or underwriter thereof.
(5) 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.
(6) Buy or sell real estate or interests in oil, gas or mineral
exploration, or issue senior securities (as defined in the 1940 Act); provided,
however, the Fund may invest in Municipal Instruments secured by real estate or
interests in real estate.
The Fund has adopted the following non-fundamental investment
restrictions, which may be changed without shareholder approval. The
restrictions provide that the Fund will not:
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<PAGE>
(1) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Directors, or the
Fund's investment adviser acting pursuant to authority delegated by the
Directors, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, or any other applicable rule, and therefore that such securities are
not subject to the foregoing limitation.
(2) Purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this restriction shall not prevent the Fund from
purchasing or selling options, futures contracts, caps, floors and other
derivative instruments, engaging in swap transactions or investing in securities
or other instruments backed by physical commodities).
(3) To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that is not for BONA FIDE hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
(4) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (1) above,
provided the Fund maintains asset coverage of at least 300% for pledged assets;
provided, however, this limitation will not prohibit escrow, collateral or
margin arrangements in connection with the Fund's use of options, futures
contracts or options on futures contracts.
(5) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments and other deposits made in connection with
transactions in options, futures contracts, swaps, forward contracts, and other
derivative instruments shall not be deemed to constitute purchasing securities
on margin.
(6) 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.
(7) Invest in the securities of other investment companies or investment
trusts except to the extent permitted by law.
MULTI-STATE INSURED TAX FREE FUND. Each Single State Fund will not:
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(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 a 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) Purchase, as to 75% of each Fund's total assets (taken at current
value), the securities of any issuer (other than the U.S. Government) if, as a
result thereof, more than 5% of the total assets of such Fund would be invested
in the securities of such issuer. When the assets and revenues of an agency,
instrumentality or political subdivision issuing a Municipal Instrument or other
security are distinct from the assets and revenues of the government which
created the issuing entity, and the Municipal Instrument is supported by the
issuing entity's assets and revenues, the issuing entity is deemed to be the
sole issuer of the Municipal Instrument or security. If an industrial
development bond is supported only by the payments of the non-governmental
beneficiary of the industrial development bond, then such non-governmental
entity is deemed to be the sole issuer. With respect to pre-refunded bonds, the
Adviser considers an escrow account to be the issuer of such bonds when the
escrow account consists solely of U.S. Government obligations fully substituted
for the obligation of the issuing municipality.
(3) Purchase the securities of any issuer (other than the U.S. Government)
if, as a result thereof, any Fund would hold more than 10% of any class of
securities (including any class of voting securities) of such issuer.
(4) Purchase the securities of an issuer if such purchase, at the time
thereof, would cause more than 5% of the value of the total assets of any Fund
to be invested in securities of issuers which, including predecessors, have a
record of less than three years' continuous operation.
(5) Purchase the securities of other investment companies or investment
trusts, except as they may be acquired as part of a merger, consolidation or
acquisition of assets.
(6) Invest more than 25% of the Fund's total assets (taken at current
value) in the obligations of one or more issuers having their principal business
activities in the same industry.
(7) 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) Buy or sell real estate or interests in oil, gas or mineral
exploration, or senior securities (as defined in the 1940 Act); provided,
however, each Fund may invest in Municipal Instruments secured by real estate or
interests in real estate.
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<PAGE>
(9) Make loans, except by purchase of debt obligations, publicly
distributed bonds or debentures (which are not considered loans), and through
repurchase agreements.
MULTI-STATE INSURED TAX FREE FUND, on behalf of each Single State Fund,
has adopted the following non-fundamental investment restrictions, which may be
changed without shareholder approval. These restrictions provide that each 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
Adviser, acting pursuant to authority delegated by the Trustees, may determine
that a readily available market exists for securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, as amended, or any other
applicable rule, and therefore that such securities are not subject to the
foregoing limitation.
(2) Purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this restriction shall not prevent each 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) To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that is not for BONA FIDE hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
(4) Pledge assets, except that a Fund may pledge its assets to secure
borrowings made in accordance with fundamental investment restriction (1) above,
provided such 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 a Fund's use of options, futures
contracts or options on futures contracts.
(5) Purchase securities on margin, except that a 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.
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INSURANCE
The municipal bonds in each Fund's portfolio, with the exception of the
TAX-EXEMPT MONEY MARKET FUND, will be insured as to their scheduled payments of
principal and interest at the time of purchase either (1) under a Mutual Fund
Insurance Policy written by an independent insurance company; (2) under an
insurance policy obtained subsequent to a municipal bond's original issue (a
"Secondary Market Insurance Policy"); or (3) under an insurance policy obtained
by the issuer or underwriter of such municipal bond at the time of original
issuance (a "New Issue Insurance Policy"). An insured municipal bond in a Fund's
portfolio typically will be covered by only one of the three policies. For
instance, if a municipal bond is already covered by a New Issue Insurance Policy
or a Secondary Market Insurance Policy, then that security will not be
additionally insured under the Mutual Fund Insurance Policy.
Each Fund except for the TAX-EXEMPT MONEY MARKET FUND has purchased a
Mutual Fund Insurance Policy ("Policy") from AMBAC Assurance Corporation
("AMBAC"), a Wisconsin stock insurance company, with its principal executive
offices in New York City. The Policy guarantees the payment of principal and
interest on municipal bonds purchased by a Fund which are eligible for insurance
under the Policy. Municipal bonds are eligible for insurance if they are
approved by AMBAC prior to their purchase by a Fund. AMBAC furnished each Fund
with an approved list of municipal bonds at the time the Policy was issued and
subsequently provides amended and modified lists of this type at periodic
intervals. AMBAC may withdraw particular securities from the approved list and
may limit the aggregate amount of each issue or category of municipal bonds
therein, in each case by notice to a Fund prior to the entry by the Fund of an
order to purchase a specific amount of a particular security otherwise eligible
for insurance under the Policy. The approved list merely identifies issuers
whose issues may be eligible for insurance and does not constitute approval of,
or a commitment by, AMBAC to insure such securities. In determining eligibility
for insurance, AMBAC has applied its own standards which correspond generally to
the standard it normally uses in establishing the insurability of new issues of
municipal bonds and which are not necessarily the criteria which would be used
in regard to the purchase of municipal bonds by a Fund. The Policy does not
insure: (1) obligations of, or securities guaranteed by, the United States of
America or any agency or instrumentality thereof; (2) municipal bonds which were
insured as to payment of principal and interest at the time of their issuance;
(3) municipal bonds purchased by a Fund at a time when they were ineligible for
insurance; (4) municipal bonds which are insured by insurers other than AMBAC;
and (5) municipal bonds which are no longer owned by a Fund. AMBAC has reserved
the right at any time, upon 90 days' prior written notice to a Fund, to refuse
to insure any additional municipal bonds purchased by a Fund, on or after the
effective date of such notice. If AMBAC so notifies a Fund, the Fund will
attempt to replace AMBAC with another insurer. If another insurer cannot be
found to replace AMBAC, the Fund may ask its shareholders to approve
continuation of its business without insurance.
In the event of nonpayment of interest or principal when due, in respect
of an insured municipal bond, AMBAC is obligated under the Policy to make such
payment not later than 30 days after it has been notified by a Fund that such
nonpayment has occurred (but not earlier than the date such payment is due).
AMBAC, as regards insurance payments it may make, will succeed to the rights of
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a Fund. Under the Policy, a payment of principal on an insured municipal bond is
due for payment when the stated maturity date has been reached, which does not
include any earlier due date by reason of redemption, acceleration or other
advancement of maturity or extension or delay in payment by reason of
governmental action.
The Policy does not guarantee the market value or yield of the insured
municipal bonds or the net asset value or yield of a Fund's shares. The Policy
will be effective only as to insured municipal bonds owned by a Fund. In the
event of a sale by a Fund of a municipal bond insured under the Policy, the
insurance terminates as to such municipal bond on the date of sale. If an
insured municipal bond in default is sold by a Fund, AMBAC is liable only for
those payments of interest and principal which are then due and owing and, after
making such payments, AMBAC will have no further obligations to a Fund in
respect of such municipal bond. It is the intention of each Fund, however, to
retain any insured securities which are in default or in significant risk of
default and to place a value on the defaulted securities equal to the value of
similar insured securities which are not in default. While a defaulted bond is
held by a Fund, the Fund continues to pay the insurance premium thereon but also
collects interest payments from the insurer and retains the right to collect the
full amount of principal from the insurer when the municipal bond comes due. See
"Determination of Net Asset Value" for a more complete description of the Funds'
method of valuing securities in default and securities which have a significant
risk of default.
A Fund may purchase a Secondary Market Insurance Policy from an
independent insurance company rated in the top rating category by S&P, Moody's,
Fitch IBCA, Inc. ("Fitch") or any other nationally recognized rating
organization which insures a particular bond for the remainder of its term at a
premium rate fixed at the time such bond is purchased by a Fund. It is expected
that these premiums will range from 1% to 5% of par value. Such insurance
coverage will be noncancellable and will continue in force so long as such bond
so insured is outstanding. Each Fund may also purchase municipal bonds which are
already insured under a Secondary Market Insurance Policy. A Secondary Market
Insurance Policy could enable a Fund to sell a municipal bond to a third party
as an AAA/Aaa rated insured municipal bond at a market price higher than what
otherwise might be obtainable if the security were sold without the insurance
coverage. (Such rating is not automatic, however, and must specifically be
requested for each bond.) Any difference between the excess of a bond's market
value as an AAA/Aaa rated bond over its market value without such rating and the
single premium payment would inure to a Fund in determining the net gain or loss
realized by a Fund upon the sale of the bond.
In addition to the contract of insurance relating to each Fund, there is a
contract of insurance between AMBAC and Executive Investors Trust. Otherwise,
neither AMBAC nor any affiliate thereof, has any material business relationship,
direct or indirect, with the Funds.
AMBAC is a Wisconsin-domiciled stock insurance corporation regulated by
the Office of the Commissioner of Insurance of the State of Wisconsin and
licensed to do business in 50 states, the District of Columbia, the Territory of
Guam and the Commonwealth of Puerto Rico, with admitted assets of $4,013,000,000
(unaudited) and statutory capital of $2,402,000,000 (unaudited) as of December
31, 1999. Statutory capital consists of AMBAC's policyholders' surplus and
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statutory contingency reserve. S&P, Moody's and Fitch have each assigned a
triple-A financial strength rating to AMBAC.
AMBAC has obtained a private letter ruling from the IRS to the effect that
AMBAC's insuring an obligation will not affect the treatment for Federal income
tax purposes of interest on the obligation and that payments of insurance
proceeds representing maturing interest paid by AMBAC under policy provisions
substantially identical to those contained in its municipal bond insurance
policy will be treated for Federal income tax purposes in the same manner as if
the payments were made by the issuer of the municipal bonds. Investors should
understand that a private letter ruling may not be cited as precedent by persons
other than the taxpayer to whom it is addressed; nevertheless, those rulings may
be viewed as generally indicative of the IRS's views on the proper
interpretation of the Code and the regulations thereunder.
AMBAC makes no representation regarding the municipal bonds included in
the investment portfolio of each Fund or the advisability of investing in such
municipal bonds and makes no representation regarding, nor has it participated
in the preparation of, the Prospectus and this SAI.
The information relating to AMBAC contained above has been furnished by
AMBAC. No representation is made herein as to the accuracy or adequacy of such
information, or as to the existence of any adverse changes in such information,
subsequent to the date hereof.
STATE SPECIFIC RISK FACTORS
Set forth below is discussion of risk factors with respect to some of the
Funds that invest primarily in obligations of issuers from a particular state.
This information has been prepared by local counsel to each Fund. The
information presented is summary of the risk factors that may affect a
particular Fund and is not intended to be a complete discussion of all relevant
risk factors, and there may be other factors not discussed that may adversely
affect the value of, and the payment of interest and principal on, the
obligations held by a Fund.
RISK FACTORS FOR THE ARIZONA FUND. The ARIZONA FUND will invest
principally in securities of political subdivisions and other issuers of the
State of Arizona the interest on which is exempt from federal and Arizona income
taxes. As a result, the ability of such Arizona issuers to meet their
obligations with respect to such securities generally will be influenced by the
political, economic and regulatory developments affecting the state of Arizona
and the particular revenue streams supporting such issuers' obligations, the
income derived by the ARIZONA FUND, the ability to preserve or realize
appreciation of the ARIZONA FUND'S capital, and the liquidity of the ARIZONA
FUND could be adversely affected. The following summary respecting the State of
Arizona is only general in nature and does not purport to be a description of
the investment considerations and factors which may have an effect on the
obligations of a particular issuer in which the ARIZONA FUND may invest.
Arizona's economy continues on a path of strong growth, although
economists at Arizona State University expect the growth rate to slow. There
are, however, no signs of any serious imbalances. Arizona's economy is among the
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fastest growing in the country. The state's population increased by more than
100,000 each year during the 7-year period from 1991 to 1999. During 1999,
Arizona's population was estimated at approximately 4.84 million. As a result,
homebuilding and commercial construction are extremely strong, although
construction is expected to slow somewhat in 2000. This growth in population
will require corresponding increases in revenue of Arizona issuers to meet
increased demands for infrastructure development and various services, and the
performance of Arizona's economy will be critical to providing such increased
revenue.
The state's principal economic sectors include services, construction,
manufacturing dominated by electrical, transportation and military equipment,
high technology, government, tourism, and the military. State unemployment rates
have remained generally comparable to the national average in recent years,
while the Arizona economy has generally performed above the national average in
recent years. Arizona has held a steady position among the top five states in
employment growth since May 1993. In 1999, the Arizona rate of non-agricultural
job creation ranked second in the nation. Furthermore, from the third quarter of
1998 to the third quarter of 1999, Arizona's personal income increased by
approximately 7.65 percent.
Arizona is required by law to maintain a balanced budget. To achieve this
objective, Arizona has, in the past, utilized a combination of spending
reductions and tax increases. The condition of the national economy will
continue to be a significant factor influencing Arizona's budget during the
upcoming fiscal year.
With respect to issuers of the securities in which the ARIZONA FUND will
invest, Arizona's state constitution limits the amount of debt payable from
general tax revenue that may be contracted by the State to $350,000. However,
certain other issuers have the power to issue obligations payable from a source
of revenue that affects the whole or large portions of the State. For example,
the Transportation Board of the State of Arizona Department of Transportation
may issue obligations for highways that are paid from revenues generated from,
among other sources, state gasoline taxes. Salt River Project Agricultural &
Improvement District, an agricultural improvement district that operates the
Salt River Project (a Federal reclamation project and an electrical system that
generates, purchases, and distributes electric power to residential, commercial,
industrial, and agricultural power users in a 2,900 square-mile service area
around Phoenix), may issue obligations payable from a number of sources.
Arizona's state constitution also restricts the debt payable from general
tax revenues of certain of the State's political subdivisions and municipal
corporations. No county, city, town, school district, or other municipal
corporation of the State may for any purpose become indebted in any manner in an
amount exceeding six percent of the taxable property in such county, city, town,
school district, or other municipal corporation without the approval of a
majority of the qualified electors thereof voting at an election provided by law
to be held for that purpose; provided, however, that (i) under no circumstances
may any county or school district of the State become indebted in an amount
exceeding 15% (or 30% in the case of a unified school district) of such taxable
property, and (ii) any incorporated city or town of the State with such approval
may be allowed to become indebted up to an additional 20% for (a) supplying such
city or town water, artificial light, or sewers, when the works for supplying
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such water, light, or sewers are or shall be owned and controlled by the
municipality, and (b) the acquisition and development by the incorporated city
or town of land or interests therein for open space preserves, parks,
playgrounds, and recreational facilities. Irrigation, power, electrical,
agricultural improvements, drainage, flood control, and tax levying public
improvement districts are, however, exempt from the restrictions of the Arizona
Constitution. There are also restrictions relating to such entities implemented
by statute.
Annual property tax levies for the payment of general obligation bonded
indebtedness of political subdivisions and municipal corporations are unlimited
as to rate or amount (other than for purposes of refunding when there are
certain limits). Other obligations may be issued by such entities, sometimes
without an election, which are payable from, among other sources, project
revenues, special assessments, and excise taxes.
Arizona political subdivisions and municipal corporations are subject to
certain other limitations on their ability to assess taxes and levies that could
affect their ability to meet their financial obligations. Subject to certain
exceptions, the maximum amount of property taxes levied by any Arizona county,
city, town, or community college district for their operations and maintenance
expenditures cannot exceed the amount levied in a proceeding year by more than
two percent. Certain taxes are specifically exempt from this limit, including
taxes levied for debt service payments.
RISK FACTORS FOR THE CALIFORNIA FUND. Changes in the California
Constitution and other laws during the last several years have restricted the
ability of California taxing entities to increase real property tax revenues
and, by limiting various other taxes, have resulted in a reduction in the
absolute amount, or in the rate of growth, of certain components of state and
local revenues. These actions have raised additional questions about the ability
of California state and municipal issuers to obtain sufficient revenue to pay
their bond obligations. In 1978, California voters approved an amendment to the
California Constitution known as "Proposition 13." Proposition 13 limits AD
VALOREM taxes on real property and restricts the ability of taxing entities to
increase real property taxes by requiring a two thirds majority approval to
authorize increases in real property taxes. Various efforts have been made to
ease these limitations. To date, none of these efforts has been successful. For
example, as recently as March 7, 2000, the California electorate rejected
Proposition 26, which would have exempted school bond issues from Proposition
13's two-thirds voter approval requirement. Legislation passed subsequent to
Proposition 13 provided for the assumption of certain local obligations by the
State. Much of this aid to local governments, however, was eliminated during the
recession which was most acute in California from 1990 to 1995. During the same
period, the California legislature attempted to offset this loss of aid by
providing additional funding sources (such as sales taxes) to local governments
and by reducing certain mandates for local services. There can, of course, be no
assurance that local governments will receive sufficient state assistance to
meet their obligations in a timely manner. The rejection of Proposition 26
reduces the likelihood that local school districts will be able to assume a
greater proportion of the funding burden for school facilities.
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Article XIIIB of the State's Constitution may also have an adverse impact
on California state and municipal issuers. Article XIIIB restricts the State
from spending certain appropriations in excess of an appropriations limit
imposed for each State and local government entity. This appropriations limit is
adjusted annually for changes in State per capita personal income and population
and, when applicable, for transfers among government units of financial
responsibility for providing services or of financial sources for the provision
of those services. The appropriations limit has exceeded the appropriations
subject thereto in each of the most recent three fiscal years and is projected
to exceed those appropriations in both the 1999-2000 fiscal year and the 2000-01
fiscal year. Payments of debt service on bonds authorized by the voters are
exempt from this limitation. Revenues in excess of this appropriations limit are
divided equally between transfers to K-14 school districts and refunds to
taxpayers.
In 1988, Proposition 98 was enacted by the voters of California.
Proposition 98 changed state funding of public education below university level,
primarily by guaranteeing K-12 schools a minimum share of General Fund revenues.
Currently, the Proposition 98 formulas require the allocation of approximately
35% of General Fund revenues to such educational support.
In November, 1996, the voters of California approved Proposition 218.
Proposition 218, like Proposition 13, amended the California Constitution. It
requires any special tax, levy or fee imposed or increased since January 1,
1995, without voter consent to be validated by a vote and certain new taxes,
fees, charges and assessments and increases therein to be approved by voters
prior to their implementation by government agencies. Since the passage of
Proposition 218, the bond ratings of several large California cities, including
Los Angeles and San Diego, have been downgraded by municipal bond ratings
services.
Recent allegations of corruption within the Los Angeles Police Department
have led to the overturning of a number of criminal convictions and fears of
substantial liability for the City and, potentially, other California
governmental agencies. It is impossible to estimate this potential liability at
this time, although the Mayor of Los Angeles has already proposed diverting the
City's anticipated proceeds from the settlement with the tobacco companies for
this purpose. This proposal has been rejected by the City Council but is an
indication of the potential severity of this matter.
Orange County has been discharged from bankruptcy proceedings and its bond
ratings have been restored to investment grade. Although the events leading to
that bankruptcy are neither systemic nor unique to Orange County or to
California generally, the impact of that bankruptcy may continue to affect the
financing costs of California and its political subdivisions.
In June, 1999, the Legislature approved a budget for the 1999-2000 fiscal
year which included a general fund budget of $63.7 billion, up from $57.3
billion in fiscal 1998-1999.
Like in other states, the budgetary process in California often becomes a
negotiation among various political groups which is not resolved until after the
commencement of the relevant fiscal year. On July 21, 1998, a state trial court
issued a preliminary injunction prohibiting the State Controller from paying
moneys from the State Treasury for the 1998-1999 fiscal year, with certain
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limited exceptions, in the absence of a State budget, irrespective of any
continuing appropriation . (HOWARD JARVIS TAXPAYERS ASSOCIATION ET AL. V.
KATHLEEN CONNELL). This injunction has been stayed pending an appeal before the
State Court of Appeal. No date has been set for the argument of this appeal.
On January 10, 2000, Governor Davis submitted a proposed budget for
2000-01, which contains a $68.8 billion General Fund budget. The Governor's
2000-01 budget projects a deficit of approximately $700 million in the 1999-2000
General Fund Budget to be made up from the state's reserves. According to a
February 2000 report of the California State Legislative Analyst, however,
General Fund revenues for the eighteen month period January 1, 2000, to June 30,
2001, could exceed the Governor's estimates by as much as $4.2 billion if the
State's recent strong economic growth continues during this period. The 2000-01
budget assumes receipt of approximately $387.9 million from the settlement of
the tobacco litigation and one-time revenue from the sale of certain assets.
Specific amounts to be received by the States from the settlement of the tobacco
litigation are subject to adjustment. They can be reduced by federal government
actions or reductions in cigarette sales. They can be increased by increases in
cigarette sales or by inflation. The "second initial" installment from the
tobacco settlement, received in December 1999 was fourteen percent lower than
the base settlement amount due to a decrease in sales. A bankruptcy of any of
the four major cigarette companies could also significantly impact this
anticipated revenue stream.
The rights of owners of California governmental securities are subject to
the limitations on legal remedies against the governmental entity issuing such
securities, including a limitation on enforcement of judgments against funds
needed to service the public welfare and interest, and in some instances a
limitation on the enforcement of judgments against the entity's funds of a
fiscal year other than the fiscal year in which the payments were due.
RISK FACTORS FOR THE COLORADO FUND. The COLORADO FUND will concentrate its
investments in debt obligations of the State of Colorado and its local
government entities (the "Colorado Obligations"). The information contained
herein is not intended to be a complete discussion of all relevant risk factors,
and there may be other factors not discussed herein that may adversely affect
the value of and the payment of interest and principal on the Colorado
Obligations.
The State of Colorado issues no general obligation bonds secured by the
full faith and credit of the State due to limitations contained in the State
constitution. Several agencies and instrumentalities of the State, however, are
authorized by statute to issue bonds secured by revenue from specific projects
and activities. Additionally, the State currently is authorized to issue
short-term revenue anticipation notes and long-term notes payable from certain
federal highway program distributions.
There are approximately 2,000 units of local government in Colorado,
including counties, statutory cities and towns, home-rule cities and counties,
school districts and a variety of water, sewer and other special districts, all
with various constitutional and statutory authority to levy taxes and incur
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indebtedness. The major sources of revenue for payment of indebtedness of these
local governments are the ad valorem property tax, which presently is imposed
and collected solely at the local level, sales and use taxes (for cities and
counties) and revenue from special projects. Residential real property is
assessed at 9.74% of its actual value for ad valorem taxes collected in 2000.
All other property is assessed at 29% of its actual value, except producing
mines and oil and gas properties. Oil and gas properties are assessed at 87.5%.
In 1998, the last year for which such information is currently available,
the assessed valuation of all real and personal property in Colorado was
$40,167,970,063, an increase of 4.2% from 1997 levels. In 1997 and 1998,
$3,032,963,241 and $3,195,071,808, respectively, were collected in property
taxes throughout Colorado. Sales and use taxes collected at the local level from
January 1, 1999 through September 30,1999 (the most recent information
available) increased approximately 7.6% over those collected for the same period
in 1998.
Colorado's economy was robust for most of the 1990s, fueled in part by
large public construction projects, a healthy tourist economy, and increased
employment in the wholesale and retail trade and general services sectors and in
high tech manufacturing. For the decade, Colorado was the 5th fastest growing
State in the United States. Now, most of the large public works projects are
completed and increases in tourism have slowed since the voters failed in 1993
to approve an extension of the statewide tourism tax. For these and other
reasons, economists are predicting that growth of the Colorado economy will
slow. The unemployment rate is still low, however (2.8% in November 1999), below
the United States average (4.1%). Colorado's total non-agricultural employment,
while at record highs, has shown a lower growth rate recently.
Employment in the service and trade industries represents approximately
54% of the State's nonagricultural wage and salary jobs, and government
employment represents approximately 16%. Manufacturing represents only 10% and,
while total jobs in the sector are stable, manufacturing is slowly falling as a
percentage of total employment.
A 1992 amendment to the State Constitution (the "TABOR Amendment")
restricts growth of State and local government spending to the rate of inflation
plus a growth factor (measured by population, school enrollment or construction,
depending on the governmental entity); and requires voter approval of (a) all
new taxes or tax increases and (b) the issuance of most types of debt. Though
the TABOR Amendment has not yet had a material adverse effect on the credit
quality of State and local governments, it will likely reduce the financial
flexibility of all levels of government in Colorado over time. In particular,
local governments dependent on taxes on residential property are being squeezed
between the TABOR Amendment requirements of voter approval for increased mill
levies and an earlier State Constitutional amendment (the "Gallagher Amendment")
which has had the effect of lowering the assessment rate on residential property
from 21% to 9.74% over the past 12 years. Younger or rapidly growing residential
communities with large infrastructure requirements may have particular
difficulty finding the revenues needed to finance their growth.
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RISK FACTORS FOR THE CONNECTICUT FUND. Traditionally, Connecticut has been
viewed primarily as a manufacturing and industrial state. While manufacturing
remains an important sector of the State's economy, other sectors, particularly,
finance, insurance, real estate, trade (wholesale and retail) and services have
expanded to provide diversification tending to somewhat dilute the influence of
manufacturing. In 1999, manufacturing provided approximately 16% of total
Connecticut employment, while the service sector provided approximately 32% of
the State's employment. The finance, insurance and real estate sector provided
approximately 8% of the State's employment.
In the early 1990's, a variety of factors, including difficulties in the
banking and insurance industries in New England (which resulted in the
tightening of credit), the reduction in defense employment (resulting from an
overall decline in federal defense spending), and the softening of the real
estate and construction markets, impeded the growth of the Connecticut economy.
Since 1993, however, the State's economy has recovered. Helped by a strong
national economy, the State's economy continued to grow during Fiscal Year 1999
and indicators of future economic activity are showing an upward trend.
Connecticut's unemployment rate of 2.1%, as of August 1999, represents a
decrease from the 1998 unemployment rate of 3.2% and is lower than the national
unemployment rate of 4.2%. The state's labor force is highly educated with 32.7%
of those over the age of twenty-five holding a college degree, which ranks
Connecticut number two in the country in this category. By most measurements,
Connecticut consistently ranks as one of the top five high technology employment
states. The fastest growing occupations in the state are computer engineer,
systems analysts, computer support specialist, financial sales, physical
therapist, biological scientist, recreation attendant, social worker, home care
aide and medical assistant. Even Connecticut's urban areas, which traditionally
maintained high rates of unemployment, have posted notable declines in the
number of unemployed.
Connecticut's per capita income for 1998, at $37,700, was the highest in
the nation and 42.4% above the national average. However, State median household
income, adjusted for inflation, has declined by 15.7% through the past decade.
In addition, the State is one of the top five in the nation for income
inequality, which may threaten the State's long-term prospects for growth.
The three major sources of revenue for the State are the personal income
tax, the sales and use taxes, and the corporation business tax. According to the
State Comptroller, the personal income tax raised approximately $3.4 billion in
Fiscal Year 1999, an increase of $.2 billion over Fiscal Year 1998.
According to the State Comptroller, Fiscal Year 1999 ended with a General
Fund operating surplus of $169 million. The surplus was primarily due to strong
revenue growth (a 3.1% increase over the prior year). The State Comptroller
reported a surplus from the State's General Fund operations of approximately $93
million for Fiscal Year 1993 (excluding proceeds received from deficit
financing); a surplus of $51 million for Fiscal Year 1994, a deficit of $242
million for Fiscal Year 1995, a surplus of $198 million for Fiscal Year 1996, a
surplus of $252 million for Fiscal Year 1997 and a surplus of $252 million for
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Fiscal Year 1998. On January 3, 2000, the State Comptroller's office reported
that the General Fund is projected to show an operating surplus of approximately
$127 million for Fiscal Year 2000.
The State's General Fund balance sheet, which is presented using Generally
Accepted Accounting Principles, showed a cumulative deficit of $602.7 million at
the end of Fiscal Year 1999, a decrease of $91.6 million from the prior year (a
large portion of the decrease is attributable to a one-time payment of
accumulated payroll liabilities). These payroll liabilities will begin to rise
again in Fiscal Year 2000 and the GAAP deficit will again trend upward. Over the
past five years, the General Fund balance sheet deficit has increased by almost
30%. The State Comptroller attributes the difference between the General Fund's
operating surplus and the increase in balance sheet deficit primarily to the
State's use of modified cash accounting for annual budgeting purposes.
Fiscal Year 1999 expenditures from the General Fund increased by 5.3% over
the prior year. For the second straight year the state's constitutional cap on
spending was exceeded. The additional appropriations required a declaration of
extraordinary circumstances by the Governor. The cap was exceeded by $525.7
million in Fiscal Year 1999, and by $194.1 million in Fiscal Year 1998.
In addition to the General Fund, the State also operates several Special
Revenue Funds which are often used as a means of earmarking or reserving certain
revenues to finance particular activities. These include, among others, the
Transportation Fund, the Grant and Loan Programs Fund and the Housing Programs
Fund. These Special Revenue Funds are generally funded by each fund's operating
revenues. When the operations of all of the State's governmental funds are
considered, the State showed an overall deficit of $380 million in Fiscal Year
1999.
Connecticut's net State bonded debt was $9.4 billion at the end of Fiscal
Year 1999. In Fiscal Year 1999, the State issued $56 million in bonds. Debt
service, as a percentage of general fund expenditures, increased to 8.6% for
Fiscal Year 1999 from 8.1% for Fiscal Year 1998. Connecticut has the highest per
capita debt in the nation. Public bonded debt per capita increased to $2,857 in
Fiscal Year 1999 from $2,820 for the prior year.
In addition to bonded debt, the State has other long-term obligations
which, for Fiscal Year 1999, primarily consisted of unfunded pension obligations
of $7.242 billion, unfunded payments to employees for compensated absences of
$275 million, unfunded workers' compensation payments of $280 million, and
capital leases of $52 million. When these obligations are added to the State's
bonded debt, Connecticut's total State debt for Fiscal Year 1999 was
approximately $17.2 billion, a $533 million increase over the prior year. This
high debt level could impact bond ratings, increase interest cost on all
borrowings, and reduce the State's flexibility in future budgets due to the
higher fixed costs for debt service.
The State is a party to numerous legal proceedings. According to the State
Attorney General, most of these proceedings are unlikely to have a material
adverse affect on the State's finances. There are, however, several legal
proceedings which, if decided against the State, may result in material future
expenditures for expanded services or capital facilities or may impair future
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revenue sources. It is not possible to determine the outcome of these
proceedings or to estimate the effects of adverse decisions on the State's
financial position.
RISK FACTORS FOR THE FLORIDA FUND. The following information is a brief
summary of factors affecting the economy of the State and does not purport to be
a complete description. This summary is based on publicly available information.
The FLORIDA FUND has not independently verified the information.
Municipal instruments of Florida issuers may be adversely affected by
political, economic and legal conditions and developments within the State of
Florida. In addition, the Florida constitution and statutes mandate a balanced
budget as a whole, and require each of the separate funds (General Revenue Fund,
Trust Funds and Working Capital Fund) within the budget to be kept in balance
from currently available revenues each State fiscal year (July 1 - June 30). The
balanced budget requirement necessitates a continuous evaluation of receipts and
expenditures and makes Florida vulnerable to a sharp unexpected decrease in
revenues.
The State of Florida is not authorized by law to issue obligations to fund
governmental operations; but is authorized to issue bonds pledging its full
faith and credit to finance or refinance the cost of state fixed capital outlay
projects upon approval by a vote of the electors. However, Florida may issue
revenue bonds without a vote to finance or refinance the cost of state fixed
capital outlay projects which are payable solely from funds other than state tax
revenues. Recently, $2.5 billion in bonds were authorized for school
consideration, with a dedicated portion of proceeds from the Florida State
lottery pledged as security. Municipal instruments issued by cities, counties
and other governmental authorities are payable either from their general
revenues (including ad valorem and other taxes) within their jurisdiction or
revenues from the underlying project. Revenue obligations issued by such
governmental bodies and other entities are customarily payable only from
revenues from the particular project or projects involved. The limitations on
the State of Florida and its governmental agencies and Florida local
governmental agencies may inhibit the ability of such issuers to repay existing
municipal indebtedness and otherwise may affect their credit standing. In
addition, the ability of such issuers to repay revenue bonds will be dependent
on the success of the particular project to which such bonds relate.
Florida can be described as experiencing rapid growth, with a widening of
its economic base and increased diversification of its major businesses. One
measure of Florida's economic growth indicates that Florida's economy (as
measured by Gross State Product) grew, during 1998, at a rate of 4.8% while the
nation's GDP grew at 3.9%. During the last several decades, Florida's economy
has diversified and has shifted emphasis from resource manufacturing to tourism,
other services and trade. December 1999 estimates indicate that Florida's
non-farm employment can be broken down as follows: mining - 0.1%; construction -
5.4%; manufacturing - 7.0%; transportation - 5.1%; trade - 28.4%; finance -
6.4%; services - 37.3%; and government - 3.7%. Although economic development
efforts are broadening, economic developments affecting the service industry,
the tourism industry and high-tech manufacturing could have severe affects on
the Florida economy. Due to the development of amusement and educational theme
parks, the seasonal and cyclical character of Florida's tourist industry was
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reduced in the 1990's, but recent additions to the number of theme parks in
Orlando area are anticipated to bring in new tourists. However, a decline in the
national economy, increased fuel prices, competition from other tourist
destinations, crime and international developments all may affect Florida
tourism.
Florida's population growth is one reason why Florida's economy has
generally performed better than that of the nation as a whole. While Florida's
population growth has traditionally helped its economy to perform above the
national average, the rapid population growth experienced by the State in the
1980's has slowed down. Demographers forecasted Florida's population growth
through the end of the 1990's to be significantly below the level of the 1980's.
Nonetheless, since the 1950's the State of Florida has grown dramatically. In
1950, Florida was the twentieth most populous state with a population of 2.8
million. In 1980, Florida was the seventh most populous state with a population
of 9.7 million. Florida's population was approximately 14.7 million in 1997 and
approximately 15.1 million in 1999, ranking Florida as the fourth most populous
state nationally and the most populous of the southeastern states. From 1985
through 1998, the State's average annual rate of population increase has been
approximately 2.3%, as compared to an approximately 1.0% average annual increase
for the nation as a whole. The average annual rate of population increase during
the period of 1991 to 1997 was 1.8%, based on 1997 estimates; and from 1998
through 199 there was an increase by 1.4%, according to 1999 estimates. By
another measure, over the past 10 years, Florida's population has grown by
approximately 19.6%, ranking Florida 8th among the states in total population
growth. Recent estimates indicate that 275,000 residents were added to Florida's
population in 1998, the bulk of which are prime working age adults as compared
to earlier projections of an estimated 230,000 annual increase in prime working
age adults through the end of the 1990's. However, population growth is no
assurance of a strong economy.
Florida is a leading site for retirement. July 1998 estimates indicate
that 18.1% of Florida's population is over the age of 65. Florida's growth is
partially caused by the number of retirees moving to take advantage of the
favorable climate. In-migration has historically been a major driving force of
Florida's economy. However, nationally, the growth in the number of young adults
and retirees, the two groups most likely to move to Florida, is expected to
decline significantly, as a result of changes in the overall age structure of
the U.S. population.
In addition, despite projections for slower overall population growth, an
acceleration in the growth rate of Florida's school age population and over-80
population is expected, increasing the demands for government services
particularly in the education and health care areas.
Florida is attracting a significant number of working-age people. For
instance, since 1985, the prime working-age population (18-44 years of age) has
grown at an average annual rate of approximately 2.2%. As expected, job seekers
moving to the State are settling primarily in the metropolitan areas, such as
Metro-Dade, Orlando, Tampa, St. Petersburg and Jacksonville. For example,
Florida employment growth in the Tampa-St. Petersburg area increased by 4.9%
from July 1998 to July 1999. 1998 estimates indicate that Florida had a total
population of approximately 15,111,200, comprised of approximately 935,000
persons between the ages of 15-19, 5,089,100 persons between the ages of 20-44,
and 3,192,500 persons between the ages of 45 and 64 years old. The share of
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Florida's total working-age population (18-59 years of age) to total state
population is approximately 54% and is not expected to change appreciably
through the year 2000. As of 1998 estimates, approximately 55.5% of Florida's
population was between the ages of 20 and 64 years old. And, from 1990 through
1998 non-agricultural employment rose 24%, as compared to a 15.9% population
increase during that same period. Over that same time period, Florida's labor
force grew by 13.6%.
Due to the large number of retirees, Florida's personal income has
generally been insulated from certain economic effects. Florida's per capita
personal income grew by about 4.1% in 1997, compared to the national average of
about 4.7% during 1992 through 1997. Fourth quarter of 1998 estimates indicate
that the gain had increased to 6.3%. Overall, Florida's medial household income
increased at an annualized rate of 3.2% per year over the 10-year period ending
in 1998. However, because Florida has a proportionally greater retirement age
population, property income (dividends, interest, and rent) and transfer
payments (including social security and pension benefits, among other sources of
income) are a relatively more important sources of income to the State than in
the nation, generally, and the southeast. Property income, and transfer payments
are typically less sensitive to national business cycles than employment income
and, therefore, have traditionally acted as a stabilizing force within Florida's
economy during weak economic periods. Florida's retirement age population,
living in part on interest income, will be adversely affected by any drops in
interest rates. Efforts at both the state and federal level are underway to
reduce health care expenditures and Florida relies more than most other states
on federal Medicare and Medicaid dollars targeted to the elderly. In addition,
cuts in entitlements such as Social Security could have an adverse impact on
Florida's economy. Feared entitlement cuts themselves have the effect of
reducing the consumer confidence of Florida's elderly population.
The service sector is Florida's largest employer. Florida is predominantly
a service-oriented state, in the bottom fifth of states in per capita value
added to the economy by manufacturing. In contrast, the southeast and the nation
have a greater proportion of manufacturing jobs which tend to pay higher wages.
Consolidations, restructurings and failures in the service sector, in recent
years, have adversely affected the Florida economy. In addition, manufacturing
jobs in Florida differ substantially from those available nationwide and in the
southeast, which are more concentrated in areas such as heavy equipment, primary
metals, chemicals and textile mill products. Florida has a concentration of
manufacturing jobs in high-tech and high value-added sectors, such as electrical
and electronic equipment, as well as printing and publishing. These kinds of
manufacturing jobs tend to be less cyclical than other forms of manufacturing
employment. Florida's manufacturing sector has kept pace with the nation, at
about 6% of the total U.S. manufacturing employment, since the beginning of the
1990's. However, defense cutbacks and a diminished space program may make it
difficult to expand or even maintain Florida's existing small high-tech
manufacturing base. New ventures in the computer and intellectual property
industries may help to counteract losses in government and the space program.
The success or failure of efforts to increase the number of high-tech jobs in
connection with the Venture Star space plant, Lockheed Martin Corp.'s reusable
launch vehicle in Florida's East Coast and the impact of initiatives to develop
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technology based businesses along Florida's I-4 corridor may affect Florida's
ability to expand or maintain a high-tech manufacturing base.
In the area of international trade, Florida is considered well positioned
to take advantage of strong economic growth in Latin America. Florida's exports
to its top five Latin American markets (Brazil, Columbia, Argentina, Venezuela
and Dominican Republic) reached $10 billion in 1994. However, poor economic
conditions in Asia could affect Latin American countries, negatively impacting
upon Florida's trade with Latin America.
During the period 1985 - 1996, the State's population increased an
estimated 26.1%. However, that growth rate has slowed in the later half of the
1990s, thus Florida's total population has grown by approximately 19.6% from
1989 through 1999. In the same period of time, Florida's total employment grew
by approximately 28.5%. Florida's population grew about 1.6% during the period
of July 1, 1997 to July 1, 1998. In 1997, Florida's job base grew by about 2.6%,
however, a large portion of the new jobs were temporary positions. Florida's
non-farm employment increased by approximately 4.1% during the year period
ending December 1999. The average unemployment rate in Florida from 1986 to 1997
was approximately 6.2%, while the national average has been approximately 6.2%.
In January, 1998, however, the unemployment rate in Florida was 4.6% compared
with 4.8% nationally. In July of 1998, Florida's unemployment rate dropped to
3.8%, which was the lowest on a seasonally adjusted basis since October 1973;
and January 2000 estimates place Florida's unemployment rate at 3.7%.
Florida's economy has been and currently is partially dependent on the
highly cyclical construction and construction related manufacturing sectors.
Florida's single and multi-family housing starts accounted for approximately
8.5% of total U.S. housing starts in 1995, although Florida's population is 5.4%
of the U.S. population. Total housing starts grew about 1% between 1996 and
1997. Traditionally, Florida's rapid growth in population has been a driving
force behind Florida's construction industry. However, factors such as a tight
labor market, Federal tax reform, the availability and cost of financing,
over-development, impact and other development fees and Florida's growth
management legislation and comprehensive planning requirements may adversely
affect construction activity. Lower interest rates will tend to stimulate
construction, while increased rates will diminish construction activity.
Tourism is one of Florida's most important industries. Approximately 42.5
million domestic and international tourists visited Florida in 1996. In terms of
business activities and state tax revenues, tourists in Florida effectively
represented additional residents, spending their dollars predominantly at eating
and drinking establishments, hotels and motels, and amusement and recreation
parks. Visitors to the State tend to arrive by aircraft slightly more so than by
automobile. Florida cities like Miami and Tampa have witnessed increased
development of their capabilities as departure ports for the cruise industry.
However, increased gasoline prices may impact on the number of seasonal tourists
during the year 2000 summer tourist season. The State's tourist industry over
the years has become more sophisticated, attracting visitors year-round, thus,
to a degree, reducing its seasonality. Besides a sub-tropical climate and clean
beaches that attract people in the winter months, the state has added, among
other attractions, a variety of amusement and educational theme parks. New
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additions to theme parks in the Orlando area have been added in the latter half
of the 1990's. Significant beach re-nourishment projects have been conducted
along Florida's west coast and beach areas such as Miami's South Beach have seen
a revival. Other cities, like Tampa and Jacksonville, have seen recent
development of new NFL stadiums and increased development of downtown waterfront
attractions, including increased hotel and convention center capabilities. These
types of diversification have helped and are anticipated to continue to reduce
the seasonal and cyclical character of the industry, and effectively stabilize
tourist-related employment as a result. However, higher gasoline prices, any
downturn in the cruise industry and economic uncertainties in Asia, Europe and
Latin America and the comparatively weak value of the Canadian dollar may reduce
domestic or international tourism to Florida.
The greatest single source of tax receipts in Florida is the sales and use
tax, which accounted for approximately $13.349 billion of revenue in the
1997-1998 fiscal year. The State's dependence on sales taxes keeps the State
susceptible to economic downturns which could cause a reduction in sales tax
collections. Growth estimates for the yield from gross tax receipts rose from
4.5% to 6% in 1998-99, and actual collections were up 7.7%. Growth rate
projections range from 0.5% for 2000 to about 3.8% in fiscal years 2001 and
2002. The growth rate in gross tax receipts is estimates to be 3% annually from
2003 through 2008.
Florida depends more on sales taxes than most other states. This reliance
has increased over time primarily because of a constitutional prohibition of a
personal income tax and the reservation of ad valorem property taxes to local
governments. The State does not levy ad valorem taxes on real property or
tangible personal property. Counties, school districts and municipalities are
authorized by law, and special districts may be authorized by law, to levy ad
valorem taxes.
Slightly less than 10% of the sales tax is designated for local
governments and is distributed to the counties in which it is collected for
local use by such counties and their municipalities. In addition, local
governments may have (by referendum) limited authority to assess discretionary
sales surtaxes within their counties.
The adopted 1999-2000 budget includes considerable tax relief, mirroring
the governor's recommendations. Intangible taxes were lowered by 1/2 mill
(0.005) on financiaL assets and in 199-2000 there is designated a second of a
three-part phase-out of such tax on accounts receivable. Additionally, the
popular sales tax holiday on clothing was expanded, along with several other
minor modifications. Revenues were initially projected at $18,555 million for
1999-2000 which would be a 4.4% increase, and with the net $349 million in
legislative adjustments to the budget (including $165 million in intangible
taxes and $143 million in sales taxes), revenues are estimated to be $18,206
million, which would be a 2.4% increase. Spending is still forecast to increase
3.0%. The sales tax, estimated at $13.2 billion, is projected to rise 4.7%,
while the corporate income tax estimated at $1.5 billion) is projected for a
1.4% gain. However, the documentary stamp tax is projected for a 7.2% decline
from current estimates to $425 million. Further slowing in personal income
increases were experienced 1999 and is anticipated for 2000. Personal income
increased by an average of 4.9% in 1999, and an increase of 3.5% is expected in
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2000. Employment rose an estimated 3.4% in 1999 and is expected to rise by 2.9%
in 2000. By June 30, 2000, the balance is expected to be lessened to $416
million, in addition to the $847 million in stabilization reserve (which amounts
to approximately 4.6% of projected 1999-2000 revenues). Revenues in the first
month of fiscal 2000 were $99 million over adjusted estimates, which represents
an estimated 7% increase over July 1998. This increased revenue may be explained
as largely sales tax accounting for $72.4 million.
Due to its involvement in a wide range of activities and the complexity of
its system of taxation, Florida is a party to various legal actions. The
outcomes of some of these actions could significantly reduce Florida's ability
to collect taxes, force Florida to refund taxes already collected, require the
State to pay damage awards, or result in the loss of valuable state property.
Furthermore, past and pending litigation, to which Florida is not a party, may
create precedents which may effectively result in future costs or revenue
losses. In addition, the issuers may be involved in a variety of litigation
which could have a significant adverse impact on their financial standing.
Florida's local governments operate in a restrictive legal and political
fiscal environment. They are faced with State imposed revenue raising and
revenue expenditure constraints, rapid population growth, and voters'
expectations for expanded services without higher property taxes. The Florida
Constitution preempts to the State all revenue sources not specifically provided
by law, except for the ad valorem property tax. It also limits levies of local
governments to 10 mills. A constitutionally mandated homestead tax exemption of
$25,000 per homestead also has eroded the tax base of many less populated
counties. In addition, a recent constitutional amendment limits the ability of
local governments to increase the assessed valuation of homestead property,
which, together with the 10 mills limitation, could have a substantial adverse
affect on local governments in the future. Florida law also requires that
agricultural property be assessed according to its value in current use rather
than its fair market value. Florida's local governments are not permitted by law
to impose a personal income or payroll tax.
Florida's Growth Management Act requires local governments to prepare
growth plans for approval by the State. Local government growth plans must be
restricted to require that new development will not be permitted unless adequate
infrastructure such as roads, sewer, water and parks are available concurrently
with the development. Known as Florida's "concurrency" requirement, this
constraint has put heavy economic and political pressure on local governments.
In addition, the Growth Management Act has spawned litigation involving local
governments, which itself consumes resources, and in which an adverse outcome
can adversely affect the local governments involved.
In November, 1994, the voters of Florida approved the State legislature's
joint resolution to amend the Florida Constitution. This amendment limits the
amount of taxes, fees, licenses and charges imposed by the legislature and
collected during any fiscal year to the amount of revenues allowed for the prior
fiscal year, plus an adjustment for growth. Growth is defined as the amount
equal to the average annual rate of growth in Florida personal income over the
most recent twenty quarters times the State revenues allowed for the prior
fiscal year. The revenues allowed for any fiscal year can be increased by a
two-thirds vote of the State legislature. Any excess revenues generated must be
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put into the Budget Stabilization Fund until it is fully funded and then
refunded to taxpayers. Included among the categories of revenues which are
exempt from the revenue limitation, however, are revenues pledged to State
bonds.
The value of Florida municipal instruments may also be affected by general
conditions in the money markets or the municipal bond markets, the levels of
Federal income tax rates, the supply of tax-exempt bonds, the size of offerings,
maturity of the obligations, the credit quality and rating of the issues and
perceptions with respect to the level of interest rates.
General obligation bonds issued by the State of Florida have consistently
been rated Aa2, AA+, and AA by Moody's, S & P, and Fitch IBCA. Inc.,
respectively. There is no assurance that such ratings will be maintained for any
given period of time or that they may not be lowered, suspended or withdrawn
entirely by such rating agencies, or either of them if circumstances warrant.
Any such downward change in, suspension of, or withdrawal of such ratings, may
have an adverse affect on the market price of Florida municipal instruments.
Moreover, the rating of a particular series of revenue bonds or municipal
obligations relates primarily to the project, facility, governmental entity or
other revenue source which will fund repayment.
Florida's rapid growth is straining resources but has also permitted the
expansion of local governments and creates greater economic depth and diversity.
While infrastructure developments have lagged behind population growth, it is
expected that more infrastructure projects will be created, thereby increasing
Florida's governmental indebtedness and the issuance of additional municipal
instruments.
While the bond ratings and some of the information presented above may
indicate that Florida is in satisfactory economic health, there can be no
assurance that there will not be a decline in economic conditions or that
particular municipal instruments in the portfolio of the FLORIDA FUND will not
be adversely affected by any changes in the economy. In addition, the economic
condition in Florida as a whole is only one factor affecting individual
municipal instruments, which are subject to the influence of a multitude of
local political, economic and legal conditions and developments.
RISK FACTORS FOR THE GEORGIA FUND. The Georgia Fund will concentrate its
investments in debt obligations of the State of Georgia and guaranteed revenue
debt of its instrumentalities (the "Georgia Obligations"). The Georgia
Obligations may be adversely affected by economic and political conditions and
economic and legal developments within the State of Georgia. The information
contained in this summary of risk factors for the Georgia Fund is not intended
to be a complete discussion of all relevant risk factors. There may be other
factors not discussed herein that may adversely affect the value of the payment
of interest and principal on the Georgia Obligations.
For fiscal year 1999, the Georgia General Assembly authorized
$482,390,000, and a supplement of $794,719,000, in general obligation debt. At
the end of fiscal year 1999, the State of Georgia had existing general
obligation debt of $4,779,730,000. For fiscal year 2000, the Georgia General
Assembly authorized $568,185,000 in general obligation debt. The 1999D and 2000A
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series of Georgia obligation bonds are rated Aaa, AAA and AAA by Moody's, S&P,
and Fitch, respectively.
Georgia continues to experience steady growth in both the economic and
demographic arenas. Georgia's total net revenue collections for the fiscal year
ending June 30, 1999, amounted to approximately $12,068,000,000, an increase of
approximately 7.7% from the previous fiscal year. Estimated revenue from taxes
and fees for fiscal year 2000 is projected to be approximately $12,641,000,000.
According to the Department of Labor for the State of Georgia, Georgia's
current unemployment rate is approximately 3.3%, placing Georgia below the
national average unemployment rate. Total employment in Georgia is projected to
increase by approximately fifteen percent by the year 2005, with large increases
forecasted in service industries. Georgia's population is expected to grow
steadily with projected population to increase to over 8.4 million people by the
year 2005.
While Georgia's immediate financial future appears sound, should the
above-mentioned trends slow or reverse themselves, the Georgia economy and state
revenues could be adversely affected. There can be no assurance that the events
discussed above will not negatively affect the market value of the Georgia
Obligations or the ability of either the State of Georgia or its
instrumentalities to pay interest and repay principal on the Georgia Obligations
in a timely manner.
RISK FACTORS FOR THE MARYLAND FUND. Some of the significant financial
considerations relating to the investments of the Maryland Fund are summarized
below. This information is derived principally from official statements and
preliminary official statements released on or before July 14, 1999, relating to
issues of Maryland obligations and does not purport to be a complete
description.
The State's total expenditures for the fiscal years ended June 30, 1996,
June 30, 1997 and June 30, 1998 were $9.580 billion, $10.03 billion and $10.286
billion, respectively. The State's General Fund, the fund from which all general
costs of State government are paid and to which taxes and other revenues not
specifically directed by law to be deposited in separate funds are deposited or
credited, representing approximately 55% - 60% of each year's total budget, had
a surplus on a GAAP basis of $139.1 million in fiscal year 1996, of $298.1
million in fiscal year 1997, and $536.1 million in fiscal year 1998. The State
Constitution mandates a balanced budget.
On April 7, 1998, the General Assembly approved the 1999 fiscal year
budget. The 1999 Budget includes $3.3 billion in aid to local governments
(reflecting a $169.1 million increase in funding over 1998). The 1999 Budget
incorporates the first full year of the five-year phase-in of the 10% reduction
in personal income taxes, accelerated by legislation enacted by the 1998 General
Assembly, estimated to result in a reduction of revenues of approximately $300
million in fiscal year 1999. Based on the 1999 Budget, it is estimated that the
General Fund unreserved surplus on a budgetary basis at June 30, 1999, would be
approximately $27.9 million. The Revenue Stabilization Account of the State
Reserve Fund was established in 1986 to retain State revenues for future needs
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and to reduce the need for future tax increases. It is estimated that the
balance of the Revenue Stabilization Account as of June 30, 1999 would be $635.2
million. The 1999 Budget does not include any proposed expenditures dependent on
additional revenue from new or broad-based taxes.
On April 12, 1999, the General Assembly approved the 2000 Budget. The 2000
Budget includes $3.0 billion in aid to local governments and $68.0 million in
net General Fund deficiency appropriations for fiscal year 1999. It is estimated
that the general fund surplus on a budgetary basis at June 30, 2000 will be
approximately $11.2 million. In addition, it is estimated that the balance in
the Revenue Stabilization Account of the State Reserve Fund at June 30, 2000
will be $578.1 million (after a $160 million transfer to the General Fund).
The public indebtedness of Maryland and its instrumentalities is divided
into three basic types. The State issues general obligation bonds for capital
improvements and for various State-sponsored projects. The State Constitution
prohibits the contracting of State debt unless the debt is authorized by a law
levying an annual tax or taxes sufficient to pay the debt service within 15
years and prohibiting the repeal of the tax or taxes or their use for another
purpose until the debt has been paid. The Department of Transportation of
Maryland issues limited, special obligation bonds for transportation purposes
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities issue obligations payable
solely from specific non-tax enterprise fund revenues and for which the State
has no liability and has given no moral obligation assurance.
According to recent available ratings, general obligation bonds of the
State of Maryland are rated "Aaa" by Moody's and "AAA" by S&P, as are those of
the largest county of the State, i.e., Montgomery County in the suburbs of
Washington, D.C. General obligation bonds of Baltimore County, a separate
political entity surrounding Baltimore City and the third largest county in the
State, are rated "Aaa" by Moody's and "AAA" by S&P. General obligation bonds of
Prince George's County, the second largest county, which is also in the suburbs
of Washington, D.C., are rated "Aa3" by Moody's and "AA-" by S&P. The general
obligation bonds of those other counties of the State that are rated by Moody's
carry an "A" rating or better except for those of Allegheny County, which are
rated "Baa1". The general obligation bonds of Baltimore City, one of the most
populous municipalities in Maryland, are rated "A1" by Moody's and "A" by S&P.
The Washington Suburban Sanitary District, a bi-county agency providing water
and sewerage services in Montgomery and Prince George's Counties, issues general
obligation bonds rated "A" by Moody's and "AA" by S&P. Most Maryland Health and
Higher Education Authority and State Department of Transportation revenue bonds
issues have received an "A" rating or better from Moody's. See Appendix A for a
description of municipal bond ratings.
While the ratings and other factors mentioned above indicate that Maryland
and its principal subdivisions and agencies are overall in satisfactory economic
health, there can, of course, be no assurance that this will continue or that
particular bond issues may not be adversely affected by changes in state or
local economic or political conditions.
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RISK FACTORS FOR THE MASSACHUSETTS FUND. Some of the significant financial
considerations relating to the investments of the MASSACHUSETTS FUND are
summarized below. This information is derived principally from official
statements and preliminary official statements released on or before March 3,
2000, relating to issues of Massachusetts obligations and does not purport to be
a compete description.
Annual expenditures by the Commonwealth of Massachusetts for programs and
services provided by state government for fiscal years 1990 and 1991 exceeded
total current year revenues. The fiscal 1990 and 1991 budgetary deficits were in
effect funded by the issue of $1.42 billion of bonds. Total revenues and other
sources exceeded total expenditures and other uses in fiscal 1992, 1993, 1994,
1995, 1996, 1997 and 1998 by approximately $312.3 million, $13.1 million, $26.8
million, $136.7 million, $446.4 million, $221.0 million and $798.1 million,
respectively. Total revenues and other sources in fiscal 1999 were $79.7 million
less than total expenditures and other uses with the $79.7 million deficit being
provided for by the application of fiscal 1999 beginning fund balances.
The Commonwealth's fiscal 2000 budget is based on estimated total revenues
and other sources of approximately $21.918 billion. Total expenditures and other
uses for fiscal 2000 are estimated at approximately $21.382 billion. The fiscal
2000 budget proposes that the difference between estimated revenues and other
sources and estimated expenditures and other uses be provided for by application
of the beginning fund balances for fiscal 2000. The fiscal 2000 budget is based
upon numerous spending and revenue estimates, the achievement of which cannot be
assured.
On January 26, 2000 the Governor submitted his fiscal 2001 budget
recommendations to the legislature which provide for budgeted expenditures and
other uses of approximately $596 million, or 2.8%, above total fiscal 2000
expenditures and other uses of $21.382 billion. The Governor's recommendations
are, of course, subject to legislative consideration.
The Commonwealth's capital program currently includes the Central
Artery/Ted Williams tunnel project, a major construction project that is the
completion of the federal interstate highway system. The estimated cost of this
project was recently revised upward by $1.398 billion to approximately $13.1
billion. As a result the Governor announced a revised project finance plan to
raise the additional $1.398 billion and filed legislation to implement it. The
plan calls for the use of $600 million of various Massachusetts Turnpike
Authority resources, the issue of $600 million of new Turnpike Authority bonds,
$50 million from the Massachusetts Port Authority for acquisition of an exit
ramp to serve its airport and the issue of an additional $150 million federal
grant anticipation notes. Much of the plan will require legislative approval,
and the legislature may revise the plan in whole or in part in the course of its
deliberations. Certain elements of the plan may also require federal approval.
In Massachusetts the tax on personal property and real estate is the
principal source of tax revenues available to cities and towns to meet local
costs. "Proposition 2 1/2", AN initiative petition adopted by the voters of the
Commonwealth of Massachusetts on November 4, 1980, limits the power of
Massachusetts cities and towns and certain tax-supported districts and public
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agencies to raise revenue from property taxes to support their operations,
including the payment of debt service, by limiting the amount by which the total
property taxes may increase from year to year. The reductions in local revenues
and anticipated reductions in local personnel and services resulting from
Proposition 2 1/2 created strong demand for substantial increases in
Commonwealth funded local aid, which increased significantly in fiscal years
1982 through 1989. The effect of this increase in local aid was to shift a major
part of the impact of Proposition 2 1/2 to the CommonwealtH. Because of
decreased Commonwealth revenues, local aid declined significantly in fiscal
1990, 1991 and 1992. Local aid increased somewhat in each fiscal year from 1993
through 1999 and is expected to increase again in fiscal 2000.
Limitations on Commonwealth tax revenues have been established by enacted
legislation approved by the Governor on October 25, 1986 (repealed as of July 1,
1999) and by public approval of an initiative petition on November 4, 1986. The
two measures were inconsistent in several respects, including the methods of
calculating the limits and the exclusions from the limits. The initiative
petition, unlike its legislative counterpart, contains no exclusion for debt
service on Commonwealth bond and notes or for payments on Commonwealth
guarantees. Commonwealth tax revenues in fiscal 1987 exceeded the limit imposed
by the initiative petition resulting in an estimated $29.2 million reduction
which was distributed to taxpayers in the form of a tax credit against calendar
year 1987 personal income tax liability pursuant to the provisions of the
initiative petition. Tax revenues since fiscal 1988 have not exceeded the limit
set by either the initiative petition or the legislative enactment.
The Commonwealth maintains financial information on a budgetary basis.
Since fiscal year 1986, the Comptroller also has prepared annual financial
statements in accordance with generally accepted accounting principals (GAAP) as
defined by the Government Accounting Standards Board. GAAP basis financial
statements indicate that the Commonwealth ended fiscal 1990, 1991, 1992, 1993
and 1994 with fund deficits of approximately $1.896 billion, $761.2 million,
$381.6 million, $184.1 million and $72 million, respectively. GAAP basis
financial statements indicated that the Commonwealth ended fiscal 1995, 1996,
1997, 1998 and 1999 with fund equities of approximately $287.4 million, $709.2
million, $1,096 billion, $1.841 billion and $1.705 billion, respectively.
RISK FACTORS FOR THE MICHIGAN FUND. The information set forth below is
derived in part from the official statements prepared in connection with the
issuance of Michigan municipal bonds and similar obligations and other sources
that are generally available to investors. The information is provided as
general information intended to give a recent historical description and is not
intended to indicate future or continuing trends in the financial or other
positions of the State of Michigan (the "State").
The principal sectors of Michigan's economy are manufacturing of durable
goods (including automobiles and components and office equipment), tourism and
agriculture. The durable goods manufacturing sector in Michigan and in other
states tends to be more vulnerable to economic downturns and the component
industries have been characterized as having excess capacity, resulting in plant
closings and permanent reductions in the workforce, many of which have occurred
in Michigan. Although the Michigan unemployment rate has recently been lower
than the national unemployment rate, over the last ten years the Michigan
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unemployment rate has been typically much higher than the national average. The
market value and marketability of bonds issued by the State and local units of
government may be affected adversely by the same factors that affect Michigan's
economy generally. The ability of the State and its local units of government to
pay the principal of and the interest on their bonds may be affected by such
factors, by the possibility of an unfavorable resolution of lawsuits against the
State in the areas of corrections, highway maintenance, social services, court
funding, tax collection, and budgetary reductions to school districts, and by
certain constitutional, statutory and charter limitations.
The State finances its operations through the State's General Fund and
special revenue funds. The General Fund receives revenues of the State that are
not specifically required to be included in the special revenue funds. The
majority of the revenues from State taxes are from the State's personal income
tax, single business tax, use tax and sales tax. Significant portions of tax
revenues are designated for the State's School Aid Fund and are transferred to
school districts for the financing of primary and secondary school operations.
In 1977, the State enacted legislation which created the Counter-Cyclical
Budget and Economic Stabilization Fund ("BSF"). The BSF is designed to
accumulate balances during years of significant economic growth which may be
utilized in years when the State's economy experiences cyclical downturns or
unforeseen fiscal emergencies. Prior to 1992, the State's General Fund reflected
negative balances. General Fund surplus during 1992-98 was transferred, as
required by statute, to the BSF. Calculated on an accrual basis, the unreserved
ending accrued balances of the BSF were $987.9 million at September 30, 1995,
$614.5 million at September 30, 1996, $579.8 million at September 30, 1997, and
$1.000.5 million at September 30, 1998. The balance is net of a reserve for
future education spending of $529.1 million at September 30, 1996 and $572.6
million on September 30, 1997. The State's Annual Financial report for fiscal
years ending September 30 is generally available at the end of March of the
following year.
Beginning in 1993, the Michigan Legislature enacted several statutes which
significantly affect Michigan property taxes and the financing of primary and
secondary school operations. The property tax and school finance reform measures
included a ballot proposal ("Proposal A") and constitutional amendment which was
approved by voters on March 15, 1994. Under Proposal A as approved, the State
sales and use tax rates were increased from 4% to 6%, the State income tax and
cigarette tax were increased, the Single Business Tax imposed on business
activity within the state was decreased and, beginning in 1994, a State property
tax of 6 mills is now imposed on all real and personal property currently
subject to the general property tax. Proposal A contains additional provisions
regarding the ability of local school districts to levy supplemental property
taxes for operating purposes as well as a limit on assessment increases for each
parcel of property, beginning in 1995 to the lesser of 5% or the rate of
inflation.
Under Proposal A, much of the additional revenue generated by the new
taxes will be dedicated to the State School Aid Fund. Proposal A shifts
significant portions of the cost of local school operations from local school
districts to the State and raises additional State revenues to fund these
additional State expenses. These additional revenues will be included within the
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State's constitutional revenue limitations and may impact the State's ability to
raise additional revenues in the future.
In July, 1997, the Michigan Supreme Court issued a decision in cases filed
by many of Michigan's local school districts against the State regarding the
manner in which the State disburses funds to school districts for special
education and special education transportation, bilingual education, driver
education and school lunch programs, including a case captioned Donald Durant,
et al v State of Michigan. The court held that monetary damages estimated at
over $900 million were owed to the 84 school districts involved in Durant and
over 400 other Michigan school districts, and legislation has been enacted to
pay such damages from the BSF over a 15 year period. Similar constitutional
challenges to the funding of special education services and transportation have
been filed by another 100 school districts in a new matter (Durant II) that was
remanded to the Michigan Court of Appeals in September 1998. The ultimate
resolution of those claims is not presently determinable.
The State has developed a risk management program to identify risks faced
by the State concerning year 2000 operability. The State has identified computer
applications, primarily within the executive branch, that are critical to
conducting the State's operations and that need to be year 2000 compliant. The
State's year 2000 remediation efforts have been aimed primarily at ensuring
unimpeded and uninterrupted operation, including tax collections, investment
activities, and timely payment of its obligations. Because of the unprecedented
nature of the year 2000 issue, its effect and the success of the related
remediation efforts cannot be fully determinable until the year 2000 and
thereafter.
Currently, the State's general obligation bonds are rated Aa1 by Moody's
and AA+ by Standard & Poor's, following rating increases announced earlier in
1998. To the extent that the portfolio of Michigan obligations is comprised of
revenue or general obligations of local governments or authorities, rather than
general obligations of the State of Michigan, ratings on such Michigan
obligations will be different from those given to the State of Michigan and
their value may be independently affected by economic matters not directly
impacting the State.
RISK FACTORS FOR THE MINNESOTA FUND. The information set forth below is
derived from official statements prepared in connection with the issuance of
obligations of the State of Minnesota and other sources that are generally
available to investors. The information is provided as general information
intended to give a recent historical description and is not intended to indicate
further or continuing trends in the financial or other positions of the State of
Minnesota. Such information constitutes only a brief summary, relates primarily
to the State of Minnesota, does not purport to include details relating to all
potential issuers within the State of Minnesota whose securities may be
purchased by the MINNESOTA FUND, and does not purport to be a complete
description.
The State of Minnesota has experienced certain budgeting and financial
problems since 1980. However, in recent years, Accounting General Fund balances
have been positive.
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In February 1992 the Commissioner of Finance estimated the Accounting
General Fund balance at June 30, 1993, at negative $569 million. The balance at
June 30, 1995, was projected at negative $1.75 billion.
The 1992 Legislature reduced expenditures by $262 million for the biennium
ending June 30, 1993, enacted revenue measures expected to increase revenue by
$149 million, and reduced the budget reserve by $160 million to $240 million.
After the Legislature adjourned in April 1992, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1993, at $2.4 million,
and projected the balance at June 30, 1995, at negative $837 million. A November
1992 forecast estimated the balance at June 30, 1993, at positive $217 million
and projected the balance at June 30, 1995, at negative $769 million.
A March 1993 forecast projected an Accounting General Fund balance at June
30, 1995, at negative $163 million out of a budget for the biennium of
approximately $16.7 billion, and estimated a balance at June 30, 1997, at
negative $1.6 billion out of a budget of approximately $18.7 billion.
The 1993 Legislature authorized $16.519 billion in spending for the
1993-1995 biennium, an increase of 13.0 percent from 1991-1993 expenditures.
Resources for the 1993-1995 biennium were projected to be $16.895 billion,
including $657 million carried forward from the previous biennium. The $16.238
billion in projected non-dedicated and dedicated revenues was 10.3 percent
greater than in the previous biennium and included $175 million from revenue
measures enacted by the 1993 Legislature. The Legislature increased the health
care provider tax to raise $79 million, transferred $39 million into the
Accounting General Fund and improved collection of accounts receivable to
generate $41 million.
After the Legislature adjourned in May 1993, the Commissioner of Finance
estimated that at June 30, 1995, the Accounting General Fund balance would be
$16 million and the budget reserve, as approved by the 1993 Legislature, would
be $360 million. The Accounting General Fund balance at June 30, 1993, was $463
million.
The Commissioner of Finance, in a November 1993 forecast, estimated the
Accounting General Fund balance at June 30, 1995, at $430 million, due to
projected increases in revenues and reductions in expenditures, and the balance
at June 30, 1997, at $389 million. The Commissioner recommended that the budget
reserve be increased to $500 million. He estimated that if current laws and
policies continued unchanged, revenue would grow 7.7 percent and expenditures
6.0 percent in the 1995-1997 biennium.
A March 1994 forecast projected an Accounting General Fund balance at June
30, 1995, at $623 million, principally due to a projected $235 million increase
in revenues to $16.6 billion for the biennium. The balance at June 30, 1997, was
estimated to be $247 million.
The 1994 Legislature provided for a $500 million budget reserve;
appropriated to school districts $172 million to allow the districts, for
purposes of state aid calculations, to reduce the portion of property tax
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collections that the school districts must recognize in the fiscal year during
which they receive the property taxes; increased expenditures $184 million; and
increased expected revenues $4 million.
Of the $184 million in increased expenditures, criminal justice
initiatives totaled $45 million, elementary and higher education $31 million,
environment and flood relief $18 million, property tax relief $55 million, and
transit $11 million. A six-year strategic capital budget plan was adopted with
$450 million in projects financed by bonds supported by the Accounting General
Fund. Other expenditure increases totaled $16.5 million.
Included in the expected revenue increase of $4 million were conformity
with federal tax changes to increase revenues $27.5 million, a sales tax
phasedown on replacement capital equipment and miscellaneous sales tax
exemptions decreasing revenues $17.3 million, and other measures decreasing
revenues $6.2 million.
After the Legislature adjourned in May 1994, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1995, at $130 million.
The Commissioner of Finance, in a November 1994 forecast, estimated the
Accounting General Fund balance at June 30, 1995, at $268 million, due to
projected increases in revenues and decreases in expenditures, and the balance
at June 30, 1997, at $190 million.
A February 1995 forecast projected an Accounting General Fund balance at
June 30, 1995, at $383 million, due to a $93.5 million increase in projected
revenues and a $21.0 million decrease in expenditures. The balance at June 30,
1997, was projected at $250 million.
The 1995 Legislature authorized $18.220 billion in spending for the
1995-1997 biennium, an increase of $1.395 billion, 8.3 percent, from 1993-1995
expenditures. Resources for the 1995-1997 biennium were projected to be $18.774
billion, including $921 million carried forward from the previous biennium.
The Legislature authorized 7.1 percent more spending for elementary and
secondary education in the 1995-1997 biennium than in 1993-1995, 0.9 percent
more in local government aids, 14.2 percent more for health and human services,
2.3 percent more for higher education, and 25.1 percent more for corrections.
The Legislature set the budget reserve at $350 million and established a
supplementary reserve of $204 million in view of predicted federal cutbacks.
After the Legislature adjourned in May 1995, the Commissioner of Finance
estimated that at June 30, 1997, the Accounting General Fund balance would be
zero. The Accounting General Fund balance at June 30, 1995, was $481 million.
The Commissioner of Finance, in a November 1995 forecast, estimated the
Accounting General Fund balance at June 30, 1997, at $824 million, due to a $490
million increase in revenues from those projected in May 1995, a $199 million
reduction in projected expenditures, and a $135 million increase in the amount
carried forward from the 1993-1995 biennium. An improved national economic
outlook increased projected net sales tax revenue $257 million and reduced
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projected human services expenditures $231 million. The Commissioner estimated
the Accounting General Fund balance at June 30, 1999, at negative $28 million.
Only $15 million of the $824 million projected 1995-1997 surplus was
available for spending. The statutes require that an additional $15 million be
placed in the supplementary budget reserve, and an additional $794 million must
be appropriated to school districts to allow the districts, for purposes of
state aid calculations, to eliminate the 48 percent of property tax collections
that the school districts must recognize in the fiscal year during which they
receive the property taxes.
A February 1996 forecast projected an Accounting General Fund balance at
June 30, 1997, at $873 million, due to a $104 million increase in projected
revenues, a $19 million increase in expenditures, and a $36 million reduction in
the June 30, 1995, ending balance. The amount available for spending increased
from $15 million to $64 million.
In February 1996, the Commissioner of Finance estimated the Accounting
General Fund balance at June 30, 1999, at $54 million.
The 1996 Legislature reduced the State of Minnesota's commitment to
eliminate the so-called school recognition shift. The 1995 Legislature had voted
to allow school districts, for purposes of state aid calculations, to eliminate
the 48 percent of property tax collections that the school districts must
recognize in the fiscal year during which they receive the property taxes. The
1996 Legislature raised the percentage for the 1995-1997 biennium from zero to 7
percent, saving the State $116 million.
The 1996 Legislature increased expenditures $130 million, including $37
million for elementary education and youth development; $14 million for higher
education; $17 million for health systems and human services reforms; $16
million for public safety and criminal justice; and $36 million for
transportation, environment and technology. The Legislature also approved $614
million in capital projects to be funded by general obligation bonds and
appropriations and increased expected revenues $5 million.
After the Legislature adjourned in April 1996, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1997, at $1 million.
The Accounting General Fund balance at June 30, 1996, was $445 million.
The Commissioner of Finance, in a November 1996 forecast, estimated the
Accounting General Fund balance at June 30, 1997, at $793 million, due to a $646
million increase in revenues from those projected in April 1996, a $209 million
reduction in expenditures, and $63 million in other changes. The longest period
of national economic growth since World War II, through mid-1999, was forecast.
Individual income taxes were forecast to be $427 million more than projected in
April 1996, and sales taxes $81 million more. Of the $209 million reduction in
forecast expenditures, $199 million were health and human services expenditures.
Existing statutes require the first $114 million of the forecast balance
to be dedicated to a new education aid reserve for use in the 1997-1999
biennium. Another $157 million must be used to increase from 85 to 90 percent
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the portion of state aid to school districts that is paid in the fiscal year
during which the districts become entitled to the aid.
In November 1996, the Commissioner of Finance estimated the Accounting
General Fund balance at June 30, 1999, at $1.4 billion.
A February 1997 forecast projected an Accounting General Fund balance at
June 30, 1997, at $866 million (after taking into account the $114 million and
$157 million items referred to above), due to a $236 million increase in
projected revenues and a $108 million decrease in expenditures. The balance at
June 30, 1999, was projected at $1.7 billion.
The 1997 Legislature, in a regular session and June and August special
sessions, authorized $20.924 billion in spending for the 1997-1999 biennium, an
increase of $2.231 billion, or 11.8 percent, from 1995-1997 expenditures.
Resources for the 1997-1999 biennium were projected to be $21.946 billion,
including $1.630 billion carried forward from the previous biennium.
The Legislature authorized 14.8 percent more spending for elementary and
secondary education spending in the 1997-1999 biennium than in 1995-1997, 17.6
percent more for health and human services, 12.5 percent more in local
government aids, 10.7 percent more for higher education, and 0.3 percent more
for all other expenditures. The Legislature set the General Fund budget reserve
at $522 million. The cash flow account was set at $350 million, and a property
tax reform reserve account of $46 million was created for future restructuring
of the property tax system. Other reserves totaled $72 million.
After the Legislature adjourned its second special session in August 1997,
the Commissioner of Finance estimated that at June 30, 1999, the Accounting
General Fund balance would be positive $32 million. The Accounting General Fund
balance at June 30, 1997 was an estimated $861 million.
The Commissioner of Finance, in a November 1997 forecast, estimated the
Accounting General Fund balance at June 30, 1999, at $1.360 billion, $1.328
billion more than estimated after the 1997 Legislature adjourned, due to a $729
million increase in projected revenues, a $256 million reduction in projected
expenditures, a $21 million increase in dedicated reserves, and a $364 million
increase in the projected amount carried forward from the 1995-1997 biennium.
Higher than anticipated individual income tax payments were the major source of
$272 million in additional revenues in the first half of 1997, and human
services savings were the principal source of $92 million in reduced
expenditures. The Commissioner estimated the Accounting General Fund balance at
June 30, 2001, at $1.284 billion.
Only $453 million of the $1.360 billion projected 1997-1999 surplus was
available for spending. The statutes allocate the first $81 million of the
forecast balance to fund K-12 education tax credits and deductions enacted in
1997. Sixty percent of the remainder plus interest, $826 million, is added to a
property tax reform account.
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A February 1998 forecast projected an Accounting General Fund balance at
June 30, 1999, at $1.045 billion, due to a $507 million increase in projected
revenues, a $90 million decrease in expenditures, and a $5 million increase in
dedicated reserves. The balance at June 30, 2001, was projected at $2.137
billion.
The 1998 Legislature increased spending $125 million for K-12 education
aids, $90 million to reduce the school property tax recognition shift percentage
to zero, $73 million for higher education, and $148 million for all other
operations. The Legislature also approved $999 million in capital improvements,
to be funded by $509 million in bonds and $502 million in appropriations. The
General Fund budget reserve was set at $622 million.
After the Legislature adjourned in April 1998, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1999, at $35 million.
The Commissioner of Finance, in a November 1998 forecast, estimated the
Accounting General Fund balance at June 30, 1999, at $953 million, due to an
$803 million increase in non-tobacco revenues, the receipt of $461 million in
tobacco settlement revenues, and a $262 million reduction in expenditures. A
total of $609 million of the $1.562 billion of estimated available revenues is
statutorily dedicated to reserves, tax reduction, and cash to replace bonding.
The Commissioner of Finance in November 1998 estimated the balance at June
30, 2001, at $3.324 billion.
A February 1999 forecast projected an Accounting General Fund balance at
June 30, 1999, at $1.235 billion due to a $285 million increase in projected
revenues and a $3 million increase in expenditures. The balance at June 30,
2001, was projected at $4.056 billion.
The 1999 Legislature authorized $23.384 billion in spending for the
1999-20001 biennium, an increase of $2.053 billion, or 9.6%, from 1997-1999
expenditures. Resources for the 1999-20001 biennium were projected to be $24.620
billion. Revenues, excluding the balance brought forward from the 1997-1999
biennium, are expected to be $2.248 billion, or 10.8%, greater than the previous
biennium.
The Legislature passed a $1,250 billion sales tax rebate. Individual
income tax rates were reduced in all three brackets, from 6.0% to 5.5%, from
8.0% to 7.25%, and from 8.5% to 8.0%. In addition, the "marriage penalty"
inherent in the previous rate structure was eliminated. These changes reduced
projected revenues by $1.312 billion for the 1999-2001 biennium.
The Legislature authorized 15.7% more spending for elementary and
secondary education in the 1999-2001 biennium than in 1997-1999, 21.6% more for
property tax aid programs to local governments, 12.2% more for health and human
services and 7.0% more for higher education.
The Legislature also provided that if, based on a forecast of General Fund
revenues and expenditures in November of an even-numbered year of February of an
odd-numbered year, the Commissioner of Finance projects a positive unrestricted
budgetary General Fund balance at the close of the biennium that exceeds
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one-half of one percent of total General Fund biennial revenues, the
Commissioner shall designate the entire balance as available for rebate to
taxpayers. In making the determinations of General Fund balance or biennial
revenue, the Commissioner is prohibited from incoming any balance or revenue
attributable to certain tobacco settlement payments received after July 1, 1998
and before July 1, 2001. If the Commissioner designates an amount for rebate,
the Governor must then present a plan to the Minnesota Legislature for rebating
that amount, with payments to begin no later than August 15 of the odd-numbered
year. The legislation provides that the Legislature shall either enact, modify
or reject the plan presented by the Governor.
After the Legislature adjourned in may 1999, the Commissioner of Finance
estimated that at June 30, 2001, the Accounting General Fund balance would be
position $80 million. The Accounting General Fund balance at June 30, 1999, was
an estimated $1.518 billion.
The Commissioner of Finance, in a November 1999 forecast, estimated the
Accounting General Fund balance at June 30, 2001, at $1,584 billion, $1.504
billion more than estimated after the 1999 Legislature adjourned, due to a
$1.154 billion increase in projected revenues, a $453 million gain from the
1997-1999 biennium, and a $103 million decrease caused by spending increases and
other changes.
Only $571 million of the $1.584 billion projected 1999-2001 surplus was
available for spending. The statutes allocate $43 million to provide a $50
increase in per pupil elementary and secondary school aids. Sixty percent of the
remaining balance plus interest, $1.013 billion, is deposited into the Property
Tax Reform Account.
A February 2000 forecast projected an Accounting General Fund balance at
June 30, 2001, at $1.818 billion, due to a $222 million increase in projected
revenues and a $12 million decrease in expenditures. The balance at June 30,
2003, was projected at $2.282 billion.
The State of Minnesota has no obligation to pay any bonds of its political
or governmental subdivisions, municipalities, governmental agencies, or
instrumentalities. The creditworthiness of local general obligation bonds is
dependent upon the financial condition of the local government issuer, and the
creditworthiness of revenue bonds is dependent upon the availability of
particular designated revenue sources or the financial conditions of the
underlying obligors. Although most of the bonds owned by the MINNESOTA FUND are
expected to be obligations other than general obligations of the State of
Minnesota itself, there can be no assurance that the same factors that adversely
affect the economy of the State generally will not also affect adversely the
market value or marketability of such other obligations, or the ability of the
obligors to pay the principal of or interest on such obligations.
At the local level, the property tax base has recovered after its growth
was slowed in many communities in the early 1990s by overcapacity in certain
segments of the commercial real estate market. Local finances are also affected
by the amount of state aid that is made available. Further, various of the
issuers within the State of Minnesota, as well as the State of Minnesota itself,
whose securities may be purchased by the MINNESOTA FUND, may now or in the
future be subject to lawsuits involving material amounts. It is impossible to
predict the outcome of these lawsuits. Any losses with respect to these lawsuits
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may have an adverse impact on the ability of these issuers to meet their
obligations.
The Department of Finance acknowledged in 1995 that the State of
Minnesota's accounting system was not Year 2000 Y2K) compliant and that the
systems vendor would deliver a compliant version upgrade in the future. In
mid-1997, State of Minnesota technical staff, along with the systems vendor,
began a $6.5 million project to install the new complaint version of the
accounting software. The State of Minnesota implemented the new software version
on November 30, 1998. Testing of the new compliant version to date has been very
positive. Even if the State of Minnesota successfully addresses its Year 2000
compliance, there can be no assurance that any other organization or
governmental agency with which the State of Minnesota electronically interacts,
including vendors and the federal government, will be Year 2000 compliant. In
the event of any such occurrences, the State of Minnesota may fact material
adverse consequences with respect to its revenues and operations. Local issuers
in the State of Minnesota may face similar problems.
Legislation enacted in 1995 provides that it is the intent of the
Minnesota Legislature that interest income on obligations of Minnesota
governmental units, and exempt-interest dividends that are derived from interest
income on such obligations, be included in the net income of individuals,
estates, and trusts for Minnesota income tax purposes if it is judicially
determined that the exemption by Minnesota of such interest or such
exempt-interest dividends unlawfully discriminates against interstate commerce
because interest income on obligations of governmental issuers located in other
states, or exempt-interest dividends derived from such obligations, is so
included. This provision provides that it applies to taxable years that begin
during or after the calendar year in which such judicial decision becomes final,
regardless of the date on which the obligations were issued, and that other
remedies apply for previous taxable years. The United States Supreme Court in
1995 denied certiorari in a case in which an Ohio state court upheld an
exemption for interest income on obligations of Ohio governmental issuers, even
though interest income on obligations of non-Ohio governmental issuers was
subject to tax. In 1997, the United States Supreme Court denied certiorari in a
subsequent case from Ohio, involving the same taxpayer and the same issue, in
which the Ohio Supreme Court refused to reconsider the merits of the case on the
ground that the previous final state court judgment barred any claim arising out
of the transaction that was the subject of the previous action. It cannot be
predicted whether a similar case will be brought in Minnesota or elsewhere, or
what the outcome of such case would be. Should an adverse decision be rendered,
the value of the securities purchased by the MINNESOTA FUND might be adversely
affected, and the value of the shares of the MINNESOTA FUND might also be
adversely affected.
In August 1999 the State's bond ratings were Aaa by Moody's, AAA by S&P,
and AAA by Fitch.
Economic difficulties and the resultant impact on State and local
government finances may adversely affect the market value of obligations in the
portfolio of the MINNESOTA FUND or the ability of respective obligors to make
timely payment of the principal and interest on such obligations.
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RISK FACTORS FOR THE MISSOURI FUND. The following is a discussion of
certain risk factors relevant to the MISSOURI FUND. The MISSOURI FUND will
concentrate its investments in debt obligations of the State of Missouri and its
local governmental entities ("Missouri Obligations"). The value of and the
payment of interest and principal on the Missouri Obligations may be adversely
affected by economic and political conditions and developments within or without
the State of Missouri. The information contained herein is not intended to be a
complete discussion of all relevant risk factors, and there may be other factors
not discussed herein that may adversely affect the value of the Missouri
Obligations. The facts discussed herein were obtained primarily from published
information regarding Missouri state entities. The information relates
exclusively to the State of Missouri and is not intended to include any details
relating to debt obligations of local governmental entities located in the State
of Missouri that may be acquired by the MISSOURI FUND. The discussion is limited
to the general economic conditions in the State of Missouri.
POPULATION. The following information was obtained from the report of the
Bureau of the Census, United States Department of Commerce, in the 1991
Statistical Abstract of the United States (the "1990 Census"). As of 1990, the
population of the State of Missouri was 5,117,073, which caused Missouri to rank
15th in total population among the states. The portion of Missouri's population
that was comprised of individuals classified as minorities was 13.1% as compared
to the United States ("U.S.") average of 24.4%. According to the 1990 Census,
the population of the State of Missouri increased 4.1% from 1980 to 1990, while
the population of the U.S. increased 9.8% during the same period. Comparatively,
during the decade between 1970 and 1980, Missouri's population increased 5.1%
while the U.S. population increased 11.4%. The Missouri Department of Economic
Development has projected that the population of Missouri will increase 3.5%
from 1990 to 2000 and 2.4% from 2000 to 2010, so that Missouri will have a total
estimated population of approximately 5,458,000 by 2010. Without an adequate
population to support a meaningful tax base, state tax revenues may not be
sufficient for the State of Missouri to make payments on its debt obligations.
ECONOMY. Missouri's economy is divided primarily among agriculture,
manufacturing, services, trade and government. The U.S. Bureau of Labor
Statistics reported in February, 2000, that Missouri's largest non-agricultural
employers were services with 28.4% of the non-agricultural work force, trade
(wholesale and retail) with 23.6% of the non-agricultural work force, government
with 15.5% of the non-agricultural work force, and manufacturing with 14.8% of
the non-agricultural work force. The annual per capita personal income for the
State of Missouri for 1996, 1997 and 1998 was $22,586, $23,629 and $24,427,
respectively, while the U.S. annual per capita income for the same years was
$24,164, $25,288 and $26,412. The University of Missouri in Columbia, Missouri
(the "University") has projected that the per capita income for Missouri
residents will increase by between 4.5% and 4.9% in each calendar year 2000
through 2002; while per capita income for U.S. residents will increase 5.5% in
2000 with additional increases averaging 5.6% from 2001 through 2002. Inadequate
state gross product or per capita income could adversely affect the State's tax
revenues and, therefore, its ability to meet its current debt obligations.
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EMPLOYMENT. The U.S. Bureau of Labor Statistics has reported that
Missouri's unemployment rates for fiscal years 1998 and 1999 were 4.2% and 3.4%,
respectively, while the U.S. unemployment rates for the same periods were
approximately 4.5% and 4.2%. The University has projected that Missouri's
unemployment rate will be 3.9% in 2000, 3.8% in 2001 and 4.1% in 2002; while the
U.S. unemployment rate will be 4.3% in 2000, 4.3% in 2001 and 4.5% in 2002. If
the State has significant unemployment in future years, the State's tax revenues
may not be adequate to pay its debt obligations.
STATE REVENUES. The State of Missouri operates from a General Revenue Fund
("General Fund"). The General Fund includes funds received from tax revenues and
federal grants. For fiscal year 1999, the State derived approximately 14.8% of
the General Fund revenue from sales and use taxes, 34.7% from individual income
taxes and 3.7% from corporate income taxes.
The Missouri Constitution imposes a limit on the amount of taxes that may
be imposed by the General Assembly during any fiscal year. This limit is related
to total state revenues for fiscal year 1981, as defined in Article X, Sections
16 through 24 of the Missouri State Constitution, and is adjusted annually in
accordance with a formula related to increases in the average personal income of
Missouri residents for certain designated periods. In addition, any tax
increases above a defined limit require voter approval. This limit is the lesser
of fifty million dollars (adjusted annually by the percentage change in the
personal income of the State for the second previous fiscal year), or one
percent of total State revenues for the second fiscal year prior to the general
assembly's action. Inadequate tax revenues due to the constitutional limitations
may adversely affect the State's ability to pay its debt obligations.
Federal grants accounted for approximately 29.5% of the General Fund
revenues for fiscal year 1999. No assurances can be given that the amount of
federal grants previously provided to the State will continue, and the amount of
federal grants received by the State may have an effect on its ability to pay
its debts.
Federal court-ordered payments by the State for St. Louis and Kansas City
school district desegregation plans were $285 million during fiscal year 1999
and $280 million during fiscal year 1998 to fund the State's share of those
plans. These amounts constituted approximately 4.0% of the State's General Fund
revenue (exclusive of federal grants) for fiscal year 1999 and 4.4% of the
State's General Fund revenue (exclusive of federal grants) for fiscal year 1998.
Final settlement agreements, approved by the federal courts, were put into place
for both the St. Louis and Kansas City desegregation cases during fiscal year
1999. As a result of these agreements, federal court-ordered payments for fiscal
year 2000 were $53.5 million, and will be $50 million in fiscal year 2001. For
fiscal years 2001-2010, the State will be obligated to pay a total of $126.5
million to the St. Louis public schools.
The Missouri State Constitution mandates a balanced annual state budget.
The requirement of a balanced state budget may affect the ability of the State
of Missouri to repay its debt obligations. For fiscal year 1998, the General
Fund revenue, minus federal grants, amounted to $6549 million, which represented
a 5.6% increase in General Fund revenue over the previous fiscal year. The
balance in the General Fund as of the end of the 1998 fiscal year was $1677.7
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million. This represented a 1.6% decrease in the General Fund balance from the
end of fiscal year 1997.
For fiscal year 1999, the State budgeted, exclusive of federal grants,
$6554 million in General Fund revenue, which represented a 0.1% increase from
the actual revenue amount for fiscal year 1998. However, for fiscal year 1999,
the actual General Fund revenue, exclusive of federal grants, was approximately
$6912 million, which was 5.5% higher than budgeted and represented a 5.5%
increase from fiscal year 1998. The actual General Fund balance at the end of
fiscal year 1999 was $1531.4 million, which was 8.8% lower than the balance at
the end of fiscal year 1998. For fiscal year 2000, the State of Missouri
budgeted, exclusive of federal grants, $6957 million in General Fund revenue,
which represents a 0.7% increase from the actual revenue amount for fiscal year
1999. There are no assurances that the revenues and fund balances budgeted will
be attained in the future. Decreases in revenues and the General Fund balance
could adversely affect the State's ability to pay its debt obligations.
STATE BOND INDEBTEDNESS. The State of Missouri is barred by Article III,
Section 37 of the Missouri State Constitution from issuing debt instruments to
fund government operations, subject to specified exceptions. One such exception
authorizes the State to issue bonds to finance or refinance the cost of capital
projects upon approval by the voters. In the past, the State has issued two
types of bonds to raise capital - general obligation bonds and revenue bonds.
The State has authorized and issued general obligation bonds through two state
agencies for two specific needs. Water Pollution Control Bonds have been issued
to provide funds for the protection of the environment through the control of
water pollution. State Building Bonds have been issued to provide funds to
improve state buildings and property. Payments on the general obligation bonds
are made from the General Fund. Therefore, if the State is unable to increase
its tax revenues, the State's ability to make the payments on the existing
obligations may be adversely affected.
In addition to state general obligation bonds, the State of Missouri has
statutes that enable certain local political or governmental authorities, such
as cities, counties and school districts, to issue general obligation bonds.
These local general obligation bonds are required to be registered with the
State Auditor's Office. Local general obligation bonds are backed by the general
revenues (including ad valorem and other taxes) of the particular local
governmental or political authority issuing such bonds. The State of Missouri
generally has no obligation with respect to such bonds.
The State is also authorized to issue revenue bonds. Revenue bonds
generally provide funds for a specific project, and repayments are generally
limited to the revenues from that project. However, the State may enact a tax
specifically to repay the State's revenue bonds. Therefore, a reduction of
revenues from a project financed by revenue bonds may adversely affect the
State's ability to make payments on such bonds. No assurances can be given that
the State will receive sufficient revenues from the projects, or that the State
will enact and collect a tax to be used to make the required payments on such
bonds.
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As of June 30, 1999, according to the Committee on Legislative Research of
the State of Missouri, the State of Missouri had outstanding total state general
obligation bond debt amounting to $1,013,500,000 in principal and $502,458,390
in interest to be paid over the period such debt remains outstanding. On the
same date, the State had outstanding total state revenue bond debt amounting to
$101,505,000 in principal and $40,520,366 in interest to be paid over the period
such debt remains outstanding. In addition to the state bond debt, as of June
30, 1999, the total outstanding principal amount of debt issued by independent
statutory authorities in Missouri was $16,315,109,904. Factors that may
adversely affect the ability of the issuers to repay their debts include (1)
statutory and constitutional limitations on the State of Missouri, and its
agencies and local political and governmental authorities and (2) the success of
the projects to which the debts relate.
MISSOURI BOND RATINGS. Standard & Poor's Corporation and Moody's
Investor's Services, Inc. rating service of state bond issuers generally rate a
bond issuer's ability to repay debt obligations. The general obligation bonds
issued by the State of Missouri are currently rated AAA by Standard & Poor's
Corporation and Aaa by Moody's Investor's Services, Inc., the highest rating for
each agency. However, prolonged uncertainty over the State's current financial
outlook could impair the State's ability to maintain such ratings. No assurances
can be given that the State's current ratings will be maintained for any given
period or that such ratings will not be lowered, suspended or withdrawn entirely
by either rating agency. Any reduction in, suspension of, or withdrawal of such
ratings may have an adverse effect on the resale market price of Missouri bonds.
With respect to the rating of revenue bonds, such rating generally depends on
the amount of the revenue from the specific project.
RISK FACTORS FOR THE NEW JERSEY FUND. The State of New Jersey and public
entities therein are authorized to issue two general classes of indebtedness,
the interest on which is exempt from Federal income taxation: general obligation
bonds and special obligation or revenue bonds. Both classes of bonds may be
included in the NEW JERSEY FUND portfolio. The repayment of principal and
interest on general obligation bonds is secured by the full faith and credit of
the issuing entity, backed up by such entity's taxing authority, without
recourse to any specific project or source of revenue. Special obligation or
revenue bonds are typically repaid only from revenues received in connection
with the project for which the bonds are issued, special excise taxes, or other
special revenue sources and are issued by entities without taxing power. Unless
specifically guaranteed, neither the State of New Jersey, any county,
municipality nor any political subdivisions thereof (except for the issuing
entity) are liable for the payment of principal of or interest on revenue bonds.
General obligation bonds are repaid from revenues obtained through the
issuing entity's general taxing authority. The current political climate
encourages maintaining or even lowering current tax levels. New Jersey law,
however, requires taxes to be levied to repay debt.
Any reduction in the amount of revenue generated by a facility or project
financed by special obligation bonds will affect the issuing entity's ability to
pay debt service on such bonds and no assurance can be given that sufficient
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revenues will be obtained from the facility or project to make such payments,
although in some instances repayment may be guaranteed or otherwise secured.
There are several types of public agencies in New Jersey that are
authorized to issue revenue bonds for essential public purposes, including
utilities authorities, improvement authorities, sewerage authorities, housing
authorities, parking authorities, redevelopment agencies and various other
authorities and agencies. These public agencies have issued bonds for the
construction of hospitals, housing facilities, pollution control facilities,
water and sewage facilities, power and electric facilities, resource recovery
facilities and other public projects or facilities.
Certain difficulties may occur in the construction or operation of such
facilities or projects that would adversely affect the amount of revenues
derived therefrom in order to support the issuing entity's payment obligation on
the bonds issued therefor. Hospital facilities, for example, are subject to
changes in Medicare and Medicaid reimbursement regulations, attempts by Federal
and state legislature to limit costs for health care and management's ability to
complete construction projects on a timely basis as well as to maintain
projected rates of occupancy and utilization. At any given time, there may be
several proposals pending on a Federal and state level concerning health care
which may further affect a hospital's debt service obligation. Housing
facilities may be subject to increases in operating costs, management's ability
to maintain occupancy levels, rent restrictions and availability of Federal or
state subsidies, while power and electric facilities and resource recovery
facilities may be subject to increased costs resulting from environmental
restrictions, fluctuations in fuel costs, delays in licensing procedures and the
general regulatory framework in which these facilities operate. All of these
entities are constructed and operated under rigid regulatory guidelines.
The New Jersey Economic Development Authority (the "EDA") is a major
issuer of special obligation bonds on a conduit basis in connection with its
authority, pursuant to New Jersey law, to make loans and extend credit for the
financing of projects for public purposes. The EDA issues the bonds and loans
the proceeds to a borrower who agrees to repay the EDA amounts sufficient to pay
principal and interest on the bonds when the same becomes due.
Some borrowers that financed facilities with proceeds of industrial
development bonds issued by the EDA have defaulted on their repayment
obligations to the EDA. Since these special obligation bonds were payable only
from money received from the specific projects that were funded or from other
sources pledged by the borrower to support its repayment obligation, the EDA was
unable to pay debt service to the holders of the bonds issued for the respective
projects. However, because each issue of special obligation bonds depends on its
own revenue for repayment, these defaults should not affect the ability of the
EDA to pay debt service on other bonds it issues in the future on behalf of
qualified borrowers.
New Jersey is the ninth largest state in population and the fifth smallest
in land area. With an average of 1,094 persons per square mile, it is the most
densely populated of all the states. New Jersey is located at the center of the
megalopolis which extends from Boston to Washington, and which includes over
one-fifth of the country's population. The extensive facilities of the Port
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Authority of New York and New Jersey, the Delaware River Port Authority and the
South Jersey Port Corporation across the Delaware River from Philadelphia
augment the air, land and water transportation complex which has influenced most
of New Jersey's economy. This central location in the northeastern corridor, the
transportation and port facilities and proximity to New York City make New
Jersey an attractive location for corporate headquarters and international
business offices. A number of Fortune Magazine's top 500 companies maintain
headquarters or major facilities in New Jersey, and many foreign-owned firms
have located facilities in New Jersey.
New Jersey's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture. New Jersey has the Atlantic seashore on
the east and lakes and mountains in the north and northwest, which provide
recreation for residents as well as for out-of-state visitors. Since 1976,
casino gambling in Atlantic City has been an important New Jersey tourist
attraction.
New Jersey's population grew rapidly in the years following World War II,
before slowing to an annual rate of 0.27 percent in the 1970s. Between 1980 and
1990, the annual growth rose to 0.51%and between 1990 and 1998, accelerated to
.58% (according to the U.S. Department of Commerce, Bureau of the Census). While
this rate of growth is less than that for the United States, it compares
favorably with other Middle Atlantic States.
The small increase in New Jersey's total population during the past
quarter century masks the redistribution of population within New Jersey. There
has been a significant shift from the northeastern industrial areas toward the
four coastal counties (Cape May, Atlantic, Ocean and Monmouth) and toward the
central New Jersey counties of Hunterdon, Somerset and Middlesex.
During 1998 a continuation of the national business expansion, a strong
business climate in New Jersey and positive developments in surrounding
metropolitan areas were major sources of New Jersey's economic growth.
Average employment in 1998 increased by 76,500 jobs compared to 1997. Job
gains were spread across a number of industries with particularly strong growth
in business services (20,900) and in wholesale and retail trade (18,000).
For the last decade, New Jersey's job growth has been concentrated in five
clusters of economic activity - high technology, health, financial,
entertainment and logistics. One of every three of New Jersey's workers are in
these sectors, and as a whole these sectors accounted for a 19% increase in
employment over the past decade compared to a 4% employment growth for all other
New Jersey industries.
Personal income in New Jersey, spurred by strong labor markets, increased
by 5.4% in 1998, a rate comparable to the national rate of increase. As a
result, retail sales rose by an estimated 6.2%. Low inflation, now less than 2%,
continues to benefit New Jersey consumers and businesses and low interest rates
boost housing and consumer durable expenditures. Home building had its best year
of the decade.
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Joblessness fell in terms of both its absolute level and its rate, and by
the end of 1998, New Jersey's unemployment rate was at or below that of the
nation.
The outlook for 1999/2000 is for continued, although more moderate
economic growth. Job gains in New Jersey, which may be constrained at times by
labor shortages in skilled technical areas, will be in the 50,000 range and
personal income growth will slow to an average of 4.3%.
Major caveats and uncertainties in the economic forecast for 1999/2000
have increased. The national conditions in energy, agriculture and manufactured
exports, particularly to Asian markets, are threats to the U.S. economy.
However, these areas of economic activity are under-represented in New Jersey
and hence New Jersey has been able to avoid the immediate and direct effects of
those problems.
Other areas of concern include possible significant shifts in consumer and
investor confidence, unstable and potentially deflationary international
economic conditions, and the prospect of leaner profits for U.S. corporations.
In addition, restructuring of major industries will continue spurred by the
imperative of cost containment globalization of competition, and deregulation.
Thus, 199/2000 contains more risk that the recent past, but the momentum and
measures of New Jersey's economic health are favorable.
The New Jersey outlook is based largely on expected economic performance
and on recent New Jersey strategic policy actions aimed at infrastructure
improvements, effective education, and training of its workforce and those
maintaining a competitive business climate. Investments in each of these policy
areas are seen as vital to maintaining the long-term health of New Jersey's
economy.
To the extent that any adverse conditions exist in the future that affect
the ability of public agencies within New Jersey to pay debt service on their
obligations, the value of the NEW JERSEY FUND may be immediately and
substantially affected.
RISK FACTORS FOR NEW YORK INSURED TAX FREE FUND. New York Insured is
highly sensitive and vulnerable to the fiscal stability of New York State (the
"State") and its subdivisions, agencies, instrumentalities and authorities that
issue the Municipal Instruments in which New York Insured concentrates its
investments. The following information as to certain risk factors associated
with New York Insured's concentration in Municipal Instruments issued by New
York issuers is only a brief summary, does not purport to be a complete
description, and is based upon disclosure in Official Statements relating to
offers of Municipal Instruments, and other publicly available information, prior
to the end of February, 2000. No representation is made herein as to the
accuracy or adequacy of such information, or as to the existence of any adverse
changes in such information after the date thereof.
The Legislature adopted the debt service component of the State
budget for the 1999-2000 fiscal year on March 31, 1999 and the remainder of the
budget on August 4, 1999. The Governor approved the budget as passed by the
Legislature. Prior to passing the budget in its entirety for the current fiscal
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year, the State enacted appropriations that permitted the State to continue its
operations.
ECONOMIC AND FINANCIAL FACTORS. The economic and financial condition
of the State may be affected by various financial, social, economic and
political factors. Those factors can be very complex, can vary from fiscal year
to fiscal year, and are frequently the result of actions taken not only by the
State but also by entities, such as the federal government, that are outside the
State's control. Because of the uncertainty and unpredictability of changes in
these factors, their impact cannot be fully included in the assumptions
underlying the State's projections.
Continued growth in the State economy is projected in 2000 and 2001
for employment, wages and personal income, although the growth in employment is
expected to moderate from the 1999 pace. Personal income is estimated to have
grown by 4.7 percent in 1999, fueled in part by a continued large increase in
financial sector bonus payments at the year's end, and is projected to grow 5.5
percent in 2000 and 4.8 percent in 2001. Total bonus payments are projected to
increase by 11 percent in 2000 and 10.5 percent in 2001. Overall employment
growth is expected to continue at a more modest pace than in 1999, reflecting
the slower growth in the national economy, continued spending restraint by
government employers, and restructuring in the manufacturing, health care,
social service and banking sectors.
The State Financial Plan is based upon forecasts of national and
State economic activity developed through both internal analysis and review of
national and State economic forecasts prepared by commercial forecasting
services and other public and private forecasters. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and State economies. Many uncertainties exist in forecasts of both
the national and State economies, including consumer attitudes toward spending,
the extent of corporate and governmental restructuring, the conditional of the
financial sector, federal fiscal and monetary policies, the level of interest
rates and the condition of the world economy, which could have an adverse effect
on the State. There can be no assurance that the State economy will not
experience results in the current fiscal year that are worse than predicted,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.
EXECUTIVE BUDGET. The Governor presented his 2000-01 Executive
Budget to the Legislature on January 10, 2000. The Executive Budget contains
financial projections for the State's 1999-2000 through 2002-2003 fiscal years,
a detailed explanation of receipts estimates and the economic forecast on which
it is based, and a proposed Capital Program and Financing Plan for the 2000-01
through 2004-2005 fiscal years. On January 31, 2000, the Governor submitted
amendments to his Executive Budget, the most significant of which recommends
eliminating all gross receipts taxes on energy providers. There can be no
assurance that the Legislature will enact into law the Executive Budget, as
amended, or that the State's adopted budget projections will not differ
materially and adversely from the projections set forth herein.
The 1999-2000 enacted budget provides for $831 million in new
funding for public schools, the largest year-to-year increase in State history.
The budget also enacts several new tax cuts valued at $375 million when fully
phased in by 2003-04. None of the $1.82 billion cash surplus from 1998-99 is
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assumed to support spending in 1999-2000, but instead is reserved to help offset
the costs of previously enacted tax cuts that take effect after 1999-2000.
The 2000-01 State Financial Plan is projected to have receipts in
excess of disbursements on a cash basis in the General Fund, after accounting
for the transfer of available receipts from 1999-2000 to 2000-01. Under the
Governor's Executive Budget, as amended, total General Fund receipts, including
transfers from other funds, are projected to be $38.62 billion, an increase of
$1.28 billion (3.4 percent) over the current fiscal year. General Fund
disbursements, including transfers to other funds, are recommended to grow by
2.3 percent to $37.93 billion, an increase of $869 million over 1999-2000. State
Funds spending (the portion of the budget supported exclusively by State taxes,
fees and revenues) is projected to total $52.46 billion, an increase of $2.57
billion or 5.1 percent. Spending from All Governmental Funds is also expected to
grow by 5.5 percent, increasing by $4.0 billion to $76.82 billion.
The Division of Budget expects the State to close the 1999-2000
fiscal year with an available cash surplus of $758 million in the General Fund.
The State plans to use the entire $758 million surplus to make additional
deposits to reserve funds. At the close of the current fiscal year, the State
expects to deposit $75 million from the surplus into the State's Tax
Stabilization Reserve Fund - the fifth consecutive annual deposit. In the
2000-01 Executive Budget, as amended, the Governor is proposing to use the
remaining $683 million from the 1999-2000 surplus to fully finance the estimated
2001-01 and 2002-03 costs of his proposed tax reduction package ($433 million)
and to increase the Debt Reduction Reserve Fund ($250 million).
Many complex political, social and economic forces influence the
State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions and events that are not
subject to the State's control. The Financial Plan is also necessarily based
upon forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and State economies. The projections assume no changes in federal
tax law, which could substantially alter the current receipts forecast.
Projections of total State receipts in the State Financial Plan are
based on the State tax structure in effect during the fiscal year and on
assumptions relating to basic economic factors and their historical
relationships to State tax receipts. In preparing projections of State receipts,
economic forecasts relating to personal income, wages, consumption, profits and
employment have been particularly important. The projection of receipts from
most tax or revenue sources is generally made by estimating the change in yield
of such tax or revenue source caused by economic and other factors, rather than
by estimating the total yield of such tax or revenue source from its estimated
tax base. The forecasting methodology, however, ensures that State fiscal year
collection estimates for taxes that are based on a computation of annual
liability, such as the business and personal income taxes, are consistent with
estimates of total liability under such taxes.
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Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, levels of disbursements for
various services provided by local governments (where the cost is partially
reimbursed by the State), and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations. Factors
that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the policies
of the federal government, and changes in the demand for and use of State
services.
Additional risks to the State Financial Plan arise out of potential
actions at the federal level. Potential changes to federal tax law currently
under discussion as part of the federal government's efforts to enact a
multi-year tax reduction package could alter the federal definitions of income
on which certain State taxes rely. Certain proposals, if enacted, could have a
significant impact on State revenues in the future.
The Personal Responsibility and Work Opportunity Reconciliation Act
of 1996 created a new Temporary Assistance to Needy Families program (TANF)
partially funded with a fixed federal block grant to states. This law also
imposes (with certain exceptions) a five-year durational limit on TANF
recipients, requires that virtually all recipients be engaged in work or
community service activities within two years of receiving benefits, and limits
assistance provided to certain immigrants and other classes of individuals.
States are required to meet work activity participation targets for their TANF
caseload and conform with certain other federal standards or face potential
sanctions in the form of a reduced federal block grant and increased State/local
funding requirements. Any future reduction could have an adverse impact on the
State's Financial Plan. However, the State has been able to demonstrate
compliance with TANF work requirements to date and does not now expect to be
subject to associated federal fiscal penalties.
The Division of the Budget ("DOB") has expressed its opinion that
its projections of receipts and disbursements relating to the current State
Financial Plan, and the assumptions on which they are based, are reasonable.
Actual results, however, could differ materially and adversely from the
projections set forth herein. In the past, the State has taken management
actions and made use of internal sources to address potential State Financial
Plan shortfalls, and DOB believes it could take similar actions should variances
occur in it projections for the current fiscal year. The Financial Plan
projections include reserves of $50 million in 1999-2000 growing to $715 million
by 2002-03 for potential costs of new collective bargaining agreements. These
reserve amounts are based upon providing all State employees with a salary
package comparable to the agreement ratified by the UUP in 1999. It also
includes reserves of $1.5 billion to help offset the costs of tax reductions
currently scheduled for implementation over the next three years.
Despite recent budgetary surpluses recorded by the State, actions
affecting the level of receipts and disbursements, the relative strength of the
State and regional economy, and actions of the federal government could impact
projected budget gaps for the State. These gaps would result from a disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. For example, the fiscal effects of tax reductions
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adopted in the last several fiscal years are projected to grow more
substantially in the forecast period, continuing to restrain receipts levels and
placing pressure on future spending levels. To address a potential imbalance in
any given fiscal year, the State would be required to take actions to increase
receipts and/or reduce disbursements as it enacts the budget for that year, and,
under the State Constitution, the Governor is required to propose a balanced
budget each year. There can be no assurance, however, that the Legislature will
enact the Governor's proposals or that the State's actions will be sufficient to
preserve budgetary balance in a given fiscal year or to align recurring receipts
and disbursements in future fiscal years. To help guard against these risks, the
State has projected reserves of $2.4 billion in 1999-2000.
The State's outyear projections may change substantially as the
budget process for 2000-01 continues. The Governor is expected to propose
amendments to the 2000-01 Executive Budget, as permitted under law. These
amendments may materially and adversely impact the projections set forth herein.
Actual results for the fiscal year may also differ materially and adversely from
the projections set forth herein. Finally, the Legislature may not enact the
Executive Budget as proposed by the Governor. It is also possible that the
State's actions during the fiscal year may be insufficient to preserve budgetary
balance in either 2000-01 or in future fiscal years.
There is significant uncertainty in the forecast of the outyear
income components, which greatly influence personal income tax growth. In many
cases, a reasonable range of uncertainty around the predicted income components
would include significant reductions in income tax receipts. As a result, the
projections for 2001-02 and 2002-03 are relatively conservative given the
substantial uncertainty in predicting income tax receipts.
Over the long term, uncertainties with regard to the economy present
the largest potential risk to future budget balance in New York State. For
example, a downturn in the financial markets or the wider economy is possible, a
risk that is heightened by the lengthy expansion currently underway. The
securities industry is more important to the New York economy than the national
economy as a whole, potentially amplifying the impact of an economic downturn. A
large change in stock market performance during the forecast horizon could
result in wage and unemployment levels that are significantly different from
those embodied in the State Financial Plan forecast. Merging and downsizing by
firms, as a consequence of deregulation or continued foreign competition, may
also have more significant adverse effects on employment than expected.
An ongoing risk to the State Financial Plan arises from the
potential impact of certain litigation and federal disallowances now pending
against the State, which could produce adverse effects on the State's
projections of receipts and disbursements. The State Financial Plan contains
projected reserves of $150 million in 2000-01 for such events, but assumes no
significant federal disallowances or other federal actions that could affect
State finances.
Additional risks to the Financial Plan may arise from the enactment
of legislation by the U.S. Congress. For example, Congress has recently debated
proposals under which the federal government would take a portion of state
reserves from the TANF block grant for use in funding other federal programs. It
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has also considered proposals that would lower the State's share of mass transit
operating assistance. Finally, several proposals to alter federal tax law that
have surfaced in recent years could adversely affect State revenues, since many
State taxes depend on federal definitions of income. While Congress has not
enacted these proposals, it may do so in the future, or it may take other
actions that could have an adverse effect on State finances.
RECEIPTS. The 2000-01 State Financial Plan projects General Fund
receipts, including transfers from other funds, of $38.62 billion, an increase
of $1.28 billion over 1999-2000. After adjusting for tax law and administrative
changes, recurring growth in the General Fund tax base is projected to be
approximately 5 percent during 2000-01.
The forecast of General Fund receipts in 2000-01 includes the next
stage of the School Tax Relief (STAR) property tax reduction program, as well as
the continuing impact of earlier tax reductions totaling approximately $2.3
billion. The Executive Budget, as amended, also proposes several new tax
reductions that which have only a modest cost in 1999-2000 and 2000-01, but
reduce receipts by $700 million annually when fully phased in at the end of
2004-05.
The largest component of the Governor's tax reduction package is the
proposal to eliminate all gross receipts taxes on energy companies, which will
reduce receipts an estimated $500 million when fully effective.
The new tax cut proposals in the Executive Budget are structured to
avoid any new pressures on revenue growth by becoming fully effective after
current tax cuts are fully phased in. The 2000-01 Financial Plan further
mitigates the impact on receipts by reserving $433 million from the 1999-2000
surplus to fund the estimated cost of new tax cuts, including the reduction of
gross receipts taxes on energy companies, in 2001-02 and 2002-03.
The personal income tax is imposed on the income of individuals,
estates and trusts and is based, with certain modifications, on federal
definitions of income and deductions. Personal income tax collections are
projected to reach $23.19 billion in 2000-01, an increase of $2.48 billion (12
percent) over 1999-2000. Much of this growth is associated with the $1.82
billion net impact of the transfer of the surplus from 1998-99 to the current
year as partially offset by the diversion of an additional $661 million in
income tax receipts to the School Tax Relief (STAR) Fund. Adjusted for these
transactions, the growth in net income tax receipts is roughly $1.8 billion, an
increase of almost 9 percent. This increase is also due in part to the refund
reserve transaction that is expected to occur at the close of 1999-2000.
Collections also benefit from the estimated increase in income tax liability of
8.7 percent in 1999 and 8.1 percent in 2000. The large growth in income tax
liability in recent years has been supported by the continued surge in taxable
income attributable to the rapid growth in equity markets and the significant
growth in wages associated with financial sector bonuses. Stock market growth,
and the resulting large income gains, are expected to moderate in 2000. Growth
in 2000-01 receipts is offset, in part, by deposits into the School Tax Relief
Fund that provides the revenues to finance the STAR program. The 2000-01 deposit
is recommended to total $2.02 billion, including an additional $1.2 billion from
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the personal income tax for the 2001-02 cost of the STAR program. In addition,
$250 million of 2000-01 personal income tax receipts is recommended to be
deposited directly in the Debt Reduction Reserve Fund.
User taxes and fees are comprised of three-quarters of the State's
four percent sales and use tax, cigarette, alcoholic beverage, container and
auto rental taxes, and a portion of the motor fuel excise levies. User taxes and
fees are projected at $7.07 billion in 2000-01, a decrease of $366 million from
1999-2000. The decline in this category reflects the incremental impact of
approximately $510 million in already-enacted tax reductions, and the proposed
additional earmarking of motor fuel tax receipts to the Dedicated Highway and
Bridge Trust Fund and the Dedicated Mass Transportation Trust Fund. The most
significant statutory change in the sales tax for 2000-01 is the elimination of
the sales tax on clothing and footwear costing less than $110, beginning on
March 1, 2000, which will reduce receipts, including LGAC transfers, by $597
million. Adjusted for these changes, the underlying growth of receipts in this
category is projected at 4 percent.
User taxes and fees also include cigarette, tobacco and alcoholic
beverage taxes and fees, motor fuel taxes, and the container and auto rental
levies. The most significant change in these sources is the impact on General
Fund receipts resulting from the excise tax increase on cigarettes enacted with
the Health Care Reform Act of 2000 (HCRA 2000), and the increased earmarking to
the dedicated transportation funds mentioned above.
Business taxes include franchise taxes based generally on net income
of general business, bank and insurance corporations, as well as
gross-receipts-based taxes on utilities and gallonage-based petroleum business
taxes. Total business taxes are projected at $4.21 billion in 2000-01, $364
million below 1999-2000 estimated results. The year-over-year decline in
projected receipts in this category is largely attributable to statutory
changes. These include the first year of a scheduled corporation franchise tax
rate reduction, the alternative minimum tax rate reduction, the fixed dollar
minimum rate reduction, and the expansion of the investment tax credit to
financial service companies.
Legislation enacted this year affecting receipts in this category
includes: a phased reduction in the net income tax rate applicable to bank and
insurance companies from 9 percent to 7.5 percent; reforms to the corporation
franchise subsidiary capital tax; a further reduction in the alternative minimum
tax rate from 3 percent to 2.5 percent; doubling the economic development zone
and zone equivalent area wage tax credits; and providing further reforms to the
apportionment of income for the airline industry. Leading the decline are
corporation and utility tax receipts, which are projected to fall by $609
million from 1999-2000, primarily as a result of already-enacted energy and
telecommunications tax rate reductions, the use of tax credits from the Power
for Jobs program, and the final phase of the already-enacted gross receipts tax
reduction.
Corporate franchise tax receipts are projected to increase by $192
million in 2000-01, due primarily to the impact of legislation submitted with
the Executive Budget to move energy companies from Article 9 gross receipts
taxes to the corporate franchise tax.
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Receipts from the bank franchise tax are projected to be $590
million in 2000-01, $20 million above estimates for 1999-2000. This increase is
the result of a relatively stable liability base and a reduction in prior-year
negative adjustments. Net collections from insurance taxes are expected to
increase by almost $36 million in 2000-01 to total $637 million. Lastly,
declining General Fund estimates for the petroleum business tax of almost $3
million in 2000-01 reflect changes in the percentage of this tax going to the
General Fund.
Other taxes include receipts from estate and gift taxes and
pari-mutuel taxes on wagering and off-track betting facilities and other minor
sources. Historically, the category also included the yield of the real property
gains tax (repealed in 1996) and receipts from the real property transfer tax
which, over the last three years, have been earmarked to support various
environmental programs. In 2000-01 receipts from other taxes are estimated to
fall to $766 million. The largest factor in the decline is the estimated effect
of already-enacted legislation that reduced the estate tax on February 1, 2000
and repealed the gift tax on January 1, 2000.
Miscellaneous receipts include investment income, abandoned property
receipts, medical provider assessments, minor grants, receipts from public
authorities, and certain other license and fee revenues. Miscellaneous receipts
are projected to decline in 2000-01, largely as a result of the net loss of $36
million in statutory reductions to medical provider assessments, and the
one-time receipt in 1999-2000 of $45 million in fines attributable to prior
years.
Transfers from other funds to the General Fund consist primarily of
tax revenues in excess of debt service requirements. Proceeds from one percent
of the State's 4 percent sales tax, in excess of amounts used to support the
debt service payments of the Local Government Assistance Corporation, account
for 82 percent of the 2000-01 receipts in this category. Other transfers
periodically include non-recurring transactions, which result in significant
annual volatility for this category. This transfer category also reflects excess
real estate transfer tax receipts not required for debt service on the Clean
Water/Clean Air bonds authorized by the voters. Other transfers in 2000-01
reflect a decline in expected receipts from the real estate transfer tax.
DISBURSEMENTS. The DOB projects General Fund disbursements of $37.93
billion in 2000-01, an increase of $869 million (2.3 percent ) over the current
year. The growth in spending is spread throughout the Financial Plan, with the
largest increase for State Operations ($449 million), followed by Grants to
Local Governments ($203 million), General State Charges ($149 million), and
Transfers to Other Funds ($69 million).
The Executive Budget, as amended, includes approximately $300
million in resources from HCRA 2000, the successor legislation to the Health
Care Reform Act of 1996. HCRA 2000 continues the negotiated reimbursement system
for non-governmental payors, and provides funding for, among other things,
graduate medical education, indigent care, and the expansion of health insurance
coverage for uninsured adults and children. HCRA 2000 will help finance several
health-related programs, including prescription drug assistance for the elderly,
supplemental Medicare insurance, and other public health services that were
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previously funded from the General Fund. Programs under HCRA 2000 will be
financed with revenues generated from the financing mechanisms continued from
HCRA 1996, a share of the State's tobacco settlement and revenues from an
increased excise tax on cigarettes.
Grants to Local Governments include financial aid to local
governments and non-profit organizations, as well as entitlement payments for
individuals. The largest area of spending in local assistance are for aid to
public schools (42 percent) and for the State's share of Medicaid payments to
medical providers (22 percent). Spending for higher education programs (6
percent), mental hygiene programs (6 percent), welfare assistance (5 percent),
and children and families services (3 percent) represent the next largest areas
of local aid.
Spending in local assistance is estimated at $25.81 billion in
2000-01, an increase of $203 million (0.8 percent) from the current year. The
change is spending is comprised primarily of increases for school aid, health
and mental health programs, offset in part by the financing of certain health
programs with dedicated funds supported by resources from HCRA 2000. Reestimates
of current spending needs, new cost containment, and spending from the Community
Projects Fund originally planned for 1999-2000 account for most of the remaining
change.
General Fund spending for school aid is projected at $10.86 billion
in 2000-01 (on a State fiscal year basis), an increase of $250 million (2.4
percent). On a school-year basis, school aid will grow by $355 million and fund
operating, building, transportation, and other school aid programs, as well as
the balance of aid payable for the 1999-2000 school year. The Executive Budget,
as amended, also recommends new funding for teacher certification and high-need
districts, as well as programmatic restructuring in BOCES aid, teacher support
aid and special education.
Medicaid spending is estimated at $5.68 billion in 2000-01, an
increase of $65 million (1.2 percent) from 1999-2000. Spending growth in
Medicaid is projected at 5.5 percent, but is offset by the HCRA 2000 actions
noted above, including continuation of cost containment actions from prior
fiscal years, and efforts to maximize Federal aid that moderate spending growth.
The projections also include the use of $92 million from the tobacco settlement
to help offset the increase in Medicaid costs.
Spending on welfare is projected at $1.25 billion, a decrease of $11
million from 1999-2000. Since 1994-95, State spending on welfare has fallen by
one-third, driven by the State's strong economic performance over the past four
years, welfare changes initiated at the State and federal levels and aggressive
fraud prevention measures. Although the number of people on welfare is expected
to decline from 1999-2000, General Fund support in 2000-01 is expected to remain
nearly unchanged primarily to satisfy maintenance-of-effort requirements.
Local assistance spending for Children and Families Services is
projected at $789 million in 2000-01, down $66 million (7.7 percent) from
1999-2000. The decline in General Fund spending masks higher programmatic
spending on child care and child welfare services that is occurring with
increased Federal funds, allowing the State to expand services in this area.
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Mental hygiene programs are expected to grow by $66 million to
almost $1.50 billion in 2000-01, with additional funding for the Community
Reinvestment Program, Kendra's Law, and the new community services programs
initiated in 1999-2000. General Fund growth in mental hygiene is moderated by
increases in Federal aid ($65 million) and the availability of HCRA 2000 funds.
Spending for all other local assistance programs is projected to
total $5.73 billion in 2000-01. Increased funding for programs for children with
special educational needs ($16 million), county administration of welfare and
Medicaid programs ($23 million), support for the City University of New York
($50 million), and a timing adjustment for disbursements from the Community
Projects Fund ($140 million) is partially offset with decreases resulting from
utilization of HCRA 2000 revenues to fund various health programs. The
projections include spending of $24 million for the Consolidated Highway
Improvement Program (down $35 million from last year), $82 million for the
Empire State Development Corporation (down $22 million), and the creation of a
Criminal Justice Block Grant that consolidates several programs for the purpose
of increasing flexibility for local governments.
State Operations account for the cost of running the Executive,
Legislative, and Judicial branches of government. Spending in this category is
projected to increase by $449 million, or 6.8 percent above 1999-2000. Personal
service costs are projected at $5.12 billion, an increase of $308 million;
non-personal service costs are projected at $1.96 billion, an increase of $141
million.
Higher spending for State Operations is attributable in part to a
reduction in one-time receipts from the State University that offset General
Fund spending in 1999-2000 ($61 million), and a decrease in federal grant awards
for the Department of Justice ($80 million), a portion of which is
timing-related.
Other sources of growth in State Operations include the cost of the
labor contract between the United University Professionals (UUP) and the State
University ($50 million), the development of computerized systems in the
Department of Health and the Department of Family Assistance ($45 million),
increases in the Judiciary budget ($38 million), and higher costs in the
Department of Justice in 2000-01, including the full cost of staffing two State
prisons -- one recently opened and one scheduled to open in 2000 ($32 million).
The State's overall workforce is projected at approximately 196,100 persons by
the end of 2000-01, up about 1,700 from the end of 1999-2000.
General State Charges (GSCs) account for the costs of providing
fringe benefits to State employees and retirees of the Executive, Legislative
and Judicial branches. These payments, many of which are mandated by statute or
collective bargaining agreements, include employer contributions for pensions,
social security, health insurance, workers' compensation and unemployment
insurance. GSCs also cover State payments-in-lieu-of-taxes to local governments
for certain State-owned lands, and the costs of defending lawsuits against the
State and its public officers. Total spending in General State Charges is
projected to grow by $149 million (7.1 percent) over 1999-2000. The State
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expects higher health insurance rates in calendar year 2000 ($115 million),
primarily to cover the increasing cost of providing prescription drug benefits
for State employees.
Transfers in support of debt service are projected to grow
approximately 2 percent to $2.28 billion in 2000-01. Debt reduction initiatives
include additional deposits to DRRF, a constitutional and statutory debt reform
proposal, and other debt management strategies that expand the use of short-term
instruments to reduce financing costs and broaden the market base for
State-supported debt.
Transfers in support of capital projects in 2000-01 are projected at
$238 million, a $95 million increase over the 1999-2000 estimate of $143
million. The increase is primarily due to an adjustment related to DRRF that
artificially lowers transfers by $50 million in 1999-2000. Also, reimbursements
for SUNY advance capital spending return to a more traditional level in 2000-01
after $44 million of delayed reimbursements for 1998-99 spending was received in
1999-2000.
All other transfers decline in 2000-01 primarily as a result of the
State's subsidy for the Roswell Park Cancer Institute ($90 million) being
financed under HCRA 2000.
TOBACCO SETTLEMENT PROCEEDS AND USES. On November 23, 1998, the
attorneys general for forty-six states (including New York) entered into a
master settlement agreement (MSA) with the nation's largest tobacco
manufacturers. Under the terms of the MSA, the states agreed to release the
manufacturers from all smoking-related claims in exchange for specified payments
and the imposition of restrictions on tobacco advertising and marketing. New
York is projected to receive $25 billion over 25 years under the MSA, with
payments apportioned among the State (51 percent), counties (22 percent), and
New York City (27 percent). The projected payments are an estimate and subject
to adjustments for, among other things, the annual change in the volume of
cigarette shipments and the rate of inflation.
From 1999-2000 through 2002-03, the State expects to receive $1.54
billion under the nationwide settlement with cigarette manufacturers. Counties,
including New York City, will receive settlement payments of $1.47 billion over
the same period.
The State plans to use $1.29 billion in tobacco money over the next
three years to finance health programs under HCRA 2000 ($1.01 billion) and
projected new costs in Medicaid ($274 million). The remaining $250 million in
one-time tobacco payments from 1999-2000 is proposed to be deposited to the Debt
Reduction Reserve Fund (DRRF) and used to lower State debt.
CAPITAL PROJECTS FUNDS. Disbursements from Capital Projects funds in
2000-01 are estimated at $4.33 billion, or $156 million higher than 1999-2000.
The proposed spending plan includes: $2.59 billion in disbursements for
transportation purposes, including State and local highway and bridge programs;
$722 million for environmental activities; $261 million for public protection;
$401 million for education, including SUNY and CUNY; and $134 million for mental
hygiene projects.
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Approximately 54 percent of capital projects spending in 2000-01 is
proposed to be financed with State (23 percent) and federal (31 percent)
"pay-as-you-go" resources. State-supported bond issuances are projected to,
finance 46 percent of capital projects spending with 8 percent of the total
financed with General Obligation bonds and the balance (46 percent) from lease
purchase contractual obligations
DEBT SERVICE FUNDS. Disbursements from Debt Service Funds are
estimated at $3.81 billion in 2000-01, an increase of $234 million from
1999-2000. The increase in debt service is primarily attributable to bonds
issued in prior fiscal years in support of the following projects: $131 million
for State and local highway and bridge programs financed by the Dedicated
Highway and Bridge Trust Fund; $39 million for SUNY and CUNY higher education
purposes, and $22 million for the mental hygiene programs financed through the
Mental Health Services Fund.
The proposed 1999-2000 through 2004-05 Capital Program and Financing
Plan was released with the Executive Budget on January 11, 2000. The recommended
five-year Capital Program and Financing Plan reflects debt reduction initiatives
that would reduce State-supported debt and reform the State's borrowing
practices. The Executive Budget, as amended, proposes to triple the size of the
Debt Reduction Reserve Fund (DRRF) to $750 million ($250 million from
current-year deposits; $250 million from the 1999-2000 surplus; and $250 million
from one-time receipts from the tobacco settlement). Two-thirds, or $500
million, of the moneys will be used in 2000-01 to retire the State's existing
high cost debt and increase pay-as-you-go spending for previously bond-financed
programs. The balance, $250 million, will remain in DRRF in 2000-01, and will be
used to further reduce debt in 2001-02. The Executive Budget, as amended, also
includes constitutional and statutory debt reform proposals that, if enacted,
would ban "back door" borrowing, impose caps on new debt outstanding and debt
service costs, and restrict the use of debt to capital purposes only. The
statutory proposal would apply to new debt issued after April 1, 2000. The
earliest the constitutional proposal can take effect, after passage by two
separately-elected Legislatures and approval by the voters, is January 1, 2002.
Efforts to reduce debt, unanticipated delays in the advancement of
certain projects and revisions to estimated proceeds needs will modestly reduce
projected borrowings in 1999-2000. The State's 1999-2000 borrowing plan now
projects issuances of $390 million in general obligation bonds (including $140
million for purposes of redeeming outstanding BANs). The State issued $107
million in Certificates of Participation to finance equipment purchases
(including costs of issuance) during the 1999-2000 fiscal year.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.61 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1999-2000. Included therein are borrowings by the: (i) Dormitory
Authority of the State of New York (DASNY) for the State University of New York
(SUNY); the City University of New York (CUNY); mental health and educational
facilities including RESCUE (school construction); new facilities for the Office
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of the State Comptroller and the New York State and Local Retirement Systems;
(ii) Thruway Authority for the Dedicated Highway and Bridge Trust Fund and
Consolidated Highway Improvement Program; (iii) Urban Development Corporation
(UDC doing business as the Empire State Development Corporation) for prison and
youth facilities, economic development and natural resources preservation; and
(iv) Environmental Facilities Corporation (EFC) for water pollution control.
This includes an estimated $98 million to be issued for the Community
Enhancement Facilities Assistance Program (CEFAP) for economic development
purposes, including financings for sports facilities, cultural institutions,
transportation, infrastructure and other community facility projects.
AUTHORITIES. The fiscal stability of the State is related, in part,
to the fiscal stability of its public authorities (i.e., public benefit
corporations created by State law, other than local authorities). There are
numerous public authorities, with various responsibilities, including those
which finance, construct and/or operate revenue producing public facilities. At
the beginning of 1999, there were 17 public authorities that had outstanding
debt of $100 million or more, and the aggregate outstanding debt, including
refunding bonds, of all State public authorities was $94 billion, only a portion
of which constitutes State-supported or State-related debt.
Public authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself and may
issue bonds and notes within the amounts and restrictions set forth in
legislative authorization. State legislation authorizes financing techniques for
public authorities such as State (i) guarantees of public authority obligations,
(ii) lease-purchase and contractual-obligation financing arrangements and (iii)
statutory moral obligation provisions. The State's access to the public credit
markets could be impaired, and the market price of its outstanding debt may be
materially adversely affected, if any of its public authorities, particularly
those using the financing techniques specified above, were to default on their
respective obligations. The State has numerous public authorities with various
responsibilities, including those which finance, construct and/or operate
revenue producing public facilities. Public authorities generally pay their
operating expenses and debt service costs from revenues generated by the
projects they finance or operate, such as tolls charged for the use of highways,
bridges or tunnels, charges for public power, electric and gas utility services,
rentals charged for housing units, and charges for occupancy at medical care
facilities. In addition, certain statutory arrangements provide for State local
assistance payments, otherwise payable to localities, to be made under certain
circumstances to certain public authorities. The State has no obligation to
provide additional assistance to localities whose local assistance payments have
been paid to public authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected localities
could seek additional State assistance.
Some public authorities also receive moneys from State
appropriations to pay for the operating costs of certain of their programs. For
example, the Metropolitan Transportation Authority (MTA) receives the bulk of
this money in order to carry out mass transit and commuter services. The MTA has
proposed a $17.5 billion capital program for 2000 through 2004. There can be no
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assurance that the proposed capital plan will be approved by the Capital Program
Review Board without significant modifications, that the plan as adopted will be
adequate to finance the MTA's capital needs over the plan period, or that
funding sources identified in the approved plan will not be reduced or
eliminated. There can be no assurance that all the necessary governmental
actions for future capital programs will be taken, that funding sources
currently identified will not be decreased or eliminated, or that the Capital
Programs or parts thereof, will not be delayed or reduced. Should funding levels
fall below current projections, the MTA would have to revise its Capital
Programs accordingly. If the Capital Programs are delayed or reduced, ridership
and fare revenues may decline, which could, among other things, impair the MTA's
ability to meet its operating expenses without additional assistance.
MUNICIPALITIES. The counties, cities, towns and villages of the
State are political subdivisions of the State with the powers granted by the
State Constitution and statutes. As the sovereign, the State retains broad
powers and responsibilities with respect to the finances and welfare of such
subdivisions as well as school districts, fire districts and other district
corporations, especially in the areas of education and social services. Certain
localities have experienced financial problems and have requested and received
additional State assistance during the last several State fiscal years. The
fiscal stability of the State is thus related to the fiscal stability of its
localities, including The City of New York. A number of factors could affect
localities during the State's 1999-2000 and 2000-01 fiscal years and thereafter.
NEW YORK CITY
The fiscal health of the State may be affected by the fiscal health
of The City of New York ("the City"), which continues to receive significant
financial assistance from the State. State aid contributes to the City's ability
to balance its budget and meet its cash requirements. The State may also be
affected by the ability of the City, and certain entities issuing debt for the
benefit of the City, to market their securities successfully in the public
credit markets. The City has achieved balanced operating results for each of its
fiscal years since 1981 as reported in accordance with the then-applicable GAAP
standards. Although the City has balanced its budget since 1981, estimates of
the City's future revenues and expenditures, which are based on numerous
assumptions, are subject to various uncertainties. If, for example, expected
Federal or State aid is not forthcoming; if unforeseen developments in the
economy significantly reduce revenues derived from economically sensitive taxes,
or necessitate increased expenditures for public assistance; if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan; or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from the State.
In response to the City's fiscal crisis in 1975, the State took
action to assist the City in returning to fiscal stability. Among those actions,
the State established the Municipal Assistance Corporation for The City of New
York ("MAC") to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs; and the Office of the State Deputy Comptroller for the City of New York
("OSDC") to assist the Control Board in exercising its powers and
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responsibilities. A "Control Period" existed from 1975 to 1986, during which the
City was subject to certain statutorily-prescribed fiscal controls. Although the
Control Board terminated the Control Period in 1986 when certain statutory
conditions were met and suspended certain Control Board powers, upon the
occurrence or "substantial likelihood and imminence" of the occurrence of
certain events, including (but not limited to) a City operating budget deficit
of more than $100 million or impaired access to the public credit markets, the
Control Board is required by law to reimpose a Control Period. Currently, the
City and its Covered Organizations (i.e., those which receive or may receive
moneys from the City directly, indirectly or contingently) operate under a
four-year financial plan which the City prepares annually and periodically
updates. The City's financial plan summarizes its capital, revenue and expense
projections and outlines proposed gap-closing programs for years with projected
budget gaps.
The City's projections are based on various assumptions and
contingencies, some of which are uncertain and may not materialize. Unforeseen
developments and changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements.
To successfully implement the City's financial plan, the City and
certain entities issuing debt for the benefit of the City must market their
securities successfully. The City issues securities to finance, refinance and
rehabilitate infrastructure and other capital needs, as well as for seasonal
financing needs. In fiscal year 1998 and again in fiscal year 2000, the State
constitutional debt limit would have prevented the City from entering into new
capital contracts. To prevent these disruptions in the capital program, two
entities were created to issue debt to increase the City's capital financing
capacity: (i) the State Legislature created the Transitional Finance Authority
("TFA") in 1997, and (ii) the City created the Tobacco Settlement Asset
Securitization Corporation in 1999. Despite these actions, the City, in order to
continue its capital program, will need additional financing capacity in fiscal
year 2002, which could be provided through increasing the borrowing authority of
the TFA or amending the State constitutional debt limit. To continue its capital
plan without interruption, the City is proposing an amendment to the State
Constitution to change the methodology used to calculate the debt limit. Since
an amendment to the Constitution to raise the debt limit could not take effect
until City fiscal year 2001-02 at the earliest, the City has decided to
securitize a portion of its share of the proceeds from the settlement with the
nation's tobacco companies. However, a number of potential developments may
affect both the availability and level of funding that the City will receive
from the tobacco settlement. City officials have indicated that, should their
efforts to securitize a portion of City tobacco settlement proceeds fail or not
be accomplished in a timely manner, the City will request that the State
increase the borrowing authority of the TFA. Future developments concerning the
City or entities issuing debt for the benefit of the City, and public discussion
of such developments, as well as prevailing market conditions and securities
credit ratings, may affect the ability or cost to sell securities issued by the
City or such entities and may also affect the market for their outstanding
securities.
The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's financial plans which analyze the City's
forecasts of revenues and expenditures, cash flow, and debt service
requirements, as well as evaluate compliance with the financial plan, as
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modified, by the City and its Covered Organizations. According to recent staff
reports, while economic recovery in New York City has been slower than in other
regions of the country, a surge in Wall Street profitability resulted in
increased tax revenues and generated a substantial surplus for the City in City
fiscal year 1997-98. Recent staff reports also indicate that the City projects a
surplus for City fiscal year 1998-99. Although several sectors of the City's
economy have expanded over the last several years, especially tourism and
business and professional services, City tax revenues remain heavily dependent
on the continued profitability of the securities industries and the performance
of the national economy. In addition, the size of recent tax reductions has
increased to over $2 billion in City fiscal year 1999-2000 through the
expiration of a personal income tax surcharge, the repeal of the non-resident
earnings tax and the elimination of the sales tax on clothing items costing less
than $110. Staff reports have indicated that recent City budgets have been
balanced in part through the use of non-recurring resources and that the City's
financial plan tends to rely in part on actions outside its direct control.
These reports have also indicated that the City has not yet brought its
long-term expenditure growth in line with recurring revenue growth and that the
City is likely to continue to face substantial gaps between forecast revenues
and expenditures in future years that must be closed with reduced expenditures
and/or increased revenues. In addition to these monitoring agencies, the
Independent Budget Office (IBO) has been established pursuant to the City
Charter to provide analysis to elected officials and the public on relevant
fiscal and budgetary issues affecting the City.
OTHER LOCALITIES
Certain localities outside The City of New York have experienced
financial problems and have requested and received additional State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional oversight and assistance is not
included in the projections of the State's receipts and disbursements for the
State's 1999-2000 fiscal year.
The State has provided extraordinary financial assistance to select
municipalities, primarily cities, since the 1996-97 fiscal year. Funding has
essentially been continued or increased in each subsequent fiscal year. Such
funding in 1999-2000 totals $113.9 million. In 1997-98, the State increased
general purpose state aid for local governments by $27 million to $550 million,
and has continued funding at this new level since that date.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding.
While the distribution of general purpose aid for local governments
was originally based on a statutory formula, in recent years both the total
amount appropriated and the shares appropriated to specific localities have been
determined by the Legislature. A State commission established to study the
distribution and amounts of general purpose local government aid failed to agree
on any recommendations for a new formula.
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Counties, cities, towns, villages and school districts have engaged
in substantial short-term and long-term borrowings. According to the most recent
information available from the State, the total indebtedness of all localities
in the State other than The City of New York was approximately $21.0 billion. A
small portion (approximately $77.2 million) of that indebtedness represented
borrowing to finance budgetary deficits and was issued pursuant to State
enabling legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than The City of New York authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of the most recent fiscal year for which information is currently
available.
Like the State, local governments must respond to changing
political, economic and financial influences over which they have little or no
control. Such changes may adversely affect the financial condition of certain
local governments. For example, the federal government may reduce (or in some
cases eliminate) federal funding of some local programs which, in turn, may
require local governments to fund these expenditures from their own resources.
It is also possible that the State, New York City, or any of their respective
public authorities may suffer serious financial difficulties that could
jeopardize local access to the public credit markets, which may adversely affect
the marketability of notes and bonds issued by localities within the State.
Localities may also face unanticipated problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Other large-scale
potential problems, such as declining urban populations, increasing
expenditures, and the loss of skilled manufacturing jobs, may also adversely
affect localities and necessitate State assistance.
LITIGATION. An additional risk to the State Financial Plan arises
from the potential impact of certain litigation and of federal disallowances now
pending against the State, which could adversely affect the State's projections
of receipts and disbursements. Various legal proceedings in which the State is
involved concern State finances, State programs and miscellaneous civil rights,
real property, contract and other tort claims in which the State is a defendant
and the potential monetary claims against the State sought are substantial,
generally in excess of $100 million. These proceedings or the initiation of new
proceedings could adversely affect the financial condition of the State in the
1999-2000 fiscal year or thereafter. There can be no assurance that adverse
decisions in legal proceedings against the State would not exceed the amount of
the resources available for the payment of judgments. The General Purpose
Financial Statements for the 1998-99 fiscal year report estimated probable
awarded and anticipated unfavorable judgments of $895 million, of which $132
million is expected to be paid during the 1999-2000 fiscal year. The State
believes that the 1999-2000 State Financial Plan includes sufficient reserves to
offset the costs associated with the payment of judgments that may be required
during the 1999-2000 fiscal year. These reserves include (but are not limited
to) amounts appropriated for court of claims payments and projected fund
balances in the General Fund. In addition, any amounts ultimately required to be
paid by the State may be subject to settlement or may be paid over a multi-year
period. There can be no assurance, however, that adverse decisions in legal
proceedings against the State would not exceed the amount of all potential
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1999-2000 State Financial Plan resources available for the payment of judgments,
and could therefore affect the ability of the State to maintain a balanced
1999-2000 Financial Plan.
YEAR 2000 COMPLIANCE. While New York State is taking what it
believes to be appropriate action to address Year 2000 compliance, there can be
no guarantee that all of the State's systems and equipment will be Year 2000
compliant and that there will not be adverse impact upon State operations or
finances as a result. Since Year 2000 compliance by outside parties is beyond
the State's control to remediate, the failure of outside parties to achieve Year
2000 compliance could have an adverse impact on State operations or finances as
well. To date, the State has experienced no significant Year 2000 computer
disruptions. Monitoring will continue over the next few months to identify and
correct any problems that may arise. However, there can be no assurance that
outside parties who provide goods and services to the State will not experience
computer problems related to Year 2000 programming in the future, or that such
disruptions, if they occur, will not have an adverse impact on State operations
or finances.
RISK FACTORS FOR THE NORTH CAROLINA FUND. North Carolina state and
municipal securities may be adversely affected by economic and political
conditions and developments within the State of North Carolina.
ECONOMIC PROFILE. The economic profile of the State consists of a
combination of technology, industry, agriculture, tourism, and the government
sector. North Carolina is shifting from its predominantly agricultural economy
to a service- and goods-producing economy. The labor force has undergone
significant changes during recent years with the advent of Research Triangle
Park in surrounding counties as well as in the Charlotte metropolitan area. The
majority of non-agricultural employment is spread among manufacturing, retail
trade, services, and the government sector. As such, the labor force mirrors
this increased emphasis toward non-agricultural production. Citing the North
Carolina Employment Security Commission, total non-agricultural employment as of
February 1999 was approximately 3,778,200 jobs, of which 810,000 were in
manufacturing. These figures have moved in opposite directions since 1991, when
total non-agricultural employment was approximately 3,072,200, of which 826,100
jobs were in manufacturing. Total non-agricultural employment is slightly higher
than in 1998 when there were approximately 3,773,700 jobs in this category. A
majority of the employment that was available within the non-agricultural sector
as of February 1999 was provided by manufacturing, retail trade, the services
industry, and the government sector. In February 1999, manufacturing provided
approximately 810,000 jobs, retail trade provided approximately 655,300 jobs,
services provided approximately 2,780,900 jobs, and the government sector
provided approximately 617,300 jobs.
Based upon the available official census estimates of population growth,
the population of North Carolina increased 11.4 percent from 5,880,095 in 1980
to 6,632,448 in 1990, and further increased to 7,650,789 in 1999, for an
increase of 15.4 percent from 1990. The North Carolina Employment Security
Commission estimates the unadjusted unemployment rate in February 1999 to have
been 4.1 percent of the labor force despite the national, unadjusted
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unemployment rate of 4.3 percent. North Carolina's annual average unemployment
rate over the past ten (10) years has ranged from a high of 5.9 percent in 1992
to a low of 3.5 percent in 1989.
Agriculture remains North Carolina's basic economic component. North
Carolina again ranked eighth (8th) in the nation in 1998 total farm income.
Total gross agricultural income in 1998 was approximately 7.3 billion, down from
$8.2 billion in 1997. Poultry and eggs remain the leading source of agricultural
non-crop income in the State. Income from the production of poultry and eggs for
1998 was approximately $2.2 billion, accounting for approximately 30.5 percent
of the gross agricultural income. These figures are down from 2.3 billion in
1996. In addition, tobacco production remains the leading source of agricultural
crop income in North Carolina. Income production of tobacco for 1998 was
approximately $997 million, accounting for approximately 13.9 percent of the
gross agricultural income. The amount of income received was down from $1.19
billion in 1997. The percentage of the State's gross agricultural income from
tobacco sales continues to decline from 14.4 percent in 1997. Federal
legislation and regulatory measures regarding production and marketing, along
with international competition have and are expected to continue to affect
tobacco farming in North Carolina. Changes in such factors or any other adverse
conditions in the tobacco farming sector could have negative effects on farm
income and the state's economy as a whole. In 1998, total production of
flue-cured tobacco (one of North Carolina's largest agricultural commodities)
decreased 25 percent from the year before, and burley tobacco production in 1998
also decreased 12 percent from 1997. Two hurricanes impacting the major
producing tobacco counties in 1998 contributed to these decreases.
In 1998, there were approximately 58,000 farms in North Carolina as
compared to 59,000 in 1997 and 59,500 in 1994. Notwithstanding the total
decrease in the total number of North Carolina farms, the diversity of
agricultural products in the state and a continuing thrust in agriculture
marketing efforts have protected farm income from some of the wide variations
that have been experienced in other states where most of the agricultural
economy is dependent on a small number of agricultural commodities. According to
the State Commissioner of Agriculture, in 1998 North Carolina ranked first (1st)
in the nation in the production of flue-cured tobacco, total tobacco, turkeys
raised, and sweet potatoes; second (2nd) in the production of cucumbers for
pickles, the number of hogs and pigs, Christmas trees, and trout sales; third
(3rd) in poultry and egg products cash receipts; fourth (4th) in the production
of greenhouse and nursery cash receipts, commercial broilers cash receipts,
peanuts, blueberries, and strawberries; sixth (6th) in the production of burley
tobacco and cotton; and seventh (7th) in the production of catfish sold, pecans,
watermelons, and cash receipts from livestock, dairy, and poultry.
Correspondingly, a strong agribusiness sector also undergirds farmers with farm
inputs (fertilizer, insecticide, pesticide, and farm machinery) and processing
of commodities produced by farmers (vegetable canning and cigarette
manufacturing).
The North Carolina Department of Commerce, Travel, and Tourism Division
has reported in 1998 that approximately $10.8 billion was spent on travel and
tourism in the state. This makes tourism the second largest industry in North
Carolina. This is compared to approximately $10.1 billion in 1997, $9.8 billion
in 1996, $9.1 billion in 1995, $8.5 billion in 1994, and $8.1 billion in 1993.
In 1998, the State's travel industry generated more than $841 million in state
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and local taxes--this provided approximately 186,400 full-time, tourism-related
jobs. The greatest number of visitors to the state came from Virginia, Georgia,
South Carolina, Florida, Tennessee, and Ohio.
LEGISLATIVE DEVELOPMENTS. The following represents an overview of the
State budgetary system and a discussion of legislation passed by the General
Assembly recently effecting the State budget and fiscal health.
Management of the government is responsible for the establishment and
maintenance of an internal control structure designed to ensure that the assets
of the State are protected from loss, theft, or misuse and to ensure that
adequate accounting date are compiled to allow for the preparation of financial
statements in conformity with generally-accepted accounting principles. The
internal control structure is designed to provide reasonable, but not absolute,
assurance that these objectives are met. The concept of reasonable assurance
recognizes that: (1) the cost of a control should not exceed the benefits likely
to be derived, and (2) the valuation of costs and benefits requires estimates
and judgments by management.
As a recipient of federal financial assistance, the State also is
responsible for ensuring that an adequate internal structure is in place to
ensure compliance with applicable laws and regulations related to those
programs. This internal control structure is subject to periodic evaluation by
management, internal audit staff, and independent auditors of the government.
In November 1996, the voters of North Carolina approved bonds in the
amount of $1.8 billion for school construction and $950 million for highway
construction. In November 1998, North Carolina voters approved $800 million of
new debt to finance grants and loans to local government units for waste supply
systems, wastewater collection systems, wastewater treatment plants, and water
conservation and water reuse projects; and an additional $200 million of new
debt to finance grants, loans, or other financing to public or private entities
for construction of natural gas facilities. The amount of authorized, but
unissued bonds, was $2.15 billion as of June 1999. The final bond issue related
to the $1.8 billion of school construction bonds, which were approved in
November 1996, was issued in April 1999 in the amount of $450 million. These
bonds were issued at rates ranging from 4.5 percent to 5.0 percent.
North Carolina sold $450 million of General Obligation School Construction
Bonds in March 1999. Correspondingly, the state also sold $25.905 million of
Clean Water Refunding Bonds at the same time. The refunding bonds provided funds
for refunding $24 million of Clean Water Bonds Series 1994A.
Over the past 20 years, North Carolina state debt obligations have
maintained ratings of Aaa by Moody's and AAA by Standard &Poors. There can be no
assurance that the State's current ratings will be maintained for any given
period or that such ratings will not be lowered, suspended, or withdrawn
entirely by either rating agency.
In addition, the state maintains budgetary controls. The objective of
these budgetary controls is to ensure compliance with legal provisions embodied
in the annual appropriated budget approved by the General Assembly. Activities
of the General Fund and most departmental special revenue funds are included in
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the annual appropriated budget. The state Highway Fund and the Highway Trust
Fund, the state's major special revenue funds, are primarily budgeted on a
multi-year basis. Capital projects are funded and planned in accordance with the
time it will take to complete the project. The level of budgetary control (I.E.,
the level at which expenditures cannot legally exceed the appropriated amount)
is exercised at both the departmental and university level via quarterly
allotments, with allotment control exercised by the State Controller, and on the
program line-item levels requiring certain approvals by the Director of the
Budget. Legislative authorization of departmental expenditures appears in the
State Appropriation Bill. This "Certified Budget" is the legal expenditure
authority; however, executive changes to the legal budget may be approved by the
Office of the State Budget and Management (OSBM). This results in the "Final
Budget" presented in the financial statements.
Revenues and other financing sources for general governmental functions
(General Fund, special revenue funds, and capital projects funds) amounted to
$24.15 billion for the fiscal year ended June 30, 1999. Tax revenues increased
by $530 million in 1999, reflecting a slower rate of growth in income tax
collections. Individual income tax collections increased by $461 million in 1999
to $6.586 billion (a 7.53 percent increase from 1998). Sales tax collections
grew by $69.4 million in 1999 (a 2.12 percent increase over 1998). Highway taxes
were $1.505 billion in 1999, $27.7 million more than in 1998. Federal funds
revenues grew by $3.14 million in 1999, an increase of 5.2 percent over 1998.
Increases in federal revenues are due to increased federal program expenditures
for which the state is reimbursed. Finally, investment earnings of $529 million
reflect a decrease of $47 million in 1999. This includes realized/unrealized
gains, distributed and accrued interest on cash and investments, and
securities-lending activity. Cash and cash equivalents decreased by $164.2
million, while investments decreased by $616.4 million, with $472 million of the
decrease originating from the General Fund.
Two North Carolina Supreme Court cases in recent years may have a
significant impact on the State's budget. One decision expanded the class of
taxpayers eligible to receive a refund of certain intangibles taxes paid, which
have now been found to be unconstitutional; as a result, the State will pay an
additional $440 million in 1999 and 2000 for intangibles tax refunds to
non-protestors. The other decision concerned State income taxation of
governmental retirees. As a result, the State has funded a total of $799 million
in 1998 and 1999 for refunds to public-sector retirees, plus an estimated $133
million per year in annual tax exclusion going forward.
In November 1998, 46 states' Attorneys General and the major tobacco
companies executed a proposed settlement that reimburses states for
smoking-related medical expenses paid through Medicaid and other health care
programs. North Carolina could receive approximately $4.6 billion over the next
25 years. The settlement was approved in a Consent Decree in December 1998. In
March 1999, the General Assembly enacted a law approving the establishment of a
foundation to provide economic impact assistance to economically affected or
tobacco dependent regions in North Carolina. The court must review the law for
compliance with the intent outlined in the Consent Decree. The foundation would
receive 50 percent of the settlement. The remaining half would be split equally
between two trust funds established by the General Assembly. One trust fund
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would be for the benefit of tobacco farmers, quota holders, and persons in
tobacco-related businesses, and the second trust fund would be for health
programs.
During 1999, North Carolina enjoyed its eighth (8th) consecutive year of
economic growth. Most of the economic indicators (a robust economy, worker
productivity rose, a low unemployment rate) moved in a favorable direction
during the year although interest rates trended higher during the second half of
the year. Consumer spending, accounting for the majority of economic activity,
increased 5 percent. Most of North Carolina enjoyed a good economy during this
time period. The state's Gross State Product is estimated to have grown 5
percent.
Finally, Hurricane Floyd (preceded by Hurricane Dennis) hit North Carolina
in late 1999; its aftermath will have profound economic repercussions. Hurricane
Floyd impacted the eastern half of the state--the prime agricultural
counties--accounting for 20 percent oF the state's economy. Millions of dollars
of wealth were destroyed, many businesses were lost, and lives were disrupted.
Hurricanes Floyd and Dennis have required over $800 million of state funds.
Subsequent funds may be needed to match federal aid. In addition, the damage may
result in decreased tax revenues from the affected parts of the State in
upcoming years.
RISK FACTORS FOR THE OHIO FUND. The OHIO FUND will invest most of its net
assets in securities issued by or on behalf of (or in certificates of
participation in lease-purchase obligations of) the State of Ohio, political
subdivisions of the State, or agencies or instrumentalities of the State or its
political subdivisions (Ohio Obligations). The OHIO FUND is therefore
susceptible to general or particular economic, political or regulatory factors
that may affect issuers of Ohio Obligations. The following information
constitutes only a brief summary of some of the many complex factors that may
have an effect. The information does not apply to "conduit" obligations on which
the public issuer itself has no financial responsibility. This information is
derived from official statements of certain Ohio issuers published in connection
with their issuance of securities and from other publicly available information,
and is believed to be accurate. No independent verification has been made of any
of the following information.
Generally, the creditworthiness of Ohio Obligations of local issuers is
unrelated to that of obligations of the State itself, and the State has no
responsibility to make payments on those local obligations.
There may be specific factors that at particular times apply in connection
with investment in particular Ohio Obligations or in those obligations of
particular Ohio issuers. It is possible that the investment may be in particular
Ohio Obligations, or in those of particular issuers, as to which those factors
apply. However, the information below is intended only as a general summary, and
is not intended as a discussion of any specific factors that may affect any
particular obligation or issuer.
The timely payment of principal of and interest on Ohio Obligations has
been guaranteed by bond insurance purchased by the issuers, the OHIO FUND or
other parties. Those Ohio Obligations may not be subject to the factors referred
to in this section of the SAI.
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Ohio is the seventh most populous state. The 1990 Census count of
10,847,000 indicated a 0.5% population increase from 1980. The Census estimate
for 1998 is 11,209,000.
While diversifying more into the service and other non-manufacturing
areas, the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some other
states and in the nation as a whole. Agriculture is an important segment of the
economy, with over half the State's area devoted to farming and approximately
16% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported 1990 average
monthly State rate was 5.7%, compared to the 5.5% national figure. However, in
recent years the annual State rates were below or at the national rates (4.3%
versus 4.5% in 1998, both at 4.2% in 1999). The unemployment rate and its
effects vary among geographic areas of the State.
There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of Ohio
Obligations held in the OHIO FUND or the ability of particular obligors to make
timely payments of debt service on (or lease payments relating to) those
Obligations.
The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is precluded by law from ending its July 1
to June 30 fiscal year (FY) or fiscal biennium in a deficit position. Most State
operations are financed through the General Revenue Fund (GRF), for which the
personal income and sales-use taxes are the major sources. Growth and depletion
of GRF ending fund balances show a consistent pattern related to national
economic conditions, with the ending FY balance reduced during less favorable
and increased during more favorable economic periods. The State has
well-established procedures for, and has timely taken, necessary actions to
ensure resource/expenditure balances during less favorable economic periods.
Those procedures included general and selected reductions in appropriations
spending.
The 1992-93 biennium presented significant challenges to State finances,
successfully addressed. To allow time to resolve certain budget differences an
interim appropriations act was enacted effective July 1, 1991; it included GRF
debt service and lease rental appropriations for the entire biennium, while
continuing most other appropriations for a month. Pursuant to the general
appropriations act for the entire biennium, passed on July 11, 1991, $200
million was transferred from the Budget Stabilization Fund (BSF, a cash and
budgetary management fund) to the GRF in FY 1992.
Based on updated results and forecasts in the course of that FY, both in
light of a continuing uncertain nationwide economic situation, there was
projected and then timely addressed an FY 1992 imbalance in GRF resources and
expenditures. In response, the Governor ordered most State agencies to reduce
GRF spending in the last six months of FY 1992 by a total of approximately $184
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million; the $100.4 million BSF balance and additional amounts from certain
other funds were transferred late in the FY to the GRF, and adjustments were
made in the timing of certain tax payments.
A significant GRF shortfall (approximately $520 million) was then
projected for FY 1993. It was addressed by appropriate legislative and
administrative actions, including the Governor's ordering $300 million in
selected GRF spending reductions and subsequent executive and legislative action
(a combination of tax revisions and additional spending reductions). The June
30, 1993 ending GRF fund balance was approximately $111 million, of which, as a
first step to replenishment, $21 million was deposited in the BSF.
None of the spending reductions were applied to appropriations needed for
debt service or lease rentals relating to any State obligations.
The 1994-95 biennium presented a more affirmative financial picture. Based
on June 30, 1994 balances, an additional $260 million was deposited in the BSF.
The biennium ended June 30, 1995 with a GRF ending fund balance of $928 million,
of which $535.2 million was transferred into the BSF. The significant GRF fund
balance, after leaving in the GRF an unreserved and undesignated balance of $70
million, was transferred to the BSF and other funds including school assistance
funds and, in anticipation of possible federal program changes, a human services
stabilization fund.
From a higher than forecast 1996-97 mid-biennium GRF fund balance, $100
million was transferred for elementary and secondary school computer network
purposes and $30 million to a new State transportation infrastructure fund.
Approximately $400.8 million served as a basis for temporary 1996 personal
income tax reductions aggregating that amount. The 1996-97 biennium-ending GRF
fund balance was $834.9 million. Of that, $250 million went to school building
construction and renovation, $94 million to the school computer network, $44.2
million for school textbooks and instructional materials and a distance learning
program, and $34 million to the BSF, and the $263 million balance to a State
income tax reduction fund.
The 1998-99 biennium ending GRF balances were $1.5 billion (cash) and $976
million (fund). Of that fund balance, $325.7 million has been transferred to
school building assistance, $46.3 million to the BSF, $90 million to supply
classroom computers and for interactive video distance learning, and the
remaining amount to the State income tax reduction fund. The BSF had a March 2,
2000 balance of over $953 million.
The GRF appropriations acts for the current 2000-01 biennium (one for all
education purposes, and one for general GRF purposes) were passed on June 24 and
June 28, 1999, respectively, and promptly signed (after selective vetoes) by the
Governor. Those acts provided for total GRF biennial expenditures of over $39.8
billion Necessary GRF debt service and lease-rental appropriations for the
entire biennium were requested in the Governor's proposed budget and
incorporated in the appropriations bills as introduced, and were included in the
bill versions as passed by the House and the Senate and in the acts as passed
and signed.
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The State's incurrence or assumption of debt without a vote of the people
is, with exceptions noted below, prohibited by current State constitutional
provisions. The State may incur debt, limited in amount to $750,000, to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception is made in both
cases for any debt incurred to repel invasion, suppress insurrection or defend
the State in war.)
By 16 constitutional amendments approved from 1921 to date (the latest
adopted in 1999) Ohio voters authorized the incurrence of State debt and the
pledge of taxes or excises to its payment. At March 2, 2000, over $1.4 billion
(excluding certain highway bonds payable primarily from highway use receipts) of
this debt was outstanding. The only such State debt currently at that date
authorized to be incurred were portions of the highway bonds, and the following:
(a) up to $100 million of obligations for coal research and development may be
outstanding at any one time ($19.3 million outstanding); (b) $240 million of
obligations previously authorized for local infrastructure improvements, no more
than $120 million of which may be issued in any calendar year (over $1.06
billion outstanding) and (c) up to $200 million in general obligation bonds for
parks, recreation and natural resources purposes which may be outstanding at any
one time ($109.1 million outstanding, with no more than $50 million to be issued
in any one year).
The electors in 1995 approved a constitutional amendment extending the
local infrastructure bond program (authorizing an additional $1.2 billion of
State full faith and credit obligations to be issued over 10 years for the
purpose), and authorizing additional highway bonds (expected to be payable
primarily from highway use receipts). The latter authorizes not more than $1.2
billion to be outstanding at any time and not more than $220 million to be
issued in a fiscal year.
A constitutional amendment approved by the voters in November 1999
authorizes State general obligation debt to pay costs of facilities for a system
of common schools throughout the State and facilities for state supported and
assisted institutions of higher education. That, and other debt represented by
direct obligations of the State (including that authorized by the Ohio Public
Facilities Commission and Ohio Building Authority, and some authorized by the
Treasurer), may not be issued if future FY total debt service on those direct
obligations to be paid from the GRF or net lottery proceeds exceeds 5% of total
estimated revenues of the State for the GRF and from net State lottery proceeds
during the FY of issuance.
The Constitution also authorizes the issuance of State obligations for
certain purposes, the owners of which do not have the right to have excises or
taxes levied to pay debt service. Those special obligations include obligations
issued by the Ohio Public Facilities Commission and the Ohio Building Authority,
and certain obligations issued by the State Treasurer, over $5.2 billion of
which were outstanding at March 2, 2000.
In recent years, State agencies have participated in transportation and
office building projects that may have some local as well as State use and
benefit, in connection with which the State enters into lease purchase
agreements with terms ranging from 7 to 20 years. Certificates of participation,
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or special obligation bonds of the State or a local agency, are issued that
represent fractionalized interests in or are payable from the State's
anticipated payments. The State estimates highest future FY payments under those
agreements (as of March 2, 2000) to be approximately $28.5 million (of which
$24.7 million is payable from sources other than the GRF, such as federal
highway money distributions). State payments under all those agreements are
subject to biennial appropriations, with the lease terms being two years subject
to renewal if appropriations are made.
A 1990 constitutional amendment authorizes greater State and political
subdivision participation (including financing) in the provision of housing. The
General Assembly may for that purpose authorize the issuance of State
obligations secured by a pledge of all or such portion as it authorizes of State
revenues or receipts (but not by a pledge of the State's full faith and credit).
A 1994 constitutional amendment pledges the full faith and credit and
taxing power of the State to meeting certain guarantees under the State's
tuition credit program which provides for purchase of tuition credits, for the
benefit of State residents, guaranteed to cover a specified amount when applied
to the cost of higher education tuition. (A 1965 constitutional provision that
authorized student loan guarantees payable from available State moneys has never
been implemented, apart from a "guarantee fund" approach funded essentially from
program revenues.)
State and local agencies issue obligations that are payable from revenues
from or relating to certain facilities (but not from taxes). By judicial
interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.
Local school districts in Ohio receive a major portion (state-wide
aggregate of approximately 47% in FY 1998) of their operating moneys from State
subsidies, but are dependent on local property taxes, and in 126 districts (as
of March 2, 2000) from voter-authorized income taxes, for significant portions
of their budgets. Litigation, similar to that in other states, has been pending
questioning the constitutionality of Ohio's system of school funding. The Ohio
Supreme Court has concluded that aspects of the system (including basic
operating assistance and the loan program referred to below) are
unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution, staying its order to permit time for
responsive corrective actions. After a further hearing, the trial court decided
that steps taken to that date by the State to enhance school funding had not met
the requirements of the Supreme Court decision. The State appealed to the
Supreme Court, before which oral arguments were heard in November 1999. That
Court has issued a stay, pending appeal, of implementation of the trial court's
order. A small number of the State's 611 local school districts have in any year
required special assistance to avoid year-end deficits. A now superseded program
provided for school district cash need borrowing directly from commercial
lenders, with diversion of State subsidy distributions to repayment if needed.
Recent borrowings under this program totaled $87.2 million for 20 districts in
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FY 1996 (including $42.1 million for one), $113.2 million for 12 districts in FY
1997 (including $90 million to one for restructuring its prior loans), and $23.4
million for 10 districts in FY 1998.
Ohio's 943 incorporated cities and villages rely primarily on property and
municipal income taxes for their operations. With other subdivisions, they also
receive local government support and property tax relief moneys distributed by
the State.
For those few municipalities and school districts that on occasion have
faced significant financial problems, there are statutory procedures for a joint
State/local commission to monitor the fiscal affairs and for development of a
financial plan to eliminate deficits and cure any defaults. (Similar procedures
have recently been extended to counties and townships.) Since inception for
municipalities in 1979, these "fiscal emergency" procedures have been applied to
27 cities and villages; for 21 of them the fiscal situation was resolved and the
procedures terminated (one municipality is currently in preliminary "fiscal
watch" status). As of February 11, 2000, a school district "fiscal emergency"
provision was applied to 11 districts, and eight were on preliminary "fiscal
watch" status.
At present the State itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political subdivisions and
other local taxing districts. The Constitution has since 1934 limited to 1% of
true value in money the amount of the aggregate levy (including a levy for
unvoted general obligations) of property taxes by all overlapping subdivisions,
without a vote of the electors or a municipal charter provision, and statutes
limit the amount of that aggregate levy to 10 mills per $1 of assessed valuation
(commonly referred to as the "ten-mill limitation"). Voted general obligations
of subdivisions are payable from property taxes that are unlimited as to amount
or rate.
RISK FACTORS FOR THE OREGON FUND. Oregon's economy relies to a large
degree on high technology, export and other industries that are particularly
vulnerable to international recessionary cycles. Oregon's growth and economic
expansion of the past five years has recently slowed considerably in response to
an unstable Asian economy. In 1990 Oregon voters approved Measure 5, a property
tax limitation measure that puts a cap on local ad valorem property taxes, and
in 1997 Measure 50 was passed which limits future increases in property taxes.
The State is increasingly reliant on income tax revenues which are susceptible
to volatility and recessionary cycles. While the State has been able to replace
lost property tax revenues with increased revenues from income tax, Measures 5
and 50 may ultimately affect the State's credit rating, causing the State to pay
a higher interest rate on the money it borrows. There is a relatively inactive
trading market for municipal instruments of Oregon issuers in other than general
obligations of the State; if the Oregon Fund were forced to sell a large volume
of these instruments for any reason, the value of the Oregon Fund's portfolio
may be adversely affected.
RISK FACTORS FOR THE PENNSYLVANIA FUND. Pennsylvania may incur debt to
rehabilitate areas affected by disaster, debt approved by the electorate, debt
for certain capital projects (for projects such as highways, public
improvements, transportation assistance, flood control, redevelopment
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assistance, site development and industrial development) and tax anticipation
debt payable in the fiscal year of issuance. Pennsylvania had outstanding
general obligation debt of $4,924.5 million at June 30, 1999. Pennsylvania is
not permitted to fund deficits between fiscal years with any form of debt. All
year-end deficit balances must be funded within the succeeding fiscal year's
budget. At January 15, 2000, all outstanding general obligation bonds of
Pennsylvania were rated AA by S & P and Aa3 by Moody's (see Appendix A). There
can be no assurance that the current ratings will remain in effect in the
future. The PENNSYLVANIA FUND assumes no obligation to update this rating
information. Over the five-year period ending June 30, 2004, Pennsylvania has
projected that it will issue bonds totaling $3,449 million and retire bonded
debt in the principal amount of $2,542.4 million. Certain agencies created by
Pennsylvania have statutory authorization to incur debt for which Pennsylvania
appropriations to pay debt service thereon is not required. As of June 30, 1999,
total combined debt outstanding for these agencies was $9,802 million. The debt
of these agencies is supported by assets of, or revenues derived from, the
various projects financed and is not an obligation of Pennsylvania. Some of
these agencies, however, are indirectly dependent on Pennsylvania
appropriations. The only obligations of agencies in Pennsylvania that bear a
moral obligation of Pennsylvania are those issued by the Pennsylvania Housing
Finance Agency ("PHFA"), a state-created agency which provides housing for lower
and moderate income families, and The Hospitals and Higher Education Facilities
Authority of Philadelphia (the "Hospital Authority"), an agency created by the
City of Philadelphia to acquire and prepare various sites for use as
intermediate care facilities for the mentally retarded. As of June 30, 1999,
PHFA has $2,749.3 million of revenue bonds and notes outstanding.
Numerous local government units in Pennsylvania issue general obligation
debt, including counties, cities, boroughs, townships and school districts.
School district obligations are supported indirectly by Pennsylvania. The
issuance of non-electoral general obligation debt is limited by constitutional
and statutory provision. Electoral debt., i.e., that approved by the voters, is
unlimited. In addition, local government units and municipal and other
authorities may issue revenue obligations that are supported by the revenues
generated from particular projects or enterprises. Examples include municipal
authorities (frequently operating water and sewer systems), municipal
authorities formed to issue obligations benefiting hospitals and educational
institutions, and industrial development authorities, whose obligations benefit
industrial or commercial occupants. In some cases, sewer or water revenue
obligations are guaranteed by taxing bodies and have the credit characteristics
of general obligation debt.
Pennsylvania historically has been identified as a heavy industry state,
although that reputation has changed with the decline of the coal, steel and
railroad industries and the resulting diversification of Pennsylvania's
industrial composition. The major new sources of growth are in the service
sector, including trade, medical and health services, education and financial
institutions. Manufacturing has fallen behind both the services sector and the
trade sector as the largest single source of employment in Pennsylvania.
Since 1988, non-agricultural employment in Pennsylvania has grown at an
annual rate of 0.75 percent, while employment for the Middle Atlantic region and
for the United States for the same period has grown by approximately .29 percent
and 1.72 percent per year, respectively. Pennsylvania's average annual
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unemployment rate since 1986 has generally not been more than one percent
greater or lesser than the nation's annual average unemployment rate. The
seasonally adjusted unemployment rate for Pennsylvania for January, 2000 was 4.0
percent compared with 4.0 percent for the United States. The unadjusted
unemployment rate for Pennsylvania and the United States for January, 2000 was
4.5 percent and 4.5 percent, respectively. The population of Pennsylvania, 11.99
million people in 1999, according to the U. S. Bureau of the Census, represents
an increase from the July 1, 1988 estimate of 11.85 million. Per capita income
in Pennsylvania for calendar year 1998 of $26,792 was higher than the per capita
income of the United States of $26,412. Pennsylvania's General Fund, which
receives all tax receipts and most other revenues and through which debt service
on all general obligations of Pennsylvania are made, closed fiscal years ended
June 30, 1997, June 30, 1998 and June 30, 1999 with positive fund balances of
$1,365 million, $1,959 million and $2,863 million, respectively.
Pennsylvania is currently involved in certain litigation where adverse
decisions could have an adverse impact on its ability to pay debt service. For
example, COUNTY OF ALLEGHENY V. COMMONWEALTH OF PENNSYLVANIA involves litigation
regarding the state constitutionality of the statutory scheme for county funding
of the judicial system, and in PENNSYLVANIA ASSOCIATION OF RURAL AND SMALL
SCHOOLS V. CASEY, the constitutionality of Pennsylvania's system for funding
local school districts has been challenged. No estimates for the amount of these
claims are available.
RISK FACTORS FOR THE VIRGINIA FUND. The Commonwealth of Virginia has a
tradition of low debt and a large proportion of its general obligation bonds is
supported by particular revenue-producing projects. Virginia is one of only nine
states in the nation with a "triple A" bond rating for its general obligation
debt from the three rating agencies. The ratings reflect the Commonwealth's long
standing record of sound fiscal management, its diversified economic base and
low debt ratios.
Use of non-general obligation debt, which is not subject to constitutional
limits on borrowing, has changed the Commonwealth's debt profile. During the
last decade, the Commonwealth has expanded its limited obligation borrowings
through various financing vehicles such as the Virginia Public Building
Authority, the Virginia College Building Authority and a substantial
transportation bonding program. In 1991, the Virginia Supreme Court in a case
known as the DYKES decision, on a split vote, upheld on rehearing the ability of
counties to enter into obligations which were "subject to appropriation" and
confirmed that such obligations were not to be considered as "debt" under the
Virginia Constitution.
While the Commonwealth has a long history of sound financial operations,
variations of a cyclical nature have occurred during the past several years. The
2000-2002 biennium budget, as adopted by the Virginia General Assembly at its
2000 session emphasized the Commonwealth's transportation needs. The
transportation package provides for spending $2.4 billion dollars on those needs
over the next six years. The budget for 2000-2002 continues to be predicated on
continued increased revenue growth. Even with the planned transportation
expenditures, there are no provisions in the Commonwealth's budget for general
tax increases. As required by the Virginia Constitutions, by budget is a
balanced budget.
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The Virginia General Assembly at its 1998 session passed the Personal
Property Tax Relief Act, which provides a significant reduction in the personal
property tax (or "car tax") imposed by Virginia localities on. Under the terms
of the Act, the Commonwealth will assume financial responsibility for a
significant portion of the personal property taxes imposed by localities, phased
in over a five-year period and beginning with a 12.5% reduction in the first
year and a 20% reduction in year two. The personal property tax reduction was
paid initially to the taxpayers directly from the Commonwealth. Going forward,
the Commonwealth will reimburse the localities for the reduced personal property
taxes. By the year 2002, when the car tax relief is fully phased in, there will
be a budget impact of $1,014.0 million. The 1999 General Assembly adopted
legislation to reduce the state portion of the sales and use tax that is imposed
on food items from three and one-half percent (3.5%) to one and one-half percent
(1.5%), to be phased in over a number of years which started January 1, 2000.
Virginia's economy is affected generally by economic trends throughout the
country and in the Mid-Atlantic region, and it is particularly influenced by
Federal civilian and military installations and the growth of suburban
communities around Washington, D.C. Also significant to the economy of Virginia
are manufacturing (such as electronic equipment, shipbuilding and chemical
products), minerals (chiefly coal), service sector occupations (including
banking and insurance), agriculture and tourism. Virginia's economy has remained
strong as national economic growth has continued the recovery that began at the
end of the 1990-91 recession. Virginia continues to outpace the nation in many
measures of economic growth such as personal income, total wages and salaries,
total nonagricultural employment and retail sales. In addition, Virginia's
unemployment rate of 2.8 percent for FY 1999 remained lower than the nation's
rate of 4.2% and is down from 2.9% for FY 1998. The FY 1999 unemployment rate is
the lowest rate since 1974 when the Bureau of Labor Statistics began its current
method of computing the unemployment rate. Virginia is considered a pro-business
state and has encouraged economic development over the last several years. In
1998, 48,300 new jobs were created with investments made in excess of $2.26
billion dollars. This growth has provided a strong tax base for Virginia.
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, 1998 and 1999, INSURED
INTERMEDIATE TAX EXEMPT FUND's portfolio turnover rate was 163% and 142%,
respectively, INSURED TAX EXEMPT FUND's portfolio turnover rate was 19% and 31%,
respectively, and NEW YORK INSURED TAX FREE FUND's portfolio turnover rate was
44% and 55%, respectively. For the fiscal years ended December 31, 1998 and
1999, the portfolio turnover rate for each Single State Fund was as follows:
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Fiscal Year Fiscal Year
Ended Ended
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ------------------
ARIZONA FUND 50% 62%
CALIFORNIA FUND 79 49
COLORADO FUND 25 40
CONNECTICUT FUND 25 47
FLORIDA FUND 44 68
GEORGIA FUND 36 57
MARYLAND FUND 33 44
MASSACHUSETTS FUND 49 32
MICHIGAN FUND 20 21
MINNESOTA FUND 22 23
MISSOURI FUND 17 66
NEW JERSEY FUND 27 52
NORTH CAROLINA FUND 54 47
OHIO FUND 34 48
OREGON FUND 27 33
PENNSYLVANIA FUND 26 36
VIRGINIA FUND 26 36
DIRECTORS OR TRUSTEES AND OFFICERS
Each Fund's Board of Directors or Trustees, 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 or
Trustees and executive officers of INSURED INTERMEDIATE TAX EXEMPT FUND SERIES,
INSURED TAX EXEMPT FUND, NEW YORK INSURED TAX FREE FUND, MULTI-STATE INSURED TAX
FREE FUND, AND/OR TAX-EXEMPT MONEY MARKET 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*+ (74), President and Director/Trustee. Chairman of the Board and
Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Asset Management
Company, Inc. ("FIAMCO"), First Investors Corporation ("FIC"), Executive
Investors Corporation ("EIC") and First Investors Consolidated Corporation
("FICC").
JAMES J. COY (85), Emeritus Director/Trustee, 90 Buell Lane, East Hampton, NY
11937. Retired; formerly Senior Vice President, James Talcott, Inc. (financial
institution).
KATHRYN S. HEAD*+ (44), Director/Trustee, 581 Main Street, Woodbridge, NJ 07095.
President and Director, FICC, ADM and FIMCO; Vice President and Director, FIC;
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President and Chief Executive Officer, EIC; President and Director, EIMCO;
Chairman and Director, First Financial Savings Bank, S.L.A.
LARRY R. LAVOIE* (52), Director/Trustee. Assistant Secretary, ADM, EIC, EIMCO,
FIAMCO, FICC, and FIMCO; President, FIAMCO; Secretary and General Counsel, FIC.
REX R. REED** (78), Director/Trustee, 259 Governors Drive, Kiawah Island, SC
29455. Retired; formerly Senior Vice President, American Telephone & Telegraph
Company.
HERBERT RUBINSTEIN** (78), Director/Trustee, 695 Charolais Circle, Edwards, CO
81632-1136. Retired; formerly President, Belvac International Industries, Ltd.
and President, Central Dental Supply.
NANCY SCHAENEN** (68), Director/Trustee, 56 Midwood Terrace, Madison, NJ 07940.
Trustee, Drew University and DePauw University.
JAMES M. SRYGLEY** (67), Director/Trustee, 39 Hampton Road, Chatham, NJ 07982.
Principal, Hampton Properties, Inc. (property investment company).
JOHN T. SULLIVAN* (67), Director/Trustee and Chairman of the Board; Director,
FIMCO, FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH** (70), Director/Trustee, 217 Upland Downs Road, Manchester
Center, VT 05255. Retired; formerly financial and planning executive with
American Telephone & Telegraph Company.
JOSEPH I. BENEDEK (42), Treasurer and Principal Accounting Officer, 581 Main
Street, Woodbridge, NJ 07095. Treasurer, FIMCO, EIMCO and FIAMCO.
CONCETTA DURSO (64), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
CLARK D. WAGNER (40), Vice President. Vice President, MULTI-STATE INSURED TAX
FREE FUND, NEW YORK INSURED TAX FREE FUND, INC., FIRST INVESTORS SERIES FUND,
FIRST INVESTORS INSURED TAX EXEMPT FUND, INC., Executive Investors Trust, and
First Investors Government Fund, Inc.; Chief Investment Officer, FIMCO.
* These Directors/Trustees may be deemed to be "interested persons," as defined
in the 1940 Act.
** These Directors/Trustees 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.
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All of the officers and Directors, except for 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.
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The following table lists compensation paid to the Directors or Trustees
of each Fund for the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION AGGREGATE TOTAL COMPENSATION
FROM AGGREGATE AGGREGATE COMPENSATION AGGREGATE FROM FIRST
TAX-EXEMPT COMPENSATION COMPENSATION FROM COMPENSATION INVESTORS
TRUSTEE MONEY FROM FROM INSURED MULTI-STATE FROM NEW YORK FAMILY OF FUNDS
MARKET SERIES TAX EXEMPT INSURED TAX INSURED TAX FREE PAID
FUND* FUND*(1) FUND* FREE FUND* TO
FUND* DIRECTORS/TRUSTEES+
<S> <C> <C> <C> <C> <C> <C>
James J. Coy** $0 $0 $0 $0 $0 $0
Glenn O. Head $0 $0 $0 $0 $0 $0
Kathryn S. $0 $0 $0 $0 $0 $0
Head
Larry R. $0 $0 $0 $0 $0 $0
Lavoie
Rex R. Reed $60 $60 $4,100 $2,400 $1,800 $42,950
Herbert $60 $60 $4,100 $2,400 $1,800 $42,950
Rubinstein
James M. $60 $60 $4,100 $2,400 $1,800 $42,950
Srygley
John T. $0 $0 $0 $0 $0 $0
Sullivan
Robert F. $60 $60 $4,100 $2,400 $1,800 $42,950
Wentworth
Nancy Schaenen $60 $60 $4,100 $2,400 $1,800 $42,950
</TABLE>
* Compensation to officers and interested Directors or Trustees of the Funds is
paid by the Adviser.
** On March 27, 1997, Mr. Coy resigned as a Director/Trustee of the Funds. Mr.
Coy currently serves as an Emeritus Director/Trustee. Mr. Coy is paid by the
Adviser.
+ The First Investors Family of Funds consists of 15 separate registered
investment companies.
(1) This column only reflects compensation paid with respect to Insured
Intermediate Tax Exempt Fund.
There are no pension or retirement benefits proposed to be paid under any
existing plan to any Director/Trustee by any Fund, its subsidiaries or any
investment company in First Investors Family of Funds.
MANAGEMENT
Investment advisory services to each Fund are provided by FIMCO pursuant
to separate Investment Advisory Agreements (each, an "Advisory Agreement") dated
June 13, 1994. Each Advisory Agreement was approved by the Board of Directors or
Trustees of the applicable Fund, including a majority of the Directors or
Trustees who are not parties to such Fund's Advisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such party ("Independent Directors
or Trustees"), in person at a meeting called for such purpose and by a majority
of the public shareholders of the applicable Fund. The Board of
Directors/Trustees is responsible for supervising the management of the Funds.
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
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Fund's Directors or Trustees. 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, with respect to a Fund, at any time without penalty by the
applicable Fund's Directors or Trustees 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 applicable
Fund's Directors or Trustees or by a majority of the outstanding voting
securities of the Fund, and, in either case, by a vote of a majority of the
Fund's Independent Directors or Trustees voting in person at a meeting called
for the purpose of voting on such approval.
Under Series Fund's Advisory Agreement, INSURED INTERMEDIATE TAX EXEMPT
FUND pays the Adviser an annual fee, paid monthly, of 0.60% of its average daily
net assets. Under Tax Exempt Money Market Fund's Advisory Agreement, the Fund
pays the Adviser an annual fee, payable monthly, of 0.50% of its average daily
net assets. Under each Advisory Agreement, each Fund other than INSURED
INTERMEDIATE TAX EXEMPT FUND AND TAX EXEMPT MONEY MARKET FUND pays the Adviser
an annual fee, paid monthly, according to the following schedule:
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
The Adviser has an Investment Committee composed of Michael Deneka, Dennis
T. Fitzpatrick, George V. Ganter, 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.
For the fiscal years ended December 31, 1997, 1998 and 1999, INSURED TAX
EXEMPT FUND paid $8,394,852, $8,060,955 and $7,360,756, respectively, in
advisory fees. For the fiscal years ended December 31, 1997, 1998 and 1999,
INSURED INTERMEDIATE TAX EXEMPT FUND paid $31,756, $51,962 and $56,704,
respectively, in advisory fees. For the same periods, the Adviser voluntarily
waived $16,181, $17,321 and $18,905, respectively, in advisory fees. For the
fiscal years ended December 31, 1997, 1998 and 1999, the Adviser voluntarily
assumed expenses for INSURED INTERMEDIATE TAX EXEMPT FUND in the amounts of
$14,764, $17,663 and $14,349, respectively. For the fiscal years ended December
31, 1997, 1998 and 1999, NEW YORK INSURED TAX FREE FUND'S advisory fees were
$1,395,057, net of a waiver of $99,647, $ 1,263,391, net of a waiver of
$194,368, and $1,370,405, net of a waiver of $219,370, respectively. For the
fiscal years ended December 31, 1997, 1998 and 1999, Tax Exempt Money Market
Fund paid $105,807, $87,754 and $86,968, respectively, in advisory fees. For the
same periods, the Adviser voluntarily assumed expenses for Tax Exempt Money
Market Fund in the amounts of $57,762, $47,827 and $68,155, respectively. For
the fiscal years ended December 31, 1997, 1998 and 1999, the advisory fees for
each Single State Fund were as follows:
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FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
ADVISORY ADVISORY ADVISORY
FEES PAID WAIVED FEES PAID WAIVED FEES PAID WAIVED
--------- ------ --------- ------ --------- ------
--------------------
ARIZONA FUND $27,731 $41,596 $80,892 $48,535 $94,425 $56,667
--------------------
CALIFORNIA FUND 76,622 38,311 115,062 38,354 110,640 36,889
--------------------
COLORADO FUND 7,434 20,443 28,802 21,121 32,088 20,660
--------------------
CONNECTICUT FUND 84,693 42,347 149,832 49,944 159,496 53,131
--------------------
FLORIDA FUND 120,464 60,232 192,840 64,180 189,590 63,205
--------------------
GEORGIA FUND 6,763 18,598 24,646 18,074 34,677 21,971
--------------------
MARYLAND FUND 34,866 52,299 97,393 58,436 113,109 67,845
--------------------
MASSACHUSETTS FUND 115,772 57,887 173,952 57,984 172,445 58,278
--------------------
MICHIGAN FUND 192,800 96,401 301,761 100,587 289,456 96,478
--------------------
MINNESOTA FUND 25,010 37,516 61,475 36,886 63,338 38,002
--------------------
MISSOURI FUND 3,867 10,634 15,905 11,663 19,608 12,557
--------------------
NEW JERSEY FUND 362,925 90,731 461,383 92,277 451,206 90,280
--------------------
NORTH CAROLINA FUND 12,358 33,984 59,265 43,461 69,028 44,369
--------------------
OHIO FUND 96,209 48,105 148,974 49,658 149,700 50,029
--------------------
OREGON FUND 34,558 6,501 97,924 58,754 106,552 63,972
--------------------
PENNSYLVANIA FUND 220,283 110,141 322,441 107,480 310,850 103,916
--------------------
VIRGINIA FUND 112,117 56,058 178,665 59,555 176,864 58,960
In addition, for the fiscal year ended December 31, 1998, the Adviser
voluntarily reimbursed expenses for the Funds as follows: ARIZONA FUND -
$19,230; CALIFORNIA FUND - $14,934; COLORADO FUND - $10,639; CONNECTICUT FUND -
$23,659; FLORIDA FUND - $16,869; GEORGIA FUND - $8,211; MARYLAND FUND - $27,029;
MASSACHUSETTS FUND - $23,483; MINNESOTA Fund - $22,920; MISSOURI FUND - $7,445;
NORTH CAROLINA FUND - $14,159; OHIO FUND - $27,916; OREGON FUND - $31,537; and
VIRGINIA FUND - $21,623. For the fiscal year ended December 31, 1999, the
Adviser voluntarily reimbursed expenses for the Funds as follows: ARIZONA FUND -
$22,440; CALIFORNIA FUND - $14,819; COLORADO FUND - $12,828; CONNECTICUT FUND -
$17,567; FLORIDA FUND - $14,680; GEORGIA FUND - $9,522; MARYLAND FUND - $29,048;
MASSACHUSETTS FUND - $19,786; MINNESOTA FUND - $23,699; MISSOURI FUND - $13,470;
NORTH CAROLINA FUND - $22,726; OHIO FUND - $20,008; OREGON FUND - $33,336; and
VIRGINIA FUND - $23,584.
Each Fund bears all expenses of its operations other than those incurred
by the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.
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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.
Pursuant to each Underwriting Agreement, the Underwriter shall bear all fees and
expenses incident to the registration and qualification of the Funds' shares. In
addition, the Underwriter shall bear all expenses of sales material or
literature, including prospectuses and proxy materials, to the extent such
materials are used in connection with the sale of the Funds' shares, unless a
Fund has agreed to bear such costs pursuant to a plan of distribution. See
"Distribution Plans." Each Underwriting Agreement was approved by the applicable
Fund's Board of Directors or Trustees, including a majority of the Independent
Directors or Trustees. Each Underwriting Agreement provides that it will
continue in effect, with respect to a Fund, from year to year only so long as
such continuance is specifically approved at least annually by the applicable
Fund's Board of Directors or Trustees or by a vote of a majority of the
outstanding voting securities of that Fund, and in either case by the vote of a
majority of the applicable Fund's Disinterested Directors or Trustees, voting in
person at a meeting called for the purpose of voting on such approval. Each
Underwriting Agreement will terminate automatically in the event of its
assignment.
For the fiscal years ended December 31, 1997, 1998 and 1999, FIC received
underwriting commissions with respect to INSURED TAX EXEMPT FUND of $465,427,
$461,174 and $398,742, respectively. For the same periods, FIC reallowed an
additional $35,092, $25,573 and $30,521, respectively, to unaffiliated dealers.
For the fiscal years ended December 31, 1997, 1998 and 1999, FIC received
underwriting commissions with respect to INSURED INTERMEDIATE TAX EXEMPT FUND of
$44,019, $45,783 and $115,366, respectively. For the same periods, FIC reallowed
an additional $7,864, $23,492 and $359, respectively, to unaffiliated dealers.
For the fiscal years ended December 31, 1997, 1998 and 1999, FIC received
underwriting fees with respect to NEW YORK INSURED TAX FREE FUND of $226,611,
$202,504 and $201,340, respectively. For the same periods relating to NEW YORK
INSURED TAX FREE FUND, FIC reallowed an additional $27,388, $23,018 and $12,886,
respectively, to unaffiliated dealers. For the fiscal years ended December 31,
1997, 1998 and 1999, underwriting fees with respect to MULTI-STATE INSURED TAX
FREE FUND were as follows:
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<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
ADDITIONAL ADDITIONAL ADDITIONAL
AMOUNTS AMOUNTS AMOUNTS
AMOUNTS REALLOWED TO AMOUNTS REALLOWED TO AMOUNTS REALLOWED TO
RECEIVED UNAFFILIATED RECEIVED UNAFFILIATED RECEIVED UNAFFILIATED
BY FIC DEALERS BY FIC DEALERS BY FIC DEALERS
------ ------------- -------- ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------
ARIZONA FUND $47,265 $28,254 $27,012 $29,452 $78,221 $20,969
- ----------------
CALIFORNIA FUND 34,549 40,919 26,095 36,723 25,273 27,579
- ----------------
COLORADO FUND 22,986 3,371 17,248 5,351 52,720 11,470
- ----------------
CONNECTICUT FUND 88,353 3,157 68,989 6,179 127,097 552
- ----------------
FLORIDA FUND 90,128 21,909 97,180 34,780 145,577 14,741
- ----------------
GEORGIA FUND 9,904 1,479 3,332 5,863 31,009 0
- ----------------
MARYLAND FUND 28,980 34,323 35,105 53,136 45,749 68,079
- ----------------
MASSACHUSETTS FUND 69,708 7,469 53,376 3,889 58,748 2,583
- ----------------
MICHIGAN FUND 64,340 78,672 60,258 60,582 77,405 44,548
- ----------------
MINNESOTA FUND 15,731 7,662 19,242 52 44,710 0
- ----------------
MISSOURI FUND 2,496 -0- 5,458 11,026 20,834 31,701
- ----------------
NEW JERSEY FUND 165,891 6,121 203,486 15,187 225,543 8,331
- ----------------
NORTH CAROLINA FUND 29,711 17,527 42,966 18,318 52,278 18,243
- ----------------
OHIO FUND 47,202 15,307 66,226 24,809 73,213 40,366
- ----------------
OREGON FUND 104,286 3,273 85,349 16,342 106,119 7,037
- ----------------
PENNSYLVANIA FUND 66,376 81,858 69,819 78,183 85,597 34,465
- ----------------
VIRGINIA FUND 64,270 10,550 179,231 13,533 132,170 7,624
</TABLE>
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 A
Plan is a reimbursement plan, except for the INSURED INTERMEDIATE TAX EXEMPT
FUND Class A Plan which is a compensation plan and the Tax-Exempt Money Market
Fund Class A Plan which is a defensive plan. Each Class B Plan is a compensation
plan.
Each Plan was approved by the applicable Fund's Board of Directors or
Trustees, including a majority of the Independent Directors or Trustees, and by
a majority of the outstanding voting securities of the relevant class of each
Fund. Each Plan will continue in effect, with respect to a Fund, from year to
year as long as its continuance is approved annually be either the applicable
Fund's Board of Directors or Trustees or by a vote of a majority of the
outstanding voting securities of the relevant class of shares of that Fund. In
either case, to continue, each Plan must be approved by the vote of a majority
of the Independent Directors or Trustees of the applicable Fund. Each Fund's
Board reviews quarterly and annually a written report provided by the Treasurer
of the amounts expended under the applicable Plan and the purposes for which
such expenditures were made. While each Plan is in effect, the selection and
nomination of the applicable Fund's Independent Directors or Trustees will be
committed to the discretion of such Independent Directors or Trustees then in
office.
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Each Plan can be terminated, with respect to a Fund, at any time by a vote
of a majority of the applicable Fund's Independent Directors or Trustees or by a
vote of a majority of the outstanding voting securities of the relevant class of
shares of that Fund. Any change to each Class B Plan that would materially
increase the costs to that class of shares of a Fund or any material change to
each Class A Plan may not be instituted without the approval of the outstanding
voting securities of the relevant class of shares of that Fund. Such changes
also require approval by a majority of the applicable Fund's Independent
Directors or Trustees.
In adopting each Plan, each Fund's 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 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 or
Trustees, 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 that Fund's shares.
TAX-EXEMPT MONEY MARKET FUND has adopted a so-called "defensive" plan of
distribution for Class A shares pursuant to Rule 12b-1 under the 1940 Act
("Money Market Class A Plan"). No fees are paid by the Fund under this Plan. The
Underwriter of the Fund may, at its discretion, pay a fee to certain Dealers for
distribution services and administrative support services. These fees (if any)
are covered by the Plan only if they are deemed to be paid indirectly by the
Fund. The services covered by the defensive Money Market Class A Plan may
include, but shall not be limited to, providing office space, equipment,
telephone facilities and various personnel including clerical, supervisory and
possibly computer, as is necessary or beneficial to establish and maintain Class
A shareholder accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations and addresses and providing such other
services as the Fund may reasonably request. The schedules of fees (if any) and
the basis upon which such fees will be paid is determined from time to time by
the Underwriter.
The Underwriter has the right to select, in its sole discretion, Dealers
to participate in the Money Market Class A Plan and has the right to terminate
with or without cause and in its sole discretion any agreement with a Dealer.
Any agreement may be terminated, without penalty, at any time, by a vote of a
majority of the Independent Directors upon not more than 60 days' written notice
to any Dealer, or by vote of a majority of the outstanding Class A voting
securities of TAX-EXEMPT MONEY MARKET FUND, or upon notice by the Underwriter.
For the fiscal year ended December 31, 1999, INSURED INTERMEDIATE TAX
EXEMPT FUND accrued $25,237 in 12b-1 fees pursuant to SERIES FUND's Class A
Plan. For the fiscal year ended December 31, 1999, INSURED TAX EXEMPT FUND paid
$2,808,891 in 12b-1 fees pursuant to its Class A Plan. For the fiscal year ended
December 31, 1999, NEW YORK INSURED paid $530,937 pursuant to its Class A Plan.
For the fiscal year ended December 31, 1999, each Fund of Multi-State Insured
paid the following amounts pursuant to their Class A Plan: ARIZONA FUND -
$24,113; CALIFORNIA FUND - $28,442; COLORADO FUND - $7,812; CONNECTICUT FUND -
$36,158; FLORIDA FUND - $48,776; GEORGIA FUND - $8,745; MARYLAND FUND - $25,199;
MASSACHUSETTS FUND - $43,180; MICHIGAN FUND - $74,550; MINNESOTA FUND - $16,748;
MISSOURI FUND - $4,769; NEW JERSEY FUND - $113,665; NORTH CAROLINA FUND -
$17,524; OHIO FUND - $38,821; OREGON FUND - $26,192; PENNSYLVANIA FUND -
$78,532; and VIRGINIA FUND - $44,573. For the same period, the Underwriter
incurred the following Class A Plan-related expenses with respect to each Fund:
105
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COMPENSATION TO COMPENSATION TO COMPENSATION TO
FUND UNDERWRITER DEALERS SALES PERSONNEL
- ---- --------------- --------------- ---------------
INSURED $0 $0 $0
INTERMEDIATE TAX
EXEMPT FUND
INSURED TAX EXEMPT $2,266,518 $570 $541,803
FUND
NEW YORK INSURED 405,004 9 125,924
ARIZONA FUND 14,818 84 9,211
CALIFORNIA FUND 19,042 1,326 8,074
COLORADO FUND 3,718 0 4,094
CONNECTICUT FUND 17,757 21 18,380
FLORIDA FUND 28,676 3,113 16,987
GEORGIA FUND 5,365 344 3,036
MARYLAND FUND 19,732 136 5,331
MASSACHUSETTS FUND 21,394 177 21,609
MICHIGAN FUND 34,058 20,150 20,342
MINNESOTA FUND 9,013 1,766 5,969
MISSOURI FUND 3,573 54 1,142
NEW JERSEY FUND 62,334 722 50,609
NORTH CAROLINA FUND 9,750 654 7,121
OHIO FUND 17,220 5,889 15,712
OREGON FUND 12,709 20 13,463
PENNSYLVANIA FUND 56,579 8,117 13,836
VIRGINIA FUND 21,971 3,878 18,724
For the fiscal year ended December 31, 1999, INSURED TAX EXEMPT FUND,
INSURED INTERMEDIATE TAX EXEMPT FUND AND TAX-EXEMPT MONEY MARKET FUND paid
$41,384, $10,380 and $323, respectively, in 12b-1 fees pursuant to their
respective Class B Plan.
For the fiscal year ended December 31, 1999 NEW YORK INSURED TAX FREE FUND
paid $52,786 pursuant to its Class B Plan. For the fiscal year ended December
31, 1999, each Single State Fund paid the following amounts pursuant to its
Class B Plan: ARIZONA FUND - $5,151; CALIFORNIA FUND - $4,930; COLORADO FUND -
$3,718; CONNECTICUT FUND - $31,290; FLORIDA FUND - $8,240; GEORGIA FUND -
$2,650; MARYLAND FUND - $24,793; MASSACHUSETTS FUND - $14,066; MICHIGAN FUND -
$11,114; MINNESOTA FUND - $708; MISSOURI FUND - $2,301; NEW JERSEY FUND -
$31,754; NORTH CAROLINA FUND - $4,154, OHIO FUND - $4,970; OREGON FUND -
$10,916; PENNSYLVANIA FUND - $20,176; and VIRGINIA FUND - $12,347. For the same
period, the Underwriter incurred the following Class B Plan-related expenses
with respect to each Fund:
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<PAGE>
COMPENSATION TO COMPENSATION TO COMPENSATION TO
FUND UNDERWRITER DEALERS SALES PERSONNEL
- ---- --------------- --------------- ---------------
INSURED INTERMEDIATE $10,371 $9 $0
TAX EXEMPT FUND
INSURED TAX EXEMPT 32,467 5,263 $3,654
FUND
TAX EXEMPT MONEY 0 0 323
MARKET FUND
NEW YORK INSURED 44,569 2,223 5,994
ARIZONA FUND 2,218 2,599 334
CALIFORNIA FUND 0 4,607 323
COLORADO FUND 0 0 3,718
CONNECTICUT FUND 27,569 0 3,721
FLORIDA FUND 1,603 4,306 2,330
GEORGIA FUND 1,676 872 102
MARYLAND FUND 1,577 22,985 231
MASSACHUSETTS FUND 11,097 1,759 1,210
MICHIGAN FUND 4,662 5,967 485
MINNESOTA FUND 0 0 708
MISSOURI FUND 597 1,699 5
NEW JERSEY FUND 29,525 612 1,617
NORTH CAROLINA FUND 0 0 4,154
OHIO FUND 3,808 1,022 140
OREGON FUND 6,515 3,535 866
PENNSYLVANIA FUND 8,953 8,228 2,995
VIRGINIA FUND 8,078 0 4,269
DETERMINATION OF NET ASSET VALUE
ALL FUNDS EXCEPT TAX-EXEMPT MONEY MARKET FUND
The municipal bonds in which each Fund invests are traded primarily in the
over-the-counter markets. Such securities are valued daily at their fair value
on the basis of valuations provided by a pricing service approved by the
applicable Fund's Board. This service is provided by Muller Data Corporation.
The pricing service considers security type, rating, market condition and yield
data, as well as market quotations and prices provided by market makers. With
respect to each Fund, "when-issued securities" are reflected in the assets of a
Fund as of the date the securities are purchased.
The Funds may retain any insured municipal bond which is in default in the
payment of principal or interest until the default has been cured or the
principal and interest outstanding are paid by an insurer or the issuer of any
letter of credit or other guarantee supporting such municipal bond. In such
case, it is each Fund's policy to value the defaulted bond daily based upon the
value of a comparable bond which is insured and not in default. In selecting a
comparable bond, each Fund will consider security type, rating, market condition
and yield.
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<PAGE>
TAX-EXEMPT MONEY MARKET FUND
The Fund values its portfolio securities in accordance with the amortized
cost method of valuation under Rule 2a-7 under the 1940 Act. To use amortized
cost to value its portfolio securities, the Fund must adhere to certain
conditions under that Rule relating to the Fund's investments, some of which are
discussed in the Prospectus. Amortized cost is an approximation of market value
of an instrument, whereby the difference between its acquisition cost and value
at maturity is amortized on a straight-line basis over the remaining life of the
instrument. The effect of changes in the market value of a security as a result
of fluctuating interest rates is not taken into account and thus the amortized
cost method of valuation may result in the value of a security being higher or
lower than its actual market value. In the event that a large number of
redemptions take place at a time when interest rates have increased, the Fund
might have to sell portfolio securities prior to maturity and at a price that
might not be desirable.
The Board of Directors of the Fund has established procedures for the
purpose of maintaining a constant net asset value of $1.00 per share, which
include a review of the extent of any deviation of net asset value per share,
based on available market quotations, from the $1.00 amortized cost per share.
Should that deviation exceed 1/2 of 1% for thE Fund, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund maintains a dollar weighted average
portfolio maturity of 90 days or less and does not purchase any instrument with
a remaining maturity greater than 13 months, limits portfolio investments,
including repurchase agreements, to those U.S. dollar-denominated instruments
that are of high quality and that the Directors determine present minimal credit
risks as advised by the Adviser, and complies with certain reporting and
recordkeeping procedures. There is no assurance that a constant net asset value
per share will be maintained. In the event amortized cost ceases to represent
fair value per share, the Board will take appropriate action.
ALL FUNDS
Each Fund's Board may suspend the determination of a Fund's net asset
value for the whole or any part of any period (1) during which trading on the
New York Stock Exchange ("NYSE") is restricted as determined by the SEC or the
NYSE is closed for other than weekend and holiday closings, (2) during which an
emergency, as defined by rules of the SEC in respect to the 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.
ALLOCATION OF PORTFOLIO BROKERAGE
The Adviser may purchase or sell portfolio securities on behalf of a Fund
in agency or principal transactions. In agency transactions, a Fund generally
pays brokerage commissions. In principal transactions, a 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
108
<PAGE>
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 a 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. A 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-price underwritings, over-the-counter
transactions, and/or brokerage 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 or dealer concessions may pay for research or
other services. In other words, a Fund's brokerage or dealer concessions 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 a Fund's Board to analyze a Fund's performance relative to
other comparable funds.
In selecting the broker-dealers to execute a 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 the Funds
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. Each Fund's Board of Directors or Trustees has authorized and directed
the Adviser to use dealer concessions available in fixed-price underwritings of
municipal bonds to pay for research services which are beneficial in the
management of each Fund's portfolio. The Funds did not pay brokerage commissions
for the fiscal years ending December 31, 1997, 1998 and 1999.
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<PAGE>
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
ALL FUNDS
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."
TAX-EXEMPT MONEY MARKET FUND
SUPER CHECKING PROGRAM. Class A shareholders may establish Super Checking.
Super Checking links your Fund account with a non-interest bearing checking
account at First Financial Savings Bank, S.L.A. ("FFS"), an affiliate of the
Funds. Each day, the Fund automatically "sweeps," or transfers, funds to your
FFS account to cover your withdrawals, in increments of $100 ($1,000 for
Business Super Checking) to maintain a balance of $1,000 ($3,000 for Business
Super Checking). FFS will accept deposits into the FFS account only by an
electronic direct deposit, a federal funds wire transfer or by "sweep" from your
Fund account. You will receive a consolidated monthly reconciliation statement
summarizing all transactions. The Federal Deposit Insurance Corporation ("FDIC")
insures your funds in your FFS account up to $100,000. SHARES OF YOUR FUND ARE
NOT INSURED BY THE FDIC, ARE NOT OBLIGATIONS OF OR GUARANTEED BY FFS, AND ARE
SUBJECT TO RISK OF LOSS OF PRINCIPAL. For more information on the Super Checking
Program, see the Super Checking Account and Sweep Agreement or call FFS at
1-800-304-7748.
CHECK REDEMPTION PRIVILEGE. You may obtain checks for non-retirement Fund
accounts ("Redemption Checks"). Dividends are earned on Fund shares until a
Redemption Check clears. You are subject to the rules and regulations of the
Custodian covering checking accounts. Neither the Funds nor the Custodian
charges you for the use of such Redemption Checks. On presentation of a
Redemption Check to the Custodian for payment, the Fund determines that a
sufficient number of full and fractional shares are available in your account to
cover the amount of the Redemption Check. Shares are considered available after
a fifteen day clearing period. The Funds return all canceled checks to you once
a month. Neither the Fund nor the Custodian can certify or directly cash
Redemption Checks. Any "stop payment" requests must be directed to the Transfer
Agent and not to the Custodian. However, there is no guarantee that a "stop
payment" request will stop the payment of a Redemption Check. You cannot use the
Check Redemption Privilege for the redemption of shares for which certificates
have been issued, for redemptions from retirement accounts or for redemptions of
shares which are subject to a contingent deferred sales charge ("CDSC"). A CDSC
110
<PAGE>
may be imposed on the redemption of Fund shares acquired through an exchange of
Class A shares from another Eligible Fund which were originally purchased at net
asset value. Because each Fund accrues dividends on a daily basis, you may not
redeem your Fund account in its entirety by the use of the check redemption
privilege. The Check Redemption Privilege is not available for Super Checking.
It is your responsibility to be certain that sufficient shares are in your
account and available to cover the amount of the Redemption Check since, if
there are insufficient shares, the Redemption Check will be returned through
banking channels marked "insufficient funds." It is also your responsibility to
ensure that such Redemption Checks are not made available to unauthorized
individuals and to promptly notify the Funds of any lost or stolen Redemption
Checks. Either the funds or the Custodian may at any time amend or terminate the
Check Redemption Privilege. The Funds bear all expenses relating to this Check
Redemption Privilege.
TAXES
FEDERAL INCOME TAX
To continue to qualify for treatment as a regulated investment company
("RIC") under the Code, a Fund - each Fund being treated as a separate
corporation for these purposes must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable income
(consisting generally of taxable net investment income and net short-term
capital gain) plus its net interest income excludable from gross income under
section 103(a) of the Code ("Distribution Requirement") and must meet several
additional requirements. For each 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 other income (including gains
from options or futures) derived with respect to its business of investing in
securities ("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 (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.
By qualifying for treatment as a RIC, a Fund (but not its shareholders)
will be relieved of Federal income tax on the part of its investment company
taxable income and net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) that it distributes to its shareholders.
If a Fund failed to qualify for treatment as a RIC for any taxable year, (1) it
would be taxed as an ordinary corporation on the full amount of its taxable
income for that year without being able to deduct the distributions it makes to
its shareholders and (2) the shareholders would treat all those distributions,
including distributions that otherwise would be "exempt-interest dividends"
described in the following paragraph and distributions of net capital gain, as
taxable dividends (that is, ordinary income) to the extent of the Fund's
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<PAGE>
earnings and profits. In addition, the Fund could be required to recognize
unrealized gains, pay substantial taxes and interest and make substantial
distributions before requalifying for RIC treatment.
Dividends paid by a Fund will qualify as "exempt-interest dividends" as
defined in the Prospectuses, and thus will be excludable from gross income for
Federal income tax purposes by its shareholders, if the Fund satisfies the
requirement that, at the close of each quarter of its taxable year, at least 50%
of the value of its total assets consists of securities the interest on which is
excludable from gross income under section 103(a); each Fund intends to continue
to satisfy this requirement. The aggregate dividends excludable from a Fund's
shareholders' gross income may not exceed its net tax-exempt income.
Shareholders' treatment of dividends from a Fund under state and local income
tax laws may differ from the treatment thereof under the Code. Investors should
consult their tax advisers concerning this matter.
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
reportable by shareholders (or taxed to them in the case of taxable
distributions) for the year in which that December 31 falls.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be disallowed to the extent of any exempt-interest dividends
received on those shares, and any portion of the loss that is not disallowed
will be treated as long-term, instead of short-term, capital loss to the extent
of any capital gain distributions received on those shares.
Tax-exempt interest attributable to certain PABs (including, to the extent
a Fund receives interest on those bonds, a proportionate part of the
exempt-interest dividends it pays) is a Federal Tax Preference Item.
Exempt-interest dividends received by a corporate shareholder also may be
indirectly subject to the Federal AMT without regard to whether the Fund's
tax-exempt interest was attributable to those bonds. Entities or other persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by PABs should consult their tax advisers before purchasing
shares of a Fund because, for users of certain of these facilities, the interest
on those bonds is not exempt from Federal income tax. For these purposes, the
term "substantial user" is defined generally to include a "non-exempt person"
who regularly uses in trade or business a part of a facility financed from the
proceeds of PABs.
Up to 85% of social security and certain railroad retirement benefits may
be included in taxable income for recipients whose modified adjusted gross
income (which includes income from tax-exempt sources such as a Fund) plus 50%
of their benefits exceeds certain base amounts. Exempt-interest dividends from a
Fund still are tax-exempt to the extent described above; they are only included
in the calculation of whether a recipient's income exceeds the established
amounts.
Each Fund except TAX-EXEMPT MONEY MARKET FUND may acquire zero coupon
municipal securities issued with original issue discount ("OID"). As a holder of
those securities, a Fund must account for the portion of the OID that accrues on
the securities during the taxable year, even if the Fund receives no
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corresponding payment on them during the year. Because each Fund annually must
distribute substantially all of its net tax-exempt income, including any OID on
Municipal Instruments, to satisfy the Distribution Requirement, a Fund may be
required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those distributions
will be made from a Fund's cash assets or from the proceeds of sales of
portfolio securities, if necessary. Each Fund may realize capital gains or
losses from those sales, which would increase or decrease its investment company
taxable income and/or net capital gain.
Each Fund may invest in municipal bonds that are purchased with market
discount (that is, at a price less than the principal amount of the bond or, in
the case of a bond that was issued with OID, a price less than the amount of the
issue price plus accrued OID) ("municipal market discount bonds"). Gain on the
disposition of a municipal market discount bond (other than a bond with a fixed
maturity date within one year from its issuance) generally is treated as
ordinary (taxable) income, rather than capital gain, to the extent of the bond's
accrued market discount at the time of disposition. Market discount on such a
bond generally is accrued ratably, on a daily basis, over the period from the
acquisition date to the date of maturity. In lieu of treating the disposition
gain as above, a Fund may elect to include market discount in its gross income
currently, for each taxable year to which it is attributable.
Each Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary (taxable) income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
If a Fund invests in any instruments that generate taxable income under
circumstances described in the Prospectus, distributions of the interest earned
thereon will be taxable to its shareholders as ordinary income to the extent of
its earnings and profits. Moreover, if a Fund realizes capital gain as a result
of market transactions, any distributions of that gain will be taxable to its
shareholders. There also may be collateral Federal income tax consequences
regarding the receipt of exempt-interest dividends by shareholders such as S
corporations, financial institutions and property and casualty insurance
companies. A shareholder falling into any such category should consult its tax
adviser concerning its investment in shares of a Fund.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the amount, character and timing of recognition of the gains
and losses a Fund will realize in connection therewith. Gains from options and
futures derived by a Fund with respect to its business of investing in
securities will be treated as qualifying 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 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 position, the Fund will be treated as having
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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 identical property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially identical
property will be deemed a constructive sale. The foregoing will not apply,
however, to any transaction by a Fund during any taxable year that otherwise
would be treated as a constructive sale if the transaction is closed within 30
days after the end of that year and the Fund holds the appreciated financial
position unhedged for 60 days after that closing (I.E., at no time during that
60-day period is the Fund's risk of loss regarding that position reduced by
reason of certain specified transactions with respect to substantially identical
or related property, such as having an option to sell, being contractually
obligated to sell, making a short sale, or granting an option to buy
substantially identical stock or securities).
STATE INCOME TAXES
ARIZONA. In the opinion of Greenberg Traurig, LLP, Arizona tax counsel to
MULTI-STATE INSURED TAX FREE FUND, distributions from the ARIZONA FUND that are
received by investors that are individuals, corporations, trusts, and estates
subject to Arizona income tax will not be subject to Arizona income tax to the
extent that those distributions are attributable to interest on tax-exempt
obligations of the State of Arizona or interest on obligations of the United
States, Puerto Rico, the Virgin Islands or Guam. Other distributions from the
ARIZONA FUND, including those related to short-term and long-term capital gains,
generally will be taxable under Arizona law when received by Arizona taxpayers.
This discussion assumes that in each taxable year the ARIZONA FUND qualifies and
elects to be taxed as a RIC for Federal income tax purposes. In addition, it
assumes that in each taxable year the ARIZONA FUND qualifies to pay
exempt-interest dividends by complying with the requirements of the Code that at
least 50% of its assets at the close of each quarter of its taxable year are
invested in state, municipal or other obligations, the interest on which is
excluded from gross income for Federal income tax purposes pursuant to section
103(a) of the Code.
Interest on indebtedness incurred (directly and indirectly) by an investor
to purchase or carry an investment in the ARIZONA FUND should not be deductible
for Arizona income tax purposes to the extent that the ARIZONA FUND holds
tax-exempt obligations of the state of Arizona or obligations of the United
States, Puerto Rico, the Virgin Islands or Guam.
CALIFORNIA. In the opinion of Parker, Milliken, Clark, O'Hara & Samuelian,
California tax counsel to MULTI-STATE INSURED TAX FREE FUND, under existing law,
and assuming that the Federal tax treatment of the CALIFORNIA FUND will be as
set forth elsewhere in this Information, distributions made to individuals,
estates or trusts by the CALIFORNIA FUND are not includable in gross income for
California personal income tax purposes to the extent that such distributions
are treated as exempt-interest dividends under the Code, and are attributable to
California tax-exempt interest, less allocable nondeductible expenses. Such
treatment will result provided that the CALIFORNIA FUND qualifies as a regulated
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investment company under the Code, properly designates such exempt-interest
dividends under California law and satisfies the requirement of California law
that at least 50% of its assets at the close of each quarter of its taxable year
be invested in qualified tax-exempt obligations. The designation requirement is
met by the CALIFORNIA FUND notifying shareholders within 60 days after the close
of a taxable year to the extent that dividends are exempt-interest dividends. It
is important that California shareholders retain this designation each year in
order to establish that exempt-interest dividends are tax-exempt under
California law. Qualified tax-exempt obligations under California law generally
include obligations issued by California or a local government within
California, as well as direct U.S. Government obligations. Direct U.S.
Government obligations do not include securities guaranteed by U.S. Government
agencies such as the Federal National Mortgage Association ("FNMA" or "Fannie
Mae"), the Government National Mortgage Association ("GNMA" or "Ginnie Mae") or
similar agencies. A portion of any discount attributable to a stripped
tax-exempt bond or a stripped coupon may be treated as taxable when distributed
to shareholders. Distributions of the CALIFORNIA FUND that are derived from
sources other than those described above, including interest on certain
non-California obligations such as repurchase agreements and municipal
instruments of other states, will not be treated as tax-exempt for California
personal income tax purposes and are also includable in income subject to the
California alternative minimum tax.
Distributions treated as capital gains dividends under the Code will
currently be taxed as ordinary income for California personal income tax
purposes.
Corporations subject to the California franchise tax or California
corporate income tax are required to include in their gross income and in income
subject to the corporate alternative minimum tax all distributions received from
the CALIFORNIA FUND, including exempt-interest dividends.
California law generally follows Federal law on matters such as denial or
limitation of deductions for short-term losses where exempt-interest dividends
have recently been received, wash sales, limitations on tax basis for certain
sales charges and the nondeductibility of interest on indebtedness incurred by
shareholders to purchase or carry shares of tax-exempt instruments, such as the
CALIFORNIA FUND.
It is the intent of MULTI-STATE INSURED TAX FREE FUND, as represented to
and relied upon by California tax counsel in rendering their opinion, that the
CALIFORNIA FUND will maintain at least 80% of the value of its net assets in
debt obligations of the State of California, its localities and political
subdivisions, which are exempt from regular Federal income tax and California
personal income tax.
The foregoing description relates only to certain aspects of the
California tax treatment of an investment in shares of the CALIFORNIA FUND, it
is not intended as an exhaustive analysis of all possible tax consequences
applicable to all investors. Investors may be subject to other California tax
consequences depending upon their particular situations and should consult their
own tax advisers for appropriate tax advice.
COLORADO. In the opinion of Kutak Rock, Colorado tax counsel to
Multi-State Insured, shareholders of the COLORADO FUND that are corporations,
individuals, estates or trusts subject to the Colorado personal income tax will
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not be required to include in their gross income for Colorado income tax
purposes, distributions made by the COLORADO FUND that are derived from interest
on obligations issued by the State of Colorado, or any political subdivision
thereof on or after May 1, 1980 which obligations are exempt from Federal
taxation under Section 103(a) of the code. Similarly, corporations, individuals,
estates and trusts may exclude from the calculation of Colorado income tax
dividend distributions from the COLORADO FUND to the extent attributable to
interest on obligations of the United States or its possessions. Colorado
statutes provide that corporations, individuals, estates and trusts will not be
entitled to exclude from income any dividend distributions from the COLORADO
FUND which are attributable to interest exempt from federal income tax under
Section 103(a) of the Code and attributable to obligations issued by any other
state or a political subdivision thereof. As a general matter, neither capital
gains recognized as a result of the sale of shares in the COLORADO FUND nor
capital gain dividends received from the COLORADO FUND can be excluded for
purposes of calculating the Colorado income tax by individuals, estates, trusts
or corporations. In addition, interest or indebtedness incurred or continued by
individuals, estates, trusts, or corporations to purchase or carry shares of the
COLORADO FUND will not be deductible for Colorado income tax purposes to the
extent that the COLORADO FUND distributions consist of exempt-interest dividends
during the applicable taxable year of such shareholder. Colorado has no
municipal income taxes.
CONNECTICUT. In the opinion of Kelley Drye & Warren, Connecticut tax
counsel to Multi-State Insured, shareholders who are Connecticut resident
individuals will not be subject to the Connecticut personal income tax on
distributions from the CONNECTICUT FUND to the extent that these distributions
qualify as (i) exempt-interest dividends, as defined in section 852(b)(5) of the
Code, issued by or on behalf of the State of Connecticut, any political
subdivision thereof, or any public instrumentality, state or local authority,
district or similar public entity created under the laws of the State of
Connecticut, or (ii) "exempt dividends" for Connecticut tax purposes.
Distributions to Connecticut shareholders of the CONNECTICUT FUND that are
attributable to sources other than those described above will generally be
includable in the Connecticut income of such shareholders.
Corporate shareholders of the CONNECTICUT FUND subject to tax in
Connecticut will be required to include in net income, for purposes of
calculating the Connecticut corporation business tax, distributions made by the
CONNECTICUT FUND and gains resulting from the redemption or sale of shares of
the CONNECTICUT FUND. Such corporate shareholders, in determining net income,
will be entitled to deduct 70% of the amount of includable distributions that
qualify as dividends under Section 316 of the Code.
FLORIDA. In the opinion of Rudnick & Wolfe, Florida tax counsel to
MULTI-STATE INSURED TAX FREE FUND, under existing law, shareholders of the
Florida Series will not be subject to the Florida intangible personal property
tax on their ownership of FLORIDA FUND shares or on distributions of income or
gains made by the FLORIDA FUND to the extent that such distributions are
attributable solely to investment in: (i) obligations issued by the United
States government and its agencies, instrumentalities or territories (including
Puerto Rico, Guam and the U.S. Virgin Islands) (collectively, "Exempt
Instruments"); or (ii) to money, notes, bonds, and other obligations issued by
the State of Florida and its municipalities, counties, and other taxing
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districts ("Florida Instruments"). If the FLORIDA FUND is not invested solely in
Exempt Instruments and Florida Instruments, then the Florida intangible personal
property tax ("Intangible Tax") will apply as follows:
(a) The portion of the net asset value of the FLORIDA FUND'S
portfolio that is attributable to Exempt Instruments will be exempt from
the Intangible Tax.
(b) If the remaining portion of the net asset value of the FLORIDA
FUND'S portfolio, after removing the portion representing Exempt
Instruments, represents assets which are themselves exempt from the
Intangible Tax, then this portion will also be exempt from the Intangible
Tax.
(c) If the remaining portion of the net asset value of the FLORIDA
FUND'S portfolio, after removing the portion representing Exempt
Instruments, represents any asset which is subject to the Intangible Tax
under Florida law, then the remaining portion of the net asset value of
the FLORIDA FUND portfolio will be subject to the Intangible Tax.
Shareholders of the FLORIDA SERIES will be exempt from the Intangible Tax
on their shares to the extent that the net asset value of the Florida Series'
portfolio is exempt. (The FLORIDA FUND has no present intention of investing in
assets which will be subject to the Intangible Tax.)
Because Florida does not impose an income tax on individuals, individual
shareholders will not be subject to any Florida income tax on income or gains
distributed by the FLORIDA FUND or on gains resulting from the redemption or
exchange of shares of the FLORIDA FUND. Corporate shareholders will be subject
to the Florida income tax on all distributions received from the FLORIDA FUND,
regardless of the tax-exempt status of interest received from the FLORIDA FUND
which is attributable to bonds under section 103(a) of the Code or any other
Federal law; however, if a corporation does not have its commercial domicile
within the state of Florida, its non-business income generated from the FLORIDA
FUND is not allocated as Florida income subject to Florida corporate income tax.
Non-business income includes capital gains and interest to the extent they do
not arise from transactions and activities in the regular course of a taxpayer's
business.
For Florida state income tax purposes, the FLORIDA FUND itself will not be
subject to the Florida income tax so long as it has no income subject to Federal
taxation.
Shareholders of the FLORIDA FUND will be subject to Florida estate tax on
their FLORIDA FUND shares only if they are Florida residents, certain natural
persons not domiciled in Florida, or certain natural persons not residents of
the United States. However, the Florida estate tax is limited to the amount of
the credit allowable under the Code (currently section 2011 and in some cases
section 2102 of the Code) for death taxes actually paid to the several states.
Neither interests held by shareholders of the FLORIDA FUND nor Exempt
Instruments nor money, notes, bonds, and other obligations issued by the State
of Florida and its municipalities, counties, and other taxing districts held by
the FLORIDA FUND will be subject to the Florida ad valorem property tax, the
Florida sales and use tax or the Florida documentary stamp tax.
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GEORGIA. In the opinion of Kutak Rock, Georgia tax counsel to MULTI-STATE
INSURED TAX FREE FUND, shareholders of the GEORGIA FUND that are individuals,
estates, trusts, and corporations subject to Georgia income tax may exclude from
income for Georgia income tax purposes, distributions from the GEORGIA FUND that
are derived from interest on obligations issued by the State of Georgia or any
political subdivision thereof, exempt from federal taxation under section 103(a)
of the Code. Individuals, estates, trusts and corporations may exclude from
income for Georgia income tax purposes, dividend distributions from the GEORGIA
FUND on obligations of the United States or of any authority, commission,
instrumentality or possession thereof exempt from state income tax under federal
law.
Capital gains recognized as a result of the sale of shares in the GEORGIA
FUND can not be excluded for purposes of calculating the Georgia income tax by
individuals, estates, trusts or corporations.
Georgia tax counsel urges each potential investor in the GEORGIA FUND to
consult his or her own tax advisor regarding all GEORGIA FUND income tax related
matters specifically pertaining to them.
MARYLAND. In the opinion of Blank Rome Comisky & McCauley LLP, Maryland
tax counsel to MULTI-STATE INSURED TAX FREE FUND, holders of shares of the
MARYLAND FUND who are individuals, corporations, estates or trusts and who are
subject to Maryland state and local income taxes will not be subject to tax in
Maryland on MARYLAND FUND dividends to the extent that such dividends qualify as
exempt-interest dividends of a regulated investment company under section
852(b)(5) of the Code and are attributable to (1) interest on tax-exempt
obligations of the State of Maryland or its political subdivisions or
authorities, (2) interest on obligations of the United States or an authority,
commission, instrumentality, possession or territory of the United States, or
(3) gain realized by the MARYLAND FUND from the sale or exchange of bonds issued
by Maryland or a political subdivision of Maryland or of the United States or an
authority, commission or instrumentality of the United States. To the extent
that distributions of the MARYLAND Fund are attributable to sources other than
those described above, such as (1) interest on obligations issued by states
other than Maryland or (2) income from repurchase agreements, such distributions
will not be exempt from Maryland state and local income taxes. In addition, gain
realized by a shareholder upon a redemption or exchange of MARYLAND FUND shares
will be subject to Maryland taxation. If the MARYLAND FUND fails to qualify as a
regulated investment company for Federal income tax purposes, it would be
subject to Maryland corporate income tax, and distributions would be taxable as
ordinary income to the shareholders. Maryland presently includes in taxable net
income certain tax preference items. Interest paid on certain private activity
bonds constitutes such a tax preference item. Accordingly, subject to a
threshold amount, 50% of any distributions on the MARYLAND FUND attributable to
such private activity bonds will not be exempt from Maryland state and local
income taxes. Interest on indebtedness incurred (directly or indirectly) by a
shareholder of the MARYLAND FUND to purchase or carry shares of the MARYLAND
FUND will not be deductible for Maryland state and local income tax purposes to
the extent such interest is allocable to exempt-interest dividends.
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MASSACHUSETTS. In the opinion of Palmer & Dodge LLP, Massachusetts tax
counsel to MULTI-STATE INSURED TAX FREE FUND, holders of shares of the
MASSACHUSETTS FUND who are subject to Massachusetts personal income tax will not
be subject to tax on distributions from the MASSACHUSETTS FUND to the extent
that these distributions (1) qualify as exempt interest dividends of a regulated
investment company within the meaning of Code section 852(b)(5) that are
directly attributable to interest on obligations issued by the Commonwealth of
Massachusetts, its instrumentalities or its political subdivisions that is
exempt from Massachusetts taxation or (2) qualify as capital gain dividends as
defined in Code section 852(b)(3)(C), that are attributable to gain on
obligations issued by the Commonwealth of Massachusetts, its instrumentalities
or political subdivisions that is exempt from Massachusetts taxation. If a
holder of shares of the MASSACHUSETTS FUND is a corporation subject to the
Massachusetts corporate excise tax, distributions received from the
MASSACHUSETTS FUND are includable in gross income and generally may not be
deducted by such a corporate holder in computing its net income. The shares of
the MASSACHUSETTS FUND will be includable in the gross estate of a deceased
individual holder who is a resident of Massachusetts for purposes of the
Massachusetts Estate Tax.
Distributions to holders of shares of the MASSACHUSETTS FUND who are
subject to Massachusetts personal income tax that do not qualify as
exempt-interest dividends, as defined in Code section 852(b)(5), or capital gain
dividends, as defined in Code section 852(b)(3)(C), directly attributable to
interest or capital gain exempt from Massachusetts taxation on obligations
issued by the Commonwealth of Massachusetts, its instrumentalities or its
political subdivisions will generally be subject to Massachusetts income tax.
Among the items that will not be subject to Massachusetts income tax are the
following: exempt-interest dividends attributable to interest on obligations
issued by the Commonwealth of Puerto Rico, the government of Guam, the
government of the Virgin Islands or their respective authorities, and
distributions attributable to interest on obligations of the United States
exempt from state income taxation. The MASSACHUSETTS FUND must identify the
items not subject to tax in a written notice to the shareholders. The holders of
shares of the MASSACHUSETTS FUND may recognize taxable gain or loss upon an
exchange or redemption of their shares.
MICHIGAN. In the opinion of Dickinson Wright PLLC, Michigan tax counsel to
MULTI-STATE INSURED TAX FREE FUND, holders of the MICHIGAN FUND will not be
subject to the Michigan income tax or single business tax on MICHIGAN FUND
dividends to the extent that such distributions qualify as exempt-interest
dividends of a RIC under Code section 852(b)(5) which are attributable to
interest on tax-exempt obligations of the State of Michigan, its political or
governmental subdivisions, or its governmental agencies or instrumentalities (as
well as certain other Federally tax exempt obligations, the interest on which is
exempt from Michigan tax, such as certain obligations of Puerto Rico). To the
extent that distributions on the MICHIGAN FUND are attributable to sources other
than those described above, such distributions, including, but not limited to,
long or short-term capital gains, will not be exempt from Michigan income tax or
single business tax. To the extent that distributions on the MICHIGAN FUND are
not subject to Michigan income tax, they are not subject to the uniform city
income tax imposed by certain Michigan cities.
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MINNESOTA. In the opinion of Faegre & Benson LLP, Minnesota tax counsel to
MULTI-STATE INSURED TAX FREE FUND, provided that the MINNESOTA FUND qualifies as
a regulated investment company under the Code, and subject to the discussion in
the paragraph below, shareholders of the MINNESOTA FUND who are individuals,
estates, or trusts and who are subject to the regular Minnesota personal income
tax will not be subject to such tax on MINNESOTA FUND dividends to the extent
that such distributions qualify as exempt-interest dividends of a regulated
investment company under section 852(b)(5) of the Code which are derived from
interest income on tax-exempt obligations of the State of Minnesota, or its
political or governmental subdivisions, municipalities, governmental agencies or
instrumentalities ("Minnesota Sources"). The foregoing will apply, however, only
if the portion of the exempt-interest dividends from such Minnesota Sources that
is paid to all shareholders represents 95% or more of the exempt-interest
dividends that are paid by the MINNESOTA FUND. If the 95% test is not met, all
exempt-interest dividends that are paid by the MINNESOTA FUND generally will be
subject to the regular Minnesota personal income tax. Even if the 95% test is
met, to the extent that exempt-interest dividends that are paid by the MINNESOTA
FUND are not derived from the Minnesota Sources, such dividends generally will
be subject to the regular Minnesota personal income tax. Other distributions of
the MINNESOTA FUND, including distributions from net short-term and long-term
capital gains, are generally not exempt from the regular Minnesota personal
income tax.
Pursuant to Minnesota legislation enacted in 1995, exempt-interest
dividends that are derived from interest income on obligations of the Minnesota
Sources described above may become subject to tax in the case of individuals,
estates, and trusts if the exemption of such income were judicially determined
to discriminate against interstate commerce. See "Risk Factors for the MINNESOTA
FUND" for further discussion of this legislation.
Subject to certain limitations that are set forth in the Minnesota Rules,
MINNESOTA FUND dividends, if any, that are derived from interest on certain
United States obligations are not subject to the regular Minnesota personal
income tax or the Minnesota alternative minimum tax, in the case of shareholders
of the MINNESOTA FUND who are individuals, estates or trusts.
MINNESOTA FUND distributions, including exempt-interest dividends, are not
excluded in determining the Minnesota franchise tax on corporations that is
measured by taxable income and alternative minimum taxable income. Such
distributions may also be taken into account in certain cases in determining the
minimum fee that is imposed on corporations, S corporations and partnerships.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of the MINNESOTA FUND will generally not be deductible for regular
Minnesota personal income tax purposes or Minnesota AMT purposes, in the case of
shareholders who are individuals, estates or trusts. Except during temporary
defensive periods or when acceptable investments are unavailable to the
MINNESOTA FUND, at least 80% of the value of the net assets of the MINNESOTA
FUND will be maintained in debt obligations the interest on which is exempt from
the Federal income tax and the Minnesota personal income tax, subject to the
discussion in the Prospectus and this SAI relating to legislation enacted in
Minnesota in 1995. The MINNESOTA FUND seeks to invest so that the 95% test
described above will be met.
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Minnesota presently imposes an AMT on individuals, estates, and trusts
that is based, in part, on such taxpayers' Federal alternative minimum taxable
income, which includes Federal Tax Preference Items. Accordingly, the portion of
exempt-interest dividends that constitutes a Tax Preference Item for purposes of
the Federal AMT, even though it is derived from the Minnesota Sources described
above, will be included in the base upon which such Minnesota AMT is computed.
(The MINNESOTA FUND has no present intention of investing in tax-exempt
securities that are subject to the Federal AMT.) In addition, the entire portion
of exempt-interest dividends that is derived from sources other than the
Minnesota Sources generally is also subject to the Minnesota AMT imposed on
individuals, estates, and trusts. Further, should the 95% test that is described
above fail to be met, all of the exempt-interest dividends that are paid by the
MINNESOTA FUND, including all of those that are derived from the Minnesota
Sources, generally will be subject to the Minnesota AMT imposed on such
shareholders.
MISSOURI. In the opinion of Shook, Hardy & Bacon L.L.P., Missouri tax
counsel to MULTI-STATE INSURED TAX FREE FUND, if a dividend paid by the MISSOURI
FUND qualifies as an exempt-interest dividend under the Code, the portion of
such exempt-interest dividend that is attributable to interest received by the
MISSOURI FUND on obligations of (1) Missouri or its political subdivisions
("Missouri Obligations"), or (2) territories or possessions of the United States
(to the extent Federal law exempts interest on such obligations from state
taxation), will not be subject to the Missouri income tax when received by a
shareholder of the MISSOURI FUND, provided that the MISSOURI FUND properly
designates such portion as an exempt dividend (a "Missouri Dividend") under
Missouri law. To the extent any dividend (or portion thereof) paid by the
MISSOURI FUND is attributable to net interest earned by the MISSOURI FUND on
obligations of the United States, such dividend (or portion thereof) will not be
subject to the Missouri income tax when received by a shareholder of the
MISSOURI FUND, provided (1) the MISSOURI FUND properly designates such dividend
(or portion thereof) as a "state income tax exempt-interest dividend" under
Missouri law, and (2) the MISSOURI FUND and the shareholder meet certain
recordkeeping requirements specified under Missouri law. Except as provided in
the preceding paragraphs, the State of Missouri has no special exemption
provisions for (1) dividends received by shareholders of a RIC or (2) capital
gains realized by shareholders of a RIC upon the sale or exchange of shares of
such RIC. Thus, in the case of shareholders who are subject to the Missouri
income tax and who, under applicable law, are required to include capital gain,
dividend and interest income in their Missouri taxable income, all dividends,
except Missouri Dividends and dividends properly designated as "state income tax
exempt-interest dividends" under Missouri law, paid by the MISSOURI FUND to such
shareholders, and all gains realized by such shareholders on the redemption or
sale of shares of the MISSOURI FUND, will be subject to the Missouri income tax.
Dividends paid by the Missouri Fund will not be subject to the city
earnings and profits tax of St. Louis. With respect to the city earnings and
profits tax of Kansas City (the "City Tax"), dividends received by (1) an
individual shareholder of the MISSOURI FUND who is not engaged in a trade or
business, or (2) any other shareholder of the MISSOURI Fund (a "Business
Taxpayer") who holds shares of the MISSOURI FUND for investment purposes and not
as part of its ordinary trade or business, will not be subject to the City Tax.
With respect to dividends received by a Business Taxpayer who holds shares as
part of its ordinary trade or business, each dividend (or portion thereof) paid
by the MISSOURI FUND that is attributable to interest earned on Missouri
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Obligations, or on obligations of the United States or its possessions, will not
be subject to the City Tax; however, except as set forth in the following
paragraph, other dividends received by such Business Taxpayer (and all gains
realized by such Business Taxpayer on the redemption or sale of shares of the
MISSOURI FUND) will be subject to the applicable City Tax, to the extent such
Business Taxpayer is otherwise subject to such tax.
The enabling statutes for the City Tax do not indicate whether obligations
of territories (as opposed to possessions) of the United States are exempt from
the City Tax. Therefore, Shook, Hardy & Bacon L.L.P. specifically refrains from
expressing an opinion as to whether dividends attributable to interest earned on
obligations of territories of the United States are exempt from the City Tax.
NEW JERSEY. In the opinion of Hawkins, Delafield &Wood, New Jersey tax
counsel to MULTI-STATE INSURED TAX FREE FUND, provided the NEW JERSEY FUND
qualifies as a qualified investment fund under New Jersey law, shareholders of
the NEW JERSEY FUND who are New Jersey residents individuals, estates and trusts
will not be subject to the New Jersey Gross Income Tax on (1) distributions of
the interest and capital gains made by the NEW JERSEY FUND to the extent that
such distributions are with respect to New Jersey state and local bonds and (2)
on gains resulting from the redemption or sale of shares of the NEW JERSEY FUND.
A corporate shareholder of the NEW JERSEY FUND subject to the New Jersey
Corporation Business Tax or the New Jersey Corporation Income Tax will be
required to include in its corporate tax base (1) distributions of interest and
capital gains made by the NEW JERSEY FUND and (2) gains resulting from the
redemption or sale of shares of the NEW JERSEY FUND.
Qualified investment funds described in N.J.S.A. 54A:6-14.1 are any
investment company or trust registered with the Securities and Exchange
Commission, or any series of such investment company or trust, which for the
calendar year in which the distribution is paid (a) has no investments other
than interest-bearing obligations, obligations issued at a discount, cash and
cash items (including receivables), and financial options, futures, forward
contracts or other similar financial instruments related to interest-bearing
obligations, obligations issued at a discount or bond indexes related thereto;
and (b) has not less than 80% of the aggregate principal amount of all of its
investments, excluding cash and cash items (including receivables) and financial
options, futures, forward contracts, or other similar financial instruments
related to interest-bearing obligations, obligations issued at a discount or
bond indexes related thereto to the extent the instruments are authorized by
section 851(b) of the Code, in obligations described in N.J.S.A. 54A:6-14.
New Jersey state and local bonds described in N.J.S.A. 54A:6-14 are
obligations (1) issued by or on behalf of the State of New Jersey or any county,
municipality, school or other district, agency, authority, commission,
instrumentality, public corporation, body corporate and politic or political
subdivision of the State of New Jersey, and (2) obligations statutorily free
from state or local taxation under any New Jersey or United States laws.
Except when acceptable investments are unavailable to the NEW JERSEY FUND,
it will maintain at least 80% of the value of its investments in debt
obligations which are exempt from Federal income tax and New Jersey Gross Income
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<PAGE>
Tax. The NEW JERSEY FUND will not invest in discount obligations other than
those described in N.J.S.A. 54A:6-14.
NEW YORK. In the opinion of Hawkins, Delafield &Wood, tax counsel to NEW
YORK INSURED TAX FREE FUND, New York resident individual shareholders will not
be subject to the personal income taxes imposed by New York State and by New
York City on distributions from NEW YORK INSURED TAX FREE FUND to the extent
that these distributions qualify as exempt-interests dividends, as defined in
section 852(b)(5) of the Code, and are attributable to interest on obligations
issued by or on behalf of the State of New York or any political subdivision
thereof. NEW YORK INSURED distributions are not excluded from the determination
of the franchise and corporation taxes that are based on entire net income and
respectively imposed by the State and City of New York.
Distributions to New York resident individual shareholders of NEW YORK
INSURED that are attributable to sources other than from obligations issued by
or on behalf of the State of New York or any political subdivision thereof will
generally be includable in New York personal income of such shareholder.
Additionally, interest on indebtedness incurred or continued to purchase or
carry shares of NEW YORK INSURED will not be deductible for New York personal
income tax purposes to the extent that such interest is allocable to
exempt-interest dividends paid by NEW YORK INSURED.
NORTH CAROLINA. This opinion of Wyrick Robbins Yates & Ponton LLP, North
Carolina tax counsel to MULTI-STATE INSURED TAX FREE FUND, is based on the
current provisions of Chapter 105 of the North Carolina General Statutes and the
North Carolina Administrative Code and the current administrative position of
the North Carolina Department of Revenue (the "Revenue Department") as found in
rules, bulletins and statements issued by the Revenue Department.
Individual shareholders of the NORTH CAROLINA FUND who are subject to
North Carolina income taxation will not be subject to such tax on NORTH CAROLINA
FUND dividend distributions to the extent that such distributions represent
interest on (a) direct obligations of the United States or its possessions, (b)
obligations of the State of North Carolina, its political subdivisions or a
commission, an authority, or another agency of the State of North Carolina or
its political subdivisions, or (c) obligations of nonprofit educational
institutions organized or chartered under the laws of the State of North
Carolina. (All such obligations giving rise to interest exempt from North
Carolina taxation are collectively referred to as "North Carolina Exempt
Obligations".) Corporate shareholders of THE NORTH CAROLINA FUND that are
subject to North Carolina income taxation will not be subject to such tax on
NORTH CAROLINA FUND dividend distributions to the extent of the net of (i)
distributions representing interest from North Carolina Exempt Obligations, less
(ii) related expenses.
The above exemptions from North Carolina income tax do not apply to
capital gain distributions received from the NORTH CAROLINA FUND, except that
distributions of gains are exempt from North Carolina income tax to the extent
attributable to the disposition of certain obligations issued before July 1,
1995 by the State of North Carolina or its agencies or political subdivisions.
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The non-taxability of dividends paid by the NORTH CAROLINA FUND to a
shareholder is conditioned upon the NORTH CAROLINA FUND'S providing a supporting
statement to the shareholder verifying the amount received by the shareholder
that represents distributions on North Carolina Exempt Obligations. In the
absence of a supporting statement, the total amount designated by the NORTH
CAROLINA FUND as exempt from tax is subject to North Carolina income tax. The
NORTH CAROLINA FUND will provide to the shareholders a supporting statement that
meets the Revenue Department's requirements.
Interest earned on obligations that are merely backed or guaranteed by the
United States Government do not represent direct obligations of the United
States or its possessions and do not qualify for exemption from North Carolina
income taxation. For instance, interest income realized on obligations of the
Federal National Mortgage Association and interest paid by the issuer of
mortgage-backed certificates guaranteed by the Federal government, Federal
agencies or corporations formed by the Federal government is not considered
income from obligations of the United States and is subject to North Carolina
income taxation. Also, interest paid in connection with repurchase agreements
issued by banks and savings and loan associations is subject to North Carolina
income taxation.
Interest from obligations issued under the borrowing power of Puerto Rico,
the Virgin Islands, Guam, a Federal Land Bank, a Federal Home Loan Bank, a
Federal Intermediate Bank, Farm Home Administration, Export-Import Bank of the
United States, Tennessee Valley Authority, Banks for Cooperatives, U.S. Treasury
bonds, notes, bills, certificates and savings bonds, Production Credit
Association, Student Loan Marketing Association, Commodity Credit Corporation,
Federal Deposit Insurance Corporation, Federal Farm Credit Bank, Federal
Financing Bank, Federal Savings and Loan Insurance Corporation, General
Insurance Fund, United States Postal Service, Resolution Funding Corporation, or
Financing Corporation (chartered by the Federal Housing Finance Board under 12
U.S.C. ss.1441) iS considered to be interest from direct obligations of the
United States or its possessions and is tax-exempt for North Carolina income tax
purposes.
In general, a shareholder of the NORTH CAROLINA FUND who is subject to
North Carolina income tax will recognize capital gains for North Carolina income
tax purposes to the same extent a shareholder would for Federal income tax
purposes when the NORTH CAROLINA FUND makes a capital gain distribution or a
shareholder redeems or exchanges shares, except that distributions of gains are
exempt from North Carolina income tax to the extent attributable to the
disposition of certain obligations issued before July 1, 1995 by the State of
North Carolina, its political subdivisions, or their respective agencies.
OHIO. In the opinion of Squire, Sanders & Dempsey L.L.P., Ohio tax counsel
to MULTI-STATE INSURED TAX FREE FUND, provided that the OHIO FUND continues to
qualify as a RIC for Federal income tax purposes and that at all times at least
50 percent of the value of the total assets of the OHIO FUND consists of
obligations issued by or on behalf of the State of Ohio, political subdivisions
thereof or agencies or instrumentalities of the State or its political
subdivisions ("Ohio Obligations") or similar obligations of other states or
their subdivisions (the "RIC and 50% tests"), shareholders of the OHIO FUND who
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are otherwise subject to the Ohio personal income tax, or municipal or school
district income taxes in Ohio will not be subject to such taxes on distributions
with respect to shares of the OHIO FUND to the extent that such distributions
are properly attributable to (1) interest on and profit made on the sale,
exchange or other disposition of Ohio Obligations or (2) interest on obligations
of the United States or its territories or possessions or of any authority,
commission or instrumentality of the United States that is exempt from state
income taxes under the laws of the United States (E.G., obligations issued by
the Governments of Puerto Rico, the Virgin Islands and Guam and their
authorities and municipalities) ("Federal and Possessions Obligations").
It is further the opinion of Squire, Sanders & Dempsey L.L.P. that,
provided the RIC and 50% tests are satisfied, shareholders who are otherwise
subject to the Ohio corporation franchise tax will not be required to include
distributions with respect to shares of the OHIO FUND in their tax base for
purposes of computing such tax on the net income basis to the extent that such
distributions are (1) properly attributable to interest on or profits made on
the sale, exchange or other disposition of Ohio Obligations, (2) exempt-interest
dividends for Federal income tax purposes, or (3) properly attributable to
interest on Federal and Possessions Obligations, provided, in the case of
interest on Possessions Obligations, such interest is excluded from gross income
for federal income tax purposes. However, shares of the OHIO FUND will be
includable in a shareholder's tax base for purposes of computing the Ohio
corporation franchise tax on the net worth basis. Corporate shareholders that
are subject to Ohio municipal income tax will not be subject to such tax on
distributions received from the OHIO FUND to the extent such distributions
consist of interest on or profit made on the sale, exchange, or other
disposition of Ohio Obligations, provided the RIC and 50% tests are satisfied.
Except when acceptable investments are unavailable to the OHIO FUND, it
will maintain at least 80% of the value of its net assets in obligations that
are exempt from Federal income tax and that are exempt from Ohio personal income
tax and the net income base of the Ohio corporation franchise tax.
OREGON. In the opinion of Weiss, Jensen, Ellis & Howard, Oregon tax
counsel to MULTI-STATE INSURED TAX FREE FUND, shareholders of the OREGON FUND
who are subject to the Oregon personal income tax will not be required to
include in their Oregon personal income distributions from the OREGON FUND to
the extent that (1) such distributions qualify as exempt-interest dividends of a
RIC under section 852(b)(5) of the Code that are attributable to interest from
tax-exempt obligations of the State of Oregon or its political subdivisions or
authorities; (2) such distributions are attributable to interest from
obligations issued by the territories of Guam, Puerto Rico, Samoa, Virgin
Islands, or their authorities, or the Commonwealth of Puerto Rico or its
authority; or (3) such distributions are attributable to interest from
obligations issued by the U.S. Government, its agencies and instrumentalities
and are exempted from state income tax under the laws of the United States. To
the extent that distributions from the OREGON FUND are attributable to sources
other than those described in the preceding sentence, such distributions will
not be exempt from the Oregon personal income tax. Also, distributions that
qualify as capital gain dividends under section 852(b)(3)(C) of the Code and
that are includable in Federal gross income will be includable as capital gains
in Oregon income of a shareholder.
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<PAGE>
Interest on indebtedness incurred (directly or indirectly) by a
shareholder of the OREGON FUND to purchase or carry shares of the OREGON FUND
will not be deductible for purposes of the Oregon personal income tax.
Shareholders of the OREGON FUND that are otherwise subject to the Oregon
corporate excise tax must include in income distributions with respect to shares
of the OREGON FUND.
PENNSYLVANIA. In the opinion of Kirkpatrick & Lockhart LLP, Pennsylvania
tax counsel to MULTI-STATE INSURED TAX FREE FUND, Individual shareholders of the
PENNSYLVANIA FUND who are otherwise subject to the Pennsylvania personal income
tax will not be subject to that tax on distributions of interest by the
PENNSYLVANIA FUND that are attributable to obligations issued by Pennsylvania,
public authorities, commissions, boards or agencies created by Pennsylvania,
political subdivisions of Pennsylvania or public authorities created by any such
political subdivision or obligations of the United States and certain qualifying
agencies, instrumentalities, territories and possessions of the United States
("Exempt Obligations"). Distributions of gains on Exempt Obligations will be
subject to Pennsylvania personal income taxes in the hands of shareholders who
are otherwise subject to the Pennsylvania personal income tax. Distributions
attributable to most other sources will not be exempt from Pennsylvania personal
income tax.
Shares of the PENNSYLVANIA FUND that are held by individual shareholders
who are Pennsylvania residents will be exempt from the Pennsylvania county
personal property tax to the extent that the PENNSYLVANIA FUNDS portfolio
consists of Exempt Obligations on the annual assessment date. Non-residents of
the Commonwealth of Pennsylvania are not subject to this tax. Individual
shareholders who are residents of Allegheny County, the City of Pittsburgh or
the School District of Pittsburgh, have no obligation to pay a personal property
tax. Corporations are not subject to Pennsylvania personal property taxes. For
shareholders who are residents of the City of Philadelphia, distributions of
interest derived from Exempt Obligations are not taxable for purposes of the
Philadelphia School District investment net income tax provided that the
PENNSYLVANIA FUND reports to its investors the percentage of Exempt Obligations
held by it for the year. The PENNSYLVANIA FUND will report such percentage to
its shareholders.
The Pennsylvania Department of Revenue takes the position that a RIC is a
separate entity under Pennsylvania corporate net income tax law and, therefore,
the characteristics of income received by such company, to the extent that such
income would otherwise be includable in Pennsylvania corporate taxable income,
will not flow through to a corporate shareholder. However, because the
Pennsylvania corporate net income tax is based upon Federal taxable income,
items excluded from Federal taxable income and not required to be added to
taxable income by Pennsylvania law will also be excluded from Pennsylvania
corporate taxable income. Accordingly, "exempt-interest dividends," which are
not required to be so added, are also excluded from the Pennsylvania corporate
taxable income. Gains on Exempt Obligations are, however, subject to the
corporate net income tax in the hands of a corporate shareholder. The
Pennsylvania Department of Revenue also takes the position that shares of funds
similar to the PENNSYLVANIA FUND are not considered exempt assets of a
corporation for the purpose of determining its capital stock value subject to
the Pennsylvania capital stock and franchise taxes.
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<PAGE>
Except when acceptable investments are unavailable to the PENNSYLVANIA
FUND, at least 80% of the value of its net assets will be maintained in debt
obligations of the Commonwealth of Pennsylvania, its localities and political
subdivisions, which are exempt from Federal income tax and Pennsylvania personal
income tax and personal property taxes.
VIRGINIA. In the opinion of Sands, Anderson, Marks & Miller, a
Professional Corporation, Virginia tax counsel to MULTI-STATE INSURED TAX FREE
FUND, interest on exempt obligations in the VIRGINIA FUND passed through to
shareholders in qualifying distributions will retain its exempt status in the
hands of the shareholders. Accordingly, individual shareholders of the VIRGINIA
FUND subject to Virginia personal income tax will not be required to include in
their gross income, for Virginia personal income tax purposes, distributions
made by the VIRGINIA FUND that are exclusively (1) both tax-exempt for Federal
income tax purposes and derived from interest on obligations of the Commonwealth
of Virginia or any of its political subdivisions, or (2) without regard to any
exemption from Federal income tax, are derived from interest in certain
obligations for which a Virginia income tax exemption is independently provided,
including, among others, obligations issued under the Virginia Public Finance
Act, certain revenue bonds for transportation facilities, and obligations issued
by the Virginia Housing Development Authority, the Virginia Education Loan
Authority, and industrial development authorities created pursuant to the
Virginia Industrial Development and Revenue Bond Act. If a distribution includes
both taxable and tax-exempt interest, the entire distribution is included in the
gross income of the shareholder for Virginia personal income tax purposes unless
the exempt portion is designated with reasonable certainty. Counsel has been
advised that, in the event any such commingled distributions are made by the
VIRGINIA FUND, the VIRGINIA FUND intends to provide such designation in a manner
acceptable to the Virginia Department of Taxation, to shareholders of the
VIRGINIA FUND.
In general, an individual shareholder of the VIRGINIA FUND who is a
Virginia resident will recognize capital gains for Virginia income tax purposes
to the same extent that he or she would for Federal income tax purposes when the
VIRGINIA FUND makes a capital gains distribution or the shareholder redeems or
sells shares. In certain instances, however, legislation creating the entity
issuing debt obligations expressly exempts profit on the sale of the obligation
from Virginia income taxation.
Interest on indebtedness incurred (directly or indirectly) by shareholders
to purchase or carry shares of the VIRGINIA FUND will not be deductible for
Virginia income tax purposes.
PERFORMANCE INFORMATION
ALL FUNDS EXCEPT TAX-EXEMPT MONEY MARKET FUND
A Fund may advertise its performance in various ways.
Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
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<PAGE>
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 will fluctuate
over time and return for any given past period is not an indication or
representation by a Fund of future rates of return on its shares. At times, the
Adviser may reduce its compensation or assume expenses of a Fund in order to
reduce the Fund's expenses. Any such waiver or reimbursement would increase the
Fund's return during the period of the waiver or reimbursement.
Average annual return and total return computed at the public offering
price (maximum sales charge for Class A shares and applicable CDSC for Class B
shares) for the periods ended December 31, 1999 are set forth in the tables
below:
AVERAGE ANNUAL TOTAL RETURN1,2
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND
---------------- ---------------- --------------- ------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A3 CLASS B4
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSURED INTERMEDIATE
TAX EXEMPT (5.76)% (4.48)% 5.00% N/A N/A N/A 3.71% 5.00%
FUND
INSURED TAX EXEMPT (9.62) (8.14) 4.26 N/A 4.93% N/A N/A 4.40
FUND
NEW YORK INSURED (9.69) (8.17) 4.09 N/A 5.00 N/A N/A 4.22
ARIZONA FUND (8.02) (6.49) 5.56 N/A N/A N/A 6.09 5.57
CALIFORNIA FUND (8.93) (7.52) 5.44 N/A 6.10 N/A N/A 5.43
COLORADO FUND (8.29) (6.85) 5.68 N/A N/A N/A 5.57 5.72
CONNECTICUT FUND (8.06) (6.56) 5.16 N/A N/A N/A 5.57 5.21
FLORIDA FUND (9.02) (7.50) 5.28 N/A N/A N/A 6.03 5.40
GEORGIA FUND (9.08) (7.63) 5.46 N/A N/A N/A 5.41 5.50
MARYLAND FUND (8.64) (7.20) 5.29 N/A N/A N/A 5.87 5.38
MASSACHUSETTS FUND (8.48) (7.06) 4.71 N/A 5.72 N/A N/A 4.78
MICHIGAN FUND (8.70) (7.21) 5.07 N/A 6.09 N/A N/A 5.11
128
<PAGE>
MINNESOTA FUND (7.78) (6.36) 4.94 N/A 5.59 N/A N/A 5.03
MISSOURI FUND (8.11) (6.67) 5.70 N/A N/A N/A 5.38 5.70
NEW JERSEY FUND (8.19) (6.74) 4.82 N/A 5.83 N/A N/A 4.82
NORTH CAROLINA FUND (8.46) (7.06) 5.66 N/A N/A N/A 5.09 5.69
OHIO FUND (7.93) (6.49) 5.20 N/A 6.05 N/A N/A 5.21
OREGON FUND (8.07) (6.74) 5.63 N/A N/A N/A 4.96 5.65
PENNSYLVANIA FUND (8.32) (6.91) 5.18 N/A N/A N/A 5.94 5.25
VIRGINIA FUND (8.68) (7.30) 5.03 N/A N/A N/A 5.80 5.06
</TABLE>
- -----------------------
1 All average annual total return figures reflect the maximum sales charge of
6.25%. Prior to July 1, 1993, the maximum sales charge was 6.90%. Prior to
January 29, 1989 the maximum sales charge was 7.25%. Certain expenses of the
Funds have been waived or reimbursed from commencement of operations through
December 31, 1999. Accordingly, return figures are higher than they would
have been had such expenses not been waived or reimbursed.
2 Certain expenses of the Funds have been waived from commencement of
operations through December 31, 1999. Accordingly, return figures are higher
than they would have been had such expenses not been waived.
3 The inception dates for certain of the Funds are as follows: INSURED
INTERMEDIATE TAX EXEMPT FUND -- November 22, 1993; ARIZONA FUNd -- November
1, 1990; CALIFORNIA FUND -- February 23, 1987; COLORADO FUND, MISSOURI FUND,
NORTH CAROLINA FUND and OREGON FUND -- May 4, 1992; CONNECTICUT FUNd and
MARYLAND FUND -- October 8, 1990; FLORIDA FUND -- October 5, 1990; GEORGIA
FUnd -- May 1, 1992; MASSACHUSETTS FUNd, MICHIGAN FUNd, MINNESOTA FUNd and
OHIo Fund -- January 1, 1987; NEW JERSEY FUNd -- September 13, 1988;
PENNSYLVANia FUND and VIRGINIA FUND -- April 30, 1990.
4 The commencement of offering of Class B shares is January 12, 1995.
TOTAL RETURN1,2
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND
---------------- ---------------- ---------------- ------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A3 CLASS B4
------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NEW YORK INSURED (9.69) (8.17) 22.21 N/A 62.84 N/A N/A 22.80
ARIZONA FUND (8.02) (6.49) 31.07 N/A N/A N/A 71.92 30.92
CALIFORNIA FUND (8.93) (7.52) 30.32 N/A 80.80 N/A N/A 30.09
COLORADO FUND (8.29) (6.85) 31.85 N/A N/A N/A 51.52 31.85
CONNECTICUT FUND (8.06) (6.56) 28.60 N/A N/A N/A 65.01 28.72
FLORIDA FUND (9.02) (7.50) 29.33 N/A N/A N/A 71.83 29.87
GEORGIA FUND (9.08) (7.63) 30.47 N/A N/A N/A 49.81 30.49
MARYLAND FUND (8.64) (7.20) 29.38 N/A N/A N/A 69.37 29.72
MASSACHUSETTS FUND (8.48) (7.06) 25.87 N/A 74.45 N/A N/A 26.11
MICHIGAN FUND (8.70) (7.21) 28.07 N/A 80.57 N/A N/A 28.13
MINNESOTA FUND (7.78) (6.36) 27.26 N/A 72.30 N/A N/A 27.65
MISSOURI FUND (8.11) (6.67) 31.92 N/A N/A N/A 49.48 31.73
NEW JERSEY FUND (8.19) (6.74) 26.52 N/A 76.19 N/A N/A 26.34
NORTH CAROLINA FUND (8.46) (7.06) 31.70 N/A N/A N/A 46.38 31.64
OHIO FUND (7.93) (6.49) 28.84 N/A 80.00 N/A N/A 28.72
OREGON FUND (8.07) (6.74) 31.48 N/A N/A N/A 45.00 31.40
PENNSYLVANIA FUND (8.32) (6.91) 28.74 N/A N/A N/A 74.75 28.94
VIRGINIA FUND (8.68) (7.30) 27.80 N/A N/A N/A 72.62 27.80
</TABLE>
Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual total return and total return
computed at net asset value for the periods ended December 31, 1999 are set
forth in the tables below.
129
<PAGE>
- -----------------------
1 All average annual total return figures reflect the maximum sales charge of
6.25%. Prior to July 1, 1993, the maximum sales charge was 6.90%. Prior to
January 29, 1989 the maximum sales charge was 7.25%. Certain expenses of the
Funds have been waived or reimbursed from commencement of operations through
December 31, 1999. Accordingly, return figures are higher than they would
have been had such expenses not been waived or reimbursed.
2 Certain expenses of the funds have been waived from commencement of
operations through December 31, 1999. Accordingly, return figures are higher
than they would have been had such expenses not been waived.
3 The inception dates for certain of the Funds are as follows: INSURED
INTERMEDIATE TAX EXEMPT FUND -- November 22, 1993; ARIZONA FUNd -- November
1, 1990; CALIFORNIA FUND -- February 23, 1987; COLORADO FUND, MISSOURI FUND,
NORTH CAROLINA FUND and OREGON FUND -- May 4, 1992; CONNECTICUT FUNd and
MARYLAND FUND -- October 8, 1990; FLORIDA FUNd -- October 5, 1990; GEORGia
Fund -- May 1, 1992; MASSACHUSETTS FUNd, MICHIGAN FUNd, MINNESOTA FUNd and
OHIO FUND -- January 1, 1987; NEW JERSEY FUNd -- September 13, 1988;
PENNSYLVANIA FUND and VIRGINIA FUND -- April 30, 1990.
4 The commencement of offering of Class B shares is January 12, 1995.
AVERAGE ANNUAL TOTAL RETURN1
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND
-------- ---------- --------- ------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A2 CLASS B3
------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSURED INTERMEDIATE
TAX EXEMPT .51% (.50)% 6.36% N/A N/A N/A 4.82% 5.33%
FUND
INSURED TAX EXEMPT (3.63) (4.31) 5.62 N/A 5.61 N/A N/A 4.74
FUND
NEW YORK INSURED (3.67) (4.34) 5.45 N/A 5.67 N/A N/A 4.56
ARIZONA FUND (1.88) (2.60) 6.93 N/A N/A N/A 6.83 5.89
CALIFORNIA FUND (2.88) (3.67) 6.81 N/A 6.79 N/A N/A 5.76
COLORADO FUND (2.15) (2.96) 7.06 N/A N/A N/A 6.45 6.04
CONNECTICUT FUND (1.93) (2.67) 6.52 N/A N/A N/A 6.31 5.54
FLORIDA FUND (2.93) (3.65) 6.65 N/A N/A N/A 6.77 5.72
GEORGIA FUND (3.04) (3.78) 6.84 N/A N/A N/A 6.29 5.82
MARYLAND FUND (2.54) (3.33) 6.64 N/A N/A N/A 6.61 5.70
MASSACHUSETTS FUND (2.39) (3.19) 6.06 N/A 6.41 N/A N/A 5.11
MICHIGAN FUND (2.63) (3.34) 6.43 N/A 6.77 N/A N/A 5.44
MINNESOTA FUND (1.65) (2.46) 6.31 N/A 6.28 N/A N/A 5.36
MISSOURI FUND (2.02) (2.78) 7.07 N/A N/A N/A 6.27 6.02
NEW JERSEY FUND (2.05) (2.85) 6.17 N/A 6.51 N/A N/A 5.15
NORTH CAROLINA FUND (2.35) (3.18) 7.04 N/A N/A N/A 5.97 6.01
OHIO FUND (1.77) (2.59) 6.56 N/A 6.74 N/A N/A 5.54
OREGON FUND (1.95) (2.85) 6.99 N/A N/A N/A 5.84 5.97
PENNSYLVANIA FUND (2.24) (3.03) 6.55 N/A N/A N/A 6.64 5.57
VIRGINIA FUND (2.62) (3.44) 6.39 N/A N/A N/A 6.51 5.39
</TABLE>
- -----------------------
1 Certain expenses of the Funds have been waived or reimbursed from
commencement of operations through December 31, 1999. Accordingly, return
figures are higher than they would have been had such expenses not been
waived or reimbursed.
2 The inception dates for certain of the Funds are as follows: INSURED
INTERMEDIATE TAX EXEMPT FUND -- November 22, 1993; ARIZONA FUNd -- November
1, 1990; CALIFORNIA FUND -- February 23, 1987; COLORADO FUND, MISSOURI FUND,
NORTH CAROLINA FUND and OREGON FUND -- May 4, 1992; CONNECTICUT FUNd and
MARYLAND FUND -- October 8, 1990; FLORIDA FUNd -- October 5, 1990; GEORGIA
FUnd -- May 1, 1992; MASSACHUSETTS FUNd, MICHIGAN FUNd, MINNESOTA FUNd and
OHIo Fund -- January 1, 1987; NEW JERSEY FUNd -- September 13, 1988;
PENNSYLVANia FUND and VIRGINIA FUND -- April 30, 1990.
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<PAGE>
3 The commencement of offering of Class B shares is January 12, 1995.
TOTAL RETURN1
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND
-------- ---------- --------- ------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A2 CLASS B3
---------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSURED INTERMEDIATE
TAX EXEMPT .51% (.50)% 36.11% N/A N/A N/A 33.32% 29.45%
FUND
INSURED TAX EXEMPT (3.63) (4.31) 31.44 N/A 72.54 N/A N/A 25.86
FUND
NEW YORK INSURED (3.67) (4.34) 30.36 N/A N/A N/A 73.65 24.80
ARIZONA FUND (1.88) (2.60) 39.80 N/A N/A N/A 83.32 32.92
CALIFORNIA FUND (2.88) (3.67) 39.03 N/A 92.84 N/A N/A 32.09
COLORADO FUND (2.15) (2.96) 40.65 N/A N/A N/A 61.54 33.85
CONNECTICUT FUND (1.93) (2.67) 37.16 N/A N/A N/A 75.94 30.72
FLORIDA FUND (2.93) (3.65) 38.00 N/A N/A N/A 83.22 31.87
GEORGIA FUND (3.04) (3.78) 39.22 N/A N/A N/A 59.73 32.49
MARYLAND FUND (2.54) (3.33) 37.94 N/A N/A N/A 80.58 31.72
MASSACHUSETTS FUND (2.39) (3.19) 34.21 N/A 86.15 N/A N/A 28.11
MICHIGAN FUND (2.63) (3.34) 36.56 N/A 92.58 N/A N/A 30.13
MINNESOTA FUND (1.65) (2.46) 35.77 N/A 83.81 N/A N/A 29.65
MISSOURI FUND (2.02) (2.78) 40.71 N/A N/A N/A 59.39 33.73
NEW JERSEY FUND (2.05) (2.85) 34.92 N/A 87.92 N/A N/A 28.34
NORTH CAROLINA FUND (2.35) (3.18) 40.52 N/A N/A N/A 56.07 33.64
OHIO FUND (1.77) (2.59) 37.40 N/A 92.00 N/A N/A 30.72
OREGON FUND (1.95) (2.85) 40.19 N/A N/A N/A 54.60 33.40
PENNSYLVANIA FUND (2.24) (3.03) 37.32 N/A N/A N/A 86.32 30.94
VIRGINIA FUND (2.62) (3.44) 36.33 N/A N/A N/A 84.07 29.80
</TABLE>
-----------------------
1 Certain expenses of the Funds have been waived or reimbursed from
commencement of operations through December 31, 1999. Accordingly, return
figures are higher than they would have been had such expenses not been
waived or reimbursed.
2 The inception dates for certain of the Funds are as follows: INSURED
INTERMEDIATE TAX EXEMPT FUND -- November 22, 1993; ARIZONA FUNd -- November
1, 1990; CALIFORNIA FUND -- February 23, 1987; COLORADO FUND, MISSOURI FUND,
NORTH CAROLINA FUND and OREGON FUND -- May 4, 1992; CONNECTICUT FUNd and
MARYLAND FUND -- October 8, 1990; FLORIDA FUNd -- October 5, 1990; GEORGIA
FUnd -- May 1, 1992; MASSACHUSETTS FUNd, MICHIGAN FUNd, MINNESOTA FUNd and
OHIo Fund -- January 1, 1987; NEW JERSEY FUNd -- September 13, 1988;
PENNSYLVANia FUND and VIRGINIA FUND -- April 30, 1990.
3 The commencement of 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
131
<PAGE>
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.
Tax-equivalent yield during the base period may be presented in one or
more stated tax brackets. Tax-equivalent yield is calculated by adjusting a
Fund's tax-exempt yield by a factor designed to show the approximate yield that
a taxable investment would have to earn to produce an after-tax yield equal to
the Fund's tax-exempt yield.
To calculate a taxable bond yield which is equivalent to a tax-exempt bond
yield (for Federal tax purposes), shareholders may use the following formula:
TAX FREE YIELD
--------------
= Taxable Equivalent Yield
1 - Your Tax Bracket
To calculate a taxable bond yield which is equivalent to a tax-exempt bond
yield (for state and Federal tax purposes), shareholders may use the following
formula:
TAX FREE YIELD
--------------
= Taxable Equivalent Yield
1 - [[(1-Your Federal Tax Bracket)
x State Rate]
+ Your Federal Tax Bracket]
The yield and tax-equivalent yield for INSURED TAX EXEMPT FUND Class A
shares for the thirty day period ended December 31, 1999 (assuming a Federal tax
rate of 28%) was 4.08% and 5.67%, respectively. The yield and tax-equivalent
yield for INSURED TAX EXEMPT FUND Class B shares for the same period (assuming a
Federal tax rate of 28%) was 3.62% and 5.03%, respectively. The yield and
tax-equivalent yield (assuming a Federal tax rate of 28%) for INSURED
INTERMEDIATE TAX EXEMPT FUND Class A shares for the thirty days ended December
31, 1999 was 4.13% and 5.74%, respectively. The yield and tax-equivalent yield
for INSURED INTERMEDIATE TAX EXEMPT FUND Class B shares for the same period
(assuming a Federal tax rate of 28%) was 3.40% and 4.72%, respectively. The
maximum Federal tax rate during this period was 39.6%. During this period,
certain expenses of INSURED INTERMEDIATE TAX EXEMPT FUND have been waived or
reimbursed. Accordingly yield and tax-equivalent yield figures are higher than
they would have been had such expenses not been waived or reimbursed. The yield
and tax-equivalent yield of NEW YORK INSURED TAX FREE FUND and each Single State
Fund for the thirty days ended December 31, 1999 (assuming a Federal tax rate of
28% as well as the maximum rate for the appropriate state) is shown below.
During this period, certain expenses of these Funds have been waived or
reimbursed. Accordingly, yield and tax-exempt yield figures are higher than they
would have been had such expenses not been waived or reimbursed. During this
period, the maximum Federal tax rate was 39.6%.
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<PAGE>
YIELD TAX-EQUIVALENT YIELD
--------------------- --------------------
CLASS A CLASS B CLASS A CLASS B
SHARES SHARES SHARES SHARES
------ ------ ------ ------
New York Insured Tax 4.15 3.72 6.19 5.55
Free Fund
Arizona Fund 4.52 4.01 6.62 5.87
California Fund 4.23 3.71 6.48 5.68
Colorado Fund 4.56 3.89 6.67 5.69
Connecticut Fund 4.15 3.63 6.04 5.28
Florida Fund 4.21 3.69 5.85 5.13
Georgia Fund 4.68 4.19 6.91 6.19
Maryland Fund 4.61 4.11 6.73 6.00
Massachusetts Fund 4.37 3.86 6.45 5.70
Michigan Fund 4.29 3.75 6.23 5.45
Minnesota Fund 4.57 4.07 6.90 6.14
Missouri Fund 4.48 3.97 6.62 5.87
New Jersey Fund 4.00 3.46 5.93 5.13
North Carolina Fund 4.61 4.11 6.94 6.19
Ohio Fund 4.12 3.59 6.14 5.35
Oregon Fund 4.47 3.97 6.82 6.06
Pennsylvania Fund 4.21 3.69 6.02 5.27
Virginia Fund 4.30 3.78 6.34 5.57
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 that Fund's offering price per share at the end of that
period. The distribution rate is also calculated by using a Fund's net asset
value. Distribution rate calculations do not include capital gain distributions,
if any, paid. The distribution rate for the twelve month period ended December
31, 1999 for Class A shares of INSURED INTERMEDIATE TAX EXEMPT FUND and INSURED
TAX EXEMPT FUND calculated using the offering price was 3.73% and 4.50%,
respectively. The distribution rate for the twelve month period ended December
31, 1999 for Class A shares of INSURED INTERMEDIATE TAX EXEMPT FUND and INSURED
TAX EXEMPT FUND calculated at net asset value was 3.98% and 4.80%, respectively.
The distribution rate for the twelve-month period ended December 31, 1999 for
Class B shares of INSURED INTERMEDIATE TAX EXEMPT FUND and INSURED TAX EXEMPT
FUND calculated using net asset value was 2.94% and 4.06%, respectively. During
this period certain expenses of INSURED INTERMEDIATE TAX EXEMPT FUND were
waived. Accordingly, the distribution rates are higher than they would have been
had such expenses not been waived. The distribution rate for the Class A shares
of NEW YORK INSURED TAX FREE FUND and each Single State Fund for the
twelve-month period ended December 31, 1999 calculated using both offering price
and net asset value is shown below. The distribution rate for each Fund's Class
B shares for the twelve-month period ended December 31, 1999 calculated using
net asset value is also shown below. During these periods certain expenses of
MULTI-STATE INSURED TAX FREE FUND were waived or reimbursed. Accordingly,
distribution rates are higher than they would have been if such expenses had not
been waived or reimbursed.
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<PAGE>
CLASS A SHARES CLASS B SHARES
DISTRIBUTION RATE DISTRIBUTION RATE
CALCULATED USING CALCULATED
---------------------- ----------
OFFERING NET ASSET
PRICE VALUE USING NET ASSET VALUE
----- ----- ---------------------
NEW YORK INSURED 4.52 4.82 4.08
ARIZONA FUND 4.88 5.21 4.37
CALIFORNIA FUND 4.64 4.95 4.11
COLORADO FUND 4.88 5.20 4.33
CONNECTICUT FUND 4.65 4.96 4.09
FLORIDA FUND 4.60 4.91 4.06
GEORGIA FUND 4.89 5.21 4.34
MARYLAND FUND 4.86 5.18 4.32
MASSACHUSETTS FUND 4.80 5.12 4.26
MICHIGAN FUND 4.59 4.89 4.05
MINNESOTA FUND 4.97 5.30 4.44
MISSOURI FUND 4.85 5.18 4.28
NEW JERSEY FUND 4.47 4.77 3.93
NORTH CAROLINA FUND 4.65 4.96 4.07
OHIO FUND 4.76 5.08 4.20
OREGON FUND 4.53 4.83 3.96
PENNSYLVANIA FUND 4.65 4.96 4.12
VIRGINIA FUND 4.66 4.97 4.11
TAX-EXEMPT MONEY MARKET FUND
The Fund provides current yield quotations based on its daily dividends.
The Fund declares dividends daily and pays dividends monthly from net investment
income.
For purposes of current yield quotations, dividends per share for a
seven-day period are annualized (using a 365-day year basis) and divided by the
Fund's average net asset value per share for the seven-day period. The current
yield quoted will be for a recent seven day period. Current yields will
fluctuate from time to time and are not necessarily representative of future
results. You should remember that yield is a function of the type and quality of
the instruments in the portfolio, portfolio maturity and operating expenses.
Current yield information is useful in reviewing a Fund's performance but,
because current yield will fluctuate, such information may not provide a basis
for comparison with bank deposits or other investments which may pay a fixed
yield for a stated period of time, or other investment companies, which may use
a different method of calculating yield.
In addition to providing current yield quotations, the Fund provides
effective yield quotations for a base period return of seven days. The Fund may
also advertise yield for periods other than seven days, such as thirty days or
twelve months. In such cases, the formula for calculating seven-day effective
yield will be used, except that the base period will be thirty days or 365 days
rather than seven days. An effective yield quotation is determined by a formula
that requires the compounding of the unannualized base period return.
Compounding is computed by adding 1 to the annualized base period return,
raising the sum to a power equal to 365 divided by 7 and subtracting 1 from the
result.
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<PAGE>
The following is an example, for purposes of illustration only, of the
current and effective yield and tax-equivalent yield calculation for Class A and
Class B shares for the seven day period ended December 31, 1999.
CLASS A CLASS B
SHARES SHARES
------ ------
Dividends per share from net $0.000686636 $0.000572962
investment income (seven
calendar days ended December
31, 1999) (Base Period)
Annualized (365 day basis)* $0.035803135 $0.029875874
Average net asset value per $1.00 $1.00
share of the seven calendar
days ended December 31, 1999
Annualized historical yield 3.58% 2.99%
per share for the seven
calendar days ended December
31, 1999
Effective Yield** 3.64% 3.03%
Tax Equivalent Yield*** 5.06% 4.21%
Weighted average life to
maturity of the portfolio on
December 31, 1999 as 53 days
for TAX-EXEMPT MONEY MARKET
FUND
- ------------
* This represents the average of annualized net investment income per share for
the seven calendar days ended December 31, 1999.
** Effective Yield = [(Base Period Return+1)365/7] - 1
*** Tax Equivalent Yield = (Effective Yield/(1-Tax Rate). For the purpose of
this illustration, the tax rate was assumed to be 28%. The maximum Federal tax
rate during this period was 39.6%.
ALL FUNDS
A Fund may include in advertisements and sales literature, information,
examples and statistics that illustrate the effect of taxable versus tax-free
compounding income at a fixed rate of return to demonstrate the growth of an
investment over a stated period of time resulting from the payment of dividends
and capital gains distributions in additional shares. The examples used will be
for illustrative purposes only and are not representations by any 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 D.
From time to time, in reports and promotional literature, a Fund may
compare its performance to, or cite the historical performance of, U.S. Treasury
bills, notes and bonds, or indices of broad groups of unmanaged securities
135
<PAGE>
considered to be representative of, or similar to, the Fund's portfolio
holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely recognized
independent service that monitors and ranks the performance of investment
companies. The Lipper performance analysis includes the reinvestment of
capital gain distributions and income dividends but does not take sales
charges into consideration. The method of calculating total return data on
indices utilizes actual dividends on ex-dividend dates accumulated for the
quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of
Morningstar, Inc. Morningstar proprietary ratings reflect historical
risk-adjusted performance and are subject to change every month. Funds
with at least three years of performance history are assigned ratings from
one star (lowest) to five stars (highest). Morningstar ratings are
calculated from the Fund's three-, five-, and ten-year average annual
returns (when available) and a risk factor that reflects fund performance
relative to three-month Treasury bill monthly returns. Fund's returns are
adjusted for fees and sales loads. Ten percent of the funds in an
investment category receive five stars, 22.5% receive four stars, 35%
receive three stars, 22.5% receive two stars, and the bottom 10% receive
one star.
Salomon Brothers Inc., "Market Performance," a monthly publication which
tracks principal return, total return and yield on the Salomon Brothers
Broad Investment-Grade Bond Index and the components of the Index.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal,
coupon and total return on over 100 different taxable bond indices which
Merrill Lynch tracks. They also list the par weighted characteristics of
each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication
which tracks principal, coupon and total return on the Lehman Govt./Corp.
Index and Lehman Aggregate Bond Index, as well as all the components of
these Indices.
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics,
is a commonly used measure of inflation. The Index shows changes in the
cost of selected consumer goods and does not represent a return on an
investment vehicle.
From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
136
<PAGE>
GENERAL INFORMATION
INSURED TAX EXEMPT FUND, NEW YORK INSURED TAX FREE FUND AND TAX-EXEMPT
MONEY MARKET FUND were incorporated in the state of Maryland on September 28,
1976, July 5, 1983 and March 11, 1983, respectively. INSURED TAX EXEMPT 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. NEW YORK INSURED TAX FREE
FUND's authorized capital stock consists of one billion shares of common stock,
all of one series, with a par value per share of $0.01. TAX-EXEMPT MONEY MARKET
FUND'S authorized capital stock consists of 5 billion shares of common stock,
all of one series, with a par value per share of $0.01. 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 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, the 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.
SERIES FUND and MULTI-STATE INSURED TAX FREE FUND were organized as
Massachusetts business trusts on September 23, 1988 and October 30, 1985,
respectively. Each 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 its 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 and the shares of beneficial interest of
MULTI-STATE INSURED TAX FREE FUND are divided into seventeen separate and
distinct series, each having two classes, designated Class A shares and Class B
shares. Neither Fund holds annual shareholder meetings. If requested to do so by
the holders of at least 10% of a Fund's outstanding shares, the Fund's Board of
Trustees will call a special meeting of shareholders for any purpose, including
the removal of Trustees. Each share of each 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.
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. 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
137
<PAGE>
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% SHAREHOLDERS. As of March 31, 2000, the following owned of record or
beneficially 5% or more of the outstanding Class A shares of each of the Funds
listed below:
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
ARIZONA 7.7 Smith Barney Inc.
George Washington Rm 1718
23 Lexington Avenue
New York, NY 10010
9.0 DB Alex Brown LLC
George Washington Rm 1718
23 Lexington Avenue
New York, NY 10010
CALIFORNIA 9.4 Smith Barney Inc.
c/o Can Beranek
Box 757
New Ulm, MN 56073
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<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
COLORADO 5.2 Hanson A. Baden
Irene G. Baden
Village at Skyline
2335 Patriot Heights #2311
Colorado Springs, CO 80904
CONNECTICUT 7.1 Ludvig Upenieks
20 Green Hills Drive
Bolton, CT 06043-7805
5.2 BNY Clearing Services LLC
f/b/o Carol Sue Yoder
111 East Kilbourn Avenue
Milwaukee, WI 53202
GEORGIA 18.9 Henry L. Fuqua
1101 Parrotts Cove Road
Greensboro, GA 30642
MARYLAND 5.2 Dallas E. Polek
539 Wyngate Road "Timonium"
Timonium, MD 21093
11.6 Legg Mason Wood Walker Inc.
PO Box 1476
Baltimore, MD 21202
MICHIGAN 5.5 Prudential Securities Inc. FBO
Margaret E. Diponio, Trustee
Margaret E. Dipono Lvg Trust
Livonia, MI 48154-5461
MINNESOTA 7.5 Donald J. Kiel
c/o Can Beranek
Box 757
New Ulm, MN 56073
139
<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
MISSOURI 23.2 Salomon Smith Barney Inc.
333 West 34th Street - 3rd Floor
New York, NY 10001
6.0 BT Alex Brown Incorporated
333 West 34th Street - 3rd Floor
New York, NY 10001
NORTH CAROLINA 8.5 J.C. Bradford & Co., Cust FBO
333 West 34th Street - 3rd Floor
New York, NY 10001
PENNSYLVANIA 14.7 First Clearing Corporation
George Washington Rm 1718
23 Lexington Avenue
New York, NY 10010
As of March 31, 2000, the following owned of record or beneficially 5% or
more of the outstanding Class B shares of each of the Funds listed below:
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
FIRST INVESTORS INSURED 16.1 Maureen Barron
INTERMEDIATE TAX EXEMPT Earl Barron
1938 Louisquisset Pike
Lincoln, RI 02865
8.2 Marjorie Kelvin
700 Smith St. Apt# 241
Providence RI 02908-3599
8.0 Harrison W. Snyder
Road 4 Box 313
Huntingdon, PA 16652
8.6 Lois Marie Roesner, Trustee
Lois Marie Roesner Trust
33 S. Roberts Road
Palatine, IL 60067
7.8 Melvin R. Grote
Klara M. Grote
PO Box 12
Harrison, NE 69346
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<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
5.1 Douglas E. Bowles
Linda L. Bowles
2822 Stafford
Wichita, KS 67211
ARIZONA 17.4 Sebastian B. Bosco
Rita C. Bosco
4374 East Walnut Road
Higley, AZ 85236
11.7 Steven W. Winter
3741 E. Leland Street
Mesa, AZ 85215
18.4 Calvin D. Hodgeson
Janet A. Hodgeson Co-Trustees
Hodgeson Revocable Living Trust
7125 E. Luana Place
Tucson, AZ 85710
7.8 Pauline Pisano
Antonio Pisano
6994 Montee Lindo
Glendale, AZ 85310
8.6 Southwest Securities Inc. FBO
Stella M. Janovak Revocable Trust
PO Box 509002
Dallas, TX 75250
CALIFORNIA 18.2 Verne L. Miller
Doris E. Miller
5881 S. Crawford
Reedley, CA 93654
9.2 Salomon Smith Barney Inc.
333 West 34th Street, 3rd Floor
New York, NY 10001
5.3 Southwest Securities Inc., FBO
Harry E. Boyd
PO Box 509002
Dallas, TX 75250
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<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
COLORADO 5.9 J. Albert Torribio
PO Box 3181
Greeley, CO 80634
5.9 Elinor Ann Travis
1040 Joliet
Aurora, CO 80010
16.3 R2H, LLP
3131 E. Alameda Avenue, #602
Denver, CO 80209
CONNECTICUT 5.1 Sarah B. Tyson
174 Towne House Road
Hamden, CT 06514
8.5 Gustave W. Peschell, Trustee
Peschell Family Trust
85 Fairchild Road
Stratford, CT 06497
6.0 Fred Savage, Trustee
Einar Albin Lundberg Revocable Trust
39 Lynne Terrace
Shelton, CT 06484
10.9 First Union National Bank
FBO/Helen C. Loughnan
Attn: Phyllis A. Williams
1525 West Harris Boulevard
Charlotte, NC 28262-1151
FLORIDA 7.0 Constance H. Brown Trustee
Constance H. Brown Rev Liv Trust
4527 Sanderling Circle West
Boynton Beach, FL 33436
7.2 Lamaris S. Hill,Trustee
Lamaris S. Hill Family Trust
1946 Palo Alto Avenue
Lady Lake, FL 32159
142
<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
6.5 Geraldine O. Jordan
7401 SW 9th Street
Plantation, FL 33317
21.8 Julia F. Meyers
7930 Ascot Place
Vero Beach, FL 32966-5117
6.2 First Clearing Corporation
Margie B. McAfee
PO Box 150759
Altamonte Springs, FL 32715
GEORGIA 9.8 Allen Vegotsky
Dorothy R. Vegotsky
2215 Greencrest Drive
Atlanta, GA 30345
12.0 Peter Duffy
2778 Cumberland Boulevard #576
Smyrna, GA 30080
6.8 Geraldyne P. Miller
3357 Collier Ct. NW
Atlanta, GA 30331
12.8 Betty S. Cabaniss
1001 Clifton Road NE
Atlanta, GA 30307-1227
9.7 Carol A. Blackwell
2136 Bayford Court, SW
Marietta, GA 30064
9.8 Emma G. Burroughs
3631 Nassau Drive
Augusta, GA 30909
17.9 George V. Blake
Agatha A. Blake
2697 Rolling View Drive
Smyrna, GA 30080-2625
MARYLAND 6.3 John J. Banon
Elizabeth M. Bannon
17833 Cliffbourne Lane
Derwood, MD 20855
143
<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
6.4 June A. Reed
21 Heron Isle Court
Berlin, MD 21811
6.7 Rita D. McCarthy, Trustee
McCarthy Family Trust (B)
507 Coover Road
Annapolis, MD 21401
5.0 Joseph A. Aquilla, Trustee
Mary Louise Aquilla
Irrevocable Trust
10816 Sherwood Hill Road
Owings Mills, MD 21117-5846
MASSACHUSETTS 9.3 Aurora Graca
141 Queen Drive
West Wareham, MA 02576
15.8 Paul A. D'Oliveira
2540 Pawtucket Avenue
East Providence, RI 02915
5.2 John Bannish
431 Hillside Road
Southwick, MA 01077
6.2 John Mahaney
Alice Mahaney
91 Bridge Street
Fairhaven, MA 02719
MICHIGAN 7.9 Robert Bukowski & Dorothy Bukowski
Mary Bukowski & Michael Bukowski,
Trustees
The Bukowski Trust
19139 Greenwald
Southfield, MI 48075
8.5 George Shamie, Trustee
George Shamie Trust
640 Hampton Road
Grosse Pointe, MI 48236
144
<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
8.6 Albert E. Niemann
Beverly L. Niemann
15212 Huron River Drive
Romulus, MI 48174-3623
8.3 Thomas W. Stone
Paul T. Stone
2808 N. Chipman Street
Owosso, MI 48867
6.6 Mary Lanza
Frances Goers
Norma J. Goers
54500 Grand River
New Hudson, MI 48165
5.6 Blanche Paula Ebenhoeh
111 Windwood PTE
St. Clair Shores, MI 48080
5.6 Robert Hall
Janet Hall
8244 Brandywine
Ypsilanti, MI 48197
MINNESOTA 11.1 Debra M. Curran C/F
Joseph D. Curran
622 Maple Park Drive
Mendota Heights, MN 55118
5.2 Robert R. Lehrke
Sally A Lehrke
2665 40th Street
Burtrum, MN 56318
11.1 Debra M. Curran C/F
Benjamin T. Curran
622 Maple Park Drive
Mendota Heights, MN 55118
12.2 Debra M. Curran
622 Maple Park Drive
Mendota Heights, MN 55118
145
<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
MISSOURI 5.3 Ray A. Powell/Lula M. Powell,
Trustees
Ray A. Powell/Lula M. Powell Trust
3315 Gillham Road
Kansas City, MO 64109
6.5 Virginia B. Wall
Virginia B. Wall Trust Agreement
1707 Jackson Street
Chillicothe, MO 64601
NEW JERSEY 6.9 Merrill William Yeager
1411 Thomas Street
Point Pleasant, NJ 08742-3959
6.7 John J. Gabriel
Verna E. Gabriel
1 MacArthur Boulevard s601
Westmont, NJ 08108-3647
7.4 Diane Longo
225 Daniel Street
Hackensack, NJ 07601
7.4 Linda Longo
225 Daniel Street
Hackensack, NJ 07601
7.1 Frederick Ecker & Claire L. Ecker
10 West 24th Street
Barnegat Light, NJ 08006-9999
5.2 Florence Barrett
203 Ryans Run West
55 E. Kings Highway
Maple Shade, NJ 08052
NEW YORK 10.5 Rosalie Lamet
845 West End Avenue, Apt. 6C
New York, NY 10025-4918
6.4 Edwin A. Young
21 Sproat Street
Middletown, NY 10940
146
<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
NORTH CAROLINA 6.2 Irma Eisenbud
340 Carolina Meadows Villa
Chapel Hill, NC 27514-9130
13.2 Martha Sachs
48 North Rugby Road
Hendersonville, NC 28791
10.2 Pauline T. Ellis, Trustee
Pauline T. Ellis Trust
113 Column Circle
Shelby, NC 28150
8.8 Armonia H. Taylor-Wright
1131 Apt. O. Wisperwood Court
Greensboro, NC 27407
10.8 Audie G. Buckner & Iris B. Shuke
159 Pine Forest Drive
Siler City, NC 27344-9614
12.2 Francis J. Sincox
4500 Binwhe Lane
Gastonia, NC 28052
OHIO 10.7 Johnny R. Thomas C/F
Kerri Jo Thomas
36363 Harper Road
Malaga, OH 43757
21.5 Joseph A. Plata, Trustee
Plata Family Trust
4323 Bruening Drive
Parma, OH 44134
7.5 Daniel Nesselroad
1247 County Road 41
Richmond, OH 43944
22.3 Johnny R. Thomas C/F
Adrienne Thomas
36363 Harper Road
Malaga, OH 43757
147
<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
6.7 Leroy W. Gagle
Suzanne Gagle
353 Southwood Drive
Perrysburg, OH 43551
7.4 Smith Barney Inc.
388 Greenwich Street
New York, NY 10013
8.3 First Union Securities, Inc.
111 East Kilbourn Avenue
Milwaukee, WI 53202
OREGON 6.0 Donald L. Phillips Sr.
Karen A. Phillips
18729 S. Lyons
Oregon City, OR 97045-9623
9.6 Larry S. Penkava
Dorothy E. Penkava
2896 Twin Oak Place NW
Salem, OR 97304
10.6 Ned W. Wagner/Shirley J. Wagner,
Trustee
Wagner Living Trust
13825 SW 22nd Street
Beaverton, OR 97008
11.5 John E. Laney
Helen M. Laney
14315 SW Stallion Drive
Beaverton, OR 97008
5.0 Karleen H. Itschner, Trustee
Kirkpatrick Family Trust
19488 S. Red House Road
Molalla, OR 97038
8.1 James M. Hogan
36345 Bartoldus Loop
Astoria, OR 97103
148
<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
PENNSYLVANIA 5.8 Ruth R. Patterson
502 East Roumfort Road
Philadelphia, PA 19119-1034
5.3 Harrison W. Snyder
Rd 4 Box 313
Huntingdon, PA 16652
6.2 Peter Hesbacher 1933 Highway 35,
Suite 235 Wall, NJ 07719
VIRGINIA 5.4 Jose Domingos Vieira
37451 Sailors Court
Greenbackville, VA 23356
5.4 Helen H. Biggs
4410 Alta Vista Drive
Fairfax, VA 22030-5382
9.7 John W. Bunting III, Trustee
The John W. Bunting III Revocable
Trust
328 Bunting Point Road
Yorktown, VA 23693
6.4 Lula C. Olds
220 Kirkwood Drive
Danville, VA 24541
5.0 Rebecca A. Biron
108 Cardinal Acres Drive
Williamsburg, VA 23185
19.7 Una H. Harris
PO Box 871
910 West High Street
South Hill, VA 23970
25% SHAREHOLDERS. As of March 31, 2000 the following owned of record or
beneficially 25% or more of the outstanding Class A shares of each of the Funds
listed below:
149
<PAGE>
FUND % OF SHARES SHAREHOLDER
- ---- ----------- -----------
GEORGIA 29.3 Edward G. Johnson
Patricia A. Johnson
1510 Braiden Road
Dalton, GA 30720
150
<PAGE>
As of March 31, 2000 the following owned of record or beneficiary 25% or
more of the outstanding Class B shares of each of the Funds listed below:
FUND % OF SHARES SHAREHOLDER
FIRST INVESTORS TAX EXEMPT 96.0 Eola Crumley
MONEY MARKET FUND, INC. Robert O. Crumley
10503 Kirkdale
Houston, TX 77089
CALIFORNIA 45.8 Virginia F. Fry, Trustee
FBO The Virginia F. Fry Trust
45800 East 10th Street, Space 1
Lancaster, CA 93535
COLORADO 25.6 Marion Fischel
6690B E. Bayaud Avenue
Denver, CO 80224
40.7 Elden E. Coombs
9577 S. Deer Creek Canyon Road
Littleton, CO 80127
MINNESOTA 56.4 Myrtle Eveland
316 Polk Street #2
Anoka, MN 55303
MISSOURI 70.5 Salomon Smith Barney, Inc.
333 West 34th Street, 3rd Floor
New York, NY 10001
PENNSYLVANIA 33.9 John J. Madden
Barbara A. Madden
94 Spangenburg Avenue
East Stroudsburg, PA 18301
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, each Fund, the Adviser,
and the Underwriter have adopted Codes of Ethics ("Codes"). These Codes permit
portfolio managers and other access persons of the Funds to invest in
securities, including securities that may be owned by the Funds, subject to
certain restrictions.
151
<PAGE>
SHAREHOLDER LIABILITY. Under Massachusetts law, shareholders of Series
Fund and Multi-State Insured Tax Free Fund, both of which are Massachusetts
business trusts, may, under certain circumstances, be held personally liable for
the obligations of the Funds. The Declarations of Trust of each Fund, however,
contain express disclaimers of shareholder liability for acts or obligations of
the Funds and require that notice of such disclaimers be given in each
agreement, obligation, or instrument entered into or executed by either of the
Funds or its Trustees. The Declarations of Trust provides for indemnification
out of the property of each Fund of any shareholder held personally liable for
the obligations of the Fund. The Declarations of Trust also provides that each
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 either 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 Declarations of Trust further provides that Trustees will
not be liable for errors of judgment or mistakes of fact or law, but nothing in
the Declarations 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. Each Fund may have an obligation to indemnify its Trustees and officers
with respect to litigation.
152
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND 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.
153
<PAGE>
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. 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.
154
<PAGE>
AA Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
BAA Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
CAA Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
CA Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
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.
155
<PAGE>
APPENDIX B
DESCRIPTION OF MUNICIPAL NOTE RATINGS
STANDARD & POOR'S
- -----------------
S&P's note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
- Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
- -------------------------------
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the difference between short-term credit risk and long-term risk.
MIG-1. Loans bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
156
<PAGE>
APPENDIX C
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.
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.
157
<PAGE>
APPENDIX D
[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
D-1
<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.
D-2
<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.
D-3
<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.
D-4
<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.
D-5
<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.
D-6
<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.
D-7
<PAGE>
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
First Investors Insured Tax Exempt Fund, Inc. (2-57473) incorporates by
reference the financial statements and report of independent auditors contained
in the Annual Report to shareholders for the fiscal year ended December 31, 1999
electronically filed with the Commission on February 28, 2000 (Accession Number:
0000928816-00-000103).
First Investors Series 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 December 31, 1999 electronically filed
with the Commission on February 28, 2000 (Accession Number:
0000928816-00-000103).
First Investors New York Insured Tax Free Fund, Inc. (2-86489) incorporates by
reference the financial statements and report of independent auditors contained
in the Annual Report to shareholders for the fiscal year ended December 31, 1999
electronically filed with the Commission on February 28, 2000 (Accession Number:
0000928816-00-000103).
First Investors Multi-State Insured Tax Free Fund (33-4077) incorporates by
reference the financial statements and report of independent auditors contained
in the Annual Report to shareholders for the fiscal year ended December 31, 1999
electronically filed with the Commission on February 28, 2000 (Accession Number:
0000928816-00-000103).
First Investors Tax-Exempt Money Market Fund, Inc. (2-82572) incorporates by
reference the financial statements and report of independent auditors contained
in the Annual Report to shareholders for the fiscal year ended December 31, 1999
electronically filed with the Securities and Exchange Commission on February 28,
2000 (Accession Number:
0000928816-00-000103).
<PAGE>
A Guide to Your
First Investors
Mutual Fund Account
as of January 11, 2000
INTRODUCTION
Investing in mutual funds doesn't have to be complicated. Your registered
representative is available to answer your questions and help you process your
transactions. First Investors offers personalized service and a wide variety of
mutual funds. In the event you wish to process a transaction directly, the
material provided in this easy-to-follow guide tells you how to contact us and
explains our policies and procedures. Please note that there are special rules
for money market funds.
Please read this manual completely to gain a better understanding of how shares
are bought, sold, exchanged, and transferred. In addition, the manual provides
you with a description of the services we offer to simplify investing. The
services, privileges and fees referenced in this manual are subject to change.
You should call our Shareholder Services Department at 1 (800) 423-4026 before
initiating any transaction.
This manual must be preceded or accompanied by a First Investors mutual fund
prospectus. For more complete information on any First Investors Fund, including
charges and expenses, refer to the prospectus. Read the prospectus carefully
before you invest or send money.
Principal Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
1-212-858-8000
Transfer Agent
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
TABLE OF CONTENTS
HOW TO BUY SHARES
To Open an Account................1
To Open a Retirement Account........2
Minimum Initial Investment..........2
Additional Investments..............2
Acceptable Forms of Payment.........2
Share Classes.......................2
Share Class Specification...........3
Class A Shares......................3
Class B Shares......................5
How to Pay..........................6
HOW TO SELL SHARES
Written Redemptions.................9
<PAGE>
Telephone Redemptions...............9
Electronic Funds Transfer...........9
Systematic Withdrawal Plans.........10
Expedited Wire Redemptions..........10
HOW TO EXCHANGE SHARES
Exchange Methods....................11
Exchange Conditions.................12
Exchanging Funds with
Automatic Investments or
Systematic Withdrawals..............12
WHEN AND HOW
FUND SHARES ARE PRICED..............13
HOW PURCHASE,
REDEMPTION AND
EXCHANGE ORDERS ARE
PROCESSED AND PRICED.................13
SPECIAL RULES FOR MONEY
MARKET FUNDS ........................14
RIGHT TO REJECT PURCHASE
OR EXCHANGE ORDERS...................15
SIGNATURE GUARANTEE
POLICY .............................15
TELEPHONE SERVICES
Telephone Exchanges
and Redemptions......................16
Shareholder Services.................17
OTHER SERVICES.......................18
ACCOUNT STATEMENTS
Transaction Confirmation Statements..20
Master Account Statements 20
Annual and Semi-Annual Reports.......20
DIVIDENDS AND DISTRIBUTIONS
Dividends and Distributions..........21
Buying a Dividend....................21
TAX FORMS ..........................22
THE OUTLOOK..........................22
<PAGE>
HOW TO BUY SHARES
First Investors offers a wide variety of mutual funds to meet your financial
needs ("FI Funds"). Your registered representative will review your financial
objectives and risk tolerance, explain our product line and services, and help
you select the right investments. Call our Shareholder Services Department at 1
(800) 423-4026 or visit us on-line at www.firstinvestors.com for more
information.
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"). Some types of accounts require additional
paperwork.* 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.
NON-RETIREMENT
ACCOUNTS
We offer a variety of different "non-retirement" accounts, which is the term we
use to describe all accounts other than retirement accounts.
INDIVIDUAL ACCOUNTS. These accounts may be opened by any adult individual.
Telephone privileges are automatically available, unless they are declined.
JOINT ACCOUNTS. For any account with two or more owners, all owners must
sign requests to process transactions. Telephone privileges allow any one of
the owners to process transactions independently.
GIFTS AND TRANSFERS TO MINORS. Custodial accounts for a minor may be established
under your state's Uniform Gifts/Transfers to Minors Act. Custodial accounts are
registered under the minor's social security number.
TRUSTS. A trust account may be opened only if you have a valid written trust
document.
TRANSFER ON DEATH (TOD). TOD registrations, available on all FI Funds in all
states, allow individual and joint account owners to name one or more
beneficiaries. The ownership of the account passes to the named beneficiaries in
the event of the death of all account owners.
* ADDITIONAL PAPERWORK REQUIRED FOR CERTAIN ACCOUNTS.
TYPE OF ACCOUNT ADDITIONAL DOCUMENTS REQUIRED
Corporations First Investors Certificate of Authority
Partnership
& Trusts
Transfer On Death First Investors TOD Registration Request Form
(TOD)
Estates Original or Certified Copy of Death Certificate
Certified Copy of Letters Testamentary/Administration
First Investors Executor's Certification & Indemnification Form
Conservatorships Certified copy of court document appointing Conservator/
& Guardianships Guardian
<PAGE>
RETIREMENT ACCOUNTS
We offer the following types of retirement plans for individuals and employers:
INDIVIDUAL RETIREMENT ACCOUNTS including Roth, Traditional, and Rollover IRAs.
SIMPLE IRAS for employers.
SEP-IRAS (SIMPLIFIED EMPLOYEE PENSION PLANS) for small business owners or people
with income from self-employment. SARSEP-IRAs are available as trustee to
trustee transfers.
403(B)(7) accounts for employees of eligible tax-exempt organizations such as
schools, hospitals and charitable organizations.
401(K) plans for employers.
MONEY PURCHASE PENSION
& PROFIT SHARING plans for sole proprietors and partnerships.
Currently, there are no annual service fees chargeable to a participant in
connection with an IRA, SEP-IRA, SARSEP-IRA or SIMPLE-IRA. Each Fund currently
pays the annual $10.00 custodian fee for each IRA account maintained with such
Fund. This policy may be changed at any time by a Fund on 45 days' written
notice to the holder of any IRA, SEP-IRA, SARSEP-IRA or SIMPLE-IRA. First
Financial Savings has reserved the right to waive its fees at any time or to
change the fees on 45 days' prior written notice to the holder of any IRA.
(First Financial Savings Bank will change its name to First Investors Federal
Savings Bank.)
For more information about these plans call your registered representative or
our Shareholder Services Department at
1 (800) 423-4026.
MINIMUM INITIAL
INVESTMENT
Your initial investment in a non-retirement fund account may be as little as
$1,000. The minimum is waived if you use one of our Automatic Investment
Programs (see How to Pay) or if you open a Fund account through a full exchange
from another FI Fund. You can open a First Investors Traditional IRA or Roth IRA
with as little as $500. Other retirement accounts may have lower initial
investment requirements at the Fund's discretion.
ADDITIONAL INVESTMENTS
Once you have established an account, you can add to it through your
registered representative or by sending us a check directly. There is no
minimum requirement on additional purchases into existing fund accounts.
Remember to include your FI Fund account number on your check made payable to
First Investors Corporation.
Mail checks to:
FIRST INVESTORS CORPORATION
ATTN: DEPT. CP
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198
ACCEPTABLE FORMS OF PAYMENT The following forms of payment are acceptable:
- -checks made payable to First Investors Corporation.
- -Money Line and Automatic Payroll Investment electronic funds transfers.
- -Federal Funds wire transfers.
<PAGE>
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.
SHARE CLASSES
All FI Funds are available in Class A and Class B shares. Direct purchases into
Class B share money market accounts are not accepted. Class B money market fund
shares may only be acquired through an exchange from another Class B share
account or through Class B share dividend cross-reinvestment.
Each class of shares has its own cost structure. As a result, different classes
of shares in the same fund generally have different prices. Class A shares have
a front-end sales charge. Class B shares may have a contingent deferred sales
charge ("CDSC"). While both classes have a Rule 12b-1 fee, the fee on Class B
shares is generally higher. The principal advantages of Class A shares are that
they have lower overall expenses, the availability of quantity discounts on
sales charges, and certain account privileges that are not offered on Class B
shares. The principal advantage of Class B shares is that all your money is put
to work from the outset. Your registered representative can help you decide
which class of shares is best for you.
SHARE CLASS SPECIFICATION
It's very important to specify which class of shares you wish to purchase when
you open a new account. All First Investors account applications have a place to
designate your selection. If you do not specify which class of shares you want
to purchase, Class A shares will automatically be purchased.
CLASS A SHARES
When you buy Class A shares, you pay the offering price - the net asset value of
the fund plus a front-end sales charge. The front-end sales charge declines with
larger investments.
CLASS A SALES CHARGES
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
up to $24,999 6.25% 6.67%
$25,000 - $49,999 5.75% 6.10%
$50,000 - $99,999 5.50% 5.82%
$100,000 - $249,999 4.50% 4.71%
$250,000 - $499,999 3.50% 3.63%
$500,000 - $999,999 2.50% 2.56%
$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%.
Generally, you should consider purchasing Class A shares if you plan to
invest $250,000 or more either initially or over time.
SALES CHARGE WAIVERS
& REDUCTIONS ON CLASS A SHARES:
<PAGE>
If you qualify for one of the sales charge reductions or waivers, it is very
important to let us know at the time you place your order. Include a written
statement with your check explaining which privilege applies. If you do not
include this statement we cannot guarantee that you will receive the reduction
or waiver.
CLASS A SHARES MAY BE PURCHASED WITHOUT A SALES CHARGE: 1: By an officer,
trustee, director, or employee of the Fund, the Fund's adviser or subadviser,
First Investors Corporation, or any affiliates of First Investors Corporation,
or by his/her spouse, child (under age 21) or grandchild (under age 21).
2: By a former officer, trustee, director, or employee of the Fund, First
Investors Corporation, or their affiliates or by his/her spouse, child (under
age 21) or child under UTMA/UGMA provided the person worked for the company for
at least 5 years and retired or terminated employment in good standing.
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 Class A share fund distributions are reinvested in Class A shares.
5: When Class A share Systematic Withdrawal Plan payments are reinvested in
Class A shares (except for certain payments from money market accounts which may
be subject to a sales charge).
6: When qualified retirement plan loan repayments are reinvested in Class A
shares.
7: With the liquidation proceeds from a First Investors Life Variable Annuity
Fund A, C, or D contracts or First Investors Single Premium Retirement Annuity
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%.
<PAGE>
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. The Cumulative
Purchase Privilege lets you add the values of all of your existing FI Fund
accounts (except for amounts that have been invested directly in Cash Management
or Tax Exempt Money Market accounts on which no sales charge was previously
imposed) to the amount of your next Class A share investment in determining
whether you are entitled to a sales charge discount. While sales charge
discounts are available only on Class A shares, we will also include any Class B
shares you may own in determining whether you have achieved a discount level.
For example, if the combined current value of your existing FI Fund accounts is
$25,000 (measured by offering price), your next purchase will be eligible for a
sales charge discount at the $25,000 level. Cumulative Purchase discounts are
applied to purchases as indicated in the first column of the Class A Sales
Charge table.
All your accounts registered with the same social security number will be linked
together under the Cumulative Purchase Privilege. Your spouse's accounts and
custodial accounts held for minor children residing at your home
can also be linked to your accounts upon request.
- -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 Class A shares at a discounted
sales charge level even though you do not yet have sufficient investments to
qualify for that discount level. An LOI is a commitment by you to invest a
specified dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay. Under an LOI, you can reduce the initial
sales charge on Class A share purchases based on the total amount you agree to
invest in both Class A and Class B shares during the 13 month period. Purchases
made 90 days before the date of the LOI may be included, in which case the 13
month period begins on the date of the first purchase. Your LOI can be amended
in two ways. First, you may file an amended LOI to raise or lower the LOI amount
during the 13 month period. Second, your LOI will be automatically amended if
you invest more than your LOI amount during the 13 month period and qualify for
an additional sales charge reduction. Amounts invested in the Cash Management or
Tax Exempt Money Market Funds are not counted toward an LOI.
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.
<PAGE>
CLASS B SHARES
Class B shares are sold without an initial sales charge, putting all your money
to work for you immediately. If you redeem Class B shares within 6 years of
purchase, a CDSC will be imposed. The CDSC declines from 4% to 0% over a 6-year
period, as shown in the chart below. Class B share money market fund shares are
not sold directly. They can only be acquired through an exchange from another
Class B fund account or through cross reinvestment of dividends from another
Class B share account. Class B shares, and the dividend and distribution shares
they earn, automatically convert to Class A shares after 8 years, reducing
future annual expenses.
Generally, you should consider purchasing Class B shares if you intend to invest
less than $250,000 and you would rather pay higher ongoing expenses than an
initial sales charge.
CLASS B SALES CHARGES
THE CDSC DECLINES OVER TIME AS SHOWN IN THE TABLE BELOW:
YEAR 1 2 3 4 5 6 7+
CDSC 4% 4% 3% 3% 2% 1% 0%
If shares redeemed are subject to a CDSC, the CDSC will be based on the lesser
of the original purchase price or redemption price. There is no CDSC on shares
acquired through dividend and capital gains reinvestment. We call these "free
shares."
Anytime you sell shares, your shares will be redeemed in the following manner to
ensure that you pay the lowest possible CDSC:
First-Class B shares representing dividends and capital gains that are not
subject to a CDSC.
Second-Class B shares held more than six years which are not subject to a CDSC.
Third-Class B shares held longest which will result in the lowest CDSC.
For purposes of calculating the CDSC, all purchases made during the calendar
month are deemed to have been made on the first business day of the month at the
average cost of the shares purchased during that period.
SALES CHARGE WAIVERS ON
CLASS B SHARES:
The CDSC on Class B shares does not apply to:
1: Appreciation on redeemed shares above their original purchase price and
shares acquired through dividend or capital gains distributions.
2: Redemptions due to the death or disability (as defined in Section 72(m)(7) of
the Internal Revenue Code) of an account owner. Redemptions following the death
or disability of one joint owner of a joint account are not deemed to be as the
result of death or disability.
3: Distributions from employee benefit plans due to plan termination.
4: Redemptions to remove an excess contribution from an IRA or qualified
retirement plan.
5: Distributions upon reaching required minimum age 70 1/2 provided you have
held the shares for at least three years.
6: Annual redemptions of up to 8% of your account's value redeemed by a
Systematic Withdrawal Plan. Free shares not subject to a CDSC will be redeemed
first and will count towards the 8% limit.
<PAGE>
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.
HOW TO PAY
You can invest using one or more of the following options:
+ CHECK:
You can buy shares by writing a check payable to First Investors Corporation. If
you are opening a new fund account, your check must meet the fund minimum. When
making purchases to an existing account, remember to include your fund account
number on your check.
AUTOMATIC INVESTMENTS:
We offer several automatic investment
programs to simplify investing.
+ MONEY LINE:
With our Money Line program, you can invest in a FI fund account with as little
as $50 a month or $600 each year by transferring funds electronically from your
bank account. You can invest up to $50,000 a month through Money Line.
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 or account statement. A signature guarantee of all shareholders
and bank account owners is required. PLEASE ALLOW AT LEAST 10 BUSINESS DAYS FOR
INITIAL PROCESSING.
2: Complete the Money Line section of the application to specify the amount,
frequency and date of the investment.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
HOW TO CHANGE:
Provided you have telephone privileges, you may call Shareholder Services at 1
(800) 423-4026 to:
- -Increase the payment up to $999.99 provided bank and fund account
registrations are the same.
- -Decrease the payment.
- -Discontinue the service.
<PAGE>
To change investment amounts, reallocate or cancel Money Line, you must notify
us at least 3 business days prior to the investment date.
You must send a signature guaranteed written request to Administrative Data
Management Corp. to:
- -Increase the payment to $1,000 or more.
- -Change bank information (a new Money Line Application and voided check or
account statement is required).
A medallion signature guarantee (see Signature Guarantee Policy) is required to
increase a Money Line payment to $25,000 or more. Changing banks or bank account
numbers requires 10 days notice. Money Line service will be suspended upon
notification that all account owners are deceased.
+ AUTOMATIC PAYROLL
INVESTMENT:
With our Automatic Payroll Investment service ("API") you can systematically
purchase shares by salary reduction. To participate, your employer must offer
direct deposit and permit you to electronically transfer a portion of your
salary. Contact your company payroll department to authorize the salary
reductions. If not available, you may consider our Money Line program.
Shares purchased through API are purchased on the day the electronic transfer is
received by the Fund.
HOW TO APPLY:
1: Complete an API Application. If you are receiving a government payment and
wish to participate in the API Program you must also complete the government's
Direct Deposit Sign-up Form. Call Shareholder Services at 1 (800) 423-4026 for
more information.
2: Complete an API Authorization Form.
3: Submit the paperwork to your registered representative or send it to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
+ WIRE TRANSFERS:
You may purchase shares via a Federal Funds wire transfer from your bank account
into your EXISTING First Investors account. Federal Fund wire transfer proceeds
are not subject to a holding period and are available to you immediately upon
receipt, as long as we have been notified properly.
Shares will be purchased on the day we receive your wire transfer provided that
we have received adequate instructions and you have previously notified us that
the wire is on the way (by calling 1 (800) 423-4026). Your notification must
include the Federal Funds wire transfer confirmation number, the amount of the
wire, and the fund account number to receive same day credit. There are special
rules for money market fund accounts.
To wire Federal Funds to an existing First Investors account (other than money
markets), instruct your bank to wire your investment to:
FIRST FINANCIAL SAVINGS BANK, S.L.A.
ABA # 221272604
ACCOUNT # 0306142
YOUR NAME
YOUR FIRST INVESTORS FUND ACCOUNT #
(First Financial Savings Bank will change its name to First Investors Federal
Savings Bank.)
+ DISTRIBUTION
CROSS-INVESTMENT:
<PAGE>
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 fund account.
- -A signature guarantee is required if the ownership on both accounts is not
identical.
You may establish a Distribution Cross-Investment service by contacting your
registered representative or calling Shareholder Services at 1 (800) 423-4026.
+ SYSTEMATIC WITHDRAWAL PLAN PAYMENT INVESTMENTS: You can invest Systematic
Withdrawal Plan payments (see How to Sell Shares) from one fund account in
shares of another fund account in the same class of shares. -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 fund account. -You can invest on a monthly, quarterly,
semi-annual, or annual basis. Redemptions are suspended upon notification that
all account owners are deceased. Service will recommence upon receipt of written
alternative payment instructions and other required documents from the
decedent's legal representative.
HOW TO SELL SHARES
You can sell your shares on any day the New York Stock Exchange ("NYSE") is open
for regular trading. In the mutual fund industry, a sale is referred to as a
"redemption." Payment of redemption proceeds generally will be made within seven
days. If the shares being redeemed were recently purchased by check or
electronic funds transfer, payment may be delayed to verify that the check or
electronic funds transfer has been honored, which may take up to 15 days from
the date of purchase. Shareholders may not redeem shares by telephone or
electronic funds transfer unless the shares have been owned for at least 15
days.
Redemptions of shares are not subject to the 15 day verification period if the
shares were purchased via:
- -Automatic Payroll Investment.
- -FIC registered representative payroll checks.
- -First Investors Life Insurance Company checks.
- -Federal funds wire payments.
For trusts, estates, attorneys-in-fact, corporations, partnerships, and other
entities, additional documents are required to redeem shares. Call
Shareholder Services at
1 (800) 423-4026 for more information.
WRITTEN REDEMPTIONS
You can write a letter of instruction or contact your registered
representative for a liquidation request form. A written liquidation request
in
good order must include:
<PAGE>
1: The name of the fund;
2: Your account number;
3: The dollar amount, number of shares or percentage of the account you want to
redeem;
4: Share certificates (if they were issued to you);
5: Original signatures of all owners exactly as your account is registered; and
6: Signature guarantees, if required (see Signature Guarantee Policy).
If we are being asked to redeem a retirement account and transfer the proceeds
to another financial institution, we will also require a Letter of Acceptance
from the successor custodian before we effect the redemption.
For your protection, the Fund reserves the right to require additional
supporting legal documentation.
Written redemption requests should be mailed to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198.
If your redemption request is not in good order or information is missing, the
Transfer Agent will seek additional information and process the redemption on
the day it receives such information.
TELEPHONE REDEMPTIONS
You, or any person we believe is authorized to act on your behalf, may redeem
non-retirement shares which have been owned for at least 15 days by calling our
Special Services Department at 1 (800) 342-6221 from 9:00 a.m. to 4:00 p.m., ET,
provided:
- -Telephone privileges are available for your account registration and you
have not declined telephone privileges (see Telephone Privileges);
- -You do not hold share certificates (issued shares);
- -The redemption check is made payable to the registered owner(s) or
pre-designated bank;
- -The redemption check is mailed to your address of record or predesignated
bank account;
- -Your address of record has not changed within the past 60 days;
- -The redemption amount is $50,000 or less; AND
- -The redemption amount, combined with the amount of all telephone redemptions
made within the previous 30 days does not exceed
$100,000. Telephone redemption orders received between 4:00-5:00p.m. will be
processed on the following business day.
ELECTRONIC FUNDS TRANSFER
The Electronic Funds Transfer ("EFT") service allows you to redeem shares and
electronically transfer proceeds to your bank account.
YOU MUST ENROLL IN THE ELECTRONIC FUNDS TRANSFER SERVICE AND PROVIDE COMPLETE
BANK ACCOUNT INFORMATION BEFORE USING THE PRIVILEGE. Signature guarantees of all
shareholders and all bank account owners are required. Please allow at least 10
business days for initial processing. We will send any proceeds during the
processing period to your address of record. Call your registered representative
or Shareholder Services at 1 (800) 423-4026 for an application. You may call
Shareholder Services or send written instructions to Administrative Data
Management Corp. to request an EFT redemption of shares which have been held at
least 15 days. Each EFT redemption:
1: Must be electronically transferred to your pre-designated bank account;
2: Must be at least $500;
3: Cannot exceed $50,000; and
4: Cannot exceed $100,000 when added to the total amount of all EFT redemptions
made within the previous 30 days.
If your redemption does not qualify for an EFT redemption, your redemption
proceeds will be mailed to your address of record.
<PAGE>
The Electronic Funds Transfer service may also be used to purchase shares (see
Money Line) and transfer systematic withdrawal payments (see Systematic
Withdrawal Plans) and dividend distributions (see Other Services) to your bank
account.
SYSTEMATIC WITHDRAWAL PLANS
Our Systematic Withdrawal Plan allows you to redeem a specific dollar amount,
number of shares, or percentage from your account on a regular basis. Your
payments can be mailed to you or a pre-authorized payee by check, transferred to
your bank account electronically (if you have enrolled in the EFT service) or
invested in shares of another FI fund in the same class of shares through our
Systematic Withdrawal Plan Payment investment service (see How to Buy Shares).
You can receive payments on a monthly, quarterly, semi-annual, or annual basis.
Your account must have a value of at least $5,000 in non-certificated shares
("unissued shares"). The $5,000 minimum account balance is waived for required
minimum distributions from retirement plan accounts, payments to First Investors
Life Insurance Company, and systematic investments into another eligible fund
account. The minimum Systematic Withdrawal Plan payment is $25 (waived for
Required Minimum Distributions on retirement accounts or FIL premium payments).
Once you establish the Systematic Withdrawal Plan, you should not make
additional investments into this account (except money market funds). Buying
shares during the same period as you are selling shares is not advantageous to
you because of sales charges.
If you own Class B shares, you may establish a Systematic Withdrawal Plan and
redeem up to 8% of the value of your account annually without a CDSC.
If you own Class B shares of a retirement account and you are receiving your
Required Minimum Distribution through a Systematic Withdrawal Plan, up to 8% of
the value of your account may be redeemed annually without a CDSC. However, if
your Required Minimum Distribution exceeds the 8% limit, the applicable CDSC
will be charged if the additional shares were held less than 3 years and you
have not reached age 701/2.
To establish a Systematic Withdrawal Plan, complete the appropriate section of
the account application or contact your registered representative or call
Shareholder Services at
1 (800) 423-4026.
EXPEDITED WIRE
REDEMPTIONS
(MONEY MARKET FUNDS ONLY)
Enroll in our Expedited Redemption service to wire proceeds from your FI money
market account to your bank account. Call Shareholder Services at 1 (800)
423-4026 for an application or to discuss specific requirements.
Requests for redemptions by wire out of money market funds must be received in
writing or by phone prior to 12:00 p.m., ET on a day the NYSE is open for
trading. These days are referred to as "Trading Days" in this manual. Wire
Redemption orders received after 12:00 p.m., ET but before the close of regular
trading on the NYSE, or received on a day that the Federal Reserve system is
closed will be processed on the following business day.
- -Each wire under $5,000 is subject to a $15 fee.
- -Two wires of $5,000 or more are permitted without charge each month. Each
additional wire is $15.00.
- -Wires must be directed to your pre-designated bank account.
HOW TO EXCHANGE SHARES
<PAGE>
The exchange privilege gives you the flexibility to change investments as your
goals change without incurring a sales charge. Since an exchange of
non-retirement fund shares is a redemption and a purchase, it creates a gain or
loss which is reportable for tax purposes. You should consult your tax advisor
before requesting an exchange. Read the prospectus of the FI Fund you are
purchasing carefully. Review the differences in objectives, policies, risk,
privileges and restrictions.
EXCHANGE METHODS
METHOD STEPS TO FOLLOW
Through Your
Registered Representative Call your registered representative.
By Phone Call Special Services from 9:00 a.m. to 5:00 p.m., ET
1(800) 342-6221 Orders received after the close of the NYSE, usually
4:00 p.m., ET, are processed the following business day.
1. You must have telephone privileges.
(see Telephone Transactions.)
2. Certificate shares cannot be exchanged by phone.
3. For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional documents
are required and must be on file.
By Mail to:
ADM
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198 1. Send us written instructions signed by all
account owners exactly as the account is registered.
2. Include the name and account number of your fund.
3. Indicate either the dollar amount, number of shares or
percent of the source account you want to exchange.
4. Specify the existing account number or the name of the
new Fund you want to exchange into.
5. Include any outstanding share certificates for shares you
want to exchange. A signature guarantee is required.
6. For trusts, estates, attorneys-in-fact, corporations,
partnerships, and other entities, additional
documents are required. Call Shareholder
Services at 1(800) 423-4026.
EXCHANGE CONDITIONS
1: You may only exchange shares within the same class.
2: Exchanges can only be made into identically owned accounts.
3: Partial exchanges into a new fund account must meet the new fund's minimum
initial investment.
4: The fund you are exchanging into must be eligible for sale in your state.
5: If your request does not clearly indicate the amount to be exchanged or the
accounts involved, no shares will be exchanged.
<PAGE>
6: Amounts exchanged from a non-money market fund to a money market fund may be
exchanged back along with the dividends earned on that amount 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. Dividends earned on money market shares that were purchased by an
exchange from a fund with a sales charge, may be exchanged back at net asset
value. Your request must be in writing and include a statement acknowledging
that a sales charge will be paid.
8: If you exchange Class B shares of a fund for shares of a Class B money market
fund, the CDSC will not be imposed but the CDSC and the holding period used to
calculate the CDSC will carry over to the acquired shares.
9: FI Funds reserve the right to reject any exchange order which in the opinion
of the Fund is part of a market timing strategy. In the event that an exchange
is rejected, neither the redemption nor the purchase side of the exchange will
be processed.
10: If your exchange request is not in good order or information is missing, the
Transfer Agent will seek additional information and process the exchange on the
day it receives such information.
EXCHANGING FUNDS WITH AUTOMATIC INVESTMENTS OR SYSTEMATIC WITHDRAWALS
Let us know if you want to continue automatic investments into the original fund
or the fund you are exchanging into ("receiving fund") or if you want to change
the amount or allocation. Also inform us if you wish to continue, terminate, or
change a preauthorized systematic withdrawal. Without specific instructions, we
will amend account privileges as outlined below:
EXCHANGE 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)
WHEN AND HOW FUND SHARES ARE PRICED
Each FI Fund prices its shares each day that the NYSE is open for trading. The
share price is calculated as of the close of trading on the NYSE (generally 4:00
p.m., ET).
Each Fund calculates the net asset value of each class of its shares separately
by taking the total value of class assets, subtracting class expenses, and
dividing the difference by the total number of shares in the class. The price
that you will pay for a share is the NAV plus any applicable front-end sales
charge. You receive the NAV price if you redeem or exchange your shares, less
any applicable CDSC.
Fund prices are on our website (www.firstinvestors.com) the next day. The prices
for our larger funds are also reported in many newspapers, including The Wall
Street Journal and The New York Times. Special pricing procedures are employed
during emergencies. For a description of these procedures you can request, free
of charge, a copy of a Statement of Additional Information.
<PAGE>
HOW PURCHASE,
REDEMPTION AND
EXCHANGE ORDERS
ARE PROCESSED AND PRICED
The processing and price for a purchase, redemption or exchange depends upon how
your order is placed. As indicated below, in certain instances, special rules
apply to money market transactions. Special rules also apply for emergency
conditions. These are described in the Statement of Additional Information.
+ PURCHASES:
Purchases that are made by written application or order are processed when they
are received in "good order" by our Woodbridge, NJ office. To be in good order,
all required paperwork must be completed and payment received. If your order is
received prior to the close of trading on the NYSE, it will receive that day's
price (except in the case of money market funds which are discussed in the
section below called Special Rules for Money Market Funds). This procedure
applies whether your purchase order is given to your registered representative
or mailed directly by you to our Woodbridge, NJ office.
As described previously in "How to Buy Shares," certain types of purchases can
only be placed by written application. For example, purchases in connection with
the opening of retirement accounts may only be made by written application.
Furthermore, rollovers of retirement accounts will be processed only when we
have received both written application and the proceeds of the rollover. Thus,
for example, if it takes 30 days for another fund group to send us the proceeds
of a retirement account, your purchase of First Investors funds will not occur
until we receive the proceeds.
Some types of purchases may be phoned or electronically transmitted to us via
Fund/SERV by your broker-dealer. If you give your order to a registered
representative before the close
of trading on the NYSE and the order is phoned to our Woodbridge, NJ office
prior to 5:00 p.m., ET, your shares will be purchased at that day's price
(except in the case of money market funds which are discussed in the section
below called Special Rules for Money Market Funds). If you are buying a First
Investors Fund through a broker-dealer other than First Investors, other
requirements may apply. Consult with your broker-dealer about its requirements.
Payment is due within three business days of placing an order by phone or
electronic means or the trade may be cancelled. (In such event, you will be
liable for any loss resulting from the cancellation.) To avoid cancellation of
your orders, you may arrange to open a money market account and use it to pay
for subsequent purchases.
Purchases made pursuant to our Automatic Investment Programs are processed as
follows:
- -Money Line purchases are processed on the date you select on your
application.
- -Automatic Payroll Investment Service purchases are processed on the date that
we receive funds from your employer.
+ REDEMPTIONS:
As described previously in "How To Sell Shares," certain redemption orders may
only be made by written instructions or application. Unless you have declined
Telephone Privileges, most non-retirement account redemptions can be made by
phone by you or your registered representative.
Written redemption orders will be processed when received in good order in our
Woodbridge, NJ office. Phone redemption orders will be processed when received
in good order in our Woodbridge, NJ office prior to 4:00 p.m., ET.
<PAGE>
If your redemption order is received prior to the close of trading on the NYSE,
you will receive that day's price. If you redeem through a broker-dealer other
than First Investors, other requirements may apply. Consult with your
broker-dealer about its requirements.
+ EXCHANGES:
Unless you have declined telephone privileges, you or your representative may
exchange shares by phone. Exchanges can also be made by written instructions.
Exchange orders are processed when we receive them in good order in our
Woodbridge, NJ office.
Exchange orders received in good order prior to the close of trading on the NYSE
will be processed at that day's prices.
+ ORDERS PLACED VIA FIRST INVESTORS REGISTERED REPRESENTATIVES: All orders
placed through a First Investors registered representative must be reviewed and
approved by a principal officer of the branch office before being mailed or
transmitted to the Woodbridge, NJ office.
+ ORDERS PLACED VIA DEALERS:
It is the responsibility of the Dealer to forward or transmit orders to the Fund
promptly and accurately. A fund will not be liable for any change in the price
per share due to the failure of the Dealer to place or pay for the order in a
timely fashion. Any such disputes must be settled between you and the Dealer.
SPECIAL RULES FOR MONEY MARKET FUNDS
Money market fund shares will not be purchased until the Fund receives Federal
Funds for the purchase. Federal Funds for a purchase will generally not be
received until the morning of the next Trading Day following the Trading Day on
which your purchase check or other form of payment is received in our
Woodbridge, NJ office. If a check is received in our Woodbridge, NJ office after
the close of regular trading on the NYSE, the Federal Funds for the purchase
will generally not be received until the morning of the second following Trading
Day.
If we receive a wire transfer for a purchase prior to 12:00 p.m., ET and you
have previously notified us that the wire is on the way (by calling 1 (800)
423-4026) the funds for the purchase will be deemed to have been received on
that same day. Your notification must include the Federal Funds wire transfer
confirmation number, the amount of the wire, and the money market fund account
number to receive same day credit. If we fail to receive such advance
notification, the funds for your purchase will not be deemed to have been
received until the morning of the next Trading Day following receipt of the
Federal Wire and your account information.
To wire funds to an existing First Investors money market account, instruct your
bank to wire your investment, as applicable, to:
CASH MANAGEMENT FUND
BANK OF NEW YORK
ABA #021000018
FI CASH MGMT. ACCOUNT 8900005696
FOR FURTHER CREDIT TO: YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
TAX-EXEMPT MONEY MARKET FUND
BANK OF NEW YORK
ABA #021000018
FI TAX EXEMPT ACCOUNT 8900023198
FOR FURTHER CREDIT TO: YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
<PAGE>
Requests for redemptions by wire out of the money market funds must be received
in writing or by phone prior to 12:00 p.m., ET, on a Trading Day, to be
processed the same day. Wire redemption requests received after 12:00 p.m., ET,
but before the close of regular trading on the NYSE, will be processed the
following Trading Day.
There is no sales charge on Class A share money market fund purchases. However,
anytime you make a redemption from a Class A share money market account and
subsequently invest the proceeds in another eligible Class A share fund, the
purchase will incur a sales charge unless one has already been paid.
RIGHT TO REJECT
PURCHASE OR
EXCHANGE ORDERS
A fund reserves the right to reject or restrict any specific purchase or
exchange request if the fund determines that doing so is in the best interest of
the fund and its shareholders. Investments in a fund are designed for long-term
purposes and are not intended to provide a vehicle for short-term market timing.
The funds also reserve the right to reject any exchange that in the funds'
opinion is part of a market timing strategy. In the event that a fund rejects an
exchange request, neither the redemption nor the purchase side of the exchange
will be processed.
SIGNATURE
GUARANTEE POLICY
A signature guarantee protects you from the risk of a fraudulent signature and
is generally required for non-standard and large dollar transactions. A
signature guarantee may be obtained from eligible guarantor institutions
including banks, savings associations, credit unions and brokerage firms which
are members of the Securities Transfer Agents Medallion Program ("STAMP"), the
New York Stock Exchange Medallion Signature Program ("MSP"), or the Stock
Exchanges Medallion Program ("SEMP"). Please note that a notary public stamp or
seal is not acceptable.
+ SIGNATURE GUARANTEES
ARE REQUIRED:
1: For redemptions over $50,000.
2: For redemption checks made payable to any person(s) other than the registered
shareholder(s) or any entity other than a major financial institution for the
benefit of the registered shareholder(s).
3: For redemption checks mailed to an address other than the address of record,
pre-authorized bank account, or a major financial institution on your behalf.
4: For redemptions when the address of record has changed within 60 days of the
request.
5: When a stock certificate is mailed to an address other than the address of
record or the dealer on the account.
6: When shares are transferred to a new registration.
7: When certificated (issued) shares are redeemed or exchanged.
8: To establish any EFT service.
9: For requests to change the address of record to a P.O. box or a "c/o" street
address.
10: If multiple account owners of one account give inconsistent instructions.
11: When a transaction requires additional legal documentation.
<PAGE>
12: When the authority of a representative of a corporation, partnership, trust,
or other entity has not been satisfactorily established.
13: When an address is updated on an account which has been coded "Do Not Mail"
because mail has been returned as undeliverable.
14: Any other instance whereby a fund or its transfer agent deems it
necessary as a matter of prudence.
TELEPHONE
SERVICES
TELEPHONE EXCHANGES AND REDEMPTIONS
1 (800) 342-6221
You automatically receive telephone privileges when you open a First Investors
individual, joint, or custodial account unless you decline the option on your
account application or send the Fund written instructions. For trusts, estates,
attorneys-in-fact, corporations, partnerships, and other entities, telephone
privileges are not automatically granted. You must complete additional
documentation. Call Shareholder Services at 1 (800) 423-4026 for assistance.
Telephone privileges allow you to exchange or redeem eligible shares and
authorize other transactions with a simple phone call. Your registered
representative may also use telephone privileges to execute your transactions.
+ SECURITY MEASURES:
For your protection, the following security measures are taken:
1: Telephone requests are recorded to verify accuracy.
2: Some or all of the following information is obtained:
- -Account number.
- -Address.
- -Social security number.
- -Other information as deemed necessary.
3: A written confirmation of each transaction is mailed to you.
We will not be liable for following instructions if we reasonably believe the
instructions are genuine based on our verification procedures.
+ ELIGIBILITY:
NON-RETIREMENT ACCOUNTS:
You can exchange or redeem shares of any non-retirement account by phone. Shares
must be uncertificated and owned for 15 days for telephone redemption. See "How
To Sell Shares" for additional information.
Telephone exchanges and redemptions are not available on guardianship and
conservatorship accounts.
RETIREMENT ACCOUNTS:
You can exchange shares of any eligible FI fund of any participant directed FI
prototype IRA, 403(b) or 401(k) Simplifier Plan. 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
<PAGE>
Application is on file with the fund. Contact your registered representative or
call Shareholder Services at 1 (800) 423-4026 to obtain a Qualified Retirement
Plan Application. Telephone redemptions are not permitted on First Investors
retirement accounts.
During times of drastic economic or market changes, telephone redemptions or
exchanges may be difficult to implement. If you experience difficulty in making
a telephone exchange or redemption, you may send us a written request by regular
or express mail. The written request will be processed at the next determined
net asset value, less any applicable CDSC, when received in good order in our
Woodbridge, N.J. office.
SHAREHOLDER SERVICES
1 (800) 423-4026
PROVIDED YOU HAVE NOT DECLINED TELEPHONE PRIVILEGES, CALL US TO UPDATE OR
CORRECT:
- -Your address or phone number. For security purposes, the Fund will not
honor telephone requests to change an address to a P.O. Box or "c/o" street
address.
- -Your birth date (important for retirement distributions).
- -Your distribution option to reinvest or pay in cash or initiate cross
reinvestment of dividends (non-retirement accounts only).
- -The amount of your Money Line up to $999.99 per payment provided bank and fund
account registrations are the same.
- -The allocation of your Money Line or Automatic Payroll Investment payment.
- -The amount of your Systematic Withdrawal payment on non-retirement accounts.
TO REQUEST:
- -A history of your account (the fee can be debited from your non-retirement
account).
- -A share certificate to be mailed to your address of record (non-retirement
accounts only).
- -Cancellation of your Systematic Withdrawal Plan (non-retirement accounts
only).
- -Money market fund draft checks (non-retirement accounts only). Additional
written documentation may be required for certain registrations.
- -A stop payment on a dividend, redemption or money market draft check.
- -Reactivation of your Money Line (provided an application and voided check is
on file).
- -Suspension (up to six months) or cancellation of Money Line.
- -A duplicate copy of a statement or tax form.
- -Cancellation of cross-reinvestment of dividends.
OTHER SERVICES
+ REINSTATEMENT PRIVILEGE:
<PAGE>
If you sell some or all of your Class A or Class B shares, you may be entitled
to invest all or a portion of the proceeds in the same class of shares of a FI
fund within six months of the redemption without a sales charge.
If you invest proceeds into a new fund account, you must meet the fund's minimum
initial investment requirement.
If you invest all the proceeds from a Class B share redemption, you will be
credited, in additional shares, for the full amount of the CDSC. If you invest a
portion of a Class B share redemption, you will be credited with a pro-rated
percentage of the CDSC.
The reinstatement privilege does not apply to automated purchases, automated
redemptions, or reinstatements in Class B shares of less than $1,000.
Please notify us if you qualify for this privilege. For more information, call
Shareholder Services at 1 (800) 423-4026.
+ CERTIFICATE SHARES:
Every time you make a purchase of Class A shares, we will credit shares to your
fund account. We do not issue share certificates unless you specifically request
them. Certificates are not issued on any Class B shares, Class A money market
shares, or any shares in retirement accounts.
Having us credit shares on your behalf eliminates the expense of replacing lost,
stolen, or destroyed certificates. If a certificate is lost, stolen, or damaged,
you may be charged a replacement fee of the greater of 2% of the current value
of the certificated shares or $25.
In addition, certificated shares cannot be redeemed, exchanged, or transferred
until they are returned with your transaction request. The share certificate
must be properly endorsed and signature guaranteed.
+ MONEY MARKET FUND DRAFT CHECKS:
Free draft check writing privileges are available when you open a First
Investors Cash Management Fund or a First Investors Tax Exempt Money Market Fund
account. Checks may be written for a minimum of $500. Draft checks are not
available for Class B share accounts, retirement accounts, guardianships and
conservatorships. Complete the Money Market Fund Check Redemption section of the
account application to apply for draft checks. To order additional checks, call
Shareholder Services at 1 (800) 423-4026.
Additional documentation is required to establish check writing privileges
for trusts, corporations, partnerships and other entities. Call Shareholder
Services at 1 (800) 423-4026 for further information.
FEE TABLE:
Call Shareholder Services at 1 (800) 423-4026 or send your request to FIC,
Attn: Correspondence Dept., 581 Main Street, Woodbridge, NJ 07095-1198 to
request a copy of the following records:
.
ACCOUNT HISTORY STATEMENTS:
1974 - 1982* $10 per year fee
1983 - present $5 total fee for all years
Current & Two Prior Years Free
*ACCOUNT HISTORIES ARE NOT AVAILABLE PRIOR TO 1974
CANCELLED CHECKS:
There is a $10 fee for a copy of a cancelled dividend, liquidation, or
investment check requested. There is a $15 fee for a copy of a cancelled money
market draft check.
<PAGE>
DUPLICATE TAX FORMS:
Current Year Free
Prior Year(s) $7.50 per tax form per year
+ RETURN MAIL:
If mail is returned to the fund marked undeliverable by the U.S. Postal Service
after two consecutive mailings, and the fund is unable to obtain a current
shareholder address, the account status will be changed to "Do Not Mail" to
discontinue future mailings and prevent unauthorized persons from obtaining
account information.
You can remove the "Do Not Mail" status on your account by submitting written
instructions including your current address signed by all shareholders with a
signature guarantee (see Signature Guarantee Policy). Additional requirements
may apply for certain accounts. Call Shareholder Services at 1 (800) 423-4026
for more information.
Returned dividend checks and other distributions will be reinvested in the fund
when an account's status has been changed to "Do Not Mail." No interest will be
paid on outstanding checks prior to reinvestment. All future dividends and other
distributions will be reinvested in additional shares until new instructions are
provided. If you cannot be located within a period of time mandated by your
state of residence your fund shares may be escheated to your state (in other
words turned over) in accordance with state laws governing abandoned property.
Prior to turning over assets to your state, the fund will seek to obtain a
current shareholder address in accordance with Securities and Exchange
Commission rules. A search company may be employed to locate a current address.
The fund may deduct the costs associated with the search from your account.
+ TRANSFERRING SHARES:
A transfer is a change of share ownership from one customer to another. Unlike
an exchange, transfers occur within the same fund. You can transfer your shares
at any time. Partial transfers must meet the minimum initial investment
requirement of the fund.
To transfer shares, submit a letter of instruction including:
- -Your account number.
- -Dollar amount, percentage, or number of shares to be transferred.
- -Existing account number receiving the shares (if any).
- -The name(S), registration, and taxpayer identification number of the
customer receiving the shares.
- -The signature of each account owner requesting the transfer with signature
guarantee(S).
If First Investors is your broker-dealer, we will request that the transferee
complete a Master Account Agreement to establish a brokerage account with First
Investors Corporation and validate his or her social security number to avoid
back-up withholding. If the transferee declines to complete a MAA, all
transactions in the account must be on an unsolicited basis and the account will
be so coded.
Depending upon your account registration, additional documentation may be
required to transfer shares. Transfers due to the death of a shareholder require
additional documentation. Please call our Shareholder Services Department at 1
(800) 423-4026 for specific transfer requirements before initiating a request.
A transfer is a change of ownership and may trigger a taxable event. You should
consult your tax advisor before initiating a transfer.
ACCOUNT STATEMENTS
<PAGE>
TRANSACTION
CONFIRMATION STATEMENTS
You will receive a confirmation statement immediately after most transactions.
These include:
- -dealer purchases.
- -check investments.
- -Federal Funds wire purchases.
- -redemptions.
- -exchanges.
- -transfers.
- -systematic withdrawals.
Money Line and Automatic Payroll Investment purchases are not confirmed for each
transaction. They will appear on your next regularly scheduled monthly or
quarterly statement (see Dividend Payment Schedule under "Dividends and
Distributions").
A separate confirmation statement is generated for each fund account you own. It
provides:
- -Your fund account number.
- -The date of the transaction.
- -A description of the transaction (PURCHASE, REDEMPTION, ETC.).
- -The number of shares bought or sold for the transaction.
- -The dollar amount of the transaction.
- -The dollar amount of the dividend payment (IF APPLICABLE).
- -The total share balance in the account.
- -The dollar amount of any dividends or capital gains paid.
- -The number of shares held by you, held for you (INCLUDING ESCROW SHARES), and
the total number of shares you own.
The confirmation statement also may provide a perforated Investment Stub with
your preprinted name, registration, and fund account number for future
investments.
MASTER ACCOUNT
STATEMENTS
If First Investors Corporation is your broker, you will receive a Master Account
Statement for all your identically owned First Investors fund accounts on at
least a quarterly basis. The Master Account Statement will also include a recap
of any First Investors Life Insurance 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.
<PAGE>
ANNUAL AND
SEMI-ANNUAL REPORTS
You will also receive an Annual and a Semi-Annual Report. These financial
reports show the assets, liabilities, revenues, expenses, and earnings of the
fund as well as a detailed accounting of all portfolio holdings. You will
receive one report per household.
DIVIDENDS AND
DISTRIBUTIONS
DIVIDENDS AND
DISTRIBUTIONS
For funds that declare daily dividends, except money market funds, you start
earning dividends on the day your purchase is made. For FI money market fund
purchases, including Money Line and API purchases, you start earning dividends
on the day Federal Funds are credited to your fund account. For exchanges into
the money market funds, you start earning dividends on the day following the
Trading Day on which an exchange is processed. No dividends are earned on
exchanges out of the money market funds on the Trading Day on which an exchange
is processed. The funds declare dividends from net investment income and
distribute the accrued earnings to shareholders as noted below:
<TABLE>
<CAPTION>
DIVIDEND PAYMENT SCHEDULE
<S> <C> <C>
MONTHLY: QUARTERLY: ANNUALLY (IF ANY):
Cash Management Fund Blue Chip Fund Focused Equity Fund
Fund for Income Growth & Income Fund Global Fund
Government Fund Total Return Fund Mid-Cap Opportunity Fund
Insured Intermediate Tax-Exempt Utilities Income Fund Special Situations Fund
Insured Tax Exempt Fund
Investment Grade Fund
Multi-State Insured Tax Free Fund
New York Insured Tax Free Fund
Tax-Exempt Money Market Fund
</TABLE>
Capital gains distributions, if any, are paid annually, usually near the end of
the fund's fiscal year. On occasion, more than one capital gains distribution
may be paid during one year.
Dividend and capital gains distributions are automatically reinvested to
purchase additional fund shares unless otherwise instructed. Dividend payments
of less than $5.00 are automatically reinvested to purchase additional fund
shares.
BUYING A DIVIDEND
If you buy shares shortly before the record date of the dividend, the entire
dividend you receive may be taxable even though a part of the distribution is
actually a return of your purchase price. This is called "buying a dividend."
There is no advantage to buying a dividend because a fund's net asset value per
share is reduced by the amount of the dividend.
<PAGE>
<TABLE>
<CAPTION>
TAX FORMS
<S> <C> <C>
TAX FORM DESCRIPTION MAILED BY
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.
(This page Intentionally Left Blank)
<PAGE>
Principal Underwriter
First Investors Corporation
95 Wall Street
New York, NY 10005
1-212-858-8000
Transfer Agent
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095
1-800-423-4026
<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)
(iii) Transfer Agency Agreement(3)
(i) Consent of Counsel - filed herewith
(j)(i) Consent of Independent Accountants - filed herewith
(ii) Powers of Attorney(1)
(k) Financial statements omitted from prospectus -none
(l) Initial capital agreements - none
(m)(i) Amended and Restated Class A Distribution Plan(1)
(ii) Class B Distribution Plan(1)
<PAGE>
(n) Financial Data Schedules - filed herewith
(o) 18f-3 Plan(1)
(p)(i) Code of Ethics for First Investors Registered Investment
Companies - filed herewith
(p)(ii) Code of Ethics for First Investors - filed herewith
- ------------
(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. 29 to
Registrant's Registration Statement (File No. 33-25623) filed on January
28, 2000.
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;
<PAGE>
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings
(civil, criminal or other, including appeals), actual or
threatened, and the words "liability" and "expenses"
shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust
or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office or (B) not to have acted
in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office,
(A) by the court or other body approving the settlement; or
(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
<PAGE>
determined, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is a reason to believe that such Covered Person
will be found entitled to indemnification under this Section 2.
The general effect of this Indemnification will be to indemnify the
officers and Trustees of the Registrant from costs and expenses arising from any
action, suit or proceeding to which they may be made a party by reason of their
being or having been a Trustee or officer of the Registrant, except where such
action is determined to have arisen out of the willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
the Trustee's or officer's office.
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
<PAGE>
and directors of the Investment Adviser are set forth in Part B, Statement of
Additional Information, under "Directors or Trustees and Officers."
Item 27. PRINCIPAL UNDERWRITERS
(a) 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
<PAGE>
Kathryn S. Head Vice President Trustee
581 Main Street and Director
Woodbridge, NJ 07095
Louis Rinaldi Senior Vice None
581 Main Street President
Woodbridge, NJ 07095
Frederick Miller Senior Vice President None
581 Main Street
Woodbridge, NJ 07095
Larry R. Lavoie Secretary and Trustee
95 Wall Street General Counsel
New York, NY 10005
Matthew Smith Vice President None
581 Main Street
Woodbridge, NJ 07095
Jeremiah J. Lyons Director None
56 Weston Avenue
Chatham, NJ 07928
Anne Condon Vice President None
581 Main Street
Woodbridge, NJ 07095
Jane W. Kruzan Director None
232 Adair Street
Decatur, GA 30030
Elizabeth Reilly Vice President None
581 Main Street
Woodbridge, NJ 07095
Robert Flanagan Vice President- None
95 Wall Street Sales Administration
New York, NY 10005
William M. Lipkus Chief Financial Officer None
581 Main Street
Woodbridge, NJ 07095
(c) Not applicable
<PAGE>
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
for those maintained by the Registrant's Custodian, The Bank of New York, 48
Wall Street, New York, NY 10286.
Item 29. MANAGEMENT SERVICES
Not Applicable.
Item 30. UNDERTAKINGS
The Registrant undertakes to carry out all indemnification provisions
of its Declaration of Trust, Advisory Agreement and Underwriting Agreement in
accordance with Investment Company Act Release No. 11330 (September 4, 1980) and
successor releases.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the provisions under Item 27 herein, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes to furnish a copy of its latest
annual report to shareholders, upon request and without charge, to each person
to whom a prospectus is delivered.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund represents that this Amendment meets
all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this Post-Effective Amendment to
this Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of New York, State of New York, on the 18th day of
April, 2000.
FIRST INVESTORS SERIES FUND
(Fund)
By: /s/ Glenn O. Head
-----------------------
Glenn O. Head
President and Trustee
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
/s/ Glenn O. Head Principal Executive April 18, 2000
- ----------------------------- Officer and Trustee
Glenn O. Head
/s/ Joseph I. Benedek Principal Financial April 18, 2000
- ----------------------------- and Accounting Officer
Joseph I. Benedek
* Trustee April 18, 2000
- -----------------------------
Kathryn S. Head
/s/ Larry R. Lavoie Trustee April 18, 2000
- -----------------------------
Larry R. Lavoie
* Trustee April 18, 2000
- -----------------------------
Herbert Rubinstein
* Trustee April 18, 2000
- -----------------------------
Nancy Schaenen
* Trustee April 18, 2000
- -----------------------------
James M. Srygley
<PAGE>
* Trustee April 18, 2000
- -----------------------------
John T. Sullivan
* Trustee April 18, 2000
- -----------------------------
Rex R. Reed
* Trustee April 18, 2000
- -----------------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
Larry R. Lavoie
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
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(h)(iii) Transfer Agency Agreement(3)
23(i) Consent of Counsel - filed herewith
23(j)(i) Consent of independent accountants - filed herewith
23(j)(ii) Powers of Attorney(1)
23(k) Omitted Financial Statements -- None
23(l) Initial Capital Agreements -- None
23(m)(i) Amended and Restated Class A Distribution Plan(1)
23(m)(ii) Class B Distribution Plan(1)
23(n) Financial Data Schedules - filed herewith
23(o) Rule 18f-3 Plan(1)
23(p)(i) Code of Ethics for First Investors Registered Investment
Companies - filed herewith
23(p)(ii) Code of Ethics for First Investors - filed herewith
- --------------------
(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. 29 to
Registrant's Registration Statement (File No. 33-25623) filed on January
28, 2000.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000842939
<NAME> FIRST INVESTORS SERIES FUND
<SERIES>
<NUMBER> 011
<NAME> INTERMEDIATE TAX EXEMPT FUND, CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PER-SHARE-NAV-END> 5.81
<EXPENSE-RATIO> .50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000842939
<NAME> FIRST INVESTORS SERIES FUND
<SERIES>
<NUMBER> 012
<NAME> INTERMEDIATE TAX EXEMPT FUND, CLASS B
<MULTIPLIER> 1000
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<PERIOD-TYPE> 12-MOS
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<OVERDISTRIBUTION-GAINS> 0
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</TABLE>
KIRKPATRICK & LOCKHART 1800 MASSACHUSETTS AVENUE, NW
SECOND FLOOR
WASHINGTON, DC 20036-1800
202.778.9000
www.kl.com
April 28, 2000 Robert J. Zutz
202.778.9059
Fax: 202.778.9100
[email protected]
First Investors Series Fund
95 Wall Street
New York, New York 10005
Ladies and Gentlemen:
You have requested our opinion, as counsel to First Investors Series
Fund (the "Trust"), as to certain matters regarding the issuance of Shares of
the Trust. As used in this letter, the term "Shares" means the Class A and Class
B shares of beneficial interest of the Insured Intermediate Tax Exempt Fund, a
series of the Trust, during the time this Post-Effective Amendment No. 30 to the
Trust's Registration Statement on Form N-1A ("PEA") is effective and has not
been superseded by another post-effective amendment.
As such counsel, we have examined certified or other copies, believed
by us to be genuine, of the Trust's Declaration of Trust and by-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) in the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by unincorporated voluntary associations and to the Securities Act of
1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the
regulations of the Securities and Exchange Commission ("SEC") thereunder.
Based on present laws and facts, we are of the opinion that the
issuance of the Shares has been duly authorized by the Trust and that, when sold
in accordance with the terms contemplated by the PEA, including receipt by the
Trust of full payment for the Shares and compliance with the 1933 Act and the
1940 Act, the Shares will have been validly issued, fully paid and
non-assessable.
We note, however, that the Trust is an entity of the type commonly
known as a "Massachusetts business trust." Under Massachusetts law, shareholders
could, under certain circumstances, be held personally liable for the
obligations of the Trust. The Declaration of Trust states that all persons
extending credit to, contracting with or having any claim against the Trust or
the Trustees shall look only to the assets of the Trust for payment under such
credit, contract or claim; and neither the Shareholders nor the Trustees, nor
any of their agents, whether past, present or future, shall be personally liable
therefor. It also requires that every note, bond, contract or other undertaking
<PAGE>
First Investors Series Fund
April 28, 2000
Page 2
issued by or on behalf of the Trust or the Trustees relating to the Trust shall
include a recitation limiting the obligation represented thereby to the Trust
and its assets. The Declaration of Trust further provides: (1) for
indemnification from the assets of the Trust for all loss and expense of any
shareholder held personally liable for the obligations of the Trust by virtue of
ownership of shares of the Trust; and (2) for the Trust to assume the defense of
any claim against the shareholder for any act or obligation of the Trust. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust or series would be
unable to meet its obligations.
We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC and to the reference to our firm in the PEA.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By /s/ Robert J. Zutz
-----------------------
Robert J. Zutz
Consent of Independent Certified Public Accountants
First Investors Series Fund
95 Wall Street
New York, New York 10005
We consent to the use in Post-Effective Amendment No. 30 to the
Registration Statement on Form N-1A (File No. 33-25623) of our report dated
January 31, 2000 relating to the December 31, 1999 financial statements of First
Investors Insured Intermediate Tax Exempt Fund, a series of First Investors
Series Fund, which are included in said Registration Statement.
/s/ TAIT, WELLER & BAKER
TAIT WELLER & BAKER
Philadelphia, Pennsylvania
April 25, 2000
FIRST INVESTORS REGISTERED INVESTMENT COMPANIES
CODE OF ETHICS
I. INTRODUCTION
In accordance with Section 17(j) of the Investment Company Act of 1940
("Act") and Rule 17j-1 promulgated thereunder, the registered investment
companies advised or underwritten by First Investors (as defined in Article II)
("Funds") have adopted this Code of Ethics to establish procedures reasonably
designed to prevent any access person (as defined in Article II) ("Access
Person") from engaging in any act, practice, or course of business which would
be fraudulent, deceptive or manipulative with respect to the Funds.
Failure to comply with the provisions of this Code in any material respect
is a serious matter and can result in disciplinary action, including monetary
fines, disgorgement of profits, and suspension or termination of the person's
affiliations with the Funds. This Code supersedes any prior code of ethics
adopted by the Funds pursuant to Section 17(j) of the Act and Rule 17j-1
thereunder. The policies and procedures adopted herein are in addition to any
rules, regulations, laws or restrictions to which any person affiliated with the
Funds may be subject by operation of law or by any other agreement to which such
person may a be party. Nothing herein modifies or replaces any such other rule,
regulation, law or restriction.
It should be noted that this Code is primarily intended to deal with the
Disinterested Directors of the Funds (as defined in Article II). Most other
Access Persons who are subject to this Code are employees of investment
advisers, subadvisers, and underwriters of the Funds which must have their own
Codes and their compliance with the Codes of their employers will generally
satisfy requirements of this Code.
II. DEFINITIONS
Whenever the following terms are used in this Code, they shall have the
meanings set forth below, unless the context requires otherwise or such meanings
would be inconsistent with Rule 17j-1.
1. "Access Person" means any director, trustee, officer (or person holding
a similar position in a non-corporate entity) or Advisory Person of any of
the Funds.
2. "Advisory Person" means:
a. any employee of the Funds who, in connection with his or her
regular functions or duties, makes, participates in, or obtains information,
regarding the Purchase or Sale of a Security by the Funds, or whose functions
relate to the making of any recommendations with respect to such Purchase or
Sale; and
<PAGE>
b. any natural person in a control relationship (with "control"
being defined by Section 2(a)(9) of the Act) with the Funds who obtains
information concerning recommendations made to the Funds with regard to the
Purchase or Sale of a Security.
The Investment Compliance Manager will from time to time
create a list setting forth those persons considered to be Advisory Persons.
3. "Beneficial Ownership" has the meaning set forth in Section 16 of the
Securities Exchange Act of 1934 and the rules and regulations thereunder.
An Access Person shall be deemed to have a "Beneficial Ownership" interest
in the accounts of a spouse, minor child and relative residing in the
Access Person's home, as well as accounts of any other person if by reason
of any contract, understanding, relationship, agreement or other
arrangement, the Access Person obtains therefrom benefits substantially
equivalent to those of ownership.
4. "Code" means this Code of Ethics.
5. "Disinterested Director" means a director or trustee, as applicable, of
any of the Funds and any person holding a similar position with a
non-corporate Fund, who is not an interested person of the Funds within
the meaning of Section 2(a)(19) of the Act.
6. "First Investors" means First Investors Corporation, First Investors
Management Company, Inc., First Investors Asset Management Company, Inc.,
Executive Investors Management Company, Inc., Executive Investors
Corporation.
7. "Funds" means all registered investment companies which have First
Investors Management Company, Inc., or any affiliate, as their investment
adviser or principal underwriter unless such Funds are specifically
excluded from this Code pursuant to an addendum hereto.
8. For purposes of this Code, the "Investment Committee" means the
Investment Compliance Manager and Portfolio Managers of the Funds or such
other group of persons may be as designated from time to time by First
Investors.
9. "Investment Compliance Manager" means the person designated from time
to time as being responsible for receiving reports or other notices
pursuant to this Code and performing such other duties as are required by
this Code.
10. "Purchase or Sale" of a security means every contract for sale or
disposition of a security or interest in a security, for value, and
includes the writing of an option to Purchase or Sell a security.
11. "Rule 17j-1" means Rule 17j-1 promulgated under the Act.
2
<PAGE>
12. "Security" has the meaning set forth in Section 2(a)(36) of the Act,
except that it shall not include securities issued by the Government of
the United States, bankers' acceptances, bank certificates of deposit,
commercial paper and shares of registered open-end investment companies.
III. PROHIBITED ACTIVITIES
A. ANTI-FRAUD PROHIBITIONS. Access Persons, in connection with the Purchase
or Sale by them of a Security held or to be acquired by any of the Funds,
are prohibited from:
1. employing a device, scheme or artifice to defraud any of the Funds;
2. making any untrue statement of a material fact to any of the Funds
or omitting to state to any of the Funds a material fact necessary
in order to make the statements made, in light of the circumstances
under which they are made, not misleading;
3. engaging in any act, practice or course of business which operates
or would operate as a fraud or deceit upon any of the Funds; or
4. engaging in any manipulative practice with respect to any of the
Funds.
B. CORPORATE OPPORTUNITIES. All Access Persons are prohibited from taking
personal advantage of any opportunity properly belonging to any of the Funds.
C. CONFIDENTIALITY. Except as required in the normal course of carrying out the
Funds' business responsibilities, Access Persons are prohibited from revealing
to persons outside of First Investors information relating to the Securities
that are being considered for Purchase or Sale by any of the Funds. Access
Persons are prohibited from revealing such information to any Person inside
First Investors whose responsibilities do not require knowledge of such
information.
D. UNDUE INFLUENCE. No Access Person shall cause or attempt to cause any of the
Funds to Purchase, Sell or hold any Security in a manner calculated to create
any personal benefit to the Access Person. An Access Person who participates in
any research or in an investment decision concerning a particular Security must
disclose to the Investment Compliance Manager any personal or beneficial
interest that the Access Person has in that Security, or in the issuer thereof,
where such decision could create a material benefit to the Access Person. The
Investment Compliance Manager shall determine whether or not the Access Person
will be restricted in pursuing the research or recommendation.
3
<PAGE>
IV. EFFECTING TRANSACTIONS
A. LIMITATIONS ON CERTAIN PURCHASES OR SALES OF SECURITIES. Unless a transaction
is exempt under Subsection C below, no Access Person shall Purchase or Sell any
Security in which he or she has (or by reason of such transaction acquires) any
direct or indirect Beneficial Ownership interest if that Access Person knew or,
in the ordinary course of fulfilling his or her official duties for any of the
Funds, should have known at the time of such purchase or sale (or within the
15-day period preceding or after the date of the transaction) that the Security:
1. is being considered for Purchase or Sale by any of the Funds; or
2. is then being Purchased or Sold by any of the Funds or their
investment adviser.
B. CLEARANCE OF TRANSACTIONS. Every Access Person, other than a Disinterested
Director, is required to preclear every transaction in a Security in which he or
she has Beneficial Ownership interest as defined in this Code unless the
transaction is exempt under Subsection C below. Preclearance may be obtained by
submitting to the Investment Compliance Manager a fully executed Preclearance
Form in the form attached hereto as Exhibit B. The Investment Compliance Manager
shall provide the clearance by returning a signed copy of the Preclearance Form
to the Person requesting clearance only if, upon consultation with the
Investment Committee or such other persons as may be necessary, the Investment
Compliance Manager determines that none of the Funds is currently considering
the Purchase or Sale of the Security that is subject to the preclearance, that
none of the Funds has Purchased, Sold, or considered Purchasing or Selling such
Security during the prior 15-day period, and that the transaction is otherwise
consistent with Rule 17j-1. No member of the Investment Committee may
participate in such consultation with the Investment Compliance Manager with
respect to any transaction in which such member has any direct or indirect
personal economic interest.
Although a Disinterested Director is not required to preclear Securities
transactions, he or she may voluntarily preclear transactions. The fact that a
Disinterested Director or any other Access Person of the Funds files a voluntary
request to preclear a Securities transaction shall not be construed as an
admission or any indication that he or she knows or should know that the Funds
have considered or are considering Purchasing or Selling the Security or that
the Access Person has, or by reason of the transaction will acquire, a
Beneficial Ownership interest in the Security.
C. EXEMPTED TRANSACTIONS. The prohibitions of Section A of this Article IV shall
not apply to the following transactions:
1. Purchases or Sales effected in any account over which the Access Person
has no direct or indirect influence or control (for this purpose, an
Access Person is deemed to have direct or indirect influence or control
4
<PAGE>
over the accounts of a spouse, minor children and relatives residing in
the Access Person's home);
2. Purchases or Sales which are non-volitional on the part of the Access
Person;
3. Purchases which are part of an automatic dividend reinvestment plan;
4. Purchases effected upon the exercise of rights issued by an issuer
pro-rata to all holders of a class of Securities, to the extent such
rights were acquired from the issuer, and Sales of rights so acquired;
5. Purchases or Sales which are effected by or on behalf of any Fund or
any private account managed by First Investors;
6. Purchases or Sales involving options on broad based indices; and,
7. Stop, limit or stop limit orders at a level 20% BELOW the market price
of a Security held in a personal investment account, or 20% ABOVE the
market price to cover a short position at the time the orders are placed.
It should be noted that preclearance is not necessary for Purchases or
Sales of shares of registered open-end investment companies (including
such shares of the Funds), Securities issued by the Government of the
United States, bankers' acceptances, bank certificates of deposit, and
commercial paper, since they are excluded from the definition of a
Security in this Code.
V. REPORTING
A. REPORTS BY DISINTERESTED DIRECTORS. A Disinterested Director shall report to
the Investment Compliance Manager those Securities transactions in which the
Disinterested Director has, or by reason of the transactions acquires, any
direct or indirect Beneficial Ownership interest in the Security, if such a
Director at the time of the transaction, knew or, in the ordinary course of
fulfilling his or her official duties as a Director of any of the Funds, should
have known that, during the 15-day period immediately preceding or after the
date of the transaction, such Security was or was going to be Purchased or Sold
by any of the Funds or such Purchase or Sale was or was being considered by any
of the Funds or their investment advisers (including, but not limited to,
transactions regarding which prior clearance has been obtained). No
Disinterested Director shall be required to report Purchases and Sales effected
in any account over which the Disinterested Director has no direct or indirect
influence or control. The fact that a Disinterested Director voluntarily chooses
to report transactions to the Investment Compliance Manager shall not be
construed as an admission or any indication that he or she knows or should know
that the Funds have considered or are considering Purchasing or Selling such
5
<PAGE>
Security or that the Access Person has, or by reason of the transaction will
acquire, a Beneficial Ownership interest in the Security.
B. REPORTS BY ALL OTHER ACCESS PERSONS. Every Access Person other than those who
are reporting pursuant to Section A, above, must report all transactions in any
security in which such Access Person has, or by reason of such transaction
acquires, any direct or indirect Beneficial Ownership in the Security
(including, but not limited to, transactions regarding which prior clearance has
been obtained). No Access Person shall be required to report Purchases and Sales
effected in any account over which the Access Person has no direct or indirect
influence or control.
C. PROCEDURES FOR FILING INFORMATION. Information required to be reported under
Section A or Section B of this Article must be submitted to the Investment
Compliance Manager at 95 Wall Street, Suite 2300, New York, New York 10005, (1)
by requiring that the broker-dealer provide a duplicate confirmation of each
transaction, and (2) by filing a report within 10 days after the end of the
calendar quarter in which the transaction to which the report related was
effected. The report may be submitted by filling out completely the Form
attached as Exhibit C to this Code, or may be submitted by attaching a copy of
the account statements reflecting the transaction to the Form, provided the
following information is included on such statement:
1. The date of the transaction, the title and the number of shares or
bonds;
2. The nature of the transaction (i.e., Purchase, Sale or any other
type of acquisition or disposition);
3. The price at which the transaction was effected and the principal
amount involved; and
4. The name of the broker, dealer, or bank with or through whom the
transaction was effected.
Any such report may contain a statement that the report shall not be
construed as an admission by the Person making such report that he or she
has any direct or indirect Beneficial Ownership in the Security to which
the report relates.
VI. OBLIGATIONS OF INVESTMENT COMPLIANCE MANAGER
The Investment Compliance Manager shall:
1. Furnish a copy of this Code to each Access Person;
2. Annually obtain written confirmation on the Form attached hereto as an
Exhibit from each Access Person that he or she has received, has read and
understood this Code;
6
<PAGE>
3. Notify each Access Person of his or her obligation to comply with the
provisions of and to file reports as required by this Code;
4. Report to the Board of Directors of the Funds the information contained
in any reports filed with the Investment Compliance Manager or any other
Person pursuant to this Code when any such report indicates that an Access
Person engaged in a transaction in material violation of this Code;
5. Provide the Board of Directors with a summary of all violations of this
Code on at least an annual basis;
6. Maintain the records required by Rule 17j-1(d) of the Act; and
7. Maintain any records furnished pursuant to this Code.
VII. VIOLATIONS
Upon being apprised of facts which indicate that a material violation of
this Code may have occurred, the Investment Compliance Manager and General
Counsel shall conduct an investigation, make preliminary findings concerning
whether a violation of the Funds' Code has occurred, and, if they determine a
violation has occurred, make a recommendation with respect to sanctions for the
violation. The Disinterested Directors (who are not involved in the violation)
can then make final determinations and decisions regarding sanctions.
If the Board determines that a violation of this Code has occurred, the
Board may impose such sanctions as it deems appropriate under the circumstances
which may, among other actions, include fines, disgorgement, suspension or
termination of employment. If the Person whose conduct is being considered by
the Board is a Director of any of the Funds, he or she shall not be eligible to
participate in the decision of the Board as to whether a violation has occurred
or to what extent sanctions should be imposed.
VIII. ADDITIONAL INFORMATION
Access Persons who have questions about any of the provisions of this Code
should contact the Investment Compliance Manager or the First Investors Legal
Department.
7
<PAGE>
PRECLEARANCE FORM
-----------------
I, _________________________________ , request preclearance for the security
transaction or transactions set forth below. To my knowledge, the security or
securities listed below have not been purchased or sold by any First Investors
Fund or Private Account within the prior fifteen (15) days and are not currently
being considered for purchase or sale by any Fund or Private Account during the
next 15 days. Furthermore, the transaction and or transactions I am
contemplating do not involve a Purchase and Sale, or a Sale and Purchase, of the
same Security or a Related Security within any sixty (60) day period. I
recognize that I have five (5) days in which to effect the transaction or
transactions contemplated, measured from the time a transaction has been
approved.
Proposed Buy, Sell Quantity
Trade or Exchange, and/or
Date(s) et al. Amount Security Type Issuer Name
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------- ---------------------
Signature of Requester Date
Requester Comments (Include Disclosure of any Potential Conflict of Interest
Here):
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER (OR HIS OR HER DESIGNEE) AUTHORIZATION:*
EQUITIES FIXED INCOME
- -------- ------------
- --------------------------------- --------------------------------
D. Fitzpatrick G. Ganter
- --------------------------------- --------------------------------
P. Poitra N. Jones
- --------------------------------- --------------------------------
D. Hanover C. Wagner
- ---------------------------------
M. Wright
PORTFOLIO MANAGER COMMENTS: ____________________________________________
8
<PAGE>
* Authorization is not required by all Portfolio Managers. Only those Portfolio
Managers consulted by the Investment Compliance Manager need to sign this
Preclearance Form. A Portfolio Manager may designate an analyst to sign this
Preclearance Form in his or her absence.
APPROVED BY INVESTMENT COMPLIANCE MANAGER ________________________________
Signature Date
SEND TO: INVESTMENT COMPLIANCE MANAGER
FIMCO 95 WALL STREET - 23RD FLOOR
NEW YORK, NY 10005
9
<PAGE>
FIRST INVESTORS REGISTERED INVESTMENT COMPANIES
CODE OF ETHICS
ACKNOWLEDGEMENT FORM
I hereby (re) acknowledge receipt of a copy of the First Investors Code of
Ethics and agree that as an "Access Person" I am subject to and will abide by
its provisions and all amendments thereto. I also (re) acknowledge that I have
been informed of and will comply with the reporting provisions contained in the
Code and all amendments thereto.
DATED: __________ , 19__
Signature:_______________________________
Name:____________________________________
Please Print
Department:______________________________
Please send to: Investment Compliance Manager
FIMCO
95 Wall Street - 23rd Floor
New York, NY 10005
Rev. 5/8/97
10
FIRST INVESTORS
CODE OF ETHICS
I. INTRODUCTION AND STATEMENT OF PRINCIPLES
----------------------------------------
First Investors has adopted this code of ethics ("Code of Ethics" or
"Code") in accordance with the requirements of Section 17(j) of the Investment
Company Act of 1940 ("Investment Company Act") and Rule 17j-1 and Section 206 of
the Investment Advisers Act of 1940 ("Investment Advisers Act") to protect the
First Investors family of mutual funds (Funds") and private accounts ("Private
Accounts") from fraudulent or unethical conduct by access persons ("Access
Persons"). This Code does not apply to the disinterested directors of the Funds
or employees of unaffiliated subadvisers of the Funds. The disinterested
directors of the Funds are subject to a separate code of ethics (the "First
Investors Registered Investment Companies Code of Ethics") which takes their
unique status into account. Employees of non-affiliated subadvisers are subject
to the codes of ethics of their own employers. The policies and procedures set
forth herein are in addition to any policies and procedures which may apply to
any Access Person of First Investors by operation of law or contract, such as
the First Investors Insider Trading Policies and Procedures.
As reflected by this Code of Ethics, First Investors expects all Access
Persons of First Investors not only to comply with this Code but also to follow
the highest ethical standards in all business and personal dealings which could
in any way affect the Funds or any Private Accounts that are managed by First
Investors. The guiding principles for all Access Persons, including the
portfolio managers of the Funds or Private Accounts ("Portfolio Managers"),
traders ("Traders"), analysts ("Analysts"), and portfolio accountants
("Portfolio Accounts"), should be to place the interests of the Funds and
Private Accounts first at all times, to avoid placing themselves in any position
in which there is any actual or apparent conflict of interest with the interests
of the Funds or Private Accounts, and to refrain from taking any inappropriate
advantage of their positions of trust and responsibility.
II. DEFINITIONS
-----------
Unless the Investment Company Act, the Investment Advisers Act, or the
rules thereunder otherwise require, whenever the following terms are used in
this Code, they shall have the meanings set forth below.
A. ACCESS PERSON
-------------
1. With respect to any First Investors company which acts as an investment
adviser to any Fund or Private Account, Access Person means any director,
officer, general partner, or advisory person of such investment adviser;
and,
2. With respect to any First Investors company which acts as a principal
underwriter of a Fund, "Access Person" means any director, officer, or
<PAGE>
general partner of such principal underwriter who in the ordinary
course of his or her business makes, participates in or obtains
information regarding the Purchase or Sale of Securities by the Fund or
whose functions or duties as part of the ordinary course of his or her
business relate to the making of any recommendation to the Fund
regarding the Purchase or Sale of Securities.
B. ADVISORY PERSON
---------------
"Advisory Person" means:
1. any employee of First Investors or of any company which controls, is
controlled by, or under common control with, First Investors who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the Purchase or Sale of
a Security by the Funds or Private Accounts, or whose functions relate to
the making of any recommendations with respect to the Purchase or Sale of
a Security by the Funds or Private Accounts; and
2. any natural person in a control relationship (with the term "control"
being defined by Section 2(a)(9) of the Investment Company Act) with
First Investors who obtains information concerning Purchases, Sales, or
recommendations of Securities to the Funds or Private Accounts.
C. BENEFICIAL OWNERSHIP
--------------------
"Beneficial Ownership" means beneficial ownership as defined in Section 16
of the Securities Exchange Act of 1934 and the rules and regulations thereunder,
provided that an Access Person shall be deemed to have "Beneficial Ownership" of
Securities (1) owned by his or her spouse, minor children and relatives residing
in the Access Person's home, (2) Securities over which the Access Person has or
shares investment discretion or control and (3) any other Securities if by
reason of any contract, understanding, relationship, agreement or other
arrangement the Access Person obtains therefrom economic benefits which are
substantially equivalent to those of ownership.
D. DISINTERESTED DIRECTOR
----------------------
"Disinterested director" means a director of any of the Funds and any
person holding a similar position with a noncorporate Fund who is not an
interested person of the Funds within the meaning of Section 2(a)(19) of the
Investment Company Act.
E. FIRST INVESTORS
---------------
"First Investors" means First Investors Corporation, First Investors
Management Company, Inc., First Investors Asset Management Company, Inc.,
2
<PAGE>
Executive Investors Management Company, Inc., Executive Investors
Corporation, and Administrative Data Management Corp.
F. FUNDS
-----
"Funds" means all registered investment companies which have First
Investors as their investment adviser or principal underwriter (including
Executive Investors Trust), unless such Funds are specifically excluded from
this Code pursuant to an addendum hereto.
G. INVESTMENT COMPLIANCE MANAGER
-----------------------------
"Investment Compliance Manager" means the person designated from time to
time as being responsible for receiving reports or other notices pursuant to
this Code, and performing such other duties as are required by this Code.
H. INVESTMENT COMMITTEE
--------------------
For purposes of this Code, the "Investment Committee" means the Investment
Compliance Manager and the Portfolio Managers of the Funds or such other group
of persons as may be designated from time to time by First Investors.
I. PURCHASE OR SALE
----------------
"Purchase or Sale" means every contract for Purchase or Sale or
disposition of a Security or interest in a Security, for value, as well as every
option to Purchase or Sell a Security, whether the option permits the holder to
Purchase or Sell the Security or it must be settled in cash.
J. RELATED SECURITY
----------------
A "Related Security" means a Security which (i) is issued by the same
issuer as another Security or by an issuer that is controlled by, controls or is
under common control with such issuer or (ii) gives the holder any contractual
right with respect to another Security (e.g., options and warrants, rights or
other convertible Securities).
K. SECURITY
--------
"Security" means a Security as defined in Section 2(a)(36) of the
Investment Company Act, except that it does not include Securities issued by the
Government of the United States, bankers' acceptances, bank certificates of
deposit, commercial paper, and shares of registered open-end investment
companies, including the shares of the First Investors Funds.
3
<PAGE>
III. GENERAL PROHIBITIONS
--------------------
A. FRAUDULENT AND MANIPULATIVE CONDUCT
------------------------------------
No Access Person, shall, in connection with the Purchase or Sale, directly
or indirectly, of a Security held or to be acquired by any of the Funds or
Private Accounts managed by First Investors:
1. Employ any device, scheme or artifice to defraud any such Fund or
Private Account;
2. Make to any Fund or Private Account any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they are made,
not misleading;
3. Engage in any act, practice or course of business which operates
or would operate as fraud or deceit upon any Fund or Private Account;
or,
4. Engage in any manipulative practice with respect to any Fund or
Private Account.
B. CORPORATE OPPORTUNITIES
-----------------------
No Access Person shall take personal advantage of any opportunity that
properly belongs to any of the Funds or Private Accounts, provided that an
Access Person shall not be prevented from purchasing a Security or Related
Security which is an eligible investment for any of the Funds if the Access
Person obtains preclearance for the purchase in accordance with the provisions
of this Code after disclosing any actual or potential conflict of interest on
the Preclearance Form used to obtain preclearance.
C. CONFIDENTIALITY
---------------
Except as required in the normal course of carrying out First Investors'
business responsibilities, no Access Person shall reveal confidential
information relating to the investment intentions or activities of the Funds or
Private Accounts to any person outside of First Investors or any person inside
First Investors whose responsibilities do not require knowledge of such
information.
D. UNDUE INFLUENCE AND THE APPEARANCE THEREOF
------------------------------------------
No Access Person shall:
1. Cause or attempt to cause any of the Funds or Private Accounts to
Purchase, Sell or hold any Security in a manner calculated to create
any personal benefit to the Access Person;
4
<PAGE>
2. Accept any option, warrant, right, or other Security from any issuer,
person affiliated or associated with any issuer, underwriter, broker, or
dealer which has offered or sold any Security or Related Security to any
of the Funds or Private Accounts, unless the Access Person has obtained
preclearance from the Investment Compliance Manager after full disclosure
on the Preclearance Form of all material facts, including the nature of
the Security, the relationship of the party granting the Security to the
Funds or Private Accounts, and any other potential conflict of interest;
3. Accept any gift other than a nominal gift (which is defined herein as
having a value less than $100) from any person or entity that does
business with any Fund or Private Account; or
4. Use his or her knowledge of or ability to influence or control the
portfolio transactions of a Fund or Private Account for his or her
personal benefit or the personal benefit of his or her friends or
relatives.
E. DISCLOSURE OF POTENTIAL CONFLICTS OF INTEREST
---------------------------------------------
No Access Person shall fail to disclose to the Investment Compliance
Manager any personal or beneficial interest which he or she has in a Security
when the Access Person plays any part or role in any consideration of any
investment in the Security or any Related Security by a Fund or Private Account.
Thus, for example, an Access Person who has acquired warrants from an issuer in
a private placement would be required to disclose the warrants to the Investment
Compliance Manager before he or she plays any role in a Fund's subsequent
consideration of an investment in any Securities issued by the same issuer of
the warrants or any Related Securities. The Investment Compliance Manager, in
consultation with members of the Investment Committee who have no personal
interest in the transaction, shall determine whether or not the personal or
beneficial interest prevents the Access Person from being involved in
consideration of the Security.
F. SERVICE AS A DIRECTOR OF A PUBLIC COMPANY
-----------------------------------------
No Access Person shall serve on the board of directors of any publicly
traded company, absent prior authorization of the Investment Compliance Manager,
based upon a determination that the board service would be consistent with the
interests of the Funds and Private Accounts. In the rare case in which board
service is authorized, any Access Person serving as a director must be isolated
from those making investment decisions regarding the issuer through "Chinese
Wall" or other procedures.
IV. PERSONAL SECURITIES TRANSACTIONS
--------------------------------
A. RESTRICTIONS ON SECURITIES TRANSACTIONS
---------------------------------------
5
<PAGE>
1. TRANSACTIONS DURING BLACK-OUT PERIODS. Unless a transaction is exempt
under the terms of this Code, no Access Person shall purchase or sell,
directly or indirectly, any Security if that Access Person knew or should
have known at the time of such purchase or sale, that within fifteen (15)
days of his or her transaction, the Security:
(i) Is being considered for purchase or sale by any Fund or
Private Account; or
(ii) Is then being purchased or sold by any Fund or Private
Account.
2. PURCHASES DURING INITIAL PUBLIC OFFERINGS. In the absence of an
exemption under this Code, no Access Person shall purchase any Security
which is being offered as part of an initial public offering of
Securities. This prohibition does not apply to the exercise of rights
issued pro rata to all shareholders, policy holders or depositors of an
issuer. For example, it does not apply to Securities offered by savings
and loan institutions or insurance companies to policy holders or
depositors in connection with conversions from mutual to stock form.
3. PRIVATE PLACEMENTS. In the absence of an exemption under this Code or
preclearance by the Investment Compliance Manager, no Access Person shall
acquire any Security in a private placement. In determining whether to
grant preclearance, the Investment Compliance Manager shall take into
account, among other factors, whether the investment opportunity should be
reserved for any of the Funds or Private Accounts and whether the
opportunity is being offered to the Access Person by virtue of his or her
position with First Investors.
4. PURCHASES OF SECURITIES ISSUED BY BROKER-DEALERS. No Access Person
shall purchase Securities issued by any broker-dealer or parent company of
a broker-dealer (unless the parent derives 15% or less of its revenues
from all broker-dealer subsidiaries). This prohibition does not apply to
purchases of Securities issued by First Investors Consolidated Corporation
and its affiliates in connection with employee stock purchase or incentive
plans, compensation arrangements, or otherwise.
5. SHORT-TERM TRADING. Unless the transactions at issue are exempt under
the terms of this Code, no Access Person shall engage in short-term
trading in Securities. For purposes of this Code, "short-term" trading is
defined as the Purchase and Sale of the same Security or a Related
Security within sixty (60) days. The most recent transaction in a Security
will determine a new holding period. The Purchase or Sale of an option on
a Security shall be considered a Purchase or Sale of not only the option
but also the underlying Security. For example, the purchase of a call
option on a Security shall be considered a purchase not only of the option
but also the underlying Security.
The prohibition on short-term trading shall not prohibit an Access Person
6
<PAGE>
from placing a stop, limit or stop limit order at a level 20% BELOW the market
price of a Security within sixty (60) days of the date he or she purchases the
Security, provided that the stop, limit, or stop limit sell order is precleared
or exempt from preclearance. It should be noted that any subsequent modification
of a stop, limit or stop limit order is a new trade for purposes of the
short-term trading restriction and preclearance requirements.
B. PRECLEARANCE OF SECURITIES TRANSACTIONS
---------------------------------------
Every Access Person is required to obtain preclearance from the Investment
Compliance Manager prior to engaging in any transaction in any Security in which
he or she has, or by reason of the transaction will acquire, any direct or
indirect Beneficial Ownership interest, unless such transaction is exempt from
preclearance under this Code. It should be emphasized that, unless a transaction
is exempt from preclearance under this Code, it must be precleared by the
Investment Compliance Manager even if no Fund or Private Account would normally
purchase the Security at issue. For purposes of the preclearance requirement,
any amendment of an order to Purchase or Sell any Security (e.g., any change of
price, time, or amount) is considered a new order. Furthermore, any change of
the terms of a stop, limit or stop limit order is considered a new transaction
which must be precleared.
Preclearance may be obtained from the Investment Compliance Manager by
completing the Preclearance Form which is attached hereto and submitting it to
the Investment Compliance Manager. The Preclearance Form requires the Access
Person to certify that, among other things, to his or her knowledge, the
Securities listed on the Preclearance Form have not been purchased by any of the
Funds or Private Accounts within the prior fifteen (15) days and have not been
and will not be considered for Purchase or Sale by any of the Funds during the
prior fifteen (15) days and the following fifteen (15) days. The Preclearance
Form also has a comment section which should be used to disclose any potential
conflicts of interest.
The Investment Compliance Manager shall consult with the members of the
Investment Committee, or their designees to determine whether the proposed
transaction by the Access Person would conflict with the interests of any Fund
or Private Account. The Investment Compliance Manager need not consult with all
members of the Investment Committee before approving or disapproving a
transaction. No member of the Investment Committee may participate in such
consultation with the Investment Compliance Manager with respect to any
transaction in which such member has any direct or indirect personal economic
interest. No order shall be placed by the Access Person until the Investment
Compliance Manager (or the General Counsel in his or her absence) signifies his
or her approval by signing the Preclearance Form.
Personal securities transactions by the Investment Compliance Manager must
be approved by the General Counsel or, in his or her absence, Fund Counsel. The
same Preclearance Form and procedures should be used.
7
<PAGE>
C. EXEMPT TRANSACTIONS
-------------------
The following personal Securities transactions are exempt from the
preclearance and other restrictions on personal securities transactions set
forth above:
(a) Purchases or Sales of Securities for any account over which an
Access Person has no direct or indirect influence or control (for this purpose,
an Access Person is deemed to have direct or indirect influence or control over
the accounts of a spouse, a minor child or an adult relative residing in the
Access Person's home);
(b) Purchases or Sales of Securities which are non-volitional on the
part of the Access Person (Purchases and Sales of Securities in a discretionary
trading account owned by an Access Person are deemed to be non-volitional only
if the person having discretion is a non-Access Person and the owner of the
account is not consulted at all prior to the execution of transactions by the
person having discretion);
(c) Purchases of Securities which are part of an automatic
dividend reinvestment plan;
8
<PAGE>
(d) Purchases of Securities effected upon the exercise of rights
issued by an issuer pro-rata to all holders of a class of Securities, to the
extent such rights were acquired from the issuer, and subsequent sales of such
rights or the Securities acquired thereunder;
(e) Purchases or Sales of options on broad-based indices;
(f) Purchases and Sales of shares of stock issued by First
Investors Consolidated Corporation and its affiliates; and,
(g) Purchases and Sales by any Fund or Private Account.
It should be noted that preclearance is not necessary for Purchases or
Sales of shares of registered open-end investment companies (including such
shares of the Funds), securities issued by the Government of the United States,
bankers' acceptances, bank certificates of deposit, and commercial paper, since
they are excluded from the definition of a Security in this Code.
D. QUARTERLY REPORTS OF SECURITIES TRANSACTIONS
--------------------------------------------
On a quarterly basis, every Access Person of First Investors shall submit
a report, in the form attached hereto, to the Investment Compliance Manager
disclosing all transactions in any Securities in which he or she has or, by
reason of the transaction, acquires a direct or indirect Beneficial Ownership
interest. The report must be completed and returned to the Investment Compliance
Manager within ten (10) days of the end of each calendar quarter ("Quarterly
Report").
With respect to each transaction reported, the Quarterly Report shall
include the following trade information:
(i) the date of the transaction, the title and number of
shares or bonds;
(ii) the nature of the transaction (i.e., Purchase, Sale
or any other type of acquisition or disposition);
(iii) the price at which the transaction was effected and
the principal amount involved; and
(iv) the name of the broker-dealer, bank or other entity with
or through whom the transaction was effected.
Notwithstanding the foregoing, the Quarterly Report need not disclose
information about Securities transactions which have already been disclosed on
duplicate confirmation and account statements provided to the Investment
9
<PAGE>
Compliance Manager as long as the Access Person verifies on this report that he
or she has arranged to have duplicate confirmation and account statements sent
to the Investment Compliance Manager for all accounts in which the Access Person
has a direct or indirect Beneficial Ownership interest, he or she incorporates
by reference in the Quarterly Report the information contained in those
statements, and such person verifies that he or she has not engaged in any
Securities transactions which are not set forth in the statements. Moreover,
Quarterly Reports need not disclose information regarding transactions or
holdings of the Funds, since mutual fund shares are excluded from the definition
of a Security under this Code and, in any event, First Investors already
maintains information concerning such transactions and holdings.
No Access Person shall be required to report transactions in Securities
which have been effected for any account over which such Access Person does not
have any direct or indirect influence or control. Furthermore, an Access Person
may disclaim having a Beneficial Ownership interest in a Security disclosed in a
Quarterly Report by including in the report a statement that the report shall
not be construed as an admission that he or she has any direct or indirect
Beneficial Ownership in the Security.
E. OPENING AND MAINTAINING SECURITIES ACCOUNTS
-------------------------------------------
Every Access Person shall provide written notice to and obtain written
permission from the Investment Compliance Manager PRIOR to opening any account
with any broker-dealer or other entity through which Securities transactions may
be effected. If an Access Person has opened a Securities account prior to
becoming affiliated with First Investors, he or she must provide written notice
of and obtain written permission to continue to maintain the account at the time
he or she becomes affiliated with First Investors. An Access Person may also be
required by NASD rules to give written notice to the broker or other party at
which securities accounts are maintained that he or she is employed by or
associated with First Investors.
F. DUPLICATE CONFIRMATIONS AND STATEMENTS
--------------------------------------
All Access Persons shall arrange for duplicate confirmation and account
statements to be sent to the Investment Compliance Manager. This requirement
does not apply to investments in the Funds, since mutual funds are excluded from
the definition of a Security under the Code and, in any event, First Investors
already maintains records concerning such investments.
G. DISCLOSURE OF PERSONAL SECURITIES HOLDINGS
------------------------------------------
All Access Persons shall disclose all personal Securities holdings upon
commencement of employment and thereafter on an annual basis. The ongoing
disclosure requirement is satisfied by providing to the Investment Compliance
Manager duplicate confirmations and account statements if they reveal all
holdings. Otherwise, special disclosure of holdings is necessary. Thus, for
example, a special report would be necessary to disclose certificated Securities
held in a bank safety deposit.
10
H. ANNUAL CERTIFICATIONS
---------------------
Every Access Person is required to certify on an annual basis that he or
she has read this Code of Ethics and agrees to abide by its requirements.
V. RESPONSIBILITIES OF THE INVESTMENT COMPLIANCE MANAGER
-----------------------------------------------------
The Investment Compliance Manager shall:
1. Identify and maintain a list of all Access Persons;
2. Furnish a copy of this Code of Ethics to each such Access Person;
3. Notify each new Access Person of his or her obligations to comply
with the provisions of this Code of Ethics and conduct an annual
meeting to remind Access Persons of their obligations;
4. Monitor reports, confirmations, and statements relating to
non-exempt Securities transactions for potential violations of this
Code;
5. Report to the Board of Directors of the Funds any violations of this
Code and any sanctions imposed no later than the next regular Board
Meeting; 6. Report to the Board of Directors of the Funds on a periodic
basis, but not less than annually, concerning the adequacy of existing
procedures, any changes or recommended changes since the prior report, and
the general level of compliance by Access Persons with this Code of
Ethics; and
7. Maintain the records required by Rule 17j-1(d).
VI. VIOLATIONS AND REMEDIES
-----------------------
The failure of any Access Person to comply with this Code of Ethics will
be viewed as a very serious matter and may result in a disciplinary action. Upon
discovering or being apprised of facts which indicate that a violation of this
Code of Ethics has or may have occurred, the Investment Compliance Manager shall
conduct a reasonable investigation or inquiry to determine whether such a
violation did occur. If the Investment Compliance Manager determines that a
violation of this Code of Ethics has occurred or appears to have occurred, he or
she shall notify the General Counsel who shall cause a further investigation to
be conducted if he or she determines it to be necessary.
In the event that any investigation or inquiry is commenced by First
Investors concerning any actual or potential violation of this Code of Ethics,
every Access Person shall be required to:
11
<PAGE>
(a) provide full access to First Investors, its agents and attorneys to
any and all records and documents which First Investors considers relevant
to any Securities transactions or other matters subject to this Code of
Ethics;
(b) cooperate with First Investors, or its agents and attorneys, in
investigating any Securities transactions or other matter subject to this
Code of Ethics; and
(c) provide First Investors, its agents and attorneys with an explanation
(in writing if requested) of the facts and circumstances surrounding any
Securities transaction or other matter subject to this Code of Ethics.
If a violation is determined to have occurred, the Investment Compliance
Manager in consultation with the General Counsel, shall impose such sanctions as
they deem appropriate under the circumstances which may include, among other
things, censure, fine, a directive to disgorge profits gained or losses avoided,
a suspension, or termination of employment. In the event that an Access Person
engages in short-term trading prohibited by this Code, the Access Person shall
generally be required to disgorge profits gained regardless of whether the
short-term trading is intentional or inadvertent or the reason for such trading.
ADOPTING ENTITIES
- -----------------
The following entities have adopted this Code of Ethics:
Administrative Data Management Corp.
Executive Investors Corporation
Executive Investors Management Company, Inc.
First Investors Asset Management Company, Inc.
First Investors Corporation
First Investors Management Company, Inc.
12
<PAGE>
PRECLEARANCE FORM
-----------------
I, , request preclearance for the security transaction or transactions set forth
below. To my knowledge, the security or securities listed below have not been
purchased or sold by any First Investors Fund or Private Account within the
prior fifteen (15) days and are not currently being considered for purchase or
sale by any Fund or Private Account during the next 15 days. Furthermore, the
transaction and or transactions I am contemplating do not involve a Purchase and
Sale, or a Sale and Purchase, of the same Security or a Related Security within
any sixty (60) day period. I recognize that I have five (5) days in which to
effect the transaction or transactions contemplated, measured from the time a
transaction has been approved.
Proposed Buy, Sell Quantity
Trade or Exchange, and/or
Date(s) et al. Amount Security Type Issuer Name
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- --------------------- ---------------------
Signature of Requester Date
Requester Comments (Include Disclosure of any Potential Conflict of Interest
Here):
________________________________________________________________________________
PORTFOLIO MANAGER (OR HIS OR HER DESIGNEE) AUTHORIZATION:*
EQUITIES FIXED INCOME
- -------- ------------
- -------------------------------- --------------------------------
D. Fitzpatrick G. Ganter
- --------------------------------- --------------------------------
P. Poitra N. Jones
- --------------------------------- --------------------------------
D. Hanover C. Wagner
- ---------------------------------
M. Wright
PORTFOLIO MANAGER COMMENTS: ____________________________________________
* Authorization is not required by all Portfolio Managers. Only those Portfolio
Managers consulted by the Investment Compliance Manager need to sign this
Preclearance Form. A Portfolio Manager may designate an analyst to sign this
Preclearance Form in his or her absence.
APPROVED BY INVESTMENT COMPLIANCE MANAGER ______________________________________
Signature Date
13
<PAGE>
SEND TO: INVESTMENT COMPLIANCE MANAGER
FIMCO 95 WALL STREET - 23RD FLOOR
NEW YORK, NY 10005
14
<PAGE>
FIRST INVESTORS CODE OF ETHICS
------------------------------
ACKNOWLEDGEMENT FORM
--------------------
I hereby (re) acknowledge receipt of a copy of the First Investors Code of
Ethics and agree that as an "Access Person" I am subject to and will abide by
its provisions and all amendments thereto. I also (re) acknowledge that I have
been informed of and will comply with the reporting provisions contained in the
Code of Ethics and all amendments thereto.
DATED: , 19
------------
Signature:___________________________________
Name:________________________________________
Please Print
Department:__________________________________
Please send to: Investment Compliance Manager
FIMCO
95 Wall Street - 23rd Floor
New York, NY 10005
Rev. 5/8/97
15
